UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________ to
Commission file number: 1-13315
AVIS RENT A CAR, INC.
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE 11-3347585
(State of Incorporation) (I.R.S. Employer Identification No.)
900 Old Country Road
Garden City, New York 11530
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 222-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, par New York Stock Exchange
value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
As of March 22, 1999, the registrant had 31,327,725 shares of Common Stock
outstanding and, at such date, the aggregate market value of the shares of
Common Stock held by non-affiliates of the registrant was approximately
$816,478,833
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1998 are incorporated by reference in Items 5-8 of Part II and certain portions
of the Registrant's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held June 2, 1999 are incorporated by reference in Items
10-13 of Part III of this Annual Report on Form 10-K.
<PAGE>
INDEX
TO FORM 10-K
Page Number
-----------
Part I
Item 1. Business........................................................ 2
Item 2. Properties...................................................... 12
Item 3. Legal Matters................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders............. 13
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters........................................... 13
Item 6. Selected Financial Data......................................... 13
Item 7 Management's Discussion and Analysis of Financial
Condition and Results Of Operations........................... 14
Item 7a. Quantitative and Qualitative Disclosure about
Market Risk................................................... 14
Item 8. Financial Statements and Supplementary Data..................... 14
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.......................................... 14
Part III
Item 10. Directors and Executive Officers of the Registrant.............. 14
Item 11. Executive Compensation.......................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 14
Item 13. Certain Relationships and Related Transactions.................. 14
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K................................................... 15
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PART I
Item 1.
BUSINESS
Unless the context otherwise requires, each reference in this Annual
Report to (i) the "Company" refers to Avis Rent A Car, Inc. and its operating
subsidiaries and predecessors, (ii) "ARACS" refers to Avis Rent A Car System,
Inc., a wholly-owned subsidiary of the Company, (iii) "Cendant" refers to
Cendant Corporation and its subsidiaries, and (iv) the "Franchisor" refers to
Cendant Car Rental, Inc., a wholly-owned subsidiary of Cendant. Statistical
information contained herein with respect to the domestic car rental industry
has been derived from publicly available sources, including trade publications,
which the Company has not independently verified but believes to be reliable.
Cendant owns all of the outstanding equity of the Franchisor which, in
turn, owns the Avis worldwide vehicle rental system (the "Avis System"). In
1997, the Franchisor entered into a 50 year franchise agreement with the Company
granting the Company the right to operate as a franchisee under the Avis System
(the "Master License Agreement"). Cendant, who is the owner of the data
processing and information system (the "Wizard System") used in connection with
the Company's vehicle rental business and which forms a part of the Avis System,
also entered into a 50 year computer services agreement with the Company with
respect to the use of the Wizard System.
The Company is a holding company which, through its operating subsidiary,
ARACS, operates the second largest general use car rental business in the world,
based on total revenue and volume of rental transactions. The Company rents
vehicles to business and leisure travelers through approximately 660 rental
locations in both airport and non-airport (downtown and suburban) markets in the
United States, Canada, Puerto Rico, the U.S. Virgin Islands, Argentina,
Australia and New Zealand. On May 1, 1998, ARACS acquired the assets of the car
rental business of Hayes Leasing Company Inc., ("Hayes"), the then largest
(exclusive of the Company) Avis System franchisee in North America. During 1998,
including Hayes from May 1, 1998, the Company completed over 15 million rental
transactions with a fleet that averaged approximately 206,000 vehicles and
generated total revenue of approximately $2.3 billion, of which approximately
90% was derived from its operations in the United States. On March 19, 1999,
ARACS purchased Rent-A-Car Company, Incorporated ("Car Co."), the third largest
(exclusive of the Company) Avis System franchisee in North America. See Note 21
to the Audited Consolidated Financial Statements.
The Avis brand name is owned by the Franchisor and is licensed for use by
its franchisees, including the Company, which is the largest Avis System
franchisee in the world. As an Avis System franchisee, the Company has entered
into certain arrangements with the Franchisor and its affiliates that require
the Company to make payments to the Franchisor and its affiliates, including
monthly payments under the Master License Agreement consisting of a monthly base
royalty of 3.0% of the Company's gross revenue and a supplemental royalty of
1.0% of gross revenue payable quarterly in arrears (which will increase 0.1% per
year commencing July 30, 1999 and in each of the following four years thereafter
to a maximum of 1.5%). Until July 30, 2002, the supplemental royalty or a
portion thereof may be deferred if the Company does not attain certain financial
targets. The Avis System is comprised of approximately 4,200 rental locations,
including locations at the largest airports and cities in the United States and
approximately 160 other countries and territories, and a fleet of approximately
404,000 vehicles during the peak season, all of which are operated by
franchisees. During 1998, the Company's 510 U.S. rental locations (including the
former Hayes locations), produced approximately 90% of the Avis System's revenue
in the United States, with the balance derived from 370 locations operated by 67
other Avis System franchisees, of which five accounted for approximately 4% of
the Avis System's U.S. revenue. The Company is the sole franchisee of the Avis
System in the international markets in which it operates. The Avis System in
Europe, Africa, part of Asia and the Middle East is operated under franchise by
Avis Europe plc, which is not affiliated with the Company. Management believes
that the strong recognition of the Avis brand name, the breadth of the Avis
System and the sophistication of the Wizard System enable the Company and other
Avis System franchisees to provide consistent quality, pricing and service to
business and leisure customers worldwide.
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The Company has historically targeted its marketing efforts toward
business travelers, who accounted for approximately 64% of the Company's
domestic revenue in 1998. The Company believes that business travelers, many of
whom rent the Company's vehicles pursuant to agreements between the Company and
their employers, have represented an important factor in the growth and
stability of its business. While the Company continues to focus on business
travelers, it intends to leverage its strong airport presence by expanding its
marketing efforts toward the leisure travel market in order to increase its
fleet utilization during non-peak business periods and extend the average length
of its rentals. During 1998, leisure travelers accounted for approximately 36%
of the Company's domestic revenue.
The Company utilizes the Wizard System, which it believes is one of the
most sophisticated information management systems in the car rental industry.
Key functions of the Wizard System include: (i) global reservations processing,
(ii) rental agreement generation and administration and (iii) fleet accounting
and control. The Company has also developed software applications that utilize
the data gathered by the Wizard System and third party reservation systems to
achieve centralized control of its major business operations. These applications
include: (i) a yield management system that is designed to increase profit by
controlling vehicle availability by length of rental and providing decision
support for rate changes, (ii) a competitive rate information system that
monitors industry rate changes by market on a daily basis at different vehicle
rental locations and (iii) a business mix model that analyzes potential profit
contribution data by segment based upon business mix and fleet optimization
recommendations.
On October 17, 1996 the Franchisor (formerly Avis, Inc.) and its
subsidiaries were purchased by Cendant (formerly HFS Incorporated) for
approximately $806.5 million. The purchase price was comprised of approximately
$367.2 million in cash, $100.9 million in indebtedness and $338.4 million of
common stock (the "Acquisition"). The Company is the successor to the car rental
operations previously owned by the Franchisor and its subsidiaries (collectively
referred to as the "Predecessor Companies"). On September 24, 1997, the Company
completed an initial public offering (the "IPO") of its Common Stock at a price
of $17 per share and received proceeds of approximately $359 million. On March
23, 1998, the Company sold 5,000,000 shares of its common stock through a public
offering (the "Offering") and received proceeds of approximately $162 million.
In addition, in the same offering, Cendant reduced its ownership in the Company
by selling 1,000,000 shares of the Company's common stock and retained the
proceeds. Prior to the Offering, Cendant beneficially owned 8,500,000 shares of
Common Stock. Following the Offering, Cendant beneficially owned 7,500,000
shares of Common Stock representing approximately 20.9% of the then outstanding
shares of the Company. Pursuant to an approved stock repurchase program approved
by the Board of Directors on September 1, 1998 and amended on September 23, 1998
authorizing the repurchase of up to 5,000,000 shares of the Company's Common
Stock, the Company has purchased 4,685,800 shares through March 10, 1999,
including 1,300,000 shares repurchased from Cendant on January 15, 1999. As a
result of these re-purchases, Cendant's beneficial ownership of Common Stock was
reduced to 6,200,000 shares or approximately 20%. Cendant is one of the world's
foremost providers of consumer and business services. Cendant operates in four
principal divisions: Travel Services, Real Estate Services, Alliance Marketing
and Other Consumer and Business Services. In Travel Services, Cendant is the
leading franchisor of hotels and rental car agencies worldwide; the largest
provider of vacation exchange services; a leading fleet management company; the
UK's largest private car park operator; and a leading motorist assistance group
in the UK. In Real Estate Services, Cendant is the world's largest franchisor of
residential real estate brokerage offices, a major provider of mortgage services
to consumers and a global leader in corporate employee relocation. In Alliance
Marketing, Cendant provides access to insurance, travel, shopping, auto, and
other services, primarily through direct marketing to customers of its affinity
partners. Cendant's Other Consumer and Business Services include the tax
preparation services franchise, information technology services, car park and
vehicle emergency support and rescue services in the United Kingdom, Cendant
information services, financial products and other consumer related services.
The Company is the successor to the car rental operations previously owned
by the Predecessor Companies. Prior to the Acquisition, the principal
shareholder of the Franchisor and the Predecessor Companies was an Employee
Stock Ownership Plan and the minority shareholder was General Motors ("GM"). The
Company was incorporated in Delaware on October 17, 1996 in connection with the
Acquisition. ARACS was incorporated in Delaware on September 18, 1956. The
principal executive offices of the Company are located at 900 Old Country Road,
Garden City, New York 11530, and its telephone number at that location is (516)
222-3000.
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The First Gray Line Merger
On August 20, 1997, ARACS purchased all of the outstanding capital stock
of The First Gray Line Corporation ("First Gray Line"), the then largest
(exclusive of the Company) Avis System franchisee in North America with 70
locations in Southern California, Nevada and Arizona, including Los Angeles
International Airport, McCarran International Airport (Las Vegas) and San Diego
International Airport. On July 31, 1998, First Gray Line was merged into ARACS.
The Hayes Transaction
On May 1, 1998, ARACS acquired the assets of the car rental business of
Hayes, including the Avis System franchises for the cities of Austin, Fort Worth
and San Antonio, and the counties of Dallas and Tarrant, Texas, for
approximately $86 million in cash, plus the refinancing of fleet related
indebtedness which totaled approximately $136 million for a total purchase price
of approximately $222 million (the "Hayes Transaction"). At that time, Hayes was
the largest (exclusive of the Company) Avis System franchisee in North America,
serving six locations in the state of Texas, including the Dallas/Fort Worth
Airport ("DFW"), San Antonio Airport and Austin Municipal Airport.
Other Asset Acquisitions
During 1998, ARACS purchased the assets of various former licensees for
approximately $15 million as outlined in the following table:
<TABLE>
<CAPTION>
Date Former Licensee Location
---- --------------- --------
<S> <C> <C>
04/03/98 Amelco Leasing Ltd. Halifax, Nova Scotia and the
Provinces of New Brunswick and
Prince Edward Island
05/12/98 Hazqu Car Inc. and Hamilton, Ontario
The Champ Car, Inc.
08/31/98 Rent-All-Mart, Inc. Lima, Ohio
09/14/98 Economy Leasing Corp. White Plains, New York
10/30/98 One Bar, Inc. Butte, Great Falls, Helena, and
Glacier Park, Montana
11/18/98 Northern Rent A Car, Inc. Burlington, South Burlington, and
Montpelier, Vermont
</TABLE>
The Rent-A-Car Company, Incorporated Acquisition
On March 19, 1999, ARACS purchased all of the outstanding capital stock of
Car Co. for approximately $10.2 million. Car Co. was the third largest
(exclusive of the Company) Avis System franchisee in North America with
locations in Delaware, Maryland and Virginia, including Richmond International
Airport.
Strategy
The Company's objective is to improve its profitability through a strategy
that consists of the following key elements:
Capitalizing on Changing Industry Dynamics. The domestic car rental
industry is emerging from a period during which rental rates did not keep pace
with rising fleet and operating costs. Management believes that the recent
restructuring of ownership of the Company's major competitors is leading to an
increased focus on profitability and shareholder return, rather than upon
transaction volume and market share, and to more rational pricing behavior.
During 1998, the domestic rental car industry has benefited from what appears to
be the first sustainable and significant price increases the industry has seen
in many years. Management intends to use the proprietary software applications
of the Avis System, including its
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sophisticated yield management, rate information and business mix modeling
systems, to capitalize upon the improving pricing and profit outlook in the
industry.
Improving Business Mix and Fleet Utilization. Historically, the Company
has capitalized on its strong network of airport rental locations by focusing
its sales and marketing resources principally toward business travelers. While
this has enabled the Company to leverage its overhead costs by capturing a large
share of transaction volume at relatively few locations, fleet utilization
historically has been characterized by peak business travel demand during the
middle of the week and reduced demand during and immediately before and after
the weekend. Management believes that the Company's substantial presence at the
nation's leading airports provides it with the opportunity, without significant
incremental cost, to capitalize on increased air travel by leisure travelers,
who tend to initiate air travel during or close to the weekend. Accordingly,
while continuing to concentrate on its core presence in the business travel
market, the Company has begun to increase its marketing efforts toward the
leisure market in order to improve fleet utilization and extend the average
length of rental. The Company's acquisition of First Gray Line, the Hayes
Transaction and other franchisees have better positioned the Company to improve
its fleet management, primarily in the United States. In addition, the Company
believes that it can further enhance the utilization of its fleet during
non-peak periods by selectively expanding its presence in non-airport markets
through both internal growth and, if appropriate opportunities arise,
acquisitions of other car rental operations including, where feasible, other
Avis System franchises.
Increasing Brand Loyalty Through Target Marketing. Management believes
that the domestic car rental industry is becoming increasingly focused on such
factors as customer service and loyalty. The customer base of the major domestic
car rental companies, including the Company, has become increasingly diverse.
Management plans to utilize the Avis System's proprietary software applications
to analyze the Company's extensive customer database to identify distinguishing
characteristics and preferences of those customers who have been historically
associated with its most profitable rental transactions and to focus its sales
and marketing efforts and service features to attract additional customers with
similar characteristics and preferences. Management believes that this analysis
will enhance the quality of the car rental experience of such customers and
increase their loyalty to the Avis brand.
Capitalizing on Cross-Marketing and Other Synergistic Opportunities with
Cendant. The Company has initiated and is expanding cross-marketing
relationships with Cendant's corporate relocation and resort timeshare exchange
businesses, its lodging franchise systems, which include the Days Inn(R), Howard
Johnson(R) and Ramada(R) brands, its real estate brokerage franchise systems,
including the CENTURY 21(R) and Coldwell Banker(R) brands and its
membership-based consumer services. The Company also has begun to reduce its
costs of purchasing media and other non-fleet goods and services through
arrangements with Cendant.
Rental Operations
General. The Company's fleet includes various categories of automobiles,
most of which are of the current and immediately preceding model years. Rentals
are generally made on a daily, weekend, weekly or monthly basis. Rental charges
in the United States usually are computed on the basis of the duration of the
rental and may include a mileage charge and vary based upon vehicle category,
the day on which the rental begins and local competitive and cost factors.
Additional charges are made for optional refueling services, loss damage waivers
(a waiver of the Company's right to make a renter pay for damage to the
vehicle), concession fee recovery, personal accident insurance, personal effects
protection, optional products such as cellular phones, child seats and ski racks
and, in some instances, additional liability insurance. Most rentals are made
utilizing rate plans under which the customer is responsible for gasoline used
during the rental. The Company also generally offers its customers the
convenience of leaving a rented vehicle at an Avis location in a city other than
the one in which it was rented under Avis's "Rent it Here-Leave it There"
program, although, consistent with industry practices, a drop-off charge or
special intercity rate may be imposed.
United States Operations. At December 31, 1998, the Company operated 510
vehicle rental facilities at airport, near-airport and downtown locations
throughout the United States. During 1998, approximately 85% of the Company's
United States revenue was generated at 197 airports in the United States with
the balance generated at the Company's 313 non-airport locations. The Company's
emphasis on airport traffic has resulted in a particularly strong rental revenue
market position at the major U.S. airports.
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At most airports, the Company is one of five to seven vehicle rental
concessionaires. In general, concession fees for airport locations are based on
a percentage of total concessionable revenues (as determined by each airport
location), subject to a minimum guaranteed amount. Concessions are typically
awarded by airport authorities every three to five years based upon competitive
bids. As a result of airport authority requirements as to the size of the
minimum guaranteed fee, smaller vehicle rental companies generally are not
located at airports. The Company's concession arrangements with the various
airport authorities generally include minimum requirements for vehicle age,
operating hours and employee conduct, and provide for relocation in the event of
future construction and abatement of fees in the event of extended low passenger
volume.
International Operations. The Company operates in Canada, Puerto Rico, the
U.S. Virgin Islands, Argentina, Australia and New Zealand. Its operations in
Canada and Australia were the principal contributors of revenue, accounting for
80% of international revenue in 1998. Revenue from international operations in
1998 was approximately $236 million.
The Company holds a solid market position in each of the countries in
which it operates. In terms of revenue, the operations in Australia and New
Zealand are acknowledged as the largest in their respective markets.
Avis System and Wizard System Services
As a participant in the Avis System, the Company has the benefits of a
variety of services, including (i) comprehensive safety initiatives, including
the "Avis Cares" Safe Driving Program, which offers vehicle safety information,
directional assistance such as satellite guidance, regional maps, weather
reports and specialized equipment for travelers with disabilities; (ii)
standardized system-identity for rental location presentation and uniforms;
(iii) training program and business policies, quality of service standards and
data designed to monitor service commitment levels; (iv)
marketing/advertising/public relations support for national consumer promotions
including Frequent Flyer/Frequent Stay programs and the Avis on-line internet
website; and (v) brand awareness of the Avis System through the familiar "We try
harder" service announcements.
Under a long-term computer services agreement, the Company, like other
Avis System franchisees, is provided with access to the Wizard System, a
reservations, data processing and information management system for the vehicle
rental business. The Wizard System is linked to all major travel networks on six
continents through telephone lines and satellite communications. Direct access
with other computerized reservations systems allows real-time processing for
travel agents and corporate travel departments. Among the principal features of
the Wizard System are:
o an advanced graphical interface reservation system;
o "Roving Rapid Return," which permits customers who are returning
vehicles to obtain completed charge records from radio-connected
"Roving Rapid Return" agents who complete and deliver the charge
record at the vehicle as it is being returned;
o "Preferred Service," an expedited rental service that provides
customers with a Preferred Service rental record printed in their
pre-assigned vehicle and a fast convenient check-out;
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o "Wizard on Wheels," which enables the Avis System locations to
assign vehicles and complete rental agreements while customers are
being transported to the vehicle;
o "Flight Arrival Notification," a flight arrival notification system
that alerts the Company's rental location when flights have arrived
so that vehicles can be assigned and paperwork prepared
automatically;
o "Avis Link," which automatically identifies the fact that a user of
a major credit card is entitled to special rental rates and
conditions, and therefore sharply reduces the number of instances in
which the Company inadvertently fails to give renters the benefits
of negotiated rate arrangements to which they are entitled;
o interactive interfaces through third-party computerized reservation
systems described under "Marketing".
o sophisticated automated ready-line programs that, among other
things, enable rental agents to ensure that a customer who rents a
particular type of vehicle will receive the available vehicle of
that type which has the lowest mileage.
In 1998, the Wizard System enabled the Company to process approximately
30.8 million incoming customer calls, during which customers inquired about
locations, rates and availability and placed or modified reservations. In
addition, millions of inquiries and reservations come to the Company through
travel agents and travel industry partners, such as airlines. Regardless of
where in the world a customer may be located, the Wizard System is designed to
ensure that availability of vehicles, rates and personal profile information is
accurately delivered at the proper time to the customer's rental destination.
Management Information Systems
The Company also uses data supplied from the Wizard System and third-party
reservation systems in certain management information systems proprietary to the
Avis System to maintain centralized control of major business processes such as
fleet acquisition and logistics, sales to corporate accounts and determination
of rental rates. The principal components of the systems employed by the Company
include:
o Fleet Planning Model. The Company has created a comprehensive
decision tool to develop fleet plans and schedules for the
acquisition and disposition of its fleet, along with fleet age, mix,
mileage and cost reports based upon such plans and schedules. This
tool allows management to monitor and change fleet volume and
composition on a daily basis and to develop the lowest cost fleet
alternative based on business levels and available Repurchase
Programs.
o Yield Management. The Company has also created a yield management
system which is designed to optimize profit by providing greater
control of vehicle availability and rate availability changes at its
rental locations. The system monitors and forecasts supply and
demand to insure that the Company is able to capture the combination
of rentals that will produce the highest return over time at each
location. Integrated into this yield management system is a fleet
distribution module that takes into consideration the costs as well
as the potential benefits associated with distributing vehicles to
various rental locations within a geographic area to accommodate
rental demand at these locations. The fleet distribution module
makes specific recommendations for movement of vehicles between the
locations.
o Pricing Decision Support System. Pricing in the vehicle rental
industry is highly competitive and complex. To ensure its ability to
respond to rental rate changes in the marketplace, the Company has
developed sophisticated systems to gather and report competitive
industry rental rate changes each day. The system, using data from
third-party reservation systems as its source of information,
automatically scans rate movements and reports significant changes
to a staff of pricing analysts for evaluation. The system greatly
enhances the Company's ability to gather and respond to rate changes
in its markets.
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o Business Mix Model. The Company has also developed a strategic
planning model to evaluate the discrete segments of its business
relative to each other. The model considers revenues and costs to
determine the potential margin contribution of each discrete
segment. Using data from the Company's financial systems, the Wizard
System and the fleet and revenue management systems, along with
management objectives and targets, the model develops business mix
and fleet optimization recommendations.
o Profitability Model. The Company has developed a sophisticated model
that blends a corporate customer's rentals into a pattern that
determines fleet costs by developing a profile of such corporate
customer's utilization. The model also combines local operations
costs with division overhead expenses with a resulting benchmark
profitability which is used to determine the financial merit of
individual corporate accounts.
o Sales and Marketing System. The Company has also developed a
sophisticated system of on-line data screens which enables its sales
force to analyze key account information of its corporate customers
including historical and current rental activity, revenue and
booking sources, top renting locations, rate usage categories and
customer satisfaction data. This information, which is updated
weekly and captured on a country-by-country basis, is utilized by
management to determine opportunities for revenue growth,
profitability and improvement.
Fleet Acquisition and Management
Fleet Purchasing
The Company participates in a variety of vehicle purchase programs with
major domestic and foreign manufacturers, principally GM, although actual
purchases are made directly through franchised dealers. The average price for
automobiles purchased by the Company in 1998 for its U.S. rental fleet was
approximately $17,895. For the 1998 model year, approximately 80% of new vehicle
purchases were GM vehicles, 9% Chrysler vehicles and 11% Toyota, Nissan, Subaru,
Ford, Mazda and Suzuki vehicles. In model year 1999, approximately 87% of the
Company's fleet in the United States will consist of GM vehicles, approximately
6% will be Chrysler vehicles and the balance will be provided by other
manufacturers. Manufacturers' vehicle purchase programs sometimes provide the
Company with sales incentives for the purchase of certain models, and most of
these programs allow the Company to serve as a drop-ship location for vehicles,
thus enabling the Company to receive a fee from the manufacturers for preparing
newly purchased vehicles for use. There can be no assurance that the Company
will continue to benefit from sales incentives in the future. For its
international operations, vehicles are acquired by way of negotiated
arrangements with local manufacturers and dealers using operating leases or
Repurchase Programs.
Under the terms of the Company's agreement with GM, which expires at the
end of GM's model year 2002, the Company is required to purchase at least
188,000 GM vehicles for model year 1999 and maintain at least 51% GM vehicles in
the Company's U.S. fleet at all times. The GM Repurchase Program is available
for all vehicles purchased pursuant to the agreement.
Impact of Seasonality
The Company's business is subject to seasonal variations in customer
demand, with the summer vacation period representing the peak season for vehicle
rentals. This general seasonal variation in demand, along with more localized
changes in demand at each of the Company's operations, causes the Company to
vary its fleet size over the course of the year. In 1998, the Company's average
monthly fleet size ranged from a low of 187,000 vehicles in January to a high of
231,000 vehicles in July. Fleet utilization, which is based on the number of
hours vehicles are rented compared to the total number of hours vehicles are
available for rental, ranged from 66% in December to 83% in August and averaged
75% for all of 1998.
Vehicle Disposition
The Company's current operating strategy is to hold vehicles for not more
than 12 months with the average fleet age
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being less than six months. Approximately 99% of the vehicles purchased for its
domestic fleet under the model year 1998, including most GM vehicles, were
eligible for Repurchase Programs. These programs impose certain return
conditions, including those related to mileage and repair condition over
specified allowances. Less than 3.4% of the Repurchase Program vehicles
purchased by the Company and returned in 1998 were ineligible for return. Upon
return of a Repurchase Program vehicle, the Company receives a price guaranteed
at the time of purchase and is thus protected from a decrease in prevailing used
car prices in the wholesale market. The Company also disposes of its used
vehicles that are not covered by Repurchase Programs to dealers in the United
States through informal arrangements or at auctions. The future percentage of
Repurchase Program vehicles in the Company's fleet will depend on the
availability of Repurchase Programs, over which the Company has no control.
Maintenance
The Company places a strong emphasis on vehicle maintenance since quick
and proper repairs are critical to fleet utilization. To accomplish this task
the Company employs two full-time National Institute for Automotive Service
Excellence ("ASE") fully certified technician instructors at its headquarters
who have developed a unique training program for the Company's 325 technicians
who operate at 81 repair centers. The technicians also maintain a strong
relationship with General Motors Service Technology Group ("STG"). The Company
uses "state of the art" diagnostic equipment including GM's "Techline" and "Tech
2" diagnostic computers, and is the only vehicle rental fleet to utilize GM's
"Pulsat Satellite Training Network." The Company's technician training
department also prepares their own technical service bulletins that can be
retrieved electronically at all of the Company's repair locations. Approximately
80% of the Company's technicians are ASE certified versus the national average
of 45%.
Marketing
United States
In the United States, approximately 77% of the Company's 1998 rental
transactions were generated by travelers who used the Avis System under
contracts between the Company and their employers or organizations of which they
were members. The Company's corporate sales organization is the principal source
of contracts with corporate accounts. Unaffiliated business travelers are
solicited by direct mail, telesales and advertising campaigns. The Company's
telesales department consists of a centralized staff that handles small
corporate accounts, travel agencies, meetings and conventions, tour operators
and associations. Working with a state-of-the-art system in Tulsa, Oklahoma, the
telesales operation produced revenue for the Avis System that exceeded $325
million in 1998.
The Company solicits contractual arrangements with corporate accounts by
emphasizing the advantages of the Wizard System. It plays a significant part in
securing business of this type because the Wizard System enables the Company to
offer a wide variety of rental rate combinations, special reports and tracking
techniques tailored to the particular needs of each account, access to a
worldwide rental network and assurance of adherence to agreed-upon rates.
The Company's presence in the leisure market is substantially less than
its presence in the business market. Leisure rental activity is important in
enabling the Company to balance the use of its fleet. Typically, business
renters use vehicles from Monday through Thursday, while in most areas of the
United States leisure renters use vehicles primarily over weekends. The
Company's concentration on serving business travelers has led to excess capacity
from Friday through Sunday of most weeks. The Company intends to increase its
leisure market penetration by capitalizing on its strength at airports and by
increased focusing of its marketing efforts toward leisure travelers. An
important part of the Company's leisure marketing strategy is to develop and
maintain contractual arrangements with associations that provide member benefits
to their constituents. In addition to developing arrangements with traditional
organizations, the Company has created innovative programs such as the Affinity
Link Program that cross references bankcard numbers with Avis Worldwide
identification numbers and provides discounts to the cardholders for
participating bankcard programs. The Company also uses coupons in dine-out books
and provides discounts to members of shopping and travel clubs whose members
generated approximately $61 million of leisure business revenue in 1998.
Preferred supplier agreements with select travel agencies and contracts with
tour operators have also succeeded in generating leisure business for the
Company.
9
<PAGE>
Travel agents can make Avis System reservations through all four major
U.S. based global distribution systems and several international based systems.
Users of the U.S. based global distribution systems can obtain access through
these systems to the Company's rental locations, vehicle availability and
applicable rate structures. An automated link between these systems and the
Wizard System gives them the ability to reserve and confirm rentals directly
through these systems. The Company also maintains strong links to the travel
industry. The Company has arrangements with frequent traveler programs of
airlines such as Delta, American, Continental, United and TWA, and of hotels
including the Hilton Corporation, Hyatt Corporation, Best Western, and Starwood
Hotels and Resorts. These arrangements provide various incentives to all program
participants and cooperative marketing opportunities for Avis and the partner.
The Company also has an arrangement with Cendant whereby lodging customers who
are making reservations by telephone will be transferred to the Company if they
desire to rent a vehicle.
International
The Company utilizes a multi-faceted approach to sales and marketing
throughout its global network. In its principal international operations, the
Company employs teams of trained and qualified account executives to negotiate
contracts with major corporate accounts and leisure and travel industry
partners. In addition, the Company utilizes centralized telemarketing and direct
mail initiatives to continuously broaden its customer base. Sales efforts are
designed to secure customer commitment and support customer requirements for
both domestic and international car rental needs.
International sales and marketing activities promote the Company's
reputation for delivering a high quality of service, contract rates, competitive
pricing and customer benefits from special services such as Preferred Service,
Roving Rapid Return and other benefits of the Wizard System.
The Company's international operations maintain close relationships with
the travel industry including participation in several airline frequent flyer
programs, such as those operated by Air Canada, British Airways, Lufthansa,
Ansett Airlines (Australia), and Varig Brazilian Airlines.
Competition
The vehicle rental industry is characterized by intense price and service
competition. In any given location, the Company may encounter competition from
national, regional and local companies, many of which, particularly those owned
by the major automobile manufacturers, have greater financial resources than the
Company. The Company's principal competitors for commercial accounts in the
United States are The Hertz Corporation ("Hertz") and National Car Rental
System, Inc. ("National"). Its principal competitors for unaffiliated business
and leisure travelers in the United States are Budget Rent A Car Corporation,
Hertz and National, and, particularly with regard to leisure travelers, Alamo
and Dollar. In addition, the Company competes with a variety of smaller vehicle
rental companies throughout the country.
Competition in the U.S. vehicle rental business is based primarily upon
price, reliability, ease of rental and return and other elements of customer
service. In addition, competition is influenced strongly by advertising and
marketing. The Company believes it is capable of competing for virtually all
aspects of the vehicle rental business, except the insurance replacement vehicle
business (in which the Company has agreed not to engage in certain markets until
June 13, 2000 pursuant to an agreement relating to the sale of its replacement
vehicle rental business). In part because of the Wizard System, the Company has
been particularly successful in competing for commercial accounts. There have
been many occasions during the history of the vehicle rental industry in which
all of the major vehicle rental companies have been adversely affected by severe
industry-wide rental rate cutting, and the Company has, on such occasions,
lowered its rates in response to such rate cutting. However, during the past two
years, industry-wide rates have increased, reflecting, in part, both increased
costs of owning and maintaining vehicles and the need to generate returns on
invested capital.
Insurance
The Company generally assumes the risk of liability to third parties
arising from vehicle rental services in the United States, Canada, Puerto Rico
and the U.S. Virgin Islands, for up to $1.0 million per occurrence, through a
combination of certificates of self-insurance, insurance coverage provided by
its wholly-owned domestic subsidiary, Pathfinder Insurance
10
<PAGE>
Company ("Pathfinder"), and insurance coverage secured from an unaffiliated
domestic insurance carrier. The Company maintains additional insurance with
unaffiliated carriers in excess of such level up to $200.0 million per
occurrence.
Currently, the Company provides primary automobile insurance for a
majority of its fleet through Pathfinder or through self-insurance. In addition,
the Company provides claims management services from its headquarters in New
York to all of its locations in the United States, Canada, Puerto Rico and the
U.S. Virgin Islands.
The Company insures the risk of liability to third parties in Argentina,
Australia and New Zealand through a combination of unaffiliated carriers and
Global Excess & Reinsurance, Ltd., a wholly-owned subsidiary established under
the laws of Bermuda ("Global Excess"). These carriers provide coverage
supplemental to minimum local requirements.
To further control its insurance costs, the Company reinsures some of its
risks through its wholly-owned subsidiary, Constellation Reinsurance Company
Limited ("Constellation"), an insurance company established under the laws of
Barbados.
Under its standard rental contract, the Company provides its renters
primary automobile liability coverage in most states up to the minimum financial
responsibility limits required by applicable law. In many, the renters'
insurance is primary and in the states of California and Texas Avis does not
provide automobile liability coverage for the renter. Higher limits are provided
to some United States national corporate accounts and the Company makes
available to renters, for an additional daily charge, participation in a group
policy of "Additional Liability Insurance" underwritten by CNA (Continental
Group), which increases renters' liability coverage up to $1.0 million. The
Company also offers renters, for additional daily charges, "Personal Accident
Insurance," which pays medical expenses and accidental death benefits for
accidents during the rental period, and "Personal Effects Protection," which
insures against loss or damage to the renters' personal belongings during the
rental period. Coverages are underwritten by Gulf Insurance Company.
Regulatory Matters
The Company is subject to federal, state and local laws and regulations
including those relating to taxing and licensing of vehicles, franchising,
consumer credit, environmental protection, retail vehicle sales and labor
matters. The principal environmental regulatory requirements applicable to the
Company's operations relate to the ownership or use of tanks for the storage of
petroleum products, such as gasoline, diesel fuel and waste oils; the treatment
or discharge of waste waters; and the generation, storage, transportation and
off-site treatment or disposal of solid or liquid wastes. The Company operates
242 locations at which petroleum products are stored in underground or
aboveground tanks. The Company has instituted an environmental compliance
program designed to ensure that these tanks are in compliance with applicable
technical and operational requirements, including the replacement of underground
steel tanks and periodic testing of underground storage tanks. The Company
believes that the locations where it currently operates are in compliance, in
all material respects, with such regulatory requirements.
The Company may also be subject to requirements related to the remediation
of, or the liability for remediation of, substances that have been released to
the environment at properties owned or operated by the Company or at properties
to which the Company sends substances for treatment or disposal. Such
remediation requirements may be imposed without regard to fault and liability
for environmental remediation can be substantial.
The Company may be eligible for reimbursement or payment of remediation
costs associated with future releases from its regulated underground storage
tanks. Certain of the states in which the Company maintains underground storage
tanks have established funds to assist in the payment of remediation costs for
releases from certain registered underground tanks. Subject to certain
deductibles, the availability of funds, compliance status of the tanks and the
nature of the release, these tank funds may be available to the Company for use
in remediating future releases from its tank systems.
A traditional revenue source for the vehicle rental industry has been the
sale of loss damage waivers, by which rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage incurred
during the rental period. Approximately 3.3% of the Company's revenue during
1998 was generated by the sale of loss damage waivers. The U.S. House of
Representatives has from time to time considered legislation that would regulate
the conditions under which loss damage waivers may be sold by vehicle rental
companies. Approximately 40 states have considered legislation affecting
11
<PAGE>
the loss damage waivers. To date, 24 states have enacted legislation which
requires disclosure to each customer at the time of rental that damage to the
rented vehicle may be covered by the customer's personal automobile insurance
and that loss damage waivers may not be necessary. In addition, in the late
1980's, New York enacted legislation which eliminated the Company's right to
offer loss damage waivers for sale and limited potential customer liability to
$100. Moreover, California and Nevada have capped rates that may be charged for
loss damage waivers to $9.00 and $10.00 per day, respectively. Texas requires
that the rate charged for loss damage waivers be reasonably related to the
direct cost of the repairs. Adoption of national or additional state legislation
affecting or limiting the sale of loss damage waivers could result in the loss
of this revenue source and additional limitations on potential customers
liability could increase the Company's costs.
The Company is also subject to regulation under the insurance statutes,
including insurance holding company statutes, of the jurisdictions in which its
insurance company subsidiaries are domiciled. These regulations vary from state
to state, but generally require insurance holding companies and insurers that
are subsidiaries of insurance holding companies to register and file certain
reports including information concerning their capital structure, ownership,
financial condition and general business operations with the state regulatory
authority, and require prior regulatory agency approval of changes in control of
an insurer and intercorporate transfers of assets within the holding company
structure.
Pathfinder, as a licensed stock insurance company in the State of
Colorado, is subject to the applicable rules and regulations of the Colorado
Insurance Department. The Colorado Insurance Law provides that no person may
acquire control of the Company, and thus indirect control of Pathfinder, unless
it has obtained prior approval of the Colorado Insurance Commissioner for such
acquisition. "Control" is generally presumed to exist through the ownership of
10% or more of the voting securities of a Colorado domestic insurance company or
of any company which controls a Colorado domestic insurance company. Any
purchaser of 10% or more of the outstanding Common Stock would be presumed to
have acquired control of the Company, unless such presumption is rebutted by a
showing that such control does not in fact exist. Accordingly, any purchase of
shares of Common Stock representing 10% or more of the voting power of the
Company would require prior approval by the Colorado Insurance Department.
Global Excess is subject to Bermuda Insurance Laws, which require Global
Excess to file at least a Bermuda statutory financial return in the form
prescribed by Bermuda Insurance Laws. Furthermore, any transfer of shares of
Global Excess by the Company will require the approval of the Bermuda Monetary
Authority, Foreign Exchange Control. In addition, Constellation is required to
file an annual financial return in accordance with Barbados Insurance
Regulations.
The payment of dividends to the Company by its insurance company
subsidiaries, Pathfinder, Global Excess and Constellation, will be restricted by
government regulations in Colorado, Bermuda and Barbados affecting insurance
companies domiciled in those jurisdictions.
Employees
The Company has approximately 19,000 employees worldwide, of whom
approximately 18,000 serve in various capacities at the Company's rental
locations and the balance are engaged in executive, financial, sales and
marketing, and administrative capacities. Approximately 33% of the Company's
employees are represented by various unions under contracts expiring at various
dates. No local union represents more than 3.5% of the Company's employees. The
Company believes its relationships with its employees are good.
Item 2.
Properties
The Company leases or has concessions relating to space at 466 locations
in the United States and 162 locations outside the United States. Of those
locations, 197 in the United States and 64 outside the United States are at
airports. Typically, an airport receives a percentage of vehicle rental
revenues, with a guaranteed minimum. Because there is a limit to the number of
vehicle rental locations in an airport, vehicle rental companies frequently bid
for the available locations, usually on the basis of the size of the guaranteed
minimums. The Company and other vehicle lease firms also lease parking space at
or near airports and at their other vehicle rental locations.
12
<PAGE>
The Company leases almost all of its vehicle rental facilities. The
airport facilities are located on airport property owned by airport authorities
or located near the airport in locations convenient for bus transport of
customers to and from the airport. The Company's airport locations serve as the
administrative headquarters for the Company's non-airport locations nearest to
those airport locations and, as a general rule, each airport location includes
vehicle storage areas, a vehicle maintenance facility, a car wash, a refueling
station and rental and return facilities. The Company's non-airport facilities
generally consist of a limited parking facility and a rental and return counter
and are generally subject to long-term leases with renewal options. Certain of
these leases also have purchase options at the end of their terms.
The Company's principal offices are in Garden City, New York where the
Company leases approximately 250,000 square feet under a sublease agreement with
WizCom which, by exercising renewal options, can be extended through the year
2015. The Avis reservation system is operated by Cendant from leased space in
Tulsa and Drumright, Oklahoma where the Company subleases approximately 26,000
square feet from Cendant pursuant to a sublease agreement for certain marketing
activities. The Company maintains terminal network facilities which it uses in
connection with the Wizard System in Garden City and Tulsa. The Company also
leases approximately 58,000 square feet in a building owned by Cendant in
Virginia Beach, Virginia that serves as a satellite administrative and
reservation facility.
Item 3.
Legal Matters
From time to time, the Company is subject to routine litigation incidental
to its business. The Company maintains insurance policies that cover most of the
actions brought against the Company. The Company is not currently involved in
any legal proceeding which it believes would have a material adverse effect upon
its financial condition or results of operations.
Item 4.
Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year ended December 31, 1998.
PART II
Item 5.
Market for the Registrant's Common Equity and Related Stockholder Matters
Reference is made to Page 14("Market Information") of the Registrant's
1998 Annual Report to Shareholders filed as Exhibit 13 hereto, which information
is incorporated herein by reference.
Item 6.
Selected Financial Data
Reference is made to Page 5 of the Registrant's 1998 Annual Report to
shareholders filed as Exhibit 13 hereto, which information is incorporated
herein by reference.
13
<PAGE>
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Registrant's 1998 Annual Report to
Shareholders filed as Exhibit 13 hereto, which information is incorporated
herein by reference.
Item 7a.
Quantitative and Qualitative Disclosures about Market Risk
Reference is made to page 11 of the Registrants' 1998 Annual Report to
Shareholders filed as Exhibit 13, hereto, which information is incorporated
herein by reference.
Item 8.
Financial Statements and Supplementary Data
The following Consolidated Financial Statements and Notes to the
Consolidated Financial Statements (which includes the Supplementary Data) are
incorporated herein by reference to the Registrant's Annual Report to
Shareholders for the year ended December 31, 1998 filed as Exhibit 13 hereto:
Avis Rent A Car, Inc.
Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Statements of Financial Position at December 31, 1997 and 1998
Consolidated Statements of Operations for the periods January 1, 1996 to
October 16, 1996 and October 17, 1996 (Date of Acquisition) to December 31,
1996 and for the years ended December 31, 1997 and 1998.
Consolidated Statements of Stockholders' Equity for the periods January 1,
1996 to October 16, 1996 and October 17, 1996 (Date of Acquisition) to
December 31, 1996 and for the years ended December 31, 1997 and 1998.
Consolidated Statements of Cash Flows for the periods January 1, 1996 to
October 16, 1996 and October 17, 1996 (Date of Acquisition) to December 31,
1996 and for the years ended December 31, 1997 and 1998.
Notes to the Consolidated Financial Statements
Item 9.
Changes in and Disagreements with Accountants On Accounting and Financial
Disclosure
None
PART III
The information required by Items 10, 11, 12 and 13 of Part III of Form
10-K will be set forth in the Proxy Statement of the Company relating to the
1999 Annual Meeting of Stockholders, which information is incorporated herein by
reference.
14
<PAGE>
PART IV
Item 14.
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Index to Financial Statements-see Consolidated Financial
Statements and Notes to the Consolidated Financial Statements
of the Company listed in Item 8 and set forth in the
Registrant's 1998 Annual Report to Shareholders included as
Exhibit 13 hereto.
(2) Index to Financial Statement Schedules-Valuation and
Qualifying Accounts.
(3) Exhibits-(See Index to Exhibits included elsewhere herein).
All Schedules, except those set forth above have been omitted since the
information required to be submitted has been included in the Consolidated
Financial Statements or notes thereto or has been omitted as not applicable or
not required.
(b) The Registrant filed a report on form 8-K on December 23, 1998 which
disclosed in Item 5 that R. Craig Hoenshell, former Chairman and
Chief Executive Officer of the Registrant, would step down from
these offices on December 31, 1998 and that Martin L. Edelman, a
director of the Registrant, would act as Chariman until a successor
was appointed by the Board of Directors.
15
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
Avis Rent A Car, Inc.
Garden City, NY
We have audited the consolidated statements of financial position of Avis
Rent A Car, Inc. and subsidiaries (successors to Rental Car System Holdings,
Inc. and subsidiaries, Avis International, Ltd. and subsidiaries, Avis
Enterprises, Inc. and subsidiaries, Pathfinder Insurance Company and Global
Excess & Reinsurance, Ltd., all previously wholly-owned by Avis, Inc.,
collectively the "Predecessor Companies") (collectively referred to as "Avis
Rent A Car, Inc." or the "Company") as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1998 and 1997 and for the period October
17, 1996 (Date of Acquisition) to December 31, 1996 and as to the Predecessor
Companies the related consolidated statements of operations, stockholders'
equity and cash flows for the period January 1, 1996 to October 16, 1996, and
have issued our report thereon dated January 25, 1999 (March 19, 1999 as to Note
21); such financial statements and report are included in your 1998 Annual
Report to Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedule of the Company and the Predecessor
Companies, listed in Item 14. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
New York, New York
January 25, 1999
(March 19,1999 as to Note 21)
16
<PAGE>
AVIS RENT A CAR, INC.
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Additions
---------------------
Balance at Charged to Other Balance at
Beginning Costs and Additions, End of
Description of Period Expenses Net(a) Deductions Period
- ----------- --------- -------- ------ ---------- ------
<S> <C> <C> <C> <C> <C>
January 1, 1996 to October 16, 1996:
Allowance for doubtful
accounts_accounts receivable ..... $ 2,746 $ 1,238 $ 794 $ 3,190
Accumulated amortization_goodwill .. $ 37,471 $ 3,782 $ 41,253
Public liability and property
damage and other insurance
liabilities ...................... $194,677 $ 74,109 $ 56,315 $212,471
October 17, 1996 (Date of
Acquisition) to
December 31, 1996:
Allowance for doubtful
accounts_accounts receivable ..... $ 227 $ 227
Accumulated amortization_goodwill .. $ 1,026 $ 1,026
Public liability and property
damage and other insurance
liabilities ...................... $212,471 $ 17,355 $ 16,041 $213,785
Year ended December 31, 1997:
Allowance for doubtful
accounts_accounts receivable ..... $ 227 $ 3,208 $ 1,149 $ 2,286
Accumulated amortization_goodwill .. $ 1,026 $ 6,860 $ 7,886
Public liability and property
damage and other insurance
liabilities ...................... $213,785 $ 96,663 $16,670 $ 71,089 $256,029
Year ended December 31, 1998:
Allowance for doubtful accounts -
accounts receivable .............. $ 2,286 $ 2,961 $ 1,897 $ 3,350
Accumulated amortization-goodwill .. $ 7,886 $ 11,854 $ 19,740
Public liability and property
damage and other insurance
liabilities ...................... $256,029 $ 93,038 $ 79,858 $269,209
</TABLE>
- -----------
a) Includes additions of $16,838 relating to the acquisition of The First
Gray Line Corporation on August 20, 1997.
17
<PAGE>
SIGNATURES
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on March , 1999.
AVIS RENT A CAR, INC.
(Registrant)
By: /s/ Kevin M. Sheehan
------------------------------------
Name: Kevin M. Sheehan
Title: Executive Vice President
and Chief Financial Officer
18
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ MARTIN L. EDELMAN
- -------------------------------
Martin L. Edelman Interim Chairman of the Board and Director March 22, 1999
(Principal Executive Officer)
/s/ F. ROBERT SALERNO
- -------------------------------
F. Robert Salerno President, Chief Operating Officer and March 22, 1999
Director
/s/ KEVIN M. SHEEHAN
- -------------------------------
Kevin M. Sheehan Executive Vice President and Chief March 22, 1999
Financial Officer
(Principal Financial Officer)
/s/ TIMOTHY M. SHANLEY
- -------------------------------
Timothy M. Shanley Vice President and Controller March 22, 1999
(Principal Accounting Officer)
/s/ STEPHEN P. HOLMES
- -------------------------------
Stephen P. Holmes Director March 22, 1999
/s/ MICHAEL P. MONACO
- -------------------------------
Michael P. Monaco Director March 22, 1999
/s/ W. ALUN CATHCART
- -------------------------------
W. Alun Cathcart Director March 22, 1999
/s/ LEONARD S. COLEMAN, Jr.
- -------------------------------
Leonard S. Coleman, Jr. Director March 22, 1999
/s/ DEBORAH L. HARMON
- -------------------------------
Deborah L. Harmon Director March 22, 1999
/s/ R. CRAIG HOENSHELL
- -------------------------------
R. Craig Hoenshell Director March 22, 1999
/s/ MICHAEL J. KENNEDY
- -------------------------------
Michael J. Kennedy Director March 22, 1999
/s/ MICHAEL L. TARNOPOL
- -------------------------------
Michael L. Tarnopol Director March 22, 1999
</TABLE>
19
<PAGE>
ITEM 14(a)(3)
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
3. Certificate of Incorporation and By-Laws
3.1 Amended and Restated Certificate of Incorporation of the Registrant***
3.2 Amended and Restated By-Laws of the Registrant***
4. Instruments defining the rights of securityholders, including
indentures
4.1 Form of Certificate of Common Stock**
4.2 Amended and Restated Base Indenture, dated as of July 30, 1997,
between AESOP Funding II L.L.C., as issuer, and Harris Trust and
Savings Bank, as trustee.**
4.3 Series 1997-1 Supplement, dated as of July 30, 1997 between AESOP
Funding II L.L.C. and Harris Trust and Savings Bank, as trustee, to
the Amended and Restated Base Indenture, dated as of July 30, 1997,
between AESOP Funding II and the Trustee.**
4.4 Series 1997-2 Supplement, dated as of July 30, 1997 between AESOP
Funding II L.L.C. and Harris Trust and Savings Bank, as trustee, to
the Amended and Restated Base Indenture, dated as of July 30, 1997,
between AESOP Funding II and the Trustee.**
4.5 Loan Agreement, dated as of July 30, 1997, between AESOP Leasing L.P.,
as borrower, and AESOP Funding II L.L.C., as lender.**
4.6 Loan Agreement, dated as of July 30, 1997, among AESOP Leasing L.P.,
as borrower, PV Holding Corp., as a permitted nominee of the borrower,
Quartx Fleet Management, Inc., as a permitted nominee of the
borrower, and AESOP Funding II L.L.C., as lender.**
4.7 Loan Agreement, dated as of July 30, 1997, between AESOP Leasing
Corp. II, as borrower, AESOP Leasing Corp., as permitted nominee of
the borrower, and AESOP Funding II L.L.C., as lender.**
4.8 Master Motor Vehicle Finance Lease Agreement, dated as of July 30,
1997, by and among AESOP Leasing L.P., as lessor, Avis Rent A Car
System, Inc., as lessee, individually and as the Administrator and
Avis Rent A Car, Inc., as guarantor.**
4.9 Master Motor Vehicle Operating Lease Agreement, dated as of July 30,
1997, by and among AESOP Leasing L.P., as lessor, Avis Rent A Car
System, Inc., individually and as the Administrator, certain Eligible
Rental Car Companies, as lessees, and Avis Rent A Car, Inc., as
guarantor.**
4.10 Master Motor Vehicle Operating Lease Agreement, dated as of July 30,
1997, by and among AESOP Leasing Corp. II, as lessor, Avis Rent A Car
System, Inc., individually and as the Administrator, certain Eligible
Rental Car Companies, as lessees and Avis Rent A Car, Inc., as
guarantor.**
4.11 Credit Agreement, dated as of July 30, 1997, among Avis Rent A Car,
Inc., Avis Rent A Car System, Inc., The Chase Manhattan Bank, as
administrative agent, Lehman Commercial Paper, Inc., as syndication
agent and the other lenders party thereto (the "Credit Agreement").**
4.12 Guarantee, dated as of July 30, 1997, in favor of The Chase Manhattan
Bank, as administrative agent for the lenders from time to time
parties to the Credit Agreement.**
4.13 Security Agreement, dated as of July 30, 1997, in favor of The Chase
Manhattan Bank, as administrative agent for the lenders from time to
time parties to the Credit Agreement.**
4.14 Pledge Agreement, dated as of July 30, 1997, in favor of The Chase
Manhattan Bank, as administrative agent for the lenders from time to
time parties to the Credit Agreement.**
4.15 Supplemental Indenture No. 1, dated as of July 31, 1998, to Amended
and Restated Base Indenture, dated as of July 30, 1997 between AESOP
Funding II L.L.C. as issuer and Harris Trust and Savings Bank, as
trustee.*
20
<PAGE>
4.16 Amendment No. 1, dated as of July 31, 1998, to Loan Agreement, dated
as of July 30, 1997, between AESOP Leasing L.P., as borrower, and
AESOP Funding II L.L.C., as lender.*
4.17 Amendment No. 1, dated as of July 31, 1998, to Loan Agreement, dated
as of July 30, 1997, among AESOP Leasing L.P., as borrower, PV
Holding Corp., as a permitted nominee of the borrower, Quartz Fleet
Management, Inc., as a permitted nominee of the borrower, and AESOP
Funding II L.L.C. as lender.*
4.18 Amendment No. 1, dated as of July 31, 1998, to Master Motor Vehicle
Finance Lease Agreement, dated as of July 30, 1997, among AESOP
Leasing L.P., as lessor, Avis Rent A Car Systems, Inc., as lessee
individually and as Administrator, and Avis Rent A Car, Inc., as
guarantor.*
4.19 Amended and Restated Loan Agreement, dated as of September 15, 1998
among AESOP Leasing L.P., as borrower, PV Holding Corp., as a
permitted nominee of the borrower, Quartz Fleet Management, Inc., as
a permitted nominee of the borrower, and AESOP Funding II L.L.C.*
4.20 Amended and Restated Master Motor Vehicle Operating Lease Agreement,
dated as of September 15, 1998 among AESOP Leasing L.P., as lessor,
Avis Rent A Car System, Inc., individually and as the Administrator,
certain Eligible Rental Car Companies, as lessees, and Avis Rent A
Car, Inc., as guarantor.*
4.21 Supplemental Indenture No. 2, dated as of September 15, 1998, to
Amended and Restated Base Indenture, dated as of July 30, 1997,
between AESOP Funding II L.L.C., as issuer, and Harris Trust and
Savings Bank, as trustee.*
4.22 Series 1998-1 Supplement, dated as of February 26, 1998 between AESOP
Funding II L.L.C., as issuer, and Harris Trust and Savings Bank, as
trustee and Series 1998-1 agent, to the Amended and Restated Base
Indenture, dated as of July 30, 1997, between AESOP Funding II L.L.C.,
as issuer, and Harris Trust and Savings Bank, as trustee.*
10. Material Contracts
10.1 Form of Registration Rights Agreement**
10.2 Separation Agreement between Cendant Car Rental, Inc. and Avis Rent A
Car, Inc.**
10.3 Master License Agreement among Cendant Car Rental, Inc., Avis Rent A
Car System, Inc. and Wizard Co., Inc.**
10.4 Computer Services Agreement between Avis Rent A Car System, Inc. and
WizCom International, Ltd.**
10.5 Reservation Services Agreement between Cendant Incorporated and Avis
Rent A Car System, Inc.**
10.6 Form of Tax Disaffiliation Agreement among Cendant Incorporated,
Cendant Car Rental, Inc. and Avis Rent A Car, Inc.**
10.7 Form of Lease Agreement by and between WizCom International, Ltd., as
lessor, and Avis Rent A Car System, Inc. as lessee (Virginia Beach,
Virginia).**
10.8 Form of Sublease Agreement by and between WizCom International, Ltd.,
as sublessor, and Avis Rent A Car System, Inc., as sublessee (Tulsa,
Oklahoma).**
10.9 Form of Sublease Agreement by and between WizCom International, Ltd.,
as sublessor, and Avis Rent A Car System, Inc., as sublessee (Garden
City, New York).**
10.10 Wizard Note Assignment, Assumption and Release Agreement, dated as of
July 30, 1997 by and between Wizard Co., Inc., Avis Rent A Car System,
Inc. and Reserve Claims Management Co.**
10.11 Termination Services Agreement, among Harris Trust and Savings Bank,
AESOP Funding II L.L.C., Avis Rent A Car System, Inc., and Wizcom
International, Ltd.**
10.13 Call Transfer Agreement, dated March 4, 1997, between HFS Incorporated
and Avis Rent A Car System, Inc.**
10.14 Form of Amended and Restated Employment Agreement, dated as of
February 9, 1996, between HFS Car Rental, Inc. and F. Robert Salerno**
10.15 Retention Agreement, dated as of January 1, 1999, between Avis Rent A
Car, Inc. and F. Robert Salerno*
10.16 Retention Agreement, dated as of January 1, 1999, between Avis Rent A
Car, Inc. and Kevin M. Sheehan*
21
<PAGE>
10.17 Avis Rent A Car, Inc. 1997 Stock Option Plan**
10.18 Avis Rent A Car System, Inc. Nonqualified Deferred Compensation Plan*
13 Annual Report to Shareholders for the year ended December 31, 1998*
20 Proxy Statement of the Registrant for Annual Meeting of
Stockholders-June 15, 1999****
21 Subsidiaries of the Registrant**
23.1 Consent of Deloitte & Touche LLP, Independent Auditors of the
Company to be incorporated by reference to the Registrant's
Registration Statement Nos. 333-59693, 333-59695 and 333-63269 on Form
S-8 from the 1998 Annual Report filed herewith*
27 Financial Data Schedule
27.1 Financial Data Schedule-December 31, 1996***
27.2 Financial Data Schedule-December 31, 1997***
27.3 Financial Data Schedule-December 31, 1998*
- -----------
* Filed herewith.
** Incorporated by reference to the Registrant's Registration Statement on
Form S-1, 333-28609.
*** Incorporated by reference to the Registrant's Registration Statement on
Form S-1, 333-46737.
**** To be filed.
22
EXECUTION COPY
AESOP FUNDING II L.L.C.,
as Issuer
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee
------------------------------
SUPPLEMENTAL INDENTURE No. 1
Dated as of July 31, 1998
to
AMENDED AND RESTATED
BASE INDENTURE
Dated as of July 30, 1997
------------------------------
Rental Car Asset Backed Notes
(Issuable in Series)
<PAGE>
TABLE OF CONTENTS
SECTION 1: CERTAIN DEFINED TERMS; AMENDMENT OF SCHEDULE 1
Section 1.2 Amendment of Schedule I 1
SECTION 2: REPRESENTATIONS AND WARRANTIES 2
Section 2.1 Affirmation of Representations and Warranties 2
Section 2.2 Limited Liability Company and Governmental Authorization 2
Section 2.3 Binding Effect 2
Section 2.4 No Consent 2
SECTION 3: CONDITIONS PRECEDENT 3
SECTION 4: MISCELLANEOUS 5
Section 4.1 Counterpart Originals 5
Section 4.2 Trustee Consent. 5
Section 4.3 Ratification and Effect 5
Section 4.4 Table of Contents, Headings, etc. 5
Section 4.5 Choice of Law 5
<PAGE>
SUPPLEMENTAL INDENTURE No. 1, dated as of July 31, 1998
("Supplemental Indenture"), to AMENDED AND RESTATED BASE INDENTURE, dated as of
July 30, 1997, between AESOP FUNDING II L.L.C., a special purpose, limited
liability company established under the laws of Delaware, as issuer ("AFC-II"),
and HARRIS TRUST AND SAVINGS BANK, an Illinois banking corporation, as trustee
(in such capacity, the "Trustee").
W I T N E S S E T H:
WHEREAS, AFC-II and Harris Trust and Savings Bank are parties to an
Amended and Restated Base Indenture, dated as of July 30, 1997 (the
"Indenture"); and
WHEREAS, AFC-II desires to amend and supplement certain terms
defined in the Definitions List attached as Schedule I to the Indenture; and
WHEREAS, AFC-II has duly authorized the execution and
delivery of this Supplemental Indenture; and
WHEREAS, Harris Trust and Savings Bank, as trustee under the
Indenture, is willing to enter into this Supplemental Indenture;
NOW, THEREFORE, for and in consideration of the premises, and other
good and valuable consideration the receipt and sufficiency of which are
acknowledged, it is mutually covenanted and agreed, that the Indenture be
amended and supplemented as follows:
SECTION 1: CERTAIN DEFINED TERMS; AMENDMENT OF SCHEDULE 1
Section 1.1 Certain Defined Terms.
Certain capitalized terms used herein (including in the preamble and
the recitals hereto) shall have the meanings assigned to such terms in the
amended Definitions List attached hereto as Schedule I (the "Definitions List"),
as such Definitions List may be hereafter further amended or modified from time
to time in accordance with the provisions of the Indenture.
Section 1.2 Amendment of Schedule I.
From and after the date of this Supplemental Indenture, which shall
not be a date prior to the satisfaction of each of the conditions to
effectiveness of this Supplemental Indenture set forth in Section 3 hereof, any
reference in the Indenture or any other Related Document to the "Definitions
List" or "Schedule I to the Indenture" shall mean Schedule I to this
Supplemental Indenture, and any reference to a capitalized term shall have the
meanings assigned to such term therein, unless the context otherwise requires.
SECTION 2: REPRESENTATIONS AND WARRANTIES
<PAGE>
In order to induce the Trustee to agree to this Supplemental
Indenture, AFC-II hereby represents and warrants, as follows, for the benefit of
the Trustee and the Secured Parties, as of date hereof:
Section 2.1 Affirmation of Representations and Warranties.
Each representation and warranty of AFC-II set forth in the
Indenture and in each other Related Document to which it is a party, is true and
correct as of the date of this Supplemental Indenture in all material respects
as though such representation or warranty were being made on and as of the date
hereof and is hereby deemed repeated as though fully set forth herein.
Section 2.2 Limited Liability Company and Governmental
Authorization.
The execution, delivery and performance by AFC-II of this
Supplemental Indenture (a) is within AFC-II's limited liability company powers,
has been duly authorized by all necessary limited liability company action, (b)
requires no action by or in respect of, or filing with, any governmental body,
agency or official which has not been obtained and (c) does not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the certificate of formation or limited liability company agreement of AFC-II or
of any law or governmental regulation, rule, contract, agreement, judgment,
injunction, order, decree or other instrument binding upon AFC-II or any of its
Assets or result in the creation or imposition of any Lien on any Asset of
AFC-II, except for Liens created by the Indenture or the other Related
Documents. This Supplemental Indenture has been executed and delivered by a duly
authorized officer of AFC-II.
Section 2.3 Binding Effect.
This Supplemental Indenture is a legal, valid and binding obligation
of AFC-II enforceable against AFC-II in accordance with its terms (except as
such enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws affecting
creditors' rights generally or by general equitable principles, whether
considered in a proceeding at law or in equity and by an implied covenant of
good faith and fair dealing).
Section 2.4 No Consent.
No consent, action by or in respect of, approval or other
authorization of, or registration, declaration or filing with, any Governmental
Authority or other Person is required for the valid execution and delivery of
this Supplemental Indenture or for the performance of any of AFC-II's
obligations hereunder other than such consents, approvals, authorizations,
registrations, declarations or filings as were obtained by AFC-II prior to the
Initial Closing Date, or the date hereof, as applicable.
SECTION 3: CONDITIONS PRECEDENT
<PAGE>
This Supplemental Indenture shall become effective and shall be
binding on each of the parties hereto upon the satisfaction or due waiver of
each of the following conditions precedent:
1. The consent of the Requisite Investors shall have been
given and a copy thereof provided to the Trustee.
2. The Rating Agency Consent Condition shall have been
satisfied.
3. The CP Rating Agency Condition shall have been satisfied.
4. The Trustee shall have received evidence satisfactory to it
that each Manager of AFC-II has approved this Supplement.
5. The Trustee shall have received an Officer's Certificate of
AFC-II dated as of the date hereof to the effect that (i) no
Amortization Event, Aggregate Asset Amount Deficiency,
Enhancement Agreement Event of Default, if applicable,
Enhancement Deficiency, Loan Event of Default, AESOP I
Operating Lease Vehicle Deficiency, Manufacturer Event of
Default, Lease Event of Default, Potential Amortization Event,
Potential Enhancement Agreement Event of Default, Potential
Loan Event of Default, Potential Lease Event of Default, or
Potential Manufacturer Event of Default is continuing or will
occur as a result of the execution and delivery of this
Supplemental Indenture, and (ii) the execution and delivery of
this Supplemental Indenture will not result in any breach of
any of the terms, conditions or provisions of or constitute a
default under any indenture, mortgage, deed of trust or other
agreement or instrument, including, without limitation, any
Related Document, to which AFC-II is a party or by which it or
its property is bound or any order of any court or
administrative agency entered in any suit, action or other
judicial or administrative proceeding to which AFC-II is a
party or by which it or its property may be bound or to which
it or its property may be subject;
6. The Trustee shall have received an Opinion of Counsel,
subject to the assumptions and qualifications stated therein,
and in a form substantially acceptable to the Trustee, dated
the date hereof, substantially to the effect that:
(i) all conditions precedent provided for in the
Indenture with respect to the execution and delivery of this
Supplemental Indenture have been complied with in all material
respects;
<PAGE>
(ii) (w) AFC-II is duly organized under the jurisdiction
of its formation and has the power and authority to execute
and deliver this Supplemental Indenture, (x) AESOP Leasing is
duly organized under the jurisdiction of its formation and has
the power and authority to execute and deliver each of the
Amendment Documents (as defined in Clause 7, below) to which
it is a party, (y) each of Original AESOP, PVHC and Quartx is
duly incorporated under the jurisdiction of its incorporation
and has the corporate power and authority to execute and
deliver each of the Amendment Documents to which it is a
party, and (z) each of ARC and ARAC is duly incorporated in
the jurisdiction of its incorporation and, as of the date of
this Supplemental Indenture, has the corporate power and
authority to execute and deliver each of the Amendment
Documents to which it is a party;
(iii) this Supplemental Indenture, and each of the other
Amendment Documents (as defined herein) to which AFC-II, AESOP
Leasing, Original AESOP, PVHC, Quartx, ARAC or ARC is a party
have been duly authorized, executed and delivered by AFC-II,
AESOP Leasing, Original AESOP, PVHC, Quartx, ARAC or ARC, as
the case may be;
(iv) this Supplemental Indenture, and each of the other
Amendment Documents to which AFC-II, AESOP Leasing, Original
AESOP, PVHC, Quartx, ARAC or ARC is a party are legal, valid
and binding agreements of AFC-II, AESOP Leasing, Original
AESOP, PVHC, Quartx, ARAC or ARC, as the case may be,
enforceable in accordance with their respective terms, subject
to bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting creditors' rights generally and
to general principles of equity; and
(v) such other matters as the Trustee may reasonably
require;
7. The Trustee shall have received duly executed counterparts
of each of: (i) the Amendment No. 1 to AESOP I Operating Lease
Loan Agreement, dated as of July 31, 1998, (ii) the Amendment
No. 1 to AESOP I Finance Lease Loan Agreement, dated as of
July 31, 1998 and (iii) the Amendment No. 1 to AESOP I Finance
Lease, dated as of July 31, 1998 (collectively, the "Amendment
Documents"), each duly executed by the respective parties
thereto;
8. The Trustee shall have received such other documents,
instruments, certifications, agreements or other items as the
Trustee may reasonably require.
<PAGE>
SECTION 4: MISCELLANEOUS
Section 4.1 Counterpart Originals.
The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together shall
represent the same agreement.
Section 4.2 Trustee Consent.
By its execution hereof, the Trustee consents to the execution and
delivery by the respective parties thereto of the Amendment Documents (as
defined above).
Section 4.3 Ratification and Effect.
The Base Indenture, as amended and supplemented by this Supplemental
Indenture No. 1, is in all respects ratified and confirmed, shall continue to be
in full force and effect, and shall be read, taken and construed as one and the
same instrument.
Section 4.4 Table of Contents, Headings, etc.
The table of contents and headings of the Sections of this
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part hereof, and shall in no way modify or restrict any
of the terms or provisions hereof.
Section 4.5 Choice of Law.
THIS SUPPLEMENTAL INDENTURE SHALL BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).
<PAGE>
IN WITNESS WHEREOF, the Trustee and AFC-II have caused this
Supplemental Indenture No. 1 to be duly executed by their respective duly
authorized officers as of the day and year first written above.
AESOP FUNDING II L.L.C.,
as Issuer
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
EXECUTION COPY
AMENDMENT No. 1
dated as of July 31, 1998
to
LOAN AGREEMENT
dated as of July 30, 1997
between
AESOP LEASING L.P.,
as Borrower,
and
AESOP FUNDING II L.L.C.,
as Lender
<PAGE>
AMENDMENT No. 1 to LOAN AGREEMENT
THIS AMENDMENT No. 1, dated as of July 31, 1998 (the "Amendment"),
is entered into between AESOP LEASING L.P., a Delaware limited partnership
("AESOP Leasing" or the "Borrower"), and AESOP FUNDING II L.L.C., a Delaware
limited liability company ("AFC-II" or the "Lender").
BACKGROUND
AESOP Leasing purchases and finances Program Vehicles (such
capitalized term, together with all other capitalized terms used herein, shall
have the meaning assigned thereto in Section 1.1) and Non-Program Vehicles that
it leases to ARAC for use in its daily vehicle rental businesses pursuant to the
AESOP I Finance Lease, and, pursuant to the Loan Agreement, dated as of July 30,
1997, between AESOP Leasing and the Lender (the "Loan Agreement") AESOP Leasing
obtains financing for such Vehicles from the Lender.
AESOP Leasing now wishes to amend Loan Agreement as set forth
herein, and the Lender is willing to enter into this Amendment and to make Loans
to AESOP Leasing on the terms and conditions of the Loan Agreement as amended by
this Amendment No. 1.
Accordingly, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and subject to the terms and conditions hereof,
the parties hereto agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
SECTION 1.1. Certain Definitions. As used in this Amendment and
unless the context requires a different meaning, capitalized terms not otherwise
defined herein shall have the meanings assigned to such terms in the Definitions
List attached as Schedule I to the Supplemental Indenture dated the date hereof
to the Base Indenture, dated as of July 30, 1997 (such agreement as it may be
further amended, supplemented, restated or otherwise modified from time to time
in accordance with its terms, the "Base Indenture"), between AFC-II and Harris
Trust and Savings Bank, as trustee (the "Trustee"), as in effect on the date
hereof and as such Schedule I may be further amended or modified from time to
time in accordance with the terms of the Base Indenture (the "Definitions
List").
SECTION 1.2. Accounting and Financial Determinations; Cross
References, Headings; Interpretation. The provisions regarding accounting and
financial determinations, cross references and headings and other principles of
construction set forth in Sections 1.2, 1.3 and 1.4 of the Loan Agreement shall
be deemed to apply to this Amendment as if set forth herein.
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES.
To induce the Lender to enter into this Amendment, AESOP Leasing
represents and warrants to the Lender, as of the date hereof that:
SECTION 2.1. Restatement of Representations. Each representation
made by AESOP Leasing in the Loan Agreement shall be deemed incorporated herein
and restated hereby and each such representation is true and correct on the date
hereof.
SECTION 2.2. Authorization; Enforceability. AESOP Leasing has the
power and has taken all necessary action to authorize it to execute, deliver and
perform this Amendment. This Amendment has been duly executed and delivered by
AESOP Leasing and is a legal, valid and binding obligation of AESOP Leasing,
enforceable in accordance with its terms.
SECTION 2.3. Compliance. The execution, delivery and performance by
AESOP Leasing of this Amendment do not and will not (i) require any consent,
approval, authorization or registration not already obtained or effected, (ii)
violate any applicable law with respect to AESOP Leasing, which violation could
result in a Material Adverse Effect, (iii) conflict with, result in a breach of,
or constitute a default under the certificate of limited partnership or limited
partnership agreement of AESOP Leasing, or under any indenture, agreement, or
other instrument to which AESOP Leasing is a party or by which its properties
may be bound, or (iv) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or hereafter acquired by
AESOP Leasing, except Permitted Liens.
SECTION 3. AMENDMENT TO AFFIRMATIVE COVENANTS.
SECTION 3.1. Non-Program Vehicle Report. Section 9.22 of the Loan
Agreement is hereby deleted in its entirety and the following substituted
therefor:
On or before the second Determination Date immediately following
June 30 and December 31 of each calendar year, AESOP Leasing shall
cause a firm of nationally recognized independent public accountants
(who may also render other services to AESOP Leasing, ARC or ARAC
and who is acceptable to the Rating Agencies and each Enhancement
Provider) to furnish a report to the Lender, the Trustee, each
Enhancement Provider and the Rating Agencies to the effect that they
have performed certain agreed upon procedures (which shall be
acceptable to each Enhancement Provider) with respect to the
calculation of (i) the Disposition Proceeds obtained from the sale
or other disposition of all Non-Program Vehicles (other than
Casualties and Redesignated Program Vehicles) sold or otherwise
disposed of during each Related Month in such period, (ii) the
respective Net Book Values of such
<PAGE>
Non-Program Vehicles, and (iii) the Non-Program Fleet Market Value
and compared such calculations with the corresponding amounts set
forth in the Monthly Certificates prepared pursuant to Section
4.1(b) of the Indenture and that on the basis of such comparison
such accountants are of the opinion that such amounts are in
agreement, except for such exceptions as they believe to be
immaterial and such other exceptions as shall be set forth in such
report. With respect to the calculations described in the foregoing
clause (iii), such report shall make the comparison described with
respect to the Non-Program Fleet Market Value only as of the last
Determination Date in the period as to which the report is made. On
or before the second Determination Date immediately following March
31 and September 30 of each calendar year, AESOP Leasing shall
furnish an Officer's Certificate of AESOP Leasing to the Lender, the
Trustee, each Enhancement Provider and the Rating Agencies to the
effect that the officer making such certification has compared or
caused to be compared the calculations described in clauses (i) and
(ii) above with the corresponding amounts set forth in the Monthly
Certificates prepared pursuant to Section 4.1(b) of the Indenture,
and has compared or caused to be compared the calculation described
in clause (iii) above with respect to the corresponding amount set
forth in the Monthly Certificate prepared pursuant to Section 4.1(b)
of the Indenture as of the last Determination Date in the period as
to which the Officer's Certificate is given, and that on the basis
of such comparison such officer is of the opinion that such amounts
are in agreement, except for such exceptions as shall be set forth
in such Officer's Certificate.
SECTION 4. CONDITIONS TO EFFECTIVENESS
SECTION 4.1. The effectiveness of this Amendment shall be subject to
the prior or concurrent (i) delivery of each of the following documents to the
Lender and, if not otherwise required to be delivered to the Trustee by any
other Related Document, to the Trustee and any Enhancement Provider, as
applicable (in form and substance satisfactory to the Lender and, if applicable,
the Trustee and any Enhancement Provider) and (ii) satisfaction of the following
conditions, as applicable:
(a) Certificate of Limited Partnership; Certificates of
Incorporation. The certificate of limited partnership of AESOP Leasing, duly
certified by the Secretary of State of the State of Delaware, together with a
copy of the limited partnership agreement of AESOP Leasing, duly certified by
the Secretary or an Assistant Secretary of Original AESOP. The certificate of
incorporation of Original AESOP, duly certified by the Secretary of State of the
State of Delaware.
(b) Resolutions. Copies of resolutions of the Board of Directors of
Original AESOP, authorizing or ratifying the execution, delivery and performance
of this Amendment, duly certified by the Secretary or an Assistant Secretary of
Original AESOP, as the case may be;
<PAGE>
(c) Consents, etc. Certified copies of all documents evidencing any
necessary limited partnership or corporate action, consents and governmental
approvals (if any) with respect to this Agreement;
(d) Incumbency and Signatures. A certificate of the Secretary or an
Assistant Secretary of Original AESOP certifying the names of the individual or
individuals authorized to sign this Agreement, together with a sample of the
true signature of each such individual (the Lender may conclusively rely on each
such certificate until formally advised by a like certificate of any changes
therein);
(e) Opinions of Counsel. The opinion of Skadden, Arps, Slate,
Meagher & Flom LLP, special counsel to AESOP Leasing and AFC-II, as to
enforceability and certain corporate matters, addressed to the Lender, the
Trustee, the Placement Agents, the Rating Agencies and the Administrative Agent,
on behalf of the Liquidity Lenders;
(f) Good Standing Certificates. Certificates of good standing for
each of AESOP Leasing and Original AESOP in the jurisdiction of its formation
and the jurisdiction of its principal place of business;
(g) Indenture. Supplemental Indenture No. 1, dated the date hereof,
duly executed by the Lender and the Trustee, and all conditions to the
effectiveness thereof shall have been satisfied in all respects;
(h) Other. Such other documents as the Trustee or the Lender may
reasonably request.
SECTION 5. MISCELLANEOUS
SECTION 5.1. Governing Law. THIS AMENDMENT SHALL BE A CONTRACT MADE
UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW).
SECTION 5.2. Effect of Amendment. Except to the extent amended
hereby, the Loan Agreement is in all respects ratified and confirmed and in full
force and effect. From and after the date hereof, all references in the Related
Documents to the AESOP I Finance Lease Loan Agreement shall mean such agreement
as amended and restated hereby, unless the context otherwise requires.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment by
their respective duly authorized officers as of the day and year first above
written.
AESOP LEASING L.P.
By: AESOP LEASING CORP.,
its general partner
By:
------------------------------------
Name:
Title:
AESOP FUNDING II L.L.C.
By:
------------------------------------
Name:
Title:
EXECUTION COPY
AMENDMENT No. 1
dated as of July 31, 1998
to
LOAN AGREEMENT
dated as of July 30, 1997
among
AESOP LEASING L.P.,
as Borrower,
PV HOLDING CORP.,
as a Permitted Nominee of the Borrower,
QUARTX FLEET MANAGEMENT, INC.
as a Permitted Nominee of the Borrower,
and
AESOP FUNDING II L.L.C.,
as Lender
<PAGE>
AMENDMENT No. 1 to LOAN AGREEMENT
THIS AMENDMENT No. 1, dated as of July 31, 1998 (the "Amendment"),
is entered into among AESOP LEASING L.P., a Delaware limited partnership ("AESOP
Leasing" or the "Borrower"), PV HOLDING CORP., a Delaware corporation ("PVHC"),
as a Permitted Nominee of the Borrower, QUARTX FLEET MANAGEMENT, INC., a
Delaware corporation ("Quartx"), as a Permitted Nominee of the Borrower, and
AESOP FUNDING II L.L.C., a Delaware limited liability company ("AFC-II" or the
"Lender").
BACKGROUND
AESOP Leasing purchases and finances Program Vehicles (such
capitalized term, together with all other capitalized terms used herein, shall
have the meaning assigned thereto in Section 1.1) and Non-Program Vehicles that
it leases to ARAC and certain other Eligible Rental Car Companies for use in
their respective daily vehicle rental businesses pursuant to the AESOP I
Operating Lease, and, pursuant to the Loan Agreement, dated as of July 30, 1997,
among AESOP Leasing, PVHC, Quartx and the Lender (the "Loan Agreement") AESOP
Leasing obtained financing for such Vehicles from the Lender.
AESOP Leasing now wishes to amend Loan Agreement as set forth
herein, and the Lender is willing to enter into this Amendment and to make Loans
to AESOP Leasing on the terms and conditions of the Loan Agreement as amended by
this Amendment No. 1.
Accordingly, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and subject to the terms and conditions hereof,
the parties hereto agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
SECTION 1.1. Certain Definitions. As used in this Amendment and
unless the context requires a different meaning, capitalized terms not otherwise
defined herein shall have the meanings assigned to such terms in the Definitions
List attached as Schedule I to the Supplemental Indenture dated the date hereof
to the Base Indenture, dated as of July 30, 1997 (such agreement as it may be
further amended, supplemented, restated or otherwise modified from time to time
in accordance with its terms, the "Base Indenture"), between AFC-II and Harris
Trust and Savings Bank, as trustee (the "Trustee"), as in effect on the date
hereof and as such Schedule I may be further amended or modified from time to
time in accordance with the terms of the Base Indenture (the "Definitions
List").
SECTION 1.2. Accounting and Financial Determinations; Cross
References, Headings; Interpretation. The provisions regarding accounting and
financial determinations,
<PAGE>
cross references and headings and other principles of construction set forth in
Sections 1.2, 1.3 and 1.4 of the Loan Agreement shall be deemed to apply to this
Amendment as if set forth herein.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
To induce the Lender to enter into this Amendment, AESOP Leasing
represents and warrants to the Lender as to itself, and each of PVHC and Quartx
represents and warrants to the Lender as to itself, as of the date hereof that:
SECTION 2.1. Restatement of Representations. Each representation
made by each of AESOP Leasing, PVHC and Quartx hereby shall be deemed
incorporated herein and restated hereby and each such representation is true and
correct as if made on the date hereof.
SECTION 2.2. Authorization; Enforceability. Each of AESOP Leasing,
PVHC and Quartx has the power and has taken all necessary action to authorize it
to execute, deliver and perform this Amendment. This Amendment has been duly
executed and delivered by each of AESOP Leasing, PVHC and Quartx and is a legal,
valid and binding obligation of such party, enforceable in accordance with its
terms.
SECTION 2.3. Compliance. The execution, delivery and performance by
each of AESOP Leasing, PVHC and Quartx of this Amendment do not and will not (i)
require any consent, approval, authorization or registration not already
obtained or effected, (ii) violate any applicable law with respect to AESOP
Leasing, PVHC or Quartx, as the case may be, which violation could result in a
Material Adverse Effect, (iii) conflict with, result in a breach of, or
constitute a default under the certificate of limited partnership or limited
partnership agreement of AESOP Leasing or under the certificate of
incorporation, as amended, or by-laws of each of PVHC and Quartx, or under any
indenture, agreement, or other instrument to which any of AESOP Leasing, PVHC or
Quartx is a party or by which its properties may be bound, or (iv) result in or
require the creation or imposition of any Lien upon or with respect to any
property now owned or hereafter acquired by any of AESOP Leasing, PVHC or Quartx
except Permitted Liens.
SECTION 3. AMENDMENT TO AFFIRMATIVE COVENANTS.
SECTION 3.1. Non-Program Vehicle Report. Section 9.22 of the Loan
Agreement is hereby deleted in its entirety and the following substituted
therefor:
On or before the second Determination Date immediately following
June 30 and December 31 of each calendar year, AESOP Leasing shall
cause a firm of nationally recognized independent public accountants
(who may also render other services to AESOP Leasing, ARC or ARAC
and who is acceptable to the Rating Agencies and each Enhancement
Provider) to furnish a report to the Lender, the Trustee, each
Enhancement Provider and the Rating Agencies
<PAGE>
to the effect that they have performed certain agreed upon
procedures (which shall be acceptable to each Enhancement Provider)
with respect to the calculation of (i) the Disposition Proceeds
obtained from the sale or other disposition of all Non-Program
Vehicles (other than Casualties and Redesignated Program Vehicles)
sold or otherwise disposed of during each Related Month in such
period, (ii) the respective Net Book Values of such Non-Program
Vehicles, and (iii) the Non-Program Fleet Market Value and compared
such calculations with the corresponding amounts set forth in the
Monthly Certificates prepared pursuant to Section 4.1(b) of the
Indenture and that on the basis of such comparison such accountants
are of the opinion that such amounts are in agreement, except for
such exceptions as they believe to be immaterial and such other
exceptions as shall be set forth in such report. With respect to the
calculations described in the foregoing clause (iii), such report
shall make the comparison described with respect to the Non-Program
Fleet Market Value only as of the last Determination Date in the
period as to which the report is made. On or before the second
Determination Date immediately following March 31 and September 30
of each calendar year, AESOP Leasing shall furnish an Officer's
Certificate of AESOP Leasing to the Lender, the Trustee, each
Enhancement Provider and the Rating Agencies to the effect that the
officer making such certification has compared or caused to be
compared the calculations described in clauses (i) and (ii) above
with the corresponding amounts set forth in the Monthly Certificates
prepared pursuant to Section 4.1(b) of the Indenture, and has
compared or caused to be compared the calculation described in
clause (iii) above with respect to the corresponding amount set
forth in the Monthly Certificate prepared pursuant to Section 4.1(b)
of the Indenture as of the last Determination Date in the period as
to which the Officer's Certificate is given, and that on the basis
of such comparison such officer is of the opinion that such amounts
are in agreement, except for such exceptions as shall be set forth
in such Officer's Certificate.
SECTION 4. CONDITIONS TO EFFECTIVENESS
SECTION 4.1. The effectiveness of this Amendment shall be subject to
the prior or concurrent (i) delivery of each of the following documents to the
Lender and, if not otherwise required to be delivered to the Trustee by any
other Related Document, to the Trustee and any Enhancement Provider, as
applicable (in form and substance satisfactory to the Lender and, if applicable,
the Trustee and any Enhancement Provider) and (ii) satisfaction of the following
conditions, as applicable:
(a) Certificate of Limited Partnership; Certificates of
Incorporation. The certificate of limited partnership of AESOP Leasing, duly
certified by the Secretary of State of the State of Delaware, together with a
copy of the limited partnership agreement of AESOP Leasing, duly certified by
the Secretary or an Assistant Secretary of Original AESOP. The certificate of
incorporation of each of Original AESOP, PVHC and Quartx, duly certified by the
Secretary of State of the State of Delaware, together with a copy of
<PAGE>
the by-laws of each of Original AESOP, PVHC and Quartx, duly certified by the
Secretary or an Assistant Secretary of Original AESOP, PVHC and Quartx, as the
case may be.
(b) Resolutions. Copies of resolutions of the Board of Directors of
each of Original AESOP, PVHC and Quartx, authorizing or ratifying the execution,
delivery and performance of this Amendment, duly certified by the Secretary or
an Assistant Secretary of Original AESOP, PVHC or Quartx, as the case may be;
(c) Consents, etc. Certified copies of all documents evidencing any
necessary limited partnership or corporate action, consents and governmental
approvals (if any) with respect to this Agreement;
(d) Incumbency and Signatures. A certificate of the Secretary or an
Assistant Secretary of each of Original AESOP, PVHC and Quartx certifying the
names of the individual or individuals authorized to sign this Agreement and the
other Related Documents to be executed by it, together with a sample of the true
signature of each such individual (the Lender may conclusively rely on each such
certificate until formally advised by a like certificate of any changes
therein);
(e) Opinions of Counsel. The opinion of Skadden, Arps, Slate,
Meagher & Flom LLP, special counsel to AESOP Leasing and AFC-II, as to
enforceability and certain corporate matters, addressed to the Lender, the
Trustee, the Placement Agents, the Rating Agencies and the Administrative Agent,
on behalf of the Liquidity Lenders;
(f) Good Standing Certificates. Certificates of good standing for
each of AESOP Leasing, Original AESOP, PVHC and Quartx in the jurisdiction of
its formation and the jurisdiction of its principal place of business;
(g) Indenture. Supplemental Indenture No. 1, dated the date hereof,
duly executed by the Lender and the Trustee, and all conditions to the
effectiveness thereof shall have been satisfied in all respects;
(h) Other. Such other documents as the Trustee or the Lender may
reasonably request.
<PAGE>
SECTION 5. MISCELLANEOUS
SECTION 5.1. Governing Law. THIS AMENDMENT SHALL BE A CONTRACT MADE
UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW).
SECTION 5.2. Effect of Amendment. Except to the extent amended
hereby, the Loan Agreement is in all respects ratified and confirmed and in full
force and effect. From and after the date hereof, all references in the Related
Documents to the AESOP I Operating Lease Loan Agreement shall mean such
agreement as amended and restated hereby, unless the context otherwise requires.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment by
their respective duly authorized officers as of the day and year first above
written.
AESOP LEASING L.P.
By: AESOP LEASING CORP.,
its general partner
By:
------------------------------------
Name:
Title:
PV HOLDING CORP.
By:
------------------------------------
Name:
Title:
QUARTX FLEET MANAGEMENT, INC.
By:
------------------------------------
Name:
Title:
AESOP FUNDING II L.L.C.
By:
------------------------------------
Name:
Title:
EXECUTION COPY
AMENDMENT No. 1
dated as of July 31, 1998
to
MASTER MOTOR VEHICLE FINANCE LEASE AGREEMENT
dated as of July 30, 1997
among
AESOP LEASING L.P.,
as Lessor,
AVIS RENT A CAR SYSTEM, INC.,
as Lessee and as Administrator,
and
AVIS RENT A CAR, INC.,
as Guarantor
<PAGE>
AMENDMENT No. 1 TO MASTER MOTOR VEHICLE
FINANCE LEASE AGREEMENT
This Amendment No. 1 to Master Motor Vehicle Finance Lease Agreement
(this "Amendment"), dated as of July 31, 1998, is made by and among AESOP
LEASING L.P., a Delaware limited partnership (the "Lessor"), AVIS RENT A CAR
SYSTEM, INC., a Delaware corporation ("ARAC" or the "Lessee"), individually and
as the Administrator, and AVIS RENT A CAR, INC., a Delaware corporation, as
guarantor (the "Guarantor").
W I T N E S S E T H:
WHEREAS, the Lessor (such capitalized term, together with all other
capitalized terms used and not otherwise defined herein, shall have the meaning
assigned thereto in Section 1), ARAC and the Guarantor are parties to a Master
Motor Vehicle Finance Lease Agreement, dated as of July 30, 1997 (the "AESOP I
Finance Lease"), pursuant to which the Lessor has financed the purchase of
Program Vehicles and Non-Program Vehicles of one or more Manufacturers with
proceeds provided to the Lessor by the Lender pursuant to the AESOP I Finance
Lease Loan Agreement and other available funds; and
WHEREAS, the Guarantor has guaranteed the obligations of the Lessee
under the AESOP I Finance Lease, pursuant to Section 26 of the AESOP I Finance
Lease; and
WHEREAS, the Lessor now wishes to amend certain provisions of the
AESOP I Finance Lease;
NOW, THEREFORE, in consideration of the foregoing premises, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree that the AESOP I Finance Lease is
hereby amended as follows:
SECTION 1. DEFINITIONS.
Unless otherwise specified herein, capitalized terms used herein
(including the preamble and recitals hereto) shall have the meanings ascribed to
such terms in the Definitions List attached as Schedule I to the Base Indenture,
dated as of July 30, 1997 (the "Base Indenture"), between AFC-II, as Issuer, and
Harris Trust and Savings Bank, as Trustee, as such Definitions List has been
amended by the Supplemental Indenture and as such Schedule I may from time to
time be further amended in accordance with the Base Indenture.
<PAGE>
SECTION 2. AMENDED PROVISION.
General Agreement. Section 2(b)(ii) of the AESOP I Finance Lease is
hereby amended to add, prior to the semicolon as the end thereof, the following
clause:
, including, without limitation, any and all Franchisee Vehicles
identified in an Officer's Certificate delivered pursuant to Section
2.1(iii) hereof, and all Certificates of Title with respect thereto,
irrespective of whether the Franchisee Vehicle Leasing Condition
shall have been satisfied with respect to such Franchisee Vehicles
(provided, that this clause is intended to confirm the pledge and
grant made hereby with respect to any Franchisee Vehicles and shall
not be construed as a waiver or limitation of the Franchisee Vehicle
Leasing Condition)
SECTION 3. THE GUARANTY.
Affirmation of Guaranty. The Guarantor hereby affirms and ratifies
its guaranty as set forth in the AESOP I Finance Lease and confirms that the
liabilities and obligations of the Guarantor thereunder will be absolute and
unconditional under all circumstances and that the execution of this Amendment
shall not in any way affect such liabilities and obligations.
SECTION 4. CERTAIN REPRESENTATIONS AND WARRANTIES.
The Lessee represents and warrants to the Lessor and the Trustee as
to itself, and the Guarantor represents and warrants to the Lessor and the
Trustee as to itself and as to the Lessee, that as of the date hereof:
4.1 Restatement of Representations. Each of the Guarantor and the
Lessee hereby restates each representation made by it in the AESOP I Finance
Lease and confirms that each such representation is true and correct as if made
on the date hereof.
4.2 Authorization; Enforceability. Each of the Guarantor and the
Lessee has the corporate power and has taken all necessary corporate action to
authorize it to execute, deliver and perform this Amendment. This Amendment has
been duly executed and delivered by the Guarantor and the Lessee and is a legal,
valid and binding obligation of the Guarantor and the Lessee, enforceable in
accordance with its terms.
4.3 Compliance. The execution, delivery and performance by the
Guarantor and the Lessee of this Amendment do not and will not (i) require any
consent, approval, authorization or registration not already obtained or
effected, (ii) violate any applicable law with respect to the Guarantor or the
Lessee which violation could result in a Material Adverse Effect, (iii) conflict
with, result in a breach of, or constitute a default under the certificate or
articles of incorporation or by-laws, as amended, of the Guarantor or the
Lessee, (iv) conflict with, result in a breach of, or constitute a default under
any indenture, agreement, or other instrument to which the
<PAGE>
Guarantor or the Lessee is a party or by which its properties may be bound which
conflict, breach or default could result in a Material Adverse Effect, or (v)
result in or require the creation or imposition of any Lien upon or with respect
to any property now owned or hereafter acquired by such Lessee except Permitted
Encumbrances.
SECTION 5. MISCELLANEOUS.
