<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1997
REGISTRATION NO. 333-39661
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7514 73-1356520
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
5330 EAST 31ST STREET
TULSA, OKLAHOMA 74135
(918) 660-7700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN B. HILDEBRAND
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
5330 EAST 31ST STREET
TULSA, OKLAHOMA 74135
(918) 660-7700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
<TABLE>
<S> <C> <C>
PAUL H. WILSON, JR., ESQ. STEPHEN W. RAY, ESQ. STEPHEN H. SHALEN, ESQ.
DEBEVOISE & PLIMPTON HALL, ESTILL, HARDWICK, GABLE, CLEARY, GOTTLIEB, STEEN &
875 THIRD AVENUE GOLDEN & NELSON HAMILTON
NEW YORK, NEW YORK 10022 320 SOUTH BOSTON AVENUE ONE LIBERTY PLAZA
(212) 909-6000 SUITE 400 NEW YORK, NEW YORK 10006
TULSA, OKLAHOMA 74103 (212) 225-2000
(918) 594-0400
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten offering in the United States and Canada
(the "U.S. Prospectus") and one to be used in a concurrent international
offering (the "International Prospectus") of the common stock, par value $.01
per share, of Dollar Thrifty Automotive Group, Inc. The U.S. Prospectus for the
offering in the United States and Canada follows immediately after this
Explanatory Note. After the U.S. Prospectus are the alternate pages for the
International Prospectus: a front cover page, table of contents page and a
"Subscription and Sale" section. A copy of the complete U.S. Prospectus and
International Prospectus in the exact forms in which they are to be used after
effectiveness will be filed with the Securities and Exchange Commission pursuant
to Rule 424(b).
<PAGE> 3
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
AMENDED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE RELATED REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY
APPLICABLE STATE SECURITIES COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 16, 1997
22,500,000 Shares
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. LOGO
Common Stock
------------------
This is an initial public offering of shares of common stock of Dollar
Thrifty Automotive Group, Inc. Chrysler Corporation, which currently owns all of
the common stock, is offering 20,000,000 shares and the Company is offering
2,500,000 shares. After completion of the Offering, Chrysler will no longer own
any common stock. The Company will not receive any proceeds from the sale of
shares by Chrysler. There is currently no public market for the shares. The
Company expects that the public offering price will be between $19 and $22 per
share. The market price of the shares after the Offering may be higher or lower
than the public offering price.
The common stock has been approved for listing on the New York Stock
Exchange under the symbol DTG.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 13.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price.............................................. $ $
Underwriting Discounts and Commissions............................. $ $
Proceeds to Chrysler............................................... $ $
Proceeds to the Company............................................ $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The U.S. Underwriters are offering the shares subject to various conditions
and may reject all or part of any order.
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
Prospectus dated , 1997
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 13
Use of Proceeds....................................................................... 19
Dividend Policy....................................................................... 19
Dilution.............................................................................. 19
Capitalization........................................................................ 20
Unaudited Pro Forma Consolidated Financial Statements................................. 21
Selected Consolidated Financial and Operating Data.................................... 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 33
Industry Overview..................................................................... 43
Business.............................................................................. 44
Continuing Relationship with Chrysler................................................. 62
Management............................................................................ 64
Description of Capital Stock.......................................................... 68
Description of Certain Indebtedness................................................... 71
Certain U.S. Tax Consequences to Non-U.S. Holders of Common Stock..................... 73
Underwriting.......................................................................... 76
Notice to Canadian Residents.......................................................... 79
Legal Matters......................................................................... 80
Experts............................................................................... 80
Additional Information................................................................ 80
Index to Consolidated Financial Statements............................................ F-1
</TABLE>
---------------------------
The Company's principal executive offices are located at 5330 East 31st
Street, Tulsa, Oklahoma 74135, (918) 660-7700.
---------------------------
As used in this Prospectus, (a) the "Company" means Dollar Thrifty
Automotive Group, Inc. (successor to Pentastar Transportation Group, Inc.), (b)
"Dollar Thrifty Group" and "Group" mean Dollar Thrifty Automotive Group, Inc.
and its consolidated subsidiaries, (c) "Dollar" means Dollar Rent A Car Systems,
Inc. and (d) "Thrifty" means Thrifty Rent-A-Car System, Inc.
"Blue Chip", "Dollar", the Dollar logo, "DriveWise", "Thrifty" and the
Thrifty logo are existing or pending trademarks or servicemarks of Dollar
Thrifty Group.
---------------------------
Some of the statements contained in this Prospectus under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" are forward-looking. They
include statements concerning (a) strategy, (b) liquidity and capital
expenditures, (c) the terms upon which vehicles will be acquired, (d) debt
levels and the ability to obtain financing and service debt, (e) competitive
pressures in the vehicle rental business, (f) prevailing levels of interest
rates, (g) legal proceedings and regulatory matters and (h) general economic
conditions. Actual results may differ materially from those suggested by the
forward-looking statements for various reasons, including those discussed under
"Risk Factors."
---------------------------
Shares should be ready for delivery on or about , 1997,
against payment in immediately available funds.
3
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
It is not complete and may not contain all of the information that you should
consider before investing in the common stock. You should read the entire
Prospectus carefully, including the "Risk Factors" section and the financial
statements and the notes to those statements.
THE COMPANY
Dollar Thrifty Group's two vehicle rental companies, Dollar and Thrifty,
operate separate daily vehicle rental businesses. They also license independent
franchisees to rent vehicles under their brands. As of September 30, 1997, the
Dollar and Thrifty systems had 872 locations in the United States and Canada, of
which 161 were company-owned stores and 711 were operated by franchisees. Dollar
and Thrifty also have franchisees outside the United States and Canada. Revenues
from franchisees outside the United States and Canada have not been material to
the Group's results of operations.
The Group offers value-priced rental vehicles under the Dollar and Thrifty
brands. The Group's brands appeal to leisure customers, including tourists, and
to small businesses and independent business travelers. While the two companies
have similar customers, they have different approaches to the vehicle rental
market. In the United States, Dollar derives a majority of its revenues from
company-owned stores located at major airports, and it derives substantial
revenues from foreign tour and leisure rentals. Thrifty derives its revenues
primarily from franchising fees and services, including vehicle leasing.
Thrifty's franchisees operate in both the local and airport markets.
STRATEGY
The Company's main objectives are to increase revenues and improve
profitability by strengthening its value-priced brands. The key elements of this
strategy are:
CAPITALIZE ON CHANGING INDUSTRY DYNAMICS
As a result of recent ownership changes in the domestic vehicle rental
industry, many of the major companies in the industry are now publicly held
and only Dollar and Thrifty remain wholly owned by a domestic automotive
manufacturer. These ownership changes may lead to higher average rental
rates as a result of increased industry focus on profitability and
shareholder returns, rather than on transaction volume and market share.
The Group would benefit from higher rental rates, particularly in markets
where it has a strong position.
BUILD ON THE COMPANY'S NICHES IN THE VEHICLE RENTAL MARKET
Value-Priced Brands
The Dollar and Thrifty brands are identified with the Group's strategy
of offering value-priced rental vehicles that are comparable to those
offered by the Group's principal competitors. Dollar and Thrifty service a
wide variety of leisure and discretionary customers from airport, near
airport and local market locations.
4
<PAGE> 6
Dollar's Leisure Market Position
Dollar intends to build on its strong position in the leisure rental
market. The Company plans to expand Dollar's international tour business
because the Company believes that the trend over the past five years of
increasing numbers of overseas tourists visiting the United States will
continue.
Thrifty's Local Market Position
Thrifty plans to increase its local presence through growth in the
operations of existing franchisees and addition of new franchisees. The
local market has grown faster than the airport market and generally has had
less pricing pressure. Management believes that the local market, where
competition is based on location, service and customer relationships, is
well-suited to Thrifty's franchise strategy, which emphasizes local
ownership and operation.
CAPITALIZE ON OPPORTUNITIES FOR OPERATING EFFICIENCIES
Dollar and Thrifty operate as separate companies and serve the vehicle
rental market in different ways. The Company believes that as an
independent company it can improve efficiency and reduce costs by taking
advantage of its joint ownership of Dollar and Thrifty.
INVEST IN STRATEGIC INFORMATION AND RESERVATION SYSTEMS
Since the beginning of 1995, the Group has made capital investments and
other expenditures totalling $22.8 million for reservation, tour and other
information systems. It plans to make capital expenditures of approximately
$10 million in these systems during 1998. Dollar plans to invest in systems
to improve operational control, fleet utilization, rental rates and
customer service. Thrifty plans to invest in systems to support its
franchisees' operations by offering uniform automated systems and customer
service programs.
EXPAND INTERNATIONAL OPERATIONS
Dollar plans to use commercial arrangements with a foreign independent
vehicle rental company to expand use of its brands abroad and as a means of
promoting additional rentals from in-bound travelers. Dollar has recently
entered into an agreement with Europcar International, S.A., an independent
European vehicle rental company. The agreement provides that each company
will accept rental reservations in its geographical area made through the
other. In addition, Dollar and Thrifty may license foreign vehicle rental
companies as master franchisees for specific countries or regions. Thrifty
may also offer vehicle leasing and other services to its international
franchisees.
DEVELOP OPPORTUNITIES FOR BUSINESS EXPANSION INTO RELATED AREAS
The Company believes that its experience in fleet leasing and
management, used car disposal and franchising provides it with
opportunities for expansion. These opportunities include leasing vehicles
to small companies and individuals, entering into joint ventures or other
arrangements with publicly held new car dealer groups, used car superstores
and auto auctions and using Dollar Thrifty Group's existing
telecommunications capacity to provide telemarketing services. Management
believes the Company will be better able to pursue these opportunities when
it is an independent company.
5
<PAGE> 7
FINANCING PLAN
The Company is implementing a financing plan, which includes the sale of
shares by the Company in the Offering. The Financing Plan has the following
elements:
NEW FLEET FINANCING
- A $900 million series of medium term notes, secured by vehicles and
related assets. The New Medium Term Notes, which will be issued under
the Group's existing asset backed note program, will almost entirely
replace the Company's existing vehicle financing arrangements with
Chrysler Financial Corporation and finance fleet growth.
- A commercial paper program of up to $615 million, secured by vehicles
and related assets. The Commercial Paper Program, which will be part
of the Group's existing asset backed note program, will be used to
finance fleet growth and to refinance existing fleet debt. A $545
million Liquidity Facility will support the Commercial Paper Program.
- Credit support from Chrysler, in the form of a letter of credit
facility which declines over a period not exceeding five years.
Chrysler will provide the letter of credit facility under the Chrysler
Credit Support Agreement. The letter of credit facility will provide
additional security for the New Medium Term Notes and the Commercial
Paper Program.
SALE OF SHARES BY THE COMPANY
- The Company's sale of 2,500,000 shares covered by this Prospectus and
the use of the proceeds to provide collateral for fleet financing. If
the U.S. Underwriters and the Managers of the international portion of
the Offering exercise their option to purchase additional shares from
the Company in connection with the Offering to cover over-allotments,
the Company would use the additional net proceeds for general
corporate purposes. Those purposes include providing collateral for
the Group's vehicle fleet financings that could reduce or possibly
eliminate Chrysler's credit support.
REVOLVING CREDIT FACILITY
- A $215 million senior secured revolving credit facility. Up to $190
million under the Revolving Credit Facility may be used to issue
letters of credit to support fleet debt and other obligations. Up to
$70 million will be available for working capital borrowings and to
replace existing working capital debt ($22.3 million as of September
30, 1997). The Group may not have more than $215 million of combined
borrowings and letters of credit outstanding under the Revolving
Credit Facility.
The Company expects that the New Medium Term Notes will be issued and the
Revolving Credit Facility and the Chrysler Credit Support Agreement will be in
effect when the Offering is completed. The Company expects that the Commercial
Paper Program and the Liquidity Facility will be in place in the first quarter
of 1998. The Company has obtained from Credit Suisse First Boston (and its
affiliates) and The Chase Manhattan Bank underwritten financing commitments,
subject to customary conditions, relating to the Revolving Credit Facility and
the Liquidity Facility.
The completion of the Offering is contingent upon the issuance of the New
Medium Term Notes and the implementation of the Chrysler Credit Support
Agreement and the Revolving Credit Facility.
6
<PAGE> 8
THE OFFERING
COMMON STOCK OFFERED(A):
<TABLE>
<S> <C>
OFFERED BY CHRYSLER...................................................... 20,000,000 shares
OFFERED BY THE COMPANY................................................... 2,500,000 shares
------------------
TOTAL............................................................... 22,500,000 shares
U.S. OFFERING............................................................ 19,125,000 shares
INTERNATIONAL OFFERING................................................... 3,375,000 shares
------------------
TOTAL............................................................... 22,500,000 shares
SHARES TO BE OUTSTANDING AFTER THE OFFERING(A)(B).......................... 22,500,000 shares
</TABLE>
- -------------------------
(a) Excludes 3,375,000 shares issuable upon exercise of the over-allotment
option. The over-allotment option is described in "Underwriting."
(b) Excludes 2,250,000 shares (plus up to an additional 337,500 shares if the
over-allotment option is exercised) reserved for issuance under the
Company's long-term incentive plan. See "Management -- Executive
Compensation -- Long-Term Incentive Plan."
VOTING RIGHTS................. Holders of common stock will have one vote per
share.
DIVIDEND POLICY............... The Company does not plan to pay cash dividends
in the near term. Moreover, its debt instruments
restrict the payment of cash dividends.
USE OF PROCEEDS............... - The Company estimates that it will receive
net proceeds from the Offering of
approximately $45.9 million. It expects to
use the net proceeds to provide collateral
for fleet financing as part of the Financing
Plan.
- The Company estimates that it will receive
additional net proceeds of up to $65.4
million if the U.S. Underwriters and the
Managers exercise their over-allotment
option. The Company would use the additional
proceeds for general corporate purposes.
Those purposes include providing collateral
for the Group's vehicle fleet financings that
could reduce or possibly eliminate Chrysler's
credit support.
- The Company will not receive any of the
proceeds from Chrysler's sale of shares in
the Offering.
RISK FACTORS.................. For a discussion of certain risks you should
consider before investing in the common stock,
see "Risk Factors."
NEW YORK STOCK EXCHANGE
SYMBOL........................ DTG
7
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
DOLLAR THRIFTY GROUP DATA
The following summary consolidated Dollar Thrifty Group financial and
operating data as of and for the years ended December 31, 1996, 1995 and 1994
are derived from the Group's audited consolidated financial statements and the
related notes thereto included in this Prospectus. The following summary
consolidated Group financial and operating data as of and for the nine months
ended September 30, 1997 and 1996 are unaudited. In the opinion of management,
the unaudited data have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for fair presentation. Results for
interim periods are not indicative of results for a full year.
SEPARATE DOLLAR AND THRIFTY DATA
The following summary consolidated Dollar and Thrifty financial and
operating data are derived from their separate respective unaudited consolidated
financial information. In the opinion of management, this information has been
prepared on the same basis as the Group's audited consolidated financial
statements and includes all adjustments necessary for fair presentation. Results
for interim periods are not indicative of results for a full year.
EBITDA AND ADJUSTED EBITDA
EBITDA consists of earnings (loss) before income taxes plus all net
interest expense and all depreciation and amortization expense. Adjusted EBITDA
consists of earnings (loss) before income taxes plus net interest expense that
does not relate to vehicles and depreciation and amortization expense that does
not relate to vehicles. The Company does not include EBITDA and Adjusted EBITDA
as, nor should they be considered as, alternative measures of operating results
or cash flows from operating activities (as determined in accordance with
generally accepted accounting principles). Instead, the Company includes them
because they are widely used financial measures of the potential capacity of a
company to incur and service debt. The presentation of EBITDA and Adjusted
EBITDA may not be comparable to similarly titled measures used by other
companies.
8
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA OF DOLLAR THRIFTY GROUP
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (IN THOUSANDS):
Revenues:
Vehicle rentals.......................... $ 413,424 $ 372,508 $ 495,598 $ 382,234 $ 481,954
Vehicle leasing.......................... 172,999 177,836 150,179 116,392 124,783
Fees and services........................ 58,966 49,382 50,475 39,969 39,018
Other.................................... 8,614 9,653 9,342 7,630 7,127
---------- ---------- ---------- ---------- ----------
Total revenues....................... 654,003 609,379 705,594 546,225 652,882
Costs and expenses:
Direct vehicle and operating............. 234,370 190,577 245,895 187,462 219,058
Vehicle depreciation, net................ 210,975 196,367 213,143 161,440 207,452
Selling, general and administrative...... 143,155 123,439 138,363 103,161 111,554
Interest expense, net.................... 83,526 78,817 72,868 55,190 65,756
Amortization of cost in excess of net
assets acquired........................ 11,517 10,456 8,169 6,742 4,504
Restructuring charge reversal --
Snappy................................. (7,000) -- -- -- --
Loss on sale of Snappy................... 40,893 -- -- -- --
Intangible asset impairment losses....... -- -- 157,758 155,000 --
---------- ---------- ---------- ---------- ----------
Total costs and expenses............. 717,436 599,656 836,196 668,995 608,324
---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes........ (63,433) 9,723 (130,602) (122,770) 44,558
Income tax expense (benefit)............... (12,755) 9,753 16,682 18,589 20,338
---------- ---------- ---------- ---------- ----------
Net earnings (loss)(a)..................... $ (50,678) $ (30) $ (147,284) $ (141,359) $ 24,220
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Revenue-earning vehicles, net.............. $ 991,276 $ 958,799 $1,120,346 $1,225,478 $1,500,864
Total assets............................... 1,585,651 1,657,823 1,647,951 1,684,341 1,978,980
Total debt................................. 1,047,065 1,128,811 1,241,558 1,291,914 1,542,742
Stockholder's equity....................... 331,159 331,189 183,883 189,702 207,986
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (IN THOUSANDS):
EBITDA(a).................................. $ 253,184 $ 304,399 $ 174,697 $ 108,442 $ 330,555
Adjusted EBITDA(a)......................... (37,836) 27,211 (110,074) (106,953) 57,966
Net cash provided by operating
activities............................... 291,651 173,163 301,911 231,577 229,878
COMPANY-OWNED STORES DATA (U.S. AND
CANADA)(B):
Average number of vehicles operated........ 40,083 36,246 45,037 45,695 55,103
Number of rental transactions.............. 2,230,076 2,196,611 2,817,269 2,137,301 2,554,969
Average revenue per transaction............ $ 161 $ 170 $ 176 $ 179 $ 189
Monthly average revenue per vehicle........ $ 748 $ 856 $ 917 $ 929 $ 972
VEHICLE LEASING DATA (U.S. AND CANADA)(B):
Average number of vehicles leased.......... 41,072 34,373 30,583 31,434 33,158
Average monthly lease revenue per unit..... $ 349 $ 400 $ 409 $ 411 $ 418
</TABLE>
- -------------------------
(a) Management believes it is important to note that net earnings, EBITDA and
Adjusted EBITDA for the year ended December 31, 1996 and the nine months
ended September 30, 1996 include intangible asset impairment losses of
$157,758,000 and $155,000,000, respectively, related to Chrysler's decision
in 1996 to dispose of Thrifty as a non-core asset ($155,000,000) and an
impairment loss related to Thrifty Canada, Ltd. ($2,758,000).
(b) Excludes 1994 data for Snappy Car Rental, Inc., which was sold in September
1994.
9
<PAGE> 11
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA OF DOLLAR
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (IN THOUSANDS):
Revenues:
Vehicle rentals.......................... $ 299,563 $ 311,267 $ 435,074 $ 334,393 $ 431,645
Vehicle leasing.......................... 57,018 47,321 38,195 29,728 26,465
Fees and services........................ 27,709 20,068 22,718 18,374 17,798
Other.................................... 2,949 3,278 3,183 2,794 1,649
---------- ---------- ---------- ---------- ----------
Total revenues....................... 387,239 381,934 499,170 385,289 477,557
Costs and expenses:
Direct vehicle and operating............. 180,415 157,519 212,658 160,236 190,732
Vehicle depreciation, net................ 111,508 103,384 130,516 97,376 126,727
Selling, general and administrative...... 81,236 70,099 87,739 66,739 75,364
Interest expense, net.................... 49,413 42,860 45,129 33,702 42,395
Amortization of cost in excess of net
assets acquired........................ 4,800 4,556 4,696 3,531 3,723
---------- ---------- ---------- ---------- ----------
Total costs and expenses............. 427,372 378,418 480,738 361,584 438,941
---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes........ (40,133) 3,516 18,432 23,705 38,616
Income tax expense (benefit)............... (13,295) 3,399 9,108 11,828 17,369
---------- ---------- ---------- ---------- ----------
Net earnings (loss)........................ $ (26,838) $ 117 $ 9,324 $ 11,877 $ 21,247
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Revenue-earning vehicles, net.............. $ 513,164 $ 571,610 $ 690,069 $ 739,086 $ 934,186
Total assets............................... 775,666 836,135 989,669 988,491 1,241,697
Total debt................................. 562,673 621,782 713,715 758,911 954,488
Stockholder's equity....................... 70,542 70,659 102,383 82,535 123,630
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- ------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (IN THOUSANDS):
EBITDA..................................... $ 131,901 $ 159,981 $ 205,079 $ 162,869 $ 216,548
Adjusted EBITDA............................ (22,042) 16,047 30,117 32,392 47,688
Net cash provided by operating
activities............................... 161,998 112,718 196,491 131,327 137,901
COMPANY-OWNED STORES DATA (U.S.):
Average number of vehicles operated........ 33,366 29,855 38,952 39,352 48,682
Number of rental transactions.............. 1,801,583 1,777,630 2,409,821 1,821,238 2,229,328
Average revenue per transaction............ $ 166 $ 175 $ 181 $ 184 $ 194
Monthly average revenue per vehicle........ $ 748 $ 869 $ 931 $ 944 $ 985
VEHICLE LEASING DATA (U.S.):
Average number of vehicles leased.......... 14,130 10,823 7,801 8,140 6,774
Average monthly lease revenue per unit..... $ 336 $ 364 $ 408 $ 406 $ 434
</TABLE>
10
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA OF THRIFTY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS (IN THOUSANDS):
Revenues:
Vehicle rentals................................. $ 60,388 $ 61,241 $ 60,524 $ 47,841 $ 50,309
Vehicle leasing................................. 114,951 117,769 111,969 86,649 98,318
Fees and services............................... 29,548 28,950 27,730 21,569 21,215
Other........................................... 6,522 4,768 4,714 3,768 4,595
-------- -------- --------- --------- --------
Total revenues.............................. 211,409 212,728 204,937 159,827 174,437
Costs and expenses:
Direct vehicle and operating.................... 29,335 32,270 33,242 27,204 28,317
Vehicle depreciation, net....................... 87,739 85,287 82,592 64,064 80,724
Selling, general and administrative............. 51,530 52,102 50,260 37,245 37,917
Interest expense, net........................... 29,609 30,754 26,449 20,517 22,392
Amortization of cost in excess of net assets
acquired...................................... 5,900 5,900 3,473 3,211 781
Intangible asset impairment losses.............. -- -- 157,758 155,000 --
-------- -------- --------- --------- --------
Total costs and expenses.................... 204,113 206,313 353,774 307,241 170,131
-------- -------- --------- --------- --------
Earnings (loss) before income taxes............... 7,296 6,415 (148,837) (147,414) 4,306
Income tax expense................................ 6,102 6,387 7,338 6,401 3,058
-------- -------- --------- --------- --------
Net earnings (loss)(a)............................ $ 1,194 $ 28 $(156,175) $(153,815) $ 1,248
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Revenue-earning vehicles, net..................... $425,345 $382,137 $ 430,277 $ 486,392 $566,678
Total assets...................................... 772,075 837,317 676,370 704,333 732,017
Total debt........................................ 447,273 520,142 527,843 548,513 587,711
Stockholder's equity.............................. 257,670 257,756 96,159 103,815 97,288
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (IN THOUSANDS):
EBITDA(a)......................................... $133,431 $130,385 $ (33,491) $ (57,499) $110,323
Adjusted EBITDA(a)................................ 13,034 8,662 (143,252) (142,404) 6,595
Net cash provided by operating activities......... 113,518 62,053 108,052 90,057 81,647
COMPANY-OWNED STORES DATA (U.S. AND CANADA):
Average number of vehicles operated............... 6,717 6,391 6,085 6,343 6,421
Number of rental transactions..................... 428,493 418,981 407,448 316,063 325,641
Average revenue per transaction................... $ 141 $ 146 $ 149 $ 151 $ 155
Monthly average revenue per vehicle............... $ 749 $ 799 $ 829 $ 838 $ 871
VEHICLE LEASING DATA (U.S. AND CANADA):
Average number of vehicles leased................. 26,942 23,550 22,782 23,294 26,384
Average monthly lease revenue per unit............ $ 356 $ 417 $ 409 $ 413 $ 414
</TABLE>
- -------------------------
(a) Management believes it is important to note that net earnings, EBITDA and
Adjusted EBITDA for the year ended December 31, 1996 and the nine months
ended September 30, 1996 include intangible asset impairment losses of
$157,758,000 and $155,000,000, respectively, related to Chrysler's decision
in 1996 to dispose of Thrifty as a non-core asset ($155,000,000) and an
impairment loss related to Thrifty Canada, Ltd. ($2,758,000).
11
<PAGE> 13
CONTINUING RELATIONSHIP WITH CHRYSLER
The Company is currently a wholly owned subsidiary of Chrysler. After the
Offering, Chrysler will own no shares in the Company. Chrysler will, however,
have certain continuing financial and commercial arrangements with Dollar
Thrifty Group.
VEHICLE SUPPLY
Chrysler will continue to provide vehicles to Dollar and Thrifty under
vehicle supply agreements extending through July 2001. The principal terms of
those agreements were established for the 1997 model year and will continue for
the duration of the agreements. The Dollar Thrifty Group was Chrysler's largest
customer for the 1997 model year. Under its residual value program, Chrysler
guarantees the aggregate resale value of specified vehicles purchased from it.
Chrysler has the sole discretion to set the specific terms and conditions
of its residual value program for a model year. It has agreed in the vehicle
supply agreements, however, to offer programs to Dollar and Thrifty that, taken
as a whole, are competitive with a residual value program Ford Motor Company or
General Motors Corporation is then making generally available to domestic
vehicle rental companies. Chrysler has also agreed to make various promotional
payments during the term of the vehicle supply agreements. Dollar and Thrifty
are required during this period to advertise Chrysler vehicles exclusively. See
"Business -- Fleet Acquisition and Management -- Vehicle Supply."
CREDIT SUPPORT
As part of the Financing Plan, Chrysler will provide credit support for the
Group's fleet financing in the form of a letter of credit facility. The credit
support will start at $50 million, but will be reduced to the extent the Company
receives more than $10 million in net proceeds from the exercise of the
over-allotment option. If those proceeds are $60 million or more, Chrysler's
credit support would be eliminated. The amount of any Chrysler credit support in
effect after the over-allotment option has been exercised or has expired
unexercised is referred to as the "Initial Support Amount."
The Initial Support Amount will decline annually, beginning September 30,
1999, by the greater of 20% of the Initial Support Amount and 50% of the Group's
excess cash flow. The Company may need to replace reductions in the Initial
Support Amount with cash from operations or with borrowings or letters of credit
under the Revolving Credit Facility. The Company has agreed to nominate a person
designated by Chrysler as a director of the Company so long as Chrysler is
providing any credit support to the Group. In addition, as part of the Financing
Plan, Chrysler Financial Corporation, Chrysler's finance subsidiary, will
receive repayment from the Group of vehicle debt in the amount of approximately
$827 million. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources -- Financing Plan."
INSURANCE AND OTHER MATTERS
Chrysler Insurance Corporation, a Chrysler subsidiary, provides automobile
liability insurance to the Group above self-insured retentions and quota share
retentions. Those retentions are secured by surety bonds that are guaranteed by
Chrysler. Chrysler Insurance Corporation also provides other surety bonds,
guaranteed by Chrysler, to secure various obligations of the Group, including
obligations under airport concession agreements. As part of the Financing Plan,
these surety bonds and Chrysler guarantees will be replaced by new bonds or
letters of credit issued by third parties unaffiliated with Chrysler. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Financing Plan." Chrysler and
the Company have entered into a tax sharing agreement relating to periods during
which members of the Group were subsidiaries of Chrysler. Various intercompany
accounts between Chrysler and the Group also will be settled upon completion of
the Offering. See "Unaudited Pro Forma Consolidated Financial Statements."
For additional information about the Group's relationship with Chrysler,
see "Risk Factors -- Dependence on Chrysler" and "Continuing Relationship with
Chrysler."
12
<PAGE> 14
RISK FACTORS
You should carefully consider the following factors and other information
in this Prospectus before deciding to invest in the shares.
ECONOMIC CONDITIONS
Dollar Thrifty Group's results of operations are affected by general
economic conditions in the United States and Canada and by other factors that
may be beyond its control. These factors include financing costs, competitive
conditions in the vehicle rental industry and regulatory developments. A decline
in general economic activity has historically led to a decline in both business
and leisure travel and to lower demand for rental vehicles. Changes in the level
of discretionary travel particularly affect Dollar's results because a high
proportion of its customers are discretionary travelers, including leisure and
other travelers who pay their own expenses.
There have also been periods of significant overcapacity in the vehicle
rental industry, such as during the 1990 to 1992 recession, when vehicle rental
companies lowered their rental rates. When their principal competitors have
lowered their rental rates, Dollar, Thrifty and their respective franchisees
have followed. Future reductions in rental rates could adversely affect Dollar
Thrifty Group's results of operations.
A downturn in economic conditions also could reduce the amounts the Group
realizes when it sells vehicles that are not covered by an automotive
manufacturer's residual value program. A significant downturn in economic
activity could also cause franchisees to have financial difficulties. This could
result in less fee revenue from franchisees and higher levels of bad debts.
HIGHLY COMPETITIVE NATURE OF VEHICLE RENTAL INDUSTRY
There is intense competition in the vehicle rental industry, particularly
with respect to price and service. Dollar, Thrifty and their franchisees compete
against national, regional and local vehicle rental companies. Dollar, Thrifty
and their franchisees have followed their principal competitors when they have
reduced their rental rates and generally have been unable to raise rates
unilaterally. A significant increase in industry capacity or reduction in
overall demand would adversely affect the ability of Dollar, Thrifty and their
franchisees to maintain or increase their rates. This would adversely affect
Dollar Thrifty Group's results of operations.
Dollar's and Thrifty's principal competitors have larger market shares and
rental volumes, greater financial resources and more sophisticated information
systems. This may place Dollar, Thrifty and their franchisees at a disadvantage
in responding to the offerings of their competitors, to substantial changes in
rental customer preferences or governmental regulation and to adverse economic
conditions. Dollar, Thrifty and their franchisees are also particularly
dependent on discretionary travelers. They are, therefore, more susceptible to
the impact of poor economic conditions than their competitors with a more
balanced mix of business.
HISTORICAL LOSSES
In the first nine months of 1997, the Group had net earnings of $24.2
million; however, it had net losses in each of the prior three years. The Group
had a net loss of $147.3 million in 1996, $30,000 in 1995 and $50.7 million in
1994. The 1996 loss reflected an intangible asset impairment loss of $155.0
million in connection with Chrysler's determination to dispose of Thrifty as a
non-core operation. Excluding the effect of that loss and an intangible asset
impairment loss related to Thrifty Canada Ltd. of $2.8 million, the Group would
have had a net profit of $10.5 million in 1996. The 1994 net loss included a
loss on the sale of Snappy Car Rental, Inc. and reversal of a related
restructuring reserve. Excluding the effects of those items, the 1994 net loss
would have been $20.5 million.
SUBSTANTIAL DEBT; INTEREST RATE RISK
AMOUNT OF DEBT
Dollar Thrifty Group will continue to have substantial debt and debt
service requirements after the Offering and implementation of the Financing
Plan. As of September 30, 1997, Dollar Thrifty Group's total consolidated
13
<PAGE> 15
debt was $1.54 billion. Of this amount, $1.52 billion was secured debt for the
purchase of vehicles and the balance was secured debt that did not relate to the
purchase of vehicles. The Company's ratio of debt to total capitalization was
76% at the end of 1994, 77% at the end of 1995, 87% at the end of 1996 and 88%
at September 30, 1997. Dollar had $33.2 million and Thrifty had $75.1 million
available for borrowing under their credit facilities to finance the purchase of
fleet vehicles as of September 30, 1997. Vehicle rental companies typically
incur substantial debt to finance the ongoing turnover in their fleets.
Following the Offering, Dollar Thrifty Group will have total secured debt
of approximately $1.42 billion and have scheduled annual principal payments of
approximately $271.0 million in 1998, $48.1 million in 1999, $280.0 million in
2000 and $160.7 million in 2001. In addition, Chrysler's credit support will
decline annually, beginning September 30, 1999, by at least 20% of the Initial
Support Amount. The Company may need to replace reductions in the Initial
Support Amount with cash from operations or with borrowings or letters of credit
under the Revolving Credit Facility.
Dollar Thrifty Group intends to use cash generated from operations for debt
service and, subject to restrictions under its debt instruments, to make capital
investments. The Company has historically repaid its debt and funded its capital
investments (aside from growth in its rental fleet) with cash provided from
operations and from the sale of vehicles. The Company has funded growth in its
vehicle rental fleet by incurring additional debt. The Group expects to incur
additional debt from time to time to the extent permitted under the terms of its
debt instruments.
CONSEQUENCES OF DEBT
Dollar Thrifty Group's substantial level of debt has important
consequences. Those consequences include:
- the Group's ability to borrow additional amounts for working
capital, capital expenditures or other purposes will be limited;
- a substantial portion of the Group's cash flow from operations is
required to make debt service payments;
- the Group will be exposed to increases in interest rates because a
substantial portion of its debt bears interest at floating rates;
and
- the Group's leverage could limit its flexibility to react to changes
in general economic conditions, competitive pressures and adverse
changes in government regulation and its ability to capitalize on
significant business opportunities.
The Company's Revolving Credit Facility will contain various covenants that will
restrict its ability to pay dividends and to engage in various transactions. See
"Description of Certain Indebtedness."
Dollar Thrifty Group will have to sustain the improved level of operating
results and cash flow it achieved in the first nine months of 1997 to meet its
debt service obligations using operating cash flow and to comply with its debt
covenants. It is not certain whether the Group will be able to do so. Its
results depend significantly on factors, including prevailing economic and
competitive conditions, that are beyond its control. If Dollar Thrifty Group is
unable to meet its debt service obligations or comply with its covenants, there
would be a default under the Revolving Credit Facility. To avoid a default, the
Company may need waivers from third parties, which might not be granted.
INTEREST RATE RISK
Dollar Thrifty Group's results of operations depend significantly on
prevailing levels of interest rates because of the large amount of debt it
incurs to purchase vehicles. In addition, the Group will be exposed to increases
in interest rates because a substantial portion of its debt bears interest at
floating rates. The Company estimates that, in 1998, approximately 30% of its
average debt will bear interest at floating rates. The amount of Group's
financing costs affects the amount Dollar, Thrifty and their franchisees must
charge their customers to be
14
<PAGE> 16
profitable. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 8 of Notes to
Consolidated Financial Statements.
COST OF VEHICLES
The average prices of new vehicles have historically increased from year to
year. However, automotive manufacturers have offered sales incentive programs
that have partly offset the impact of those price increases on vehicle rental
companies, including Dollar and Thrifty. Sales incentives might not continue to
be available or might be available on less favorable terms, in which case Dollar
Thrifty Group's operating results could be materially adversely affected.
MARKET RISK ON VEHICLE DISPOSITION
As of September 30, 1997, Dollar Thrifty Group was subject to "residual
value risk" on approximately 22% of its fleet, with a book value of $292.1
million. Residual value risk is the risk that a vehicle's market value at the
time it is sold will be less than its depreciated value. Automotive
manufacturers' residual value programs limit the Group's residual value risk for
the remaining approximately 78% of its fleet. Under these programs, the
manufacturer either guarantees the aggregate depreciated value upon resale of
covered vehicles of a given model year, as is generally the case under
Chrysler's program, or agrees to repurchase vehicles at specified prices during
established repurchase periods. In either case, the manufacturer's obligation is
subject to certain conditions relating to the vehicle's age, physical condition
and mileage.
Vehicles purchased by vehicle rental companies under these programs are
referred to in this Prospectus as "Program Vehicles." Vehicles not purchased
under these programs and for which vehicle rental companies therefore bear
residual value risk are referred to in this Prospectus as "Non-Program
Vehicles." The Company believes that a majority of vehicles owned by other U.S.
vehicle rental companies are Program Vehicles.
Residual value programs enable Dollar and Thrifty to determine their
depreciation expense on Program Vehicles in advance. Vehicle depreciation is the
largest single cost element in Dollar's and Thrifty's operations. The percentage
of Dollar's and Thrifty's vehicle rental fleets benefiting from residual value
programs could decrease if the automotive manufacturers changed the size or
terms of these programs. In that event, Dollar and Thrifty would have increased
residual value risk that could be material to their results of operations and
could adversely affect their ability to finance their fleets.
Because it is difficult to predict future vehicle resale values, Dollar and
Thrifty may not be able to manage effectively the residual value risk on their
Non-Program Vehicles. Thrifty's results for the first nine months of 1997 were
adversely affected by lower than anticipated residual values. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Nine
Months Ended September 30, 1997 Compared with Nine Months Ended September 30,
1996." The residual value of Non-Program Vehicles depends on such factors as the
general level of pricing in the automotive industry for both new and used
vehicles. Prices for used vehicles generally decrease if the automotive
manufacturers increase the retail sales incentives they offer on new vehicles.
The Company cannot predict the level of retail sales incentives Chrysler or the
other automotive manufacturers will offer in the future.
Dollar and Thrifty have received substantial payments under residual value
programs over the past several years. See Note 5 of Notes to Consolidated
Financial Statements.
AVAILABILITY OF FINANCING; IMPLEMENTATION OF FINANCING PLAN
Dollar Thrifty Group depends heavily on third-party financing to purchase
fleet vehicles. Accordingly, continued availability of fleet financing on
favorable terms is important to the Group's results of operations. As of
September 30, 1997, more than 75% of Dollar Thrifty Group's fleet debt related
to the purchase of Program Vehicles. This fleet debt was secured by the
obligations of automotive manufacturers under residual value programs. As a
result, a significant change in the size or terms of those programs or in the
credit standing of the manufacturers could materially adversely affect the
Group's ability to obtain fleet financing on favorable terms. The Group would be
particularly affected by any decline in Chrysler's credit standing since most of
the Group's
15
<PAGE> 17
indebtedness relates to Chrysler Program Vehicles. The inability of the Group to
obtain and maintain fleet financing on favorable terms would have a material
adverse effect on the Group.
It is particularly important that the Group successfully implement the
Financing Plan. The components of the Financing Plan, except for the Commercial
Paper Program and the related Liquidity Facility, will be consummated
concurrently with the completion of the Offering. The proceeds from the
Commercial Paper Program will be used to finance the Group's summer peak vehicle
fleet needs and to repay outstanding medium term notes that begin to amortize in
September 1998.
The Company expects to implement the Commercial Paper Program in the first
quarter of 1998. It has an underwritten financing commitment for the Liquidity
Facility from Credit Suisse First Boston (and its affiliates) and The Chase
Manhattan Bank and it can use Program Vehicles as collateral for the commercial
paper. The Company's ability to implement the Commercial Paper Program will
depend on its reaching agreement on the relevant documentation and receiving
required ratings by certain debt rating agencies. There can be no assurance that
the Company will be able to implement the Commercial Paper Program or, if it is
unable to do so, to arrange alternative financing on acceptable terms. The
failure of the Company to implement the Commercial Paper Program or to obtain
alternative financing would materially adversely affect the Group's results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Financing Plan."
DEPENDENCE ON CHRYSLER
Chrysler is Dollar's and Thrifty's principal supplier of vehicles. While
the number of vehicles purchased from Chrysler varies from year to year, in the
1997 model year approximately 97% of Dollar Thrifty Group's U.S. vehicle
purchases were Chrysler vehicles. Dollar and Thrifty have agreed in vehicle
supply agreements extending through July 2001 to buy at least 80% of their
annual fleet requirements from Chrysler until certain annual minimum levels are
reached. If Chrysler were unable to supply sufficient vehicles or these
agreements were not extended, vehicles might not be available from other
automotive manufacturers in sufficient quantities and on competitive prices and
terms. In that event, Dollar or Thrifty might have to purchase vehicles at
higher prices or on less favorable terms than its competitors and might not be
able to pass the increased costs on to customers and franchisees. See "Business
- -- Fleet Acquisition and Management -- Vehicle Supply." The Group would also be
adversely affected if customer satisfaction with Chrysler products declined
significantly.
Given the volume of vehicles Dollar Thrifty Group purchases from Chrysler,
shifting large portions of its fleet purchases to other manufacturers would
require significant lead time and various operational changes. In addition,
other automotive manufacturers might be unwilling to enter into supply
agreements with Dollar or Thrifty because they have supply agreements with some
of Dollar's and Thrifty's competitors.
If Dollar or Thrifty does not purchase a sufficient volume of Program
Vehicles from Chrysler or otherwise comply with the provisions of its vehicle
supply agreement, it would not be entitled to certain promotional payments from
Chrysler and its agreement could be terminated by Chrysler. The minimum
aggregate volumes of Program Vehicles to be purchased under the agreements range
from 50,742 in the 1997 model year to 58,756 in the 2001 model year. Dollar and
Thrifty purchased an aggregate of 83,301 Program Vehicles from Chrysler in the
1997 model year. The level of Chrysler promotional payments has been material to
the Group's results of operations. The loss or interruption of, or reductions
in, these payments could have a material adverse effect on the Group. See Note 5
of Notes to Consolidated Financial Statements.
Chrysler will provide Dollar Thrifty Group with certain credit support in
connection with the Financing Plan. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Financing Plan" and "Description of Certain Indebtedness."
There are various intercompany agreements and arrangements between members
of Dollar Thrifty Group and Chrysler and its subsidiaries. See "Continuing
Relationship with Chrysler." It is not certain that the products, services and
other benefits that Chrysler and its subsidiaries currently provide to or
purchase from the members of the Group could be replaced and maintained on
favorable terms, if at all.
16
<PAGE> 18
DOLLAR'S DEPENDENCE ON LEISURE MARKET AND TOUR OPERATORS
Dollar Thrifty Group's results of operations depend heavily on Dollar's
continuing success in the leisure vehicle rental market, particularly with
respect to foreign tour operators with which it has significant relationships.
Both Dollar's and Thrifty's results also depend heavily on the overall level of
discretionary travel in the United States and Canada since they rent vehicles
mainly to discretionary travelers.
Dollar derived approximately 80% of its rental revenue in 1996 from
operations in Florida, California, Hawaii and Nevada, states with a high volume
of leisure travelers. Dollar estimates that it derived approximately 28% of its
rental revenue in 1996 from customers of foreign tour operators and
approximately 8% from customers of domestic tour operators.
Reduced levels of discretionary spending resulting from an economic decline
in the United States, Canada or those foreign countries, particularly the United
Kingdom, where a majority of Dollar's tour operators' customers reside, would
adversely affect the Company. The Company would also be adversely affected if
Dollar were unable to maintain its relationships with tour operators or if there
were a decline in the level of its tour customer rentals. Such a decline could
result from events reducing the appeal of the leisure destinations served by
Dollar and, in the case of tourists from the United Kingdom, from changes in the
value of the British pound.
DEPENDENCE ON AIR TRAVEL INDUSTRY
A substantial portion of the Group's revenues are derived from vehicle
rentals at company-owned stores at or near airports and franchise fees and other
payments from franchised locations at or near airports. The Company estimates
that approximately 90% of vehicle rental revenues from Dollar's and Thrifty's
company-owned stores in 1996 were generated at locations at or near airports.
Significant airfare increases could result in reduced air travel. Any event that
significantly disrupts or reduces air travel could have a material adverse
effect on the Group's results of operations.
SEASONALITY
The third quarter, during the peak summer travel months, has historically
been the strongest quarter of the year in terms of the numbers of vehicle
rentals, rental rates and Group profitability. Travel disruptions during the
summer period could have a material adverse effect on Dollar Thrifty Group.
AVAILABILITY AND PRICE OF FUEL
Dollar's and Thrifty's operations would be materially adversely affected if
fuel supplies were limited, mandatory allocations or rationing of fuel were
imposed or fuel prices increased significantly.
REGULATION OF LOSS DAMAGE WAIVERS AND SUPPLEMENTAL LIABILITY INSURANCE
Sales of loss damage waivers and supplemental liability insurance have been
important sources of revenues for the vehicle rental industry. Under loss damage
waivers, the rental company agrees to relieve a customer from financial
responsibility for vehicle damage. Supplemental liability insurance covers
customers for third party personal injury, death and property damage claims
resulting from accidents. Many states regulate the sale of loss damage waivers,
supplemental liability insurance or both. Adoption of national or additional
state legislation affecting or limiting the sale of these products could result
in a reduction in or loss of these sources of revenues. In addition, limitations
on customers' liability to vehicle rental companies could increase costs to
Dollar, Thrifty and their franchisees. The Group's revenue from the sale of loss
damage waivers was approximately 10% of its total revenue in both 1996 and the
nine months ended September 30, 1997. The Group's revenue from the sale of
supplemental liability insurance was approximately 4.5% of its total revenue in
both 1996 and the nine months ended September 30, 1997.
UNINSURED LIABILITY RISK
Dollar and Thrifty are exposed to claims for personal injury, death and
property damage resulting from accidents involving their rental customers.
Thrifty self-insures for that risk up to $500,000 per occurrence. Thrifty also
has a quota sharing arrangement with an unaffiliated carrier under which Thrifty
pays 15% of the portion of
17
<PAGE> 19
any loss between $500,000 and $2 million. Thrifty also has liability coverage of
up to $7.5 million per occurrence. Dollar self-insures for personal injury,
death and property damage up to $1 million per occurrence and maintains
liability coverage up to $7.5 million per occurrence. For claims arising before
completion of the Offering, both Dollar and Thrifty have additional insurance
above their respective self-insured retention and insurance coverage levels
under a policy issued to Chrysler by unaffiliated carriers.
Dollar and Thrifty have obtained or are in the process of obtaining
insurance that would be effective upon completion of the Offering of certain
amounts in excess of their respective self-insured retention levels and
coverages. Dollar or Thrifty may have uninsured liabilities above historical
levels and could also have liabilities for existing or future claims exceeding
their insurance coverage. Dollar or Thrifty may not have sufficient capital
available to pay uninsured claims. In addition, they may not be able to maintain
insurance on economically reasonable terms.
REGULATORY AND ENVIRONMENTAL MATTERS
Various federal, state, local and foreign laws and regulations affect
Dollar's and Thrifty's operations. Some relate to selling loss damage waivers
and supplemental liability insurance, vicarious liability of vehicle owners
(where the owner of a vehicle is responsible for accidents of the driver) and
consumer protection. Others relate to advertising, sales of used vehicles, the
taxing and licensing of vehicles, franchising operations and sales, and
environmental protection and cleanup. Compliance with current and future laws
and regulations could require material expenditures or otherwise materially
adversely affect the Group's results of operations or financial condition.
Dollar and Thrifty have made, and will continue to make, expenditures to
comply with environmental laws and regulations. Expenditures relate to the
investigation or cleanup of contamination at their respective owned and leased
properties, as well as contamination at other locations where their respective
wastes have reportedly been identified. Spills or releases involving underground
petroleum storage tank systems used in Dollar's and Thrifty's operations could
result in operational interruptions and expenditures that could materially
adversely affect the Group.
LACK OF PUBLIC MARKET FOR COMMON STOCK; DETERMINATION OF PUBLIC OFFERING PRICE
There has not been a public market for the shares. The common stock has
been approved for listing on the New York Stock Exchange. The Company does not
know the extent to which investor interest in the Company will lead to
development of a trading market or how liquid that market might be. The initial
public offering price for the shares will be determined through negotiations
among Chrysler, the Company, the U.S. Underwriters and the Managers. Investors
may not be able to resell their shares at or above the initial public offering
price. See "Underwriting."
DILUTION
The initial public offering price per share will exceed the net tangible
book value per share. Accordingly, the purchasers of shares sold in the Offering
will experience immediate and substantial dilution (approximately $18.11 per
share) in their investment. See "Dilution."
18
<PAGE> 20
USE OF PROCEEDS
The Company estimates that it will receive net proceeds from the sale of
shares in the Offering of approximately $45.9 million, after deduction of
underwriting discounts and commissions and expenses payable by the Company,
estimated at $2.5 million. The Company expects to use these estimated proceeds
to provide collateral for fleet financing, as part of the Financing Plan. The
Company estimates that it will receive additional net proceeds of up to $65.4
million if the U.S. Underwriters and the Managers exercise the option granted to
them in connection with the Offering to purchase additional shares from the
Company to cover over-allotments. The Company would use the additional estimated
proceeds for general corporate purposes. Those purposes include providing
collateral for the Group's vehicle fleet financings that could reduce or
possibly eliminate Chrysler's credit support. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Financing Plan."
DIVIDEND POLICY
As the Company currently intends to retain any future earnings to fund the
development and growth of its business, it does not anticipate declaring and
paying cash dividends on the common stock in the near term. The decision whether
to use legally available funds to pay dividends on the common stock will be made
by the Company's Board of Directors from time to time in the exercise of its
business judgment. The Board will take into account such matters as the
Company's results of operations and financial condition and any then-existing or
proposed commitments for the use by the Company of available funds.
The Revolving Credit Facility and other debt instruments of the Company
will restrict its ability to pay cash dividends on the common stock. The Company
may also enter into additional loan or other agreements or issue debt securities
or preferred shares with this type of restriction. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of Certain Indebtedness."
DILUTION
As of September 30, 1997, Dollar Thrifty Group had a net tangible book
value of approximately $.39 per share. "Net tangible book value" per share
represents net tangible assets (total assets less liabilities and net intangible
assets) of the Group on a consolidated basis, divided by the total number of
shares outstanding before the Offering. Without taking into account any changes
in net tangible book value after September 30, 1997, other than to give effect
to the Offering and the application of the estimated net proceeds therefrom (at
an assumed public offering price of $20.50 per share), the pro forma net
tangible book value of the common stock as of September 30, 1997 would have been
approximately $53,688,000, or $2.39 per share. The following table shows the
effect of the Offering as if it had occurred at September 30, 1997 and
illustrates the immediate increase in net tangible book value of $2.00 per share
and an immediate dilution of $18.11 per share to new investors:
<TABLE>
<S> <C> <C>
Public offering price per share.............................................. $20.50
Net tangible book value per share as of September 30, 1997................... $ .39
Increase in net tangible book value per share attributable to the Offering... $2.00
-----
Pro forma net tangible book value per share as of September 30, 1997 after
giving effect to the Offering.............................................. $ 2.39
------
Immediate dilution per share to new investors in the Offering................ $18.11
======
</TABLE>
The calculation in the table above excludes 3,375,000 shares issuable upon
exercise of the over-allotment option and 2,250,000 shares (plus up to an
additional 337,500 shares if the over-allotment option is exercised) reserved
for issuance under the Company's long-term incentive plan. See "Management --
Executive Compensation -- Long-Term Incentive Plan."
