<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1997
REGISTRATION NO. 333-22517
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE HERTZ CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
7514
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
13-1938568
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
225 BRAE BOULEVARD
PARK RIDGE, NEW JERSEY 07656-0713
(201) 307-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM SIDER
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
225 BRAE BOULEVARD
PARK RIDGE, NEW JERSEY 07656-0713
(201) 307-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
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DAVID J. SORKIN, ESQ. ARBIE R. THALACKER, ESQ.
SIMPSON THACHER & BARTLETT SHEARMAN & STERLING
425 LEXINGTON AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017-3954 NEW YORK, NEW YORK 10022-6069
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, please check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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Class A Common Stock, par
value $0.01 per share....... 20,010,000 $24.00 $480,240,000 $145,528(3)
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(1) Includes 2,610,000 shares of Class A Common Stock which the Underwriters
have the option to purchase to cover over-allotments, if any. The shares of
Class A Common Stock are not being registered for the purpose of sales outside
the United States.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Of this amount, $30,304 was paid on February 28, 1997 in connection with the
initial filing of the registration statement. Accordingly, the registrant has
paid the difference of $115,224 in connection with this filing.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the Registration Statement
becomes effective. This Prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PROSPECTUS
Subject to Completion
Dated March 13, 1997
17,400,000 Shares
HERTZ LOGO
THE HERTZ CORPORATION
Class A Common Stock
(par value $0.01 per share)
All of the Class A Common Stock offered hereby is being offered by The Hertz
Corporation (the "Company"), which is a wholly-owned subsidiary of Ford Motor
Company ("Ford"). Upon completion of the Offerings, Ford will beneficially own
55.4% of the outstanding Class A Common Stock (51.9% if the Underwriters'
over-allotment options are exercised in full) and 100% of the outstanding shares
of Class B Common Stock of the Company (which has five votes per share), a class
of common stock separate from the Class A Common Stock (which has one vote per
share). Following the Offerings, the outstanding shares of Class A Common Stock
to be offered in the Offerings will represent 4.7% of the combined voting power
of all classes of voting stock and 16.6% of the economic interest (or rights of
holders of common equity to participate in distributions in respect of the
common equity) in the Company (5.4% and 18.6%, respectively, if the
Underwriters' over-allotment options are exercised in full). The remainder of
the voting power and economic interest in the Company will be beneficially held
by Ford. See "Risk Factors -- Control by and Relationship with Ford" and
"Description of Capital Stock".
Of the 17,400,000 shares of Class A Common Stock offered hereby, 15,660,000
shares are being offered initially in the United States and Canada by the U.S.
Underwriters (the "U.S. Underwriters") and 1,740,000 shares are being offered
initially outside the United States and Canada in a concurrent offering by the
International Managers (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters"). See "Underwriting".
Prior to the Offerings, there has been no public market for the Class A Common
Stock. It is currently anticipated that the initial public offering price will
be between $21.00 and $24.00 per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price of the Class A Common Stock. The Class A Common Stock has been
approved for listing on the New York Stock Exchange, upon notice of issuance,
under the symbol "HRZ".
Shares of Class A Common Stock are being reserved for sale to certain employees
of the Company and its affiliates at the initial public offering price. See
"Underwriting". Such employees are expected to purchase, in the aggregate, not
more than 10% of the Class A Common Stock offered in the Offerings.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
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.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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Per Share $ $ $
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Total (3) $ $ $
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(1) The Company and Ford have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting".
(2) Before deducting expenses of the Offerings payable by the Company estimated
at $ , net of expenses of $ to be reimbursed by the Underwriters.
(3) The Company has granted the Underwriters options to purchase up to an
additional 2,610,000 shares of Class A Common Stock, on the same terms as set
forth above, solely to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discount and Proceeds
to Company will be $ , $ and $ , respectively. See
"Underwriting".
GLOBAL COORDINATOR
J.P. MORGAN & CO.
The shares of Class A Common Stock being offered by this Prospectus are being
offered by the U.S. Underwriters, subject to prior sale, when as and if
delivered to and accepted by the U.S. Underwriters, and subject to approval of
certain legal matters by Shearman & Sterling, counsel for the Underwriters. It
is expected that delivery of the shares of Class A Common Stock will be made
against payment therefor on or about , 1997 at the offices of
J.P. Morgan Securities Inc., 60 Wall Street, New York, New York.
J.P. MORGAN & CO. GOLDMAN, SACHS & CO.
LEHMAN BROTHERS SALOMON BROTHERS INC SMITH BARNEY INC.
, 1997
<PAGE> 3
Certain persons participating in the Offerings may engage in transactions that
stabilize, maintain or otherwise affect the price of the Class A Common Stock.
Specifically, the Underwriters may overallot in connection with the Offerings,
and may bid for, and purchase, shares of the Class A Common Stock in the open
market. For a description of these activities, see "Underwriting".
No person has been authorized to give any information or make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriter. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Class A Common Stock in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company subsequent to the date hereof.
No action has been or will be taken in any jurisdiction by the Company or any
Underwriter that would permit a public offering of the Class A Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Class A Common Stock and the distribution of this
Prospectus.
TABLE OF CONTENTS
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Page
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Prospectus Summary.................. 4
Risk Factors........................ 12
Special Note Regarding
Forward-Looking Statements........ 17
The Company......................... 18
Use of Proceeds..................... 20
Dividend Policy..................... 20
Capitalization...................... 21
Selected Consolidated Financial Data
of the Company.................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 24
Business............................ 32
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Relationship with Ford.............. 55
Management.......................... 60
Ownership of Common Stock........... 71
Description of Capital Stock........ 71
Shares Available for Future Sale.... 76
Description of Certain
Indebtedness...................... 78
Certain United States Tax
Consequences to Non-United States
Holders........................... 80
Underwriting........................ 83
Legal Matters....................... 86
Experts............................. 86
Available Information............... 86
Index to Financial Statements....... F-1
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"Hertz", Hertz Logo, "HERC", "The Source", "H.I.R.E.", "Hertz #1 Club Gold",
"The Hertz #1 Club", and "Hertz NeverLost" are trademarks or service marks of
the Company. All other trademarks, service marks or brand names appearing in
this Prospectus are the property of their respective holders.