5.1 Governing Law. THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW).
5.2 Headings. Section headings used in this Amendment are for
convenience of reference only and shall not affect the construction of this
Amendment.
5.3 Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which counterparts, when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
one and the same Amendment.
5.4 Effective Date. This Amendment shall become effective on the
date hereof. Except as expressly amended hereby, the AESOP I Finance Lease is in
all respects ratified and confirmed and in full force and effect. From and after
the date hereof, all references in the Related Documents to the AESOP I Finance
Lease shall mean such agreement as amended and restated hereby, unless the
context otherwise requires.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement or
caused it to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
LESSOR:
AESOP LEASING L.P.
By: AESOP LEASING CORP.,
its general partner
By:
LESSEE AND ADMINISTRATOR:
AVIS RENT A CAR SYSTEM, INC.
By:
GUARANTOR:
AVIS RENT A CAR, INC.
By:
[AMENDED AND RESTATED AESOP I
Operating Lease Loan Agreement]
AMENDED AND RESTATED
LOAN AGREEMENT
dated as of September 15, 1998
among
AESOP LEASING L.P.,
as Borrower,
PV HOLDING CORP.,
as a Permitted Nominee of the Borrower,
QUARTX FLEET MANAGEMENT, INC.
as a Permitted Nominee of the Borrower,
and
AESOP FUNDING II L.L.C.,
as Lender
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. CERTAIN DEFINITIONS 2
SECTION 1.1. Certain Definitions 2
SECTION 1.2. Accounting and Financial Determinations 2
SECTION 1.3. Cross References; Headings 3
SECTION 1.4. Interpretation 3
SECTION 2. LOAN COMMITMENT OF THE LENDER 3
SECTION 2.1. Loan Commitment 3
SECTION 2.2. Certain Waivers 4
SECTION 2.3. Conditions 4
SECTION 2.4. Use of Proceeds 4
SECTION 3. LOAN NOTE; LOAN PROCEDURE; RECORDKEEPING 4
SECTION 3.1. Loan Note 4
SECTION 3.2. Loan Procedure 4
SECTION 3.3. Recordkeeping 5
SECTION 4. INTEREST 5
SECTION 4.1. Interest Rate on Loans 5
SECTION 4.2. Supplemental Interest 5
SECTION 4.3. Loan Interest Payment Dates 6
SECTION 4.4. Setting of Rates 6
SECTION 4.5. Carrying Charges 6
SECTION 5. REPAYMENT OF LOAN PRINCIPAL AMOUNT 6
SECTION 5.1. Mandatory Repayment of Monthly Loan Principal
Amount of Loans 6
SECTION 5.2. Voluntary Prepayments of Loan Principal Amount 8
SECTION 6. MAKING OF PAYMENTS 9
SECTION 6.1. Making of Payments 9
SECTION 6.2. Due Date Extension 9
SECTION 6.3. Application of Sale Proceeds 9
SECTION 6.4. Payment Deficits 10
SECTION 7. LOAN COLLATERAL SECURITY 10
SECTION 7.1. Grant of Security Interest 10
SECTION 7.2. Certificates of Title 12
SECTION 7.3. Release of AESOP I Operating Lease Loan Collateral 12
<PAGE>
SECTION 7.4. Change of Location or Name 13
SECTION 7.5. Deliveries; Further Assurances 14
SECTION 7.6. [RESERVED]. 14
SECTION 7.7. [RESERVED]. 14
SECTION 7.8. AESOP I Segregated Account 14
SECTION 8. REPRESENTATIONS AND WARRANTIES 15
SECTION 8.1. Organization; Ownership; Power; Qualification 15
SECTION 8.2. Authorization; Enforceability 15
SECTION 8.3. Compliance 15
SECTION 8.4. [RESERVED] 16
SECTION 8.5. Litigation 16
SECTION 8.6. Liens 16
SECTION 8.7. Employee Benefit Plans 16
SECTION 8.8. Investment Company Act 16
SECTION 8.9. Regulations T, U and X 17
SECTION 8.10. Proceeds 17
SECTION 8.11. Business Locations; Trade Names 17
SECTION 8.12. Taxes 17
SECTION 8.13. Governmental Authorizations 17
SECTION 8.14. Compliance with Laws 18
SECTION 8.15. Eligible Vehicles 18
SECTION 8.16. Manufacturer Programs 18
SECTION 8.17. Absence of Default 18
SECTION 8.18. No Security Interest; Title to Assets 18
SECTION 8.19. Accuracy of Information 19
SECTION 9. AFFIRMATIVE COVENANTS 19
SECTION 9.1. Existence; Foreign Qualification 19
SECTION 9.2. Books, Records and Inspections 20
SECTION 9.3. Insurance 20
SECTION 9.4. Manufacturer Programs 20
SECTION 9.5. Reporting Requirements 21
SECTION 9.6. Payment of Taxes; Removal of Liens 22
SECTION 9.7. Business 22
SECTION 9.8. Maintenance of the Vehicles 22
SECTION 9.9. Maintenance of Separate Existence 22
SECTION 9.10. Manufacturer Payments; Sales Proceeds 26
SECTION 9.11. Maintenance of Properties 26
SECTION 9.12. Verification of Title 26
SECTION 9.13. Legal Reserve Fund 27
SECTION 9.14. Delivery of Information 27
SECTION 9.15. Master Exchange Agreement 27
SECTION 9.16. Vehicles 27
SECTION 9.17. Assignments 27
SECTION 9.18. Notation of Liens 27
SECTION 9.19. [RESERVED]. 28
SECTION 9.20. [RESERVED]. 28
<PAGE>
SECTION 9.21. [RESERVED] 28
SECTION 9.22. Non-Program Vehicle Report. 28
SECTION 9.23. Sale of Non-Program Vehicles Returned to AESOP
Leasing 28
SECTION 10. NEGATIVE COVENANTS 29
SECTION 10.1. Liens. 29
SECTION 10.2. Other Indebtedness 29
SECTION 10.3. Mergers, Consolidations 29
SECTION 10.4. Sales of Assets 29
SECTION 10.5. Acquisition of Assets 29
SECTION 10.6. Dividends, Officers' Compensation, etc 29
SECTION 10.7. Organizational Documents 29
SECTION 10.8. Investments 30
SECTION 10.9. Regulations T, U and X 30
SECTION 10.10. Other Agreements 30
SECTION 10.11. Use of Vehicles 30
SECTION 10.12. Use of Proceeds 30
SECTION 10.13. Limitations on the Acquisition or Redesignation
of Certain Vehicles 30
SECTION 10.14. Maximum Vehicle Age 30
SECTION 10.15. Transactions Pursuant to the Master Exchange
Agreement 31
SECTION 10.16. Master Exchange Agreement 31
SECTION 11. CONDITIONS 31
SECTION 11.1. Initial Loans Pursuant to Amended and Restated
Agreement 31
SECTION 11.2. All Loans 33
SECTION 11.3. All Transactions Under Master Exchange Agreement 34
SECTION 12. LOAN EVENTS OF DEFAULT AND THEIR EFFECT 34
SECTION 12.1. AESOP I Operating Lease Loan Events of Default 34
SECTION 12.1.1. Non-Payment of Loans 34
SECTION 12.1.2. Non-Payment of Other Amounts 35
SECTION 12.1.3. Bankruptcy, Insolvency, etc 35
SECTION 12.1.4. Non-Compliance With Provisions 35
SECTION 12.1.5. Warranties and Representations 35
SECTION 12.1.6. Lease Events of Default 35
SECTION 12.1.7. Loan Events of Default Under Other Loan Agreements 35
SECTION 12.1.8. Judgments 35
SECTION 12.2. Effect of AESOP I Operating Lease Loan Event of
Default or Liquidation Event of Default 36
SECTION 12.3. Rights of Trustee Upon Liquidation Event of
Default and Non-Performance of Certain Covenants 36
SECTION 12.4. Application of Proceeds 37
SECTION 12.5. Additional Agreements of AESOP Leasing 37
SECTION 13. GENERAL 38
<PAGE>
SECTION 13.1. Waiver; Amendments 38
SECTION 13.2. Confirmations 38
SECTION 13.3. Notices 38
SECTION 13.4. Taxes 38
SECTION 13.5. Indemnification 39
SECTION 13.6. Bankruptcy Petition 39
SECTION 13.7. Submission to Jurisdiction 40
SECTION 13.8. Governing Law 41
SECTION 13.9. Jury Trial 41
SECTION 13.10. Successors and Assigns 41
SECTION 13.11. Tax Treatment of Loans 42
SECTION 13.12. No Recourse 42
SECTION 13.13. Effect of Amendment 42
EXHIBITS AND SCHEDULES
EXHIBIT A FORM OF LOAN NOTE
EXHIBIT B-1 FORM OF LOAN REQUEST
EXHIBIT B-2 FORM OF LOAN REQUEST RESPONSE
EXHIBIT C FORM OF PAYMENT DEFICIT NOTICE
SCHEDULE 8.11 BUSINESS LOCATIONS, TRADE NAMES
<PAGE>
AMENDED AND RESTATED
LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT, dated as of September 15,
1998 (the "Agreement"), is entered into among AESOP LEASING L.P., a Delaware
limited partnership ("AESOP Leasing" or the "Borrower"), PV HOLDING CORP., a
Delaware corporation ("PVHC"), as a Permitted Nominee of the Borrower, QUARTX
FLEET MANAGEMENT, INC., a Delaware corporation ("Quartx"), as a Permitted
Nominee of the Borrower, and AESOP FUNDING II L.L.C., a Delaware limited
liability company ("AFC-II" or the "Lender").
BACKGROUND
AESOP Leasing purchases and finances Program Vehicles (such
capitalized term, together with all other capitalized terms used herein, shall
have the meaning assigned thereto in Section 1.1) and Non-Program Vehicles that
it leases to ARAC and certain other Eligible Rental Car Companies for use in
their respective daily vehicle rental businesses pursuant to the AESOP I
Operating Lease, and, pursuant to the Loan Agreement, dated as of July 30, 1997,
among AESOP Leasing, PVHC, Quartx and the Lender, as amended by Amendment No. 1
thereto dated as of July 31, 1998 (the "Original Loan Agreement") AESOP Leasing
obtained financing for such Vehicles from the Lender.
AESOP Leasing has appointed PVHC pursuant to the PVHC/BONY Nominee
Agreement and Quartx pursuant to the Quartx Nominee Agreement to act as nominee
titleholders for the sole purpose of holding registered title to certain
Vehicles acquired by AESOP Leasing.
AESOP Leasing now wishes to amend and restate the Original Loan
Agreement to permit it to engage, from time to time, in exchanges of property
pursuant to Section 1031 of the Code, and, in furtherance thereof, to enter into
a Master Exchange Agreement, of even date herewith, with Bank One, Texas,
National Association, as Intermediary, and otherwise to take such actions in
connection with such exchanges as are necessary and appropriate in order to
comply with Section 1031 of the Code and the regulations thereunder.
The Lender is willing to enter into this Amended and Restated Loan
Agreement and to make Loans to AESOP Leasing on the terms and conditions set
forth herein.
The Lender will utilize the proceeds of one or more Series of Notes
issued from time to time pursuant to the Indenture to make Loans to (i) AESOP
Leasing hereunder, (ii) to AESOP Leasing under the AESOP I Finance Lease Loan
Agreement and (iii) to AESOP Leasing II under the AESOP II Loan Agreement, in
each case to the extent Vehicles eligible to be financed hereunder and
thereunder are available for financing and,
<PAGE>
in certain other circumstances, to pay amortizing Notes. In addition, the Lender
will utilize the proceeds of certain capital contributions from time to time to
make Loans to AESOP Leasing hereunder to the extent Vehicles eligible to be
financed hereunder are available for financing and, in certain other
circumstances, to pay amortizing Notes. In connection with the foregoing, the
Lender has assigned its rights hereunder and under the AESOP I Finance Lease
Loan Agreement and the AESOP II Loan Agreement to the Trustee to secure the
Lender's obligations to the Secured Parties.
Except as expressly provided herein otherwise with respect to
Relinquished Vehicles and related Relinquished Vehicle Property, and with
respect to Excluded Payments or any guaranty thereof, the Loans made to AESOP
Leasing hereunder will be secured by all of the right, title and interest of
AESOP Leasing, PVHC and Quartx in and to (a) the Vehicles leased under the AESOP
I Operating Lease, (b) the Manufacturer Programs as they relate to such Vehicles
that are Program Vehicles, (c) all monies due arising from the sale of such
Vehicles that are Non-Program Vehicles, (d) all payments under insurance
policies or warranties relating to such Vehicles, (e) all payments due from the
Lessees and ARC under the AESOP I Operating Lease and (f) all proceeds of the
foregoing.
Accordingly, in consideration of the mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and subject to the terms and conditions hereof,
the parties hereto agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
SECTION 1.1. Certain Definitions. As used in this Agreement and
unless the context requires a different meaning, capitalized terms not otherwise
defined herein shall have the meanings assigned to such terms in the Definitions
List attached as Schedule I to the Base Indenture, dated as of July 30, 1997
(such agreement as it has been and may be further amended, supplemented,
restated or otherwise modified from time to time in accordance with its terms,
the "Base Indenture"), between AFC-II and Harris Trust and Savings Bank, as
trustee (the "Trustee"), as in effect on the date hereof pursuant to
Supplemental Indenture No. 2 and as such Schedule I may be further amended or
modified from time to time in accordance with the terms of the Base Indenture
(the "Definitions List").
SECTION 1.2. Accounting and Financial Determinations. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined, or any accounting computation is required to be made,
for the purpose of this Agreement, such determination or calculation shall be
made, to the extent applicable and except as otherwise specified in this
Agreement, in accordance with GAAP. When used herein, the term "financial
statement" shall include the notes and schedules thereto.
SECTION 1.3. Cross References; Headings. The words "hereof",
"herein" and "hereunder" and words of a similar import when used in this
Agreement shall refer to
<PAGE>
this Agreement as a whole and not to any particular provision of this Agreement.
Section, Schedule and Exhibit references contained in this Agreement are
references to Sections, Schedules and Exhibits in or to this Agreement unless
otherwise specified. Any reference in any Section or definition to any clause
is, unless otherwise specified, to such clause of such Section or definition.
The various headings in this Agreement are inserted for convenience only and
shall not affect the meaning or interpretation of this Agreement or any
provision hereof.
SECTION 1.4. Interpretation. In this Agreement, unless the context
otherwise requires:
(i) the singular includes the plural and vice versa;
(ii) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to any Person in a particular
capacity only refers to such Person in such capacity;
(iii) reference to any gender includes the other gender;
(iv) reference to any Requirement of Law means such Requirement of
Law as amended, modified, codified or reenacted, in whole or in part, and
in effect from time to time;
(v) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding
such term; and
(vi) with respect to the determination of any period of time, "from"
means "from and including" and "to" and "until" means "to but excluding".
SECTION 2. LOAN COMMITMENT OF THE LENDER.
SECTION 2.1. Loan Commitment. Subject to the terms and conditions of
this Agreement, including Section 12.2, and further subject to the availability
of funds to the Lender pursuant to the Indenture, the Lender agrees to make
loans hereunder (the "Loans") to AESOP Leasing from time to time on or after the
Initial Closing Date and prior to the Loan Commitment Termination Date;
provided, that on any one date the Loan Principal Amount of all Loans made
hereunder to AESOP Leasing shall not exceed the AESOP I Operating Lease Loan
Agreement Borrowing Base. The foregoing commitment of the Lender is called the
"Loan Commitment".
SECTION 2.2. Certain Waivers. AESOP Leasing waives presentment,
demand for payment, notice of dishonor and protest, notice of the creation of
any of its Liabilities and all other notices whatsoever to AESOP Leasing with
respect to such Liabilities except notices required under Section 12.1. The
obligations of AESOP
<PAGE>
Leasing under this Agreement and the Loan Note shall not be affected by (i) the
failure of the Trustee or the Lender or the holder of the Loan Note or any of
AESOP Leasing's Liabilities to assert any claim or demand or to exercise or
enforce any right, power or remedy against AESOP Leasing or the AESOP I
Operating Lease Loan Collateral or otherwise, (ii) any extension or renewal for
any period (whether or not longer than the original period) or exchange of any
of AESOP Leasing's Liabilities or the release or compromise of any obligation of
any nature of any Person with respect thereto, (iii) the surrender, release or
exchange of all or any part of any property (including the AESOP I Operating
Lease Loan Collateral) securing payment and performance of any of AESOP
Leasing's Liabilities or the compromise or extension or renewal for any period
(whether or not longer than the original period) of any obligations of any
nature of any Person with respect to any such property, and (iv) any other act,
matter or thing which would or might, in the absence of this provision, operate
to release, discharge or otherwise prejudicially affect the obligations of AESOP
Leasing.
SECTION 2.3. Conditions. The making of each Loan hereunder is
subject to the satisfaction of the applicable conditions set forth in Section
11.
SECTION 2.4. Use of Proceeds. AESOP Leasing shall apply the funds
received by it pursuant to Section 2.1 hereof solely to purchase Eligible
Vehicles that it will lease to ARAC and certain other Eligible Rental Car
Companies pursuant to the AESOP I Operating Lease for use in their respective
daily vehicle rental businesses.
SECTION 3. LOAN NOTE; LOAN PROCEDURE; RECORDKEEPING.
SECTION 3.1. Loan Note. The Loans made hereunder shall be evidenced
by the promissory note issued by AESOP Leasing pursuant to the Original Loan
Agreement (herein, as from time to time supplemented, extended or replaced, the
"Loan Note"), a copy of which is attached as Exhibit A, dated as of the Initial
Closing Date, payable to the order of the Lender and assigned to the Trustee
pursuant to the Indenture.
SECTION 3.2. Loan Procedure. AESOP Leasing shall deliver a Loan
Request to the Lender no later than 4:00 p.m., New York City time, on a day that
is not less than one, nor more than five, Business Days prior to the proposed
Borrowing Date (which shall be a Business Day). Each Loan Request shall be
irrevocable, and shall specify (i) the principal amount of the proposed Loan,
(ii) the Borrowing Date of the proposed Loan, (iii) a summary of the Vehicles
being financed (including for Program Vehicles subject to the GM Repurchase
Program, the Designated Period for each such Program Vehicle), (iv) whether each
Vehicle is a Program Vehicle or a Non-Program Vehicle, (v) the VIN for each
Vehicle to be financed, and (vi) the total Capitalized Cost thereof as of the
Borrowing Date. The aggregate requested borrowings hereunder on any Business Day
shall be for an initial aggregate principal amount that, together with the Loan
Principal Amount of Loans outstanding hereunder
<PAGE>
and under the AESOP I Finance Lease Loan Agreement and the AESOP II Loan
Agreement on such date, shall not exceed the principal amount of Notes
outstanding on such date. On the terms and subject to the conditions of this
Agreement, on or before 2:00 p.m., New York City time, on the Borrowing Date
specified in the Loan Request, the Lender shall transfer same day or immediately
available funds to AESOP Leasing's account specified in such Loan Request in the
amount specified in such Loan Request. Each Loan Request made pursuant to this
Section 3.2 shall constitute AESOP Leasing's representation and warranty that
all of the applicable conditions contained in Section 11 will, after giving
effect to such Loan, be satisfied.
SECTION 3.3. Recordkeeping. The Lender shall record in its records,
or at its option on the schedule attached to the Loan Note, the date and
principal amount of each Loan made hereunder, each repayment thereof, and the
other information provided for thereon. The aggregate unpaid Loan Principal
Amount so recorded shall be rebuttable presumptive evidence of the Loan
Principal Amount owing and unpaid on the Loan Note. The failure to so record any
such information or any error in so recording any such information shall not,
however, limit or otherwise affect the actual obligations of AESOP Leasing
hereunder or under the Loan Note to repay the Loan Principal Amount, together
with all Loan Interest accruing thereon.
SECTION 4. INTEREST.
SECTION 4.1. Interest Rate on Loans. AESOP Leasing hereby promises
to pay interest on the unpaid principal amount of each Loan made to it hereunder
(the "Loan Interest"), for each Loan Interest Period commencing on the date such
Loan is made to AESOP Leasing until such Loan is paid in full at a rate not less
than the Lender's Carrying Cost Interest Rate for the applicable Loan Interest
Period. The applicable rate of Loan Interest on each Loan shall be specified in
a Loan Request Response provided by the Lender to AESOP Leasing on the date a
Loan Request is delivered; provided that if the Lender's Carrying Cost Interest
Rate for the applicable Loan Interest Period is higher than the rate of Loan
Interest specified in the Loan Request Response, Loan Interest payable shall be
determined using the higher rate.
SECTION 4.2. Supplemental Interest. AESOP Leasing agrees to pay to
the Lender, as an additional interest payment, an amount equal to the product of
(A) the applicable Loan Agreement's Share as of the beginning of each Loan
Interest Period times (B) the sum of (i) the Supplemental Carrying Charges for
such Loan Interest Period, minus (ii) any accrued earnings on Permitted
Investments in the Collection Account which earnings are available for
distribution on the last Business Day of such Loan Interest Period (the product
of the amounts described in clauses (A) and (B) above, "Supplemental Interest").
SECTION 4.3. Loan Interest Payment Dates. Accrued Loan Interest on
each Loan made hereunder shall be payable on each Payment Date (with respect to
the related Loan Interest Period), upon any prepayment and at maturity,
commencing with the first of such dates to occur after the date such Loan is
made. After maturity
<PAGE>
(whether by acceleration or otherwise), all accrued Loan Interest and
Supplemental Interest on all Loans made hereunder shall be payable on demand.
Supplemental Interest in respect of each Loan Interest Period shall be payable
on each Payment Date and upon any prepayment and at maturity. All calculations
of Loan Interest and Supplemental Interest shall be based on a 360-day year and
the actual number of days elapsed in the related Loan Interest Period.
SECTION 4.4. Setting of Rates. The Lender's Carrying Cost Interest
Rate and Supplemental Carrying Charges used hereunder to compute Loan Interest
due on each Loan made hereunder on each Payment Date and the Supplemental
Interest due on each Payment Date shall be calculated from time to time by the
Lender in accordance with this Agreement (and written notice thereof shall be
provided to AESOP Leasing not later than ten days prior to the applicable
Payment Date). Such calculation shall be conclusive, absent demonstrable error.
SECTION 4.5. Carrying Charges. AESOP Leasing agrees to pay to the
Lender on each Payment Date an amount equal to the product of (A) the applicable
Loan Agreement's Share as of such Payment Date times (B) all accrued and unpaid
Carrying Charges that are accrued and unpaid as of each such Payment Date.
SECTION 5. REPAYMENT OF LOAN PRINCIPAL AMOUNT.
SECTION 5.1. Mandatory Repayment of Monthly Loan Principal Amount of
Loans. On each Payment Date, AESOP Leasing shall pay to the Lender, as a
repayment of the Loan Principal Amount, an amount equal to the product of (A)
the applicable Loan Payment Allocation Percentage as of the beginning of the
Related Month times (B) the excess of (I) over (II), where:
(I) is equal to the sum, without duplication, of (i) the accrued
Depreciation Charges for the Related Month for all Vehicles
(a) leased under the AESOP I Operating Lease at any time
during the Related Month or (b) described in clauses (iii),
(iv) or (v) of this Section 5.1, plus (ii) all upfront
incentive payments paid by Manufacturers during the Related
Month in respect of purchases of Non-Program Vehicles leased
under the AESOP I Operating Lease, plus (iii) the aggregate
Termination Values (each as of the date on which such Vehicle
becomes an Ineligible Vehicle, a Casualty or is sold, as
applicable) of all the Vehicles leased under the AESOP I
Operating Lease at any time during such Related Month that,
without double counting, while so leased either became
Ineligible Vehicles, suffered a Casualty or were sold by or on
behalf of AESOP Leasing (it being understood that AESOP
Leasing has agreed to sell, or cause to be sold, Vehicles only
in a manner consistent with the provisions hereof and of the
Related Documents) to any Person other than to a Manufacturer
pursuant to a Manufacturer Program or to a third party
pursuant to an auction conducted through a Guaranteed
<PAGE>
Depreciation Program, in each case, during the Related Month,
plus (iv) the aggregate Termination Values, each as of the
applicable Turnback Date, of all Program Vehicles leased under
the AESOP I Operating Lease that while so leased were returned
to a Manufacturer pursuant to a Manufacturer Program with
respect to which either (x) the Repurchase Price has been paid
by such Manufacturer and/or the related auction dealers during
the Related Month or (y) a Manufacturer Event of Default has
occurred, plus (v) the aggregate Termination Values, each as
of the applicable Turnback Date, of all Relinquished Vehicles
as to which the amounts payable by the relevant Manufacturer
pursuant to its Manufacturer Program shall have become
Reconveyed Receivables and with respect to which either (x)
the Repurchase Price has been paid by such Manufacturer during
the Related Month or (y) a Manufacturer Event of Default has
occurred plus (vi) an amount equal to the aggregate of the
amounts receivable by the Intermediary from a Manufacturer
with respect to which a Manufacturer Event of Default has
occurred during the Related Month included in the Relinquished
Vehicle Borrowing Base Component plus (vii) the amount, if
any, on the last day of the Related Month by which the
Relinquished Vehicle Borrowing Base Component exceeded
$125,000,000 plus (viii) the amount, if any, on the last day
of the Related Month by which the Post-Identification Period
Component exceeded $25,000,000 plus (ix) with respect to (A)
each Group of Relinquished Vehicles the last Replacement
Vehicle with respect to which has been received by AESOP
Leasing and the Identification Period with respect to which
has ended during the Related Month and (B) each Group of
Relinquished Vehicles the Post-Identification Period
Termination Date for which has occurred during the Related
Month, the excess, if any, of the aggregate Termination
Values, each as of the applicable Turnback Date, of all of the
Relinquished Vehicles in such Group of Relinquished Vehicles
(excluding any such Relinquished Vehicles as to which the
amounts payable by the relevant Manufacturer pursuant to its
Manufacturer Program shall have become Reconveyed
Receivables), over the aggregate amount, if any, withdrawn
from the AESOP Trust Account for such Group of Relinquished
Vehicles by the Intermediary to pay the purchase price of
Replacement Vehicles for such Group of Relinquished Vehicles;
and
(II) is equal to the sum of (i) any amounts received by the Lender
or the Trustee, or deposited into the Collection Account,
during the Related Month, representing (a) Repurchase Prices
for repurchases of Program Vehicles leased under the AESOP I
Operating Lease at the applicable Turnback Date (other than
any such amounts paid by the Trustee to the Intermediary or
the Receivables Lender Agent
<PAGE>
pursuant to the Intercreditor Agreement) including any such
amounts representing the proceeds of Reconveyed Receivables or
(b) the sales proceeds (including amounts paid by a
Manufacturer as a result of the sale of a Program Vehicle
during the Related Month outside such Manufacturer's
Manufacturer Program but excluding amounts released to AESOP
Leasing pursuant to the last sentence of Section 5.2(a) of the
Base Indenture) for sales of Vehicles leased under the AESOP I
Operating Lease at the time of such sale to a third party
other than (x) to a Manufacturer pursuant to a Repurchase
Program or (y) through an auction dealer pursuant to a
Guaranteed Depreciation Program or (c) amounts attributable to
Repurchase Prices for repurchases of Relinquished Vehicles
(including investment earnings thereon) released by the
Intermediary to the Trustee in accordance with the Master
Exchange Agreement and (ii) any amounts received in the
Related Month and applied to the Loan Principal Amount
pursuant to Section 6.3 (the product of the amounts described
in clauses (A) and (B) above, the "Monthly Loan Principal
Amount").
Unless otherwise required to be paid sooner pursuant to the terms of this
Agreement, the entire unpaid Loan Principal Amount of the Loans made hereunder
shall be payable on the last occurring Series Termination Date with respect to
the Notes. All Loans made hereunder shall be due on the maturity date therefor,
whether by acceleration or otherwise. Solely for determining the amounts payable
under this Section 5.1, with respect to a Program Vehicle that became a Casualty
during the Related Month as a result of such Program Vehicle being held beyond
the stated expiration date of the applicable Repurchase Period and not being
redesignated as a Non-Program Vehicle, such Vehicle will be deemed to have
become a Casualty upon such expiration date.
SECTION 5.2. Voluntary Prepayments of Loan Principal Amount. AESOP
Leasing may from time to time prepay the principal amount with respect to any
Loans made hereunder, in whole or in part, on any date; provided that, except
for any prepayment made pursuant to Section 6.3 hereof or any payment made to
comply with Section 10.13 hereof, AESOP Leasing shall give the Lender and the
Trustee not less than one (1) Business Day's prior notice of any such
prepayment, specifying the date and amount of such prepayment, and, if AESOP
Leasing is requesting a release of Vehicles from the Lien hereof pursuant to
Section 7.3, the Vehicles to which such prepayment relates.
<PAGE>
SECTION 6. MAKING OF PAYMENTS.
SECTION 6.1. Making of Payments. All payments of the Monthly Loan
Principal Amount or Loan Interest hereunder, all prepayments of the Loan
Principal Amount hereunder, and all payments of Supplemental Interest, Carrying
Charges and of all other Liabilities shall be made by AESOP Leasing to, or for
the account of, the Lender in immediately available Dollars, without setoff,
counterclaim or deduction of any kind. All such payments shall be made to the
Collection Account (or such other account as the Lender may from time to time
specify with the consent of the Trustee), not later than 11:00 a.m., New York
City time, on the date due, and funds received after that hour shall be deemed
to have been received by the Lender on the next following Business Day. The
Lender hereby specifies that all (i) payments with respect to Program Vehicles
leased under the AESOP I Operating Lease made by the Manufacturers and related
auction dealers under the Manufacturer Programs (including any such amounts that
are the proceeds of Reconveyed Receivables), (ii) amounts representing the
proceeds from sales of Vehicles leased under the AESOP I Operating Lease
(including amounts paid by a Manufacturer as a result of the sale of such
Vehicle outside such Manufacturer's Manufacturer Program) to third parties
(other than under any related Manufacturer Program), (iii) amounts representing
Repurchase Prices for repurchases of Relinquished Vehicles released from the
Trust Accounts by the Intermediary to the Trustee and (iv) payments with respect
to any other AESOP I Operating Lease Loan Collateral shall be deposited in the
Collection Account; provided, however, that, subject to Section 5.2 of the Base
Indenture, insurance proceeds and warranty payments with respect to Vehicles
leased under the AESOP I Operating Lease will be deposited in the Collection
Account only if an Amortization Event or a Potential Amortization Event shall
have occurred and be continuing.
SECTION 6.2. Due Date Extension. If any (i) payment of the Monthly
Loan Principal Amount or Loan Interest hereunder or (ii) prepayments of the Loan
Principal Amount or Supplemental Interest with respect to any Loans made
hereunder falls due on a day which is not a Business Day, then such due date
shall be extended to the next following Business Day and Loan Interest or
Supplemental Interest, as applicable, shall accrue through such Business Day.
SECTION 6.3. Application of Sale Proceeds. AESOP Leasing agrees that
an amount equal to the product of (A) the applicable Loan Payment Allocation
Percentage as of the beginning of the Related Month times (B) the sum of (i) all
payments made by the Manufacturers and related auction dealers under the
Manufacturer Programs with respect to Vehicles leased under the AESOP I
Operating Lease (other than any such amounts payable by the Trustee to the
Intermediary or the Receivables Lender Agent pursuant to the Intercreditor
Agreement), plus (ii) proceeds from the sale of Vehicles leased under the AESOP
I Operating Lease to third parties (other than to the Manufacturer or pursuant
to a Guaranteed Depreciation Program), plus (iii) amounts representing
Repurchase Prices for repurchases of Relinquished
<PAGE>
Vehicles released from the AESOP Trust Accounts by the Intermediary, in each
case deposited in the Collection Account on any date, shall be applied, upon
receipt thereof in the Collection Account, to prepay the Loan Principal Amount.
SECTION 6.4. Payment Deficits. At or before 11:30 a.m., New York
City time, on each Payment Date, AESOP Leasing shall notify the Trustee and the
related Enhancement Provider of the amount of the Lease Payment Deficit, if any,
with respect to each Series of Notes issued pursuant to the Indenture, such
notification to be in the form of Exhibit C.
SECTION 7. LOAN COLLATERAL SECURITY.
SECTION 7.1. Grant of Security Interest. (a) As security for the
prompt and complete payment and performance of its Liabilities, each of AESOP
Leasing, PVHC and Quartx hereby pledges, hypothecates, assigns, transfers and
delivers to the Lender, and hereby grants to the Lender, a continuing, security
interest in, all of the following, whether now owned or hereafter acquired:
(i) all Vehicles leased under the AESOP I Operating Lease, and all
Certificates of Title with respect thereto;
(ii) all right, title and interest of each of AESOP Leasing, PVHC
and Quartx in and to each Manufacturer Program, including any amendments
thereof, and all monies due and to become due under or in connection with
each such Manufacturer Program, in each case in respect of Vehicles leased
under the AESOP I Operating Lease, whether payable as Vehicle Repurchase
Prices, auction sales proceeds, fees, expenses, costs, indemnities,
insurance recoveries, damages for breach of the Manufacturer Programs or
otherwise (but excluding all incentive payments payable in respect of
purchases of vehicles under the Manufacturer Programs) and all rights to
compel performance and otherwise exercise remedies thereunder;
(iii) all right, title and interest of each of AESOP Leasing, PVHC
and Quartx in, to and under the AESOP I Operating Lease and the related
Lessee Agreements (other than any right, title and interest of any of
AESOP Leasing, PVHC and Quartx with respect to any Excluded Payments)
including, without limitation, all monies due and to become due to any of
AESOP Leasing, PVHC and Quartx from any of the Lessees or the Guarantor or
any of their assigns under or in connection with the AESOP I Operating
Lease and the related Lessee Agreements, whether payable as principal,
interest, rent, guaranty payments (other than guaranty payments with
respect to any Excluded Payments provided to any of AESOP Leasing, PVHC
and Quartx under the AESOP I Operating Lease), fees, expenses, costs,
indemnities, insurance recoveries, damages for the breach of any of the
AESOP I
<PAGE>
Operating Lease and the related Lessee Agreements or otherwise, and all
rights, remedies, powers, privileges and claims of each of AESOP Leasing,
PVHC and Quartx against any other party under or with respect to the AESOP
I Operating Lease and the related Lessee Agreements (whether arising
pursuant to the terms of the AESOP I Operating Lease or the related Lessee
Agreements or otherwise available to AESOP Leasing, PVHC or Quartx at law
or in equity), the right to enforce the AESOP I Operating Lease and the
related Lessee Agreements as provided herein and to give or withhold any
and all consents, requests, notices, directions, approvals, extensions or
waivers under or with respect to the AESOP I Operating Lease and the
related Lessee Agreements or the obligations of any party thereunder, and
all collateral pledged under the AESOP I Operating Lease;
(iv) all right, title and interest of each of AESOP Leasing, PVHC
and Quartx in, to and under the Vehicle Title and Lienholder Nominee
Agreements, the Cendant Indemnity and the Administration Agreement,
including any amendments thereof, and all monies due and to become due
thereunder, in each case in respect of Vehicles leased under the AESOP I
Operating Lease, whether payable as fees, expenses, costs, indemnities,
insurance recoveries, damages for the breach of any of the Vehicle Title
and Lienholder Nominee Agreements, the Cendant Indemnity and the
Administration Agreement or otherwise and all rights to compel performance
and otherwise exercise remedies thereunder;
(v) all payments under insurance policies (whether or not the
Lessor, the Lender or the Trustee is named as the loss payee thereof) or
any warranty payable by reason of loss or damage to, or otherwise with
respect to, any of the Vehicles leased under the AESOP I Operating Lease;
(vi) all right, title and interest of each of AESOP Leasing, PVHC
and Quartx in and to any proceeds from the sale of Vehicles leased under
the AESOP I Operating Lease (including, without limitation, Reconveyed
Receivables), including all monies due in respect of such Vehicles under
the AESOP I Operating Lease, whether payable as the purchase price of such
Vehicles, auction sales proceeds, or as fees, expenses, costs,
indemnities, insurance recoveries, or otherwise (including all upfront
incentive payments payable by Manufacturers in respect of purchases of
Non-Program Vehicles);
(vii) any assignment of a security interest in any Vehicle leased
under the AESOP I Operating Lease granted to any of AESOP Leasing, PVHC
and Quartx pursuant to the AESOP I Operating Lease or otherwise, and all
Certificates of Title with respect to each such Vehicle;
(viii) all right, title and interest of AESOP Leasing in, to and
under the Master Exchange Agreement, including any amendments thereof, all
monies due and to become due to AESOP Leasing thereunder, whether amounts
released from the Trust Accounts by the Intermediary and payable to AESOP
Leasing or payable as damages for breach of the Master Exchange Agreement
or otherwise, and all other property released or to be released by the
Intermediary to AESOP Leasing thereunder and all rights to compel
performance and otherwise exercise remedies thereunder; provided, however,
that in the case of any property and funds held in the Trust Accounts that
constitute Relinquished Vehicle Property, such property
<PAGE>
shall not constitute part of the AESOP I Operating Lease Loan Collateral
until such property is available to be released by the Intermediary to the
Trustee pursuant to the Master Exchange Agreement in accordance with the
terms thereof; and
(ix) all products and proceeds of all of the foregoing;
provided, however, that (A) the AESOP I Segregated Account shall not be subject
to the grant of a security interest by each of AESOP Leasing, PVHC and Quartx
pursuant to this Section 7.1(a) and shall not constitute part of the AESOP I
Operating Lease Loan Collateral and (B) the property released from the security
interest pursuant to Section 7.3 shall not constitute part of the AESOP I
Operating Lease Loan Collateral.
(b) To secure the AFC-II Obligations, each of AESOP Leasing, PVHC
and Quartx hereby pledges, hypothecates, assigns, transfers and delivers to the
Trustee, on behalf of the Secured Parties, and hereby grants to the Trustee, on
behalf of the Secured Parties, a continuing, first priority security interest
in, all of the AESOP I Operating Lease Loan Collateral, whether now owned or
hereafter acquired. Upon the occurrence of a Liquidation Event of Default or a
Limited Liquidation Event of Default and subject to the provisions of the
Related Documents, the Trustee shall have all of the rights and remedies of a
secured party, including, without limitation, the rights and remedies granted
under the Uniform Commercial Code.
SECTION 7.2. Certificates of Title. AESOP Leasing shall take, or
shall cause to be taken, such action as shall be necessary to submit all of the
Certificates of Title for Vehicles leased under the AESOP I Operating Lease
(other than Certificates of Title with respect to the Initial PVT Vehicles, for
which BONY is noted as the first lienholder, and Certificates of Title with
respect to Vehicles titled in the states of Nebraska, Ohio and Oklahoma) to the
appropriate state authority for notation of the Trustee's lien thereon. The
original Certificates of Title shall be held by the Administrator, as agent for
AESOP Leasing, in trust for the benefit of the Lender and the Trustee.
SECTION 7.3. Release of AESOP I Operating Lease Loan Collateral. The
Lender shall request the Trustee in writing to release its Lien on a Vehicle
leased under the AESOP I Operating Lease and the Certificate of Title therefor
upon the earliest of (i) in the case of a Program Vehicle or a Non-Program
Vehicle subject to a Guaranteed Depreciation Program, the date of the sale of
such Vehicle by an auction dealer to a third party, and in the case of a Program
Vehicle or a Non-Program Vehicle subject to a Repurchase Program, the Turnback
Date for such Program Vehicle, (ii) in the case of a Program Vehicle designated
as an Identified Relinquished Vehicle, the date of the Transfer Notice
designating such Program Vehicle as an Identified Relinquished Vehicle (and, in
the case of an Identified Relinquished Vehicle, including in such release the
related Relinquished Vehicle Property), (iii) voluntary prepayment in full of
the principal amount of the Loan to which such Vehicle relates in accordance
with Section 5.2, as noted in records maintained by the Trustee, (iv) receipt of
proceeds from an ordinary course sale of such Vehicle in an amount at least
equal to
<PAGE>
the Termination Value of such Vehicle, provided, however, that if such an
ordinary course sale occurs during the Repurchase Period with respect to a
Program Vehicle, AESOP Leasing shall only sell or permit a sale of such Program
Vehicle for a purchase price, together with any amounts payable by a
Manufacturer as a result of or in connection with such sale, equal to or greater
than the Repurchase Price that it would have received if it had turned back such
Program Vehicle to the Manufacturer and (v) receipt of proceeds from an ordinary
course sale of a Vehicle subject to a Casualty in an amount at least equal to
the Termination Value of such Vehicle. With respect to Vehicles leased under the
AESOP I Operating Lease, from and after the earliest of (a) in the case of a
Program Vehicle or a Non-Program Vehicle subject to a Guaranteed Depreciation
Program, the date of the sale of such Vehicle by an auction dealer to a third
party, and in the case of a Program Vehicle or a Non-Program Vehicle subject to
a Repurchase Program, the Turnback Date for such Program Vehicle, (b) subject to
the satisfaction of the conditions therefor set forth in Section 11.3, in the
case of a Program Vehicle designated as an Identified Relinquished Vehicle, the
date of the Transfer Notice designating such Program Vehicle as an Identified
Relinquished Vehicle, (c) a prepayment of the principal amount of the Loan to
which such Vehicle relates and (d) receipt of the purchase price for a Vehicle
by AESOP Leasing, or by the Trustee on the Lender's behalf, in the case of (c)
and (d), in an amount at least equal to the Termination Value of such Vehicle,
such Vehicle and such Certificate of Title (and in the case of clause (b), the
related Relinquished Vehicle Property) shall be deemed to be released from the
Lien of this Agreement, and the Lender and the Trustee shall execute such
documents and instruments as AESOP Leasing may reasonably request (including a
power of attorney of the Trustee appointing the Administrator to act as the
agent of the Trustee in releasing the Lien of the Trustee on Vehicles turned
back, sold or transferred to the Intermediary pursuant to the provisions of this
Section 7.3; which power of attorney shall be revocable by the Lender or the
Trustee at any time following the occurrence of a Liquidation Event of Default),
at AESOP Leasing's expense, to evidence and/or accomplish such release.
SECTION 7.4. Change of Location or Name. So long as any of its
Liabilities shall remain outstanding or the Lender shall continue to have any
Loan Commitment, none of AESOP Leasing, PVHC or Quartx will change (i) the
location of its principal place of business, chief executive office, major
executive office, chief place of business or its records concerning its business
and financial affairs, or (ii) its legal name or the name under or by which it
conducts its business, in each case without first giving the Trustee and the
Lender at least 30 days' advance written notice thereof and having taken any and
all action required to maintain and preserve the first priority perfected Lien
of the Lender or the Trustee on the AESOP I Operating Lease Loan Collateral
(except, (a) as to perfection and priority, with respect to Vehicles titled in
the states of Nebraska, Ohio and Oklahoma and (b) that the lien of the Trustee
shall not be noted on the Certificates of Title with respect to the Initial PVT
Vehicles), free and clear of any Lien whatsoever except for Permitted Liens;
provided, however, that notwithstanding the foregoing, none of AESOP Leasing,
PVHC or Quartx shall change the location of its principal place of business,
chief executive office, major executive
<PAGE>
office, chief place of business or its records concerning its business and
financial affairs to any place outside the United States of America.
SECTION 7.5. Deliveries; Further Assurances. Each of AESOP Leasing,
PVHC and Quartx agrees that it will, at its sole expense, (i) immediately
deliver or cause to be delivered to the Lender (or the Trustee on behalf of the
Secured Parties), in due form for transfer (i.e., endorsed in blank), all
securities, chattel paper, instruments and documents, if any, at any time
representing all or any of the AESOP I Operating Lease Loan Collateral, other
than the Certificates of Title which shall be delivered to the Lender or the
Trustee, as applicable, after the occurrence of a Liquidation Event of Default,
if such delivery is reasonably necessary or appropriate to perfect or protect
the Lender's (or the Trustee's on behalf of the Secured Parties) security
interest in such AESOP I Operating Lease Loan Collateral, and (ii) execute and
deliver, or cause to be executed and delivered, to the Lender or the Trustee in
due form for filing or recording (and pay the cost of filing or recording the
same in all public offices reasonably deemed necessary or advisable by the
Lender or the Trustee), such assignments, security agreements, mortgages,
consents, waivers, financing statements and other documents, and do such other
acts and things, all as may from time to time be reasonably necessary or
desirable to establish and maintain to the satisfaction of the Lender (or the
Trustee) a valid perfected Lien on and security interest in all of the AESOP I
Operating Lease Loan Collateral (except, as to perfection, with respect to
Vehicles titled in the states of Nebraska, Ohio and Oklahoma) now or hereafter
existing or acquired (free of all other Liens whatsoever other than Permitted
Liens) to secure payment and performance of its Liabilities.
SECTION 7.6. [RESERVED].
SECTION 7.7. [RESERVED].
SECTION 7.8. AESOP I Segregated Account. AESOP Leasing shall
establish and maintain in its name an account entitled "AESOP Leasing L.P.
Account" (the "AESOP I Segregated Account"). The AESOP I Segregated Account
shall be maintained (i) with a Qualified Institution, or (ii) as a segregated
trust account with the corporate trust department of a depository institution or
trust company having corporate trust powers and acting as trustee for funds
deposited in the AESOP I Segregated Account. If the AESOP I Segregated Account
is not maintained in accordance with the previous sentence, then within 10
Business Days after obtaining knowledge of such fact, AESOP Leasing shall
establish a new AESOP I Segregated Account which complies with such sentence and
transfer into the new AESOP I Segregated Account all amounts then on deposit in
the non-qualifying AESOP I Segregated Account. The parties hereto acknowledge
and agree that the monies held in the AESOP I Segregated Account from time to
time (i) are property of AESOP Leasing, (ii) are not being pledged to secure any
obligation to, or otherwise held in trust for, the Lender or any of the persons
specified in this Section 7.8 and (iii) are available to satisfy the claims of
creditors of AESOP Leasing generally; provided, however, that if funds are
deposited into the AESOP I Segregated Account in accordance with Section 9.13
for the purpose
<PAGE>
of paying legal fees and disbursements of counsel to AESOP Leasing or its
Permitted Nominees, AESOP Leasing shall use such funds solely for such purpose;
and provided further that nothing contained herein shall affect the rights of
the Lender to pursue all legal remedies available to it with respect to any
amounts payable by AESOP Leasing hereunder.
SECTION 8. REPRESENTATIONS AND WARRANTIES. To induce the Lender to
enter into this Agreement and to make Loans hereunder, AESOP Leasing represents
and warrants to the Lender as to itself, and each of PVHC and Quartx represents
and warrants to the Lender as to itself, as of the date hereof, as of the date
of each Loan made hereunder and as of each Series Closing Date that:
SECTION 8.1. Organization; Ownership; Power; Qualification. Each of
AESOP Leasing, PVHC and Quartx is (i) a limited partnership or a corporation, as
the case may be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation, (ii) has the power and authority to
own its properties and to carry on its business as now being and hereafter
proposed to be conducted and (iii) is duly qualified, in good standing and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its businesses requires such qualification or
authorization.
SECTION 8.2. Authorization; Enforceability. Each of AESOP Leasing,
PVHC and Quartx has the power and has taken all necessary action to authorize it
to execute, deliver and perform this Agreement and each of the other Related
Documents to which it is a party in accordance with their respective terms, and
to consummate the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by each of AESOP Leasing, PVHC and Quartx
and is, and each of the other Related Documents to which any of AESOP Leasing,
PVHC or Quartx is a party is, a legal, valid and binding obligation of such
party, enforceable in accordance with its terms.
<PAGE>
SECTION 8.3. Compliance. The execution, delivery and performance by
each of AESOP Leasing, PVHC and Quartx of this Agreement and each other Related
Document to which it is a party, and the consummation of the transactions
contemplated hereby and thereby, do not and will not (i) require any consent,
approval, authorization or registration not already obtained or effected, (ii)
violate any applicable law with respect to AESOP Leasing, PVHC or Quartx, as the
case may be, which violation could result in a Material Adverse Effect, (iii)
conflict with, result in a breach of, or constitute a default under the
certificate of limited partnership or limited partnership agreement of AESOP
Leasing or under the certificate of incorporation, as amended, or by-laws of
each of PVHC and Quartx, or under any indenture, agreement, or other instrument
to which any of AESOP Leasing, PVHC or Quartx is a party or by which its
properties may be bound, or (iv) result in or require the creation or imposition
of any Lien upon or with respect to any property now owned or hereafter acquired
by any of AESOP Leasing, PVHC or Quartx except Permitted Liens.
SECTION 8.4. [RESERVED].
SECTION 8.5. Litigation. There is no action, suit or proceeding
pending against or, to the knowledge of any of AESOP Leasing, PVHC or Quartx,
threatened against or affecting any of AESOP Leasing, PVHC or Quartx before any
court or arbitrator or any Governmental Authority in which there is a reasonable
possibility of an adverse decision that could materially adversely affect the
consolidated financial position, consolidated results of operations, business,
properties, performance or condition (financial or otherwise) of AESOP Leasing,
PVHC or Quartx, as the case may be, or which in any manner draws into question
the validity or enforceability of this Agreement or any other Related Document
or the ability of any of AESOP Leasing, PVHC or Quartx to comply with any of the
respective terms hereunder or thereunder.
SECTION 8.6. Liens. The AESOP I Operating Lease Loan Collateral is
free and clear of all Liens other than (i) Permitted Liens and (ii) Liens in
favor of the Lender or the Trustee. The Lender (or the Trustee on behalf of the
Secured Parties) has obtained, as security for the Liabilities, a first priority
perfected Lien on all AESOP I Operating Lease Loan Collateral (except, with
respect to perfection and priority, Vehicles titled in the states of Nebraska,
Ohio and Oklahoma). All Vehicle Perfection and Documentation Requirements with
respect to all Vehicles leased under the AESOP I Operating Lease on or after the
date hereof have and will continue to be satisfied in accordance with the terms
of this Agreement.
SECTION 8.7. Employee Benefit Plans. None of AESOP Leasing, PVHC or
Quartx have established and maintain or contribute to any employee benefit plan
that is covered by Title IV of ERISA, and none of AESOP Leasing, PVHC or Quartx
will do so, so long as the Loan Commitment has not expired, or any amount is
owing to the Lender hereunder.
<PAGE>
SECTION 8.8. Investment Company Act. None of AESOP Leasing, PVHC or
Quartx is or is controlled by an "investment company," within the meaning of the
Investment Company Act, and none of AESOP Leasing, PVHC or Quartx is subject to
any other statute which would impair or restrict its ability to perform its
obligations under this Agreement or the other Related Documents, and neither the
entering into or performance by any of AESOP Leasing, PVHC or Quartx of this
Agreement nor the issuance of the Loan Note violates any provision of such Act.
SECTION 8.9. Regulations T, U and X. None of AESOP Leasing, PVHC or
Quartx is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation T, U and X of the Board of Governors of
the Federal Reserve System). None of AESOP Leasing, PVHC or Quartx, any
Affiliate of any of AESOP Leasing, PVHC or Quartx or any Person acting on its or
their behalf has taken or will take action to cause the execution, delivery or
performance of this Agreement or the Loan Note, the making or existence of the
Loans or the use of proceeds of the Loans made hereunder to violate Regulation
T, U or X of the Board of Governors of the Federal Reserve System.
SECTION 8.10. Proceeds. The proceeds of the Loans made hereunder
will be used solely to purchase or finance Eligible Vehicles that will be leased
under the AESOP I Operating Lease.
SECTION 8.11. Business Locations; Trade Names. Schedule 8.11 lists
each of the locations where AESOP Leasing, PVHC or Quartx maintains a chief
executive office, principal place of business, or any records, and Schedule 8.11
also lists the legal name of each of AESOP Leasing, PVHC and Quartx and each
name under or by which it conducts its business.
SECTION 8.12. Taxes. Each of AESOP Leasing, PVHC and Quartx has
filed all tax returns which have been required to be filed by it (except where
the requirement to file such return is subject to a valid extension), and has
paid or provided adequate reserves for the payment of all taxes shown due on
such returns or required to be paid as a condition to such extension, as well as
all payroll taxes and federal and state withholding taxes, and all assessments
payable by it that have become due, other than those that are payable without
penalty or are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves have been established, and are being
maintained, in accordance with GAAP. As of the date hereof, to the best of AESOP
Leasing's, PVHC's and Quartx's knowledge, there is no unresolved claim by a
taxing authority concerning AESOP Leasing's, PVHC's or Quartx's tax liability
for any period for which returns have been filed or were due other than those
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been established, and are being maintained, in accordance
with GAAP.
<PAGE>
SECTION 8.13. Governmental Authorizations. Each of AESOP Leasing,
PVHC and Quartx has all licenses, franchises, permits and other governmental
authorizations necessary for all businesses presently carried on by it
(including owning and leasing the real and personal property owned and leased by
it), except where failure to obtain such licenses, franchises, permits and other
governmental authorizations would not have a material adverse effect on its
business and properties or a Material Adverse Effect (as set forth in clauses
(ii) and (iii) of the definition thereof).
SECTION 8.14. Compliance with Laws. Each of AESOP Leasing, PVHC and
Quartx: (i) is not in violation of any law, ordinance, rule, regulation or order
of any Governmental Authority applicable to it or its property, which violation
would have a material adverse effect on its business and properties or a
Material Adverse Effect (as set forth in clauses (ii) and (iii) of the
definition thereof), and no such violation has been alleged, (ii) has filed in a
timely manner all reports, documents and other materials required to be filed by
it with any governmental bureau, agency or instrumentality (and the information
contained in each of such filings is true correct and complete in all material
respects), except where failure to make such filings would not have a material
adverse effect on its business and properties or a Material Adverse Effect (as
set forth in clauses (ii) and (iii) of the definition thereof) and (iii) has
retained all records and documents required to be retained by it pursuant to any
Requirement of Law, except where failure to retain such records would not have a
material adverse effect on its business and properties or a Material Adverse
Effect (as set forth in clauses (ii) and (iii) of the definition thereof).
SECTION 8.15. Eligible Vehicles. Each Vehicle leased under the AESOP
I Operating Lease was, on the date of purchase or financing thereof by AESOP
Leasing, an Eligible Vehicle.
SECTION 8.16. Manufacturer Programs. No Manufacturer Event of
Default has occurred and is continuing with respect to any Eligible Program
Manufacturer.
SECTION 8.17. Absence of Default. AESOP Leasing is in compliance
with all of the provisions of its certificate of limited partnership and limited
partnership agreement and each of PVHC and Quartx is in compliance with all
provisions of its certificate of incorporation, as amended, and by-laws and no
event has occurred or failed to occur which has not been remedied or waived, the
occurrence or non-occurrence of which constitutes, or with the passage of time
or giving of notice or both would constitute, (i) an AESOP I Loan Event of
Default or a Potential AESOP I Loan Event of Default or (ii) a default or event
of default by any of AESOP Leasing, PVHC or Quartx under any indenture,
agreement or other instrument, or any judgment, decree or final order to which
any of AESOP Leasing, PVHC or Quartx is a party or by which any of AESOP
Leasing, PVHC or Quartx or any of its properties may be bound or affected.
<PAGE>
SECTION 8.18. No Security Interest; Title to Assets. (a) All action
necessary (including the filing of UCC-1 financing statements, the assignment of
rights under the Manufacturer Programs to the Trustee, the notation on
Certificates of Title for all Vehicles leased under the AESOP I Operating Lease
(other than the Initial PVT Vehicles, for which BONY is noted as the first
lienholder, and other than Vehicles titled in the states of Nebraska, Ohio and
Oklahoma) of the Trustee's lien for the benefit of the Noteholders) to protect
and perfect AFC-II's security interest in the AESOP I Operating Lease Loan
Collateral and the Trustee's security interest on behalf of the Secured Parties
in the Collateral now in existence and hereafter acquired or created has been
duly and effectively taken.
(b) Each of AESOP Leasing, PVHC and Quartx has good, legal and
marketable title to, or a valid leasehold interest in, all of its assets. None
of such properties or assets is subject to any Liens, except for Permitted
Liens. Except for financing statements or other filings with respect to or
evidencing Permitted Liens and except for financing statements filed with
respect to Relinquished Vehicle Property, no financing statement under the UCC
of any state, application for a Certificate of Title or certificate of
ownership, or other filing which names any of AESOP Leasing, PVHC or Quartx as
debtor or which covers or purports to cover any of the assets of any of AESOP
Leasing, PVHC or Quartx is on file in any state or other jurisdiction, and none
of AESOP Leasing, PVHC or Quartx has signed any such financing statement,
application or instrument authorizing any secured party or creditor of such
Person thereunder to file any such financing statement, application or filing
other than with respect to Permitted Liens.
SECTION 8.19. Accuracy of Information. All data, certificates,
reports, statements, opinions of counsel, documents and other information
furnished to the Lender or the Trustee by or on behalf of any of AESOP Leasing,
PVHC or Quartx pursuant to any provision of any Related Document, or in
connection with or pursuant to any amendment or modification of, or waiver
under, any Related Document, shall, at the time the same are so furnished, (i)
be complete and correct in all material respects to the extent necessary to give
the Lender or the Trustee, as the case may be, true and accurate knowledge of
the subject matter thereof, (ii) not contain any untrue statement of a material
fact and (iii) not omit to state a material fact necessary in order to make the
statements contained therein (in light of the circumstances in which they were
made) not misleading, and the furnishing of the same to the Lender or the
Trustee, as the case may be, shall constitute a representation and warranty by
AESOP Leasing, PVHC or Quartx, as the case may be, made on the date the same are
furnished to the Lender or the Trustee, as the case may be, to the effect
specified in clauses (i), (ii) and (iii) above.
SECTION 9. AFFIRMATIVE COVENANTS. Until the expiration or
termination of the Loan Commitment and thereafter until the Loan Note and all
other Liabilities are paid in full, each of AESOP Leasing, PVHC and Quartx
agrees that, unless at any time the Lender shall otherwise expressly consent in
writing:
<PAGE>
SECTION 9.1. Existence; Foreign Qualification. Each of AESOP
Leasing, PVHC and Quartx will do and cause to be done at all times all things
necessary to (i) maintain and preserve its existence as a limited partnership or
a corporation, as the case may be, (ii) be, and ensure that it is, duly
qualified to do business and in good standing as a foreign limited partnership
or foreign corporation, as the case may be, in each jurisdiction where the
nature of its business makes such qualification necessary and the failure to so
qualify would have a material adverse effect on its business and properties or a
Material Adverse Effect (as set forth in clauses (ii) and (iii) of the
definition thereof) and (iii) comply with all Contractual Obligations and
Requirements of Law binding upon it, except to the extent that the failure to
comply therewith would not, in the aggregate, have a material adverse effect on
its business and properties or a Material Adverse Effect (as set forth in
clauses (ii) and (iii) of the definition thereof).
SECTION 9.2. Books, Records and Inspections. AESOP Leasing will
maintain complete and accurate books and records with respect to the AESOP I
Operating Lease Loan Collateral and each of AESOP Leasing, PVHC and Quartx will
permit any Person designated by the Lender or the Trustee in writing to visit
and inspect any of its properties, corporate books and financial records and to
discuss its affairs, finances and accounts with its officers, its agents and its
independent public accountants, all at such reasonable times and as often as the
Lender or the Trustee may reasonably request.
SECTION 9.3. Insurance. AESOP Leasing will obtain and maintain, or
cause to be obtained and maintained, with respect to all Vehicles leased under
the AESOP I Operating Lease (i) vehicle liability insurance to the full extent
required by law and in any event not less than $500,000 per Person and
$1,000,000 per occurrence, (ii) property damage insurance with a limit of
$1,000,000 per occurrence and (iii) excess coverage public liability insurance
with a limit of not less than $50,000,000 or the limit maintained from time to
time by the relevant Lessee at any time hereafter, whichever is higher, with
respect to all passenger cars and vans comprising such Lessee's rental fleet.
The Lender acknowledges and agrees that AESOP Leasing may, to the extent
permitted by applicable law, allow the relevant Lessees to self-insure with
respect to the Vehicles leased under the AESOP I Operating Lease for the first
$1,000,000 per occurrence, or a greater amount up to a maximum of $3,000,000,
with the consent of each Enhancement Provider, per occurrence, of vehicle
liability and property damage insurance which is otherwise required to be
insured hereunder. All such policies shall be from financially sound and
reputable insurers, shall name the Lender, Original AESOP, PVHC, Quartx and the
Trustee as additional insured parties and, in the case of catastrophic physical
damage insurance on such Vehicles, shall name the Trustee as loss payee as its
interest may appear and will provide that the Lender and the Trustee shall
receive at least 10 days' prior written notice of cancellation of such policies.
AESOP Leasing will notify promptly the Lender and the Trustee of any curtailment
or cancellation of any such Lessee's right to self-insure in any jurisdiction.
<PAGE>
SECTION 9.4. Manufacturer Programs. AESOP Leasing will turn in, or
cause to be turned in, the Vehicles leased under the AESOP I Operating Lease
which are Program Vehicles (subject to the redesignation provisions of Section
2.7 of the AESOP I Operating Lease) to the relevant Manufacturer within the
Repurchase Period therefor, including in a transaction with respect to a
Relinquished Vehicle pursuant to the Master Exchange Agreement (unless AESOP
Leasing pays in full the Loan with respect to a Program Vehicle pursuant to
Section 5.2 or sells a Program Vehicle and, prior to the end of the Repurchase
Period therefor, receives sales proceeds thereof in cash in an amount equal to
or greater than the repurchase price under such Manufacturer Program); and will
comply with all of its obligations under each Manufacturer Program.
SECTION 9.5. Reporting Requirements. AESOP Leasing will furnish, or
cause to be furnished to the Lender and the Trustee and, in the case of items
(ii) and (iii) below, each Rating Agency and each Enhancement Provider:
(i) Reports. All reports of ARC and the Lessees required to be
delivered to AESOP Leasing pursuant to Section 31.5 of the AESOP I
Operating Lease;
(ii) AESOP I Loan Events of Default; Amortization Events; Exchange
Agreement Termination Events. As soon as possible but in any event within
two Business Days after the occurrence thereof, notice of (A) any
Potential AESOP I Loan Event of Default or AESOP I Loan Event of Default,
a written statement of an Authorized Officer describing such event and the
action that AESOP Leasing proposes to take with respect thereto; (B) any
Potential Amortization Event or Amortization Event; and (C) any Exchange
Agreement Termination Event;
(iii) Manufacturers. Promptly after obtaining actual knowledge
thereof, notice of any Manufacturer Event of Default or termination or
replacement of a Manufacturer Program;
(iv) Notice of Liens and Vicarious Liability Claims. On each
Determination Date, AESOP Leasing shall forward to AFC-II, the Trustee and
the Paying Agent, the Administrative Agent, the Rating Agencies and each
Enhancement Provider, (A) an Officer's Certificate of AESOP Leasing
certifying as to whether, to the knowledge of AESOP Leasing, (x) any Lien
exists on any of the AESOP I Operating Lease Loan Collateral or (y) any
vicarious liability claims shall have been made against AESOP Leasing as a
result of its ownership of the Vehicles leased under the AESOP I Operating
Lease or against PVHC or Quartx as a result of its holding legal title to
the Vehicles leased under the AESOP I Operating Lease and (B) a written
statement of an Authorized Officer summarizing each such Lien or claim and
the action that AESOP Leasing proposes to take with respect thereto; and
<PAGE>
(v) Other. Promptly, from time to time, such other information,
documents, or reports respecting the AESOP I Loan Collateral or the
condition or operations, financial or otherwise, of any of AESOP Leasing,
PVHC or Quartx as the Lender or the Trustee may from time to time
reasonably request in order to protect the interests of the Lender or the
Trustee under or as contemplated by this Agreement or any other Related
Document.
SECTION 9.6. Payment of Taxes; Removal of Liens. Each of AESOP
Leasing, PVHC and Quartx will pay when due all taxes, assessments, fees and
governmental charges of any kind whatsoever that may be at any time lawfully
assessed or levied against or with respect to AESOP Leasing, PVHC or Quartx, as
the case may be, or its property and assets or any interest thereon.
Notwithstanding the previous sentence, but subject in any case to the other
requirements hereof and of the Related Documents, none of AESOP Leasing, PVHC or
Quartx shall be required to pay any tax, charge, assessment or imposition nor to
comply with any law, ordinance, rule, order, regulation or requirement so long
as AESOP Leasing, PVHC or Quartx, as the case may be, shall contest, in good
faith, the amount or validity thereof, in an appropriate manner or by
appropriate proceedings. Each such contest shall be promptly prosecuted to final
conclusion (subject to the right of AESOP Leasing, PVHC or Quartx, as the case
may be, to settle any such contest).
SECTION 9.7. Business. Each of AESOP Leasing, PVHC and Quartx will
engage only in businesses conducted on the date hereof.
SECTION 9.8. Maintenance of the Vehicles. AESOP Leasing will
maintain or cause to be maintained in good repair, working order, and condition
all of the Vehicles leased under the AESOP I Operating Lease, except to the
extent that any such failure to comply with such requirements does not, in the
aggregate, materially adversely affect the interests of the Lender under this
Agreement or the interests of the Secured Parties under the Indenture or the
likelihood of repayment of the Loans made hereunder. From time to time AESOP
Leasing will make or cause to be made all appropriate repairs, renewals, and
replacements with respect to the Vehicles leased under the AESOP I Operating
Lease.
SECTION 9.9. Maintenance of Separate Existence. AESOP Leasing will
do all things necessary to continue to be readily distinguishable from ARC,
ARAC, Original AESOP, AESOP Leasing II, AFC, AFC-II, the Affiliates of the
foregoing or any other affiliated or unaffiliated entity and to maintain its
existence as a limited partnership separate and apart from that of Original
AESOP, AESOP Leasing II, AFC, AFC-II, ARAC and ARC and Affiliates of ARC
including, without limitation:
(i) practicing and adhering to organizational formalities, such as
maintaining appropriate books and records;
(ii) observing all organizational formalities in connection with all
dealings between itself and ARC, ARAC, Original AESOP,
<PAGE>
AESOP Leasing II, AFC, AFC-II, the Affiliates of the foregoing
or any other affiliated or unaffiliated entity;
(iii) observing all procedures required by its certificate of limited
partnership, its limited partnership agreement and the laws of
the State of Delaware;
(iv) acting solely in its name and through its duly authorized
officers or agents in the conduct of its businesses;
(v) managing its business and affairs by or under the direction of
its general partner;
(vi) ensuring that its general partner duly authorizes all of its
actions;
(vii) ensuring the receipt of proper authorization, when necessary,
from its limited partner(s) for its actions;
(viii) requiring its general partner to maintain at least two corporate
directors who are Independent Directors;
(ix) owning or leasing (including through shared arrangements with
Affiliates) all office furniture and equipment necessary to
operate its business;
(x) not (A) having or incurring any debt or obligations to any of
Original AESOP, AESOP Leasing II, AFC, AFC-II, ARC, ARAC, the
Affiliates of the foregoing or any other affiliated or
unaffiliated entity, except for, the obligations to AFC-II under
the AESOP I Loan Agreements; (B) other than as provided in the
Related Documents, guaranteeing or otherwise becoming liable for
any obligations of Original AESOP, AESOP Leasing II, AFC,
AFC-II, ARAC or ARC or any Affiliates of the foregoing; (C)
having obligations guaranteed by Original AESOP, AESOP Leasing
II, AFC, AFC-II, ARAC or ARC or any Affiliates of the foregoing;
(D) holding itself out as responsible for debts of Original
AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any
Affiliates of the foregoing or for decisions or actions with
respect to the affairs of Original AESOP, AESOP Leasing II, AFC,
AFC-II, ARAC or ARC or any Affiliates of the foregoing; (E)
failing to correct any known misrepresentation with respect to
the statement in subsection (C); (F) operating or purporting to
operate as an integrated, single economic unit with respect to
Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC, ARC, the
Affiliates of the foregoing or any other affiliated or
unaffiliated entity or any other affiliated or unaffiliated
entity; (G) seeking to obtain credit or incur any obligation to
any third party based upon the assets of
<PAGE>
Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC, ARC, the
Affiliates of the foregoing or any other affiliated or
unaffiliated entity; (H) induce any such third party to
reasonably rely on the creditworthiness of Original AESOP, AESOP
Leasing II, AFC, AFC-II, ARAC, ARC, the Affiliates of the
foregoing or any other affiliated or unaffiliated entity; and
(I) being directly or indirectly named as a direct or contingent
beneficiary or loss payee on any insurance policy of Original
AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any
Affiliates of the foregoing other than as required by the
Related Documents with respect to insurance on the Vehicles;
(xi) other than as provided in the Related Documents, maintaining its
deposit and other bank accounts and all of its assets separate
from those of any other Person;
(xii) maintaining its financial records separate and apart from those
of any other Person;
(xiii) disclosing in its annual financial statements the effects of the
transactions contemplated by the Related Documents in accordance
with generally accepted accounting principles;
(xiv) setting forth clearly in its financial statements its separate
assets and liabilities and the fact that the Vehicles leased
under the AESOP I Operating Lease are owned by AESOP Leasing;
(xv) not suggesting in any way, within its financial statements, that
its assets are available to pay the claims of creditors of
Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC, ARC, the
Affiliates of the foregoing or any other affiliated or
unaffiliated entity;
(xvi) compensating all its employees, officers, consultants and agents
for services provided to it by such Persons out of its own
funds;
(xvii) maintaining office space separate and apart from that of
Original AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or
any Affiliates of the foregoing (even if such office space is
subleased from or is on or near premises occupied by Original
AESOP, AESOP Leasing II, AFC, AFC-II, ARAC or ARC or any
Affiliates of the foregoing) and a telephone number separate and
apart from that of Original AESOP, AESOP Leasing II, AFC,
AFC-II, ARAC or ARC or any Affiliates of the foregoing;
<PAGE>
(xviii) conducting all oral and written communications, including,
without limitation, letters, invoices, purchase orders,
contracts, statements, and applications solely in its own name;
(xix) having separate stationary from Original AESOP, AESOP Leasing
II, AFC, AFC-II, ARAC, ARC, the Affiliates of the foregoing or
any other affiliated or unaffiliated entity;
(xx) accounting for and managing all of its liabilities separately
from those of Original AESOP, AESOP Leasing II, AFC, AFC-II,
ARAC or ARC or any Affiliates of the foregoing;
(xxi) allocating, on an arm's-length basis, all shared operating
services, leases and expenses, including, without limitation,
those associated with the services of shared consultants and
agents and shared computer and other office equipment and
software; and otherwise maintaining an arm's-length relationship
with each of Original AESOP, AESOP Leasing II, AFC, AFC-II,
ARAC, ARC, the Affiliates of the foregoing or any other
affiliated or unaffiliated entity;
(xxii) refraining from filing or otherwise initiating or supporting the
filing of a motion in any bankruptcy or other insolvency
proceeding involving Original AESOP, AESOP Leasing II, AFC,
AFC-II, AESOP Leasing, ARAC, ARC or any Affiliate of ARC, to
substantively consolidate Original AESOP, AESOP Leasing II, AFC,
AFC-II or AESOP Leasing with ARAC, ARC or any Affiliate of ARC;
(xxiii) remaining solvent and assuring adequate capitalization for the
business in which it is engaged; and
(xxiv) conducting all of its business (whether written or oral) solely
in its own name so as not to mislead others as to the identity
of each of Original AESOP, AESOP Leasing II, AESOP Leasing, AFC,
AFC-II, ARAC, ARC and the Affiliates of the foregoing or any
other affiliated or unaffiliated entity.
AESOP Leasing acknowledges its receipt of a copy of those certain opinion
letters issued by Skadden, Arps, Slate, Meagher & Flom LLP dated July 30, 1997
and the date hereof addressing the issue of substantive consolidation as they
may relate to any of ARAC, ARC and each affiliate of ARC on the one hand and any
of Original AESOP, AESOP Leasing II, AFC, AFC-II and AESOP Leasing on the other
hand and as among Original AESOP, AESOP Leasing II, AESOP Leasing, AFC-II and
AFC. AESOP Leasing hereby agrees to maintain in place all policies and
procedures, and
<PAGE>
take and continue to take all action, described in the factual assumptions set
forth in such opinion letters and relating to it.
SECTION 9.10. Manufacturer Payments; Sales Proceeds. AESOP Leasing
will cause each Manufacturer and auction dealer to make all payments under the
Manufacturer Programs with respect to Program Vehicles, including all payments
with respect to Relinquished Vehicles, directly to the Collection Account. Any
such payments from Manufacturers or related auction dealers received directly by
AESOP Leasing, will be, within three Business Days of receipt, deposited into
the Collection Account. AESOP Leasing shall, within two Business Days of receipt
thereof, deposit into the Collection Account all amounts representing the
proceeds from sales of Program Vehicles by auction dealers under a Guaranteed
Depreciation Program and sales of Vehicles (including amounts paid by a
Manufacturer as a result of the sale of such Vehicle outside such Manufacturer's
Manufacturer Program) to third parties (other than under any related
Manufacturer Program) and all payments with respect to other AESOP I Loan
Collateral (other than the AESOP I Loan Collateral described in the last
sentence of this paragraph). Insurance proceeds and warranty payments with
respect to Vehicles will only be deposited into the Collection Account if an
Amortization Event or Potential Amortization Event shall have occurred and be
continuing. AESOP Leasing acknowledges that payments received from or on behalf
of Manufacturers under the Manufacturer Programs with respect to Relinquished
Vehicles shall be disbursed in accordance with the Intercreditor Agreement.
SECTION 9.11. Maintenance of Properties. Each of AESOP Leasing, PVHC
and Quartx will maintain or cause to be maintained in the ordinary course of
business in good repair, working order and condition (reasonable wear and tear
excepted) all properties, including, without limitation, vehicles necessary for
the operation of its businesses (whether owned or held under lease), and from
time to time make or cause to be made all needed and appropriate repairs,
renewals, replacements, additions, betterments and improvements thereto, except
to the extent no material adverse effect on its business and properties or a
Material Adverse Effect (as set forth in clauses (ii) and (iii) of the
definition thereof) could result, and maintain good, legal and marketable title
to, or a valid leasehold interest in, all of its assets, free and clear of all
Liens except for Permitted Liens, and except to the extent sold or otherwise
disposed of in accordance with this Agreement or any other Related Document.
SECTION 9.12. Verification of Title. AESOP Leasing will, on an
annual basis, cause a title check to be performed by an independent nationally
recognized firm of certified public accountants acceptable to the Trustee and
each Enhancement Provider on a statistical sample of all Vehicles leased under
the Leases designed to provide a ninety-five percent (95%) confidence level that
no more than five percent (5%) of the Certificates of Title for such Vehicles
did not correctly reference the Trustee or its Permitted Nominee, as first
lienholder, and the Lessor of such Vehicle or its Permitted Nominee or, in the
case of Financed Vehicles, ARAC or its Permitted Nominee, as owner, and cause
such party to deliver a report stating that, within the confidence level set
forth above, no more than five percent (5%) of the
<PAGE>
Certificates of Title did not correctly reference the lienholder or owner of the
Vehicles described in the immediately preceding clause.
SECTION 9.13. Legal Reserve Fund. On and after the Legal Reserve
Funding Date and for so long as the Legal Reserve Release Condition is not met,
AESOP Leasing shall maintain a balance of $500,000 in the AESOP I Segregated
Account for the purpose of paying legal fees and disbursements of counsel to
AESOP Leasing or its Permitted Nominees for the defense of vicarious liability
claims.
SECTION 9.14. Delivery of Information. Each of AESOP Leasing, PVHC
and Quartx will provide to the Lender any information or materials necessary for
the Lender to comply with its obligations under the Indenture.
SECTION 9.15. Master Exchange Agreement. AESOP Leasing will comply
in all material respects with all of its obligations under the Master Exchange
Agreement.
SECTION 9.16. Vehicles. AESOP Leasing will maintain good and
marketable title to each Vehicle purchased by AESOP Leasing with the proceeds of
Loans made hereunder and leased under the AESOP I Operating Lease, free and
clear of all Liens and encumbrances, other than any Permitted Liens.
SECTION 9.17. Assignments. AESOP Leasing will deliver to the Trustee
on or prior to the Initial Closing Date, or such later date and thereafter, as
necessary to comply with the terms of the Related Documents, executed
counterparts of the Assignment Agreements related to the assignment of rights
under each Manufacturer Program, dated as of the Initial Closing Date, or such
later date, if delivered after the Initial Closing Date in accordance herewith,
duly executed by ARAC, each other Lessee, AESOP Leasing, AESOP Leasing II,
AFC-II, the Trustee and each applicable Manufacturer.
SECTION 9.18. Notation of Liens. AESOP Leasing will deliver to the
Lender and the Trustee on or prior to the Initial Closing Date and on an ongoing
basis, as applicable, evidence (which, in the case of the filing of financing
statements on form UCC-1, may be telephonic confirmation of such filing,
followed by prompt written confirmation) that it has caused or is causing the
Trustee's name to be noted on the Certificate of Title for each Vehicle leased
under the AESOP I Operating Lease (other than Certificates of Title for the
Initial PVT Vehicles, which Certificate of Title will show BONY as the first
lienholder, and Vehicles titled in the states of Nebraska, Ohio and Oklahoma) in
accordance herewith and all filings (including filings of financing statements
on form UCC-1) and recordings have been accomplished as may be required by law
to establish, perfect (other than perfection of the security interest of the
Trustee in Vehicles by notation of the lien of the Trustee on the Certificates
of Title for Vehicles titled in the States of Nebraska, Ohio and Oklahoma),
protect and preserve the rights, titles, interests, remedies, powers,
privileges, licenses and security interest of
<PAGE>
the Trustee in such Vehicles and other AESOP I Operating Lease Loan Collateral
for the benefit of the Secured Parties.
SECTION 9.19. [RESERVED].
SECTION 9.20. [RESERVED].
SECTION 9.21. [RESERVED].
SECTION 9.22. Non-Program Vehicle Report. On or before the second
Determination Date immediately following June 30 and December 31 of each
calendar year, AESOP Leasing shall cause a firm of nationally recognized
independent public accountants (who may also render other services to AESOP
Leasing, ARC or ARAC and who is acceptable to the Rating Agencies and each
Enhancement Provider) to furnish a report to the Lender, the Trustee, each
Enhancement Provider and the Rating Agencies to the effect that they have
performed certain agreed upon procedures (which shall be acceptable to each
Enhancement Provider) with respect to the calculation of (i) the Disposition
Proceeds obtained from the sale or other disposition of all Non-Program Vehicles
(other than Casualties) sold or otherwise disposed of during each Related Month
in such period, (ii) the respective Net Book Values of such Non-Program
Vehicles, and (iii) the Non-Program Fleet Market Value and compared such
calculations with the corresponding amounts set forth in the Monthly
Certificates prepared pursuant to Section 4.1(b) of the Indenture and that on
the basis of such comparison such accountants are of the opinion that such
amounts are in agreement, except for such exceptions as they believe to be
immaterial and such other exceptions as shall be set forth in such report. With
respect to the calculations described in the foregoing clause (iii), such report
shall make the comparison described with respect to the Non-Program Fleet Market
Value only as of the last Determination Date in the period as to which the
report is made. On or before the second Determination Date immediately following
March 31 and September 30 of each calendar year, AESOP Leasing shall furnish an
Officer's Certificate of AESOP Leasing to the Lender, the Trustee, each
Enhancement Provider and the Rating Agencies to the effect that the officer
making such certification has compared or caused to be compared the calculations
described in clauses (i) and (ii) above with the corresponding amounts set forth
in the Monthly Certificates prepared pursuant to Section 4.1(b) of the
Indenture, and has compared or caused to be compared the calculation described
in clause (iii) above with the corresponding amount set forth in the Monthly
Certificate prepared pursuant to Section 4.1(b) of the Indenture as of the last
Determination Date in the period as to which the Officer's Certificate is given,
and that on the basis of such comparison such officer is of the opinion that
such amounts are in agreement, except for such exceptions as shall be set forth
in such Officer's Certificate.
SECTION 9.23. Sale of Non-Program Vehicles Returned to AESOP
Leasing. In the event that any Non-Program Vehicle leased under the AESOP I
Operating Lease is returned to AESOP Leasing in accordance with Section 2.6(c)
of the AESOP I Operating Lease, AESOP Leasing shall use commercially reasonable
efforts
<PAGE>
to arrange for the sale of such Vehicle and to maximize the sale price thereof.
AESOP Leasing shall not return a Non-Program Vehicle to a Manufacturer under a
Manufacturer Program unless the conditions set forth in Section 2.6(b) of the
AESOP I Operating Lease would have been satisfied with respect to such
disposition.
SECTION 10. NEGATIVE COVENANTS. Until the expiration or termination
of the Loan Commitment and thereafter until the Loan Note and all other
Liabilities are paid in full, each of AESOP Leasing, PVHC and Quartx agrees
that, unless at any time the Lender shall otherwise expressly consent in
writing, it will not:
SECTION 10.1. Liens. Create, incur, assume or permit to exist any
Lien upon any of its Assets (including the AESOP I Collateral), other than
Permitted Liens.
SECTION 10.2. Other Indebtedness. Create, assume, incur, suffer to
exist or otherwise become or remain liable in respect of any Indebtedness other
than (i) Indebtedness hereunder and (ii) Indebtedness permitted under any other
Related Document.
SECTION 10.3. Mergers, Consolidations. Except as may be permitted by
the express written approval of the Trustee and the Lender, merge with or into,
enter into any joint venture or other association with, or consolidate with, any
other Person.
SECTION 10.4. Sales of Assets. Sell, lease, transfer, liquidate or
otherwise dispose of any Assets, except as contemplated by the Related
Documents.
SECTION 10.5. Acquisition of Assets. Acquire, by long-term or
operating lease or otherwise, any Assets except pursuant to the terms of the
Related Documents.
SECTION 10.6. Dividends, Officers' Compensation, etc. (i) Declare or
pay any distributions on any of its partnership interests or capital stock, as
the case may be, or make any other distribution on, or any purchase, redemption
or other acquisition of, any of its partnership interests or any shares of its
capital stock, as the case may be, except, in the case of AESOP Leasing, out of
funds in the AESOP I Segregated Account, or (ii) pay any wages or salaries or
other compensation to officers, employees or others except out of earnings
computed in accordance with GAAP and, in the case of AESOP Leasing, only from
funds in the AESOP I Segregated Account.
SECTION 10.7. Organizational Documents. Amend any of its
organizational documents, including its certificate of limited partnership or
limited partnership agreement or certificate of incorporation or by-laws, as the
case may be, unless prior to such amendment, each Rating Agency confirms that
after such
<PAGE>
amendment the Rating Agency Consent Condition and the CP Rating Agency Condition
will be met.
SECTION 10.8. Investments. Make, incur, or suffer to exist any loan,
advance, extension of credit or other investment in any Person other than
pursuant to the Related Documents.
SECTION 10.9. Regulations T, U and X. Use or permit any proceeds of
the Loans made hereunder to be used, either directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of "purchasing or carrying
margin stock" within the meaning of Regulations T, U and X of the Board of
Governors of the Federal Reserve System, as amended from time to time.
SECTION 10.10. Other Agreements. Enter into any agreement containing
any provision which would be violated or breached by the performance of its
obligations hereunder or under any instrument or document delivered or to be
delivered by it hereunder or in connection herewith.
SECTION 10.11. Use of Vehicles. Use or allow the Vehicles leased
under the AESOP I Operating Lease to be used in any manner (i) that would make
Program Vehicles ineligible for repurchase under an Eligible Manufacturer
Program, (ii) for any illegal purposes or (iii) that could subject the Vehicles
to confiscation.
SECTION 10.12. Use of Proceeds. Use or permit the proceeds of the
Loans made hereunder to be used for any purpose other than to purchase or
finance Eligible Vehicles that will be leased under the AESOP I Operating Lease.
SECTION 10.13. Limitations on the Acquisition or Redesignation of
Certain Vehicles. Unless otherwise specified in the related Supplement or unless
waived by the Required Noteholders as specified in the related Supplement,
permit (a) the Non-Eligible Manufacturer Amount as of any Payment Date to exceed
any applicable Maximum Non-Eligible Manufacturer Amount, (b) the Financed
Vehicle Amount as of any Payment Date to exceed any applicable Maximum Financed
Vehicle Amount, (c) the Non-Program Vehicle Amount as of any Payment Date to
exceed any applicable Maximum Non-Program Vehicle Amount, (d) the aggregate Net
Book Value of all Vehicles leased under the Leases and manufactured by a
particular Manufacturer or group of Manufacturers as of any Payment Date to
exceed any applicable Maximum Manufacturer Amount and (e) the Specified States
Amount as of any Payment Date to exceed any applicable Maximum Specified States
Amount.
SECTION 10.14. Maximum Vehicle Age. Permit at any time the age of
any Non-Program Vehicle leased under the AESOP I Operating Lease, calculated
from the date of the original manufacturer invoice for such Vehicle, to exceed
18 months.
<PAGE>
SECTION 10.15. Transactions Pursuant to the Master Exchange
Agreement. (i) Designate any Program Vehicle as an Identified Relinquished
Vehicle, transfer any Vehicle to the Intermediary pursuant to the Master
Exchange Agreement or designate any Identified Replacement Vehicle without first
satisfying the conditions thereto set forth in Section 11.3, or (ii) transfer
any Vehicle to the Intermediary pursuant to the Master Exchange Agreement that
is not a Program Vehicle subject to the GM Repurchase Program (unless, with
respect to the transfer to the Intermediary pursuant to the Master Exchange
Agreement of Program Vehicles subject to any additional Eligible Manufacturer
Program, (x) an appropriate amendment to the Assignment Agreement in connection
with such Eligible Manufacturer Program, reflecting the consent of such
Manufacturer to sales and purchases by the Intermediary, has been executed and
delivered, (y) the Rating Agency Consent Condition has been satisfied, and (z)
if any Series of Notes supporting Commercial Paper Notes is outstanding, the CP
Rating Agency Condition has been satisfied and the approval of the Majority
Banks, as defined in the applicable Supplement, has been obtained).
SECTION 10.16. Master Exchange Agreement. (i) Consent to any
amendment or modification to, or waiver of, any provision of the Master Exchange
Agreement, the Intercreditor Agreement or any of the Receivables Funding
Documents, or (ii) appoint a successor to the Person acting as Intermediary
under the Master Exchange Agreement, except a Person satisfying the definition
of "Eligible Successor Intermediary" set forth therein, without (x) the prior
written consent of the Trustee, (y) the satisfaction of the Rating Agency
Consent Condition and (z) if any Series of Notes supporting Commercial Paper
Notes is outstanding, satisfaction of the CP Rating Agency Condition and the
approval of the Majority Banks (as defined in the applicable Supplement).
SECTION 11. CONDITIONS.
SECTION 11.1. Initial Loans Pursuant to Amended and Restated
Agreement. The effectiveness of this Agreement shall be subject to the prior or
concurrent (i) delivery of each of the following documents to the Lender and, if
not otherwise required to be delivered to the Trustee by any other Related
Document, to the Trustee and any Enhancement Provider, as applicable (in form
and substance satisfactory to the Lender and, if applicable, the Trustee and any
Enhancement Provider) and (ii) satisfaction of the following conditions, as
applicable:
(a) Certificate of Limited Partnership; Certificates of
Incorporation. The certificate of limited partnership of AESOP Leasing, duly
certified by the Secretary of State of the State of Delaware, together with a
copy of the limited partnership agreement of AESOP Leasing, duly certified by
the Secretary or an Assistant Secretary of Original AESOP. The certificate of
incorporation of each of Original AESOP, PVHC and Quartx, duly certified by the
Secretary of State of the State of Delaware, together with a copy of the by-laws
of each of Original AESOP, PVHC and Quartx, duly certified by the Secretary or
an Assistant Secretary of Original AESOP, PVHC and Quartx, as the case may be.
<PAGE>
(b) Resolutions. Copies of resolutions of the Board of Directors of
each of Original AESOP, PVHC and Quartx, authorizing or ratifying the execution,
delivery and performance of those documents and matters required of it with
respect to this Agreement, duly certified by the Secretary or an Assistant
Secretary of Original AESOP, PVHC or Quartx, as the case may be;
(c) Consents, etc. Certified copies of all documents evidencing any
necessary limited partnership or corporate action, consents and governmental
approvals (if any) with respect to this Agreement;
(d) Incumbency and Signatures. A certificate of the Secretary or an
Assistant Secretary of each of Original AESOP, PVHC and Quartx certifying the
names of the individual or individuals authorized to sign this Agreement and the
other Related Documents to be executed by it, together with a sample of the true
signature of each such individual (the Lender may conclusively rely on each such
certificate until formally advised by a like certificate of any changes
therein);
(e) Opinions of Counsel. The opinions of counsel described in
Supplemental Indenture No. 2;
(f) Good Standing Certificates. Certificates of good standing for
each of AESOP Leasing, Original AESOP, PVHC and Quartx in the jurisdiction of
its formation and the jurisdiction of its principal place of business;
(g) Search Reports. A written search report from a Person
satisfactory to the Lender and the Trustee listing all effective financing
statements that name any of AESOP Leasing, PVHC or Quartx, as debtor or
assignor, and that are filed and the jurisdictions in which filings were made
pursuant to subsection (i) below, together with copies of such financing
statements, and tax and judgment lien search reports from a Person satisfactory
to the Lender and the Trustee showing no evidence of such liens filed against
AESOP Leasing, PVHC or Quartx;
(h) Evidence. Evidence (which may be telephonic, followed by prompt
written confirmation) of the filing of such UCC financing statements or
amendments to financing statements previously filed, naming (1) AESOP Leasing as
debtor, (2) PVHC as debtor and (3) Quartx as debtor, and the Lender as secured
party and the Trustee as assignee or other, similar instruments or documents, if
any, as may be necessary or, in the reasonable opinion of the Lender and the
Trustee, desirable under the UCC of all applicable jurisdictions to perfect the
Lender's and the Trustee's interest in the AESOP I Loan Collateral;
(i) Enhancement. The Enhancement Amount with respect to any Series
of Notes for which the Series Closing Date occurs on the Initial Closing Date is
equal to or exceeds the Required Enhancement Amount for such Series;
<PAGE>
(j) Leases. An executed copy of the Amended and Restated AESOP I
Operating Lease and all documents required to be delivered by any relevant
Lessee and ARC to the Lessors pursuant thereto, and all conditions to the
effectiveness thereof shall have been satisfied;
(k) Assignment Agreement. An executed copy of the amendment to the
Assignment Agreement of General Motors Corporation;
(l) Indenture. Supplemental Indenture No. 2, dated the date hereof,
duly executed by the Lender and the Trustee, and all conditions to the
effectiveness thereof shall have been satisfied in all respects;
(m) Master Exchange Agreement and Related Documents. Executed copies
of the Master Exchange Agreement, the Intercreditor Agreement and the
Receivables Funding Documents and all conditions to the effectiveness thereof
shall have been satisfied.
(n) Other. Such other documents as the Trustee or the Lender may
reasonably request.
SECTION 11.2. All Loans. All Loans hereunder (including the initial
Loan) shall be subject to the further conditions precedent that (a) if the
amount of Enhancement with respect to any Series of Notes is increased or if the
current Enhancement with respect to any Series of Notes is replaced, to the
extent such additional or replacement Enhancement is in the form of an unfunded
commitment (including, without limitation, a letter of credit), AESOP Leasing
shall cause the delivery to the Lender, the Trustee, the Enhancement Providers,
if any, for any Series of Notes issued and outstanding on the date of such
opinion(s), Placement Agents, if any, the Rating Agencies and the Administrative
Agent (on behalf of the Liquidity Lenders) on or prior to the effectiveness of
such additional or replacement Enhancement of opinion(s) of counsel as to the
enforceability of such additional or replacement Enhancement substantially
similar to the original opinions delivered with respect to such Enhancement, (b)
the Lender shall have received a completed Loan Request therefor and a copy of
the related Vehicle Order, (c) all conditions precedent to the issuance of any
Series of Notes after the Initial Closing Date shall have been satisfied in
accordance with the related Supplement and (d) on the date of such Loan the
following statements shall be true (and AESOP Leasing, by accepting the amount
of such Loan, shall be deemed to have represented and warranted that): (i) the
representations and warranties contained in Section 8 are true and correct on
and as of such date with the same effect as though made on and as of such date
and shall be deemed to have made on such date and (ii) no Potential AESOP I
Operating Lease Loan Event of Default or AESOP I Operating Lease Loan Event of
Default has occurred and is continuing or would result from the making of such
Loan or from the application of the proceeds of such Loan.