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of Dollar Thrifty Group
as of September 30, 1997 and as adjusted to reflect implementation of the
Financing Plan (except for the Commercial Paper Program), the settlement of
certain intercompany accounts between Dollar Thrifty Group and Chrysler and the
repayment of certain non-vehicle debt. This table should be read in conjunction
with the consolidated financial statements of Dollar Thrifty Group included
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Vehicle debt:
Asset backed notes............................................. $ 491,160 $ 1,391,160
Vehicle line of credit with Chrysler Financial Corporation..... 954,636 5,030
Other vehicle obligations...................................... 74,013 74,013
---------- -----------
Total vehicle debt........................................ $1,519,809 $ 1,470,203
Non-vehicle debt................................................. 22,933 600
---------- -----------
Total debt (a)............................................ $1,542,742 $ 1,470,803
Stockholder's equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
none issued................................................. -- --
Common stock, $.01 par value, 50,000,000 shares authorized;
20,000,000
issued and outstanding actual and 22,500,000 as adjusted
(b)......................................................... $ 200 $ 225
Additional paid-in capital (b)................................... 628,915 674,790
Accumulated deficit.............................................. (421,129) (425,429)
---------- -----------
Total stockholders' equity................................ 207,986 249,586
---------- -----------
Total capitalization................................. $1,750,728 $ 1,720,389
========= =========
</TABLE>
- -------------------------
(a) The Company has obtained from Credit Suisse First Boston (and its
affiliates) and The Chase Manhattan Bank underwritten financing commitments
relating to the Revolving Credit Facility and the Liquidity Facility.
(b) Excludes 3,375,000 shares issuable upon exercise of the over-allotment
option and 2,250,000 shares (plus up to an additional 337,500 shares if the
over-allotment option is exercised) reserved for issuance under the
Company's long-term incentive plan. See "Management -- Executive
Compensation -- Long-Term Incentive Plan."
20
<PAGE> 22
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Set forth below are the unaudited pro forma consolidated financial
statements of Dollar Thrifty Group as of September 30, 1997 and for the year
ended December 31, 1996 and nine months ended September 30, 1997. They give
effect to two sets of transaction adjustments as if they had occurred on January
1 of the earliest period presented. The unaudited pro forma consolidated
financial statements and accompanying notes should be read together with the
Consolidated Financial Statements included elsewhere in this Prospectus.
The two sets of adjustments are as follows:
I. Pro forma separation adjustments to reflect:
- Settlement of certain intercompany accounts between Dollar Thrifty
Group and Chrysler;
- Establishment of expenses of the Company for certain items currently
paid by Chrysler; and
- Additional costs associated with the Company's being an independent
publicly held company.
II. Offering and Financing Plan adjustments to reflect:
- Offering by the Company of shares covered by this Prospectus without
reflecting any additional proceeds that would be received if the U.S.
Underwriters and Managers exercised their over-allotment option;
- Replacement of bonds and bond guarantees currently provided by
Chrysler; and
- Refinancing of the Company's vehicles (except shuttle buses),
currently financed by Chrysler Financial Corporation and by asset
backed notes, to include:
(a) the New Medium Term Notes;
(b) the Commercial Paper Program and the Liquidity Facility;
(c) the Chrysler Credit Support Agreement; and
(d) the Revolving Credit Facility.
The Company believes that the accounting treatment used to reflect these
transactions provides a reasonable basis on which to present this unaudited pro
forma financial data. The pro forma consolidated balance sheet and the pro forma
consolidated statements of operations are unaudited and were derived by
adjusting the historical financial statements of the Company. THE COMPANY IS
PROVIDING UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR
INFORMATIONAL PURPOSES ONLY. THEY SHOULD NOT BE CONSTRUED AS INDICATIVE OF THE
COMPANY'S CONSOLIDATED FINANCIAL POSITION OR RESULTS OF OPERATIONS HAD THE
TRANSACTIONS BEEN CONSUMMATED ON THE DATES ASSUMED. MOREOVER, THEY DO NOT
PROJECT THE COMPANY'S CONSOLIDATED FINANCIAL POSITION OR RESULTS OF OPERATIONS
FOR ANY FUTURE DATE OR PERIOD.
21
<PAGE> 23
DOLLAR THRIFTY GROUP
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
OFFERING
AND
PRO FORMA FINANCING
SEPARATION AS PLAN PRO FORMA
ACTUAL ADJUSTMENTS ADJUSTED ADJUSTMENTS AS ADJUSTED
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents....... $ 5,164 $ 49,045(1) $ 51,209 $ (9,606)(5) $ 3,620
(3,000)(2) (15,650)(6)
(22,333)(7)
Restricted cash and
investments................... 28,487 -- 28,487 945,900(5) 34,387
(940,000)(5)
Accounts and notes receivable,
net........................... 83,667 -- 83,667 -- 83,667
Due from Parent................. 75,243 (49,045)(1) 26,198 -- 26,198
Prepaid expenses and other
assets........................ 25,450 3,000(2) 28,450 15,650(6) 44,100
Revenue earning vehicles, net... 1,500,864 -- 1,500,864 -- 1,500,864
Property and equipment, net..... 59,907 -- 59,907 -- 59,907
Intangible assets, net.......... 200,198 (22,400)(3) 177,798 -- 177,798
---------- ----------- ---------- ----------- -----------
$1,978,980 $ (22,400) $1,956,580 $ (26,039) $ 1,930,541
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDER'S
EQUITY
Liabilities:
Accounts payable.............. $ 40,812 -- $ 40,812 -- $ 40,812
Accrued liabilities........... 88,600 -- 88,600 -- 88,600
Income taxes payable.......... 9,635 -- 9,635 -- 9,635
Public liability and property
damage..................... 73,967 -- 73,967 -- 73,967
Debt and other obligations.... 1,542,742 -- 1,542,742 $ (22,333)(7) 1,470,803
900,000(5)
(949,606)(5)
Deferred income taxes......... 15,238 $ 4,300(4) (2,862) -- (2,862)
(22,400)(3)
---------- ----------- ---------- ----------- -----------
Total liabilities........ 1,770,994 (18,100) 1,752,894 (71,939) 1,680,955
Stockholder's equity:
Preferred stock............... -- -- -- -- --
Common stock.................. 200 -- 200 25(5) 225
Additional capital............ 628,915 -- 628,915 45,875(5) 674,790
Accumulated deficit........... (421,129) (4,300)(4) (425,429) -- (425,429)
---------- ----------- ---------- ----------- -----------
207,986 (4,300) 203,686 45,900 249,586
---------- ----------- ---------- ----------- -----------
$1,978,980 $ (22,400) $1,956,580 $ (26,039) $ 1,930,541
========= ========= ========= ========= =========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
22
<PAGE> 24
DOLLAR THRIFTY GROUP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
OFFERING AND
PRO FORMA FINANCING
SEPARATION AS PLAN PRO FORMA
ACTUAL ADJUSTMENTS ADJUSTED ADJUSTMENTS AS ADJUSTED
--------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Vehicle rentals................ $ 495,598 -- $ 495,598 -- $ 495,598
Vehicle leasing................ 150,179 -- 150,179 -- 150,179
Fees and services.............. 50,475 -- 50,475 -- 50,475
Other.......................... 9,342 -- 9,342 -- 9,342
--------- ----------- --------- ------------ -----------
Total revenues............ 705,594 -- 705,594 -- 705,594
COSTS AND EXPENSES
Direct vehicle and operating... 245,895 -- 245,895 -- 245,895
Vehicle depreciation, net...... 213,143 -- 213,143 -- 213,143
Selling, general and
administrative.............. 138,363 $ 1,338(8) 142,201 $ 1,541(11) 143,875
2,500(9) 133(12)
Interest expense, net.......... 72,868 -- 72,868 3,116(13) 76,320
336(14)
Amortization of cost in excess
of net assets acquired...... 8,169 (672)(3) 7,497 -- 7,497
Intangible asset impairment
losses...................... 157,758 -- 157,758 -- 157,758
--------- ----------- --------- ------------ -----------
Total costs and
expenses............... 836,196 3,166 839,362 5,126 844,488
--------- ----------- --------- ------------ -----------
LOSS BEFORE INCOME TAXES......... (130,602) (3,166) (133,768) (5,126) (138,894)
INCOME TAX EXPENSE (BENEFIT)..... 16,682 (299)(10) 16,383 (2,050)(10) 14,333
--------- ----------- --------- ------------ -----------
NET LOSS(A)...................... $(147,284) $(2,867) $(150,151) $ (3,076) $(153,227)
======== ========= ======== ========= =========
Pro forma net loss per share..... $ (6.81)(15)
=========
</TABLE>
- -------------------------
(a) The pro forma as adjusted net loss for the year ended December 31, 1996
includes intangible asset impairment losses of $157,758,000, related to
Chrysler's decision in 1996 to dispose of Thrifty as a non-core asset
($155,000,000) and an impairment loss related to Thrifty Canada, Ltd.
($2,758,000). The per share amount of the intangible asset impairment
losses is also included in the pro forma net loss per share.
See notes to unaudited pro forma consolidated financial statements.
23
<PAGE> 25
DOLLAR THRIFTY GROUP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
OFFERING
PRO FORMA AND
SEPARATION AS FINANCING PRO FORMA
ACTUAL ADJUSTMENTS ADJUSTED ADJUSTMENTS AS ADJUSTED
-------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Vehicle rentals................. $481,954 -- $481,954 -- $ 481,954
Vehicle leasing................. 124,783 -- 124,783 -- 124,783
Fees and services............... 39,018 -- 39,018 -- 39,018
Other........................... 7,127 -- 7,127 -- 7,127
-------- ----------- -------- ----------- -----------
Total revenues............. 652,882 -- 652,882 -- 652,882
COSTS AND EXPENSES
Direct vehicle and operating.... 219,058 -- 219,058 -- 219,058
Vehicle depreciation, net....... 207,452 -- 207,452 -- 207,452
Selling, general and
administrative............... 111,554 $ 260(8) 113,689 $ 1,464(11) 115,379
1,875(9) 226(12)
Interest expense, net........... 65,756 -- 65,756 1,287(13) 68,115
1,072(14)
Amortization of cost in excess
of net assets acquired....... 4,504 (504)(3) 4,000 -- 4,000
-------- ----------- -------- ----------- -----------
Total costs and expenses... 608,324 1,631 609,955 4,049 614,004
-------- ----------- -------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME
TAXES........................... 44,558 (1,631) 42,927 (4,049) 38,878
INCOME TAX
EXPENSE (BENEFIT)............... 20,338 51(10) 20,389 (1,822)(10) 18,567
-------- ----------- -------- ----------- -----------
NET EARNINGS (LOSS)............... $ 24,220 $(1,682) $ 22,538 $(2,227) $ 20,311
======== ========= ======== ========= =========
Pro forma net earnings per
share........................... $ .90(15)
=========
</TABLE>
See notes to unaudited pro forma consolidated financial statements.
24
<PAGE> 26
DOLLAR THRIFTY GROUP
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) The Due from Parent amount includes intercompany advances to and loans and
other amounts due from Chrysler pursuant to a consolidated cash management
program and working capital line of credit. The unaudited pro forma balance
sheet has been adjusted by $49,045,000 to reflect repayment of the advance
by Chrysler.
(2) To reflect payment of $3,000,000 with respect to insurance premiums and
premium deposits for insurance coverages previously obtained through
Chrysler.
(3) To reflect the realization by the Company of pre-acquisition net operating
loss carryforwards under the new tax sharing agreement with Chrysler.
Realization is recorded by eliminating the related valuation allowance and
offsetting original cost in excess of net assets acquired. Amortization of
cost in excess of net assets acquired has also been reduced to reflect the
reduction in this expense related to this adjustment.
(4) Deferred income taxes reflect $4,300,000, which the Company will not
realize under its new tax sharing arrangements with Chrysler.
(5) To reflect:
- $900,000,000 in proceeds from the issuance of the New Medium Term Notes
as an increase in restricted cash to be used to refinance vehicles.
- Assumed $45,900,000 in net proceeds from the Company's sale of shares in
the Offering as an increase in restricted cash and equity.
- $940,000,000 of restricted cash, together with $14,636,000 of other cash,
to repay vehicle obligations to Chrysler Financial Corporation. (The
amount to be repaid is expected to decrease to approximately $827,000,000
at the time the Offering is completed.)
(6) To reflect $15,650,000 in fees associated with the refinancing of vehicle
obligations, working capital, bonds and letter of credit obligations as an
increase in deferred financing cost.
(7) The Company has borrowings under bank working capital lines that would not
have been borrowed if it had been an independent company. Debt and other
obligations and cash and cash equivalents have been reduced by $22,333,000
to reflect the repayment of this debt.
(8) To reflect the impact of obtaining separate excess liability insurance
coverage, workers' compensation insurance coverage, directors and officers
liability coverage and automobile insurance coverage currently provided by
Chrysler at costs that do not reflect the costs of these coverages on an
independent company basis. Actual charges for workers' compensation
coverage during the year ended December 31, 1996 were below costs of
coverage available on an independent company basis and actual charges for
the nine months ended September 30, 1997 were above costs of coverage
available on an independent company basis. This causes a variance in the
related pro forma adjustments between periods.
(9) To reflect the cost of certain executive management expenses currently paid
by Chrysler (adjusted to reflect independent company expense levels) and to
reflect the costs associated with being an independent public entity.
(10) To reflect the income tax benefit of the pro forma net expenses.
Additionally, the Company has not historically been allocated state income
taxes in states where it has been included in Chrysler's consolidated state
income tax returns. An increase in the tax rate has been included for the
effects of those state income taxes as Dollar Thrifty Group will not be
included in Chrysler's consolidated tax returns after completion of the
Offering.
(11) To reflect the cost of replacing the existing bonds currently guaranteed by
Chrysler to support the Company's insurance, airport concession and other
obligations.
(Continued)
25
<PAGE> 27
DOLLAR THRIFTY GROUP
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(12) To reflect the costs associated with the Company's long-term incentive plan
and the elimination of the prior executive compensation plan.
(13) To reflect the effect on net interest expense of settling intercompany
loans and advances with Chrysler and replacing them with bank borrowings
and other facilities on an independent company basis. In the table below,
"Actual net interest income (expense) -- Chrysler" represents actual
amounts paid (charged) by Chrysler without regard to interest subvention
provided by Chrysler; "Elimination of interest subsidies provided by
Chrysler" represents total interest subsidies on intercompany loans from
Chrysler related to Dollar's operations; and "Increase in net interest paid
to banks" reflects the effect of replacing intercompany loans with Chrysler
with bank borrowings at LIBOR plus 2.5% (7.97% in 1996 and 8.11% in 1997,
assumed rates), and investment of actual daily available cash balances at
commercial paper rates (5.42% in 1996 and 5.56% in 1997, assumed rates)
instead of higher actual rates earned through Chrysler's cash management
program. A 1/4% change in interest rates would affect pro forma as adjusted
non-vehicle interest expense by $78,000 in 1996 and $46,000 in the nine
months ended September 30, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1996 1997
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Actual net interest income (expense) --
Chrysler...................................... $ (971) $ 125
Elimination of interest subsidies provided by
Chrysler...................................... 2,024 1,144
Increase in net interest paid to banks.......... 2,063 18
------- --------
$ 3,116 $ 1,287
============== ==============
</TABLE>
(14) The Company's Financing Plan includes the issuance of the New Medium Term
Notes, the Commercial Paper Program, the assumed $45,900,000 net proceeds
from the Company's sale of shares in the Offering (used to purchase
vehicles with the result that the Company would have incurred less vehicle
debt during the respective periods), and the refinancing of almost all
existing vehicle obligations to Chrysler Financial Corporation. The pro
forma interest rate on the new credit facility is 6.6% in 1996 and 6.8% in
1997. A 1/4% change in interest rates would affect pro forma as adjusted
vehicle interest expense by $331,000 in 1996 and $631,000 in the nine
months ended September 30, 1997:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1996 1997
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Assumed interest on the new credit facility... $73,261 $69,467
Amortization of deferred financing costs...... 4,342 3,256
Interest reduction due to vehicle purchases
with net proceeds of shares sold by the
Company in the Offering (rather than with
proceeds of vehicle debt)................... (3,030) (2,341)
----------------- -----------------
Total new credit facility cost........... 74,573 70,382
Interest on historical debt, net of interest
subvention.................................. 73,001 68,383
Amortization of deferred financing costs...... 1,236 927
----------------- -----------------
74,237 69,310
----------------- -----------------
Incremental interest and deferred financing
cost........................................ $ 336 $ 1,072
============== ==============
</TABLE>
(15) Unaudited pro forma net earnings (loss) per share is calculated using
22,500,000 shares of common stock.
26
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA OF DOLLAR THRIFTY GROUP
The selected consolidated statement of operations and operating data for
the years ended December 31, 1996, 1995 and 1994 and the consolidated balance
sheet data as of December 31, 1996, 1995 and 1994 were derived from the audited
consolidated financial statements of Dollar Thrifty Group and the related notes
thereto included in this Prospectus. The selected consolidated statement of
operations and operating data for the years ended December 31, 1993 and 1992 and
consolidated balance sheet data as of December 31, 1993 and 1992 were derived
from the audited consolidated financial statements of Dollar Thrifty Group and
the notes thereto. The selected consolidated statement of operations and
operating data for the nine months ended September 30, 1997 and 1996 and the
balance sheet data as of September 30, 1997 and 1996 are unaudited. In the
opinion of Dollar Thrifty Group management, such consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation. Results for the nine
months ended September 30, 1997 and 1996 are not indicative of results for a
full year. References to system-wide vehicle rental revenue include revenue
received from Dollar Thrifty Group company-owned stores and by franchisees from
the rental of vehicles.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
(IN THOUSANDS):
Revenues:
Vehicle rental revenue................ $ 505,169 $ 476,195 $ 413,424 $ 372,508 $ 495,598 $ 382,234 $ 481,954
Vehicle leasing revenue............... 135,719 140,282 172,999 177,836 150,179 116,392 124,783
Fees and services..................... 50,603 51,433 58,966 49,382 50,475 39,969 39,018
Other................................. 15,534 12,368 8,614 9,653 9,342 7,630 7,127
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues.................... 707,025 680,278 654,003 609,379 705,594 546,225 652,882
Costs and expenses:
Direct vehicle and operating.......... 296,297 273,109 234,370 190,577 245,895 187,462 219,058
Vehicle depreciation, net............. 202,817 217,727 210,975 196,367 213,143 161,440 207,452
Selling, general and administrative... 170,041 165,762 143,155 123,439 138,363 103,161 111,554
Interest expense, net................. 71,179 86,373 83,526 78,817 72,868 55,190 65,756
Amortization of cost in excess of net
assets acquired..................... 12,174 12,011 11,517 10,456 8,169 6,742 4,504
Intangible asset impairment losses.... -- -- -- -- 157,758 155,000 --
Restructuring charge (reversal)....... 95,900 (18,296) (7,000) -- -- -- --
Loss on sale of Snappy................ -- -- 40,893 -- -- -- --
Equity in earnings of unconsolidated
affiliates.......................... 6,134 457 -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses.......... 854,542 737,143 717,436 599,656 836,196 668,995 608,324
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes and
cumulative effect of accounting
change................................ (147,517) (56,865) (63,433) 9,723 (130,602) (122,770) 44,558
Income tax expense (benefit)............ (32,073) (16,083) (12,755) 9,753 16,682 18,589 20,338
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before cumulative effect
of accounting change.................. (115,444) (40,782) (50,678) (30) (147,284) (141,359) 24,220
Cumulative effect of accounting change
for income taxes...................... 1,059 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)(a).................. $ (114,385) $ (40,782) $ (50,678) $ (30) $ (147,284) $ (141,359) $ 24,220
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Revenue-earning vehicles, net........... $1,027,354 $1,403,568 $ 991,276 $ 958,799 $1,120,346 $1,225,478 $1,500,864
Total assets............................ 1,739,311 2,123,034 1,585,651 1,657,823 1,647,951 1,684,341 1,978,980
Total debt.............................. 1,115,638 1,488,733 1,047,065 1,128,811 1,241,558 1,291,914 1,542,742
Stockholder's equity.................... 343,134 382,352 331,159 331,189 183,883 189,702 207,986
</TABLE>
(Continued)
27
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA OF DOLLAR THRIFTY GROUP
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA (IN
THOUSANDS):
EBITDA(a)(b)................. $ 154,860 $ 268,974 $ 253,184 $ 304,399 $ 174,697 $ 108,442 $ 330,555
Adjusted EBITDA(a)(b)........ (110,186) (26,567) (37,836) 27,211 (110,074) (106,953) 57,966
Net cash provided by
operating activities....... 262,482 152,319 291,651 173,163 301,911 231,577 229,878
Net cash provided by (used
in) investing activities... 5,903 (598,369) 100,050 (306,386) (356,299) (370,762) (518,545)
Net cash provided by (used
in) financing activities... (265,420) 443,232 (401,479) 134,294 53,583 139,180 290,406
SYSTEM-WIDE DATA (U.S. AND
CANADA)(C):
Vehicle rental revenue (in
thousands):
Company-owned stores....... $ 439,018 $ 410,022 $ 359,951 $ 372,508 $ 495,598 $ 382,234 $ 481,954
Franchisee locations....... 480,982 530,978 558,049 556,492 502,402 398,766 400,046
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total.................. $ 920,000 $ 941,000 $ 918,000 $ 929,000 $ 998,000 $ 781,000 $ 882,000
Rental locations:
Company-owned stores....... 155 189 169 162 156 161 161
Franchise locations........ 733 753 773 720 729 741 711
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total rental
locations........... 888 942 942 882 885 902 872
Average number of vehicles
operated during the period
by company-owned stores and
franchisees................ 120,383 115,983 98,974 93,989 94,992 98,031 103,253
Peak number of vehicles
operated during the period
by company-owned stores and
franchisees................ 136,077 138,818 117,906 108,447 110,771 110,771 122,286
COMPANY-OWNED STORES DATA
(U.S. AND CANADA)(C):
Average number of vehicles
operated................... 55,873 52,990 40,083 36,246 45,037 45,695 55,103
Number of rental
transactions............... 2,847,449 2,525,697 2,230,076 2,196,611 2,817,269 2,137,301 2,554,969
Average revenue per
transaction................ $ 154 $ 163 $ 161 $ 170 $ 176 $ 179 $ 189
Monthly average revenue per
vehicle.................... $ 655 $ 645 $ 748 $ 856 $ 917 $ 929 $ 972
VEHICLE LEASING DATA (U.S.
AND CANADA)(C):
Average number of vehicles
leased..................... 33,660 37,330 41,072 34,373 30,583 31,434 33,158
Average monthly lease revenue
per unit................... $ 336 $ 313 $ 349 $ 400 $ 409 $ 411 $ 418
</TABLE>
- -------------------------
(a) Management believes it is important to note that net earnings, EBITDA and
Adjusted EBITDA for the year ended December 31, 1996 and the nine months
ended September 30, 1996 include intangible asset impairment losses of
$157,758,000 and $155,000,000, respectively, related to Chrysler's decision
in 1996 to dispose of Thrifty as a non-core asset ($155,000,000) and an
impairment loss related to Thrifty Canada, Ltd. ($2,758,000).
(b) EBITDA consists of earnings (loss) before income taxes plus all net interest
expense and all depreciation and amortization expense. Adjusted EBITDA
consists of earnings (loss) before income taxes plus net interest expense
that does not relate to vehicles and depreciation and amortization expense
that does not relate to vehicles. The Company does not include EBITDA and
Adjusted EBITDA as, nor should they be considered as, alternative measures
of operating results or cash flows from operating activities (as determined
in accordance with generally accepted accounting principles). Instead, the
Company includes them because they are widely used financial measures of the
potential capacity of a company to incur and service debt. The presentation
of EBITDA and Adjusted EBITDA may not be comparable to similarly titled
measures used by other companies.
(c) Excludes 1994 data for Snappy Car Rental, Inc., which was sold in September
1994.
28
<PAGE> 30
SELECTED FINANCIAL AND OPERATING DATA OF DOLLAR
The following selected consolidated statement of operations, balance sheet
and operating data of Dollar were derived from unaudited consolidated financial
information of Dollar. In the opinion of Dollar Thrifty Group management, the
information has been prepared on the same basis as the Dollar Thrifty Group
consolidated financial statements and includes all necessary adjustments for
fair presentation of the financial position and results of operations for the
periods presented. Results for the nine months ended September 30, 1997 and 1996
are not indicative of results for a full year. References to system-wide vehicle
rental revenue include revenue received by company-owned stores and by
franchisees from the rental of vehicles.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
(IN THOUSANDS):
Revenues:
Vehicle rental revenue....... $ 384,480 $ 349,109 $ 299,563 $ 311,267 $ 435,074 $ 334,393 $ 431,645
Vehicle leasing revenue...... 33,404 36,003 57,018 47,321 38,195 29,728 26,465
Fees and services............ 23,871 23,509 27,709 20,068 22,718 18,374 17,798
Other........................ 9,257 5,556 2,949 3,278 3,183 2,794 1,649
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues............. 451,012 414,177 387,239 381,934 499,170 385,289 477,557
Costs and expenses:
Direct vehicle and
operating.................. 215,464 204,652 180,415 157,519 212,658 160,236 190,732
Vehicle depreciation, net.... 119,680 125,747 111,508 103,384 130,516 97,376 126,727
Selling, general and
administrative............. 108,244 100,542 81,236 70,099 87,739 66,739 75,364
Interest expense, net........ 40,395 53,470 49,413 42,860 45,129 33,702 42,395
Amortization of cost in
excess of net assets
acquired................... 4,074 4,837 4,800 4,556 4,696 3,531 3,723
Restructuring charge
(reversal)................. 60,900 (18,296) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total costs and expenses... 548,757 470,952 427,372 378,418 480,738 361,584 438,941
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income
taxes and cumulative effect
of accounting change......... (97,745) (56,775) (40,133) 3,516 18,432 23,705 38,616
Income tax expense (benefit)... (27,969) (20,377) (13,295) 3,399 9,108 11,828 17,369
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before
cumulative effect of
accounting change............ (69,776) (36,398) (26,838) 117 9,324 11,877 21,247
Cumulative effect of accounting
change for income taxes...... 2,227 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)............ $ (67,549) $ (36,398) $ (26,838) $ 117 $ 9,324 $ 11,877 $ 21,247
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Revenue-earning vehicles,
net.......................... $ 606,041 $ 745,380 $ 513,164 $ 571,610 $ 690,069 $ 739,086 $ 934,186
Total assets................... 942,162 1,107,434 775,666 836,135 989,669 988,491 1,241,697
Total debt..................... 708,426 850,125 562,673 621,782 713,715 758,911 954,488
Stockholder's equity........... 53,778 97,380 70,542 70,659 102,383 82,535 123,630
</TABLE>
(Continued)
29
<PAGE> 31
SELECTED FINANCIAL AND OPERATING DATA OF DOLLAR
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA (IN THOUSANDS):
EBITDA(a)............................... $ 76,329 $ 132,942 $ 131,901 $ 159,981 $ 205,079 $ 162,869 $ 216,548
Adjusted EBITDA(a)...................... (75,238) (36,215) (22,042) 16,047 30,117 32,392 47,688
Net cash provided by operating
activities............................ 136,811 42,019 161,998 112,718 196,491 131,327 137,901
Net cash provided by (used in) investing
activities............................ 137,760 (151,036) 72,363 (156,360) (310,465) (275,073) (379,636)
Net cash provided by (used in) financing
activities............................ (265,559) 104,446 (242,835) 44,566 113,933 143,636 241,316
SYSTEM-WIDE DATA (U.S. AND CANADA):
Vehicle rental revenue (in thousands):
Company-owned stores.................. $ 384,480 $ 349,109 $ 299,563 $ 311,267 $ 435,074 $ 334,393 $ 431,645
Franchisee locations.................. 213,520 242,891 249,437 234,733 172,926 138,607 132,355
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total vehicle rental revenue........ $ 598,000 $ 592,000 $ 549,000 $ 546,000 $ 608,000 $ 473,000 $ 564,000
Rental locations:
Company-owned stores.................. 70 93 69 78 95 90 100
Franchisee locations.................. 230 228 216 201 175 185 172
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total rental locations.............. 300 321 285 279 270 275 272
Average number of vehicles operated
during the period by company-owned
stores and franchisees................ 80,876 74,009 57,420 53,468 57,197 59,015 62,902
Peak number of vehicles operated during
the period by company-owned stores and
franchisees........................... 91,022 88,645 68,120 62,300 67,414 67,414 75,782
COMPANY-OWNED STORES DATA (U.S.):
Average number of vehicles operated..... 49,158 45,505 33,366 29,855 38,952 39,352 48,682
Number of rental transactions........... 2,453,404 2,039,582 1,801,583 1,777,630 2,409,821 1,821,238 2,229,328
Average revenue per transaction......... $ 157 $ 171 $ 166 $ 175 $ 181 $ 184 $ 194
Monthly average revenue per vehicle..... $ 652 $ 639 $ 748 $ 869 $ 931 $ 944 $ 985
VEHICLE LEASING DATA (U.S.):
Average number of vehicles leased....... 9,193 10,151 14,130 10,823 7,801 8,140 6,774
Average monthly lease revenue
per unit.............................. $ 303 $ 296 $ 336 $ 364 $ 408 $ 406 $ 434
</TABLE>
- -------------------------
(a) EBITDA consists of earnings (loss) before income taxes plus all net
interest expense and all depreciation and amortization expense. Adjusted
EBITDA consists of earnings (loss) before income taxes plus net interest
expense that does not relate to vehicles and depreciation and amortization
expense that does not relate to vehicles. The Company does not include
EBITDA and Adjusted EBITDA as, nor should they be considered as,
alternative measures of operating results or cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles). Instead, the Company includes them because they are widely
used financial measures of the potential capacity of a company to incur and
service debt. The presentation of EBITDA and Adjusted EBITDA may not be
comparable to similarly titled measures used by other companies.
30
<PAGE> 32
SELECTED FINANCIAL AND OPERATING DATA OF THRIFTY
The following selected consolidated statement of operations, balance sheet
and operating data of Thrifty were derived from unaudited consolidated financial
information of Thrifty. In the opinion of Dollar Thrifty Group management, the
information has been prepared on the same basis as the Dollar Thrifty Group
consolidated financial statements and includes all necessary adjustments for
fair presentation of the financial position and results of operations for the
periods presented. Results for the nine months ended September 30, 1997 and 1996
are not indicative of the results for a full year. References to system-wide
vehicle rental revenue include revenue received from company-owned stores and by
franchisees from the rental of vehicles.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
(IN THOUSANDS):
Revenues:
Vehicle rental revenue......... $ 54,538 $ 60,913 $ 60,388 $ 61,241 $ 60,524 $ 47,841 $ 50,309
Vehicle leasing revenue........ 102,315 104,279 114,951 117,769 111,969 86,649 98,318
Fees and services.............. 25,088 26,415 29,548 28,950 27,730 21,569 21,215
Other.......................... 6,190 6,701 6,522 4,768 4,714 3,768 4,595
--------- --------- --------- --------- --------- --------- ---------
Total revenues............. 188,131 198,308 211,409 212,728 204,937 159,827 174,437
Costs and expenses:
Direct vehicle and operating... 44,600 34,484 29,335 32,270 33,242 27,204 28,317
Vehicle depreciation, net...... 68,968 77,491 87,739 85,287 82,592 64,064 80,724
Selling, general and
administrative............... 49,061 53,140 51,530 52,102 50,260 37,245 37,917
Interest expense, net.......... 23,859 26,376 29,609 30,754 26,449 20,517 22,392
Amortization of cost in excess
of net assets acquired....... 5,900 5,900 5,900 5,900 3,473 3,211 781
Intangible asset impairment
losses....................... -- -- -- -- 157,758 155,000 --
Equity in losses of
unconsolidated affiliates.... 6,134 457 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses... 198,522 197,848 204,113 206,313 353,774 307,241 170,131
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income
taxes and cumulative
effect of accounting change.... (10,391) 460 7,296 6,415 (148,837) (147,414) 4,306
Income tax expense (benefit)..... (1,532) 4,080 6,102 6,387 7,338 6,401 3,058
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before cumulative
effect of accounting
change......................... (8,859) (3,620) 1,194 28 (156,175) (153,815) 1,248
Cumulative effect of accounting
change for income taxes........ (3,490) -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)(a)........... $ (12,349) $ (3,620) $ 1,194 $ 28 $(156,175) $(153,815) $ 1,248
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
--------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS):
Revenue-earning vehicles, net.... $ 336,310 $ 547,367 $ 425,345 $ 382,137 $ 430,277 $ 486,392 $ 566,678
Total assets..................... 824,210 908,000 772,075 837,317 676,370 704,333 732,017
Total debt....................... 494,542 592,850 447,273 520,142 527,843 548,513 587,711
Stockholder's equity............. 261,187 256,990 257,670 257,756 96,159 103,815 97,288
</TABLE>
(Continued)
31
<PAGE> 33
SELECTED FINANCIAL AND OPERATING DATA OF THRIFTY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA (IN THOUSANDS):
EBITDA(a)(b)..................... $ 91,604 $ 112,928 $ 133,431 $ 130,385 $ (33,491) $ (57,499) $ 110,323
Adjusted EBITDA(a)(b)............ 721 7,651 13,034 8,662 (143,252) (142,404) 6,595
Net cash provided by operating
activities..................... 138,000 77,209 113,518 62,053 108,052 90,057 81,647
Net cash provided by (used in)
investing activities........... (162,765) (179,976) 31,737 (130,875) (110,261) (117,465) (139,358)
Net cash provided by (used in)
financial activities........... 20,806 103,737 (145,577) 68,769 1,644 27,712 59,868
SYSTEM-WIDE DATA (U.S. AND
CANADA):
Vehicle rental revenue (in
thousands):
Company-owned stores........... $ 54,538 $ 60,913 $ 60,388 $ 61,241 $ 60,524 $ 47,841 $ 50,309
Franchisee locations........... 267,462 288,087 308,612 321,759 329,476 260,159 267,691
--------- --------- --------- --------- --------- --------- ---------
Total vehicle rental
revenue................. $ 322,000 $ 349,000 $ 369,000 $ 383,000 $ 390,000 $ 308,000 $ 318,000
Rental locations:
Company-owned stores........... 85 96 100 84 61 71 61
Franchisee locations........... 503 525 557 519 554 556 539
--------- --------- --------- --------- --------- --------- ---------
Total rental locations..... 588 621 657 603 615 627 600
Average number of vehicles
operated during the period by
company-owned stores and
franchisees.................... 39,507 41,974 41,554 40,521 37,795 39,016 40,351
Peak number of vehicles operated
during the period by company-
owned stores and franchisees... 45,055 50,173 49,786 46,147 43,357 43,357 46,504
COMPANY-OWNED STORES DATA
(U.S. AND CANADA):
Average number of vehicles
operated....................... 6,715 7,485 6,717 6,391 6,085 6,343 6,421
Number of rental transactions.... 394,045 486,115 428,493 418,981 407,448 316,063 325,641
Average revenue per
transaction.................... $ 138 $ 125 $ 141 $ 146 $ 149 $ 151 $ 155
Monthly average revenue per
vehicle........................ $ 677 $ 678 $ 749 $ 799 $ 829 $ 838 $ 871
VEHICLE LEASING DATA
(U.S. AND CANADA):
Average number of vehicles
leased......................... 24,467 27,179 26,942 23,550 22,782 23,294 26,384
Average monthly lease revenue
per unit....................... $ 348 $ 320 $ 356 $ 417 $ 409 $ 413 $ 414
</TABLE>
- -------------------------
(a) Management believes it is important to note that net earnings, EBITDA and
Adjusted EBITDA for the year ended December 31, 1996 and the nine months
ended September 30, 1996 include intangible asset impairment losses of
$157,758,000 and $155,000,000, respectively, related to Chrysler's decision
in 1996 to dispose of Thrifty as a non-core asset ($155,000,000) and an
impairment loss related to Thrifty Canada, Ltd. ($2,758,000).
(b) EBITDA consists of earnings (loss) before income taxes plus all net interest
expense and all depreciation and amortization expense. Adjusted EBITDA
consists of earnings (loss) before income taxes plus net interest expense
that does not relate to vehicles and depreciation and amortization expense
that does not relate to vehicles. The Company does not include EBITDA and
Adjusted EBITDA as, nor should they be considered as, alternative measures
of operating results or cash flows from operating activities (as determined
in accordance with generally accepted accounting principles). Instead, the
Company includes them because they are widely used financial measures of the
potential capacity of a company to incur and service debt. The presentation
of EBITDA and Adjusted EBITDA may not be comparable to similarly titled
measures used by other companies.
32
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Dollar Thrifty Group has two vehicle rental companies, Dollar and Thrifty.
They engage in the business of renting vehicles directly to retail customers and
providing vehicle leasing and other services to franchisees that rent to
customers. The majority of Dollar's revenue is derived from renting vehicles to
customers from company-owned stores, while the majority of Thrifty's revenue is
generated from leasing vehicles and providing services to franchisees. In
September 1994, the Company sold Snappy Car Rental, Inc. ("Snappy"), which was
also engaged in the business of renting cars. Dollar Thrifty Group also leased
vehicles to non-affiliates in 1994 and 1995 through its subsidiary, Manatee
Leasing Inc. ("Manatee"), whose operations have been discontinued.
Dollar Thrifty Group's revenues consist of:
- Vehicle rentals -- revenue generated from renting vehicles to
customers, including all related charges, through company-owned
stores,
- Vehicle leasing -- revenue generated from leasing vehicles, primarily
to franchisees,
- Fees and services -- revenue generated from franchise fees and
providing reservations, insurance, supplies and other products and
services to franchisees, and
- Other -- revenue generated from franchise sales, parking income,
non-vehicle lease income and interest income derived from franchisees.
Dollar Thrifty Group's expenses consist of:
- Direct vehicle and operating -- costs related to the rental of
revenue-earning vehicles to customers and to the leasing of vehicles
to franchisees, such as leasing expenses, concessions and commissions
paid to airport authorities, commissions paid to travel agencies,
insurance and lease promotion expenses, net of certain incentives
received from vehicle manufacturers,
- Vehicle depreciation, net -- depreciation expense relating to
revenue-earning vehicles, net of gains and losses on the disposal of
such vehicles,
- Selling, general and administrative expenses, including advertising
and marketing expenses and reservations,
- Interest expense, net -- interest expense, net of interest earned on
restricted cash and working capital facility, relating primarily to
revenue-earning vehicle financing and to working capital debt, and
- Amortization of cost in excess of net assets acquired.
33
<PAGE> 35
RESULTS OF OPERATIONS
The following table sets forth, for each of the periods indicated, the
percentage of operating revenues represented by certain items in Dollar Thrifty
Group's consolidated statement of operations:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ------------------------
1994 1995 1996 1996 1997
-------- -------- --------- --------- --------
(PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C>
Revenues:
Vehicle rentals................. 63.2% 61.1% 70.2% 70.0% 73.8%
Vehicle leasing................. 26.5 29.2 21.3 21.3 19.1
Fees and services............... 9.0 8.1 7.2 7.3 6.0
Other........................... 1.3 1.6 1.3 1.4 1.1
-------- -------- --------- --------- --------
Total revenues............. 100.0% 100.0% 100.0% 100.0% 100.0%
-------- -------- --------- --------- --------
Costs and expenses:
Direct vehicle and operating.... 35.8% 31.3% 34.8% 34.3% 33.6%
Vehicle depreciation, net....... 32.3 32.2 30.2 29.6 31.8
Selling, general and
administrative............... 21.9 20.3 19.6 18.9 17.1
Interest expense, net........... 12.8 12.9 10.3 10.1 10.1
Amortization of cost in excess
of net assets acquired....... 1.8 1.7 1.2 1.2 0.7
Intangible asset impairment
losses....................... -- -- 22.4 28.4 --
Restructuring charge reversal --
Snappy....................... (1.1) -- -- -- --
Loss on sale of Snappy.......... 6.3 -- -- -- --
-------- -------- --------- --------- --------
Total costs and expenses... 109.8% 98.4% 118.5% 122.5% 93.3%
-------- -------- --------- --------- --------
Earnings (loss) before income
taxes........................... (9.8) 1.6 (18.5) (22.5) 6.7
Income tax expense (benefit)...... (2.0) 1.6 2.4 3.4 3.1
-------- -------- --------- --------- --------
Net earnings (loss)............... (7.8)% 0.0% (20.9)%(a) (25.9)%(a) 3.6%
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) Net losses for the year ended December 31, 1996 and the nine months ended
September 30, 1996 include intangible asset impairment losses related to
Chrysler's decision in 1996 to dispose of Thrifty as a non-core asset and an
impairment loss related to Thrifty Canada, Ltd.
The following table sets forth, for each of the periods indicated, a
breakdown of Dollar Thrifty Group's two major sources of revenue:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Vehicle rental revenue:
Dollar................................. $299,563 $311,267 $ 435,074 $ 334,393 $431,645
Thrifty................................ 60,388 61,241 60,524 47,841 50,309
Snappy................................. 53,473 -- -- -- --
-------- -------- --------- --------- --------
Total............................. $413,424 $372,508 $ 495,598 $ 382,234 $481,954
======== ======== ======== ======== ========
Leasing revenue:
Dollar................................. $ 57,018 $ 47,321 $ 38,195 $ 29,728 $ 26,465
Thrifty................................ 114,951 117,769 111,969 86,649 98,318
Manatee and other...................... 1,030 12,746 15 15 --
-------- -------- --------- --------- --------
Total............................. $172,999 $177,836 $ 150,179 $ 116,392 $124,783
======== ======== ======== ======== ========
</TABLE>
34
<PAGE> 36
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
OPERATING RESULTS
Dollar Thrifty Group had a net profit of $24.2 million for the nine months
ended September 30, 1997, compared to a net loss of $141.4 million for the same
period in 1996. The net loss for the 1996 period included the effect on Dollar
Thrifty Group of Chrysler's decision during the 1996 period to dispose of
Thrifty as a non-core asset. Chrysler took an intangible asset impairment loss
that was required under generally accepted accounting principles to be reflected
as a $155.0 million intangible asset impairment loss in Dollar Thrifty Group's
statement of operations. Excluding the effect of that loss, Dollar Thrifty Group
would have had a net profit of $13.6 million in the first nine months of 1996.
The intangible asset impairment loss had no tax or cash effect.
Dollar Thrifty Group's improved performance in the first nine months of
1997, compared with the comparable period in 1996, was mainly due to growth in
the level of vehicle rental activity and selected price increases as vehicle
rental demand strengthened, which were partially offset by higher depreciation
expenses. Thrifty did not increase vehicle lease rates enough to offset the
higher depreciation expenses related to Non-Program Vehicles, which negatively
affected operating results.
REVENUES
Dollar Thrifty Group's total revenues for the nine months ended September
30, 1997 were $652.9 million, an increase of $106.7 million, or 19.5%, compared
to the same period for 1996. Dollar's revenue was $477.6 million for the nine
months ended September 30, 1997, an increase of $92.3 million, or 24.0%,
compared to the corresponding period in 1996. Thrifty's total revenues were
$174.4 million for the nine months ended September 30, 1997, an increase of
$14.6 million, or 9.1%, compared to the same period for 1996.
The Group's vehicle rental revenue for the nine months ended September 30,
1997 was $482.0 million, a 26.1%, or $99.7 million, increase from the
corresponding 1996 period. This increase consisted of a $97.3 million, or 29.1%,
increase for Dollar and a $2.5 million, or 5.2%, increase for Thrifty. The
increase in vehicle rental revenue for Dollar was due to a 22.4% increase in the
number of transactions, of which approximately 45% related to the conversion of
several franchised locations to company-owned stores. Dollar also had a 5.4%
increase in revenue per transaction due to selected price increases.
Vehicle leasing revenue for the nine months ended September 30, 1997 was
$124.8 million, a 7.2% increase from the same period for 1996. This increase in
vehicle leasing revenue reflects an increase of $11.7 million, or 13.5%, in
Thrifty's leasing revenues due primarily to a 13.3% increase in the average
number of vehicles leased to franchisees and a decrease in Dollar's leasing
revenues of $3.3 million, or 11.0%, due to a decrease in the average number of
vehicles leased to franchisees as a result of the conversion of several
franchised locations to company-owned stores.
EXPENSES
Total expenses were $608.3 million for the nine months ended September 30,
1997, compared to $669.0 million for the same period in 1996. The 1996 expenses
included a $155.0 million intangible asset impairment loss required as a result
of Chrysler's decision to dispose of Thrifty as a non-core asset, as discussed
above. Excluding this loss, total expenses for the 1996 period were $514.0
million, or 94.1% of total revenues, and total expenses for the 1997 period were
$608.3 million, or 93.3% of total revenues.
Direct vehicle and operating expense for the nine months ended September
30, 1997 increased $31.6 million, or 16.9%, over the same period for 1996, due
to an increase in the number of vehicles operated and an increase in per unit
costs, which was partially offset by an increase in manufacturer promotional
incentives related to the acquisition of vehicles. These expenses were 33.6% of
revenue for the nine months ended September 30, 1997, compared to 34.3% of
revenue for the corresponding period in 1996. Direct vehicle and operating
expenses for Dollar increased $30.5 million, or 19.0%, for the nine months ended
September 30, 1997. Thrifty's direct vehicle and operating expenses increased
$1.1 million, or 4.1%, for the nine months ended September 30, 1997.
35
<PAGE> 37
Net vehicle depreciation expenses increased $46.0 million, or 28.5%, for
the nine months ended September 30, 1997 over the same period for 1996 due to an
increase in the number of vehicles in the vehicle rental and leasing fleets and
to an increase in the average depreciation expense per vehicle. Higher
depreciation expense per unit was the result of the increased cost of Program
Vehicles and losses and anticipated losses on disposition of Non-Program
Vehicles due to the deterioration in the used vehicle market in 1997. That
deterioration occurred after Thrifty had established its 1997 model year vehicle
lease rates in the summer of 1996. As a result, lease rates did not adequately
cover the higher depreciation expense incurred by Thrifty and earnings before
income taxes were reduced by $10.6 million for the nine months ended September
30, 1997 compared with the same period for 1996.
Selling, general and administrative expenses increased $8.4 million, or
8.1%, for the nine months ended September 30, 1997, compared to the same period
for 1996, primarily due to increases in personnel costs and sales and marketing
expenses that were partially offset by a reduction in bad debt and legal
expenses and to the reversal of a sales tax reserve in 1996 that was accrued
prior to 1994. As a percent of revenue, these expenses were 17.1% of revenue for
the 1997 period compared to 18.9% for the 1996 period.
Net interest expenses increased $10.6 million, or 19.1%, for the nine
months ended September 30, 1997, primarily due to increased debt levels and a
reduction of restricted cash used to finance the growth of the fleet.
As a result of the intangible asset impairment loss discussed above, the
amortization of cost in excess of net assets acquired was $2.4 million less for
the nine months ended September 30, 1997 than for the same period in 1996.
The effective income tax rate for the nine months ended September 30, 1997
was 45.6% due to the effect of amortization of costs in excess of net assets
acquired of $4.5 million and losses in Thrifty Canada, Ltd. ("TCL"), for which
no income tax benefit was recorded. For the nine months ended September 30,
1996, the Group had income tax expenses of $18.6 million even though the loss
before income taxes was $122.8 million. This unfavorable tax result was due to
non-deductible expenses related to the intangible asset loss of $155.0 million,
amortization of cost in excess of net assets acquired of $6.7 million and losses
at TCL for which no income tax benefit was recorded.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
OPERATING RESULTS
Dollar Thrifty Group had a net loss of $147.3 million for 1996, compared to
a net loss of $30,000 for 1995. The net loss for 1996 included the effect on
Dollar Thrifty Group of Chrysler's decision during 1996 to dispose of Thrifty as
a non-core asset. Chrysler took an intangible asset impairment loss that was
required under generally accepted accounting principles to be reflected as a
$155.0 million intangible asset impairment loss in Dollar Thrifty Group's
statement of operations. Excluding the effect of that loss and an intangible
asset impairment loss related to TCL of $2.8 million, Dollar Thrifty Group would
have had a net profit of $10.5 million in 1996. The intangible asset impairment
loss had no tax or cash effect.
Dollar Thrifty Group's 1996 results reflect increased rental activity
partially offset by decreased leasing activity, compared in each case to 1995,
resulting from the conversion by Dollar of several franchisee locations to
company-owned stores and an increase in expenses comprised principally of the
intangible asset impairment loss. Direct vehicle and operating expenses, net
vehicle depreciation expense and selling and general administrative expenses
increased in 1996 due mainly to an increase in the number of vehicles operated,
increases in per unit costs and depreciation and an increase in personnel,
advertising and marketing expenses.
REVENUES
Total revenues for 1996 increased by $96.2 million, or 15.8%, to $705.6
million from $609.4 in 1995. Dollar's total revenues increased $117.2 million,
or 30.7%, to $499.2 million in 1996. Thrifty's total revenues decreased $7.8
million, or 3.7%, to $204.9 million in 1996, from $212.7 million in 1995.
36
<PAGE> 38
Vehicle rental revenue for 1996 was $495.6 million, an increase of $123.1
million, or 33%. This increase consisted of a $123.8 million, or 39.8%, increase
for Dollar and a $0.7 million, or 1.2%, decrease for Thrifty. The revenue
increase for Dollar was due to a $67.7 million increase related to the
conversion of several franchisee locations to company-owned stores, the most
significant of which was in Hawaii, and to a $56.1 million, or 18%, increase in
revenue for existing company-owned stores. The increase in revenue for existing
company-owned stores was due to both an increase in transactions and to an
increase in revenue per transaction.