The Company intends to furnish its stockholders with annual reports containing
consolidated financial statements certified by an independent public accounting
firm.
3
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
(i) the "Company" means The Hertz Corporation and its consolidated subsidiaries,
(ii) "Ford" means Ford Motor Company and its consolidated subsidiaries (other
than the Company), (iii) "cars" mean cars and light trucks and (iv) the
information contained in this Prospectus assumes that the Underwriters'
over-allotment options are not exercised. Unless otherwise defined herein,
capitalized terms used in this summary have the respective meanings ascribed to
them elsewhere in this Prospectus.
THE COMPANY
The Company and its affiliates and independent licensees operate what the
Company 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 Company's "Hertz" brand name is recognized worldwide as a leader in quality
rental and leasing services and products. The Company, 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. For the year ended December 31, 1996, the Company
generated record revenues, income before taxes and net income of $3.7 billion,
$256.5 million and $158.6 million, respectively. The Company and its
predecessors have been profitable in every year since 1952, when one of the
Company's predecessors first became a public company.
Car Rental
The Company believes it maintains the largest network of company-owned car
rental locations both in the United States and in Europe, and the largest number
of on-airport car rental locations in the world, enabling the Company to provide
consistent quality, pricing and service worldwide. The Company derives
approximately 77% of its car rental revenues from on-airport locations.
According to information disclosed by the largest 153 U.S airports, the Company
maintained the leading on-airport car rental market share at such airports
during 1996 of over 30% in terms of revenues and has maintained market share at
approximately this level during each of the last five years. This market has
grown at a compounded annual rate of approximately 11% since 1992 to over $6
billion in revenues in 1996, based on information provided by such airports. The
Company also believes it maintained the leading on-airport car rental market
share in Europe during 1996 of approximately 30% in terms of revenues. The
Company has recently begun to provide replacement car rental services from
off-airport locations under the H.I.R.E. brand name ("Hertz Insurance
Replacement Entity"). The Company estimates that total 1996 revenues for the car
rental industry in the United States were in excess of $14 billion, and that
total 1995 revenues for the car rental industry in Europe were in excess of $5
billion.
During 1996, approximately 51% of the Company's worldwide car rental revenues
were generated from business travelers and approximately 49% from leisure
travelers. The Company has a worldwide marketing and sales organization of over
800 people focused on both commercial accounts/group sales and the travel
industry, including travel agents, as well as a comprehensive program of retail
and trade advertising, direct mail and other targeted marketing. At December 31,
1996, the Company's business customers included 357 of the Fortune 500
companies. The Company was named a primary supplier to 149 of the 347 Fortune
500 companies who named a primary/secondary supplier. The Company has received
numerous awards and designations around the world for its car rental business
from independent third parties.
The Company's Hertz #1 Club Gold service provides an expedited rental service to
members at approximately 650 locations worldwide. At December 31, 1996, there
were approximately two million active Hertz #1 Club Gold members who accounted
for approximately 35% of the Company's U.S. car
4
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rental transactions in 1996. Through its many travel industry relationships with
airlines and hotels, the Company has targeted the most frequent travelers to
become Hertz #1 Club Gold members.
The Company's worldwide car rental operations and certain other activities
generated $3.3 billion in revenue and $165.5 million in income before taxes
during 1996.
Industrial and Construction Equipment Rental
The Company, through its wholly-owned subsidiary, Hertz Equipment Rental
Corporation ("HERC"), believes that it maintains the leading market share in the
U.S. industrial and construction equipment rental market. HERC rents a broad
range of earth moving equipment, materials handling equipment, aerial and
electrical equipment, air compressors, compaction equipment and
construction-related trucks through a network of 120 branch locations. The
Company estimates that 1995 annual revenues for the U.S. equipment rental market
were $15 billion. This market is fragmented with over 7,000 participants and
12,000 locations. According to the Rental Equipment Register, an industry
publication, only 23 of the top 100 equipment rental companies in the United
States had rental revenues in excess of $25 million in 1995.
HERC maintains an established national accounts program with over 1,700
customers who generated 43% of HERC's revenues in 1996. The Company believes
that HERC's fleet is the largest and most modern of its kind in the United
States. As of December 31, 1996, HERC maintained a fleet with an original
investment cost of approximately $908 million and a weighted average age of 19.7
months. HERC generated $392.3 million in revenue and $91.0 million in income
before taxes during 1996.
Strategic Information Systems
Centralized control of major business processes, achieved through the use of the
Company's strategic systems technology, provides the disciplined environment
which enables the Company to deliver consistent quality services at its car
rental and equipment rental operations. The Company maintains real-time
communications with its many locations by means of what it believes is the
largest private data network in the industry. Key components of the Company's
strategic systems include: (i) a global reservations system, which operates
through real-time, on-line centers on five continents, (ii) a yield management
system, which is designed to optimize revenue through controlling,
simultaneously, the availability of various rates as well as the availability of
cars, (iii) a competitive rate detection system, which monitors rate changes and
provides "scouting" routines to identify future rates and (iv) a cost allocation
model, which provides contribution data by location, business segment, car and
equipment category and customer account.
Other
Other activities of the Company include self-insurance operations for both its
car rental and industrial and construction equipment rental businesses, car
leasing operations in certain international markets, the sales of its used cars
and equipment, third party claim management services and telecommunications
services in the United States.
5
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BUSINESS STRATEGY
The Company believes that it is well positioned to capitalize upon the growth
opportunities available in both the global car rental and industrial and
construction equipment rental markets. The Company's strategy for continued
growth is to:
Capitalize on the opportunities presented by the changing ownership in the
domestic car rental industry
For the past several years, the car rental industry has experienced an
environment characterized by low price increases that have not kept pace with
rising fleet costs, resulting in significant operating losses for many
competitors in the industry. Management believes that there will be an increase
in industry profitability, in part as a consequence of the recent change in
ownership of many domestic car rental companies. Management intends to
capitalize on this favorable industry environment by selectively increasing
prices and continuing to improve its low cost structure relative to its
competitors.