<PAGE>
SECTION 11.3. All Transactions Under Master Exchange Agreement. Each
designation by AESOP Leasing of a Program Vehicle as an Identified Relinquished
Vehicle, each transfer by AESOP Leasing of an Identified Relinquished Vehicle to
the Intermediary pursuant to the Master Exchange Agreement and each designation
by AESOP Leasing of an Identified Replacement Vehicle shall be subject to the
satisfaction of the following conditions: (a) in connection with the designation
of any Identified Replacement Vehicle, all conditions precedent to any borrowing
required hereunder in connection with the purchase of such Identified
Replacement Vehicle are satisfied; (b) no Manufacturer Event of Default with
respect to the Manufacturer Program pursuant to which such Vehicle is intended
to be transferred or acquired pursuant to the Master Exchange Agreement shall
have occurred and be continuing; (c) in connection with the designation of any
Program Vehicle as an Identified Relinquished Vehicle, AESOP Leasing shall have
contracted to sell such Identified Relinquished Vehicle pursuant to an Eligible
Manufacturer Program (under which the Manufacturer shall have consented to the
purchase and sale of Vehicles by the Intermediary, which consent shall not have
been revoked) and shall have directed the Intermediary to sell such Identified
Relinquished Vehicle pursuant to such Eligible Manufacturer Program on the date
such Identified Relinquished Vehicle is transferred to the Intermediary pursuant
to the Master Exchange Agreement; and (d) on the date of any such designation or
transfer, the following statements shall be true (and AESOP Leasing, by making
such designation or transfer, shall be deemed to have represented and warranted
that): the representations and warranties contained in Section 8 are true and
correct on and as of such date and shall be deemed to have been made on such
date with the same effect as though made on and as of such date and shall be
deemed to have been made on such date, (ii) no Potential Loan Event of Default
or Loan Event of Default, no Potential Amortization Event or Amortization Event
and no Liquidation Event has occurred and is continuing or would result from the
making of such designation or transfer and (iii) no Exchange Agreement
Termination Event or event or occurrence, which, with the passage of time or the
giving of notice thereof, or both, would become an Exchange Agreement
Termination Event has occurred and is continuing or would result from the making
of such designation or transfer.
SECTION 12. LOAN EVENTS OF DEFAULT AND THEIR EFFECT.
SECTION 12.1. AESOP I Operating Lease Loan Events of Default. Each
of the following shall constitute an AESOP I Operating Lease Loan Event of
Default under this Agreement:
SECTION 12.1.1. Non-Payment of Loans. Default in the payment when
due of the principal amount of any Loan made hereunder or the Monthly Loan
Principal Amount hereunder, and the continuance thereof for one (1) Business Day
after the occurrence thereof, or the default in the payment of any Loan Interest
on any Loan made hereunder, and the continuance thereof for five (5) Business
Days after the occurrence thereof; provided, however, that in the case of any
failure to pay an amount owing pursuant to Section 5.1(B)(iii) or 5.1(B)(iv)(y),
an AESOP I Operating Lease
<PAGE>
Loan Event of Default shall occur only to the extent that at the end of the
applicable continuance period referred to above, an Enhancement Deficiency
exists with respect to any Series of Notes or an AESOP I Operating Lease Vehicle
Deficiency exists.
SECTION 12.1.2. Non-Payment of Other Amounts. Default, and
continuance thereof for five (5) Business Days after notice thereof by the
Lender to AESOP Leasing, in the payment when due of any amount payable hereunder
(other than any amount described in Section 12.1.1).
SECTION 12.1.3. Bankruptcy, Insolvency, etc. The occurrence of an
Event of Bankruptcy with respect to ARC, ARAC, any other Lessee under the AESOP
I Operating Lease, AESOP Leasing, Original AESOP, PVHC or Quartx.
SECTION 12.1.4. Non-Compliance With Provisions. Failure by AESOP
Leasing to comply with or to perform any provision of this Agreement (and not
constituting an AESOP I Operating Lease Loan Event of Default under any of the
other provisions of this Section 12.1) and, other than the failure to comply
with the provisions of Sections 10.1, 10.2 and 10.15 hereof, the continuance of
such failure for 30 days after the earlier of the date of the receipt of written
notice thereof from the Lender or the Trustee to AESOP Leasing and the date
AESOP Leasing learns of such failure.
SECTION 12.1.5. Warranties and Representations. Any warranty or
representation made by or on behalf of AESOP Leasing in connection herewith is
inaccurate or incorrect or is breached or false or misleading in any material
respect as of the date such warranty or representation is made; or any schedule,
certificate, financial statement, report, notice, or other writing furnished by
or on behalf of AESOP Leasing to the Lender is false or misleading in any
material respect on the date as of which the facts therein set forth are stated
or certified.
SECTION 12.1.6. Lease Events of Default. The occurrence of a Lease
Event of Default.
SECTION 12.1.7. Loan Events of Default Under Other Loan Agreements.
The occurrence of an AESOP I Finance Lease Loan Event of Default or an AESOP II
Loan Event of Default.
SECTION 12.1.8. Judgments. Any final and unappealable (or, if
capable of appeal, such appeal is not being diligently pursued or enforcement
thereof has not been stayed) judgment or order for the payment of money in
excess of $100,000 which is not fully covered by insurance shall be rendered
against AESOP Leasing and such judgment or order shall continue unsatisfied and
unstayed for a period of 30 days.
SECTION 12.2. Effect of AESOP I Operating Lease Loan Event of
Default or Liquidation Event of Default. If any AESOP I Operating Lease Loan
Event
<PAGE>
of Default described in Section 12.1.1 or 12.1.3 or any Liquidation Event of
Default shall occur, the Loan Commitment (if not theretofore terminated) shall
immediately terminate and in the case of any other AESOP I Operating Lease Loan
Event of Default, the Lender may declare its Loan Commitment (if not theretofore
terminated) to be terminated and whereupon it shall immediately terminate and
may declare the Loan Note and all other Liabilities to be due and payable,
whereupon the Loan Note shall become immediately due and payable.
SECTION 12.3. Rights of Trustee Upon Liquidation Event of Default
and Non-Performance of Certain Covenants. (a) If a Liquidation Event of Default
shall have occurred and be continuing the Lender and the Trustee, to the extent
provided in the Indenture, shall have all the rights against AESOP Leasing, PVHC
and Quartx and the Loan Collateral provided in the Indenture upon a Liquidation
Event of Default, including the right to take (under the specified
circumstances) possession of all Vehicles immediately.
(b) If (i) AESOP Leasing shall default in the due performance and
observance of any of its obligations under Section 9.3, 9.4, 9.5(iii), 9.8, 10.1
or 10.11 hereof, or (ii) any Lessee shall default in the due performance and
observance of its obligations under Section 31.10 of the AESOP I Operating
Lease, and such default shall continue unremedied for a period of 30 days after
notice thereof shall have been given to AESOP Leasing by the Lender, the Lender
shall have the ability to exercise all rights, remedies, powers, privileges and
claims of AESOP Leasing, PVHC or Quartx against the Manufacturers under or in
connection with the Manufacturer Programs with respect to (A) Program Vehicles
leased under the AESOP I Operating Lease that AESOP Leasing has determined to
turn back to the Manufacturers under such Manufacturer Programs (excluding
Relinquished Vehicles), and (B) whether or not AESOP Leasing shall then have
determined to turn back such Program Vehicles, any Program Vehicles leased under
the AESOP I Operating Lease for which the applicable Repurchase Period will end
within one week or less.
(c) Upon a default in the performance (after giving effect to any
grace periods provided herein) by AESOP Leasing, PVHC or Quartx of its
obligations under Section 7.5 or 8.6 hereof with respect to certain Vehicles,
the Lender or the Trustee shall have the right to take actions reasonably
necessary to correct such default with respect to the subject Vehicles including
the execution of UCC financing statements with respect to Manufacturer Programs
and other general intangibles and the completion of Vehicle Perfection and
Documentation Requirements on behalf of AESOP Leasing, PVHC, Quartx or the
Lender, as applicable.
(d) Upon the occurrence of a Liquidation Event of Default, AESOP
Leasing will return all Program Vehicles leased under the AESOP I Operating
Lease to the related Manufacturer and shall sell all Non-Program Vehicles leased
under the AESOP I Operating Lease in accordance with the instructions of the
Lender. Upon the occurrence of a Limited Liquidation Event of Default with
respect to any Series of Notes, AESOP Leasing will return Program Vehicles
leased under the AESOP I
<PAGE>
Operating Lease to the related Manufacturer, and shall sell Non-Program Vehicles
leased under the AESOP I Operating Lease in accordance with the instructions of
the Lender, to generate proceeds in an amount which, together with the proceeds
of Vehicles returned pursuant to the AESOP I Finance Lease Loan Agreement and
the AESOP II Loan Agreement, will be sufficient to pay all interest on and
principal of such Series of Notes. To the extent any Manufacturer fails to
accept any such Vehicles under the terms of the applicable Manufacturer Program,
the Lender shall have the right to otherwise dispose of such Vehicles and to
direct AESOP Leasing to dispose of such Vehicles in accordance with its
instructions. In addition, the Lender shall have all of the rights, remedies,
powers, privileges and claims vis-a-vis AESOP Leasing, PVHC and Quartx necessary
or desirable to allow the Trustee to exercise the rights, remedies, powers,
privileges and claims given to the Trustee pursuant to Sections 9.2 and 9.3 of
the Base Indenture and each of AESOP Leasing, PVHC and Quartx acknowledges that
it has hereby granted the Lender all of the rights, remedies, powers, privileges
and claims granted to the Trustee pursuant to Article 9 of the Base Indenture
and that, under certain circumstances set forth in the Base Indenture, the
Trustee may act in lieu of the Lender in the exercise of such rights, remedies,
powers, privileges and claims.
SECTION 12.4. Application of Proceeds. The proceeds of any sale or
other disposition on any date pursuant to Section 12.3 shall be applied in the
following order: (i) to the reasonable costs and expenses incurred by the Lender
in connection with such sale or disposition, including any reasonable costs
associated with repairing any Vehicles leased under the AESOP I Operating Lease,
and reasonable attorneys' fees in connection with the enforcement of this
Agreement; (ii) to the payment of accrued Loan Interest and outstanding Loan
Principal Amount, and all other amounts due hereunder in the Related Month; and
(iii) any remaining amounts to AESOP Leasing, or such Person as may be lawfully
entitled thereto.
SECTION 12.5. Additional Agreements of AESOP Leasing. Upon the
occurrence of any Loan Event of Default, any Lease Event of Default, any
Amortization Event, any Liquidation Event of Default or any Exchange Agreement
Termination Event, AESOP Leasing immediately shall rescind the identification of
any Identified Replacement Vehicles (to the extent permitted pursuant to Section
3.6 of the Master Exchange Agreement, and pursuant to the Receivables Funding
Documents), immediately shall revoke the identification of any Identified
Replacement Vehicles to the extent permitted pursuant to Section 4.2 of the
Master Exchange Agreement, and shall take any and all action available to it at
law or in equity to effect the release of any funds or other property then held
by the Intermediary pursuant to the Master Exchange Agreement, except to the
extent that such funds or property constitute Receivables Lender Collateral.
SECTION 13. GENERAL.
SECTION 13.1. Waiver; Amendments. No delay on the part of the Lender
or the holder of the Loan Note or other Liabilities in the exercise of any
right,
<PAGE>
power or remedy shall operate as a waiver thereof, nor shall any single or
partial exercise by any of them of any right, power or remedy preclude other or
further exercise thereof, or the exercise of any other right, power or remedy.
No amendment, modification or waiver of, or consent with respect to, any
provision of this Agreement or the Loan Note shall in any event be effective
unless (i) the same shall be writing and signed and delivered by the Lender,
AESOP Leasing, PVHC and Quartx and consented to in writing by the Trustee, (ii)
the Lender shall have received in writing confirmation from each of the Rating
Agencies that its then current rating with respect to any outstanding Series of
Notes or the Commercial Paper Notes will not be reduced or withdrawn as a result
thereof and (iii) the Rating Agency Consent Condition shall have been satisfied;
provided that any amendment or modification of the Loan Note need only be signed
by AESOP Leasing.
SECTION 13.2. Confirmations. AESOP Leasing and the Lender (or the
holder of the Loan Note) agree from time to time, upon written request received
by it from the other, to confirm to the other in writing the aggregate unpaid
Loan Principal Amount.
SECTION 13.3. Notices. All notices, amendments, waivers, consents
and other communications provided to any party hereto under this Agreement shall
be in writing and addressed, delivered or transmitted to such party at its
address or facsimile number set forth below its signature hereto or at such
other address or facsimile number as may be designated by such party in a notice
to the other parties. Any notice, if mailed and properly addressed with postage
prepaid or if properly addressed and sent by pre-paid courier service, shall be
deemed given when received; any notice, if transmitted by facsimile, shall be
deemed given when transmitted upon receipt of electronic confirmation of
transmission.
SECTION 13.4. Taxes. AESOP Leasing agrees to pay, and to save the
Trustee and the Lender harmless from all liability for, any document, stamp,
filing, recording, mortgage or other taxes (other than net income taxes of the
Lender) which may be payable in connection with the borrowings hereunder or the
execution, delivery, recording or filing of this Agreement or of any other
instruments or documents provided for herein or delivered or to be delivered
hereunder or in connection herewith. All obligations provided for in this
Section 13.4 shall survive any termination of this Agreement.
SECTION 13.5. Indemnification. In consideration of the Lender's
execution and delivery of this Agreement and the Lender's extension of the Loan
Commitment, AESOP Leasing hereby agrees to:
(a) indemnify, exonerate and hold the Lender and its officers,
directors, stockholders, employees, and agents (herein collectively called
"Lender Parties" and individually called a "Lender Party") free and harmless
from and against any and all claims, demands, actions, causes of action, suits,
losses, costs, charges, liabilities, damages, and expenses in connection
therewith (irrespective of whether such Lender
<PAGE>
Party is a party to the action for which indemnification hereunder is sought),
and including, without limitation, reasonable attorneys' fees and disbursements
(called in this paragraph the "Indemnified Liabilities"), incurred by Lender
Parties or any of them as a result of, or arising out of, or relating to (i) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of any Loan made hereunder or involving any Loan
made hereunder, or (ii) the execution, delivery, performance or enforcement of
this Agreement and any instrument, document or agreement executed pursuant
hereto by any of the Lender Parties, or (iii) the ownership, operation,
maintenance, leasing, or titling of the Vehicles, except in each case, for any
such Indemnified Liabilities arising on account of the relevant Lender Party's
gross negligence or willful misconduct and, to the extent that the foregoing
undertaking may be unenforceable for any reason, AESOP Leasing agrees to make
the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law; and
(b) indemnify and hold harmless the Trustee (and its officers,
directors, employees and agents) from and against any loss, liability, expense,
damage or injury suffered or sustained by reason of, or arising out of or in
connection with: (i) any acts or omissions of AESOP Leasing pursuant to this
Agreement and (ii) the Trustee's appointment under the Indenture and the
Trustee's performance of its obligations thereunder, or any document pertaining
to any of the foregoing to which the Trustee is a signatory, including, but not
limited to any judgment, award, settlement, reasonable attorneys' fees and other
costs or expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim; provided, however, AESOP Leasing shall
have no duty to indemnify the Trustee to the extent such loss, liability,
expense, damage or injury suffered or sustained is due to the Trustee's
negligence or willful misconduct.
AESOP Leasing agrees that the indemnification provided for in this Section 13.5
shall run directly to and be enforceable by an indemnified party subject to the
limitations hereof. The indemnification provided for in this Section 13.5 shall
survive the termination of this Agreement, the Indenture and the resignation or
removal of the Trustee.
SECTION 13.6. Bankruptcy Petition. (a) Each of AESOP Leasing, PVHC
and Quartx hereby covenants and agrees that, prior to the date which is one year
and one day after the payment in full of (i) all Commercial Paper Notes
Outstanding and (ii) all Notes Outstanding, it will not institute against, or
join any other Person in instituting against, AFC-II any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceeding under the laws of the United States or any state of the
United States. In the event that AESOP Leasing, PVHC or Quartx takes action in
violation of this Section 13.6, AFC-II agrees, for the benefit of the
Noteholders and the Commercial Paper Note holders, respectively, that it shall
file an answer with the bankruptcy court or otherwise properly contest the
filing of such a petition by AESOP Leasing, PVHC or Quartx against AFC-II or
commencement of such action and raise the defense that each of
<PAGE>
AESOP Leasing, PVHC and Quartx has agreed in writing not to take such action and
should be estopped and precluded therefrom and such other defenses, if any, as
its counsel advises that it may assert. The provisions of this Section 13.6
shall survive the termination of this Agreement.
(b) AFC-II hereby covenants and agrees that, prior to the date which
is one year and one day after the payment in full of (i) all Commercial Paper
Notes Outstanding, (ii) all Notes Outstanding and (iii) all Loans outstanding
under the AESOP I Loan Agreements, it will not institute against, or join any
other Person in instituting against, AESOP Leasing, Original AESOP, AESOP
Leasing II, AFC, PVHC or Quartx any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or other similar proceeding under the laws
of the United States or any state of the United States. In the event that AFC-II
takes action with respect to AESOP Leasing, PVHC or Quartx in violation of this
Section 13.6, each of AESOP Leasing, PVHC and Quartx agrees, for the benefit of
the Noteholders and the Commercial Paper Note Holders, respectively, that it
shall file an answer with the bankruptcy court or otherwise properly contest the
filing of such a petition by AFC-II against AESOP Leasing, PVHC or Quartx or
commencement of such action and raise the defense that AFC-II has agreed in
writing not to take such action and should be estopped and precluded therefrom
and such other defenses, if any, as its counsel advises that it may assert. The
provisions of this Section 13.6 shall survive the termination of this Agreement.
SECTION 13.7. Submission to Jurisdiction. The Lender may enforce any
claim arising out of this Agreement or the Loan Note in any state or federal
court having subject matter jurisdiction and located in New York, New York. For
the purpose of any action or proceeding instituted with respect to any such
claim, AESOP Leasing hereby irrevocably submits to the jurisdiction of such
courts. Each of AESOP Leasing, PVHC and Quartx irrevocably consents to the
service of process out of said courts by mailing a copy thereof, by registered
mail, postage prepaid, to AESOP Leasing, PVHC or Quartx, as the case may be, and
agrees that such service, to the fullest extent permitted by law, (i) shall be
deemed in every respect effective service of process upon it in any such suit,
action or proceeding and (ii) shall be taken and held to be valid personal
service upon and personal delivery to it. Nothing herein contained shall affect
the right of the Trustee and the Lender to serve process in any other manner
permitted by law or preclude the Lender from bringing an action or proceeding in
respect hereof in any other country, state or place having jurisdiction over
such action. Each of AESOP Leasing, PVHC and Quartx hereby irrevocably waives,
to the fullest extent permitted by law, any objection which it may have or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court located in New York, New York and any claim that any
such suit, action or proceeding brought in such a court has been brought in an
inconvenient forum.
SECTION 13.8. Governing Law. THIS AGREEMENT AND THE LOAN NOTE SHALL
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD
<PAGE>
TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW). Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement. All obligations of
AESOP Leasing, PVHC and Quartx and rights of the Lender and the holder of the
Loan Note or Liability expressed herein shall be in addition to and not in
limitation of those provided by applicable law or in any other written
instrument or agreement relating to any of the Liabilities.
SECTION 13.9. JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT TO WHICH IT IS A
PARTY, OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR
WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH OR ARISING FROM ANY
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED
TRANSACTION, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE
A COURT AND NOT BEFORE A JURY.
SECTION 13.10. Successors and Assigns. This Agreement shall be
binding upon AESOP Leasing, PVHC, Quartx, the Lender and their respective
successors and assigns, and shall inure to the benefit of AESOP Leasing, PVHC,
Quartx, the Lender, the Trustee as a third party beneficiary and their
respective successors and assigns; provided, however, that none of AESOP
Leasing, PVHC or Quartx shall have the right to assign its rights or delegate
its duties under this Agreement without (i) the Lender's and the Trustee's prior
written consent and (ii) receipt of written confirmation from each of the Rating
Agencies that its then current rating will not be reduced or withdrawn with
respect to the Commercial Paper Notes or any outstanding Series of Notes as a
result thereof. Each of AESOP Leasing, PVHC and Quartx acknowledges that this
Agreement and the Loan Note will be assigned by the Lender to the Trustee
pursuant to the Indenture, and hereby agrees that, subject to the terms of the
Indenture, the Trustee may exercise all of the Lender's rights hereunder. This
Agreement and the other Related Documents contain the entire agreement of the
parties hereto with respect to the matters covered hereby.
SECTION 13.11. Tax Treatment of Loans. It is the intention of the
parties hereto that for U.S. federal income tax purposes each Loan made
hereunder will constitute indebtedness of AESOP Leasing to the Lender and that
AESOP Leasing shall be the owner of the Vehicles that are subject to the AESOP I
Operating Lease. The parties agree to take no position in any tax return, filing
or proceeding inconsistent with this provision.
<PAGE>
SECTION 13.12. No Recourse. The obligations of AFC-II, AESOP
Leasing, PVHC and Quartx under this Agreement are solely the corporate
obligations of AFC-II, AESOP Leasing, PVHC and Quartx, respectively. No recourse
shall be had for the payment of any obligation or claim arising out of or based
upon this Agreement against any shareholder, employee, officer, director,
partner or incorporator of AFC-II, AESOP Leasing, PVHC or Quartx.
SECTION 13.13. Effect of Amendment. Except to the extent amended
hereby, the Original Loan Agreement is in all respects ratified and confirmed
and in full force and effect. From and after the date hereof, all references in
the Related Documents to the AESOP I Operating Lease Loan Agreement shall mean
such agreement as amended and restated hereby, unless the context otherwise
requires.
<PAGE>
Delivered at New York, New York as of the day and year first above
written.
AESOP LEASING L.P.
By: AESOP LEASING CORP.,
its general partner
By:
------------------------------------
Name:
Title:
Address: c/o Lord Securities Corporation
Two Wall Street
New York, NY 10055
Facsimile: (212) 346-9012
Telephone: (212) 346-9000
PV HOLDING CORP.
By:
------------------------------------
Name:
Title:
Address: c/o The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
Facsimile: (302) 658-2919
Telephone: (302) 777-0200
<PAGE>
QUARTX FLEET MANAGEMENT, INC.
By:
------------------------------------
Name:
Title:
Address: c/o The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
Facsimile: (302) 658-2919
Telephone: (302) 777-0200
AESOP FUNDING II L.L.C.
By:
------------------------------------
Name:
Title:
Address: c/o Lord Securities Corporation
Two Wall Street
New York, NY 10055
Facsimile: (212) 346-9012
Telephone: (212) 346-9000
<PAGE>
EXHIBIT A
TO THE LOAN
AGREEMENT
FORM OF LOAN NOTE
[Intentionally Omitted.]
<PAGE>
EXHIBIT B-1
TO THE LOAN
AGREEMENT
FORM OF LOAN REQUEST
AESOP Funding II L.L.C.
c/o Lord Securities Corporation
Two Wall Street, 19th Floor
New York, New York 10005
Attention: Andrew L. Stidd
Ladies and Gentlemen:
This Loan Request is delivered to you pursuant to Section 3.2 of that
certain Amended and Restated AESOP I Operating Lease Loan Agreement, dated as of
September 15, 1998 (as further amended, supplemented, restated or otherwise
modified from time to time, the "Loan Agreement"), among AESOP Leasing L.P., a
Delaware limited partnership ("AESOP Leasing"), PV Holding Corp. and Quartx
Fleet Management, Inc., as Permitted Nominees of AESOP Leasing, and AESOP
Funding II L.L.C., a Delaware limited liability company (the "Lender"). Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Loan Agreement.
AESOP Leasing hereby requests that a Loan be made in the amount of
$______________ on _______________ , 19 __.
AESOP Leasing hereby acknowledges that the delivery of this Loan Request
and the acceptance by AESOP Leasing of the proceeds of the Loan requested hereby
constitute a representation and warranty by AESOP Leasing that, on the date of
such Loan, and before and after giving effect thereto and to the application of
the proceeds therefrom, all conditions set forth in Section 11.2 of the Loan
Agreement have been satisfied and all statements set forth in Section 11.2 of
the Loan Agreement are true and correct.
Attached hereto as Annex I is a true and correct copy of the schedule
required to be delivered in connection herewith pursuant to Section 3.2 of the
Loan Agreement.
AESOP Leasing agrees that if prior to the time of the Loan requested
hereby any matter certified to herein by it will not be true and correct at such
time as if then made, it will immediately so notify the Lender. Except to the
extent, if any, that prior to the time of the Loan requested hereby the Lender
shall receive written notice to the contrary from AESOP Leasing, each matter
certified to herein shall be deemed once again to be certified as true and
correct at the date of such Loan as if then made.
<PAGE>
Please wire transfer the proceeds of the Loan to the account of AESOP
Leasing at the financial institution set forth below:
<TABLE>
<CAPTION>
Amount to be
Account No. Person to be Paid Name, Address, etc. Transferred Name
- ----------- ----------------- ------------------------------- ----
<S> <C> <C> <C>
$____________ __________________ ________________________________
________________________________
Attention: ______________________________________
</TABLE>
AESOP Leasing has caused this Loan Request to be executed and delivered,
and the certification and warranties contained herein to be made, by its duly
Authorized Officer this day of , 19 .
AESOP LEASING L.P.
By:
------------------------------------
Name:
Title:
<PAGE>
ANNEX I
Vehicle Acquisition Schedule and Related Information
1. Principal amount of proposed Loan
2. Borrowing Date of proposed Loan
3. Vehicle Identification Number (VIN)
4. Summary of Vehicles being financed (including, for Program Vehicles
subject to the GM Repurchase Program, the Designated Period for such
Program Vehicles)
5. Program or Non-Program Vehicles
6. Capitalized Cost (New Vehicles)
7. Net Book Value (Franchisee Vehicles)
<PAGE>
EXHIBIT B-2
TO THE LOAN
AGREEMENT
FORM OF LOAN REQUEST RESPONSE
AESOP Leasing L.P.
c/o Lord Securities Corporation
Two Wall Street, 19th Floor
New York, New York 10005
Attention: Andrew L. Stidd
___________________, 199
Re: Loan Request Dated , 199
Ladies and Gentlemen:
This Loan Request Response is delivered to you pursuant to Section 4.1 of
that certain Amended and Restated AESOP I Operating Lease Loan Agreement, dated
as of September 15, 1998 (as further amended, supplemented, restated or
otherwise modified from time to time, the "Loan Agreement"), among AESOP Leasing
L.P., a Delaware limited partnership ("AESOP Leasing"), PV Holding Corp. and
Quartx Fleet Management, Inc., as Permitted Nominees of AESOP Leasing, and AESOP
Funding II L.L.C., a Delaware limited liability company (the "Lender"). Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings assigned to such terms in the Loan Agreement.
Reference is hereby made to the Loan Request delivered to us today by
AESOP Leasing (the "Loan Request"). The applicable rate of Loan Interest on each
Loan requested in the Loan Request is _%; provided, however, if the Lender's
Carrying Cost Interest Rate for the Related Month is higher than the rate of
Loan Interest specified herein, the Loan Interest payable on such Loans shall be
determined using the higher rate.
Very truly yours,
AESOP FUNDING II L.L.C.
By:
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
TO THE LOAN
AGREEMENT
FORM OF PAYMENT
DEFICIT NOTICE
Harris Trust and Savings Bank, as Trustee
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attn: Indenture Trust Administration
[Related Enhancement Provider]
[Address]
[ ], 19 _
Ladies and Gentlemen:
This Payment Deficit Notice is delivered to you pursuant to Section
6.4 of the Amended and Restated AESOP I Operating Lease Loan Agreement, dated as
of September 15, 1998 (as further amended or modified from time to time, the
"Loan Agreement") among AESOP Funding II L.L.C., a Delaware limited liability
company, as Lender, PV Holding Corp. and Quartx Fleet Management, Inc., as
Permitted Nominees of the Borrower, and AESOP Leasing L.P. ("AESOP Leasing"), a
Delaware limited partnership, as Borrower. Terms used herein have the meanings
provided in the Loan Agreement.
AESOP Leasing hereby notifies the Trustee and [Related Enhancement
Provider] that [a Lease Payment Deficit did not exist on ________, 199_] [there
was a Lease Payment Deficit on ________, 199_ as follows:
Series______: $______________
Series______: $______________
AESOP LEASING L.P.
By:
-------------------------------------
Name:
Title:
<PAGE>
SCHEDULE 8.11
Business Locations, Trade Names
State of
Principal
Place of States in which
Business Location Business Conducts Business
----------------- -------- -----------------
AESOP Leasing c/o Lord Securities New York New York
L.P. Corporation
Two Wall Street
19TH Floor
New York, NY 10005
EXECUTION COPY
AMENDED AND RESTATED MASTER MOTOR VEHICLE OPERATING
LEASE AGREEMENT
dated as of September 15, 1998
among
AESOP LEASING L.P.,
as Lessor,
AVIS RENT A CAR SYSTEM, INC.,
as Lessee and as Administrator,
and
AVIS RENT A CAR, INC.,
as Guarantor
AS SET FORTH IN SECTION 27 HEREOF, LESSOR HAS ASSIGNED TO AFC-II (AS DEFINED
HEREIN) AND AFC-II HAS ASSIGNED TO THE TRUSTEE (AS DEFINED HEREIN) CERTAIN OF
ITS RIGHT, TITLE AND INTEREST IN AND TO THIS LEASE. TO THE EXTENT, IF ANY, THAT
THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS DEFINED IN THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN ANY APPLICABLE JURISDICTION) NO SECURITY
INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY
COUNTERPART OTHER THAN THE ORIGINAL EXECUTED COUNTERPART, WHICH SHALL BE
IDENTIFIED AS THE COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE
TRUSTEE ON THE SIGNATURE PAGE THEREOF.
[THIS IS NOT COUNTERPART NO. 1]
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS 1
2. GENERAL AGREEMENT 2
2.1. Lease and Acquisition of Vehicles 4
2.2. Right of Lessees and Guarantor to Act as Lessor's Agent 5
2.3. Payment of Capitalized Cost or Assignment of Net Book Value by
Lessor 5
2.4. Non-Liability of Lessor5
2.5. Lessees' Rights to Purchase Vehicles 6
2.6. Lessor's Right to Cause Vehicles to be Sold 6
2.7. Redesignation of Vehicles 8
2.8. Limitations on the Acquisition or Redesignation of Certain
Vehicles 8
3. TERM 9
3.1. Vehicle Term 9
3.2. Term 10
4. RENT AND CHARGES 11
4.1. Payment of Rent 11
4.2. Special Service Charges 11
4.3. Net Lease 11
5. INSURANCE 12
5.1. Personal Injury and Damage 12
5.2. Delivery of Certificate of
Insurance 13
5.3. Changes in Insurance Coverage 13
6. RISK OF LOSS; CASUALTY AND INELIGIBLE VEHICLE OBLIGATIONS 13
6.1. Risk of Loss Borne by Lessees 13
6.2. Casualty; Ineligible Vehicles 13
7. VEHICLE USE 14
8. LIENS 15
9. NON-DISTURBANCE 15
10. REGISTRATION; LICENSE; TRAFFIC SUMMONSES; PENALTIES AND FINES 15
11. MAINTENANCE AND REPAIR 16
<PAGE>
12. VEHICLE WARRANTIES 16
12.1. No Lessor Warranties 16
12.2. Manufacturer's Warranties 17
13. VEHICLE USAGE GUIDELINES AND RETURN; SPECIAL DEFAULT PAYMENTS; EARLY
TERMINATION PAYMENTS 17
13.1. Usage 17
13.2. Return 17
13.3. Special Default Payments 18
13.4. Early Termination Payments 19
14. DISPOSITION PROCEDURE 19
15. ODOMETER DISCLOSURE REQUIREMENT 19
16. GENERAL INDEMNITY 20
16.1. Indemnity by the Lessees and the Guarantor 20
16.2. Reimbursement Obligation by the Lessees and the Guarantor 22
16.3. Defense of Claims 22
17. ASSIGNMENT 23
17.1. Right of the Lessor to Assign this Agreement 23
17.2. Limitations on the Right of the Lessees to Assign this
Agreement 23
18. DEFAULT AND REMEDIES THEREFOR 24
18.1. Events of Default 24
18.2. Effect of AESOP I Operating Lease Event of Default or
Liquidation Event of Default 25
18.3. Rights of Lessor Upon AESOP I Operating Lease Event of
Default, Limited Liquidation Event of Default or Liquidation
Event of Default 26
18.4. Rights of Lender and Trustee Upon Liquidation Event of
Default Limited Liquidation Event of Default and Non-Performance
of Certain Covenants 27
18.5. Measure of Damages 28
18.6. Vehicle Return Default 29
18.7. Application of Proceeds 31
19. MANUFACTURER EVENTS OF DEFAULT 31
20. [RESERVED] 31
21. [RESERVED] 31
22. CERTIFICATION OF TRADE OR BUSINESS USE 32
<PAGE>
23. SURVIVAL 32
24. ADDITIONAL LESSEES 32
25. TITLE 34
26. GUARANTY 34
26.1. Guaranty 34
26.2. Scope of Guarantor's Liability 35
26.3. Lessor's Right to Amend this Agreement, Etc 35
26.4. Waiver of Certain Rights by Guarantor 36
26.5. [RESERVED] 37
26.6. Guarantor to Pay Lessor's Expenses 37
26.7. Reinstatement 37
26.8. Pari Passu Indebtedness 37
27. RIGHTS OF LESSOR ASSIGNED 37
28. [RESERVED] 40
29. MODIFICATION AND SEVERABILITY 40
30. CERTAIN REPRESENTATIONS AND WARRANTIES 40
30.1. Organization; Ownership; Power; Qualification 40
30.2. Authorization; Enforceability 40
30.3. Compliance 41
30.4. Financial Information; Financial Condition 41
30.5. Litigation 42
30.6. Liens 42
30.7. Employee Benefit Plans 42
30.8. Investment Company Act 42
30.9. Regulations T, U and X 42
30.10. Business Locations; Trade Names; Principal Places of
Business Locations 43
30.11. Taxes 43
30.12. Governmental Authorization 43
30.13. Compliance with Laws 44
30.14. Eligible Vehicles 44
30.15. Supplemental Documents True and Correct 44
30.16. Manufacturer Programs 44
30.17. Absence of Default 44
30.18. Title to Assets 44
30.19. Burdensome Provisions 45
30.20. No Adverse Change 45
<PAGE>
30.21. No Adverse Fact 45
30.22. Accuracy of Information 45
30.23. Solvency 46
31. CERTAIN AFFIRMATIVE COVENANTS 46
31.1. Corporate Existence; Foreign Qualification 46
31.2. Books, Records and Inspections 46
31.3. Insurance 47
31.4. Manufacturer Programs 47
31.5. Reporting Requirements 47
31.6. Payment of Taxes; Removal of Liens 49
31.7. Business 50
31.8. Maintenance of Separate Existence 50
31.9. Trustee as Lienholder 50
31.10. Maintenance of the Vehicles 50
31.11. Enhancement 50
31.12. Manufacturer Payments 51
31.13. Accounting Methods; Financial Records 51
31.14. Disclosure to Auditors 51
31.15. Disposal of Non-Program Vehicles 51
32. CERTAIN NEGATIVE COVENANTS 51
32.1. Mergers, Consolidations 51
32.2. Other Agreements 52
32.3. Liens 52
32.4. Use of Vehicles 52
32.5. Termination of Agreement 52
33. ADMINISTRATOR ACTING AS AGENT OF THE LESSOR 52
34. NO PETITION53
35. CERTAIN AGREEMENTS RESPECTING THE MASTER EXCHANGE
AGREEMENT 53
36. SUBMISSION TO JURISDICTION 53
37. GOVERNING LAW 54
38. JURY TRIAL 54
39. NOTICES 54
40. LIABILITY 56
41. TITLE TO MANUFACTURER PROGRAMS IN LESSOR 56
<PAGE>
42. HEADINGS 57
43. EXECUTION IN COUNTERPARTS 57
44. EFFECTIVE DATE 57
45. NO RECOURSE 57
SCHEDULES AND ATTACHMENTS
Schedule 30.5 Litigation
Schedule 30.10 Business Locations
Schedule 30.13 Compliance with Law
ATTACHMENT A Information Relating to Initial Leased
Vehicles
ATTACHMENT B Vehicle Acquisition Schedule and Related
Information
ATTACHMENT C Form of Power of Attorney
ATTACHMENT D Form of Joinder in Lease
<PAGE>
AMENDED AND RESTATED MASTER MOTOR VEHICLE
OPERATING LEASE AGREEMENT
This Amended and Restated Master Motor Vehicle Operating Lease Agreement
(this "Agreement"), dated as of September 15, 1998, is made by and among AESOP
LEASING L.P., a Delaware limited partnership (the "Lessor"), AVIS RENT A CAR
SYSTEM, INC., a Delaware corporation ("ARAC"), individually and as the
Administrator, Eligible Rental Car Companies that become party to this Agreement
pursuant to the provisions of Section 24 hereof (individually, ARAC and each
such Eligible Rental Car Company, a "Lessee" and, collectively, the "Lessees"),
and AVIS RENT A CAR, INC., a Delaware corporation, as guarantor (the
"Guarantor").
W I T N E S S E T H:
WHEREAS, the Lessor (such capitalized term, together with all other
capitalized terms used herein, shall have the meaning assigned thereto in
Section 1), ARAC and the Guarantor are parties to a Master Motor Vehicle
Operating Lease Agreement, dated as of July 30, 1997 (the "Prior AESOP I
Operating Lease"), pursuant to which the Lessor has purchased Program Vehicles
and Non-Program Vehicles of one or more Manufacturers with proceeds provided to
the Lessor by the Lender pursuant to the AESOP I Operating Lease Loan Agreement
and other available funds; and
WHEREAS, the Lessor now wishes to amend the Prior AESOP I Operating Lease
in order to reflect the terms of certain exchanges of Program Vehicles that the
Lessor intends to effect in accordance with the relevant provisions of the Code
and the terms of the Master Exchange Agreement between the Lessor and the
Intermediary; and
WHEREAS, the Lessor desires to lease to the Lessees and the Lessees desire
to lease from the Lessor both Program Vehicles and Non-Program Vehicles financed
by the Lessor with the proceeds of Loans and other available funds for use in
the daily rental car businesses of the Lessees; and
WHEREAS, the Guarantor has, pursuant to Section 26 hereof, guaranteed the
obligations of the Lessees under this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree that the Prior AESOP I Operating Lease is
hereby amended and restated as follows:
1. DEFINITIONS. Unless otherwise specified herein, capitalized terms used
herein (including the preamble and recitals hereto) shall have the meanings
ascribed to such terms in the Definitions List attached as Schedule I to the
Base Indenture, dated as of July 30, 1997 (the "Base Indenture"), between
AFC-II, as Issuer, and Harris Trust and Savings
<PAGE>
Bank, as Trustee, as such Definitions List has been amended and may from time to
time be further amended in accordance with the Base Indenture.
2. GENERAL AGREEMENT. (a) Each Lessee and the Lessor intend that this
Agreement is a lease and that the relationship between the Lessor and each
Lessee pursuant hereto shall always be only that of lessor and lessee, and each
Lessee hereby declares, acknowledges and agrees that the Lessor is the owner of,
and the Lessor or its Permitted Nominee holds legal title to, the Vehicles. No
Lessee shall acquire by virtue of this Agreement any right, equity, title or
interest in or to any Vehicles, except the right to use the same under the terms
hereof. The parties agree that this Agreement is a "true lease" and agree to
treat this Agreement as a lease for all purposes, including tax, accounting and
otherwise and each party hereto will take no position on its tax returns and
filings contrary to the position that the Lessor is the owner of the Vehicles
for federal and state income tax purposes.
(b) If, notwithstanding the intent of the parties to this Agreement, this
Agreement is characterized by any third party as a financing arrangement or as
otherwise not constituting a "true lease," then it is the intention of the
parties that this Agreement shall constitute a security agreement under
applicable law, and, to secure all of its obligations under this Agreement, each
Lessee hereby grants to the Lessor a security interest in all of such Lessee's
right, title and interest, if any, in and to all of the following assets,
property and interests in property, whether now owned or hereafter acquired or
created:
(i) the rights of such Lessee under this Agreement, as same may be
amended, modified or supplemented from time to time in accordance with
its terms, and any other agreements related to or in connection with this
Agreement to which the Lessees are a party (the "Lessee Agreements"),
including, without limitation, (a) all monies, if any, due and to become
due to such Lessee from the Guarantor and any other Lessee under or in
connection with any of the Lessee Agreements, whether payable as rent,
guaranty payments, fees, expenses, costs, indemnities, insurance
recoveries, damages for the breach of any of the Lessee Agreements or
otherwise, (b) all rights, remedies, powers, privileges and claims of
such Lessee against any other party under or with respect to the Lessee
Agreements (whether arising pursuant to the terms of such Agreements or
otherwise available to such Lessee at law or in equity), including the
right to enforce any of the Lessee Agreements and to give or withhold any
and all consents, requests, notices, directions, approvals, extensions or
waivers under or with respect to the Lessee Agreements or the obligations
and liabilities of any party thereunder, (c) all liens and property from
time to time purporting to secure payment of the obligations and
liabilities of such Lessee arising under or in connection with the Lessee
Agreements, and any documents or agreements describing any collateral
securing such obligations or liabilities and (d) all guarantees,
insurance and other agreements or arrangements of whatever character from
time to time supporting or securing payment of such obligations and
liabilities of such Lessee pursuant to the Lessee Agreements;
<PAGE>
(ii) all Vehicles leased by such Lessee from the Lessor under this
Agreement which, notwithstanding that this Agreement is intended to
convey only a leasehold interest, are determined to be owned by such
Lessee, and all Certificates of Title with respect to such Vehicles;
(iii) all right, title and interest of such Lessee in, to and under
any Manufacturer Programs, including any amendments thereof, and all
monies due and to become due thereunder, in each case in respect of
Vehicles leased by such Lessee which, notwithstanding that this Agreement
is intended to convey only a leasehold interest, are determined to be
owned by such Lessee, whether payable as Vehicle repurchase prices,
auction sales proceeds, fees, expenses, costs, indemnities, insurance
recoveries, damages for breach of the Manufacturer Programs or otherwise
(but excluding all incentive payments payable to such Lessee or the
Lessor in respect of purchases of vehicles under the Manufacturer
Programs) and all rights to compel performance and otherwise exercise
remedies thereunder;
(iv) all right, title and interest of such Lessee in and to any
proceeds from the sale of Vehicles leased by such Lessee which,
notwithstanding that this Agreement is intended to convey only a
leasehold interest, are determined to be owned by such Lessee, including
all monies due in respect of such Vehicles, whether payable as the
purchase price of such Vehicles, as auction sales proceeds, or as fees,
expenses, costs, indemnities, insurance recoveries, or otherwise
(including all upfront incentive payments payable by Manufacturers to
such Lessee or the Lessor in respect of purchases of Non-Program
Vehicles);
(v) all payments under insurance policies (whether or not the Lessor,
the Lender or the Trustee is named as the loss payee thereof) or any
warranty payable by reason of loss or damage to, or otherwise with
respect to, any of the Vehicles leased by such Lessee;
(vi) all additional property that may from time to time hereafter be
subjected to the grant and pledge under this Agreement, as same may be
modified or supplemented from time to time, by such Lessee or by anyone
on its behalf; and
(vii) all proceeds of any and all of the foregoing including, without
limitation, payments under insurance (whether or not the Lessor is named
as the loss payee thereof) and cash.
(c) To secure the AFC-II Obligations, each Lessee hereby grants to the
Trustee, on behalf of the Secured Parties, a first priority security interest in
all of such Lessee's right, title and interest, if any, in and to all of the
collateral described in Section 2(b) above, whether now owned or hereafter
acquired or created. Upon the occurrence of a Liquidation Event of Default or a
Limited Liquidation Event of Default and subject to the provisions of the
Related Documents, the Trustee shall have all of the rights and remedies of a
secured
<PAGE>
party, including, without limitation, the rights and remedies granted under the
Uniform Commercial Code.
(d) Each Lessee agrees to deliver to the Lessor, the Lender and the
Trustee on or before the Initial Closing Date:
(i) a written search report from a Person satisfactory to the Lessor,
the Lender and the Trustee listing all effective financing statements
that name such Lessee as debtor or assignor, and that are filed in the
jurisdictions in which filings were made pursuant to clause (ii) below,
together with copies of such financing statements, and tax and judgment
lien search reports from a Person satisfactory to the Lessor, the Lender
and the Trustee showing no evidence of liens filed against such Lessee
that purport to affect any Vehicles leased hereunder or any Collateral
under the Base Indenture;
(ii) evidence of the filing of proper financing statements on Form
UCC-1 naming such Lessee, as debtor, and the Lessor, as secured party,
covering the collateral described in Section 2(b) hereof; and
(iii) evidence of the filing in the states in which such Lessee
conducts business of proper financing statements on Form UCC-1 naming
such Lessee, as debtor, and the Trustee as secured party covering the
collateral described in Section 2(b) hereof.
2.1. Lease and Acquisition of Vehicles. From time to time, subject to the
terms and provisions hereof, the Lessor agrees to lease to each Lessee and each
Lessee agrees to lease from the Lessor, subject to the terms hereof, (i) the new
Vehicles identified in Vehicle orders (each such Vehicle order, a "Vehicle
Order") placed by such Lessee, pursuant to the terms of the Manufacturer
Programs with respect to Program Vehicles and Non-Program Vehicles to the extent
subject to a Manufacturer Program and as otherwise agreed by the Lessor, such
Lessee and a dealer with respect to other Non-Program Vehicles and (ii) the
Vehicles identified in Attachment A hereto containing information concerning the
Initial PVT Vehicles and the Initial ARAC Vehicles leased by ARAC under this
Agreement (the "Initial Leased Vehicles") of a scope agreed upon by ARAC and the
Lessor (including, at a minimum, the Net Book Value (as of the first day of the
Related Month in which the Initial Closing Date occurs) of each of the Initial
Leased Vehicles). If requested by the Lessor, a Lessee shall make each Vehicle
Order with respect to each Vehicle leased by such Lessee available to the
Lessor, together with a schedule containing the information with respect to such
Vehicles included within such Vehicle Order as is set forth in Attachment B
hereto (each, a "Vehicle Acquisition Schedule"), or in such form as is otherwise
requested by the Lessor. In addition, each Lessee agrees to provide such other
information regarding such Vehicles as the Lessor may require from time to time.
This Agreement, together with the Manufacturer Programs and any other related
documents attached to this Agreement or submitted with a Vehicle Order
(collectively, the "Supplemental Documents"), will constitute the entire
agreement regarding the leasing of Vehicles by the Lessor to the Lessees.
<PAGE>
2.2. Right of Lessees and Guarantor to Act as Lessor's Agent. The Lessor
agrees that each Lessee and the Guarantor may act as the Lessor's agent in
placing Vehicle Orders on behalf of the Lessor, as well as filing claims on
behalf of the Lessor for damage in transit, and other Manufacturer delivery
claims related to the Vehicles; provided, however, that the Lessor may hold a
Lessee or the Guarantor liable for losses due to such Lessee's or the
Guarantor's actions, or failure to act, in performing as the Lessor's agent in
accordance with the terms hereof. In addition, the Lessor agrees that each
Lessee may make arrangements for delivery of Vehicles leased by such Lessee to a
location selected by such Lessee at its expense. Each Lessee agrees to accept
Vehicles leased by such Lessee as produced and delivered except that each Lessee
will have the option to reject any such Vehicle that may be rejected pursuant to
the terms of the applicable Manufacturer Program (with respect to Program
Vehicles and Non-Program Vehicles subject to a Manufacturer Program), or in
accordance with its customary business practices with respect to other
Non-Program Vehicles. Each Lessee, acting as agent for the Lessor, shall be
responsible for pursuing any rights of the Lessor with respect to the return of
any Vehicle leased by such Lessee to the Manufacturer pursuant to the preceding
sentence. Each of the Lessees and the Guarantor agree that all Program Vehicles
ordered as provided herein shall be ordered utilizing the procedures consistent
with an Eligible Manufacturer Program. Without limiting the foregoing, each
Lessee agrees to give immediate notice to the Lessor, in such form and to such
address as the Lessor may from time to time specify, of each acceptance and of
any rejection of any Program Vehicle identified by the Lessor as an Identified
Replacement Vehicle.
2.3. Payment of Capitalized Cost or Assignment of Net Book Value by
Lessor. On the AESOP I Operating Lease Commencement Date, the Lessor applied to
each Initial Leased Vehicle the Net Book Value (as of the first day of the
Related Month) for such Vehicle as described on Attachment A to the Prior AESOP
I Operating Lease. Upon delivery of any Vehicle, the Lessor shall pay to the
authorized dealer, if any, that sold such Vehicle to the Lessor, the Capitalized
Cost for such Vehicle and the Lessee leasing such Vehicle shall pay all
applicable costs and expenses of freight, packing, handling, storage, shipment
and delivery of such Vehicle, and sales and use tax (if any), to the extent that
the same have not been included in the Capitalized Cost for such Vehicle.
2.4. Non-Liability of Lessor. The Lessor shall not be liable to any Lessee
for any failure or delay in obtaining Vehicles or making delivery thereof. AS
BETWEEN THE LESSOR AND EACH LESSEE, ACCEPTANCE FOR LEASE OF THE VEHICLES LEASED
BY SUCH LESSEE SHALL CONSTITUTE SUCH LESSEE'S ACKNOWLEDGMENT AND AGREEMENT THAT
SUCH LESSEE HAS FULLY INSPECTED SUCH VEHICLES, THAT SUCH VEHICLES ARE IN GOOD
ORDER AND CONDITION AND ARE OF THE MANUFACTURE, DESIGN, SPECIFICATIONS AND
CAPACITY SELECTED BY SUCH LESSEE, THAT SUCH LESSEE IS SATISFIED THAT THE SAME
ARE SUITABLE FOR THIS USE AND THAT THE LESSOR IS NOT A MANUFACTURER OR ENGAGED
IN THE SALE OR DISTRIBUTION OF VEHICLES, AND HAS NOT MADE AND DOES NOT HEREBY
<PAGE>
MAKE ANY REPRESENTATION, WARRANTY OR COVENANT WITH RESPECT TO MERCHANTABILITY,
CONDITION, QUALITY, DURABILITY OR SUITABILITY OF SUCH VEHICLE IN ANY RESPECT OR
IN CONNECTION WITH OR FOR THE PURPOSES OR USES OF SUCH LESSEE, OR ANY OTHER
REPRESENTATION, WARRANTY OR COVENANT OF ANY KIND OR CHARACTER, EXPRESS OR
IMPLIED, WITH RESPECT THERETO. The Lessor shall not be liable for any failure or
delay in delivering any Vehicle ordered for lease pursuant to this Agreement, or
for any failure to perform any provision hereof, resulting from fire or other
casualty, natural disaster, riot, strike or other labor difficulty, governmental
regulation or restriction, or any cause beyond the Lessor's direct control. IN
NO EVENT SHALL THE LESSOR BE LIABLE FOR ANY INCONVENIENCES, LOSS OF PROFITS OR
ANY OTHER CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES RESULTING FROM ANY DEFECT
IN OR ANY THEFT, DAMAGE, LOSS OR FAILURE OF ANY VEHICLE, AND THERE SHALL BE NO
ABATEMENT OF MONTHLY BASE RENT, SUPPLEMENTAL RENT OR OTHER AMOUNTS PAYABLE
HEREUNDER BECAUSE OF THE SAME.
2.5. Lessees' Rights to Purchase Vehicles. Each Lessee shall have the
option, exercisable with respect to any Vehicle during the Vehicle Term with
respect to such Vehicle, to purchase any Vehicle leased by such Lessee at the
greater of (i) the Termination Value or (ii) the Market Value of such Vehicle
(the greater of such amounts being referred to as the "Vehicle Purchase Price"),
in which event such Lessee will pay the Vehicle Purchase Price to the Lessor on
or before the Payment Date with respect to the Related Month in which such
Lessee elects to purchase such Vehicle and such Lessee will pay on or before
such Payment Date all accrued and unpaid Monthly Base Rent and any Supplemental
Rent then due and payable with respect to such Vehicle through such Payment
Date. The Lessor shall request title to any such Vehicle to be transferred to
the relevant Lessee and the Administrator shall request the Trustee to cause its
Lien to be removed from the Certificate of Title for such Vehicle, concurrently
with or promptly after the Vehicle Purchase Price for such Vehicle (and any such
unpaid Monthly Base Rent and Supplemental Rent) is deposited in the Collection
Account. Notwithstanding the foregoing, with respect to any Vehicle that, when
acquired by the Lessor, was a Replacement Vehicle, and with respect to any other
Vehicle that the Lessor may wish to designate as an Identified Relinquished
Vehicle, any Lessee's right to purchase shall be solely in the discretion of the
Lessor.
2.6. Lessor's Right to Cause Vehicles to be Sold. If a Lessee does not
elect to purchase any Vehicle leased by such Lessee hereunder pursuant to
Section 2.5 hereof (or, pursuant to the last sentence of such Section 2.5, is
not permitted to purchase a particular Vehicle, then:
(a) Notwithstanding anything to the contrary contained herein, with
respect to Program Vehicles leased hereunder, and subject to Sections 13.2 and
2.5 hereof, the Lessor shall have the right, at any time following the date
ninety (90) days prior to the expiration of the Maximum Term for such Program
Vehicle, to require that the Lessee leasing such Program Vehicle from the Lessor
hereunder or another Person designated by the Lessor,
<PAGE>
which Person's compensation will be payable solely from the proceeds from the
sale of such Vehicle, exercise commercially reasonable efforts to arrange for
the sale of such Vehicle to a third party for the Vehicle Purchase Price with
respect to such Vehicle, in which event such Lessee or such other designated
Person shall, until not later than the date thirty (30) days prior to the
expiration of such Maximum Term, exercise commercially reasonable efforts to
arrange for the sale of such Vehicle to a third party for a price (as reduced by
the amount of compensation to be paid to any such other designated Person) equal
to or greater than the Termination Value thereof. If a sale of such Program
Vehicle is arranged by such Lessee or such other designated Person prior to such
date thirty (30) days prior to the expiration of such Maximum Term, then (i)
such Lessee or such other designated Person shall deliver such Vehicle to the
purchaser thereof, (ii) such Lessee or such other designated Person shall cause
to be delivered to the Lessor the funds paid for such Vehicle by the purchaser
and (iii) the Administrator shall request the Trustee to cause its Lien to be
removed from the Certificate of Title for such Vehicle. If such Lessee or such
other designated Person is unable to arrange for a sale of such Vehicle prior to
such date thirty (30) days prior to the expiration of such Maximum Term, then
such Lessee or such other designated Person shall cease attempting to arrange
for such a sale and such Lessee shall return such Vehicle, if a Manufacturer
Event of Default has not occurred, to the applicable Manufacturer as herein
provided (and, if so requested by the Lessor, shall cooperate with the Lessor to
effect any such return in accordance with the provisions of the Master Exchange
Agreement).
(b) With respect to Non-Program Vehicles leased hereunder and subject to
the exercise of each Lessee's rights under Section 2.5, each Lessee shall use
commercially reasonable efforts to arrange for the sale of each Non-Program
Vehicle leased by such Lessee to a third party for the Vehicle Purchase Price
with respect to such Vehicle on or prior to the applicable Vehicle Operating
Lease Expiration Date. Each Lessee may return a Non-Program Vehicle subject to a
Manufacturer Program to the applicable Manufacturer under such Manufacturer
Program provided that (i) the Repurchase Price of such Vehicle, together with
any Special Default Payments payable by such Lessee with respect to such
Vehicle, is at least equal to the Termination Value with respect to such
Vehicle, (ii) no Manufacturer Event of Default shall have occurred with respect
to such Manufacturer and (iii) by the later of the sixtieth (60th) day after the
Initial Closing Date and the date on which such Vehicle is returned to the
Manufacturer, the Trustee and the Lender shall have received an assignment of
the benefits of such Manufacturer Program, acknowledged in writing by such
Manufacturer. Notwithstanding the disposition of a Non-Program Vehicle by such
Lessee prior to the applicable Vehicle Operating Lease Expiration Date, such
Lessee shall pay to the Lessor all accrued and unpaid Monthly Base Rent and any
Supplemental Rent then due and payable with respect to such Non-Program Vehicle
through the Payment Date with respect to the Related Month during which such
disposition occurred, unless such Non-Program Vehicle is a Standard Casualty or
becomes an Ineligible Vehicle, payment for which will be made in accordance with
Section 6 hereof. If a sale of such Non-Program Vehicle is arranged by such
Lessee pursuant to this Section 2.6(b), then (i) such Lessee shall deliver the
Vehicle to the purchaser thereof, (ii) such Lessee shall cause to be delivered
to the Lessor the funds paid for such Vehicle by the purchaser and
<PAGE>
(iii) the Administrator shall request the Trustee to cause its Lien to be
removed from the Certificate for Title of such Vehicle.
(c) In the event any Vehicle or Vehicles leased hereunder are not
purchased by the Lessee of such Vehicle pursuant to Section 2.5, sold to a third
party pursuant to Section 2.6(a) or sold to a third party or returned to a
Manufacturer pursuant to Section 2.6(b), then, in the case of a Non-Program
Vehicle, such Lessee shall return such Vehicle to the Lessor or, in the case of
a Program Vehicle, such Lessee shall dispose of such Vehicle in accordance with
the procedures set forth in Section 13.2(a), in each case, on the Payment Date
with respect to the Related Month in which the applicable Vehicle Operating
Lease Expiration Date falls, and such Lessee shall pay an amount equal to all
accrued but unpaid Monthly Base Rent and all Supplemental Rent payable with
respect to such Vehicles through such Payment Date.
2.7. Redesignation of Vehicles. If a Program Vehicle becomes ineligible
for repurchase by its Manufacturer or for sale at auction under the applicable
Manufacturer Program or the return of a Program Vehicle to the applicable
Manufacturer cannot otherwise be effected for any reason (including by reason of
the occurrence of a Manufacturer Event of Default with respect to the
Manufacturer of such Program Vehicle or the failure of a Manufacturer to accept
such Program Vehicle for repurchase and acceptance is not expected upon a
subsequent return), the Lessee of such Vehicle may redesignate the related
Program Vehicle as a Non-Program Vehicle, provided that (i) no Amortization
Event or Potential Amortization Event has occurred and is continuing and (ii) no
violation of the requirements of Section 10.13 of the AESOP I Operating Lease
Loan Agreement or Section 2.8 hereof would be caused by such redesignation, and
provided further, in each case, that (x) the relevant Lessee of such Vehicle
shall pay to the Lessor on the next succeeding Payment Date an amount equal to
the difference, if any, between the Net Book Value of such Vehicle as of the
date of redesignation and an amount equal to the Net Book Value of such Vehicle
as of the date of redesignation had such Vehicle been a Non-Program Vehicle at
the time of delivery thereof pursuant to Section 2.1 and (y) the Required
Enhancement Amount required under each Supplement, after giving effect to such
redesignation, shall be satisfied on the date of redesignation.
2.8. Limitations on the Acquisition or Redesignation of Certain Vehicles.
Unless otherwise specified in a Supplement or unless waived by the Required
Noteholders as specified in a Supplement, (a) the aggregate Net Book Value of
all Vehicles (or such portion thereof as is specified in such Supplement)
manufactured by Manufacturers other than Eligible Non-Program Manufacturers and
leased under this Agreement (after giving effect to the inclusion of such
Vehicle under this Agreement) and the Finance Lease as of such date shall not
exceed any applicable Maximum Non-Eligible Manufacturer Amount, (b) the
aggregate Net Book Value of all Non-Program Vehicles (or such portion thereof
<PAGE>
as is specified in such Supplement) leased under this Agreement (after giving
effect to the inclusion or redesignation, as the case may be, of such Vehicle
under this Agreement) and the Finance Lease as of such date shall not exceed any
applicable Maximum Non-Program Vehicle Amount, (c) the aggregate Net Book Value
of all Vehicles (or such portion thereof as is specified in such Supplement)
manufactured by a particular Manufacturer or group of Manufacturers and leased
under the Leases (after giving effect to the inclusion of such Vehicle under
this Agreement) as of such date shall not exceed any applicable Maximum
Manufacturer Amount, (d) the aggregate Net Book Value of all Vehicles (or such
portion thereof as is specified in such Supplement) titled in the States of
Ohio, Oklahoma and Nebraska and leased under this Agreement (after giving effect
to the inclusion of such Vehicle under this Agreement) and the AESOP II
Operating Lease as of such date shall not exceed any applicable Maximum
Specified States Amount and (e) after giving effect to the inclusion or
redesignation of such Vehicle under this Agreement, there shall not be a failure
or violation of any other conditions, requirements or restrictions with respect
to the leasing of Eligible Vehicles under this Agreement as is specified in any
Supplement.
3. TERM.
3.1. Vehicle Term. (a) The "Vehicle Operating Lease Commencement Date" (x)
for each Initial Leased Vehicle shall mean the Initial Closing Date and (y) for
each other Vehicle shall mean the day as referenced in the Vehicle Acquisition
Schedule with respect to such Vehicle but in no event shall such date be a date
later than the date that funds are expended or allocated by the Lessor to
acquire such Vehicle or, in the case of a Replacement Vehicle, no later than the
date that such Replacement Vehicle is "acquired" (as such term is defined in the
Master Exchange Agreement) by the Intermediary pursuant to the Master Exchange
Agreement. The "Vehicle Term" with respect to each Vehicle shall extend from the
Vehicle Operating Lease Commencement Date through the earliest of (i) if such
Vehicle is a Program Vehicle that has not been identified by the Lessor as an
Identified Relinquished Vehicle pursuant to Section 3.1 of the Master Exchange
Agreement or a Non-Program Vehicle returned to a Manufacturer under a
Manufacturer Program in accordance with Section 2.6(b), the Turnback Date for
such Vehicle, (ii) if such Vehicle is sold to a third party (other than through
an auction conducted by or through or arranged by the Manufacturer pursuant to
its Manufacturer Program), the date on which funds in respect of such sale are
deposited in the Collection Account (by such third party or by the applicable
Lessee or the Guarantor on behalf of such third party) and such funds equal or
exceed the Termination Value of such Vehicle, (iii) if such Vehicle becomes a
Standard Casualty or an Ineligible Vehicle, the date funds in the amount of the
Termination Value thereof are deposited in the Collection Account by the
applicable Lessee, (iv) the date that such Vehicle is purchased by the
applicable Lessee pursuant to Section 2.5 hereof and the Vehicle Purchase Price
with respect to such purchase (and any unpaid Monthly Base Rent and Supplemental
Rent with respect to such Vehicle) is deposited in the Collection Account by
such Lessee, (v) the date that is the last Business Day of the month that is 18
months after the month in which the Vehicle Operating Lease Commencement Date
occurs with respect to such Vehicle, and (vi) if such Vehicle has been
designated by the Lessor as an Identified Relinquished Vehicle pursuant to
Section 3.1 of the Master Exchange Agreement, the date that such Vehicle is
"transferred" to the Intermediary pursuant to Section 3.1 of the Master Exchange
Agreement, provided, however, that if such designation as an Identified
Relinquished Vehicle is rescinded pursuant to Section 3.6 of the Master Exchange
Agreement, such Vehicle shall continue to be a leased Vehicle hereunder, as if
such
<PAGE>
designation had not occurred, until the occurrence of one of the events
described in the foregoing clauses (i) through (v) (the earliest of such six
dates being referred to as the "Vehicle Operating Lease Expiration Date").
(b) Subject to the provisions of Sections 2.5 and 2.6, each Lessee shall
use its commercially reasonable efforts to return each Program Vehicle leased by
such Lessee hereunder to the related Manufacturer (or such Manufacturer's agent
or as otherwise directed by such Manufacturer in accordance with such
Manufacturer Program) (a) not prior to the end of the minimum holding period
specified in the related Manufacturer Program (prior to which the Lessor may not
return such Program Vehicle without penalty (the "Minimum Term")) and (b) not
later than the end of the maximum holding period (after which the Lessor may not
return such Program Vehicle without penalty (the "Maximum Term")); provided,
however, that each Lessee shall in any case return each Program Vehicle leased
by such Lessee hereunder to the related Manufacturer (or such Manufacturer's
agent or as otherwise directed by such Manufacturer in accordance with such
Manufacturer Program) on or before the Vehicle Operating Lease Expiration Date
with respect to such Vehicle pursuant to Section 13.2 hereof. The Lessee of any
Program Vehicles returned before the Minimum Term will pay to the Lessor the
equivalent of the Monthly Base Rent with respect to such vehicle for the Minimum
Term plus any early turn back surcharges payable by the Lessor or deductible
from the Repurchase Price of such Vehicle regardless of actual usage, unless
such Vehicle is a Standard Casualty or becomes an Ineligible Vehicle, in which
case, the disposition of such Vehicle will be handled in accordance with Section
6 hereof.
3.2. Term. The "AESOP I Operating Lease Commencement Date" shall mean the
Initial Closing Date. The "AESOP I Operating Lease Expiration Date" shall mean
the latest of (i) the date of the payment in full of all Loans (including any
Loan Interest thereon) the proceeds of which were used by the Lessor to finance
the purchase of Vehicles subject to this Agreement, (ii) the Vehicle Operating
Lease Expiration Date for the last Vehicle leased by any Lessee hereunder and
(iii) the date on which all amounts payable hereunder and under the Loan
Agreements have been paid in full. The "Term" of this Agreement shall mean the
period commencing on the AESOP I Operating Lease Commencement Date and ending on
the AESOP I Operating Lease Expiration Date.
4. RENT AND CHARGES. Each Lessee will pay Monthly Base Rent and any
Supplemental Rent due and payable on a monthly basis (and any Special Service
Charges, on the date due and payable) as set forth in this Section 4.
4.1. Payment of Rent. On each Payment Date each Lessee shall pay in
immediately available funds to the Lessor not later than 11:00 a.m. New York
City time, on such Payment Date, such Lessee's allocable portion of (i) all
Monthly Base Rent that has accrued during the Related Month with respect to each
Vehicle leased hereunder during or prior to the Related Month and (ii) all
Supplemental Rent due and payable on such Payment Date. The portion of Monthly
Base Rent allocable to each Lessee will equal (i) with respect to the amounts
described in clause (b) of the definition of Monthly Base Rent, the portion
thereof
<PAGE>
that relates to the particular Vehicles leased hereunder by such Lessee and (ii)
with respect to other amounts included in the definition of Monthly Base Rent,
such Lessee's Share, determined as of the beginning of the Related Month, of
such amounts. The portion of Supplemental Rent allocable to each Lessee will
equal (i) with respect to Supplemental Rent that relates to particular Vehicles,
the portion thereof that relates to the particular Vehicles leased hereunder by
such Lessee and (ii) with respect to Supplemental Rent that does not relate to
particular Vehicles, such Lessee's Share, determined as of the beginning of the
Related Month, of such amounts.
4.2. Special Service Charges. On each Payment Date, or on such other
Business Day as the Lessor shall request, each Lessee shall pay in immediately
available funds to, or at the direction of, the Lessor, not later than 11:00
a.m., New York City time, on such date, such Lessee's allocable portion of the
Special Service Charges determined by the Lessor to be due and payable on such
date. The portion of Special Service Charges allocable to each Lessee will equal
(i) with respect to Special Service Charges that relate to particular Vehicles,
the portion thereof that relates to the particular Vehicles leased hereunder by
such Lessee, and (ii) with respect to Special Service Charges that do not relate
to particular Vehicles, such Lessee's Share, determined as of the beginning of
the Related Month, of such amounts. Each Lessee acknowledges that the Lessor has
assigned and transferred its right to payment of such amounts to the
Intermediary, together with the right to invoice or request payment thereof,
pursuant to the Master Exchange Agreement, and that the Intermediary shall be
entitled to further assign and pledge any such rights to the Lender Agent, and
that either of the Intermediary or the Lender Agent, as applicable, shall be
entitled to exercise the rights to enforce and collect such amounts if any such
amounts are not paid when due. The provisions of this Section 4.2 will survive
the expiration or earlier termination of the Term.
4.3. Net Lease. THIS AGREEMENT SHALL BE A NET LEASE, AND EACH LESSEE'S
OBLIGATION TO PAY ALL MONTHLY BASE RENT, SUPPLEMENTAL RENT AND OTHER SUMS
HEREUNDER SHALL BE ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY
ABATEMENT, SETOFF, COUNTERCLAIM, DEDUCTION OR REDUCTION FOR ANY REASON
WHATSOEVER. The obligations and liabilities of each Lessee hereunder shall in no
way be released, discharged or otherwise affected (except as may be expressly
provided herein including, without limitation, the right of each Lessee to
reject Vehicles pursuant to Section 2.2 hereof) for any reason, including
without limitation: (i) any defect in the condition, merchantability, quality or
fitness for use of the Vehicles or any part thereof; (ii) any damage to,
removal, abandonment, salvage, loss, scrapping or destruction of or any
requisition or taking of the Vehicles or any part thereof; (iii) any
restriction, prevention or curtailment of or interference with any use of the
Vehicles or any part thereof; (iv) any defect in or any Lien on title to the
Vehicles or any part thereof; (v) any change, waiver, extension, indulgence or
other action or omission in respect of any obligation or liability of such
Lessee or the Lessor; (vi) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to such Lessee, the Lessor or any other Person, or any action taken
with respect to this Agreement by any
<PAGE>
trustee or receiver of any Person mentioned above, or by any court; (vii) any
claim that such Lessee has or might have against any Person, including without
limitation the Lessor; (viii) any failure on the part of the Lessor or any other
Lessee to perform or comply with any of the terms hereof or of any other
agreement; (ix) any invalidity or unenforceability or disaffirmance of this
Agreement or any provision hereof or any of the other Related Documents or any
provision of any thereof, in each case whether against or by such Lessee or
otherwise; (x) any insurance premiums payable by such Lessee with respect to the
Vehicles; or (xi) any other occurrence whatsoever, whether similar or dissimilar
to the foregoing, whether or not such Lessee shall have notice or knowledge of
any of the foregoing and whether or not foreseen or foreseeable. This Agreement
shall be noncancelable by the Lessees and, except as expressly provided herein,
each Lessee, to the extent permitted by law, waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this
Agreement, or to any diminution or reduction of Monthly Base Rent, Supplemental
Rent or other amounts payable by such Lessee hereunder. All payments by each
Lessee made hereunder shall be final (except to the extent of adjustments
provided for herein), absent manifest error and, except as otherwise provided
herein, each Lessee shall not seek to recover any such payment or any part
thereof for any reason whatsoever, absent manifest error. If for any reason
whatsoever this Agreement shall be terminated in whole or in part by operation
of law or otherwise except as expressly provided herein, each Lessee shall
nonetheless pay an amount equal to such Lessee's allocable portion of all
Monthly Base Rent, all Supplemental Rent and all other amounts due hereunder at
the time and in the manner that such payments would have become due and payable
under the terms of this Agreement as if it had not been terminated in whole or
in part. All covenants and agreements of each Lessee herein shall be performed
at its cost, expense and risk unless expressly otherwise stated.
5. INSURANCE. Each Lessee represents that it shall at all times maintain
or cause to be maintained insurance coverage in force as follows:
5.1. Personal Injury and Damage. Insurance coverage as set forth in
Section 31.3 hereof. In addition, each Lessee will maintain with respect to each
Lessee's properties and businesses insurance against loss or damage of the kind
customarily insured against by corporations engaged in the same or similar
businesses, of such types and in such amounts as are customarily carried by such
similarly situated corporations.
5.2. Delivery of Certificate of Insurance. Within 10 days after the
Initial Closing Date (or, with respect to any additional party becoming a
"Lessee" hereunder pursuant to the provisions of Section 24 hereof, within 10
days after the date such party becomes a "Lessee" hereunder), each Lessee or the
Guarantor shall deliver to the Lessor a certificate(s) of insurance naming the
Lender, the Lessor, Original AESOP, PVHC, Quartx, and the Trustee as additional
insureds as to the item required by Section 31.3. Such insurance shall not be
changed or canceled except as provided below in Section 5.3.
5.3. Changes in Insurance Coverage. No changes shall be made in any of the
foregoing insurance requirements unless the prior written consent of the Lessor,
the Lender
<PAGE>
and the Trustee are first obtained. The Lessor may grant or withhold its consent
to any proposed change in such insurance in its sole discretion. The Lender and
the Trustee shall be required to grant its consent to any proposed change in
such insurance upon compliance with the following conditions:
(i) The relevant Lessee or the Guarantor shall deliver not less than 30
days' prior written notice of any proposed change in such insurance to
the Lender and the Trustee;
(ii) The relevant Lessee or the Guarantor shall furnish to the Lender
and the Trustee a letter from each Rating Agency with respect to all
Outstanding Commercial Paper Notes and Notes rated by such Rating Agency
to the effect that such proposed change will not cause a reduction in or
a withdrawal of the current rating of such Commercial Paper Notes or the
Notes; and
(iii) The proposed change will satisfy the Rating Agency Confirmation
Condition.
6. RISK OF LOSS; CASUALTY AND INELIGIBLE VEHICLE OBLIGATIONS.
6.1. Risk of Loss Borne by Lessees. Upon delivery of each Vehicle to the
Lessee of such Vehicle, as between the Lessor and such Lessee, such Lessee
assumes and bears the risk of loss, damage, theft, taking, destruction,
attachment, seizure, confiscation or requisition with respect to such Vehicle,
however caused or occasioned, and all other risks and liabilities, including
personal injury or death and property damage, arising with respect to such
Vehicle or the manufacture, purchase, acceptance, rejection, ownership,
delivery, leasing, subleasing, possession, use, inspection, registration,
operation, condition, maintenance, repair, storage, sale, return or other
disposition of such Vehicle, howsoever arising.
6.2. Casualty; Ineligible Vehicles. If a Vehicle becomes a Standard
Casualty or an Ineligible Vehicle, then the Lessee of such Vehicle will (i)
promptly notify the Lessor thereof and (ii) promptly, but in no event later than
the Payment Date with respect to the Related Month during which such Vehicle
became a Standard Casualty or an Ineligible Vehicle, pay to the Lessor the
Termination Value of such Vehicle (as of the date such Vehicle became a Standard
Casualty or an Ineligible Vehicle). Upon payment by such Lessee to the Lessor of
the Termination Value of any Vehicle that has become a Standard Casualty or an
Ineligible Vehicle (i) the Lessor shall cause title to such Vehicle to be
transferred to such Lessee to facilitate liquidation of such Vehicle by such
Lessee, (ii) such Lessee shall be entitled to any physical damage insurance
proceeds applicable to such Vehicle and (iii) the Administrator shall request
the Trustee to cause its Lien to be removed from the Certificate of title for
such Vehicle.
7. VEHICLE USE. So long as no AESOP I Operating Lease Event of Default,
Liquidation Event of Default or Limited Liquidation Event of Default has
occurred (subject,
<PAGE>
however, to Section 2.6 hereof), each Lessee may use Vehicles leased hereunder
in its regular course of business. Such use shall be confined primarily to the
United States; provided, however, that the principal place of business or rental
office of each Lessee with respect to the Vehicles is located in the United
States. The Administrator shall promptly and duly execute, deliver, file and
record all such documents, statements, filings and registrations, and take such
further actions as the Lessor, the Lender or the Trustee shall from time to time
reasonably request in order to establish, perfect and maintain the Lessor's
title to and interest in the Vehicles and the Certificates of Title as against
each Lessee or any third party in any applicable jurisdiction and to establish,
perfect and maintain the Trustee's Lien on the Vehicles and the Certificates of
Title (other than noting the Lien of the Trustee on the Certificates of Title
with respect to (i) the Initial PVT Vehicles (which shall reflect the Lien of
BONY) and (ii) Vehicles titled in the states of Ohio, Oklahoma and Nebraska) as
a perfected first lien in any applicable jurisdiction. Each Lessee may, at its
sole expense, change the place of principal location of any Vehicles.
Notwithstanding the foregoing, no change of location shall be undertaken unless
and until (x) all actions necessary to maintain the Lien of the Trustee on such
Vehicles and the Certificates of Title (other than noting the Lien of the
Trustee on the Certificates of Title with respect to (i) the Initial PVT
Vehicles (which shall reflect the Lien of BONY) and (ii) Vehicles titled in the
states of Ohio, Oklahoma and Nebraska) with respect to such Vehicles shall have
been taken and (y) all legal requirements applicable to such Vehicles shall have
been met or obtained. Following the occurrence of an AESOP I Operating Lease
Event of Default, a Limited Liquidation Event of Default, a Liquidation Event of
Default or a Manufacturer Event of Default, and upon the Lender's request, each
Lessee shall advise the Lender in writing where all Vehicles leased hereunder as
of such date are principally located. Each Lessee shall not knowingly use any
Vehicles or knowingly permit the same to be used for any unlawful purpose. Each
Lessee shall use reasonable precautions to prevent loss or damage to Vehicles.
Each Lessee shall comply with all applicable statutes, decrees, ordinances and
regulations regarding acquiring, titling, registering, leasing, insuring and
disposing of Vehicles and shall take reasonable steps to ensure that operators
are licensed. Each Lessee and the Lessor agree that such Lessee shall perform,
at such Lessee's own expense, such Vehicle preparation and conditioning services
with respect to Vehicles leased by such Lessee hereunder as are customary. The
Lessor, the Lender or the Trustee or any authorized representative of the
Lessor, the Lender or the Trustee may during reasonable business hours from time
to time, without disruption of each Lessee's business, subject to applicable
law, inspect Vehicles and registration certificates, Certificates of Title and
related documents covering Vehicles wherever the same be located. No Lessee
shall sublease any Vehicles, nor shall any Lessee assign any right or interest
herein or in any Vehicles; provided, however, the foregoing shall not be deemed
to prohibit the Lessees from renting Vehicles to third party customers in the
ordinary course of their respective car rental businesses.
8. LIENS. Except for Permitted Liens, each Lessee shall keep all Vehicles
leased by it hereunder free of all Liens arising during the Term. Upon the
Vehicle Operating Lease Expiration Date for each Vehicle leased hereunder should
any such Lien exist the Lessor may, in its discretion, remove such Lien and any
sum of money that may be paid by
<PAGE>
the Lessor in release or discharge thereof, including attorneys' fees and costs,
will be paid by the Lessee of such Vehicle upon demand by the Lessor. The Lessor
may grant security interests in the Vehicles leased by a Lessee hereunder
without consent of such Lessee; provided, however, that if any such Liens would
interfere with the rights of such Lessee under this Agreement, the Lessor must
obtain the prior written consent of such Lessee. Each Lessee agrees and
acknowledges that the granting of Liens and the taking of other actions pursuant
to the Loan Agreements, the Indenture and the other Related Documents does not
interfere with the rights of such Lessee under this Agreement.
9. NON-DISTURBANCE. So long as each Lessee satisfies its obligations
hereunder, its quiet enjoyment, possession and use of the Vehicles leased by
such Lessee hereunder will not be disturbed during the Term subject, however, to
Sections 2.6 and 18 hereof and except that the Lessor and the Trustee each
retains the right, but not the duty, to inspect such Vehicles without disturbing
the ordinary conduct of such Lessee's business. Upon the request of the Lessor,
the Lender or the Trustee from time to time, each Lessee will make reasonable
efforts to confirm to the Lessor, the Lender and the Trustee the location,
mileage and condition of each Vehicle leased by such Lessee hereunder and to
make available for the Lessor's, the Lender's or the Trustee's inspection within
a reasonable time period, not to exceed 45 days, such Vehicles at the location
where such Vehicles are normally domiciled. Further, each Lessee will, during
normal business hours and with a notice of 3 Business Days, make its records
pertaining to the Vehicles leased by such Lessee hereunder available to the
Lessor, the Lender or the Trustee for inspection at the location where such
Lessee's records are normally domiciled.
10. REGISTRATION; LICENSE; TRAFFIC SUMMONSES; PENALTIES AND FINES. Each
Lessee, at its expense, shall be responsible for proper registration and
licensing of Vehicles leased by such Lessee hereunder, and titling of such
Vehicles in the name of the Lessor or its Permitted Nominee (with the Lien of
the Trustee noted thereon (except with respect to the Initial PVT Vehicles for
which BONY is noted as the first lienholder and Vehicles titled in the States of
Oklahoma, Nebraska and Ohio)), and, where required, shall have such Vehicles
inspected by any appropriate governmental authority; provided, however, that
notwithstanding the foregoing, possession of all Certificates of Title shall at
all times remain with the Administrator, who will hold such Certificates of
Title in its capacity as agent for the Lessor and on behalf of the Lender and
the Trustee. Each Lessee shall be responsible for the payment of all
registration fees, title fees, license fees, traffic summonses, penalties,
judgments and fines incurred with respect to any Vehicle leased by such Lessee
hereunder during the Vehicle Term for such Vehicle or imposed during the Vehicle
Term for such Vehicle by any governmental authority or any court of law or
equity with respect to such Vehicles in connection with such Lessee's operation
of such Vehicles. The Lessor agrees to execute a power of attorney in
substantially the form of Attachment C hereto (each, a "Power of Attorney"), and
such other documents as may be necessary in order to allow the Lessees to title,
register and dispose of the Vehicles leased hereunder in accordance with the
terms hereof; provided, however, that possession of all Certificates of Title
shall at all times remain with the Administrator who will hold such Certificates
of Title in its capacity as agent for the Lessor and on behalf of the Lender and
<PAGE>
the Trustee, and each Lessee acknowledges and agrees that it has no right, title
or interest in or with respect to any Certificate of Title. Notwithstanding
anything herein to the contrary, the Lessor may terminate such Power of Attorney
as provided in Section 18.3(iii) hereof.
11. MAINTENANCE AND REPAIRS. Each Lessee shall pay for all maintenance and
repairs to keep Vehicles leased by such Lessee hereunder in good working order
and condition, and such Lessee will maintain such Vehicles as required in order
to keep the Manufacturer's warranty in force. Each Lessee will return Vehicles
leased by such Lessee hereunder to an authorized Manufacturer facility or such
Lessee's Manufacturer authorized warranty station for warranty work. Each Lessee
will comply with any Manufacturer's recall of any Vehicle leased by such Lessee
hereunder. Each Lessee will pay, or cause to be paid, all usual and routine
expenses incurred in the use and operation of Vehicles leased by such Lessee
hereunder including, but not limited to, fuel, lubricants, and coolants. Each
Lessee agrees that it shall not make any material alterations to any Vehicles
without the prior consent of the Lessor. Any improvements or additions to any
Vehicles leased hereunder shall become and remain the property of the Lessor,
except that any addition to Vehicles made by the Lessee of such Vehicles shall
remain the property of such Lessee if such addition can be disconnected from
such Vehicles without impairing the functioning of such Vehicles or its resale
value, excluding such addition.
12. VEHICLE WARRANTIES.
12.1. No Lessor Warranties. EACH LESSEE ACKNOWLEDGES THAT THE LESSOR IS
NOT THE MANUFACTURER, THE AGENT OF THE MANUFACTURER, OR THE DISTRIBUTOR OF THE
VEHICLES LEASED BY SUCH LESSEE HEREUNDER. THE LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, AS TO THE FITNESS, SAFENESS, DESIGN,
MERCHANTABILITY, CONDITION, QUALITY, CAPACITY OR WORKMANSHIP OF THE VEHICLES NOR
ANY WARRANTY THAT THE VEHICLES WILL SATISFY THE REQUIREMENTS OF ANY LAW OR ANY
CONTRACT SPECIFICATION, AND AS BETWEEN THE LESSOR AND EACH LESSEE, EACH LESSEE
AGREES TO BEAR ALL SUCH RISKS AT ITS SOLE COST AND EXPENSE. EACH LESSEE
SPECIFICALLY WAIVES ALL RIGHTS TO MAKE CLAIMS AGAINST THE LESSOR AND ANY VEHICLE
FOR BREACH OF ANY WARRANTY OF ANY KIND WHATSOEVER AND, AS TO THE LESSOR, EACH
LESSEE LEASES THE VEHICLES "AS IS." IN NO EVENT SHALL THE LESSOR BE LIABLE FOR
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, WHATSOEVER OR HOWSOEVER CAUSED.
12.2. Manufacturer's Warranties. If a Vehicle leased hereunder is covered
by a Manufacturer's warranty, the Lessee of such Vehicle, during the Vehicle
Term for such Vehicle, shall have the right to make any claims under such
warranty which the Lessor could make.
<PAGE>
13. VEHICLE USAGE GUIDELINES AND RETURN; SPECIAL DEFAULT PAYMENTS; EARLY
TERMINATION PAYMENTS.
13.1. Usage. As used herein "Vehicle Turn-In Condition" (a) with respect
to each Program Vehicle leased hereunder will be determined in accordance with
the related Manufacturer Program and (b) with respect to each Non-Program
Vehicle leased hereunder shall mean (i) if such Non-Program Vehicle is
manufactured by the same Manufacturer as any Program Vehicle leased hereunder,
the same standard as required with respect to such Program Vehicle and (ii) if
such Non-Program Vehicle does not satisfy clause (i) above, that each such
Vehicle shall have no body dents, rust, corrosion, paint mismatches or special
colors, or paint which is less than factory grade, dented, rusted, broken,
missing chrome or trim, ripped or stained, upholstery, seats, dash, headliner,
carpeting, trunk, or convertible vinyl top, missing interior trim, sprung or
misaligned doors or their openings, or worn, cracked, split, broken or leaking
weather-stripping, faulty window mechanisms, or broken, cracked, missing glass,
mirrors or lights, faulty electronic systems, including on-board computers,
processors, sensors, controls, radios, stereos, and the like, faulty heating,
air conditioning or climate control systems, worn or faulty shock absorbers or
other suspension or steering parts, systems or mechanisms, excessively worn
tires, or any other condition that adversely affects the appearance or operating
condition of such Vehicle, in each case other than any such condition that would
reasonably be considered to be normal wear and tear or otherwise de minimis by
the Manufacturer of such Vehicle (or its authorized agent) under such
Manufacturer's Manufacturer Program or, if such Manufacturer does not maintain a
Manufacturer Program, under the Manufacturer Program of another Manufacturer
with comparable sales volume, and the equivalent of any Excess Damage Charges
and Excess Mileage Charges with respect to such Vehicle shall be determined by
the Administrator and the Lessor in accordance with the foregoing standard.
13.2. Return. (a) Each Lessee will, subject to Sections 2.5 and 2.6,
return each Program Vehicle leased by such Lessee hereunder (other than a
Standard Casualty or a Program Vehicle which has become an Ineligible Vehicle)
to the nearest related Manufacturer official auction or other facility
designated by such Manufacturer at such Lessee's sole expense or to such other
location designated by the Lessor (with any additional cost of delivery in
excess of what would have been incurred upon delivery to the related
Manufacturer at the expense of the Lessor), in each case in accordance with the
requirements of Section 3.1(b) hereof.
(b) Each Lessee agrees that the Vehicles leased by such Lessee hereunder
will be in Vehicle Turn-In Condition upon return to or upon the order of the
Lessor. Any rebate or credits applicable to the unexpired term of any license
plates for a Vehicle leased by a Lessee hereunder shall inure to the benefit of
such Lessee.
13.3. Special Default Payments. (a) Each Lessee will use its best efforts
to maintain the Program Vehicles leased by such Lessee hereunder such that no
Excess Damage Charges or Excess Mileage Charges will be deductible from the
Repurchase Price due from a Manufacturer or payable by the Lessor upon the turn
back of such Program
<PAGE>
Vehicles under the applicable Manufacturer Program. Upon any of (i) receipt of
payment of the Repurchase Price of each Program Vehicle leased by a Lessee
hereunder from the Manufacturer (or the receipt of payment of the Repurchase
Price of each such Program Vehicle sold through an auction conducted by or
through a Manufacturer), (ii) receipt of payment of the Repurchase Price of each
Relinquished Vehicle from the Manufacturer, or (iii) the date by which the
Repurchase Price of each such Program Vehicle turned-back to a Manufacturer
would have been paid if not for a Manufacturer Event of Default, the Lessor will
charge such Lessee for any Excess Damage Charges and/or Excess Mileage Charges
applicable to such Program Vehicle pursuant to the applicable Manufacturer
Program (any such charges are referred to as "Program Vehicle Special Default
Payments").
(b) Each Lessee will use its best efforts to maintain the Non-Program
Vehicles leased by such Lessee hereunder in a manner such that no Non-Program
Vehicle Special Default Payments (as defined below) shall be due upon
disposition of such Non-Program Vehicles by or for the benefit of the Lessor.
Upon disposition of each Non-Program Vehicle leased hereunder by or for the
benefit of the Lessor, other than the sale of any Non-Program Vehicle to the
Lessee of such Vehicle in accordance with the terms hereof, the Lessor will
charge such Lessee (i) if such Non-Program Vehicle is manufactured by the same
Manufacturer as any Program Vehicle or is subject to a Manufacturer Program, an
amount equal to any Excess Damage Charges and/or Excess Mileage Charges that
would be applicable to the comparable Program Vehicle pursuant to the applicable
Manufacturer Program or an amount equal to any Excess Damage Charges and/or
Excess Mileage Charges that are applicable to such Vehicle pursuant to the
applicable Manufacturer Program, as the case may be, and (ii) if such
Non-Program Vehicle is subject to a Vehicle Turn-In Condition standard
established pursuant to Section 13.1(b)(ii), an amount equal to any charges
applicable to such Non-Program Vehicle pursuant to such Vehicle Turn-In
Condition standard (any such charges are referred to as "Non-Program Vehicle
Special Default Payments" and, together with the Program Vehicle Special Default
Payments, the "Special Default Payments").
(c) On each Payment Date, each Lessee shall pay to the Lessor all Special
Default Payments that have accrued during the Related Month; provided, however,
that in the case of Assigned Special Default Payments, the Lessor, or the
Administrator on its behalf, may invoice the relevant Lessee or Lessees for
payment of such amounts as may be required to pay amounts owing by the
Intermediary pursuant to the Receivables Financing Agreement on a Business Day
other than a Payment Date, and may direct the relevant Lessee or Lessees to pay
such amounts directly to the Intermediary or to the Lender Agent. The obligation
of such Lessee to pay Special Default Payments shall constitute the sole remedy
respecting the breach of its covenant contained in the first sentence of each of
Section 13.3(a) and 13.3(b). The provisions of this Section 13.3 will survive
the expiration or earlier termination of the Term.
13.4. Early Termination Payments. With respect to any Program Vehicle
leased by a Lessee hereunder that is turned back to a Manufacturer under its
Manufacturer Program (including by the Intermediary pursuant to the Master
Exchange Agreement), upon the
<PAGE>
receipt of the Repurchase Price of such Vehicle from such Manufacturer or upon
the date by which the Repurchase Price would have been paid if not for a
Manufacturer Event of Default, the Lessor will charge such Lessee an amount
equal to (i) the excess, if any, of (x) the Termination Value of such Vehicle
(as of the Turnback Date) over (y) the sum of the Repurchase Price received with
respect to such Vehicle or that would have been received but for a Manufacturer
Event of Default, as applicable, and any Special Default Payments made by such
Lessee in respect of such Vehicle pursuant to Section 13.3, plus (ii) any unpaid
Monthly Base Rent for the Minimum Term plus any early turn back charges payable
or deductible from the Repurchase Price for Program Vehicles returned before the
Minimum Term in accordance with Section 3.1(b) hereof (any such amount is
referred to as an "Early Termination Payment"). On each Payment Date, each
Lessee shall pay to the Lessor all Early Termination Payments that have accrued
during the Related Month. The provisions of this Section 13.4 will survive the
expiration or earlier termination of the Term.
14. DISPOSITION PROCEDURE. Each Lessee will comply with the requirements
of law and the requirements of the Manufacturer Programs in connection with,
among other things, the delivery of Certificates of Title and documents of
transfer signed as necessary, signed Condition Reports, and signed odometer
statements to be submitted with the Program Vehicles or Non-Program Vehicles
returned to a Manufacturer pursuant to Section 2.6(b) and accepted by the
Manufacturer or its agent at the time of Program Vehicle or Non-Program Vehicle
return.