Leasing revenue was $150.2 million for 1996, a $27.7 million decrease from
1995. Dollar's leasing revenue decreased $9.1 million, or 19.3%, to $38.2
million primarily due to a reduction in the average number of units leased to
its franchisees partially offset by higher lease rates. The conversion of
several franchisee locations to company-owned stores was the primary reason for
this decline. Thrifty's leasing revenue decreased $5.8 million, or 4.9%, to
$112.0 million due to a reduction in the average number of units leased to its
franchisees and to lower lease rates in Canada. Leasing revenue also declined by
$12.7 million due to cessation of operations of Manatee.
EXPENSES
Total expenses were $836.2 million in 1996, an increase of $236.5 million
from 1995. The 1996 expenses included a $155.0 million intangible asset
impairment loss related to Thrifty, associated with Chrysler's decision to
dispose of Thrifty as a non-core asset and an intangible asset impairment loss
of $2.8 million related to TCL. Excluding these intangible asset impairment
losses, total expenses were 96.2% of total revenues in 1996 compared to 98.4% in
1995.
Direct vehicle and operating expenses increased $55.3 million, or 29%, to
$245.9 million in 1996 due to an increase in the number of vehicles operated and
an increase in the per unit costs. These expenses were 34.8% of revenue in 1996
compared to 31.3% in 1995, due to a significant increase in the proportion of
total revenue generated by vehicle rentals through company-owned stores, which
carry additional costs not associated with leased units. Direct vehicle and
operating expenses for Dollar increased $55.1 million, or 35.0%, while these
expenses for Thrifty increased $1.0 million, or 3.0%.
Net vehicle depreciation expense increased $16.8 million, or 8.5%, to
$213.1 million in 1996 due to an increase in the number of vehicles in the
vehicle rental and leasing fleets and to an increase in depreciation per
vehicle.
Selling, general and administrative expenses were $138.4 million in 1996,
an increase of $14.9 million, or 12.1%, from 1995, due primarily to an increase
in advertising and marketing expenses, personnel costs and other general and
administrative expenses, partially offset by the reversal of a sales tax reserve
in 1996 that was recorded prior to 1994. As a percentage of total revenue,
selling, general and administrative expenses were 19.6% in 1996 compared to
20.3% in 1995.
Interest expense of $72.9 million decreased by $5.9 million, or 7.5%,
primarily due to lower average interest rates paid in 1996, partially offset by
higher debt levels to finance the growth in the vehicle fleet. In December 1995,
Thrifty established an asset backed note program that resulted in lower cost
financing.
During 1996, Chrysler decided to dispose of Thrifty as a non-core asset and
took an intangible asset impairment loss that was required under generally
accepted accounting principles to be reflected as a $155.0 million intangible
asset impairment loss in Dollar Thrifty Group's statement of operations. In
addition, Thrifty recorded an intangible asset impairment loss of $2.8 million
related to TCL.
For 1996, the Company had income tax expenses of $16.7 million even though
the loss before income taxes was $130.6 million. This unfavorable tax result was
due to non-deductible expenses related to the intangible asset impairment losses
of $157.8 million and the amortization of cost in excess of net assets acquired
of $8.2 million, and to losses at TCL for which no tax benefit was recorded. The
effective tax rate for 1995 was 100.3%, resulting from the negative impact of
non-deductible expenses related to the amortization of cost in excess of net
assets acquired of $10.5 million and to losses at TCL for which no income tax
benefit were recorded.
37
<PAGE> 39
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
OPERATING RESULTS
Dollar Thrifty Group had a net loss of $30,000 for 1995, compared to a net
loss of $50.6 million for 1994. The net loss for 1994 included a $40.9 million
loss on the sale of Snappy, partially offset by the reversal of $7.0 million of
restructuring charges relating to Snappy. Dollar's operating results improved in
1995, compared to 1994, primarily as a result of increased rental revenue per
transaction and a decrease in expenses resulting from a reduction in the number
of vehicles in the rental and leasing fleet.
REVENUES
Total revenues for 1995 were $609.4 million, a decrease of $44.6 million,
or 6.8%, from 1994. This decrease was primarily due to a $53.5 million reduction
in revenue contribution from Snappy, which was sold in September 1994. Revenue
for Dollar decreased by $5.3 million, or 1.4%, to $381.9 million and revenue for
Thrifty increased by $1.3 million, or 0.6%, to $212.7 million.
Vehicle rental revenue for 1995 was $372.5 million, a decrease of $40.9
million, or 9.9%, from 1994. This decline in revenue was due to $53.5 million
lower revenue for Snappy, partially offset by an increase of $11.7 million in
revenue of Dollar and a $0.9 million increase in revenue of Thrifty. The revenue
growth for both Dollar and Thrifty was due to an increase in revenue per
transaction partially offset by a reduction in the number of transactions. For
Dollar, the number of rental transactions decreased by 1.3%, while the revenue
per transaction increased 4.8%.
Leasing revenue for 1995 was $177.8 million, up $4.8 million, or 2.8%, from
1994 revenue. Leasing revenue for Dollar decreased by $9.7 million due to a
decline in vehicles leased to its franchisees, which was partially offset by
higher lease rates. Leasing revenue for Thrifty increased $2.8 million, or 2.5%,
to $117.8 million, due to higher lease rates in 1995 partially offset by a
decrease in the number of vehicles leased to its franchisees. Leasing revenue
for Manatee also increased by $11.7 million in 1995 due to an increase in the
number of vehicles leased.
Revenue from fees and services decreased $9.6 million, or 16.3%, to $49.4
million in 1995 from $59.0 million in 1994, due primarily to a reduction of the
franchise fee required to be paid by Dollar's franchisees and also to lower
revenue of Dollar's franchisees.
EXPENSES
Total expenses were $599.7 million in 1995, a $117.8 million decline from
1994. Operating expenses related to Snappy and a $40.9 million loss on its sale
represented $84.1 million of this decline. Total expenses for Dollar declined by
$49.0 million to $378.4 million, while total expenses for Thrifty increased by
$2.2 million and expenses for Manatee increased by $11.7 million.
Direct vehicle and operating expenses decreased $43.8 million, or 18.7%, to
$190.6 million in 1995 partially due to the sale of Snappy, which represented
$24.4 million of this decline. Dollar's direct vehicle and operating expenses
decreased $22.9 million due to a reduction in the number of vehicles in the
rental and leasing fleet and to an increase in manufacturer promotional
incentives related to the acquisition of the vehicles. Thrifty had an increase
in direct vehicle and operating expenses of $2.9 million due to higher bad debt
expenses related to leasing revenue, partially offset by an increase in
manufacturer promotional incentives and by a decrease in the number of vehicles
in the vehicle rental and vehicle leasing fleet.
Net vehicle depreciation expenses decreased by $14.6 million, or 6.9%, to
$196.4 million in 1995. Vehicle depreciation for Dollar decreased $8.1 million,
or 7.3%, due to a reduction in the number of vehicles in the rental and leasing
fleet, partially offset by an increase in depreciation per unit. These expenses
for Thrifty declined by $2.5 million due to a reduction in the number of
vehicles in its rental and leasing fleet, partially offset by an increase in the
depreciation per unit. Vehicle depreciation for Snappy decreased by $11.6
million due to its sale and increased by $7.6 million for Manatee due to an
increase in the number of vehicles in its leasing fleet.
38
<PAGE> 40
Selling, general and administrative expenses were $123.4 million in 1995,
down $19.7 million, or 13.8%, from 1994 due primarily to elimination of expenses
resulting from the sale of Snappy and a reduction in bad debt, legal and other
administration expenses partially offset by an increase in personnel expenses.
These expenses were 20.3% of total revenues in 1995 compared to 21.9% in 1994.
Net interest expense in 1995 declined by $4.7 million, or 5.6%, due
primarily to lower debt required to finance the Group's vehicle fleet, partially
offset by an increase in average interest rates from 1994.
In September 1994, the Company sold Snappy, resulting in a $40.9 million
loss. In addition, during 1994, Snappy reversed $7.0 million of restructuring
charges accrued prior to 1994.
The effective income tax rate for 1995 was 100.3%, which was negatively
impacted by the amortization of cost in excess of net assets acquired and losses
at TCL for which no income tax benefit was recorded. The effective tax benefit
rate relative to 1994 losses was 20.1%. This rate reflected the negative impact
of non-deductible expenses related to the amortization of cost in excess of net
assets acquired of $11.5 million, losses at TCL for which no income tax benefit
was recorded and the loss on the sale of Snappy.
LIQUIDITY AND CAPITAL RESOURCES
Dollar Thrifty Group's U.S. and Canadian operations are funded by cash
provided by operating activities and its financing arrangements. Its primary use
of funds is to purchase revenue-earning vehicles. For the year ended December
31, 1996, the Group used $1.616 billion to purchase vehicles, which was
partially offset by $1.242 billion in proceeds from the sale of used vehicles.
For the nine months ended September 30, 1997, the Group used $1.467 billion to
purchase vehicles, which was partially offset by $879 million in proceeds from
the sale of used vehicles. This cash requirement was financed by cash from
operations, increased vehicle financing facilities and the use of restricted
cash dedicated to vehicle purchases.
The Company expects the amount of cash required to purchase vehicles, net
of proceeds from the sale of used vehicles, to increase in 1998 because rental
fleets are increasing to meet anticipated rental demand. The Group expects to
meet these cash requirements with cash provided from operations and increased
vehicle financing facilities under the Financing Plan. The Group's need for cash
to finance vehicles is highly seasonal and typically peaks in the second and
third quarters of the year when fleet levels build up to meet seasonal rental
demand. Fleet levels are lowest in the fourth quarter when rental demand is at a
seasonal low. The Group also requires cash for non-vehicle capital expenditures.
These expenditures totaled $17.8 million in 1996 and are estimated to be
approximately $18 million in 1997 and approximately $35 million in 1998 and are
expected to be financed with cash provided from operations. The 1998 capital
expenditures include approximately $10 million for reservation, tour and other
information systems. Non-vehicle capital expenditures are expected to be
financed with cash provided from operations.
To finance its U.S. vehicle fleet requirements, Dollar Thrifty Group has
had an asset backed medium term note program and variable funding note program
and a vehicle financing line of credit from Chrysler Financial Corporation. The
Dollar fleet has been financed by the Chrysler Financial line of credit, which
provided funding, at the prime rate less 1.5%, net of interest subsidies
provided by Chrysler, of up to $1.031 billion in 1997 to finance the summer peak
fleet size. Dollar Thrifty Group intends to refinance almost all of the Chrysler
Financial financing and to finance future fleet growth by expanding its existing
asset backed note program as described under "Financing Plan" below. The Thrifty
fleet is financed by an asset backed note program, which included, at September
30, 1997, $190 million of 6.6% notes, $260 million of floating rate notes that
bear interest at rates ranging from LIBOR plus .70% to LIBOR plus 1.25%, and $41
million of variable funding notes that bear interest at commercial paper rates
plus program and bank fees. The funding capacity of the existing asset backed
note program was $491 million at September 30, 1997, but had been expanded to
$521 million to finance the 1997 summer peak fleet size by temporarily
increasing the variable funding note program. The medium term notes and variable
funding notes begin amortizing in September 1998, with $233.9 million due in
1998, $48.1 million due in 1999, $126.7 million due in 2000 and $67.3 million
due in 2001. Dollar Thrifty Group intends to establish the Commercial Paper
Program to refinance a portion of these notes and purchase vehicles as described
under "Financing Plan" below.
39
<PAGE> 41
Dollar Thrifty Group finances its Canadian vehicle fleet under a lease
agreement with CFI Auto Lease Trust, which has committed to $91.0 million of
funding. This facility is a four-year commitment, which commenced in June 1996
and is supported by underlying bank financing that is required to be renewed
annually by the Trust. Thrifty provides bank letters of credit in amounts up to
$9.0 million to support this facility.
Dollar Thrifty Group has a $35.0 million bank line of credit to provide
additional working capital and letters of credit. At December 31, 1996, $27.0
million was drawn under this line and $3.8 million was used to provide letters
of credit. The Group also has an arrangement with Chrysler under which the Group
can advance excess cash to Chrysler as part of Chrysler's overall cash
management program and Chrysler provides the Group with a $75 million working
capital line of credit. Borrowings under the Chrysler line of credit for use by
Dollar have been provided without interest charges. At December 31, 1996, the
Group had no borrowings under the Chrysler line of credit and had advanced $38.3
million to Chrysler under the cash management program. The bank line and the
arrangements with Chrysler will be replaced in connection with the Financing
Plan.
Dollar Thrifty Group also has significant requirements for bonds and
letters of credit to support its insurance programs and airport concession
obligations. At September 30, 1997, the Group had $184 million in bonds
outstanding, of which $156 million supported insurance obligations. These bonds
have been either provided by Chrysler Insurance Corporation or guaranteed by
Chrysler. The Group believes the bonds that support insurance obligations could
be reduced to approximately $73 million if replaced. Bonds that support airport
concession and other commitments at September 30, 1997 were approximately $28
million. The Company expects that these financing requirements will continue to
grow as airport concessions are renewed and as its insurance obligations
increase. Chrysler's support of the Group in connection with these financing
requirements will end at the time of the Offering. See "-- Financing Plan."
The Group's core information systems are either designed to, or are being
updated to, address the "Year 2000" issues that might otherwise result if such
systems could not accommodate the date change at the turn of the century. The
estimated total costs of completion of this project are $5 million.
FINANCING PLAN
The Company is implementing the Financing Plan, which includes the sale of
shares by the Company in the Offering. The Financing Plan has the following
elements:
New Medium Term Notes
The Group will expand its existing asset backed note program through the
issuance of $900 million principal amount of New Medium Term Notes that will
begin to amortize three years after issuance. The New Medium Term Notes will be
secured by vehicles in the Group's fleet, by the Group's rights to payment under
automotive manufacturers' residual value programs, by credit enhancement
(including letters of credit issued under the Revolving Credit Facility and
letters of credit provided by Chrysler pursuant to the Chrysler Credit Support
Agreement) and by other collateral. The proceeds that the Group receives from
the New Medium Term Notes will be used by a finance subsidiary of the Group to
refinance almost all of Dollar's existing vehicle debt to Chrysler Financial
Corporation and to purchase additional fleet vehicles from time to time. The
Group does not currently intend to refinance its existing vehicle debt to
Chrysler Financial for financing of shuttle buses, which totalled approximately
$5 million as of September 30, 1997.
Commercial Paper Program and Liquidity Facility
The Company expects to establish, in the first quarter of 1998, the
Commercial Paper Program of up to $615 million through a finance subsidiary and
as part of its existing asset backed note program. The Company will use $255
million of the proceeds to refinance the portion of the Group's outstanding
asset backed notes that amortizes from September 1998 to February 1999. The
Company will use the remaining amount available under the Commercial Paper
Program for fleet financing and to refinance asset backed notes from time to
time.
The Company will be required to establish a $545 million Liquidity Facility
to support the Commercial Paper Program. The Liquidity Facility will provide the
Commercial Paper Program with a backup source of
40
<PAGE> 42
funding if the Company's finance subsidiary is unable to refinance maturing
commercial paper by issuing new commercial paper. The Liquidity Facility will be
backed by the same assets and other credit enhancements that support the
Commercial Paper Program.
The Company expects to establish the Liquidity Facility on the basis of
underwritten financing commitments from Credit Suisse First Boston (and its
affiliates) and The Chase Manhattan Bank. Establishment of the Liquidity
Facility is subject, among other things, to the Company's commercial paper
receiving credit ratings of A-1 from Standard & Poor's Ratings Service and P-1
from Moody's Investors Service, Inc. The ongoing availability of the Commercial
Paper Program will depend, among other things, on those ratings being
maintained, the absence of events of insolvency and compliance with certain
covenants.
Chrysler Credit Support
As part of the Financing Plan, Chrysler will provide credit support for the
Group's fleet financing in the form of a letter of credit facility. The credit
support will start at $50 million, but will be reduced to the extent the Company
receives more than $10 million in net proceeds from the exercise of the
over-allotment option. If those proceeds are $60 million or more, Chrysler's
credit support would be eliminated. The Initial Support Amount will decline
annually, beginning September 30, 1999, by the greater of 20% of the Initial
Support Amount and 50% of the Group's excess cash flow. The Company may need to
replace reductions in the Initial Support Amount with cash from operations or
with borrowings or letters of credit under the Revolving Credit Facility. To
secure reimbursement obligations under the Chrysler Credit Support Agreement,
Chrysler will have liens on certain assets of the Group. See "Description of
Certain Indebtedness."
Offering of Shares by the Company
The Company's sale of shares in the Offering is part of the Financing Plan.
The net proceeds to the Company will be used to provide collateral for the fleet
financing. If the over-allotment option granted to the U.S. Underwriters and the
Managers is exercised, the additional net proceeds will be used for general
corporate purposes. Those purposes include providing collateral for the Group's
vehicle fleet financings that could reduce or possibly eliminate Chrysler's
credit support.
Revolving Credit Facility
The Company will establish a new $215 million senior secured Revolving
Credit Facility to provide letters of credit of up to $190 million and working
capital borrowings of up to $70 million. The Group may not have more than $215
million of combined borrowings and letters of credit outstanding under the
Revolving Credit Facility at any time. The Company may be required to use up to
$30 million of letters of credit under the Revolving Credit Facility to back up
and ultimately replace existing Chrysler guarantees and bonds issued on behalf
of the Group. In 1998, the Company may also be required to use up to $40 million
of letters of credit under the Revolving Credit Facility to provide credit
support for the Group's fleet financing. Borrowings under the Revolving Credit
Facility will bear interest at floating rates. See "Description of Certain
Indebtedness -- The Revolving Credit Facility."
The Company expects that the New Medium Term Notes will be issued and the
Revolving Credit Facility and the Chrysler Credit Support Agreement will be in
effect when the Offering is completed. The Company expects that the Commercial
Paper Program and the Liquidity Facility will be implemented in the first
quarter of 1998. The Company has obtained from Credit Suisse First Boston (and
its affiliates) and The Chase Manhattan Bank underwritten financing commitments,
subject to customary conditions, relating to the Revolving Credit Facility and
the Liquidity Facility.
The completion of the Offering is contingent upon the issuance of the New
Medium Term Notes and the implementation of the Chrysler Credit Support
Agreement and the Revolving Credit Facility.
See "Risk Factors -- Substantial Debt; Interest Rate Risk."
41
<PAGE> 43
INFLATION
The increased acquisition cost of vehicles is the primary inflationary
factor affecting the Group. Many of the Group's other operating expenses are
also expected to increase with inflation. Management does not expect that the
effect of inflation on the Group's overall operating costs will be greater for
the Group than for its competitors.
NEW ACCOUNTING STANDARDS
Recent pronouncements of the Financial Accounting Standards Board ("FASB"),
which are not required to be adopted at this date, include Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related Information" ("SFAS No. 131"), SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), SFAS No. 129, "Disclosure of
Information about Capital Structure" ("SFAS No. 129") and SFAS No. 128,
"Earnings Per Share" ("SFAS No. 128"). SFAS No. 131 requires that a public
business enterprise report financial and descriptive information about its
reporting segments on the same basis that it uses internally for evaluating
segment performance and deciding how to allocate resources to segments. SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. SFAS Nos.
129 and 128 specify guidelines as to the method of computation as well as
presentation and disclosure requirements for earnings per share ("EPS"). The
objective of these statements is to simplify the calculation and to make the
U.S. standard for computing EPS more compatible with the EPS standards of other
countries and with that of the International Accounting Standards Committee.
Adoption of SFAS No. 128 is required for fiscal years ending after December 15,
1997. The other statements listed above are effective for fiscal years beginning
after December 15, 1997 and earlier application is not permitted. The adoption
of these statements will not have a material effect on Dollar Thrifty Group's
consolidated financial statements.
42
<PAGE> 44
INDUSTRY OVERVIEW
The U.S. daily vehicle rental industry has two principal markets: the
airport market and the local market. Vehicle rental companies that focus on the
airport market rent primarily to business and leisure travelers. Vehicle rentals
from airport locations account for the largest portion of vehicle rentals in the
United States. Those companies focusing on the local market rent primarily to
persons who need a vehicle periodically for personal or business use or who
require a temporary replacement vehicle. Rental companies also sell used
vehicles and ancillary products such as refueling services and loss damage
waivers. The vehicle rental industry has been seasonal. The third quarter,
during the peak summer months, has historically been the strongest quarter of
the year in terms of numbers of vehicle rentals and rental rates.
Vehicle rental companies typically incur substantial debt to finance the
ongoing turnover of their fleets. They also typically acquire a majority of
their fleets under manufacturer residual value programs that guarantee the
resale value of Program Vehicles at particular times in the future. This allows
a rental company to predict this important element of its cost structure. The
Program Vehicles and the related obligations of the manufacturers are often used
as collateral for the vehicle rental company's fleet financing.
The domestic vehicle rental industry has experienced significant revenue
growth over the past five years, following a period of reduced rental rates
prompted by excess vehicle capacity. The economic recession in the United States
from 1990 to 1992 led to decreased new vehicle demand and overcapacity among
automotive manufacturers. The manufacturers offered significant purchase
incentives to vehicle rental companies, enabling them to expand significantly
the size of their fleets. This eventually resulted in excess capacity,
intensified competition and depressed rental rates. As general economic
conditions in the United States improved, the manufacturers increased their new
vehicle prices and substantially reduced the incentives offered to fleet
purchasers. Continued competitive pressure within the rental industry, however,
constrained increases in average daily rental rates. The domestic vehicle rental
industry is now experiencing improved profitability as oversupply conditions
have lessened and average daily rental rates have increased.
There have recently been significant changes in the ownership of the
principal companies in the U.S. vehicle rental industry, several of which had
been owned by domestic automotive manufacturers. HFS Incorporated purchased Avis
Rent A Car, Inc. and subsequently sold 70% of Avis's equity to the public.
Republic Industries Inc. acquired National Car Rental System, Inc. and Alamo
Rent-a-Car, Inc. and Team Rental Group Inc. (renamed Budget Group, Inc.)
acquired Budget Rent a Car Corporation from Ford Motor Company. Ford sold a
minority interest in Hertz Corporation to the public. As a result, several of
the major companies in the industry are publicly held and only Dollar and
Thrifty remain wholly owned by a domestic automotive manufacturer. The Company
believes these changes may lead to higher average rental rates as a result of
increased industry focus on profitability and shareholder returns, rather than
on transaction volume and market share.
43
<PAGE> 45
BUSINESS
OVERVIEW
Dollar and Thrifty and their independent franchisees operate the Dollar and
Thrifty vehicle rental systems. The Dollar and Thrifty brands represent a
value-priced rental vehicle appealing to tourists and other leisure customers,
including foreign tourists, and to small businesses and independent business
travelers. As of September 30, 1997, Dollar and Thrifty had 872 locations in the
United States and Canada of which 161 were company-owned stores and 711 were
locations operated by franchisees. While Dollar and Thrifty have franchisees in
countries outside the United States and Canada, revenues from these franchisees
have not been material to the Group's results of operations.
The businesses of Dollar and Thrifty complement each other, although they
have different approaches to the vehicle rental market. In the United States,
Dollar's main focus is operating company-owned stores located at major airports,
and it derives substantial revenues from foreign tour and leisure rentals.
Thrifty operates mainly through franchisees serving both the airport and local
markets. Dollar derives a majority of its U.S. revenues from providing rental
vehicles and services directly to rental customers, while Thrifty derives its
revenues primarily from franchising fees and services. Thrifty's franchisees
provide vehicles and services to the rental customer. Dollar incurs the costs of
operating its company-owned stores and its revenues are directly affected by
changes in rental demand. As Thrifty operates primarily through franchisees, it
does not incur the costs of operating the franchised locations and does not
generally deal directly with rental customers. Therefore, changes in levels of
customer demand tend to affect Thrifty's results less quickly than those of
Dollar.
The Company is a Delaware corporation, wholly owned by Chrysler. It was
incorporated on November 4, 1997 in connection with the Offering. It is the
successor to Pentastar Transportation Group, Inc. Dollar was incorporated in
1965 and Thrifty was incorporated in 1950.
STRATEGY
The Company's main objectives are to increase revenues and improve
profitability by strengthening its value-priced brands. The key elements of this
strategy are:
CAPITALIZE ON CHANGING INDUSTRY DYNAMICS
Information disclosed by publicly held U.S. vehicle rental companies and
the Group's experience indicate that the U.S. vehicle rental industry is
emerging from a period, ending in 1995, when rental rates did not keep pace with
rising fleet costs. In addition, there have been recent changes in the ownership
of the major U.S. vehicle rental companies, several of which had been owned by
domestic automotive manufacturers. As a result, many of the major companies in
the industry are now publicly held and only Dollar and Thrifty remain wholly
owned by a domestic automotive manufacturer. These ownership changes may lead to
higher average rental rates as a result of increased industry focus on
profitability and shareholder returns, rather than on transaction volume and
market share. The Group would benefit from higher rental rates, particularly in
markets where it has a strong position.
The Company believes there may be opportunities to add smaller independent
and regional rental operators as franchisees. Opportunities would occur to the
extent these operators decide there are benefits in becoming franchisees of a
national brand such as Dollar or Thrifty. These benefits include better access
to vehicle supply, more attractive financing, national marketing programs and
newer technology.
BUILD ON THE COMPANY'S NICHES IN THE VEHICLE RENTAL MARKET
Value-Priced Brands
The Dollar and Thrifty brands are identified with the Group's strategy of
offering value-priced rental vehicles that are comparable to those offered by
the Group's principal competitors. Dollar and Thrifty service a wide variety of
leisure and discretionary customers from airport, near airport and local market
locations.
44
<PAGE> 46
Dollar's Leisure Market Position
Dollar intends to build on its strong position in the leisure rental
market. Dollar focuses mainly on the leisure market and tour operators. Of
Dollar's rental revenues in 1996, approximately 80% were derived from operations
in Florida, California, Hawaii and Nevada. The Company plans to expand Dollar's
international tour business because the Company believes that the trend over the
past five years of increasing numbers of overseas tourists visiting the United
States will continue.
Dollar has significant relationships with foreign tour operators,
especially those in the United Kingdom and has systems and facilities
specifically designed to provide a high level of service to this market segment.
Dollar plans to expand and add to its relationships with major tour operators.
Rentals to tour customers have certain advantages. Tour customers tend to
reserve vehicles earlier than other customers, rent them for longer periods and
cancel reservations less frequently. Dollar plans to focus on tour operator
opportunities where its current market share is low, particularly from certain
countries in Western Europe and in Latin America.
Thrifty's Local Market Position
Thrifty's company-owned stores and its franchisees derive approximately
half of their combined rental revenues from the airport market and half from the
local market. Thrifty's competitors usually focus on only one of these markets.
The local market has grown faster than the airport market and generally has had
less pricing pressure. In addition, local market locations usually have lower
costs and a more diverse customer base. Management believes that the local
market, where competition is based on location, service and customer
relationships, is well-suited to Thrifty's franchise strategy, which emphasizes
local ownership and operation. Thrifty plans to increase its local presence
through growth in the operations of existing franchisees and addition of new
franchisees.
CAPITALIZE ON OPPORTUNITIES FOR OPERATING EFFICIENCIES
Dollar and Thrifty operate as separate companies and serve the vehicle
rental market in different ways. The Company believes that as an independent
company it can improve efficiency and reduce costs by taking advantage of its
joint ownership of Dollar and Thrifty. Opportunities include pursuing volume
discounts in connection with the purchase of advertising, insurance and certain
information systems, consolidating some administrative functions and sharing
Group facilities. Additional opportunities involve coordinating used car
disposal, transferring vehicles between fleets to address short-term variations
in regional rental demands, developing joint training programs and referring
overflow customers from one system to the other.
INVEST IN STRATEGIC INFORMATION AND RESERVATION SYSTEMS
Since the beginning of 1995, Dollar Thrifty Group has made capital
investments and other expenditures totalling $22.8 million for reservation, tour
and other information systems. It plans to make capital expenditures of
approximately $10 million in these systems during 1998. Dollar, which has a much
larger proportion of company-owned stores than Thrifty, plans to invest in
centralized rental processing, inventory control, revenue management and other
systems. These investments are intended to improve operational control, fleet
utilization, rental rates and customer service. Because Thrifty has a high
proportion of franchisees, it plans to support its franchisees' operations by
offering uniform automated systems and customer service programs. These
investments will also enable Dollar to introduce, and Thrifty to improve,
customer frequency and loyalty programs.
EXPAND INTERNATIONAL OPERATIONS
Dollar plans to use commercial arrangements with a foreign independent
vehicle rental company to expand use of its brands abroad and as a means of
promoting additional rentals from in-bound travelers. Dollar has recently
entered into an agreement with Europcar International, S.A., an independent
European vehicle rental company. The agreement provides that each company will
accept rental reservations in its geographical area made through the other. In
addition, Dollar and Thrifty may license foreign vehicle rental companies as
master franchisees for specific countries or regions. Thrifty may also offer
vehicle leasing and other services to its international franchisees.
45
<PAGE> 47
DEVELOP OPPORTUNITIES FOR BUSINESS EXPANSION INTO RELATED AREAS
The Company believes that its experience in fleet leasing and management,
used car disposal and franchising provides it with opportunities for expansion.
These opportunities include leasing vehicles to small companies and individuals,
entering into joint ventures or other arrangements with publicly held new car
dealer groups, used car superstores and auto auctions and using Dollar Thrifty
Group's existing telecommunications capacity to provide telemarketing services.
Management believes the Company will be better able to pursue these
opportunities when it is an independent company.
Thrifty is developing a new brand, DriveWise, for the rental of used
vehicles. DriveWise would add a new source of franchise and related revenues.
Thrifty would enter into separate franchise arrangements for DriveWise. Thrifty
is currently conducting a pilot program for DriveWise in Louisville, Kentucky.
LINK COMPENSATION TO PERFORMANCE TO ENCOURAGE GROWTH
The Company's executive compensation program is designed to provide for
management incentives based on profitability, increases in shareholder value and
other performance criteria. In addition, Dollar and Thrifty have incentive plans
that provide for management compensation based on operating performance and that
reward company-owned stores' management based on the achievement of
performance-related objectives. The Company believes that linking incentive
compensation to such performance criteria should result in increased revenues
and improved profitability.
DOLLAR
GENERAL
Dollar's main focus is on serving the airport vehicle rental market, which
is composed of business and leisure air travelers. The majority of its locations
are on or near airport facilities. Dollar operates primarily through
company-owned stores in the United States, and also licenses its service marks
to independent franchisees in the United States and abroad. All of its Canadian
and international operations are franchised.
Dollar's line of services and products includes fleet leasing, marketing,
centralized reservations, counter automation, insurance, central billing,
supplies and training and operational support. Dollar's company-owned stores and
franchisees rent vehicles on a daily, weekend, weekly and monthly basis, at
varying rates depending on cost and other competitive factors in each location's
market. In addition to vehicle rentals, Dollar and its franchisees sell
ancillary products and rent supplemental equipment. To meet seasonal and other
demand changes, Dollar shifts vehicles among its company-owned stores and U.S.
franchisees. Revenues from Dollar's franchisees outside the United States and
Canada have not been material to its results of operations.
As of September 30, 1997, Dollar's vehicle rental system included 272
locations in the United States and Canada, consisting of 100 company-owned
stores and 172 that were operated by franchisees, and 804 international
franchisee locations. Dollar's total revenue was $499 million in 1996, of which
$439 million (88%) was generated by company-owned stores and $60 million (12%)
was revenue from Dollar franchisees for vehicle leasing fees and other service
and product fees. Company-owned store revenue was 91% of Dollar's total revenue
for the nine-month period ended September 30, 1997.
Dollar operates primarily through company-owned stores, and where
appropriate through franchisees, in the 50 largest U.S. airport vehicle rental
markets, in key U.S. leisure destinations and in other U.S. locations that it
believes can be operated profitably. Dollar has company-owned stores in 35 of
those 50 airport markets and franchisees in the remaining 15. When opportunities
arise, Dollar may acquire operations from franchisees and convert them to
company-owned stores. Dollar converted one franchised operation to a
company-owned operation in 1994, two in 1995, four in 1996 and three in the
first nine months of 1997. Dollar generally has rights of first refusal on the
sale of a franchised operation.
46
<PAGE> 48
COMPANY-OWNED STORES
Dollar believes that having company-owned stores in most of the largest 50
airport markets and other key markets enhances its ability to manage its vehicle
rental system and fleet. Dollar can implement company-owned store marketing and
pricing strategies to focus on discretionary leisure and business travelers,
reduce costs through bulk purchasing, apply company-owned store performance
benchmarks and develop and implement best practice company-owned store
management techniques nationwide. Its company-owned stores network also allows
Dollar to offer customers one-way rentals between stores.
Dollar divides its company-owned store operations into four U.S. regions.
Florida is a separate region due to its size and the concentration of
international tour and domestic leisure business. Due to its location, Hawaii is
also a separate region. The continental United States, apart from Florida, is
divided into East and West regions.
Vehicle rentals by customers of foreign and U.S. tour operators generated
approximately 36% of Dollar's company-owned store rental revenues in 1996. These
rentals are usually part of tour packages that also include air travel and hotel
accommodations. Rentals to tour customers have certain advantages. Tour
customers tend to reserve vehicles earlier than other customers, rent them for
longer periods and cancel reservations less frequently. Dollar has significant
relationships with foreign and domestic tour operators that resulted in $150.6
million in 1996 tour rental revenue, of which $94.5 million and $37.8 million
were derived from its Florida and Hawaii regions, respectively. Additional tour
revenue has been generated at other Dollar locations as foreign tourists have
expanded the range of U.S. destinations they visit.
Dollar is the exclusive U.S. vehicle rental company for three of its four
largest foreign tour operator accounts. Its arrangement with the remaining
foreign tour operator account is non-exclusive. The agreements for these four
accounts expire from March 31, 1998 to October 31, 2003. No single foreign tour
operator account generated in excess of 5% of the Group's 1996 revenues.
As of September 30, 1997, Dollar had vehicle rental concessions for
company-owned stores at over 53 airports in the United States. Its payments for
these concessions are usually based upon a specified percentage of
airport-generated revenue, subject to a minimum annual fee, and sometimes
include fixed rent for terminal counters or other leased properties and
facilities.
Services and Products Provided to Rental Customers
Worldwide Reservation System. Dollar has continuously staffed reservation
facilities at its headquarters in Tulsa, Oklahoma and in Plantation, Florida,
and plans to open a new reservation facility in Tahlequah, Oklahoma in 1998.
Both of Dollar's current reservation facilities, as well as the major U.S.
airline global distribution systems, are linked to Dollar's worldwide
reservation computer and telecommunications system, which is also located in
Tulsa, Oklahoma. Dollar's reservation facilities processed seven million
reservation telephone calls during 1996. Approximately half of Dollar's 1996
non-tour vehicle rentals were booked by travel agents through airline
distribution systems. Dollar has preferred supplier agreements with many major
travel agency chains and travel consortia.
Supplemental Equipment and Optional Products. Dollar rents ski racks,
mobile telephones, baby seats and other supplemental equipment and, subject to
availability and applicable local law, makes available loss damage waivers and
insurance. Dollar also offers disabled customers hand control-equipped cars at
no extra charge.
Instant Return. Dollar offers customers instant return service at the
majority of its U.S. airport company-owned stores. When a customer returns a
vehicle at one of these locations, a representative meets the customer and
provides a receipt from a hand-held computer terminal.
Information Systems
Dollar depends upon a number of core information systems to operate its
business. Its worldwide reservation system has rate management applications. The
counter automation system in Dollar's company-owned stores facilitates the sale
of additional products and services and allows Dollar to monitor its fleet and
financial assets. Dollar expects that nationwide introduction in company-owned
stores of Dollar's new rental counter automation
47
<PAGE> 49
system, FASTLANE, will be completed in 1998. FASTLANE is currently being adapted
to serve Dollar's tour customers. Dollar is also developing a revenue management
system with Aeronomics, Inc., a leading supplier of such systems, for
introduction in Dollar's company-owned stores starting in the first quarter of
1998 and for franchise locations starting in 1999. The initial version of this
system is being designed to enable Dollar to better determine rental demand
based on historical reservation patterns and adjust its rental rates
accordingly. Dollar has engaged The SABRE Group, Inc. ("SABRE"), a leader in
electronic distribution systems for the travel industry, to manage and monitor
its data center network and its daily information processing.
Dollar's core information systems are either designed to, or are being
updated to, address the Year 2000 issues that might otherwise result if the
systems could not accommodate the date change at the turn of the century. Dollar
has secondary communications lines and a disaster recovery plan for its
worldwide reservation center and, after the SABRE transition, all of Dollar's
key systems will be housed in an underground facility in Oklahoma designed to
withstand disasters.
Customer Service and Employee Training
Dollar has programs at its headquarters and in company-owned stores to
improve customer service. Customer First!, Dollar's quality improvement program,
involves establishing a team at each vehicle rental location that is accountable
for customer satisfaction. Dollar's customer service center measures customer
satisfaction, tracks service quality trends, handles customer complaints and
provides recommendations to Dollar's senior management and vehicle rental
location supervisors. Dollar conducts initial and ongoing training for
company-owned store and franchisee employees through education centers in San
Francisco, Tulsa and Newark. Dollar plans to open additional centers in Houston,
Denver, Los Angeles and Chicago.
Orlando Operations
Central Florida, with its tourist attractions, is the most important
leisure destination for Dollar. Dollar's company-owned store at Orlando
International Airport has a mix of tour and other business. Dollar also operates
a facility at the Orlando Sanford International Airport, 25 miles north of
Orlando, which mainly serves charter flights. This facility, which was designed
to handle tour customers, has 42 rental stations and parking for approximately
1,600 vehicles.
FRANCHISING
United States and Canada
Approximately 12% of Dollar's 1996 revenues in the United States and Canada
consisted of fees and other revenues from its franchisees. Dollar sells its U.S.
franchises on an exclusive basis for specific geographic areas. Most franchisees
are located at or near airports that generate a lower volume of vehicle rentals
than the airports served by Dollar's company-owned stores. Dollar also makes a
fleet leasing program available to its U.S. franchisees, which in 1996 accounted
for 8% of Dollar's total revenue. See "-- Fleet Acquisition and Management --
Fleet Leasing Programs."
Dollar licenses its franchisees to use Dollar's service marks in the
vehicle rental and leasing, parking and used car sales businesses. Franchisees
pay Dollar an initial franchise fee generally based on the population, number of
airline passengers, total airport vehicle rental revenues and the level of any
other vehicle rental activity in the franchised territory, as well as other
factors.
System Fees. In addition to an initial franchise fee, each U.S. franchisee
is required to pay Dollar a system fee equal to 6% of gross rental revenue on a
monthly basis. Dollar has announced that system fees for substantially all of
its airport franchisees will rise to 7% in 1998 and to 8% in 1999.
Franchisee Services and Products. Dollar makes insurance coverage available
to its franchisees and provides them with training and operational assistance,
site selection guidance, vehicle damage recovery and claims management advice,
assistance and programs and sales, image and standards guidance. Dollar also
provides them with fleet planning and customer satisfaction programs and sells
them certain Dollar-branded supplies. In addition, Dollar offers its franchisees
rental rate management analysis and programs under which
48
<PAGE> 50
Dollar handles warranty claims processing, corporate account and tour billing
and travel agent commission payments. Dollar franchisees are connected to, and
pay Dollar a fee for, each reservation made through Dollar's worldwide
reservation system.
International
Dollar's vehicle rental locations outside the United States are operated by
master franchisees, direct franchisees and subfranchisees. Master franchisees
are authorized to use Dollar's service marks in territories in which they
operate directly or through subfranchisees, and are responsible for promoting
the Dollar brand name and its services and products and for developing and
supporting their direct operations and subfranchisees. Dollar's revenues from
international franchise operations were less than 1% of 1996 total revenue.
As of September 30, 1997, Dollar had franchised operations located abroad
in 62 countries. In Canada, Dollar's two master franchisees directly operate or
subfranchise 42 on- and off-airport locations. Dollar has agreed to terminate
the franchise arrangement with its master franchisee for Europe, Africa and the
Middle East effective January 31, 1998 for locations in certain European
countries and not later than October 31, 1998 elsewhere. Dollar has recently
entered into an agreement with Europcar International, S.A., an independent
European vehicle rental company, which will be effective February 1, 1998. The
agreement provides that each company will accept rental reservations in its
geographical area made through the other.
MARKETING
National Advertising and Promotion
Dollar's primary marketing objective is to convey to cost conscious leisure
and business travelers that Dollar is committed to providing lower-priced
vehicle rentals than its competitors. Dollar also emphasizes its operations in
Florida, California, Hawaii and Nevada, where Dollar has a higher share of the
leisure rental market than in other locations. Dollar's national advertising
programs build on these themes through weekly advertisements in U.S. Sunday
newspaper travel sections and weekly advertisements in USA Today. Dollar also
advertises on U.S. broadcast and cable television networks, promoting its low
rates and on-airport convenience. Dollar spends approximately 5% of its annual
total revenues on marketing, advertising, public relations and sales promotions.
Dollar has national marketing partnerships with major U.S. airlines' frequent
flier programs in order to attract customers who value frequent flier awards as
well as low vehicle rental rates.
Dollar encourages franchisees, as well as local management of company-owned
stores, to develop local market relationships and retail sales initiatives that
coordinate with Dollar's national advertising programs. Dollar makes available
print and broadcast advertising materials to franchisees for use in local
markets, and pays a promotional allowance for qualifying advertising
expenditures to the franchisees that participate in Dollar's fleet program.
Strategic Marketing Efforts
Travel agencies book slightly over 50% of Dollar vehicle rentals through
the major U.S. airline global distribution systems. Major travel agency chains
and consortia operate under preferred supplier agreements with Dollar, as they
do with other vehicle rental companies, and are supported by Dollar's sales
department. Under its preferred supplier arrangements, Dollar provides these
travel agency groups additional commissions or lower prices in return for their
featuring Dollar in their advertising or giving Dollar a priority in their
reservation systems. In general, these arrangements are not exclusive to Dollar,
and many travel agency groups have similar arrangements with other vehicle
rental companies.
49
<PAGE> 51
SUMMARY OPERATING DATA OF DOLLAR
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
-------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Company-owned stores (excluding Florida)........ $145,731 $155,345 $237,672 $ 242,630
Florida Region company-owned stores............. 157,132 159,513 201,209 191,247
U.S. and Canada franchisees..................... 80,654 64,092 55,294 38,652
International franchisees....................... 1,952 2,566 2,400 2,728
Other........................................... 1,770 418 2,595 2,300
-------- -------- -------- -------------
Total revenues.................................. $387,239 $381,934 $499,170 $ 477,557
======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
RENTAL LOCATIONS:
Company-owned stores (excluding Florida)........ 47 56 72 78
Florida Region company-owned stores............. 22 22 23 22
U.S. and Canada franchisee locations............ 216 201 175 172
FRANCHISEES:
U.S. and Canada................................. 87 78 68 73
International................................... 21 45 45 47
</TABLE>
50
<PAGE> 52
THRIFTY
GENERAL
Thrifty's main focus is on franchising and franchise support services.
Thrifty also operates a limited number of company-owned stores in the United
States and Canada. Thrifty's company-owned stores and its franchisees derive
approximately half of their combined rental revenues from the airport market and
half from the local market. Thrifty's approach of serving both the airport and
local markets within each territory allows many of its franchisees and
company-owned stores to have multiple locations to improve fleet utilization and
profit margins by moving vehicles among locations to better address differences
in demand between their markets. As airports have begun to institute fees for
vehicle rental companies located outside their properties, or limited these
companies' access to airport travelers, some Thrifty franchisees have moved to
on-airport locations. Thrifty believes that the local market offers Thrifty's
franchisees and company-owned stores better growth opportunities, less pricing
pressure, a lower cost structure and a more diverse customer base than the
airport market.
As of September 30, 1997, Thrifty's vehicle rental system included 600
rental locations in the United States and Canada, divided between 539 franchisee
locations and 61 company-owned stores. The Thrifty system also included 308
locations abroad, all of which were franchisee locations. Thrifty's total
revenue was $204.9 million in 1996, of which $141.4 million (69.0%) was revenue
from franchisees in the form of fleet leasing fees, commissions and other
service and product fees and $63.5 million (31.0%) of which was generated by
company-owned stores. Revenues from Thrifty's franchisees outside the United
States and Canada have not been material to its results of operations.
FRANCHISING
United States
Thrifty's U.S. franchisees are the core of its operations and are essential
to its long-term profitability and growth. Thrifty offers its franchisees a full
line of services and products not easily or cost-effectively available from
other sources. Thrifty actively promotes franchisee financial stability and
growth and seeks opportunities to enhance its vehicle rental system by improving
its services to franchisees, particularly its fleet leasing programs, and by
developing new franchisee revenue opportunities, such as airport parking, used
car sales and truck rental. Thrifty also works closely with its U.S. franchisees
in formulating and implementing marketing and operating strategies.
Thrifty licenses its U.S. franchisees to use its service marks and
participate in its various services and systems. Franchisees pay Thrifty an
initial franchise fee based on such factors as the population, the number of
airline passengers, and total airport vehicle rental revenues and the level of
any other vehicle rental activity in the franchised territory. Franchises are
sold on an exclusive basis for a specific geographical territory, usually a city
or metropolitan area. Over the past five years, Thrifty's franchisee turnover
has averaged approximately 10% per year, with an average of 19 terminations and
24 new sales (including new territories added to existing franchise agreements)
per year.
Initial Franchise Fees, System Fees and Advertising Fees. Thrifty's initial
franchise fees are negotiated on a case-by-case basis, and may be structured to
promote expansion of an existing franchisee's operations into a contiguous area.
In addition to the initial franchise fee, its U.S. franchisees pay Thrifty an
administrative fee which is generally 3.0% of base rental revenue, excluding
ancillary products.
U.S. franchisees also pay an advertising fee ranging from 2.5% to 5.0% of
base rental revenue to a separate advertising fund managed jointly by
franchisees and Thrifty management. Thrifty has implemented, and may implement
in the future, special short-term reductions in system and advertising fees to
encourage growth.
For the nine months ended September 30, 1997, Thrifty's five largest U.S.
franchisees generated administration, fleet leasing, reservation and other fees
to Thrifty totaling approximately 18.0% of Thrifty's total revenue.
Marketing to Prospective Franchisees. The number of Thrifty's U.S.
franchisees decreased from 186 at the end of 1994 to 178 at September 30, 1997,
but the number of locations increased from 423 to 433. Thrifty has developed
programs to attract additional franchisees during this period of consolidation
in the vehicle rental
51
<PAGE> 53
industry. Programs include attracting independent vehicle rental companies with
phased-in fees and competitive fleet leasing terms, assisting individuals
experienced in vehicle rental operations to operate their own franchises through
financial assistance, start-up fleet supply and other support, and encouraging
existing franchisees to acquire and expand into neighboring territories by
offering fleet incentives, reduced administrative and advertising fees and lower
initial franchise fees for additional territories.
Fleet Leasing Program. Thrifty has a fleet leasing program for franchisees
that it believes provides them with a competitive and flexible source of fleet
vehicles. In 1996, fleet leasing fees accounted for approximately 55% of
Thrifty's total revenue. See "-- Fleet Acquisition and Management -- Fleet
Leasing Programs."
Training and Support. Thrifty's franchisees receive required initial
orientation, and ongoing training, in areas such as customer service and hiring.
In early 1997, Thrifty began implementing its "True Blue Pride Initiative" to
identify areas requiring customer service improvements and to implement new
standards to deliver faster and friendlier service. This initiative emphasizes
the role that franchise customer service employees should have in identifying
and resolving customer complaints. New programs that have been developed as part
of the initiative include Thrifty's frequent renter program, Blue Chip, which
provides for preprinted rental contracts and expedited service.
Thrifty also publishes a comprehensive operating manual for franchisees and
provides operational support in areas such as cost control, fleet planning,
revenue management and local advertising and marketing. Thrifty also assists
franchisees on real estate matters, including site selection and airport
facility issues.
Worldwide Reservation Center and Other Information Systems. Thrifty's
franchisees benefit from Thrifty's continuously staffed worldwide reservation
center at its headquarters in Tulsa, Oklahoma, which in 1996 processed
approximately 4.4 million telephone calls and 1.4 million reservations. The
center is also linked to all of the major U.S. airline reservation systems and
through them to travel agencies in the United States, Canada and abroad. The
center is a key means of marketing the Thrifty system to consumers and travel
agents and informing them about the system's vehicle rental rates, products,
promotions and services. Thrifty franchisee payments for reservations made
through the center accounted for approximately 3% of Thrifty's 1996 total
revenues.
U.S. franchisees receiving a certain volume of reservations are required to
use an approved automated counter system, usually leasing or subleasing the
related hardware and software from Thrifty or a third-party leasing agent. In
addition to providing an electronic data link with Thrifty's worldwide
reservation center, the automated counter system prints rental agreements and
provides Thrifty and its franchisees with customer and vehicle inventory
information and financial and operating reports.
Thrifty supports its information systems through a combination of internal
resources and external technology providers. Thrifty has engaged SABRE to manage
and monitor its data center network and its daily information processing.
Reservation applications systems will continue to be serviced by Perot Systems
Corporation ("Perot"). The arrangements with Perot give Thrifty access to
technical resources through the year 2000, thereby providing a greater level of
assurance that Thrifty can meet its need to maintain and improve important
applications. Other information systems are supported by Thrifty employees.
Thrifty's core information systems are either designed to, or are being
updated to, address the Year 2000 issues that might otherwise result if the
systems could not accommodate the date change at the turn of the century.
Thrifty has secondary communications lines and a disaster recovery plan for its
worldwide reservation center and all of Thrifty's key systems are housed in an
underground facility in Oklahoma designed to withstand disasters.
Insurance, Supplies and National Account Programs. Thrifty makes available
to its franchisees for a fee insurance for death or injury to third parties,
property damage and damage to or theft of franchisee vehicles.
Thrifty makes bulk purchases of items used by its franchisees, which it
sells to franchisees at prices that are often lower than they could obtain on
their own. Thrifty also negotiates national account programs to allow its
franchisees to take advantage of volume discounts for many materials or services
used for operations such as tires, glass replacement, long distance telephone
service and overnight mail.
52
<PAGE> 54
Parking Services. Airport parking operations are a useful complement to
vehicle rental operations. Thrifty encourages its franchisees that have
near-airport locations to add this ancillary business. Thrifty assists its
franchisees in obtaining additional property and in planning and implementing
parking operations. Franchisees benefit since the Thrifty service marks are
already on the premises, shuttle buses are already being operated for rental
customers and parking operations increase service levels and recognition at the
airports. Franchisees with parking operations may also offer ancillary services
such as car washes and oil changes to create additional opportunities to service
the vehicle while the traveler is away.
Services and Products Provided to Rental Customers. Thrifty's franchisees
provide their customers with products and services substantially similar to
those provided to customers by Dollar's company-owned stores.