Leverage the "Hertz" brand name, recognized worldwide, in existing and new
business ventures
The Company believes that the "Hertz" brand name provides an ideal platform to
expand into new ventures. For example, the Company has re-entered the retail
used car sales market. Once the largest retailer of used cars in the United
States, the Company intends to use its recognized brand name and reputation to
offer quality used cars. Key elements of the Company's retail used car sales
strategy include free initial warranty, no-haggle pricing and providing a
complete maintenance history for each car. The Company has 41 used car sales
locations from coast to coast, substantially all of which were profitable in
1996, with a substantial expansion underway for 1997. In addition, in 1997, the
Company will pilot a new retail used car sales concept under the "Hertz" brand
name offering a larger selection of used cars.
The Company has also entered the estimated $3.5 billion replacement/local car
rental segment in the United States under the H.I.R.E. brand name and in Europe
under the "Hertz" brand name. The H.I.R.E. business unit currently operates at
50 locations in six states with expansion underway. The Company expects that
H.I.R.E. generally will hold its cars for 18 to 24 months, compared with 5 to 12
months for the Company's domestic car rental business, resulting in lower
monthly holding costs. In Europe, the Company currently operates in the
replacement/local car rental market through its existing suburban car rental
locations.
Improve operating efficiency and enhance customer service through the continued
use and refinement of strategic information systems
The Company has invested over $600 million during the past five years in
strategic systems and intends to continue to invest in advanced technology. The
Company's centralized reservations system is integrated with its fleet
management information systems, resulting in improved vehicle utilization. This
system is being upgraded to a state of the art, client-server based reservations
system. In addition, the Company's yield management system employs techniques to
optimize, simultaneously, rental rates and car availability. The Company is in
the process of consolidating various European reservations centers into a single
facility in Ireland, resulting in anticipated cost savings while providing
uniformly high quality service. In its industrial and construction equipment
rental business, the use of its strategic information systems enables the
Company to monitor carefully the utilization of equipment by specific operation.
Through continued investments in these systems, the Company believes it will
expand its market share, increase its profitability and sustain its leadership
position with respect to the quality and breadth of services provided to its
customers.
Maintain consistent quality, pricing and service worldwide through continued
ownership of locations
The Company believes it maintains the largest network of company-owned car
rental locations both in the United States and in Europe. Because of its
extensive ownership base, the Company is capable of capitalizing worldwide on
business from global tourist and travel organizations and multinational
6
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corporations. The Company believes that its extensive worldwide ownership of its
operations contributes to the consistency of its high-quality service, strict
cost control, fleet utilization, yield management, competitive pricing and
ability to offer one-way rentals through its Rent It Here-Leave It There
program. Under appropriate circumstances, the Company also intends to expand
through joint ventures in emerging markets.
Expand the industrial and construction equipment rental business both in the
United States and abroad
The Company believes that HERC, as the largest nationwide provider of industrial
and construction equipment rental services in the United States, is well
positioned to expand through continued growth of its fleet and the opening and
acquisition of new locations. HERC intends to continue to emphasize profitable
expansion through: (i) continuing to focus on low equipment costs through its
status as one of the largest purchasers of new equipment in the United States,
(ii) improving productivity through use of the Company's strategic information
systems, (iii) expanding its used equipment sales operations available for
buyers seeking to purchase well-maintained, late model equipment at competitive
prices, (iv) diversifying its customer base across industry sectors and (v)
capitalizing on the trend of equipment users toward outsourcing to a single
nationwide provider. In addition, HERC intends to expand in international
markets over the long term by applying its successful U.S. operating philosophy.
Achieve superior performance by direct linkage of management compensation to
operating unit performance
All worldwide car rental and equipment rental operating units are managed under
an individual "profit center" philosophy, whereby profit and loss statements are
generated monthly by city. Management incentives are based primarily upon the
financial results of the specific operation managed. Additional consideration is
given for total operating unit and consolidated corporate financial performance.
This "profit center" management is supported and monitored by division and
corporate level management equipped with sophisticated management information
systems which allow detailed review of each operation and business discipline.
7
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THE OFFERINGS
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CLASS A COMMON STOCK OFFERED(1):
United States Offering.................................... 15,660,000 shares
International Offering.................................... 1,740,000 shares
Total Offerings........................................ 17,400,000 shares
COMMON STOCK OUTSTANDING AFTER THE OFFERINGS(1)(2):
Class A Common Stock...................................... 39,000,000 shares
Class B Common Stock...................................... 65,956,000 shares
Total Common Stock Outstanding......................... 104,956,000 shares
</TABLE>
USE OF PROCEEDS................. The proceeds to the Company from the offering
of the Class A Common Stock in the United
States and Canada (the "U.S. Offering") and
the concurrent offering outside the United
States and Canada (the "International
Offering" and, together with the U.S.
Offering, the "Offerings"), after the
deduction of underwriting discounts and
expenses payable by the Company, are
estimated to be $ million ($ million if
the Underwriters' over-allotment options are
exercised in full), substantially all of
which is expected to be used to reduce
short-term indebtedness of the Company. See
"Use of Proceeds".
DIVIDENDS; VOTING RIGHTS;
CONVERSION...................... The holders of Class A Common Stock and Class
B Common Stock (collectively, "Common Stock")
share ratably on a per share basis in all
dividends and other distributions declared by
the Board of Directors; however, the holders
of Class A Common Stock are entitled to one
vote per share and the holders of Class B
Common Stock are entitled to five votes per
share. See "Description of Capital Stock --
Common Stock -- Voting Rights". Under certain
circumstances, shares of Class B Common Stock
convert or are convertible into an equivalent
number of shares of Class A Common Stock. See
"Relationship with Ford" and "Description of
Capital Stock -- Common Stock -- Conversion".
Certain debt instruments to which the Company
is a party restrict the Company's ability to
pay dividends. See "Dividend Policy".
CONTROLLING STOCKHOLDER......... For information regarding the Company's
controlling stockholder, see "Relationship
with Ford" below.
RISK FACTORS.................... For a discussion of certain considerations
relevant to an investment in the Class A
Common Stock, see "Risk Factors".
NYSE SYMBOL FOR CLASS A COMMON
STOCK......................... HRZ
- -------------------------
(1) Excludes up to 2,349,000 shares and 261,000 shares subject to over-allotment
options granted by the Company to the U.S. Underwriters and the International
Underwriters, respectively. See "Underwriting".