15. ODOMETER DISCLOSURE REQUIREMENT. Each Lessee agrees to comply with all
requirements of law and all Manufacturer Program requirements with respect to
Vehicles leased by such Lessee hereunder in connection with the transfer of
ownership by the Lessor of any such Vehicle leased by such Lessee hereunder,
including, without limitation, the submission of any required odometer
disclosure statement at the time of any such transfer of ownership.
16. GENERAL INDEMNITY.
16.1. Indemnity by the Lessees and the Guarantor. The Lessees and the
Guarantor agree jointly and severally to indemnify and hold harmless the Lessor,
the Lender, the Intermediary and the Trustee and the Lessor's, the Lender's, the
Intermediary's and the Trustee's directors, officers, stockholders, agents and
employees (collectively, the "Indemnified Persons"), on a net after-tax basis
against any and all claims, demands and liabilities of whatsoever nature and all
costs and expenses relating to or in any way arising out of:
16.1.1. the ordering, delivery, acquisition, title on acquisition,
rejection, installation, possession, titling, retitling, registration,
re-registration, custody by the Lessees or the Guarantor of title and
registration documents, use, non-use, misuse, operation, deficiency,
defect, transportation, repair, control or disposition of any Vehicle
leased hereunder or to be leased hereunder pursuant to a request by a
<PAGE>
Lessee. The foregoing shall include, without limitation, any liability (or
any alleged liability) of the Lessor to any third party arising out of any
of the foregoing, including, without limitation, all legal fees, costs and
disbursements arising out of such liability (or alleged liability);
16.1.2. all (i) federal, state, county, municipal or foreign
license, qualification, registration, franchise, sales, use, gross
receipts, ad valorem, business, property (real or personal), excise, motor
vehicle, and occupation fees and taxes, and all federal, state and local
income taxes, and penalties and interest thereon, and all other taxes,
fees and assessments of any kind whatsoever whether assessed, levied
against or payable by the Lessor or otherwise, with respect to any Vehicle
leased hereunder or the acquisition, purchase, sale, rental, delivery,
use, operation, control, ownership or disposition of any such Vehicle or
measured in any way by the value thereof or by the ownership by the Lessor
with respect thereto and (ii) documentary, stamp, filing, recording,
mortgage or other taxes, if any, which may be payable by the Lessor in
connection with this Agreement or any other Related Documents; provided,
however, that the following taxes are excluded from the indemnity provided
in clauses (i) and (ii) above:
(i) any tax on, based on, with respect to, or measured by net income
(including federal alternative minimum tax) other than any taxes or
other charges which may be imposed as a result of any determination
by a taxing authority that the Lessor is not the owner for tax
purposes of the Vehicles leased hereunder or that this Agreement is
not a "true lease" for tax purposes or that depreciation deductions
that would be available to the owner of such Vehicles are disallowed,
or that the Lessor is not entitled to include the full purchase price
for any such Vehicle in basis including any amounts payable in
respect of interest charges, additions to tax and penalties that may
be imposed, and all attorneys and accountants fees and expenses and
all other fees and expenses that may be incurred in defending against
or contesting any such determination;
(ii) any withholding tax imposed by the United States federal
government other than such a tax imposed as a result of a change in
law enacted (including new interpretations thereof), adopted or
promulgated after the Initial Closing Date or, if later, the date the
Trustee or the Lender acquires its interest in the Vehicles leased
hereunder or the Loan Agreements, the Indenture, the Assignment
Agreements, or any other related operative documents that causes it
to be an Indemnified Person hereunder unless such a tax is enacted,
adopted or promulgated as a tax in lieu of, or in substitution for a
tax not otherwise indemnifiable hereunder;
(iii) any tax with respect to any Vehicle leased by a Lessee
hereunder or any transaction relating to such Vehicle to the extent
it covers any period beginning after the earlier of (A) the discharge
in full of such Lessee's obligation to pay Monthly Base Rent,
Supplemental Rent and any other amount payable hereunder
<PAGE>
with respect to such Vehicle or (B) the expiration or other
termination of this Agreement with respect to such Vehicle, unless
such tax accrues in respect of any period during which such Lessee
holds over such Vehicle; and
(iv) any tax that is imposed on an Indemnified Person or any of its
Affiliates, to the extent that such tax results from the willful
misconduct or gross negligence of such Indemnified Person or such
Affiliates;
16.1.3. any violation by any Lessee or the Guarantor of this Agreement or
of any Related Documents to which such Lessee or the Guarantor is a party
or by which it is bound or of any laws, rules, regulations, orders, writs,
injunctions, decrees, consents, approvals, exemptions, authorizations,
licenses and withholdings of objecting of any governmental or public body
or authority and all other requirements having the force of law applicable
at any time to any Vehicle leased hereunder or any action or transaction by
any Lessee or the Guarantor with respect thereto or pursuant to this
Agreement;
16.1.4. all out of pocket costs of the Lessor (including the fees and out
of pocket expenses of counsel for the Lessor) in connection with the
execution, delivery and performance of this Agreement and the other Related
Documents;
16.1.5. all out of pocket costs and expenses (including reasonable
attorneys' fees and legal expenses) incurred by the Lessor, the Lender, the
Intermediary or the Trustee in connection with the administration,
enforcement, waiver or amendment of this Agreement and any other Related
Documents and all indemnification obligations of the Lender or the Lessor
under the Related Documents (including all obligations of the Lessor under
Section 13.4 and Section 13.5 of the AESOP I Operating Lease Loan
Agreement); and
16.1.6. all costs, fees, expenses, damages and liabilities (including,
without limitation, the fees and out of pocket expenses of counsel) in
connection with, or arising out of, any claim made by any third party
against the Lessor for any reason (including, without limitation, in
connection with any audit or investigation conducted by a Manufacturer
under its Manufacturer Program).
If the Lessor shall actually receive any tax benefit (whether by way of
offset, credit, deduction, refund or otherwise) not already taken into
account in calculating the net after-tax basis for such payment as a result
of the payment of any tax indemnified pursuant to this Section 16 or in
connection with the circumstances giving rise to the imposition of such
tax, such tax benefit shall be used to offset any indemnity payment owed
pursuant to this Section 16 or shall be paid to the relevant Lessee (but
only to the extent of any prior indemnity payments actually made pursuant
to this Section 16 and only after the Lessor shall actually receive such
tax benefits), provided, however, that no such payment to such Lessee shall
be made while an AESOP I Operating Lease Event of Default shall have
occurred and be continuing.
<PAGE>
16.2. Reimbursement Obligation by the Lessees and the Guarantor. Each of
the Lessees and the Guarantor shall forthwith upon demand reimburse the Lessor
or the relevant Indemnified Person for any sum or sums expended with respect to
any of the foregoing; provided, however, that to the extent such amounts
constitute Excluded Payments, such amounts shall be paid only to the AESOP I
Segregated Account; and provided further that, if so requested by the relevant
Lessee or the Guarantor, the Lessor shall submit to such Lessee or the
Guarantor, as applicable, a statement documenting any such demand for
reimbursement or prepayment. To the extent that any Lessee or the Guarantor in
fact indemnifies the Lessor under the indemnity provisions of this Agreement,
such Lessee or the Guarantor, as applicable, shall be subrogated to the Lessor's
rights in the affected transaction and shall have a right to determine the
settlement of claims therein. The foregoing indemnity as contained in this
Section 16 shall survive the expiration or earlier termination of this Agreement
or any lease of any Vehicle hereunder.
16.3. Defense of Claims. The Lessor agrees to notify any relevant Lessee
of any claim made against it for which such Lessee may be liable pursuant to
this Section 16 and, if such Lessee requests, to contest or allow such Lessee to
contest such claim. If any AESOP I Operating Lease Event of Default shall have
occurred and be continuing, no contest shall be required, and any contest which
has begun shall not be required to be continued to be pursued, unless
arrangements to secure the payment of such Lessee's obligations pursuant to this
Section 16 hereunder have been made and such arrangements are reasonably
satisfactory to the Lessor. The Lessor shall not settle any such claim without
such Lessee's consent, which consent shall not be unreasonably withheld. Defense
of any claim referred to in this Section 16 for which indemnity may be required
shall, at the option and request of the Indemnified Person, be conducted by the
relevant Lessee or the Guarantor, as applicable. Such Lessee or the Guarantor,
as the case may be, will inform the Indemnified Person of any such claim and of
the defense thereof and will provide copies of material documents relating to
any such claim or defense to such Indemnified Person upon request. Such
Indemnified Person may participate in any such defense at its own expense
provided such participation does not interfere with such Lessee's or the
Guarantor's assertion of such claim or defense. Each Lessee and the Guarantor
agrees that no Indemnified Person will be liable to such Lessee or the
Guarantor, as applicable, for any claim caused directly or indirectly by the
inadequacy of any Vehicle leased by such Lessee for any purpose or any
deficiency or defect therein or the use or maintenance thereof or any repairs,
servicing or adjustments thereto or any delay in providing or failure to provide
such repairs, servicing or adjustments or any interruption or loss of service or
use thereof or any loss of business, all of which shall be the risk and
responsibility of such Lessee or the Guarantor. The rights and indemnities of
each Indemnified Person hereunder are expressly made for the benefit of, and
will be enforceable by, each Indemnified Person notwithstanding the fact that
such Indemnified Person is either no longer a party to (or entitled to receive
the benefits of) this Agreement, or was not a party to (or entitled to receive
the benefits of) this Agreement at its outset. Except as otherwise set forth
herein, nothing herein shall be deemed to require any Lessee or the Guarantor to
indemnify the Lessor for any of the Lessor's acts or omissions which constitute
gross negligence or willful
<PAGE>
misconduct. This general indemnity shall not affect any claims of the type
discussed above which any Lessee or the Guarantor may have against the
Manufacturer.
17. ASSIGNMENT.
17.1. Right of the Lessor to Assign this Agreement. The Lessor shall have
the right to finance the acquisition and ownership of Vehicles by selling or
assigning, in whole or in part, its right, title and interest in this Agreement,
including, without limitation, in moneys due from each Lessee and any third
party under this Agreement; provided, however, that any such sale or assignment
shall be subject to the rights and interest of each Lessee in the Vehicles
leased by such Lessee hereunder, including but not limited to such Lessee's
right of quiet and peaceful possession of such Vehicles as set forth in Section
9 hereof, and under this Agreement.
17.2. Limitations on the Right of the Lessees to Assign this Agreement.
Each Lessee agrees that it shall not, without prior written consent of the
Lessor, AFC-II and the Trustee and without having satisfied the Rating Agency
Consent Condition and the CP Rating Agency Condition, assign this Agreement or
any of its rights hereunder to any other party; provided, however, that each
Lessee may rent the Vehicles leased by such Lessee hereunder under the terms of
its normal daily rental programs. Any purported assignment in violation of this
Section 17.2 shall be void and of no force or effect. Nothing contained herein
shall be deemed to restrict the right of any Lessee to acquire or dispose of, by
purchase, lease, financing, or otherwise, motor vehicles that are not subject to
the provisions of this Agreement.
18. DEFAULT AND REMEDIES THEREFOR.
18.1. Events of Default. Any one or more of the following will constitute
an event of default (an "AESOP I Operating Lease Event of Default") as that term
is used herein:
18.1.1. there occurs (i) a default in the payment of the portion of
Monthly Base Rent that relates to the Loan Principal Amount, the Special
Default Payments, the Early Termination Payments, Vehicle Purchase Price
or Termination Value upon a Standard Casualty or when a Vehicle becomes
an Ineligible Vehicle or upon a Vehicle Return Default or any
Supplemental Rent (to the extent not included in any of the foregoing)
and the continuance thereof for a period of five Business Days or (ii) a
default and continuance thereof for five Business Days after notice
thereof by the Lessor or the Trustee to the relevant Lessee or the
Guarantor in the payment of any amount payable under this Agreement
(other than amounts described in clause (i) above);
18.1.2. any unauthorized assignment or transfer of this Agreement
by any Lessee or the Guarantor occurs;
<PAGE>
18.1.3. the failure, in any material respect, of any Lessee and the
Guarantor to maintain, or cause to be maintained, insurance as
required in Section 5 or Section 31.3;
18.1.4. the failure of any Lessee and the Guarantor to observe or perform
any other covenant, condition, agreement or provision hereof, including,
but not limited to, usage, and maintenance, and such default continues
for more than thirty (30) days after the date written notice thereof is
delivered by the Lessor or the Trustee to such Lessee;
18.1.5. if any representation or warranty made by any Lessee or the
Guarantor herein is inaccurate or incorrect or is breached or is false or
misleading in any material respect as of the date of the making thereof
or any schedule, certificate, financial statement, report, notice, or
other writing furnished by or on behalf of such Lessee or the Guarantor
to the Lessor or the Trustee is false or misleading in any material
respect on the date as of which the facts therein set forth are stated or
certified, and the circumstance or condition in respect of which such
representation, warranty or writing was inaccurate, incorrect, breached,
false or misleading in any material respect, as the case may be, shall
not have been eliminated or otherwise cured for thirty (30) days after
the earlier of (x) the date of the receipt of written notice thereof from
the Lessor, the Lender or the Trustee to the Guarantor or such Lessee and
(y) the date the Guarantor or such Lessee learns of such circumstance or
condition;
18.1.6. an Event of Bankruptcy occurs with respect to any Lessee or the
Guarantor;
18.1.7. a Loan Event of Default occurs;
18.1.8. a Finance Lease Event of Default or an AESOP II Operating Lease
Event of Default occurs; or
18.1.9. the Pension Benefit Guaranty Corporation or the Internal Revenue
Service shall have filed notice of one or more liens against a Lessee
(unless such lien does not purport to cover the Collateral or any amount
payable under the Leases), and, in the case of notice filed by the
Internal Revenue Service, such notice shall have remained in effect for
more than thirty (30) days unless, prior to the expiration of such
period, such Lessee shall have provided the Lessor with a bond in an
amount at least equal to the amount of such lien or, in the case of any
such lien in an amount less than $1,000,000, such Lessee shall have
established to the reasonable satisfaction of the Lessor that such lien
is being contested in good faith and that adequate reserves have been
established in respect of the claim giving rise to such lien.
18.2. Effect of AESOP I Operating Lease Event of Default or Liquidation
Event of Default. If any AESOP I Operating Lease Event of Default described in
Section 18 or any
<PAGE>
Liquidation Event of Default shall occur, (i) the rights of the Lessees to place
Vehicle Orders pursuant to Section 2.1 and to lease additional Vehicles from the
Lessor shall immediately terminate, and (ii) if AFC-II has declared the Loan
Note under any Loan Agreement to be due and payable pursuant to Section 12.2 of
such Loan Agreement, (x) any accrued and unpaid Monthly Base Rent, Supplemental
Rent and all other payments accrued but unpaid under this Agreement (calculated
as if all Vehicles leased hereunder had become a Standard Casualty for the
Related Month and the full amount of interest on such Loan Note was then due and
payable in full) shall, automatically, without further action by the Lessor or
the Trustee, become immediately due and payable and (y) each Lessee shall, at
the request of the Lessor, return or cause to be returned all Vehicles leased by
such Lessee subject to this Agreement (and the Administrator shall deliver to
the Trustee the Certificates of Title relating thereto) to the Lessor in
accordance with the provisions of Section 13.2 hereof.
18.3. Rights of Lessor Upon AESOP I Operating Lease Event of Default,
Limited Liquidation Event of Default or Liquidation Event of Default. If an
AESOP I Operating Lease Event of Default, Limited Liquidation Event of Default
or Liquidation Event of Default shall occur, then the Lessor at its option may:
(i) Proceed by appropriate court action or actions, either at law or
in equity, to enforce performance by the Lessees (or any Lessee(s)
against which the Lessor determines to exercise its remedies hereunder)
or the Guarantor of the applicable covenants and terms of this Agreement
or to recover damages for the breach hereof calculated in accordance with
Section 18.5; or
(ii) By notice in writing to the Lessees (or any Lessee(s) against
which the Lessor determines to exercise its remedies hereunder),
terminate this Agreement in its entirety and/or the right of possession
hereunder of the Lessees (or in respect only of the applicable Lessee(s))
of Vehicles leased hereunder, and the Lessor may direct delivery by the
Lessees (or in respect only of the applicable Lessee(s)) or the Guarantor
of documents of title to the Vehicles leased hereunder, whereupon all
rights and interests of the Lessees (or the applicable Lessee(s)) or the
Guarantor to such Vehicles will cease and terminate (but the Lessees (or
the applicable Lessee(s)) and the Guarantor will remain liable hereunder
as herein provided, provided, however, that their liability will be
calculated in accordance with Section 18.5); and thereupon, the Lessor or
its agents may peaceably enter upon the premises of the applicable
Lessee(s) or other premises where such Vehicles may be located and take
possession of them and thenceforth hold, possess and enjoy the same free
from any right of the Lessees (or the applicable Lessee(s)) or the
Guarantor, or their successors or assigns, to use such Vehicles for any
purpose whatsoever, and the Lessor will, nevertheless, have a right to
recover from the Lessees (or the applicable Lessee(s)) or the Guarantor
any and all amounts which under the terms of this Section 18.3 (as
limited by Section 18.5 of this Agreement) as may be then due. The Lessor
will provide the applicable Lessee(s) with written notice of the place
and time of the sale at least five days prior to the proposed sale, which
shall be deemed
<PAGE>
commercially reasonable, and any Lessee may purchase such
Vehicle(s) at the sale. Each and every power and remedy hereby
specifically given to the Lessor will be in addition to every other power
and remedy hereby specifically given or now or hereafter existing at law,
in equity or in bankruptcy and each and every power and remedy may be
exercised from time to time and simultaneously and as often and in such
order as may be deemed expedient by the Lessor; provided, however, that
the measure of damages recoverable against the Lessees will in any case
be calculated in accordance with Section 18.5. All such powers and
remedies will be cumulative, and the exercise of one will not be deemed a
waiver of the right to exercise any other or others. No delay or omission
of the Lessor in the exercise of any such power or remedy and no renewal
or extension of any payments due hereunder will impair any such power or
remedy or will be construed to be a waiver of any default or any
acquiescence therein. Any extension of time for payment hereunder or
other indulgence duly granted to the Lessees (or the applicable
Lessee(s)) or the Guarantor will not otherwise alter or affect the
Lessor's rights or the obligations hereunder of such Lessee(s) and the
Guarantor. The Lessor's acceptance of any payment after it will have
become due hereunder will not be deemed to alter or affect the Lessor's
rights hereunder with respect to any subsequent payments or defaults
therein; or
(iii) By notice in writing to the Lessees (or any Lessee(s) against
which the Lessor determines to exercise its remedies hereunder),
terminate the Power of Attorney.
18.4. Rights of Lender and Trustee Upon Liquidation Event of Default,
Limited Liquidation Event of Default and Non-Performance of Certain Covenants.
(i) If a Liquidation Event of Default or a Limited Liquidation Event
of Default shall have occurred and be continuing, the Lender and the
Trustee, to the extent provided in the Indenture, shall have the rights
against the Guarantor, the Lessee(s), and the AESOP I Operating Lease
Loan Collateral provided in the Indenture upon a Liquidation Event of
Default or a Limited Liquidation Event of Default, as the case may be,
including the right to take possession of all or a portion of the
Vehicles leased hereunder immediately from the Lessee(s) of such
Vehicles.
(ii) If the Guarantor or any Lessee shall default in the due
performance and observance of any of its obligations under Section 31.3,
31.4, 31.5(iv), 31.10, 32.3 or 32.4 hereof, and such default shall
continue unremedied for a period of 30 days after notice thereof shall
have been given to such Lessee by the Lessor, the Lender or the Trustee,
as assignee of the Lessor's rights hereunder, shall have the ability to
exercise all rights, remedies, powers, privileges and claims of the
Guarantor or any Lessee against the Manufacturers under or in connection
with the Manufacturer Programs with respect to (i) Program Vehicles the
Lessee thereof has determined to turn back to the Manufacturers under
such Manufacturer Programs (excluding Relinquished Vehicles) and (ii)
whether or not the Lessee thereof shall then have
<PAGE>
determined to turn back such Program Vehicles, any Program Vehicles for
which the applicable Repurchase Period will end within one week or less.
(iii) Upon a default in the performance (after giving effect to any
grace periods provided herein) by the Guarantor or any Lessee of its
obligations hereunder to keep the Vehicles leased hereunder free of Liens
(other than Permitted Liens) and to maintain the Trustee's first priority
perfected security interest in the AESOP I Operating Lease Loan
Collateral, the Lessor or the Trustee shall have the right to take
actions reasonably necessary to correct such default with respect to the
subject Vehicles including the execution of UCC financing statements with
respect to Manufacturer Programs and other general intangibles and the
completion of Vehicle Perfection and Documentation Requirements on behalf
of the Guarantor or any Lessee as applicable.
(iv) Upon the occurrence of a Liquidation Event of Default or a
Limited Liquidation Event of Default, each Lessee shall return any
Program Vehicles leased by such Lessee hereunder to the related
Manufacturer in accordance with the instructions of the Lessor. To the
extent any Manufacturer fails to accept any such Program Vehicles under
the terms of the applicable Manufacturer Program, the Lessor shall have
the right to otherwise dispose of such Program Vehicles and to direct the
Lessee thereof to dispose of such Program Vehicles in accordance with its
instructions. Upon the occurrence of a Liquidation Event of Default or a
Limited Liquidation Event of Default, each Lessee shall dispose of any
Non-Program Vehicles leased by such Lessee hereunder in accordance with
the instructions of the Lessor. To the extent any Lessee fails to so
dispose of any such Non-Program Vehicles, the Lessor shall have the right
to otherwise dispose of such Non-Program Vehicles. In addition, following
the occurrence of a Liquidation Event of Default or a Limited Liquidation
Event of Default, the Lessor shall have all of the rights, remedies,
powers, privileges and claims vis-a-vis the Guarantor or any Lessee,
necessary or desirable to allow (a) the Lender to exercise the rights,
remedies, powers, privileges and claims given to the Lender pursuant to
Section 12.3 of the AESOP I Operating Lease Loan Agreement, and each of
the Guarantor and each Lessee acknowledges that it has hereby granted to
the Lessor all of the rights, remedies, powers, privileges and claims
granted by the Lessor to the Lender pursuant to Article 7 of the AESOP I
Operating Lease Loan Agreement and that, under certain circumstances set
forth in the AESOP I Operating Lease Loan Agreement, the Lender may act
in lieu of the Lessor in the exercise of such rights, remedies, powers,
privileges and claims and (b) the Trustee to exercise the rights,
remedies, powers, privileges and claims given to the Trustee pursuant to
Sections 3.3 and 9.2 of the Indenture, and each of the Guarantor and each
Lessee acknowledges that it has hereby granted to the Lessor all of the
rights, remedies, powers, privileges and claims granted by the Lender to
the Trustee pursuant to Article 3 of the Indenture and that, under
certain circumstances set forth in the Indenture, the Trustee may act in
lieu of the Lessor in the exercise of such rights, remedies, powers,
privileges and claims.
<PAGE>
18.5. Measure of Damages. If an AESOP I Operating Lease Event of Default,
a Limited Liquidation Event of Default or a Liquidation Event of Default occurs
and the Lessor, the Lender or the Trustee exercises the remedies granted to the
Lessor, the Lender or the Trustee under this Article 18, the amount that the
Lessor shall be permitted to recover shall be equal to:
(i) all Monthly Base Rent, all Supplemental Rent and all other
payments
payable under this Agreement (calculated as provided in Section 18.2);
plus
(ii) any damages and expenses, including reasonable attorneys' fees
and expenses (but excluding net after-tax losses of federal and state
income tax benefits to which the Lessor would otherwise be entitled as a
result of this Agreement), which the Lessor, the Lender or the Trustee
will have sustained by reason of the AESOP I Operating Lease Event of
Default, Limited Liquidation Event of Default or Liquidation Event of
Default, together with reasonable sums for such attorneys' fees and such
expenses as will be expended or incurred in the seizure, storage, rental
or sale of the Vehicles leased hereunder or in the enforcement of any
right or privilege hereunder or in any consultation or action in such
connection; plus
(iii) interest on amounts due and unpaid under this Agreement at the
applicable Lender's Carrying Cost Interest Rate plus 1.0% from time to
time computed from the date of the AESOP I Operating Lease Event of
Default, Limited Liquidation Event of Default or Liquidation Event of
Default or the date payments were originally due to the Lessor under this
Agreement or from the date of each expenditure by the Lessor which is
recoverable from the Lessees pursuant to this Section 18, as applicable,
to and including the date payments are made by the Lessees.
18.6. Vehicle Return Default. If any Lessee fails to comply with the
provisions of (a) Section 13.2 hereof with respect to any Vehicle leased by such
Lessee hereunder or (b) Section 3.1 with respect to returning any Program
Vehicles leased by such Lessee hereunder to the related Manufacturer not later
than the end of the Maximum Term (each, a "Vehicle Return Default"), and the
Vehicle is not redesignated as a Non-Program Vehicle in accordance with Section
2.7, then the Lessor at its option may:
(i) proceed by appropriate court action or actions, either at law or
equity, to enforce performance by such Lessee of such covenants and terms
of this Agreement or to recover damages for the breach hereof calculated
in accordance with Section 18.5 as it relates to such Vehicle; or
(ii) by notice in writing to such Lessee following the occurrence of
such Vehicle Return Default, terminate the Agreement with respect to such
Vehicle and/or the right of possession hereunder of such Lessee with
respect to such Vehicle and the Lessor may direct delivery by such Lessee
or the Guarantor of documents of title to such Vehicle, whereupon all
rights and interests of such Lessee and the Guarantor to
<PAGE>
such Vehicle will cease and terminate (but such Lessee and the Guarantor
will remain liable hereunder as herein provided, provided, however, that
their liability will be calculated in accordance with Section 18.5 as it
relates to such Vehicle); and thereupon the Lessor or its agents may
peaceably enter upon the premises of such Lessee or other premises where
the Vehicle may be located and take possession of it and thenceforth
hold, possess and enjoy the same free from any right of such Lessee or
the Guarantor or their successors or assigns to use such Vehicle for any
purpose whatsoever and the Lessor will nevertheless have a right to
recover from such Lessee or the Guarantor any and all amounts which,
under the terms of this Agreement may then be due. The Lessor will
provide such Lessee with written notice of the place and time of the sale
of such Vehicle at least five days prior to the proposed sale, which sale
shall be deemed commercially reasonable and such Lessee may purchase the
Vehicle at such sale; or
(iii) hold, keep idle or lease to others such Vehicle, as the Lessor
in its sole discretion may determine, free and clear of any rights of
such Lessee without any duty to account to such Lessee with respect to
such action or inaction or for any proceeds with respect to such action
or inaction except that such Lessee's obligation to pay Monthly Base Rent
for periods commencing after such Lessee shall have been deprived of the
use of such Vehicle pursuant to this clause (iii) shall be reduced by the
net proceeds, if any, received by the Lessor from leasing such Vehicle to
any person other than such Lessee for the same period or any portion
thereof; or
(iv) whether or not the Lessor shall have exercised or shall
thereafter exercise any of the rights under the foregoing clauses (i),
(ii) or (iii), demand by written notice to such Lessee that such Lessee
pay to the Lessor immediately, and such Lessee shall so pay to the Lessor
as liquidated damages for loss of a bargain and not as a penalty, any
unpaid Monthly Base Rent due through the Payment Date with respect to the
Related Month during which such Vehicle is rejected by the Manufacturer
or otherwise is not returned to the Manufacturer or on the date such
Lessee is required to, but does not, sell, return or otherwise dispose of
such Vehicle pursuant to Section 3.1 or 2.6(b) hereof, any Supplemental
Rent then accrued and unpaid plus whichever of the following amounts the
Lessor, in its sole discretion shall specify in such notice:
(1) an amount equal to the excess, if any, of the Termination Value
for such Vehicle over the Market Value of such Vehicle as of (a) the
date such Vehicle (if such Vehicle is a Program Vehicle) is rejected
by a Manufacturer for not meeting its Manufacturer Program's Vehicle
Turn-In Condition guidelines, or (b) the date such Lessee is required
to, but does not, sell, return or otherwise dispose of such Vehicle
(if such Vehicle is a Non-Program Vehicle) pursuant to Section 3.1 or
2.6(b) hereof; or
(2) an amount equal to the Termination Value for such Vehicle as of
(a) the date such Vehicle is rejected by a Manufacturer for not
meeting its Manufacturer
<PAGE>
Program's Vehicle Turn-In Condition guidelines (if such Vehicle is a
Program Vehicle), or (b) the date such Lessee is required to, but
does not, sell, return or otherwise dispose of such Vehicle (if such
Vehicle is a Non-Program Vehicle) pursuant to Section 3.1 or 2.6(b)
hereof, in which event (x) the Lessor shall cause title to such
Vehicle to be transferred to such Lessee, (y) such Lessee shall be
entitled to any physical damage insurance proceeds applicable to such
Vehicle, and (z) the Administrator shall request the Trustee to cause
its Lien to be removed from the Certificate of Title for such
Vehicle.
(v) If the Lessor shall have sold any Vehicle pursuant to clause (ii)
above, the Lessor in lieu of exercising its rights under clause (iv)
above with respect to such Vehicle may, if it shall so elect, demand that
the relevant Lessee of such Vehicle pay to the Lessor and such Lessee
shall pay to the Lessor on the date of such sale as liquidated damages
for loss of a bargain and not as a penalty, any unpaid Monthly Base Rent
and Supplemental Rent due through such date of sale plus the amount of
any deficiency between the net proceeds of such sale and the Termination
Value of such Vehicle computed as of the date of the sale.
18.7. Application of Proceeds. The proceeds of any sale or other
disposition pursuant to Section 18.2, 18.3 or 18.6 shall be applied by the
Lessor in its sole discretion as the Lessor deems appropriate.
19. MANUFACTURER EVENTS OF DEFAULT. (a) Upon the occurrence of a
Manufacturer Event of Default with respect to any Manufacturer (a "Defaulting
Manufacturer"), each Lessee, on behalf of the Lessor (i) shall no longer place
Vehicle Orders for additional Program Vehicles from such Manufacturer and (ii)
shall cancel any Vehicle Order with such Defaulting Manufacturer for any Program
Vehicle with respect to which a VIN has not been assigned as of the date such
Manufacturer Event of Default occurs.
(b) Upon the occurrence of a Manufacturer Event of Default, each Lessee
agrees to (i) act at the direction of the Lessor, the Lender or the Trustee to
take commercially reasonable action to liquidate the Program Vehicles subject to
a Manufacturer Program with respect to which such Manufacturer Event of Default
has occurred or (ii) convert such Program Vehicles to Non-Program Vehicles in
accordance with Section 2.7 hereof and subject to the limitations set forth
therein.
(c) Upon the occurrence of a Manufacturer Event of Default, except as
provided in Section 13.3, no Lessee shall be liable for any failure by the
Lessor to recover all or any portion of the Repurchase Price with respect to any
Program Vehicles subject to the Manufacturer Program of the Defaulting
Manufacturer; provided, however, that nothing in this Section 19 shall be
construed to modify, terminate or otherwise affect the Lessees' obligations
under this Agreement.
20. [RESERVED].
<PAGE>
21. [RESERVED].
22. CERTIFICATION OF TRADE OR BUSINESS USE. Each Lessee hereby warrants
and certifies, under penalties of perjury, that it intends to use the Vehicles
which are subject to this Agreement, in its trade or business.
23. SURVIVAL. In the event that, during the term of this Agreement, any
Lessee or the Guarantor becomes liable for the payment or reimbursement of any
obligations, claims or taxes pursuant to any provision hereof, such liability
will continue, notwithstanding the expiration or termination of this Agreement,
until all such amounts are paid or reimbursed by such Lessee or the Guarantor.
24. ADDITIONAL LESSEES. Any Eligible Rental Car Company shall have the
right to become a "Lessee" under and pursuant to the terms of this Agreement by
complying with the provisions of this Section 24. In the event an Eligible
Rental Car Company desires to become a "Lessee" under this Agreement, then the
Guarantor and such Eligible Rental Car Company shall execute (if appropriate)
and deliver to the Lessor, the Lender and the Trustee:
(i) a Joinder in Lease Agreement in the form attached hereto as
Attachment D (each, a "Joinder in Lease");
(ii) the certificate of incorporation for such Eligible Rental Car
Company, duly certified by the Secretary of State of the jurisdiction of
such Eligible Rental Car Company's incorporation, together with a copy of
the by-laws of such Eligible Rental Car Company, duly certified by a
Secretary or Assistant Secretary of such Eligible Rental Car Company;
(iii) copies of resolutions of the Board of Directors of such
Eligible Rental Car Company authorizing or ratifying the execution,
delivery and performance, respectively, of those documents and matters
required of it with respect to this Agreement, duly certified by the
Secretary or Assistant Secretary of such Eligible Rental Car Company;
(iv) a certificate of the Secretary or Assistant Secretary of such
Eligible Rental Car Company certifying the names of the individual or
individuals authorized to sign the Joinder in Lease and the other Related
Documents to be executed by it, together with samples of the true
signatures of each such individual;
(v) a good standing certificate for such Eligible Rental Car Company
in the jurisdiction of its incorporation and the jurisdiction of its
principal place of business;
(vi) a written search report from a Person satisfactory to the
Lessor, the Lender and the Trustee listing all effective financing
statements that name such Eligible
<PAGE>
Rental Car Company as debtor or assignor, and that are filed in the
jurisdictions in which filings were made pursuant to clause (vii) below,
together with copies of such financing statements, and tax and judgment
lien search reports from a Person satisfactory to the Lessor, the Lender
and the Trustee showing no evidence of liens filed against such Eligible
Rental Car Company that purport to affect any Vehicles leased hereunder
or any Collateral under the Base Indenture;
(vii) evidence of the filing of proper financing statements on Form
UCC-1 naming such Eligible Rental Car Company, as debtor, and the Lessor
as secured party covering the collateral described in Section 2(b)
hereof;
(viii) evidence of the filing of proper financing statements on Form
UCC-1 naming such Eligible Rental Car Company, as debtor, and the Trustee
as secured party covering the collateral described in Section 2(b)
hereof;
(ix) an Officer's Certificate and an opinion of counsel each stating
that such joinder by such Eligible Rental Car Company complies with this
Section 24 and that all conditions precedent herein provided for relating
to such transaction have been complied with;
(x) an Officer's Certificate from such Eligible Rental Car Company,
as to itself, and from the Guarantor, as to itself and such Eligible
Rental Car Company, stating that the representations and warranties
contained in Section 30 hereof are true and correct;
(xi) an opinion of counsel stating that such Joinder in Lease and the
other Related Documents to which such Eligible Rental Car Company is a
party are legal, valid and binding agreements of such Eligible Rental Car
Company, enforceable in accordance with their respective terms, subject
to bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting creditors' rights generally and to general principles of
equity;
(xii) (1) pro forma unaudited financial statements consisting of
consolidated and consolidating balance sheets and cash flow statements of
the Guarantor and its Consolidated Subsidiaries as of the end of the
fiscal year of the Guarantor immediately preceding the date such Eligible
Rental Car Company proposes to become a "Lessee" under this Agreement and
a statement of income and retained earnings of the Guarantor and its
Consolidated Subsidiaries for such fiscal year, setting forth in
comparative form the corresponding figures for the corresponding period
of the preceding fiscal year;
(2) a computation of the financial covenants required to be complied
with pursuant to the Working Capital Facility, in each case for each of
the fiscal years referred to above based on the pro forma financial
information presented above; and
<PAGE>
(3) an Officer's Certificate verifying the accuracy and completeness
of such financial statements and computations signed by an Authorized
Officer of the Guarantor.
Such unaudited financial statements and computations shall reflect the
financial results of such Eligible Rental Car Company as a consolidated
direct or indirect (as applicable) Wholly-Owned Subsidiary of the
Guarantor as if such Eligible Rental Car Company had been directly or
indirectly wholly-owned by the Guarantor as of the beginning of the
earliest fiscal year shown. No Eligible Rental Car Company shall become a
"Lessee" under this Agreement unless the Guarantor is in compliance on a
pro forma basis with the financial covenants required to be complied with
pursuant to the Working Capital Facility for each of the fiscal years
referred to above; and
(xiii) any additional documentation that the Lessor or the Trustee
may require to evidence the assumption by such Eligible Rental Car
Company of the obligations and liabilities set forth in this Agreement.
Upon satisfaction of the foregoing conditions and receipt by such Eligible
Rental Car Company of the applicable Joinder in Lease executed by the Lessor,
such Eligible Rental Car Company shall for all purposes be deemed to be a
"Lessee" for purposes of this Agreement and shall be entitled to the benefits
and subject to the liabilities and obligations of a Lessee hereunder. Each
Eligible Rental Car Company that becomes a Lessee hereunder shall provide prompt
written notice thereof to each Rating Agency.
25. TITLE. This is an agreement to lease only and title to Vehicles will
at all times remain in the Lessor's name or in the name of the Lessor's
Permitted Nominee. None of the Lessees nor the Guarantor will have any rights or
interest in Vehicles whatsoever other than the right of possession and use as
provided by this Agreement.
<PAGE>
26. GUARANTY.
26.1. Guaranty. In order to induce the Lessor to execute and deliver this
Agreement and to lease Vehicles to the Lessees, and in consideration thereof,
the Guarantor hereby (i) unconditionally and irrevocably guarantees to the
Lessor the obligations of the Lessees to make any payments required to be made
by them under this Agreement, (ii) agrees to cause the Lessees to duly and
punctually perform and observe all of the terms, conditions, covenants,
agreements and indemnities of the Lessees under this Agreement, and (iii) agrees
that, if for any reason whatsoever, any Lessee fails to so perform and observe
such terms, conditions, covenants, agreements and indemnities, the Guarantor
will duly and punctually perform and observe the same (the obligations referred
to in clauses (i) through (iii) above are collectively referred to as the
"Guaranteed Obligations"). The liabilities and obligations of the Guarantor
under the guaranty contained in this Section 26 (this "Guaranty") will be
absolute and unconditional under all circumstances. Without limiting the
foregoing, the Guarantor affirms and ratifies its guaranty as set forth in the
Prior AESOP I Operating Lease and confirms that the liabilities and obligations
of the Guarantor thereunder will be absolute and unconditional under all
circumstances and that the execution of this Agreement shall not in any way
affect such liabilities and obligations arising prior to the date hereof. This
Guaranty shall be a guaranty of payment and performance and not merely of
collection, and the Guarantor hereby agrees that it shall not be required that
the Lessor, the Lender or the Trustee assert or enforce any rights against any
Lessee or any other person before or as a condition to the obligations of the
Guarantor pursuant to this Guaranty.
26.2. Scope of Guarantor's Liability. The Guarantor's obligations
hereunder are independent of the obligations of any Lessee(s), any other
guarantor or any other Person, and the Lessor may enforce any of its rights
hereunder independently of any other right or remedy that the Lessor may at any
time hold with respect to this Agreement or any security or other guaranty
therefor. Without limiting the generality of the foregoing, the Lessor may bring
a separate action against the Guarantor without first proceeding against any
Lessee(s), any other guarantor or any other Person, or any security held by the
Lessor, and regardless of whether any Lessee(s) or any other guarantor or any
other Person is joined in any such action. The Guarantor's liability hereunder
shall at all times remain effective with respect to the full amount due from any
Lessee(s) hereunder, notwithstanding any limitations on the liability of any
Lessee(s) to the Lessor contained in any of the Related Documents or elsewhere.
The Lessor's rights hereunder shall not be exhausted by any action taken by the
Lessor until all Guaranteed Obligations have been fully paid and performed. The
liability of the Guarantor hereunder shall be reinstated and revived, and the
rights of the Lessor shall continue, with respect to any amount at any time paid
on account of the Guaranteed Obligations which shall thereafter be required to
be restored or returned by the Lessor upon the bankruptcy, insolvency or
reorganization of any Lessee(s), any other guarantor or any other Person, or
otherwise, all as though such amount had not been paid.
<PAGE>
26.3. Lessor's Right to Amend this Agreement, Etc. The Guarantor hereby
acknowledges and consents to the amendments of the Prior AESOP I Operating Lease
made hereby, and the Guarantor hereby authorizes the Lessor, at any time and
from time to time without notice and without affecting the liability of the
Guarantor hereunder, to: (a) alter the terms of all or any part of the
Guaranteed Obligations and any security and guaranties therefor including
without limitation modification of times for payment and rates of interest; (b)
accept new or additional instruments, documents, agreements, security or
guaranties in connection with all or any part of the Guaranteed Obligations; (c)
accept partial payments on the Guaranteed Obligations; (d) waive, release,
reconvey, terminate, abandon, subordinate, exchange, substitute, transfer,
compound, compromise, liquidate and enforce all or any part of the Guaranteed
Obligations and any security or guaranties therefor, and apply any such security
and direct the order or manner of sale thereof (and bid and purchase at any such
sale), as the Lessor in its discretion may determine; (e) release any Lessee,
any other guarantor or any other Person from any personal liability with respect
to all or any part of the Guaranteed Obligations; and (f) assign its rights
under this Guaranty in whole or in part.
26.4. Waiver of Certain Rights by Guarantor. The Guarantor hereby waives
each of the following to the fullest extent allowed by law:
(a) all statutes of limitation as a defense to any action brought by
the Lessor against the Guarantor;
(b) any defense based upon:
(i) the unenforceability or invalidity of all or any part of the
Guaranteed Obligations or any security or other guaranty for the
Guaranteed Obligations or the lack of perfection or failure of
priority of any security for the Guaranteed Obligations; or
(ii) any act or omission of the Lessor or any other Person that
directly or indirectly results in the discharge or release of any
Lessee or any other Person or any of the Guaranteed Obligations or
any security therefor; or
(iii) any disability or any other defense of any Lessee or any other
Person with respect to the Guaranteed Obligations, whether consensual
or arising by operation of law or any bankruptcy, insolvency or
debtor-relief proceeding, or from any other cause;
(c) any right (whether now or hereafter existing) to require the
Lessor, as a condition to the enforcement of this Guaranty, to:
(i) accelerate the Guaranteed Obligations; or
<PAGE>
(ii) give notice to the Guarantor of the terms, time and place of any
public or private sale of any security for the Guaranteed
Obligations; or
(iii) proceed against any Lessee, any other guarantor or any other
Person, or proceed against or exhaust any security for the Guaranteed
Obligations.
(d) all rights of subrogation, all rights to enforce any remedy that
the Lessor now or hereafter has against any Lessee or any other Person,
and any benefit of, and right to participate in, any security now or
hereafter held by the Lessor with respect to the Guaranteed Obligations;
(e) presentment, demand, protest and notice of any kind, including
without limitation notices of default and notice of acceptance of this
Guaranty;
(f) all suretyship defenses and rights of every nature otherwise
available under New York law and the laws of any other jurisdiction; and
(g) all other rights and defenses the assertion or exercise of which
would in any way diminish the liability of the Guarantor hereunder.
26.5. [RESERVED].
26.6. Guarantor to Pay Lessor's Expenses. The Guarantor agrees to pay to
the Lessor, on demand, all costs and expenses, including attorneys' and other
professional and paraprofessional fees, incurred by the Lessor in exercising any
right, power or remedy conferred by this Guaranty, or in the enforcement of this
Guaranty, whether or not any action is filed in connection therewith. Until paid
to the Lessor, such amounts shall bear interest, commencing with the Lessor's
demand therefor, at the Prime Rate plus 1.0%.
26.7. Reinstatement. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time payment of any of the amounts
payable by any Lessee under this Agreement is rescinded or must otherwise be
restored or returned by the Lessor, upon an event of bankruptcy, dissolution,
liquidation or reorganization of any Lessee or the Guarantor or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, any Lessee or the Guarantor or any substantial
part of their respective property, or otherwise, all as though such payment had
not been made.
26.8. Pari Passu Indebtedness. The Guarantor (i) represents and warrants
that, as of the date hereof, the obligations of the Guarantor under this
Guaranty will rank pari passu with any existing unsecured indebtedness of the
Guarantor and (ii) covenants and agrees that from and after the date hereof the
obligations of the Guarantor under this Guaranty will rank pari passu with any
unsecured indebtedness of the Guarantor incurred after the date hereof.
<PAGE>
27. RIGHTS OF LESSOR ASSIGNED. Notwithstanding anything to the contrary
contained in this Agreement, each of the Lessees and the Guarantor acknowledges
that (A) the Lessor has assigned all of its rights under this Agreement (other
than its right to receive Excluded Payments and Assigned Special Default
Payments, including any guaranty thereof and its right to enforce payment
thereof) to AFC-II pursuant to the AESOP I Operating Lease Loan Agreement and
AFC-II has assigned such rights to the Trustee pursuant to the Indenture and (B)
the Lessor may from time to time assign to the Intermediary, who may further
assign the same to the Lender Agent, the Lessor's right to receive and collect
Special Service Charges and Assigned Special Default Payments (including the
guaranty thereof and its right to enforce payment thereof) in accordance with
Section 7.3 of the AESOP I Operating Lease Loan Agreement and the Master
Exchange Agreement. Accordingly, each of the Lessees and the Guarantor agrees
that:
(i) Subject to the terms of the AESOP I Loan Agreement and the
Indenture, the Trustee shall have all the rights, powers, privileges and
remedies of the Lessor hereunder (other than the right to receive
Excluded Payments, which shall be paid to the AESOP I Segregated Account
and which, in the case of Special Service Charges or any guaranty
thereof, may be directed by the Lessor to be paid directly to the
Intermediary or to the Lender Agent, and other than the right to receive
Assigned Special Default Payments or guaranty payments with respect
thereto, which may be directed by the Lessor to be paid directly to the
Intermediary or to the Lender Agent) and the obligations of the Guarantor
and of each Lessee hereunder (including with respect to the payment of
Monthly Base Rent, Supplemental Rent and all other amounts payable
hereunder) shall not be subject to any claim or defense which the
Guarantor or such Lessee may have against the Lessor or any Lessee (other
than the defense of payment actually made) and shall be absolute and
unconditional and shall not be subject to any abatement, setoff,
counterclaim, deduction or reduction for any reason whatsoever.
Specifically, each of the Lessees and the Guarantor agrees that, upon the
occurrence of an AESOP I Operating Lease Event of Default, a Limited
Liquidation Event of Default or a Liquidation Event of Default, the
Trustee may exercise (for and on behalf of the Lessor) any right or
remedy against any Lessee or the Guarantor provided for herein (other
than with respect to the right to receive Excluded Payments or any
guaranty payments related thereto, and other than with respect to the
Assigned Special Default Payments and related guaranty rights assigned to
the Intermediary) and none of the Lessees nor the Guarantor will
interpose as a defense that such claim should have been asserted by the
Lessor;
(ii) Upon the delivery by the Trustee of any notice to any Lessee or
the Guarantor stating that an AESOP I Operating Lease Event of Default, a
Limited Liquidation Event of Default or a Liquidation Event of Default
has occurred, the relevant Lessee or the Guarantor, as the case may be,
will, if so requested by the Trustee, treat the Trustee or the Trustee's
designee for all purposes (other than with respect to the right to
receive Excluded Payments or any guaranty payments related thereto and
other than with respect to the Assigned Special Default Payments and
related guaranty rights assigned to the Intermediary) as the Lessor
hereunder and in
<PAGE>
all respects comply with all obligations under this Agreement that are
asserted by the Trustee as the successor to the Lessor hereunder,
irrespective of whether such Lessee or the Guarantor has received any
such notice from the Lessor; provided, however, that the Trustee shall in
no event be liable to any Lessee for any action taken by it in its
capacity as successor to the Lessor other than actions that constitute
negligence or willful misconduct;
(iii) Each of the Lessees and the Guarantor acknowledges that
pursuant to the AESOP I Operating Lease Loan Agreement and the Indenture
the Lessor has irrevocably authorized and directed each Lessee or the
Guarantor to, and each Lessee and the Guarantor shall, make payments of
Monthly Base Rent and Supplemental Rent hereunder (and any other payments
hereunder) (other than Excluded Payments, which shall be paid to the
AESOP I Segregated Account and which, in the case of Special Service
Charges or any guaranty thereof, may be directed by the Lessor to be paid
directly to the Intermediary or to the Lender Agent, and other than the
right to receive Assigned Special Default Payments or any guaranty
payments with respect thereto, which may be directed by the Lessor to be
paid directly to the Intermediary or to the Lender Agent) directly to the
Trustee for deposit in the Collection Account established by the Trustee
for receipt of such payments pursuant to the Indenture and such payments
shall discharge the obligation of such Lessee and the Guarantor to the
Lessor hereunder to the extent of such payments. Upon written notice to
the Lessees or the Guarantor of a sale or assignment by the Trustee of
its right, title and interest in moneys due under this Agreement to a
successor Trustee, each Lessee or the Guarantor, as the case may be,
shall thereafter make payments of all Monthly Base Rent and Supplemental
Rent (and any other payments hereunder) (other than Excluded Payments,
which shall be paid to the AESOP I Segregated Account and which, in the
case of Special Service Charges or any guaranty thereof, may be directed
by the Lessor to be paid directly to the Intermediary or the Lender
Agent, and other than Assigned Special Default Payments or any guaranty
payments with respect thereto, which may be directed by the Lessor to be
paid directly to the Intermediary or to the Lender Agent) to the party
specified in such notice;
(iv) Upon request made by the Trustee at any time, each of the
Lessees and the Guarantor will take such actions as are requested by the
Trustee to assist the Trustee in maintaining the Trustee's first priority
perfected security interest in the Vehicles leased hereunder, the
Certificates of Title with respect thereto and any other portion of the
AESOP I Operating Lease Loan Collateral; and
(v) In the event that the Indenture terminates and all obligations
owing under the Indenture have been paid in full, the Lender shall have
all rights under this Agreement previously assigned to the Trustee.
28. [RESERVED].
<PAGE>
29. MODIFICATION AND SEVERABILITY. The terms of this Agreement will not be
waived, altered, modified, amended, supplemented or terminated in any manner
whatsoever unless (i) the same shall be in writing and signed and delivered by
the Lessor, the Guarantor and each Lessee and consented to in writing by the
Lender and the Trustee, (ii) the Lessor shall have received in writing
confirmation from each of the Rating Agencies that its then current rating of
the Notes and the Commercial Paper Notes will not be reduced or withdrawn as a
result thereof and (iii) the Rating Agency Consent Condition shall have been
satisfied. If any part of this Agreement is not valid or enforceable according
to law, all other parts will remain enforceable. The Lessor shall provide prompt
written notice to each Rating Agency of any such waiver, modification or
amendment.
30. CERTAIN REPRESENTATIONS AND WARRANTIES. Each Lessee represents and
warrants to the Lessor and the Trustee as to itself, and the Guarantor
represents and warrants to the Lessor and the Trustee as to itself and as to
each Lessee, that as of the date hereof and as of each Series Closing Date:
30.1. Organization; Ownership; Power; Qualification. The Guarantor and
each Lessee is (i) a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, (ii) has the
corporate power and authority to own its properties and to carry on its business
as now being and hereafter proposed to be conducted, and (iii) is duly
qualified, in good standing and authorized to do business in each jurisdiction
in which the character of its properties or the nature of its businesses
requires such qualification or authorization.
30.2. Authorization; Enforceability. The Guarantor and each Lessee has the
corporate power and has taken all necessary corporate action to authorize it to
execute, deliver and perform this Agreement and each of the other Related
Documents to which it is a party in accordance with their respective terms, and
to consummate the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by the Guarantor and each Lessee and is,
and each of the other Related Documents to which the Guarantor or such Lessee is
a party is, a legal, valid and binding obligation of the Guarantor and such
Lessee, enforceable in accordance with its terms.
30.3. Compliance. The execution, delivery and performance, in accordance
with their respective terms, by the Guarantor and each Lessee of this Agreement
and each of the other Related Documents to which it is a party, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (i) require any consent, approval, authorization or registration not
already obtained or effected, (ii) violate any applicable law with respect to
the Guarantor or such Lessee which violation could result in a Material Adverse
Effect, (iii) conflict with, result in a breach of, or constitute a default
under the certificate or articles of incorporation or by-laws, as amended, of
the Guarantor or such Lessee, (iv) conflict with, result in a breach of, or
constitute a default under any indenture, agreement, or other instrument to
which the Guarantor or such Lessee is a party or by which its properties may be
bound which conflict, breach or default could result in a Material Adverse
Effect, or (v) result in or require the creation or imposition of any Lien
<PAGE>
upon or with respect to any property now owned or hereafter acquired by such
Lessee except Permitted Encumbrances.
30.4. Financial Information; Financial Condition. All balance sheets, all
statements of operations, of shareholders' equity and of cash flow, and other
financial data (other than projections) which have been or shall hereafter be
furnished to the Lessor, the Lender or the Trustee for the purposes of or in
connection with this Agreement or the Related Documents have been and will be
prepared in accordance with GAAP and do and will present fairly the financial
condition of the entities involved as of the dates thereof and the results of
their operations for the periods covered thereby. Such financial data include
the following financial statements and reports which have been furnished to the
Lessor and the Trustee on or prior to the date hereof or such Closing Date:
(i) the audited consolidated financial statements consisting of a
statement of financial position of the Guarantor and its Consolidated
Subsidiaries as of December 31, 1997, and the related statements of
operations, stockholder's equity and cash flows of the Guarantor and its
Consolidated Subsidiaries for the year ended December 31, 1997; and
(ii) the unaudited condensed consolidated financial statements
consisting of a statement of financial position of the Guarantor and its
Consolidated Subsidiaries as of March 31, 1998, and the related
statements of operations, stockholder's equity and cash flows of the
Guarantor and its Consolidated Subsidiaries for the three months ended
March 31, 1998;
30.5. Litigation. Except as set forth in Schedule 30.5 hereto and except
for claims as to which the insurer has admitted coverage in writing and which
are fully covered by insurance, no claims, litigation (including, without
limitation, derivative actions), arbitration, governmental investigation or
proceeding or inquiry is pending or, to the best of the Guarantor's or each
Lessee's knowledge, threatened against the Guarantor or such Lessee which would,
if adversely determined, have a Material Adverse Effect.
30.6. Liens. The Vehicles and other Collateral are free and clear of all
Liens other than (i) Permitted Liens and (ii) Liens in favor of the Lessor, the
Lender or the Trustee. The Trustee has obtained, and will continue to obtain,
for the benefit of the Secured Parties pursuant to the Indenture, a first
priority perfected Lien on all Vehicles leased hereunder. All Vehicle Perfection
and Documentation Requirements with respect to all Vehicles on or after the date
hereof have and will continue to be satisfied.
30.7. Employee Benefit Plans. (a) During the twelve consecutive month
period prior to the date hereof: (i) no steps have been taken by the Guarantor,
any Lessee or any member of the Controlled Group, or to the knowledge of the
Guarantor, by any Person, to terminate any Pension Plan; and (ii) no
contribution failure has occurred with respect to any Pension Plan maintained by
the Guarantor, any Lessee or any member of the Controlled Group sufficient to
give rise to a Lien under Section 302(f)(1) of ERISA in connection with
<PAGE>
such Pension Plan; and (b) no condition exists or event or transaction has
occurred with respect to any Pension Plan which could reasonably be expected to
result in the incurrence by the Guarantor or any Lessee or any member of the
Controlled Group of liabilities, fines or penalties in an amount that could have
a Material Adverse Effect.
30.8. Investment Company Act. Neither the Guarantor nor any Lessee is an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended, and
neither the Guarantor nor any Lessee is subject to any other statute which would
impair or restrict its ability to perform its obligations under this Agreement
or the other Related Documents, and neither the entering into or performance by
the Guarantor or any Lessee of this Agreement violates any provision of such
Act.
30.9. Regulations T, U and X. Neither the Guarantor nor any Lessee is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations T, U and X of the Board of Governors of the Federal
Reserve System). None of the Guarantor, any Lessee, any Affiliates of any of
them or any Person acting on their behalf has taken or will take action to cause
the execution, delivery or performance of this Agreement or the Loan Note, the
making or existence of the Loans or the use of proceeds of the Loans to violate
Regulation T, U, or X of the Board of Governors of the Federal Reserve System.
30.10. Business Locations; Trade Names; Principal Places of Business
Locations. Schedule 30.10 lists each of the locations where each of the Lessees
and the Guarantor maintains a chief executive office, principal place of
business, or any records; and Schedule 30.10 also lists the Lessees' and the
Guarantor's legal names, each name under or by which each of the Lessees and the
Guarantor conducts its business, each state in which each of the Lessees and the
Guarantor conducts business and each state in which each of the Lessees and the
Guarantor has its principal place of business.
30.11. Taxes. The Guarantor and each Lessee has filed all tax returns
which have been required to be filed by it (except where the requirement to file
such return is subject to a valid extension or such failure relates to returns
which, in the aggregate, show taxes due in an amount of not more than $500,000),
and has paid or provided adequate reserves for the payment of all taxes shown
due on such returns or required to be paid as a condition to such extension, as
well as all payroll taxes and federal and state withholding taxes, and all
assessments payable by it that have become due, other than those that are
payable without penalty or are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been established,
and are being maintained, in accordance with GAAP. As of the date hereof and as
of each Series Closing Date, to the best of the Guarantor's or each Lessee's
knowledge, there is no unresolved claim by a taxing authority concerning the
Guarantor's or such Lessee's tax liability for any period for which returns have
been filed or were due other than those contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been established
and are being maintained in accordance with GAAP.
<PAGE>
30.12. Governmental Authorization. The Guarantor and each Lessee has all
licenses, franchises, permits and other governmental authorizations necessary
for all businesses presently carried on by it (including owning and leasing the
real and personal property owned and leased by it), except where failure to
obtain such licenses, franchises, permits and other governmental authorizations
would not have a Material Adverse Effect.
30.13. Compliance with Laws. Except as disclosed in Schedule 30.13 hereto,
the Guarantor and each Lessee: (i) is not in violation of any law, ordinance,
rule, regulation or order of any Governmental Authority applicable to it or its
property, which violation would have a Material Adverse Effect, and no such
violation has been alleged, (ii) has filed in a timely manner all reports,
documents and other materials required to be filed by it with any governmental
bureau, agency or instrumentality (and the information contained in each of such
filings is true, correct and complete in all material respects), except where
failure to make such filings would not have a Material Adverse Effect, and (iii)
has retained all records and documents required to be retained by it pursuant to
any Requirement of Law, except where failure to retain such records would not
have a Material Adverse Effect.
30.14. Eligible Vehicles. Each Vehicle is or will be, as the case may be,
on the Vehicle Operating Lease Commencement Date with respect to such Vehicle,
an Eligible Vehicle.
30.15. Supplemental Documents True and Correct. All information contained
in any Vehicle Order or other Supplemental Document which has been submitted, or
which may hereafter be submitted by any Lessee to the Lessor is, or will be,
true, correct and complete.
30.16. Manufacturer Programs. No Manufacturer Event of Default has
occurred and is continuing with respect to any Eligible Program
Manufacturer.
30.17. Absence of Default. The Guarantor and each Lessee is in compliance
with all of the provisions of its certificate or articles of incorporation and
by-laws and no event has occurred or failed to occur which has not been remedied
or waived, the occurrence or non-occurrence of which constitutes, or with the
passage of time or giving of notice or both would constitute, (i) an AESOP I
Operating Lease Event of Default or a Potential AESOP I Operating Lease Event of
Default or (ii) a default or event of default by the Guarantor or any Lessee
under any material indenture, agreement or other instrument, or any judgment,
decree or final order to which the Guarantor or any Lessee is a party or by
which the Guarantor or any Lessee or any of their properties may be bound or
affected that could result in a Material Adverse Effect.
30.18. Title to Assets. The Guarantor and each Lessee has good, legal and
marketable title to, or a valid leasehold interest in, all of its assets, except
to the extent no Material Adverse Effect could result. None of such properties
or assets is subject to any Liens, except for Permitted Encumbrances. Except for
financing statements or other filings
<PAGE>
with respect to or evidencing Permitted Encumbrances, no financing statement
under the UCC of any state, application for a Certificate of Title or
certificate of ownership, or other filing which names the Guarantor or any
Lessee as debtor or which covers or purports to cover any of the assets of the
Guarantor or such Lessee is on file in any state or other jurisdiction, and
neither the Guarantor nor any Lessee has signed any such financing statement,
application or instrument authorizing any secured party or creditor of such
Person thereunder to file any such financing statement, application or filing
other than with respect to Permitted Encumbrances and except, in each case, to
the extent no Material Adverse Effect could result.
30.19. Burdensome Provisions. Neither the Guarantor nor any Lessee is a
party to or bound by any Contractual Obligation that could have a Material
Adverse Effect.
30.20. No Adverse Change. Since March 31, 1998, (x) no material adverse
change in the business, assets, liabilities, financial condition, results of
operations or business prospects of the Guarantor or any Lessee has occurred,
and (y) no event has occurred or failed to occur, which has had or may have,
either alone or in conjunction with all other such events and failures, a
Material Adverse Effect.
30.21. No Adverse Fact. No fact or circumstance is known to the Guarantor
or any Lessee, as of the date hereof or as of such Closing Date, which, either
alone or in conjunction with all other such facts and circumstances, has had or
might in the future have (so far as the Guarantor or any Lessee can foresee) a
Material Adverse Effect which has not been set forth or referred to in the
financial statements referred to in Section 30.4 or 31.5 or in a writing
specifically captioned "Disclosure Statement" and delivered to the Lessor prior
to such Closing Date. If a fact or circumstance disclosed in such financial
statements or Disclosure Statement, or if an action, suit or proceeding
disclosed to the Lessor, should in the future have a Material Adverse Effect,
such Material Adverse Effect shall be a change or event subject to Section 30.20
notwithstanding such disclosure.
30.22. Accuracy of Information. All data, certificates, reports,
statements, opinions of counsel, documents and other information furnished to
the Lessor, the Lender or the Trustee by or on behalf of the Guarantor or any
Lessee pursuant to any provision of any Related Document, or in connection with
or pursuant to any amendment or modification of, or waiver under, any Related
Document, shall, at the time the same are so furnished, (i) be complete and
correct in all material respects to the extent necessary to give the Lessor, the
Lender or the Trustee, as the case may be, true and accurate knowledge of the
subject matter thereof, (ii) not contain any untrue statement of a material
fact, and (iii) not omit to state a material fact necessary in order to make the
statements contained therein (in light of the circumstances in which they were
made) not misleading, and the furnishing of the same to the Lessor, the Lender
or the Trustee, as the case may be, shall constitute a representation and
warranty by the Guarantor and each Lessee made on the date the same are
furnished to the Lessor, the Lender or the Trustee, as the case may be, to the
effect specified in clauses (i), (ii) and (iii).
<PAGE>
30.23. Solvency. Both before and after giving effect to the transactions
contemplated by this Agreement and the other Related Documents, each of the
Guarantor and each Lessee is solvent within the meaning of the Bankruptcy Code
and each of the Guarantor and each Lessee is not the subject of any voluntary or
involuntary case or proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy or insolvency
law and no Event of Bankruptcy has occurred with respect to the Guarantor or any
Lessee.
31. CERTAIN AFFIRMATIVE COVENANTS. Until the expiration or termination of
this Agreement, and thereafter until the obligations of the Lessees and the
Guarantor under this Agreement and the Related Documents are satisfied in full,
each Lessee covenants and agrees as to itself, and the Guarantor covenants and
agrees as to itself and as to each Lessee that, unless at any time the Lessor,
the Lender and the Trustee shall otherwise expressly consent in writing, it will
(and, in the case of the Guarantor, will cause each Lessee to):
31.1. Corporate Existence; Foreign Qualification. Do and cause to be done
at all times all things necessary to (i) maintain and preserve the corporate
existence of the Guarantor and each Lessee (it being understood that subject to
Section 32.1, each Lessee shall remain a direct or indirect Wholly-Owned
Subsidiary of the Guarantor); (ii) be, and ensure that each Lessee is, duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction where the nature of its business makes such qualification necessary
and the failure to so qualify would have a Material Adverse Effect; and (iii)
comply with all Contractual Obligations and Requirements of Law binding upon it
and its Subsidiaries, except to the extent that the failure to comply therewith
would not, in the aggregate, have a Material Adverse Effect.
31.2. Books, Records and Inspections. (i) Maintain complete and accurate
books and records with respect to the Vehicles leased by it under this Agreement
and (ii) permit any Person designated by the Lessor, the Lender or the Trustee
in writing to visit and inspect any of the properties, corporate books and
financial records of the Guarantor and its Subsidiaries and to discuss its
affairs, finances and accounts with officers of the Guarantor and its
Subsidiaries, agents of the Guarantor and with the Guarantor's independent
public accountants, all at such reasonable times and as often as the Lessor, the
Lender or the Trustee may reasonably request.
31.3. Insurance. Obtain and maintain with respect to all Vehicles that are
subject to this Agreement (a) vehicle liability insurance to the full extent
required by law and in any event not less than $500,000 per Person and
$1,000,000 per occurrence, (b) property damage insurance with a limit of
$1,000,000 per occurrence, and (c) excess coverage public liability insurance
with a limit of not less than $50,000,000 or the limit maintained from time to
time by the relevant Lessee at any time hereafter, whichever is greater, with
respect to all passenger cars and vans comprising such Lessee's rental fleet.
The Lessor acknowledges and agrees that each Lessee may, to the extent permitted
by applicable law, self-insure for the first $1,000,000 per occurrence, or a
greater amount up to a maximum of
<PAGE>
$3,000,000, with the consent of each Enhancement Provider, per occurrence, of
vehicle liability and property damage which is otherwise required to be insured
hereunder. All such policies shall be from financially sound and reputable
insurers, shall name the Lender, the Lessor and the Trustee as additional
insured parties, in the case of catastrophic physical damage insurance on such
Vehicles, shall name the Trustee as loss payee as its interest may appear and
will provide that the Lender, the Lessor and the Trustee shall receive at least
10 days' prior written notice of cancellation of such policies. Each Lessee will
notify promptly the Lender, the Lessor and the Trustee of any curtailment or
cancellation of such Lessee's right to self-insure in any jurisdiction.
31.4. Manufacturer Programs. Turn in the Program Vehicles leased by such
Lessee to the relevant Manufacturer within the Repurchase Period therefor
(unless such Lessee sells such Program Vehicle prior to the end of the
Repurchase Period therefor and receives sales proceeds thereof in cash in an
amount equal to or greater than the repurchase price under such Manufacturer
Program); and comply with all of its obligations under each Manufacturer
Program.
31.5. Reporting Requirements. Furnish, or cause to be furnished to the
Lessor, the Lender and the Trustee and, in the case of item (iv) below, each
Rating Agency:
(i) Audit Report. As soon as available and in any event within 120
days after the end of each fiscal year of the Guarantor, (a) consolidated
financial statements consisting of a statement of financial position of
the Guarantor and its Consolidated Subsidiaries as of the end of such
fiscal year and a statement of operations, stockholders' equity and cash
flows of the Guarantor and its Consolidated Subsidiaries for such fiscal
year, setting forth in comparative form the corresponding figures for the
preceding fiscal year, certified by and containing an opinion,
unqualified as to scope, of independent certified public accountants of
recognized standing selected by the Guarantor and acceptable to the
Lessor, the Lender and the Trustee, accompanied by (b) a letter from such
accountants addressed to the Lessor, the Lender and the Trustee stating
that, in the course of their annual audit of the books and records of the
Guarantor, no Potential AESOP I Operating Lease Event of Default or AESOP
I Operating Lease Event of Default has come to their attention which was
continuing at the close of such fiscal year or on the date of their
letter, or, if such an event has come to the attention of such
accountants and was continuing at the close of such fiscal year or on the
date of their letter, the nature of such event, it being understood that
such accountants shall have no liability to the Lessor or the Trustee by
reason of the failure of such accountants to obtain knowledge of the
occurrence or continuance of such an AESOP I Operating Lease Event of
Default or Potential AESOP I Operating Lease Event of Default;
(ii) Quarterly Statements. As soon as available and in any event
within 45 days after the end of each of the first three quarters of each
fiscal year of the Guarantor, (a) financial statements consisting of a
consolidated statement of financial
<PAGE>
position of the Guarantor and its Consolidated Subsidiaries as of the end
of such quarter and a statement of operations, stockholders' equity and
cash flows of the Guarantor and its Consolidated Subsidiaries for each
such quarter, setting forth in comparative form the corresponding figures
for the corresponding periods of the preceding fiscal year, all in
reasonable detail and certified (subject to year-end audit adjustments)
by a senior financial officer of the Guarantor as having been prepared in
accordance with GAAP consistently applied, accompanied by (b) a letter
from such officer addressed to the Lessor, the Lender and the Trustee
stating that no Potential AESOP I Operating Lease Event of Default or
AESOP I Operating Lease Event of Default has come to his attention which
was continuing at the end of such quarter or on the date of his letter,
or, if such an event has come to his attention and was continuing at the
end of such quarter or on the date of his letter, indicating the nature
of such event and the action which the Guarantor proposes to take with
respect thereto;
(iii) Amortization Events and AESOP I Operating Lease Events of
Default. As soon as possible but in any event within two Business Days
after the occurrence of any Amortization Event, Potential Amortization
Event, AESOP I Operating Lease Event of Default or Potential AESOP I
Operating Lease Event of Default, a written statement of an Authorized
Officer describing such event and the action that the Guarantor or such
Lessee, as the case may be, proposes to take with respect thereto;
(iv) Manufacturers. Promptly after obtaining actual knowledge
thereof, notice of any Manufacturer Event of Default or termination or
replacement of a Manufacturer Program;
(v) Interim Financial Statements. Promptly following the Guarantor's
receipt thereof, copies of all other financial reports submitted to the
Guarantor by independent public accountants relating to any annual or
interim audit of the books of the Guarantor, or opinion as to the proper
book value of the assets of the Guarantor;
(vi) Reports. Promptly, from time to time, such information with
respect to the Vehicles leased hereunder and payments made and owing
hereunder as the Lessor may require to satisfy its reporting obligations
to the Lender pursuant to Section 9.5 of the AESOP I Operating Lease Loan
Agreement; and
(vii) Other. Promptly, from time to time, such other information,
documents, or reports respecting the Vehicles leased hereunder or the
condition or operations, financial or otherwise, of the Guarantor or such
Lessee as the Lessor, the Lender or the Trustee may from time to time
reasonably request in order to protect the interests of the Lessor, the
Lender or the Trustee under or as contemplated by this Agreement or any
other Related Document.
<PAGE>
31.6. Payment of Taxes; Removal of Liens. Pay when due all taxes,
assessments, fees and governmental charges of any kind whatsoever that may be at
any time lawfully assessed or levied against or with respect to such Lessee, the
Guarantor or their respective property and assets or any interest thereon.
Notwithstanding the previous sentence, but subject in any case to the other
requirements hereof and of the Related Documents, neither such Lessee nor the
Guarantor shall be required to pay any tax, charge, assessment or imposition nor
to comply with any law, ordinance, rule, order, regulation or requirement so
long as such Lessee or the Guarantor shall contest, in good faith, the amount or
validity thereof, in an appropriate manner or by appropriate proceedings. Each
such contest shall be promptly prosecuted to final conclusion (subject to the
right of the Guarantor or such Lessee to settle any such contest).
31.7. Business. Such Lessee will engage only in businesses in
substantially the same or related fields as the businesses conducted on the date
hereof and such other lines of business, which, in the aggregate, do not
constitute a material part of the operations of such Lessee.
31.8. Maintenance of Separate Existence. Each of the Guarantor and such
Lessee acknowledges its receipt of a copy of that certain opinion letter issued
by Skadden, Arps, Slate, Meagher & Flom LLP dated the Initial Closing Date and
addressing the issue of substantive consolidation as it may relate to the
Guarantor, each Lessee, the Lessor, Original AESOP, AESOP Leasing II, AFC-II and
AFC. The Guarantor and each Lessee hereby agree to maintain in place all
policies and procedures, and take and continue to take all action, described in
the factual assumptions set forth in such opinion letter and relating to such
Person.
31.9. Trustee as Lienholder. Concurrently with each leasing of a Vehicle
under this Agreement, the Administrator shall indicate on its computer records
that the Trustee as assignee of the Lender is the holder of a Lien on such
Vehicle pursuant to the terms of the Indenture.
31.10. Maintenance of the Vehicles. Maintain and cause to be maintained in
good repair, working order, and condition all of the Vehicles leased by such
Lessee in accordance with its ordinary business practices with respect to all
other vehicles owned by it, except to the extent that any such failure to comply
with such requirements does not, in the aggregate, materially adversely affect
the interests of the Lessor under this Agreement, the interests of the Lender
under the AESOP I Operating Lease Loan Agreement or the interests of the Secured
Parties under the Indenture or the likelihood of repayment of the Loans. From
time to time the Guarantor and such Lessee will make or cause to be made all
appropriate repairs, renewals, and replacements with respect to the Vehicles.
The Guarantor and such Lessee shall maintain good, legal and marketable title
to, or a valid leasehold interest in, all of its assets, free and clear of all
Liens except for Permitted Liens, and except to the extent sold or otherwise
disposed of in accordance with this Agreement or any of the other Related
Documents, and except to the extent no Material Adverse Effect could result.
<PAGE>
31.11. Enhancement. If the Enhancement with respect to any Series of Notes
is provided by a letter of credit and (i) the short-term debt or deposit rating
of the Enhancement Provider of such letter of credit shall be downgraded below
the then-current rating of such Series of Notes by the Rating Agencies with
respect to such Series of Notes or (ii) such Enhancement Provider shall notify
the Lessees that its compliance with any of its obligations under such letter of
credit would be unlawful, use its best efforts to obtain a successor institution
to act as Enhancement Provider or, in the alternative, to otherwise credit
enhance the payments to be made under this Agreement by the Lessees, subject to
the satisfaction of the Rating Agency Confirmation Condition and any other
requirements set forth in the Related Documents.
31.12. Manufacturer Payments. Cause each Manufacturer and auction dealer
to make all payments made by it under the Manufacturer Programs with respect to
Vehicles leased hereunder directly to the Collection Account. Any such payments
from Manufacturers or related auction dealers received directly by the Guarantor
or any Lessee, will be, within three Business Days of receipt, deposited into
the Collection Account.
31.13. Accounting Methods; Financial Records. Maintain, and cause each of
its material Subsidiaries to maintain, a system of accounting and keep, and
cause each of its material Subsidiaries to keep, such records and books of
account (which shall be true and complete) as may be required or necessary to
permit the preparation of financial statements in accordance with GAAP.
31.14. Disclosure to Auditors. Disclose, and cause each of its material
Subsidiaries to disclose, to its independent certified public accountants in a
timely manner all loss contingencies of a type requiring disclosure to auditors
under accounting standards promulgated by the Financial Accounting Standards
Board.
31.15. Disposal of Non-Program Vehicles. Dispose of the Non-Program
Vehicles leased by the Lessee in accordance with Section 2.6(b) (unless the
Lessee purchases such Non-Program Vehicle in accordance with the terms hereof).
32. CERTAIN NEGATIVE COVENANTS. Until the expiration or termination of
this Agreement and thereafter until the obligations of each Lessee and the
Guarantor under this Agreement and the Related Documents are satisfied in full,
each Lessee covenants and agrees as to itself, and the Guarantor covenants and
agrees as to itself and as to each Lessee that, unless at any time the Lessor
and the Trustee shall otherwise expressly consent in writing, it will not (and,
in the case of the Guarantor, will not permit each Lessee to):
32.1. Mergers, Consolidations. Merge or consolidate with any Person,
except that, if after giving effect thereto, no Potential AESOP I Operating
Lease Event of Default or AESOP I Operating Lease Event of Default would exist,
this Section 32.1 shall not apply to (i) any merger or consolidation, provided
that the Guarantor or such Lessee, as applicable, is the surviving corporation
and if such Lessee is the surviving corporation, it is a direct or
<PAGE>
indirect Wholly-Owned Subsidiary of the Guarantor after such merger or
consolidation and (ii) any merger or consolidation of such Lessee with or into
another Subsidiary of the Guarantor, provided that the surviving entity executes
an agreement of assumption to perform every obligation of such Lessee under this
Agreement and such surviving entity is a direct or indirect Wholly-Owned
Subsidiary of the Guarantor.
32.2. Other Agreements. Enter into any agreement containing any provision
which would be violated or breached by the performance of its obligations
hereunder or under any instrument or document delivered or to be delivered by it
hereunder or in connection herewith.
32.3. Liens. Create or permit to exist any Lien with respect to any
Vehicle leased hereunder now or hereafter existing or acquired, except for
Permitted Liens.
32.4. Use of Vehicles. Use or allow the Vehicles to be used in any manner
that would (i) make such Vehicles that are Program Vehicles ineligible for
repurchase under an Eligible Manufacturer Program, (ii) for any illegal purposes
or (iii) subject the Vehicles to confiscation.
32.5. Termination of Agreement. Allow this Agreement to terminate
prior to the termination of each other Lease.
33. ADMINISTRATOR ACTING AS AGENT OF THE LESSOR. The parties to this
Agreement acknowledge and agree that ARAC shall act as Administrator and, in
such capacity, as the agent for the Lessor, for purposes of performing certain
duties of the Lessor under this Agreement and the Related Documents. As
compensation for the Administrator's performance of such duties, the Lessor
shall pay to the Administrator on each Payment Date (i) the portion of the
Monthly Administration Fee payable by the Lessor pursuant to the Administration
Agreement and (ii) the reasonable costs and expenses of the Administrator
incurred by it as a result of arranging for the sale of Vehicles returned to the
Lessor in accordance with Section 2.6(c) or as a result of a Vehicle Return
Default and sold to third parties, provided, however, that such costs and
expenses shall only be payable to the Administrator to the extent of any excess
of the sale price received by the Lessor for any such Vehicle over the
Termination Value thereof.
34. NO PETITION. Each of the Guarantor, each Lessee and the Administrator
hereby covenants and agrees that, prior to the date which is one year and one
day after the payment in full of all of the Notes and the Commercial Paper
Notes, it will not institute against, or join any other Person in instituting
against, the Lessor, Original AESOP, AESOP Leasing II, Quartx, PVHC, AFC or
AFC-II any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings or other similar proceeding under the laws of the United States or
any state of the United States. In the event that the Guarantor, any Lessee or
the Administrator takes action in violation of this Section 34, the Lessor
agrees, for the benefit of the Secured Parties, that it shall file an answer
with the bankruptcy court or otherwise properly contest the filing of such a
petition by the Guarantor, such
<PAGE>
Lessee or the Administrator against the Lessor, Original AESOP, AESOP Leasing
II, Quartx, PVHC, AFC or AFC-II or the commencement of such action and raise the
defense that the Guarantor, such Lessee or the Administrator has agreed in
writing not to take such action and should be estopped and precluded therefrom
and such other defenses, if any, as its counsel advises that it may assert. The
provisions of this Section 34 shall survive the termination of this Agreement.
35. CERTAIN AGREEMENTS RESPECTING THE MASTER EXCHANGE AGREEMENT. Without
limiting any other provision hereof, each Lessee and the Administrator hereby
covenants and agrees that it will cooperate with the Lessor in order to effect
transfers of Relinquished Vehicles to the Intermediary and acquisitions of
Replacement Vehicles by the Intermediary in accordance with the terms of the
Master Exchange Agreement, including by giving such notices and providing such
information to the Lessor or to other persons as the Lessor may from time to
time reasonably request.
36. SUBMISSION TO JURISDICTION. The Lessor and the Trustee may enforce any
claim arising out of this Agreement in any state or federal court having subject
matter jurisdiction, including, without limitation, any state or federal court
located in the State of New York. For the purpose of any action or proceeding
instituted with respect to any such claim, the Guarantor and each Lessee hereby
irrevocably submits to the jurisdiction of such courts. The Guarantor and each
Lessee further irrevocably consents to the service of process out of said courts
by mailing a copy thereof, by registered mail, postage prepaid, to the Guarantor
or such Lessee, as the case may be, and agrees that such service, to the fullest
extent permitted by law, (i) shall be deemed in every respect effective service
of process upon it in any such suit, action or proceeding and (ii) shall be
taken and held to be valid personal service upon and personal delivery to it.
Nothing herein contained shall affect the right of the Trustee, the Lender and
the Lessor to serve process in any other manner permitted by law or preclude the
Lessor, the Lender or the Trustee from bringing an action or proceeding in
respect hereof in any other country, state or place having jurisdiction over
such action. The Guarantor and each Lessee hereby irrevocably waives, to the
fullest extent permitted by law, any objection which it may have or hereafter
have to the laying of the venue of any such suit, action or proceeding brought
in any such court located in the State of New York and any claim that any such
suit, action or proceeding brought in such a court has been brought in an
inconvenient forum.
37. GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL
OBLIGATIONS LAW). Whenever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement. All obligations of the Guarantor
and each Lessee and all rights of the Lessor, the Lender or the Trustee
expressed herein shall be in
<PAGE>
addition to and not in limitation of those provided by applicable law or in any
other written instrument or agreement.
38. JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER
THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT TO WHICH IT IS A PARTY, OR UNDER
ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION THEREWITH OR ARISING FROM ANY RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY RELATED TRANSACTION, AND
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
39. NOTICES. All notices, requests and other communications to any party
hereunder shall be in writing including facsimile transmission or similar
writing) and shall be given to such party, addressed to it, at its address or
telephone number set forth on the signature pages below, or at such other
address or telephone number as such party may hereafter specify for the purpose
by notice to the other party. In each case, a copy of all notices, requests and
other communications that are sent by any party hereunder shall be sent to the
Trustee and the Lender and a copy of all notices, requests and other
communications that are sent by any Lessee or the Guarantor to each other that
pertain to this Agreement shall be sent to the Lessor, the Lender and the
Trustee. Copies of notices, requests and other communications delivered to the
Trustee, the Lender and/or the Lessor pursuant to the foregoing sentence shall
be sent to the following addresses:
<PAGE>
TRUSTEE: Harris Trust and Savings Bank
311 West Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Corporate Trust Officer
Telephone: (312) 461-2532
Fax: (312) 461-3525
LENDER: AESOP Funding II L.L.C.
c/o Lord Securities Corporation
Two Wall Street
New York, New York 10005
Attention: Frank Bilotta
Telephone: (212) 346-9000
Fax: (212) 346-9012
LESSOR: AESOP Leasing L.P.
c/o Lord Securities Corporation
Two Wall Street
New York, New York 10005
Attention: Frank Bilotta
Telephone: (212) 346-9000
Fax: (212) 346-9012
Each such notice, request or communication shall be effective when received at
the address specified below. Copies of all notices must be sent by first class
mail promptly after transmission by facsimile.
40. LIABILITY. Each Lessee shall be held jointly and severally liable for
all of the obligations of each other Lessee and the Guarantor hereunder. The
Guarantor shall be held jointly and severally liable for all the obligations of
each Lessee hereunder.
41. TITLE TO MANUFACTURER PROGRAMS IN LESSOR. Each Lessee, by its
execution hereof, acknowledges and agrees that (i) the Lessor is the sole owner
and holder of all right, title and interest in and to the Manufacturer Programs,
(ii) in accordance with the Assignment Agreements, all of the Lessor's right,
title and interest in and to such Manufacturer Programs have been assigned to
the Trustee (except as expressly provided otherwise in any Related Document with
respect to Relinquished Vehicles and any related Relinquished Vehicle Property),
and (iii) no Lessee has any right, title or interest in any Manufacturer
Program. To confirm the foregoing, each Lessee, by its execution hereof,
<PAGE>
hereby assigns and transfers to the Lessor any rights that such Lessee may have
in respect of any Manufacturer Programs.
42. HEADINGS. Section headings used in this Agreement are for
convenience of reference only and shall not affect the construction of
this Agreement.
43. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which counterparts, when so executed and delivered, shall be deemed to
be an original and all of which counterparts, taken together, shall constitute
one and the same Agreement.
44. EFFECTIVE DATE. This Agreement shall become effective on the date
hereof; provided, however, that prior to or simultaneously with the execution
and delivery hereof there shall have been satisfied: (i) the conditions set
forth in Section 29 of the Prior AESOP I Operating Lease; and, (ii) without
duplication, the conditions precedent to the effectiveness of Supplemental
Indenture No. 2 to the Base Indenture. Except to the extent amended hereby, the
Prior AESOP I Operating Lease is in all respects ratified and confirmed and in
full force and effect. From and after the date hereof all references in the
Related Documents to the AESOP I Operating Lease shall mean such agreement as
amended and restated hereby, unless the context otherwise requires.
45. NO RECOURSE. The obligations of AESOP Leasing under this Agreement are
solely the corporate obligations of AESOP Leasing. No recourse shall be had for
the payment of any obligation or claim arising out of or based upon this
Agreement against any shareholder, partner, employee, officer, director or
incorporator of AESOP Leasing.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
or caused it to be executed by their respective officers thereunto duly
authorized as of the day and year first above written.
180997-NYS7A - AESOP I A&R Op. Lease
LESSOR:
AESOP LEASING L.P.
By: AESOP LEASING CORP.,
its general partner
By:
Address:
c/o Lord Securities Corporation
Two Wall Street
19th Floor
New York, New York 10005
Attention: Frank Bilotta
Telephone: (212) 346-9000
Telefax: (212) 346-9012
LESSEE AND ADMINISTRATOR:
AVIS RENT A CAR SYSTEM, INC.
By:
Address: 900 Old Country Road
Garden City, NY 11530
Attention: Treasurer
cc: General Counsel
Telephone: (516) 222-3000
Telefax: (516) 222-3751
<PAGE>
GUARANTOR:
AVIS RENT A CAR, INC.
By:
Address: 900 Old Country Road
Garden City, NY 11530
Attention: Treasurer
cc: General Counsel
Telephone:(516) 222-3000
Telefax: (516) 222-3751
COUNTERPART NO. OF TEN (10) SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO
THE EXTENT IF ANY THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM
COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH
THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
<PAGE>
Schedule 30.5
Litigation
[NONE]
<PAGE>
SCHEDULE 30.10
Business Locations
<TABLE>
<CAPTION>
================================================================================
Principal Place of Additional States in which
Party Business Records Location Conducts Business
================================================================================
<S> <C> <C> <C>
Avis Rent A 900 Old Country Road 300 Centre Pointe Dr. AZ, AR, CA, CO, CT,
Car System, Garden City, NY Virginia Beach, VA DE, DC, FL, GA, HI,
Inc. d/b/a/ 11530 23462 ID, IL, IN, KS, KY,
Avis Rent A LA, ME, MD, MA, MI,
Car and Avis MN, MS, MO, MT, NE,
NV, NJ, NM, NY, NC,
OH, OK, OR, PA, RI,
SC, TN, TX, UT, VT,
VA, WA, WV, WI and WY
================================================================================
Avis Rent A 900 Old Country Road NY
Car, Inc. Garden City, NY
11530
================================================================================
</TABLE>
<PAGE>
Schedule 30.13
Compliance with Law
[NONE]
<PAGE>
ATTACHMENT A
Information Relating to Initial Leased Vehicles
Delivered to Trustee at July 30, 1997 closing.
<PAGE>
ATTACHMENT B
Vehicle Acquisition Schedule and Related Information
1. Principal amount of Loan financing the Vehicle
2. Date of Loan financing the Vehicle
3. Vehicle Operating Lease Commencement Date
4. Vehicle Identification Number (VIN)
5. Summary of Vehicles being financed (including, for Vehicles subject to
the GM Repurchase Program, the Designated Period for such Vehicles)
6. Program or Non-Program Vehicle
7. Capitalized Cost (if applicable)
8. Net Book Value (if applicable)
<PAGE>
ATTACHMENT C
Form of Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that AESOP LEASING L.P. does hereby
make, constitute and appoint Avis Rent A Car System, Inc. ("ARAC") its true and
lawful Attorney-in-Fact for it and in its name, stead and behalf, (i) to execute
any and all documents pertaining to the titling of motor vehicles in the name of
AESOP LEASING L.P., PV HOLDING CORP. or QUARTX FLEET MANAGEMENT INC., (ii) the
noting of the lien of Harris Trust and Savings Bank, as trustee (in such
capacity, the "Trustee"), as the first lienholder on certificates of title,
(iii) the licensing and registration of motor vehicles, (iv) designating c/o
ARAC as the mailing address of the Trustee for all documentation relating to the
title and registration of such motor vehicles, (v) applying for duplicate
certificates of title indicating the lien of the Trustee where original
certificates of title have been lost or destroyed and (vi) upon the sale of any
such motor vehicle pursuant to the Amended and Restated Master Motor Vehicle
Operating Lease Agreement, dated as of September 15, 1998, among AESOP Leasing
L.P., ARAC, any other Eligible Rental Car Company that becomes a party thereto
pursuant to the terms thereof and Avis Rent A Car, Inc., in accordance with the
terms and conditions thereof, releasing the lien of the Trustee on such motor
vehicle by executing any documents required in connection therewith. This power
is limited to the foregoing and specifically does not authorize the creation of
any liens or encumbrances on any of said motor vehicles.
The powers and authority granted hereunder shall be effective as of
the 15th day of September, 1998, and unless sooner terminated, revoked or
extended, cease eight years from such date.
<PAGE>
IN WITNESS WHEREOF, AESOP LEASING L.P. has caused this
instrument to be executed on its behalf by its duly authorized officer
this ___ day of September, 1998.
AESOP LEASING L.P.
By:
-------------------------------
State of ________ )
County of _______ )
Subscribed and sworn before me, a notary public, in and for said county
and state, this ___ day of _____, 19__.
-------------------------
Notary Public
My Commission Expires: _______
<PAGE>
ATTACHMENT D
Form of Joinder in Lease
THIS JOINDER IN LEASE AGREEMENT (this "Joinder") is executed as of
___________ __, 19__, by _______________, a _______________ ("Joining Party"),
and delivered to AESOP Leasing L.P., a Delaware limited partnership ("AESOP
Leasing"), as lessor pursuant to the Amended and Restated Master Motor Vehicle
Operating Lease Agreement, dated as of September 15, 1998 (as further amended,
supplemented or otherwise modified from time to time, the "Agreement"), among
AESOP Leasing, Avis Rent A Car System, Inc., a Delaware corporation ("ARAC"),
and other Eligible Rental Car Companies that become party to the Lease pursuant
to the provisions of Section 24 thereof (individually, a "Lessee" and,
collectively, the "Lessees"), and Avis Rent A Car, Inc. ("ARC"), as guarantor.
Capitalized terms used herein but not defined herein shall have the meanings
provided for in the Lease.
R E C I T A L S:
WHEREAS, the Eligible Rental Car Company is a direct or
indirect Subsidiary of ARC; and
WHEREAS, the Eligible Rental Car Company desires to become a
"Lessee" under and pursuant to the Lease.
NOW, THEREFORE, the Eligible Rental Car Company agrees as follows:
A G R E E M E N T:
1. The Joining Party hereby represents and warrants to and in favor
of AESOP Leasing and the Trustee that (i) the Eligible Rental Car Company is a
direct or indirect wholly-owned Subsidiary of ARC, (ii) all of the conditions
required to be satisfied pursuant to Section 24 of the Lease in respect to the
Eligible Rental Car Company becoming a Lessee thereunder have been satisfied,
and (iii) all of the representations and warranties contained in Section 30 of
the Lease with respect to the Lessees are true and correct as applied to the
Eligible Rental Car Company as of the date hereof.
2. The Eligible Rental Car Company hereby agrees to assume all of
the obligations of a "Lessee" under the Lease and agrees to be bound by all of
the terms, covenants and conditions therein.
3. By its execution and delivery of this Joinder, the Eligible
Rental Car Company hereby becomes a Lessee for all purposes under the Lease. By
its execution and delivery of this Joinder, AESOP Leasing acknowledges that the
Joining Party is a Lessee for all purposes under the Lease.
IN WITNESS WHEREOF, the Eligible Rental Car Company has caused this
Joinder to be duly executed as of the day and year first above written.
[Name of Joining Party]
By:
-------------------------------
Name:
Title:
Accepted and Acknowledged by:
AESOP LEASING L.P.