International (Except Canada)
As of September 30, 1997, Thrifty master franchisees operated 308 vehicle
rental locations in 61 countries and territories outside the United States and
Canada. Regions with Thrifty franchisees include Latin America, Europe, the
Middle East and the Asia-Pacific region. Thrifty seeks to attract international
franchisees by emphasizing Thrifty's uniform image, brand marketing efforts,
worldwide reservation system and consistent vehicle rental system practices and
procedures.
Thrifty grants master franchises on a countrywide basis. Each master
franchisee is permitted to use directly and subfranchise others to use Thrifty's
service marks, systems and technologies within its country or territory.
COMPANY-OWNED STORES
Thrifty typically establishes company-owned stores upon the financial
failure of a franchisee. Thrifty uses company-owned stores to preserve its
presence in key markets. As opportunities arise, these locations are
refranchised. During 1996, Thrifty reduced the number of cities in which it
operates company-owned stores from ten to seven in the United States by granting
new franchises. The services and products Thrifty provides to company-owned
stores and those provided by company-owned stores to vehicle rental customers
are substantially similar to those provided to and by Thrifty's U.S.
franchisees.
CANADIAN OPERATIONS
Thrifty operates in Canada through its wholly owned subsidiary, Thrifty
Canada, Ltd. TCL operates company-owned stores in the four largest airport
vehicle rental markets in Canada and encourages franchisees to operate in the
remaining markets. As of September 30, 1997, the TCL system included 135 vehicle
rental locations, of which 106 were operated by franchisees and 29 were operated
as company-owned stores.
Company-Owned Stores
TCL's company-owned store operations include four strategic airports:
Toronto, Montreal, Vancouver and Calgary. These operations are important to
maintaining a national, airport presence in Canada, where TCL has significant
airport concession and lease commitments. Historically, TCL's operating results
have been adversely affected by losses incurred by company-owned stores. TCL
plans to improve company-owned store operations by focusing on fleet management,
personnel productivity, rate management and revenue growth.
Franchising
TCL provides services and products to its franchisees that are
substantially similar to those Thrifty provides to its U.S. franchisees,
including fleet leasing, insurance services, advertising and marketing support
and supplies. Due to the structure of the Canadian vehicle rental market, which
has a greater proportion of vehicle rental activity from on-airport locations
than off-airport locations as compared to the United States, Thrifty has sought
to strengthen its airport presence in Canada by encouraging existing and
prospective franchisees to locate on-airport.
53
<PAGE> 55
Canadian franchisees pay TCL a combined monthly administrative and
advertising fee fixed in most cases at 8% of rental revenues. During 1996, TCL
incurred a $3.2 million charge for bad debts primarily as a result of
terminating 21 franchised operations in 1996 and 1997.
MARKETING
Thrifty's marketing strategy is to position the Thrifty system as an
industry leader in delivering value for cost-conscious consumers. In the United
States it implements this strategy primarily through national advertising and
promotion, assistance to U.S. franchisees in local advertising, promotion and
sales and strategic marketing partnerships.
Advertising, Promotion and Sales
Thrifty employs national advertising on U.S. broadcast and cable television
networks and in newspapers and travel industry and airline magazines. Thrifty
also sponsors sports and other events to increase national exposure and promote
local Thrifty operations. In the United States, Thrifty's national advertising
and marketing expenses are paid out of an advertising fund managed by a national
advertising committee consisting of representatives of Thrifty's franchisees and
certain members of Thrifty's management. U.S. franchisees and company-owned
stores contribute 5.0% of their base rental revenue from airport operations and
2.5% of their base rental revenue from local operations to the advertising fund.
Franchisees and company-owned stores are also required to spend an
additional 3% of their base rental revenue on local advertising and promotion.
Thrifty has a local sales department that assists franchisees in developing
their local markets. Thrifty also provides an allowance for qualifying local
advertising, promotion and sales expenditures to U.S. franchisees that
participate in Thrifty's fleet leasing program. In the 1997 model year,
franchisees and company-owned stores earned an aggregate allowance of
approximately $7.1 million.
Strategic Marketing Efforts
Thrifty's approach of targeting value-conscious consumers includes
strategic marketing partnerships, such as those it has with Montgomery Ward in
the United States, Canadian Tire in Canada and Ryder Truck Rental throughout
North America. Thrifty also has frequency-based marketing relationships with
numerous airlines and hotel chains. Since a significant portion of Thrifty's
rentals system-wide result from travel agency reservations, Thrifty maintains
its relationships with travel agency chains and consortia through preferred
supplier agreements, travel agent advertising and other efforts. Under its
preferred supplier arrangements, Thrifty provides these travel agency groups
additional commissions or lower prices in return for their featuring Thrifty in
their advertising or giving Thrifty a priority in their reservation systems. In
general, these arrangements are not exclusive to Thrifty, and many travel agency
groups have similar arrangements with other vehicle rental companies.
54
<PAGE> 56
SUMMARY OPERATING DATA OF THRIFTY
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
-------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
U.S. and Canada franchisees..................... $144,812 $147,068 $138,809 $ 119,863
U.S. and Canada company-owned stores............ 64,601 63,733 63,522 52,561
International franchisees....................... 1,996 1,927 2,606 2,013
-------- -------- -------- -------------
$211,409 $212,728 $204,937 $ 174,437
======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
RENTAL LOCATIONS:
U.S. and Canada franchisee locations............ 557 519 554 539
U.S. and Canada company-owned stores............ 100 84 61 61
FRANCHISEES:
U.S. and Canada................................. 258 247 248 235
International................................... 45 48 48 59
</TABLE>
FLEET ACQUISITION AND MANAGEMENT
VEHICLE SUPPLY
For the 1997 model year, Chrysler vehicles represented over 87% of Dollar's
U.S. fleet and 99% of the vehicles in its fleet leasing program for franchisees.
Dollar also purchases vehicles from other automotive manufacturers, permitting
it to adjust somewhat the composition and overall cost of its fleet. Chrysler
vehicles made up substantially all of the vehicles in Thrifty's fleet leasing
program. The Company expects that for the 1998 model year, Chrysler vehicles
will represent over 90% of Dollar's U.S. fleet and 95% of the vehicles in its
fleet leasing program, and substantially all of the vehicles in Thrifty's fleet
leasing program.
For the 1997 model year, Chrysler Program Vehicles represented
approximately 70% of the vehicles in Dollar's and Thrifty's respective fleets
and approximately 93% and 70% of the vehicles in their respective fleet leasing
programs. Chrysler sets the terms of its residual value program before the start
of each model year. The terms include monthly depreciation rates, minimum and
maximum holding periods and mileages, model mix requirements and vehicle
condition and other return requirements. The residual value program enables
Dollar and Thrifty to limit their residual value risk with respect to Program
Vehicles because Chrysler agrees to reimburse Dollar and Thrifty for any
difference between the aggregate gross auction sale price of the Program
Vehicles for the particular model year and the vehicles' aggregate predetermined
residual value. Under the program, Dollar and Thrifty must sell the Program
Vehicles in closed auctions to Chrysler dealers. Dollar and Thrifty are
reimbursed under the program for certain transportation and auction-related
costs and have generally experienced lower depreciation rates for Program
Vehicles than if they had sold them in the used vehicle market.
Dollar and Thrifty also purchase Non-Program Vehicles, for which they bear
the full residual risk because the vehicles are not covered by any
manufacturer's residual value program. They do so when required by manufacturers
in connection with the purchase of Program Vehicles. They also do so when they
believe there is an opportunity to lower their fleet or fleet leasing costs or
to fill model and class niches not available through residual value programs.
Chrysler, which is the main provider of Non-Program Vehicles to Dollar and
Thrifty, does not set any terms or conditions on the resale of Non-Program
Vehicles other than requiring minimum holding periods.
55
<PAGE> 57
Dollar Thrifty Group's operating results are materially affected by the
depreciation rates and other purchase terms provided under Chrysler's residual
value program, as well as by other purchase incentives Chrysler provides. The
percentage of vehicles acquired under Chrysler's and other manufacturers'
residual value programs in the future will depend upon several factors,
including the availability and cost of these programs. See "Risk Factors --
Market Risk on Vehicle Disposition."
Chrysler has been Dollar's and Thrifty's principal supplier of vehicles. In
1996, Chrysler began operating under separate five-year vehicle supply
arrangements that were formalized in 1996 and 1997 in separate vehicle supply
agreements with Thrifty and Dollar ("VSAs"). Chrysler has agreed to make
specified volumes of Chrysler vehicles available to Dollar and Thrifty through
July 2001. Dollar and Thrifty may purchase them for use by company-owned stores
or in their fleet lease programs. Dollar and Thrifty have agreed to promote
Chrysler vehicles exclusively in their advertising and other promotional
materials. Chrysler has agreed to make various promotional payments to Dollar
and Thrifty, some of which vary based on the volume of vehicles purchased. These
payments are material to Dollar Thrifty Group's results of operations. See Note
5 of Notes to Consolidated Financial Statements.
The VSAs provide that Dollar and Thrifty will each purchase at least 80% of
its vehicles from Chrysler until a certain minimum level is reached. Also,
certain minimum numbers of vehicles must be Program Vehicles. While Chrysler has
the sole discretion to set the specific terms and conditions of its residual
value program for a model year, it has agreed in the VSAs to offer programs to
Dollar and Thrifty that, taken as a whole, are competitive with a residual value
program Ford or General Motors is then making generally available to domestic
vehicle rental companies.
If purchases of Chrysler vehicles by Dollar or Thrifty during any model
year exceed certain targets, Chrysler will make available to Dollar or Thrifty
additional Program Vehicles up to a maximum of 15% of the target number of
Chrysler Program Vehicles.
DOLLAR THRIFTY GROUP VEHICLE SUPPLY DATA(1)
<TABLE>
<CAPTION>
MODEL YEAR
----------------------------------------
1994 1995 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Program Vehicles Purchased
Chrysler.............................................. 108,986 67,091 75,251 83,301
Other................................................. 513 17 130 --
------- ------- ------- -------
Total.............................................. 109,499 67,108 75,381 83,301
======= ======= ======= =======
Non-Program Vehicles Purchased
Chrysler.............................................. 1,432 16,506 19,974 24,065
Other................................................. 356 1,637 1,277 4,026
------- ------- ------- -------
Total.............................................. 1,788 18,143 21,251 28,091
======= ======= ======= =======
Vehicles Leased
Non-Chrysler.......................................... 6,875 11,108 5,128 6,374
------- ------- ------- -------
Total.............................................. 6,875 11,108 5,128 6,374
======= ======= ======= =======
Total................................................... 118,162 96,359 101,760 117,766
======= ======= ======= =======
</TABLE>
- -------------------------
(1) Excludes Snappy.
56
<PAGE> 58
VEHICLE DISPOSITION
Dollar and Thrifty generally hold vehicles in rental service from six
months to 18 months. The length of service is determined by taking into account
seasonal rental demand and the average monthly mileage accumulation. Most
vehicles must be removed from service before they reach 30,000 miles to avoid
significant penalties under Chrysler's residual value program. As of September
30, 1997, the average age of vehicles in Dollar's and Thrifty's fleet was less
than six months. Less than 5% of Dollar's and Thrifty's Chrysler Program
Vehicles were ineligible for return based on repair condition during 1996.
Dollar or Thrifty must bear the risk on the resale of Program Vehicles that
cannot be returned. Dollar and Thrifty dispose of Non-Program Vehicles through
auctions or directly to used car dealers or franchisees.
MAINTENANCE
Dollar and certain Thrifty franchisees have automotive maintenance centers
at certain airports and in certain urban and suburban areas. Many of these
facilities are accepted by automotive manufacturers as eligible to perform and
receive reimbursement for warranty work. Collision damage and major repairs are
generally performed by independent contractors. Dollar's and Thrifty's
franchisees are responsible for the maintenance of their fleet vehicles.
FLEET LEASING PROGRAMS
Dollar and Thrifty make fleet leasing programs available to their U.S.
franchisees in July for each new model year. The terms of their fleet leasing
programs generally mirror the requirements of various manufacturers' residual
value programs with respect to model mix, order and delivery, vehicle
maintenance and returns, but also include Non-Program Vehicles. Dollar and
Thrifty monitor the creditworthiness and operating performance of franchisees
participating in their fleet leasing programs and periodically audit
franchisees' leased fleets. As of September 30, 1997, approximately 52% and 79%
of the vehicles in the fleets of Dollar's and Thrifty's respective U.S.
franchisees had been provided through their fleet leasing programs. In 1996, 8%
of Dollar's and 55% of Thrifty's total revenue was derived from these programs.
Dollar and Thrifty set their lease rates after considering residual value
program depreciation rates for Program Vehicles, estimated Non-Program Vehicle
depreciation, interest costs, model mix and administrative costs. Average
monthly lease rates vary depending on vehicle model, and the average lease
period is between eight and ten months. Although Dollar and Thrifty lease
Non-Program Vehicles as well as Program Vehicles to their franchisees, their
fleet leasing programs eliminate the residual value risk for their franchisees.
The Thrifty franchisees may, however, elect to assume the residual value risk on
Non-Program Vehicles they lease in exchange for a lower lease rate.
Dollar and Thrifty design their fleet leasing programs to offer their
franchisees an attractive means of obtaining fleet vehicles. For the 1994, 1995
and 1996 model years, on average approximately 51% and 73% of the vehicles used
by Dollar's and Thrifty's respective U.S. franchisees were provided through
Dollar's and Thrifty's fleet leasing programs. During this period a limited
number of larger franchisees acquired their vehicles directly from
manufacturers.
57
<PAGE> 59
U.S. FLEET DATA
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- SEPTEMBER 30,
1994 1995 1996 1997
------ ------ ------ -------------
<S> <C> <C> <C> <C>
THRIFTY:
Average number of vehicles leased to franchisees...... 23,918 20,578 20,358 24,155
------ ------ ------ -------------
Average number of vehicles in combined fleets of
franchisees........................................ 31,007 29,806 28,122 30,296
Average number of vehicles in combined fleets of
company-owned stores............................... 5,121 4,881 3,862 3,898
------ ------ ------ -------------
Total......................................... 36,128 34,687 31,984 34,194
====== ====== ====== ==========
DOLLAR:
Average number of vehicles leased to franchisees...... 14,130 10,823 7,801 6,774
------ ------ ------ -------------
Average number of vehicles in combined fleets of
franchisees........................................ 24,054 22,716 17,132 13,000
Average number of vehicles in combined fleets of
company-owned stores............................... 33,366 29,855 38,952 48,682
------ ------ ------ -------------
Total......................................... 57,420 52,571 56,084 61,682
====== ====== ====== ==========
</TABLE>
COMPETITION
There is intense competition in the vehicle rental industry on the basis of
price, service levels, vehicle quality, vehicle availability and convenience and
condition of rental locations. Dollar's and Thrifty's principal competitors have
larger market shares and rental volumes, greater financial resources and more
sophisticated information systems. Dollar operates mainly in the U.S. airport
market, although compared to its competitors it relies more heavily on
discretionary tour and other leisure customers and business customers with no
organizational or corporate affiliation programs. Dollar's franchisees have a
similar customer profile. In any given location, Dollar may compete with
national, regional and local vehicle rental companies, many of which have
greater financial resources than the Group. Dollar's principal competitors for
discretionary business and leisure travelers are Alamo Rent-a-Car, Inc., Avis
Rent A Car, Inc., Budget Group, Inc., Hertz Corporation, National Car Rental
System, Inc. and Thrifty. Dollar competes primarily on the basis of price and
customer service.
Thrifty's U.S. franchisees and company-owned stores generally compete for
cost-conscious consumers with Alamo, Avis, Budget, Dollar, Hertz and National.
Enterprise Rent-A-Car Company and local and regional rental companies are major
competitors in the local market. They compete on the basis of location, service
and well-established customer relationships. Most Thrifty franchisees and
company-owned stores compete in the local market for retail general use business
rather than insurance replacement rentals.
The Canadian vehicle rental markets are also intensely competitive. The
vast majority of the Canadian market is operated either directly or through
franchisees of the major U.S. vehicle rental companies, including Budget, Avis,
Hertz and National, as well as Dollar and Thrifty.
INSURANCE
Dollar and Thrifty are subject to third-party liability and property damage
claims resulting from accidents involving their rental customers. For
third-party bodily injury and property damage claims arising from the use of a
vehicle in the United States, Dollar currently retains the risk of loss up to $1
million and Thrifty up to $500,000, each on a per occurrence basis (the
"self-insured retention"). In addition, Thrifty pays 15% of each loss between
$500,000 and $2 million on a per occurrence basis (the "quota share retention").
Dollar and Thrifty maintain surety bonds to secure their respective retentions.
These bonds are guaranteed by Chrysler.
For claims in excess of $1 million per occurrence for Dollar and $2 million
per occurrence for Thrifty, each is fully covered by insurance carriers for up
to $7.5 million per occurrence. For claims arising before completion of the
Offering, both Dollar and Thrifty have additional insurance above their
respective self-insured retention
58
<PAGE> 60
and insurance coverage. Dollar and Thrifty have obtained or are in the process
of obtaining insurance that would be effective upon completion of the Offering
in certain amounts in excess of their respective self-insured retention levels
and coverages.
Dollar and Thrifty maintain general and garage liability insurance coverage
at the same levels of coverage as the vehicle liability insurance coverage
described above. They also maintain catastrophic and comprehensive coverage for
damage to vehicles owned by them up to $1.5 million per occurrence with a
deductible amount of $250,000.
Dollar and Thrifty each have insurance reserves relating to claims
resulting from self-insured retention and quota share retention. The amount of
the reserve is based on loss history and projections and in each case is
reviewed at least annually by an independent actuarial firm. As of September 30,
1997, Dollar's and Thrifty's reserve for liability claims was approximately
$60.8 million and $13 million, respectively. Dollar's and Thrifty's obligations
to pay these losses and indemnify the insurance carriers are collateralized by
surety bonds. As of September 30, 1997, these surety bonds totaled approximately
$96 million for Dollar and approximately $57 million for Thrifty.
Dollar and Thrifty also maintain various surety bonds to secure performance
under airport concession agreements and other obligations. Those bonds are
guaranteed by Chrysler. As of September 30, 1997, the total amount of these
bonds was approximately $26 million for Dollar and approximately $2 million for
Thrifty.
Dollar's and Thrifty's surety bonds and related Chrysler guarantees will be
replaced as part of the Financing Plan. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Financing Plan."
Dollar and Thrifty also benefit from workers' compensation, excess
liability and directors' and officers' liability insurance coverage provided by
Chrysler. A portion of the premium paid by Chrysler is allocated to Dollar and
Thrifty and may not reflect their respective costs of coverage on a stand-alone
basis. In connection with the Offering, these insurance coverages will be
replaced.
PROPERTIES
The Company owns its headquarters in Tulsa, Oklahoma, which also houses its
computer data center, pending completion of its relocation to SABRE's facility.
Dollar and Thrifty also maintain their separate headquarters at this site.
Dollar and Thrifty each own or lease real property used for company-owned stores
or subleased to franchisees or to other third parties. Dollar and Thrifty each
operate company-owned stores under concession agreements with various
governmental authorities charged with the operation of airports.
REGULATION
LOSS DAMAGE WAIVERS AND SUPPLEMENTAL LIABILITY INSURANCE
Approximately 12% and 3% of the 1996 vehicle rental revenues of Dollar and
Thrifty, respectively, were generated from the sale of loss damage waivers.
These waivers relieve customers from financial responsibility for vehicle
damage. Legislation affecting the sale of loss damage waivers has been adopted
in 25 states. These laws either require disclosure to customers that loss damage
waivers may not be necessary, limit customer liability to specified amounts,
limit the ability of vehicle rental companies to offer loss damage waivers for
sale or cap the amounts that may be charged for loss damage waivers. Adoption of
national or additional state legislation limiting the sale, or capping the
rates, of loss damage waivers could further restrict sales of this product, and
additional limitations on potential customer liability could increase costs to
Dollar, Thrifty and their franchisees.
Dollar and Thrifty and other vehicle rental companies sell customers
supplemental liability insurance ("SLI"). In 1997, Dollar, Thrifty and the other
principal vehicle rental companies entered into a consent order with the Texas
Department of Insurance in which they agreed to stop selling SLI in Texas.
Additional actions in other jurisdictions could lead to restrictions on the sale
of SLI, which would result in a reduction in the Group's revenues.
59
<PAGE> 61
FRANCHISING REGULATION
As franchisors, Dollar and Thrifty are subject to federal, state and
foreign laws regulating various aspects of franchise operations and sales. These
laws impose registration and disclosure requirements on franchisors in the offer
and sale of franchises and, in certain states, also apply substantive standards
to the relationship between the franchisor and the franchisee, including those
pertaining to default, termination and nonrenewal of franchises.
OTHER MATTERS
Certain states currently make vehicle owners (including vehicle rental
companies) vicariously liable for the actions of any person lawfully driving an
owned vehicle, regardless of fault. Some of these states, including Florida and
New York, do not limit this liability. Vehicle rental companies are also subject
to various federal, state and local consumer protection laws and regulations
including those relating to advertising and disclosure of charges to customers.
Dollar and Thrifty are subject to federal, state and local laws and
regulations relating to taxing and licensing of vehicles, franchise sales,
franchise relationships, vehicle liability, used vehicle sales, insurance,
telecommunications, vehicle rental transactions and labor matters. The Company
believes that Dollar's and Thrifty's practices and procedures are in substantial
compliance with federal, state and local laws and is not aware of any material
expenditures necessary to meet legal or regulatory requirements. Nevertheless,
given the nature and scope of Dollar's and Thrifty's businesses, it is possible
that regulatory compliance problems could be encountered in the future.
ENVIRONMENTAL MATTERS
The principal environmental regulatory requirements applicable to Dollar's
and Thrifty's operations relate to the ownership, storage or use of petroleum
products such as gasoline, diesel fuel and new and used oil; the treatment or
discharge of waste waters; the operation of automotive body shops; and the
generation, storage, transportation and off-site treatment or disposal of waste
materials. Dollar and Thrifty own 72 and lease 25 locations where petroleum
products are stored in underground tanks. For owned and leased properties,
Dollar and Thrifty have programs designed to maintain compliance with applicable
technical and operational requirements, including leak detection testing of
underground storage tanks, and to provide financial assurance for remediation of
spills or releases. The Company's management believes that Dollar's and
Thrifty's operations currently are in compliance, in all material respects, with
such regulatory requirements. Dollar and Thrifty are currently upgrading or
replacing all underground storage tanks to comply with 1998 U.S. federal and
state requirements. Management believes that costs of this project during 1997
and 1998 will be approximately $3.7 million.
The historical and current uses of the Dollar and Thrifty facilities may
have resulted in spills or releases of various hazardous materials or wastes or
petroleum products ("Hazardous Substances") that now, or in the future, could
require remediation. Dollar and Thrifty also may be subject to requirements
related to remediation of Hazardous Substances that have been released into the
environment at properties they own or operate, or owned or operated in the past,
or at properties to which they send, or have sent, Hazardous Substances for
treatment or disposal. Such remediation requirements generally are imposed
without regard to fault, and liability for any required environmental
remediation can be substantial.
Dollar and Thrifty may be eligible for reimbursement or payment of
remediation costs associated with releases from registered underground storage
tanks in U.S. states that have established funds to assist in the payment of
such remediation costs. Subject to certain deductibles, the availability of
funds, the compliance status of the tanks and the nature of the release, these
tank funds may be available to Dollar and Thrifty for use in remediating
releases from their tank systems.
At certain facilities, Dollar and Thrifty presently are investigating or
remediating soil or groundwater contamination. Based on currently available
information, the Company does not believe that the costs associated with
environmental investigation or remediation will be material. The Company has
budgeted approximately $2.5 million for 1997 and approximately $2 million for
1998 for environmental investigation and remediation
60
<PAGE> 62
expenditures, amounts that management believes are adequate. However, additional
contamination could be identified or occur in the future.
LEGAL PROCEEDINGS
On July 12, 1993, certain of Dollar's franchisees in the states of
Washington and Oregon instituted an action in the U.S. District Court for the
Western District of Washington, alleging violations by Dollar and its parent of
various state franchise statutes and breach of contract. The matter resulted in
an $8.7 million jury verdict against Dollar and its parent, which was reversed
by the U.S. Court of Appeals for the Ninth Circuit on November 28, 1997. The
plaintiff franchisees have indicated that they will likely petition the appeals
court for a rehearing of the matter.
On November 2, 1994, the City of San Jose, California filed an action in
the Superior Court of California, against Chevron, Dollar and others, seeking
unspecified compensatory and punitive damages and injunctive relief. The City of
San Jose has not served process on Dollar. The suit relates to pollution at a
site currently occupied by Dollar and formerly occupied by Chevron. Dollar has
partially remediated the affected soil, but not the allegedly affected ground
water. Dollar believes that prior uses of the site resulted in any remaining
contamination at the site.
On October 2, 1997, a purported class action suit was filed in the Circuit
Court of Coosa County, Alabama, against Dollar, Thrifty and other rental
companies. The plaintiffs in this suit alleged violations of state law in
connection with the sale by the rental companies of certain insurance products.
Dollar and Thrifty have filed answers denying the alleged violations.
In addition to the foregoing, various legal actions, claims and
governmental inquiries and proceedings are pending or may be instituted or
asserted in the future against the Company and its subsidiaries. Litigation is
subject to many uncertainties, and the outcome of the individual litigated
matters is not predictable with assurance. It is possible that certain of the
actions, claims, inquiries or proceedings, including those discussed above,
could be decided unfavorably to the Company or the subsidiaries involved.
Although the amount of liability with respect to these matters cannot be
ascertained, potential liability is not expected to materially affect the
consolidated financial position or results of operations of the Company.
EMPLOYEES
As of September 30, 1997, the Group employed a total of approximately 5,400
full-time and part-time employees of whom approximately 4,100 were employed by
Dollar and 1,300 by Thrifty. Approximately 250 of the Group's employees were
subject to collective bargaining agreements as of September 30, 1997. The
Company believes the Group's relationship with its employees is good.
61
<PAGE> 63
CONTINUING RELATIONSHIP WITH CHRYSLER
The Company is a wholly owned subsidiary of Chrysler. After the Offering,
Chrysler will own no equity in the Company. Chrysler will, however, have certain
continuing financial and commercial arrangements with Dollar Thrifty Group.
VEHICLE SUPPLY
Chrysler will continue to provide vehicles to Dollar and Thrifty under
vehicle supply agreements through July 2001. The Dollar Thrifty Group was
Chrysler's largest customer for the 1997 model year. In addition to supplying
vehicles, Chrysler has agreed to offer to Dollar and Thrifty any residual value
program it makes generally available. Chrysler has also agreed to make various
promotional payments during the term of the vehicle supply agreements. Dollar
and Thrifty are required to advertise Chrysler vehicles exclusively. See
"Business -- Fleet Acquisition and Management -- Vehicle Supply."
CREDIT SUPPORT
As part of the Financing Plan, Chrysler will provide credit support for the
Group's fleet financing in the form of a letter of credit facility. The credit
support will start at $50 million, but will be reduced to the extent the Company
receives more than $10 million in net proceeds from the exercise of the
over-allotment option. If those proceeds are $60 million or more, Chrysler's
credit support would be eliminated. The Initial Support Amount will decline
annually, beginning September 30, 1999, by the greater of 20% of the Initial
Support Amount and 50% of the Group's excess cash flow. The Company may need to
replace reductions in the Initial Support Amount with cash from operations or
with borrowings or letters of credit under the Revolving Credit Facility. To
secure reimbursement obligations under the Chrysler Credit Support Agreement,
Chrysler will have liens on certain assets of the Group. The Company has agreed
to nominate a person designated by Chrysler as a director of the Company so long
as Chrysler is providing any credit support to the Group. In addition, as part
of the Company's Financing Plan, Chrysler Financial Corporation, Chrysler's
finance subsidiary, will receive repayment of vehicle debt in the amount of
approximately $812 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Financing Plan."
INSURANCE AND TAX MATTERS
Chrysler Insurance Corporation, a Chrysler subsidiary, provides automobile
liability insurance to the Group in excess of certain self-insured retentions
and quota share retentions. Those retentions are secured by surety bonds that
are guaranteed by Chrysler. Chrysler Insurance Corporation also provides other
surety bonds to secure various obligations of the Group, including those under
airport concession agreements. These surety bonds and the related Chrysler
guarantees will be replaced under the Financing Plan by new bonds or letters of
credit issued by third parties unaffiliated with Chrysler. Various intercompany
accounts between Chrysler and the Group will be settled in connection with the
Offering. See "Selected Consolidated Financial and Operating Data" and
"Unaudited Pro Forma Consolidated Financial Statements."
The Company and Chrysler have entered into a tax sharing agreement that
replaces their existing tax sharing arrangements upon completion of the
Offering. At that time, the Company will pay Chrysler an estimated amount to
cover federal income taxes that would have been paid by the Company and each of
its subsidiaries that is a member of Chrysler's federal consolidated group,
computed as if the Company and such subsidiaries filed a separate consolidated
federal income tax return for the period beginning on January 1, 1997 and ending
on completion of the Offering. After final returns have been filed and all taxes
have been paid for such period, payment will be made to or from the Company, as
the case may be, to reflect such taxes actually paid.
Chrysler will otherwise be responsible for all income tax liabilities of
members of Dollar Thrifty Group for periods ending on or prior to the completion
of the Offering to the extent that such members were included in consolidated or
combined returns that included Chrysler. If the tax liability of Chrysler or any
Chrysler subsidiary relating to a period ending on or prior to the completion of
the Offering is increased with the effect that a member of Dollar Thrifty Group
has a corresponding benefit with respect to a period beginning after completion
of the Offering, the Company will reimburse Chrysler for that benefit. Subject
to certain exceptions, if the federal
62
<PAGE> 64
income tax liability of any member of the Dollar Thrifty Group relating to a
period beginning after completion of the Offering is increased with the effect
that Chrysler has a corresponding benefit with respect to a period ending on or
prior to the completion of the Offering, Chrysler will reimburse the Company for
that benefit. Each of the Company and its subsidiaries will be responsible for
all tax liabilities in jurisdictions where it filed separate returns. No Dollar
Thrifty Group losses incurred after completion of the Offering will be carried
back to a Chrysler tax return. The Company anticipates that it will incur an
additional $4.3 million of income tax expense as a result of the termination of
the existing tax sharing arrangements.
For additional information about the Group's relationship with Chrysler,
see "Risk Factors -- Dependence on Chrysler" and "Selected Consolidated
Financial and Operating Data."
63
<PAGE> 65
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
Company's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE(1) POSITION(2)
- ------------------------------ ------ ------------------------------------------------------
<S> <C> <C>
Joseph E. Cappy............... 63 Chairman of the Board, Chief Executive Officer,
President and Director
Donald M. Himelfarb........... 52 Executive Vice President and Director, and President
-- Thrifty
Gary L. Paxton................ 51 Executive Vice President and Director, and President
-- Dollar
Steven B. Hildebrand.......... 43 Vice President, Chief Financial Officer and Treasurer
Thomas P. Capo................ 46 Director
Edward J. Hogan............... 70 Director
Edward C. Lumley.............. 58 Director
John C. Pope.................. 48 Director
John P. Tierney............... 66 Director
Edward L. Wax................. 60 Director
</TABLE>
- -------------------------
(1) As of October 31, 1997.
(2) Messrs. Cappy, Himelfarb, Paxton, Hildebrand and Capo were appointed or
elected to their respective positions with the Company in November 1997.
Messrs. Hogan, Lumley, Pope, Tierney and Wax were elected Directors of the
Company in December 1997.
Joseph E. Cappy has served as a Vice President of Chrysler since August
1987, with responsibility for rental car operations from June 1993 to the
present, international operations from May 1990 to June 1993, brand development
from November 1989 to May 1990, and Chrysler's Jeep/Eagle Division from August
1987 to November 1989. Mr. Cappy was previously President, Chief Executive
Officer and a Director of American Motors Corporation ("AMC"), and General
Marketing Manager of Ford Motor Company's Lincoln-Mercury Division.
Donald M. Himelfarb has been President and Chief Executive Officer of
Thrifty since July 1992. Mr. Himelfarb has served as a Director of TCL since
August 1990, and served as President of TCL from August 1990 to June 1992. He
previously served as President of Car Rental and Leasing for Marks Rentals, a
holding company that owned a Thrifty franchise and other properties. Mr.
Himelfarb is a Director of the American Car Rental Association.
Gary L. Paxton has been President of Dollar since December 1990. He has
served in several senior management positions with Dollar since 1972, including
Senior Vice President of Operations and Properties and Vice President of
Properties and Facilities. Mr. Paxton is also a Director and President-Elect of
the American Car Rental Association.
Steven B. Hildebrand has been Executive Vice President and Chief Financial
Officer of Thrifty since August 1995. He has served in various senior management
positions with Thrifty and Pentastar Transportation Group, Inc. (the predecessor
of the Company) since 1987, including Vice President of Finance, and Treasurer
for Pentastar, a Director of Thrifty and a Director of TCL.
Thomas P. Capo has been the Vice President and Treasurer of Chrysler since
May 1993. He was elected Treasurer of Chrysler in November 1991. Mr. Capo is
also a Director of Chrysler Financial Corporation and Chrysler Canada Ltd.
Edward J. Hogan has been Chairman and Chief Executive Officer of Pleasant
Travel Service, a tour operator specializing in vacations in Hawaii, since April
1959. Mr. Hogan has also served as a Director of Castle & Cooke, which has large
holdings of real estate in Hawaii, since October 1993. Mr. Hogan has been a
member of the Board of Trustees of Loyola Marymount University since May 1990
and is a member of the National Advisory
64
<PAGE> 66
Board of the National Academy of Travel and Tourism, the United States Tour
Operators, the American Society of Travel Agents and the Hawaii Visitors Bureau.
Edward C. Lumley has been Vice Chairman of the investment banking firm
Nesbitt Burns, Inc. since August 1994. From January 1992 to August 1994, Mr.
Lumley served as Vice Chairman of the investment banking firm Burns Fry, Limited
Mr. Lumley previously served as a Member of the Canadian Parliament and as
Minister of International Trade, Industry, Trade and Commerce, Communications,
and Science and Technology. Mr. Lumley is also a Director of Air Canada, BCE
Mobile Communications, Inc., Canadian National Company, Magna International
Inc., Gendis Inc., DY4 Systems Inc. and AIT Corporation.
John C. Pope has been the Chairman of the Board of MotivePower Industries,
Inc. since January 1996 and a Director since May 1995. Mr. Pope has served in
various executive positions with UAL Corporation ("UAL") and United Airlines,
Inc. ("United") since January 1988, including President and Chief Operating
Officer of UAL Corporation and United from April 1992 to July 1994, Executive
Vice President, Chief Financial Officer and Treasurer of UAL and Chief Financial
Officer of United from November 1990 to April 1992 and Executive Vice President,
Marketing and Planning of United from May 1989 to October 1990. Prior thereto,
Mr. Pope served as Chief Financial Officer of AMR Corporation and American
Airlines, Inc. Mr. Pope is also a Director of Federal-Mogul Corporation, Wallace
Computer Services, Inc., Medaphis Corporation, Lamalie Associates, Inc. and
Waste Management, Inc.
John P. Tierney was the Chairman and Chief Executive Officer of Chrysler
Financial Corporation, the financial services subsidiary of Chrysler, from
August 1987 until his retirement in December 1994. Prior to joining Chrysler in
1987, he was the Chief Financial Officer of AMC. Mr. Tierney is also a Director
of the American Financial Services Association, the ContiFinancial Corporation
and Charter One Financial, Inc.
Edward L. Wax has been Chairman of Saatchi & Saatchi Advertising Worldwide,
an advertising firm with considerable experience in the travel industry, since
May 1997. Mr. Wax was Chief Executive Officer of Saatchi & Saatchi Advertising
Worldwide from February 1992 to May 1997. From June 1989 to February 1992, Mr.
Wax served as Chairman and Chief Executive Officer of Saatchi & Saatchi North
America. Mr. Wax is also a Director of Golf Trust of America, Inc., the National
Council of Northeastern University and The Ad Council.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Company anticipates that it will continue to have a Board of Directors
consisting of nine members after the Offering, a majority of whom will be
"independent" as defined under its By-Laws. In general, the By-Laws provide that
an independent director is someone who is not (i) employed by the Company (and
has not been an employee within five years prior to nomination) or (ii)
affiliated with an entity having a business relationship with the Company
requiring disclosure under various proxy rules. The Company has agreed to
nominate a person designated by Chrysler as a director of the Company so long as
Chrysler is providing credit support to the Group. See "Continuing Relationship
with Chrysler." Directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers of
the Company are elected by and serve at the discretion of the Board of
Directors.
The Company's Board of Directors will establish a compensation committee
(the "Compensation Committee") and an audit committee (the "Audit Committee")
upon completion of the Offering. Both committees would be comprised solely of
independent directors. The Company anticipates that the members of the
Compensation Committee also would qualify as "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. In
addition, the Board of Directors is expected to establish a corporate governance
committee (the "Governance Committee") which may include directors who are
officers of the Company as well as independent directors. The Compensation
Committee will establish remuneration levels for certain officers of Dollar
Thrifty Group and review the effectiveness of the Company's employee benefit
programs and executive compensation programs. The Audit Committee will select
and engage, on behalf of the Company, the independent public accountants to
audit the Company's annual financial statements. The Audit Committee also will
review and approve the planned scope of the annual audit. The Governance
Committee will identify for consideration nominees to serve as directors of the
Company and review and make recommendations concerning other corporate
governance matters.
65
<PAGE> 67
The Board of Directors may establish, from time to time, certain other
committees to facilitate the management of the Company.
DIRECTOR COMPENSATION
Directors who are not officers or employees of the Group or any of its
affiliates will be paid an annual board retainer of $20,000, payable in shares
of common stock, and an attendance fee of $1,000 for each meeting of the Board
of Directors and $1,000 for each meeting of a committee thereof ($1,500 in the
case of a committee chairman), in each case payable in cash. Each non-employee
director will also receive the use of a new vehicle each year while serving as a
director.
In addition, upon completion of the Offering non-employee directors will
receive options to purchase 3,000 shares of common stock. Thereafter,
non-employee directors will receive identical grants each year upon their re-
election at the annual meeting of stockholders. Such stock options will be
exercisable in three equal annual installments beginning on the first
anniversary of the grant date at a price equal to the fair market value of a
share of common stock on the grant date. The stock options would become
exercisable immediately in the event of a change in control of the Company.
The Company will not pay any compensation for service as a director to
directors who receive compensation as officers or employees of the Company or
any of its affiliates.
EXECUTIVE COMPENSATION
Joseph E. Cappy has served as an officer of both the Company and Chrysler
and, for periods prior to the completion of the Offering, has received and will
receive all of his compensation from Chrysler. He will retire as an officer of
Chrysler upon completion of the Offering. The Company expects that, following
completion of the Offering, Mr. Cappy will receive an annual base salary of
$450,000 and an award of stock options and performance shares under the
Company's long-term incentive plan described below. The Company anticipates that
he will be eligible to receive an annual cash bonus based on performance. See
Notes 9 and 12 of Notes to Unaudited Pro Forma Consolidated Financial
Statements.
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation earned by certain executive
officers of the Group for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------- Long Term Compensation
ALL OTHER -----------------------
NAME SALARY BONUS COMPENSATION(A) AWARDS(c) Payouts(d)
- ------------------------------------------------- -------- -------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Joseph E. Cappy,................................. -- -- -- -- --
Chairman of the Board,
Chief Executive Officer
and President(b)
Gary L. Paxton,.................................. $248,000 $242,500 $32,832 $ 139,500 $ 90,725
Executive Vice President
and President - Dollar
Donald M. Himelfarb,............................. 227,000 103,853 28,560 62,312 74,146
Executive Vice President
and President - Thrifty
Steven B. Hildebrand,............................ 163,000 66,658 20,076 34,801 48,474
Vice President, Chief
Financial Officer and
Treasurer
</TABLE>
- -------------------------
(a) Represents the Group's contributions to its qualified and non-qualified
defined contribution plans.
(b) As described above, Mr. Cappy has served as an officer of the Company and
Chrysler and, for periods prior to completion of the Offering, has received
and will receive all of his compensation from Chrysler.
(c) Represents amounts earned with respect to the year ended December 31, 1996
under the Group's executive retention plan payable in three equal annual
installments commencing December 1997.
(d) Represents amounts distributed under the Group's executive retention plan
with respect to awards earned prior to the year ended December 31, 1996.
66
<PAGE> 68
LONG-TERM INCENTIVE PLAN
The Company has adopted a long-term incentive plan (the "LTIP"). The LTIP
is intended to provide incentives to officers and other key employees of Dollar
Thrifty Group that serve to align their interests with those of stockholders.
Under the LTIP, the Board of Directors or the Compensation Committee (once
appointed) is authorized to award: (1) stock options (including both
non-qualified stock options and "incentive stock options"), (2) stock
appreciation rights, (3) restricted stock, (4) performance share awards and (5)
other stock-based incentive awards. The LTIP is intended to qualify for the
performance-based exclusion from the deduction limitation of Section 162(m) of
the Internal Revenue Code of 1986, as amended.
Initially, 10% of the shares of the Company's common stock outstanding upon
completion of the Offering (expected to be 2,250,000 shares, or 2,587,500 shares
if the over-allotment option granted to the U.S. Underwriters and the Managers
is exercised in full) are authorized for issuance under the LTIP.
The Company anticipates that initial awards of up to an aggregate of 6% of
the shares then outstanding would be made after completion of the Offering. The
initial awards would consist of stock options and performance shares.
Initial stock option awards are expected to be granted to approximately 170
employees, including each of the named executive officers, at an exercise price
per share equal to the public offering price. Such options would become
exercisable in three equal annual installments commencing on the first
anniversary of the grant date. Under certain circumstances, including a change
of control of the Company, the options would be exercisable immediately.
In addition, initial performance share awards are expected to be granted to
Company officers and certain key employees, including each of the named
executive officers. Such awards would establish a target number of shares that
may be earned in three equal annual installments commencing on the first
anniversary of the grant date. The number of performance shares ultimately
earned by a grantee would be expected to range from zero to 200% of the
grantee's target award, depending on the level of corporate performance each
year against business plan and stock price appreciation targets established on
the grant date. Any performance share installments not earned as of a given
anniversary date would be forfeited. Performance shares earned would be
delivered to the grantee on the third anniversary of the initial grant date,
provided the grantee is then employed by a member of the Group. Under certain
circumstances, including a change of control of the Company, the performance
shares earned would be delivered immediately.
CERTAIN TRANSACTIONS
Thomas P. Capo, who will continue to serve as a director of the Company
following completion of the Offering, is the Vice President and Treasurer of
Chrysler. After the Offering, Chrysler will have certain continuing financial
and commercial arrangements with the Group. See "Continuing Relationship with
Chrysler."
67
<PAGE> 69
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 50 million shares
of common stock, par value $.01 per share, and 10 million shares of preferred
stock, $.01 par value per share. Of the 50 million shares of common stock,
22,500,000 shares are being offered in the Offering (25,875,000 shares if the
over-allotment option granted to the U.S. Underwriters and the Managers is
exercised in full) and 2,250,000 shares (2,587,500 shares if the over-allotment
option is exercised in full) are being reserved for issuance under the LTIP.
Upon completion of the Offering, no shares of preferred stock will be issued and
outstanding. The following summary description of the capital stock of the
Company is not necessarily complete and reference is hereby made to the
Company's Certificate of Incorporation filed with the registration statement of
which this Prospectus forms a part and to Delaware corporate law.
COMMON STOCK
VOTING RIGHTS
The holders of common stock have one vote per share. Holders are not
entitled to vote cumulatively for the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority (or, in
the case of election of directors, by a plurality) of the votes entitled to be
cast by all shares of common stock present in person or represented by proxy,
voting together as a single class, subject to any voting rights granted to
holders of any then outstanding preferred stock. Except as otherwise provided by
law, amendments to the Company's Certificate of Incorporation must be approved
by a majority of the voting power of the common stock.
DIVIDENDS
Holders of common stock will share ratably in any dividend declared by the
Board of Directors, subject to the preferential rights of any preferred stock
then outstanding. Dividends consisting of shares of common stock may be paid to
holders of shares of common stock.
OTHER RIGHTS
In the event of any merger or consolidation of the Company with or into
another company in connection with which shares of common stock are converted
into or exchangeable for shares of stock, other securities or property
(including cash), all holders of common stock will be entitled to receive the
same kind and amount, on a per share of common stock basis, of such shares of
stock and other securities and property (including cash).
On liquidation, dissolution or winding up of the Company, all holders of
common stock are entitled to share ratably in any assets available for
distribution to holders of shares of common stock. No shares of common stock are
subject to redemption or have preemptive rights to purchase additional shares of
common stock.
Upon consummation of the Offering, all the outstanding shares of common
stock will be legally issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation provides that shares of
preferred stock may be issued from time to time in one or more series. The
Company's Board of Directors is authorized to fix the voting rights, if any,
designations, powers, preferences, qualifications, limitations or restrictions
thereof, applicable to the shares of each series. The Board of Directors may,
without stockholder approval, issue preferred stock with voting and other rights
that could adversely affect the voting power and other rights of the holders of
the common stock and could have certain anti-takeover effects. The Company has
no present plans to issue any shares of preferred stock. The ability of the
Board of Directors to issue preferred stock without stockholder approval could
have the
68
<PAGE> 70
effect of delaying, deferring or preventing a change of control of the Company
or the removal of existing management.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law, which prohibits a publicly held Delaware corporation from consummating a
"business combination," except under certain circumstances, with an "interested
stockholder" for a period of three years after the date such person became an
"interested stockholder" unless (i) before such person became an interested
stockholder, the board of directors of the corporation approved the transaction
in which the interested stockholder became an interested stockholder or approved
the business combination; (ii) upon consummation of the transaction that
resulted in the interested stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares held by
directors who are also officers of the corporation and certain shares held by
employee stock plans); or (iii) following the transaction in which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. The term "interested stockholder" generally is defined as a person
who, together with affiliates and associates, owns (or, within the prior three
years, owned) 15% or more of a corporation's outstanding voting stock. The term
"business combination" includes mergers, asset sales and certain other
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an "interested stockholder" to effect
various business combinations with a corporation for a three-year period. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from an amendment approved by
holders of at least a majority of the outstanding voting shares. The Company has
not "opted out" of Section 203.
Certain events regarding a change of control of the Company will constitute
an event of default under provisions of the Revolving Credit Facility and the
Chrysler Credit Support Agreement. These provisions may make the acquisition of
the Company more difficult.
INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that directors of the
Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director except to the extent
such exemption from liability or limitation thereof is not permitted under the
Delaware General Corporation Law. The Company's Certificate of Incorporation
provides that the Company shall indemnify its directors and officers and has the
right to indemnify its employees and other agents, to the fullest extent
provided by Delaware law, against certain liabilities that may arise by reason
of their status or service as directors, officers, employees or agents of the
Company or of another entity at the request of the Company (other than
liabilities arising from actions not taken in good faith or conduct that the
person had reasonable cause to believe was unlawful). The Company shall advance
expenses incurred by indemnified individuals as a result of any proceeding
against them as to which they are entitled to be indemnified. The Company also
has directors' and officers' insurance against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the Company as described above, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable.
At present, there is no pending material litigation or proceeding involving
any director, officer, employee or agent of the Company where indemnification
will be required or permitted.
BY-LAW PROVISIONS
The Company's By-Laws provide that special meetings of the stockholders may
be called only by the Board of Directors, the Chairman of the Board or a Vice
Chairman of the Board. The By-Laws also provide for an
69
<PAGE> 71
advance notice procedure for the nomination, other than by or at the direction
of the Board of Directors, of candidates for election as directors as well as
for other stockholder proposals to be considered at annual meetings of
stockholders. In general, notice of intent to nominate a director or raise
matters at such meetings must be received in writing by the Company not less
than 60 nor more than 90 days prior to the anniversary of the previous year's
annual meeting of stockholders, and must contain certain information concerning
the person to be nominated or the matters to be brought before the meeting and
concerning the stockholder submitting the proposal. These provisions would make
it more difficult for a third party to gain control of the Company. The By-Laws
also provide that any action which may be taken at any meeting of stockholders
may be taken without a meeting, without prior notice and without a vote, if
written consents approving the action are signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to take such action at a meeting of stockholders.
TRADING ON THE NEW YORK STOCK EXCHANGE
The common stock has been approved for listing on the New York Stock
Exchange under the symbol DTG.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be Harris Trust
and Savings Bank.
70
<PAGE> 72
DESCRIPTION OF CERTAIN INDEBTEDNESS
Concurrently with the completion of the Offering, the Company, Dollar and
Thrifty will enter into the Revolving Credit Facility and a finance subsidiary
of the Company will issue the New Medium Term Notes. In addition, the Company
expects to establish the Commercial Paper Program backed by the Liquidity
Facility in the first quarter of 1998. The following is a summary of the
material terms or anticipated material terms of these facilities. Although the
material provisions described below have been accurately summarized, statements
contained herein concerning the provisions of any documents are not necessarily
complete, and in each instance reference is made to the form of such document to
be filed as an exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference.
REVOLVING CREDIT FACILITY
The Revolving Credit Facility will consist of a five-year senior secured
revolving credit facility in the amount of $215 million. The Revolving Credit
Facility will provide that (i) up to $190 million will be available for letters
of credit and (ii) up to $70 million will be available for loans. The Group may
not, however, have more than $215 million of combined borrowings and letters of
credit outstanding under the Revolving Credit Facility. With certain exceptions,
the Company and each of its direct and indirect material subsidiaries will
guarantee the Revolving Credit Facility. The Company, Dollar and Thrifty will
use a substantial portion of the Revolving Credit Facility at the time of the
completion of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources
- -- Financing Plan -- Revolving Credit Facility." All letters of credit and loans
under the Revolving Credit Facility will mature by the fifth anniversary of the
date of the facility.
Interest will accrue on borrowings outstanding under the Revolving Credit
Facility, at the borrower's option, at a rate equal to (i) either the higher of
(A) the interest rate established by Credit Suisse First Boston as its base or
prime rate and (B) the federal funds effective rate plus 0.5%, plus a margin or
(ii) the rate at which Eurodollar deposits for one, two, three or six months (as
selected by the borrower) are offered by Credit Suisse First Boston in the
relevant interbank Eurodollar market, plus a margin. The Revolving Credit
Facility will also require the Company to pay fees that include a commitment
fee, a letter of credit fee on the aggregate amount available under outstanding
letters of credit, and a letter of credit fronting fee.