(2) Excludes shares of Class A Common Stock reserved for issuance
pursuant to an employee benefit plan. See "Management -- Long-Term Equity
Compensation Plan".
8
<PAGE> 9
CERTAIN ACTIONS TO BE TAKEN PRIOR TO THE OFFERINGS
Certain credit facilities maintained by the Company and a series of debt
securities publicly issued by the Company contain as an event of default Ford's
failure to own, directly or indirectly, 100% of the outstanding voting stock of
the Company. Prior to completion of the Offerings, the Company intends to amend
such credit facilities and the terms of such securities to eliminate such event
of default. See "Description of Certain Indebtedness -- Ford Ownership Event of
Default".
Certain of the Company's airport concession agreements require the consent of
the airport authority in connection with changes in ownership of the Company.
Prior to completion of the Offerings, the Company intends to obtain consents
under, or amend, those concession agreements which require consent for the
transfer of the Class A Common Stock offered hereby. See "Risk Factors --
Control by and Relationship with Ford" and "Description of Capital Stock --
Certain Certificate of Incorporation and By-law Provisions -- Provisions That
May Have an Anti-Takeover Effect".
DIVIDEND POLICY
The Company's Board of Directors currently intends to declare quarterly
dividends on both the Class A Common Stock and Class B Common Stock. It is
expected that the first quarterly dividend payment will be $0.05 per share (a
rate of $0.20 annually), with the initial dividend to be declared and paid in
the third quarter of 1997. The declaration and payment of dividends by the
Company are subject to the discretion of its Board of Directors. Any
determination as to the payment of dividends will depend upon, among other
things, general business conditions, the Company's financial results,
contractual, legal and regulatory restrictions regarding the payment of
dividends by the Company's subsidiaries, the credit ratings of the Company and
such other factors as the Board of Directors may consider to be relevant.
Certain debt instruments to which the Company is a party restrict the Company's
ability to pay dividends. See "Dividend Policy".
The Company paid no cash dividends to Ford during 1994 and 1996 and paid a cash
dividend on its common stock to Ford of $25 million in 1995. On February 27,
1997, the Company paid a dividend of $460 million on its common stock to Ford in
the form of an intercompany note. The dividends historically paid by the Company
are not indicative of its future dividend policy.
RELATIONSHIP WITH FORD
Immediately prior to the Offerings, Ford and a Ford subsidiary will be the only
stockholders of the Company. Upon completion of the Offerings, Ford will
beneficially own 55.4% of the outstanding Class A Common Stock (51.9% if the
Underwriters' over-allotment options are exercised in full) and 100% of the
outstanding Class B Common Stock of the Company (which Class B Common Stock is
entitled to five votes per share on any matter submitted to a vote of the
Company's stockholders). Upon completion of the Offerings, the common stock
beneficially owned by Ford will represent in the aggregate 95.3% of the combined
voting power of all of the Company's outstanding common stock (or 94.6% if the
Underwriters' over-allotment options are exercised in full). Accordingly, Ford
will be able to direct the election of all of the members of the Company's Board
of Directors and exercise a controlling influence over the business and affairs
of the Company. Ford has advised the Company that its current intent is to
continue to hold all of the Common Stock beneficially owned by it following the
Offerings. However, Ford is not subject to any contractual obligation to retain
its controlling interest, except that the Company and Ford have agreed, subject
to certain exceptions, not to sell or otherwise dispose of any shares of Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of J.P. Morgan Securities Inc. See "Risk Factors --
Control by and Relationship with Ford", "-- Possible Future Sales of Common
Stock by Ford", "Relationship with Ford" and "Underwriting". From time to time
the Company and Ford have entered into, and can be expected to continue to enter
into, certain agreements and business transactions in the ordinary course of
their respective businesses, and the Company's Restated Certificate of
Incorporation includes certain provisions relating to the Company's relationship
with Ford. See "Relationship with Ford" and "Description of Capital Stock --
Certain Certificate of Incorporation and By-law Provisions -- Corporate
Opportunities".
9
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The summary consolidated income statement data for each of the years in the
three-year period ended December 31, 1996, and consolidated balance sheet data
as of December 31, 1996 and 1995 presented below were derived from the audited
consolidated financial statements of the Company and the related notes thereto
included in this Prospectus. The summary consolidated income statement data for
each of the years in the two-year period ended December 31, 1993 and
consolidated balance sheet data as of December 31, 1994, 1993 and 1992 presented
below were derived from audited consolidated financial statements of the Company
and the related notes thereto not included in this Prospectus. The financial
data presented below and the related notes thereto should be read in conjunction
with the consolidated financial statements of the Company and the related notes
thereto included in this Prospectus.