By:
---------------------------
Name:
Title:
<PAGE>
Acceptance and Acknowledgment by:
ARC as guarantor
By:
---------------------------
Name:
Title:
SECOND AMENDED SCHEDULE I
TO THE BASE
INDENTURE
AS OF SEPTEMBER 15, 1998
DEFINITIONS LIST
"Accrued Amounts" means, with respect to any Series of Notes (or any class
of such Series of Notes), on any date of determination, the sum of (i) accrued
and unpaid interest on the Notes of such Series of Notes (or the applicable
class thereof) as of such date, plus any Swap Payments payable by AFC-II with
respect to such Series of Notes and (ii) the product of (A) the sum of all other
accrued and unpaid Trustee fees and other fees and expenses and indemnity
amounts, if any, payable by AFC-II under the Indenture and/or the Related
Documents on such date, times (B) a fraction, the numerator of which is the
Invested Amount of such Series of Notes (or the applicable class thereof) on
such date and the denominator of which is the Aggregate Invested Amount of all
Series of Notes on such date.
"Accumulation Period" means, with respect to any Series of Notes, the
period, if any, specified in the applicable Supplement.
"Administration Agreement" means the Administration Agreement, dated as of
July 30, 1997, by and among the Administrator, AESOP Leasing, AESOP Leasing II,
AFC-II and the Trustee, as amended, modified or supplemented from time to time
in accordance with its terms.
"Administrator" means ARAC, in its capacity as administrator under the
Administration Agreement, or any successor Administrator thereunder.
"Administrator Default" means any of the events described in Section 13(c)
of the Administration Agreement.
"AESOP Exchange Agreement Termination Event" has the meaning assigned to
such term in the Master Exchange Agreement.
"AESOP I Finance Lease Loan Agreement" means the Loan Agreement, dated as
of July 30, 1997, between AFC-II, as lender thereunder, and AESOP Leasing, as
the borrower thereunder, relating to the financing of Vehicles to be leased
under the Finance Lease, as such Loan Agreement may be amended, supplemented,
restated or otherwise modified from time to time in accordance with its terms.
"AESOP I Finance Lease Loan Agreement Borrowing Base" means, on any date
of determination, the sum of the AESOP I Finance Lease Loan Agreement Program
Vehicle
<PAGE>
Borrowing Base and the AESOP I Finance Lease Loan Agreement Non-Program Vehicle
Borrowing Base on such date.
"AESOP I Finance Lease Loan Agreement Non-Program Vehicle Borrowing Base"
means, on any date of determination, without duplication, the sum of (i) the
Capitalized Cost of new Non-Program Vehicles being leased under the Finance
Lease on such date and the Net Book Value of all Non-Program Vehicles (other
than new Vehicles) leased under the Finance Lease that are Eligible Vehicles on
such date, plus (ii) all amounts receivable, as of such date, by ARAC or AESOP
Leasing from any person or entity in connection with the auction, sale or other
disposition of Non-Program Vehicles leased under the Finance Lease that were at
the time of disposition Eligible Vehicles, plus (iii) all accrued and unpaid
Monthly Base Rent and Supplemental Rent with respect to Non-Program Vehicles
leased under the Finance Lease (other than amounts specified in clause (ii)
above), minus (iv) the Finance Lease Non-Program Vehicle Ineligible Asset
Amount, if any.
"AESOP I Finance Lease Loan Agreement Program Vehicle Borrowing Base"
means, on any date of determination, without duplication, the sum of (i) the
Capitalized Cost of new Program Vehicles being leased under the Finance Lease on
such date and the Net Book Value of all Program Vehicles (other than new
Vehicles) leased under the Finance Lease that are Eligible Vehicles on such
date, plus (ii) all amounts receivable, as of such date, by ARAC or AESOP
Leasing from Manufacturers under and in accordance with their respective
Eligible Manufacturer Programs with respect to Program Vehicles leased under the
Finance Lease that were at the time of disposition Eligible Vehicles, plus (iii)
all amounts (other than amounts specified in clause (ii) above) receivable, as
of such date, by ARAC or AESOP Leasing from any person or entity in connection
with the auction, sale or other disposition of Program Vehicles leased under the
Finance Lease that were at the time of disposition Eligible Vehicles, plus (iv)
all accrued and unpaid Monthly Base Rent and Supplemental Rent with respect to
Program Vehicles leased under the Finance Lease (other than amounts specified in
clauses (ii) and (iii) above), minus (v) the Finance Lease Program Vehicle
Ineligible Asset Amount, if any.
"AESOP I Finance Lease Loan Collateral" means all the property and rights
on or in which a Lien is granted to the Lender to secure all or any of the
Liabilities under the AESOP I Finance Lease Loan Agreement pursuant to Section
7.1(a) of the AESOP I Finance Lease Loan Agreement, or under any other
instruments, agreements or documents provided for in the AESOP I Finance Lease
Loan Agreement or delivered or to be delivered thereunder or in connection
therewith.
"AESOP I Finance Lease Loan Event of Default" means any of the events
described in Section 12.1 of the AESOP I Finance Lease Loan Agreement.
"AESOP I Loan Agreements" means the AESOP I Operating Lease Loan Agreement
and the AESOP I Finance Lease Loan Agreement.
"AESOP I Loan Collateral" means the AESOP I Operating Lease Loan
Collateral and the AESOP I Finance Lease Loan Collateral.
<PAGE>
"AESOP I Loan Event of Default" means an AESOP I Operating Lease Loan
Event of Default or an AESOP I Finance Lease Loan Event of Default.
"AESOP I Operating Lease" means the Master Motor Vehicle Operating Lease
Agreement, dated as of July 30, 1997, among AESOP Leasing, as the lessor
thereunder, ARAC, as a lessee thereunder and as Administrator, and any other
Person who becomes a party thereto pursuant to Section 24 thereof, as a lessee
thereunder, and ARC, as the guarantor thereunder, as amended and restated as of
September 15, 1998, and as it may be further amended, modified or supplemented
from time to time in accordance with its terms.
"AESOP I Operating Lease Commencement Date" is defined in Section 3.2 of
the AESOP I Operating Lease.
"AESOP I Operating Lease Event of Default" is defined in Section 18.1 of
the AESOP I Operating Lease.
"AESOP I Operating Lease Expiration Date" is defined in Section 3.2 of the
AESOP I Operating Lease.
"AESOP I Operating Lease Loan Agreement" means the Loan Agreement, dated
as of July 30, 1997, among AFC-II, as lender thereunder, AESOP Leasing, as the
borrower thereunder, and PVHC and Quartx, each as a Permitted Nominee of AESOP
Leasing, relating to the financing of Vehicles to be leased under the AESOP I
Operating Lease, as amended and restated as of September 15, 1998, and as it may
be amended, supplemented, restated or otherwise modified from time to time in
accordance with its terms.
"AESOP I Operating Lease Loan Agreement Borrowing Base" means, on any date
of determination, the sum of the AESOP I Operating Lease Loan Agreement Program
Vehicle Borrowing Base and the AESOP I Operating Lease Loan Agreement
Non-Program Vehicle Borrowing Base on such date.
"AESOP I Operating Lease Loan Agreement Non-Program Vehicle Borrowing
Base" means, on any date of determination, without duplication, the sum of (i)
the Capitalized Cost of new Non-Program Vehicles being leased under the AESOP I
Operating Lease on such date and the Net Book Value of all Non-Program Vehicles
(other than new Vehicles) leased under the AESOP I Operating Lease that are
Eligible Vehicles on such date, plus (ii) all amounts receivable, as of such
date, by AESOP Leasing from any person or entity in connection with the auction,
sale or other disposition of Non-Program Vehicles leased under the AESOP I
Operating Lease that were at the time of disposition Eligible Vehicles, plus
(iii) all accrued and unpaid Monthly Base Rent and Supplemental Rent with
respect to Non-Program Vehicles leased under the AESOP I Operating Lease (other
than amounts specified in clause (ii) above), minus (iv) the AESOP I Operating
Lease Non-Program Vehicle Ineligible Asset Amount, if any.
"AESOP I Operating Lease Loan Agreement Program Vehicle Borrowing Base"
means, on any date of determination, without duplication, the sum of (i) the
Capitalized
<PAGE>
Cost of new Program Vehicles being leased under the AESOP I Operating Lease on
such date and the Net Book Value of all Program Vehicles (other than new
Vehicles) leased under the AESOP I Operating Lease that are Eligible Vehicles on
such date, plus (ii) all amounts receivable, as of such date, by AESOP Leasing
from Manufacturers under and in accordance with their respective Eligible
Manufacturer Programs with respect to Program Vehicles leased under the AESOP I
Operating Lease that were at the time of disposition Eligible Vehicles and not
Relinquished Vehicles, plus (iii) with respect to Relinquished Vehicles, the
lesser of (x) $125,000,000 and (y) the Relinquished Vehicle Borrowing Base
Component on such date, plus (iv), all amounts receivable, as of such date, by
AESOP Leasing from Manufacturers under and in accordance with their respective
Eligible Manufacturer Programs in respect of Reconveyed Receivables, plus (v)
all amounts (other than amounts specified in clauses (ii), (iii)and (iv) above)
receivable, as of such date, by AESOP Leasing from any person or entity in
connection with the auction, sale or other disposition of Program Vehicles
leased under the AESOP I Operating Lease that were at the time of disposition
Eligible Vehicles, plus (vi) all accrued and unpaid Monthly Base Rent and
Supplemental Rent with respect to Program Vehicles leased under the AESOP I
Operating Lease (other than amounts specified in clauses (ii), (iii), (iv) and
(v) above), minus (vii) the AESOP I Operating Lease Program Vehicle Ineligible
Asset Amount, if any.
"AESOP I Operating Lease Loan Collateral" means all the property and
rights on or in which a Lien is granted to the Lender to secure all or any of
the Liabilities under the AESOP I Operating Lease Loan Agreement pursuant to
Section 7.1(a) of the AESOP I Operating Lease Loan Agreement, or under any other
instruments, agreements or documents provided for in the AESOP I Operating Lease
Loan Agreement or delivered or to be delivered thereunder or in connection
therewith; other than any such property released from such lien pursuant to
Section 7.3 of the AESOP I Operating Lease Loan Agreement.
"AESOP I Operating Lease Loan Event of Default" means any of the events
described in Section 12.1 of the AESOP I Operating Lease Loan Agreement.
"AESOP I Operating Lease Non-Program Vehicle Ineligible Asset Amount"
means, as of any date of determination, an amount equal to the sum, without
duplication, of (a) the aggregate of all amounts specified in clause (ii) of the
definition of "AESOP I Operating Lease Loan Agreement Non-Program Vehicle
Borrowing Base" which are unpaid more than thirty (30) days past the applicable
disposition date, plus (b) the aggregate of all amounts specified in clause
(iii) of the definition of "AESOP I Operating Lease Loan Agreement Non-Program
Vehicle Borrowing Base" which are past due as of such date.
"AESOP I Operating Lease Program Vehicle Ineligible Asset Amount" means,
as of any date of determination, an amount equal to the sum, without
duplication, of (a) the aggregate of all amounts receivable as of such date by
AESOP Leasing under and in accordance with a Manufacturer Program with respect
to Program Vehicles that were leased under the AESOP I Operating Lease from a
Manufacturer with respect to which a Manufacturer Event of Default has occurred,
plus (b) the aggregate of all amounts specified in clauses (iii) and (iv) of the
definition of "AESOP I Operating Lease Loan Agreement Program Vehicle Borrowing
Base" that are payable by a Manufacturer with respect to
<PAGE>
which a Manufacturer Event of Default has occurred, plus (c) the aggregate of
all amounts receivable as of such date by AESOP Leasing under and in accordance
with a Manufacturer Program with respect to Program Vehicles that were leased
under the AESOP I Operating Lease from a Manufacturer which amounts are unpaid
more than ninety (90) days past the applicable Turnback Date, plus (d) the
aggregate of all amounts specified in clause (v) of the definition of "AESOP I
Operating Lease Loan Agreement Program Vehicle Borrowing Base" which are unpaid
more than thirty (30) days past the applicable disposition date, plus (e) the
aggregate of all amounts specified in clause (vi) of the definition of "AESOP I
Operating Lease Loan Agreement Program Vehicle Borrowing Base" which are past
due as of such date.
"AESOP I Operating Lease Vehicle Deficiency" means, on any date of
determination, the amount by which the aggregate Required AESOP I Operating
Lease Vehicle Amounts with respect to all Series of Notes exceeds the AESOP I
Operating Lease Loan Agreement Borrowing Base on such date.
"AESOP I Operating Lease Vehicle Percentage" means, with respect to any
Series of Notes, the percentage specified in the applicable Supplement.
"AESOP I Segregated Account" is defined in Section 7.8 of each of the
AESOP I Operating Lease Loan Agreement and the AESOP I Finance Lease Loan
Agreement.
"AESOP II Ineligible Asset Amount" means, as of any date of determination,
an amount equal to the sum, without duplication, of (a) the aggregate of all
amounts receivable as of such date by AESOP Leasing II under and in accordance
with a Manufacturer Program with respect to Program Vehicles leased under the
AESOP II Operating Lease from a Manufacturer with respect to which a
Manufacturer Event of Default has occurred, plus (b) the aggregate of all
amounts receivable as of such date by AESOP Leasing II under and in accordance
with a Manufacturer Program with respect to Program Vehicles leased under the
AESOP II Operating Lease from a Manufacturer which amounts are unpaid more than
ninety (90) days past the applicable Turnback Date, plus (c) the aggregate of
all amounts specified in clause (iii) of the definition of "AESOP II Loan
Agreement Borrowing Base" which are unpaid more than thirty (30) days past the
applicable disposition date, plus (d) the aggregate of all amounts specified in
clause (iv) of the definition of "AESOP II Loan Agreement Borrowing Base" which
are past due as of such date.
"AESOP II Loan Agreement" means the Loan Agreement, dated as of July 30,
1997, among AFC-II, as lender thereunder, AESOP Leasing II, as the borrower
thereunder, and Original AESOP, as Permitted Nominee of AESOP Leasing II, as
amended, supplemented, restated or otherwise modified from time to time in
accordance with its terms.
"AESOP II Loan Agreement Borrowing Base" means, on any date of
determination, without duplication, the sum of (i) the Capitalized Cost of new
Program Vehicles leased under the AESOP II Operating Lease on such date and the
Net Book Value of Program Vehicles (other than new Vehicles) leased under the
AESOP II Operating Lease on such date, plus (ii) all amounts receivable, as of
such date, by AESOP Leasing II from
<PAGE>
Manufacturers under and in accordance with their respective Eligible
Manufacturer Programs with respect to Program Vehicles leased under the AESOP II
Operating Lease, plus (iii) all amounts (other than amounts specified in clause
(ii) above) receivable, as of such date, by AESOP Leasing II from any person or
entity in connection with the auction, sale or other disposition of Program
Vehicles leased under the AESOP II Operating Lease, plus (iv) all accrued and
unpaid Monthly Base Rent and Supplemental Rent under the AESOP II Operating
Lease (other than amounts specified in clauses (ii) and (iii) above), minus (vi)
the AESOP II Ineligible Asset Amount, if any.
"AESOP II Loan Collateral" means all property and rights on or in which a
Lien is granted to the Lender to secure all or any of the Liabilities under the
AESOP II Loan Agreement pursuant to Section 7.1(a) of the AESOP II Loan
Agreement, or under any other instruments, agreements or documents provided for
in the AESOP II Loan Agreement or delivered or to be delivered thereunder or in
connection therewith.
"AESOP II Loan Event of Default" means any of the events described in
Section 12.1 of the AESOP II Loan Agreement.
"AESOP II Management Agreement" means the Management Agreement, dated as
of July 30, 1997, between the Managing Agent and AESOP Leasing II.
"AESOP II Management Fee" is defined in Section 2 of the AESOP II
Management Agreement.
"AESOP II Operating Lease" means the Master Motor Vehicle Operating Lease
Agreement, dated as of July 30, 1997, among AESOP Leasing II, as the lessor
thereunder, ARAC, individually as a lessee and as Administrator, and any other
Person who becomes a party thereto pursuant to Section 24 thereof, as a lessee
thereunder, and ARC, as the guarantor thereunder, as amended, modified or
supplemented from time to time in accordance with its terms.
"AESOP II Operating Lease Commencement Date" is defined in Section 3.2 of
the AESOP II Operating Lease.
"AESOP II Operating Lease Event of Default" is defined in Section 18.1 of
the AESOP II Operating Lease.
"AESOP II Operating Lease Expiration Date" is defined in Section 3.2 of
the AESOP II Operating Lease.
"AESOP II Segregated Account" is defined in Section 7.8 of the AESOP II
Loan Agreement.
"AESOP Leasing" means AESOP Leasing L.P., a Delaware limited partnership.
<PAGE>
"AESOP Leasing Limited Partnership Agreement" means the Limited
Partnership Agreement of AESOP Leasing, dated as of July 21, 1997, between
Original AESOP, as general partner, and AESOP Leasing, as limited partner, as
amended, modified or supplemented from time to time in accordance with its
terms.
"AESOP Leasing II" means AESOP Leasing Corp. II, a Delaware corporation.
"AESOP Trust Account" has the meaning assigned to such term in the Master
Exchange Agreement.
"AFC" means AESOP Funding Corp., a Delaware corporation.
"AFC-II" means AESOP Funding II L.L.C., a Delaware limited liability
company.
"AFC-II Agreements" means the AFC-II Limited Liability Company Agreement,
the Loan Agreements, the Loan Notes, the Assignment Agreements, the Indenture,
the Administration Agreement, the Termination Services Agreement, the AFC-II
Account Control Agreements, any Swap Agreement, any Enhancement Agreement and
any other agreements to which AFC-II is a party.
"AFC-II Limited Liability Company Agreement" means the Limited Liability
Company Agreement of AFC-II, dated as of July 21, 1997, between AESOP Leasing
and Original AESOP, as amended, modified or supplemented from time to time in
accordance with its terms.
"AFC-II Management Agreement" means the Management Agreement, dated as of
July 30, 1997, between the Managing Agent and AFC-II.
"AFC-II Management Fee" is defined in Section 2 of the AFC-II Management
Agreement.
"AFC-II Obligations" means all principal and interest, at any time and
from time to time, owing by AFC-II on the Notes and all costs, fees and expenses
payable by, or obligations of, AFC-II under the Indenture and/or the Related
Documents.
"AFC-II Securities Account Control Agreements" means (i) the Securities
Account Control Agreement dated as of July 30, 1997 among AFC-II, the Trustee
and Harris Trust and Savings Bank, as Securities Intermediary, relating to the
Collection Account and (ii) the Securities Account Control Agreement dated as of
July 30, 1997 among AFC-II and Harris Trust and Savings Bank, as Series 1997-1
Agent and as Securities Intermediary, relating to the Series 1997-1 Reserve
Account.
"Affiliate" means, with respect to any specified Person, another Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with the Person specified. For purposes
of this definition, "control" means the power to direct the management and
policies of a Person, directly or indirectly, whether
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through ownership of voting securities, by contract or otherwise; and
"controlled" and "controlling" have meanings correlative to the foregoing. For
purposes of the Loan Agreements, the Lender shall not be considered to be an
Affiliate of either AESOP Leasing or AESOP Leasing II.
"Agent" means any Registrar or Paying Agent.
"Aggregate Asset Amount" means, as of any date of determination, an amount
equal to the sum of (without duplication) (a) the aggregate Loan Principal
Amount of Loans outstanding under the Loan Agreements on such date and (b) cash
and Permitted Investments on deposit in the Collection Account on such date
minus an amount equal to the sum of (x) any Aggregate Asset Amount Decline and
(y) amounts credited to the Collection Account on such date that are payable to
the Intermediary or the Lender Agent in accordance with the Intercreditor
Agreement.
"Aggregate Asset Amount Decline" means the aggregate amount of all Monthly
Loan Principal Amount payments then or previously due but not paid with respect
to the Loans under all the Loan Agreements.
"Aggregate Asset Amount Deficiency" means, with respect to any date of
determination, the amount, if any, by which the Required Aggregate Asset Amount
on such date exceeds the Aggregate Asset Amount on such date.
"Aggregate Invested Amount" means the sum of the Invested Amounts with
respect to all Series of Notes then outstanding.
"Amortization Commencement Date" means, with respect to a Series of Notes,
the date on which an Amortization Event for such Series is deemed to have
occurred pursuant to Section 9.1 of the Base Indenture.
"Amortization Event" with respect to each Series of Notes, has the meaning
specified in Section 9.1 of the Base Indenture.
"Amortization Period" means, with respect to any Series of Notes, the
period following the Revolving Period (as defined in any related Supplement)
which shall be the Accumulation Period, the Controlled Amortization Period, or
the Rapid Amortization Period, each as defined in the related Supplement.
"Annual Noteholders' Tax Statement" is defined in Section 6.4(b) of the
Base Indenture.
"Approved Lockbox Account" means a lockbox account that is: (i) maintained
with a Qualified Institution, (ii) established and maintained pursuant to an
agreement that is approved in writing by the Trustee and each Enhancement
Provider, (iii) pledged to the Trustee and over which no other Person has rights
of withdrawal.
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"ARAC" means Avis Rent A Car System, Inc., a Delaware corporation.
"ARAC Securities Account Control Agreement" means the Securities Account
Control Agreement dated as of July 30, 1997 among AFC-II and Harris Trust and
Savings Bank, as Trustee and as Securities Intermediary, relating to the
Termination Services Reserve Account.
"ARC" means Avis Rent A Car, Inc., a Delaware corporation.
"Assets" means any interest of any kind in any assets or property of any
kind (including, without limitation, any security interest in Vehicles),
tangible or intangible, real, personal or mixed, now owned or hereafter acquired
by AFC-II, AFC, AESOP Leasing, AESOP Leasing II or such other Person as the
context may require.
"Assigned Special Default Payments" has the meaning assigned to such term
in the Master Exchange Agreement.
"Assignment Agreement" means the agreement with respect to each
Manufacturer and its Manufacturer Program, entered into or to be entered into
among AFC-II, ARAC, AESOP Leasing, AESOP Leasing II and the Trustee and
acknowledged by such Manufacturer, assigning to the Trustee certain of AESOP
Leasing's, AESOP Leasing II's and ARAC's right, title and interest in and to
such Manufacturer's Manufacturer Program as it relates to Vehicles purchased
from such Manufacturer.
"Authorized Officer" means (a) as to Original AESOP, PVHC, Quartx and
AESOP Leasing II, any of the President, any Vice President, the Secretary or any
Assistant Secretary, (b) as to AESOP Leasing, any of the President, any Vice
President, the Secretary or any Assistant Secretary of Original AESOP, (c) as to
AFC-II, any Manager, and (d) as to ARC, ARAC or any Lessee, those officers,
employees and agents of ARC, ARAC or such Lessee whose signatures and incumbency
shall have been certified in such certificates as may be delivered by ARC, ARAC
or such Lessee to AESOP Leasing or AESOP Leasing II, as the case may be, from
time to time as duly authorized to execute and deliver the applicable Leases and
any instruments, certificates, notices and other documents in connection
herewith on behalf of ARC, ARAC or such Lessee and to take, from time to time,
all other actions on behalf of ARC, ARAC or such Lessee in connection therewith.
"Average Daily Loan Balance" means, for any Loan Interest Period, (i) with
respect to Loans made under the AESOP I Operating Lease Loan Agreement, the
average daily outstanding Loan Principal Amount of all such Loans at any time
during such Loan Interest Period, (ii) with respect to Loans made under the
AESOP I Finance Lease Loan Agreement, the average daily outstanding Loan
Principal Amount of all such Loans at any time during such Loan Interest Period
and (iii) with respect to Loans made under the AESOP II Loan Agreement, the
average daily outstanding Loan Principal Amount of all such Loans at any time
during such Loan Interest Period.
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"Bankruptcy Code" means The Bankruptcy Reform Act of 1978, as amended from
time to time, and as codified as 11 U.S.C. Section 101 et seq.
"Base Indenture" means the Amended and Restated Base Indenture, dated as
of July 30, 1997, between AFC-II and the Trustee, as amended, modified or
supplemented from time to time, exclusive of Supplements creating a new Series
of Notes.
"Board of Directors" means the Board of Directors of AFC, AESOP Leasing
II, Original AESOP, PVHC, Quartx, the Guarantor, any Lessee, as applicable, or
any authorized committee of the Board of Directors.
"BONY" means The Bank of New York, a New York banking corporation.
"BONY Nominee Agreement" means the Vehicle Lienholder Nominee Agreement,
dated as of July 30, 1997, among BONY, ARAC, ARC, AESOP Leasing and the Trustee,
as amended, modified or supplemented from time to time in accordance with its
terms.
"Book-Entry Notes" means beneficial interests in the Notes, ownership and
transfers of which shall be evidenced or made through book entries by a Clearing
Agency as described in Section 2.16 of the Base Indenture; provided that after
the occurrence of a condition whereupon book-entry registration and transfer are
no longer permitted and Definitive Notes are issued to the Note Owners, such
Definitive Notes shall replace Book-Entry Notes.
"Borrower" means (i) AESOP Leasing, in its capacity as the borrower under
each of the AESOP I Loan Agreements, and (ii) AESOP Leasing II, in its capacity
as the borrower under the AESOP II Loan Agreement.
"Borrowing Date" means the date a Loan is made to a Borrower under the
Loan Agreement to which such Borrower is a party.
"Business Day" means any day other than a Saturday, Sunday or other day on
which banks are authorized or required by law to be closed in New York City, New
York or Chicago, Illinois.
"Capitalized Cost" means, with respect to each Vehicle purchased by AESOP
Leasing (including any Vehicle acquired pursuant to the Master Exchange
Agreement), AESOP Leasing II or ARAC, as the case may be, directly from a
dealer, the price paid for such Vehicle by AESOP Leasing (including any Vehicle
acquired pursuant to the Master Exchange Agreement), AESOP Leasing II or ARAC,
as applicable, to the dealer selling such Vehicle, including dealer profit and
delivery charges but excluding taxes and any registration or titling fees.
"Carrying Charges" means, as of any day, (i) the aggregate of all Trustee
fees and other costs, fees and expenses and indemnity amounts, if any, payable
by the Lender under the Indenture or the Related Documents which have accrued
since the then most recent
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Payment Date, plus (ii) the Monthly Administration Fee payable by the Lender
under the Administration Agreement on the next succeeding Payment Date plus
(iii) without duplication, all other operating expenses of AFC-II (including,
without limitation, the AFC-II Management Fee and all costs, fees, expenses and
other amounts payable by AFC-II to any Enhancement Provider) (other than amounts
payable by AESOP Leasing pursuant to Section 13.4 or 13.5 of the AESOP I Loan
Agreements and by AESOP Leasing II pursuant to Section 13.4 or 13.5 of the AESOP
II Loan Agreement) which have accrued since the then most recent Payment Date.
"Carryover Controlled Amortization Amount" means, with respect to each
Series of Notes, the amount specified as such in the related Supplement.
"Cash Collateral Account" is defined, with respect to any Series, in the
related Supplement.
"Casualty" means, with respect to any Vehicle, that (i) such vehicle is
destroyed, seized or otherwise rendered permanently unfit or unavailable for use
and is not tendered to and accepted for repurchase by the applicable
Manufacturer within 90 days following the occurrence thereof, (ii) such Vehicle
is lost or stolen and is not recovered, tendered to and accepted for repurchase
by the applicable Manufacturer within 180 days following the occurrence thereof,
(iii) the return of such Vehicle (if a Program Vehicle) to the applicable
Manufacturer during the applicable Repurchase Period cannot be, or is not,
effected for any reason (provided that such Vehicle will not be deemed a
Casualty if the Lessee of such Vehicle redesignates it as a Non-Program Vehicle
pursuant to Section 2.7 of the AESOP I Operating Lease or the Finance Lease) or
(iv) the applicable Manufacturer did not accept such Vehicle (if a Program
Vehicle) for repurchase for any reason unless the Lessee of such Vehicle
reasonably believes such Manufacturer will accept such Vehicle for repurchase
upon a subsequent return (provided that such Vehicle will not be deemed a
Casualty if the Lessee of such Vehicle redesignates it as a Non-Program Vehicle
pursuant to Section 2.7 of the AESOP I Operating Lease or the Finance Lease).
"Cede" means Cede & Co., a nominee of DTC.
"Cedel" means Cedel Bank, societe anonyme.
"Cendant Indemnity" means the Indemnity Agreement, dated as of July 30,
1997, by and among AESOP Leasing, AESOP Leasing II and Cendant Corporation (as
successor to HFS Incorporated), as amended, modified or supplemented from time
to time in accordance with its terms; any reference in any Related Document to
the "HFS Indemnity" shall be deemed a reference to the Cendant Indemnity.
"Certificate of Title" means, with respect to each Vehicle, the
certificate of title applicable to such Vehicle duly issued in accordance with
the certificate of title act or statute of the jurisdiction applicable to such
Vehicle.
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"Chairman of the Managers" is defined in Section 1.1 of the AFC-II Limited
Liability Company Agreement.
"Chrysler" means Chrysler Corporation, a Delaware corporation.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act or any successor provision thereto
or Euroclear and Cedel. The initial Clearing Agencies shall be DTC, Euroclear
and Cedel.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the Initial Closing Date or any Series Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time, and any successor statute of similar
import, in each case as in effect from time to time. References to sections of
the Code also refer to any successor sections.
"Collateral" is defined in Section 3.1 of the Base Indenture.
"Collection Account" is defined in Section 5.1 of the Base Indenture.
"Collections" means (i) all payments by or on behalf of the Borrowers
under the Loan Agreements (except to the extent constituting Assigned Special
Default Payments), (ii) all payments on the Collateral, including payments made
by or on behalf of any Manufacturer or auction dealer, under the related
Manufacturer Program with respect to Vehicles (excluding, however, any amounts
constituting proceeds of Relinquished Vehicle Receivables), (iii) all payments
by or on behalf of any other Person as proceeds from the sale of Vehicles or
payments of insurance proceeds and warranty payments which the Borrowers are
required to deposit into the Collection Account, whether such payments are in
the form of cash, checks, wire transfers or other forms of payment and whether
in respect of principal, interest, repurchase price, fees, expenses or
otherwise, (iv) all payments by the Intermediary to the Trustee of funds
released from the Trust Accounts pursuant to the Master Exchange Agreement in
accordance with the terms thereof, (v) all payments by or on behalf of ARAC or
ARC under the Vehicle Title and Lienholder Nominee Agreements with respect to
Vehicles, (vi) all payments by or on behalf of Cendant Corporation under the
Cendant Indemnity and (vii) all amounts earned on Permitted Investments of funds
in the Collection Account. To the extent so specified in a Supplement,
Collections also shall include all proceeds from the sale of the Notes issued
under such Supplement.
"Commercial Paper Notes" means the promissory notes of AFC issued by AFC
in the commercial paper market pursuant to a depositary agreement.
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"Company Order" and "Company Request" means a written order or request
signed in the name of AFC-II by any one of its Authorized Officers and delivered
to the Trustee.
"Computer Services Agreement" means the Computer Services Agreement, dated
as of July 30, 1997, by and between ARAC and WizCom International, Ltd., as
amended, supplemented, restated or otherwise modified from time to time in
accordance with its terms.
"Condition Report" means a condition report with respect to a Program
Vehicle, signed and dated by the applicable Lessee and a Manufacturer or its
agent in accordance with the applicable Manufacturer Program.
"Consolidated Subsidiary" means, at any time, any Subsidiary or other
entity the accounts of which would be consolidated with those of ARC in its
consolidated financial statements as of such time.
"Contingent Obligation", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (a) with respect to
any indebtedness, lease, dividend, letter of credit or other obligation of
another if the primary purpose or intent thereof by the Person incurring the
Contingent Obligation is to provide assurance to the obligee of such obligation
of another that such obligation of another will be paid or discharged, or that
any agreements relating thereto will be complied with, or that the holders of
such obligation will be protected (in whole or in part) against loss in respect
thereof or (b) under any letter of credit issued for the account of that Person
or for which that Person is otherwise liable for reimbursement thereof.
Contingent Obligation shall include (a) the direct or indirect guarantee,
endorsement (otherwise than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another and (b) any liability of such Person for the
obligations of another through any agreement (contingent or otherwise) (i) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), (ii) to maintain the solvency of any balance sheet item, level of
income or financial condition of another or (iii) to make take-or-pay or similar
payments if required regardless of non-performance by any other party or parties
to an agreement, if in the case of any agreement described under subclause (i)
or (ii) of this sentence the primary purpose or intent thereof is as described
in the preceding sentence. The amount of any Contingent Obligation shall be
equal to the amount of the obligation so guaranteed or otherwise supported.
"Contractual Obligation" means, with respect to any Person, any provision
of any security issued by that Person or of any indenture, mortgage, deed of
trust, contract, undertaking, agreement or other instrument to which that Person
is a party or by which it or any of its properties is bound or to which it or
any of its properties is subject.
"Controlled Amortization Period" means, with respect to any Series of
Notes, the period specified in the applicable Supplement.
<PAGE>
"Controlled Distribution Amount" means, with respect to any Class of
Notes, the amount (or amounts) specified in any applicable Supplement.
"Controlled Group" means, with respect to any Person, such Person, whether
or not incorporated, and any corporation, trade or business that is, along with
such Person, a member of a controlled group of corporations or a controlled
group of trades or businesses as described in Sections 414(b) and (c),
respectively, of the Code.
"Corporate Trust Office" shall mean the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered
which office at the date of the execution of the Base Indenture is located at
311 West Monroe Street, 12th Floor, Chicago, Illinois 60606, Attention:
Indenture Trust Administration, or at any other time at such other address as
the Trustee may designate from time to time by notice to the Noteholders and
AFC-II.
"CP Rating Agency Condition" means, with respect to any action and so long
as any Commercial Paper Notes are outstanding, that each Rating Agency shall
have notified AFC, ARAC, the administrative agent for the liquidity lenders with
respect to the Commercial Paper Notes and the Trustee in writing that such
action will not result in a reduction or withdrawal of the rating (in effect
immediately before the taking of such action) of the Commercial Paper Notes with
respect to which it is a Rating Agency.
"Daily Report" is defined in Section 4.1(a) of the Base Indenture.
"Default Amount" means, with respect to (i) any Guaranteed Depreciation
Program, zero, (ii) Nissan's or Nissan Hawaii's Manufacturer Program, $10
million, (iii) Mazda's Manufacturer Program, $10 million and (iv) any other
Manufacturer's Manufacturer Program, $25 million.
"Defaulting Manufacturer" is defined (i) for purposes of the AESOP I
Operating Lease in Section 19 thereof, (ii) for purposes of the AESOP II
Operating Lease in Section 19 thereof and (iii) for purposes of the Finance
Lease in Section 19 thereof.
"Definitions List" means this Definitions List, as amended or modified
from time to time.
"Definitive Notes" is defined in Section 2.16(d) of the Base Indenture.
"Deposited Funds" means all funds on deposit in the Collection Account.
"Depreciation Charge" means, with respect to (a) any Program Vehicle
subject to the GM Repurchase Program, the rate determined by dividing (x) 100%
minus the repurchase price percentage specified in respect of such Vehicle
pursuant to the terms of the GM Repurchase Program for the Designated Period
applicable to such Vehicle by (y) the number of days in such Designated Period
(or, if such Vehicle is held past the Designated Period set forth in the Loan
Request relating to the Loan in respect of such Vehicle, the
<PAGE>
applicable depreciation charge set forth in the GM Repurchase Program for such
Vehicle calculated on a daily basis), (b) any Program Vehicle subject to an
Eligible Manufacturer Program other than the GM Repurchase Program (but
including any other Eligible Manufacturer Program provided by GM), the
applicable depreciation charge set forth in the related Manufacturer Program for
such Vehicle with respect to such Vehicle calculated on a daily basis and (c)
any Non-Program Vehicle, the scheduled daily depreciation charge for such
Vehicle set forth by AESOP Leasing in the Depreciation Schedule for such
Vehicle. If such charge is expressed as a percentage, the daily Depreciation
Charge for such Vehicle shall be such percentage multiplied by the Capitalized
Cost for such Vehicle calculated on a daily basis. For Vehicles not held for a
full month in the month of acquisition, the Depreciation Charges shall be
prorated by multiplying the applicable depreciation amount by a fraction, the
numerator of which is the number of days from the date depreciation related to
such Vehicle begins to the first day of the next month and the denominator of
which is the number of days in such month. For the month in which a Program
Vehicle is turned back to the applicable Manufacturer, the Depreciation Charge
shall be prorated by multiplying the applicable depreciation amount by a
fraction, the numerator of which is the number of days from the first day of
such month to the Turnback Date for such Vehicle and the denominator of which is
the number of days in such month. In the event a Vehicle is sold (other than
pursuant to the Manufacturer Program of a Manufacturer), the Depreciation Charge
shall be prorated by multiplying the applicable depreciation amount by a
fraction, the numerator of which is the number of days from the first day of
such month to the date proceeds were received by the Trustee from the sale of
such Vehicle and the denominator of which is the number of days in such month.
"Depreciation Schedule" means the initial schedule of estimated daily
depreciation prepared by AESOP Leasing based on a depreciation rate of 1.67% per
calendar month with respect to each type of Non-Program Vehicle that is an
Eligible Vehicle, as revised from time to time by AESOP Leasing; provided,
however, that the effectiveness of any such revision shall be subject to
satisfaction of the Rating Agency Consent Condition.
"Designated Period" shall mean, with respect to any Program Vehicle
subject to GM's Repurchase Program, the period designated by AESOP Leasing or
AESOP Leasing II, as the case may be, in the applicable Loan Request relating to
the Loan used to finance such Vehicle as the period of time for which AESOP
Leasing or AESOP Leasing II, as applicable, expects such Vehicle to be subject
to the related Loan.
"Determination Date" means the date five days prior to each Distribution
Date.
"Disposition Proceeds" means the net proceeds (other than the portion of
the Repurchase Price (i) payable by the Manufacturer pursuant to an Eligible
Manufacturer Program or (ii) with respect to Non-Program Vehicles, by the
applicable Lessee pursuant to the relevant Lease) from the sale or disposition
of a Vehicle to any Person, whether at an auction or otherwise.
"Distribution Account" means, with respect to any Series of Notes, an
account established as such pursuant to the related Supplement.
<PAGE>
"Distribution Date" means, unless otherwise specified in any Supplement
for the related Series of Notes, the twentieth day of each calendar month, or,
if such day is not a Business Day, the next succeeding Business Day, commencing
August 20, 1997.
"Dollar" and the symbol "$" mean the lawful currency of the United States.
"DTC" means The Depository Trust Company.
"Early Termination Payments" is defined (i) for purposes of the AESOP I
Operating Lease in Section 13.4 thereof, (ii) for purposes of the AESOP II
Operating Lease in Section 13.4 thereof and (iii) for purposes of the Finance
Lease in Section 13.4 thereof.
"Eligible Manufacturer Program" means, at any time, a Manufacturer Program
that is in full force and effect with an Eligible Program Manufacturer (i)
pursuant to which the repurchase price or guaranteed auction sale price is at
least equal to (a) with respect to the GM Repurchase Program, a specified
percentage of the Capitalized Cost of each Vehicle, such percentage being
determined for each Vehicle based upon the model year of such Vehicle and the
calendar month in which such Vehicle is returned to the Manufacturer, minus
Excess Mileage Charges, minus Excess Damage Charges, or (b) with respect to any
Manufacturer Program other than the GM Repurchase Program (but including any
other Eligible Manufacturer Program provided by GM), the Capitalized Cost of
each Vehicle, minus all Depreciation Charges accrued with respect to such
Vehicle prior to the date that the Vehicle is submitted for repurchase, minus
Excess Mileage Charges, minus Excess Damage Charges, (ii) that cannot be amended
or terminated with respect to any Vehicle after the purchase of that Vehicle,
and (iii) the assignment of the benefits of which to AFC-II and to the Trustee
for the benefit of the Secured Parties has been acknowledged in writing by the
related Manufacturer and AFC-II and the Trustee have been provided with an
opinion of counsel reasonably satisfactory to them that AFC-II and the Trustee
can enforce the applicable Manufacturer's obligations thereunder; provided that
(a) with respect to any new Manufacturer Program (including a new model year
Manufacturer Program of an Eligible Program Manufacturer and a Manufacturer
Program of a new Eligible Program Manufacturer) that is proposed for
consideration after the date hereof as an Eligible Manufacturer Program, prior
to such new Manufacturer Program constituting an "Eligible Manufacturer Program"
hereunder, the Rating Agencies have been given 30 days' notice (or such shorter
period of time as shall be acceptable to the Rating Agencies) of a draft of such
new Manufacturer Program as it then exists at the time of such notice (and shall
be provided a final copy of such Manufacturer Program promptly upon its being
available) and the inclusion of such new Manufacturer Program as an "Eligible
Manufacturer Program" hereunder shall be conditioned on satisfaction of the
Rating Agency Consent Condition and the CP Rating Agency Condition, and (b) with
respect to any change (other than as specified in clause (a) above) in the terms
of any existing Eligible Manufacturer Program, prior to such Manufacturer
Program constituting an "Eligible Manufacturer Program" hereunder, the Rating
Agencies shall have been notified of such change and such change shall be
conditioned on satisfaction of the Rating Agency Consent Condition and the CP
Rating Agency Condition; provided further that in either case described in
clause (a) or (b) above, if such new Manufacturer Program or such change in the
terms of an existing
<PAGE>
Manufacturer Program would have a material adverse effect on the interests of
the Secured Parties, prior to any such Manufacturer Program constituting an
"Eligible Manufacturer Program", AFC-II shall have obtained the written consent
of the Trustee thereto.
"Eligible Non-Program Manufacturer" means each Eligible Program
Manufacturer, Subaru, Mitsubishi, Hyundai, Suzuki and any other Manufacturer
that (i) has been approved by the Rating Agencies or has been reviewed by the
Rating Agencies and the Rating Agencies have indicated that the inclusion of
such Manufacturer as an Eligible Non-Program Manufacturer will not adversely
affect the current rating of any Series of Notes, (ii) has been approved by each
Enhancement Provider and (iii) to the extent any Series of Notes supporting
Commercial Paper Notes are outstanding, has been approved by the Majority Banks
(as defined in the applicable Supplement).
"Eligible Program Manufacturer" means GM, Chrysler, Ford, Mazda, Nissan,
Nissan Hawaii, Toyota and any other Manufacturer that (i) has been approved by
the Rating Agencies or has been reviewed by the Rating Agencies and the Rating
Agencies have indicated that the inclusion of such Manufacturer as an Eligible
Program Manufacturer will not adversely affect the current rating of any Series
of Notes, (ii) has been approved by each Enhancement Provider and (iii) to the
extent any Series of Notes supporting Commercial Paper Notes are outstanding,
has been approved by the Majority Banks (as defined in the applicable
Supplement); provided, however, that upon the occurrence of a Manufacturer Event
of Default with respect to any such Eligible Program Manufacturer, such
Manufacturer shall no longer qualify as an Eligible Program Manufacturer and
provided, further, that if so specified in the applicable Supplement for a
Series of Notes, a Manufacturer may be considered an Eligible Program
Manufacturer only with respect to a portion of the Vehicles acquired from such
Manufacturer that are eligible under its Manufacturer Program.
"Eligible Rental Car Company" means any direct or indirect Wholly-Owned
Subsidiary of ARC.
"Eligible Vehicle" means an automobile or light truck that (i) either is a
Program Vehicle (other than a light truck manufactured by Chrysler that is
subject to a nine-month or longer minimum hold period under the Guaranteed
Depreciation Program with Chrysler) or a Non-Program Vehicle manufactured by an
Eligible Non-Program Manufacturer or other Manufacturer, in each case at the
time of leasing under the relevant Lease, (ii) is owned by AESOP Leasing, AESOP
Leasing II or ARAC, as applicable, free and clear of all Liens other than
Permitted Liens, and (iii) with respect to which the Trustee is noted as the
first lienholder on the Certificate of Title (other than with respect to
Certificates of Title for (i) the Initial PVT Vehicles and the Initial Financed
Vehicles (which Certificates of Title will show BONY as the first lienholder),
(ii) the Franchisee Vehicles (which Certificates of Title will show the nominee
lienholder under the related Franchisee Nominee Agreement as the first
lienholder) and (iii) Vehicles located in the states of Ohio, Oklahoma and
Nebraska) therefor, or the Certificate of Title has been submitted to the
appropriate state authorities for such notation (other than with respect to
Certificates of Title for Vehicles located in the states of Ohio, Oklahoma and
Nebraska).
<PAGE>
"Enhancement" means, with respect to any Series of Notes, the rights and
benefits provided to the Note-holders of such Series of Notes pursuant to any
letter of credit, surety bond, cash collateral account, overcollateralization,
issuance of subordinated Notes, spread account, guaranteed rate agreement,
maturity guaranty facility, tax protection agreement, interest rate swap or any
other similar arrangement.
"Enhancement Agreement" means any contract, agreement, instrument or
document governing the terms of any Enhancement or pursuant to which any
Enhancement is issued or outstanding.
"Enhancement Agreement Event of Default" means with respect to any Series
of Notes any event of default under any Enhancement Agreement specified in the
related Supplement.
"Enhancement Amount" is defined, with respect to any Series of Notes, in
the related Supplement.
"Enhancement Deficiency" is defined, with respect to any Series of Notes,
in the related Supplement.
"Enhancement Percentage" means, with respect to any Series of Notes or
class of Notes, the percentage, if any, specified in the applicable Supplement.
"Enhancement Provider" means the Person providing any Enhancement as
designated in the applicable Supplement, other than any Noteholders the Notes of
which are subordinated to any Series of Notes.
"Enhancement Provider Account" is defined, with respect to any Series of
Notes, in the related Supplement.
"Enhancement Provider's Office" is defined, with respect to any Series of
Notes, in the related Supplement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, in each case as in effect
from time to time. References to sections of ERISA also refer to any successor
sections.
"Euroclear" means Euroclear System.
"Event of Bankruptcy" shall be deemed to have occurred with respect to a
Person if:
(a) a case or other proceeding shall be commenced, without the application
or consent of such Person, in any court, seeking the liquidation,
reorganization, debt arrangement, dissolution, winding up, or composition
or readjustment of debts of such Person, the appointment of a trustee,
receiver, custodian, liquidator, assignee, sequestrator or the like for
such Person or all or any substantial part of its assets, or any similar
action with respect to such Person
<PAGE>
under any law relating to bankruptcy, insolvency, reorganization, winding
up or composition or adjustment of debts, and such case or proceeding
shall continue undismissed, or unstayed and in effect, for a period of 60
consecutive days; or an order for relief in respect of such Person shall
be entered in an involuntary case under the federal bankruptcy laws or
other similar laws now or hereafter in effect; or
(b) such Person shall commence a voluntary case or other proceeding under
any applicable bankruptcy, insolvency, reorganization, debt arrangement,
dissolution or other similar law now or hereafter in effect, or shall
consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) for such Person or for any substantial part of its property, or
shall make any general assignment for the benefit of creditors; or
(c) the board of directors of such Person (if such Person is a corporation
or similar entity) shall vote to implement any of the actions set forth in
clause (b) above.
"Event of Default" means any occurrence of an event of default pursuant to
the relevant agreement.
"Excess Damage Charges" means, with respect to any Program Vehicle, the
amount charged to AESOP Leasing, AESOP Leasing II or ARAC, as the case may be,
or deducted from the Repurchase Price, by the Manufacturer of such Vehicle due
to damage over a prescribed limit and, if applicable, damage not subject to a
prescribed limit and missing equipment, in each case with respect to such
Vehicle at the time that such Vehicle is turned in to such Manufacturer or its
agent for repurchase pursuant to the applicable Manufacturer Program.
"Excess Mileage Charges" means, with respect to any Program Vehicle, the
amount charged to AESOP Leasing, AESOP Leasing II or ARAC, as the case may be,
or deducted from the Repurchase Price, by the Manufacturer of such Vehicle due
to the fact that such Vehicle has mileage over a prescribed limit at the time
that such Vehicle is turned in to such Manufacturer or its agent for repurchase
pursuant to the applicable Manufacturer Program.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Date" is defined in Section 2.9 of the Base Indenture.
"Exchange Agreement Termination Event" means an AESOP Exchange Agreement
Termination Event or an Intermediary Exchange Agreement Termination Event.
<PAGE>
"Excluded Payments" means, with respect to each Lease, as applicable, any
payments due from the respective Lessee or the Guarantor to the Lessor in
respect of (i) the portion of Monthly Base Rent allocable to dividends accrued
on the outstanding Preferred Stock of AESOP Leasing II (including any applicable
tax gross-up), determined in accordance with the certificates of designation
relating to such Preferred Stock, (ii) amounts due and payable pursuant to
Section 16.2 of the Leases as such amounts relate to claims, demands,
liabilities, and related costs and expenses arising under Section 16.1.2 of the
Leases, (iii) amounts due and payable pursuant to Section 16.2 of the Leases
(other than the amounts described in clause (ii) above) to the Lessor's
stockholders, officers and directors (with respect to the Lessor's officers and
directors, only to the extent such officer or director is not an Affiliate of
the related Lessee or the Guarantor) or (iv) amounts due and payable pursuant to
Section 4.2 of the AESOP I Operating Lease in respect of Special Service
Charges.
"Expected Final Distribution Date" means, with respect to any applicable
Series of Notes, the date stated in the related Supplement as the date on which
such Series of Notes is expected to be paid in full.
"FGL" means The First Gray Line Corporation, a Delaware corporation, that
prior to July 31, 1998 was a Wholly-Owned Subsidiary of ARAC and the holder of
all of the issued and outstanding capital stock of FGL West.
"FGL West" means The First Gray Line West Corporation, a Delaware
corporation that prior to July 31, 1998 was a Wholly-Owned Subsidiary of FGL and
the holder of all of the issued and outstanding capital stock of Grand.
"Financed Vehicle" means a Vehicle subject to the Finance Lease.
"Financed Vehicle Amount" means, as of any date of determination, the
aggregate Net Book Value of all Financed Vehicles on such day.
"Finance Lease" means the Master Motor Vehicle Finance Lease Agreement,
dated as of July 30, 1997, among AESOP Leasing, as the lessor thereunder, ARAC,
as the lessee thereunder, and ARC, as the guarantor thereunder, as amended,
modified or supplemented from time to time in accordance with its terms.
"Finance Lease Commencement Date" is defined in Section 3.2 of the Finance
Lease.
"Finance Lease Event of Default" is defined in Section 18.1 of the Finance
Lease.
"Finance Lease Expiration Date" is defined in Section 3.2 of the Finance
Lease.
<PAGE>
"Finance Lease Non-Program Vehicle Ineligible Asset Amount" means, as of
any date of determination, an amount equal to the sum, without duplication, of
(a) the aggregate of all amounts specified in clause (ii) of the definition of
"AESOP I Finance Lease Loan Agreement Non-Program Vehicle Borrowing Base" which
are unpaid more than thirty (30) days past the applicable disposition date, plus
(b) the aggregate of all amounts specified in clause (iii) of the definition of
"AESOP I Finance Lease Loan Agreement Non-Program Vehicle Borrowing Base" which
are past due as of such date.
"Finance Lease Program Vehicle Ineligible Asset Amount" means, as of any
date of determination, an amount equal to the sum, without duplication, of (a)
the aggregate of all amounts receivable as of such date by ARAC or AESOP Leasing
under and in accordance with a Manufacturer Program with respect to Program
Vehicles leased under the Finance Lease from a Manufacturer with respect to
which a Manufacturer Event of Default has occurred, plus (b) the aggregate of
all amounts receivable as of such date by ARAC or AESOP Leasing under and in
accordance with a Manufacturer Program with respect to Program Vehicles leased
under the Finance Lease from a Manufacturer which amounts are unpaid more than
ninety (90) days past the applicable Turnback Date, plus (c) the aggregate of
all amounts specified in clause (iii) of the definition of "AESOP I Finance
Lease Loan Agreement Program Vehicle Borrowing Base" which are unpaid more than
thirty (30) days past the applicable disposition date, plus (d) the aggregate of
all amounts specified in clause (iv) of the definition of "AESOP I Finance Lease
Loan Agreement Program Vehicle Borrowing Base" which are past due as of such
date.
"Financial Officer" means, with respect to any corporation, the chief
financial officer, vice-president-finance, principal accounting officer,
controller or treasurer of such corporation.
"Financing Provider" is defined in Section 2.3(b)(ii) of the Base
Indenture.
"Ford" means Ford Motor Company, a Delaware corporation.
"Franchisee Nominee Agreement" means, with respect to any Franchisee
Vehicle, a Vehicle Title and Lienholder Nominee Agreement substantially in the
form of the PVHC/BONY Nominee Agreement (with such differences as are necessary
to reflect the identities of the nominees), dated on or prior to the date of the
inclusion of such Franchisee Vehicle under the Finance Lease, among ARAC, ARC,
AESOP Leasing, the holder of record title to such Franchisee Vehicle, the
lienholder shown on the Certificate of Title with respect to such Franchisee
Vehicle and the Trustee, pursuant to which, among other things, (i) AESOP
Leasing shall appoint the holder of record title to such Franchisee Vehicle as
its nominee titleholder and the Trustee shall appoint the lienholder shown on
the Certificate of Title with respect to such Franchisee Vehicle as its nominee
lienholder, (ii) ARAC shall indemnify AESOP Leasing and its permitted assignees
(including the Trustee) for any losses that occur as a consequence of any claim
made on such Franchisee Vehicle by a creditor or purchaser from the entity that
owned such Vehicle prior to ARAC's acquisition thereof, as a result of such
<PAGE>
entity's prior ownership of such Vehicle or as a result of the notation of the
lien on the Certificates of Title with respect to such Vehicle not being in the
Trustee's name, (iii) ARC shall guarantee ARAC's obligations thereunder and (iv)
the holder of record title to such Franchisee Vehicle and the lienholder shown
on the Certificate of Title with respect to such Franchisee Vehicle shall each
covenant and agree that, prior to the date which is one year and one day after
the payment in full of the latest maturing Note, it will not institute against,
or join with any other Person in instituting, against AFC-II, AESOP Leasing,
AESOP Leasing II, Original AESOP, PVHC, Quartx, AFC or any other Permitted
Nominee under any Franchisee Agreement, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings;
provided, that in the case of the Grand Franchisee Vehicles, the Franchisee
Nominee Agreement shall mean the Franchisee Nominee Lienholder Agreement
executed and delivered on the date of the Grand Merger.
"Franchisee Vehicle" means any Eligible Vehicle (which need not be a new
Vehicle) acquired by ARAC from any Person on or within six (6) months after the
closing date of a transaction in which ARAC acquires such Person or
substantially all of the assets of such Person; provided that such Person shall
have been a franchisee of Cendant Car Rental, Inc. and Wizard Co., Inc.
immediately prior to such acquisition; and further provided, that, pursuant to
the Related Documents, the foregoing six (6) month limit was waived in the case
of the Grand Franchisee Vehicles.
"Franchisee Vehicle Leasing Condition" means, with respect to any
Franchisee Vehicle, the delivery to AESOP Leasing, AFC-II and the Trustee on or
prior to the date of inclusion of such Franchisee Vehicle under the Finance
Lease of the following items:
(1) an executed copy of a Franchisee Nominee Agreement with respect
to such Franchisee Vehicle;
(2) a written search report from a Person satisfactory to AESOP
Leasing, AFC-II and the Trustee listing all effective financing statements
that name the holder of record title to such Franchisee Vehicle as debtor
or assignor, and that are filed in the jurisdictions in which filings were
made pursuant to clause (3) below, together with copies of such financing
statements, and tax and judgment lien search reports from a Person
satisfactory to AESOP Leasing, AFC-II and the Trustee showing no evidence
of liens filed against such holder of record title to such Franchisee
Vehicle that purport to affect such Franchisee Vehicle;
(3) a purchase agreement, pledge agreement or similar agreement,
pursuant to which such holder of record title to such Franchisee Vehicle
will grant a security interest in its right, title and interest in and to
such Vehicle to AESOP Leasing, AFC-II and the Trustee;
(4) an opinion of counsel stating that such Franchisee Nominee
Agreement and the agreement referred to in clause (3) above are legal,
valid and binding
<PAGE>
agreements of such holder of record title to such Franchisee Vehicle,
enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting creditors' rights generally and to general principles of equity;
(5) evidence of the filing of proper financing statements on Form
UCC-1 naming such holder of record title to such Franchisee Vehicle, as
debtor, and AESOP Leasing as secured party covering such Franchisee
Vehicle;
(6) evidence of the filing of proper financing statements on Form
UCC-1 naming such holder of record title to such Franchisee Vehicle, as
debtor, and the Trustee as secured party covering such Franchisee Vehicle;
and
(7) any additional documentation that AESOP Leasing, AFC-II or the
Trustee may reasonably require.
With respect to the Grand Franchisee Vehicles, the references in clause
(2) above to "holder of record title" shall mean Grand prior to the Grand
Merger, and the references in clauses (3) through (6) above to "holder of record
title" shall mean ARAC.
"GAAP" means the generally accepted accounting principles promulgated or
adopted by the Financial Accounting Standards Board and its predecessors and
successors from time to time.
"GM" means General Motors Corporation, a Delaware Corporation.
"GM Repurchase Program" means the General Motors Corporation Passenger and
Light Duty Truck Repurchase Program for Daily Rental Operations, as amended from
time to time, and pursuant to which the repurchase price is calculated based
upon a specified percentage of the Capitalized Cost of a Vehicle as set forth in
such program.
"Governmental Authority" means any Federal, state, local or foreign court
or governmental department, commission, board, bureau, agency, authority,
instrumentality or regulatory body.
"Grand" means Grand Rent a Car, a California corporation, that prior to
July 31, 1998 was an indirect, wholly-owned subsidiary of ARAC.
"Grand Merger" means the series of simultaneous transactions on July 31,
1998, whereby Grand was merged into FGL West, FGL West was merged into FGL, and
FGL was merged into ARAC.
"Grand Franchisee Vehicles" means the Eligible Vehicles owned by Grand on
the date of the Grand Merger.
<PAGE>
"Group of Relinquished Vehicles" has the meaning assigned to such term in
the Master Exchange Agreement.
"Guaranteed Depreciation Program" means a guaranteed depreciation program
pursuant to which a Manufacturer has agreed with AESOP Leasing, AESOP Leasing II
or ARAC, as the case may be, to (a) cause Vehicles manufactured by it or one of
its Affiliates that are turned back during the specified Repurchase Period to be
sold by an auction dealer, (b) cause the proceeds of any such sale to be paid to
AESOP Leasing, AESOP Leasing II or ARAC, as the case may be, by such auction
dealer within seven days of such sale and (c) pay to AESOP Leasing, AESOP
Leasing II or ARAC, as the case may be, the excess, if any, of the guaranteed
payment amount with respect to any such Vehicle calculated as of the Turnback
Date in accordance with the provisions of such guaranteed depreciation program
over the amount paid to AESOP Leasing, AESOP Leasing II or ARAC, as the case may
be, by an auction dealer pursuant to clause (b) above.
"Guaranteed Obligations" is defined (i) for purposes of the AESOP I
Operating Lease in Section 26.1 thereof, (ii) for purposes of the AESOP II
Operating Lease in Section 26.1 thereof and (iii) for purposes of the Finance
Lease in Section 26.1 thereof.
"Guarantor" means ARC, in its capacity as guarantor of the Lessees'
obligations under (i) the Leases and (ii) any applicable Enhancement Agreement.
"Guaranty" is defined (i) for purposes of the AESOP I Operating Lease in
Section 26.1 thereof, (ii) for purposes of the AESOP II Operating Lease in
Section 26.1 thereof and (iii) for purposes of the Finance Lease in Section 26.1
thereof.
"Hyundai" means Hyundai Motor America Corporation, a California
corporation.
"Identification Period" has the meaning assigned to such term in the
Master Exchange Agreement.
"Identification Period Component" means, on any date of determination, the
aggregate of the amounts, without duplication, calculated with respect to each
Group of Relinquished Vehicles for which the Identification Period shall not
have ended as of the third preceding Business Day, of the sum of (A) all amounts
receivable, as of such date of determination, by the Intermediary from
Manufacturers under their respective Eligible Manufacturer Programs with respect
to each such Group of Relinquished Vehicles as to which no Receivables Funding
Loan shall have been made against the amounts receivable from Manufacturers in
respect thereof (unless there shall have been a determination of payment in full
of such Receivables Funding Loan pursuant to Section 6(c) of the Intercreditor
Agreement), plus (B), any amount on deposit in the respective AESOP Trust
Account on such date of determination that was paid by any such Manufacturer
with respect to each Group of Relinquished Vehicles described in the foregoing
clause (A), plus (C) any amount on deposit in the respective AESOP Trust Account
on such date of determination representing the proceeds of Receivables Funding
Loans, plus (D) any amount on deposit in the respective AESOP
<PAGE>
Trust Account on such date of determination representing amounts released from
the corresponding Lender Trust Account for such Group of Relinquished Vehicles
following payment in full of all principal and interest on the Receivables
Funding Loan related to such Group of Relinquished Vehicles; plus (E) any amount
on deposit in the AESOP Trust Accounts on such date representing investment
earning on the amounts described in the foregoing clauses (B) , (C), and (D).
"Indebtedness", as applied to any Person, means, without duplication, (a)
all indebtedness for borrowed money, (b) that portion of obligations with
respect to any lease of any property (whether real, personal or mixed) that is
properly classified as a liability on a balance sheet in conformity with GAAP,
(c) notes payable and drafts accepted representing extensions of credit whether
or not representing obligations for borrowed money, (d) any obligation owed for
all or any part of the deferred purchase price for property or services, which
purchase price is (i) due more than six months from the date of the incurrence
of the obligation in respect thereof or (ii) evidenced by a note or similar
written instrument, (e) all indebtedness secured by any Lien on any property or
asset owned by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is nonrecourse to the credit
of that Person, and (f) all Contingent Obligations of such Person in respect of
any of the foregoing.
"Identified Relinquished Vehicle" has the meaning assigned to such term in
the Master Exchange Agreement.
"Identified Replacement Vehicle" has the meaning assigned to such term in
the Master Exchange Agreement.
"Indemnified Liabilities" is defined (i) for purposes of the AESOP I
Operating Lease Loan Agreement in Section 13.5 thereof, (ii) for purposes of the
AESOP I Finance Lease Loan Agreement in Section 13.5 thereof and (iii) for
purposes of the AESOP II Loan Agreement in Section 13.5 thereof.
"Indemnified Persons" is defined (i) for purposes of the AESOP I Operating
Lease in Section 16.1 thereof, (ii) for purposes of the AESOP II Operating Lease
in Section 16.1 thereof and (iii) for purposes of the Finance Lease in Section
16.1 thereof.
"Indenture" means the Base Indenture, together with all Supplements, as
the same may be amended, modified or supplemented from time to time.
"Independent Director" means,
(a) with respect to AESOP Leasing II, an individual who is not, and,
except for having previously acted as a director of AESOP Leasing II,
Original AESOP, Original AFC-II or AFC, never was,
<PAGE>
(i) a stockholder, member, partner, director, officer, employee,
affiliate, associate, customer, supplier, creditor or independent
contractor of, or any person that has received any benefit
(excluding, however, any compensation received by an Independent
Director in such person's capacity as a director of AESOP Leasing II
or in such person's capacity as a director of Original AESOP,
Original AFC-II or AFC during a period which occurred prior to July
31, 1997) in any form whatever from, or any person that has provided
any service (excluding, however, any service provided by a director
in such person's capacity as a director of AESOP Leasing II or in
such person's capacity as an Independent Director of Original AESOP,
Original AFC-II or AFC during a period which occurred prior to July
31, 1997) in any form whatever to, AESOP Leasing II, ARC, AFC,
AFC-II, ARAC, AESOP Leasing, Original AESOP, Original AFC-II or any
of their affiliates or associates, or
(ii) any person owning beneficially, directly or indirectly, any
outstanding shares of common stock, any limited liability company
interests or any partnership interests, as applicable, of AESOP
Leasing II, ARC, AFC, AFC-II, ARAC, AESOP Leasing, Original AESOP,
Original AFC-II or any of their affiliates, or a stockholder,
member, partner, director, officer, employee, affiliate, associate,
customer, supplier, creditor or independent contractor of, or any
person that has received any benefit (excluding, however, any
compensation received by a director in such person's capacity as an
Independent Director of AESOP Leasing II or in such person's
capacity as a director of Original AESOP, Original AFC-II or AFC
during a period which occurred prior to July 31, 1997) in any form
whatever from, or any person that has provided any service
(excluding, however, any service provided by a director in such
person's capacity as a director of AESOP Leasing II or in such
person's capacity as an Independent Director of Original AESOP,
Original AFC-II or AFC during a period which occurred prior to July
30, 1997) in any form whatever to, such beneficial owner or any of
such beneficial owner's affiliates or associates, or
(iii) a member of the immediate family of any person described
above.
(b) with respect to Original AESOP, an individual who is not, and, except
for having previously acted as a director of Original AESOP, Original
AFC-II or AFC, never was,
(i) a stockholder, member, partner, director, officer, employee,
affiliate, associate, customer, supplier, creditor or independent
contractor of, or any person that has received any benefit
(excluding, however, any compensation received by a director in such
person's capacity as a director of Original AESOP or in such
person's capacity as an Independent Director of AFC or Original
AFC-II during a period which occurred prior to July 31, 1997) in any
<PAGE>
form whatever from, or any person that has provided any service
(excluding, however, any service provided by a director in such
person's capacity as an Independent Director of Original AESOP or in
such person's capacity as a director of AFC or Original AFC-II
during the period occurring prior to July 31, 1997) in any form
whatever to, Original AESOP, ARC, AFC, AFC-II, ARAC, AESOP Leasing,
AESOP Leasing II, Original AFC-II or any of their affiliates or
associates, or
(ii) any person owning beneficially, directly or indirectly, any
outstanding shares of common stock, any limited liability company
interests or any partnership interests, as applicable, of Original
AESOP, ARC, AFC, AFC-II, ARAC, AESOP Leasing, AESOP Leasing II,
Original AFC-II or any of their affiliates, or a stockholder,
member, partner, director, officer, employee, affiliate, associate,
customer, supplier, creditor or independent contractor of, or any
person that has received any benefit (excluding, however, any
compensation received by a director in such person's capacity as an
Independent Director of Original AESOP or in such person's capacity
as a director of AFC or Original AFC-II during the period occurring
prior to July 31, 1997) in any form whatever from, or any person
that has provided any service (excluding, however, any service
provided by a director in such person's capacity as a director of
Original AESOP or in such person's capacity as an Independent
Director of AFC or Original AFC-II during the period occurring prior
to July 30, 1997) in any form whatever to, such beneficial owner or
any of such beneficial owner's affiliates or associates, or
(iii) a member of the immediate family of any person described
above.
(c) with respect to AFC, an individual who is not, and never was,
(i) a stockholder, member, partner, director, officer, employee,
affiliate, associate, customer, supplier, creditor or independent
contractor of, or any person that has received any benefit in any
form whatever from, or any person that has provided any service in
any form whatever to, ARC, ARAC or any of their affiliates or
associates, or
(ii) any person owning beneficially, directly or indirectly, any
outstanding shares of common stock, any limited liability interests
or any partnership interests, as applicable, of ARC, ARAC or any of
their affiliates, or a stockholder, member, partner, director,
officer, employee, affiliate, associate, customer, supplier,
creditor or independent contractor of, or any person that has
received any benefit in any form whatever from, or any person that
has provided any service in any form whatever to, such beneficial
owner or any of such beneficial owner's affiliates or associates, or
(iii) a member of the immediate family of any person described
above;
<PAGE>
provided, however, that in the event there is a director of AFC meeting
the above clauses (i), (ii) and (iii) then "Independent Director" with
respect to AFC shall mean an individual who is not,
(i) a stockholder, member, partner, director, officer, employee,
affiliate, associate, customer, supplier, creditor or independent
contractor of, or any person that has received any benefit in any
form whatever from, or any person that has provided any service in
any form whatever to, AFC, AFC-II, AESOP Leasing, AESOP Leasing II,
Original AESOP, Original AFC-II or any of their affiliates or
associates, or
(ii) any person owning beneficially, directly or indirectly, any
outstanding shares of common stock, any limited liability company
interests or any partnership interests, as applicable, of AFC,
AFC-II, AESOP Leasing, AESOP Leasing II, Original AESOP, Original
AFC-II or any of their affiliates, or a stockholder, member,
partner, director, officer, employee, affiliate, associate,
customer, supplier, creditor or independent contractor of, or any
person that has received any benefit in any form whatever from, or
any person that has provided any service in any form whatever to,
such beneficial owner or any of such beneficial owner's affiliates
or associates, or
(iii) a member of the immediate family of any person described
above.
"Independent Manager" is defined in Section 1.1 of the AFC-II Limited
Liability Company Agreement.
"Ineligible Vehicle" means a Vehicle that is not an Eligible Vehicle.
"Initial AESOP Vehicle" means any Vehicle previously subject to the
Original Operating Lease and made subject to the AESOP II Operating Lease on the
Initial Closing Date.
"Initial ARAC Vehicle" means any Vehicle previously subject to the
Original Synthetic Lease and made subject to the AESOP I Operating Lease on the
Initial Closing Date.
"Initial Closing Date" means the date on which the initial Loans are made
by the Lender under the Loan Agreements.
"Initial Financed Vehicle" means any Vehicle owned by ARAC and made
subject to the Finance Lease on the Initial Closing Date.
"Initial Invested Amount" means, with respect to any Series of Notes, the
aggregate initial principal amount specified in the applicable Supplement.
<PAGE>
"Initial Leased Vehicle" is defined (i) for purposes of the AESOP I
Operating Lease in Section 2.1 thereof, (ii) for purposes of the AESOP II
Operating Lease in Section 2.1 thereof and (iii) for purposes of the Finance
Lease in Section 2.1 thereof.
"Initial PVT Vehicle" means any Vehicle previously subject to the Original
PVT Lease and made subject to Lease on the Initial Closing Date.
"Initial Vehicle" means an Initial AESOP Vehicle, an Initial ARAC Vehicle,
an Initial PVT Vehicle or an Initial Financed Vehicle, as the context may
require.
"Intercreditor Agreement" means the agreement, dated as of September 15,
1998, among the Trustee, AFC-II, AESOP Leasing, the Administrator, the
Intermediary and the Receivables Lender Agent.
"Interest Collections" means on any date of determination, all Collections
which, pursuant to the Loan Agreements, represent payments of Loan Interest and
Supplemental Interest plus any amounts earned on Permitted Investments in the
Collection Account which are available for distribution on such date.
"Interest Period" means, with respect to any Series of Notes, the period
specified in the related Supplement.
"Intermediary" means the Person acting in the capacity of Qualified
Intermediary pursuant to the Master Exchange Agreement, which initially shall be
Bank One, Texas, National Association.
"Intermediary Exchange Agreement Termination Event" has the meaning
assigned to such term in the Master Exchange Agreement.
"Invested Amount" means, with respect to each Series of Notes, the amount
specified in the applicable Supplement.
"Invested Percentage" means, with respect to any Series of Notes, the
percentage specified in the applicable Supplement.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Issuer" means AFC-II, as issuer of the Notes, unless a successor replaces
it and, thereafter, means the successor.
"Lease Event of Default" means an AESOP I Operating Lease Event of
Default, an AESOP II Operating Lease Event of Default or a Finance Lease Event
of Default.
"Lease Guide" means the Black Book Official Finance/Lease Guide.
<PAGE>
"Lease Payment Deficit" with respect to a Series shall be defined in the
Supplement for such Series.
"Leases" means the Operating Leases and the Finance Lease.
"Lease's Share" means, with respect to each Lease on any date of
determination, a fraction expressed as a percentage, the numerator of which is
equal to the Net Book Value of Vehicles subject to such Lease and the
denominator of which is equal to the sum of the Net Book Value of all Vehicles
subject to the Leases, each as of such date of determination; provided, however,
that on any date of determination on which the Net Book Value of Vehicles
subject to each Lease is zero, the Lease's Share with respect to (i) the AESOP I
Operating Lease shall be 67.5%, (ii) the Finance Lease shall be 10% and (iii)
the AESOP II Operating Lease shall be 22.5%.
"Legal Reserve Funding Date" means (i) in the event that the closing of
the initial public offering of the common stock of ARC (as described in
Registration Statement on Form S-1 (No. 333-28609), as amended, filed with the
Securities and Exchange Commission) occurs prior to December 31, 1997, the date,
if any, on which the total stockholders' equity of ARC and its Consolidated
Subsidiaries is reduced to an amount equal to or less than 65% of such total
stockholders' equity on the date of such closing (after giving effect to the
issuance of such common stock on such date) and (ii) otherwise, December 31,
1997.
"Legal Reserve Release Condition" means in the event that the closing of
the initial public offering of the common stock of ARC (as described in
Registration Statement on Form S-1 (No. 333-28609), as amended, filed with the
Securities and Exchange Commission) occurs prior to December 31, 1997, the total
stockholders' equity of ARC and its Consolidated Subsidiaries is greater than
65% of such total stockholders' equity on the date of such closing (after giving
effect to the issuance of such common stock on such date).
"Lender" means AFC-II, in its capacity as lender under the Loan
Agreements.
"Lender Party" is defined (i) for purposes of the AESOP I Operating Lease
Loan Agreement in Section 13.5 thereof, (ii) for purposes of the AESOP I Finance
Lease Loan Agreement in Section 13.5 thereof and (iii) for purposes of the AESOP
II Loan Agreement in Section 13.5 thereof.
"Lender Trust Account" has the meaning assigned to such term in the Master
Exchange Agreement.
"Lender's Carrying Cost Interest Rate" means for any Loan Interest Period
an interest rate equal to the percentage equivalent of a fraction, (i) the
numerator of which is equal to the sum of (A) the amount of interest accrued
during such Loan Interest Period with respect to all Series of Notes, plus (B)
the sum of any Swap Payments
<PAGE>
payable by AFC-II on the next succeeding Payment Date, minus (C) the sum of any
Swap Payments payable to AFC-II on the next succeeding Payment Date, minus (D)
any accrued earnings on Permitted Investments in the Collection Account which
are available for distribution on the last Business Day of such Loan Interest
Period, and (ii) the denominator of which is equal to the Average Daily Loan
Balance for all Loans under the Loan Agreements with respect to such Loan
Interest Period; provided, however that the Lender's Carrying Cost Interest Rate
after the occurrence of a Event of Bankruptcy with respect to ARC, ARAC or any
other Lessee shall equal an interest rate equal to (x) with respect to the AESOP
I Operating Lease Loan Agreement, the percentage equivalent of a fraction, (I)
the numerator of which is equal to the product of (A) the sum specified in
clause (i) above and (B) a fraction, the numerator of which is the AESOP I
Operating Lease Loan Agreement Borrowing Base and the denominator of which is
the sum of the AESOP I Operating Lease Loan Agreement Borrowing Base, the AESOP
I Finance Lease Loan Agreement Borrowing Base and the AESOP II Loan Agreement
Borrowing Base, each determined as of the first day of such Loan Interest
Period, and (II) the denominator of which is equal to the Average Daily Loan
Balance for all Loans under the AESOP I Operating Lease Loan Agreement with
respect to such Loan Interest Period and (y) with respect to the AESOP I Finance
Lease Loan Agreement and the AESOP II Loan Agreement, the percentage equivalent
of a fraction, (I) the numerator of which is equal to the product of (A) the sum
specified in clause (i) above and (B) a fraction, the numerator of which is the
sum of the AESOP I Finance Lease Loan Agreement Borrowing Base and the AESOP II
Loan Agreement Borrowing Base and the denominator of which is the sum of the
AESOP I Operating Lease Loan Agreement Borrowing Base, the AESOP I Finance Lease
Loan Agreement Borrowing Base and the AESOP II Loan Agreement Borrowing Base,
each determined as of the first day of such Loan Interest Period, and (II) the
denominator of which is equal to the Average Daily Loan Balance for all Loans
under the AESOP I Finance Lease Loan Agreement and the AESOP II Loan Agreement
with respect to such Loan Interest Period.
"Lessee" means, as applicable, (i) each of ARAC and each Eligible Rental
Car Company that becomes a party to the AESOP I Operating Lease pursuant to the
provisions of Section 24 thereof, in its capacity as a lessee under the AESOP I
Operating Lease, (ii) each of ARAC and each Eligible Rental Car Company that
becomes a party to the AESOP II Operating Lease pursuant to the provisions of
Section 24 thereof, in its capacity as a lessee under the AESOP II Operating
Lease and (iii) ARAC, in its capacity as the lessee under the Finance Lease.
"Lessee Agreements" is defined (i) for purposes of the AESOP I Operating
Lease in Section 2(b) thereof, (ii) for purposes of the AESOP II Operating Lease
in Section 2(b) thereof and (iii) for purposes of the Finance Lease in Section
2(b) thereof.
"Lessee's Share" means, with respect to each Lessee under a particular
Lease on any date of determination, a fraction expressed as a percentage, the
numerator of which is equal to the Net Book Value of all Vehicles leased by such
Lessee under such
<PAGE>
Lease and the denominator of which is equal to the sum of the Net Book Value of
all Vehicles leased under such Lease, each as of such date of determination.
"Lessor" means (i) AESOP Leasing, in its capacity as the lessor under each
of the AESOP I Operating Lease and the Finance Lease, and (ii) AESOP Leasing II,
in its capacity as the lessor under the AESOP II Operating Lease.
"Liabilities" means (i) with respect to the AESOP I Operating Lease Loan
Agreement, all obligations to the Lender of AESOP Leasing arising under or in
connection with the AESOP I Operating Lease Loan Agreement or the related Loan
Note, in each case howsoever created, arising or evidenced, whether direct or
indirect, joint or several, absolute or contingent, or now or hereafter
existing, or due or to become due including, without limitation, Loan Interest
accruing after the filing of a bankruptcy petition whether or not allowed as a
claim, (ii) with respect to the AESOP I Finance Lease Loan Agreement, all
obligations to the Lender of AESOP Leasing arising under or in connection with
the AESOP I Finance Lease Loan Agreement or the related Loan Note, in each case
howsoever created, arising or evidenced, whether direct or indirect, joint or
several, absolute or contingent, or now or hereafter existing, or due or to
become due including, without limitation, Loan Interest accruing after the
filing of a bankruptcy petition whether or not allowed as a claim and (iii) with
respect to the AESOP II Loan Agreement, all obligations to the Lender of AESOP
Leasing II arising under or in connection with the AESOP II Loan Agreement or
the related Loan Note, in each case howsoever created, arising or evidenced,
whether direct or indirect, joint or several, absolute or contingent, or now or
hereafter existing, or due or to become due including, without limitation, Loan
Interest accruing after the filing of a bankruptcy petition whether or not
allowed as a claim.
"Licensing Agreement" means the Master License Agreement, dated as of July
30, 1997, among Cendant Car Rental, Inc. (formerly known as HFS Car Rental,
Inc.), ARAC and Wizard Co., Inc., as amended, supplemented, restated or
otherwise modified from time to time in accordance with its terms.
"Lien" means, when used with respect to any Person, any interest in any
real or personal property, asset or other right held, owned or being purchased
or acquired by such Person which secures payment or performance of any
obligation, and shall include any mortgage, lien, pledge, encumbrance, charge,
retained security title of a conditional vendor or lessor, or other security
interest of any kind, whether arising under a security agreement, mortgage,
lease, deed of trust, chattel mortgage, assignment, pledge, retention or
security title, financing or similar statement, or notice or arising as a matter
of law, judicial process or otherwise.
"Limited Liquidation Event of Default" means, with respect to any Series
of Notes, any event specified as such in the related Supplement.
"Liquidation Event of Default" means, so long as such event or condition
continues, any of the following: (a) any event or condition with respect to
AFC-II,
<PAGE>
AESOP Leasing, AESOP Leasing II, Original AESOP, PVHC, Quartx, ARAC, any Lessee
or ARC of the type described in Section 9.1(d) of the Base Indenture, (b) a
payment default by AFC-II under the Base Indenture as specified in Sections
9.1(a) and (b) of the Base Indenture, (c) an event specified in Section
9.1(e)(i), (k), (l) or (m) of the Base Indenture, (d) a payment default by ARAC,
any Lessee or ARC under any Enhancement Agreement, as specified therein, (e) a
payment default by any Lessee under Section 18.1.1 of the AESOP I Operating
Lease, (f) a payment default by any Lessee under Section 18.1.1 of the AESOP II
Operating Lease or (g) a payment default by the Lessee under Section 18.1.1 of
the Finance Lease.
"Loan" is defined (i) for purposes of the AESOP I Operating Lease Loan
Agreement in Section 2.1 thereof, (ii) for purposes of the AESOP I Finance Lease
Loan Agreement in Section 2.1 thereof and (iii) for purposes of the AESOP II
Loan Agreement in Section 2.1 thereof.
"Loan Agreements" means the AESOP I Loan Agreements and the AESOP II Loan
Agreement.
"Loan Agreement's Share" means, with respect to each Loan Agreement on any
date of determination, a fraction expressed as a percentage, the numerator of
which is equal to the Loan Principal Amount of Loans outstanding under such Loan
Agreement and the denominator of which is equal to the sum of the Loan Principal
Amounts of all Loans outstanding under the Loan Agreements, each as of such date
of determination; provided, however, that on any date of determination on which
the Loan Principal Amount of Loans outstanding under each Loan Agreement is
zero, the Loan Agreement's Share with respect to each Loan Agreement shall equal
the Lease's Share with respect to the Related Lease as of such date.
"Loan Collateral" means the AESOP I Loan Collateral and the AESOP II Loan
Collateral.
"Loan Commitment" is defined (i) for purposes of the AESOP I Operating
Lease Loan Agreement in Section 2.1 thereof, (ii) for purposes of the AESOP I
Finance Lease Loan Agreement in Section 2.1 thereof and (iii) for purposes of
the AESOP II Loan Agreement in Section 2.1 thereof.
"Loan Commitment Termination Date" means the date on which all Notes shall
have been paid in full and the Base Indenture shall have terminated pursuant to
Section 11.1 thereof.
"Loan Event of Default" means an AESOP I Loan Event of Default or an AESOP
II Loan Event of Default.
"Loan Interest" (i) with respect to Loans made under the AESOP I Operating
Lease Loan Agreement, is defined in Section 4.1 thereof, (ii) with respect to
Loans made under the AESOP I Finance Lease Loan Agreement, is defined in Section
4.1
<PAGE>
thereof and (iii) with respect to Loans made under the AESOP II Loan Agreement,
is defined in Section 4.1 thereof.
"Loan Interest Period" means, with respect to any Distribution Date, the
period from and including the preceding Distribution Date to but excluding the
current Distribution Date, provided, however, that the initial Loan Interest
Period shall commence on the Initial Closing Date and the final Loan Interest
Period shall end on the date following the Loan Commitment Termination Date on
which all Loans under the Loan Agreements shall have been paid in full.
"Loan Note" means, (i) with respect to Loans made under the AESOP I
Operating Lease Loan Agreement, is defined in Section 3.1 thereof, (ii) with
respect to Loans made under the AESOP I Finance Lease Loan Agreement, is defined
in Section 3.1 thereof and (iii) with respect to Loans made under the AESOP II
Loan Agreement, is defined in Section 3.1 thereof.
"Loan Payment Allocation Percentage" means, (i) with respect to the AESOP
I Operating Lease Loan Agreement on any date of determination, a fraction
expressed as a percentage (which percentage shall never exceed 100%), the
numerator of which is equal to the Loan Principal Amount of Loans outstanding
under the AESOP I Operating Lease Loan Agreement and the denominator of which is
equal to the AESOP I Operating Lease Loan Agreement Borrowing Base, each as of
such date of determination, (ii) with respect to the AESOP I Finance Lease Loan
Agreement on any date of determination, a fraction expressed as a percentage
(which percentage shall never exceed 100%), the numerator of which is equal to
the Loan Principal Amount of Loans outstanding under the AESOP I Finance Lease
Loan Agreement and the denominator of which is equal to AESOP I Finance Lease
Loan Agreement Borrowing Base, each as of such date of determination, and (iii)
with respect to the AESOP II Loan Agreement, 100%.
"Loan Principal Amount" means, as of any date, (i) with respect to Loans
made under the AESOP I Operating Lease Loan Agreement, the aggregate principal
amount outstanding of such Loans, (ii) with respect to Loans made under the
AESOP I Finance Lease Loan Agreement, the aggregate principal amount outstanding
of such Loans and (iii) with respect to Loans made under the AESOP II Loan
Agreement, the aggregate principal amount outstanding of such Loans.
"Loan Request" means a loan request, substantially in the form of Exhibit
B-1 to each Loan Agreement, executed by an Authorized Officer of the relevant
Borrower.
"Loan Request Response" means a loan request response, substantially in
the form of Exhibit B-2 to each Loan Agreement, executed by an Authorized
Officer of the Lender.
"Lockbox Agreement" means each agreement establishing an Approved Lockbox
Account.
<PAGE>
"Luxembourg Agent" is defined in Section 2.4(c) of the Base Indenture.
"Manager" is defined in Section 1.1 of the AFC-II Limited Liability
Company Agreement.
"Managing Agent" means Lord Securities Corporation, a Delaware
corporation.
"Mandatorily Redeemable Obligations" means, as applied to a Person, an
obligation of such Person to the extent that it is redeemable, payable or
required to be purchased or otherwise retired or extinguished (a) at a fixed or
determinable date, whether by operation of a sinking fund or otherwise, (b) at
the option of any Person other than such Person or (c) upon the occurrence of a
condition not solely within the control of such Person, such as a redemption
required to be made out of future earnings.
"Manufacturer" means a manufacturer of passenger automobiles and/or light
trucks.
"Manufacturer Event of Default" means, with respect to any Manufacturer,
(i) the failure by such Manufacturer (or in the case of a Guaranteed
Depreciation Program, the failure by such Manufacturer or any related auction
dealers) to pay any amount due under such Manufacturer's Manufacturer Program
with respect to a Vehicle turned in to such Manufacturer (including any
Relinquished Vehicle); provided, however, that (a)(I), in the case of an
Eligible Manufacturer Program, such failure continues for more than ninety (90)
days following the Turnback Date for such Vehicle or (II) in the case of any
other Manufacturer Program, such failure continues for more than thirty (30)
days following the Turnback Date for such Vehicle and (b) in the case of an
Eligible Manufacturer Program only, the aggregate of any such amounts not paid
(each, a "Past Due Amount") are equal to or in excess of the lesser of the
Default Amount with respect to such Manufacturer Program and the then
outstanding aggregate amount of repurchase obligations of the Manufacturer under
such Manufacturer Program, in each case net of Past Due Amounts that are the
subject of a good faith dispute as evidenced by a writing by AESOP Leasing,
AESOP Leasing II or ARAC, as applicable, or the Manufacturer questioning the
accuracy of amounts paid or payable in respect of certain Vehicles tendered for
repurchase under a Manufacturer Program (as distinguished from any dispute
relating to the repudiation by such Manufacturer generally of its obligations
under such Manufacturer Program or the assertion by such Manufacturer of the
invalidity or unenforceability as against it of such Manufacturer Program); (ii)
the occurrence of an Event of Bankruptcy with respect to such Manufacturer; or
(iii) the termination of such Manufacturer's Manufacturer Program or the failure
of an Eligible Program Manufacturer's Manufacturer Program to meet the
requirements of an Eligible Manufacturer Program.
<PAGE>
"Manufacturer Program" means any Repurchase Program or Guaranteed
Depreciation Program.
"Market Value" means, with respect to any Vehicle as of any date of
determination, the market value of such Vehicle as specified in the Related
Month's published NADA Guide for the model class and model year of such Vehicle
based on the average equipment and the average mileage of each vehicle of such
model class and model year; provided, that if the NADA Guide is being published
but such Vehicle is not included therein, the Market Value shall mean the
Capitalized Cost of such Vehicle less depreciation charges equal to 1.67% per
month of the Capitalized Cost of such Vehicle since the date of such Vehicle's
purchase; provided, further, that if the NADA Guide was not published in the
Related Month, the Market Value of such Vehicle shall be based on an independent
third-party data source approved by each Rating Agency that is rating any Series
of Notes or the Commercial Paper Notes at the request of AFC-II or ARAC based on
the average equipment and average mileage of each Vehicle of such model class
and model year or based upon such other methodology approved by each such Rating
Agency.
"Market Value Average" means, as of any day on or after the third
Determination Date, the percentage equivalent of a fraction, the numerator of
which is the average of the Non-Program Fleet Market Value as of such preceding
Determination Date and the two Determination Dates precedent thereto and the
denominator of which is the average of the aggregate Net Book Value of
Non-Program Vehicles leased under the AESOP I Operating Lease and the Finance
Lease as of such preceding Determination Date and the two Determination Dates
precedent thereto.
"Master Exchange Agreement" means the Master Exchange Agreement, dated as
of September 15, 1998, between AESOP Leasing and Bank One, Texas, National
Association, as Intermediary.
"Material Adverse Effect" means, with respect to any occurrence, event or
condition:
(i) a materially adverse effect on the financial condition, prospects,
business, assets or operations of the Guarantor and its Consolidated
Subsidiaries;
(ii) a materially adverse effect on the ability of (a) the Guarantor,
ARAC, any other Lessee, AESOP Leasing, AESOP Leasing II, Original AESOP,
PVHC or Quartx to perform its obligations under any of the Related
Documents or (b) the Lender to perform its obligations under any of the
Related Documents; or
(iii) an adverse effect on (a) the enforceability of any Related Document
or (b) on the priority or perfection of the Lender's or the Trustee's Lien
on any Loan Collateral or the Collateral.
<PAGE>
"Maximum Financed Vehicle Amount" means, as of any Determination Date or
Payment Date, the lowest Maximum Financed Vehicle Amount specified in any
Supplement under which Notes are Outstanding as of such date.
"Maximum Invested Amount" means, with respect to each Series of Notes, the
amount, if any, specified in the applicable Supplement.
"Maximum Manufacturer Amount" means, as of any Determination Date or
Payment Date, with respect to a particular Manufacturer or group of
Manufacturers, the lowest Maximum Manufacturer Amount specified in any
Supplement under which Notes are Outstanding as of such date.
"Maximum Non-Eligible Manufacturer Amount" means, as of any Determination
Date or Payment Date, the lowest Maximum Non-Eligible Manufacturer Amount
specified in any Supplement under which Notes are Outstanding as of such date.
"Maximum Non-Program Vehicle Amount" means, as of any Determination Date
or Payment Date, the lowest Maximum Non-Program Vehicle Amount specified in any
Supplement under which Notes are Outstanding as of such date.
"Maximum Specified States Amount" means, as of any Determination Date or
Payment Date, the lowest Maximum Specified States Amount specified in any
Supplement under which Notes are Outstanding as of such date.
"Maximum Term" is defined (i) for purposes of the AESOP I Operating Lease
in Section 3.1 thereof, (ii) for purposes of the AESOP II Operating Lease in
Section 3.1 thereof and (iii) for purposes of the Finance Lease in Section 3.1
thereof.
"Mazda" means, collectively, Mazda Motor Corporation and Mazda Motor of
America, Inc.
"Measurement Month" with respect to any date, means collectively, each of
the three periods most closely preceding such date, each of which periods shall
consist of one calendar month or the smallest number of consecutive calendar
months, in which (a) at least 250 Non-Program Vehicles were sold at auction or
otherwise and (b) at least one-twelfth of the aggregate Net Book Value of the
Non-Program Vehicles leased under the AESOP I Operating Lease and the Finance
Lease as of the last day of each such period were sold at auction or otherwise;
provided, however, that no calendar month included in a Measurement Month shall
be included in any other Measurement Month; and, further provided, that
Redesignated Program Vehicles shall be excluded for purposes of the foregoing
determination.
"Measurement Month Average" means, with respect to any Measurement Month,
the percentage equivalent of a fraction, the numerator of which is the aggregate
amount of Disposition Proceeds of all Non-Program Vehicles sold at auction or
<PAGE>
otherwise during such Measurement Month (excluding any Redesignated Program
Vehicles) and the denominator of which is the aggregate Net Book Value of such
Vehicles on the dates of their respective sales.
"Merger Agreement" is defined in the recitals to the Base Indenture.
"Minimum Term" is defined (i) for purposes of the AESOP I Operating Lease
in Section 3.1 thereof, (ii) for purposes of the AESOP II Operating Lease in
Section 3.1 thereof and (iii) for purposes of the Finance Lease in Section 3.1
thereof.