The Revolving Credit Facility will be secured, with limited exceptions, by
(a) a lien on the material assets of the Group (other than assets that are
pledged as security in respect of vehicle fleet financing programs); (b) a
subordinated lien on vehicles and related assets that are subject to one or more
finance leases pledged as collateral under the Group's vehicle fleet financing
programs; and (c) as to certain advances under letters of credit issued to
support the Group's vehicle fleet financing programs, a lien on the assets
securing the Commercial Paper Facility. Pursuant to the Chrysler Credit Support
Agreement, Chrysler will have liens on certain of these assets. See "-- Chrysler
Credit Support Agreement."
The Revolving Credit Facility will contain a number of affirmative
covenants, including covenants that require the Company, Dollar and Thrifty to
deliver financial statements and other reports; pay other obligations; maintain
corporate existence; comply with laws and contracts; maintain properties and
insurance; maintain books and records; grant the lenders certain inspection
rights; provide notices of defaults, litigation and material events; and comply
with environmental matters. The Revolving Credit Facility will also contain a
number of negative covenants, including limitations on indebtedness (including
certain types of preferred stock), liens, guarantee obligations, mergers,
consolidations, liquidations and dissolutions, sales of assets, leases,
dividends and other payments in respect of capital stock, capital expenditures,
investments, loans and advances, payments and modifications of subordinated and
other debt instruments, transactions with affiliates, changes in fiscal year,
negative pledge clauses, and changes in lines of business.
The Company, Dollar and Thrifty will be required under the Revolving Credit
Facility to meet certain financial covenants, consisting of (a) a minimum net
worth; (b) a minimum adjusted EBITDA; (c) a minimum fixed charge ratio; (d) a
maximum leverage ratio; and (e) a minimum interest coverage ratio.
71
<PAGE> 73
The Revolving Credit Facility will include certain events of default,
including nonpayment of principal when due; nonpayment of interest, fees or
other amounts after a grace period; material inaccuracy of representations and
warranties; violation of covenants (subject, in the case of certain affirmative
covenants, to a period to cure such violations); cross-default; bankruptcy
events; certain ERISA events; material judgments; actual or asserted invalidity
of any guarantee or security document, subordination provision or security
interest; termination of, and the failure to replace, vehicle fleet financing
programs; and a change of control of the Company.
CHRYSLER CREDIT SUPPORT AGREEMENT
As part of the Financing Plan, Chrysler will provide credit support for the
Group's fleet financing in the form of a letter of credit facility. The credit
support will start at $50 million, but will be reduced to the extent the Company
receives more than $10 million in net proceeds from the exercise of the
over-allotment option. If those proceeds are $60 million or more, Chrysler's
credit support would be eliminated. The Initial Support Amount will decline
annually, beginning September 30, 1999, by the greater of 20% of the Initial
Support Amount and 50% of the Group's excess cash flow. The Company may need to
replace reductions in the Initial Support Amount with cash from operations or
with borrowings or letters of credit under the Revolving Credit Facility. To
secure reimbursement obligations under the Chrysler Credit Support Agreement,
Chrysler will have liens on certain assets of the Group.
FLEET FINANCING FACILITIES
NEW MEDIUM TERM NOTES
Dollar Thrifty Group has outstanding medium term notes under an existing
asset backed note program. The Group will expand this program through the
issuance of $900 million principal amount of New Medium Term Notes. The New
Medium Term Notes will be secured by vehicles in the Group's fleet, by the
Group's rights to payment under automotive manufacturers' residual value
programs, by credit enhancement (including letters of credit issued under the
Revolving Credit Facility and letters of credit provided by Chrysler pursuant to
the Chrysler Credit Support Agreement) and by other collateral.
The New Medium Term Notes will have maturities ranging from three years to
seven years. The New Medium Term Notes will include $867 million of fixed rate
notes that will bear interest at rates ranging from 6.25% to 6.80% per annum and
$33 million of floating rate notes that will bear interest at rates ranging from
LIBOR plus .95% to LIBOR plus 1.05%.
The Group may from time to time issue additional series of asset backed
notes, at fixed or floating interest rates.
The agreements governing the asset backed note program include a number of
covenants that, among other things, restrict the ability of the Group's finance
subsidiary that is issuing the asset backed notes to create a lien on any of its
assets; incur indebtedness; engage in mergers; sell, lease or otherwise dispose
of any assets; acquire assets; declare or pay dividends; and make loans. In
addition, under such agreements, each of Dollar and Thrifty covenants to do all
things necessary to maintain its corporate existence, maintain complete and
accurate books and records, comply with all of its obligations under certain
vehicle depreciation and repurchase programs, comply with certain reporting
requirements, pay when due all taxes and other assessments, comply with all
requirements of law related to its businesses, maintain a separate corporate
existence, maintain certain computer files regarding liens, maintain property
useful and necessary in its business in good working order and condition, and
provide certain agents of the noteholders reasonable access to documents
regarding the collateral for the asset backed notes. Such agreements, moreover,
restrict the ability of each of Dollar and Thrifty to enter into any agreements
that would be violated by its performance under those documents, create liens on
its properties, use Program Vehicles for certain purposes, or use certain funds
for the acquisition or financing of vehicles. A default under any of these
covenants could result in acceleration of the notes, foreclosure against the
collateral or the enforcement against the Group of other rights under the
relevant agreements and applicable law.
72
<PAGE> 74
COMMERCIAL PAPER PROGRAM AND LIQUIDITY FACILITY
The Company expects to establish, in the first quarter of 1998, the
Commercial Paper Program of up to $615 million through a finance subsidiary and
as part of its existing asset backed note program. The Company will use $255
million of the proceeds to refinance the portion of the Group's outstanding
asset backed notes that amortizes from September 1998 to February 1999. The
Company will use the remaining amounts available under the Commercial Paper
Program for fleet financing and to refinance asset backed notes from time to
time.
The commercial paper issued under the Commercial Paper Program will be
secured by vehicles in the Group's fleet, by the Group's rights to payments
under automotive manufacturers' residual value programs for the fleet, by credit
enhancement (including letters of credit issued under the Revolving Credit
Facility and letters of credit provided by Chrysler pursuant to the Chrysler
Credit Support Agreement) and by other collateral.
The Company will be required to establish a $545 million Liquidity Facility
to support the Commercial Paper Program. The Liquidity Facility will provide the
Commercial Paper Program with a backup source of funding if the Company's
finance subsidiary is unable to refinance maturing commercial paper by issuing
new commercial paper. The Liquidity Facility will be backed by the same Program
Vehicles, Non-Program Vehicles and related assets that support the Commercial
Paper Program.
The Company expects to establish the Liquidity Facility on the basis of
underwritten financing commitments from Credit Suisse First Boston (and its
affiliates) and The Chase Manhattan Bank. Establishment of the Liquidity
Facility is subject, among other things, to the commercial paper receiving
credit ratings of A-1 from Standard & Poor's Ratings Service and P-1 from
Moody's Investors Service, Inc. Because the Commercial Paper Program will be
part of the Group's asset backed note program, the agreements governing the
Commercial Paper Program and the Liquidity Facility will include covenants
similar to those contained in the agreements relating to the New Medium Term
Notes described above. Under the terms of such agreements, the Group will not be
able to issue new commercial paper under certain circumstances, including
failure to repay maturing commercial paper or advances under the Liquidity
Facility; breaches of representations or warranties; failure to observe certain
covenants; certain bankruptcy events; downgrade of the rating of the commercial
paper to A-2 or less by Standard & Poor's Ratings Service or P-2 or less by
Moody's Investors Service, Inc.; and defaults under certain of the Group's other
financing agreements, including the Revolving Credit Facility.
Commercial paper will be issued under the Commercial Paper Program at
interest rates prevailing in the market at the time of issuance, and the
Liquidity Facility will require the Company to pay a commitment fee on the
average daily unused portion of the Liquidity Facility. Interest will accrue on
drawings under the Liquidity Facility at floating rates.
CERTAIN U.S. TAX CONSEQUENCES TO
NON-U.S. HOLDERS OF COMMON STOCK
GENERAL
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the acquisition, ownership and disposition of common
stock by a Non-U.S. Holder. For purposes of this discussion, a "Non-U.S. Holder"
is any holder of common stock that is not for U.S. federal income tax purposes
(a) an individual citizen or resident of the United States, (b) a corporation
created or organized in or under the laws of the United States or any political
subdivision thereof, (c) a domestic partnership, (d) an estate the income of
which is includible in gross income for U.S. federal income and estate tax
purposes regardless of its source or (e) a trust if a court within the United
States is able to exercise primary supervision over the administration of such
trust and one or more U.S. persons have the authority to control all substantial
decisions of such trust. This discussion does not address all aspects of U.S.
federal tax that may be relevant to Non-U.S. Holders in light of their specific
circumstances. This discussion is based upon U.S. federal income and estate tax
law now in effect, which is subject to change, possibly retroactively, and is
for general information only. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR
TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES
TO THEM OF ACQUIRING, HOLDING
73
<PAGE> 75
AND DISPOSING OF COMMON STOCK (INCLUDING THE INVESTOR'S STATUS AS A NON-U.S.
HOLDER), AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY
FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION.
DISTRIBUTIONS
Distributions on the shares of common stock (other than distributions in
redemption of the shares subject to Section 302(b) of the U.S. Internal Revenue
Code of 1986, as amended (the "Code")) will constitute dividends for U.S.
federal income tax purposes to the extent paid from current or accumulated
earning and profits of the Company (as determined under U.S. federal income tax
principles). Dividends paid to a Non-U.S. Holder will generally be subject to
withholding of U.S. federal income tax at the rate of 30% of the gross amount of
such dividends (or at such lower rate as may be specified by an applicable
income tax treaty) unless such dividends are effectively connected with the
conduct of a trade or business within the United States by the Non-U.S. Holder,
in which case the dividends will be subject to U.S. federal income tax on net
income at regular graduated U.S. federal income tax rates (unless an applicable
income tax treaty provides otherwise). In the case of a Non-U.S. Holder that is
a corporation, such dividends might also be subject to the U.S. branch profits
tax, which is generally imposed on a foreign corporation on the repatriation
from the United States of effectively connected earnings and profits at a 30%
rate (unless the rate is reduced or eliminated by an applicable income tax
treaty and the Non-U.S. Holder is a "qualified resident" of the treaty country).
A Non-U.S. Holder may be required to satisfy certain certification
requirements in order to claim treaty benefits or otherwise obtain any reduction
of or exemption from withholding under the foregoing rules. Under U.S. Treasury
regulations currently in effect, dividends paid to an address outside the United
States are presumed to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability of
a tax treaty rate (unless the payor has knowledge to the contrary). However,
under amendments to the U.S. Treasury regulations published on October 14, 1997
(the "New Withholding Regulations"), a Non-U.S. Holder is required to satisfy
applicable certification and other requirements to qualify for withholding at an
applicable treaty rate. The New Withholding Regulations generally only apply to
dividends paid after December 31, 1998, subject to certain transitional rules.
SALE OR OTHER DISPOSITION OF COMMON STOCK
A Non-U.S. Holder will generally not be subject to U.S. federal income tax
on gain recognized on a sale or other disposition of common stock unless (i) the
gain is effectively connected with the conduct of a trade or business within the
United States by the Non-U.S. Holder (or by a partnership, trust or estate in
which the Non-U.S. Holder is a partner or beneficiary), (ii) in the case of a
Non-U.S. Holder who is an individual and holds common stock as a capital asset,
such holder is present in the United States for 183 days or more in the taxable
year of the sale or other disposition and certain other conditions are met,
(iii) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates whose loss of U.S. citizenship
had as one of its principal purposes the avoidance of U.S. taxes or (iv) the
Company is or becomes a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time within the shorter of the five-year
period preceding such sale or other disposition and such Non-U.S. Holder's
holding period for the common stock.
A corporation is generally considered to be a U.S. real property holding
corporation if the fair market value of its "U.S. real property interests"
within the meaning of Section 897(c)(1) of the Code equals or exceeds 50% of the
sum of the fair market value of its worldwide real property interests plus the
fair market value of any other of its assets used or held for use in a trade or
business. The Company believes that it is not currently and is not likely to
become a U.S. real property holding corporation. Further, even if the Company
were to become a U.S. real property holding corporation, any gain recognized by
a Non-U.S. Holder still would not be subject to U.S. federal income tax if the
common stock were considered to be "regularly traded" on an established
securities market and the Non-U.S. Holder did not own, directly or indirectly,
at any time during the five-year period ending on the date of the sale or other
disposition, more than 5% of the common stock.
74
<PAGE> 76
A Non-U.S. Holder described in clause (i) or (iii) of the second preceding
paragraph will generally be taxed on the net gain derived from the sale under
regular graduated U.S. federal income tax rates. In addition, if such Non-U.S.
Holder is a corporation, such net gain might be subject to the U.S. branch
profits tax described under "-- Distributions" above. A Non-U.S. Holder
described in clause (ii) of the second preceding paragraph will be subject to
tax at a flat 30% rate on the gain derived from the sale, which may be offset by
certain U.S. source capital losses (unless the gain is effectively connected
with the conduct of a U.S. trade or business within the United States by the
Non-U.S. Holder, in which case it will be taxed under regular graduated U.S.
federal income tax rates).
Non-U.S. Holders should consult applicable treaties, which may provide for
different rules (including the exemption of certain capital gains from tax).
BACKUP WITHHOLDING AND REPORTING REQUIREMENTS
Under U.S. Treasury regulations currently in effect, U.S. backup
withholding tax will generally not apply to dividends paid on common stock to a
Non-U.S. Holder at an address outside the United States (unless the payor has
knowledge that the payee is a U.S. person). However, under the New Withholding
Regulations, a Non-U.S. Holder that fails to certify its Non-U.S. Holder status
in accordance with the requirements of the New Withholding Regulations may be
subject to U.S. backup withholding at a rate of 31% on payments of dividends. As
noted above, the New Withholding Regulations generally only apply to dividends
paid after December 31, 1998. The Company must report annually to the Internal
Revenue Service and to each Non-U.S. Holder the amount of dividends paid to, and
the tax withheld with respect to, such holder, regardless of whether any tax was
actually withheld. This information may also be made available to the tax
authorities in the Non-U.S. Holder's country of residence under an applicable
income tax treaty.
Upon the sale or other taxable disposition of common stock by a Non-U.S.
Holder to or through a U.S. office of a broker, the broker must backup withhold
at a rate of 31% and report the sale to the Internal Revenue Service, unless the
holder certifies its Non-U.S. Holder status under penalties of perjury or
otherwise establishes an exemption. In general, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
common stock by or through a foreign office of a foreign broker. However, upon
the sale or other taxable disposition of common stock to or through the foreign
office of a U.S. broker, or a foreign broker with certain types of relationships
to the United States, the broker must report the sale to the Internal Revenue
Service (but not backup withhold) unless the broker has documentary evidence in
its files that the seller is a Non-U.S. Holder and/or certain other conditions
are met, or the holder otherwise establishes an exemption. Amounts withheld
under the backup withholding rules are generally allowable as a refund or credit
against such Non-U.S. Holder's U.S. federal income tax liability, if any,
provided that the required information is furnished to the Internal Revenue
Service.
Non-U.S. Holders should consult their tax advisors regarding the
application of these rules to their particular situations, the availability of
an exemption therefrom, the procedure for obtaining such an exemption, if
available, and the application of the New Withholding Regulations that, among
other things, unify current certification procedures and forms and clarify
reliance standards.
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual non-U.S. Holder at
the time of death will be included in such individual's estate for U.S. federal
estate tax purposes and be subject to such tax, except to the extent that an
applicable estate tax treaty provides otherwise.
75
<PAGE> 77
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated , 1997 (the "U.S. Underwriting Agreement"), the
underwriters named below (the "U.S. Underwriters"), for whom Credit Suisse First
Boston Corporation, Goldman, Sachs & Co., J.P. Morgan Securities Inc. and
Salomon Brothers Inc are acting as representatives (the "Representatives"), have
severally but not jointly agreed to purchase from Chrysler and the Company the
following respective numbers of U.S. Shares (as defined below):
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER U.S. SHARES
------------------------------------------------------------------------ -----------
<S> <C>
Credit Suisse First Boston Corporation..................................
Goldman, Sachs & Co. ...................................................
J.P. Morgan Securities Inc. ............................................
Smith Barney Inc. ......................................................
-----------
Total.............................................................. 19,125,000
=========
</TABLE>
Of the 22,500,000 shares of common stock being offered, 19,125,000 shares
(the "U.S. Shares") are initially being offered by the U.S. Underwriters in the
United States and Canada (the "U.S. Offering") and 3,375,000 shares (the
"International Shares") are initially being concurrently offered by the Managers
(the "Managers") outside the United States and Canada (the "International
Offering").
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter, in certain circumstances the purchase
commitments of non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
The Company and Chrysler have entered into a Subscription Agreement with
the Managers of the International Offering providing for the concurrent offer
and sale of the International Shares outside the United States and Canada. The
closing of the U.S. Offering is a condition to the closing of the International
Offering, but not vice versa.
The Company has granted to the U.S. Underwriters and the Managers an
option, exercisable by Credit Suisse First Boston Corporation, expiring at the
close of business on the 30th day after the date of this Prospectus, to purchase
up to 3,375,000 additional shares at the initial public offering price, less the
underwriting discounts and commissions. Such option may be exercised only to
cover over-allotments, if any, in the sale of the shares offered hereby. To the
extent that this option to purchase is exercised, each U.S. Underwriter and each
Manager will become obligated to purchase approximately the same percentage of
additional shares being sold to the U.S. Underwriters and the Managers as the
number of U.S. Shares set forth next to such U.S. Underwriter's name in the
preceding table and as the number set forth next to such Manager's name in the
corresponding table in the prospectus relating to the International Offering
bears to the sum of the total number of shares in such tables.
The Company and Chrysler have been advised by the Representatives that the
U.S. Underwriters propose to offer the U.S. Shares in the United States to the
public, and in Canada on a private placement basis, initially at the offering
price set forth on the cover page of this Prospectus and, through the
Representatives, to certain dealers at such price less a concession of $ per
share, and the U.S. Underwriters and such dealers may allow a discount of $
per share on sales to certain other dealers. After the initial public offering,
the public offering price and concession and discount to dealers may be changed
by the Representatives.
The public offering price, the aggregate underwriting discounts and
commissions per share and the per share concession and discount to dealers for
the U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the Managers (the
"Intersyndicate Agreement") relating to the Offering, changes in the public
offering price, the aggregate underwriting discounts and commissions per share
and the per share concession and discount to dealers will be made only upon the
76
<PAGE> 78
mutual agreement of Credit Suisse First Boston Corporation, on behalf of the
U.S. Underwriters, and Credit Suisse First Boston (Europe) Limited ("CSFBL"), on
behalf of the Managers.
Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares or distribute any prospectus relating to the
shares to any person outside the United States or Canada or to any other dealer
who does not so agree. Each of the Managers has agreed or will agree that, as
part of the distribution of the International Shares and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the shares in
the United States or Canada or to any other dealer who does not so agree. The
foregoing limitations do not apply to stabilization transactions or to
transactions between the U.S. Underwriters and the Managers pursuant to the
Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction. "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) any individual resident in the United States or Canada; or
(ii) any corporation, partnership, pension, profit-sharing or other trust or
other entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares as may be mutually
agreed upon. The price of any shares so sold will be the public offering price,
less such amount as may be mutually agreed upon by Credit Suisse First Boston
Corporation, on behalf of the U.S. Underwriters, and CSFBL, on behalf of the
Managers, but not exceeding the selling concession applicable to such shares. To
the extent there are sales between the U.S. Underwriters and the Managers
pursuant to the Intersyndicate Agreement, the number of shares initially
available for sale by the U.S. Underwriters or by the Managers may be more or
less than the amount appearing on the cover page of this Prospectus. Neither the
U.S. Underwriters nor the Managers are obligated to purchase from the other any
unsold shares.
The Company and certain officers and directors of the Group have agreed
that, other than in connection with grants to be made by the Company under the
LTIP, they will not offer, sell, contract to sell, announce an intention to
sell, pledge or otherwise dispose of, directly or indirectly, or file or cause
to be filed with the Securities and Exchange Commission a registration statement
under the Securities Act relating to, any additional shares of the Company's
common stock or securities or other rights convertible into or exchangeable or
exercisable for any shares of the Company's common stock, or disclose the
intention to make any such offer, sale, pledge, disposal or filing, without the
prior written consent of Credit Suisse First Boston Corporation, until 180 days
after the date of the Offering.
The Company and Chrysler have agreed to indemnify the U.S. Underwriters and
the Managers against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments that the U.S. Underwriters and the
Managers may be required to make in respect thereof. The Company and Chrysler
have agreed to indemnify each other against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the
other may be required to make in respect thereof.
The Representatives and the Managers have informed the Company and Chrysler
that they do not expect discretionary sales by the U.S. Underwriters and the
Managers to exceed 5% of the number of shares offered hereby.
Prior to the Offering, there has been no public market for the shares. The
initial public offering price for the shares will be determined by negotiations
among the Company, Chrysler and the Representatives. In determining such price,
consideration will be given to various factors, including market conditions for
initial public offerings, the history of and prospects for the Group's business,
the past and present operations of the Group, the past and present earnings and
current financial position of the Group, an assessment of the Group's
management, the market for securities of companies in businesses similar to
those of the Group, the general condition of the securities markets and other
relevant factors. There can be no assurance that the initial public offering
price will
77
<PAGE> 79
correspond to the price at which the shares will trade in the public market
subsequent to the Offering or that an active trading market for the shares will
develop and continue after the Offering.
The Representatives, on behalf of the U.S. Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the shares in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the shares originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the shares to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
Certain of the U.S. Underwriters and Managers have from time to time
performed, and continue to perform, financial advisory, investment banking and
commercial banking services for companies in the Dollar Thrifty Group or
Chrysler, for which customary compensation has been received. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- Financing Plan."
78
<PAGE> 80
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company and
Chrysler prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are effected.
Accordingly, any resale of the common stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption granted
by the applicable Canadian securities regulatory authority. Purchasers are
advised to seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and Chrysler and the
dealer from whom such purchase confirmation is received that (i) such purchaser
is entitled under applicable provincial securities laws to purchase such common
stock without the benefit of a prospectus qualified under such securities laws,
(ii) where required by law, such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the Company's directors and officers as well as the experts named
herein and Chrysler may be located outside of Canada and, as a result, it may
not be possible for Canadian purchasers to effect service of process within
Canada upon the issuer or such persons. All or a substantial portion of the
assets of the Company, Chrysler and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the Company, Chrysler or such persons in Canada or to enforce a judgment
obtained in Canadian courts against the Company, Chrysler or such persons
outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to the Offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of common stock acquired on the same date
and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
79
<PAGE> 81
LEGAL MATTERS
The validity of the shares of the common stock offered hereby will be
passed upon for the Company by Debevoise & Plimpton, New York, New York, and for
the U.S. Underwriters and the Managers by Cleary, Gottlieb, Steen & Hamilton,
New York, New York. Debevoise & Plimpton and Cleary, Gottlieb, Steen & Hamilton
have in the past provided, and may continue to provide, legal services to
Chrysler and its affiliates. Debevoise & Plimpton has also represented Chrysler
in connection with the Offering and the Financing Plan.
EXPERTS
The consolidated financial statements of Dollar Thrifty Automotive Group,
Inc. and subsidiaries (successor to Pentastar Transportation Group, Inc. and
subsidiaries) as of December 31, 1995 and 1996 and for each of the three years
in the period ended December 31, 1996 included in this Prospectus, and the
related financial statement schedule included in the Registration Statement
filed with the Securities and Exchange Commission for the registration of the
common stock offered hereby, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
registration statement on Form S-1 (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement"), under the
Securities Act and the rules and regulations thereunder, for the registration of
the Common Stock offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted as permitted by
SEC rules and regulations. For further information with respect to Dollar
Thrifty Group and the Common Stock offered hereby, you should refer to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein are not
necessarily complete. Where such contract or other document is an exhibit to the
Registration Statement, each such statement is qualified in all respects by the
provisions of such exhibit, to which reference is hereby made.
The Registration Statement can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, the
Registration Statement is publicly available through the Commission's site on
the Internet's World Wide Web, located at http://www.sec.gov.
As a result of the Offering, the Company will become subject to the full
informational requirements of the Securities Exchange Act of 1934, as amended.
The Company will fulfill its obligations with respect to such requirements by
filing periodic reports and other information with the Commission. It intends to
furnish its shareholders with annual reports containing consolidated financial
statements certified by an independent public accounting firm.
80
<PAGE> 82
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet at September 30, 1997..................................... F-2
Consolidated Statement of Operations for the Nine Months ended September 30, 1996 and
1997.............................................................................. F-3
Consolidated Statement of Cash Flows for the Nine Months ended September 30, 1996 and
1997.............................................................................. F-4
Notes to the Unaudited Consolidated Financial Statements............................. F-5
Audited Consolidated Financial Statements:
Independent Auditors' Report......................................................... F-6
Consolidated Balance Sheet at December 31, 1995 and 1996............................. F-7
Consolidated Statement of Operations for the Years Ended December 31, 1994, 1995 and
1996.............................................................................. F-8
Consolidated Statement of Stockholder's Equity for the Years Ended December 31, 1994,
1995 and 1996..................................................................... F-9
Consolidated Statement of Cash Flows for the Years Ended December 31, 1994, 1995, and
1996.............................................................................. F-10
Notes to Consolidated Financial Statements........................................... F-11
</TABLE>
F-1
<PAGE> 83
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents....................................................... $ 5,164
Restricted cash and investments................................................. 28,487
Accounts and notes receivable, net.............................................. 83,667
Due from Parent................................................................. 75,243
Prepaid expenses and other assets............................................... 25,450
Revenue-earning vehicles, net................................................... 1,500,864
Property and equipment, net..................................................... 59,907
Intangible assets, net.......................................................... 200,198
----------
$1,978,980
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable.............................................................. $ 40,812
Accrued liabilities........................................................... 88,600
Income taxes payable.......................................................... 9,635
Public liability and property damage.......................................... 73,967
Debt and other obligations.................................................... 1,542,742
Deferred income taxes......................................................... 15,238
----------
Total liabilities.......................................................... 1,770,994
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDER'S EQUITY:
Preferred stock, $.01 par value:
Authorized 10,000,000 shares; none outstanding............................. --
Common stock, $.01 par value:
Authorized 50,000,000 shares; issued and outstanding 20,000,000 shares..... 200
Additional capital............................................................ 628,915
Accumulated deficit........................................................... (421,129)
----------
207,986
----------
$1,978,980
=========
</TABLE>
See notes to unaudited consolidated financial statements.
F-2
<PAGE> 84
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
REVENUES:
Vehicle rentals...................................................... $ 382,234 $481,954
Vehicle leasing...................................................... 116,392 124,783
Fees and services.................................................... 39,969 39,018
Other................................................................ 7,630 7,127
--------- --------
Total revenues.................................................. 546,225 652,882
--------- --------
COSTS AND EXPENSES:
Direct vehicle and operating......................................... 187,462 219,058
Vehicle depreciation, net............................................ 161,440 207,452
Selling, general and administrative.................................. 103,161 111,554
Interest expense, net of interest income of $3,711 and $2,596........ 55,190 65,756
Amortization of cost in excess of net assets acquired................ 6,742 4,504
Intangible asset impairment loss..................................... 155,000 --
--------- --------
Total costs and expenses........................................ 668,995 608,324
--------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES.................................... (122,770) 44,558
INCOME TAX EXPENSE..................................................... 18,589 20,338
--------- --------
NET EARNINGS (LOSS).................................................... $(141,359) $ 24,220
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
F-3
<PAGE> 85
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)............................................... $ (141,359) $ 24,220
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Depreciation................................................. 169,310 207,120
Amortization................................................. 8,717 5,787
Net loss (gain) from disposition of revenue earning
vehicles.................................................... (2,005) 7,334
Provision for losses on accounts and notes receivable........ 5,158 4,090
Intangible asset impairment loss............................. 155,000 --
Change in assets and liabilities, net of acquisition:
Accounts and notes receivable............................. (1,976) (29,737)
Due from Parent........................................... 26,382 9,639
Prepaid expenses and other assets......................... 169 (4,507)
Intangible assets......................................... (2,996) 307
Accounts payable.......................................... (33,067) (26,931)
Accrued liabilities....................................... 29,526 5,642
Income taxes payable...................................... 8,720 7,782
Public liability and property damage...................... 3,878 10,732
Deferred income taxes..................................... 6,469 8,517
Other..................................................... (349) (117)
----------- -----------
Net cash provided by operating activities............ 231,577 229,878
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue-earning vehicles:
Purchases...................................................... (1,508,820) (1,466,676)
Proceeds from sales............................................ 1,080,661 878,709
Restricted cash and investments, net.............................. 63,258 75,446
Property and equipment:
Purchases...................................................... (5,861) (7,307)
Proceeds from sale............................................. -- 1,283
----------- -----------
Net cash used in investing activities................ (370,762) (518,545)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt and other obligations:
Proceeds....................................................... 966,760 1,102,575
Payments....................................................... (803,657) (801,391)
Cash management/working capital -- Parent, net.................... (23,266) (10,778)
Vehicle financing issue costs..................................... (657) --
----------- -----------
Net cash provided by financing activities............ 139,180 290,406
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS................................. (5) 1,739
CASH AND CASH EQUIVALENTS:
Beginning of period............................................... 4,230 3,425
----------- -----------
End of period..................................................... $ 4,225 $ 5,164
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes................................................... $ 1,688 $ 2,953
========== ==========
Interest....................................................... $ 71,684 $ 67,602
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
F-4
<PAGE> 86
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of the financial
position at September 30, 1997, and the results of operations and cash flows for
the nine-month periods ended September 30, 1996 and 1997. The results of
operations for interim periods are not indicative of the results for a full
year.
For a summary of significant accounting policies and additional financial
information, see the Company's consolidated financial statements which are
included elsewhere in this Prospectus.
2. DEBT AND OTHER OBLIGATIONS
Debt and other obligations consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
(IN
THOUSANDS)
<S> <C>
Vehicle Debt and Obligations
Chrysler Financial Corporation................................. $ 954,636
Asset backed notes, net of discount............................ 491,160
Deferred vehicle rent.......................................... 73,490
Banks and others............................................... 523
-------------
1,519,809
Other Notes Payable
Bank line of credit............................................ 22,333
Chrysler Financial Corporation and other....................... 600
-------------
22,933
-------------
Total debt and other obligations............................ $ 1,542,742
==========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
Various claims and legal proceedings have been asserted or instituted
against the Company, including some purporting to be class actions, and some
which demand large monetary damages or other relief which could result in
significant expenditures. Litigation is subject to many uncertainties, and the
outcome of individual matters is not predictable with assurance. The Company is
also subject to potential liability related to environmental matters. The
Company establishes reserves for litigation and environmental matters when the
loss is probable and reasonably estimable. It is reasonably possible that the
final resolution of some of these matters may require the Company to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. The term
"reasonably possible" is used herein to mean that the chance of a future
transaction or event occurring is more than remote but less than likely.
Although the final resolution of any such matters could have a material effect
on the Company's consolidated operating results for the particular reporting
period in which an adjustment of the estimated liability is recorded, the
Company believes that any resulting liability should not materially affect its
consolidated financial position.
In 1995, a judgment was entered against Dollar and its parent for
$8,705,000 plus attorney's fees and interest, relating to certain litigation
with franchisees, which was reversed by the U.S. Court of Appeals for the Ninth
Circuit on November 28, 1997. The plaintiff franchisees have indicated that they
will likely petition the appeals court for a rehearing of the matter.
Accordingly, the Company has not made adjustments to certain established
reserves in the consolidated financial statements related to this litigation.
F-5
<PAGE> 87
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Dollar Thrifty Automotive Group, Inc.:
We have audited the accompanying consolidated balance sheet of Dollar Thrifty
Automotive Group, Inc. and subsidiaries (successor to Pentastar Transportation
Group, Inc. and subsidiaries) as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholder's equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 financial position of Dollar Thrifty Automotive Group,
Inc. and subsidiaries at December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
November 6, 1997
Tulsa, Oklahoma
F-6
<PAGE> 88
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 4,230 $ 3,425
Restricted cash and investments....................... 139,173 103,933
Accounts and notes receivable, net.................... 66,277 58,020
Due from Parent....................................... 28,630 74,104
Prepaid expenses and other assets..................... 23,330 21,114
Income taxes receivable............................... 9,264 --
Revenue-earning vehicles, net......................... 958,799 1,120,346
Property and equipment, net........................... 55,620 60,888
Deferred income taxes................................. 1,905 --
Intangible assets, net................................ 370,595 206,121
---------- ----------
$1,657,823 $1,647,951
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable.................................... $ 47,096 $ 67,743
Accrued liabilities................................. 91,378 82,958
Income taxes payable................................ -- 1,853
Public liability and property damage................ 59,349 63,235
Debt and other obligations.......................... 1,128,811 1,241,558
Deferred income taxes............................... -- 6,721
---------- ----------
Total liabilities................................ 1,326,634 1,464,068
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDER'S EQUITY:
Preferred stock, $.01 par value:
Authorized 10,000,000 shares; none outstanding...... -- --
Common stock, $.01 par value:
Authorized 50,000,000 shares; issued and outstanding
20,000,000 shares................................ 200 200
Additional capital.................................... 628,916 628,916
Accumulated deficit................................... (297,927) (445,233)
---------- ----------
331,189 183,883
---------- ----------
$1,657,823 $1,647,951
========= =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 89
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
REVENUES:
Vehicle rentals............................................ $413,424 $372,508 $ 495,598
Vehicle leasing............................................ 172,999 177,836 150,179
Fees and services.......................................... 58,966 49,382 50,475
Other...................................................... 8,614 9,653 9,342
-------- -------- ---------
Total revenues..................................... 654,003 609,379 705,594
-------- -------- ---------
COSTS AND EXPENSES:
Direct vehicle and operating............................... 234,370 190,577 245,895
Vehicle depreciation, net.................................. 210,975 196,367 213,143
Selling, general and administrative........................ 143,155 123,439 138,363
Interest expense, net of interest income of $717, $5,077
and $5,446.............................................. 83,526 78,817 72,868
Amortization of cost in excess of net assets acquired...... 11,517 10,456 8,169
Intangible asset impairment losses......................... -- -- 157,758
Restructuring charge reversal -- Snappy.................... (7,000) -- --
Loss on sale of Snappy..................................... 40,893 -- --
-------- -------- ---------
Total costs and expenses........................... 717,436 599,656 836,196
-------- -------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES.......................... (63,433) 9,723 (130,602)
INCOME TAX EXPENSE (BENEFIT)................................. (12,755) 9,753 16,682
-------- -------- ---------
NET LOSS..................................................... $(50,678) $ (30) $(147,284)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 90
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE TOTAL
-------------------- ADDITIONAL ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994................ 20,000,000 $200 $ 628,916 $(246,764) $ 382,352
Net loss.............................. -- -- -- (50,678) (50,678)
Foreign currency translation.......... -- -- -- (514) (514)
---------- ------ ---------- ----------- ------------
BALANCE, DECEMBER 31, 1994.............. 20,000,000 200 628,916 (297,956) 331,160
Net loss.............................. -- -- -- (30) (30)
Foreign currency translation.......... -- -- -- 59 59
---------- ------ ---------- ----------- ------------
BALANCE, DECEMBER 31, 1995.............. 20,000,000 200 628,916 (297,927) 331,189
Net loss.............................. -- -- -- (147,284) (147,284)
Foreign currency translation.......... -- -- -- (22) (22)
---------- ------ ---------- ----------- ------------
BALANCE, DECEMBER 31, 1996.............. 20,000,000 $200 $ 628,916 $(445,233) $ 183,883
========= ====== ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE> 91
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (50,678) $ (30) $ (147,284)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation................................................. 222,251 205,589 225,521
Amortization................................................. 14,869 12,948 10,394
Net gains from disposition of revenue-earning vehicles....... (4,029) (2,678) (3,484)
Losses on investments in affiliates.......................... 2,100 2,533 --
Provision for losses on accounts and notes receivable........ 9,737 5,434 8,404
Intangible asset impairment losses........................... -- -- 157,758
Loss on sale of Snappy....................................... 40,893 -- --
Restructuring reserve reversal............................... (7,000) -- --
Change in assets and liabilities, net of acquisition:
Accounts and notes receivable.............................. (1,693) 1,050 233
Due from Parent............................................ 11,552 (23,740) 13,033
Prepaid expenses and other assets.......................... (908) (1,695) 2,873
Deferred income taxes...................................... 9,402 6,771 8,626
Intangible assets.......................................... (2,444) (2,732) (1,158)
Accounts payable........................................... (42,086) (13,563) 20,438
Accrued liabilities........................................ 21,159 (14,785) (8,420)
Income taxes payable....................................... 70,422 (3,553) 11,117
Public liability and property damage....................... (1,382) 1,292 3,886
Other...................................................... (514) 322 (26)
----------- ----------- -----------
Net cash provided by operating activities............... 291,651 173,163 301,911
CASH FLOWS FROM INVESTING ACTIVITIES:
Revenue-earning vehicles:
Purchases.................................................... (1,427,608) (1,417,437) (1,615,615)
Proceeds from sales.......................................... 1,523,631 1,260,928 1,241,879
Restricted cash and investments, net........................... -- (139,173) 35,240
Proceeds from sale of investments.............................. 12,504 -- --
Property and equipment:
Purchases.................................................... (20,902) (7,940) (13,378)
Proceeds from sale........................................... 12,425 299 --
Acquisition of businesses, net of cash acquired................ -- (3,063) (4,425)
----------- ----------- -----------
Net cash provided by (used in) investing activities..... 100,050 (306,386) (356,299)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt and other obligations:
Proceeds..................................................... 1,545,424 1,907,509 1,174,200
Payments..................................................... (1,888,866) (1,833,856) (1,061,453)
Cash management/working capital -- Parent, net................. (58,037) 64,741 (58,507)
Vehicle financing issue costs.................................. -- (4,100) (657)
----------- ----------- -----------
Net cash provided by (used in) financing activities..... (401,479) 134,294 53,583
----------- ----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS.............................. (9,778) 1,071 (805)
CASH AND CASH EQUIVALENTS:
Beginning of year.............................................. 12,937 3,159 4,230
----------- ----------- -----------
End of year.................................................... $ 3,159 $ 4,230 $ 3,425
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes................................................. $ 494 $ 4,177 $ 2,348
=========== =========== ===========
Interest..................................................... $ 96,378 $ 87,216 $ 82,180
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE> 92
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
1. BASIS OF PRESENTATION
Dollar Thrifty Automotive Group, Inc. ("Dollar Thrifty Group" or "the
Company") was formed in November 1997 as a wholly owned subsidiary of Pentastar
Transportation Group, Inc., a wholly owned subsidiary of Chrysler Corporation
("Chrysler"). Following formation of Dollar Thrifty Group, Pentastar
Transportation Group, Inc. was merged into Dollar Thrifty Group with Dollar
Thrifty Group as the surviving corporation. Due to the common ownership and
management of the merged entities, the transaction has been accounted for at
historical cost in a manner similar to that used in pooling of interests
accounting and the consolidated financial statements have been restated to
reflect the merger.
The Company's significant wholly owned subsidiaries, including Dollar Rent
A Car Systems, Inc. ("Dollar") and Thrifty Rent-A-Car System, Inc. ("Thrifty")
were acquired in 1990 and 1989, respectively. Snappy Car Rental, Inc. ("Snappy")
was acquired in 1989 and sold in 1994. The acquisitions of Dollar, Thrifty and
Snappy were accounted for using the purchase method of accounting and the
purchase prices were allocated to the assets acquired and liabilities assumed
based on their estimated fair values which are reflected in the accompanying
consolidated financial statements. The term the "Company" is used to refer to
Dollar Thrifty Group and subsidiaries collectively and to the individual
subsidiaries of Dollar Thrifty Group. Intercompany accounts and transactions
have been eliminated in consolidation. Investments in 20% to 50% owned
affiliates are accounted for on the equity method.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- The subsidiaries are engaged in the business of the
daily rental of vehicles to business and leisure customers through company-owned
stores and in the business of leasing vehicles to their franchisees for use in
the daily vehicle rental business throughout the United States and Canada. The
subsidiaries are also involved in selling vehicle rental franchises worldwide
and providing sales and marketing, reservations, data processing systems,
insurance and other services to its franchisees.
Estimates -- The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Long-Lived Assets and Long-Lived Assets to Be Disposed Of -- Effective
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable based upon estimated
future undiscounted cash flows. In addition, SFAS No. 121 requires that certain
long-lived assets and identifiable intangibles to be disposed of be reported at
the lower of carrying amount or fair value less cost to sell. The initial
adoption of this new accounting standard did not have a material effect on the
Company's consolidated operating results or financial position (Note 7).
Cash and Cash Equivalents -- Cash and cash equivalents include cash on hand
and on deposit including highly liquid investments with initial maturities of
three months or less.
Restricted Cash and Investments -- Restricted cash and investments are
restricted for the acquisition of vehicles and other specified uses under the
rental car asset backed note indenture and other agreements (Note 8). These
funds are primarily held in a highly rated money market fund with investments
primarily in government and corporate obligations with a dollar-weighted average
maturity not to exceed 60 days, as permitted by the
F-11
<PAGE> 93
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
indenture. Restricted cash and investments are excluded from cash and cash
equivalents. Interest received on restricted cash and investments was $29,000
and $4,281,000 for 1995 and 1996, respectively.
Allowance for Doubtful Accounts -- An allowance for doubtful accounts is
generally established during the period in which receivables are recorded. The
allowance is maintained at a level deemed appropriate based on loss experience
and other factors affecting collectibility.
Revenue-Earning Vehicles -- Revenue-earning vehicles are stated at cost net
of related discounts and are depreciated over their estimated economic lives, or
at rates corresponding to manufacturers' guaranteed residual values, where
applicable. Depreciation rates range from approximately 1.0% to 2.0% per month.
Net gains and losses from sales of revenue-earning vehicles are recorded as an
adjustment to vehicle depreciation.
The Company changed its method of computing depreciation on revenue-earning
vehicles from the monthly method to the daily method. The new depreciation
method was adopted to match methods used by vehicle manufacturers in determining
guaranteed residual values and to more closely recognize depreciation as it is
incurred. In accordance with APB Opinion No. 20, the change has been reported
retroactively.
Property and Equipment -- Property and equipment are recorded at cost and
are depreciated or amortized using principally the straight-line basis over the
estimated useful lives of the related assets. Estimated useful lives range from
ten to 31 years for building and improvements and three to seven years for
furniture and equipment. Leasehold improvements are amortized over the shorter
of ten years or the lives of the related leases.
Intangible Assets -- Intangible assets are amortized using the
straight-line basis. Cost in excess of net assets acquired is amortized over
forty- and thirty-year periods. Licenses held for operation are stated at the
lower of amortized cost or recoverable value based upon Company estimates and
are amortized primarily over a ten-year period. Noncompete agreements and other
intangible assets are amortized over periods ranging from five to eight years.
The Company continually assesses the recoverability of the cost in excess of net
assets acquired based on estimates of the expected future cash flows of the
operations to which such amounts relate.
Public Liability and Property Damage -- Provisions for public liability and
property damage on self-insured claims are made by charges primarily to direct
vehicle and operating expense. Accruals for such charges are based upon
actuarially determined evaluations of estimated ultimate liabilities on reported
and unreported claims, prepared on at least an annual basis by an independent
actuary. Historical data related to the amount and timing of payments for
self-insured claims are utilized in preparing the actuarial evaluations. The
accrual for public liability and property damage claims is discounted based upon
the independently prepared actuarially determined estimated timing of payments
to be made in the future. Management reviews the actual timing of payments as
compared with the annual actuarial estimate of timing of payments and has
determined that there have been no material differences in the timing of
payments for each of the three years in the period ended December 31, 1996.
Foreign Currency Translation -- Foreign assets and liabilities are
translated using the exchange rate in effect at the balance sheet date, and
results of operations are translated using an average rate for the period.
Translation adjustments are accumulated and reported as a component of
stockholder's equity.
Revenue Recognition -- The Company rents revenue-earning vehicles under
short-term rental contracts. Revenues are recognized as earned under the terms
of the rental contracts. The Company also leases revenue-earning vehicles to
franchisees primarily under operating leases. Revenues are recognized as earned
over the lease term.
Initial franchise fees are recognized at the date of sale of the franchise
which coincides with commencement of operations by the franchisee. Continuing
franchise fees are reported as revenue as the fees are earned.
F-12
<PAGE> 94
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Advertising Costs -- Advertising costs are primarily expensed as incurred.
The Company incurred advertising expense of $30,375,000, $25,714,000 and
$34,958,000 for 1994, 1995 and 1996, respectively.
Thrifty's primary advertising is conducted by an affiliated entity, Thrifty
Rent-A-Car System, Inc. National Advertising Committee ("Thrifty National Ad").
Thrifty made payments of $4,580,000, $4,566,000 and $4,163,000 in 1994, 1995 and
1996, respectively, to Thrifty National Ad to support funding of advertising
campaigns, which are included in advertising costs. Thrifty also received
reimbursement from Thrifty National Ad for administrative services performed of
$1,462,000, $1,363,000 and $1,530,000 during 1994, 1995 and 1996, respectively,
which are recorded as offsets to selling, general and administrative expense.
Environmental Costs -- The Company's operations include the storage of
gasoline in underground storage tanks at certain company-owned stores.
Liabilities incurred in connection with the remediation of accidental fuel
discharges are recorded when it is probable that obligations have been incurred
and the amounts can be reasonably estimated.
Income Taxes -- The Company's U.S. operations are included in the
consolidated U.S. income tax returns of Chrysler. The Company has provided for
income taxes on its separate taxable income or loss and other tax attributes.
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities.
New Accounting Standard -- The Company plans to adopt the provisions of
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" in 1997. The Company does not anticipate any
financial statement impact upon adoption of this new standard.
3. DIVESTITURE AND ACQUISITIONS
Effective September 2, 1994, the Company sold its investment in Snappy for
net proceeds of $10,000,000 which resulted in a pre-tax loss on sale of
$40,893,000.
In November 1996, Dollar acquired certain assets and assumed certain
liabilities of Trynd, Inc. and AHL, Inc., the former Denver and Dallas
franchisees of Dollar. Dollar paid $4,425,000 in cash, net of cash acquired, and
assumed net liabilities of $218,000. Effective November 30, 1995, Dollar
acquired certain assets and assumed certain liabilities of the vehicle rental
division of Pacific International Services Corporation, the former Hawaii
franchisee of Dollar. Dollar paid $3,063,000 in cash including acquisition
costs, net of cash acquired, and assumed net liabilities of $6,836,000. Cost in
excess of net assets acquired of $9,600,000 is being amortized on the
straight-line basis over 30 years. The transactions have been accounted for
using the purchase method of accounting and operating results of the acquirees
from the dates of acquisition, which are not material to the respective years of
acquisition, are included in the consolidated statement of operations of the
Company.
F-13
<PAGE> 95
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. ACCOUNTS AND NOTES RECEIVABLE AND DUE FROM PARENT
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Trade:
Accounts receivable..................................... $ 71,881 $ 63,478
Notes receivable........................................ 13,736 11,164
-------- --------
85,617 74,642
Less allowance for doubtful accounts...................... (19,340) (16,622)
-------- --------
$ 66,277 $ 58,020
======= =======
</TABLE>
Trade accounts and notes receivable are primarily due from franchisees and
tour operators and arise from billings under standard credit terms for services
provided in the normal course of business. Notes receivable are generally issued
to certain franchisees at current market interest rates with varying maturities
and are generally covered by personal guarantees of the franchisees.
Due from (to) Parent consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable - Parent.............................. $ 48,870 $ 35,837
Cash management/working capital - Parent.................. (20,240) 38,267
-------- --------
$ 28,630 $ 74,104
======= =======
</TABLE>
Accounts receivable--Parent is comprised primarily of amounts due under
various incentive and promotion programs and amounts due from the sale of
revenue-earning vehicles at auction.
Cash management/working capital--Parent results from the Company's ability
to advance excess cash to Chrysler and to borrow from Chrysler under a
$75,000,000 working capital line of credit. The amounts bear interest at the
prime rate plus 2% (10.5% and 10.25% at December 31, 1995 and 1996,
respectively), and are due on demand. Net interest expense on these amounts is
partially reimbursed by Chrysler under an interest subvention program. In 1994,
1995 and 1996, the Company recorded net interest income of $717,000, $5,048,000
and $1,165,000, respectively, on the working capital line which includes
interest subvention of $1,900,000 and $2,024,000 in 1995 and 1996, respectively.
Participation in cash management programs with Chrysler resulted in
disbursements in excess of bank balances of $36,910,000 and $55,492,000, which
are included in accounts payable at December 31, 1995 and 1996, respectively.
F-14
<PAGE> 96
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. REVENUE-EARNING VEHICLES
Revenue-earning vehicles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revenue-earning vehicles.............................. $1,053,479 $1,230,884
Less accumulated depreciation......................... (94,680) (110,538)
---------- ----------
$ 958,799 $1,120,346
========= =========
</TABLE>
The Company purchases the majority of its revenue-earning vehicles from
Chrysler under vehicle supply agreements and from Chrysler Canada Ltd. Purchases
of revenue-earning vehicles from Chrysler and Chrysler Canada Ltd. were
$1,310,000,000, $1,406,523,000 and $1,612,122,000 during 1994, 1995 and 1996,
respectively. Vehicle acquisition terms provide for guaranteed residual values
or buybacks on the majority of vehicles under specified conditions. The Company
received residual value program payments of $153,932,000, $157,411,000 and
$120,520,000 in 1994, 1995 and 1996, respectively, which are included in
proceeds from sales of revenue-earning vehicles. In 1994, 1995 and 1996,
$92,564,000, $85,316,000 and $83,798,000, respectively, was received from
Chrysler Canada Ltd. for buyback of revenue-earning vehicles. Chrysler also
provided promotional payments, which are primarily amortized on the
straight-line basis over the respective model year to which the promotional
payments relate, and other incentives primarily related to the disposal of
revenue-earning vehicles. These promotional payments and other incentives, which
are reflected as offsets to direct vehicle and operating expense, amounted to
$63,989,000, $82,145,000 and $83,597,000 for 1994, 1995 and 1996, respectively.
Dollar and Thrifty entered into Vehicle Supply Agreements ("VSAs") with
Chrysler, which commenced with the 1997 model year and expire in July 2001.