<TABLE>
<CAPTION>
----------------------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994 1993 1992
Dollars in millions, except per share data -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues
Car rental.................................................. $3,161.6 $2,911.7 $2,581.2 $2,177.5 $2,124.1
Industrial and construction equipment rental................ 392.3 332.3 263.1 215.8 208.8
Car leasing................................................. 35.4 35.6 231.4 209.3 241.0
Other (a)................................................... 79.0 121.0 218.7 252.2 242.3
-------- -------- -------- -------- --------
Total revenues.......................................... 3,668.3 3,400.6 3,294.4 2,854.8 2,816.2
-------- -------- -------- -------- --------
Expenses
Direct operating............................................ 1,795.1 1,724.8 1,766.2 1,647.1 1,627.5
Depreciation of revenue earning equipment (b)............... 892.7 803.9 702.7 523.9 496.8
Selling, general and administrative......................... 425.2 392.5 385.5 336.0 353.3
Interest, net of interest income of $10.4, $16.8, $7.2,
$11.3 and $3.6............................................ 298.8 307.1 277.2 245.4 306.9
-------- -------- -------- -------- --------
Total expenses.......................................... 3,411.8 3,228.3 3,131.6 2,752.4 2,784.5
-------- -------- -------- -------- --------
Income before income taxes.................................. 256.5 172.3 162.8 102.4 31.7
Provision for taxes on income (c)........................... 97.9 67.1 71.7 49.0 21.7
-------- -------- -------- -------- --------
Income before cumulative effect of change in accounting
principle................................................. 158.6 105.2 91.1 53.4 10.0
Cumulative effect on prior years of change in method of
accounting for postretirement benefits (d)................ -- -- -- -- (4.3)
-------- -------- -------- -------- --------
Net income.................................................. $ 158.6 $ 105.2 $ 91.1 $ 53.4 $ 5.7
======== ======== ======== ======== ========
Pro forma net income per share (e).......................... $ 1.51
========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
AT DECEMBER 31
1996 1995 1994 1993 1992
Dollars in millions -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Revenue earning equipment
Cars.................................................. $4,318.3 $3,627.2 $3,854.4 $2,417.0 $1,871.2
Other equipment....................................... 717.4 543.0 406.0 285.5 251.4
Total assets............................................ 7,649.2 6,656.6 6,520.8 4,688.5 4,222.0
Total debt.............................................. 5,091.8 4,297.5 4,413.9 2,940.5 2,549.9
Stockholders' equity.................................... 989.4 836.3 735.9 616.7 579.5
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
YEARS ENDED OR AT DECEMBER 31
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Car rental and other operations:
Number of owned and licensee locations................ 5,435 5,480 5,498 5,594 5,687
Number of owned locations............................. 2,208 2,171 2,254 2,369 2,487
Peak number of owned and licensee cars operated during
period.............................................. 389,000 376,800 378,700 332,500 323,700
Average number of owned cars operated during period... 283,900 263,600 276,100 236,500 230,300
Number of transactions of owned car rental operations
during period (in thousands)........................ 20,110 18,799 17,811 15,623 14,887
Average revenue per transaction of owned car rental
operations during period (in whole dollars)......... $ 157 $ 155 $ 145 $ 139 $ 143
Equipment rental operations:
Number of locations................................... 120 104 95 85 89
Average cost of rental equipment operated during
period (in millions)................................ $ 822.9 $ 650.4 $ 504.1 $ 428.3 $ 423.2
</TABLE>
10
<PAGE> 11
- -------------------------
(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,
primarily from net proceeds received in excess of book value on the disposal of
revenue earning equipment. Effective 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 this change, depreciation of
revenue earning equipment for the year 1995 and the year 1994 decreased by $12.0
million and $9.6 million, respectively.
(c) 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 Company and its former parent
companies, UAL Corporation ("UAL") and RCA Corporation ("RCA"). 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.
(d) Effective January 1, 1992, the Company 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.
(e) Based on 104,956,000 shares outstanding after the Offerings, which excludes
shares subject to over-allotment options granted by the Company to the
Underwriters and shares reserved for issuance pursuant to an employee benefit
plan. Due to the changes in the Company's capital structure, historical share
and per share data will not be comparable to, or meaningful in the context of,
future periods. See "Capitalization".
11
<PAGE> 12
RISK FACTORS
The following factors should be carefully considered, together with the
information provided elsewhere in this Prospectus, in evaluating an investment
in the Class A Common Stock offered hereby.
RISK OF ECONOMIC DOWNTURN
The Company's results of operations are affected by certain economic factors,
including the level of economic activity in the markets in which the Company
operates. A decline in economic activity either in the United States or in
international markets may adversely affect the Company. In the car rental
business, a decline in economic activity typically results in a decline in both
business and leisure travel, and accordingly a decline in the volume of car
rental transactions. In the equipment rental business, a decline in economic
activity typically results in a decline in activity in construction and other
businesses in which the Company's rental equipment customers operate, and
accordingly a decline in the volume of equipment rental transactions. In the
case of a decline in car and equipment rental activity, the Company may reduce
rental rates to meet competitive pressures, which could adversely affect the
Company's results of operations. A decline in economic activity also may have an
adverse effect on residual values realized on the disposition of the Company's
inventory of cars and equipment. At December 31, 1996, the Company was subject
to residual risk with respect to 17% of all cars in its worldwide car rental and
leasing operations and 100% of the equipment in its industrial and construction
equipment rental operations. In the United States, the Company expects the
percentage of its cars which will be subject to residual risk to increase. See
"Business -- Worldwide Car Rental -- Car Acquisition" and "-- Risks Related to
Decreased Acquisition or Disposition of Cars Through Repurchase Programs".
COMPETITION
The markets in which the Company operates are highly competitive. In addition,
recent changes in ownership of a number of domestic car rental companies could
further intensify competition. The Company believes that price is one of the
primary competitive factors in the car and industrial and construction equipment
rental markets. Although the Company believes that the recent ownership changes
in the industry could improve profitability, competitors of the Company, many of
which have access to substantial capital, may seek to compete aggressively on
the basis of pricing. To the extent that the Company matches competitors'
downward pricing, it could have an adverse impact on the Company's results of
operations. To the extent that the Company is not willing to match competitors'
pricing, it could also have an adverse impact on the Company's results of
operations as the Company may lose market share and major corporate accounts.
DEPENDENCE ON AIR TRAVEL INDUSTRY
The Company estimates that approximately 77% of its worldwide car rental
revenues in 1996 were generated at its airport facilities. Significant airfare
increases (e.g., due to an increase in fuel costs) could result in reduced air
travel and have a material adverse effect on the Company's results of
operations. In addition, any event that disrupts or reduces air travel patterns
for a continued period of time could have an adverse effect on the Company's
results of operations. These events could include work stoppages, airline
bankruptcies, military conflicts or terrorist incidents.
LIMITATIONS UPON LIQUIDITY, CAPITAL RAISING AND DIVIDENDS; INTEREST RATE RISK
Potential restraints upon liquidity
The Company satisfies its funding requirements principally through sales of
commercial paper, other short-term borrowings primarily from banks, and the
issuance of long-term debt. At December 31, 1996, commercial paper borrowings
and other short-term indebtedness were $2.5 billion. On February 5, 1997,
Standard & Poor's Ratings Group ("S&P") affirmed the Company's short-term
12
<PAGE> 13
credit rating at A-1 and reduced its long-term credit rating from A to A-. On
February 28, 1997, Moody's Investors Service ("Moody's") confirmed the Company's
short-term and long-term credit ratings at P1 and A3, respectively. A further
downgrade of the Company's credit ratings would likely result in an increase in
the Company's funding costs and could, under certain circumstances, have an
adverse impact on the Company's access to the commercial paper and other debt
markets. In the event that the Company is unable to access the commercial paper
markets or otherwise finance its borrowing needs in the public or private
markets upon acceptable terms, it would seek to satisfy its liquidity
requirements through borrowings under its credit facilities or through financing
secured by the Company's revenue earning equipment. At all times during 1996,
the Company had committed credit facilities representing credit support for 100%
of the Company's commercial paper outstanding. At December 31, 1996, the Company
had the capacity to borrow $2.4 billion under these facilities. The Company
intends to continue to maintain committed credit facilities in an amount equal
to 100% of its anticipated commercial paper outstanding from time to time.
