<PAGE> 1
Pursuant to Rule 424(b)(5)
Registration No. 33-54183
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 6, 1997)
[HERTZ LOGO]
THE HERTZ CORPORATION
$150,000,000
7% Senior Notes due May 1, 2002
Interest payable May 1 and November 1
ISSUE PRICE: 99.779%
Interest on the 7% Senior Notes due May 1, 2002 (the "Notes") is payable
semiannually on May 1 and November 1 of each year, beginning November 1, 1997.
The Notes will not be redeemable prior to maturity and will not be subject to
any sinking fund. The Notes will be represented by a Global Note (as defined
herein) registered in the name of The Depository Trust Company (the
"Depository") or its nominee. Interests in the Global Note will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depository and its participants. Except as described herein, Notes in definitive
form will not be issued. See "Description of Notes."
Settlement for the Notes will be made in immediately available funds. So long as
the Notes are represented by the Global Note registered in the name of the
Depository or its nominee, the Notes will trade in the Depository's Same-Day
Funds Settlement System, and secondary market trading activity in the Notes will
therefore settle in immediately available funds. So long as the Notes are
represented by the Global Note, all payments of principal and interest will be
made by The Hertz Corporation (the "Corporation") in immediately available
funds. See "Description of Notes -- Same-Day Settlement and Payment" in this
Prospectus Supplement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) CORPORATION(1)(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note 99.779% .450% 99.329%
- --------------------------------------------------------------------------------------------------------
Total $149,668,500 $675,000 $148,993,500
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from May 9, 1997.
(2) The Corporation has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting expenses payable by the Corporation.
The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriters, and subject to approval of certain legal matters by Brown & Wood
LLP, counsel for the Underwriters. It is expected that delivery of the Notes
will be made in book-entry form only on or about May 9, 1997 through the
facilities of the Depository, against payment therefor in immediately available
funds.
J.P. MORGAN & CO.
CHASE SECURITIES INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS
MERRILL LYNCH & CO.
May 6, 1997
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES TO COVER
UNDERWRITERS' SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus Supplement or the Prospectus and, if given or made, such information
or representations must not be relied upon as having been authorized. This
Prospectus Supplement and the Prospectus do not constitute an offer to sell or
the solicitation of an offer to buy any securities other than the securities to
which they relate or any offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus Supplement or the Prospectus
nor any sale made hereunder or thereunder shall, under any curcumstances, create
any implication that the information contained herein or therein is correct as
of any time subsequent to the date of such information.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Description of Notes................................................................... S-3
Underwriting........................................................................... S-4
PROSPECTUS
Available Information.................................................................. 2
Incorporation of Certain Documents by Reference........................................ 2
The Corporation........................................................................ 3
Use of Proceeds........................................................................ 3
Selected Consolidated Financial Data of the Corporation................................ 4
Certain Relationships.................................................................. 6
Description of Debt Securities......................................................... 7
Plan of Distribution................................................................... 18
Legal Opinions......................................................................... 19
Experts................................................................................ 19
</TABLE>
S-2
<PAGE> 3
DESCRIPTION OF NOTES
GENERAL
The Notes are to be issued as a series of Senior Debt Securities under the
Indenture, dated as of December 1, 1994 (the "Indenture") between the
Corporation and First Union National Bank (formerly First Fidelity Bank,
National Association), as Trustee (the "Trustee"), which is more fully described
in the accompanying Prospectus.
The Notes will bear interest at an annual rate of 7%. Interest on the Notes will
accrue from May 9, 1997 and will be payable semiannually on each May 1 and
November 1, commencing November 1, 1997, to the persons in whose names the Notes
are registered on the April 15 and October 15 next preceding such May 1 and
November 1, respectively. Principal and interest payable with respect to
certificated Notes, if any, will be payable at an office to be maintained by the
Corporation in The City of New York, except that, at the option of the
Corporation, interest payable with respect to such certificated Notes may be
paid by check mailed to the person entitled thereto.
The Notes will not be subject to redemption by the Corporation or repayment at
the option of the holder prior to maturity and are not entitled to any sinking
fund. Beneficial interests in the Notes may be acquired, or subsequently
transferred, only in denominations of $1,000 and integral multiples thereof.
The Notes are a new issue of securities with no established trading market and
will not be listed on any securities exchange. No assurance can be given as to
the existence or liquidity of a secondary market for the Notes.
BOOK-ENTRY
Upon issuance, all Notes will be represented by one or more fully registered
global securities.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Global Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest on the Notes will be
made by the Corporation in immediately available funds so long as the Notes are
maintained in book-entry form.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in the Depository's Same-Day Funds Settlement System and secondary
trading activity in the Notes will therefore be required by the Depository to
settle in immediately available funds. No assurance can be given as to the
effect, if any, of settlement in immediately available funds on trading activity
in the Notes.
S-3
<PAGE> 4
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement dated
as of May 6, 1997 (the "Underwriting Agreement"), the Corporation has agreed to
sell to each of the Underwriters named below (the "Underwriters"), and each of
the Underwriters has severally agreed to purchase, the principal amount of the
Notes set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF UNDERWRITER OF NOTES
<S> <C>
J.P. Morgan Securities Inc.................................................. $ 30,000,000
Chase Securities Inc. ...................................................... 30,000,000
Goldman, Sachs & Co. ....................................................... 30,000,000
Lehman Brothers Inc. ....................................................... 30,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................... 30,000,000
------------
Total........................................................... $150,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Underwriters
are obligated to take and pay for all of the Notes if any are taken.
The Underwriters initially propose to offer the Notes directly to the public at
the public offering price set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such price less a concession not in excess
of 0.25% of the principal amount of the Notes. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of 0.20% of the principal
amount of the Notes to certain other dealers. After the initial public offering,
the public offering price and such concessions may be changed.
The Corporation does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by the Underwriters that they intend
to make a market in the Notes. The Underwriters are not obligated, however, to
make a market in the Notes and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading for the
Notes.
The Corporation has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Underwriters may engage in certain transactions that stabilize the price of
the Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
If the Underwriters create a short position in the Notes in connection with the
offering, i.e., if they sell more Notes than are set forth on the cover page of
this Prospectus Supplement, the Underwriters may reduce that short position by
purchasing the Notes in the open market.
In general, purchases of a security for the purpose of stabilization or to cover
a short position could cause the price of the Notes to be higher than it might
be in the absence of such purchases.
Neither the Corporation nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Corporation nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
In the ordinary course of their respective businesses, the Underwriters and
their respective affiliates have engaged and may in the future engage in
investment banking and/or commercial banking transactions with the Corporation
and its affiliates.
S-4
<PAGE> 5
PROSPECTUS
[HERTZ LOGO]
THE HERTZ CORPORATION
Debt Securities
------------------------
The Hertz Corporation (the "Corporation") may offer from time to time in one or
more series its unsecured debt securities (the "Debt Securities"), which may be
senior (the "Senior Debt Securities"), senior subordinated (the "Senior
Subordinated Debt Securities") or junior subordinated (the "Junior Subordinated
Debt Securities") in priority of payment. The aggregate offering price of Debt
Securities offered hereby will not exceed $400,000,000. The Debt Securities may
be offered as separate series in amounts, at prices and on terms to be
determined at the time of sale and to be set forth in supplements to this
Prospectus.
The Debt Securities may be denominated in and sold for U.S. dollars, foreign
currency or ECU, and principal of and any interest on the Debt Securities may
likewise be payable in U.S. dollars, foreign currency or ECU. The currency for
which the Debt Securities may be purchased and the currency in which principal
of and any interest on the Debt Securities may be payable will be specifically
designated by the Corporation. The specific designation, priority of payment,
aggregate principal amount, authorized denominations, maturity, rate or method
of calculation and time of payment of any interest, purchase price, any
redemption terms, other special terms, and any listing on a securities exchange
of the Debt Securities in respect of which this Prospectus is being delivered,
and the net proceeds to the Corporation from the sale thereof, will be set forth
in an accompanying Prospectus Supplement (the "Prospectus Supplement").
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The Debt Securities will be sold directly or through agents designated from time
to time or through underwriters or dealers or a group of underwriters. If agents
of the Corporation or underwriters are involved in the sale of the Debt
Securities in respect of which this Prospectus is being delivered, the names of
such agents or underwriters and any applicable commissions or discounts shall be
set forth in the Prospectus Supplement with respect to such Debt Securities.
May 6, 1997
<PAGE> 6
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information filed by the Corporation can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 5th Street, N.W., Washington, D.C. 20549, and
at the following Regional Offices of the Commission: Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621; and New York Regional Office, Seven World Trade Center, New
York, New York 10048. Copies of such materials can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 5th Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web site
at http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Corporation. Copies of such materials may also be
inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Corporation's Annual Report on Form 10-K for the year ended December 31,
1996, its Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and
its Current Reports on Form 8-K dated February 28, 1997 and May 1, 1997 are
hereby incorporated by reference into this Prospectus.
All documents subsequently filed by the Corporation pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the Debt Securities shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus and the Prospectus Supplement to the extent that a statement
contained herein, therein or in any other subsequently filed document which also
is incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or the Prospectus Supplement.