Under the VSAs, Chrysler has agreed to supply certain specified volumes of
vehicles which are comprised of approximately 80% guaranteed depreciation
program vehicles ("Program Vehicles"). Dollar and Thrifty are required to
purchase at least 80% of their vehicles from Chrysler up to specified volumes of
which minimum amounts must be Program Vehicles. Under the terms of the VSAs,
Dollar and Thrifty have agreed to advertise and promote Chrysler products
exclusively, and will receive promotional payments from Chrysler for each model
year.
Rent expense for vehicles leased from unrelated vehicle manufacturers under
operating leases with terms of less than one year was approximately $11,827,000,
$20,412,000, and $16,687,000 for 1994, 1995, and 1996, respectively.
F-15
<PAGE> 97
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land...................................................... $ 14,780 $ 14,786
Buildings and improvements................................ 14,971 15,262
Furniture and equipment................................... 23,492 31,327
Leasehold improvements.................................... 26,041 27,861
Construction in progress.................................. 3,711 5,759
-------- --------
82,995 94,995
Less accumulated depreciation and amortization............ (27,375) (34,107)
-------- --------
$ 55,620 $ 60,888
======= =======
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cost in excess of net assets acquired.................... $417,688 $259,675
Trademarks and licenses held for operation............... 20,033 17,451
Software licenses, noncompete agreements and other....... 14,810 15,073
-------- --------
452,531 292,199
Less accumulated amortization............................ (81,936) (86,078)
-------- --------
$370,595 $206,121
======== ========
</TABLE>
As stated in Note 5, the Company acquires the majority of its
revenue-earning vehicle fleet from Chrysler and provides Chrysler with an outlet
for vehicles and the opportunity for related manufacturing profits to be
recognized from ultimate disposition of the vehicles. The Company's relationship
with Chrysler has provided a basis for maintaining the carrying value of the
recorded cost in excess of net assets acquired.
Consistent with Chrysler's strategy to focus on its core automotive
business, Chrysler is exploring the sale of entities not related to its core
automotive business. In 1996, Chrysler committed to a plan of disposal for
Thrifty and the Company recognized a $155 million intangible asset impairment
loss to reduce Thrifty's carrying value to estimated fair value less cost to
sell. Management's estimate of the fair value of Thrifty was based principally
on analysis of non-binding bids. The accounts of Thrifty are included in the
consolidated financial statements of the Company. Thrifty's total assets, after
the intangible asset impairment loss, and liabilities were $676,370,000 and
$580,211,000, respectively, at December 31, 1996. Thrifty's net loss for 1996,
as reflected in the consolidated statement of operations, exclusive of the
intangible asset impairment loss, was $1,185,000. Management continues to assess
the fair value of Thrifty based primarily on market and sales values of similar
entities. In addition, Chrysler is also exploring the potential disposition of
Dollar or the Company and Chrysler believes that if it were to commit to a plan
of disposal for Dollar or the Company no impairment loss related to Dollar's
carrying value would be required. Should Chrysler make further changes in its
intentions related to the Company or its subsidiaries, carrying values of the
related net assets of those companies may require further adjustment (Note 13).
F-16
<PAGE> 98
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of continuing operating losses incurred by Thrifty Canada, Ltd.
("TCL"), a wholly owned subsidiary of Thrifty, during 1996 management assessed
the carrying value of intangible assets related to TCL, and recorded an
intangible asset impairment loss of $2,758,000 (pre and after tax). The
intangible asset impairment loss was based on the estimated recoverable value of
Thrifty Canada utilizing historical cash flows as the basis for estimating
discounted future cash flows of that operation.
8. DEBT AND OTHER OBLIGATIONS
Debt and other obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
VEHICLE DEBT AND OBLIGATIONS
Chrysler Financial Corporation...................... $ 594,758 $ 713,346
Asset backed notes, net of discount................. 449,911 449,927
Deferred vehicle rent............................... -- 48,699
Chrysler Credit Holdings............................ 45,404 --
Banks and others.................................... 2,372 1,620
---------- ----------
1,092,445 1,213,592
OTHER NOTES PAYABLE
Bank line of credit................................. 20,000 27,000
Chrysler Financial Corporation and other............ 16,366 966
---------- ----------
36,366 27,966
---------- ----------
Total debt and other obligations................. $1,128,811 $1,241,558
========= =========
</TABLE>
VEHICLE DEBT AND OBLIGATIONS
Chrysler Financial Corporation ("Chrysler Financial") vehicle obligations
represent borrowings under collateralized credit lines totaling $987,700,000 at
both December 31, 1995 and 1996, primarily for the purchase of new Chrysler
vehicles. The interest rate for borrowings under this agreement are subvented by
Chrysler to prime less 1 1/2%. The weighted average interest rate on Chrysler
Financial vehicle obligations was 7.0% and 6.75%, net of interest subvention, at
December 31, 1995 and 1996, respectively.
Chrysler vehicle obligations are collateralized primarily by
revenue-earning vehicles and proceeds from the sale, lease or rental of
vehicles. The obligations generally have 5- to 15-month terms and require
monthly payments and a final balloon payment. The Company expects that these
obligations will generally be repaid within approximately one year from the
balance sheet date.
Asset Backed Notes represent borrowings of Thrifty Car Rental Finance
Corporation ("TFC"), a wholly owned special purpose corporation of Thrifty
formed in 1995 for the purpose of refinancing existing vehicle related debt of
Thrifty and to finance future vehicle acquisitions in the United States for use
in Thrifty's vehicle rental and vehicle leasing business. On December 22, 1995,
TFC issued $190,000,000, net of discount of $89,000, of 6.6% rental car asset
backed notes ("fixed notes") and $260,000,000 of floating rate rental car asset
backed notes ("floating notes") (collectively the "asset backed notes"). The
floating notes bear interest at rates ranging from LIBOR plus .70% to LIBOR plus
1.25% (6.65% to 7.2% at December 31, 1995 and 6.23% to 6.78% at December 31,
1996). On May 28, 1996, TFC issued $26,000,000 of variable funding notes which
bear interest at rates based on commercial paper rates and mature in 1998. There
were no amounts outstanding under this agreement at December 31, 1996. During
1997, the variable funding rates were temporarily increased to
F-17
<PAGE> 99
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$71,000,000 to fund peak vehicle financing needs. The assets of TFC are
available first to satisfy the claims of its creditors. Thrifty leases the
vehicles from TFC under the terms of a master lease and servicing agreement. The
asset backed note indenture also provides for additional credit enhancement
through overcollateralization of the vehicle fleet and maintenance of a
liquidity reserve. Thrifty and TFC are in compliance with the terms of the
indenture. The asset backed notes mature from August 1998 through May 2001 and
are generally subject to repurchase on any payment date subject to a prepayment
penalty.
Deferred Vehicle Rent represents financing obtained in June 1996 by TCL
under a Master Concurrent Lease Agreement ("the Lease Agreement") with CFI Auto
Lease Trust ("CFI") for the TCL vehicle fleet. Under the Lease Agreement, CFI
prepays 91% of the total lease rent due to TCL at the inception of the leases.
This prepaid rent is reflected as deferred vehicle rent. The Lease Agreement has
a four-year term and allows for replacement of vehicles under lease. Monthly and
other periodic refunds of rent to CFI are required on certain leased vehicles.
Upon disposition of vehicles, the deferred vehicle rent is refundable to CFI.
TCL's beneficial interest in the vehicles leased to CFI and any amounts due to
TCL directly related to the vehicles, including payments from franchisees and
vehicle disposition programs are vested in the Lease Agreement.
This transaction included the creation of a special purpose, not-for-profit
Canadian trust ("Thrifty Trust") which concurrently leases the vehicles from TCL
for a four-year term and simultaneously leases such vehicles to the TCL
franchisees and company-owned stores. The term of the Lease Agreement is
concurrent with the term of the lease between TCL and Thrifty. Due to the nature
of the relationship between TCL and Thrifty Trust, the consolidated financial
statements include the accounts of Thrifty Trust and all material intercompany
accounts and transactions have been eliminated.
CFI has committed to funding of approximately $91,000,000 under the Lease
Agreement and TCL pays a fee of 0.1% on the unused portion of this commitment.
The Lease Agreement also provides an $8,000,000 revolving line of credit to fund
vehicle acquisitions. There were no amounts outstanding under this line at
December 31, 1996. The four year funding commitment from CFI is supported by
underlying bank financing that is required to be renewed by CFI annually. The
deferred vehicle rent as well as the revolving line of credit amounts bear
interest based on the bankers acceptance rate plus .88% or the Canadian prime
rate plus .125%. The weighted average interest rate on deferred vehicle rent at
December 31, 1996 was 4.1%.
The Lease Agreement requires the maintenance of certain letters of credit
and contains various restrictive covenants including a limitation on the
percentage of vehicles which are not covered by manufacturer repurchase programs
and the maintenance by TCL of a specified minimum tangible net worth.
Chrysler Credit Holdings, Ltd. ("Chrysler Holdings") provided TCL
collateralized vehicle credit lines of approximately $80,619,000 at December 31,
1995. The purchase of vehicles was evidenced and secured by conditional sale
contracts and by an assignment of certain franchisee security. The interest rate
for borrowings under this agreement was the 30-day bankers' acceptance rate plus
a margin (7.13% for Chrysler vehicles and 8.88% for non-Chrysler vehicles, 7.16%
weighted average rate at December 31, 1995).
Expected repayments of vehicle debt and obligations outstanding at December
31, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
-------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Chrysler Financial.......................... $713,346 -- -- -- --
Asset backed notes.......................... -- $207,917 $48,083 $126,667 $67,333
Deferred vehicle rent....................... 48,699 -- -- -- --
Banks and other............................. 1,620 -- -- -- --
-------- -------- ------- -------- -------
Total....................................... $763,665 $207,917 $48,083 $126,667 $67,333
======== ======== ======= ======== =======
</TABLE>
F-18
<PAGE> 100
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All amounts due Chrysler Financial are included in 1997 maturities as the
Company expects these obligations will generally be repaid within a year of the
balance sheet date. Deferred vehicle rents are scheduled to be refunded through
2000, however, management believes that actual refunds of amounts outstanding at
December 31, 1996 will occur in 1997 due to expected replacement of leased
vehicles as provided in the Lease Agreement.
In August 1997, the Company obtained an additional $20,000,000 bank vehicle
line of credit facility which is available through June 2001. No amounts were
outstanding under this line as of September 30, 1997.
OTHER NOTES PAYABLE
The bank line of credit represents amounts outstanding under a $30,000,000
($20,000,000 at December 31, 1995) bank line of credit agreement which expired
July 10, 1997 and was renewed to June 30, 1998 and provides for interest payable
monthly at the prime rate (8.5% and 8.25% at December 31, 1995 and 1996,
respectively) and a commitment fee of one-eighth of 1% on any unused portion of
the line. The line is collateralized by certain Thrifty U.S. accounts and notes
receivable. Thrifty was in compliance with restrictive covenants of the bank
line of credit which include, among other things, limits on the amount and type
of indebtedness Thrifty can incur, the amount of capital expenditures, and
maintenance of a minimum amount of tangible net worth and a specified ratio of
total liabilities to tangible net worth.
Notes payable to Chrysler Financial of $14,748,000 at 1995 carried interest
at prime plus 1 3/4% (10.25% at December 31, 1995) and were repaid in 1996.
Maturities of other notes payable at December 31, 1996 are as follows:
$27,525,000 (1997), $214,000 (1998), $115,000 (1999), $42,000 (2000), $41,000
(2001) and $29,000 (2002).
Total interest expense on all Chrysler vehicle and other debt, net of
interest subvention was $83,008,000, $81,214,000 and $46,332,000 for 1994, 1995
and 1996, respectively.
9. EMPLOYEE BENEFIT PLANS
The Company sponsors a profit sharing plan which incorporates the salary
reduction provisions of Section 401(k) of the Internal Revenue Code and covers
substantially all employees of the Company meeting specific age and length of
service requirements. Matching contributions from the Company are discretionary
and during 1994, 1995 and 1996 were 50% of employee contributions up to 4% of
compensation. Contributions by the Company's subsidiaries amounted to $514,000,
$721,000 and $793,000 in 1994, 1995 and 1996, respectively.
F-19
<PAGE> 101
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
-------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $(22,474) $2,492 $ 6,075
State and local.................................. 96 237 1,691
Foreign.......................................... 221 253 290
-------- ------ -------
(22,157) 2,982 8,056
-------- ------ -------
Deferred:
Federal.......................................... 10,047 6,182 8,890
State and local.................................. (645) 589 (264)
-------- ------ -------
9,402 6,771 8,626
-------- ------ -------
$(12,755) $9,753 $16,682
======= ====== =======
</TABLE>
All Federal income taxes recorded in the consolidated statement of
operations are intercompany items. Intercompany tax settlements resulted in
payments from (to) Chrysler of $93,114,000, $(2,415,000) and $5,409,000 in 1994,
1995 and 1996, respectively.
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Depreciation.............................................. $(42,610) $(45,144)
Public liability and property damage...................... 20,816 24,219
Federal and state NOL credits and carryforwards........... 14,698 13,506
Canadian NOL carryforwards................................ 6,384 5,891
Other..................................................... 31,401 23,098
-------- --------
30,689 21,570
Valuation allowance....................................... (28,784) (28,291)
-------- --------
$ 1,905 $ (6,721)
======= =======
</TABLE>
The Company has net operating loss carryforwards available in certain
states to offset future state taxable income. At December 31, 1996, TCL has net
operating loss carryforwards of approximately $13,285,000 available to offset
future taxable income in Canada which expire through 2002. Valuation allowances
have been established for the estimated future tax effect of the Canadian net
operating losses. Included in the valuation allowance at 1995 and 1996 is
$22,400,000 related to certain pre-acquisition net operating loss carryforwards
which were remitted to the Company by Chrysler in 1995 related to the 1994 tax
year. No other valuation allowances have been recorded against deferred tax
assets.
F-20
<PAGE> 102
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's effective tax rate differs from the maximum U.S. statutory
income tax rate. The following summary reconciles taxes at the maximum U.S.
statutory rate with recorded taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996
------------------- ----------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- ------ ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tax expense (benefit) computed
at the maximum U.S. statutory
rate.......................... $(22,202) (35.0)% $3,403 35.0% $(45,711) (35.0)%
Difference resulting from:
Amortization of cost in excess
of net assets acquired........ 4,139 6.5 4,164 42.8 2,324 1.8
State and local taxes, net of
Federal income tax benefit.... (247) (0.3) 871 9.0 1,355 1.0
Loss on sale of Snappy (net of
re-attributed NOL
carryforwards)................ 7,608 12.0 -- -- -- --
Reversal of valuation allowance
for Snappy NOL's.............. (3,458) (5.4) -- -- -- --
Valuation allowance for foreign
losses........................ 732 1.1 1,484 15.3 1,974 1.5
Foreign taxes................... 221 0.3 254 2.6 290 0.2
Non-deductible impairment
loss.......................... -- -- -- -- 55,474 42.5
Other........................... 452 0.7 (423) (4.4) 976 0.7
-------- ------- ------ ------- -------- -------
$(12,755) (20.1)% $9,753 100.3% $ 16,682 12.7%
======== ======= ======= ======= ======== =======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Company has certain concession agreements with airports throughout the
United States and Canada. Typically, these agreements provide airport terminal
counter space in return for a minimum rent. In many cases, the Company's
subsidiaries are also obligated to pay insurance and maintenance costs and
additional rents generally based on revenues earned at the location. Certain of
the airport locations are operated by franchisees who are obligated to make the
required rent payments under the terms of their franchise arrangements with the
Company's subsidiaries.
The Company's subsidiaries operate from various leased premises under
operating leases with terms up to fifteen years. Some of the leases contain
renewal options.
Expenses incurred under operating leases and airport concessions were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Rent............................................... $ 9,566 $ 8,879 $ 8,102
Concession expenses:
Minimum fees..................................... 21,029 20,719 23,833
Contingent fees.................................. 9,426 9,229 17,088
------- ------- -------
Total....................................... $40,021 $38,827 $49,023
======= ======= =======
</TABLE>
Rent expense is presented in the above table net of sublease rental income
of $2,358,000, $2,172,000 and $2,457,000 in 1994, 1995 and 1996, respectively.
F-21
<PAGE> 103
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1996, future minimum rentals and fees under noncancelable
operating leases, net of sublease rental income of $10,495,000, and the
Company's obligation for minimum airport concession rentals were payable as
follows:
<TABLE>
<CAPTION>
AIRPORT CONCESSIONS
---------------------------
COMPANY-OWNED FRANCHISEE OPERATING
STORES LOCATIONS LEASES TOTAL
------------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997.............................. $14,913 $2,238 $14,650 $ 31,801
1998.............................. 9,329 2,054 10,716 22,099
1999.............................. 4,509 1,980 6,702 13,191
2000.............................. 2,857 1,427 4,909 9,193
2001.............................. 999 468 3,315 4,782
Thereafter........................ 1,571 69 21,838 23,478
------------- ---------- --------- --------
$34,178 $8,236 $62,130 $104,544
============ ======== ======= ========
</TABLE>
The Company entered into additional airport concession agreements in 1997
which include additional minimum commitments totaling $72,141,000 through 2007.
In 1997, the Company also entered into a facilities operating lease with
additional minimum commitments through 2007 totaling $700,000.
At December 31, 1995 and 1996, the Company had outstanding letter of credit
obligations totaling $3,928,000 and $7,932,000, respectively.
The Company is self-insured or has policy deductibles to certain limits
with respect to liabilities for claims arising as a result of personal injury,
property damage and employee health claims. The accrual for public liability and
property damage includes amounts for incurred losses and incurred but not
reported losses. Such liabilities are necessarily based on actuarially
determined estimates and management believes that the amounts accrued are
adequate. At December 31, 1996 and 1995, these amounts have been discounted at
6% (assumed risk free rate), based upon the actuarially determined estimated
timing of payments to be made in future years. Discounting resulted in reducing
the accrual for public liability and property damage by $4,560,000 and
$6,542,000 at December 31, 1995 and 1996, respectively. Estimated payments of
public liability and property damage as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997............................................................. $ 34,695
1998............................................................. 15,558
1999............................................................. 9,485
2000............................................................. 5,078
2001............................................................. 2,587
Thereafter....................................................... 2,374
-------
Aggregate undiscounted public liability and property damage...... 69,777
Effect of discounting............................................ 6,542
-------
$ 63,235
=======
</TABLE>
Liabilities include $10,240,000 and $4,541,000 at December 31, 1995 and
1996, respectively, for the estimated remaining obligations associated with
General Rent-A-Car, a former wholly owned subsidiary of Chrysler that was merged
with Dollar on January 1, 1993. The reduction in these liabilities included the
resolution of certain outstanding matters which resulted in a $5,000,000
reduction in selling, general and administrative expenses in 1996.
F-22
<PAGE> 104
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Various claims and legal proceedings have been asserted or instituted
against the Company, including some purporting to be class actions, and some
which demand large monetary damages or other relief which could result in
significant expenditures. Litigation is subject to many uncertainties, and the
outcome of individual matters is not predictable with assurance. The Company is
also subject to potential liability related to environmental matters. The
Company establishes reserves for litigation and environmental matters when the
loss is probable and reasonably estimable. It is reasonably possible that the
final resolution of some of these matters may require the Company to make
expenditures, in excess of established reserves, over an extended period of time
and in a range of amounts that cannot be reasonably estimated. The term
"reasonably possible" is used herein to mean that the chance of a future
transaction or event occurring is more than remote but less than likely.
Although the final resolution of any such matters could have a material effect
on the Company's consolidated operating results for the particular reporting
period in which an adjustment of the estimated liability is recorded, the
Company believes that any resulting liability should not materially affect its
consolidated financial position.
In 1995, a judgment was entered against Dollar and its parent for
$8,705,000 plus attorney's fees and interest, relating to certain litigation
with franchisees. Management and its legal counsel, Donovan Leisure Newton &
Irvine LLP, believe it is reasonably possible that the Company will ultimately
prevail in this matter on appeal. Accordingly, the Company has not established
reserves in the consolidated financial statements for the full amount of the
judgment.
12. CONCENTRATION OF CREDIT RISK AND FAIR VALUE INFORMATION
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of restricted cash and
investments and trade receivables. The Company limits its exposure on restricted
cash and investments by investing in highly rated funds. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising the Company's customer base, and their dispersion
across different businesses and geographic areas.
The following estimated fair values of financial instruments have been
determined by the Company using available market information and valuation
methodologies.
Cash and Cash Equivalents, Accounts and Notes Receivable, Accounts Payable,
Accrued Liabilities and Public Liability and Property Damage -- The carrying
amounts of these items are a reasonable estimate of their fair value.
Due from Parent -- Management was not able to practicably estimate the fair
value of the due from Parent amounts due to the related party nature of the
amounts.
Debt and Other Obligations -- The carrying amounts of debt and other
obligations are a reasonable estimate of their fair value. The estimated fair
value of these obligations was based on rates expected to be available to the
Company under proposed financing arrangements (Note 13).
Letter of Credit and Guaranteed Obligations -- The estimated fair value of
these items is $3,856,000 and $2,972,000 at December 31, 1995 and 1996,
respectively.
13. SUBSEQUENT EVENTS
The Company filed a Registration Statement on Form S-1 on November 6, 1997
in connection with the proposed offering of all of the Company's outstanding
common stock which is owned by Chrysler together with certain additional shares
to be initially issued by the Company. In connection with the proposed offering,
the Company will restructure and refinance a significant portion of its vehicle
and other obligations, working capital facilities, bonds and bond guarantees.
F-23
<PAGE> 105
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Upon successful completion of the proposed offering, the Company plans to
maintain ownership of Thrifty. Accordingly, Thrifty will no longer be considered
an asset held for sale. The intangible asset impairment loss recognized in 1996
related to the Company's investment in Thrifty resulted in a new cost basis for
Thrifty. The new cost basis will remain in effect upon successful completion of
the proposed offering.
Also in connection with the proposed offering, the Company plans to adopt a
long-term incentive plan for Company management which will include provisions
for awards in the form of stock options, stock appreciation rights, restricted
stock, performance cash awards and other stock based incentives. As allowed by
SFAS No. 123, the Company intends to account for stock based compensation under
the provisions of APB Opinion No. 25.
The Company is entering into a five-year data processing services
agreement. The agreement will require annual payments of approximately
$4,200,000.
* * * * *
F-24
<PAGE> 106
------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER DOLLAR THRIFTY AUTOMOTIVE GROUP, INC., CHRYSLER NOR ANY U.S.
UNDERWRITER HAS AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH
INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS
NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS
OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND
THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE IN THAT JURISDICTION.
------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE
OFFERING) ALL DEALERS THAT BUY, SELL OR TRADE THE SHARES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. LOGOS
22,500,000 Shares
Common Stock
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
SALOMON SMITH BARNEY
------------------------------------------------------
<PAGE> 107
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
AMENDED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE RELATED REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY
APPLICABLE STATE SECURITIES COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 16, 1997
22,500,000 Shares
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. LOGO
Common Stock
------------------
This is an initial public offering of shares of common stock of Dollar
Thrifty Automotive Group, Inc. Chrysler Corporation, which currently owns all of
the common stock, is offering 20,000,000 shares and the Company is offering
2,500,000 shares. After completion of the Offering, Chrysler will no longer own
any common stock. The Company will not receive any proceeds from the sale of
shares by Chrysler. There is currently no public market for the shares. The
Company expects that the public offering price will be between $19 and $22 per
share. The market price of the shares after the Offering may be higher or lower
than the public offering price.
The common stock has been approved for listing on the New York Stock
Exchange under the symbol DTG.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 13.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price.............................................. $ $
Underwriting Discounts and Commissions............................. $ $
Proceeds to Chrysler............................................... $ $
Proceeds to the Company............................................ $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Managers are offering the shares subject to various conditions and may
reject all or part of any order.
CREDIT SUISSE FIRST BOSTON GOLDMAN SACHS INTERNATIONAL
J.P. MORGAN SECURITIES LTD. SALOMON SMITH BARNEY INTERNATIONAL
Prospectus dated , 1997
<PAGE> 108
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 4
Risk Factors.......................................................................... 13
Use of Proceeds....................................................................... 19
Dividend Policy....................................................................... 19
Dilution.............................................................................. 19
Capitalization........................................................................ 20
Unaudited Pro Forma Consolidated Financial Statements................................. 21
Selected Consolidated Financial and Operating Data.................................... 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 33
Industry Overview..................................................................... 43
Business.............................................................................. 44
Continuing Relationship with Chrysler................................................. 62
Management............................................................................ 64
Description of Capital Stock.......................................................... 68
Description of Certain Indebtedness................................................... 71
Certain U.S. Tax Consequences to Non-U.S. Holders of Common Stock..................... 73
Subscription and Sale................................................................. 76
Notice to Canadian Residents.......................................................... 79
Legal Matters......................................................................... 80
Experts............................................................................... 80
Additional Information................................................................ 80
Index to Consolidated Financial Statements............................................ F-1
</TABLE>
---------------------------
The Company's principal executive offices are located at 5330 East 31st
Street, Tulsa, Oklahoma 74135, (918) 660-7700.
---------------------------
As used in this Prospectus, (a) the "Company" means Dollar Thrifty
Automotive Group, Inc. (successor to Pentastar Transportation Group, Inc.), (b)
"Dollar Thrifty Group" and "Group" mean Dollar Thrifty Automotive Group, Inc.
and its consolidated subsidiaries, (c) "Dollar" means Dollar Rent A Car Systems,
Inc. and (d) "Thrifty" means Thrifty Rent-A-Car System, Inc.
"Blue Chip", "Dollar", the Dollar logo, "DriveWise", "Thrifty" and the
Thrifty logo are existing or pending trademarks or servicemarks of Dollar
Thrifty Group.
---------------------------
Some of the statements contained in this Prospectus under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" are forward-looking. They
include statements concerning (a) strategy, (b) liquidity and capital
expenditures, (c) the terms upon which vehicles will be acquired, (d) debt
levels and the ability to obtain financing and service debt, (e) competitive
pressures in the vehicle rental business, (f) prevailing levels of interest
rates, (g) legal proceedings and regulatory matters and (h) general economic
conditions. Actual results may differ materially from those suggested by the
forward-looking statements for various reasons, including those discussed under
"Risk Factors."
---------------------------
Shares should be ready for delivery on or about , 1997, against
payment in immediately available funds.
3
<PAGE> 109
SUBSCRIPTION AND SALE
Under the terms and subject to the conditions contained in a Subscription
Agreement, dated , 1997 (the "Subscription Agreement"), the institutions
named below (the "Managers") have severally but not jointly agreed to purchase
from Chrysler and the Company the following respective numbers of International
Shares (as defined below):
<TABLE>
<CAPTION>
NUMBER OF
MANAGER INTERNATIONAL SHARES
------------------------------------------------------------------- --------------------
<S> <C>
Credit Suisse First Boston (Europe) Limited........................
Goldman Sachs International........................................
J.P. Morgan Securities Ltd. .......................................
Smith Barney Inc. .................................................
--------------------
Total......................................................... 3,375,000
==============
</TABLE>
Of the 22,500,000 shares of common stock being offered, 3,375,000 shares
(the "International Shares") are initially being offered by the Managers outside
the United States and Canada (the "International Offering") and 19,125,000
shares (the "U.S. Shares") are initially being concurrently offered by the U.S.
Underwriters (the "U.S. Underwriters"), for whom Credit Suisse First Boston
Corporation, Goldman, Sachs & Co., J.P. Morgan Securities Inc. and Salomon
Brothers Inc are acting as representatives (the "Representatives"), in the
United States and Canada (the "U.S. Offering").
The Subscription Agreement provides that the obligations of the Managers
are subject to certain conditions precedent and that the Managers will be
obligated to purchase all the International Shares offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased. The Subscription Agreement provides that, in the event of a default
by a Manager, in certain circumstances the purchase commitments of
non-defaulting Managers may be increased or the Subscription Agreement may be
terminated.
The Company and Chrysler have entered into an Underwriting Agreement with
the U.S. Underwriters providing for the concurrent offer and sale of the U.S.
Shares in the United States and Canada. The closing of the U.S. Offering is a
condition to the closing of the International Offering, but not vice versa.
The Company has granted to the Managers and the U.S. Underwriters an
option, exercisable by Credit Suisse First Boston Corporation, on behalf of the
U.S. Underwriters, expiring at the close of business on the 30th day after the
date of this Prospectus, to purchase up to 3,375,000 additional shares at the
initial public offering price, less the underwriting discounts and commissions.
Such option may be exercised only to cover over-allotments, if any, in the sale
of the shares offered hereby. To the extent that this option to purchase is
exercised, each Manager and each U.S. Underwriter will become obligated to
purchase approximately the same percentage of additional shares being sold to
the Managers and the U.S. Underwriters as the number of International Shares set
forth next to such Manager's name in the preceding table and as the number of
U.S. Shares set forth next to such U.S. Underwriter's name in the corresponding
table in the prospectus relating to the U.S. Offering bears to the sum of the
total number of shares in such tables.
The Company and Chrysler have been advised by Credit Suisse First Boston
Limited, on behalf of the Managers, that the Managers propose to offer the
International Shares outside the United States and Canada initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Managers, to certain dealers at such price less a concession of
$ per share, and the Managers and such dealers may allow a discount of
$ per share on sales to certain other dealers. After the initial public
offering, the public offering price and concession and discount to dealers may
be changed by the Managers.
The public offering price, the aggregate underwriting discounts and
commissions per share and the per share concession and discount to dealers for
the International Offering and the concurrent U.S. Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the Managers (the
"Intersyndicate Agreement") relating to the Offering, changes in the public
offering price, the aggregate underwriting discounts and commissions per share
and the per share concession and discount to dealers will be made only upon the
76
<PAGE> 110
mutual agreement of Credit Suisse First Boston Limited, on behalf of the
Managers, and Credit Suisse First Boston Corporation, on behalf of the U.S.
Underwriters.
Pursuant to the Intersyndicate Agreement, each of the Managers has agreed
that, as part of the distribution of the International Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares or distribute any prospectus relating to the
shares to any person in the United States or Canada or to any other dealer who
does not so agree. Each of the U.S. Underwriters has agreed or will agree that,
as part of the distribution of the U.S. Shares and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the shares
outside the United States or Canada or to any other dealer who does not so
agree. The foregoing limitations do not apply to stabilization transactions or
to transactions between the Managers and the U.S. Underwriters pursuant to the
Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction. "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) any individual resident in the United States or Canada; or
(ii) any corporation, partnership, pension, profit-sharing or other trust or
other entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares as may be mutually
agreed upon. The price of any shares so sold will be the public offering price,
less such amount as may be mutually agreed upon by Credit Suisse First Boston
Limited, on behalf of the Managers, and Credit Suisse First Boston Corporation,
on behalf of the U.S. Underwriters, but not exceeding the selling concession
applicable to such shares. To the extent there are sales between the Managers
and the U.S. Underwriters pursuant to the Intersyndicate Agreement, the number
of shares initially available for sale by the Managers or by the U.S.
Underwriters may be more or less than the amount appearing on the cover page of
this Prospectus. Neither the Managers nor the U.S. Underwriters are obligated to
purchase from the other any unsold shares.
Each of the Managers and the U.S. Underwriters severally represents and
agrees that: (1) it has not offered or sold and prior to the date six months
after the date of issue of the shares will not offer or sell any shares to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the issue of the shares to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Purchasers of shares of common stock outside the United States may be
required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the public offering price
set forth on the cover page of this Prospectus.
The Company and certain officers and directors of the Group have agreed
that, other than in connection with grants to be made by the Company under the
LTIP, they will not offer, sell, contract to sell, announce an intention to
sell, pledge or otherwise dispose of, directly or indirectly, or file or cause
to be filed with the Securities and Exchange Commission a registration statement
under the Securities Act relating to, any additional shares of the Company's
common stock or securities or other rights convertible into or exchangeable or
exercisable for any shares of the Company's common stock, or disclose the
intention to make any such offer, sale, pledge, disposal or filing, without the
prior written consent of Credit Suisse First Boston Corporation, until 180 days
after the date of the Offering.
The Company and Chrysler have agreed to indemnify the Managers and the U.S.
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments that the
77
<PAGE> 111
Managers and the U.S. Underwriters may be required to make in respect thereof.
The Company and Chrysler have agreed to indemnify each other against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments that the other may be required to make in respect
thereof.
The Managers and the Representatives have informed the Company and Chrysler
that they do not expect discretionary sales by the Managers and the U.S.
Underwriters to exceed 5% of the number of shares offered hereby.
Prior to the Offering, there has been no public market for the shares. The
initial public offering price for the shares will be determined by negotiations
among the Company, Chrysler and Credit Suisse First Boston Corporation, on
behalf of the U.S. Underwriters, and Credit Suisse First Boston Limited, on
behalf of the Managers. In determining such price, consideration will be given
to various factors, including market conditions for initial public offerings,
the history of and prospects for the Group's business, the past and present
operations of the Group, the past and present earnings and current financial
position of the Group, an assessment of the Group's management, the market for
securities of companies in businesses similar to those of the Group, the general
condition of the securities markets and other relevant factors. There can be no
assurance that the initial public offering price will correspond to the price at
which the shares will trade in the public market subsequent to the Offering or
that an active trading market for the shares will develop and continue after the
Offering.
Certain of the Managers and U.S. Underwriters have from time to time
performed, and continue to perform, financial advisory, investment banking and
commercial banking services for companies in the Dollar Thrifty Group, for which
customary compensation has been received. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Financing Plan."
78
<PAGE> 112
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the common stock registered
hereby, all of which expenses, except for the Commission registration fee, the
New York Stock Exchange listing fee and the NASD filing fee, are estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- -------------------------------------------------------------------------------- ----------
<S> <C>
SEC registration fee............................................................ $ 172,500
New York Stock Exchange listing fee and expenses................................ 157,653
NASD filing fee................................................................. 30,500
Blue Sky fees and expenses (including legal fees)............................... 5,000
Printing and engraving expenses................................................. 275,000
Legal fees and expenses (other than Blue Sky)................................... 850,000
Accounting fees and expenses.................................................... 800,000
Transfer Agent and Registrar's fee.............................................. 20,000
Miscellaneous................................................................... 189,347
----------
Total...................................................................... $2,500,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware ("GCL")
provides that a corporation has the power to indemnify any director or officer,
or former director or officer, who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) against expenses (including attorney's
fees), judgments, fines or amounts paid in settlement actually and reasonably
incurred by them in connection with the defense of any action by reason of being
or having been directors or officers, if such person shall have acted in good
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceedings, provided that such person had no reasonable cause to believe his
conduct was unlawful, except that, if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue or
matter as to which such person shall have been judged to have been liable to the
corporation unless and to the extent that the Court of Chancery of the State of
Delaware, or any court in which such suit or action was brought, shall determine
upon application that, in view of all of the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as such
court shall deem proper.
As permitted by Section 102(b)(7) of the GCL, the Certificate of
Incorporation of the Company (filed herewith as Exhibit 3.1) (the "Certificate
of Incorporation") contains a provision to limit the personal liability of
directors of the Company for violations of their fiduciary duty. This provision
eliminates each director's liability for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted by the GCL as in effect from time to
time.
The Certificate of Incorporation requires the Company to indemnify its
directors and officers to the fullest extent permitted by the GCL, and requires
the Company, in the case of officers and directors, to advance or reimburse
litigation expenses upon submission by the director or officer of an undertaking
to repay such advances or reimbursements if it is ultimately determined that
indemnification is not available to such director or officer pursuant to the
Certificate of Incorporation. The Company also has insurance policies against
certain liabilities asserted against its directors and officers in their
capacities as such.
The Company and Chrysler have agreed to indemnify the U.S. Underwriters and
the Managers against certain liabilities, including civil liabilities under the
Securities Act of 1933, as amended (the "Act"), or to contribute to payments
that the U.S. Underwriters and the Managers may be required to make in respect
thereof.
II-1
<PAGE> 113
The Company and Chrysler have agreed to indemnify each other against certain
liabilities, including civil liabilities under the Act, or to contribute to
payments that the other may be required to make in respect thereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. See Exhibit Index following the Appendix to this registration
statement.
(b) Financial Statement Schedules. See Schedule II, Valuation and
Qualifying Accounts, and related Independent Auditors' Report, following the
Exhibit Index. All other schedules are omitted because the information is not
required or because the information is included in the Consolidated Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To provide to the underwriters at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(d) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, New York, on December 16, 1997.
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
By: /s/ STEVEN B. HILDEBRAND
------------------------------------
Name: Steven B. Hildebrand
Title: Vice President, Chief
Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ------------------------------------- ------------------
<C> <S> <C>
/s/ JOSEPH E. CAPPY* Chairman of the Board, Chief December 16, 1997
- ----------------------------------- Executive Officer, President and
Joseph E. Cappy Director (Principal Executive
Officer)
/s/ DONALD M. HIMELFARB* Executive Vice President and Director December 16, 1997
- -----------------------------------
Donald M. Himelfarb
/s/ GARY L. PAXTON* Executive Vice President and Director December 16, 1997
- -----------------------------------
Gary L. Paxton
/s/ STEVEN B. HILDEBRAND Vice President, Chief Financial December 16, 1997
- ----------------------------------- Officer and Treasurer (Principal
Steven B. Hildebrand Financial Officer and Principal
Accounting Officer)
/s/ THOMAS P. CAPO* Director December 16, 1997
- -----------------------------------
Thomas P. Capo
/s/ EDWARD J. HOGAN* Director December 16, 1997
- -----------------------------------
Edward J. Hogan
/s/ EDWARD C. LUMLEY* Director December 16, 1997
- -----------------------------------
Edward C. Lumley
/s/ JOHN C. POPE* Director December 16, 1997
- -----------------------------------
John C. Pope
/s/ JOHN P. TIERNEY* Director December 16, 1997
- -----------------------------------
John P. Tierney
/s/ EDWARD L. WAX* Director December 16, 1997
- -----------------------------------
Edward L. Wax
*By: /s/ STEVEN B. HILDEBRAND Attorney-In-Fact
- -----------------------------------
Steven B. Hildebrand
</TABLE>
II-3
<PAGE> 115
APPENDIX DESCRIBING GRAPHIC MATERIAL
PURSUANT TO RULE 304 OF REGULATION S-T
INSIDE FRONT COVER
Photo at top: Dollar advertisement depicting actor Chevy Chase.
Photo at bottom left: Thrifty advertisement depicting vacation destinations and
Thrifty location.
Photo at bottom right: Thrifty advertisement depicting Chrysler vehicles.
INSIDE BACK COVER
Photo at top left: Dollar counter at Orlando Sanford International Airport.
Photo at top right: Dollar location at Newark International Airport.
Photo at bottom left: Thrifty counter at Tulsa International Airport.
Photo at bottom right: Thrifty location at Memphis International Airport.
II-4
<PAGE> 116
EXHIBIT INDEX
The Company agrees to furnish a copy of all agreements relating to
long-term debt upon request of the Commission.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -------------------------------------------------------------------------------
<C> <S>
1.1 Form of U.S. Underwriting Agreement**
1.2 Form of Subscription Agreement**
3.1 Certificate of Incorporation of the Company***
3.2 By-Laws of the Company***
4.1 Form of Certificate of Common Stock**
4.2 Base Indenture dated as of December 13, 1995 between Thrifty Car Rental Finance
Corporation and Bankers Trust Company***
4.3 Series 1995-1 Supplement to Base Indenture dated as of December 13, 1995
between Thrifty Car Rental Finance Corporation and Bankers Trust Company***
4.4 Master Motor Vehicle Lease and Servicing Agreement dated as of December 13,
1995 between Thrifty Car Rental Finance Corporation and Thrifty***
4.5 Master Collateral Agency Agreement dated as of December 13, 1995 between
Thrifty Car Rental Finance Corporation and Bankers Trust Company***
4.6 Form of Revolving Credit Agreement among the Company, Dollar, Thrifty and the
Institutions named therein***
4.7 Form of Series 1997-1 Supplement to Base Indenture between Rental Car Finance
Corp. and Bankers Trust Company***
4.8 Form of Master Motor Vehicle Lease and Servicing Agreement among the Company,
Dollar, Thrifty and Rental Car Finance Corp.***
4.9 Commitment Letter, dated November 19, 1997, among Credit Suisse First Boston,
The Chase Manhattan Bank, Chase Securities Inc., Dollar, Thrifty and the
Company, regarding a $230,000,000 Revolving Credit Facility and a $545,000,000
Commercial Paper Liquidity Facility and related Term Sheet***
5 Opinion of Debevoise & Plimpton regarding legality of the Common Stock**
10.1 Vehicle Supply Agreement between Chrysler and Dollar***+
10.2 Amended and Restated Vehicle Supply Agreement between Chrysler and Thrifty***+
10.3 [Reserved]
10.4 [Reserved]
10.5 [Reserved]
10.6 [Reserved]
10.7 [Reserved]
10.8 Pentastar Transportation Group, Inc. Deferred Compensation Plan***
10.9 Pentastar Transportation Group, Inc. Executive Retention Plan***
10.10 Dollar Thrifty Automotive Group, Inc. Long-Term Incentive Plan***
10.11 Tax Sharing and Disaffiliation Agreement between Chrysler Corporation and
Dollar Thrifty Automotive Group, Inc.***
10.12 Form of Indemnification Agreement between the Company and Chrysler**
21 Subsidiaries of the Company***
23.1 Consent of Deloitte & Touche LLP, Independent Auditors of the Company**
23.2 Consent of Debevoise & Plimpton (included in Exhibit 5)**
23.3 Consent of Donovan Leisure Newton & Irvine LLP***
24 Powers of Attorney***
27.1 Financial Data Schedule***
</TABLE>
- -------------------------
* To be filed by amendment
** Filed herewith
*** Previously filed
+ The Company has applied for confidential treatment of portions of this
Exhibit. Accordingly, portions thereof have been omitted and filed
separately.
II-5
<PAGE> 117
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
Dollar Thrifty Automotive Group, Inc.:
We have audited the consolidated financial statements of Dollar Thrifty
Automotive Group, Inc. and subsidiaries (successor to Pentastar Transportation
Group, Inc. and subsidiaries) ("the Company") as of December 31, 1995 and 1996,
and for each of the three years in the period ended December 31, 1996, and have
issued our report thereon dated November 6, 1997 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedule listed in Item 16 of this Registration Statement. 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
November 6, 1997
Tulsa, Oklahoma
<PAGE> 118
SCHEDULE II
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
(SUCCESSOR TO PENTASTAR TRANSPORTATION GROUP, INC. AND SUBSIDIARIES)
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
OF YEAR INCOME DEDUCTIONS YEAR
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1996
Allowance for doubtful accounts..................... $19,340 $ 8,404 $(11,122) $16,622
======= ======= ======== =======
Public liability and property damage................ $59,349 $38,462 $(34,576) $63,235
======= ======= ======== =======
1995
Allowance for doubtful accounts..................... $19,962 $ 5,434 $ (6,056) $19,340
======= ======= ======== =======
Public liability and property damage................ $58,057 $31,036 $(29,744) $59,349
======= ======= ======== =======
1994
Allowance for doubtful accounts..................... $21,174 $ 9,737 $(10,949) $19,962
======= ======= ======== =======
Public liability and property damage................ $67,680 $32,227 $(41,850) $58,057
======= ======= ======== =======
</TABLE>
Deductions in 1994 include $1,020,000 and $9,307,000 in the allowance for
doubtful accounts and public liability and property damage, respectively, due to
the sale of Snappy Car Rental, Inc.
<PAGE> 1
EXHIBIT 1.1
22,500,000 SHARES
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
COMMON STOCK ($.01 PAR VALUE)
U.S. UNDERWRITING AGREEMENT
December __, 1997
CREDIT SUISSE FIRST BOSTON CORPORATION
GOLDMAN, SACHS & CO.
J.P. MORGAN SECURITIES INC.
SMITH BARNEY INC.
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Dollar Thrifty Automotive Group, Inc., a Delaware
corporation ("Company"), proposes to issue and sell to the several U.S.
Underwriters named in Schedule A hereto ("U.S. Underwriters"), for whom Credit
Suisse First Boston Corporation ("CSFBC"), Goldman, Sachs & Co., J.P. Morgan
Securities Inc. and Smith Barney Inc. are acting as representatives
("Representatives"), 2,125,000 shares of its Common Stock ($.01 par value)
("Securities") in the United States and Canada, and Chrysler Corporation, a
Delaware corporation ("Chrysler"), proposes to sell to the U.S. Underwriters
17,000,000 outstanding shares of the Securities in the United States and Canada
("U.S. Offering") (the aggregate of such 19,125,000 shares of Securities being
hereinafter referred to as the "U.S. Firm Securities").
It is understood that the Company and Chrysler are concurrently entering
into a Subscription Agreement, dated the date hereof ("Subscription
Agreement"), with Credit Suisse First Boston (Europe) Limited ("CSFBL") and
the other managers named therein ("Managers") relating to the concurrent
offering and sale of an aggregate of 3,375,000 shares of Securities
("International Firm Securities") outside the United States and Canada
("International Offering").
In addition, as set forth below the Company proposes to sell to the U.S.
Underwriters and to the Managers, at the option of the U.S. Underwriters and
the Managers, an aggregate of not more than 3,375,000 additional shares of
Securities ("Optional Securities"). The U.S. Firm Securities and the Optional
Securities purchased by the U.S. Underwriters are hereinafter called the "U.S.
Securities"; the International Firm Securities and the Optional Securities
purchased by the Managers are hereinafter called the "International
Securities"; the U.S. Firm Securities and the International Firm Securities
are hereinafter called the "Firm Securities". The U.S. Securities and the
International Securities are collectively referred to as the "Offered
Securities". To provide for the coordination of their activities, the U.S.
Underwriters and the Managers have entered into an Agreement Between U.S.
Underwriters and Managers that permits them, among other things, to sell the
Offered Securities to each other for purposes of resale.
2. Representations and Warranties of the Company and Chrysler. (a) The
Company represents and warrants to, and agrees with, the several U.S.
Underwriters and Chrysler that:
(i) A registration statement (No. 333-39661) relating to the Offered
Securities, including a form of prospectus relating to the U.S.
Securities and a form of prospectus relating to the International
Securities has been filed with the Securities and Exchange Commission
("Commission") and either (A) has been
1
<PAGE> 2
declared effective under the Securities Act of 1933 ("Act") and is not
proposed to be amended or (B) is proposed to be amended by amendment or
post-effective amendment. If such registration statement (the "initial
registration statement") has been declared effective, either (i) an
additional registration statement (the "additional registration
statement") relating to the Offered Securities may have been filed with
the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and,
if so filed, has become effective upon filing pursuant to such Rule and
the Offered Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional registration
statement is proposed to be filed with the Commission pursuant to Rule
462(b) and will become effective upon filing pursuant to such Rule and
upon such filing the Offered Securities will all have been duly
registered under the Act pursuant to the initial registration statement
and such additional registration statement. If the Company does not
propose to amend the initial registration statement or if an additional
registration statement has been filed and the Company does not propose to
amend it, and if any post-effective amendment to either such registration
statement has been filed with the Commission prior to the execution and
delivery of this Agreement, the most recent amendment (if any) to each
such registration statement has been declared effective by the Commission
or has become effective upon filing pursuant to Rule 462(c) ("Rule
462(c)") under the Act or, in the case of the additional registration
statement, Rule 462(b). For purposes of this Agreement, "Effective Time"
with respect to the initial registration statement or, if filed prior to
the execution and delivery of this Agreement, the additional registration
statement means (a) if the Company has advised the Representatives that
it does not propose to amend such registration statement, the date and
time as of which such registration statement, or the most recent
post-effective amendment thereto (if any) filed prior to the execution
and delivery of this Agreement, was declared effective by the Commission
or has become effective upon filing pursuant to Rule 462(c), or (b) if
the Company has advised the Representatives that it proposes to file an
amendment or post-effective amendment to such registration statement, the
date and time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement has
not been filed prior to the execution and delivery of this Agreement but
the Company has advised the Representatives that it proposes to file one,
"Effective Time" with respect to such additional registration statement
means the date and time as of which such registration statement is filed
and becomes effective pursuant to Rule 462(b). "Effective Date" with
respect to the initial registration statement or the additional
registration statement (if any) means the date of the Effective Time
thereof. The initial registration statement, as amended at its Effective
Time, including all information contained in the additional registration
statement (if any) and deemed to be a part of the initial registration
statement as of the Effective Time of the additional registration
statement pursuant to the General Instructions of the Form on which it is
filed and including all information (if any) deemed to be a part of the
initial registration statement as of its Effective Time pursuant to Rule
430A(b) ("Rule 430A(b)") under the Act, is hereinafter referred to as the
"Initial Registration Statement". The additional registration statement,
as amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b),
is hereinafter referred to as the "Additional Registration Statement".
The Initial Registration Statement and the Additional Registration
Statement are hereinafter referred to collectively as the "Registration
Statements" and individually as a "Registration Statement". The form of
prospectus relating to the U.S. Securities and the form of prospectus
relating to the International Securities, each as first filed with the
Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)")
under the Act or (if no such filing is required) as included in the
Registration Statement, are hereinafter referred to as the "U.S.
Prospectus" and the "International Prospectus", respectively, and
collectively as the "Prospectuses". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
("Rules and Regulations") and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, (B)
on the Effective Date of the Additional Registration Statement (if any),
each Registration Statement conformed, or will conform, in all material
respects to the requirements of the Act and
2
<PAGE> 3
the Rules and Regulations and did not include, or will not include, any
untrue statement of a material fact and did not omit, or will not omit,
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (C) on the date of this
Agreement, the Initial Registration Statement and, if the Effective Time
of the Additional Registration Statement is prior to the execution and
delivery of this Agreement, the Additional Registration Statement each
conforms, and at the time of filing of each of the Prospectuses pursuant
to Rule 424(b) or (if no such filing is required) at the Effective Date
of the Additional Registration Statement in which the Prospectuses are
included, each Registration Statement and each of the Prospectuses will
conform, in all material respects to the requirements of the Act and the
Rules and Regulations, and none of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit,
to state any material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectuses, in light of
the circumstances under which they were made) not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective Date of the
Initial Registration Statement, the Initial Registration Statement and
each of the Prospectuses will conform in all material respects to the
requirements of the Act and the Rules and Regulations, none of such
documents will include any untrue statement of a material fact or will
omit to state any material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectuses, in light of the circumstances under which they were made)
not misleading, and no Additional Registration Statement has been or will
be filed. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or either of the Prospectuses
based upon written information furnished to the Company by any U.S.
Underwriter through the Representatives or by any Manager through CSFBL
specifically for use therein, it being understood and agreed that the
only such information is that described as such in Section 7(b) hereof.