However, there can be no assurance that these committed lines would provide
sufficient liquidity to the Company under all conditions. In such circumstances,
the Company may seek to issue equity securities, although, as discussed below,
the Company may be constrained in its ability to do so.
Impact of Relationship with Ford on Capital Raising
Because Ford may choose to maintain its ownership percentage of the Company, the
Company may be constrained in its ability to raise common or preferred equity
capital in the future. In addition, Ford may not be willing to make capital
contributions to the Company in the future. See "Relationship with Ford".
In addition, there can be no assurance that any future downgrading of Ford's
credit ratings would not have an adverse impact on the Company's credit ratings.
Therefore, for so long as Ford maintains a significant interest in the Company,
a deterioration in the financial condition of Ford could have the effect of
increasing the Company's borrowing costs and/or impairing its access to the
capital markets. To the extent the Company does not pass on its increased
borrowing costs to its customers, the Company's profitability, and potentially
its ability to raise capital, could be adversely affected. Also, while no such
agreements or policies are presently contemplated, Ford will have the ability in
the future to enter into agreements or adopt policies which limit the Company's
ability to incur debt. See "Relationship with Ford".
Limitations on Dividends and other Activities
Certain debt instruments to which the Company is a party restrict the Company's
ability to pay dividends and engage in certain other activities. See "Dividend
Policy" and "Description of Certain Indebtedness".
Interest Rate Risk
While the Company has developed an interest rate management policy, including a
target mix for average fixed rate and floating rate indebtedness on a
consolidated basis, an increase in interest rates may have an adverse impact on
the Company's profitability. In addition, an increase in interest rates may
result in a decline in activity in construction and other businesses in which
the Company's equipment rental customers operate, and accordingly a decline in
the volume of industrial and construction equipment rental transactions. The
Company's total outstanding debt of $5.1 billion at December 31, 1996 included
interest rate sensitive debt of $2.1 billion, which had a weighted average
interest rate of 5.34%, and non-interest rate sensitive debt of $3.0 billion
(either by its original terms or through the use of interest rate derivatives)
which had a weighted average fixed interest rate of 7.35%. During the Company's
seasonal borrowing peak in 1996, outstanding interest rate sensitive debt
totalled $2.6 billion, with a weighted average interest rate of 5.21%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
13
<PAGE> 14
INCREASED COST OF CARS
In recent years, the average price of new cars has increased. From time to time,
the automobile manufacturers have sponsored sales incentive programs which have
tended to lower the average cost of cars for fleet purchasers such as the
Company. The Company anticipates that new car prices will continue to increase
and there can be no assurance that sales incentive programs will remain
available, that the Company will be able to effectively control the average cost
of its fleet by purchasing a mix of less expensive cars or, because of
competitive pressures, that the Company will be able to pass on the increased
cost of cars to its rental customers.
RISK OF LIMITED SUPPLY OF COMPETITIVELY PRICED CARS
The Company historically has purchased most of its cars used in its car rental
operations from Ford, and expects to continue to do so in the future. Under a
ten-year car supply agreement, commencing September 1, 1997, Ford is obligated
to strive to offer car fleet programs to the Company 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 Company and other daily car
rental companies. See "Relationship with Ford -- Car Supply Agreement". If,
however, Ford is not able to offer competitive terms and conditions and the
Company is not able to purchase sufficient quantities of cars from other
automobile manufacturers on competitive terms and conditions, then the Company
may be forced to purchase cars at higher prices or on otherwise less competitive
terms, compared with cars purchased by its competitors. Such a situation could
adversely affect the Company's results of operations through increased car
acquisition and depreciation costs if it is unable to pass on these costs to its
customers through higher pricing.
RISK OF LOSS OF FORD ADVERTISING REIMBURSEMENT
If the Company does not purchase a fixed minimum percentage of its U.S. car
rental fleet from Ford, the Company would not be entitled to reimbursement by
Ford of certain of its advertising costs under an advertising agreement with
Ford. The level of these payments by Ford are substantial, and the loss or
interruption of these payments could adversely affect the Company's results of
operations. See "Business -- Worldwide Car Rental -- Marketing, Sales and
Advertising" and "Relationship With Ford -- Joint Advertising Agreement".
RISKS RELATED TO DECREASED ACQUISITION OR DISPOSITION OF CARS THROUGH REPURCHASE
PROGRAMS
At December 31, 1996, 83% of the cars in the Company's car rental fleet were
subject to repurchase by automobile manufacturers under guaranteed repurchase
programs. Under these programs, automobile manufacturers agree to repurchase
cars at a specified price during established repurchase periods, subject to
certain car condition and mileage requirements. These repurchase programs limit
the risk to the Company that the market value of a car at the time of its
disposition will be less than its estimated residual value at such time
("residual risk"). For this reason, cars purchased by car rental companies under
repurchase programs are sometimes referred to by industry participants as
"non-risk" cars. Conversely, those cars not purchased under repurchase programs
for which the car rental company is exposed to residual risk are sometimes
referred to as "at risk" cars. Repurchase programs enable the Company to
determine its depreciation expense in advance. Depreciation is a significant
cost factor in the Company's operations. The Company expects the percentage of
its car rental fleet subject to repurchase programs to decrease due primarily to
anticipated changes in the terms to be offered by automobile manufacturers under
repurchase programs. The Company believes such terms will encourage the Company
to purchase a larger proportion of cars not subject to repurchase programs.
Accordingly, the Company expects to bear increased risk relating to the residual
market value of its car rental fleet and car depreciation. In addition,
repurchase programs generally provide the Company with flexibility to reduce the
size of its fleet by returning cars sooner and without loss in the event of an
economic downturn. This flexibility will be reduced to the extent the percentage
of non-risk cars in the
14
<PAGE> 15
Company's car rental fleet decreases. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- General" and "Business --
Worldwide Car Rental -- Car Acquisition".