The Corporation will provide without charge to each person to whom this
Prospectus is delivered, on written or oral request of such person, a copy
(without exhibits) of any or all documents incorporated by reference into this
Prospectus. Requests for such copies should be directed to The Hertz
Corporation, Attention: Investor Relations, at its mailing address or its
telephone number.
The mailing address of the Corporation's principal executive office is 225 Brae
Boulevard, Park Ridge, New Jersey 07656-0713 and its telephone number is (201)
307-2000.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THE DELIVERY OF THIS PROSPECTUS AND ANY
PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF ANY PROSPECTUS
SUPPLEMENT.
2
<PAGE> 7
THE CORPORATION
The Corporation and its affiliates and independent licensees operate what the
Corporation believes is the largest car rental business in the world based upon
revenues and volume of rental transactions and the largest industrial and
construction equipment rental business in the United States based upon revenues.
The Corporation's "Hertz" brand name is recognized worldwide as a leader in
quality rental and leasing services and products. The Corporation, together with
its affiliates and independent licensees, rents and leases cars, rents
industrial and construction equipment and operates its other businesses from
approximately 5,500 locations throughout the United States and in approximately
140 foreign countries and jurisdictions.
On April 30, 1997, the Corporation issued and sold 20,010,000 shares of its
Class A Common Stock in an initial public offering ("Offering"). After the
Offering, Ford Motor Company ("Ford") beneficially owns (i) 49.4% of the
outstanding Class A Common Stock (which has one vote per share) and (ii) 100% of
the outstanding Class B Common Stock of the Corporation (which has five votes
per share). The common stock beneficially owned by Ford represents in the
aggregate 94.5% of the combined voting power of all of the Corporation's
outstanding common stock. Accordingly, Ford is able to direct the election of
all of the members of the Corporation's Board of Directors and to exercise a
controlling influence over the business and affairs of the Corporation. At March
31, 1997, approximately $25 million of the Corporation's consolidated
stockholders' equity was free of dividend limitations pursuant to its existing
debt agreements. Immediately following the initial public offering, the
Corporation was permitted to pay approximately $349 million in dividends under
its existing debt agreements.
In July 1996, the Corporation was sued in Harris County, Texas District Court in
a purported class action in which the plaintiff alleges that the Corporation's
practice of providing certain insurance products violates the Texas Insurance
Code because the Corporation did not obtain approval to sell insurance or obtain
regulatory approval of the premiums it charges. The complaint sought restitution
of excessive premiums, equitable rescission of all insurance contracts entered
into by the class members, a declaratory judgment that the Corporation is
selling insurance illegally in Texas and injunctive relief. On May 5, 1997, the
Court held that the providing of excess liability insurance during the rental
process by unlicensed customer service representatives constitutes a violation
of the Texas Insurance Code. The Court granted class action status to the
litigation; however, the Court dismissed plaintiff's claim for equitable
rescission of all the insurance contracts and set the matter for trial on the
issue of whether the Corporation's failure to have its customer service agents
licensed had resulted in excessive premiums paid by class members. While it is
possible that the action could result in significant liability to the
Corporation, the Corporation does not expect the action to have a material
adverse effect on the Corporation's consolidated financial position or results
of operations.
USE OF PROCEEDS
The net proceeds from the sale of the Debt Securities will be added to the
general funds of the Corporation. It is anticipated that the proceeds will be
used for general corporate purposes and to reduce short-term borrowings. The
Corporation expects to issue additional long-term and short-term debt, and the
proportionate amounts of each can be expected to vary from time to time as a
result of business requirements, market conditions and other factors.
3
<PAGE> 8
SELECTED CONSOLIDATED FINANCIAL DATA OF THE CORPORATION
(IN MILLIONS OF DOLLARS)
The following table presents selected consolidated financial information of the
Corporation, which is unaudited for the three months ended March 31, 1997 and
1996, and which is extracted from the audited financial statements for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992. The operating results for
the three months ended March 31, 1997 and 1996 include all adjustments
(consisting only of normal recurring adjustments) that the Corporation considers
necessary for a fair presentation of the results for such interim periods. The
interim results are not necessarily an indication of the results for the full
year. The information in the table and notes thereto should be read in
conjunction with the financial statements and the related notes thereto
contained in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996 and its Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
<TABLE>
<CAPTION>
Three Months
Ended March 31, Years Ended December 31,
------------------- ----------------------------------------------------
Dollars in millions (except ratios) 1997 1996 1996 1995 1994 1993 1992
- ---------------------------------------- -------- -------- -------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues
Car rental.............................. $ 758.5 $ 690.7 $3,161.6 $2,911.7 $2,581.2 $2,177.5 $2,124.1
Industrial and construction
equipment rental...................... 90.3 77.1 392.3 332.3 263.1 215.8 208.8
Car leasing............................. 11.7 8.7 35.4 35.6 231.4 209.3 241.0
Other(a)................................ 17.9 26.6 79.0 121.0 218.7 252.2 242.3
-------- -------- -------- -------- -------- -------- --------
Total revenues...................... 878.4 $ 803.1 3,668.3 3,400.6 3,294.4 2,854.8 2,816.2
-------- -------- -------- -------- -------- -------- --------
Expenses
Direct operating........................ 444.1 423.8 1,795.1 1,724.8 1,766.2 1,647.1 1,627.5
Depreciation of revenue earning
equipment(b).......................... 218.5 192.4 892.7 803.9 702.7 523.9 496.8
Selling, general and administrative..... 108.6 104.4 425.2 392.5 385.5 336.0 353.3
Interest, net of interest income of
$4.6, $2.8, $10.4, $16.8, $7.2, $11.3
and $3.6(c)........................... 73.3 67.3 298.8 307.1 277.2 245.4 306.9
-------- -------- -------- -------- -------- -------- --------
Total expenses...................... 844.5 787.9 3,411.8 3,228.3 3,131.6 2,752.4 2,784.5
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.............. 33.9 15.2 256.5 172.3 162.8 102.4 31.7
Provision for taxes on income(d)........ 14.2 6.4 97.9 67.1 71.7 49.0 21.7
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect of
change in accounting principle........ 19.7 8.8 158.6 105.2 91.1 53.4 10.0
Cumulative effect on prior years of
change in method of accounting for
postretirement benefits(e)............ -- -- -- -- -- -- (4.3)
-------- -------- -------- -------- -------- -------- --------
Net income.............................. $ 19.7 $ 8.8 $ 158.6 $ 105.2 $ 91.1 $ 53.4 $ 5.7
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges(f)... 1.4 1.2 1.7 1.4 1.4 1.3 1.1
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA AT END OF PERIOD
Total assets............................ $7,848.7 $7,275.5 $7,649.2 $6,656.6 $6,520.8 $4,688.5 $4,222.0
Total debt.............................. 5,615.9 4,925.3 5,091.8 4,297.5 4,413.9 2,940.5 2,549.9
Stockholders' equity.................... 662.8 840.2 989.4 836.3 735.9 616.7 579.5
Ratio of total debt to stockholders' 8.5 5.9 5.1 5.1 6.0 4.8 4.4
equity(g).............................
</TABLE>
- ---------------
(a) Includes fees from licensees (other than expense reimbursement from
licensees), revenue from claim management and telecommunications services and
prior to 1995, revenues from a car dealership operation in Europe.
(b) For 1996, 1995, 1994, 1993 and 1992 includes net credits of $23.2 million,
$6.4 million, $23.0 million, $28.1 million and $16.9 million, respectively, and
for the three months ended March 31, 1997 and 1996 includes net charges of $4.1
million and net credits of $7.0 million, respectively, primarily from net
proceeds received in excess of book value on the disposal of revenue earning
equipment, except for the three months ended
4
<PAGE> 9
March 31, 1997, such net proceeds received were lower than the book value on the
disposal of revenue earning equipment. Effective January 1, 1997 and July 1,
1994, certain estimated useful lives being used to compute the provision for
depreciation of revenue earning equipment used in the industrial and
construction equipment rental business were increased to reflect changes in the
estimated residual values to be realized upon disposal of the equipment. As a
result of these changes, depreciation of revenue earning equipment for the three
months ended March 31, 1997, the year 1995 and the year 1994 decreased by $2.4
million, $12.0 million and $9.6 million, respectively.
(c) For the three months ended March 31, 1997, includes interest expense of $2.3
million incurred relating to funding the $460 million dividend paid in 1997 by
the Corporation on its common stock to Ford Motor Company.
(d) Includes credits of $13.9 million, $2.0 million and $9.8 million for the
years 1996, 1993 and 1992, respectively, resulting from adjustments made to tax
accruals in connection with tax audit evaluations and the effects of prior
years' tax-sharing arrangements between the Corporation and its former parent
companies, UAL Corporation and RCA Corporation. For the year 1995, includes $6.5
million of credits relating to foreign taxes which were offset against U.S.
income tax liabilities. For the year 1993, includes a $1.1 million charge
relating to the increase in net deferred tax liabilities as of January 1, 1993
due to changes in the tax laws enacted in August 1993.