"Mitsubishi" means Mitsubishi Motors Corp., a Delaware corporation.
"Monthly Administration Fee" means, with respect to each Payment Date,
one-twelfth of the product of (i) in the case of the Monthly Administration Fee
payable by AESOP Leasing in respect of Vehicles subject to the AESOP I Operating
Lease and the Finance Lease, 0.40% and the Net Book Value of such Vehicles as of
the first day of the applicable Related Month; (ii) in the case of the Monthly
Administration Fee payable by AESOP Leasing II in respect of Vehicles subject to
the AESOP II Operating Lease, 0.40% and the Net Book Value of such Vehicles as
of the first day of the applicable Related Month; and (iii) in the case of the
Monthly Administration Fee payable by AFC-II, 0.10% and the Net Book Value of
all Vehicles leased under the Leases as of the first day of the applicable
Related Month; provided, however, that if an Amortization Event with respect to
any Series of Notes shall have occurred and be continuing, the Monthly
Administration Fee for each Payment Date will equal the greater of (A) the
product of (x) $20.00 and (y) the number of Vehicles subject to the Leases as of
the first day of the applicable Related Month, and (B) the sum of the amounts
described in the clauses (i), (ii) and (iii) of this definition; and provided,
further, that if the Monthly Administration Fee is determined as provided in
clause (A), such Monthly Administration Fee shall be payable by AESOP Leasing,
AESOP Leasing II and AFC-II in the same relative proportions that would have
been payable had such Monthly Administration Fee been determined as provided in
clauses (i), (ii) and (iii) of this definition.
"Monthly Base Rent" means, with respect to each Lease on a Payment Date,
without duplication, the sum of (a) the Loan Interest and Supplemental Interest
with respect to the Loan(s) made to finance the Vehicles subject to such Lease
that is due and payable on such Payment Date, plus (b) the accrued Depreciation
Charges for the Related Month for all Vehicles (x) subject to such Lease as of
the end of the Related Month or (y) that, without double counting, while subject
to such Lease either became Ineligible Vehicles, suffered a Casualty or were
sold by or on behalf of the applicable Lessor to any Person other than to a
Manufacturer pursuant to a Manufacturer Program or to a third party pursuant to
an auction conducted through a Guaranteed Depreciation Program, in each case,
during the Related Month, plus (c) in the case of the AESOP I Operating Lease or
the Finance Lease, all upfront incentive payments paid by Manufacturers during
the Related Month in respect of purchases of Non-Program Vehicles leased under
such Lease, plus (d) the Monthly Administration Fee payable by
<PAGE>
the applicable Lessor under the Administration Agreement with respect to such
Payment Date; plus (e) in the case of the AESOP II Operating Lease, an amount
equal to the dividends accrued during the Related Month on the outstanding
Preferred Stock of AESOP Leasing II (including any applicable tax gross-up),
determined in accordance with the certificates of designation relating to such
Preferred Stock, plus (f) the applicable Loan Agreement's Share (determined as
of the beginning of the Related Month) with respect to the Related Loan
Agreement of Carrying Charges, (g) in the case of the AESOP II Operating Lease,
the monthly portion of the AESOP II Management Fee and any other amounts payable
by AESOP Leasing II under the AESOP II Management Agreement, plus (h) in the
case of the AESOP I Operating Lease or the Finance Lease, the monthly portion of
the Original AESOP Management Fee, allocated to each such Lease pro rata, based
upon the applicable Lease's Share (determined as of the beginning of the Related
Month), (i) in the case of the AESOP I Operating Lease or the Finance Lease, an
amount equal to 1% of the sum of (A) the Net Book Value of the Non-Program
Vehicles subject to such Lease as of the first day of the Related Month, (B) the
Capitalized Cost of each new Non-Program vehicles leased thereunder since the
first day of the Related Month and (C) the Net Book Value of each Program
Vehicle subject to such Lease redesignated as a Non-Program Vehicle since the
first day of the Related Month; and (j) indemnity payments paid by the
applicable Lessor pursuant to any Vehicle Title and Lienholder Nominee Agreement
to which such Lessor is a party.
"Monthly Certificate" is defined in Section 4.1(b) of the Base Indenture.
"Monthly Loan Principal Amount" (i) with respect to Loans made under the
AESOP I Operating Lease Loan Agreement, is defined in Section 5.1 thereof, (ii)
with respect to Loans made under the AESOP I Finance Lease Loan Agreement, is
defined in Section 5.1 thereof and (iii) with respect to Loans made under the
AESOP II Loan Agreement, is defined in Section 5.1 thereof.
"Monthly Noteholders Statement" means a statement substantially in the
form of Exhibit E to the Indenture.
"Moody's" means Moody's Investors Service, Inc.
"NADA Guide" means the National Automobile Dealers Association, Official
Used Car Guide, Eastern Edition.
"Net Book Value" means, with respect to each Vehicle, such Vehicle's
Capitalized Cost, minus, in the case of any Non-Program Vehicle, the amount of
any upfront incentive fees paid by a Manufacturer in respect of the purchase of
such Vehicle, minus the aggregate Depreciation Charges accrued with respect to
such Vehicle through the last day of the Related Month.
"Nissan" means Nissan Motor Corporation in U.S.A., Inc., a California
corporation.
<PAGE>
"Nissan Hawaii" means Nissan Motor Corporation in Hawaii, Ltd., a Hawaii
corporation.
"Non-Eligible Manufacturer Amount" means, as of any date of determination,
the aggregate Net Book Value of all Vehicles leased under the Leases on such day
that were manufactured by Manufacturers other than Eligible Non-Program
Manufacturers.
"Non-Program Fleet Market Value" means, with respect to all Non-Program
Vehicles (excluding any Redesignated Program Vehicles) as of any date of
determination, the sum of the respective Market Values of each Non-Program
Vehicle subject to the AESOP I Operating Lease or the Finance Lease. For
purposes of computing the Non-Program Fleet Market Value, the "Market Value" of
a Non-Program Vehicle means the market value of such Non-Program Vehicle as
specified in the most recently published NADA Guide for the model class and
model year of such Non-Program Vehicle based on the average equipment and the
average mileage of each Non-Program Vehicle of such model class and model year
then leased under the AESOP I Operating Lease and the Finance Lease. If such
Non-Program Vehicle is not listed in the most recently published NADA Guide,
then the "Market Value" of a Non-Program Vehicle means the Capitalized Cost of
such Non-Program Vehicle less depreciation charges accrued in respect of such
Non-Program Vehicle in accordance with the applicable Depreciation Schedule
since the date of such Non-Program Vehicle's purchase. Notwithstanding the
foregoing, if a Non-Program Vehicle is subject to a Manufacturer Program and for
so long as no Manufacturer Event of Default has occurred with respect to the
related Manufacturer, the Market Value of such Non-Program Vehicle as of any
date of determination, will equal the Repurchase Price on such date with respect
to such Vehicle under such Manufacturer Program.
"Non-Program Vehicle" means a Vehicle that is not subject to an Eligible
Manufacturer Program.
"Non-Program Vehicle Amount" means, as of any date of determination, the
aggregate Net Book Value of all Non-Program Vehicles leased under the Leases on
such day, excluding, however, any Redesignated Program Vehicle.
"Non-Program Vehicle Percentage" means, as of any date of determination, a
fraction, expressed as a percentage, (a) the numerator of which is the aggregate
Net Book Value of all Non-Program Vehicles leased under the Leases on such day
and (b) the denominator of which is the aggregate Net Book Value of all Vehicles
leased under the Leases on such day.
"Non-Program Vehicle Special Default Payments" is defined (i) for purposes
of the AESOP I Operating Lease in Section 13.3 thereof and (ii) for purposes of
the Finance Lease in Section 13.3 thereof.
<PAGE>
"Noteholder" and "Holder" means the Person in whose name a Note is
registered in the Note Register.
"Note Owner" means, with respect to a Book-Entry Note, the Person who is
the beneficial owner of such Book-Entry Note, as reflected on the books of the
Clearing Agency, or on the books of a Person maintaining an account with such
Clearing Agency (directly or as an indirect participant, in accordance with the
rules of such Clearing Agency).
"Note Rate" means, with respect to any Series of Notes, the annual rate at
which interest accrues on the Notes of such Series of Notes (or formula on the
basis of which such rate shall be determined) as stated in the applicable
Supplement.
"Note Register" means the register maintained pursuant to Section 2.6(a)
of the Base Indenture, providing for the registration of the Notes and transfers
and exchanges thereof.
"Notes" is defined in the recitals to the Base Indenture.
"Officer's Certificate" means a certificate signed by an Authorized
Officer of, AFC, AFC-II, AESOP Leasing, AESOP Leasing II, Original AESOP, PVHC,
Quartx, ARAC or any Lessee, as the case may be.
"Operating Leases" means the AESOP I Operating Lease and the AESOP II
Operating Lease.
"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
AFC-II, AESOP Leasing, AESOP Leasing II, Original AESOP, PVHC, Quartx, ARAC, any
Lessee or ARC, as the case may be, unless the Requisite Investors shall notify
the Trustee of objection thereto.
"Original AESOP" means AESOP Leasing Corp., a Delaware corporation.
"Original AESOP Management Agreement" means the Amended and Restated
Management Agreement, dated as of July 30, 1997, between the Managing Agent and
Original AESOP.
"Original AESOP Management Fee" is defined in Section 2 of the Original
AESOP Management Agreement.
"Original AESOP Nominee Agreement" means the Vehicle Title Nominee
Agreement, dated as of July 30, 1997, among Original AESOP, the Trustee, ARAC,
ARC and AESOP Leasing II, as amended, modified or supplemented from time to time
in accordance with its terms.
"Original AFC-II" means AESOP Funding Corp. II, a Delaware corporation.
<PAGE>
"Original Operating Lease" means the Master Motor Vehicle Operating Lease
and Servicing Agreement, dated as of May 1, 1996, among Original AESOP, as the
lessor thereunder, ARAC, as the lessee thereunder, and HFS Car Rental, Inc., as
the guarantor thereunder, as amended, modified or supplemented from time to time
in accordance with its terms.
"Original PVT Lease" means the Restated Third Amendment and Restatement to
Lease, dated as of September 21, 1987, among Bankers Trust Company, as trustee
for Prime Vehicles Trust, as the lessor thereunder, ARAC, as the lessee
thereunder, and HFS Car Rental, Inc., as the guarantor thereunder, as amended,
modified or supplemented from time to time in accordance with its terms.
"Original Synthetic Lease" means the Master Motor Vehicle Lease and
Servicing Agreement, dated as of May 1, 1996, among Original AESOP, as the
lessor thereunder, ARAC, as the lessee thereunder, and HFS Car Rental, Inc., as
the guarantor thereunder, as amended, modified or supplemented from time to time
in accordance with its terms.
"Outstanding" is defined, with respect to any Series, in the related
Supplement.
"Paired Series" is defined in Section 5.5 of the Base Indenture.
"Paying Agent" is defined in Section 2.6(a) of the Base Indenture.
"Payment Date" means the 20th day of each month, or if such date is not a
Business Day, the next succeeding Business Day, commencing August 20, 1997.
"Pension Plan" means any "employee pension benefit plan", as such term is
defined in ERISA, which is subject to Title IV of ERISA (other than a
"multiemployer plan", as defined in Section 4001 of ERISA) and to which any
company in the Controlled Group has liability, including any liability by reason
of having been a substantial employer within the meaning of Section 4063 of
ERISA for any time within the preceding five years or by reason of being deemed
to be a contributing sponsor under Section 4069 of ERISA.
"Permanent Global Note" is defined in Section 2.5(b) of the Base
Indenture.
"Permitted Encumbrances" means: (a) a Lien securing a tax, assessment or
other governmental charge or levy (excluding any Lien arising under any of the
provisions of ERISA) or the claim of a materialman, mechanic, carrier,
warehouseman or landlord for labor, materials, supplies or rentals incurred in
the ordinary course of business, and foreclosure, distraint, sale or other
similar proceedings shall not have been commenced; (b) a Lien on the properties
and assets of a Subsidiary of ARC, other than a Lessee, securing Indebtedness
owing to ARC or any Lessee; (c) a Lien consisting of a deposit or pledge made,
in the ordinary course of business, in
<PAGE>
connection with, or to secure payment of, obligations under worker's
compensation, unemployment insurance or similar legislation; (d) a Lien
constituting an encumbrance in the nature of zoning restrictions, easements, and
rights or restrictions of record on the use of real property which does not
materially detract from the value of such property or impair the use thereof in
the business of ARC or any Subsidiary; (e) a Lien constituting a lease or
sublease granted by ARC or any Lessee to others in the ordinary course of
business; (f) a Lien existing on (i) property of any Person at the time such
Person becomes a Consolidated Subsidiary of ARC or (ii) any asset prior to the
acquisition thereof by ARC or a Consolidated Subsidiary, but only, in the case
of either clause (i) or (ii), if such Lien was not created in contemplation
thereof and so long as the obligation secured by such Lien is not in default and
such Lien is and will remain confined to the property subject to it at the time
such Person becomes a Consolidated Subsidiary of ARC or such property is
acquired and to fixed improvements thereafter erected on such property; (g) a
Lien securing Purchase Money Indebtedness but only if, in the case of each such
Lien: (i) such Lien shall at all times be confined solely to the asset the
purchase price of which was financed through the incurrence of the Purchase
Money Indebtedness secured by such Lien and to fixed improvements then or
thereafter erected on such asset; (ii) such Lien attached to such asset within
90 days of the acquisition of such property; and (iii) the aggregate principal
amount of Purchase Money Indebtedness secured by such Lien at no time exceeds an
amount equal to the lesser of (A) the cost (including the principal amount of
such Indebtedness, whether or not assumed) to ARC or a Consolidated Subsidiary
of the asset subject to such Lien and (B) the fair value of such asset at the
time of such acquisition; (h) a Lien constituting a renewal, extension or
replacement of a Lien constituting a Permitted Encumbrance by virtue of clause
(f) or (g) of this definition, but only, in the case of each such renewal,
extension or replacement Lien, to the extent that the principal amount of
indebtedness secured by such Lien does not exceed the principal amount of such
indebtedness so secured at the time of the extension, renewal or replacement,
and that such renewal, extension or replacement Lien is limited to all or a part
of the property that was subject to the Lien extended, renewed or replaced and
to fixed improvements then or thereafter erected on such property; (i) Liens on
property of non-U.S. Subsidiaries including those in Puerto Rico and the U.S.
Virgin Islands; and (j) a Lien arising pursuant to an order of attachment,
distraint or similar legal process arising in connection with legal proceedings,
but only if and so long as the execution or other enforcement thereof is not
unstayed for more than 20 days. For this purpose "Purchase Money Indebtedness"
means Indebtedness of ARC or any Consolidated Subsidiary that, within 90 days of
such purchase, is incurred to finance part or all of (but not more than) the
purchase price of a tangible asset in which neither ARC nor any Subsidiary had
at any time prior to such purchase any interest other than a security interest
or an interest as lessee under an operating lease and renewals, extensions or
refundings, thereof, but not any increases in the principal amounts thereof or
interest rates thereon, except for increases in interest rates upon the occasion
of any such renewal, extension or refunding that are commercially reasonable at
such time.
"Permitted Investments" means negotiable instruments or securities
maturing on or before the Distribution Date next occurring after the investment
therein, payable
<PAGE>
in Dollars, issued by an entity organized under the laws of the United States of
America and represented by instruments in bearer or registered or in book-entry
form which evidence (i) obligations the full and timely payment of which are to
be made by or is fully guaranteed by the United States of America other than
financial contracts whose value depends on the values or indices of asset
values; (ii) demand deposits of, time deposits in, or certificates of deposit
issued by, any depositary institution or trust company incorporated under the
laws of the United States of America or any state thereof whose short-term debt
is rated P-1 or higher by Moody's and A-1 or higher by Standard & Poor's and
subject to supervision and examination by Federal or state banking or depositary
institution authorities; provided, however, that at the earlier of (x) the time
of the investment and (y) the time of the contractual commitment to invest
therein, the certificates of deposit or short-term deposits, if any, or
long-term unsecured debt obligations (other than such obligation whose rating is
based on collateral or on the credit of a Person other than such institution or
trust company) of such depositary institution or trust company shall have a
credit rating from Standard & Poor's of "A-1+", in the case of certificates of
deposit or short-term deposits, or a rating from Standard & Poor's not lower
than "AA", in the case of long-term unsecured debt obligations; (iii) commercial
paper having, at the earlier of (x) the time of the investment and (y) the time
of the contractual commitment to invest therein, a rating from Standard & Poor's
of "A-1+"; (iv) bankers' acceptances issued by any depositary institution or
trust company described in clause (ii) above; (v) investments in money market
funds rated "AAm" by Standard & Poor's or otherwise approved in writing by
Standard & Poor's; (vi) Eurodollar time deposits having a credit rating from
Standard & Poor's of "A-1+"; (vii) repurchase agreements involving any of the
Permitted Investments described in clauses (i) and (vi) above and the
certificates of deposit described in clause (ii) above which are entered into
with a depository institution or trust company, having a commercial paper or
short-term certificate of deposit rating of "A-1+" by Standard & Poor's and P-1
by Moody's or which otherwise is approved as to collateralization by the Rating
Agencies; and (viii) any other instruments or securities, if the Rating Agencies
confirm in writing that the investment in such instruments or securities will
not adversely affect any ratings with respect to any Series of Notes.
"Permitted Liens" means (i) Liens for current taxes not delinquent or for
taxes being contested in good faith and by appropriate proceedings, and with
respect to which adequate reserves have been established, and are being
maintained, in accordance with GAAP, (ii) mechanics', materialmen's, landlords',
warehousemen's and carrier's Liens, and other Liens imposed by law, securing
obligations arising in the ordinary course of business that are not more than
thirty days past due or are being contested in good faith and by appropriate
proceedings and with respect to which adequate reserves have been established,
and are being maintained, in accordance with GAAP, (iii) Liens in favor of the
Lessors pursuant to each of the Leases; (iv) Liens in favor of the Lender in
respect of the Liabilities pursuant to the Loan Agreements, (iv) the Liens in
favor of the Trustee pursuant to the Indenture, and (v) Liens in favor of an
Enhancement Provider, provided, however, that such Liens are subordinate to the
Liens in favor of the Trustee and have been consented to by the Trustee.
<PAGE>
"Permitted Nominee" means, with respect to AESOP Leasing, AESOP Leasing II
or ARAC, the nominee titleholder(s) for such Person appointed pursuant to the
Vehicle Title and Lienholder Nominee Agreements to which it is a party.
"Person" means any natural person, corporation, business trust, joint
venture, association, company, partnership, limited liability company, joint
stock company, corporation, trust, unincorporated organization or Government
Authority.
"Placement Agency Agreement" means any agreement pursuant to which a
Placement Agent agrees with AFC-II to place Notes with investors.
"Placement Agent" means any Person in its capacity as placement agent
under a Placement Agency Agreement.
"Pool Factor" means, unless any Series of Notes is issued in more than one
class as stated in any related Supplement, a number carried out to eight
significant decimals representing the ratio of the applicable Invested Amount as
of the end of the Related Month to the applicable Initial Invested Amount.
"Post-Identification Period Component" means, on any date of
determination, the aggregate of the amounts, without duplication, calculated
with respect to each Group of Relinquished Vehicles for which the Identification
Period shall have ended but the Post-Identification Period Termination Date
shall not have occurred as of the third preceding Business Day, of the sum of
(A) all amounts receivable, as of such date of determination, by the
Intermediary from Manufacturers under their respective Eligible Manufacturer
Programs with respect to each such Group of Relinquished Vehicles as to which no
Receivables Funding Loan shall have been made against the amounts receivable
from Manufacturers in respect thereof (unless there shall have been a
determination of payment in full of such Receivables Funding Loan pursuant to
Section 6(c) of the Intercreditor Agreement), excluding any such amounts that
are unpaid more than ninety (90) days past the applicable Turnback Date, plus
(B), any amount on deposit in the respective AESOP Trust Account on such date of
determination that was paid by any such Manufacturer with respect to each Group
of Relinquished Vehicles described in the foregoing clause (A), plus (C) any
amount on deposit in the respective AESOP Trust Account on such date of
determination representing the proceeds of Receivables Funding Loans, plus (D)
any amount on deposit in the respective AESOP Trust Account on such date of
determination representing amounts released from the corresponding Lender Trust
Account for such Group of Relinquished Vehicles following payment in full of all
principal and interest on the Receivables Funding Loan related to such Group of
Relinquished Vehicles; plus (E) any amount on deposit in the AESOP Trust
Accounts on such date representing investment earning on the amounts described
in the foregoing clauses (B), (C), and (D).
<PAGE>
"Post-Identification Period Termination Date" means for each Group of
Relinquished Vehicles with respect to which the Identification Period shall have
ended prior to the receipt by AESOP Leasing of the last Replacement Vehicle with
respect to such Group of Relinquished Vehicles, the earlier of the date on which
the Exchange Period with respect to such Group of Relinquished Vehicles shall
end and the date on which the last Replacement Vehicle with respect to such
Group of Relinquished Vehicles shall have been received by AESOP Leasing.
"Potential AESOP I Finance Lease Loan Event of Default" means any
occurrence or event which, with the giving of notice, the passage of time or
both, would constitute an AESOP I Finance Lease Loan Event of Default.
"Potential AESOP I Loan Event of Default" means a Potential AESOP I
Operating Lease Loan Event of Default or a Potential AESOP I Finance Lease Loan
Event of Default.
"Potential AESOP I Operating Lease Event of Default" means any occurrence
or event which, with the giving of notice, the passage of time or both, would
constitute an AESOP I Operating Lease Event of Default.
"Potential AESOP I Operating Lease Loan Event of Default" means any
occurrence or event which, with the giving of notice, the passage of time or
both, would constitute an AESOP I Operating Lease Loan Event of Default.
"Potential AESOP II Loan Event of Default" means any occurrence or event
which, with the giving of notice, the passage of time or both, would constitute
an AESOP II Loan Event of Default.
"Potential AESOP II Operating Lease Event of Default" means any occurrence
or event which, with the giving of notice, the passage of time or both, would
constitute an AESOP II Operating Lease Event of Default.
"Potential Amortization Event" means any occurrence or event which, with
the giving of notice, the passage of time or both, would constitute an
Amortization Event.
"Potential Enhancement Agreement Event of Default" means an event which,
with the giving of notice, the passage of time or both, would constitute an
Enhancement Agreement Event of Default under any Enhancement Agreement.
"Potential Finance Lease Event of Default" means any occurrence or event
which, with the giving of notice, the passage of time or both, would constitute
a Finance Lease Event of Default.
"Potential Lease Event of Default" means an event which, with the giving
of notice, the passage of time or both, would constitute a Lease Event of
Default.
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"Potential Loan Event of Default" means an event which, with the giving of
notice, the passage of time or both, would constitute a Loan Event of Default.
"Potential Manufacturer Event of Default" means an event which, with the
giving of notice, the passage of time or both, would constitute a Manufacturer
Event of Default.
"Power of Attorney" means a power of attorney in the form of Attachment C
to any Lease.
"Predecessor Companies" means Avis Rent A Car Systems Holdings, Inc. and
Subsidiaries, Avis International, Ltd. and Subsidiaries, Avis Enterprises, Inc.
and Subsidiaries, Pathfinder Insurance Company and Global Excess & Reinsurance,
Ltd.
"Preferred Stock" means, as of any date, the issued and outstanding Series
A Preferred Stock, together with any other issued and outstanding preferred
stock, of AESOP Leasing II on such date.
"Principal Collections" means any Collections other than Interest
Collections.
"Principal Terms" is defined in Section 2.3 of the Base Indenture.
"Prior Indenture" is defined in the recitals to the Base Indenture.
"Program Size" means, with respect to any Series of Notes, the amount
specified in the applicable Supplement.
"Program Vehicle" means a Vehicle subject to an Eligible Manufacturer
Program.
"Program Vehicle Special Default Payments" is defined (i) for purposes of
the AESOP I Operating Lease in Section 13.3 thereof and (ii) for purposes of the
Finance Lease in Section 13.3 thereof.
"PVHC" means PV Holding Corp., a Delaware corporation.
"PVHC/BONY Nominee Agreement" means the Vehicle Title and Lienholder
Nominee Agreement, dated as of July 30, 1997, among PV Holding Corp., BONY,
ARAC, ARC, AESOP Leasing and the Trustee, as amended, modified or supplemented
from time to time in accordance with its terms.
"Qualified Institution" means a depositary institution or trust company
(which may include the Trustee) organized under the laws of the United States of
America or any one of the states thereof or the District of Columbia; provided,
however, that at all times such depositary institution or trust company is a
member of the FDIC and has (i) from Standard & Poor's a long-term indebtedness
rating not lower than AA- and a
<PAGE>
short-term indebtedness rating of A-1+ and from Moody's a long-term indebtedness
rating not lower than A2 and a short-term indebtedness rating of P-1, or (ii)
such other rating which satisfies the Rating Agency Consent Condition.
"Qualified Intermediary" means a Person satisfying the requirements for a
"qualified intermediary" within the meaning of Section 1031 of the Code and the
regulations thereunder.
"Quartx" means Quartx Fleet Management Inc., a Delaware corporation.
"Quartx Nominee Agreement" means the Vehicle Title Nominee Agreement,
dated as of July 30, 1997, among Quartx Fleet Management Inc., the Trustee,
ARAC, ARC and AESOP Leasing, as amended, modified or supplemented from time to
time in accordance with its terms.
"Rating Agency" means, (i) with respect to each outstanding Series of
Notes, any rating agency or agencies then issuing a rating for such Series of
Notes at the request of AFC-II or ARAC, or (ii) with respect to the Commercial
Paper Notes, collectively S&P, Moody's and any other nationally recognized
rating agency approved by the administrative agent for the liquidity lenders
with respect to the Commercial Paper Notes, ARAC and the Required Secured
Parties.
"Rating Agency Confirmation Condition" means, with respect to any action,
that (i) each Rating Agency shall have notified AFC-II, AESOP Leasing, AESOP
Leasing II, ARAC, each Lessee, any Enhancement Provider and the Trustee in
writing that such action will not result in a reduction or withdrawal of the
rating (in effect immediately before the taking of such action) of any
outstanding Series of Notes with respect to which it is a Rating Agency and (ii)
each Rating Agency shall have notified any applicable Enhancement Provider
entitled to such notification pursuant to the relevant Supplement in writing
that such action will not result in a reduction or withdrawal of the rating
(without regard to the presence of the Enhancement provided by each such
Enhancement Provider and in effect immediately before the taking of such action)
of any outstanding Series of Notes issued pursuant to such related Supplement
and, with respect to the issuance of a Series of Notes, the "Rating Agency
Confirmation Condition" also means, in addition to the above, that each Rating
Agency that is referred to in the related Supplement as being required to
deliver its rating with respect to such Series of Notes shall have notified
AFC-II, AESOP Leasing, AESOP Leasing II, ARAC, each Lessee, any Enhancement
Provider and the Trustee in writing that such rating has been issued by such
Rating Agency.
"Rating Agency Consent Condition" means, with respect to any action, that
(i) each Rating Agency shall have notified AFC-II, AESOP Leasing, AESOP Leasing
II, ARAC, each Lessee, any Enhancement Provider and the Trustee in writing that
such action will not result in a reduction or withdrawal of the rating (in
effect immediately before the taking of such action) of any outstanding Series
of Notes with respect to which it is a Rating Agency and, with respect to the
issuance of a Series of Notes, the
<PAGE>
"Rating Agency Consent Condition" also means that each Rating Agency that is
referred to in the related Supplement as being required to deliver its rating
with respect to such Series of Notes shall have notified AFC-II, AESOP Leasing,
AESOP Leasing II, ARAC, each Lessee, any Enhancement Provider and the Trustee in
writing that such rating has been issued by such Rating Agency and (ii) any
Enhancement Provider entitled to consent pursuant to the related Supplement
shall have consented in writing to such action.
"Receivables Financing Agreement" means each agreement pursuant to which
financing may be extended to the Intermediary for the purchase of Replacement
Vehicles as to which the Rating Agency Consent Condition has been satisfied and
as to which, if there shall be any Series of Notes outstanding supporting
Commercial Paper Notes, the CP Rating Agency Condition has been satisfied and
the approval of the Majority Banks (as defined in the applicable Supplement) has
been obtained, and which initially shall mean the Receivables Financing
Agreement, dated as of September 15, 1998, among the Intermediary and Atlantic
Asset Securitization Corp., Lyon Short Term Funding Corp., and Credit Lyonnais
New York Branch, individually and as agent.
"Receivables Funding Documents" means each Receivables Financing Agreement
and each note or other document delivered pursuant thereto.
"Receivables Funding Loans" means loans made by the Receivables Lender
pursuant to the Receivables Financing Agreement for the purpose of acquiring
Replacement Vehicles on the terms and subject to the conditions of the Master
Exchange Agreement.
"Receivables Lender" means, the financial institutions from time to time
party to each Receivables Financing Agreement, which initially shall mean,
collectively, Atlantic Asset Securitization Corp., Lyon Short Term Funding
Corp., and Credit Lyonnais New York Branch, and their respective successors and
assigns.
"Receivables Lender Agent" means the financial institution from time to
time serving as lender agent for the Receivables Lender, which initially shall
be Credit Lyonnais New York Branch.
"Receivables Lender Collateral" has the meaning assigned to such term in
the Master Exchange Agreement.
"Reconveyed Receivables" means Relinquished Vehicle Receivables that have
been reconveyed by the Intermediary to AESOP Leasing pursuant to Section 2.4,
8.1 or 8.2 of the Master Exchange Agreement.
"Record Date" means, with respect to any Distribution Date, the last day
of the Related Month.
<PAGE>
"Redesignated Program Vehicle" means a Program Vehicle that is rejected as
ineligible for repurchase by the related Manufacturer (or for sale at auction
under the applicable Manufacturer Program) and that is not expected to be
accepted upon a subsequent return, or that at the time of its intended
disposition is determined by the relevant Lessee as likely to be so rejected;
provided, however, that after such rejection or determination such Vehicle will
not be used in the operating fleet of the relevant Lessee.
"Registrar" is defined in Section 2.6(a) of the Base Indenture.
"Regulation S" is defined in Section 2.5(b) of the Base Indenture.
"Related Documents" means, collectively, the Indenture, the Notes, any
Enhancement Agreement, the Loan Agreements, the Assignment Agreements, the
Vehicle Title and Lienholder Nominee Agreements, the Administration Agreement,
the Cendant Indemnity, the Termination Services Agreement, the Securities
Account Control Agreements, the Loan Notes, any Placement Agency Agreement, any
agreements relating to the issuance or the purchase of any of the Notes, the
Leases, the Supplemental Documents relating to the Leases, each Lockbox
Agreement, the Master Exchange Agreement, the Intercreditor Agreement, and the
Receivables Funding Documents.
"Related Lease" means (i) with respect to the AESOP I Operating Lease Loan
Agreement, the AESOP I Operating Lease, (ii) with respect to the AESOP I Finance
Lease Loan Agreement, the Finance Lease and (iii) with respect to the AESOP II
Loan Agreement, the AESOP II Operating Lease.
"Related Loan Agreement" means (i) with respect to the AESOP I Operating
Lease, the AESOP I Operating Lease Loan Agreement, (ii) with respect to the
AESOP I Finance Lease, the AESOP I Finance Lease Loan Agreement and (iii) with
respect to the AESOP II Operating Lease, the AESOP II Loan Agreement.
"Related Month" means, (i) with respect to any Payment Date, Determination
Date or Distribution Date, the most recently ended calendar month, (ii) with
respect to any other date, the calendar month in which such date occurs and
(iii) with respect to an Interest Period, the month in which such Interest
Period commences; provided, however, that with respect to the above clause (i),
the initial Related Month shall be the period from and including the date of
issuance of the first Series of Notes to and including the last day of the
calendar month in which such issuance occurs.
"Relinquished Vehicle" has the meaning assigned to such term in the Master
Exchange Agreement.
"Relinquished Vehicle Borrowing Base Component" means, on any date of
determination, the sum of (i) the Identification Period Component and (ii) the
lesser of (A) $25,000,000 and (B) the Post-Identification Period Component on
such date.
<PAGE>
"Relinquished Vehicle Property" means (i) the rights to sell or otherwise
dispose of Relinquished Vehicles under the relevant Manufacturer Programs, (ii)
any and all proceeds of such Relinquished Vehicles (other than Reconveyed
Receivables), and (iii) solely to the extent assigned pursuant to the Master
Exchange Agreement, as provided in the definition of the term "Assigned Special
Default Payments" set forth therein, any Special Default Payments payable in
respect of such Relinquished Vehicles, any rights under the Guaranty with
respect to such Special Default Payments and any rights to exercise remedies to
enforce collection of any of the foregoing.
"Relinquished Vehicle Receivables"means the amounts payable by the
Manufacturers of Relinquished Vehicles as the purchase price thereof pursuant to
the relevant Repurchase Program, other than Reconveyed Receivables.
"Replacement Vehicle" has the meaning assigned to such term in the Master
Exchange Agreement.
"Repurchase Amount" means, with respect to any Series of Notes, the amount
specified in the applicable Supplement.
"Repurchase Period" means, with respect to any Program Vehicle, the period
during which such Vehicle may be turned in to the Manufacturer thereof for
repurchase or sale at auction pursuant to the applicable Manufacturer Program.
"Repurchase Price" with respect to any Vehicle (i) subject to a Repurchase
Program means the price paid or payable by the Manufacturer thereof to
repurchase such Vehicle pursuant to its Manufacturer Program and (ii) subject to
a Guaranteed Depreciation Program means the amount which the Manufacturer
thereof guarantees will be paid to AESOP Leasing (or the Intermediary, pursuant
to the Master Exchange Agreement), AESOP Leasing II or ARAC, as the case may be,
as the seller of such Vehicle by such Manufacturer and/or the related auction
dealers upon the disposition of such Vehicle pursuant to its Manufacturer
Program.
"Repurchase Program" means a program pursuant to which a Manufacturer has
agreed with AESOP Leasing (or the Intermediary, pursuant to the Master Exchange
Agreement), AESOP Leasing II or ARAC, as the case may be, to repurchase Vehicles
manufactured by such Manufacturer or one of its Affiliates during the specified
Repurchase Period.
"Required AESOP I Operating Lease Vehicle Amount" means, with respect to
each Series of Notes, the amount specified in the applicable Supplement.
"Required Aggregate Asset Amount" means on any date of determination the
Aggregate Invested Amount on such date.
<PAGE>
"Required Enhancement Amount" is defined, with respect to any Series, in
the related Supplement.
"Required Noteholders" means Noteholders holding in excess of 50% of the
aggregate Invested Amount of a Series of Notes (excluding, for the purposes of
making the foregoing calculation, any Notes held by (i) AFC-II or any Affiliate
of AFC-II and (ii) ARC or any Affiliate of ARC).
"Required Secured Parties" is defined with respect to any Series in the
related Supplement.
"Requirements of Law" means, with respect to any Person or any of its
property, the certificate of incorporation or articles of association and
by-laws or other organizational or governing documents of such Person or any of
its property, and any law, treaty, rule or regulation, or determination of any
arbitrator or Governmental Authority, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its
property is subject, whether Federal, state or local (including, without
limitation, usury laws, the Federal Truth in Lending Act and retail installment
sales acts).
"Requisite Investors" means Noteholders holding in excess of 50% of the
aggregate Invested Amount of all outstanding Series of Notes (excluding, for the
purposes of making the foregoing calculation, any Notes held by (i) AFC-II or
any Affiliate of AFC-II and (ii) ARC or any Affiliate of ARC).
"Residual Value Payment" shall mean, with respect to a Vehicle as of the
date of calculation, an amount equal to the Termination Value of such Vehicle,
provided, however, that in no event shall the sum of the net present value of
the Monthly Base Rent paid or accrued with respect to such Vehicle to the date
of calculation plus the net present value of the Termination Value of such
Vehicle exceed 88 percent of the Capitalized Cost of such Vehicle, with such net
present value calculated to the Vehicle Finance Lease Commencement Date for such
Vehicle with the discount rate equal to the interest rate utilized to calculate
the interest component of the Monthly Base Rent heretofore paid or accrued for
such Vehicle to the date of calculation. This Residual Value Payment will be
reduced (but not below zero) by the proceeds received by the Lessor on the sale
of the Vehicle including any sale pursuant to any Manufacturer Program.
"Restricted Global Note" is defined in Section 2.5(a) of the Base
Indenture.
"Revolving Period" means, with respect to any Series of Notes, the period
specified in the applicable Supplement.
"Rule 144A" is defined in Section 2.5(a) of the Base Indenture.
"S&P" or "Standard & Poor's" means Standard & Poor's Ratings Service, a
division of The McGraw-Hill Companies, Inc.
<PAGE>
"Secured Parties" is defined in Section 3.1 of the Base Indenture.
"Securities Account Control Agreements" means the AFC-II Securities
Account Control Agreements and the ARAC Securities Account Control Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Segregated Series" is defined in Section 2.3(b) of the Base Indenture.
"Series A Preferred Stock" means the Adjustable Rate Cumulative
Participating Preferred Stock ($1 par value), Series A, of AESOP Leasing II
issued on the Initial Closing Date.
"Series Closing Date" means, with respect to any Series of Notes, the date
of issuance of such Series of Notes, as specified in the related Supplement.
"Series of Notes" or "Series" means each Series of Notes issued and
authenticated pursuant to the Base Indenture and a related Supplement.
"Series-Specific Collateral" is defined in Section 2.3(b) of the Base
Indenture.
"Series Termination Date" means, with respect to any Series of Notes, the
date stated in the related Supplement as the termination date.
"Special Default Payments" is defined (i) for purposes of the AESOP I
Operating Lease in Section 13.3 thereof, (ii) for purposes of the AESOP II
Operating Lease in Section 13.3 thereof and (iii) for purposes of the Finance
Lease in Section 13.3 thereof.
"Special Service Charges" means any and all charges assessed to the
Lessees pursuant to the AESOP I Operating Lease with respect to the fees,
expenses, indemnities and other amounts payable by AESOP Leasing (without giving
effect to any recourse limitation applicable to AESOP Leasing, including the
limitation set forth in Section 8.14 of the Master Exchange Agreement) to the
Intermediary pursuant to the Master Exchange Agreement.
"Specified States Amount" means, as of any date of determination, the
aggregate Net Book Value of all Vehicles leased under the Operating Leases on
such day that are titled in the States of Ohio, Oklahoma and Nebraska.
"Standard Casualty" means, with respect to any Vehicle, that (i) such
Vehicle is destroyed, seized or otherwise rendered permanently unfit or
unavailable for use and, if such Vehicle is a Program Vehicle, is not tendered
to and accepted for repurchase by the applicable Manufacturer within 90 days
following the occurrence thereof or (ii) such Vehicle is lost or stolen and is
not recovered and, if such Vehicle is
<PAGE>
a Program Vehicle, not tendered to and accepted for repurchase by the applicable
Manufacturer within 180 days following the occurrence thereof.
"Subaru" means Subaru of America Inc., a Nebraska corporation.
"Sublease Notice" is defined in Section 7 of the Finance Lease.
"Subsidiary" means, with respect to any Person (herein referred to as the
"parent"), any corporation, partnership, association or other business entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or more than 50% of
the general partnership interests are, at the time any determination is being
made, owned, controlled or held by the parent or (b) that is, at the time any
determination is being made, otherwise controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent.
"Supplement" means a supplement to the Base Indenture complying (to the
extent applicable) with the terms of Section 2.3 or Article 12 of the Base
Indenture.
"Supplemental Carrying Charges" means, with respect to each Loan Interest
Period for which the Average Daily Loan Balance under each Loan Agreement is
zero, an amount equal to the sum of (A) the amount of interest accrued during
such Loan Interest Period with respect to all Series of Notes, plus (B) the sum
of any Swap Payments payable by AFC-II on the next succeeding Payment Date,
minus (C) the sum of any Swap Payments payable to AFC-II on the next succeeding
Payment Date.
"Supplemental Documents" is defined (i) for purposes of the AESOP I
Operating Lease in Section 2.1 thereof, (ii) for purposes of the AESOP II
Operating Lease in Section 2.1 thereof and (iii) for purposes of the Finance
Lease in Section 2.1 thereof.
"Supplemental Interest" is defined (i) for purposes of the AESOP I
Operating Lease Loan Agreement in Section 4.2 thereof, (ii) for purposes of the
AESOP I Finance Lease Loan Agreement in Section 4.2 thereof and (iii) for
purposes of the AESOP II Loan Agreement in Section 4.2 thereof.
"Supplemental Rent" means, with respect to each of the Leases, any and all
amounts due thereunder other than Monthly Base Rent.
"Suzuki" means American Suzuki Motor Corporation, a California
corporation.
"Swap Agreement" means one or more interest rate swap contracts, interest
rate cap agreements or similar contracts entered into by AFC-II in connection
with the issuance of a Series of Notes, as specified in the related Supplement,
providing limited protection against interest rate risks.
<PAGE>
"Swap Payments" means amounts payable to or receivable by AFC-II pursuant
to any Swap Agreement.
"Temporary Global Note" is defined in Section 2.5(b) of the Base
Indenture.
"Term" is defined (i) for purposes of the AESOP I Operating Lease in
Section 3.2 thereof, (ii) for purposes of the AESOP II Operating Lease in
Section 3.2 thereof and (iii) for purposes of the Finance Lease in Section 3.2
thereof.
"Termination Services Agreement" means the Termination Services Agreement,
dated as of July 30, 1997, by and among WizCom, ARAC, AFC-II and the Trustee, as
amended, modified or supplemented from time to time in accordance with its
terms.
"Termination Services Reserve Account" is defined in Section 3 of the
Administration Agreement.
"Termination Services Reserve Draw Amount" means, as of any date of
determination, the lesser of (i) the amount then due to WizCom from ARAC
pursuant to the Termination Services Agreement and (ii) the amount on deposit in
the Termination Services Reserve Account on such date.
"Termination Value" means, with respect to any Vehicle, as of any date, an
amount equal to (i) the Capitalized Cost of such Vehicle, minus (ii) unless
otherwise deducted in the calculation of "Capitalized Cost", all Depreciation
Charges for such Vehicle accrued prior to such date, minus (iii) in the case of
any Non-Program Vehicle, the amount of any upfront incentive fees paid by the
Manufacturer of such Vehicle in respect of the purchase of such Vehicle.
"Toyota" means Toyota Motor Sales, U.S.A., Inc., a California Corporation.
"Transfer Agent" is defined in Section 2.9(a)(iii) of the Base Indenture.
"Trust Accounts" has the meaning assigned to such term in the Master
Exchange Agreement.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Trust Officer" means, with respect to the Trustee, any Senior Vice
President, Vice President, Assistant Vice President, Assistant Secretary or
Assistant Treasurer of the Corporate Trust Office, or any trust officer, or any
officer customarily performing functions similar to those performed by the
person who at the time shall be such officers, or to whom any corporate trust
matter is referred because of his knowledge of and familiarity with a particular
subject, or any successor thereto responsible for the administration of the Base
Indenture.
<PAGE>
"Trustee" means the party named as such in the Indenture until a successor
replaces it in accordance with the applicable provisions of the Indenture and
thereafter means the successor serving thereunder.
"Turnback Date" means, with respect to any Program Vehicle or Non-Program
Vehicle subject to a Manufacturer Program, the date on which such Vehicle is
accepted for return by a Manufacturer or its agent pursuant to its Manufacturer
Program and the Depreciation Charges cease to accrue pursuant to its
Manufacturer Program.
"UCC" means the Uniform Commercial Code as in effect from time to time in
the specified jurisdiction.
"United States" or "U.S." means the United States of America, its fifty
States and the District of Columbia.
"U.S. Government Obligations" means direct obligations of the United
States of America, or any agency or instrumentality thereof for the payment of
which the full faith and credit of the United States of America is pledged as to
full and timely payment of such obligations.
"Variable Funding Note" is defined in Section 2.5(c) of the Base
Indenture.
"Vehicle" means a passenger automobile or light truck leased by any Lessee
pursuant to a Lease and when used in a Lease means a vehicle leased pursuant to
such Lease.
"Vehicle Acquisition Schedule" means a schedule in the form of Attachment
B to each Operating Lease and the Finance Lease.
"Vehicle Finance Lease Commencement Date" is defined in Section 3.1 of the
Finance Lease.
"Vehicle Finance Lease Expiration Date" is defined in Section 3.1 of the
Finance Lease.
"Vehicle Operating Lease Commencement Date" (i) with respect to Vehicles
subject to the AESOP I Operating Lease is defined in Section 3.1 thereof and
(ii) with respect to Vehicles subject to the AESOP II Operating Lease is defined
in Section 3.1 thereof.
"Vehicle Operating Lease Expiration Date" (i) with respect to Vehicles
subject to the AESOP I Operating Lease is defined in Section 3.1 thereof and
(ii) with respect to Vehicles subject to the AESOP II Operating Lease is defined
in Section 3.1 thereof.
"Vehicle Order" (i) with respect to Vehicles subject to the AESOP I
Operating Lease is defined in Section 2.1 thereof, (ii) with respect to Vehicles
subject to the
<PAGE>
AESOP II Operating Lease is defined in Section 2.1 thereof and (iii) with
respect to Vehicles subject to the Finance Lease is defined in Section 2.1
thereof.
"Vehicle Perfection and Documentation Requirements" means, (i) with
respect to a Vehicle (other than an Initial Vehicle), submission of an
application for the issuance of a certificate of title for such Vehicle with the
department of registry of motor vehicles of the applicable state in which such
Vehicle is to be registered, which application shall reflect the following:
AESOP Leasing or its Permitted Nominee (in the case of Vehicles subject to the
AESOP I Operating Leases), AESOP Leasing II or its Permitted Nominee (in the
case of Vehicles subject to the AESOP II Operating Lease) and ARAC or its
Permitted Nominee (in the case of Vehicles subject to the Finance Lease), as the
registered owner and the Trustee as the first lienholder (except that with
respect to Vehicles titled in the states of Ohio, Oklahoma and Nebraska, the
Trustee will not be noted as the first lienholder on the Certificates of Title
relating to such Vehicles), (ii) with respect to each Initial PVT Vehicle and
each Initial Financed Vehicle, BONY will be noted as the first lienholder on the
Certificates of Title relating to such Vehicles and (iii) with respect to each
Franchisee Vehicle, the nominee lienholder under the related Franchisee Nominee
agreement will be noted as the first lienholder on the Certificate of Title
relating to such Vehicle.
"Vehicle Purchase Price" (i) with respect to Vehicles subject to the AESOP
I Operating Lease is defined in Section 2.5 thereof, (ii) with respect to
Vehicles subject to the AESOP II Operating Lease is defined in Section 2.5
thereof and (iii) with respect to Vehicles subject to the Finance Lease is
defined in Section 2.5 thereof.
"Vehicle Purchase Surplus Amount" means, with respect to Vehicles subject
to the Finance Lease, as of any Payment Date, an amount equal to the sum of (1)
the excess, if any, of (x) the aggregate of the Vehicle Purchase Price for all
Vehicles purchased by the Lessee pursuant to Section 2.5(a) of the Finance Lease
or sold to third parties pursuant to Section 2.6 of the Finance Lease, in each
case during the Related Month over (y) the aggregate of the Termination Values
for all Vehicles so purchased or sold during such Related Month, and (2) the
excess, if any, of (x) the aggregate Repurchase Price for Vehicles returned to a
Manufacturer during the Related Month and which had a Repurchase Price in excess
of the Termination Value for such Vehicles over (y) the aggregate Termination
Value for all such Vehicles.
"Vehicle Return Default" (i) with respect to Vehicles subject to the AESOP
I Operating Lease is defined in Section 18.6 thereof, (ii) with respect to
Vehicles subject to the AESOP II Operating Lease is defined in Section 18.6
thereof and (iii) with respect to Vehicles subject to the Finance Lease is
defined in Section 18.6 thereof.
"Vehicle Term" (i) with respect to Vehicles subject to the AESOP I
Operating Lease is defined in Section 3.1 thereof, (ii) with respect to Vehicles
subject to the AESOP II Operating Lease is defined in Section 3.1 thereof and
(iii) with respect to Vehicles subject to the Finance Lease is defined in
Section 3.1 thereof.
<PAGE>
"Vehicle Title and Lienholder Nominee Agreements" means the PVHC/BONY
Nominee Agreement, the Quartx Nominee Agreement, the Original AESOP Nominee
Agreement, the BONY Nominee Agreement and any Franchisee Nominee Agreements.
"Vehicle Turn-In Condition" (i) with respect to Vehicles subject to the
AESOP I Operating Lease is defined in Section 13.1 thereof, (ii) with respect to
Vehicles subject to the AESOP II Operating Lease is defined in Section 13.1
thereof (iii) with respect to Vehicles subject to the Finance Lease is defined
in Section 13.1 thereof.
"VIN" means vehicle identification number.
"Wholly-Owned Subsidiary" means, with respect to any Person (herein
referred to as the "parent"), any corporation, partnership, association or other
business entity of which securities or other ownership interests representing
100% of the equity or 100% of the ordinary voting power or 100% of the general
partnership interests are, at the time any determination is being made, owned,
controlled or held by the parent.
"WizCom" means WizCom International, Ltd., a Delaware corporation.
"Working Capital Facility" means the Credit Agreement, dated as of July
30, 1997, among ARC, ARAC, the lenders parties thereto from time to time, The
Chase Manhattan Bank and Lehman Commercial Paper Inc., as amended Supplemented,
restated or otherwise modified from time to time in accordance with the terms
thereof.
"written" or "in writing" means any form of written communication,
including, without limitation, by means of telex, telecopier device, telegraph
or cable.
AESOP FUNDING II L.L.C.,
as Issuer
and
HARRIS TRUST AND SAVINGS BANK,
as Trustee and Series 1998-1 Agent
-------------------------
SERIES 1998-1 SUPPLEMENT
dated as of February 26, 1998
to
AMENDED AND RESTATED BASE INDENTURE
dated as of July 30, 1997
-------------------------
<PAGE>
TABLE OF CONTENTS
Page
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PRELIMINARY STATEMENT 1
DESIGNATION 1
ARTICLE I
DEFINITIONS 2
ARTICLE II
SERIES 1998-1 ALLOCATIONS 14
Section 2.1 Establishment of Series 1998-1
Collection Account, Series 1998-1
Excess Collection Account and Series
1998-1 Accrued Interest Account 14
Section 2.2 Allocations with Respect to the Series 1998-1 Notes 14
Section 2.3 Payments To Noteholders 18
Section 2.4 Payment of Note Interest 21
Section 2.5 Payment of Note Principal 21
Section 2.6 Administrator's Failure to
Instruct the Trustee to Make a Deposit or Payment 22
Section 2.7 Series 1998-1 Reserve Account 23
Section 2.8 Series 1998-1 Distribution Account 25
ARTICLE III
AMORTIZATION EVENTS 28
ARTICLE IV
RIGHT TO WAIVE PURCHASE RESTRICTIONS 29
ARTICLE V
FORM OF SERIES 1998-1 NOTES 31
Section 5.1 Restricted Global Series 1998-1 Notes 31
Section 5.2 Temporary Global Series 1998-1
Notes; Permanent Global Series
1998-1 Notes. 32
<PAGE>
Page
----
ARTICLE VI
GENERAL 32
Section 6.1 Optional Repurchase 32
Section 6.2 Information 33
Section 6.3 Exhibits 33
Section 6.4 Ratification of Base Indenture 33
Section 6.5 Counterparts 33
Section 6.6 Governing Law 33
Section 6.7 Amendments 34
Section 6.8 Discharge of Indenture 34
Section 6.9 Notice to Surety Provider and Rating Agencies 34
Section 6.10 Certain Rights of Surety Provider 34
Section 6.11 Surety Provider Deemed Noteholder 35
Section 6.12 Capitalization of AFC-II 35
Section 6.13 Series 1998-1 Required Non-Program Enhancement Percentage. 35
Section 6.14 Third Party Beneficiary. 35
Section 6.15 Prior Notice by Trustee to Surety Provider. 36
Exhibit A-1-1: Form of Restricted Global Series 1998-1 Note
Exhibit A-1-2: Form of Temporary Global Series 1998-1 Note
Exhibit A-1-3: Form of Permanent Global Series 1998-1 Note
Exhibit B: Form of Consent
<PAGE>
SERIES 1998-1 SUPPLEMENT, dated as of February 26, 1998 (this "
Supplement") between AESOP FUNDING II L.L.C., a special purpose limited
liability company established under the laws of Delaware ("AFC-II"), HARRIS
TRUST AND SAVINGS BANK, an Illinois banking corporation, as trustee (together
with its successors in trust thereunder as provided in the Base Indenture
referred to below, the "Trustee"), and HARRIS TRUST AND SAVINGS BANK, an
Illinois banking corporation, as agent for the benefit of the Series 1998-1
Noteholders and the Surety Provider (the "Series 1998-1 Agent"), to the Amended
and Restated Base Indenture, dated as of July 30, 1997, between AFC-II and the
Trustee (as amended, modified or supplemented from time to time, exclusive of
Supplements creating a new Series of Notes, the "Base Indenture").
PRELIMINARY STATEMENT
WHEREAS, Sections 2.2 and 12.1 of the Base Indenture provide, among
other things, that AFC-II and the Trustee may at any time and from time to time
enter into a supplement to the Base Indenture for the purpose of authorizing the
issuance of one or more Series of Notes.
NOW, THEREFORE, the parties hereto agree as follows:
DESIGNATION
There is hereby created a Series of Notes to be issued pursuant to
the Base Indenture and this Supplement and such Series of Notes shall be
designated as 6.14% Rental Car Asset Backed Notes, Series 1998-1(the "Series
1998-1 Notes").
The proceeds from the sale of the Series 1998-1 Notes shall be
deposited in the Collection Account and shall be paid to AFC-II and used to make
Loans under the Loan Agreements to the extent that the Borrowers have requested
Loans thereunder and Eligible Vehicles are available to acquire or refinance
thereunder on the date hereof. Any such portion of proceeds not so used to make
Loans shall be deemed to be Principal Collections.
The Series 1998-1 Notes are a non-Segregated Series of Notes (as
more fully described in the Base Indenture). Accordingly, all references in this
Supplement to "all" Series of Notes (and all references in this Supplement to
terms defined in the Base Indenture that contain references to "all" Series of
Notes) shall refer to all Series of Notes other than Segregated Series of Notes.
<PAGE>
ARTICLE I
DEFINITIONS
(a) All capitalized terms not otherwise defined herein are defined
in the Definitions List attached to the Base Indenture as Schedule I thereto.
All Article, Section or Subsection references herein shall refer to Articles,
Sections or Subsections of the Base Indenture, except as otherwise provided
herein. Unless otherwise stated herein, as the context otherwise requires or if
such term is otherwise defined in the Base Indenture, each capitalized term used
or defined herein shall relate only to the Series 1998-1 Notes and not to any
other Series of Notes issued by AFC-II.
(b) The following words and phrases shall have the following
meanings with respect to the Series 1998-1 Notes and the definitions of such
terms are applicable to the singular as well as the plural form of such terms
and to the masculine as well as the feminine and neuter genders of such terms:
"Consent" has the meaning set forth in Article IV of this
Supplement.
"Consent Period Expiration Date" has the meaning set forth in
Article IV of this Supplement.
"Designated Amounts" has the meaning set forth in Article IV of this
Supplement.
"Excess Collections" has the meaning specified in Section 2.3(b) of
this Supplement.
"Insurance Agreement" means the Insurance Agreement, dated as
February 26, 1998, among the Surety Provider, the Trustee and AFC-II, which
shall constitute an "Enhancement Agreement" with respect the Series 1998-1 Notes
for all purposes under the Indenture.
"Monthly Total Principal Allocation" means for any Related Month the
sum of all Series 1998-1 Principal Allocations with respect to such Related
Month.
"Permanent Global Series 1998-1 Note" has the meaning specified in
Section 5.2 of this Supplement.
<PAGE>
"Principal Deficit Amount" means, with respect to any Distribution
Date, the excess, if any, of (a) the Series 1998-1 Invested Amount on such
Distribution Date (after giving effect to the distribution of the Monthly Total
Principal Allocation for the Related Month) over (b) the sum of the Series
1998-1 Available Reserve Account Amount on such Distribution Date and the Series
1998-1 AESOP I Operating Lease Loan Agreement Borrowing Base on such
Distribution Date.
"Requisite Noteholders" means Series 1998-1 Noteholders holding 50%
or more of the Series 1998-1 Invested Amount.
"Restricted Global Series 1998-1 Note" has the meaning specified in
Section 5.1 of this Supplement.
"Series 1997-1 Notes" means the Series of Notes designated as the
Series 1997-1 Notes.
"Series 1997-2 Supplement" means the supplement to the Base
Indenture authorizing the issuance of the Series of Notes designated as the
Series 1997-2 Notes.
"Series 1998-1 Accrued Interest Account" has the meaning specified
in Section 2.1(b) of this Supplement.
"Series 1998-1 AESOP I Operating Lease Loan Agreement Borrowing
Base" means, as of any date of determination, the product of (a) the Series
1998-1 AESOP I Operating Lease Vehicle Percentage as of such date and (b) the
AESOP I Operating Lease Loan Agreement Borrowing Base as of such date.
"Series 1998-1 AESOP I Operating Lease Vehicle Percentage" means, as
of any date of determination, a fraction, expressed as a percentage, the
numerator of which is the Series 1998-1 Required AESOP I Operating Lease Vehicle
Amount as of such date and the denominator of which is the sum of the Required
AESOP I Operating Lease Vehicle Amounts for all Series of Notes as of such date.
"Series 1998-1 Available Reserve Account Amount" means, as of any
date of determination, the amount on deposit in the Series 1998-1 Reserve
<PAGE>
Account (after giving effect to any deposits thereto and withdrawals and
releases therefrom on such date).
"Series 1998-1 Carryover Controlled Amortization Amount" means, with
respect to any Related Month during the Series 1998-1 Controlled Amortization
Period, the amount, if any, by which the Monthly Total Principal Allocation for
the previous Related Month was less than the Series 1998-1 Controlled
Distribution Amount for the previous Related Month; provided, however, that for
the first Related Month in the Series 1998-1 Controlled Amortization Period, the
Series 1998-1 Carryover Controlled Amortization Amount shall be zero.
"Series 1998-1 Closing Date" means February 26, 1998.
"Series 1998-1 Collateral" means the Collateral, the Series 1998-1
Distribution Account Collateral and the Series 1998-1 Reserve Account
Collateral.
"Series 1998-1 Collection Account" has the meaning specified in
Section 2.1(b) of this Supplement.
"Series 1998-1 Controlled Amortization Amount" means, with respect
to any Related Month during the Series 1998-1 Controlled Amortization Period,
$100,000,000.
"Series 1998-1 Controlled Amortization Period" means the period
commencing at the close of business on November 1, 2004 (or, if such day is not
a Business Day, the Business Day immediately preceding such day) and continuing
to the earliest of (i) the commencement of the Series 1998-1 Rapid Amortization
Period, (ii) the date on which the Series 1998-1 Notes are fully paid and the
Surety Provider has been paid all Surety Provider Fees and all other Surety
Provider Reimbursement Amounts then due, (iii) the Series 1998-1 Termination
Date, and (iv) the termination of the Indenture.
"Series 1998-1 Controlled Distribution Amount" means, with respect
to any Related Month during the Series 1998-1 Controlled Amortization Period, an
amount equal to the sum of the Series 1998-1 Controlled Amortization Amount and
any Series 1998-1 Carryover Controlled Amortization Amount for such Related
Month.
"Series 1998-1 Deposit Date" has the meaning specified in Section
2.2 of this Supplement.
<PAGE>
"Series 1998-1 Distribution Account" has the meaning specified in
Section 2.8(a) of this Supplement.
"Series 1998-1 Distribution Account Collateral" has the meaning
specified in Section 2.8(d) of this Supplement.
"Series 1998-1 Enhancement" means the Series 1998-1
Overcollateralization Amount and the Series 1998-1 Reserve Account Amount.
"Series 1998-1 Enhancement Amount" means, as of any date of
determination, the sum of the Series 1998-1 Overcollateralization Amount and the
Series 1998-1 Available Reserve Account Amount as of such date.
"Series 1998-1 Enhancement Deficiency" means, on any date of
determination, the amount by which the Series 1998-1 Enhancement Amount is less
than the Series 1998-1 Required Enhancement Amount as of such date.
"Series 1998-1 Excess Collection Account" has the meaning specified
in Section 2.1(b) of this Supplement.
"Series 1998-1 Expected Final Distribution Date" means the May 2005
Distribution Date.
"Series 1998-1 Final Distribution Date" means the May 2006
Distribution Date.
"Series 1998-1 Initial Invested Amount" means the aggregate initial
principal amount of the Series 1998-1 Notes, which is $600,000,000.
"Series 1998-1 Interest Period" means a period commencing on and
including a Distribution Date and ending on and including the day preceding the
next succeeding Distribution Date; provided, however, that the initial Series
1998-1 Interest Period shall commence on and include the Series 1998-1 Closing
Date and end on and include March 19, 1998.
"Series 1998-1 Invested Amount" means, when used with respect to any
date, an amount equal to (a) the Series 1998-1 Initial Invested Amount minus (b)
the amount of principal payments made to Series 1998-1 Noteholders on or prior
to such date.
<PAGE>
"Series 1998-1 Invested Percentage" means as of any date of
determination:
(a) when used with respect to Principal Collections, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction the
numerator of which shall be equal to the sum of the Series 1998-1 Invested
Amount and the Series 1998-1 Overcollateralization Amount, determined
during the Series 1998-1 Revolving Period as of the end of the Related
Month (or, until the end of the initial Related Month, on the Series
1998-1 Closing Date), or, during the Series 1998-1 Controlled Amortization
Period and the Series 1998-1 Rapid Amortization Period, as of the end of
the Series 1998-1 Revolving Period, and the denominator of which shall be
the greater of (I) the Aggregate Asset Amount as of the end of the Related
Month or, until the end of the initial Related Month, as of the Series
1998-1 Closing Date, and (II) as of the same date as in clause (I), the
sum of the numerators used to determine (i) invested percentages for
allocations with respect to Principal Collections (for all Series of Notes
and all classes of such Series of Notes) and (ii) overcollateralization
percentages for allocations with respect to Principal Collections (for all
Series of Notes that provide for credit enhancement in the form of
overcollateralization); and
(b) when used with respect to Interest Collections, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction the
numerator of which shall be the Accrued Amounts with respect to the Series
1998-1 Notes on such date of determination, and the denominator of which
shall be the aggregate Accrued Amounts with respect to all Series of Notes
on such date of determination.
"Series 1998-1 Limited Liquidation Event of Default" means, so long
as such event or condition continues, any event or condition of the type
specified in clauses (a) through (g) of Article III of this Supplement;
provided, however, that any event or condition of the type specified in clauses
(a) through (e) of Article III of this Supplement shall not constitute a Series
1998-1 Limited Liquidation Event of Default if (i) within such thirty (30) day
period, such Amortization Event shall have been cured and, after such cure of
such Amortization Event is provided for, the Trustee shall have received the
written consent of the Surety Provider waiving the occurrence of such Series
1998-1 Limited Liquidation Event of Default or (ii) the Trustee shall have
received the written consent of the Surety Provider waiving the occurrence of
such Series 1998-1 Limited Liquidation Event of Default.
<PAGE>
"Series 1998-1 Maximum Aggregate Subaru/Hyundai/Suzuki Amount"
means, as of any day, with respect to Subaru, Hyundai and Suzuki, in the
aggregate, an amount equal to 10% of the aggregate Net Book Value of all
Vehicles leased under the Leases on such day.
"Series 1998-1 Maximum Amount" means any of the Series 1998-1
Maximum Manufacturer Amounts, the Series 1998-1 Maximum Non-Eligible
Manufacturer Amount, the Series 1998-1 Maximum Non-Program Vehicle Amount or the
Series 1998-1 Maximum Specified States Amount.
"Series 1998-1 Maximum Individual Subaru/Hyundai/Suzuki Amount"
means, as of any day, with respect to Subaru, Hyundai or Suzuki, individually,
an amount equal to 5% of the aggregate Net Book Value of all Vehicles leased
under the Leases on such day.
"Series 1998-1 Maximum Manufacturer Amount" means, as of any day,
any of the Series 1998-1 Maximum Mitsubishi Amount, the Series 1998-1 Maximum
Individual Subaru/Hyundai/Suzuki Amount, the Series 1998-1 Maximum Aggregate
Subaru/Hyundai/Suzuki Amount, the Series 1998-1 Maximum Mazda Amount or the
Series 1998-1 Maximum Mazda Program Vehicle Amount.
"Series 1998-1 Maximum Mazda Amount" means, as of any day, an amount
equal to 20% of the aggregate Net Book Value of all Vehicles leased under the
Leases on such day.
"Series 1998-1 Maximum Mazda Program Vehicle Amount" means, as of
any day, an amount equal to the Series 1998-1 Maximum Mazda Program Vehicle
Percentage of the aggregate Net Book Value of all Vehicles leased under the
Leases on such day.
"Series 1998-1 Maximum Mazda Program Vehicle Percentage" means 20%
or such lesser percentage as may be agreed to in writing by AFC-II and the
Surety Provider (initially 5%) on or after the Series 1998-1 Closing Date, with
prompt written notice thereof delivered by AFC-II to the Trustee.
"Series 1998-1 Maximum Mitsubishi Amount" means, as of any day, an
amount equal to 10% of the aggregate Net Book Value of all Vehicles leased under
the Leases on such day.
<PAGE>
"Series 1998-1 Maximum Non-Eligible Manufacturer Amount" means, as
of any day, an amount equal to 3% of the aggregate Net Book Value of all
Vehicles leased under the Leases on such day.
"Series 1998-1 Maximum Non-Program Vehicle Amount" means, as of any
day, an amount equal to the Series 1998-1 Maximum Non-Program Vehicle Percentage
of the aggregate Net Book Value of all Vehicles leased under the Leases on such
day.
"Series 1998-1 Maximum Non-Program Vehicle Percentage" means 25% or
such lesser percentage as may be agreed to in writing by AFC-II and the Surety
Provider (initially 15%) on or after the Series 1998-1 Closing Date, with prompt
written notice thereof delivered by AFC-II to the Trustee.
"Series 1998-1 Maximum Specified States Amount" means, as of any
day, an amount equal to 7.5% of the aggregate Net Book Value of all Vehicles
leased under the Leases on such day.
"Series 1998-1 Monthly Interest" means, with respect to (i) the
initial Series 1998-1 Interest Period, an amount equal to the product of (A) the
Series 1998-1 Note Rate, (B) the Series 1998-1 Initial Invested Amount and (C)
24/360 and (ii) any other Series 1998-1 Interest Period, an amount equal to the
product of (A) one-twelfth of the Series 1998-1 Note Rate and (B) the Series
1998-1 Invested Amount on the first day of such Series 1998-1 Interest Period,
after giving effect to any principal payments made on such date.
"Series 1998-1 Non-Program Vehicle Percentage" means, as of any date
of determination, a fraction, expressed as a percentage, the numerator of which
is the aggregate Net Book Value of all Non-Program Vehicles leased under the
AESOP I Operating Lease as of such date and the denominator of which is the
aggregate Net Book Value of all Vehicles leased under the AESOP I Operating
Lease as of such date.
"Series 1998-1 Note Rate" means 6.14% per annum.
"Series 1998-1 Noteholder" means the Person in whose name a Series
1998-1 Note is registered in the Note Register.
"Series 1998-1 Notes" means any one of the 6.14% Rental Car Asset
Backed Notes, Series 1998-1, executed by AFC-II and authenticated by or on
behalf of the Trustee, substantially in the form of Exhibit A-1, Exhibit A-2 or
<PAGE>
Exhibit A-3. Definitive Series 1998-1 Notes shall have such insertions and
deletions as are necessary to give effect to the provisions of Section 2.18 of
the Base Indenture.
"Series 1998-1 Overcollateralization Amount" means (i) as of any
date on which no AESOP I Operating Lease Vehicle Deficiency exists, the Series
1998-1 Required Overcollateralization Amount as of such date and (ii) as of any
date on which an AESOP I Operating Lease Vehicle Deficiency exists, the excess,
if any, of (x) the Series 1998-1 AESOP I Operating Lease Loan Agreement
Borrowing Base as of such date over (y) the Series 1998-1 Invested Amount as of
such date.
"Series 1998-1 Percentage" means, as of any date of determination, a
fraction, expressed as a percentage, the numerator of which is the Series 1998-1
Invested Amount as of such date and the denominator of which is the aggregate
Invested Amount of each Series of Notes outstanding as of such date.
"Series 1998-1 Principal Allocation" has the meaning specified in
Section 2.2(a)(ii) of this Supplement.
"Series 1998-1 Program Vehicle Percentage" means, as of any date of
determination, a fraction, expressed as a percentage, the numerator of which is
the aggregate Net Book Value of all Program Vehicles leased under the AESOP I
Operating Lease as of such date and the denominator of which is the aggregate
Net Book Value of all Vehicles leased under the AESOP I Operating Lease as of
such date.
"Series 1998-1 Rapid Amortization Period" means the period beginning
at the close of business on the Business Day immediately preceding the day on
which an Amortization Event is deemed to have occurred with respect to the
Series 1998-1 Notes and ending upon the earliest to occur of (i) the date on
which the Series 1998-1 Notes are fully paid and the Surety Provider has been
paid all Surety Provider Fees and all other Surety Provider Reimbursement
Amounts then due, (ii) the Series 1998-1 Termination Date and (iii) the
termination of the Indenture.
"Series 1998-1 Repurchase Amount" has the meaning specified in
Section 6.1 of this Supplement.
<PAGE>
"Series 1998-1 Required AESOP I Operating Lease Vehicle Amount"
means, as of any date of determination, the sum of the Series 1998-1 Invested
Amount and the Series 1998-1 Required Overcollateralization Amount as of such
date.
"Series 1998-1 Required Enhancement Amount" means, as of any date of
determination, the sum of (i) the product of the Series 1998-1 Required
Enhancement Percentage as of such date and the Series 1998-1 Invested Amount as
of such date, (ii) the Series 1998-1 Percentage of the excess, if any, of the
Non-Program Vehicle Amount as of such date over the Series 1998-1 Maximum
Non-Program Vehicle Amount as of such date, (iii) the Series 1998-1 Percentage
of the excess, if any, of the aggregate Net Book Value of all Vehicles
manufactured by Mitsubishi and leased under the Leases as of such date over the
Series 1998-1 Maximum Mitsubishi Amount as of such date, (iv) the Series 1998-1
Percentage of the excess, if any, of the aggregate Net Book Value of all
Vehicles manufactured by Subaru, Hyundai or Suzuki, individually, and leased
under the Leases as of such date over the Series 1998-1 Maximum Individual
Subaru/Hyundai/Suzuki Amount as of such date, (v) the Series 1998-1 Percentage
of the excess, if any, of the aggregate Net Book Value of all Vehicles
manufactured by Subaru, Hyundai or Suzuki, in the aggregate, and leased under
the Leases as of such date over the Series 1998-1 Maximum Aggregate
Subaru/Hyundai/Suzuki Amount as of such date, (vi) the Series 1998-1 Percentage
of the excess, if any, of the aggregate Net Book Value of all Vehicles
manufactured by Mazda and leased under the Leases as of such date over the
Series 1998-1 Maximum Mazda Amount as of such date, (vii) the Series 1998-1
Percentage of the excess, if any, of the aggregate Net Book Value of all Program
Vehicles manufactured by Mazda and leased under the Leases as of such date over
the Series 1998-1 Maximum Mazda Program Vehicle Amount as of such date, (viii)
the Series 1998-1 Percentage of the excess, if any, of the Specified States
Amount as of such date over the Series 1998-1 Maximum Specified States Amount as
of such date and (ix) the Series 1998-1 Percentage of the excess, if any, of the
Non-Eligible Manufacturer Amount as of such date over the Series 1998-1 Maximum
Non-Eligible Manufacturer Amount as of such date.
"Series 1998-1 Required Enhancement Percentage" means, as of any
date of determination, a fraction, expressed as a percentage, the numerator of
which is the sum of (i) the product of (A) 11% times (B) the Series 1998-1
Program Vehicle Percentage as of such date times (C) the Series 1998-1 Invested
Amount as of such date and (ii) the product of (A) the Series 1998-1 Required
Non-Program Enhancement Percentage as of such date times (B) the Series 1998-1
Non-Program Vehicle Percentage as of such date times (C) the
<PAGE>
Series 1998-1 Invested Amount as of such date and the denominator of which is
the Series 1998-1 Invested Amount as of such date.
"Series 1998-1 Required Non-Program Enhancement Percentage" means,
as of any date of determination, the greater of (a) 15% and (b) the sum of (i)
15% and (ii) the sum, for each calendar month within the preceding twelve
calendar months (or such fewer number of calendar months as have elapsed since
the Initial Closing Date), of the greater of (x) an amount (not less than zero)
equal to 100% minus the Measurement Month Average for the immediately preceding
Measurement Month and (y) an amount (not less than zero) equal to 100% minus the
Market Value Average as of the Determination Date within such calendar month
(excluding the Market Value Average for any Determination Date which has not yet
occurred).
"Series 1998-1 Required Overcollateralization Amount" means, as of
any date of determination, the excess, if any, of the Series 1998-1 Required
Enhancement Amount over the sum of (i) the Series 1998-1 Available Reserve
Account Amount as of such date and (ii) the amount of cash and Permitted
Investment on deposit in the Series 1998-1 Collection Account and the Series
1998-1 Excess Collection Account on such date.
"Series 1998-1 Required Reserve Account Amount" means, with respect
to any Distribution Date, an amount equal to 4.0% of the Series 1998-1 Invested
Amount on such Distribution Date (after giving effect to any payments of
principal to be made on the Series 1998-1 Notes on such Distribution Date).
"Series 1998-1 Reserve Account" has the meaning specified in Section
2.7(a) of this Supplement.
"Series 1998-1 Reserve Account Collateral" has the meaning specified
in Section 2.7(d) of this Supplement.
"Series 1998-1 Reserve Account Initial Deposit" means $24,000,000.
"Series 1998-1 Reserve Account Surplus" means, with respect to any
Distribution Date, the excess, if any, of the Series 1998-1 Available Reserve
Account Amount over the Series 1998-1 Required Reserve Account Amount on such
Distribution Date.
<PAGE>
"Series 1998-1 Revolving Period" means the period from and including
the Series 1998-1 Closing Date to the earlier of (i) the commencement of the
Series 1998-1 Controlled Amortization Period and (ii) the commencement of any
Series 1998-1 Rapid Amortization Period.
"Series 1998-1 Shortfall" has the meaning specified in Section
2.3(a) of this Supplement.
"Series 1998-1 Termination Date" means the May 2006 Distribution
Date.
"Supplement" has the meaning set forth in the preamble.
"Surety Bond" means the Note Guaranty Insurance Policy No. SB 13014,
dated February 26, 1998, issued by the Surety Provider.
"Surety Default" means (i) the occurrence and continuance of any
failure by the Surety Provider to pay upon a demand for payment in accordance
with the requirements of the Surety Bond or (ii) the occurrence of an Event of
Bankruptcy with respect to the Surety Provider.
"Surety Provider" means Capital Markets Assurance Corporation, a New
York stock insurance company. The Surety Provider shall constitute an
"Enhancement Provider" with respect to the Series 1998-1 Notes for all purposes
under the Indenture and the other Related Documents.
"Surety Provider Fee" has the meaning set forth in the Insurance
Agreement.
"Surety Provider Reimbursement Amounts" means, as of any date of
determination, (i) an amount equal to the aggregate of any amounts due as of
such date to the Surety Provider pursuant to the Insurance Agreement in respect
of unreimbursed draws under the Surety Bond, including interest thereon
determined in accordance with the Insurance Agreement, and (ii) an amount equal
to the aggregate of any other amounts due as of such date to the Surety Provider
pursuant to the Insurance Agreement.
"Temporary Global Series 1998-1 Note" has the meaning specified in
Section 5.2 of this Supplement.
"Waiver Event" means the occurrence of the delivery of a Waiver
Request and the subsequent waiver of any Series 1998-1 Maximum Amount.
<PAGE>
"Waiver Request" has the meaning set forth in Article IV of this
Supplement.
ARTICLE II
SERIES 1998-1 ALLOCATIONS
With respect to the Series 1998-1 Notes, the following shall apply:
Section 2.1 Establishment of Series 1998-1 Collection Account,
Series 1998-1 Excess Collection Account and Series 1998-1 Accrued Interest
Account.
(a) All Collections allocable to the Series 1998-1 Notes shall be
allocated to the Collection Account.
(b) The Trustee will create three administrative subaccounts within
the Collection Account for the benefit of the Series 1998-1 Noteholders and the
Surety Provider: the Series 1998-1 Collection Account (such sub-account, the
"Series 1998-1 Collection Account"), the Series 1998-1 Excess Collection Account
(such sub-account, the "Series 1998-1 Excess Collection Account") and the Series
1998-1 Accrued Interest Account (such sub-account, the "Series 1998-1 Accrued
Interest Account").
Section 2.2 Allocations with Respect to the Series 1998-1 Notes. The
proceeds from the initial sale of the Series 1998-1 Notes will be deposited into
the Collection Account. On each Business Day on which Collections are deposited
into the Collection Account (each such date, a "Series 1998-1 Deposit Date"),
the Administrator will direct the Trustee in writing pursuant to the
Administration Agreement to allocate all amounts deposited into the Collection
Account in accordance with the provisions of this Section 2.2:
(a) Allocations of Collections During the Series 1998-1 Revolving
Period. During the Series 1998-1 Revolving Period, the Administrator will direct
the Trustee in writing pursuant to the Administration Agreement to allocate on
each day, prior to 11:00 a.m. (New York City time) on each Series 1998-1 Deposit
Date, all amounts deposited into the Collection Account as set forth below:
<PAGE>
(i) allocate to the Series 1998-1 Collection Account an amount equal
to the Series 1998-1 Invested Percentage (as of such day) of the aggregate
amount of Interest Collections on such day. All such amounts allocated to
the Series 1998-1 Collection Account shall be further allocated to the
Series 1998-1 Accrued Interest Account; and
(ii) allocate to the Series 1998-1 Excess Collection Account an
amount equal to the Series 1998-1 Invested Percentage (as of such day) of
the aggregate amount of Principal Collections on such day (for any such
day, the "Series 1998-1 Principal Allocation"); provided however, if a
Waiver Event shall have occurred, then such allocation shall be modified
as provided in Article IV of this Supplement.
(b) Allocations of Collections During any Series 1998-1 Controlled
Amortization Period. With respect to the Series 1998-1 Controlled Amortization
Period, the Administrator will direct the Trustee in writing pursuant to the
Administration Agreement to allocate, prior to 11:00 a.m. (New York City time)
on any Series 1998-1 Deposit Date, all amounts deposited into the Collection
Account as set forth below:
(i) allocate to the Series 1998-1 Collection Account an amount
determined as set forth in Section 2.2(a)(i) above for such day, which
amount shall be further allocated to the Series 1998-1 Accrued Interest
Account; and
(ii) allocate to the Series 1998-1 Collection Account an amount
equal to the Series 1998-1 Principal Allocation for such day, which amount
shall be used to make principal payments in respect of the Series 1998-1
Notes; provided, however, that if the Monthly Total Principal Allocation
exceeds the Series 1998-1 Controlled Distribution Amount, then the amount
of such excess shall be allocated to the Series 1998-1 Excess Collection
Account; and provided further that if a Waiver Event shall have occurred,
then such allocation shall be modified as provided in Article IV of this
Supplement.
(c) Allocations of Collections During the Series 1998-1 Rapid
Amortization Period. With respect to the Series 1998-1 Rapid Amortization
Period, other than after the occurrence of an Event of Bankruptcy with respect
to ARAC, any other Lessee or ARC, the Administrator will direct the Trustee in
writing pursuant to the Administration Agreement to allocate, prior to 11:00
a.m.
<PAGE>
(New York City time) on any Series 1998-1 Deposit Date, all amounts deposited
into the Collection Account as set forth below:
(i) allocate to the Series 1998-1 Collection Account an amount
determined as set forth in Section 2.2(a)(i) above for such day, which
amount shall be further allocated to the Series 1998-1 Accrued Interest
Account; and
(ii) allocate to the Series 1998-1 Collection Account an amount
equal to the Series 1998-1 Principal Allocation for such day, which amount
shall be used to make principal payments in respect of the Series 1998-1
Notes, ratably, without preference or priority of any kind, until the
Series 1998-1 Invested Amount is paid in full.
(d) Allocations of Collections after the Occurrence of an Event of
Bankruptcy. After the occurrence of an Event of Bankruptcy with respect to ARAC,
any other Lessee or ARC, the Administrator will direct the Trustee in writing
pursuant to the Administration Agreement to allocate, prior to 11:00 a.m. (New
York City time) on any Series 1998-1 Deposit Date, all amounts attributable to
the AESOP I Operating Lease Loan Agreement deposited into the Collection Account
as set forth below:
(i) allocate to the Series 1998-1 Collection Account an amount equal
to the Series 1998-1 AESOP I Operating Lease Vehicle Percentage as of the
date of the occurrence of such Event of Bankruptcy of the aggregate amount
of Interest Collections made under the AESOP I Operating Lease Loan
Agreement. All such amounts allocated to the Series 1998-1 Collection
Account shall be further allocated to the Series 1998-1 Accrued Interest
Account;
(ii) allocate to the Series 1998-1 Collection Account an amount
equal to the Series 1998-1 AESOP I Operating Lease Vehicle Percentage as
of the date of the occurrence of such Event of Bankruptcy of the aggregate
amount of Principal Collections made under the AESOP I Operating Lease
Loan Agreement, which amount shall be used to make principal payments in
respect of the Series 1998-1 Notes, ratably, without preference or
priority of any kind, until the Series 1998-1 Invested Amount is paid in
full.
After the occurrence of an Event of Bankruptcy with respect to ARAC, any other
Lessee or ARC, the Administrator will direct the Trustee in writing pursuant to
the
<PAGE>
Administration Agreement to allocate all amounts attributable to the AESOP I
Finance Lease Loan Agreement and the AESOP II Loan Agreement in accordance with
the provisions of the Series 1997-2 Supplement.
(e) Series 1998-1 Excess Collection Account. Amounts allocated to
the Series 1998-1 Excess Collection Account on any Series 1998-1 Deposit Date
will be (w) first, deposited in the Series 1998-1 Reserve Account in an amount
up to the excess, if any, of the Series 1998-1 Required Reserve Account Amount
for such date over the Series 1998-1 Available Reserve Account Amount for such
date, (x) second, used to pay the principal amount of other Series of Notes that
are then in amortization, (y) third, released to AESOP Leasing in an amount
equal to the product of (A) the Loan Agreement's Share with respect to the AESOP
I Operating Lease Loan Agreement as of such date times (B) 100% minus the Loan
Payment Allocation Percentage with respect to the AESOP I Operating Lease Loan
Agreement as of such date times (C) the amount of any remaining funds and (z)
fourth, paid to AFC-II and used to make Loans under the Loan Agreements to the
extent the Borrowers have requested Loans thereunder, Eligible Vehicles are
available for financing thereunder and no Series 1998-1 Enhancement Deficiency
or AESOP I Operating Lease Vehicle Deficiency would result therefrom. Upon the
occurrence of an Amortization Event, funds on deposit on the Series 1998-1
Excess Collection Account will be withdrawn by the Trustee, deposited in the
Series 1998-1 Collection Account and allocated as Principal Collections to
reduce the Series 1998-1 Invested Amount on the immediately succeeding
Distribution Date.
Section 2.3 Payments To Noteholders.
On each Determination Date, as provided below, the Administrator
shall instruct the Paying Agent in writing pursuant to the Administration
Agreement to withdraw, and on the following Distribution Date the Paying Agent,
acting in accordance with such instructions, shall withdraw the amounts required
to be withdrawn from the Collection Account pursuant to Sections 2.3(a) and (b)
below in respect of all funds available from Interest Collections processed
since the preceding Distribution Date and allocated to the holders of the Series
1998-1 Notes.
(a) Note Interest with respect to the Series 1998-1 Notes. On each
Determination Date, the Administrator shall instruct the Trustee and the Paying
Agent in writing pursuant to Administration Agreement as to the amount to be
withdrawn and paid pursuant to Section 2.4 of this Supplement from the Series
1998-1 Accrued Interest Account to the extent funds are anticipated to be
<PAGE>
available from Interest Collections allocable to the Series 1998-1 Notes
processed from but not including the preceding Distribution Date through the
succeeding Distribution Date in respect of (x) first, an amount equal to Series
1998-1 Monthly Interest for the Series 1998-1 Interest Period ending on the day
preceding the related Distribution Date, (y) second, an amount equal to the
amount of any unpaid Series 1998-1 Shortfall as of the preceding Distribution
Date (together with any accrued interest on such Series 1998-1 Shortfall) and
(z) third, an amount equal to the Surety Provider Fee for such Series 1998-1
Interest Period plus any Surety Provider Reimbursement Amounts then due and
owing. If the amounts anticipated to be available from the Series 1998-1 Accrued
Interest Account will be insufficient to pay the sum of the amounts described in
clauses (x), (y) and (z) above on any Distribution Date, the Administrator shall
instruct the Trustee in writing to withdraw from the Series 1998-1 Reserve
Account and deposit in the Series 1998-1 Distribution Account on the following
Distribution Date an amount equal to the lesser of the Series 1998-1 Available
Reserve Account Amount and such insufficiency; provided, however, that after the
occurrence of a Surety Default, no amounts in respect of the Surety Provider Fee
shall be withdrawn from the Series 1998-1 Reserve Account. If the amounts
described in the preceding two sentences are insufficient to pay the sum of the
amounts described in clauses (x) and (y) above on any Distribution Date, the
Trustee shall make a demand on the Surety Bond in accordance with the terms
thereof in an amount equal to such insufficiency and deposit the proceeds
thereof in the Series 1998-1 Distribution Account. If the amounts described in
this Section 2.3(a) are insufficient to pay Series 1998-1 Monthly Interest on
any Distribution Date, payments of interest to the Series 1998-1 Noteholders
will be reduced on a pro rata basis by the amount of such deficiency. The
aggregate amount, if any, of such deficiency on any Distribution Date shall be
referred to as the "Series 1998-1 Shortfall." Interest shall accrue on the
Series 1998-1 Shortfall at the Series 1998-1 Note Rate. On the following
Distribution Date, the Trustee shall withdraw the amounts described in this
Section 2.3(a) from the Series 1998-1 Accrued Interest Account and deposit such
amounts in the Series 1998-1 Distribution Account.
(b) Balance. On or prior to the second Business Day preceding each
Distribution Date, the Administrator shall instruct the Trustee and the Paying
Agent in writing pursuant to the Administration Agreement to pay the balance
(after making the payments required in Section 2.3(a) of this Supplement), if
any, of the Interest Collections allocated to holders of the Series 1998-1 Notes
since the preceding Distribution Date as follows:
<PAGE>
(i) on each Distribution Date during the Series 1998-1 Revolving
Period or the Series 1998-1 Controlled Amortization Period, (1) first, to
the Surety Provider, in an amount equal to (x) the Surety Provider Fee for
the related Series 1998-1 Interest Period and, without duplication, (y)
any Surety Provider Reimbursement Amounts then due and owing, (2) second,
to the Administrator, an amount equal to the Series 1998-1 Percentage as
of the beginning of such Series 1998-1 Interest Period of the portion of
the Monthly Administration Fee payable by AFC-II (as specified in clause
(iii) of the definition thereof) for such Series 1998-1 Interest Period,
(3) third, to the Trustee, an amount equal to the Series 1998-1 Percentage
as of the beginning of such Series 1998-1 Interest Period of the Trustee's
fees for such Series 1998-1 Interest Period, (4) fourth, to pay any
Carrying Charges (other than Carrying Charges provided for above) to the
Persons to whom such amounts are owed, an amount equal to the Series
1998-1 Percentage as of the beginning of such Series 1998-1 Interest
Period of such Carrying Charges (other than Carrying Charges provided for
above) for such Series 1998-1 Interest Period and (5) fifth, the balance,
if any ("Excess Collections"), shall be withdrawn by the Paying Agent from
the Series 1998-1 Collection Account and deposited in the Series 1998-1
Excess Collection Account; and
(ii) on each Distribution Date during the Series 1998-1 Rapid
Amortization Period, (1) first, to the Surety Provider, in an amount equal
to (x) the Surety Provider Fee for the related Series 1998-1 Interest
Period and, without duplication, (y) any Surety Provider Reimbursement
Amounts then due and owing, (2) second, to the Trustee, an amount equal to
the Series 1998-1 Percentage as of the beginning of such Series 1998-1
Interest Period of the Trustee's fees for such Series 1998-1 Interest
Period, (3) third, to the Administrator, an amount equal to the Series
1998-1 Percentage as of the beginning of such Series 1998-1 Interest
Period of the portion of the Monthly Administration Fee (as specified in
clause (iii) of the definition thereof) payable by AFC-II for such Series
1998-1 Interest Period, (4) fourth, to pay any Carrying Charges (other
than Carrying Charges provided for above) to the Persons to whom such
amounts are owed, an amount equal to the Series 1998-1 Percentage as of
the beginning of such Series 1998-1 Interest Period of such Carrying
Charges (other than Carrying Charges provided for above) for such Series
1998-1 Interest Period and (5) fifth, the balance, if any, shall
constitute Excess Collections and shall be withdrawn by the Paying Agent
from the Series 1998-1 Collection Account and deposited in the Series
1998-1 Excess Collection Account.
<PAGE>
Section 2.4 Payment of Note Interest.
On each Distribution Date, subject to Section 9.8 of the Base
Indenture, the Paying Agent shall, in accordance with Section 6.1 of the Base
Indenture, pay to the Series 1998-1 Noteholders from the Series 1998-1
Distribution Account the amount deposited in the Series 1998-1 Distribution
Account for the payment of interest pursuant to Section 2.3(a) of this
Supplement and, to the extent necessary to pay interest on the Series 1998-1
Notes, first, amounts on deposit in the Series 1998-1 Collection Account,
second, amounts on deposit in the Series 1998-1 Reserve Account and third,
proceeds of a demand on the Surety Bond made in accordance with the terms
thereof.
Section 2.5 Payment of Note Principal.
(a) Monthly Payments During Controlled Amortization Period or Rapid
Amortization Period. Commencing on the second Determination Date during the
Series 1998-1 Controlled Amortization Period, or the first Determination Date
after the commencement of the Series 1998-1 Rapid Amortization Period, the
Administrator shall instruct the Trustee and the Paying Agent in writing
pursuant to the Administration Agreement as to the amount allocated to the
Series 1998-1 Notes during the Related Month pursuant to Section 2.2(b)(ii),
(c)(ii) or (d)(ii), as the case may be, of this Supplement, as to any amounts to
be withdrawn from the Series 1998-1 Reserve Account and deposited into the
Series 1998-1 Distribution Account, and as to the amount of any demand on the
Surety Bond in accordance with the terms thereof. On the Distribution Date
following each such Determination Date, the Trustee shall withdraw the amount
allocated to the Series 1998-1 Notes during the Related Month pursuant to
Section 2.2(b)(ii), (c)(ii) or (d)(ii), as the case may be, of this Supplement
from the Series 1998-1 Collection Account and deposit such amount in the Series
1998-1 Distribution Account, to be paid to the holders of the Series 1998-1
Notes. If the amount so deposited in the Series 1998-1 Collection Account with
respect to the Series 1998-1 Final Distribution Date is less than the Series
1998-1 Invested Amount, the Trustee shall withdraw from the Series 1998-1
Reserve Account, an amount equal to the lesser of the Series 1998-1 Available
Reserve Account Amount and such insufficiency. If the Series 1998-1 Available
Reserve Account Amount is less than such insufficiency, the Trustee shall make a
demand on the Surety Bond in accordance with the terms thereof in an amount
equal to such insufficiency and deposit the proceeds thereof in the Series
1998-1 Distribution Account. The entire principal amount of all Outstanding
Series
<PAGE>
1998-1 Notes shall be due and payable on the Series 1998-1 Final Distribution
Date.