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectuses; and the Company is
duly qualified to do business as a foreign corporation in good standing
in all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification.
(iv) Each subsidiary of the Company listed in Schedule B hereto
(individually, a "Subsidiary" and collectively, the "Subsidiaries") has
been duly incorporated and is an existing corporation in good standing
under the laws of the jurisdiction of its incorporation, with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectuses; and each Subsidiary of the
Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a material adverse
effect upon the condition (financial or other), earnings, prospects,
business, properties or results of operations of the Company and its
Subsidiaries taken as a whole; all of the issued and outstanding capital
stock of each Subsidiary of the Company has been duly authorized and
validly issued and is fully paid and nonassessable; and, except for liens
and encumbrances pursuant to the Revolving Credit Facility (as defined in
the Prospectuses), the capital stock of each Subsidiary owned by the
Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
(v) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement and the Subscription Agreement on each Closing Date (as defined
below), such Offered Securities will have been, validly issued, fully
paid and nonassessable and will conform to the description thereof
contained in the Prospectuses; and Chrysler has no preemptive rights with
respect to the Securities.
(vi) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
Chrysler or any U.S. Underwriter or Manager for a brokerage commission,
finder's fee or other like payment in connection with the U.S. Offering
or the International Offering.
3
<PAGE> 4
(vii) The Offered Securities have been approved for listing on The
New York Stock Exchange (the "Exchange") subject to notice of issuance.
(viii) No consent, approval, authorization, waiver or order of, or
filing with, any lessor, governmental agency or body or any court is
required for the consummation of the transactions contemplated by this
Agreement or the Subscription Agreement in connection with the issuance
and sale of the Offered Securities, except (A) such as have been obtained
and made under the Act and such as may be required under securities laws
of the United States in connection with the purchase and distribution of
the Offered Securities by the U.S. Underwriters and the Managers and (B)
the listing of the Offered Securities on the Exchange.
(ix) The execution, delivery and performance by the Company of this
Agreement and the Subscription Agreement, and the issuance and sale of
the Offered Securities, will not (A) result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any
statute, any rule, regulation or order of any governmental agency or body
or any court, domestic or foreign, having jurisdiction over the Company
or any of the Subsidiaries of the Company or any of their properties, or
any agreement, mortgage, lease, instrument or arrangement to which the
Company or any such Subsidiary is a party or by which the Company or any
such Subsidiary is bound or to which any of the properties of the Company
or any such Subsidiary is subject, or any governmental franchise, license
or permit heretofore issued to the Company or any of its Subsidiaries, in
each case, except for those breaches, violations or defaults that,
individually or in the aggregate, would not have a material adverse
effect on the condition (financial or other), earnings, prospects,
business, properties or results of operations of the Company and its
Subsidiaries taken as a whole or (B) violate or conflict with the charter
or by-laws of the Company or any such Subsidiary.
(x) This Agreement and the Subscription Agreement have been duly
authorized, executed and delivered by or on behalf of the Company, and
each such agreement represents a valid and binding obligation of the
Company enforceable in accordance with its terms.
(xi) Except for (A) liens on the assets of the Company and its
subsidiaries securing indebtedness under or in connection with the
Revolving Credit Facility, the Liquidity Facility, the New Medium Term
Notes and the Chrysler Credit Support Agreement (as such terms are defined
in the Prospectuses), and (B) liens on certain shuttle buses of Dollar
Rent A Car Systems, Inc. ("Dollar") pursuant to a Loan Agreement dated
April 24, 1991, as amended, between Dollar and Chrysler Financial
Corporation ("CFC"), the Company and its Subsidiaries have good and
marketable title to all real properties and all other properties and
assets owned by them as necessary to conduct their businesses, in each
case free from liens, encumbrances and defects that would materially
affect the value thereof or materially interfere with the use made or to
be made thereof by them; and except as disclosed in the Prospectuses, the
Company and its Subsidiaries hold any leased real or personal property
under valid and enforceable leases with no exceptions that would
materially interfere with the use made or to be made thereof by them.
(xii) The Company and its Subsidiaries (A) possess adequate
certificates, authorities, licenses or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now
operated by them, except where the failure to possess such certificate,
authority, license or permit, individually or in the aggregate, would not
have a material adverse effect on the condition (financial or other),
earnings, prospects, business, properties or results of operations of the
Company and its Subsidiaries taken as a whole, and (B) have not received
any notice of proceedings relating to the revocation or modification of
any such certificate, authority, license or permit that, if determined
adversely to the Company or any of its Subsidiaries, would individually
or in the aggregate have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
(xiii) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is imminent that
would have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
(xiv) The Company and its Subsidiaries (A) own, possess or can
acquire on reasonable terms adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property (collectively, "intellectual
property rights") necessary to conduct
4
<PAGE> 5
the businesses now operated by them, or presently employed by them,
except where the failure to have such intellectual property rights,
individually or in the aggregate, would not have a material adverse
effect on the condition (financial or other), earnings, prospects,
business, properties or results of operations of the Company and its
Subsidiaries taken as a whole, and (B) have not received any notice of
infringement of or conflict with asserted rights of others with respect
to any intellectual property rights that, if determined adversely to the
Company or any of its Subsidiaries, would individually or in the
aggregate have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
(xv) Except as disclosed in the Prospectuses, neither the Company
nor any of its Subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any
real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating
to any environmental laws, which violation, contamination, liability or
claim would individually or in the aggregate have a material adverse
effect on the Company and its Subsidiaries taken as a whole; and the
Company is not aware of any pending investigation which might lead to
such a claim.
(xvi) Except as disclosed in the Prospectuses, there are no pending
actions, suits or proceedings against or affecting the Company, any of
its Subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its Subsidiaries, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole, or would
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement or the Subscription Agreement, or which
are otherwise material in the context of the sale of the Offered
Securities; and, to the Company's knowledge, no such actions, suits or
proceedings are threatened or contemplated.
(xvii) There is no document or contract of a character required to
be described in each Registration Statement or the Prospectuses, or to be
filed as an exhibit to each Registration Statement, that is not described
or filed as required.
(xviii) The financial statements included in each Registration
Statement and the Prospectuses present fairly in all material respects
the financial position of the Company and its consolidated subsidiaries
as of the dates shown and their results of operations and cash flows for
the periods shown, in conformity with the generally accepted accounting
principles in the United States ("U.S. GAAP") applied on a consistent
basis, and Schedule II included in each Registration Statement presents
fairly the information required to be stated therein; and the assumptions
used in preparing the pro forma financial statements included in each
Registration Statement and the Prospectuses provide a reasonable basis
for presenting the significant effects directly attributable to the
transactions or events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro
forma columns therein reflect the proper application of those adjustments
to the corresponding historical financial statement amounts. Such
financial statements comply in all material respects with the
requirements of the Act and the rules and regulations applicable to a
registration statement on Form S-1. Deloitte & Touche LLP, who have
certified certain financial statements of the Company and its
subsidiaries included in each Registration Statement and the
Prospectuses, as amended or supplemented, are independent public
accountants with respect to the Company and its subsidiaries as required
by the Act and the Rules and Regulations.
(xix) Except as disclosed in the Prospectuses, since the date of the
latest audited financial statements included in the Prospectuses there
has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its Subsidiaries taken as a whole, and, except as
disclosed in or contemplated by the Prospectuses, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
5
<PAGE> 6
(xx) The Company and each of its Subsidiaries maintain systems of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with U.S. GAAP and to maintain accountability for assets; (iii) access to
the respective assets of the Company and each such Subsidiary, as the
case may be, is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded amounts for assets are
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxi) Each of the Company and its Subsidiaries is insured against
(or, as described in the Prospectus, has self-insured retention levels
for) such losses and risks and in such amounts as are prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged. Neither the Company nor any of its Subsidiaries has any reason to
believe that it will not be able to renew its existing insurance coverage
from similar insurers as may be necessary to continue its business.
(xxii) Except as disclosed in the Registration Statement and as
shall be disclosed in the Prospectuses, there are no business
relationships or related party transactions of the nature described in
Item 404 of Regulation S-K of the Commission involving the Company or any
other persons referred to in such Item 404.
(xxiii) The Company is not and, after giving effect to the offering
and sale of the Offered Securities, will not be an "investment company"
as defined in the Investment Company Act of 1940, as amended.
(b) Chrysler represents and warrants to, and agrees with, the
several U.S. Underwriters and the Company that:
(i) Chrysler has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with full corporate power and authority to enter into agreements and
conduct business with the Company as described in the Prospectuses; and
Chrysler is the sole registered and beneficial owner (as the term
"beneficial owner" is used in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) of all of the capital stock of the Company and
owns (and has full corporate power and authority to own) such stock free
from any adverse claim (as defined in the Uniform Commercial Code as
adopted in the State of New York), lien or restriction on transfer.
(ii) Chrysler has and on each Closing Date hereinafter mentioned
will have full right, power and authority to enter into this Agreement
and the Subscription Agreement and to sell, assign, transfer and deliver
the Offered Securities to be delivered by Chrysler on such Closing Date
hereunder; and upon the delivery of and payment for the Offered
Securities on each Closing Date hereunder the several U.S. Underwriters
and Managers will acquire valid and unencumbered title to the Offered
Securities to be delivered by Chrysler on such Closing Date.
(iii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
requirements of the Act and the Rules and Regulations and did not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, (B) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed,
or will conform, in all material respects to the requirements of the Act
and the Rules and Regulations and did not include, or will not include,
any untrue statement of a material fact and did not omit, or will not
omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C) on the
date of this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectuses
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectuses are included, each Registration Statement and each of the
Prospectuses will conform, in all
6
<PAGE> 7
material respects to the requirements of the Act and the Rules and
Regulations, and none of such documents includes, or will include, any
untrue statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectuses, in light of the
circumstances under which they were made) not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective Date of the
Initial Registration Statement, the Initial Registration Statement and
each of the Prospectuses will conform in all material respects to the
requirements of the Act and the Rules and Regulations, none of such
documents will include any untrue statement of a material fact or will
omit to state any material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectuses, in light of the circumstances under which they were made)
not misleading, and no Additional Registration Statement has been or will
be filed. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or either of the Prospectuses
based upon written information furnished to the Company by any U.S.
Underwriter through the Representatives or by any Manager through CSFBL
specifically for use therein, it being understood and agreed that the
only such information is that described as such in Section 7(b).
(iv) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between Chrysler and any person
that would give rise to a valid claim against the Company or any U.S.
Underwriter or Manager for a brokerage commission, finder's fee or other
like payment in connection with the U.S. Offering or the International
Offering.
(v) The execution, delivery and performance by Chrysler of this
Agreement and the Subscription Agreement and the consummation of the
transactions herein and therein contemplated on the part of Chrysler will
not (A) result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any statute, any rule, regulation or
order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over Chrysler, CFC or Chrysler Insurance
Corporation ("CIC") or any of their respective properties, or any
agreement, mortgage, lease or arrangement to which Chrysler, CFC or CIC is
a party or by which Chrysler, CFC or CIC is bound or to which any of the
properties of Chrysler, CFC or CIC is subject, except for those breaches,
violations or defaults that, individually or in the aggregate, would not
have a material adverse effect on the condition (financial or other),
earnings, prospects, business, properties or results of operations of the
Company and its Subsidiaries taken as a whole, or (B) violate or conflict
with the charter or by-laws of Chrysler, CFC or CIC.
(vi) Chrysler has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise, any
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Offered Securities and has not
effected any sales of any security of the Company which, if effected by
the Company, would be required to be disclosed in response to Item 701 of
Regulation S-K promulgated under the Act.
(vii) No consent, approval, authorization, waiver or order of, or
filing with, any governmental agency or body or any court is required to
be obtained or made by Chrysler for the consummation of the transactions
contemplated by this Agreement or the Subscription Agreement in
connection with the sale of the Offered Securities by Chrysler, except
such as have been obtained and made under the Act and such as may be
required under state securities laws.
(viii) This Agreement and the Subscription Agreement have been duly
authorized, executed and delivered by or on behalf of Chrysler, and each
such agreement represents a valid and binding obligation of Chrysler
enforceable in accordance with its terms.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company and Chrysler agree,
severally and not jointly, to sell to each U.S. Underwriter, and each U.S.
Underwriter agrees, severally and not jointly, to purchase from the Company and
Chrysler, at a purchase price of U.S.$ per share, the number of shares of
U.S.
7
<PAGE> 8
Firm Securities set forth below the caption "Company" or "Chrysler", as the
case may be, and opposite the name of such U.S. Underwriter in Schedule A
hereto.
The Company and Chrysler will deliver the U.S. Firm Securities to the
Representatives for the accounts of the U.S. Underwriters, against payment of
the purchase price in Federal (same day) funds by wire transfer to accounts at
banks selected by the Company and Chrysler and acceptable to CSFBC for the
account of Dollar Thrifty Automotive Group, Inc. in the case of 2,125,000
shares of U.S. Firm Securities and Chrysler in the case of 17,000,000 shares of
U.S. Firm Securities, at the office of Mayer, Brown & Platt, 1675 Broadway, New
York, New York, at 9:00 A.M., New York time, on December __, 1997, or at such
other time not later than seven full business days thereafter as CSFBC, the
Company and Chrysler determine, such time being herein referred to as the
"First Closing Date". For purposes of Rule 15c6-1 under the Exchange Act, the
First Closing Date (if later than the otherwise applicable settlement date)
shall be the settlement date for payment of funds and delivery of securities
for all the Offered Securities sold pursuant to the U.S. Offering and the
International Offering. The certificates for the U.S. Firm Securities so to be
delivered will be in definitive form, in such denominations and registered in
such names as CSFBC requests and will be made available for checking and
packaging at the above office of Mayer, Brown & Platt, at least 24 hours prior
to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company and
Chrysler from time to time not more than 30 days subsequent to the date of the
Prospectuses, the U.S. Underwriters and the Managers may purchase all or less
than all of the Optional Securities at the purchase price per Security to be
paid for the U.S. Firm Securities. The Optional Securities to be purchased by
the U.S. Underwriters on any Optional Closing Date (as hereinafter defined)
shall be in the same proportion to all the Optional Securities to be purchased
by the U.S. Underwriters and the Managers on such Optional Closing Date as the
U.S. Firm Securities bear to all the Firm Securities. The Company agrees to
sell to the U.S. Underwriters such Optional Securities and the U.S.
Underwriters agree, severally and not jointly, to purchase such Optional
Securities. Such Optional Securities shall be purchased for the account of
each U.S. Underwriter in the same proportion as the number of shares of U.S.
Firm Securities set forth opposite such U.S. Underwriter's name bears to the
total number of shares of U.S. Firm Securities (subject to adjustment by CSFBC
to eliminate fractions) and may be purchased by the U.S. Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
U.S. Firm Securities. No Optional Securities shall be sold or delivered unless
the U.S. Firm Securities and the International Firm Securities previously have
been, or simultaneously are, sold and delivered. The right to purchase the
Optional Securities or any portion thereof may be exercised from time to time
and to the extent not previously exercised may be surrendered and terminated at
any time upon notice by CSFBC on behalf of the U.S. Underwriters and the
Managers to the Company and Chrysler. It is understood that CSFBC is
authorized to make payment for and accept delivery of such Optional Securities
on behalf of the U.S. Underwriters and Managers pursuant to the terms of
CSFBC's instructions to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver
the Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several U.S. Underwriters, against
payment of the purchase price therefor in Federal (same day) funds by wire
transfer to an account at a bank selected by the Company and acceptable to
CSFBC for the account of Dollar Thrifty Automotive Group, Inc., at the above
office of Mayer, Brown & Platt. The certificates for the Optional Securities
will be in definitive form, in such denominations and registered in such names
as CSFBC requests upon reasonable notice prior to such Optional Closing Date
and will be made available for checking and packaging at the above office of
Mayer, Brown & Platt, at a reasonable time in advance of such Optional Closing
Date.
4. Offering by U.S. Underwriters. It is understood that the several U.S.
Underwriters propose to offer the U.S. Securities for sale to the public as set
forth in the U.S. Prospectus. Each U.S. Underwriter severally agrees that
offers and sales of the U.S. Securities in Canada as part of the distribution
will be made only pursuant to an exemption from the prospectus requirements in
each jurisdiction in Canada in which such offers and sales are made.
5. Certain Agreements of the Company and Chrysler. The Company and, to
the extent stated herein, Chrysler, agree with the several U.S. Underwriters
that:
8
<PAGE> 9
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file each of the Prospectuses with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to
by CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of
the Initial Registration Statement. The Company will advise CSFBC
promptly of any such filing pursuant to Rule 424(b). If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement and an additional registration statement is
necessary to register a portion of the Offered Securities under the Act
but the Effective Time thereof has not occurred as of such execution and
delivery, the Company will file the additional registration statement or,
if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to
10:00 P.M., New York time, on the date of this Agreement or, if earlier,
on or prior to the time either Prospectus is printed and distributed to
any U.S. Underwriter or Manager, or will make such filing at such later
date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend
or supplement the initial or any additional registration statement as
filed or either of the related prospectuses or the Initial Registration
Statement, the Additional Registration Statement (if any) or either of
the Prospectuses and will not effect such amendment or supplementation
without CSFBC's prior consent; and the Company will also advise CSFBC
promptly of the effectiveness of each Registration Statement (if its
Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration
Statement or either of the Prospectuses and of the institution by the
Commission of any stop order proceedings in respect of a Registration
Statement and will use its best efforts to prevent the issuance of any
such stop order and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any U.S. Underwriter, Manager or dealer, any event occurs as a
result of which either or both of the Prospectuses as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend either or both of
the Prospectuses to comply with the Act, the Company will promptly notify
CSFBC of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the U.S. Underwriters'
delivery of, any such amendment or supplement shall constitute a waiver
of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional
Registration Statement) which will satisfy the provisions of Section
11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth fiscal
quarter following the fiscal quarter that includes such Effective Date,
except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the
end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of the
Registration Statement (five of which will be signed and will include all
exhibits), each preliminary prospectus relating to the U.S. Securities,
and, so long as a prospectus relating to the Offered Securities is
required to be delivered under the Act in connection with sales by any
U.S. Underwriter or dealer, the U.S. Prospectus and all amendments and
supplements to such documents, in each case in such quantities as CSFBC
reasonably requests. The U.S. Prospectus shall be so furnished on or
prior to 3:00 P.M., New York time, on the business day following the
later of the execution and delivery of this Agreement or the Effective
Time of the Initial Registration Statement. All other such documents
shall be so furnished as soon as available. The Company will pay the
expenses of printing and distributing to the U.S. Underwriters all such
documents.
9
<PAGE> 10
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
reasonably designates and will continue such qualifications in effect so
long as required for the distribution.
(g) During the period of three years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
U.S. Underwriters, as soon as practicable after the end of each fiscal
year, a copy of its annual report to stockholders for such year; and the
Company will furnish to the Representatives (i) as soon as available, a
copy of each report and any definitive proxy statement of the Company
filed with the Commission under the Exchange Act or mailed to
stockholders, and (ii) from time to time, such other information
concerning the Company as CSFBC may reasonably request in writing.
(h) The Company and Chrysler agree with the several U.S.
Underwriters that the Company will pay all expenses incident to the
performance of the obligations of the Company under this Agreement, for
any filing fees and other expenses (including fees and disbursements of
counsel) in connection with qualification of the Offered Securities for
sale under the laws of such jurisdictions as CSFBC reasonably designates
(except that neither the Company nor Chrysler will be obligated to
qualify to do business as a foreign corporation in any state in which it
is not so qualified or to file a general consent to service of process in
any jurisdiction) and the printing of memoranda relating thereto, for any
fees charged by investment rating agencies for the rating of the Offered
Securities, for the filing fee incidental to, and the reasonable fees and
disbursements of counsel to the U.S. Underwriters in connection with, the
review by the National Association of Securities Dealers, Inc. of the
Offered Securities, for any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the Offered
Securities, for any transfer taxes on the sale by Chrysler of the Offered
Securities to the U.S. Underwriters and for expenses incurred in
distributing preliminary prospectuses and the Prospectuses (including any
amendments and supplements thereto) to the U.S. Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not, without the
prior written consent of CSFBC, offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission
a registration statement under the Act relating to, any additional shares
of its Securities or securities convertible into or exchangeable or
exercisable for any shares of its Securities, or publicly disclose the
intention to make any such offer, sale, pledge, disposition or filing,
other than the Company's issuance and sale of Securities in accordance
with this Agreement and the Subscription Agreement and pursuant to grants
under the Company's long-term incentive plan as contemplated in the
Prospectuses.
(j) The Company agrees to use the net proceeds received by it from
its sale of Offered Securities pursuant to this Agreement and the
Subscription Agreement in the manner specified in the Prospectuses under
the caption "Use of Proceeds".
(k) The Company agrees to use its best efforts to implement the
Commercial Paper Program and the Liquidity Facility (as such terms are
defined in the Prospectuses) during the first quarter of 1998.
6. Conditions of the Obligations of the U.S. Underwriters. The
obligations of the several U.S. Underwriters to purchase and pay for the U.S.
Firm Securities on the First Closing Date and the U.S. Optional Securities to
be purchased on each Optional Closing Date will be subject to the accuracy of
the representations and warranties on the part of the Company and Chrysler
herein, to the accuracy of the statements of Company officers made pursuant to
the provisions hereof, to the performance by the Company and Chrysler of their
obligations hereunder and to the following additional conditions precedent:
(a) The Representatives shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement
to be filed shortly prior to such Effective Time), of
10
<PAGE> 11
Deloitte & Touche LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the consolidated financial statements of
the Company and its subsidiaries and the schedule audited by them
and included in the Registration Statements comply as to form in
all material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
consolidated financial statements of the Company and its
subsidiaries included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company
who have responsibility for financial and accounting matters and
other specified procedures, nothing came to their attention that
caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations or
any material modifications should be made to such unaudited
financial statements for them to be in conformity with
generally accepted accounting principles;
(B) the unaudited consolidated total revenues and net
earnings (loss) for the nine-month periods ended September
30, 1997 and September 30, 1996 included in the Prospectuses
do not agree with the amounts set forth in the unaudited
consolidated financial statements for those same periods or
were not determined on a basis substantially consistent with
that of the corresponding amounts in the audited consolidated
statements of operations;
(C) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the date of this
Agreement, there was any change in the capital stock or any
increase in debt of the Company and its consolidated
subsidiaries or, at the date of the latest available balance
sheet read by such accountants, there was any decrease in
consolidated assets or stockholder's equity, as compared
with amounts shown on the latest balance sheet included in
the Prospectuses;
(D) for the period from the closing date of the latest
income statement included in the Prospectuses to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year and with the period
of corresponding length ended the date of the latest income
statement included in the Prospectuses, in consolidated total
revenues or of net earnings (loss); or
(E) the unaudited pro forma financial statements
included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X and the pro
forma adjustments have not been arithmetically accurately
applied to the historical amounts in the compilation of those
statements;
except in all cases set forth in clauses (C) and (D) above for
changes, increases or decreases which the Prospectuses disclose
have occurred or may occur or which are described in such letter;
and
11
<PAGE> 12
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statements (in each case
to the extent that such dollar amounts, percentages and other
financial information are derived from the general accounting
records of the Company and its subsidiaries subject to the internal
controls of the Company's accounting system or are derived directly
from such records by analysis or computation) with the results
obtained from inquiries, a reading of such general accounting
records and other procedures specified in such letter and have
found such dollar amounts, percentages and other financial
information to be in agreement with such results, except as
otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statements" shall mean the
initial registration statement as proposed to be amended by the amendment
or post-effective amendment to be filed shortly prior to its Effective
Time; (ii) if the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement but the Effective
Time of the Additional Registration Statement is subsequent to such
execution and delivery, "Registration Statements" shall mean the Initial
Registration Statement and the Additional Registration Statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time; and (iii)
"Prospectuses" shall mean the prospectuses included in the Registration
Statements.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CSFBC. If the Effective Time of the Additional Registration Statement
(if any) is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or, if earlier, the time either
Prospectus is printed and distributed to any U.S. Underwriter or Manager,
or shall have occurred at such later date as shall have been consented to
by CSFBC. If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, each of the
Prospectuses shall have been filed with the Commission in accordance with
the Rules and Regulations and Section 5(a) of this Agreement. Prior to
such Closing Date, no stop order suspending the effectiveness of a
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of Chrysler, the
Company or the Representatives, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company and its
Subsidiaries taken as a whole which, in the judgment of a majority in
interest of the U.S. Underwriters including the Representatives, is
material and adverse and makes it impractical or inadvisable to proceed
with completion of the public offering or the sale of and payment for the
U.S. Securities; (ii) any downgrading in the rating of any debt
securities of the Company or its Subsidiaries by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt
securities of the Company or its Subsidiaries (other than an announcement
with positive implications of a possible upgrading, and no implication of
a possible downgrading, of such rating); (iii) any suspension or
limitation of trading in securities generally on the New York Stock
Exchange, or any setting of minimum prices for trading on such exchange,
or any suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market; (iv) any banking moratorium
declared by U.S. Federal or New York authorities; or (v) any outbreak or
escalation of major hostilities in which the United States is involved,
any declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the judgment of a majority in
interest of the U.S. Underwriters including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or inadvisable to proceed with completion
of the public offering or the sale of and payment for the U.S.
Securities.
12
<PAGE> 13
(d) The Representatives shall have received an opinion, dated such
Closing Date, of Hall, Estill, Hardwick, Gable, Golden & Nelson, counsel
for the Company, to the effect that:
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties
and conduct its business as described in the Prospectuses; and the
Company is duly qualified to do business as a foreign corporation
in good standing in all other jurisdictions in which its ownership
or lease of property or the conduct of its business requires such
qualification;
(ii) Each Subsidiary of the Company has been duly incorporated
and is an existing corporation in good standing under the laws of
the jurisdiction of its incorporation, with power and authority
(corporate and other) to own its properties and conduct its
business as described in the Prospectuses; and each Subsidiary of
the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business
requires such qualification; all of the issued and outstanding
capital stock of each Subsidiary of the Company has been duly
authorized and validly issued and is fully paid and nonassessable;
and, except for liens and encumbrances pursuant to the Revolving
Credit Facility (as defined in the Prospectuses), the capital
stock of each Subsidiary owned by the Company directly, or through
subsidiaries, is owned free from liens, encumbrances and defects;
(iii) The Offered Securities delivered on such Closing Date
and all other outstanding shares of the Common Stock of the Company
have been duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained in
the Prospectuses; and the stockholder of the Company has no
preemptive rights with respect to the Offered Securities;
(iv) There are no contracts, agreements or understandings
known to such counsel between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statements or in any securities being
registered pursuant to any other registration statement filed by
the Company under the Act;
(v) No consent, approval, authorization, waiver or order of,
or filing with, any lessor, governmental agency or body or any
court or other entity is required for the consummation of the
transactions contemplated by this Agreement or the Subscription
Agreement in connection with the issuance and sale of the Offered
Securities, except (A) such as have been obtained and made under
the Act and such as may be required under securities laws of any
jurisdiction in connection with the purchase and distribution of
the Offered Securities by the U.S. Underwriters and the Managers;
and (B) the listing of the Offered Securities on the Exchange;
(vi) The execution, delivery and performance by the Company of
this Agreement and the Subscription Agreement, and the issuance and
sale of the Offered Securities, will not result in a breach or
violation of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of any
governmental agency or body or any court having jurisdiction over
the Company or any Subsidiary of the Company or any of their
properties, or any agreement, mortgage, lease, instrument or
arrangement to which the Company or any such Subsidiary is a party
or by which the Company or any such Subsidiary is bound or to which
any of the properties of the Company or any such Subsidiary is
subject, or any governmental franchise, license or permit
heretofore issued to the Company or any of its Subsidiaries, or the
charter or by-laws of the Company or any such Subsidiary;
(vii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed
and became effective under the Act as of the date and time (if
determinable) specified in such opinion, each of the Prospectuses
either was filed with the Commission pursuant to the subparagraph
of
13
<PAGE> 14
Rule 424(b) specified in such opinion on the date specified therein
or was included in the Initial Registration Statement or the
Additional Registration Statement (as the case may be), and, to the
best of the knowledge of such counsel, no stop order suspending the
effectiveness of a Registration Statement or any part thereof has
been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act, and each
Registration Statement and each of the Prospectuses, and each
amendment or supplement thereto, as of their respective effective
or issue dates, complied as to form in all material respects with
the requirements of the Act and the Rules and Regulations. In
addition, such counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its
effective date or as of such Closing Date, contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading or that either of the Prospectuses or any
amendment or supplement thereto, as of its issue date or as of such
Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading; it being understood that such
counsel need express no opinion as to the financial statements or
other financial data contained in the Registration Statement or the
Prospectuses;
(viii) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by the Company;
(ix) The statements set forth in the Prospectuses (A) under
the caption "Continuing Relationship with Chrysler", insofar as
they purport to describe certain financial and commercial
arrangements between Chrysler, the Company and its subsidiaries,
(B) under the caption "Description of Capital Stock", insofar as
they purport to constitute a summary of the terms of the
Securities, and (C) under the caption "Description of Certain
Indebtedness", insofar as they purport to describe certain
indebtedness of the Company, are accurate in all material respects;
(x) Insofar as statements in the Prospectuses purport to
summarize the nature and status of legal and governmental
proceedings, or the provisions of laws, rules, regulations, orders,
judgments or decrees, or the terms of any contracts, permits or
other documents, such statements are accurate in all material
respects and are fair summaries of the matters referred to therein;
(xi) To the best of such counsel's knowledge, there is no
litigation, arbitration or governmental or other action, suit,
proceeding or investigation before any court or before or by any
public, regulatory or governmental agency or body pending or
threatened against, or involving the properties or business of, the
Company or any of its Subsidiaries, that, individually or, to the
extent involving related claims or issues, in the aggregate, is of
a character required to be disclosed in the Registration Statements
and the Prospectuses that has not been properly disclosed therein;
and to the best such counsel's knowledge, there is no contract or
document concerning the Company or any of its Subsidiaries of a
character required to be described in the Registration Statement
and the Prospectuses or to be filed as an exhibit to the
Registration Statement, that is not so described or filed.
(e) The Representatives shall have received an opinion, dated such
Closing Date, of Debevoise & Plimpton, counsel for Chrysler, to the
effect that:
(i) Chrysler is validly existing as a corporation in good
standing under the laws of the State of Delaware;
(ii) Upon delivery to the several U.S. Underwriters by
Chrysler of a certificate or certificates for the U.S. Firm
Securities that Chrysler proposes to sell to the U.S. Underwriters
on such Closing Date against receipt of the purchase price therefor
as provided hereunder, the several U.S.
14
<PAGE> 15
Underwriters will acquire all rights of Chrysler in such Securities
free and clear of any adverse claim (as defined in the Uniform
Commercial Code as adopted in the State of New York), assuming that
the U.S. Underwriters have no notice of any adverse claim (as
defined in such Code).
(iii) The U.S. Firm Securities or the Optional Securities
purchased by the U.S. Underwriters, as the case may be, have been
duly authorized, and, when delivered to, and paid for by the U.S.
Underwriters pursuant to this Agreement, such Securities will be
validly issued, fully paid and nonassessable; the certificates for
such Securities are in valid and sufficient form; and Chrysler is
not entitled to preemptive or other rights as shareholder to
subscribe for such Securities;
(iv) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required to be obtained or made by Chrysler for the consummation of
the transactions contemplated by this Agreement or the Subscription
Agreement in connection with the sale of the Offered Securities,
except such as have been obtained and made under the Act and such
as may be required under state securities laws;
(v) The execution, delivery and performance by Chrysler of
this Agreement and the Subscription Agreement and the consummation
by Chrysler of the transactions herein contemplated, will not
result in a breach or violation of any of the terms and provisions
of or constitute a default under (x) any statute, rule, regulation
or order of any governmental agency or body or any court having
jurisdiction over Chrysler or CCC, (y) any agreement or instrument
to which Chrysler or CCC is a party or by which Chrysler or CCC is
bound, where such breach, violation or default would affect in any
material respect Chrysler's performance of this Agreement or (z)
the charter or by-laws of Chrysler or CCC; provided that such
counsel may state that its opinion in clause (x) of this subsection
(v) does not extend to whether any of the Registration Statement,
the Prospectuses or any amendment thereof or supplement thereto
contains or does not contain any untrue statement of any material
fact or omits or does not omit to state any material fact required
to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were
made, not misleading;
(vi) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by Chrysler; and
(vii) The statements set forth in the Prospectuses (A) under
the caption "Description of Capital Stock", insofar as they purport
to constitute a summary of the terms of the Securities, (B) under
the caption "Certain U.S. Tax Consequences to Non-U.S. Holders of
Common Stock", insofar as they relate to matters of law or legal
conclusions, and (C) under the caption "Description of Certain
Indebtedness", insofar as they purport to describe certain
indebtedness of the Company, are accurate in all material respects.
Such counsel shall state that they have participated in conferences
with representatives of the Company, some of which have been attended by
the U.S. Underwriters and their counsel, at which conferences the
contents of the Registration Statement, the Prospectuses, each amendment
thereof and supplement thereto and related matters were discussed, and,
although such counsel assumes no responsibility for the factual accuracy
or completeness of the Registration Statement, the Prospectuses, any
amendment thereof or supplement thereto (except to the extent expressly
set forth in such counsel's opinion letter), nothing has come to the
attention of such counsel to cause such counsel to believe that the
Registration Statement or any amendment thereof (other than the financial
statements and other financial and statistical information contained
therein, as to which such counsel need express no belief) at the time it
became effective (including the information deemed to part of the
Registration Statement at the time of effectiveness pursuant to paragraph
(b) of Rule 430A under the Act) contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or
that the Prospectuses, as amended and supplemented (other than the
financial statements and other financial and statistical information
contained therein, as to which such counsel need express no belief), as
of the date
15
<PAGE> 16
thereof or hereof, contained or contain any untrue statement of a
material fact or omitted or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Such counsel shall also state that such counsel has been advised by
the New York Stock Exchange that the Securities have been duly authorized
for listing, subject to official notice of issuance, on the New York
Stock Exchange.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
State of New York, the State of Delaware or the United States, to the
extent such counsel deems proper and specifies in such opinion, upon the
opinion of other counsel of good standing believed by such counsel to be
reliable and who are satisfactory to the U.S. Underwriters (provided that
such counsel states that the U.S. Underwriters are justified in relying
upon such specified opinion or opinions), and (B) as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible
officers of the Company, Chrysler and public officials.
(f) The Representatives shall have received from Cleary, Gottlieb,
Steen & Hamilton, counsel for the U.S. Underwriters, such opinion or
opinions, dated such Closing Date, with respect to the incorporation of
the Company, the validity of the Offered Securities delivered on such
Closing Date, the Registration Statements, the Prospectuses and other
related matters as the Representatives may require, and the Company shall
have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(g) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct in all material respects; the Company has complied
in all material respects with all agreements and satisfied all conditions
on its part to be performed or satisfied hereunder at or prior to such
Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge, are
threatened by the Commission; the Additional Registration Statement (if
any) satisfying the requirements of subparagraphs (1) and (3) of Rule
462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the
Act, prior to the time either Prospectus was printed and distributed to
any U.S. Underwriter or Manager; and, subsequent to the respective dates
of the most recent financial statements in the Prospectuses (exclusive of
any supplement thereto), there has been no material adverse change, nor
any development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole except as
set forth in or contemplated by the Prospectuses or as described in such
certificate.
(h) The Representatives shall have received a letter, dated such
Closing Date, of Deloitte & Touche LLP that meets the requirements of
subsection (a) of this Section, except that the specified date referred
to in such subsection will be a date not more than three business days
prior to such Closing Date for the purposes of this subsection.
(i) The National Association of Securities Dealers, Inc., upon
review of the terms of the underwriting arrangements for the public
offering of the Offered Securities, shall have raised no objections
thereto.
(j) The Securities shall have been approved for listing on the
NYSE, subject to official notice of issuance.
(k) Prior to the First Closing Date, the Representatives shall have
received from each of certain officers and directors of the Company
listed in Schedule C hereto a letter to the effect that, for a period of
180 days after the initial public offering of the Securities, such
officer or director will not offer, sell, contract to
16
<PAGE> 17
sell, pledge or otherwise dispose of, directly or indirectly, any shares
of Securities or securities convertible into or exchangeable or
exercisable for any shares of Securities, or publicly disclose the
intention to make any such offer, sale, pledge or disposal without the
prior written consent of CSFBC.
(l) On or prior to the First Closing Date, (A) the New Medium Term
Notes (as defined in the Prospectuses) shall have been issued; (B) the
Revolving Credit Facility (as defined in the Prospectuses) shall be in
effect; and (C) the Chrysler Credit Support Agreement (as defined in the
Prospectuses) shall have been executed by the parties thereto.
Chrysler and the Company will furnish the Representatives with such conformed
copies of such opinions, certificates, letters and documents as the
Representatives reasonably request. CSFBC may in its sole discretion waive on
behalf of the U.S. Underwriters compliance with any conditions to the
obligations of the U.S. Underwriters hereunder, whether in respect of an
Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company and Chrysler,
jointly and severally, will indemnify and hold harmless each U.S. Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such U.S. Underwriter may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any Registration Statement, either of the
Prospectuses, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of the Prospectuses,
in the light of the circumstances under which they were made) not misleading,
and will reimburse each U.S. Underwriter for any legal or other expenses
reasonably incurred by such U.S. Underwriter in connection with investigating
or defending any such loss, claim, damage, liability or action as such expenses
are incurred; provided, however, that the Company and Chrysler will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any of such documents in
reliance upon and in conformity with written information furnished to the
Company by any U.S. Underwriter through the Representatives specifically for
use therein, it being understood and agreed that the only information furnished
by any U.S. Underwriter consists of the information described as such in
subsection (b) below; and provided, further, (i) that the foregoing indemnity
with respect to either of the preliminary prospectuses related to the
Registration Statements shall not inure to the benefit of any U.S. Underwriter
from whom the person asserting any such loss, claim, damage or liability
purchased the Securities which are the subject thereof, if such person was not
sent or given a copy of either of the Prospectuses (or such Prospectus as
supplemented) at or prior to the confirmation of the sale of such Securities to
such person in any case where such delivery is required by the Act and the
untrue statement or omission of a material fact contained in such preliminary
prospectus was corrected in such Prospectus (or such Prospectus as
supplemented); and (ii) neither the Company nor Chrysler will be liable in
respect of any settlement of any pending or threatened action if such
settlement is effected without its prior written consent, which consent shall
not be withheld unless such settlement is unreasonable in light of the claims
or actions against, and defenses available to, the indemnified party.
(b) Each U.S. Underwriter will severally and not jointly indemnify and
hold harmless the Company and Chrysler against any losses, claims, damages or
liabilities to which the Company or Chrysler may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement, either of the Prospectuses, or any amendment or supplement thereto,
or any related preliminary prospectus, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company by such U.S. Underwriter through the Representatives specifically for
use therein, and will reimburse any legal or other expenses reasonably incurred
by the Company and Chrysler in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred, it
being understood and agreed that the only such information furnished by any
U.S. Underwriter consists of the following information in the Prospectuses
furnished on behalf of each U.S. Underwriter: the
17
<PAGE> 18
names of the U.S. Underwriters on the cover of the preliminary prospectus
relating to the U.S. Securities and the U.S. Prospectus; the list of U.S.
Underwriters and the number of shares being underwritten by each of the U.S.
Underwriters listed under the caption "Underwriting"; the concession and
discount figures appearing in the sixth paragraph under the caption
"Underwriting"; the terms of the Agreement Between U.S. Underwriters and
Managers contained in paragraphs seven through nine under the caption
"Underwriting"; and the information concerning overallotments, stabilizing,
syndicate covering transactions and penalty bids contained in the fourteenth
paragraph under the caption "Underwriting".
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding
the indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the right to
employ separate counsel (including local counsel), and the indemnifying party
shall bear the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest, (ii)
the actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, (iii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
Chrysler on the one hand and the U.S. Underwriters on the other from the
offering of the U.S. Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and Chrysler on the one hand
and the U.S. Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities as well
as any other relevant equitable considerations. The relative benefits received
by the Company and Chrysler on the one hand and the U.S. Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering of the U.S. Securities (before deducting expenses) received
by the Company and Chrysler bear to the total underwriting discounts and
commissions received by the U.S. Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company, Chrysler
or the U.S. Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this
subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any action or claim which is the subject of this subsection (d).
18
<PAGE> 19
Notwithstanding the provisions of this subsection (d), no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The U.S. Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company and Chrysler under this Section shall
be in addition to any liability which the Company and Chrysler may otherwise
have and shall extend, upon the same terms and conditions, to each person, if
any, who controls any U.S. Underwriter within the meaning of the Act; and the
obligations of the U.S. Underwriters under this Section shall be in addition to
any liability which the respective U.S. Underwriters may otherwise have and
shall extend, upon the same terms and conditions, to each director of the
Company, to each officer of the Company who has signed a Registration Statement
and to each person, if any, who controls the Company within the meaning of the
Act.
8. Default of U.S. Underwriters. If any U.S. Underwriter or U.S.
Underwriters default in their obligations to purchase U.S. Securities hereunder
on either the First or any Optional Closing Date and the aggregate number of
shares of U.S. Securities that such defaulting U.S. Underwriter or U.S.
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of shares of U.S. Securities that the U.S. Underwriters are obligated to
purchase on such Closing Date, CSFBC may make arrangements satisfactory to the
Company and Chrysler for the purchase of such U.S. Securities by other persons,
including any of the U.S. Underwriters, but if no such arrangements are made by
such Closing Date the non-defaulting U.S. Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the U.S. Securities that such defaulting U.S. Underwriters agreed but failed to
purchase on such Closing Date. If any U.S. Underwriter or U.S. Underwriters so
default and the aggregate number of shares of U.S. Securities with respect to
which such default or defaults occur exceeds 10% of the total number of shares
of U.S. Securities that the U.S. Underwriters are obligated to purchase on such
Closing Date and arrangements satisfactory to CSFBC, the Company and Chrysler
for the purchase of all such U.S. Securities by other persons are not made
within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting U.S. Underwriter, the Company or
Chrysler, except as provided in Section 9 (provided that if such default occurs
with respect to U.S. Optional Securities after the First Closing Date, this
Agreement will not terminate as to the U.S. Firm Securities or any U.S.
Optional Securities purchased prior to such termination). As used in this
Agreement, the term "U.S. Underwriter" includes any person substituted for an
U.S. Underwriter under this Section. Nothing herein will relieve a defaulting
U.S. Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of
Chrysler, of the Company or its officers and of the several U.S. Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the results
thereof, made by or on behalf of any U.S. Underwriter, Chrysler, the Company or
any of their respective representatives, officers or directors or any
controlling person, and will survive delivery of and payment for the U.S.
Securities. If this Agreement is terminated pursuant to Section 8 or if for
any reason the purchase of the U.S. Securities by the U.S. Underwriters is not
consummated, Chrysler and the Company shall remain responsible for the expenses
to be paid or reimbursed by them pursuant to Section 5 and the respective
obligations of the Company, Chrysler and the U.S. Underwriters pursuant to
Section 7 shall remain in effect, and if any U.S. Securities have been
purchased hereunder the representations and warranties in Section 2 and all
obligations under Section 5 shall also remain in effect. If the purchase of
the U.S. Securities by the U.S. Underwriters is not consummated for any reason
other than solely because of the termination of this Agreement pursuant to
Section 8 or the occurrence of any event specified in clause (iii), (iv), or
(v) of Section 6(c), Chrysler and the Company will reimburse the U.S.
Underwriters for all out-of-pocket expenses (including fees and disbursements
of counsel) reasonably incurred by them in connection with the offering of the
U.S. Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the U.S. Underwriters, will be mailed, delivered or telegraphed and
confirmed to the Representatives, c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment
Banking Department - Transactions
19
<PAGE> 20
Advisory Group, or, if sent to the Company, will be mailed, delivered or
telegraphed and confirmed to it at 5330 East 31st Street, Tulsa, Oklahoma
74135, Attention: Mr. Steven B. Hildebrand, or, if sent to Chrysler, will be
mailed, delivered or telegraphed and confirmed to it at 1000 Chrysler Drive,
Auburn Hills, Michigan 48326-2766, Attention: Richard D. Houtman, Esq.;
provided, however, that any notice to an U.S. Underwriter pursuant to Section 7
will be mailed, delivered or telegraphed and confirmed to such U.S. Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and no
other person will have any right or obligation hereunder.
12. Representation of U.S. Underwriters. The Representatives will act
for the several U.S. Underwriters in connection with this financing, and any
action under this Agreement taken by the Representatives jointly or by CSFBC
will be binding upon all the U.S. Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company and Chrysler hereby submit to the non-exclusive jurisdiction
of the Federal and state courts in the Borough of Manhattan in The City of New
York in any suit or proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby.
20
<PAGE> 21
If the foregoing is in accordance with the Representatives' understanding of
our agreement, kindly sign and return to each of the Company and Chrysler one
of the counterparts hereof, whereupon it will become a binding agreement among
Chrysler, the Company and the several U.S. Underwriters in accordance with its
terms.
Very truly yours,
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
By ________________________________________
Name:
Title:
CHRYSLER CORPORATION
By ________________________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed
and accepted as of the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
GOLDMAN, SACHS & CO.
J.P. MORGAN SECURITIES INC.
SMITH BARNEY INC.
Acting on behalf of themselves and as the
Representatives of the several U.S. Underwriters.
By CREDIT SUISSE FIRST BOSTON CORPORATION
By ______________________________________
Name:
Title:
21
<PAGE> 22
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF U.S. FIRM SECURITIES
TO BE SOLD BY
-----------------------------
TOTAL NUMBER OF
U.S. FIRM SECURITIES TO BE
U.S. UNDERWRITERS COMPANY CHRYSLER PURCHASED
- -------------------------------------- --------------- ------------ --------------------------
<S> <C> <C> <C>
Credit Suisse First Boston Corporation
Goldman, Sachs & Co...................
J.P. Morgan Securities Inc............
Smith Barney Inc......................
----------- ----------- ----------
Total........................ 19,125,000
=========== =========== ==========
</TABLE>
<PAGE> 23
SCHEDULE B
SUBSIDIARIES OF THE COMPANY
Dollar Rent A Car Systems, Inc.
Thrifty Rent-A-Car System, Inc.
Rental Car Finance Corp.
Thrifty Canada, Ltd.
Pentastar Services, Inc.
<PAGE> 24
SCHEDULE C
OFFICERS AND DIRECTORS OF THE COMPANY SUBJECT TO
LOCK-UP AGREEMENTS
Joseph E. Cappy
Steven B. Hildebrand
Donald M. Himelfarb
Gary L. Paxton
<PAGE> 1
EXHIBIT 1.2
22,500,000 SHARES
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
COMMON STOCK ($.01 PAR VALUE)
SUBSCRIPTION AGREEMENT
London, England
December __, 1997
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
GOLDMAN SACHS INTERNATIONAL
J.P. MORGAN SECURITIES LTD.
SMITH BARNEY INC.
c/o: Credit Suisse First Boston (Europe) Limited ("CSFBL")
One Cabot Square
London, England E14 4QJ
Dear Sirs:
1. Introductory. Dollar Thrifty Automotive Group Inc., a Delaware
corporation ("Company"), proposes to issue and sell to the several Managers
named in Schedule A hereto ("Managers"), 375,000 shares of its Common Stock
($0.01 par value) ("Securities") and Chrysler Corporation, a Delaware
Corporation ("Chrysler") proposes to sell to the Managers 3,000,000 outstanding
shares of the Securities ("International Offering") (the aggregate of such
3,375,000 shares of Securities being referred to as "International Firm
Securities").
It is understood that the Company and Chrysler are concurrently entering
into an Underwriting Agreement, dated the date hereof ("U.S. Underwriting
Agreement"), with certain United States underwriters listed in Schedule A
thereto (the "U.S. Underwriters"), for whom Credit Suisse First Boston
Corporation ("CSFBC"), Goldman, Sachs & Co., J.P. Morgan Securities Inc. and
Smith Barney Inc. are acting as representatives ("Representatives"), relating
to the concurrent offering and sale of 19,125,000 shares of Securities ("U.S.
Firm Securities") in the United States and Canada ("U.S. Offering").
In addition, the Company proposes to issue and sell to the U.S.
Underwriters and to the Managers, at the option of the U.S. Underwriters and
the Managers, an aggregate of not more than 3,375,000 additional shares of
Securities ("Optional Securities"). The U.S. Firm Securities and the Optional
Securities purchased by the U.S. Underwriters are hereinafter called the "U.S.
Securities"; the International Firm Securities and the Optional Securities
purchased by the Managers are hereinafter called the "International
Securities"; the U.S. Firm Securities and the International Firm Securities are
hereinafter called the "Firm Securities". The U.S. Securities and the
International Securities are collectively referred to as the "Offered
Securities". To provide for the coordination of their activities, the U.S.
Underwriters and the Managers have entered into an Agreement Between U.S.
Underwriters and Managers that permits them, among other things, to sell the
Offered Securities to each other for purposes of resale.
2. Representations and Warranties of the Company. (a) The Company
represents and warrants to, and agrees with, the several Managers and Chrysler
that:
(i) A registration statement (No. 333-39661) relating to the Offered
Securities, including a form of prospectus relating to the U.S.
Securities and a form of prospectus relating to the International
1
<PAGE> 2
Securities has been filed with the Securities and Exchange Commission
("Commission") and either (A) has been declared effective under the
Securities Act of 1933 ("Act") and is not proposed to be amended or (B)
is proposed to be amended by amendment or post-effective amendment. If
such registration statement (the "initial registration statement") has
been declared effective, either (i) an additional registration statement
(the "additional registration statement") relating to the Offered
Securities may have been filed with the Commission pursuant to Rule
462(b) ("Rule 462(b)") under the Act and, if so filed, has become
effective upon filing pursuant to such Rule and the Offered Securities
all have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (ii) such an additional registration statement is proposed
to be filed with the Commission pursuant to Rule 462(b) and will become
effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration statement
has been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the
Act or, in the case of the additional registration statement, Rule
462(b). For purposes of this Agreement, "Effective Time" with respect to
the initial registration statement or, if filed prior to the execution
and delivery of this Agreement, the additional registration statement
means (a) if the Company has advised CSFBL that it does not propose to
amend such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment
thereto (if any) filed prior to the execution and delivery of this
Agreement, was declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c), or (b) if the Company has
advised CSFBL that it proposes to file an amendment or post-effective
amendment to such registration statement, the date and time as of which
such registration statement, as amended by such amendment or
post-effective amendment, as the case may be, is declared effective by
the Commission. If an additional registration statement has not been
filed prior to the execution and delivery of this Agreement but the
Company has advised CSFBL that it proposes to file one, "Effective Time"
with respect to such additional registration statement means the date and
time as of which such registration statement is filed and becomes
effective pursuant to Rule 462(b). "Effective Date" with respect to the
initial registration statement or the additional registration statement
(if any) means the date of the Effective Time thereof. The initial
registration statement, as amended at its Effective Time, including all
information contained in the additional registration statement (if any)
and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the
General Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule 430A(b),
is hereinafter referred to as the "Additional Registration Statement".