(e) Effective January 1, 1992, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, which requires that postretirement
health care and other non-pension benefits be accrued during the years the
employee renders the necessary service.
(f) Earnings have been calculated by adding interest expense and the portion of
rentals estimated to represent the interest factor to income before income
taxes. Fixed charges include interest charges (including capitalized interest)
and the portion of rentals estimated to represent the interest factor.
(g) After giving effect to (i) the Corporation issuing and selling 20,010,000
shares of its Class A Common Stock in an initial public offering and receiving
net proceeds of $454 million from the sale, (ii) the Corporation redeeming its
1,290 shares of Series C Preferred Stock for $130 million, and (iii) using the
net proceeds received from the initial public offering to pay down the
Corporation's notes payable, all on April 30, 1997, the ratio of total debt to
stockholders' equity of the Corporation would be 5.2.
5
<PAGE> 10
CERTAIN RELATIONSHIPS
In February 1997, Ford extended to the Corporation a line of credit of $500
million, expiring June 30, 1999, and the revolving loan agreement between the
Corporation and Ford dated June 8, 1994 was terminated. This line of credit has
an evergreen feature that provides on an annual basis for automatic one-year
extensions of the expiration date, unless timely notice is provided by Ford at
least one year prior to the then scheduled expiration date. At March 31, 1997,
the Corporation and a subsidiary had $268.9 million of outstanding loans from
Ford.
Over the three years ended December 31, 1996, on a weighted average basis,
approximately 66% of the cars acquired by the Corporation for its U.S. rental
car fleet, and approximately 33% of the cars acquired by the Corporation for its
international fleet, were manufactured by Ford. During 1996, approximately 64%
of the cars acquired by the Corporation domestically were manufactured by Ford.
The percentage of Ford cars acquired by the Corporation for its U.S. rental car
fleet is expected to remain at these or higher levels in the future. In 1996,
approximately 28% of the cars acquired by the Corporation for its international
fleet were manufactured by Ford, which represented the largest percentage of any
automobile manufacturer in that year. See Note 7 to the "Notes to Consolidated
Financial Statements" in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996.
The Corporation and Ford have entered into a car supply agreement (the "Car
Supply Agreement") for a term of ten years commencing on September 1, 1997.
Under the Car Supply Agreement, Ford and the Corporation have agreed to
negotiate in good faith on an annual basis with respect to the supply of cars.
Ford has agreed to supply to the Corporation and the Corporation has agreed to
purchase from Ford, for each car model year during the term of the agreement
(i.e., the 1998 model year through the 2007 model year), (a) the lesser of
150,000 cars or 55% of the Corporation's fleet requirements for its car rental
business conducted in the United States; (b) 35% of the Corporation's fleet
requirements for its car rental business conducted in Europe; and (c) 55% of the
Corporation's fleet requirements for its car rental business conducted other
than in the United States and Europe. For each model year, at least 50% of the
cars supplied by Ford are required to be non-risk cars. The Car Supply Agreement
also provides that, for each model year, Ford must strive to offer car fleet
programs to the Corporation on terms and conditions that are competitive with
terms and conditions for the supply of cars then being offered by other
automobile manufacturers to the Corporation and other daily car rental
companies. In addition, for each model year, Ford must supply cars to the
Corporation on terms and conditions that are no less favorable than those
offered by Ford to other daily car rental companies, excluding franchised Ford
vehicle dealers who rent cars.
The Corporation and Ford have entered into a joint advertising agreement (the
"Joint Advertising Agreement") for a term of ten years commencing on September
1, 1997. Under the Joint Advertising Agreement, Ford has agreed to pay to the
Corporation one-half of the Corporation's advertising costs, up to a limit of
$39 million for the first year and, for each year thereafter, a limit equal to
the prior year's limit adjusted for inflation, subject to a ceiling. In
addition, if for any year, one-half of the Corporation's advertising costs
exceed such limit and the Corporation has purchased from Ford a percentage of
its car fleet requirements for its car rental business conducted in the United
States for the corresponding model year (the "Ford Vehicle Share") equal to 58%
or more, then Ford will pay to the Corporation additional amounts for such
excess advertising costs. To be eligible for cost reimbursement under the Joint
Advertising Agreement, the advertising must meet certain conditions, including
the condition that it indicates that the Corporation features Ford vehicles in a
manner and with a prominence that is reasonably satisfactory to Ford. The Joint
Advertising Agreement further provides that if the Ford Vehicle Share for any
model year is less than 55%, Ford will not be obligated to pay the Corporation
any amount for its advertising costs for that year, except to the extent that
the Corporation's failure to achieve a 55% Ford Vehicle Share is attributable to
(a) Ford's failure to supply a sufficient quantity of cars for the Corporation
to achieve a 55% Ford Vehicle Share or (b) the fact that the terms and
conditions of Ford's car fleet programs offered to the Corporation were not
competitive with the terms and conditions for the supply of cars offered by
other automobile manufacturers to the Corporation and other daily car rental
companies. In no event, however, will Ford be required to pay any amount for the
Corporation's advertising costs for any year if the Ford Vehicle Share for the
corresponding model year is less than 40%.
See "The Corporation" above for information relating to Ford's controlling
influence over the business and affairs of the Corporation. See also the "Notes
to Consolidated Financial Statements" in the Corporation's Annual
6
<PAGE> 11
Report on Form 10-K for the year ended December 31, 1996 for additional
information relating to transactions involving Ford and the Corporation.
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities are to be issued under an indenture, dated as of
December 1, 1994 (the "Senior Indenture"), between the Corporation and First
Union National Bank (formerly First Fidelity Bank, National Association), as
Trustee (the "Senior Trustee"). The Senior Subordinated Debt Securities are to
be issued under an indenture, dated as of June 1, 1989 (the "Senior Subordinated
Indenture"), between the Corporation and The Bank of New York, as Trustee (the
"Senior Subordinated Trustee"). The Junior Subordinated Debt Securities are to
be issued under an indenture, dated as of July 1, 1993 (the "Junior Subordinated
Indenture"), between the Corporation and Citibank, N.A., as trustee (the "Junior
Subordinated Trustee"). The Senior Subordinated Indenture and the Junior
Subordinated Indenture are referred to herein collectively as the "Subordinated
Indentures," the Senior Subordinated Securities and the Junior Subordinated
Securities are referred to herein collectively as the "Subordinated Securities,"
and the Senior Subordinated Trustee and the Junior Subordinated Trustee are
referred to herein collectively as the "Subordinated Trustees."
A copy of the Senior Indenture, the Senior Subordinated Indenture and the Junior
Subordinated Indenture are exhibits to the Registration Statement of which this
Prospectus forms a part. The Senior Indenture, the Senior Subordinated Indenture
and the Junior Subordinated Indenture are sometimes referred to collectively as
the "Indentures" and the Senior Trustee, the Senior Subordinated Trustee and the
Junior Subordinated Trustee are sometimes referred to collectively as the
"Trustees."
The following summaries of certain provisions of the Indentures do not purport
to be complete and are subject to and are qualified in their entirety by
reference to all the provisions of the Indentures, including the definitions
therein of certain terms. References to Sections are applicable to each
Indenture, except (i) references to sections included under the caption
"Subordination of Senior Subordinated Debt Securities" are applicable to the
Senior Subordinated Indenture only, (ii) references to sections included under
the caption "Subordination of Junior Subordinated Debt Securities" are
applicable to the Junior Subordinated Indenture only, (iii) references to
sections included under the caption "Certain Covenants -- Dividend Restrictions
and Limitations on Certain Loans and Advances" are applicable to the
Subordinated Indentures only, and (iv) as otherwise expressly provided. The
following sets forth certain general terms and provisions of the Senior Debt
Securities, the Senior Subordinated Debt Securities and the Junior Subordinated
Debt Securities (together the "Debt Securities") offered hereby. Further terms
of the Debt Securities shall be set forth in applicable Prospectus Supplements.
GENERAL
The Debt Securities to be offered by this Prospectus are limited to $400,000,000
in aggregate principal amount. However, the Indentures do not limit the amount
of Debt Securities which can be issued thereunder and provide that additional
securities may be issued thereunder up to the aggregate principal amount which
may be authorized from time to time by the Corporation. (Section 301)
While the covenants contained in each Indenture may provide limited protection
to debt holders in the event of a highly leveraged transaction involving the
Corporation, the Indentures do not prohibit the incurrence of additional Senior,
Senior Subordinated or Junior Subordinated Debt. Subject to certain exceptions
described below under "Limitations on Secured Debt," outstanding Debt Securities
and other qualified indebtedness shall be secured equally and ratably (subject,
however, to applicable priorities of payment) with any additional Secured Debt
incurred by the Corporation. (Section 1004) Unless otherwise indicated in the
applicable Prospectus Supplement, the Debt Securities will not have the benefit
of any covenant requiring redemption or repurchase of the Debt Securities by the
Corporation, or adjustment to any terms of the Debt Securities, upon any change
in control or recapitalization of the Corporation.