(b) If on any Determination Date the Administrator determines that
the Principal Deficit Amount with respect to the next succeeding Distribution
Date will be greater than zero, the Administrator shall instruct the Trustee in
writing to make a demand on the Surety Bond on such Determination Date in
accordance with the terms thereof in an amount equal to such Principal Deficit
Amount and deposit the proceeds thereof into the Series 1998-1 Distribution
Account.
(c) On each Distribution Date occurring on or after the date a
withdrawal is made from the Series 1998-1 Collection Account or the Series
1998-1 Reserve Account pursuant to Section 2.5(a) of this Supplement or a demand
is made pursuant to Section 2.5(b) of this Supplement, the Paying Agent shall,
in accordance with Section 6.1 of the Base Indenture, pay pro rata to each
Series 1998-1 Noteholder from the Series 1998-1 Distribution Account the amount
deposited therein pursuant to Section 2.5(a) or (b) of this Supplement, to the
extent necessary to pay the Series 1998-1 Controlled Amortization Amount during
the Series 1998-1 Controlled Amortization Period, or to the extent necessary to
pay the Series 1998-1 Invested Amount during the Series 1998-1 Rapid
Amortization Period.
Section 2.6 Administrator's Failure to Instruct the Trustee to Make
a Deposit or Payment.
If the Administrator fails to give notice or instructions to make
any payment from or deposit into the Collection Account required to be given by
the Administrator, at the time specified in the Administration Agreement or any
other Related Document (including applicable grace periods), the Trustee shall
make such payment or deposit into or from the Collection Account without such
notice or instruction from the Administrator, provided that the Administrator,
upon request of the Trustee, promptly provides the Trustee with all information
necessary to allow the Trustee to make such a payment or deposit. When any
payment or deposit hereunder or under any other Related Document is required to
be made by the Trustee or the Paying Agent at or prior to a specified time, the
Administrator shall deliver any applicable written instructions with respect
thereto reasonably in advance of such specified time.
<PAGE>
Section 2.7 Series 1998-1 Reserve Account.
(a) Establishment of Series 1998-1 Reserve Account. AFC-II shall
establish and maintain in the name of the Series 1998-1 Agent for the benefit of
the Series 1998-1 Noteholders and the Surety Provider, or cause to be
established and maintained, an account (the "Series 1998-1 Reserve Account"),
bearing a designation clearly indicating that the funds deposited therein are
held for the benefit of the Series 1998-1 Noteholders and the Surety Provider.
The Series 1998-1 Reserve Account shall be maintained (i) with a Qualified
Institution, or (ii) as a segregated trust account with the corporate trust
department of a depository institution or trust company having corporate trust
powers and acting as trustee for funds deposited in the Series 1998-1 Reserve
Account; provided that, if at any time such Qualified Institution is no longer a
Qualified Institution or the credit rating of any securities issued by such
depositary institution or trust company shall be reduced to below BBB- by S&P or
Baa3 by Moody's, then AFC-II shall, within 30 days of such reduction, establish
a new Series 1998-1 Reserve Account with a new Qualified Institution. If the
Series 1998-1 Reserve Account is not maintained in accordance with the previous
sentence, AFC-II shall establish a new Series 1998-1 Reserve Account, within ten
(10) Business Days after obtaining knowledge of such fact, which complies with
such sentence, and shall instruct the Series 1998-1 Agent in writing to transfer
all cash and investments from the non-qualifying Series 1998-1 Reserve Account
into the new Series 1998-1 Reserve Account. Initially, the Series 1998-1 Reserve
Account will be established with Harris Trust and Savings Bank. On the Series
1998-1 Closing Date, AFC-II shall deposit an amount equal to the Series 1998-1
Reserve Account Initial Deposit into the Series 1998-1 Reserve Account.
(b) Administration of the Series 1998-1 Reserve Account. The
Administrator may instruct the institution maintaining the Series 1998-1 Reserve
Account to invest funds on deposit in the Series 1998-1 Reserve Account from
time to time in Permitted Investments; provided, however, that any such
investment shall mature not later than the Business Day prior to the
Distribution Date following the date on which such funds were received, unless
any Permitted Investment held in the Series 1998-1 Reserve Account is held with
the Paying Agent, then such investment may mature on such Distribution Date and
such funds shall be available for withdrawal on or prior to such Distribution
Date. All such Permitted Investments will be credited to the Series 1998-1
Reserve Account.
<PAGE>
(c) Earnings from Series 1998-1 Reserve Account. All interest and
earnings (net of losses and investment expenses) paid on funds on deposit in the
Series 1998-1 Reserve Account shall be deemed to be on deposit therein and
available for distribution.
(d) Series 1998-1 Reserve Account Constitutes Additional Collateral
for Series 1998-1 Notes. In order to secure and provide for the repayment and
payment of the AFC-II Obligations with respect to the Series 1998-1 Notes,
AFC-II hereby grants a security interest in and assigns, pledges, grants,
transfers and sets over to the Series 1998-1 Agent, for the benefit of the
Series 1998-1 Noteholders and the Surety Provider, all of AFC-II's right, title
and interest in and to the following (whether now or hereafter existing or
acquired): (i) the Series 1998-1 Reserve Account, including any security
entitlement thereto; (ii) all funds on deposit therein from time to time; (iii)
all certificates and instruments, if any, representing or evidencing any or all
of the Series 1998-1 Reserve Account or the funds on deposit therein from time
to time; (iv) all investments made at any time and from time to time with monies
in the Series 1998-1 Reserve Account, whether constituting securities,
instruments, general intangibles, investment property, financial assets or other
property; (v) all interest, dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for the Series 1998-1 Reserve Account, the funds on deposit therein
from time to time or the investments made with such funds; and (vi) all proceeds
of any and all of the foregoing, including, without limitation, cash (the items
in the foregoing clauses (i) through (vi) are referred to, collectively, as the
"Series 1998-1 Reserve Account Collateral"). The Series 1998-1 Agent shall
possess all right, title and interest in all funds on deposit from time to time
in the Series 1998-1 Reserve Account and in all proceeds thereof, and shall be
the only person authorized to originate entitlement orders in respect of the
Series 1998-1 Reserve Account. The Series 1998-1 Reserve Account Collateral
shall be under the sole dominion and control of the Series 1998-1 Agent for the
benefit of the Series 1998-1 Noteholders and the Surety Provider.
(e) Series 1998-1 Reserve Account Surplus. In the event that the
Series 1998-1 Reserve Account Surplus on any Distribution Date, after giving
effect to all withdrawals from the Series 1998-1 Reserve Account, is greater
than zero, the Trustee, acting in accordance with the written instructions of
the Administrator pursuant to the Administration Agreement, shall withdraw from
the Series 1998-1 Reserve Account an amount equal to the Series 1998-1 Reserve
Account Surplus and shall pay such amount to AFC-II.
<PAGE>
(f) Termination of Series 1998-1 Reserve Account. Upon the
termination of the Indenture pursuant to Section 11.1 of the Base Indenture, the
Trustee, acting in accordance with the written instructions of the
Administrator, after the prior payment of all amounts owing to the Series 1998-1
Noteholders and to the Surety Provider and payable from the Series 1998-1
Reserve Account as provided herein, shall withdraw from the Series 1998-1
Reserve Account all amounts on deposit therein for payment to AFC-II.
Section 2.8 Series 1998-1 Distribution Account.
(a) Establishment of Series 1998-1 Distribution Account. The Trustee
shall establish and maintain in the name of the Series 1998-1 Agent for the
benefit of the Series 1998-1 Noteholders and the Surety Provider, or cause to be
established and maintained, an account (the "Series 1998-1 Distribution
Account"), bearing a designation clearly indicating that the funds deposited
therein are held for the benefit of the Series 1998-1 Noteholders and the Surety
Provider. The Series 1998-1 Distribution Account shall be maintained (i) with a
Qualified Institution, or (ii) as a segregated trust account with the corporate
trust department of a depository institution or trust company having corporate
trust powers and acting as trustee for funds deposited in the Series 1998-1
Distribution Account; provided that, if at any time such Qualified Institution
is no longer a Qualified Institution or the credit rating of any securities
issued by such depositary institution or trust company shall be reduced to below
BBB- by S&P or Baa3 by Moody's, then AFC-II shall, within 30 days of such
reduction, establish a new Series 1998-1 Distribution Account with a new
Qualified Institution. If the Series 1998-1 Distribution Account is not
maintained in accordance with the previous sentence, AFC-II shall establish a
new Distribution Account, within ten (10) Business Days after obtaining
knowledge of such fact, which complies with such sentence, and shall instruct
the Series 1998-1 Agent in writing to transfer all cash and investments from the
non-qualifying Series 1998-1 Distribution Account into the new Series 1998-1
Distribution Account. Initially, the Series 1998-1 Distribution Account will be
established with Harris Trust and Savings Bank.
(b) Administration of the Series 1998-1 Distribution Account. The
Administrator may instruct the institution maintaining the Series 1998-1
Distribution Account to invest funds on deposit in the Series 1998-1
Distribution Account from time to time in Permitted Investments; provided,
however, that any such investment shall mature not later than the Business Day
prior to the Distribution Date following the date on which such funds were
received, unless any Permitted Investment held in the Series 1998-1 Distribution
Account is held with the Paying Agent, then such investment may mature on such
Distribution
<PAGE>
Date and such funds shall be available for withdrawal on or prior to such
Distribution Date. All such Permitted Investments will be credited to the Series
1998-1 Distribution Account.
(c) Earnings from Series 1998-1 Distribution Account. All interest
and earnings (net of losses and investment expenses) paid on funds on deposit in
the Series 1998-1 Distribution Account shall be deemed to be on deposit and
available for distribution.
(d) Series 1998-1 Distribution Account Constitutes Additional
Collateral for Series 1998-1 Notes. In order to secure and provide for the
repayment and payment of the AFC-II Obligations with respect to the Series
1998-1 Notes, AFC-II hereby grants a security interest in and assigns, pledges,
grants, transfers and sets over to the Series 1998-1 Agent, for the benefit of
the Series 1998-1 Noteholders and the Surety Provider, all of AFC-II's right,
title and interest in and to the following (whether now or hereafter existing or
acquired): (i) the Series 1998-1 Distribution Account, including any security
entitlement thereto; (ii) all funds on deposit therein from time to time; (iii)
all certificates and instruments, if any, representing or evidencing any or all
of the Series 1998-1 Distribution Account or the funds on deposit therein from
time to time; (iv) all investments made at any time and from time to time with
monies in the Series 1998-1 Distribution Account, whether constituting
securities, instruments, general intangibles, investment property, financial
assets or other property; (v) all interest, dividends, cash, instruments and
other property from time to time received, receivable or otherwise distributed
in respect of or in exchange for the Series 1998-1 Distribution Account, the
funds on deposit therein from time to time or the investments made with such
funds; and (vi) all proceeds of any and all of the foregoing, including, without
limitation, cash (the items in the foregoing clauses (i) through (vi) are
referred to, collectively, as the "Series 1998-1 Distribution Account
Collateral"). The Series 1998-1 Agent shall possess all right, title and
interest in all funds on deposit from time to time in the Series 1998-1
Distribution Account and in all proceeds thereof, and shall be the only person
authorized to originate entitlement orders in respect of the Series 1998-1
Distribution Account. The Series 1998-1 Distribution Account Collateral shall be
under the sole dominion and control of the Series 1998-1 Agent for the benefit
of the Series 1998-1 Noteholders and the Surety Provider.
<PAGE>
ARTICLE III
AMORTIZATION EVENTS
In addition to the Amortization Events set forth in Section 9.1 of
the Base Indenture, the following shall be Amortization Events with respect to
the Series 1998-1 Notes and shall constitute the Amortization Events set forth
in Section 9.1(n) of the Base Indenture with respect to the Series 1998-1 Notes
(without notice or other action on the part of the Trustee or any holders of the
Series 1998-1 Notes) and shall not be subject to waiver:
(a) a Series 1998-1 Enhancement Deficiency shall occur and continue
for at least two (2) Business Days; provided, however, that such event or
condition shall not be an Amortization Event if (i) during such two (2) Business
Day period such Series 1998-1 Enhancement Deficiency shall have been cured in
accordance with the terms and conditions of the Indenture and the Related
Documents;
(b) the Series 1998-1 Available Reserve Account Amount shall be less
than the Series 1998-1 Required Reserve Account Amount for at least two (2)
Business Days; provided, however, that such event or condition shall not be an
Amortization Event if (i) during such two (2) Business Day period such
insufficiency shall have been cured in accordance with the terms and conditions
of the Indenture and the Related Documents;
(c) the Series 1998-1 Reserve Account shall be subject to an
injunction, estoppel or other stay or a Lien (other than Liens permitted under
the Related Documents);
(d) all principal and interest of the Series 1998-1 Notes is not
paid in full on or before the Series 1998-1 Expected Final Distribution Date;
(e) the Trustee shall make a demand for payment under the Surety
Bond;
(f) the occurrence of an Event of Bankruptcy with respect to the
Surety Provider; and
(g) the Surety Provider fails to pay a demand for payment in
accordance with the requirements of the Surety Bond.
<PAGE>
ARTICLE IV
RIGHT TO WAIVE PURCHASE RESTRICTIONS
Notwithstanding any provision to the contrary in the Indenture or
the Related Documents, upon the Trustee's receipt of notice from any Lessee, any
Borrower or AFC-II (i) to the effect that a Manufacturer Program is no longer an
Eligible Manufacturer Program and that, as a result, the Series 1998-1 Maximum
Non-Program Vehicle Amount is or will be exceeded or (ii) that the Lessees, the
Borrowers and AFC-II have determined to increase any Series 1998-1 Maximum
Amount, (such notice, a "Waiver Request"), each Series 1998-1 Noteholder may, at
its option, waive the Series 1998-1 Maximum Non-Program Vehicle Amount or any
other Series 1998-1 Maximum Amount if (i) no Amortization Event exists, (ii) the
Requisite Noteholders and the Surety Provider consent to such waiver and (iii)
60 days' prior, written notice of such proposed waiver is provided to the Rating
Agencies by the Trustee.
Upon receipt by the Trustee of a Waiver Request (a copy of which the
Trustee shall promptly provide to the Rating Agencies), all amounts which would
otherwise be allocated to the Series 1998-1 Excess Collection Account
(collectively, the "Designated Amounts") from the date the Trustee receives a
Waiver Request through the Consent Period Expiration Date will be held by the
Trustee in the Series 1998-1 Collection Account for ratable distribution as
described below.
Within ten (10) Business Days after the Trustee receives a Waiver
Request, the Trustee shall furnish notice thereof to the Series 1998-1
Noteholders and the Surety Provider, which notice shall be accompanied by a form
of consent (each a "Consent") in the form of Exhibit B by which the Series
1998-1 Noteholders may, on or before the Consent Period Expiration Date, consent
to waiver of the applicable Series 1998-1 Maximum Amount. If the Trustee
receives the consent of the Surety Provider and Consents from the Requisite
Noteholders agreeing to waiver of the applicable Series 1998-1 Maximum Amount
within forty-five (45) days after the Trustee notifies the Series 1998-1
Noteholders of a Waiver Request (theday on which such forty-five (45) day period
expires, the "Consent Period Expiration Date"), (i) the applicable Series 1998-1
Maximum Amount shall be deemed waived by the consenting Series 1998-1
Noteholders, (ii) the Trustee will distribute the Designated Amounts as set
forth below and (iii) the Trustee shall promptly (but in any event
<PAGE>
within two days) provide the Rating Agency with notice of such waiver. Any
Series 1998-1 Noteholder from whom the Trustee has not received a Consent on or
before the Consent Period Expiration Date will be deemed not to have consented
to such waiver.
If the Trustee receives Consents from the Requisite Noteholders on
or before the Consent Period Expiration Date, then on the immediately following
Distribution Date, the Trustee will pay the Designated Amounts as follows:
(i) to the non-consenting Series 1998-1 Noteholders, if
any, pro rata up to the amount required to pay all Series 1998-1
Notes held by such non-consenting Series 1998-1 Noteholders in full;
and
(ii) any remaining Designated Amounts to the Series
1998-1 Excess Collection Account.
If the amount paid pursuant to clause (i) of the preceding paragraph
is not paid in full on the date specified therein, then on each day following
such Distribution Date, the Administrator will allocate to the Series 1998-1
Collection Account on a daily basis all Designated Amounts collected on such
day. On each following Distribution Date, the Trustee will withdraw a portion of
such Designated Amounts from the Series 1998-1 Collection Account and deposit
same in the Series 1998-1 Distribution Account for distribution as follows:
(a) to the non-consenting Series 1998-1 Noteholders, if
any, pro rata an amount equal to the Designated Amounts in the
Series 1998-1 Collection Account as of the applicable Determination
Date up to the aggregate outstanding principal balance of the Series
1998-1 Notes held by the non-consenting Series 1998-1 Noteholders;
and
(b) any remaining Designated Amounts to the Series
1998-1 Excess Collection Account.
If the Requisite Noteholders or the Surety Provider do not timely
consent to such waiver, the Designated Amounts will be re-allocated to the
Series 1998-1 Excess Collection Account for allocation and distribution in
accordance with the terms of the Indenture and the Related Documents.
In the event that the Series 1998-1 Rapid Amortization Period shall
commence after receipt by the Trustee of a Waiver Request, all such Designated
<PAGE>
Amounts will thereafter be considered Principal Collections allocated to the
Series 1998-1 Noteholders.
ARTICLE V
FORM OF SERIES 1998-1 NOTES
Section 5.1 Restricted Global Series 1998-1 Notes. The Series 1998-1
Notes to be issued in the United States will be issued in book-entry form of and
represented by one or more permanent global Notes in fully registered form
without interest coupons (each, a "Restricted Global Series 1998-1 Note",
substantially in the form set forth in Exhibit A-1-1 hereto, with such legends
as may be applicable thereto as set forth in the Base Indenture, and will be
sold only in the United States (1) initially to institutional accredited
investors within the meaning of Regulation D under the Securities Act in
reliance on an exemption from the registration requirements of the Securities
Act and (2) thereafter to qualified institutional buyers within the meaning of,
and in reliance on, Rule 144A under the Securities Act and shall be deposited on
behalf of the purchasers of the Series 1998-1 Notes represented thereby, with a
custodian for DTC, and registered in the name of Cede as DTC's nominee, duly
executed by AFC-II and authenticated by the Trustee in the manner set forth in
Section 2.4 of the Base Indenture.
Section 5.2 Temporary Global Series 1998-1 Notes; Permanent Global
Series 1998-1 Notes. The Series 1998-1 Notes to be issued outside the United
States will be issued and sold in transactions outside the United States in
reliance on Regulation S under the Securities Act, as provided in the applicable
note purchase agreement, and shall initially be issued in the form of one or
more temporary notes in registered form without interest coupons (each, a
"Temporary Global Series 1998-1 Note", substantially in the form set forth in
Exhibit A-2, which shall be deposited on behalf of the purchasers of the Series
1998-1 Notes represented thereby with a custodian for, and registered in the
name of a nominee of DTC, for the accounts of Morgan Guaranty Trust Company of
New York, Brussels office, as operator of Euroclear and for Cedel, duly executed
by AFC-II and authenticated by the Trustee in the manner set forth in Section
2.4 of the Base Indenture. Interests in a Temporary Global Series 1998-1 Note
will be exchangeable, in whole or in part, for interests in one or more
permanent global notes in registered form without interest coupons (each, a
"Permanent Global Series 1998-1 Note", substantially in the form of Exhibit A-3
hereto, in accordance with the provisions of such Temporary Global Series 1998-1
Note and the
<PAGE>
Base Indenture (as modified by this Supplement). Interests in a Permanent Global
Series 1998-1 Note will be exchangeable for a definitive Series 1998-1 Note, in
accordance with the provisions of such Permanent Global Series 1998-1 Note and
the Base Indenture (as modified by this Supplement).
ARTICLE VI
GENERAL
Section 6.1 Optional Repurchase. The Series 1998-1 Notes shall be
subject to repurchase by AFC-II at its option in accordance with Section 6.3 of
the Base Indenture on any Distribution Date after the Series 1998-1 Invested
Amount is reduced to an amount less than or equal to 10% of the Series 1998-1
Initial Invested Amount (the "Series 1998-1 Repurchase Amount"); provided,
however, that as a condition precedent to any such optional repurchase, on or
prior to the Distribution Date on which any Series 1998-1 Note is repurchased by
AFC-II pursuant to this Section 6.1, AFC-II shall have paid the Surety Bond
Provider all Surety Provider Fees and all other Surety Provider Reimbursement
Amounts due and unpaid as of such Distribution Date. The repurchase price for
any Series 1998-1 Note shall equal the aggregate outstanding principal balance
of such Series 1998-1 Note (determined after giving effect to any payments of
principal and interest on such Distribution Date), plus accrued and unpaid
interest on such outstanding principal balance.
Section 6.2 Information. The Trustee shall provide to the Series
1998-1 Noteholders, or their designated agent, and the Surety Provider copies of
all information furnished to the Trustee or AFC-II pursuant to the Related
Documents, as such information relates to the Series 1998-1 Notes or the Series
1998-1 Collateral.
Section 6.3 Exhibits. The following exhibits attached hereto
supplement the exhibits included in the Indenture.
Exhibit A-1: Form of Restricted Global Series 1998-1 Note
Exhibit A-2: Form of Temporary Global Series 1998-1 Note
Exhibit A-3: Form of Permanent Global Series 1998-1 Note
Exhibit B: Form of Consent
Section 6.4 Ratification of Base Indenture. As supplemented by this
Supplement, the Base Indenture is in all respects ratified and confirmed and
<PAGE>
the Base Indenture as so supplemented by this Supplement shall be read, taken,
and construed as one and the same instrument.
Section 6.5 Counterparts. This Supplement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all of such counterparts shall together constitute but one and the
same instrument.
Section 6.6 Governing Law. This Supplement shall be construed in
accordance with the law of the State of New York (without giving effect to the
provisions thereof regarding conflicts of laws), and the obligations, rights and
remedies of the parties hereto shall be determined in accordance with such law.
Section 6.7 Amendments. This Supplement may be modified or amended
from time to time in accordance with the terms of the Base Indenture; provided,
however, that if, pursuant to the terms of the Base Indenture or this
Supplement, the consent of the Required Noteholders is required for an amendment
or modification of this Supplement, such requirement shall be satisfied if such
amendment or modification is consented to by Noteholders representing more than
50% of the aggregate outstanding principal amount of the Series 1998-1 Notes
affected thereby.
Section 6.8 Discharge of Indenture. Notwithstanding anything to the
contrary contained in the Base Indenture, no discharge of the Indenture pursuant
to Section 11.1(b) of the Base Indenture will be effective as to the Series
1998-1 Notes without the consent of the Required Noteholders.
Section 6.9 Notice to Surety Provider and Rating Agencies. The
Trustee shall provide to the Surety Provider and each Rating Agency a copy of
each notice, opinion of counsel, certificate or other item delivered to, or
required to be provided by, the Trustee pursuant to this Supplement or any other
Related Document. Each such opinion of counsel shall be addressed to the Surety
Provider, shall be from counsel reasonably acceptable to the Surety Provider and
shall be in form and substance reasonably acceptable to the Surety Provider. All
such notices, opinions, certificates or other items delivered to the Surety
Provider shall be forwarded to Capital Markets Assurance Corporation, 885 Third
Avenue, New York, New York 10022, Attention: Chief Financial Officer and Chief
Underwriting Officer, telecopy: (212) 755-5487; confirmation: (212)
755-1155.
<PAGE>
Section 6.10 Certain Rights of Surety Provider. The Surety Provider
shall be deemed to be an Enhancement Provider entitled to receive confirmation
of the rating on the Series 1998-1 Notes (without regard to the Surety Bond)
pursuant to the definition of "Rating Agency Confirmation Condition." In
addition, the Surety Provider shall be deemed to be an Enhancement Provider
entitled to exercise the consent rights described in clause (ii) of the
definition of "Rating Agency Consent Condition."
Section 6.11 Surety Provider Deemed Noteholder and Secured Party.
Except for any period during which a Surety Default is continuing, the Surety
Provider shall be deemed to be the holder of 100% of the Series 1998-1 Notes for
the purposes of giving any consents, waivers, approvals, instructions,
directions, requests, declarations and/or notices pursuant to the Base Indenture
and this Supplement. Any reference in the Base Indenture or the Related
Documents (including, without limitation, in Sections 2.3, 8.14, 9.1, 9.2 or
12.1 of the Base Indenture) to materially, adversely, or detrimentally affecting
the rights or interests of the Noteholders, or words of similar meaning, shall
be deemed, for purposes of the Series 1998-1 Notes, to refer to the rights or
interests of the Surety Provider. Furthermore, the Surety Provider shall be
deemed to be a "Secured Party" under the Base Indenture and the Related
Documents to the extent of amounts payable to the Surety Provider pursuant to
this Supplement. Moreover, wherever in the Related Documents money or other
property is assigned, conveyed, granted or held for, a filing is made for,
action is taken for or agreed to be taken for, or a representation or warranty
is made for the benefit of the Noteholders, the Surety Provider shall be deemed
to be the Noteholder with respect to 100% of the Series 1998-1 Notes for such
purposes.
Section 6.12 Capitalization of AFC-II. AFC-II agrees that on the
Series 1998-1 Closing Date it will have capitalization in an amount equal to or
greater than 3% of the sum of (x) the Series 1998-1 Initial Invested Amount and
(y) the invested amount of the Series 1997-1 Notes.
Section 6.13 Series 1998-1 Required Non-Program Enhancement
Percentage. AFC-II agrees that it will not make any Loan under any Loan
Agreement to finance the acquisition of any Vehicle by AESOP Leasing, AESOP
Leasing II or ARAC, as the case may be, if, after giving effect to the making of
such Loan, the acquisition of such Vehicle and the inclusion of such Vehicle
under the relevant Lease, the Series 1998-1 Required Non-Program Enhancement
Percentage would exceed 25.0%.
<PAGE>
Section 6.14 Third Party Beneficiary. The Surety Provider is an
express third party beneficiary of (i) the Base Indenture to the extent of
provisions relating to any Enhancement Provider and (ii) this Supplement.
Section 6.15 Prior Notice by Trustee to Surety Provider. Subject to
Section 10.1 of the Base Indenture, the Trustee agrees that, so long as no
Amortization Event shall have occurred and be continuing with respect to any
Series of Notes other than the Series 1998-1 Notes, it shall not exercise any
rights or remedies available to it as a result of the occurrence of an
Amortization Event with respect to the Series 1998-1 Notes (except those set
forth in clauses (f) and (g) of Article III of this Supplement) until after the
Trustee has given prior written notice thereof to the Surety Provider and
obtained the direction of the Required Noteholders with respect to the Series
1998-1 Notes. The Trustee agrees to notify the Surety Provider promptly
following any exercise of rights or remedies available to it as a result of the
occurrence of any Amortization Event or a Series 1998-1 Limited Liquidation
Event of Default.
<PAGE>
IN WITNESS WHEREOF, AFC-II and the Trustee have caused this
Supplement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
AESOP FUNDING II L.L.C.
By:
----------------------------------
Name:
Title:
HARRIS TRUST AND SAVINGS BANK
as Trustee
By:
----------------------------------
Name:
Title:
HARRIS TRUST AND SAVINGS BANK
as Series 1998-1 Agent
By:
----------------------------------
Name:
Title:
RETENTION AGREEMENT
THIS RETENTION AGREEMENT dated as of January 1, 1999 (the "Effective
Date") by and between Avis Rent A Car, Inc. (the "Company") and F. Robert
Salerno (the "Executive").
WITNESSETH:
WHEREAS, the Company has determined that appropriate steps should be taken
to encourage the Executive to remain employed by the Company by providing for
certain benefits;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree to the following:
1. Definitions. The capitalized terms used herein shall have the meanings
ascribed to them below.
(a) "Cause" shall mean (i) the willful and continued failure by the
Executive substantially to perform the Executive's duties with the Company
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness), as determined by the Board of Directors of the
Company (the "Board"), (ii) the willful engaging by the Executive in misconduct
which is materially injurious to the Company, monetarily or otherwise, or (iii)
the Executive's conviction of a felony. Notwithstanding the foregoing, the
Executive's employment shall not be deemed to have been terminated for Cause
under clause (i) or (ii) above unless and until there shall have been delivered
to the Executive by the Company a copy of a Notice of Termination authorized by
the Board stating that in the good faith opinion of the Board the Executive is
guilty of conduct set forth in clause (i) or (ii) above and specifying the
particulars thereof in detail.
(b) "Good Reason" shall mean a reduction in the Executive's annual
rate of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement. Notwithstanding
the foregoing, a termination by the Executive for Good Reason shall not be
effective unless (x) the Executive has delivered to the Company a Notice of
Termination for Good Reason within 30 days of his becoming aware of the
existence of an event or circumstance
<PAGE>
constituting Good Reason; and (y) the Company has not cured such event or
circumstance within 10 business days of its receipt of such Notice of
Termination.
2. Retention Incentive.
(a) Subject to the conditions of paragraph (b) below, the Executive
shall be entitled to receive the following:
(i) a lump sum cash payment (the "First Cash Incentive") of $350,000
on June 30, 2000 (the "First Retention Date"); and
(ii) a lump sum cash payment (the "Second Cash Incentive" and,
together with the First Cash Incentive, the "Retention Incentive") of
$350,000 on December 31, 2001 (the "Second Retention Date").
(b) The Executive shall be entitled to the First Cash Incentive and
the Second Cash Incentive only if the Executive is employed by the Company as of
the First Retention Date and the Second Retention Date, respectively; provided,
however, that, in the event that the Executive's employment with the Company is
terminated prior to the Second Retention Date either (i) by the Company without
Cause or (ii) by the Executive for Good Reason, then the First Cash Incentive
(if it has not previously been paid) and the Second Cash Incentive shall be paid
on the dates described in clauses (a)(i) and (a)(ii), respectively.
(c) If the Executive's employment is terminated prior to the Second
Retention Date either (i) by the Company for Cause or (ii) by the Executive
other than for Good Reason, the Second Cash Incentive shall immediately be
forfeited. If the Executive's employment is terminated prior to the First
Retention Date either (x) by the Company for Cause or (y) by the Executive other
than for Good Reason, the Retention Incentive shall immediately be forfeited.
(d) The Retention Incentive shall be subject to deductions for
applicable federal, state and local withholding taxes.
3. No Effect on Other Contractual Rights. The provisions of this
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable, or in any way diminish the Executive's existing rights (or
rights which would accrue solely as a result of the passage of time) under any
employee benefit plan or employment agreement or other contract, plan or
arrangement nor shall any
<PAGE>
amounts payable hereunder be considered in determining the amount of benefits
payable to the Executive under any such plan, agreement or contract.
4. Successor to the Company.
(a) This Agreement shall be binding on the Company's successors and
assigns.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts are still payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's personal
representative, devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
5. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid as follows:
If to the Company:
Avis Rent A Car, Inc.
900 Old Country Road
Garden City, New York 11530
Attention: General Counsel
If to the Executive:
F. Robert Salerno
28 Katonah"s Wood Road
Katonah, New York 10536
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
<PAGE>
6. Amendment, Waiver. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach of the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement.
7. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforce ability of any other
provision of this Agreement, which shall remain in full force and effect.
8. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with federal laws of the United States, if applicable or, if
inapplicable, in accordance with the laws of the State of New York applicable to
contracts entered into and to be performed entirely with the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
--------------------------------
By: Martin L. Edelman
Title: Chairman
--------------------------------
F. Robert Salerno
RETENTION AGREEMENT
THIS RETENTION AGREEMENT dated as of January 1, 1999 (the "Effective
Date") by and between Avis Rent A Car, Inc. (the "Company") and Kevin M. Sheehan
(the "Executive").
WITNESSETH:
WHEREAS, the Company has determined that appropriate steps should be taken
to encourage the Executive to remain employed by the Company by providing for
certain benefits;
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree to the following:
1. Definitions. The capitalized terms used herein shall have the meanings
ascribed to them below.
(a) "Cause" shall mean (i) the willful and continued failure by the
Executive substantially to perform the Executive's duties with the Company
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness), as determined by the Board of Directors of the
Company (the "Board"), (ii) the willful engaging by the Executive in misconduct
which is materially injurious to the Company, monetarily or otherwise, or (iii)
the Executive's conviction of a felony. Notwithstanding the foregoing, the
Executive's employment shall not be deemed to have been terminated for Cause
under clause (i) or (ii) above unless and until there shall have been delivered
to the Executive by the Company a copy of a Notice of Termination authorized by
the Board stating that in the good faith opinion of the Board the Executive is
guilty of conduct set forth in clause (i) or (ii) above and specifying the
particulars thereof in detail.
(b) "Good Reason" shall mean a reduction in the Executive's annual
rate of base salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement. Notwithstanding
the foregoing, a termination by the Executive for Good Reason shall not be
effective unless (x) the Executive has delivered to the Company a Notice of
Termination for Good Reason within 30 days of his becoming aware of the
existence of an event or circumstance
<PAGE>
constituting Good Reason; and (y) the Company has not cured such event or
circumstance within 10 business days of its receipt of such Notice of
Termination.
2. Retention Incentive.
(a) Subject to the conditions of paragraph (b) below, the Executive
shall be entitled to receive the following:
(i) a lump sum cash payment (the "First Cash Incentive") of $275,000
on June 30, 2000 (the "First Retention Date"); and
(ii) a lump sum cash payment (the "Second Cash Incentive" and,
together with the First Cash Incentive, the "Retention Incentive") of
$275,000 on December 31, 2001 (the "Second Retention Date").
(b) The Executive shall be entitled to the First Cash Incentive and
the Second Cash Incentive only if the Executive is employed by the Company as of
the First Retention Date and the Second Retention Date, respectively; provided,
however, that, in the event that the Executive's employment with the Company is
terminated prior to the Second Retention Date either (i) by the Company without
Cause or (ii) by the Executive for Good Reason, then the First Cash Incentive
(if it has not previously been paid) and the Second Cash Incentive shall be paid
on the dates described in clauses (a)(i) and (a)(ii), respectively.
(c) If the Executive's employment is terminated prior to the Second
Retention Date either (i) by the Company for Cause or (ii) by the Executive
other than for Good Reason, the Second Cash Incentive shall immediately be
forfeited. If the Executive's employment is terminated prior to the First
Retention Date either (x) by the Company for Cause or (y) by the Executive other
than for Good Reason, the Retention Incentive shall immediately be forfeited.
(d) The Retention Incentive shall be subject to deductions for
applicable federal, state and local withholding taxes.
3. No Effect on Other Contractual Rights. The provisions of this
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable, or in any way diminish the Executive's existing rights (or
rights which would accrue solely as a result of the passage of time) under any
employee benefit plan or employment agreement or other contract, plan or
arrangement nor shall any
<PAGE>
amounts payable hereunder be considered in determining the amount of benefits
payable to the Executive under any such plan, agreement or contract.
4. Successor to the Company.
(a) This Agreement shall be binding on the Company's successors and
assigns.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts are still payable to the Executive
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's personal
representative, devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
5. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid as follows:
If to the Company:
Avis Rent A Car, Inc.
900 Old Country Road
Garden City, New York 11530
Attention: General Counsel
If to the Executive:
Kevin M Sheehan
47 Glen Way
Cold Spring Harbor, New York 11724
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
<PAGE>
6. Amendment, Waiver. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach of the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement.
7. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforce ability of any other
provision of this Agreement, which shall remain in full force and effect.
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with federal laws of the United States, if applicable or, if
inapplicable, in accordance with the laws of the State of New York applicable to
contracts entered into and to be performed entirely with the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
-----------------------------------
By: Martin L. Edelman
Title: Chairman
-----------------------------------
Kevin M. Sheehan
EXHIBIT 10.18
The Avis Rent A Car System, Inc. Nonqualified Deferred Compensation Plan
ARTICLE 1--INTRODUCTION
1.1 Purpose of Plan
Avis Rent A Car System, Inc. (the "Employer ") has adopted the Plan set forth
herein to provide a means by which certain employees may elect to defer receipt
of designated percentages or amounts of their Compensation and to provide a
means for certain other deferrals of Compensation.
1.2 Status of Plan
The Plan is intended to be "a plan that is unfunded and is maintained by an
employer primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees" within the meaning
of Sections 201(2) and 301(a)(3) of the Emplovee Retirement Income Security Act
of 1974 ("ERISA"), and shall be interpreted and administered to the extent
possible in a manner consistent with that intent.
ARTICLE 2--DEFINITIONS
Wherever used herein, the following terms have the meanings set forth below,
unless a different meaning is clearly required by the context:
2.1 Account means, for each Participant, the account established for his or her
benefit under Section 5.1.
2.2 Adoption Agreement means the Merrill Lynch Special Nonqualified Deferred
Compensation Plan for Select Employees Adoption Agreement signed by the Employer
to establish the Plan and containing all the options selected by the Employer,
as the same may be amended from time to time.
2.3 Change of Control means (a) the purchase or other acquisition in one or more
transactions other than from the Employer, by any individual, entity or group of
persons, within the meaning of section 13(d)(3) or 14(d) of the Securities
Exchange Act of 1934 or any comparable successor provisions, of beneficial
ownership (within the meaning of Rule 13d-3 of Securities Exchange Act of 1934)
of 30% or more of either the outstanding shares of common stock or the combined
voting power of the Employer's then outstanding voting securities entitled to
vote generally, or (b) the approval by the stockholders of the Employer of a
reorganization, merger or consolidation, in each case, with respect to which
persons who were stockholders of the Employer immediately prior to such
reorganization, merger or consolidation do not immediately thereafter own more
than 50% of the combined voting power of the reorganized, merged or consolidated
Employer's then outstanding securities that are entitled to vote generally in
the election of directors or (c) the sale of substantially all of the Employer's
assets.
2.4 Code means the Internal Revenue Code of 1986, as amended from time to time.
Reference to any section or subsection of the Code includes reference to any
comparable or succeeding provisions of any legislation that amends, supplements
or replaces such section or subsection.
2.5 Compensation has the meaning elected by the Employer in the Adoption
Agreement.
2.6 Effective Date means the date chosen in the Adoption Agreement as of which
the Plan first becomes effective.
2.7 Election Form means the participation election form as approved and
prescribed by the Plan Administrator.
2.8 Elective Deferral means the portion of Cornpensation that is deferred by a
Participant under Section 4.l.
2.9 Eligible Emplovee means, on the Effective Date or on any Entry Date
thereafter, each employee of the Employer who satisfies the criteria established
in the Adoption Agreement.
2.10 Employer means the corporation referred to in the Adoption Agreement, any
successor to all or a major portion of the Employer's assets or business that
assumes the obligations of the Employer, and each other entity that is
affiliated with the Employer, which adopts the Plan with the consent of the
Employer, provided that the Employer that signs the Adoption Agreement shall
have the sole power to amend this Plan and shall be the Plan Administrator if no
other person or entity is so serving at any time.
2.11 ERISA means the Employee Retirement Income Security Act of 1974, as amended
from time to time. Reference to any section or subsection of ERISA includes
reference to any comparable or succeeding provisions of any legislation that
amends, supplements or replaces such section or subsection.
2.12 Incentive Contribution means a discretionary additional contribution made
by the Employer as described in Section 4.3.
2.13 Insolvent means either (i) the Employer is unable to pay its debts as they
become due, or (ii) the Employer is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
2.14 Matching Deferral means a deferral for the benefit of a Participant as
described in Section 4.2.
<PAGE>
EXHIBIT 10.18
2.15 Participant means any individual who participates in the Plan in accordance
with Article 3.
2.16 Plan means the Employer's plan in the form of the Merrill Lynch Special
Nonqualified Deferred Compensation Plan for Select Employees and the Adoption
Agreement and all amendments thereto.
2.17 Plan Administrator means the person, persons or entity designated by the
Employer in the Adoption Agreement to administer the Plan and to serve as the
agent for "Company" with respect to the Trust as contemplated by the agreement
establishing the Trust. If no such person or entity is so serving at any time,
the Employer shall be the Plan Administrator.
2.18 Plan Year means the 12-month period chosen in the Adoption Agreement.
2.19 Total and Permanent Disability means the inability of a Participant to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months, and the permanence and degree of which shall be
supported by medical evidence satisfactory to the Plan Administrator.
2.20 Trust means the trust established by the Employer that identifies the Plan
as a plan with respect to which assets are to be held by the Trustee.
2.21 Trustee means the trustee or trustees under the Trust.
2.22 Year of Service means the computation period and service requirement
elected in the Adoption Agreement
ARTICLE 3--PARTICIPATION
3.1 Commencement of Participation
Any individual who elects to defer part of his or her Compensation in accordance
with Section 4.1 shall become a Participant in the Plan as of the date such
deferrals commence in accordance with Section 4.1.
Any individual who is not already a Participant and whose Account is credited
with an Incentive Contribution shall become a Participant as of the date such
amount is credited.
3.2 Continued Participation
A Participant in the Plan shall continue to be a Participant so long as any
amount remains credited to his or her Account.
ARTICLE 4--ELECTIVE AND MATCHING DEFERRALS
4.1 Elective Deferrals
An individual who is an Eligible Employee on the Effective Date may, by
completing an Election Form and filing it with the Plan Administrator within 30
days following the Effective Date, elect to defer a percentage or dollar amount
of one or more payments of Compensation, on such terms as the Plan Administrator
may permit, which are payable to the Participant after the date on which the
individual files the Election Form. Any individual who becomes an Eligible
Employee after the Effective Date may, by completing an Election Form and filing
it with the Plan Administrator within 30 days following the date on which the
Plan Administrator gives such individual written notice that the individual is
an Eligible Employee, elect to defer a percentage or dollar amount of one or
more payments of Compensation, on such terms as the Plan Administrator may
permit, which are payable to the Participant after the date on which the
individual files the Election Form. Any Eligible Employee who has not otherwise
initially elected to defer Compensation in accordance with this paragraph 4.1
may elect to defer a percentage or dollar amount of one or more payments of
Compensation, on such terms as the Plan Administrator may permit, commencing
with Compensation paid in the next succeeding Plan Year, by completing an
Election Form prior to the first day of such succeeding Plan Year. In addition,
a Participant may defer all or part of the amount of any elective deferral or
matching contribution made on his or her behalf to the Employer's 401(k) plan
for the prior Plan Year but treated as an excess deferral, an excess
contribution or otherwise limited by the application of the limitations of
sections 401(k), 401(m), 415 or 402(q) of the Code, so long as the Participant
so indicates on an Election Form. A Participant's Compensation shall be reduced
in accordance with the Participant's election hereunder and amounts deferred
hereunder shall be paid by the Employer to the Trust as soon as administratively
feasible and credited to the Participant's Account as of the date the amounts
are received by the Trustee.
An election to defer a percentage or dollar amount of Compensation for any Plan
Year shall apply for subsequent Plan Years unless changed or revoked. A
Participant may change or revoke his or her deferral election as of the first
day of any Plan Year by giving written notice to the Plan Administrator before
such first day (or any such earlier date as the Plan Administrator may
prescribe).
4.2 Matching Deferrals
After each payroll period, monthly, quarterly, or annually, at the Employer's
discretion, the Employer shall contribute to the Trust Matching Deferrals equal
to the rate of Matching Contribution selected by the Employer and multiplied by
the amount of the Elective Deferrals credited to the Participants' Accounts for
such period under Section 4.1. Each Matching Deferral will be credited, as of
the later of the date it is received by the Trustee or the date the Trustee
receives from the Plan Administrator such instructions as the Trustee may
reasonably require to allocate the amount received among the asset accounts
maintained by the Trustee, to the Participants' Accounts pro rata in accordance
with the amount of Elective Deferrals of each Participant, which are taken into
account in calculating the Matching Deferral.
<PAGE>
EXHIBIT 10.18
4.3 Incentive Contributions
In addition to other contributions provided for under the Plan, the Employer
may, in its sole discretion, select one or more Eligible Employees to receive an
Incentive Contribution to his or her Account on such terms as the Employer shall
specify at the time it makes the contribution. For example, the Employer may
contribute an amount to a Participant's Account and condition the payment of
that amount and accrued earnings thereon upon the Participant remaining employed
by the Employer for an additional specified period of time. The terms specified
by the Employer shall supersede any other provision of this Plan as regards
Incentive Contributions and earnings with respect thereto, provided that if the
Employer does not specify a method of distribution, the Incentive Contribution
shall be distributed in a manner consistent with the election last made by the
particular Participant prior to the year in which the Incentive Contribution is
made. The Employer, in its discretion, may permit the Participant to designate a
distribution schedule for a particular Incentive Contribution provided that such
designation is made prior to the time that the Employer finally determines that
the Participant will receive the Incentive Contribution.
ARTICLE 5--ACCOUNTS
5.1 Accounts
The Plan Administrator shall establish an Account for each Participant
reflecting Elective Deferrals, Matching Deferrals and Incentive Contributions
made for the Participant's benefit together with any adjustments for income,
gain or loss and any payments from the Account. The Plan Administrator may cause
the Trustee to maintain and invest separate asset accounts corresponding to each
Participant's Account. The Plan Administrator shall establish sub-accounts for
each Participant that has more than one election in effect under Section 7.1 and
such other subaccounts as are necessary for the proper administration of the
Plan. As of the last business day of each calendar quarter, the Plan
Administrator shall provide the Participant with a statement of his or her
Account reflecting the income, gains and losses (realized and unrealized),
amounts of deferrals, and distributions of such Account since the prior
statement.
5.2 Investments
The assets of the Trust shall be invested in such investments as the Trustee
shall determine. The Trustee may (but is not required to) consider the
Employer's or a Participant's investment preferences when investing the assets
attributable to a Participant's Account.
ARTICLE 6--VESTING
6.1 General
A Participant shall be immediately vested in, i.e., shall have a nonforfeitable
right to, all Elective Deferrals, and all income and gain attributable thereto,
credited to his or her Account. A Participant shall become vested in the portion
of his or her Account attributable to Matching Deferrals and income and gain
attributable thereto in accordance with the schedule selected by the Employer in
the Adoption Agreement, subject to earlier vesting in accordance with Sections
6.3, 6.4, and 6.5.
6.2 Vesting Service
For purposes of applying the vesting schedule in the Adoption Agreement, a
Participant shall be considered to have completed a Year of Service for each
complete year of full-time service with the Employer or an Affiliate, measured
from the Participant's first date of such employment, unless the Employer also
maintains a 401(k) plan that is qualified under section 401(a) of the Internal
Revenue Code in which the Participant participates, in which case the rules
governing vesting service under that plan shelf also be controlling under this
Plan.
6.3 Change of Control
A Participant shall become fully vested in his or her Account immediately prior
to a Change of Control of the Employer.
6.4 Death or Disability
A Participant shall become fully vested in his or her Account immediately prior
to termination of the Participant's employment by reason of the Participant's
death or Total and Permanent Disability. Whether a Participant's termination of
employment is by reason of the Participant's Total and Permanent Disability
shall be determined by the Plan Administrator in its sole discretion.
6.5 Insolvency
A Participant shall become fully vested in his or her Account immediately prior
to the Employer becoming Insolvent, in which case the Participant will have the
same rights as a general creditor of the Employer with respect to his or her
Account balance.
ARTICLE 7--PAYMENTS
7.1 Election as to Time and Form of Payment
A Participant shall elect (on the Election Form used to elect to defer
Compensation under Section 4.1) the date at which the Elective Deferrals and
vested Matching Deferrals (including any earnings attributable thereto) will
commence to be paid to the Participant. The Participant shall also elect thereon
for payments to be paid in either:
a. a single lump-sum payment;
b. a series of substantially equal periodic payments (not less
frequently than annually) over a period elected by the Participant
not to exceed the life expectancy of the Participant (or the joint
life expectancies of the Participant and the designated beneficiary
of the Participant):
<PAGE>
EXHIBIT 10.18
c. payments equal to the amounts paid under an annuity chosen by the
Participant that is acceptable to the Trustee;
d. annual installments over a period elected by the Participant, the
amount of each installment to equal the balance of his or her
Account immediately prior to the installment divided by the number
of installments remaining to be paid.
Each such election will be effective for the Plan Year for which it is made and
succeeding Plan Years, unless changed by the Participant. Any change will be
effective only for Elective Deferrals and Matching Deferrals made for the first
Plan Year beginning after the date on which the Election Form containing the
change is filed with the Plan Administrator. Except as provided in Sections 7.2,
7.3, 7.4, or 7.5, payment of a Participant's Account shall be made in accordance
with the Participant's elections under this Section 7.1.
7.2 Change of Control
As soon as possible following a Change of Control of the Employer, each
Participant shall be paid his or her entire Account balance (including any
amount vested pursuant to Section 6.3) in a single lump sum.
7.3 Termination of Employment
Upon termination of a Participant's employment for any reason other than death
and prior to the attainment of the Retirement Age specified in the Adoption
Agreement, the vested portion of the Participant's Account (including any
portion vested pursuant to Section 6.4 as a consequence of the Participant's
Total and Permanent Disability) shall be paid to the Participant in a single
lump sum as soon as practicable following the date of such termination;
provided, however, that the Plan Administrator, in its sole discretion, may pay
out a Participant's Account balance in annual installments if the Participant's
employment terminates by reason of the Participant's Total and Permanent
Disability.
7.4 Death
If a Participant dies prior to the complete distribution of his or her Account,
the balance of the Account shall be paid as soon as practicable to the
Participant's designated beneficiary or beneficiaries, in accordance with the
payment election in effect under Section 7.1 on the date of the Participant's
death. Alternatively, Participant may elect that the balance of the Account be
paid to the Participant's beneficiary or beneficiaries.
Any designation of beneficiary and form of payment to such beneficiary shall be
made by the Participant on an Election Form filed with the Plan Administrator
and may be changed by the Participant at any time by filing another Election
Form containing the revised instructions. If no beneficiary is designated or no
designated beneficiary survives the Participant, payment shall be made to the
Participant's surviving spouse, or, if none, to his or her issue per stirpes, in
a single payment. If no spouse or issue survives the Participant, payment shall
be made in a single lump sum to the Participant's estate.
7.5 Unforeseen Emergency
If a Participant suffers an unforeseen emergency, as defined herein, the Plan
Administrator, in its sole discretion, may pay to the Participant only that
portion, if any, of the vested portion of his or her Account that the Plan
Administrator determines is necessary to satisfy the emergency need, including
any amounts necessary to pay any federal, state or local income taxes reasonably
anticipated to result from the distribution. A Participant requesting an
emergency payment shall apply for the payment in writing in a form approved by
the Plan Administrator and shall provide such additional information as the Plan
Administrator may require. For purposes of this paragraph, "unforeseen
emergency" means an immediate and heavy financial need resulting from any of the
following:
a. expenses that are not covered by insurance and which the Participant
or his or her spouse or dependent has incurred as a result of, or is
required to incur in order to receive, medical care;
b. the need to prevent eviction of a Participant from his or her
principal residence or foreclosure on the mortgage of the
Participant's principal residence: or
c. any other circumstance that is determined by the Plan Administrator
in its sole discretion to constitute an unforeseen emergency that is
not covered by insurance and which cannot reasonably be relieved by
the liquidation of the Participant's assets.
7.6 Forfeiture of Non-vested Amounts
To the extent that any amounts credited to a Participant's Account are not
vested at the time such amounts are otherwise payable under Sections 7.1 or
7.3, such amounts shall be forfeited and shall be used to satisfy the Employer's
obligation to make contributions to the Trust under the Plan.
7.7 Taxes
All federal, state or local taxes that the Plan Administrator determines are
required to be withheld from any payments made pursuant to this Article 7 shall
be withheld.
<PAGE>
EXHIBIT 10.18
ARTICLE 8--PLAN ADMINISTRATOR
8.1 Plan Administration and Interpretation
The Plan Administrator shall oversee the administration of the Plan. The Plan
Administrator shall have complete control and authority to determine the rights
and benefits and all claims, demands and actions arising out of the provisions
of the Plan of any Participant, beneficiary, deceased Participant. or other
person having or claiming to have any interest under the Plan. The Plan
Administrator shall have complete discretion to interpret the Plan and to decide
all matters under the Plan. Such interpretation and decision shall be final,
conclusive and binding on all Participants and any person claiming under or
through any Participant, in the absence of clear and convincing evidence that
the Plan Administrator acted arbitrarily and capriciously. Any individual(s)
serving as Plan Administrator who is a Participant will not vote or act on any
matter relating solely to himself or herself. When making a determination or
calculation, the Plan Administrator shall be entitled to rely on information
furnished by a Participant, a beneficiary, the Employer or the Trustee. The Plan
Administrator shall have the responsibility for complying with any reporting and
disclosure requirements of ERISA.
8.2 Powers, Duties, Procedures, Etc.
The Plan Administrator shall have such powers and duties, may adopt such rules
and tables, may act in accordance with such procedures, may appoint such
officers or agents, may delegate such powers and duties, may receive such
reimbursements and compensation, and shall follow such claims and appeal
procedures with respect to the Plan as it may establish.
8.3 Information
To enable the Plan Administrator to perform its functions, the Employer shall
supply full and timely information to the Plan Administrator on all matters
relating to the compensation of Participants, their employment, retirement,
death, termination of employment, and such other pertinent facts as the Plan
Administrator may require.
8.4 Indemnification of Plan Administrator
The Employer agrees to indemnify and to defend to the fullest extent permitted
by law any officer(s) or employee(s) who serve as Plan Administrator (including
any such individual who formerly served as Plan Administrator) against all
liabilities, damages, costs and expenses (including attorneys' fees and amounts
paid in settlement of any claims approved by the Employer) occasioned by any act
or omission to act in connection with the Plan. if such act or omission is in
good faith.
ARTICLE 9--AMENDMENT AND TERMINATION
9.1 Amendments
The Employer shall have the right to amend the Plan from time to time, subject
to Section 9.3, by an instrument in writing that has been executed on the
Employer's behalf by its duly authorized officer.
9.2 Termination of Plan
This Plan is strictly a voluntary undertaking on the part of the Employer and
shall not be deemed to constitute a contract between the Employer and any
Eligible Employee (or any other employee) or a consideration for, or an
inducement or condition of employment for, the performance of the services by
any Eligible Employee (or other employee). The Employer reserves the right to
terminate the Plan at any time, subject to Section 9.3, by an instrument in
writing that has been executed on the Employer's behalf by its duly authorized
officer. Upon termination, the Employer may (a) elect to continue to maintain
the Trust to pay benefits hereunder as they become due as if the Plan had not
terminated or (b) direct the Trustee to pay promptly to Participants (or their
beneficiaries) the vested balance of their Accounts. For purposes of the
preceding sentence, in the event the Employer chooses to implement clause (b),
the Account balances of all Participants who are in the employ of the Employer
at the time the Trustee is directed to pay such balances shall become fully
vested and nonforfeitable. After Participants and their beneficiaries are paid
all Plan benefits to which they are entitled, all remaining assets of the Trust
attributable to Participants who terminated employment with the Employer prior
to termination of the Plan and who were not fully vested in their Accounts under
Article 6 at that time shall be returned to the Employer.
9.3 Existing Rights
No amendment or termination of the Plan shall adversely affect the rights of any
Participant with respect to amounts that have been credited to his or her
Account prior to the date of such amendment or termination.
ARTICLE 10--MISCELLANEOUS
10.1 No Funding
The Plan constitutes a mere promise by the Employer to make payments in
accordance with the terms of the Plan and Participants and beneficiaries shall
have the status of general unsecured creditors of the Employer. Nothing in the
Plan will be construed to give any employee or any other person rights to any
specific assets of the Employer or of any other person. In all events, it is the
intent of the Employer that the Plan be treated as unfunded for tax purposes and
for purposes of Title I of ERISA.
10.2 Non-assignability
None of the benefits, payments, proceeds or claims of any Participant or
beneficiary shall be subject to any claim of any creditor of any Participant or
beneficiary and, in particular, the same shall not be subject to attachment or
garnishment or other legal process by any creditor of such Participant or
beneficiary, nor shall any Participant or beneficiary have any right to
alienate, anticipate, commute, pledge, encumber or assign any of the benefits or
payments or proceeds that he or she may expect to receive, contingently or
otherwise, under the Plan.
<PAGE>
EXHIBIT 10.18
10.3 Limitation of Participants' Rights
Nothing contained in the Plan shall confer upon any person a right to be
employed or to continue in the employ of the Employer, or interfere in any way
with the right of the Employer to terminate the employment of a Participant in
the Plan at any time, with or without cause.
10.4 Participants Bound
Any action with respect to the Plan taken by the Plan Administrator or the
Employer or the Trustee or any action authorized by or taken at the direction of
the Plan Administrator, the Employer or the Trustee shall be conclusive upon all
Participants and beneficiaries entitled to benefits under the Plan.
10.5 Receipt and Release
Any payment to any Participant or beneficiary in accordance with the provisions
of the Plan shall, to the extent thereof, be in full satisfaction of all claims
against the Employer, the Plan Administrator and the Trustee under the Plan, and
the Plan Administrator may require such Participant or beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect. If any Participant or beneficiary is determined by the Plan
Administrator to be incompetent by reason of physical or mental disability
(including minority) to give a valid receipt and release, the Plan Administrator
may cause the payment or payments becoming due to such person to be made to
another person for his or her benefit without responsibility on the part of the
Plan Administrator, the Employer or the Trustee to follow the application of
such funds.
10.6 Governing Law
The Plan shall be construed, administered, and governed in all respects under
and by the laws of the state in which the Employer maintains its primary place
of business. If any provision shall be held by a court of competent jurisdiction
to be invalid or unenforceable, the remaining provisions hereof shall continue
to be fully effective.
10.7 Headings and Subheadings
Headings and subheadings in this Plan are inserted for convenience only and are
not to be considered in the construction of the provisions hereof.
The Avis Rent A Car System, Inc. Special Nonqualified Deferred Compensation Plan
Adoption Agreement
Please complete the information requested in the Adoption Agreement to establish
the specific provisions of your plan. You do not have to provide a copy to your
Financial Consultant. (Only the Merrill Lynch account opening agreements and an
original executed copy of the associated Trust Agreement need to be returned to
Merrill Lynch at the address printed on those forms.) This document and the
Merrill Lynch Special Nonqualified Deferred Compensation Plan for Select
Employees govern the rights of plan participants and should, therefore, be
disclosed to participants and retained as part of your permanent records.
1. EMPLOYER INFORMATION
A. Name of Plan: AVIS RENT A CAR SYSTEM, INC. NON QUALIFIED DEFERRED
COMPENSATION PLAN
B. Name and Address of employer sponsoring the Plan. Please provide
employer's business name.
Business Name: AVIS RENT A CAR SYSTEM, INC.
Address: 900 OLD COUNTRY ROAD
City: GARDEN CITY
State: NEW YORK
Zip Code: 11530
C. Provide employer's primary contact for the Plan and telephone and FAX
numbers. Also include the employer's Tax Identification Number.
Primary Contact: WINSTON PHILLIPS
Title: VP-EMPLOYEE BENEFITS
Telephone: 516-222-3856
FAX: 516-222-4177
Employer Tax Idenufication Number: 11-1998661
D. Give the first day of the 12-month period for which the employer pays
taxes: 1/1
<PAGE>
EXHIBIT 10.18
2. PLAN INFORMATION
A. What is the effective date of the Plan? January 1, 1998
B. Plan Year Ends. Your "Plan Year" is the 12-consecutive-month period for which
you credit elective and matching deferrals and keep Plan records. Enter the last
day of your Plan Year. For example, if you use the calendar year as your plan
year, enter "December 31." If you use a different 12-month period--for instance
if your business is on a fiscal year--enter the last day of your fiscal year,
e.g., "July 31." December 31
3. ELIGIBLE EMPLOYEES
The following persons or classes of persons shall be Participants (enter the
names or positions of individuals eligible to participate or the criteria used
to identify Participants, e.g.. Those key employees of the Company selected by
the Compensation Committee of the Board of Directors").
Key Employees with a salary grade level of 22 or higher
(or a comparable grade level under a successor salary grading system)
or are selected by the Employer to participate in the Plan.
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
4. COMPENSATION
Cornpensation is used to determine the amount of Elective Deferrals a
Participant can elect. Compensation under the Plan is defined as (select one):
|_| the Participant's wages, salaries, fees for professional services
and other amounts received (without regard to whether or not an
amount is paid in cash) for personal services actually rendered in
the course of employment with the Employer or an Affiliate to the
extent that the amounts are includable in gross income, including
but not limited to commissions paid to salesmen, compensation for
services on the basis of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe benefits, reimbursements,
and expense allowances,
|_| the regular or base salary payable to the individual by the Employer
or an Affiliate, excluding commissions and bonuses.
|X| the cash compensation payable to the individual by the Employer or
an Affiliate, including any commissions and bonuses.
|_| the cash bonuses payable to the individual by the Employer or an
Affiliate.
For purposes of the Plan, Compensation will be determined before giving effect
to Elective Deferrals and other salary reduction amounts that are not included
in the Participant's gross income under Code section 125, 401 ( k). 402(h) or
403(b).
5. CONTRIBUTIONS
A. Elective Deferrals. Participants may elect to reduce their Compensation and
to have Elective Deferrals credited to their Accounts by making an election
under the Plan (which may be changed each year for later Plan Years as described
in the plan), but no Participant may defer more than 80% OF BASE PAY/98% OF
BONUS COMPONENT OF COMPENSATION of his or her Compensation for a Plan Year.
B. Matching Deferrals. If the Employer elects to match Elective Deferrals,
specify the matching rate and indicate the amount of the Participant's Elective
Deferrals that will be matched. You may also elect to decide each year whether
Matching Deferrals will be made and, if so, what that year's matching rate will
be.
For example, the Employer may decide to credit a Matching Deferral of, for
example, 50 cents for each dollar of a Participant's Elective Deferrals, but
limit the match to the first 5% of Compensation deferred by the Participant. If
you want to set a maximum dollar amount on the amount of Elective Deferrals that
will be matched, insert the dollar amount and interval over which that amount is
to be measured. For example, you could say that you will not match Elective
Deferrals in excess of $1,000 per month. Matching Deferrals can be made after
each payroll period, monthly, quarterly, or annually, at the Employer's
discretion. Matching Deferrals will be subject to the vesting schedule selected
in Item 6A (select one):
|_| No Matching Deferrals will be credited.
|_| The Employer will credit Matching Deferrals for each Participant
equal to 50% of the first 4% of the Participant's Compensation
which is elected as an Elective Deferral, but no Matching Deferral
will be made on Elective Deferrals in excess of $ N/A per (specify
time period if applicable).
<PAGE>
EXHIBIT 10.18
|_| The Employer will decide from year to year whether Matching
Deferrals will be made and will notify Participants annually of the
manner in which Matching Deferrals will be calculated for the
subsequent year.
C. Discretionary Incentive Contributions. The Employer may make Discretionary
Incentive Contributions in any amounts the Employer selects. These contributions
will be subject to the vesting schedule selected in Item 6C.
The Employer will make Discretionary Incentive Contributions under the
Plan.
|_| yes |X| no
6. VESTING OF MATCHING DEFERRALS AND DISCRETIONARY INCENTIVE CONTRIBUTIONS
A. Vesting Schedule for Matching Deferrals.
Indicate how the portion of a Participant's Account attributable to Matching
Deferrals is to vest.
Matching Deferrals vest in accordance with the following schedule (select one):
|X| 100% immediate.
|_| 100% after ___ years of service.
|_| 20% after ___ years of service and an additional 20%, for each year
thereafter.
|_| Other vesting schedule (specify):
B. Vesting Service. NA
Indicate whether you will give credit for vesting service for time spent with a
predecessor employer, and if so, specify the maximum number of years and the
type of predecessor service for which credit will be given. For vesting purposes
(select one):
|_| Service with a predecessor employer will not be considered.
|_| Service (up to a maximum of __ years) with the following employer(s)
will be considered:
-----------------------------------------
-----------------------------------------
-----------------------------------------
C. Vesting Schedule for Discretionary Incentive Contributions. N/A
Indicate how the portion of a Participant's Account attributable to
Discretionary Incentive Contributions is to vest.
Unless otherwise specified by the Employer at the time a Discretionary Incentive
Contribution is made, Discretionary Incentive Contributions vest in accordance
with the following
schedule (select one):
|_| 100% immediate.
|_| 100% after ___ years of service.
|_| 20% after years of service and an additional 20% for each year
thereafter.
|_| Other vesting schedule (specify):
7. ACCOUNTS
The Trustee can either invest each Participant's Account balance as a separate
account ( in which case the Trustee, could, but would not be required to, take
into consideration the investment preferences of the Participants) or invest the
Account balances of all Participants as a single fund (in which case the Trustee
could, but would not be required to, take into consideration the investment
preference of the Employer) (select one):
|X| Account balances are to be invested separately.
|_| Account balances are to be invested as a single fund.
8. RETIREMENT AGE
<PAGE>
EXHIBIT 10.18
The Retirement Age under the Plan is age 65. A Participant terminating
employment before Retirement Age for reasons other than death or Total and
Permanent Disability will not be entitled to receive any installment payments
elected on the Election Form.
<PAGE>
EXHIBIT 10.18
9. WITHDRAWALS WHILE WORKING
Withdrawals for Unforeseen Emergency. If you check the first box, Participants
may make withdrawals while working in the event they encounter an unforeseen
emergency. They generally can withdraw the vested portion of their Accounts.
NOTE: Withdrawals are strictly limited as described in Plan Section 7.5. It is
the Plan Administrator's responsibility to ensure that the limits are being
followed. Excess withdrawals may result in loss of the tax deferral on all
amounts credited under the Plan for the benefit of all Participants.
Withdrawals of the vested portion of a Participant's Account for unforeseen
emergencies (select one):
|X| Are permitted to the full extent allowable under the plan.
|_| Are not permitted.
10. ADMINISTRATION
Plan Administrator. The Plan Administrator is legally responsible for
the operation of the Plan, including:
o Keeping track of which employees are eligible to participate in the
Plan and the date each employee becomes eligible to participate.
o Maintaining Participants'Accounts, including all sub-accounts
required for different contribution types and payment elections, and
keeping track of all elections made by Participants under the Plan
and any other relevant information.
o Transmitting important communications to the Participants, and
obtaining relevant information from Participants such as changes in
investment selections.
o Filing important reports required to be submitted to governmental
agencies.
The Plan Administrator will be the person or persons identified below:
WINSTON A. PHILLIPS
- ----------------------------------------------
Name
VP-EMPLOYEE BENEFITS
- ----------------------------------------------
Title
GERARD McCORMACK
- ----------------------------------------------
Name
VP-HUMAN RESOURCES
- ----------------------------------------------
Title
11. SIGNATURES
After reviewing the Adoption Agreement, enter the current date and the name of
the Employer. The signature of the Employer or the person signing for the
Employer must be witnessed. Note that the person signing for the Employer must
be authorized to do so, such as by a resolution of the Employer's board of
directors or governing by-laws.
While the Merrill Lynch Special Nonqualified Deferred Compensation Plan for
Select Employees, including this Adoption Agreement, has been designed in a
manner to permit Participants to defer federal income tax on amounts credited to
their accounts until the amounts are actually paid, neither Merrill Lynch,
Pierce, Fenner & Smith Incorporated, the sponsor of this document, nor any of
its affiliates ("Merrill Lynch") provide any assurances of that result in the
Employer's particular situation or assume any responsibility in this regard.
Please consult your tax advisor regarding the tax consequences of this Plan to
you and your employees and the advisability of submitting this document to the
Internal Revenue Service to obtain a ruling concerning those consequences. In
addition, please consult your independent legal counsel with respect to
securities law issues. By signing this Adoption Agreement the Employer
acknowledges that no representations or warranties as to the tax consequences to
the Employer and Participants of the operation of this Plan have been made by
Merrill Lynch.
AVIS RENT A CAR SYSTEM, INC.
- ---------------------------------------------
Name of Employer (Print or Type)
By:
- ---------------------------------------------
Authorized Signature
GERARD McCORMACK VP-HUMAN RESOURCES
- -----------------------------------
Print Name and Title
Date: 1/2/98
Witness:
- ---------------------------------------------
Signature KAREN C. SCLAFANI - SECRETARY
[GRAPHIC OMITTED]
1998 Annual Report
Avis Rent A Car, Inc.
- --------------------------------------------------------------------------------
<PAGE>
Avis Rent A Car, Inc. (AVI-NYSE) is a leading provider of rental cars with
approximately 660 locations, with operations in the United States, Canada,
Puerto Rico, U.S. Virgin Islands, Argentina, Australia and New Zealand.
Financial Summary
FINANCIAL RESULTS (YEARS ENDED DECEMBER 31)
- --------------------------------------------------------------------------------
(Dollars in millions, except per share data.) 1997 1998 % INCREASE
- --------------------------------------------------------------------------------
Revenue $ 2,046 $ 2,298 12
- --------------------------------------------------------------------------------
Costs and Expenses $ 1,996 $ 2,185 10
- --------------------------------------------------------------------------------
Pre-Tax Profit $ 50 $ 112 123
- --------------------------------------------------------------------------------
Net Income $ 27.5 $ 63.5 131
- --------------------------------------------------------------------------------
Basic Earnings per Share $ 0.89 $ 1.86 109
- --------------------------------------------------------------------------------
Diluted Earnings per Share $ 0.88 $ 1.82 107
- --------------------------------------------------------------------------------
Diluted Shares Outstanding 31.2 34.9 12
================================================================================
- --------------------------------------------------------------------------------
BALANCE SHEET DATA 1997 1998 % INCREASE
(December 31)
- --------------------------------------------------------------------------------
Total Assets $ 4,283 $ 4,505 5
- --------------------------------------------------------------------------------
Total Debt $ 2,826 $ 3,015 7
- --------------------------------------------------------------------------------
Shareholder Equity $ 454 $ 623 37
================================================================================
- --------------------------------------------------------------------------------
KEY FINANCIAL RATIOS 1997 1998
- --------------------------------------------------------------------------------
Return on Assets
(for the years ended December 31) 0.7% 1.5%
- --------------------------------------------------------------------------------
Debt to Net Worth
(at December 31) 6.2X 4.8X
- --------------------------------------------------------------------------------
Pre-Tax Margin
(for the years ended December 31) 2.5% 4.9%
================================================================================
Avis Rent A Car, Inc.
World Headquarters
900 Old Country Road
Garden City, NY 11530
www.avis.com
- --------------------------------------------------------------------------------
<PAGE>
A Message
From Management
[PHOTO OMITTED]
Kevin M. Sheehan, Executive Vice President and Chief Financial Officer (left)
and F. Robert Salerno, President and Chief Operating Officer (right)
To Our Shareholders, Employees and Friends:
On behalf of the Board of Directors and our 19,000 Avis colleagues, we are
pleased to present our 1998 Annual Report that highlights the Company's record
financial results and other major accomplishments in the year past.
In 1998, Avis advanced on many fronts. We made significant investments in new
marketing initiatives and in our technological systems. We introduced cutting
edge programs to enhance the skills of our employees and improve the quality of
our service and staffing. We successfully initiated a stock repurchase program
and made strategic acquisitions. We intensified efforts to improve our business
mix through our marketing and suburban strategy, expanded our Internet
capabilities through a redesigned Web site and further leveraged our cross
marketing synergies with Cendant Corporation. Through the continuation of such
strategies in 1999, we are confident we can differentiate Avis from the
competition and position ourselves for travelers as the rent a car brand of
choice.
Since going public in September 1997, Avis has vigorously met the intensified
competition in the rental car industry and has benefited from what appears to be
the first sustainable and significant price increases the industry has seen in
many years. We are well-equipped to meet the future and look forward to the
challenges and opportunities of the year ahead.
1998 Milestones
Building Record Results
Our 1998 financial results were strongly influenced by solid transaction growth,
our ability to better utilize our fleet and our effective management of cost
initiatives. We also benefited from industry price rationalization and Avis
remains committed to achieving optimal price levels for the long term.
On a pro forma basis net income for 1998 increased 61% over 1997 to $63.5
million and diluted earnings per share rose 44% to $1.82 from $1.26 in 1997,
while revenue increased 5.6%. On a historical basis, net income and diluted
earnings per share for 1998 increased 131% and 107%, respectively, compared to
1997, while revenue increased 12.3%.
Launching Innovative Marketing Initiatives
We are changing our marketing tactics from a broad-based approach to a more
targeted format, focusing on building loyalty with our most profitable
customers. We began this initiative in the fall of 1998 and we have already seen
favorable results. We are convinced this new marketing approach will provide us
with a growing base of high margin customers, derived and maintained with more
efficient marketing expenditures. As another part of our effort to build
customer loyalty, we will continue in 1999 to improve our facilities to ensure
customers have a pleasant, stress-free rental experience.
Achieving an Optimal Business Mix
We are aggressively implementing strategies to change our business mix.
Traditionally, the Avis customer profile has in large measure been comprised of
business travelers who account for a majority of our business. Through new sales
initiatives--like the suburban strategy--and innovative marketing programs, the
Company is seeking to selectively increase the proportion of leisure customers.
We are also focusing on developing our portfolio of small and medium commercial
accounts, which typically have higher revenue per day than the large commercial
accounts. We see tremendous growth opportunity in this area. At the same time,
we will continue to service, maintain and add to our core of large commercial
accounts.
- --------------------------------------------------------------------------------
<PAGE>
Suburban Strategy
In 1998, we embarked on a program to expand our presence in the suburban
marketplace. We opened 29 new suburban locations bringing our total to 208,
generating $137 million in revenue. New locations are chosen only after our
research indicates a high degree of probable success. The attractiveness of this
strategy is that it allows our suburban operations to build a solid customer
market within their local areas. But since these locations are generally within
reasonable proximity to airports, the program enables us to better utilize our
fleet by moving excess cars to them during slower periods at the airports. In
1999, we will continue to carefully implement this strategy and we anticipate
opening another 40 locations.
Leveraging Synergies with Cendant
In 1998, the Company continued to capitalize on the close relationship it enjoys
with Cendant Corporation. Cendant affords us cross-marketing synergies that
allow us access to an enormous pool of potential car rental customers in the
hospitality, relocation and time share sectors, as well as those available from
their formidable direct marketing data base. In 1998, these efforts produced
over $40 million in revenue for the Company, an increase of nearly 30% from
1997. We are also realizing cost savings by using Cendant preferred alliances
for improved purchasing power, including telecommunications, printing services
and media purchasing.
Investing in Our Employees
This past year, we rolled out programs designed to further improve the quality
of our workforce and produce greater responsiveness to our customers. In
Leadership Training courses our managers were trained in how to become more
effective and Change Management courses helped our employees meet the challenge
of an ever changing competitive environment. Respect for the Individual training
brought greater sensitivity to an increasingly diverse workforce and customer
base. Training in the Avis Experience heightened the quality of service our
employees deliver to our customers.
Employee Survey
In a service industry, employees are the essential element in overall service
delivery. It is our employees who interface on a transaction by transaction
basis with our customers. They are the people who will, in large measure,
fulfill the promises made by our marketing and secure the loyalty of our
customers.
In addition to the training and developmental initiatives outlined above, we
also conducted our annual employee survey. The survey was presented to all
employees of the Company and this year the vast majority responded. Total
Company scores rose in every category. An overwhelming majority of the employees
said they were proud to work for Avis and that they felt Avis had a high degree
of ability to compete successfully in the marketplace.
Investing in Technology
To ensure the Company's future, in 1998 we made significant investments in
technology. These investments included upgrading financial systems, increased
resources for a marketing data warehouse, upgrading of our overall internal
systems and funds for Year 2000 compliance. In 1998, we redesigned our Web site.
We feel the new design facilitates ease of booking for those who prefer to use
the Internet to make reservations and the statistics bear this out--over 220,000
reservations were booked last year, a substantial increase over the previous
year. Use of the Internet still accounts for only a small percentage of Avis'
total bookings, but the number is growing rapidly. We believe that the Internet
will continue to grow as both a reservation and marketing opportunity for the
Company. We are therefore increasing our development commitment to it in 1999.
These investments in technology are crucial to the success of the Company as we
move forward.
Building Value with Strategic Acquisition Opportunities
On May 1, 1998, Avis purchased the Avis system franchises for the cities of
Dallas, Fort Worth, San Antonio and Austin from Hayes Leasing Company, Inc. for
approximately $86 million. The acquisition brought Avis the assets of a company
which, in 1997, reported revenue of $77 million from approximately 640,000
transactions and operated a fleet of approximately 8,000 vehicles. More
importantly, upon closing, the purchase became immediately accretive to Avis'
earnings. The purchase was part of Avis' strategy to increase the number of key
airport locations owned by the Company. In addition to the purchase of Hayes,
the Company made six other smaller acquisitions. We will continue to look for
strategically advantageous acquisitions.
Building Shareholder Return
- --------------------------------------------------------------------------------
<PAGE>
On September 1, 1998, the Company announced a program to repurchase 1.5 million
shares of Avis common stock and on September 23, 1998 expanded the repurchase
program to a total of 5 million shares. Avis undertook the repurchase program
because the Company's stock represented an outstanding value. The repurchase
enhances shareholder value and demonstrates the Company's confidence in the
future of Avis.
Executive Changes
On December 16, 1998 R. Craig Hoenshell stepped down as Chairman and Chief
Executive Officer of Avis. Craig expertly led Avis through the public offering
process and the initial phases of our acquisition program. Martin L. Edelman, an
Avis Board member, was named to serve as Interim Chairman. Since that date, F.
Robert Salerno, President and Chief Operating Officer, and Kevin M. Sheehan,
Executive Vice President and Chief Financial Officer, have overseen the
Company's operations.
The Road Ahead
We have every confidence that the future holds great promise for Avis. We are
focused on raising profitability by increasing brand loyalty as we capitalize on
changing industry dynamics. We will continue to improve our business mix and
fleet utilization and will continue to pursue strategic acquisitions as a means
of increasing operating leverage. We have not yet fully mined the opportunities
inherent in our relationship with Cendant; through cross marketing and other
synergies we will continue to capitalize on this relationship.
The car rental industry is vibrant and growing and we expect to benefit from its
growth. Small and medium size businesses are becoming a larger and highly
profitable part of our business. With our suburban strategy we are well
positioned to tap the potential of the leisure market which includes the trend
towards shorter, more frequent vacations. Air travel continues to increase and
the demand for our services remains strong.
We would like to thank all of our Avis colleagues for the hard work, dedication
and energy that made 1998 so successful and, we know, will make 1999 another
remarkable year for the Company. Further, we would like to thank all our
shareholders for their continued support and confidence.
While we are proud of our accomplishments in 1998, we know those accomplishments
are only building blocks towards success in 1999 and beyond. Our famous
motto--"We Try Harder"--went beyond a slogan to become part of the American
vocabulary and a part of the Avis culture. It's part of how we think about
ourselves, our company and our individual jobs. Now we are building on this past
success with a new advertising campaign-- "We Try Harder. For You." The new
slogan shifts focus to our valued customers and emphasizes how hard we intend to
work to capture and retain their business in our drive to become the world's
pre-eminent rent a car brand.
Sincerely,
/s/ Martin L. Edelman /s/ F. Robert Salerno /s/ Kevin M. Sheehan
Martin L. Edelman F. Robert Salerno Kevin M. Sheehan
Interim Chairman President and Executive Vice President
of the Board Chief Operating Officer and Chief Financial Officer
[GRAPHIC OMITTED]
- --------------------------------------------------------------------------------
<PAGE>
Vision
To Become The World's
Pre-eminent
Rent A Car Brand.
[GRAPHIC OMITTED]
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA AND AVERAGE REVENUE PER RENTAL
TRANSACTION)
The selected financial data for the years ended December 31, 1994 and 1995, the
periods ended October 16, 1996 and December 31, 1996 and the years ended
December 31, 1997 and 1998 are derived from the audited Consolidated Financial
Statements of the Company.
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES(A)
------------------------------------- YEARS
OCTOBER 17, 1996 ENDED
YEARS ENDED DECEMBER JANUARY 1, 1996 (DATE OF DECEMBER
31, TO ACQUISITION) COMBINED 31,
-------------------- OCTOBER 16, TO YEAR ENDED ---------
1994 1995 1996 DECEMBER 31, 1996 DECEMBER 31, 1996(B) 1997
--------- --------- --------------- ------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.......................... $1,412,400 $1,615,951 $ 1,504,673 $ 362,844 $1,867,517 $2,046,154
--------- --------- --------------- ------------------- ----------- ---------
Costs and expenses:
Direct operating, net.......... 664,993 724,759 650,750 167,682 818,432 863,839
Vehicle depreciation and lease
charges, net................. 301,805 394,057 358,937 85,455 444,392 525,143
Selling, general and
Administrative(a)............ 252,024 269,434 283,180 68,215 351,395 415,728
Interest, net.................. 136,508 162,244 138,225 38,205 176,430 184,261
Amortization of cost in excess
of net assets acquired....... 4,754 4,757 3,782 1,026 4,808 6,860
--------- --------- --------------- ------------------- ----------- ---------
1,360,084 1,555,251 1,434,874 360,583 1,795,457 1,995,831
--------- --------- --------------- ------------------- ----------- ---------
Income before provision for
income taxes..................... 52,316 60,700 69,799 2,261 72,060 50,323
Provision for income taxes....... 30,213 34,635 31,198 1,040 32,238 22,850
--------- --------- --------------- ------------------- ----------- ---------
Net income....................... $ 22,103 $ 26,065 $ 38,601 $ 1,221 $ 39,822 $ 27,473
--------- --------- --------------- ------------------- ----------- ---------
--------- --------- --------------- ------------------- ----------- ---------
Earnings per share(c)
Basic........................ $ .72 $ .84 $ 1.25 $ .04 -- $ .89
Diluted...................... $ .72 $ .84 $ 1.25 $ .04 -- $ .88
STATEMENTS OF FINANCIAL POSITION
DATA:
Vehicles, net.................... $1,873,158 $2,167,167 $ 2,404,275 $ 2,243,492 $2,243,492 $3,018,856
Total assets..................... $2,602,774 $2,824,798 $ 3,186,503 $ 3,131,232 $3,131,232 $4,282,657
Debt(d).......................... $2,110,123 $2,289,747 $ 2,645,095 $ 2,542,974 $2,542,974 $2,826,422
Stockholders' equity............. $ 658,012 $ 688,260 $ 740,113 $ 76,415 $ 76,415 $ 453,722
Selected Operating Data:
Number of rental locations at
period-end..................... 576 541 550 546 546 612
Peak number of vehicles during
period......................... 150,966 167,511 196,077 177,839 196,077 212,104
Average number of vehicles during
period......................... 137,715 150,853 174,813 172,461 174,226 186,317
Number of rental transactions
during period (in thousands)... 10,577 11,544 10,272 2,534 12,806 13,667
Average revenue per rental
transaction during period...... $ 134 $ 140 $ 146 $ 143 $ 146 $ 150
<CAPTION>
1998
---------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue.......................... $2,297,582
---------
Costs and expenses:
Direct operating, net.......... 939,986
Vehicle depreciation and lease
charges, net................. 593,064
Selling, general and
Administrative(a)............ 438,724
Interest, net.................. 201,726
Amortization of cost in excess
of net assets acquired....... 11,854
---------
2,185,354
---------
Income before provision for
income taxes..................... 112,228
Provision for income taxes....... 48,707
---------
Net income....................... $ 63,521
---------
---------
Earnings per share(c)
Basic........................ $ 1.86
Diluted...................... $ 1.82
STATEMENTS OF FINANCIAL POSITION
DATA:
Vehicles, net.................... $3,164,816
Total assets..................... $4,505,062
Debt(d).......................... $3,014,712
Stockholders' equity............. $ 622,614
Selected Operating Data:
Number of rental locations at
period-end..................... 660
Peak number of vehicles during
period......................... 231,086
Average number of vehicles during
period......................... 205,685
Number of rental transactions
during period (in thousands)... 15,296
Average revenue per rental
transaction during period...... $ 150
</TABLE>
- ------------------------------
(a) See Note 1 to the audited Consolidated Financial Statements. Selling,
general and administrative expenses includes a 4% royalty fee payable to
Cendant for the years ended December 31,1997 and 1998 and charges from
Cendant for the period October 17, 1996 (Date of Acquisition) to December
31, 1996. See Note 5 to the audited Consolidated Financial Statements.
(b) Presented on a combined twelve-month basis and includes the results of
the Predecessor Companies for the period January 1, 1996 to October 16,
1996 and the results of the Company for the period October 17, 1996 (Date
of Acquisition) to December 31, 1996.
(c) Basic and diluted earnings per share are computed based on 30,925,000
shares of Common Stock, the number of shares of Common Stock outstanding
for periods presented from December 31, 1994 through December 31, 1997,
except for diluted earnings per share for 1997. Diluted earnings per
share for the years ended December 31, 1997 and 1998 are calculated based
on 31,181,134 shares and 34,952,557 shares of Common Stock, respectively,
which includes the dilutive effect of the assumed exercise of outstanding
stock options. Basic earnings per share for the year ended December 31,
1998 is computed based on 34,172,249 shares outstanding.
(d) Includes vehicle financing notes-due to affiliates at December 31, 1994,
1995, October 16, 1996 and December 31, 1996 of $1,050,000, $1,180,000,
$1,289,500 and $247,500, respectively.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
On October 17, 1996, Cendant Corporation ("Cendant") acquired Avis, Inc.
(the "Franchisor") and its subsidiaries, which included the operations presently
conducted by Avis Rent A Car, Inc. (the "Acquisition"). The Acquisition was
accounted for as a purchase. (See Note 1 to the Consolidated Financial
Statements). After the acquisition of Avis, Inc., Cendant retained the Avis
trade names, trademarks, and became the franchisor of the Avis System ("Avis
System"). Avis Rent A Car, Inc. became a franchisee of the Avis System.
On August 20, 1997, Avis Rent A Car, Inc. (the "Company") purchased the
First Gray Line Corporation ("First Gray Line"). First Gray Line was the then
second largest Avis System franchisee in North America, after the Company, with
locations in Southern California, Nevada and Arizona.
On September 24, 1997, the Company issued and sold 22,425,000 shares of its
common stock in an initial public offering ("IPO") and received net proceeds of
approximately $359 million. The net proceeds were used to repay amounts
outstanding under a credit facility established to complete the First Gray Line
acquisition, pay certain acquisition expenses incurred to complete the First
Gray Line acquisition and to prepay outstanding indebtedness. The Franchisor has
entered into a Master License Agreement with the Company granting the Company
the right to operate as a franchisee under the Avis System. As an Avis System
franchisee, the Company is required to make payments consisting of a base
royalty of 3.0% of the Company's revenue payable monthly and a supplemental
royalty of 1.0% of revenue payable quarterly in arrears (which will increase
0.1% per year commencing July 30, 1999, and in each of the following four years
thereafter to a maximum of 1.5% until July 30, 2003). The supplemental royalty
or a portion thereof may be deferred if the Company does not attain certain
financial targets.
On March 23, 1998, the Company sold 5,000,000 shares of its common stock
through a public offering and received net proceeds of approximately $161
million. The Company used the proceeds of the common stock issuance to acquire
the assets of the rental business of Hayes Leasing Company, Inc., mentioned
below, and for working capital and general corporate purposes, including the
repayment of certain indebtedness.
On May 1, 1998, the Company acquired the assets of the car rental business
of Hayes Leasing Company, Inc., ("Hayes Leasing") including the Avis System
franchises for the cities of Austin, Fort Worth and San Antonio, and the
counties of Dallas and Tarrant, Texas for approximately $86 million in cash plus
the refinancing of fleet-related indebtedness, which totaled approximately $136
million for a total purchase price of approximately $222 million. In addition,
during the twelve month period ended December 31, 1998, the Company purchased
the assets of several other Avis System franchisees, for approximately $15
million in cash.
The Company conducts vehicle rental operations through wholly-owned
subsidiaries in the United States, Canada, Puerto Rico, the U.S. Virgin Islands,
Argentina, Australia and New Zealand. Revenue is derived principally from time
and mileage charges for vehicle rentals and, to a lesser extent, fees for loss
damage waivers, liability insurance and other products and services.
The Company's expenses consist primarily of:
- Direct operating expenses (primarily wages and related benefits,
concessions and commissions paid to airport authorities, vehicle insurance
premiums and other costs relating to the operation of the rental fleet).
- Depreciation and lease charges relating to the rental fleet (including net
gains or losses upon the disposition of vehicles).
- Selling, general and administrative expenses (including royalties,
advertising, reservations and marketing costs, and commissions paid to
airlines and travel agencies).
- Interest expense relating primarily to financing of the rental fleet.
6
<PAGE>
The Company's profitability is primarily a function of the volume and
pricing of its rental transactions and the utilization of its rental fleet.
Significant changes in the Company's net cost of vehicles or in interest rates
can also have a material effect on the Company's profitability, depending on its
ability to adjust its rental rates. In addition, because the Company is required
to pay royalties based on its revenue, not its profits, royalty payments could
increase during a period of declining profits. The Company's royalty fee
obligations and its significant expenditures for vehicles and facilities impose
a significant need for liquidity.
Management believes that a more meaningful comparison of the results of
operations for the years ended December 31, 1997 and 1996 is obtained by
presenting results on a pro forma basis to give effect to the following
transactions as if they had occurred on January 1 of each period presented: the
acquisition of the Company by Cendant and the establishment of a
franchisor/franchisee relationship; the acquisition of First Gray Line and the
repayment of debt with net proceeds (after the acquisition of First Gray Line)
from the IPO.
The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's consolidated financial
position and results of operations. For comparative purposes, results for 1996
are presented on a combined twelve-month basis and include the results of the
Predecessor Companies for the period January 1, 1996 to October 16, 1996 and the
results of the Company for the period October 17, 1996 (Date of Acquisition) to
December 31, 1996. As a result of the Acquisition, the Consolidated Financial
Statements for the period subsequent to the Acquisition are presented on a
different basis of accounting than those for the period prior to the Acquisition
and, therefore, are not directly comparable. This discussion should be read in
conjunction with the Audited Consolidated Financial Statements and related notes
thereto included elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
the Company's consolidated statements of operations (dollars in thousands):
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA (A) HISTORICAL
---------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE PERCENTAGE PERCENTAGE
1996 OF REVENUE 1997 OF REVENUE 1998 OF REVENUE
------------ ----------- ------------ ----------- ------------ -----------
Revenue.................................... $ 2,055,519 100.0% $ 2,175,897 100.0% $ 2,297,582 100.0%
------------ ----- ------------ ----- ------------ -----
Costs and Expenses:
Direct operating, net.................... 905,534 44.0 920,283 42.3 939,986 40.9
Vehicle depreciation and lease charges,
net.................................... 493,306 24.0 559,433 25.7 593,064 25.8
Selling, general and administrative...... 439,674 21.4 422,053 19.4 438,724 19.1
Interest, net............................ 183,115 8.9 192,598 8.9 201,726 8.8
Amortization of cost in excess of net
assets acquired........................ 9,295 0.5 9,743 0.4 11,854 0.5
------------ ----- ------------ ----- ------------ -----
2,030,924 98.8 2,104,110 96.7 2,185,354 95.1
------------ ----- ------------ ----- ------------ -----
Income before provision for income taxes... 24,595 1.2 71,787 3.3 112,228 4.9
Provision for income taxes................. 16,028 0.8 32,355 1.5 48,707 2.1
------------ ----- ------------ ----- ------------ -----
Net income................................. $ 8,567 0.4% $ 39,432 1.8% $ 63,521 2.8%
------------ ----- ------------ ----- ------------ -----
------------ ----- ------------ ----- ------------ -----
</TABLE>
- ------------------------
(a) Includes the effects of the following transactions as if they had occurred
on January 1 of each period presented: (i) the acquisition of the Company by
Cendant and the establishment of a franchisor/ franchisee relationship, (ii)
the acquisition of First Gray Line and (iii) the repayment of debt with the
net proceeds (after the acquisition of First Gray Line) from the IPO.
7
<PAGE>
HISTORICAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO PRO FORMA YEAR ENDED
DECEMBER 31, 1997
REVENUE
Revenue for 1998 increased 5.6% from $2,175.9 million to $2,297.6 million,
over 1997. The increase in revenue is due primarily to the acquisition of Hayes
Leasing (2.7%) and overall market demand (2.9%). The revenue increase reflected
a 5.3% increase in the number of rental transactions and a 0.3% increase in
revenue per rental transaction.