Automobile manufacturers also could modify or eliminate their repurchase
programs or change their return policies (which include condition and mileage
requirements for returned cars) to make it disadvantageous to return certain
cars. Any such modification or elimination would expose the Company to the risks
described in the preceding paragraph.
CONTROL BY AND RELATIONSHIP WITH FORD
Ford is currently the beneficial owner of all of the common stock and preferred
stock of the Company. Upon completion of the Offerings, Ford will beneficially
own 55.4% of the outstanding Class A Common Stock (51.9% if the Underwriters'
over-allotment options are exercised in full) and 100% of the outstanding Class
B Common Stock which will, in the aggregate, represent approximately 95.3% of
the combined voting power of all the outstanding Common Stock (or approximately
94.6% if the Underwriters' over-allotment options are exercised in full). For as
long as Ford continues to beneficially own shares of Common Stock representing
more than 50% of the combined voting power of the Common Stock, Ford will be
able to direct the election of all of the members of the Company's Board of
Directors and exercise a controlling influence over the business and affairs of
the Company, including any determinations with respect to mergers or other
business combinations involving the Company, the acquisition or disposition of
assets by the Company, the incurrence of indebtedness by the Company, the
issuance of any additional Common Stock or other equity securities of the
Company, the repurchase or redemption of common stock or preferred stock of the
Company and the payment of dividends with respect to the Common Stock. See "--
Limitations Upon Liquidity and Capital Raising -- Potential Restraints Upon
Liquidity". Similarly, Ford will have the power to determine matters submitted
to a vote of the Company's stockholders without the consent of the Company's
other stockholders, will have the power to prevent or cause a change in control
of the Company and could take other actions that might be favorable to Ford. In
the foregoing situations or otherwise, various conflicts of interest between the
Company and Ford could arise. Ownership interests of directors or officers of
the Company in common stock of Ford, if any, or service as a director or officer
of both the Company and Ford could create or appear to create potential
conflicts of interest when directors and officers are faced with decisions that
could have different implications for the Company and Ford. The Company's
Restated Certificate of Incorporation will include certain provisions relating
to the allocation of business opportunities that may be suitable for both the
Company and Ford. See "Relationship with Ford" and "Description of Capital Stock
- -- Certain Certificate of Incorporation and By-law Provisions -- Corporate
Opportunities".
Beneficial ownership of at least 80% of the total voting power and value of the
outstanding Common Stock is required in order for Ford to continue to include
the Company in its consolidated group for federal income tax purposes, and
beneficial ownership of at least 80% of the total voting power and 80% of each
class of nonvoting capital stock is required in order for Ford to effect a
tax-free spin-off (as defined under "Description of Capital Stock -- Common
Stock -- Conversion") of the Company or certain other tax-free transactions.
Each member of a consolidated group for federal income tax purposes is jointly
and severally liable for the federal income tax liability of each other member
of the consolidated group. Each member of the Ford controlled group, which
includes Ford, the Company and Ford's other subsidiaries, is also jointly and
severally liable for pension and benefit funding and termination liabilities of
other group members, as well as certain benefit plan taxes. Accordingly, the
Company could be liable under such provisions in the event any such liability is
incurred, and not discharged, by any other member of the Ford consolidated or
controlled group. If the Company were no longer to be included in Ford's
consolidated group for federal tax purposes, there is no assurance that the
Company's tax position would not be less favorable than it is at present. See
"Relationship with Ford".
In addition, by virtue of its controlling beneficial ownership and the terms of
a tax-sharing agreement between the Company and Ford, Ford effectively controls
all of the Company's tax decisions. Under the
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<PAGE> 16
tax-sharing agreement, Ford has sole authority to respond to and conduct all tax
proceedings (including tax audits) relating to the Company's federal and
combined state returns, to file all such returns on behalf of the Company and to
determine the amount of the Company's liability to (or entitlement to payment
from) Ford under the tax-sharing agreement. See "Relationship with Ford --
Tax-Sharing Agreement". This arrangement may result in conflicts of interests
between the Company and Ford. For example, under the tax-sharing agreement, Ford
may choose to contest, compromise or settle any adjustment or deficiency
proposed by the relevant taxing authority in a manner that may be beneficial to
Ford and detrimental to the Company.
Certain of the Company's airport concession agreements require the consent of
the airport authority in connection with transfers of various percentages of the
Company's common stock.
Certain intercompany agreements and arrangements exist between the Company and
Ford. See "Relationship with Ford". There can be no assurance that the products,
services and other benefits Ford provides to or purchases from the Company under
such agreements will continue to be provided or purchased, and if not, whether,
or on what terms, such products, services or other benefits provided to the
Company could be replicated and sales thereof to Ford replaced. See "-- Risk of
Limited Supply of Competitively-Priced Cars" and "-- Risk of Loss of Ford
Advertising Reimbursement".
LIABILITY AND INSURANCE
The Company's businesses expose it to claims for personal injury, death and
property damage resulting from the use of the cars and equipment rented or sold
by the Company and for workers' compensation claims and other employment-related
claims by the Company's employees. The Company generally self-insures up to $5
million per occurrence in the United States, up to $1.5 million per occurrence
in Europe and lower amounts in certain other foreign countries, and maintains
insurance with unaffiliated carriers in excess of such levels up to $450 million
per occurrence or, in the case of Europe, without limits. There can be no
assurance that the Company will not be exposed to uninsured liability at levels
in excess of historical levels resulting from multiple payouts or otherwise,
that liabilities in respect of existing or future claims will not exceed the
level of the Company's insurance, that the Company will have sufficient capital
available to pay any uninsured claims or that insurance with unaffiliated
carriers will continue to be available to the Company on economically reasonable
terms. See "Business -- Self Insurance" and "-- Legal Proceedings".