Reference is made to the applicable Prospectus Supplement for the following
terms of the particular series of Debt Securities being offered thereby: (i) the
designation and any limitation on the aggregate principal amount
7
<PAGE> 12
of the series; (ii) whether the securities are Senior Debt Securities, Senior
Subordinated Debt Securities, or Junior Subordinated Debt Securities; (iii) the
currency or currencies for which Debt Securities may be purchased and currency
or currencies in which principal and any interest may be payable; (iv) if the
currency for which Debt Securities may be purchased or in which principal and
any interest may be payable is at the purchaser's election, the manner in which
such an election may be made; (v) the percentage of principal amount at which
the series will be issued; (vi) the date or dates on which the principal of the
series will be payable; (vii) the rate or rates per annum, if any, at which the
series will bear interest or the method of calculation thereof; (viii) the date
or dates from which any interest will accrue and the times at which any interest
will be payable; (ix) the place or places where the principal and interest, if
any, on Debt Securities of the series shall be payable; (x) the terms, if any,
on which Debt Securities of the series may be redeemed at the option of the
Corporation; (xi) the obligation, if any, of the Corporation to redeem, purchase
or repay Debt Securities of the series; (xii) the minimum denomination in which
Debt Securities of the series will be issued; (xiii) if other than the principal
amount, the portion of the principal amount of the Debt Securities of the series
that will be payable upon a declaration of acceleration of the maturity thereof;
(xiv) whether the Debt Securities of the series may be issuable in the form of
one or more global securities; and (xv) any other special terms.
Debt Securities may be issued as discounted Debt Securities (bearing no interest
or interest at a rate which at the time of issuance is below market rates) to be
sold at a substantial discount below their stated principal amount. Federal
income tax consequences and other special considerations applicable to any such
discounted Debt Securities will be described in the applicable Prospectus
Supplement relating thereto.
The Debt Securities will be issued only in registered form without coupons and
will be unsecured obligations of the Corporation. The Senior Debt Securities
will rank on a parity with other senior debt securities of the Corporation. The
Senior Subordinated Debt Securities will rank on a parity with other senior
subordinated debt securities and be subordinated in right of payment to the
prior payment in full of Senior Indebtedness (as defined in the Senior
Subordinated Indenture) of the Corporation, as described below under
"Subordination of Senior Subordinated Debt Securities." The Junior Subordinated
Debt Securities will rank on a parity with other junior subordinated debt
securities and be subordinated in right of payment to the prior payment in full
of Senior Indebtedness (as defined in the Junior Subordinated Indenture) of the
Corporation (which term, when used in connection with Junior Subordinated Debt
Securities, includes Senior Debt Securities and Senior Subordinated Debt
Securities), as described under "Subordination of Junior Subordinated Debt
Securities."
Unless otherwise provided in the applicable Prospectus Supplement relating to a
particular series of Debt Securities being offered thereby, principal, premium,
if any, and interest, if any, will be payable at an office or agency to be
maintained by the Corporation in such place or places described in the
applicable Prospectus Supplement, which place is currently contemplated to be in
The City of New York, except that, at the option of the Corporation, interest
may be paid by check mailed to the person entitled thereto. The Debt Securities
may be presented to the corporate trust office of the applicable Trustee for
registration of transfer or exchange. Senior Debt Securities of any series
subject to repayment prior to their stated maturity at the option of the Holder
thereof may be so repaid by submitting the appropriate form to the place of
payment specified in the terms of such debt security and as provided in the
applicable Prospectus Supplement. Debt Securities of a particular series may be
exchanged for a like aggregate amount of Debt Securities of such series of other
authorized denominations without service charge, except for any tax or other
governmental charge that may be imposed. (Sections 301, 302, 305 and 1002)
BOOK-ENTRY
If so indicated in the applicable Prospectus Supplement, upon issuance, all Debt
Securities will be represented by one or more fully registered global securities
(the "Global Notes"). In any such case, the Depository Trust Company (the
"Depository"), New York, New York, will act as securities depository for such
issue of Debt Securities. Any such Debt Securities will be issued as
fully-registered Global Notes registered in the name of Cede & Co. (the
Depository's partnership nominee). One fully-registered Global Note will be
issued for each such issue of Debt Securities, in the aggregate principal amount
of such issue, and will be deposited with the Depository; provided, however,
that if the aggregate principal amount of any such issue exceeds $200 million,
8
<PAGE> 13
one Global Note will be issued with respect to each $200 million of principal
amount and an additional Global Note will be issued with respect to any
remaining principal amount of such issue.
The Depository has advised the Corporation as follows: The Depository is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code, and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Securities Exchange Act of
1934. The Depository holds securities that its participants ("Participants")
deposit with the Depository. The Depository also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Participants include securities brokers and dealers,
banks trust companies, clearing corporations, and certain other organizations.
The Depository is owned by a number of its Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depository's book-entry
system is also available to others such as securities brokers and dealers,
banks, and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants"). The Rules applicable to the Depository and its Participants are
on file with the Securities and Exchange Commission.
Purchases of Debt Securities represented by one or more Global Notes under the
Depository's book-entry system must be made by or through Participants, which
will receive a credit for such Debt Securities on the Depository's records. The
ownership interest of each actual purchaser of each Debt Security (a "Beneficial
Owner") is in turn to be recorded on the Participants' and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from the Depository of their purchases, but each Beneficial Owner is expected to
receive written confirmation providing details of the transaction, as well as
periodic statements of its holdings, from the Participant or Indirect
Participant through which such Beneficial Owner entered into the transaction.
Transfers of ownership interests in such Debt Securities will be accomplished by
entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in any Debt Securities, except in the event that use of the book-entry
system for the Debt Securities is discontinued.
To facilitate subsequent transfers, all Debt Securities represented by one or
more Global Notes deposited by Participants with the Depository will be
registered in the name of the Depository partnership nominee, Cede & Co. The
deposit of one or more Global Notes with the Depository and their registration
in the name of Cede & Co. effect no change in beneficial ownership. The
Depository will have no knowledge of the actual Beneficial Owners of any Debt
Securities represented by Global Notes; the Depository records will reflect only
the identity of the Participants to whose accounts the Debt Securities
represented by such Global Notes are credited, which may or may not be the
Beneficial Owners. The Participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depository to
Participants, by Participants to Indirect Participants, and by Participants and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time. Neither the Depository nor Cede & Co. will consent or
vote with respect to any Debt Securities represented by one or more Global
Notes.
Principal and interest payments on the Debt Securities represented by one or
more Global Notes will be made to the Depository. The Depository's practice is
to credit Participants' accounts on payable date in accordance with their
respective holdings shown on the Depository's records unless the Depository has
reason to believe that it will not receive payment on payable date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of the Depository, or the
Corporation, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal and interest to the Depository
will be the responsibility of the Corporation, disbursement of such payments to
Participants shall be the responsibility of the Depository, and disbursement of
such payments to the Beneficial Owners shall be the responsibility of
Participants and Indirect Participants.
9
<PAGE> 14
The Depository may discontinue providing its services as securities depository
with respect to any issue of Debt Securities represented by one or more Global
Notes at any time by giving reasonable notice to the Corporation. Under such
circumstances, in the event that a successor securities depository is not
obtained, definitive certificates representing Debt Securities will be required
to be printed and delivered. The Corporation may decide to discontinue use of
the system of book-entry transfers through the Depository (or a successor
securities depository). In such event definitive certificates representing Debt
Securities will be printed and delivered.
The information in this section concerning the Depository's book-entry system
has been obtained from sources that the Corporation believes to be reliable, but
the Corporation takes no responsibility for the accuracy thereof.