The Initial Registration Statement and the Additional Registration
Statement are hereinafter referred to collectively as the "Registration
Statements" and individually as a "Registration Statement". The form of
prospectus relating to the U.S. Securities and the form of prospectus
relating to the International Securities, each as first filed with the
Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)")
under the Act or (if no such filing is required) as included in the
Registration Statement, are hereinafter referred to as the "U.S.
Prospectus" and the "International Prospectus", respectively, and
collectively as the "Prospectuses". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
("Rules and Regulations") and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the
2
<PAGE> 3
statements therein not misleading, (B) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all material respects to the requirements
of the Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (C) on
the date of this Agreement, the Initial Registration Statement and, if
the Effective Time of the Additional Registration Statement is prior to
the execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of each of the
Prospectuses pursuant to Rule 424(b) or (if no such filing is required)
at the Effective Date of the Additional Registration Statement in which
the Prospectuses are included, each Registration Statement and each of
the Prospectuses will conform, in all material respects to the
requirements of the Act and the Rules and Regulations, and none of such
documents includes, or will include, any untrue statement of a material
fact or omits, or will omit, to state any material fact required to be
stated therein or necessary to make the statements therein (in the case
of the Prospectuses, in light of the circumstances under which they were
made) not misleading. If the Effective Time of the Initial Registration
Statement is subsequent to the execution and delivery of this Agreement:
on the Effective Date of the Initial Registration Statement, the Initial
Registration Statement and each of the Prospectuses will conform in all
material respects to the requirements of the Act and the Rules and
Regulations, none of such documents will include any untrue statement of
a material fact or will omit to state any material fact required to be
stated therein or necessary to make the statements therein (in the case
of the Prospectuses, in light of the circumstances under which they were
made) not misleading, and no Additional Registration Statement has been
or will be filed. The two preceding sentences do not apply to statements
in or omissions from a Registration Statement or either of the
Prospectuses based upon written information furnished to the Company by
any Manager through CSFBL or by any U.S. Underwriter through the U.S.
Representatives specifically for use therein, it being understood and
agreed that the only such information is that described as such in
Section 7(b) hereof.
(iii) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectuses; and the Company is
duly qualified to do business as a foreign corporation in good standing
in all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification.
(iv) Each subsidiary of the Company listed in Schedule B hereto
(individually, a "Subsidiary" and collectively, the "Subsidiaries") has
been duly incorporated and is an existing corporation in good standing
under the laws of the jurisdiction of its incorporation, with power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectuses; and each Subsidiary of the
Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a material adverse
effect upon the condition (financial or other), earnings, prospects,
business, properties or results of operations of the Company and its
Subsidiaries taken as a whole; all of the issued and outstanding capital
stock of each Subsidiary of the Company has been duly authorized and
validly issued and is fully paid and nonassessable; and, except for liens
and encumbrances pursuant to the Revolving Credit Facility (as defined in
the Prospectuses), the capital stock of each Subsidiary owned by the
Company, directly or through subsidiaries, is owned free from liens,
encumbrances and defects.
(v) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement and the U.S. Underwriting Agreement on each Closing Date (as
defined below), such Offered Securities will have been, validly issued,
fully paid and nonassessable and will conform to the description thereof
contained in the Prospectuses; and Chrysler has no preemptive rights with
respect to the Securities.
3
<PAGE> 4
(vi) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between the Company and any
person that would give rise to a valid claim against the Company or
Chrysler or any Manager or U.S. Underwriter for a brokerage commission,
finder's fee or other like payment in connection with this offering or
the U.S. Offering.
(vii) The Offered Securities have been approved for listing on The
New York Stock Exchange (the "Exchange") subject to notice of issuance.
(viii) No consent, approval, authorization, waiver or order of, or
filing with, any lessor, governmental agency or body or any court or
other entity is required for the consummation of the transactions
contemplated by this Agreement or the U.S. Underwriting Agreement in
connection with the issuance and sale of the Offered Securities, except
(A) such as have been obtained and made under the Act and such as may be
required under securities laws of the United States in connection with
the purchase and distribution of the Offered Securities by the U.S.
Underwriters and the Managers, and (B) the listing of the Offered
Securities on the Exchange.
(ix) The execution, delivery and performance by the Company of this
Agreement and the U.S. Underwriting Agreement, and the issuance and sale
of the Offered Securities, will not (A) result in a breach or violation
of any of the terms and provisions of, or constitute a default under, any
statute, any rule, regulation or order of any governmental agency or body
or any court, domestic or foreign, having jurisdiction over the Company
or any Subsidiary of the Company or any of their properties, or any
agreement, mortgage, lease, instrument or arrangement to which the
Company or any such Subsidiary is a party or by which the Company or any
such Subsidiary is bound or to which any of the properties of the Company
or any such Subsidiary is subject, or any governmental franchise, license
or permit heretofore issued to the Company or any of its Subsidiaries, in
each case, except for those breaches, violations or defaults that,
individually or in the aggregate, would not have a material adverse
effect on the condition (financial or other), earnings, prospects,
business, properties or results of operations of the Company and its
Subsidiaries taken as a whole or (B) violate or conflict with the charter
or by-laws of the Company or any such Subsidiary.
(x) This Agreement and the U.S. Underwriting Agreement have been
duly authorized, executed and delivered by or on behalf of the Company,
and each such agreement represents a valid and binding obligation of the
Company enforceable in accordance with its terms.
(xi) Except for (A) liens on the assets of the Company and its
subsidiaries securing indebtedness under the Revolving Credit Facility,
the Liquidity Facility, the New Medium Term Notes, and the Chrysler Credit
Support Agreement (as such terms are defined in the Prospectuses), and (B)
liens on certain shuttle buses of Dollar Rent A Car Systems, Inc.
("Dollar") pursuant to a Loan Agreement dated April 24, 1991, as amended,
between Dollar and Chrysler Financial Corporation ("CFC"), the Company and
its Subsidiaries have good and marketable title to all real properties and
all other properties and assets owned by them as necessary to conduct
their businesses, in each case free from liens, encumbrances and defects
that would materially affect the value thereof or materially interfere
with the use made or to be made thereof by them; and except as disclosed
in the Prospectuses, the Company and its Subsidiaries hold any leased real
or personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof by
them.
(xii) The Company and its Subsidiaries (A) possess adequate
certificates, authorities, licenses or permits issued by appropriate
governmental agencies or bodies necessary to conduct the business now
operated by them, except where the failure to possess such certificate,
authority, license or permit, individually or in the aggregate, would not
have a material adverse effect on the condition (financial or other),
earnings, prospects, business, properties or results of operations of the
Company and its Subsidiaries taken as a whole, and (B) have not received
any notice of proceedings relating to the revocation or modification of
any such certificate, authority, license or permit that, if determined
adversely to the Company or any of its Subsidiaries, would individually
or in the aggregate have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
4
<PAGE> 5
(xiii) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is imminent that
would have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
(xiv) The Company and its Subsidiaries (A) own, possess or can
acquire on reasonable terms adequate trademarks, trade names and other
rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property (collectively, "intellectual
property rights") necessary to conduct the businesses now operated by
them, or presently employed by them, except where the failure to have
such intellectual property rights, individually or in the aggregate,
would not have a material adverse effect on the condition (financial or
other), earnings, prospects, business, properties or results of
operations of the Company and its Subsidiaries taken as a whole, and (B)
have not received any notice of infringement of or conflict with asserted
rights of others with respect to any intellectual property rights that,
if determined adversely to the Company or any of its Subsidiaries, would
individually or in the aggregate have a material adverse effect on the
Company and its Subsidiaries taken as a whole.
(xv) Except as disclosed in the Prospectuses, neither the Company
nor any of its Subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any
real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or contamination
pursuant to any environmental laws, or is subject to any claim relating
to any environmental laws, which violation, contamination, liability or
claim would individually or in the aggregate have a material adverse
effect on the Company and its Subsidiaries taken as a whole; and the
Company is not aware of any pending investigation which might lead to
such a claim.
(xvi) Except as disclosed in the Prospectuses, there are no pending
actions, suits or proceedings against or affecting the Company, any of
its Subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its Subsidiaries, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole, or would
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement or the U.S. Underwriting Agreement, or
which are otherwise material in the context of the sale of the Offered
Securities; and, to the Company's knowledge, no such actions, suits or
proceedings are threatened or contemplated.
(xvii) There is no document or contract of a character required to
be described in each Registration Statement or the Prospectuses, or to be
filed as an exhibit to each Registration Statement, that is not described
or filed as required.
(xviii) The financial statements included in each Registration
Statement and the Prospectuses present fairly in all material respects
the financial position of the Company and its consolidated subsidiaries
as of the dates shown and their results of operations and cash flows for
the periods shown, in conformity with the generally accepted accounting
principles in the United States ("U.S. GAAP") applied on a consistent
basis, and Schedule II included in each Registration Statement presents
fairly the information required to be stated therein; and the assumptions
used in preparing the pro forma financial statements included in each
Registration Statement and the Prospectuses provide a reasonable basis
for presenting the significant effects directly attributable to the
transactions or events described therein, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro
forma columns therein reflect the proper application of those adjustments
to the corresponding historical financial statement amounts. Such
financial statements comply in all material respects with the
requirements of the Act and the rules and regulations applicable to a
registration statement on Form S-1. Deloitte & Touche LLP, who have
certified certain financial statements of the Company and its
subsidiaries included in each Registration Statement and the
Prospectuses, as amended or supplemented, are independent public
accountants with respect to the Company and its subsidiaries as required
by the Act and the Rules and Regulations.
5
<PAGE> 6
(xix) Except as disclosed in the Prospectuses, since the date of the
latest audited financial statements included in the Prospectuses there
has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its Subsidiaries taken as a whole, and, except as
disclosed in or contemplated by the Prospectuses, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(xx) Each of the Company and its Subsidiaries is insured against
(or, as described in the Prospectuses, has self-insured retention levels
for) such losses and risks and in such amounts as are prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any of its Subsidiaries has any reason
to believe that it will not be able to renew its existing insurance
coverage from similar insurers as may be necessary to continue its
business.
(xxi) Except as disclosed in the Registration Statement and as shall
be disclosed in the Prospectuses, there are no business relationships or
related party transactions of the nature described in Item 404 of
Regulation S-K of the Commission involving the Company or any other
persons referred to in such Item 404.
(xxii) The Company is not and, after giving effect to the offering
and sale of the Offered Securities, will not be an "investment company"
as defined in the Investment Company Act of 1940, as amended.
(b) Chrysler represents and warrants to, and agrees with, the several
Managers and the Company that:
(i) Chrysler has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with full corporate power and authority to enter into agreements and
conduct business with the Company as described in the Prospectuses; and
Chrysler is the sole registered and beneficial owner (as the term
"beneficial owner" is used in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) of all of the capital stock of the Company and
owns (and has full corporate power and authority to own) such stock free
from any adverse claim (as defined in the Uniform Commercial Code as
adopted in the State of New York), lien or restriction on transfer.
(ii) Chrysler has and on each Closing Date hereinafter mentioned
will have valid and unencumbered title to the Offered Securities to be
delivered by Chrysler on such Closing Date and full right, power and
authority to enter into this Agreement and the U.S. Underwriting
Agreement and to sell, assign, transfer and deliver the Offered
Securities to be delivered by Chrysler on such Closing Date hereunder;
and upon the delivery of and payment for the Offered Securities on each
Closing Date hereunder the several Managers and U.S. Underwriters will
acquire valid and unencumbered title to the Offered Securities to be
delivered by Chrysler on such Closing Date.
(iii) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (A) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
requirements of the Act and the Rules and Regulations and did not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, (B) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed,
or will conform, in all material respects to the requirements of the Act
and the Rules and Regulations and did not include, or will not include,
any untrue statement of a material fact and did not omit, or will not
omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (C) on the
date of this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectuses
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectuses are included, each Registration Statement and each of the
Prospectuses will
6
<PAGE> 7
conform, in all material respects to the requirements of the Act and the
Rules and Regulations, and none of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit,
to state any material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectuses, in light of
the circumstances under which they were made) not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement: on the Effective Date of the
Initial Registration Statement, the Initial Registration Statement and
each of the Prospectuses will conform in all material respects to the
requirements of the Act and the Rules and Regulations, none of such
documents will include any untrue statement of a material fact or will
omit to state any material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectuses, in light of the circumstances under which they were made)
not misleading, and no Additional Registration Statement has been or will
be filed. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or either of the Prospectuses
based upon written information furnished to the Company by any Manager
through CSFBL or by any Underwriter through the Representatives
specifically for use therein, it being understood and agreed that the
only such information is that described as such in Section 7(b).
(iv) Except as disclosed in the Prospectuses, there are no
contracts, agreements or understandings between Chrysler and any person
that would give rise to a valid claim against the Company or any
Underwriter or Manager for a brokerage commission, finder's fee or other
like payment in connection with the U.S. Offering or the International
Offering.
(v) The execution, delivery and performance by Chrysler of this
Agreement and the U.S. Underwriting Agreement and the consummation of the
transactions herein and therein contemplated on the part of Chrysler will
not (A) result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any statute, any rule, regulation or
order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over Chrysler, CFC or Chrysler Insurance
Corporation ("CIC") or any of their respective properties, or any
agreement, mortgage, lease or arrangement to which Chrysler, CFC or CIC is
a party or by which Chrysler, CFC or CIC is bound or to which any of the
properties of Chrysler, CFC or CIC is subject, except for those breaches,
violations or defaults that, individually or in the aggregate, would not
have a material adverse effect on the condition (financial or other),
earnings, prospects, business or results of operations of the Company and
its Subsidiaries taken as a whole, or (B) violate or conflict with the
charter or by-laws of Chrysler, CFC or CIC.
(vi) Chrysler has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result, under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise, any
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Offered Securities and has not
effected any sales of any security of the Company which, if effected by
the Company, would be required to be disclosed in response to Item 701 of
Regulation S-K promulgated under the Act.
(vii) No consent, approval, authorization, waiver or order of, or
filing with, any governmental agency or body or any court is required to
be obtained or made by Chrysler for the consummation of the transactions
contemplated by this Agreement or the U.S. Underwriting Agreement in
connection with the sale of the Offered Securities by Chrysler, except
such as have been obtained and made under the Act and such as may be
required under state securities laws.
(viii) This Agreement and the U.S. Underwriting Agreement have been
duly authorized, executed and delivered by or on behalf of Chrysler, and
each such agreement represents a valid and binding obligation of Chrysler
enforceable in accordance with its terms.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company and Chrysler agree,
severally and jointly, to sell to the Managers, and the Managers agree,
severally and not jointly, to purchase
7
<PAGE> 8
from the Company and Chrysler, at a purchase price of U.S.$ per share,
the numbers of shares of International Firm Securities set forth below the
caption "Company" or "Chrysler", as the case may be, and opposite the name of
such Manager in Schedule A hereto.
The Company and Chrysler will deliver the International Firm Securities to
CSFBC for the accounts of the Managers, against payment of the purchase price
in U.S. dollars in Federal (same day) funds by wire transfer to accounts at
banks selected by the Company and Chrysler and acceptable to CSFBL for the
account of Dollar Thrifty Automotive Group, Inc. in the case of 375,000 shares
of International Firm Securities and Chrysler in the case of 3,000,000 shares
of International Firm Securities at the office of Mayer, Brown & Platt, 1675
Broadway, New York, New York, at 9:00 A.M., New York time, on December ,
1997, or at such other time not later than seven full business days thereafter
as CSFBL, the Company and Chrysler determine, such time being herein referred
to as the "First Closing Date". For purposes of Rule 15c6-1 under the Exchange
Act, the First Closing Date (if later than the otherwise applicable settlement
date) shall be the settlement date for payment of funds and delivery of
securities for all the Offered Securities sold pursuant to the U.S. Offering
and the International Offering. The certificates for the International Firm
Securities so to be delivered will be in definitive form, in such denominations
and registered in such names as CSFBL requests and will be made available for
checking and packaging at the above office of Mayer, Brown & Platt, at least 24
hours prior to the First Closing Date.
In addition, upon written notice from CSFBC given to the Company and
Chrysler from time to time not more than 30 days subsequent to the date of the
Prospectuses, the Managers and the U.S. Underwriters may purchase all or less
than all of the Optional Securities at the purchase price per Security to be
paid for the International Firm Securities. The Optional Securities to be
purchased by the Managers on any Optional Closing Date (as hereinafter defined)
shall be in the same proportion to all the Optional Securities to be purchased
by the Managers and U.S. Underwriters on such Optional Closing Date as the
International Firm Securities bear to all the Firm Securities. The Company
agrees to sell to the Managers such Optional Securities and the Managers agree,
severally and not jointly, to purchase such Optional Securities. Such
International Optional Securities shall be purchased for the account of each
Manager in the same proportion as the number of shares of International Firm
Securities set forth opposite such Manager's name bears to the total number of
shares of International Firm Securities (subject to adjustment by CSFBC to
eliminate fractions) and may be purchased by the Managers only for the purpose
of covering over-allotments made in connection with the sale of the
International Firm Securities. No Optional Securities shall be sold or
delivered unless the International Firm Securities and the U.S. Firm Securities
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Optional Securities or any portion thereof may be exercised from
time to time and to the extent not previously exercised may be surrendered and
terminated at any time upon notice by CSFBC on behalf of the Managers and the
U.S. Underwriters to the Company and Chrysler. It is understood that CSFBC is
authorized to make payment for and accept delivery of such Optional Securities
on behalf of the U.S. Underwriters and Managers pursuant to the terms of
CSFBC's instructions to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver
the Optional Securities being purchased on each Optional Closing Date to CSFBL
for the accounts of the several Managers, against payment of the purchase price
therefor in Federal (same day) funds by wire transfer to an account at a bank
selected by the Company and acceptable to CSFBC for the account of Dollar
Thrifty Automotive Group, Inc., at the above office of Mayer, Brown & Platt.
The certificates for the Optional Securities will be in definitive form, in
such denominations and registered in such names as CSFBL requests upon
reasonable notice prior to such Optional Closing Date and will be made
available for checking and packaging at the above office of Mayer, Brown &
Platt, at a reasonable time in advance of such Optional Closing Date.
The Company will pay to the Managers as aggregate compensation for their
commitments hereunder and for their services in connection with the purchase of
the International Securities and the management of the offering thereof, if the
sale and delivery of the International Securities to the Managers provided
herein is consummated, an amount equal to U.S. $ per International
Security purchased, which may be divided among the Managers in such
8
<PAGE> 9
proportions as they may determine. Such payment will be made on the First
Closing Date in the case of the International Firm Securities and on each
Optional Closing Date in the case of the International Optional Securities sold
to the Manager on such Closing Date, in each case by way of deduction by the
Managers of said amount from the purchase price for the International
Securities referred to above.
4. Offering by Managers. It is understood that the several Managers
propose to offer the International Securities for sale to the public as set
forth in the International Prospectus.
In connection with the distribution of the International Securities, the
Managers, through a stabilizing manager, may over-allot or effect transactions
on any exchange, in any over-the-counter market or otherwise which stabilize or
maintain the market prices of the International Securities at levels other than
those which might otherwise prevail, but in such event and in relation thereto,
the Managers will act for themselves and not as agents of the Company, and any
loss resulting from over-allotment and stabilization will be borne, and any
profit arising therefrom will be beneficially retained, by the Managers. Such
stabilizing, if commenced, may be discontinued at any time.
5. Certain Agreements of the Company and Chrysler. The Company and, to
the extent stated herein, Chrysler, agree with the several Managers that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file each of the Prospectuses with the Commission pursuant to and in
accordance with subparagraph (1) (or, if applicable and if consented to
by CSFBL, subparagraph (4)) of Rule 424(b) not later than the earlier of
(A) the second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of
the Initial Registration Statement. The Company will advise CSFBL
promptly of any such filing pursuant to Rule 424(b). If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement and an additional registration statement is
necessary to register a portion of the Offered Securities under the Act
but the Effective Time thereof has not occurred as of such execution and
delivery, the Company will file the additional registration statement or,
if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to
10:00 P.M., New York time, on the date of this Agreement or, if earlier,
on or prior to the time either Prospectus is printed and distributed to
any Manager or U.S. Underwriter, or will make such filing at such later
date as shall have been consented to by CSFBL.
(b) The Company will advise CSFBL promptly of any proposal to amend
or supplement the initial or any additional registration statement as
filed or either of the related prospectuses or the Initial Registration
Statement, the Additional Registration Statement (if any) or either of
the Prospectuses and will not effect such amendment or supplementation
without CSFBL's prior consent; and the Company will also advise CSFBL
promptly of the effectiveness of each Registration Statement (if its
Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration
Statement or either of the Prospectuses and of the institution by the
Commission of any stop order proceedings in respect of a Registration
Statement and will use its best efforts to prevent the issuance of any
such stop order and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any U.S. Underwriter, Manager or dealer, any event occurs as a
result of which either or both of the Prospectuses as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, or if it is necessary at any time to amend either or both of
the Prospectuses to comply with the Act, the Company will promptly notify
CSFBL of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither CSFBL's consent to, nor the U.S. Underwriters'
delivery of, any such amendment or supplement shall constitute a waiver
of any of the conditions set forth in Section 6.
9
<PAGE> 10
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional
Registration Statement) which will satisfy the provisions of Section
11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth fiscal
quarter following the fiscal quarter that includes such Effective Date,
except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the
end of such fourth fiscal quarter.
(e) The Company will furnish to the Managers copies of the
Registration Statement (five of which will be signed and will include all
exhibits), each preliminary prospectus relating to the International
Securities, and until completion of the distribution of the International
Securities as determined by CSFBL, the International Prospectus and all
amendments and supplements to such documents, in each case in such
quantities as CSFBL reasonably requests. The International Prospectus
shall be so furnished on or prior to 3:00 P.M., New York time, on the
business day following the later of the execution and delivery of this
Agreement or the Effective Time of the Initial Registration Statement.
All other such documents shall be so furnished as soon as available. The
Company will pay the expenses of printing and distributing to the
Managers all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBL
reasonably designates and will continue such qualifications in effect so
long as required for the distribution.
(g) During the period of three years hereafter, the Company will
furnish to the Managers, as soon as practicable after the end of each
fiscal year, a copy of its annual report to stockholders for such year;
and the Company will furnish to the Managers (i) as soon as available, a
copy of each report and any definitive proxy statement of the Company
filed with the Commission under the Exchange Act or mailed to
stockholders, and (ii) from time to time, such other information
concerning the Company as CSFBL may reasonably request in writing.
(h) The Company and Chrysler agree with the several Managers that
the Company will pay all expenses incident to the performance of the
obligations of the Company under this Agreement, for any filing fees and
other expenses (including fees and disbursements of counsel) in
connection with qualification of the Offered Securities for sale under
the laws of such jurisdictions as CSFBL reasonably designates (except
that neither the Company nor Chrysler will be obligated to qualify to do
business as a foreign corporation in any state in which it is not so
qualified or to file a general consent to service of process in any
jurisdiction) and the printing of memoranda relating thereto, for any
fees charged by investment rating agencies for the rating of the Offered
Securities, for the filing fee incidental to, and the reasonable fees and
disbursements of counsel to the U.S. Underwriters in connection with, the
review by the National Association of Securities Dealers, Inc. of the
Offered Securities, for any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the Offered
Securities, for any transfer taxes on the sale by Chrysler of the Offered
Securities to the Managers and for expenses incurred in distributing
preliminary prospectuses and the Prospectuses (including any amendments
and supplements thereto) to the Managers.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not, without the
prior written consent of CSFBL, offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission
a registration statement under the Act relating to, any additional shares
of its Securities or securities convertible into or exchangeable or
exercisable for any shares of its Securities, or publicly disclose the
intention to make any such offer, sale, pledge, disposition or filing,
other than the Company's issuance and sale of Securities in accordance
with this Agreement and the U.S. Underwriting Agreement and pursuant to
grants under the Company's long-term incentive plan as contemplated in
the Prospectuses.
10
<PAGE> 11
(j) The Company agrees to use the net proceeds received by it from
its sale of Offered Securities pursuant to this Agreement and the U.S.
Underwriting Agreement in the manner specified in the Prospectuses under
the caption "Use of Proceeds".
(k) The Company agrees to use its best efforts to implement the
Commercial Paper Program and the Liquidity Facility (as such terms are
defined in the Prospectuses) during the first quarter of 1998.
6. Conditions of the Obligations of the Managers. The obligations of the
several Managers to purchase and pay for the International Firm Securities on
the First Closing Date and the Optional Securities to be purchased on each
Optional Closing Date will be subject to the accuracy of the representations
and warranties on the part of the Company and Chrysler herein, to the accuracy
of the statements of Company officers made pursuant to the provisions hereof,
to the performance by the Company and Chrysler of its obligations hereunder and
to the following additional conditions precedent:
(a) The Managers shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to the
execution and delivery of this Agreement, shall be prior to the filing of
the amendment or post-effective amendment to the registration statement
to be filed shortly prior to such Effective Time), of Deloitte & Touche
LLP in the agreed form.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CSFBL. If the Effective Time of the Additional Registration Statement
(if any) is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or, if earlier, the time either
Prospectus is printed and distributed to any Manager or U.S. Underwriter,
or shall have occurred at such later date as shall have been consented to
by CSFBL. If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the U.S.
Prospectus shall have been filed with the Commission in accordance with
the Rules and Regulations. Prior to such Closing Date, no stop order
suspending the effectiveness of a Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or,
to the knowledge of the Company or the Managers, shall be contemplated by
the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (A) a change in U.S. or international
financial, political or economic conditions or currency exchange rates or
exchange controls as would, in the judgment of CSFBL, be likely to
prejudice materially the success of the proposed issue, sale or
distribution of the International Securities, whether in the primary
market or in respect of dealings in the secondary market, or (B)(i) any
change, or any development or event involving a prospective change, in
the condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole which, in
the judgment of CSFBL, is material and adverse and makes it impractical
or inadvisable to proceed with completion of the public offering or the
sale of and payment for the International Securities; (ii) any
downgrading in the rating of any debt securities of the Company or its
Subsidiaries by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or
any public announcement that any such organization has under surveillance
or review its rating of any debt securities of the Company or its
Subsidiaries (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of such
rating); (iii) any suspension or limitation of trading in securities
generally on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter
market; (iv) any banking moratorium declared by U.S. Federal or New York
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by the United
States Congress or any other substantial national or international
calamity or emergency if, in the judgment
11
<PAGE> 12
of CSFBL, the effect of any such outbreak, escalation, declaration,
calamity or emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
International Securities.
(d) The Managers shall have received an opinion, dated such Closing
Date, of Hall, Estill, Hardwick, Gable, Golden & Nelson, counsel for the
Company, in the agreed form.
(e) The Managers shall have received an opinion, dated such Closing
Date, of Debevoise & Plimpton, counsel for Chrysler, in the agreed form.
(f) The Managers shall have received from Cleary, Gottlieb, Steen &
Hamilton, counsel for the Managers, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statement, the Prospectuses and other related matters as the
Managers may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them
to pass upon such matters.
(g) The Managers shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct in all material respects; the Company has complied
in all material respects with all agreements and satisfied all conditions
on its part to be performed or satisfied hereunder at or prior to such
Closing Date; no stop order suspending the effectiveness of any
Registration Statement has been issued and no proceedings for that
purpose have been instituted, or to the Company's knowledge, are
threatened by the Commission; the Additional Registration Statement (if
any) satisfying the requirements of subparagraphs (1) and (3) of Rule
462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the
Act, prior to the time either Prospectus was printed and distributed to
any Manager or U.S. Underwriter; and, subsequent to the respective dates
of the most recent financial statements in the Prospectuses (exclusive of
any supplement thereto), there has been no material adverse change, nor
any development or event involving a prospective material adverse change,
in the condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole except as
set forth in or contemplated by the Prospectuses or as described in such
certificate.
(h) The Managers shall have received a letter, dated such Closing
Date, of Deloitte & Touche LLP that meets the requirements of
subsection (a) of this Section, except that the specified date referred
to in such subsection will be a date not more than three business days
prior to such Closing Date for the purposes of this subsection.
(i) On such Closing Date, the U.S. Underwriters shall have
purchased the U.S. Firm Securities or the Optional Securities to be
purchased by the U.S. Underwriters, as the case may be, pursuant to the
U.S. Underwriting Agreement.
(j) The National Association of Securities Dealers, Inc., upon
review of the terms of the underwriting arrangements for the public
offering of the Shares, shall have raised no objections thereto.
(k) The Shares shall have been listed on the NYSE, subject to
official notice of issuance.
(l) Prior to the First Closing Date, the Managers shall have
received from each of certain officers and directors of the Company
listed in Schedule C hereto a letter to the effect that, for a period of
180 days after the initial public offering of the Securities, such
officer or director will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any shares of Securities or
securities convertible into or exchangeable or exercisable for any shares
of Securities, or publicly disclose the intention to make any such offer,
sale, pledge or disposal without the prior written consent of CSFBL.
12
<PAGE> 13
(m) On or prior to the First Closing Date, (A) the New Medium Term
Notes (as defined in the Prospectuses) shall have been issued; (B) the
Revolving Credit Facility (as defined in the Prospectuses) shall be in
effect; and (C) the Chrysler Credit Support Agreement (as defined in the
Prospectuses) shall have been executed by the parties thereto.
Documents described as being "in the agreed form" are documents that are in the
forms which have been initialed for the purpose of identification by Cleary,
Gottlieb, Steen & Hamilton, copies of which are held by the Company and CSFBL
with such changes as CSFBL may approve. The Company and Chrysler will furnish
the Managers with such conformed copies of such opinions, certificates, letters
and documents as the Managers reasonably request. CSFBL may in its sole
discretion waive on behalf of the Managers compliance with any conditions to
the obligations of the Managers hereunder, whether in respect of an Optional
Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company and Chrysler,
jointly and severally, will indemnify and hold harmless each Manager against
any losses, claims, damages or liabilities, joint or several, to which such
Manager may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, either of the Prospectuses, or
any amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectuses, in the light of the
circumstances under which they were made) not misleading, and will reimburse
each Manager for any legal or other expenses reasonably incurred by such
Manager in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company and Chrysler will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with
written information furnished to the Company by any Manager through CSFBL
specifically for use therein, it being understood and agreed that the only
information furnished by any Manager consists of the information described as
such in subsection (b) below; and provided, further, (i) that the foregoing
indemnity with respect to either of the preliminary prospectuses related to the
Registration Statements shall not inure to the benefit of any Manager from whom
the person asserting any such loss, claim, damage or liability purchased the
Securities which are the subject thereof, if such person was not sent or given
a copy of either of the Prospectuses (or such Prospectus as supplemented) at or
prior to the confirmation of the sale of such Securities to such person in any
case where such delivery is required by the Act and the untrue statement or
omission of a material fact contained in such preliminary prospectus was
corrected in such Prospectus (or such Prospectus as supplemented); and (ii)
neither the Company nor Chrysler will be liable in respect of any settlement
of any pending or threatened action if such settlement is effected without its
prior written consent, which consent shall not be withheld unless such
settlement is unreasonable in light of the claims or actions against, and
defenses available to, the indemnified party.
(b) Each Manager will severally and not jointly indemnify and hold
harmless the Company and Chrysler, jointly and severally, against any losses,
claims, damages or liabilities to which the Company may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Statement, either of the Prospectuses, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company and Chrysler by such Manager through CSFBL specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Manager consists of
the following information in the International Prospectus furnished on behalf
of each Manager: the names of the Managers on the cover of the International
Prospectus; the terms of the Agreement Between U.S. Underwriters and Managers
contained in paragraphs seven through nine under the caption "Subscription and
Sale"; the United Kingdom selling restrictions in paragraph ten under the
13
<PAGE> 14
caption "Subscription and Sale"; the list of Managers and the number of shares
being subscribed by each of the Managers listed under the caption "Subscription
and Sale"; and the concession and discount figures appearing in the sixth
paragraph under the caption "Subscription and Sale".
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding
the indemnifying party's election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the right to
employ separate counsel (including local counsel), and the indemnifying party
shall bear the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the indemnifying party to represent the
indemnified party would present such counsel with a conflict of interest, (ii)
the actual or potential defendants in, or targets of, any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, (iii) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of the institution
of such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened action in respect of
which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such settlement
includes an unconditional release of such indemnified party from all liability
on any claims that are the subject matter of such action.
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
Chrysler on the one hand and the Managers on the other from the offering of the
International Securities or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company and Chrysler on the one hand and the Managers
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities as well as any other relevant
equitable considerations. The relative benefits received by the Company and
Chrysler on the one hand and the Managers on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
International Securities (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Managers. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company, Chrysler or the Managers and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim which is the subject of
this subsection (d). Notwithstanding the provisions of this subsection (d), no
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Manager has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
14
<PAGE> 15
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Managers'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company and Chrysler under this Section shall
be in addition to any liability which the Company and Chrysler may otherwise
have and shall extend, upon the same terms and conditions, to each person, if
any, who controls any Manager within the meaning of the Act; and the
obligations of the Managers under this Section shall be in addition to any
liability which the respective Managers may otherwise have and shall extend,
upon the same terms and conditions, to each director of the Company, to each
officer of the Company who has signed a Registration Statement and to each
person, if any, who controls the Company within the meaning of the Act.
8. Default of Managers. If any Manager or Managers default in their
obligations to purchase International Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of
International Securities that such defaulting Manager or Managers agreed but
failed to purchase does not exceed 10% of the total number of shares of
International Securities that the Managers are obligated to purchase on such
Closing Date, CSFBL may make arrangements satisfactory to the Company and
Chrysler for the purchase of such International Securities by other persons,
including any of the Managers, but if no such arrangements are made by such
Closing Date the non-defaulting Managers shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the
International Securities that such defaulting Managers agreed but failed to
purchase on such Closing Date. If any Manager or Managers so default and the
aggregate number of shares of International Securities with respect to which
such default or defaults occur exceeds 10% of the total number of shares of
International Securities that the Managers are obligated to purchase on such
Closing Date and arrangements satisfactory to CSFBL, the Company and Chrysler
for the purchase of such International Securities by other persons are not made
within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Manager, the Company or Chrysler,
except as provided in Section 9 (provided that if such default occurs with
respect to Optional Securities after the First Closing Date, this Agreement
will not terminate as to the International Firm Securities or any Optional
Securities purchased prior to such termination). As used in this Agreement,
the term "Manager" includes any person substituted for a Manager under this
Section. Nothing herein will relieve a defaulting Manager from liability for
its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of
Chrysler, of the Company or its officers and of the several Managers set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation, or statement as to the results thereof, made
by or on behalf of any Manager, the Company or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the International Securities. If this
Agreement is terminated pursuant to Section 8 or if for any reason the purchase
of the International Securities by the Managers is not consummated, Chrysler
and the Company shall remain responsible for the expenses to be paid or
reimbursed by it pursuant to Section 5 and the respective obligations of the
Company, Chrysler and the Managers pursuant to Section 7 shall remain in effect
and if any International Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect. If the purchase of the International Securities
by the Managers is not consummated for any reason other than solely because of
the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in Section 6(c)(A) or clause (iii), (iv), or (v) of Section
6(c)(B), Chrysler and the Company will reimburse the Managers for all
out-of-pocket expenses (including fees and disbursements of counsel) reasonably
incurred by them in connection with the offering of the International
Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Managers, will be mailed, delivered or telexed and confirmed to
CSFBL at One Cabot Square, London E14 4QJ England, Attention: Company
Secretary, or, if sent to the Company, will be mailed, delivered or telegraphed
and confirmed to it at 5330 East 31st Street, Tulsa, Oklahoma 74135, Attention:
Mr. Steven B. Hildebrand, or, if sent to Chrysler, will be mailed, delivered or
telegraphed and confirmed to it at 1000 Chrysler Drive, Auburn Hills, Michigan
48326-2766,
15
<PAGE> 16
Attention: Richard D. Houtman, Esq.; provided, however, that any notice to a
Manager pursuant to Section 7 will be mailed, delivered or telexed and
confirmed to such Manager.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 7, and no
other person will have any right or obligation hereunder.
12. Representation of Managers. CSFBL will act for the several Managers
in connection with this financing, and any action under this Agreement taken by
CSFBL will be binding upon all the Managers.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company and Chrysler hereby submit to the non-exclusive jurisdiction
of the Federal and state courts in the Borough of Manhattan in The City of New
York in any suit or proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby.
16
<PAGE> 17
If the foregoing is in accordance with the Managers' understanding of our
agreement, kindly sign and return to each of the Company and Chrysler one of
the counterparts hereof, whereupon it will become a binding agreement between
Chrysler, the Company and the several Managers in accordance with its terms.
Very truly yours,
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
By___________________________________
Name:
Title:
CHRYSLER CORPORATION
By___________________________________
Name:
Title:
The foregoing Subscription Agreement is hereby
confirmed and accepted as of the date first
above written.
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
GOLDMAN SACHS INTERNATIONAL
J.P. MORGAN SECURITIES LTD.
SMITH BARNEY INC.
As Managers
BY CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
By:________________________________
Name:
Title:
17
<PAGE> 18
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF INTERNATIONAL FIRM
SECURITIES TO BE SOLD BY
------------------------------
TOTAL NUMBER OF
INTERNATIONAL FIRM SECURITIES
MANAGER COMPANY CHRYSLER TO BE PURCHASED
- ------------------------------------------- -------------- -------------- --------------------
<S> <C> <C> <C>
Credit Suisse First Boston (Europe) Limited
Goldman Sachs International
J.P. Morgan Securities Ltd.
Smith Barney Inc.
-------------- -------------- -------------
Total...................................... 3,375,000
============== ============== =============
</TABLE>
18
<PAGE> 19
SCHEDULE B
SUBSIDIARIES OF THE COMPANY
Dollar Rent-A-Car Systems, Inc.
Thrifty Rent-A-Car System, Inc.
Rental Car Finance Corp.
Thrifty Canada, Ltd.
Pentastar Services, Inc.
19
<PAGE> 20
SCHEDULE C
OFFICERS AND DIRECTORS OF THE COMPANY SUBJECT TO LOCK-UP AGREEMENTS
Joseph E. Cappy
Donald M. Himelfarb
Gary L. Paxton
Steven B. Hildebrand
<PAGE> 1
EXHIBIT 4.1
COMMON STOCK
COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE
IN CHICAGO, IL AND NEW YORK, NY
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 256743 10 5
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
THIS IS TO CERTIFY THAT
is the owner of
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
transferable on the books of the Corporation by the registered holder hereof in
person or by duly authorized attorney, upon surrender of this certificate
properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
TRANSFER AGENT
AND REGISTRAR
<PAGE> 2
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
COM PROP - husband and wife as community property
UNIF GIFT MIN ACT - ______________ Custodian _______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act_____________________
(State)
UNIF TRF MIN ACT - _______________ Custodian (until age ____)
(Cust)
____________ under Uniform Transfers
(Minor)
to Minors Act_________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________
________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________________
_________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-16.
===================================
AMERICAN BANK NOTE COMPANY
880 BLAIR MILL ROAD
HORSHAM, PA 19044
(215) 657-3480
- ------------------------------------
SALES: GEORGE BEEHLER: 212-557-9100
- ------------------------------------
NET BANKNOTE/HOME51/DOLLAR/H54009
====================================
======================================================
PRODUCTION COORDINATOR; TRICIA O'CONNOR: 215-830-2154
PROOF OF DECEMBER 6, 1997
DOLLAR THRIFTY
H 54009bk
- ------------------------------------------------------
OPERATOR eg
- ------------------------------------------------------
NEW
======================================================
<PAGE> 3
BY
AUTHORIZED SIGNATURE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------o_
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------o_
~
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------~
<PAGE> 1
EXHIBIT 5
[Debevoise & Plimpton Letterhead]
December 16, 1997
Dollar Thrifty Automotive Group, Inc.
5330 East 31st Street
Tulsa, Oklahoma 74135
Registration Statement on Form S-1
(Registration No. 333-39661)
Ladies and Gentlemen:
We have acted as counsel to Dollar Thrifty Automotive Group, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "1933 Act"), of a Registration Statement
on Form S-1 (Registration No. 333-39661) (the "Registration Statement"),
relating to 22,500,000 shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock"), being offered by the Company, and an additional
3,375,000 shares solely to cover over-allotments (collectively, the "Shares").
In so acting, we have examined and relied upon the originals, or
copies certified or otherwise identified to our satisfaction, of such records,
documents, certificates and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below.
<PAGE> 2
Dollar Thrifty Automotive 2 December 16, 1997
Group, Inc.
Based upon the foregoing, we are of the opinion that, upon issuance
and delivery of the Shares and payment therefor in the manner described in the
Registration Statement and in accordance with the terms of the underwriting
agreements (the forms of which are being filed as Exhibits 1.1 and 1.2 to the
Registration Statement), the Shares will be duly authorized, validly issued and
outstanding, and fully paid and non-assessable.
Our opinion expressed above is limited to the laws of the State of
New York, the corporate laws of the State of Delaware and the Federal laws of
the United States of America.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the use of our name under the caption "LEGAL
MATTERS" in the Prospectus. In giving such consent, we do not thereby concede
that we are within the category of persons whose consent is required under
Section 7 of the 1933 Act or the Rules and Regulations of the Commission
thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
-----------------------------
<PAGE> 1
EXHIBIT 10.12
Chrysler Corporation
1000 Chrysler Drive
Auburn Hills, Michigan 48326-2766
December __, 1997
[date of Pricing]
Dollar Thrifty Automotive Group, Inc.
5330 East 31st Street
Tulsa, Oklahoma 74153
Attention: Joseph E. Cappy
Chief Executive Officer
Gentlemen:
Chrysler Corporation ("Chrysler") hereby confirms its agreement
with Dollar Thrifty Automotive Group, Inc. (the "Company"), with respect to
certain matters relating to the sale by Chrysler and the Company of shares of
common stock, par value $.01 per share, of the Company pursuant to the U.S.
Underwriting Agreement (the "U.S. Underwriting Agreement") entered into as of
the date hereof by and among the Company, Chrysler and Credit Suisse First
Boston Corporation, Goldman, Sachs & Co., J.P. Morgan Securities Inc. and
Smith Barney Inc. (collectively, the "Underwriters") and pursuant to the
Subscription Agreement (the "Subscription Agreement" and, together with the
U.S. Underwriting Agreement, the "Underwriting Agreements") entered into as of
the date hereof by and among the Company and Credit Suisse First Boston
(Europe) Limited, Goldman Sachs International, J.P. Morgan Securities Ltd. and
Smith Barney Inc. (collectively, the "Managers").
Terms used but not defined herein shall have the meanings ascribed
to them in the Underwriting Agreements.
1. Indemnification of Chrysler by the Company. The Company
agrees to indemnify and hold harmless Chrysler and its officers and directors:
<PAGE> 2
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, insofar as such loss, liability,
claim, damage and expense arises out of any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement and any Additional Registration Statement, and
any amendment thereto (collectively, the "Registration Statements"),
including all information (if any) deemed to be part of the Initial
Registration Statement pursuant to Rule 430A(b) under the Act (the
"Rule 430A Information"), or arise out of or are based upon the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any related preliminary
U.S. or international prospectus or the Prospectuses (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission; and
(iii) against any and all expense whatsoever (including,
subject to Section 3 below, fees and disbursements of counsel), as
incurred, reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under subparagraph (i) or (ii) above;
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense described above made in reliance upon and in conformity
with (x) Chrysler Information (as defined below) or (y) information provided by
or on behalf of the Underwriters or the Managers expressly for use in any of the
Registration Statements (or any amendment thereto), including any Rule 430A
Information, or any related preliminary U.S. or international prospectus or U.S.
or International Prospectus (or any amendment or supplement thereto).
2. Indemnification of the Company by Chrysler. Chrysler
agrees to indemnify and hold harmless the Company and its officers and directors
controls the
2
<PAGE> 3
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in Section 1 as incurred by the indemnities of this
paragraph 2, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in any of the Registration Statements (or
any amendment thereto), including any Rule 430A Information, or any related
preliminary U.S. or international prospectus or the Prospectuses (or any
amendment or supplement thereto) in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of Chrysler
expressly for use in any of the Registration Statements (or any amendment
thereto), including any Rule 430A Information, or any related preliminary U.S.
or international prospectus or the Prospectuses (or any amendment or supplement
thereto). The Company acknowledges that certain statements in a letter from
Chrysler to the Company dated the date hereof have been furnished by Chrysler to
the Company for use in the U.S. and International Prospectuses and constitute
the only information furnished in writing by or on behalf of Chrysler for
inclusion in any of the Registration Statements or the Prospectuses (the
"Chrysler Information").
3. Actions against Parties: Notification. Each indemnified
party shall give notice as promptly as reasonably practicable to the
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify the indemnifying
party shall not relieve such indemnifying party from any liability hereunder
unless and to the extent it did not otherwise learn of such action and such
failure results in forfeiture by the indemnifying party of substantial rights
and defenses and in any event shall not relieve it from any liability which it
may have otherwise than on account of this Agreement. In case any such action
is brought against any indemnified party and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party hereunder for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. It is understood that the indemnifying party shall not, in
connection with any one such action or proceeding or separate but substantially
similar actions or proceedings arising out of the same general allegations, be
liable for the fees and expenses of more than one separate firm of lawyers at
any time for all indemnified parties, except (i) to the extent that local
lawyers, in addition to the indemnified party's normal lawyers, are required in
order to defend effectively against such action or proceeding and (ii) to the
extent that any indemnified party shall have been advised by counsel that
representation of such indemnified party by one separate firm of lawyers
representing all indemnified parties would be inappropriate due to actual or
potential conflicting interests between such
3
<PAGE> 4
indemnified party and one or more of the other indemnified parties, including,
without limitation, if one or more legal defenses available to such indemnified
party are different from or additional to those available to one or more of the
other indemnified parties. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
4. Settlement Without Consent if Failure to Reimburse. If at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 1(ii) effected without its written consent if
(i) such settlement is entered into more than 60 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 45 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement. Notwithstanding the immediately preceding
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, an indemnifying party shall not be liable for any settlement of the
nature contemplated by Section 1(ii) effected without its consent if such
indemnifying party (i) reimburses such indemnified party in accordance with
such request to the extent it considers such request to be reasonable and (ii)
provides written notice to the indemnified party substantiating the unpaid
balance as unreasonable, in each case prior to the date of such settlement.
5. Contribution. If the indemnification provided for above
is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, or damages
referred to therein, then the indemnifying party shall contribute to the
aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, in such proportion as is
appropriate to reflect the relative fault of each of the Company and Chrysler
in connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations.
The relative fault of the Company and Chrysler shall be determined
by reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or Chrysler and
the parties' relative intent,
4
<PAGE> 5
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
5 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any untrue or
alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 5, Chrysler (A)
shall not be required to make any contribution pursuant to this Section 5
unless the loss, liability, claim, damage or expenses for which an indemnified
party seeks contribution arises out of an untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with Chrysler Information and (B) shall not be required to contribute any
amount in excess of the amount of the total gross proceeds received by Chrysler
from the Offered Securities purchased from Chrysler pursuant to the
Underwriting Agreements.
6. Representations and Warranties. (a) The Company
represents and warrants that it has the corporate power and authority to enter
into this Agreement which has been duly authorized, executed and delivered by
it; and Chrysler represents and warrants that it has the power and authority to
enter into this Agreement which has been duly authorized, executed and
delivered by it.
(b) Each of the Company and Chrysler represents and warrants
that no filing with, or authorization, approval, consent, license or order of,
any court or governmental authority or agency is necessary or required for the
performance by it of its obligations under this Agreement.
(c) Each of the Company and Chrysler represents and warrants
that the execution and delivery of this Agreement and compliance with the
obligations assumed herein do not and will not conflict with or constitute a
breach of, or default under, or result in the imposition of any lien, charge or
encumbrance upon any of its property or assets, under any agreement to which it
is currently a party or breach or result in a violation under any applicable
law, rule, regulation, judgment, order or decree of any governmental authority
or court having jurisdiction over it.
7. Other Agreements.
5
<PAGE> 6
(a) Any term of provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(b) Any notices required by this Agreement shall be deemed to
have been duly given if mailed or transmitted in accordance with Section 10 of
the Underwriting Agreements.
(c) This Agreement shall inure to the benefit of and be
binding upon the Company and Chrysler and their respective successors.
(d) The Company and Chrysler hereby submit to the nonexclusive
jurisdiction of the Federal and state courts in the Borough of Manhattan in The
City of New York in any suit or proceeding arising out of or relating to this
Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS.
(f) The Company agrees to use its best efforts to implement
the Commercial Paper Program and the Liquidity Facility (as such terms are
defined in the Prospectuses) during the first quarter of 1998.
(g) The Company and Chrysler agree further to indemnify each
other as to any loss resulting in any judgment or order being paid in a
currency (the "Judgment Currency") other than U.S. dollars as a result of any
variation as between (i) the spot rate of exchange in New York at which the
Judgment Currency would have been convertible into U.S. dollars as of the date
such judgment or order is entered, and (ii) the spot rate of exchange
(including any premiums and costs of exchange) at which the indemnified party
is first able to purchase U.S. dollars with the amount of the Judgment
Currency actually received by the indemnified party.
(h) No waiver, amendment or other modification of this letter
agreement shall be effective unless in writing and signed by each party hereto.
6
<PAGE> 7
(i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
Very truly yours,
CHRYSLER CORPORATION
By:__________________________________________
Title:
The foregoing agreement
is hereby agreed and
accepted as of the date
first above written.
DOLLAR THRIFTY AUTOMOTIVE GROUP, INC.
By:____________________________
Title:
7
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-39661 of Dollar Thrifty Automotive Group, Inc. and subsidiaries (successor
to Pentastar Transportation Group, Inc. and subsidiaries) on Form S-1 of our
report dated November 6, 1997, appearing in the Prospectus, which is part of
this Registration Statement, and of our report dated November 6, 1997 relating
to the financial statement schedule appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
December 16, 1997
Tulsa, Oklahoma