COSTS AND EXPENSES
Total costs and expenses for 1998 increased 3.9%, from $2,104.1 million to
$2,185.4 million, over 1997. Direct operating expenses increased 2.1%, from
$920.3 million to $940.0 million, over 1997. As a percentage of revenue, direct
operating expenses for 1998 declined to 40.9%, from 42.3% for 1997. Operating
efficiencies were derived primarily from lower vehicle insurance costs (0.3% of
revenue), lower airport commissions (1.5% of revenue), and lower computer
services costs (0.4% of revenue). These efficiencies were partially offset by
higher vehicle damage costs (0.2% of revenue) and higher compensation costs
(0.5% of revenue).
Vehicle depreciation and lease charges for 1998 increased 6.0%, from $559.4
million to $593.1 million, over 1997. As a percentage of revenue, vehicle
depreciation and lease charges were 25.8% of revenue in 1998, as compared to
25.7% of revenue in 1997. The change reflected a 3.4% increase in the average
rental fleet combined with a higher monthly cost per vehicle. In addition, the
net proceeds received in excess of book value for the disposition of used
vehicles was $2.3 million lower (0.1% of revenue) in 1998 compared to 1997. This
was primarily due to favorable market conditions for the sale of certain model
vehicles during 1997.
Selling, general and administrative expenses for 1998 increased 3.9%, from
$422.1 million to $438.7 million, over 1997. The increase was due to $6.6
million higher reservation costs, $5.2 million higher marketing expenses, and
$4.9 million higher royalty fees.
Interest expense for 1998 increased 4.7%, from $192.6 million to $201.7
million, over 1997, due to higher borrowings required to finance the growth of
the rental fleet.
The provision for income taxes for 1998 increased 50.5%, from $32.4 million
to $48.7 million, over 1997. The effective income tax rate was 43.4%, down from
45.1% in 1997. The effective tax rate reflects differences between foreign
income tax rates and the U.S. federal statutory income tax rate, taxes on the
repatriation of foreign earnings, and foreign withholding taxes on dividends
paid to the Company.
Net income for 1998 increased 61.1%, from $39.4 million to $63.5 million,
over 1997. The increase reflected higher revenue, decreased costs and expenses
as a percentage of revenue and a lower effective income tax rate in 1998.
PRO FORMA YEAR ENDED DECEMBER 31, 1997 COMPARED TO PRO FORMA YEAR ENDED
DECEMBER 31, 1996
REVENUE
Revenue for 1997 increased 5.9%, from $2,055.5 million to $2,175.9 million,
over 1996. The revenue increase reflected a 3.5% increase in the number of
rental transactions and a 2.3% increase in revenue per rental transaction,
resulting from greater overall market demand.
COSTS AND EXPENSES
Total costs and expenses for 1997 increased 3.6%, from $2,030.9 million to
$2,104.1 million, over 1996. Direct operating expenses for 1997 increased 1.6%,
from $905.5 million to $920.3 million, over 1996. As a
8
<PAGE>
percentage of revenue, direct operating expenses for 1997 declined to 42.3% from
44.0% for 1996. Operating efficiencies were derived primarily from lower vehicle
damage costs (0.3% of revenue), lower facility costs (0.3% of revenue), lower
vehicle insurance costs (0.2% of revenue), lower vehicle registration costs
(0.6% of revenue) and a decline in wages and benefits as a percentage of revenue
(0.2% of revenue).
Vehicle depreciation and lease charges for 1997 increased 13.4%, from $493.3
million to $559.4 million, over 1996. As a percentage of revenue, vehicle
depreciation and lease charges for 1997 was 25.7% of revenue, as compared to
24.0% of revenue for 1996. The change reflected a 3.2% increase in the average
rental fleet required to service higher rental day activity. In addition, due to
favorable market conditions for the sale of certain model vehicles, the net
proceeds received in excess of book value upon the disposition of used vehicles
was $30.0 million higher in 1996 as compared to 1997. This resulted in a 1.7%
reduction in vehicle depreciation and lease charges as a percentage of revenue
in 1996.
Selling, general and administrative expenses for 1997 decreased 4.0%, from
$439.7 million to $422.1 million, over 1996. As a percentage of revenue,
selling, general and administrative expenses for 1997 decreased to 19.4% from
21.4% for 1996. This decrease was the result of lower reservation costs due to
operating efficiencies and reduced marketing costs as a result of the
elimination of certain marketing programs in place during the first half of
1996, partially offset by higher royalty fees due to increased revenue.
Interest expense for 1997 increased 5.2%, from $183.1 million to $192.6
million, over 1996, due primarily to higher borrowings required to finance the
growth of the rental fleet, partially offset by lower average interest rates.
The provision for income taxes for 1997 increased 101.9%, from $16.0 million
to $32.4 million, over 1996. The effective tax rate for 1997 was 45.1% as
compared to 65.2% for 1996. The increase in the tax provision and the decrease
in the effective tax rate were primarily due to higher domestic income before
provision for income taxes. The effective tax rate reflects differences between
the foreign income tax rates and the U.S. federal statutory income tax rate,
taxes on the repatriation of foreign earnings, and foreign withholding taxes on
dividends paid to the Company.
Net income for 1997 increased 360.3%, from $8.6 million to $39.4 million,
over 1996. The increase reflected higher revenue, decreased costs and expenses
as a percentage of revenue and a higher effective income tax rate in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's domestic and foreign operations are funded by cash provided by
operating activities and by financing arrangements maintained by the Company.
The Company's primary use of funds is for the acquisition of new vehicles. In
1998, the Company's expenditures for new vehicles were approximately $4.3
billion and its proceeds from the disposition of used vehicles were
approximately $3.6 billion. For 1999, the Company expects its expenditures for
new vehicles (net of proceeds from the disposition of used vehicles) to be
higher than in 1998. New vehicles are generally purchased by the Company in
accordance with the terms of manufacturer repurchase programs ("Repurchase
Programs") Since the late 1980's, the Company has acquired vehicles primarily
pursuant to Repurchase Programs. Repurchase prices under the Repurchase Programs
are based on either (i) a specified percentage of original vehicle cost
determined by the month the vehicle is returned to the manufacturer or (ii) the
original capitalization cost less a set daily depreciation amount. These
Repurchase Programs limit the Company's residual risk with respect to vehicles
purchased under the programs. This enables the Company to better estimate
depreciation expense in advance. The financing requirements for vehicles
typically reaches an annual peak during the second and third calendar quarters,
as fleet levels build in response to increased rental demand during that period.
The typical low point for cash requirements occurs during the end of the fourth
quarter and the beginning of the first quarter, coinciding with lower levels of
fleet and rental demand. The Company has established methods for disposition of
its used vehicles that are not covered by Repurchase Programs.
9
<PAGE>
The Company expects that cash flows from operations and funds from available
credit facilities will be sufficient to enable the Company to meet its
anticipated cash requirements for operating purposes for the next twelve months.
The Company also makes capital investments for property improvements and
equipment. Capital investments for property improvements and equipment were
$42.9 million in 1998, and management estimates such expenditures will
approximate $50.0 million in 1999. The Company's customer receivables also
provide liquidity with approximately 11 days of daily sales outstanding.
The Company has a domestic integrated financing program that provides for up
to $3.75 billion in financing for vehicles covered by Repurchase Programs, with
up to 25% of the facility available for vehicles not covered by Repurchase
Programs. The fleet financing program provides for the issuance of up to $1.5
billion of asset backed variable funding notes (the "Commercial Paper Notes")
and $2.25 billion of asset-backed medium term notes (the "Medium Term Notes").
The Commercial Paper Notes and the Medium Term Notes are backed by, among other
things, a first priority security interest in the Company's fleet. The
Commercial Paper Notes are rated A-1 by Standard & Poor's Ratings Group
("Standard & Poor's") and P-1 by Moody's Investors Services, Inc. ("Moody's").
The Medium Term Notes are supported by a Surety Bond issued by MBIA and rated
AAA by Standard & Poor's and Aaa by Moody's. At December 31, 1998, the Company
had approximately $2.9 billion of debt outstanding under its fleet financing
facilities. In addition, at December 31, 1998, the Company had approximately
$818 million of additional credit available for vehicle purchases.
Based on current market conditions and the Company's current banking
relationships, the Company expects to fund maturities of the Medium Term Notes
by the issuance of either new medium term notes or commercial paper depending on
market conditions at the time the Medium Term Notes mature. However, the Company
can give no assurance that will occur.
Avis Rent A Car System, Inc. ("ARACS") is party to a $350 million secured
credit agreement (the "Credit Agreement") that provides for (i) a revolving
credit facility in the amount of up to $125 million which is available on a
revolving basis until December 31, 2001 (the "Final Maturity Date") in order to
finance the general corporate needs of ARACS in the ordinary course of business
with up to $75 million of such amount available for the issuance of standby
letters of credit to support workers' compensation and other insurance and
bonding requirements of ARACS, the Company and their subsidiaries, in the
ordinary course of business, and (ii) a standby letter of credit facility of up
to $225 million available on a revolving basis to fund (a) any shortfall in
certain payments owing pursuant to fleet lease agreements and (b) maturing
Commercial Paper Notes if such Commercial Paper Notes cannot be repaid through
the issuance of additional Commercial Paper Notes or draws under the liquidity
facility supporting the Commercial Paper Notes. Borrowings under the Credit
Agreement are secured by substantially all of the tangible and intangible assets
of the Company, including its intellectual property and its rights under the
Master License Agreement, except for those assets which are subject to a
negative pledge. At December 31, 1998, the Company had issued letters of credit
under the Credit Agreement of $31.9 million to support (i) certain insurance
requirements and (ii) certain airport concession agreements and $150.0 million
to support its Commercial Paper Notes.
Approximately 25% of the Company's outstanding debt at December 31, 1998 was
interest rate sensitive and had a weighted-average interest rate of 5.5%. The
Company has developed an interest rate management policy, including a target mix
for average fixed rate and floating rate indebtedness on a consolidated basis.
However, an increase in interest rates may have a material adverse impact on the
Company's profitability. During the year, the Company entered into interest rate
swap agreements with a notional value of $288.6 million, which reduced its
interest rate sensitive debt to 16% (see Note 9 to the audited Consolidated
Financial Statements).
Borrowings for the Company's international operations consist mainly of
loans obtained from local and international banks. All borrowings for
international operations are in the local currencies of the
10
<PAGE>
countries in which those operations are conducted. The Company guarantees only
the borrowings of its subsidiary in Argentina. At December 31, 1998, the total
debt for the Company's international operations was $84.6 million, of which
$74.9 million was short-term (with original maturity of one year or less). The
impact on liquidity and financial condition due to exchange rate fluctuations
regarding the Company's foreign operations is not material.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has derivative financial instruments at December 31, 1998 that
are sensitive to changes in interest rates on its debt obligations and on its
interest rate swap agreements (see Note 9 to the Consolidated Financial
Statements). For long-term obligations, the following table presents cash flows
and weighted average interest rates by expected maturity dates.
The Company has entered into four interest rate swap agreements to reduce
the impact of changes in interest rates on certain outstanding current Domestic
and Canadian debt obligations. The Company's swap agreements have the effect of
changing the interest rate on certain of the Company's current debt from a
variable to a fixed rate of interest. The variable interest rates for certain of
these interest rate swap agreements are either reset quarterly or daily based
upon the average 30-day commercial paper rate for the quarter. Interest is cash
settled on a net basis for each agreement quarterly. The U.S. interest rate swap
agreement will terminate in October 2001 and the three Canadian swap agreements
in August 2003. Under the Canadian swap agreements terminating in August 2003,
the counter-party has the right to terminate one of the agreements in August
2000 and one agreement in August 2001.
The notional amounts used to calculate the contractual payments to be
exchanged under these swap agreements consist of $250 million and $38.6 million
for the U.S. and Canada swap agreements, respectively. The weighted average
variable payment and receipt rates are based on implied forward rates in the
yield curve at December 31, 1998. The weighted average expected payment rates
are 4.8%, 4.8%, 4.8%, 5.6% and 5.6% for the years ended December 31, 1999, 2000,
2001, 2002 and 2003, respectively. The weighted average expected receipt rates
are 4.9%, 5.0%, 5.1%, 5.2% and 5.4% for the years ended December 31, 1999, 2000,
2001, 2002 and 2003, respectively. The fair value of the interest Rate Swap
agreements at December 31, 1998 is approximately $885,000.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATES AS OF DECEMBER 31, 1998
--------------------------------------------------------------------------------------------
FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
--------- --------- --------- --------- --------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate
Medium Term Notes............. $ 800,000 $ 850,000 $ 600,000 $ 2,250,000 $ 2,294,541
Other domestic debt........... $ 1,085 $ 209 $ 227 $ 256 $ 1,777 $ 1,777
Annualized weighted average
interest rate............... 8.0% 6.2% 9.3% 6.4% 6.1%
Variable Rate
Floating rate notes........... $ 9,677 $ 9,677 $ 9,677
Average interest rate......... 6.0%
</TABLE>
RESTRICTIONS IMPOSED BY INDEBTEDNESS
The agreements with the Company's lenders include a number of significant
covenants that, among other things, restrict its ability to dispose of non-fleet
assets, incur additional indebtedness, create liens, pay dividends, enter into
certain investments or acquisitions, repurchase or redeem capital stock, engage
in mergers or consolidations or engage in certain transactions with affiliates,
and otherwise restrict corporate activities. Certain of these agreements also
require the Company to maintain specified financial ratios. A breach of any of
these covenants or the inability of the Company to maintain the required
financial ratios could result in a default in respect of the related
indebtedness. In the event of a default, the lenders could
11
<PAGE>
declare, among other options, the indebtedness, together with accrued interest
and other fees, to be immediately due and payable, failing which the lenders
could proceed against the collateral securing such indebtedness. As of December
31, 1998, the Company was in compliance with all such covenants related to these
agreements.
INFLATION
The increased acquisition cost of vehicles is the primary inflationary
factor affecting the Company's operations. Many of the Company's other operating
expenses are inflation sensitive, with increases in inflation generally
resulting in increased costs of operations. The effect of inflation-driven cost
increases on the Company's overall operating costs is not expected to be greater
for the Company than for its competitors.
SEASONALITY
The Company's third quarter, which covers the peak summer travel months, has
historically been its strongest quarter, accounting for approximately 28% and
47% of the Company's revenue and pre-tax income, respectively, in 1998. Any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect on the Company's Statements of Operations. The Company's
fourth quarter is generally its weakest, when there is limited leisure travel
and a greater potential for adverse weather conditions. Many of the Company's
operating expenses, such as rent, insurance and personnel, are fixed and cannot
be reduced during periods of decreased rental demand. As a result, there can be
no assurance that the Company would have sufficient liquidity under all
conditions.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
A recent pronouncement of the Financial Accounting Standards Board which is
not required to be adopted at this date, is Statement of Financial Accounting
Standards No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES", ("SFAS 133"), which is effective for the Company's consolidated
financial statements for the year ending December 31, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that any entity recognize all derivatives as either assets or
liabilities in the statement of financial position at fair value.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued a Statement of Position No. 98-5,
"ACCOUNTING FOR START-UP COSTS" ("SOP NO. 98-5").The SOP requires that all
start-up costs should be expensed as incurred, unless the costs incurred were to
acquire or develop tangible assets or to acquire intangible assets from a third
party. SOP No. 98-5 is effective for fiscal years beginning after December 15,
1998.
The adoption of SFAS 133 and the SOP No. 98-5 are not expected to have a
material effect on the Company's consolidated financial statements.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot distinguish
21(st) century dates from 20(th) century dates. Consequently, these software and
computer systems need to be either reprogrammed, upgraded or replaced in order
to properly function when Year 2000 arrives.
12
<PAGE>
The Company's state of readiness, contingency plans, Year 2000 costs and
possible consequences from Year 2000 problems are as follows:
(I) STATE OF READINESS
The Company has implemented a comprehensive plan to address the Year 2000
requirements in its mission critical systems. Mission critical systems are
those whose failure poses a risk of disruption to the Company's ability to
provide vehicle reservation and rental services. The Company's comprehensive
plan includes (i) the identification of all mission critical systems and the
inventory of all hardware and software affected by the Year 2000; (ii)
assessment of these systems including prioritization; (iii) modification,
upgrading and replacement of the affected systems; and (iv) testing of the
systems. The Company is using both internal and external sources to
implement its plan. The Company has completed the remediation of its mission
critical systems including the modification, upgrading and replacement of
the affected systems. The Company has completed the testing of approximately
50% of these mission critical systems The Company currently believes its
mission critical systems will be Year 2000 compliant in the summer of 1999.
Much of the Company's technology, including technology associated with its
mission critical systems, is purchased from third parties. The Company is
dependent on those third parties to assess the impact of Year 2000 on the
technology they have supplied and to take any necessary corrective action.
The Company is monitoring the progress of these third parties and conducting
tests to determine whether they have accurately assessed the problem and
taken corrective action.
(II) CONTINGENCY PLANS
Based upon the progress of its comprehensive plan, the Company expects that
it will not experience a disruption of its operations as a result of the
change to the Year 2000. However, there can be no assurance that the third
parties who have supplied technology used in the Company's mission critical
systems will be successful in taking corrective action in a timely manner.
The Company is developing contingency plans with respect to certain key
technology used in its mission critical systems, which are intended to
enable the Company to continue to operate. The contingency plans include
performing certain processes manually; repairing systems and changing
suppliers if necessary, although there can be no assurance that these
contingency plans will successfully avoid service disruption in the
reservation and rental of vehicles. The Company believes, that due to the
widespread nature of potential Year 2000 issues, the contingency planning
process is ongoing, which will require further modifications as the Company
obtains additional information regarding (1) the Company's internal systems
and equipment during the remediation and testing phases of its Year 2000
comprehensive plan; and (2) the status of third parties Year 2000 readiness.
(III) YEAR 2000 COSTS
Total costs of hardware and software remediation are expected to be $21.3
million. Costs of hardware and software remediation were approximately $3.0
million in 1997, $8.4 million for the year ended December 31, 1998 and are
estimated to be approximately $9.5 million in 1999 and $395,000 in 2000.
These estimates include the costs of certain equipment and software for
which planned replacement was accelerated due to Year 2000 requirements. In
addition, they reflected the cost of redeploying certain internal resources
to address the Year 2000 requirements. This estimate assumes that third
party suppliers have accurately assessed the compliance of their products
and that they will successfully correct the issue in non-compliant products.
Because of the complexity of correcting the Year 2000 issue, actual costs
may vary from these estimates. The Company expects to finance these costs
through internally generated cash flow and existing credit facilities.
13
<PAGE>
(IV) POSSIBLE CONSEQUENCES FROM YEAR 2000 PROBLEMS
The Company believes that completed and planned modifications and
conversions of its internal systems and equipment will allow it to be Year
2000 compliant in a timely manner. There can be no assurance, however, that
the Company's internal systems or equipment or those of third parties on
which the Company relies will be Year 2000 compliant in a timely manner or
that the Company's or third parties' contingency plans will mitigate the
effects of any non-compliance. The failure of the systems or equipment of
the Company or third parties (which the Company believes is the most
reasonably likely worst case scenario) could effect vehicle reservation and
rental operations and could have a material adverse effect on the Company's
business or consolidated financial statements.
FORWARD LOOKING INFORMATION
Certain matters discussed in this report that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve risks and uncertainties including the impact of competitive
products and pricing, changing market conditions, the ability of the Company and
its vendors to complete the necessary actions to achieve a Year 2000 conversion
for its computer systems and applications, and other risks which were detailed
from time to time in the Company's publicly-filed documents, including its
Annual Report on Form 10-K for the period ended December 31, 1998. Actual
results may differ materially from those projected. These forward-looking
statements represent the Company's judgement as of the date of this report.
MARKET INFORMATION
The Company's Common Stock is listed on the NYSE under the symbol "AVI". The
following table sets forth for the period January 1, 1998 to December 31, 1998
the high and low sales price per share of the Common Stock on the NYSE Composite
Tape. As of March 22, 1999, there were approximately 7,455 holders of record. No
dividends were paid in 1998.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1998
Quarters Ended:
March 31, 1998............................................................. $ 38.25 $ 27.00
June 30, 1998.............................................................. 33.13 20.00
September 30, 1998......................................................... 28.25 15.25
December 31, 1998.......................................................... 24.50 11.38
1997
December 31, 1997 (from September 24, 1997)................................ 36.56 21.50
</TABLE>
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Avis Rent A Car, Inc.
Garden City, New York
We have audited the accompanying consolidated statements of financial
position of Avis Rent A Car, Inc. and subsidiaries (successor to Rental Car
System Holdings, Inc. and subsidiaries, Avis International, Ltd. and
subsidiaries, Avis Enterprises, Inc. and subsidiaries, Pathfinder Insurance
Company and Global Excess & Reinsurance, Ltd., all previously wholly-owned by
Avis, Inc., collectively the "Predecessor Companies") (collectively referred to
as "Avis Rent A Car, Inc." or the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1998 and 1997 and for the period
October 17, 1996 (Date of Acquisition) to December 31, 1996 and as to the
Predecessor Companies the related consolidated statements of operations,
stockholders' equity and cash flows for the period January 1, 1996 to October
16, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997 and for the period October 17,
1996 to December 31, 1996 (period after the change in control referred to in
Note 1 to the consolidated financial statements), and with respect to the
Predecessor Companies for the period January 1, 1996 to October 16, 1996 (period
up to the change in control referred to in Note 1 to the consolidated financial
statements) in conformity with generally accepted accounting principles.
As more fully discussed in Note 1 to the consolidated financial statements,
the Predecessor Companies were acquired in a business combination accounted for
as a purchase. As a result of the acquisition, the consolidated financial
statements for the period subsequent to the acquisition are presented on a
different basis of accounting than those for the periods prior to the
acquisition and, therefore, are not directly comparable.
/s/ Deloitte & Touche
New York, New York
January 25, 1999
(March 19, 1999 as to Note 21)
15
<PAGE>
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 17,
PREDECESSOR 1996
COMPANIES (DATE OF
----------------- ACQUISITION) YEARS ENDED DECEMBER
JANUARY 1, 1996 TO 31,
TO DECEMBER 31, --------------------
OCTOBER 16, 1996 1996 1997 1998
----------------- --------------- --------- ---------
<S> <C> <C> <C> <C>
Revenue......................... $ 1,504,673 $ 362,844 $2,046,154 $2,297,582
----------------- --------------- --------- ---------
Costs and expenses:
Direct operating, net......... 650,750 167,682 863,839 939,986
Vehicle depreciation and lease
charges, net................ 358,937 85,455 525,143 593,064
Selling, general and
administrative.............. 283,180 68,215 415,728 438,724
Interest, net................. 138,225 38,205 184,261 201,726
Amortization of cost in excess
of net assets required...... 3,782 1,026 6,860 11,854
----------------- --------------- --------- ---------
1,434,874 360,583 1,995,831 2,185,354
----------------- --------------- --------- ---------
Income before provision for
income taxes.................. 69,799 2,261 50,323 112,228
Provision for income taxes...... 31,198 1,040 22,850 48,707
----------------- --------------- --------- ---------
Net income...................... $ 38,601 $ 1,221 $ 27,473 $ 63,521
----------------- --------------- --------- ---------
----------------- --------------- --------- ---------
Earnings per share:
Basic........................... $ 1.25 $ .04 $ .89 $ 1.86
----------------- --------------- --------- ---------
Diluted......................... $ 1.25 $ .04 $ .88 $ 1.82
----------------- --------------- --------- ---------
----------------- --------------- --------- ---------
</TABLE>
See accompanying notes to the consolidated financial statements.
16
<PAGE>
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................................ $ 44,899 $ 29,751
Restricted cash...................................................................... 106,984 133,284
Accounts receivable, net............................................................. 359,463 360,574
Prepaid expenses..................................................................... 47,360 42,083
Vehicles, net........................................................................ 3,018,856 3,164,816
Property and equipment, net.......................................................... 122,860 145,045
Other assets......................................................................... 40,469 40,590
Deferred income tax assets........................................................... 145,726 120,779
Cost in excess of net assets acquired, net........................................... 396,040 468,140
------------ ------------
Total assets......................................................................... $4,282,657 $4,505,062
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable..................................................................... $ 329,706 $ 198,481
Accrued liabilities.................................................................. 315,287 326,204
Due to affiliates, net............................................................... 44,512 22,293
Current income tax liabilities....................................................... 22,873 23,045
Deferred income tax liabilities...................................................... 34,106 28,504
Public liability, property damage and other insurance liabilities, net............... 256,029 269,209
Debt................................................................................. 2,826,422 3,014,712
------------ ------------
Total liabilities................................................................ 3,828,935 3,882,448
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock ($.01 par value 20,000,000 shares authorized; none issued)...........
Class A Common stock ($.01 par value, 100,000,000 shares authorized; 35,925,000
issued at December 31, 1998; 30,925,000 shares issued and outstanding at December
31, 1997).......................................................................... 309 359
Additional paid-in capital........................................................... 430,507 591,651
Retained earnings.................................................................... 28,694 92,215
Accumulated other comprehensive loss................................................. (5,788) (10,651)
Treasury stock 2,672,700 shares, at cost............................................. (50,960)
------------ ------------
Total stockholders' equity....................................................... 453,722 622,614
------------ ------------
Total liabilities and stockholders' equity........................................... $4,282,657 $4,505,062
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to the consolidated financial statements.
17
<PAGE>
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL
COMPREHENSIVE COMMON PAID-IN RETAINED
INCOME STOCK CAPITAL EARNINGS
--------------- ----------- ----------- -----------
Balance, January 1, 1996.................................................... $ 2,977 $ 344,531 $ 340,596
<S> <C> <C> <C> <C>
Net income.................................................................. $ 38,601 38,601
Tax benefit of ESOP income tax deduction.................................... 12,939
Foreign currency translation adjustment..................................... 1,711
Cash dividends.............................................................. (1,398)
------- ----------- ----------- -----------
Comprehensive income........................................................ $ 40,312
-------
-------
Balance, October 16, 1996................................................... $ 2,977 $ 357,470 $ 377,799
----------- ----------- -----------
----------- ----------- -----------
Avis Rent A Car, Inc. ($.01 par value 100,000,000 shares of Class A Common
Stock authorized; 8,500,000 shares of Common Stock outstanding at October
17, 1996 (Date of Acquisition) after restatement for a 85,000 to 1 stock
split on September 24,1997................................................ $ 85 $ 74,915
Net income.................................................................. $ 1,221 $ 1,221
Foreign currency translation adjustment..................................... 217
Additional minimum pension charge........................................... (23)
------- ----------- ----------- -----------
Comprehensive income........................................................ $ 1,415
-------
-------
Balance, December 31, 1996.................................................. 85 74,915 1,221
Net income.................................................................. $ 27,473 27,473
Sale of Class A Common Stock ($.01 par value) through an initial public
offering of 22,425,000 shares of Common Stock on September 24, 1997....... 224 355,592
Foreign currency translation adjustment..................................... (5,761)
Additional minimum pension charge........................................... (221)
------- ----------- ----------- -----------
Comprehensive income........................................................ $ 21,491
-------
-------
Balance, December 31, 1997.................................................. 309 430,507 28,694
Net income.................................................................. $ 63,521 63,521
Sale of Class A Common Stock ($.01 par value) through a public offering of
5,000,000 shares of Common Stock on March 23, 1998........................ 50 161,144
Purchases of Treasury stock, 2,672,700 shares, at cost......................
Foreign currency translation adjustment..................................... (3,374)
Additional minimum pension charge........................................... (1,489)
------- ----------- ----------- -----------
Comprehensive income........................................................ $ 58,658
-------
-------
Balance, December 31, 1998.................................................. $ 359 $ 591,651 $ 92,215
----------- ----------- -----------
----------- ----------- -----------
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TREASURY
INCOME/(LOSS) STOCK TOTAL
-------------- ----------- ---------
Balance, January 1, 1996.................................................... $ 156 $ 688,260
<S> <C> <C> <C>
Net income.................................................................. 38,601
Tax benefit of ESOP income tax deduction.................................... 12,939
Foreign currency translation adjustment..................................... 1,711 1,711
Cash dividends.............................................................. (1,398)
-------------- ---------
Comprehensive income........................................................
Balance, October 16, 1996................................................... $ 1,867 $ 740,113
-------------- ---------
-------------- ---------
Avis Rent A Car, Inc. ($.01 par value 100,000,000 shares of Class A Common
Stock authorized; 8,500,000 shares of Common Stock outstanding at October
17, 1996 (Date of Acquisition) after restatement for a 85,000 to 1 stock
split on September 24,1997................................................ $ 75,000
Net income.................................................................. 1,221
Foreign currency translation adjustment..................................... $ 217 217
Additional minimum pension charge........................................... (23) (23)
-------------- ---------
Comprehensive income........................................................
Balance, December 31, 1996.................................................. 194 76,415
Net income.................................................................. 27,473
Sale of Class A Common Stock ($.01 par value) through an initial public
offering of 22,425,000 shares of Common Stock on September 24, 1997....... 355,816
Foreign currency translation adjustment..................................... (5,761) (5,761)
Additional minimum pension charge........................................... (221) (221)
-------------- ---------
Comprehensive income........................................................
Balance, December 31, 1997.................................................. (5,788) 453,722
Net income.................................................................. 63,521
Sale of Class A Common Stock ($.01 par value) through a public offering of
5,000,000 shares of Common Stock on March 23, 1998........................ 161,194
Purchases of Treasury stock, 2,672,700 shares, at cost...................... $ (50,960) (50,960)
Foreign currency translation adjustment..................................... (3,374) (3,374)
Additional minimum pension charge........................................... (1,489) (1,489)
-------------- ----------- ---------
Comprehensive income........................................................
Balance, December 31, 1998.................................................. $ (10,651) $ (50,960) $ 622,614
-------------- ----------- ---------
-------------- ----------- ---------
</TABLE>
See accompanying notes to the consolidated financial statements.
18
<PAGE>
AVIS RENT A CAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES OCTOBER 17, 1996
--------------------- (DATE OF YEARS ENDED
JANUARY 1, 1996 ACQUISITION) DECEMBER 31,
TO TO ----------------------
OCTOBER 16, 1996 DECEMBER 31, 1996 1997 1998
--------------------- ------------------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 38,601 $ 1,221 $ 27,473 $ 63,521
Adjustments to reconcile net income to net cash
provided by operating activities:
Vehicle depreciation......................... 306,159 71,343 466,799 581,022
Depreciation and amortization of property and
equipment.................................... 12,333 2,212 11,791 13,191
Amortization of other non-revenue producing
assets....................................... 6,205 1,026 11,231 23,559
Deferred income tax provision................ 22,342 33 9,161 38,457
Undistributed (earnings) losses of associated
companies.................................... (232) 146
Provision for doubtful accounts receivable... 1,238 227 3,208 2,961
Provision for public liability, property
damage and other insurance liabilities,
net.......................................... 17,745 1,340 25,574 13,687
Changes in operating assets and liabilities:
Restricted cash.............................. (535) 724 (76,596) (26,300)
Accounts receivable.......................... (204,137) 10,327 (15,201) (14,045)
Prepaid expenses............................. (2,125) (2,664) 3,914 6,848
Other assets................................. 2,391 (2,754) (8,915) (6,069)
Accounts payable............................. 82,354 (18,712) 152,777 (23,148)
Accrued liabilities.......................... 101,069 (24,718) (84,150) (2,475)
Due to (from) affiliates..................... (137,196) (3,796) 53,761 (18,320)
----------- ---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.... 246,212 35,809 580,973 652,889
----------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for vehicle additions............... (2,325,460) (561,117) (4,406,183) (4,303,048)
Vehicle deletions............................ 1,795,562 565,896 3,382,177 3,610,721
Payments for additions to property and
equipment.................................... (25,953) (3,484) (24,733) (42,933)
Retirements of property and equipment........ 1,849 361 3,971 5,302
Payments for purchase of licensees........... (3,134) (199,381) (237,182)
----------- ---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES................................... (557,136) 1,656 (1,244,149) (967,140)
----------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from public offerings, net............ 359,316 161,194
Purchases of treasury stock.................... (50,960)
Changes in debt:
Proceeds..................................... 519,167 63,903 3,381,173 1,217,289
Repayments................................... (267,317) (133,457) (3,031,885) (1,023,432)
----------- ---------- ---------- ----------
Net increase (decrease) in debt.............. 251,850 (69,554) 349,288 193,857
Intercompany debt.............................. 109,500 (2,865)
Payments for debt issuance costs............... (2,604) (29,302) (4,654)
Cash dividends................................. (1,398)
----------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................... 357,348 (72,419) 679,302 299,437
----------- ---------- ---------- ----------
Effect of exchange rate changes on cash........ 260 94 (945) (334)
----------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents.................................. 46,684 (34,860) 15,181 (15,148)
Cash and cash equivalents at beginning of
period....................................... 17,894 64,578 29,718 44,899
----------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 64,578 $ 29,718 $ 44,899 $ 29,751
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest..................................... $ 135,733 $ 28,170 $ 189,086 $ 209,977
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Income taxes................................. $ 6,220 $ 827 $ 8,899 $ 13,338
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
19
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include Avis Rent A Car,
Inc. (name changed from and formerly known as Rental Car System Holdings, Inc.
which was incorporated on October 17, 1996) and subsidiaries (including the
carved out corporate operations of HFS Car Rental, Inc. (name changed from and
formerly known as, and hereinafter referred to as, Avis, Inc.), which is the
holding company of Rental Car System Holdings, Inc., and Prime Vehicles Trust
(the "Vehicle Trust")), Avis International, Ltd. and subsidiaries, Avis
Enterprises, Inc. and subsidiaries, Pathfinder Insurance Company and Global
Excess & Reinsurance, Ltd. (collectively referred to as "Avis Rent A Car,
Inc."). All of the foregoing companies were ultimately wholly-owned subsidiaries
of Avis, Inc., which was acquired by Cendant Corporation (formerly HFS
Incorporated ("Cendant")) on October 17, 1996 (the "Date of Acquisition") for
approximately $806.5 million (the "Acquisition"). The purchase price was
comprised of approximately $367.2 million in cash, $100.9 million of
indebtedness and $338.4 million of common stock. Prior to October 17, 1996, the
above-named entities were wholly-owned by Avis, Inc. and are referred to
collectively as the "Predecessor Companies". Avis Rent A Car, Inc. and the
Predecessor Companies are referred to throughout the notes to the consolidated
financial statements as the "Company". Prior to the Acquisition, the major
shareholder of Avis, Inc. was an Employee Stock Ownership Plan ("ESOP") and the
minority shareholder was General Motors Corporation ("General Motors"). The
Company purchases a significant portion of its vehicles, and receives certain
financial incentives and allowances from General Motors (see Notes 4, 6, and
19). As a result of the Acquisition, the consolidated financial statements for
the period subsequent to the Acquisition are presented on a different basis of
accounting than those for the periods prior to the Acquisition and, therefore,
are not directly comparable. On January 1, 1997, Avis, Inc. contributed the net
assets of its corporate operations and all of its common stock ownership in Avis
International, Ltd. and subsidiaries, Avis Enterprises, Inc. and subsidiaries,
Pathfinder Insurance Company and Global Excess & Reinsurance, Ltd. to the
Company. After the transfer, the remaining operations of Avis, Inc. consist of
an investment in a wholly-owned subsidiary which owns the Avis trade names and
trademarks. Pursuant to a plan developed by Cendant prior to the Date of
Acquisition, Cendant caused the Company to undertake an initial public offering
("IPO"). On September 24, 1997, the Company issued and sold 22,425,000 shares of
its common stock through such IPO and received net proceeds of $359.3 million.
On March 23, 1998, the Company sold 5,000,000 shares of its common stock through
a public offering (the "Offering") and received net proceeds of approximately
$161 million. In addition, in the Offering on March 23, 1998, Cendant reduced
its ownership of the Company by selling 1,000,000 shares of the Company's common
stock and retained the net proceeds. As a result of the IPO, the Offering on
March 23, 1998 and the repurchase of 2,672,700 shares of treasury stock by the
Company during 1998, Cendant's equity interest in the Company at January 23,
1999 is approximately 20% (see Notes 12 and 21). The Company has used the net
proceeds from these offerings to (i) acquire certain Avis System franchises (see
Note 2) and (ii) for working capital and general corporate purposes, including
the repayment of certain indebtedness. A Cendant subsidiary owns and operates
the reservation system as well as the telecommunications and computer processing
systems which service the rental car operations for reservations, rental
agreement processing, accounting and vehicle control. Cendant is reimbursed for
such services at cost (see Note 5). In addition, a Cendant subsidiary charges
the Company a royalty fee for the use of the Avis trade name (see Note 5).
The acquisition of the Company by Cendant was accounted for under the
purchase method and includes the operations of the Company subsequent to the
Date of Acquisition. A portion of the purchase price has been allocated to the
fair value of the Company. This fair value was calculated on the basis that
20
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the Company is an independent franchisee of Avis, Inc. and is required to pay
certain fees for use of the Avis trade name, reservation services and other
franchise related services. The fair value of the Company has been allocated to
individual assets and liabilities based on their fair value at the Date of
Acquisition.
The purchase cost allocation at the Date of Acquisition has been allocated
to the Company as follows (in thousands):
<TABLE>
<S> <C>
Allocated purchase cost......................................... $ 75,000
---------
Fair value of:
Liabilities assumed........................................... 3,215,677
Assets acquired............................................... 3,059,186
---------
Net liabilities................................................. 156,491
---------
Cost in excess of net assets acquired........................... $ 231,491
---------
---------
</TABLE>
Certain prior year amounts have been reclassified so that the consolidated
financial statements are comparable with the current year.
PRINCIPLES OF CONSOLIDATION
All material intercompany accounts and transactions have been eliminated.
ACCOUNTING ESTIMATES
Generally accepted accounting principles require the use of estimates, which
are subject to change, in the preparation of financial statements. Significant
accounting estimates used include estimates for determining public liability,
property damage and other insurance liabilities, and the realization of deferred
income tax assets. However, actual results may differ.
REVENUE RECOGNITION
Revenue is recognized over the period the vehicle is rented.
CASH AND CASH EQUIVALENTS
The Company considers unrestricted deposits and short-term investments with
an original maturity date of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash includes cash and short-term investments that are not
readily available for normal company disbursements. Certain amounts have been
set aside as required under the Company's debt covenants and to satisfy
insurance related and other commitments of the Company.
VEHICLES, NET
Vehicles are stated at cost, net of accumulated depreciation, incentives and
allowances. In accordance with industry practice, when vehicles are sold, gains
or losses are reflected as an adjustment to depreciation. Vehicles are generally
depreciated at rates ranging from 10% to 25% per annum. Manufacturers
21
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provide the Company with incentives and allowances (such as rebates and volume
discounts) which are amortized to income over the holding periods of the
vehicles.
PROPERTY AND EQUIPMENT, NET
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method over
the estimated useful life of the assets. Estimated useful lives range from five
to ten years for furniture, fixtures and equipment, to thirty years for
buildings. Leasehold improvements are amortized over the shorter of twenty years
or the remaining life of the lease. Maintenance and repairs are expensed;
renewals and improvements are capitalized. When depreciable assets are retired
or sold, the cost and related accumulated depreciation are removed from the
accounts with any resulting gain or loss reflected in the consolidated statement
of operations.
COST IN EXCESS OF NET ASSETS ACQUIRED, NET
Cost in excess of net assets acquired is amortized over a 40 year period and
is shown net of accumulated amortization of $7.9 million and $19.7 million at
December 31, 1997 and 1998, respectively.
IMPAIRMENT ACCOUNTING
The Company reviews the recoverability of its long-lived assets, including
cost in excess of net assets acquired, when events or changes in circumstances
occur that indicate that the carrying value of the assets may not be
recoverable. The measurement of possible impairment is based on the Company's
ability to recover the carrying value of the asset from the expected future
pre-tax undiscounted cash flows generated. The measurement of impairment
requires management to use estimates of expected future cash flows. If an
impairment loss existed, the amount of the loss would be recorded under the
caption costs and expenses in the consolidated statements of operations. It is
at least reasonably possible that future events or circumstances could cause
these estimates to change.
PUBLIC LIABILITY, PROPERTY DAMAGE AND OTHER INSURANCE LIABILITIES, NET
Insurance liabilities on the accompanying consolidated statements of
financial position include additional liability insurance, personal effects
protection insurance, public liability and property damage ("PLPD") and personal
accident insurance claims for which the Company is self-insured. The Company is
self-insured up to $1 million per claim under its automobile liability insurance
program for PLPD and additional liability insurance. Costs in excess of $1
million per claim are insured under various contracts with commercial insurance
carriers. The liability for claims up to $1 million is estimated based on the
Company's historical loss and loss adjustment expense experience, which is
adjusted for current trends.
The insurance liabilities include a provision for both claims reported to
the Company as well as claims incurred but not yet reported to the Company. This
method is an actuarially accepted loss reserve method. Adjustments to this
estimate and differences between estimates and the amounts subsequently paid are
reflected in the Consolidated Statements of Operations as they occur.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of foreign companies are translated at year-end
exchange rates. Results of operations are translated at the average rates of
exchange in effect during the year. The resultant
22
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
translation adjustment is included as a component of comprehensive income within
consolidated stockholders' equity.
INCOME TAXES
Effective September 30, 1997, the Company files a U.S. consolidated federal
income tax return. The Company has adopted the calendar year as its fiscal year.
The Company files separate income tax returns in states where a consolidated
return is not permitted. The Company was included in the consolidated federal
income tax return of Cendant through September 29, 1997. Pursuant to the
regulations under the Internal Revenue Code, the Company's pro rata share of the
consolidated federal income tax liability of Cendant was allocated to the
Company on a separate return basis. The Predecessor Companies were included in
the consolidated federal income tax return of Avis, Inc. In accordance with
Statement of Financial Accounting Standards No. 109, "ACCOUNTING FOR INCOME
TAXES" ("SFAS 109"), deferred income tax assets and liabilities are measured
based upon the difference between the financial accounting and tax basis of
assets and liabilities.
PENSIONS
Costs of the defined benefit plans are actuarially determined under the
projected unit credit cost method and include amounts for current service and
interest on projected benefit obligations and plan assets. The Company's policy
is to fund at least the minimum contribution amount required by the Employee
Retirement Income Security Act of 1974.
ADVERTISING
Advertising costs are expensed as incurred. Advertising costs were $66.1
million, $10.3 million, $65.6 million and $77.7 million for the periods ended
October 16, 1996, December 31, 1996, 1997, and 1998, respectively.
ENVIRONMENTAL COSTS
The Company's operations include the storage and dispensing of gasoline. The
Company accrues losses associated with the remediation of accidental fuel
discharges when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental remediation obligations are not
discounted to their present value. Recoveries from insurance companies and other
reimbursements are generally not significant.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent pronouncements of the Financial Accounting Standards Board, which
were adopted for the year ended December 31, 1998 are Financial Accounting
Standards No. 130, "REPORTING COMPREHENSIVE INCOME" (see Note 11), and No. 132
"EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS" (see
Note 13). The adoption of these accounting standards has not had a material
effect on the results of operations or the financial position of the Company.
23
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A recent pronouncement of the Financial Accounting Standards Board which is
not required to be adopted at this date, is Statement of Financial Accounting
Standards No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES" ("SFAS 133"), which is effective for the Company's consolidated
financial statements for the year ending December 31, 2000. SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that any entity recognize all derivatives as either assets or
liabilities in the statement of financial position at fair value.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position No. 98-5, "ACCOUNTING
FOR START-UP COSTS" ("SOP 98-5"). SOP 98-5 requires that all start-up costs
should be expensed as incurred, unless the costs incurred were to acquire or
develop tangible assets or to acquire intangible assets from a third party. The
SOP is effective for fiscal years beginning after December 15, 1998.
The adoption of SFAS 133 and SOP 98-5 is not expected to have a material
effect on the results of the Company's consolidated financial statements.
NOTE 2--ACQUISITIONS (continued)
On May 1, 1998, the Company acquired the assets of the car rental business
of Hayes Leasing Company, Inc., including the Avis System franchises for the
cities of Austin, Fort Worth and San Antonio, and the counties of Dallas and
Tarrant, Texas for approximately $86 million in cash plus the refinancing of
fleet-related indebtedness, which totaled approximately $136 million for a total
purchase price of approximately $222 million. In addition, during the year ended
December 31, 1998, the Company purchased the assets of several other Avis System
franchises for approximately $15 million in cash. If these Acquisitions had
occurred on January 1, 1998 or 1997, they would not have had a material impact
on the Company's results of operations. The excess purchase price over the net
assets acquired for these acquisitions was approximately $90 million.
The following is the preliminary purchase cost allocation for the
acquisition of the assets of Hayes Leasing Company, Inc. and other Avis System
franchises during the year ended December 31, 1998 mentioned above (in
thousands):
<TABLE>
<S> <C>
Purchase cost..................................................... $ 237,182
---------
Fair value of:
Assets acquired................................................. 153,828
Liabilities assumed............................................. (6,967)
---------
Net assets........................................................ 146,861
---------
Cost in excess of net assets acquired............................. $ 90,321
---------
---------
</TABLE>
On August 20, 1997, the Company purchased The First Gray Line Corporation.
On September 18, 1997, the Company purchased certain assets and repurchased the
franchise rights of another Avis System franchisee. These acquisitions had an
aggregate purchase cost of approximately $199 million. The excess purchase cost
over net assets acquired was approximately $173 million.
24
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--ACQUISITIONS (CONTINUED)
- --------------------------------
The following is the purchase cost allocation for these 1997 acquisitions
mentioned above (in thousands):
<TABLE>
<S> <C>
Purchase cost..................................................... $ 199,381
---------
Fair value of:
Assets acquired................................................. 354,637
Liabilities assumed............................................. 328,269
---------
Net assets........................................................ 26,368
---------
Cost in excess of net assets acquired............................. $ 173,013
---------
---------
</TABLE>
The preliminary purchase cost allocations for certain acquisitions are
subject to adjustment when additional information concerning asset and liability
valuations are obtained. The final asset and liability fair values may differ
from those set forth in the accompanying statement of financial position at
December 31, 1998. However, the changes are not expected to have a material
effect on the financial position of the Company. These acquisitions have been
accounted for by the purchase method. The financial statements include the
operating results of these acquisitions subsequent to their respective dates of
acquisition.
The acquisition of the franchise rights of the additional Avis System
franchisee, if it had occurred on January 1, 1997, would not have had a material
impact on the results of operations of the Company.
The following unaudited pro forma information presents the results of
operations of the Company, which assumes that the following transactions had
occurred on January 1 of each period presented: (i) the acquisition of the
Company by Cendant and the establishment of a franchisor/franchisee
relationship, (ii) the acquisition of First Gray Line and (iii) the repayment of
debt with the net proceeds (after the purchase of First Gray Line) from the IPO
(in thousands, except earnings per share amounts):
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Revenue........................................................... $ 2,055,519 $ 2,175,897
------------ ------------
------------ ------------
Net income........................................................ $ 8,567 $ 39,432
------------ ------------
------------ ------------
Basic earnings per share.......................................... $ .28 $ 1.28
------------ ------------
------------ ------------
Diluted earnings per share........................................ $ .28 $ 1.26
------------ ------------
------------ ------------
</TABLE>
NOTE 3--RESTRICTED CASH
At December 31, 1997 and 1998, restricted cash includes an escrow amount of
$66,000,000 and $90,000,000, respectively, as required under the Company's debt
agreements, to provide additional credit enhancement on the Company's Medium
Term Notes (the "Medium Term Notes") (see Note 9). In addition, restricted cash
includes amounts relating to lease obligations of the Company's Canadian vehicle
financing arrangements, amounts set aside to satisfy certain claims under the
Company's self-insurance programs and other obligations of the Company.
25
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--ACCOUNTS RECEIVABLE, NET
Accounts receivable, net at December 31, 1997 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Vehicle rentals....................................................... $ 102,697 $ 104,032
Due from General Motors............................................... 166,941 161,377
Vehicle related....................................................... 52,450 65,586
Damage claims......................................................... 11,938 14,710
Due from licensees.................................................... 4,361 1,571
Other................................................................. 23,362 16,648
---------- ----------
361,749 363,924
Less allowance for doubtful accounts.................................. (2,286) (3,350)
---------- ----------
$ 359,463 $ 360,574
---------- ----------
---------- ----------
</TABLE>
Vehicle related amounts include receivables for vehicles sold under
guaranteed repurchase contracts ("Repurchase Programs") and amounts due for
incentives and allowances. Incentives and allowances are based on all of the
following: the volume of vehicles to be purchased for a model year, the
manufacturers' willingness to encourage the Company to retain vehicles rather
than return the vehicles back to the manufacturer and the purchase of particular
models not subject to repurchase under "buyback" arrangements. Incentives and
allowances are amortized to income over the average holding period of the
vehicles (see Notes 6 and 19).
NOTE 5--DUE TO AFFILIATES, NET
Due to affiliates, net at December 31, 1997 and 1998 consist of non-interest
bearing advances due Cendant or its consolidated subsidiaries of $44.5 million
and $22.3 million, respectively. Non-interest bearing advances represents
intercompany transactions relating primarily to royalty fees, reservation
processing, data processing and management, service and administrative fees.
Expense and (income) items of the Company include the following charges from
(to) Avis, Inc. and subsidiaries prior to the Date of Acquisition for the period
ended October 16, 1996 (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, 1996
TO
OCTOBER 16,
1996
---------------
<S> <C>
Vehicle related costs............................................................................ $ (25,134)
Data processing.................................................................................. 30,209
Employee benefits allocation..................................................................... (2,776)
Rent............................................................................................. (2,459)
---------------
$ (160)
---------------
---------------
</TABLE>
26
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--DUE TO AFFILIATES, NET (CONTINUED)
Expense items of the Company include the following charges from Cendant and
affiliates of Cendant for the period October 17, 1996 (Date of Acquisition) to
December 31, 1996 and for the years ended December 31, 1997 and 1998 (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 17,
1996
TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
--------------- ------------ ------------
<S> <C> <C> <C>
Royalty fee.................................... $ -- $ 81,846 $ 91,904
Reservations................................... 10,900 43,240 49,872
Data processing................................ 8,772 41,896 35,844
Management, service and administrative fees and
other........................................ 12,079 4,927 4,648
------- ------------ ------------
$ 31,751 $ 171,909 $ 182,268
------- ------------ ------------
------- ------------ ------------
</TABLE>
These charges seek to reimburse the affiliated company for the actual costs
incurred. They are determined in accordance with various intercompany agreements
and include certain allocations which are based upon such factors as square
footage, employee salaries, computer usage time, etc. Effective January 1, 1997,
Cendant charged the Company a royalty fee of 4.0% of revenue for the use of the
Avis trade name. The royalty fee of 4.0% consists of a base royalty of 3.0% of
the Company's gross revenue and a supplemental royalty of 1.0% of gross revenue
payable quarterly in arrears (which will increase 0.1% per year commencing July
30, 1999 and each of the following four years thereafter to a maximum of 1.5%
until July 30, 2003). The supplemental royalty or a portion thereof may be
deferred if the Company does not meet certain financial targets.
In addition, for the year ended December 31, 1998, the Company was charged
by Cendant approximately $3.8 million for certain software developed for
internal use, which have been capitalized on the accompanying Consolidated
Statements of Financial Position. Under the Computer Services Agreement with
Cendant dated July 30, 1997, software developed for the Company's internal use
is charged to the Company at Cendant's cost.
NOTE 6--VEHICLES, NET
Vehicles at December 31, 1997 and 1998 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Rental vehicles....................................................................... $ 3,173,526 $ 3,443,385
Buses and support vehicles............................................................ 55,761 67,786
Vehicles held for sale................................................................ 51,645 21,871
------------ ------------
3,280,932 3,533,042
Less accumulated depreciation......................................................... (262,076) (368,226)
------------ ------------
$ 3,018,856 $ 3,164,816
------------ ------------
------------ ------------
</TABLE>
Depreciation expense recorded for vehicles was $275.9 million, $66.8
million, $460.6 million and $576.2 million for the periods ended October 16,
1996, December 31, 1996, 1997, and 1998, respectively. Depreciation expense is
stated net of amortization of certain incentives and allowances from various
27
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--VEHICLES, NET (CONTINUED)
vehicle manufacturers of approximately $67.6 million, $15.6 million, $119
million and $107 million for the periods ended October 16, 1996, December 31,
1996, 1997 and 1998, respectively. Depreciation expense also reflects a net gain
(loss) on the disposal of vehicles of $23.7 million, $2.9 million, $7.0 million
and $(6.8) million for the periods ended October 16, 1996, December 31, 1996,
1997, and 1998, respectively.
In April 1990 and December 1994, the Company entered into seven year
operating leases. Rental expense for those vehicles under the Company's
operating lease agreements was $93.0 million, $16.1 million, and $58.4 million
for the periods ended October 16, 1996, December 31, 1996 and 1997,
respectively. These leases were terminated on July 31, 1997 and refinanced under
a domestic integrated fleet financing program (see Note 9).
NOTE 7--PROPERTY AND EQUIPMENT, NET
Property and equipment at December 31, 1997 and 1998 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Land.................................................................. $ 25,269 $ 23,726
Buildings............................................................. 12,775 8,655
Leasehold improvements................................................ 64,779 87,830
Furniture, fixtures and equipment..................................... 13,456 16,869
Construction-in-progress.............................................. 18,714 32,236
---------- ----------
134,993 169,316
Less accumulated depreciation and amortization........................ (12,133) (24,271)
---------- ----------
$ 122,860 $ 145,045
---------- ----------
---------- ----------
</TABLE>
NOTE 8--ACCRUED LIABILITIES
Accrued liabilities at December 31, 1997 and 1998 consist of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Payroll and related costs............................................. $ 101,962 $ 103,043
Taxes, other than income taxes........................................ 9,229 9,349
Rents and property related............................................ 35,644 22,241
Interest.............................................................. 7,294 6,140
Sales and marketing................................................... 24,672 43,704
Vehicle related....................................................... 25,475 27,102
Other................................................................. 111,011 114,625
---------- ----------
$ 315,287 $ 326,204
---------- ----------
---------- ----------
</TABLE>
28
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--FINANCING AND DEBT
Debt outstanding at December 31, 1997 and 1998 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Commercial Paper Notes (at an average rate of 5.9% in 1997 and
5.6% in 1998)................................................... $ 1,091,800 $ 678,377
Short-term notes-foreign at 5.77% to 13.5% in 1997 and 5.0% to
12.0% in 1998................................................... 17,996 17,904
Floating rate notes at rates from 5.42% to 5.63%.................. 56,977
Current portion of long-term debt................................. 49,644 1,085
------------ ------------
Total current debt.............................................. 1,159,440 754,343
Medium Term Notes due July 2000 at 6.22%.......................... 800,000 800,000
Medium Term Notes due July 2002 at 6.40%.......................... 850,000 850,000
Medium Term Notes due February 2005 at 6.14%...................... 600,000
Foreign floating rate notes due July 2000 at rates from 5.81% to
7.02% in 1997 and 5.69% to 6.21% in 1998........................ 15,205 9,677
Other debt........................................................ 1,777 692
------------ ------------
$ 2,826,422 $ 3,014,712
------------ ------------
------------ ------------
</TABLE>
On July 31, 1997, the Company through Avis Rent A Car System, Inc. ("ARACS")
entered into a domestic integrated fleet financing program that provided for up
to $3.65 billion in financing for vehicles covered by Repurchase Programs, with
up to 25% of the facility available for vehicles not covered by Repurchase
Programs. As of December 31, 1998, the availability of the domestic integrated
fleet financing program is $3.75 billion. The domestic integrated fleet
financing program provides for the issuance of up to $1.5 billion of
asset-backed variable funding notes (the "Commercial Paper Notes") and $2.25
billion of asset backed medium term notes (The "Medium Term Notes"). The
Commercial Paper Notes and the Medium Term Notes are backed by a first priority
security interest in the Company's fleet. Additional credit enhancement was
provided for the Medium Term Notes by establishing an escrow account in the
amounts of $66 million and $90 million, which is included in "Restricted Cash"
(see Note 3) on the accompanying Consolidated Statements of Financial Position
at December 31, 1997 and 1998, respectively. The weighted average interest rate
on commercial paper was 5.5% for the year ended December 31, 1998. Average
commercial paper borrowings during 1998 amounted to $809.7 million.
As part of the acquisition of The First Gray Line Corporation (see Notes 1
and 2), the Company assumed a $200 million vehicle financing facility between
Grand Rent A Car, Inc. (a subsidiary of The First Gray Line Corporation) and
Atlantic Asset Securitization Corporation, under a credit agreement originally
dated as of September 15, 1995. This agreement provided for the financing of
vehicles used in The First Gray Line Corporation's rental business, and expired
on August 15, 1998. At December 31, 1997 under this credit agreement, there was
$115 million outstanding and included in Commercial Paper Notes. The weighted
average interest rate and average borrowing under this credit agreement was 5.7%
and $171.1 million respectively for the period August 20, 1997 to December 31,
1997. The credit facility was maintained until July 31, 1998, when it was
terminated. For the period January 1, 1998, to July 31, 1998, the weighted
average interest rate and average borrowing under this credit facility was 5.6%
and $58.1 million, respectively.
29
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--FINANCING AND DEBT (CONTINUED)
On July 31, 1997, ARACS entered into a $470 million secured credit facility
(the "Credit Facility") which is guaranteed by the Company and certain of ARACS'
subsidiaries. The Credit Facility was reduced to $350 million with the repayment
of a $120 million term loan on December 1, 1997. The following is a summary of
the material terms and conditions of the Credit Facility:
The Credit Facility consists of (i) a revolving credit facility in the
amount of up to $125 million and is available on a revolving basis until
December 31, 2001 in order to finance the working capital needs of ARACS in
the ordinary course of business (with up to $75 million of such amount
available for the issuance of standby letters of credit to support worker's
compensation and other insurance and bonding requirements of ARACS, the
Company and its subsidiaries in the ordinary course of business), (ii) a 364
day standby letter of credit facility of $225 million available on a
revolving basis until April 29, 1999 to fund (a) any shortfall in certain
payments owing to AESOP Leasing, a subsidiary of ARACS pursuant to fleet
agreements and (b) maturing Commercial Paper Notes if such Commercial Paper
Notes cannot be repaid through the issuance of additional Commercial Paper
Notes or draws under the liquidity facility supporting the Commercial Paper
Notes. In addition, up to $75 million of the $225 million is available on a
revolving basis to finance the working capital needs of ARACS in the
ordinary course of business. For the period July 31, 1997 through December
1, 1997, the average outstanding borrowings on this facility were $74.6
million with a weighted average interest rate of 8%. At December 31, 1998,
the Company had issued letters of credit of $31.9 million under the $125
million revolving credit facility and $150 million under the $225 million
standby letter of credit facility. At December 31, 1998 there were no loans
outstanding under either facility.
Interest accrues on borrowings outstanding under the Credit Facility at a
rate equal to at the option of ARACS, (A) the sum of (i) the highest of (a)
the rate of interest publicly announced by Chase Securities Inc. as its
prime rate in effect at its principal office in New York City, or (b) the
secondary market rate for three-month certificates of deposit (adjusted for
statutory reserve requirements) plus 1% or (c) the federal funds effective
rate from time to time plus 0.5% and (ii) an applicable margin; or (B) the
sum of (i) the rate (adjusted for statutory reserve requirements) at which
eurodollar deposits for one, two, three or six months (as selected by ARACS)
are offered in the interbank eurodollar market and (ii) an applicable
margin.
The Credit Facility is secured by the tangible and intangible assets of
ARACS and the Company (including, without limitation, its intellectual
property, its rights under the Master License Agreement and related
agreements, real property and all of the capital stock or equivalent equity
ownership interests of ARACS and each of its direct and indirect domestic
subsidiaries and 65% of ARACS first-tier foreign subsidiaries), except for
those assets which are subject to a negative pledge or as to which the
agents for the Credit Facility shall determine in their sole discretion that
the costs of obtaining such a security interest are excessive in relation to
the value of the security to be afforded thereby.
The weighted-average interest rates of the short-term notes-foreign as of
December 31, 1997 and 1998 were 8.7% and 6.0%, respectively.
Prior to July 31, 1997, the primary source of funding the Company's domestic
vehicles was provided by a Vehicle Trust. The annualized weighted average
interest rates for Vehicle Trust financing for the periods ended October 16,
1996, December 31, 1996 and 1997 were 6.6%, 6.5% and 6.6%, respectively.
30
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--FINANCING AND DEBT (CONTINUED)
The agreements with the Company's lenders include a number of significant
covenants that, among other things, restrict its ability to dispose of non-fleet
assets, incur additional indebtedness, create liens, prohibit the payment of
dividends, enter into certain investments or acquisitions, repurchase or redeem
capital stock, engage in mergers or consolidations or engage in certain
transactions with affiliates and otherwise restrict corporate activities.
Certain of these agreements also require the Company to maintain specified
financial ratios. As of December 31, 1998, the Company was in compliance with
all such covenants related to these agreements.
Mandatory maturities of long-term obligations, including current maturities,
for each of the next five years ending December 31, and thereafter, are as
follows (in thousands):
<TABLE>
<S> <C>
1999.............................................. $ 1,085
2000.............................................. 809,886
2001.............................................. 227
2002.............................................. 850,220
2003.............................................. 36
Thereafter........................................ 600,000
</TABLE>
OTHER CREDIT FACILITIES
At December 31, 1998, in addition to the Credit Facility previously
described, the Company has available letters of credit/overdraft agreements for
its international operations totaling $29.8 million, which may be renewed
annually at the Company's option and the banks' discretion. The collateral for
certain of these agreements consists of a pledge of certain cash balances in the
amount of $25 million, which are included in "Restricted Cash" on the
accompanying Consolidated Statements of Financial Position at December 31, 1998.
At December 31, 1998, the Company has outstanding letters of credit under these
facilities totaling $26.7 million.
In addition, for certain of its international operations, the Company has
available unused lines of credit totaling $227.1 million. At December 31, 1998,
the unused lines of credit agreements require an annual fee of 0.2% to 0.5% of
the unused line.
INTEREST RATE SWAP AGREEMENTS
The Company has entered into four interest rate swap agreements to reduce
the impact of changes in interest rates on certain outstanding current debt
obligations. These agreements effectively change the Company's interest rate
exposure on $24.6 million and $288.6 million of its outstanding debt from a
weighted average variable interest rate to a fixed rate of 6.3% and 4.8% at
December 31, 1997 and 1998, respectively. The variable interest rates for
certain of these interest rate swap agreements are either reset quarterly or
daily based upon the average 30-day commercial paper rate for the quarter.
Interest is cash settled on a net basis for each agreement quarterly. The
interest rate swap agreements will terminate in October 2001 and August 2003.
Under certain of the swap agreements terminating in August 2003, the
counter-party has the right to terminate one of the agreements in August 2000
and one agreement in August 2001. The differential to be paid or received is
recognized ratably as interest rates change over the life of the agreements as
an adjustment to interest expense.
The net interest differential charged to interest expense for the periods
ended October 16, 1996, December 31, 1996, 1997 and 1998 was $582,000, $285,000,
$909,000 and $53,000, respectively. The
31
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--FINANCING AND DEBT (CONTINUED)
Company is exposed to credit risk in the event of nonperformance by
counterparties to its interest rate swap agreements. Credit risk is limited by
entering into such agreements with primary dealers only. Therefore, the Company
does not anticipate that non-performance by counterparties will occur.
Notwithstanding this, the Company monitors counterparty credit ratings at least
quarterly through reviewing independent credit agency reports.
Both current and potential exposure are evaluated, as necessary, by
obtaining replacement cost information from alternative dealers. Potential loss
to the Company from credit risk on these agreements is limited to amounts
receivable, if any.
NOTE 10--FAIR VALUE OF FINANCIAL INSTRUMENTS
The net interest payable and the estimated fair value of the Company's
interest rate swap agreements represent liabilities of approximately $193,000
and $366,000, respectively, at December 1997. At December 31, 1998, the net
interest receivable and estimated fair value of the Company's interest rate swap
agreements represent assets of approximately $268,000 and $885,000,
respectively.
For instruments including cash and cash equivalents, restricted cash,
accounts receivable, and accounts payable, the carrying amount approximates fair
value because of the short maturity of these instruments. The fair value of
floating-rate debt approximates carrying value because these instruments
re-price frequently at current market prices. At December 31, 1998, the fair
value of the Medium Term Notes exceeds the carrying value by approximately $44.5
million.
The Company believes that it is not practicable to estimate the current fair
value of the amounts due from (to) affiliates because of the related party
nature of the instruments.
NOTE 11--INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 17, 1996
JANUARY 1, 1996 (DATE OF
TO ACQUISITION)
OCTOBER 16, TO YEAR ENDED YEAR ENDED
1996 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
--------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Current:
Federal........................... $ 800
State............................. $ 2,176 $ 719 $ 1,013 980
Foreign........................... 6,680 288 12,676 8,470
------- ------ ------- -------
8,856 1,007 13,689 10,250
------- ------ ------- -------
Deferred:
Federal........................... 19,614 (85) 12,463 33,200
State............................. 410 3,520
Foreign........................... 2,728 118 (3,712) 1,737
------- ------ ------- -------
22,342 33 9,161 38,457
------- ------ ------- -------
Provision for income taxes.......... $ 31,198 $ 1,040 $ 22,850 $ 48,707
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
32
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--INCOME TAXES (CONTINUED)
The effective income tax rates for the periods ended October 16, 1996,
December 31, 1996, 1997 and 1998 vary from the statutory U.S. federal income tax
rate due to the following (dollar amounts in thousands):
<TABLE>
<CAPTION>
OCTOBER 17, 1996
(DATE OF
JANUARY 1, 1996 ACQUISITION)
TO TO
OCTOBER 16, 1996 DECEMBER 31, 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Statutory U.S. federal income tax provision/tax rate.................. $ 24,429 35.0% $ 791 35.0%
Tax effect of foreign operations and dividends........................ 5,134 7.4 (1,073) (47.5)
Amortization of cost in excess of net assets acquired and other
intangibles......................................................... 1,045 1.5 359 15.9
State income taxes, net of federal tax benefit........................ 1,413 2.0 469 20.8
Other non-deductible business expenses................................ 462 .6 494 21.8
Other................................................................. (1,285) (1.8)
--------- --- --------- ---------
Effective income tax provision/tax rate............................... $ 31,198 44.7% $ 1,040 46.0%
--------- --- --------- ---------
--------- --- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- --------------------
<S> <C> <C> <C> <C>
Statutory U.S. federal income tax provision/tax rate.................. $ 17,613 35.0% $ 39,280 35.0%
Tax effect of foreign operations and dividends........................ 1,436 2.9 2,677 2.4
Amortization of cost in excess of net assets acquired and other
intangibles......................................................... 2,369 4.7 3,351 3.0
State income taxes, net of federal tax benefit........................ 924 1.8 2,925 2.6
Other non-deductible business expenses................................ 508 1.0 474 0.4
--------- --- --------- ---
Effective income tax provision/tax rate............................... $ 22,850 45.4% $ 48,707 43.4%
--------- --- --------- ---
--------- --- --------- ---
</TABLE>
In accordance with SFAS 109, the net deferred income tax assets at December
31, 1997 and 1998, include the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
GROSS DEFERRED INCOME TAX ASSETS:
Accrued liabilities....................................................................... $ 223,881 $ 233,695
Net operating loss carryforwards.......................................................... 96,253 118,437
Alternative minimum income tax credit carryforwards....................................... 3,025 3,825
---------- ----------
323,159 355,957
---------- ----------
GROSS DEFERRED INCOME TAX LIABILITIES:
Tax depreciation in excess of book depreciation........................................... (197,082) (247,090)
Prepaids and other........................................................................ (14,457) (16,592)
---------- ----------
(211,539) (263,682)
---------- ----------
Net deferred income tax assets............................................................ $ 111,620 $ 92,275
---------- ----------
---------- ----------
</TABLE>
In connection with the adoption of Statement of Financial Accounting
Standards No. 130, "REPORTING COMPREHENSIVE INCOME" ("SFAS 130"), the Company
has included in net deferred income tax assets and
33
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--INCOME TAXES (CONTINUED)
Stockholders' Equity, a decrease of $1.2 million, a decrease of $0.1 million,
an increase of $3.8 million, and an increase of $3.1 million related to the
income tax effects of the Foreign Currency Translation Adjustment and Minimum
Pension Liability for the periods ended October 16, 1996, December 31, 1996,
1997, and 1998, respectively.
The Company has alternative minimum tax net operating loss carryforwards of
$191.4 million. The federal net operating loss carryforward is $318.5 million;
the net operating loss carryforward expires as follows: 2000, $7.5 million;
2001, $7.1 million; 2004, $93.1 million; 2007, $67.7 million; 2008, $41.1
million; 2009, $18.3 million; and 2012, $83.7 million.
NOTE 12--TREASURY STOCK
On September 1, 1998, the Board of Directors authorized the Company to
repurchase up to 1,500,000 shares of the outstanding common stock at market
prices. On September 23, 1998, the Board of Directors authorized the Company to
purchase up to 3,500,000 additional shares of outstanding common stock. For the
year ended December 31, 1998, the Company repurchased 2,672,700 shares of common
stock at an aggregate cost of $50,960,000. On January 23, 1999, the Company
repurchased an additional 1,300,000 common shares from Cendant at a cost of
$31,500,000, which reduced Cendant's ownership in the Company's common stock to
approximately 20% (see Note 21).
NOTE 13--RETIREMENT BENEFITS
The Company, through its subsidiary ARACS, sponsors non-contributory defined
benefit plans covering employees who are members of certain collective
bargaining units and non-union full-time employees hired prior to December 31,
1983 who were age 25 or above on January 1, 1985. ARACS also contributes to
union sponsored pension plans.
Effective January 1, 1999 the Company curtailed its defined benefit plans to
its eligible salaried and hourly employees as of June 30, 1985. The Company will
recognize a gain as a result of the curtailment during the first quarter of
fiscal year ending December 31, 1999.
Through ARACS, the Company sponsors two Voluntary Investment Savings Plans
under a "qualified cash or deferred arrangement" under Section 401(k) of the
Internal Revenue Code covering its union and non-union employees. For the
periods ended October 16, 1996, December 31, 1996, 1997 and 1998, the Company's
cost of these plans was $1.4 million, $0.4 million, $1.8 million and $1.6
million, respectively.
Included in the non-union Investment Savings Plan, ARACS makes a defined
contribution for full-time employees. The contributions are determined at 2% of
each covered employee's compensation. Employer contributions for the periods
ended October 16, 1996, December 31, 1996, 1997 and 1998 amounted to $1.5
million, $0.4 million, $2.1 million and $2.3 million, respectively.
The defined benefit plans provide benefits based upon years of credited
service, highest average compensation and social security benefits. Annual
retirement benefits, at age 65, are equal to 1 1/2% of the participating
employee's final average compensation (average compensation during the highest
five consecutive years of employment in the ten years prior to retirement) less
1 3/7% of the Social Security benefits for each year of service up to a maximum
of 35 years. In addition, the plan provides for reduced benefits before age 65
and for a joint and survivor annuity option.
34
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--RETIREMENT BENEFITS (CONTINUED)
The Company also sponsors several foreign pension plans. The most
significant of these is the Canadian pension plan.
The status of the Company's defined benefit plans at December 31, 1997 and
1998, including the plans to its Salaried and Hourly Employees as of June 1985,
the Bargaining Plan, the Non Qualified Defined Benefit Plan and the Canadian
Plan is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year............................... $ 89,325 $ 106,887
Service cost........................................................ 3,446 2,809
Interest cost....................................................... 6,956 6,922
Plan participants' contributions.................................... 193 182
Amendments.......................................................... 631 635
Actuarial gain...................................................... 9,266 11,014
Benefits paid....................................................... (2,752) (2,798)
Foreign currency translation loss................................... (178) (400)
---------- ----------
Benefit obligation at end of year..................................... 106,887 125,251
---------- ----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year........................ 77,747 89,816
Actual return on plan assets........................................ 9,707 8,969
Plan participants' contributions.................................... 192 182
Employer contributions.............................................. 5,160 5,908
Benefits paid....................................................... (2,628) (2,798)
Foreign currency translation loss................................... (362) (715)
---------- ----------
Fair value of plan assets at end of year.............................. 89,816 101,362
---------- ----------
Funded status......................................................... (17,071) (23,889)
Unrecognized net accrual gain......................................... 7,629 16,394
Unrecognized prior service cost....................................... 1,228 1,703
Unrecognized transition asset......................................... (2,587) (2,251)
---------- ----------
Accrued benefit cost.................................................. $ (10,801) $ (8,043)
---------- ----------
---------- ----------
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION:
Prepaid benefit cost.................................................. $ 1,704 $ 1,752
Accrued benefit liability............................................. (4,351) (14,340)
Intangible asset...................................................... (8,554) 1,704
Accumulated other comprehensive income................................ 400 2,841
---------- ----------
Net amount recognized................................................. $ (10,801) $ (8,043)
---------- ----------
---------- ----------
</TABLE>
35
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--RETIREMENT BENEFITS (CONTINUED)
Net pension costs of the non-qualified defined benefit plan for the periods
ended October 16, 1996, December 31, 1996, 1997 and 1998, include the following
components (in thousands):
<TABLE>
<CAPTION>
JANUARY 1, 1996 OCTOBER 17, 1996 JANUARY 1, 1997 JANUARY 1, 1998
TO TO TO TO
OCTOBER 16, 1996 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Service cost-benefits earned during the period.. $ 2,558 $ 359 $ 3,446 $ 2,809
Interest cost on projected benefit obligation... 4,224 517 6,956 6,922
Return on assets-expected gain on plan assets... (5,380) (1,558) (6,804) (7,786)
Net amortization of prior service cost.......... 765 1,257 35 70
Contributions to union plans and other.......... 2,029 733 3,021 3,894
Amortization of unrecognized net assets at
transition.................................... (106) (28) (132) (123)
------ ------- ------ ------
Net pension cost................................ $ 4,090 $ 1,280 $ 6,522 $ 5,786
------ ------- ------ ------
------ ------- ------ ------
</TABLE>
At December 31, 1997 and 1998, the measurement of the projected benefit
obligation was based upon the following assumptions weighted average interest
rates:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Discount rate................................................................. 7.24% 6.00%
Compensation increase......................................................... 4.72% 4.72%
Long-term return on plan assets............................................... 8.81% 8.77%
</TABLE>
The U.S. plans' assets are invested in corporate bonds, U.S. government
securities and common stock mutual funds. The Canadian plan's assets are
invested in Canadian stocks, bonds, mutual funds, real estate and money market
funds.
NOTE 14--EARNINGS PER SHARE ("EPS")
In calculating basic earnings per share, the shares issued in the initial
public offering of 22,425,000 shares together with 8,500,000 shares owned by
Cendant, resulting from the 85,000 to 1 stock split on September 24, 1997 (Date
of IPO), were used for all periods presented through December 31, 1997. Basic
EPS for 1998 was calculated using 34,172,249 weighted-average shares outstanding
for the year ended December 31, 1998. Diluted EPS for the year ended December
31, 1997 and 1998 was calculated as follows (in thousands, except share
amounts):
<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
DILUTED EPS
Income available to common stockholders........................ $ 27,473 $ 63,521
------------- -------------
------------- -------------
Weighted average common shares outstanding..................... 30,925,000 34,172,249
Plus: Dilutive effect of the assumed exercise of stock options
(i).......................................................... 256,134 780,308
------------- -------------
Adjusted weighted average shares outstanding................... 31,181,134 34,952,557
------------- -------------
------------- -------------
Diluted EPS (i)................................................ $ 0.88 $ 1.82
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(i) Prior to September 23, 1997, there were no stock options outstanding.
36
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--STOCK OPTION PLAN
On September 23, 1997, the Avis Rent A Car, Inc. 1997 Stock Option Plan (the
"Stock Option Plan") was adopted by the Board of Directors under which 4,620,977
shares of Common Stock were reserved for issuance upon the exercise of options
granted to officers, key employees, independent contractors and non-employee
Directors of the Company and its designated subsidiaries. On September 23, 1997,
3,953,900 options were granted at $17.00 per share, the fair market value of the
Company's common stock on the date of grant. On May 21, 1998, at the Annual
Meeting of Stockholders, the shareholders approved an amendment to the Company's
Stock Option Plan, increasing the maximum number of shares authorized for
issuance under the Stock Option Plan to 6,000,000. At December 31, 1998,
approximately 4,443,100 options are outstanding under the Stock Option Plan. The
primary purpose of the Stock Option Plan is to provide additional incentive to
officers, key employees, independent contractors and non-employee Directors of
the Company and to strengthen their commitment to the Company and its
subsidiaries.
Subsequently elected non-employee Directors will receive a like grant under
the Stock Option Plan upon election or appointment to the Board of Directors.
The exercise price of each option under the Stock Option Plan may not be
less than the fair market value of a share of Common Stock on the date the
option is granted. Options held by an optionee will generally become exercisable
as to 20% of the shares covered by such options on the first anniversary of the
date of grant and with respect to an additional 20% of the shares covered by
such options on each of the four succeeding anniversaries of the date of grant
if the optionee continues to be employed or retained as an independent
contractor by the Company, on each such date. All options held by an optionee
will become fully exercisable (to the extent not already exercisable) if a
"change of control transaction" (as defined in the Stock Option Plan) occurs.
Shares of Common Stock acquired upon the exercise of the options may be subject
to restrictions on transfer which will be set forth in the agreement evidencing
the grant of the option. All options granted under the Stock Option Plan, to the
extent not exercised, expire on the earliest of (i) the tenth anniversary of the
date of grant, (ii) two years following the optionee's termination of employment
on account of death, retirement, disability or (iii) one year following the
termination of optionee's employment for any other reason.
Generally, the Board of Directors of the Company may amend or terminate the
Stock Option Plan, provided that (i) no such amendment or termination may
adversely affect the rights of any participant without the consent of such
participant and (ii) to the extent required by any law, regulation or stock
exchange rule, no amendment shall be effective without the approval of the
Company's stockholders.
The Company makes no recognition of the options in the financial statements
until they are exercised. The Company applies Accounting Principles Board
Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" and related
Interpretations in accounting for its plans and does not recognize compensation
expense for its stock-based compensation plans. The Company has adopted only the
disclosure provisions of Statement of Financial Accounting Standard No. 123,
"ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS 123").
37
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15--STOCK OPTION PLAN (CONTINUED)
The following is a summary of stock option activity for the period September
23, 1997 through December 31, 1997 and the year ended December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- -------------
<S> <C> <C>
Granted September 23, 1997 (inception of the stock option plan)... 3,953,900 $ 17.00
Forfeited......................................................... (78,200) $ 17.00
---------- ------
Outstanding at December 31, 1997.................................. 3,875,700 $ 17.00
Granted........................................................... 1,437,000 $ 23.49
Forfeited......................................................... (869,600) $ 19.32
---------- ------
Outstanding at December 31, 1998.................................. 4,443,100 $ 18.65
---------- ------
---------- ------
Exercisable Options
December 31, 1998................................................. 759,140 $ 17.00
---------- ------
---------- ------
</TABLE>
No options were exercisable at December 31, 1997.
Pro forma disclosures are provided for the years ended December 31, 1997 and
1998 as if the Company adopted the cost recognition requirements under SFAS 123.
The weighted average fair value of each option granted is (estimated on the date
of grant using the Black-Scholes option-pricing model) is $9.80 and $11.73 for
1997 and 1998, respectively, using the following assumptions:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Expected volatility........................................................... 45.0% 40.0%
Risk-free interest rate....................................................... 5.7 6.0
Expected option life in years................................................. 7.5 6.5
</TABLE>
The weighted-average remaining contractual life of the stock options is 9.6
years and 7.3 years at December 31, 1997 and 1998, respectively. Had
compensation expense been recognized for the years ended December 31, 1997 and
1998, grants for stock-based compensation plans in accordance with provisions of
SFAS 123, the Company would have recorded net income and earnings per share as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998
------------------------ ------------------------
<S> <C> <C> <C> <C>
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ----------- ----------- -----------
Net income...................................................... $ 27,473 $ 26,436 $ 63,521 $ 58,656
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic earnings per share........................................ $ .89 $ .85 $ 1.86 $ 1.72
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per share...................................... $ .88 $ .85 $ 1.82 $ 1.68
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
NOTE 16--LEASES, AIRPORT CONCESSION FEES AND COMMITMENTS
The Company is committed to make rental payments under noncancelable
operating leases relating principally to vehicle rental facilities and
equipment. Under certain leases, the Company is obligated to pay
38
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16--LEASES, AIRPORT CONCESSION FEES AND COMMITMENTS (CONTINUED)
certain additional costs, such as property taxes, insurance and maintenance.
Airport concession agreements usually require a guaranteed minimum amount plus
contingent fees, which are generally based on a percentage of revenues.
Operating lease payments and net airport concession fees charged to expense
for the periods ended October 16, 1996, December 31, 1996, 1997 and 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 17, 1996
JANUARY 1, 1996 (DATE OF
TO ACQUISITION)
OCTOBER 16, TO YEAR ENDED YEAR ENDED
1996 DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
--------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Minimum fees........................ $ 88,787 $ 23,576 $ 122,015 $ 147,034
Contingent fees..................... 61,290 13,220 72,954 34,944
--------------- ------- -------- --------
150,077 36,796 194,969 181,978
Less sublease rentals............... (3,843) (1,000) (4,741) (4,701)
--------------- ------- -------- --------
$ 146,234 $ 35,796 $ 190,228 $ 177,277
--------------- ------- -------- --------
--------------- ------- -------- --------
</TABLE>
Future minimum rental commitments under noncancelable operating leases
amounted to approximately $467.8 million at December 31, 1998. The minimum
rental payments due in each of the next five years ending December 31, and
thereafter, are as follows (in thousands):
<TABLE>
<S> <C>
1999............................................................... $ 89,185
2000............................................................... 73,512
2001............................................................... 58,671
2002............................................................... 43,841
2003............................................................... 26,195
Thereafter......................................................... 176,430
</TABLE>
At December 31, 1998, future minimum rental commitments include $75.0
million due to a subsidiary of Cendant, related to the Company's corporate
headquarters and Virginia Beach processing facility.
In addition to the Company's lease commitments, the Company has outstanding
purchase commitments of approximately $2.1 billion at December 31, 1998, which
relate principally to vehicle purchases.
NOTE 17--SEGMENT INFORMATION
The Company operates in one industry segment, the rental car business. The
Company's rental car business rents vehicles to business and leisure travelers,
and is divided into four main geographic areas; the United States, Australia/New
Zealand, Canada, and other Foreign Operations. Revenue generated from the car
rental business is recorded in the country in which the vehicle is rented. The
accounting policies of each geographic area are the same as those described in
the summary of significant accounting policies
39
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17--SEGMENT INFORMATION (CONTINUED)
(see Note 1). The operations within major geographic areas for the periods ended
October 16, 1996, December 31, 1996, 1997 and 1998 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
PERIOD ENDED OCTOBER 16, 1996
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER
UNITED AUSTRALIA/ FOREIGN
STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
------------ ------------ ---------- ----------- ------------
Revenue....................................... $ 1,313,619 $ 105,401 $ 69,814 $ 15,839 $1,504,673
------------ ------------ ---------- ----------- ------------
------------ ------------ ---------- ----------- ------------
Total assets.................................. $ 2,858,008 $ 115,082 $ 147,617 $ 65,796 $3,186,503
------------ ------------ ---------- ----------- ------------
------------ ------------ ---------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31, 1996
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER
UNITED AUSTRALIA/ FOREIGN
STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
------------ ------------ ---------- ----------- ------------
Revenue....................................... $ 312,194 $ 31,107 $ 13,467 $ 6,076 $ 362,844
------------ ------------ ---------- ----------- ------------
------------ ------------ ---------- ----------- ------------
Total assets.................................. $ 2,839,188 $ 120,216 $ 122,657 $ 49,171 $3,131,232
------------ ------------ ---------- ----------- ------------
------------ ------------ ---------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER
UNITED AUSTRALIA/ FOREIGN
STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
------------ ------------ ---------- ----------- ------------
Revenue....................................... $ 1,804,478 $ 131,228 $ 85,021 $ 25,427 $2,046,154
------------ ------------ ---------- ----------- ------------
------------ ------------ ---------- ----------- ------------
Total assets.................................. $ 4,001,186 $ 98,145 $ 131,987 $ 51,339 $4,282,657
------------ ------------ ---------- ----------- ------------
------------ ------------ ---------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OTHER
UNITED AUSTRALIA/ FOREIGN
STATES NEW ZEALAND CANADA OPERATIONS CONSOLIDATED
------------ ------------ ---------- ----------- ------------
Revenue....................................... $ 2,061,967 $ 115,790 $ 92,402 $ 27,423 $2,297,582
------------ ------------ ---------- ----------- ------------
------------ ------------ ---------- ----------- ------------
Total assets.................................. $ 4,209,835 $ 98,361 $ 148,230 $ 48,636 $4,505,062
------------ ------------ ---------- ----------- ------------
------------ ------------ ---------- ----------- ------------
</TABLE>
40
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18--SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
------------ ------------ ------------- ------------
Revenue................................................. $ 456,014 $ 489,633 $ 580,049 $ 520,458
Costs and expenses...................................... 449,031 472,256 555,096 519,448
------------ ------------ ------------- ------------
Income before provision for income taxes................ 6,983 17,377 24,953 1,010
Provision for income taxes.............................. 2,778 8,476 11,085 511
------------ ------------ ------------- ------------
Net income.............................................. $ 4,205 $ 8,901 $ 13,868 $ 499
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Earnings per share:
Basic................................................... $ .14 $ .29 $ .45 $ .02
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Diluted................................................. $ .14 $ .29 $ .45 $ .02
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Shares of Common Stock outstanding:
Basic................................................... 30,925,000 30,925,000 30,925,000 30,925,000
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Diluted................................................. 30,925,000 30,925,000 30,925,000 31,949,535
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------
<S> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
------------ ------------ ------------- ------------
Revenue................................................. $ 511,390 $ 575,280 $ 652,385 $ 558,527
Costs and expenses...................................... 498,161 535,370 599,679 552,144
------------ ------------ ------------- ------------
Income before provision for income taxes................ 13,229 39,910 52,706 6,383
Provision for income taxes.............................. 5,821 17,560 22,568 2,758
------------ ------------ ------------- ------------
Net income.............................................. $ 7,408 $ 22,350 $ 30,138 $ 3,625
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Earnings per share:
Basic................................................. $ .24 $ .62 $ .85 $ .11
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Diluted............................................... $ .23 $ .61 $ .83 $ .11
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Shares of Common Stock outstanding:
Basic................................................. 31,425,000 35,925,000 35,608,000 33,690,798
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
Diluted............................................... 32,561,483 36,730,233 36,180,000 34,068,603
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
</TABLE>
NOTE 19--RELATED PARTY TRANSACTIONS
The Company and Avis Europe, plc cooperate jointly in marketing and
promotional activities, the exchange of reservations, the honoring of charge
cards and vouchers, and the transfer of the related billings. Two members of the
Company's board of directors are executive officers of Cendant and also serve on
the board of Avis Europe Limited, the parent company of Avis Europe, plc.
During the period ended October 16, 1996, the Company purchased from General
Motors approximately $1.8 billion of vehicles net of incentives and allowances
(see Notes 1 and 4).
41
<PAGE>
AVIS RENT A CAR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19--RELATED PARTY TRANSACTIONS (CONTINUED)
Vehicle manufacturers offer vehicle repurchase programs on an ongoing basis
to assist in the acquisition and disposition of vehicles. These programs
generally allow the Company, at its option, subject to certain provisions, to
sell the vehicles back to the manufacturers at pre-determined prices. Amounts
included under these programs are reflected in "Accounts receivable, net" on the
accompanying consolidated statement of financial position at December 31, 1998
(see Note 4). Under the terms of certain financing agreements with General
Motors, the Company is required to purchase a significant percentage of its
fleet from local dealers of General Motors subject to market conditions. In
addition, the Company participates in an arrangement whereby General Motors
provides payments for purchasing and promoting a specified number and mix of
vehicles (see Note 6).
At December 31, 1998, the Company is affiliated with Cendant, which owns
approximately 20% of the Company as of January 23, 1999. For the years ended
December 31, 1997 and 1998, the Company earned revenues of approximately $2.2
million and $62.1 million, respectively, from Cendant and its subsidiary
companies, of which approximately $76 thousand and $745 thousand was outstanding
and is included in accounts receivable on the accompanying Consolidated
Statements of Financial Position at December 31, 1997 and 1998. The Company
purchased approximately $90.6 million and $91.0 million in 1997 and 1998,
respectively, of goods and services from these affiliated companies.
NOTE 20--LITIGATION
From time to time, the Company is subject to routine litigation incidental
to its business. The Company maintains insurance policies that cover most of the
actions brought against the Company. The Company is not currently involved in
any legal proceeding which it believes would have a material adverse effect upon
its financial condition or results of operations.
NOTE 21--SUBSEQUENT EVENTS
On March 19, 1999, the Company purchased the common stock and franchise
rights of Rent A Car Company, Incorporated, of Richmond, Virginia for $10.2
million. Cost in excess of the fair value of net assets acquired at March 19,
1999, is approximately $7.6 million. The Company financed this transaction
through internally generated funds.
From January 1, 1999 through March 10, 1999, the Company under its Common
Stock Repurchase Program, purchased 2,013,100 shares of common stock at an
aggregate cost of $48.0 million including 1.3 million shares, which were
repurchased from Cendant at a cost of $31.5 million. As of March 10, 1999, under
the Company's Common Stock Repurchase Program, the Company has cumulatively
repurchased 4,685,800 common shares at an average cost of approximately $21 per
share.
42
<PAGE>
Board of Directors
================================================================================
Martin L. Edelman
Interim Chairman of the Board
W. Alun Cathcart
Chairman, Avis Europe plc
Leonard S. Coleman, Jr.
President, National League of Professional Baseball
Deborah L. Harmon
Principal, Office of the President, J.E. Robert Companies
R. Craig Hoenshell
Senior Advisor to Avis Rent A Car, Inc.
Stephen P. Holmes
Vice Chairman, Cendant Corporation
Michael J. Kennedy
Attorney
Michael P. Monaco
Vice Chairman, Cendant Corporation
Chairman and Chief Executive Officer, Alliance Marketing Division
F. Robert Salerno
President and Chief Operating Officer
Michael L. Tarnopol
Vice Chairman of The Bear Stearns Companies Inc.
Officers
================================================================================
F. Robert Salerno Richard S. Jacobson
President and Chief Operating Officer Vice President--Tax
Kevin M. Sheehan Gerard J. Kennell
Executive Vice President and Vice President and Treasurer
Chief Financial Officer
James A. Keyes
Thomas J. Byrnes Vice President--Human Resources,
Senior Vice President--Sales Staffing and Diversity
Maria M. Miller Karen C. Sclafani
Senior Vice President--Marketing Vice President, General Counsel and
Secretary
Michael P. Collins
Vice President--International Timothy M. Shanley
Vice President and Controller
Field Operations
================================================================================
Kerry L. Morris Thomas J. Tobias
Vice President, Western Area Vice President, Northeast Area
George Proos James R. Weber
Vice President, Southeast Area Vice President, Central Area
================================================================================
Registrar and Transfer Agent: Auditors:
Harris Trust and Savings Bank Deloitte & Touche LLP
311 West Monroe, 11th Floor Two World Financial Center
P.O. Box A3504 New York, New York 10281-1418
Chicago, Illinois 60690-3504
Investor Information:
Elizabeth Logler
Director of Investor Relations
Avis Rent A Car, Inc.
900 Old Country Road
Garden City, New York 11530
516-222-4795
- --------------------------------------------------------------------------------
<PAGE>
[GRAPHIC OMITTED]
1999 Wizard Co., Inc.
3/99 DTPP/M
- --------------------------------------------------------------------------------
Exhibit No. 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the previously filed
Registration Statements No. 333-59693, 333-59695 and 333-63269 of Avis Rent A
Car, Inc. on Form S-8 of our report dated January 25, 1999 (March 19, 1999 as to
Note 21), appearing in the Annual Report to Shareholders incorporated by
reference in the Annual Report on Form 10-K of Avis Rent A Car, Inc. for the
year ended December 31, 1998.
/s/Deloitte & Touche LLP
New York, New York
March 26, 1999
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