SUBORDINATION OF SENIOR SUBORDINATED DEBT SECURITIES
Payment of the principal of, premium, if any, and interest on the Senior
Subordinated Debt Securities is expressly subordinated in right of payment, as
set forth in the Senior Subordinated Indenture, to payment when due of all
Senior Indebtedness of the Corporation, as such term is defined with respect to
the Senior Subordinated Debt Securities. (Section 1401) "Senior Indebtedness" is
used under this caption "Subordination of Senior Subordinated Debt Securities"
as defined in the Senior Subordinated Indenture. "Senior Indebtedness" is
defined in the Senior Subordinated Indenture as (a) outstanding indebtedness of
the Corporation listed on Schedule A to the Senior Subordinated Indenture, (b)
any promissory notes (other than any referred to in the foregoing clause (a))
issued by the Corporation pursuant to any agreement between the Corporation and
any bank or banks and any commercial paper issued by the Corporation, (c) all
indebtedness incurred by the Corporation after the date of the Senior
Subordinated Indenture for money borrowed which is, in the discretion of the
Corporation, specifically designated by the Corporation as superior to
subordinated debt (senior debt) of the Corporation in the instruments evidencing
said indebtedness at the time of the issuance thereof, (d) all indebtedness
previously incurred by the Corporation outstanding at the date of the Senior
Subordinated Indenture for money borrowed which is, in the discretion of the
Corporation, specifically designated by the Corporation as Senior Indebtedness
for the purposes of the Senior Subordinated Indenture at the date of the Senior
Subordinated Indenture (all of such indebtedness is set forth on Schedule B
attached to the Senior Subordinated Indenture), (e) indebtedness of the
Corporation for money borrowed from or guaranteed to persons, firms or
corporations which engage in lending money, including, without limitation,
banks, trust companies, insurance companies and other financing institutions and
charitable trusts, pension trusts and other investing organizations, evidenced
by notes or similar obligations, unless such indebtedness shall, in the
instrument evidencing the same, be specifically designated as not being superior
to the Senior Subordinated Debt Securities and (f) any amendments,
modifications, supplements, deferrals, renewals or extensions of any such Senior
Indebtedness. Senior Indebtedness will not include, and the Senior Subordinated
Debt Securities will rank pari passu in right of payment to, the Corporation's
9 1/2% Senior Subordinated Notes due May 15, 1998. (Section 101)
No payment on account of principal, premium, if any, sinking fund, or interest
on the Senior Subordinated Debt Securities may be made, nor may any property or
assets of the Corporation be applied to the purchase or other acquisition or
retirement of the Senior Subordinated Debt Securities, unless full payment of
amounts then due for principal, premium, if any, sinking fund, and interest on
Senior Indebtedness has been made or duly provided for in money or money's
worth. No payment by the Corporation on account of principal, premium, if any,
sinking fund, or interest on the Senior Subordinated Debt Securities may be
made, nor may any property or assets of the Corporation be applied to the
purchase or other acquisition or retirement of the Senior Subordinated Debt
Securities, if, at the time of such payment or application or immediately after
giving effect thereto, (i) there exists under the Senior Indebtedness referred
to in clause (a) of the immediately preceding paragraph or any agreement
pursuant to which any such Senior Indebtedness is issued any default or any
condition, event or act, which with notice or lapse of time, or both, would
constitute a default or (ii) there exists under any other Senior Indebtedness or
any agreement pursuant to which such other Senior Indebtedness is issued any
event of default permitting the holders of such other Senior Indebtedness (or a
trustee on behalf of such holders) to accelerate the maturity thereof; provided,
however, that in the case of such an event of default (other than in payment of
such other Senior Indebtedness when due) the foregoing provisions of this clause
(ii) will not prevent any such payment or application for a period longer than
90 days after the date on which the holders of such Senior Indebtedness (or such
trustee) shall have first obtained written notice of such event of default from
10
<PAGE> 15
the Corporation or the holder of any Senior Subordinated Debt Securities, if the
maturity of such other Senior Indebtedness is not so accelerated within such 90
day period. (Section 1402)
Subject to the foregoing, if there shall have occurred any Event of Default on
the Senior Subordinated Debt Securities as described below under "Events of
Default and Notice Thereof," other than with respect to certain events of
bankruptcy, insolvency or reorganization, then unless and until either such
Event of Default shall have been cured or waived or shall have ceased to exist
or the principal of, premium, if any, and interest on all Senior Indebtedness
shall have been paid in full in money or money's worth, no payment shall be made
by the Corporation on account of the principal of, premium, if any, or interest
on the Senior Subordinated Debt Securities or on account of the purchase or
other acquisition of Senior Subordinated Debt Securities, except (a) payments at
the expressed maturity of the Senior Subordinated Debt Securities (subject to
the next paragraph), (b) current interest payments as provided in the Senior
Subordinated Debt Securities, (c) payments for the purpose of curing any such
Event of Default, and (d) payments pursuant to the required sinking fund for the
Senior Subordinated Debt Securities. (Section 1402)
Upon any payment or distribution of assets of the Corporation to creditors upon
any dissolution or winding-up or total or partial liquidation or reorganization
of the Corporation or similar proceeding relating to the Corporation or its
property, whether voluntary or involuntary and whether or not the Corporation is
a party thereto, or in bankruptcy, insolvency, receivership or other
proceedings, all principal, premium, if any, and interest due upon all Senior
Indebtedness must be paid in full before the holders of the Senior Subordinated
Debt Securities are entitled to receive or retain any assets so paid or
distributed. Subject to the payment in full of all Senior Indebtedness, the
holders of the Senior Subordinated Debt Securities are to be subrogated to the
rights of holders of Senior Indebtedness to receive payments or distributions of
assets of the Corporation or other payments applicable to Senior Indebtedness to
the extent of the application to Senior Indebtedness of moneys or other assets
which would have been received by the holders of the Senior Subordinated Debt
Securities but for the subordination provisions contained in the Senior
Subordinated Indenture until the Senior Subordinated Debt Securities are paid in
full. (Sections 1403 and 1405)
The Corporation expects to issue from time to time additional indebtedness
constituting Senior Indebtedness and senior subordinated debt (see "Use of
Proceeds"). None of the Indentures prohibits or limits the incurrence of
additional Senior Indebtedness.
By reason of the subordination provisions contained in the Senior Subordinated
Indenture, in the event of insolvency, creditors of the Corporation who are
holders of Senior Indebtedness, as well as certain general creditors of the
Corporation, may recover more, ratably, than the holders of the Senior
Subordinated Debt Securities.
SUBORDINATION OF JUNIOR SUBORDINATED DEBT SECURITIES
Payment of the principal of, premium, if any, and interest on the Junior
Subordinated Debt Securities is expressly subordinated in right of payment, as
set forth in the Junior Subordinated Indenture, to payment when due of all
Senior Indebtedness of the Corporation, as such term is defined with respect to
the Junior Subordinated Debt Securities. (Section 1401) "Senior Indebtedness" is
defined in the Junior Subordinated Indenture as (a) any promissory notes issued
by the Corporation pursuant to any agreement between the Corporation and any
bank or banks and any commercial paper issued by the Corporation, (b) all
existing and future indebtedness for borrowed money of the Corporation
(including guarantees by the Corporation of indebtedness for borrowed money of
others), (c) all obligations of the Corporation specified on Schedule A to the
Junior Subordinated Indenture, (d) indebtedness of the Corporation for money
borrowed from or guaranteed to persons, firms or corporations which engage in
lending money, including, without limitation, banks, trust companies, insurance
companies and other financing institutions and charitable trusts, pension trusts
and other investing organizations, evidenced by notes or similar obligations,
unless such indebtedness shall, in the instrument evidencing the same, be
specifically designated as not being superior to the Junior Subordinated Debt
Securities of any series, (e) all other existing and future obligations of the
Corporation (including but not limited to (x) obligations under interest rate
and currency swaps, caps, collars, options and similar arrangements and (y)
guarantees by the Corporation of obligations of others) that are designated in
the instruments evidencing said obligations as being superior in right of
payment to the Junior Subordinated Debt
11
<PAGE> 16
Securities, and (f) any amendments, modifications, supplements, deferrals,
renewals or extensions of any such Senior Indebtedness; provided, that Senior
Indebtedness shall not include (x) the Junior Subordinated Debt Securities of
any series and (y) any other indebtedness for borrowed money or other obligation
of the Corporation (including guarantees by the Corporation of such indebtedness
of others) which is expressly subordinated in right of payment to all senior
subordinated debt securities that are or may be outstanding under the Senior
Subordinated Indenture. (Section 101)
No payment on account of principal, premium, if any, sinking fund, or interest
on the Junior Subordinated Debt Securities may be made, nor may any property or
assets of the Corporation be applied to the purchase or other acquisition or
retirement of the Junior Subordinated Debt Securities, unless full payment of
amounts then due for principal, premium, if any, sinking fund, and interest on
Senior Indebtedness has been made or duly provided for in money or money's
worth. No payment by the Corporation on account of principal, premium, if any,
sinking fund, or interest on the Junior Subordinated Debt Securities may be
made, nor may any property or assets of the Corporation be applied to the
purchase or other acquisition or retirement of the Junior Subordinated Debt
Securities, if, at the time of such payment or application or immediately after
giving effect thereto, there exists under any Senior Indebtedness or any
agreement pursuant to which such Senior Indebtedness is issued any event of
default permitting the holders of such Senior Indebtedness (or a trustee on
behalf of such holders) to accelerate the maturity thereof; provided, however,
that in the case of such an event of default (other than in payment of such
Senior Indebtedness when due) the foregoing provisions of this sentence will not
prevent any such payment or application for a period longer than 90 days after
the date on which the holders of such Senior Indebtedness (or such trustee)
shall have first obtained written notice of such event of default from the
Corporation or the holder of any Junior Subordinated Debt Securities, if the
maturity of such Senior Indebtedness is not so accelerated within such 90 day
period. (Section 1402)
Subject to the foregoing, if there shall have occurred any Event of Default on
the Junior Subordinated Debt Securities as described below under "Events of
Default and Notice Thereof," other than with respect to certain events of
bankruptcy, insolvency or reorganization, then unless and until either such
Event of Default shall have been cured or waived or shall have ceased to exist
or the principal of, premium, if any, and interest on all Senior Indebtedness
shall have been paid in full in money or money's worth, no payment shall be made
by the Corporation on account of the principal of, premium, if any, or interest
on the Junior Subordinated Debt Securities or on account of the purchase or
other acquisition of Junior Subordinated Debt Securities, except (a) payments at
the expressed maturity of the Junior Subordinated Debt Securities (subject to
the next paragraph), (b) current interest payments as provided in the Junior
Subordinated Debt Securities, (c) payments for the purpose of curing any such
Event of Default, and (d) payments pursuant to the required sinking fund for the
Junior Subordinated Debt Securities. (Section 1402)
Upon any payment or distribution of assets of the Corporation to creditors upon
any dissolution or winding-up or total or partial liquidation or reorganization
of the Corporation or similar proceeding relating to the Corporation or its
property, whether voluntary or involuntary and whether or not the Corporation is
a party thereto, or in bankruptcy, insolvency, receivership or other
proceedings, all principal, premium, if any, and interest due upon all Senior
Indebtedness must be paid in full before the holders of the Junior Subordinated
Debt Securities are entitled to receive or retain any assets so paid or
distributed. Subject to the payment in full of all Senior Indebtedness, the
holders of the Junior Subordinated Debt Securities are to be subrogated to the
rights of holders of Senior Indebtedness to receive payments or distributions of
assets of the Corporation or other payments applicable to Senior Indebtedness to
the extent of the application to Senior Indebtedness of moneys or other assets
which would have been received by the holders of the Junior Subordinated Debt
Securities but for the subordination provisions contained in the Junior
Subordinated Indenture until the Junior Subordinated Debt Securities are paid in
full. (Sections 1403 and 1405)
The Corporation expects to issue from time to time additional indebtedness
constituting Senior Indebtedness (see "Use of Proceeds"). None of the Indentures
prohibits or limits the incurrence of additional Senior Indebtedness.
By reason of the subordination provisions contained in the Junior Subordinated
Indenture, in the event of insolvency, creditors of the Corporation who are
holders of Senior Indebtedness, as well as certain general
12
<PAGE> 17
creditors of the Corporation, may recover more, ratably, than the holders of the
Junior Subordinated Debt Securities.
CERTAIN COVENANTS
Dividend Restrictions. Each Subordinated Indenture provides that the
Corporation may not (a) declare or pay any dividend or make any other
distribution (other than dividends or distributions made in capital stock of the
Corporation) on or in respect of any capital stock of the Corporation, (b)
purchase, redeem or otherwise acquire for value any shares of the capital stock
of the Corporation, except shares acquired upon the conversion thereof into
other shares of capital stock of the Corporation, or (c) permit any Restricted
Subsidiary to purchase, redeem or otherwise acquire for value any shares of
capital stock of the Corporation; if immediately thereafter the aggregate amount
of all such dividends, distributions, purchases, redemptions, acquisitions or
payments (other than dividends or distributions payable in shares of capital
stock of the Corporation) during the period from and after December 31, 1985,
plus the amount of total investments in Unrestricted Subsidiaries made during
such period, would exceed the sum of (1) $185,000,000 plus (or minus in the case
of a deficit), (2) the consolidated net income (or net loss) of the Corporation
and its Restricted Subsidiaries earned subsequent to December 31, 1985, plus (3)
the aggregate net proceeds received by the Corporation in respect of the issue,
sale or exchange after December 31, 1985, of (i) any shares of capital stock of
the Corporation and any rights or warrants entitling the holders to purchase or
subscribe for shares of such capital stock, or (ii) any indebtedness of the
Corporation which is converted into shares of its capital stock after December
31, 1985. (Section 1007)
The foregoing will not prohibit the Corporation from paying any management,
administrative, general overhead or similar charge to any controlling
stockholder or other Affiliate of the Corporation, or paying to any member of
the same consolidated group for tax purposes any amounts in lieu of taxes.
(Section 1007)
Limitations on Mergers. The Indentures provide that the Corporation may not
consolidate with, merge into, or sell, convey or transfer its properties and
assets substantially as an entirety to, another Person, if, as a result thereof,
any property owned by the Corporation or a Restricted Subsidiary immediately
prior thereto would become subject to any Security Interest, unless (i)(x) in
the case of the Senior Indenture, the Senior Debt Securities (equally and
ratably with any other indebtedness of the Corporation then entitled thereto)
shall be secured by a prior lien on such property, (y) in the case of the Senior
Subordinated Indenture, the Senior Subordinated Debt Securities (equally and
ratably with any other indebtedness of the Corporation then entitled thereto)
shall be secured equally and ratably with (or prior to) the debt secured by such
Security Interest or (z) in the case of the Junior Subordinated Indenture, the
Junior Subordinated Debt Securities (equally and ratably with any other
indebtedness of the Corporation entitled thereto) shall be secured equally and
ratably with (or prior to) the debt secured by such Security Interest or (ii)
such Security Interest would otherwise be permitted under the Indentures.
(Section 803) (See "Limitations on Secured Debt")
Limitations on Certain Loans and Advances. Each Subordinated Indenture provides
that the Corporation may not, and may not permit any Restricted Subsidiary to,
make any loan or advance to any Person owning more than 50% of the outstanding
voting stock of the Corporation or to any Affiliate of such Person (other than
the Corporation or a Restricted Subsidiary) if the aggregate outstanding amount
of Senior Debt of the Corporation and its Restricted Subsidiaries exceeds 400%
of Consolidated Net Worth and Subordinated Debt, as defined in the applicable
Indenture. (Section 1005) The term Senior Debt for purposes of this limitation
shall mean Senior Indebtedness when referring to the Senior Subordinated
Indenture or the Junior Subordinated Indenture as such term is used in each such
Indenture.
Limitations on Secured Debt. Each Indenture provides that the Corporation will
not at any time create, incur, assume or guarantee, and will not cause, suffer
or permit a Restricted Subsidiary to create, incur, assume or guarantee, any
Secured Debt without making effective provisions whereby the Debt Securities
then outstanding under such Indenture and any other indebtedness of or
guaranteed by the Corporation or such Restricted Subsidiary then entitled
thereto, subject to applicable priorities of payment, shall be secured by the
Security Interest securing such Secured Debt equally and ratably with any and
all other obligations and indebtedness thereby secured (subject, however, to
applicable priorities of payment) so long as such Secured Debt remains
13
<PAGE> 18
outstanding; provided, however, that the foregoing prohibition shall not be
applicable to (a) any Security Interest in favor of the Corporation or a
Restricted Subsidiary; (b) Security Interests existing on December 1, 1994 in
the case of Senior Debt Securities, Security Interests existing on June 1, 1989
in the case of Senior Subordinated Debt Securities and Security Interests
existing on July 1, 1993 in the case of Junior Subordinated Debt Securities; (c)
Security Interests existing on property at the time it is acquired by the
Corporation or a Restricted Subsidiary, provided such Security Interest is
limited to all or part of the property so acquired; (d)(i) any Security Interest
existing on the property of or on the outstanding shares or indebtedness of a
corporation at the time such corporation shall become a Restricted Subsidiary,
or (ii) subject to the provisions referred to above under "Limitations on
Mergers," any Security Interest on property of a corporation existing at the
time such corporation is merged into or consolidated with the Corporation or a
Restricted Subsidiary or at the time of a sale, lease or other disposition of
the properties of a corporation as an entirety or substantially as an entirety
to the Corporation or a Restricted Subsidiary, provided, in each such case, that
such Security Interest does not extend to any property owned prior to such
transaction by the Corporation or any Restricted Subsidiary which was a
Restricted Subsidiary prior to such transaction; (e) mechanics', materialmen's,
carriers' or other like liens, arising in the ordinary course of business; (f)
certain tax liens or assessments, and certain judgment liens; (g) certain
Security Interests in favor of the United States of America or any state or any
agency thereof; (h) Security Interests on Business Equipment; (i) in the case of
property (other than Rental Equipment) acquired after December 1, 1994 as it
pertains to Senior Debt Securities, after June 1, 1989, as it pertains to Senior
Subordinated Debt Securities and after July 1, 1993, as it pertains to Junior
Subordinated Debt Securities, by the Corporation or any Restricted Subsidiary,
any Security Interest which secures an amount not in excess of the purchase
price or fair value of such property at the time of acquisition, whichever, in
the opinion of the Corporation, shall be less, provided that such Security
Interest is limited to the property so acquired; (j) Security Interests on
properties financed through tax-exempt municipal obligations, provided that such
Security Interest is limited to the property so financed; or (k) any refunding,
renewal, extension or replacement (or successive refunding, renewals,
extensions, or replacements), in whole or in part, of any Security Interest
referred to in the foregoing clauses (a) through (j), provided that the
principal amount of indebtedness secured in such refunding, renewal, extension
or replacement does not exceed that secured at the time by such Security
Interest and that such renewal, refunding, extension or replacement of such
Security Interest is limited to all or part of the same property subject to the
Security Interest being refunded, renewed, extended or replaced.
Notwithstanding the foregoing provisions, the Corporation and any one or more
Restricted Subsidiaries may issue, assume, or guarantee Secured Debt which would
otherwise be subject to the foregoing restrictions in an aggregate amount which,
together with all other Secured Debt of the Corporation and its Restricted
Subsidiaries which would otherwise be subject to the foregoing restrictions (not
including Secured Debt permitted to be secured under subparagraphs (a) through
(k) above), and the aggregate value of the Sale and Leaseback Transactions in
existence at such time (not including Sale and Leaseback Transactions the
proceeds of which have been or will be applied in accordance with subsection (b)
under "Limitations on Sale and Leaseback Transactions" below), do not at the
time of incurrence exceed 10% of Consolidated Net Worth and Subordinated Debt
(as defined in the applicable Indenture). (Section 1004)
Limitations on Sale and Leaseback Transactions. Each Indenture provides that
the Corporation may not, and may not permit any Restricted Subsidiary to, engage
in any Sale and Leaseback Transaction unless (a) the Corporation or such
Restricted Subsidiary would be entitled, without reference to the provisions of
Section 1004 described in subparagraphs (a) through (k) above, to incur Secured
Debt in an amount equal to the amount realized or to be realized upon the sale
or transfer involved in such Sale and Leaseback Transaction, secured by a
Security Interest on the property to be leased without equally and ratably
securing the Debt Securities outstanding under such Indenture as provided under
"Limitations on Secured Debt," or (b) the Corporation or a Restricted Subsidiary
shall apply, within 120 days after such sale or transfer, an amount equal to the
fair value of the property so leased (as determined by the Board of Directors of
the Corporation) to the repayment of Senior Debt of the Corporation or of any
Restricted Subsidiary (other than Senior Debt owed to the Corporation
or any Restricted Subsidiary) then prepayable, on a pro rata basis, according to
the respective principal amounts of Senior Debt then held by the various holders
thereof. (Senior Indenture Section 1005; Subordinated
14
<PAGE> 19
Indentures Section 1006) The term Senior Debt for purposes of this limitation
shall mean Senior Indebtedness when referring to the Senior Subordinated
Indenture or the Junior Subordinated Indenture as such term is used in each such
Indenture.
CERTAIN DEFINITIONS
"Business Equipment" shall mean all motor vehicles, tractors and trailers,
construction equipment, factory, commercial and office equipment and other
revenue-earning personalty owned, financed or otherwise held by or for the
Corporation or any of its Restricted Subsidiaries for rental, lease, sale or
disposition in the ordinary course of the business of the Corporation and its
Restricted Subsidiaries, other than Rental Equipment. "Consolidated Net Worth
and Subordinated Debt" shall mean the aggregate of (i) the capital and surplus
accounts of the Corporation and its Restricted Subsidiaries, as shown in the
most recent consolidated balance sheet of the Corporation and its Restricted
Subsidiaries, prepared in accordance with generally accepted accounting
principles, plus (ii) the aggregate outstanding principal amount of Subordinated
Debt (as defined in the Indentures) of the Corporation and its Restricted
Subsidiaries, as reflected on the same consolidated balance sheet. "Principal
Property" shall mean any building, structure or other facility (including land
or fixtures) owned by the Corporation or any Restricted Subsidiary having a
gross book value in excess of 2% of Consolidated Net Worth and Subordinated
Debt, other than any such building, structure or other facility which, in the
opinion of the Board of Directors of the Corporation, is not of material
importance to the total business conducted by the Corporation and its
subsidiaries as an entirety. "Rental Equipment" shall mean all automobiles
owned, financed or otherwise held by the Corporation or any of its Restricted
Subsidiaries which, in the ordinary course of business, are offered for rental
within the United States of America for periods of less than 30 days.
"Restricted Subsidiary" shall mean certain identified Subsidiaries of the
Corporation, and any other Subsidiaries designated after the date of the
Indentures as a Restricted Subsidiary by the Board of Directors of the
Corporation, subject to redesignation by the Board of Directors and to certain
other restrictions. "Sale and Leaseback Transaction" shall mean any sale or
transfer by the Corporation or one or more Restricted Subsidiaries (except a
sale or transfer to the Corporation or one or more Restricted Subsidiaries) of
any Principal Property, made more than 180 days after the later of the
acquisition of such Principal Property or the completion of construction or full
commencement of operations thereof, if such sale or transfer is made with the
intention of, or as part of an arrangement involving, the lease of such
Principal Property to the Corporation or a Restricted Subsidiary (with certain
exceptions). "Secured Debt" shall mean all indebtedness for borrowed money of
the Corporation or a Restricted Subsidiary which is secured by a Security
Interest upon any assets of the Corporation or any Restricted Subsidiary,
including any capital stock or indebtedness of any Restricted Subsidiary.
"Security Interest" shall mean any mortgage, pledge, lien, encumbrance,
conditional sales contract, title retention agreement or other similar
arrangement which secures payment or performance of an obligation. (Section 101)
MODIFICATION OF THE INDENTURES
Subject to certain exceptions, each Indenture contains provisions permitting the
Corporation and the Trustee, with the consent of the Holders of not less than a
majority in principal amount of all securities at the time outstanding, or of
the Holders of the then outstanding Debt Securities of each series to be
affected thereby, to modify the Indentures or any supplemental Indentures or the
rights of the Holders of all Debt Securities, or of the Debt Securities of a
particular series, as the case may be; provided that no such modification shall
(i) change the fixed maturity of the principal of, or any installment of
principal or interest on, any Debt Security, or reduce the principal amount
thereof or the rate of interest, if any, thereon, or change the place of payment
or the currency in which any Debt Security or the interest, if any, thereon is
payable, without the consent of the Holder of each Debt Security affected, or
(ii) reduce the aforesaid percentage of Debt Securities the consent of the
holders of which is required for any such modification, without the consent of
the Holder of each Debt Security affected. (Section 902)
15
<PAGE> 20
EVENTS OF DEFAULT AND NOTICE THEREOF
The following events are defined in the Senior Indenture as Events of Default
with respect to the Senior Debt Securities of a particular series: failure for
30 days to pay interest on any Senior Debt Securities of such series when due;
failure to pay principal of any Senior Debt Securities of such series when due
at maturity thereof or otherwise, which failure shall continue unremedied for 5
Business Days; failure to deposit any sinking fund payment when and as due,
which failure shall continue unremedied for 5 Business Days; the acceleration of
any other indebtedness in excess of $25 million of the Corporation, including
another series of Senior Debt Securities, under its terms, if such acceleration
is not rescinded or annulled within 10 days after written notice thereof to the
Corporation; failure to perform any other covenant in the Senior Debt Securities
of such series within 90 days after written notice thereof to the Corporation
specifying the failure and requiring its remedy; certain events of bankruptcy,
insolvency or reorganization and any other Event of Default provided with
respect to the Senior Debt Securities of such series. (Section 501) The
Corporation is required to file annually with the Senior Trustee an officer's
certificate as to the absence of certain defaults under the terms of the Senior
Indenture. (Section 1006)
The following events are defined in each Subordinated Indenture as Events of
Default with respect to the Subordinated Debt Securities of a particular series:
failure for 30 days to pay interest on any Subordinated Debt Securities of such
series when due; failure to pay principal of any Subordinated Debt Securities of
such series when due at maturity; the acceleration of any other indebtedness in
excess of $10 million of the Corporation, including another series of
Subordinated Debt Securities, under its terms, if such acceleration is not
rescinded or annulled with 10 days after written notice thereof to the
Corporation; failure to perform any other covenant in the Subordinated Debt
Securities of such series or in the applicable Subordinated Indenture within 60
days after written notice thereof to the Corporation specifying the failure and
requiring its remedy; certain events of bankruptcy, insolvency or reorganization
and any other Event of Default provided with respect to the Subordinated Debt
Securities of such series. (Section 501) The Corporation is required to file
with each Trustee annually an officer's certificate as to the absence of certain
defaults under the terms of the applicable Subordinated Indenture. (Section
1008)
Upon any Event of Default with respect to Debt Securities of a particular
series, the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Debt Securities of such series then outstanding may declare the
principal of all the Debt Securities of such series (or, in the case of any
series of discounted Debt Securities, such lesser principal amount as may be
provided for in such series of discounted Debt Securities) to be due and
payable. (Section 502)
Each Indenture provides that the Holders of not less than a majority in
principal amount of the Debt Securities of any series may on behalf of the
Holders of all of the Debt Securities of such series waive any past default
under such Indenture with respect to such series and its consequences, except a
default (i) in the payment of the principal of or interest, if any, on any of
the Debt Securities of such series or (ii) in respect of a covenant or provision
of such Indenture which, under the terms of such Indenture, cannot be modified
or amended without the consent of the Holders of all of the Debt Securities of
such series affected thereby. The terms of the Senior Indenture do not permit
any such waiver with respect to Debt Securities of any such series subsequent to
the acceleration of principal thereof. (Section 513)
Each Indenture provides that the Trustee may withhold notice to the Holders of
the Debt Securities of any default (except a default in the payment of principal
or interest) if it determines that the withholding of such notice is in the
interest of the Holders of the Debt Securities. (Section 602)
Subject to provisions of each Indenture relating to the duties of the Trustee in
case an Event of Default shall occur and be continuing, the Trustee will be
under no obligation to exercise any of its rights or powers under such Indenture
at the request of any of the Holders of the Debt Securities issued thereunder,
unless they shall have offered to the Trustee reasonable indemnity. (Sections
601(a) and 603(e)) Subject to such provisions for the indemnification of the
Trustee and to certain other limitations, the Holders of a majority in principal
amount of the Debt Securities of a particular series at the time outstanding
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee, with respect to the Debt Securities of such
series. (Section 512)
16
<PAGE> 21
DEFEASANCE OF DEBT SECURITIES
Unless the Prospectus Supplement relating to the applicable Senior Debt
Securities provides otherwise, the Corporation at its option (a) will be deemed
to have paid and discharged the entire indebtedness represented by the
outstanding Senior Debt Securities of such series, and to have satisfied all its
other obligations under such Senior Debt Securities (except for obligations
relating to the rights of Holders to receive payments from the trust fund,
certain obligations to register the transfer and exchange of Senior Debt
Securities, replace stolen, lost or mutilated Senior Debt Securities, maintain
paying agencies, hold moneys for payment in trust and the Corporation's
obligations with respect to Global Securities and defeasance and covenant
defeasance generally) or (b) shall be released from its obligations described
above under "Certain Covenants -- Limitations on Mergers," "-- Limitations on
Secured Debt" and "-- Limitations on Sale and Leaseback Transactions" with
respect to the outstanding Senior Debt Securities of such series, if the
Corporation irrevocably deposits or causes to be deposited with the Senior
Trustee money or U.S. Government Obligations or a combination thereof
sufficient, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the Senior
Trustee, to pay and discharge (i) the principal of (and premium, if any) and
interest, if any, on the outstanding Senior Debt Securities of such series and
(ii) any mandatory sinking fund payments applicable to the outstanding Senior
Debt Securities of such series. Among the conditions to exercising any such
option, the Corporation is required to deliver to the Senior Trustee an opinion
of counsel (which opinion shall state, in the case of a defeasance described in
clause (a) above, that (x) the Corporation has received from, or there has been
published by, the Internal Revenue Service a ruling, or (y) since the date of
the first issuance by the Corporation of Senior Debt Securities pursuant to the
Senior Indenture, there has been a change in the applicable Federal income tax
law) to the effect that the Holders of the outstanding Senior Debt Securities of
such series will not recognize income, gain or loss for Federal income tax
purposes as a result of such defeasance and will be subject to Federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance or covenant defeasance, as the case may be, had
not occurred. (Sections 1401, 1402, 1403 and 1404)
If the Corporation, at its option, deposits or causes to be deposited with the
applicable Subordinated Trustee as trust funds, for the purpose hereinafter
stated, an amount, in money or the equivalent in securities of the government
which issued the currency in which the Subordinated Debt Securities of any then
outstanding series are denominated or securities issued by government agencies
backed by the full faith and credit of such government, sufficient to pay and
discharge the entire indebtedness on the Subordinated Debt Securities of such
series for principal and interest, if any, to the date or dates of maturity of
the Subordinated Debt Securities of such series, and if the Corporation has paid
or caused to be paid all other sums payable by it under the Subordinated
Indenture with respect to such series, then the Subordinated Indenture will
cease to be of further effect with respect to such series (except as to the
Corporation's obligations to compensate, reimburse and indemnify the
Subordinated Trustee pursuant to the Subordinated Indenture with respect to such
series), and the Corporation will be deemed to have satisfied and discharged the
Indenture with respect to such series; provided, however, that no series of
Subordinated Debt Securities may be so defeased unless all of the securities of
such series will become due and payable at their Stated Maturity within one year
of such defeasance. (Section 401) In the event of any such defeasance, holders
of such Subordinated Debt Securities would be able to look only to such trust
funds for payment of principal and premium, if any, and interest, if any on
their Subordinated Debt Securities.
With respect to the Subordinated Indentures, if securities have been deposited
with the applicable Subordinated Trustee as trust funds, the Corporation, in
order to exercise its option, is required to deliver to the Trustee an opinion
of counsel to the effect that the deposit and related defeasance (a) will not
cause the holders of the Subordinated Debt Securities of such series to
recognize income, gain or loss for Federal income tax purposes and (b) will not
result in the delisting of the Subordinated Debt Securities of such series from
any nationally-recognized exchange on which they are listed, if any.
Unless the Prospectus Supplement relating to the applicable Subordinated Debt
Securities provides otherwise, the Corporation at its option (a) will be
discharged from any and all obligations in respect of such Subordinated Debt
Securities (except for certain obligations to register the transfer or exchange
of Subordinated Debt Securities, replace stolen, lost or mutilated Subordinated
Debt Securities, maintain paying agencies and
17
<PAGE> 22
hold moneys for payment in trust) or (b) need not comply with certain
restrictive covenants of the applicable Subordinated Indenture (including all or
some of those described above under "Certain Subordinated Covenants"), if there
is deposited with the applicable Subordinated Trustee money or, in the case of
Subordinated Debt Securities denominated in U.S. dollars, U.S. Government
Obligations or, in the case of Subordinated Debt Securities denominated in a
foreign currency, Foreign Government Securities, which through the payment of
interest thereon and principal thereof in accordance with their terms will
provide money (or a combination of money and U.S. Government Obligations or
Foreign Government Securities, as the case may be) in an amount sufficient to
pay in the currency, currencies or currency unit or units in which such
Subordinated Debt Securities are payable all the principal of, and interest on,
such Subordinated Debt Securities on the dates such payments are due in
accordance with the terms of such Subordinated Debt Securities. Among the
conditions to the Corporation exercising any such option, the Corporation is
required to deliver to the applicable Subordinated Trustee an opinion of counsel
to the effect that the deposit and related defeasance would not cause the
holders of such Subordinated Debt Securities to recognize income, gain or loss
for United States Federal income tax purposes, and that the holders will be
subject to United States Federal income tax in the same amounts, in the same
manner and at the same times as would have been the case if such deposit and
related defeasance had not occurred. (Section 403)
THE TRUSTEES
First Union National Bank (formerly First Fidelity Bank, National Association)
is the Senior Trustee under the Senior Indenture. Chemical Bank (successor by
merger to Manufacturers Hanover Trust Company) is trustee under an Indenture
dated as of April 1, 1986, as amended by a First Supplemental Indenture dated as
of April 2, 1990, pursuant to which approximately $1,150.3 million aggregate
principal amount of the Corporation's senior debt securities remained
outstanding at March 31, 1997. The Bank of New York is the Senior Subordinated
Trustee under the Senior Subordinated Indenture. Citibank, N.A. is the Junior
Subordinated Trustee under the Junior Subordinated Indenture. Each Trustee may
act as depository for funds of, provide lines of credit to and perform other
services for, the Corporation and its subsidiaries in the normal course of
business.
PLAN OF DISTRIBUTION
The Corporation may sell the Debt Securities in any of four ways: (i) through
underwriters or dealers, (ii) directly to a limited number of institutional
purchasers or to a single institutional purchaser, (iii) through agents or (iv)
through a combination of any such methods of sale. The Prospectus Supplement
with respect to the Debt Securities of a particular series sets forth the terms
of the offering of such Debt Securities, including the name or names of any
underwriters or agents, the purchase price of such Debt Securities and the
proceeds to the Corporation from such sale, any underwriting discounts and other
items constituting underwriters' compensation, any initial public offering
price, any discounts or concessions allowed or reallowed or paid to dealers and
any securities exchanges on which such Debt Securities may be listed.
If underwriters are used in the sale of Debt Securities of a particular series,
such Debt Securities will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. The Debt Securities of a particular series may
be offered to the public through underwriting syndicates represented by managing
underwriters.
If so indicated in any Prospectus Supplement, the Corporation will authorize the
underwriters and agents to solicit offers by certain institutions to purchase
the Debt Securities described in such Prospectus Supplement from the Corporation
at the public offering price set forth therein pursuant to Delayed Delivery
Contracts ("Contracts"), which will provide for payment and delivery on the date
stated in such Prospectus Supplement. Each of the Contracts will be for an
amount not less than, and unless the Corporation otherwise agrees the aggregate
principal amount of Debt Securities sold pursuant to Contracts shall be not more
than, the respective amounts stated in such Prospectus Supplement.
18
<PAGE> 23
The underwriters, dealers and agents may be entitled, under agreements which may
be entered into with the Corporation, to indemnification by the Corporation
against certain civil liabilities, including liabilities under the Securities
Act of 1933, or to contribution to payments that the underwriters, dealers and
agents may be required to make in respect thereof.
LEGAL OPINIONS
Certain legal matters in connection with the Securities will be passed upon for
the Corporation by Paul M. Tschirhart, Esq., 225 Brae Boulevard, Park Ridge, New
Jersey, Senior Vice President and General Counsel of the Corporation, and for
any underwriters or agents by Brown & Wood LLP, One World Trade Center, New
York, New York.
EXPERTS
The consolidated financial statements and supporting schedule of the Corporation
at December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996 included in the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996, incorporated by reference in this
Prospectus and in the Registration Statement of which this Prospectus forms a
part, have been audited by Coopers & Lybrand L.L.P., independent accountants, at
December 31, 1996 and 1995, and for each of the three years ended December 31,
1996, as indicated in their report incorporated by reference herein. The
consolidated financial statements and supporting schedule referred to above have
been incorporated by reference herein in reliance upon the authority of said
firms as experts in accounting and auditing.
19
<PAGE> 24
[HERTZ LOGO]