SEASONALITY
In the Company's businesses, the second and third quarters of the year have
historically been the strongest quarters of the year. In 1996, these quarters
accounted for approximately 53.7% of overall revenue and 80.9% of income before
income taxes. As a result, any occurrence that disrupts rental activity during
the second or third quarters could have an adverse effect on the Company's
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
ENVIRONMENTAL RISKS
The Company is regulated by federal, state, local and foreign environmental laws
and regulations in connection with its operations, including, among other
things, with respect to the ownership and operation of tanks for the storage of
petroleum products, such as gasoline, diesel fuel and motor and waste oils. A
significant percentage of these tanks are located underground. The Company has
established a compliance program for its tanks to ensure that (i) the tanks are
properly registered with the state in which the tanks are located; and (ii) the
tanks have been either upgraded or replaced to meet federal and state leak
detection and spill, overfill and corrosion protection requirements. However,
there can be no assurance that these tank systems will at all times remain free
from leaks or that the use of these tanks will not result in spills.
The Company has made, and will continue to make, expenditures to comply with
environmental laws and regulations, including, among others, expenditures for
the clean-up of contamination at its owned and leased properties, as well as
contamination at other locations at which the Company's wastes have
16
<PAGE> 17
reportedly been identified. There can be no assurance that compliance with
existing or future environmental legislation and regulations will not require
material expenditures by the Company or otherwise have an adverse effect on the
Company's operations. See "Business -- Governmental Regulation and Environmental
Matters".
FUEL SHORTAGE
The Company's operations, as well as those of its competitors, could be affected
by any limitation in the fuel supply or by any imposition of mandatory
allocation or rationing regulations. In the event of a severe disruption of fuel
supplies resulting from OPEC supply changes, political unrest, war or otherwise,
the operations of all car and equipment rental and leasing companies could be
adversely affected.
POSSIBLE FUTURE SALES OF COMMON STOCK BY FORD
Subject to applicable federal securities laws and the restrictions set forth
below, after completion of the Offerings, Ford may sell any or all of the shares
of the Common Stock beneficially owned by it or distribute any or all of such
shares of Common Stock to its stockholders. Sales or distributions by Ford of
substantial amounts of Common Stock in the public market or to its stockholders,
or the perception that such sales or distribution could occur, could adversely
affect prevailing market prices for the Class A Common Stock. Ford has advised
the Company that its current intent is to continue to hold all of the Common
Stock beneficially owned by it following the Offerings. However, Ford is not
subject to any contractual obligation to retain its controlling interest, except
that Ford and the Company have agreed, subject to certain exceptions, not to
sell or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of J.P.
Morgan Securities Inc. See "Underwriting". As a result, there can be no
assurance concerning the period of time during which Ford will maintain its
beneficial ownership of Common Stock owned by it following the Offerings. Ford
will have registration rights with respect to the shares of the Common Stock
owned by it following the Offerings, which would facilitate any future
disposition. See "-- Control by and Relationship with Ford" above, "Relationship
with Ford -- Corporate Agreement" and "Shares Available for Future Sale".
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation and
By-laws may render more difficult, or have the effect of discouraging,
unsolicited takeover bids from third parties or the removal of incumbent
management of the Company. See "Description of Capital Stock -- Certain
Certificate of Incorporation and By-law Provisions". Although such provisions do
not have a substantial practical significance to investors while Ford controls
the Company, such provisions could have the effect of depriving stockholders of
an opportunity to sell their shares at a premium over prevailing market prices
should Ford's combined voting power decrease to less than 50%.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein under "Prospectus Summary", "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" including, without limitation, those concerning (i)
the Company's strategy, (ii) the Company's expansion plans for its various
businesses, (iii) the Company's capital expenditures, (iv) the percentage of
cars expected to be acquired from Ford in the future, (v) the terms upon which
cars will be acquired, (vi) the development of the Company's strategic
information systems and (vii) the effects on the Company of certain legal
proceedings, contain certain forward-looking statements concerning the Company's
operations, economic performance and financial condition. Because such
statements involve risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements. Factors that
could cause such differences include, but are not limited to, those discussed
under "Risk Factors".
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<PAGE> 18
THE COMPANY
GENERAL
The Company and its affiliates and independent licensees operate what the
Company 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 Company's "Hertz" brand name is recognized worldwide as a leader in quality
rental and leasing services and products. The Company, 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. For the year ended December 31, 1996, the Company
generated record revenues, income before taxes and net income of $3.7 billion,
$256.5 million and $158.6 million, respectively. The Company and its
predecessors have been profitable in every year since 1952, when one of the
Company's predecessors first became a public company.
Car Rental
The Company believes it maintains the largest network of company-owned car
rental locations both in the United States and in Europe, and the largest number
of on-airport car rental locations in the world, enabling the Company to provide
consistent quality, pricing and service worldwide. The Company derives
approximately 77% of its car rental revenues from on-airport locations.
According to information disclosed by the largest 153 U.S airports, the Company
maintained the leading on-airport car rental market share at such airports
during 1996 of over 30% in terms of revenues and has maintained market share at
approximately this level during each of the last five years. This market has
grown at a compounded annual rate of approximately 11% since 1992 to over $6
billion in revenues in 1996, based on information provided by such airports. The
Company also believes it maintained the leading on-airport car rental market
share in Europe during 1996 of approximately 30% in terms of revenues. The
Company has recently begun to provide replacement car rental services from
off-airport locations under the H.I.R.E. brand name. The Company estimates that
total 1996 revenues for the car rental industry in the United States were in
excess of $14 billion, and that total 1995 revenues for the car rental industry
in Europe were in excess of $5 billion.
During 1996, approximately 51% of the Company's worldwide car rental revenues
were generated from business travelers and approximately 49% from leisure
travelers. The Company has a worldwide marketing and sales organization of over
800 people focused on both commercial accounts/group sales and the travel
industry, including travel agents, as well as a comprehensive program of retail
and trade advertising, direct mail and other targeted marketing. At December 31,
1996, the Company's business customers included 357 of the Fortune 500
companies. The Company was named a primary supplier to 149 of the 347 Fortune
500 companies who named a primary/secondary supplier. The Company has received
numerous awards and designations around the world for its car rental business
from independent third parties.
The Company's Hertz #1 Club Gold service provides an expedited rental service to
members at approximately 650 locations worldwide. At December 31, 1996, there
were approximately two million active Hertz #1 Club Gold members who accounted
for approximately 35% of the Company's U.S. car rental transactions in 1996.
Through its many travel industry relationships with airlines and hotels, the
Company has targeted the most frequent travelers to become Hertz #1 Club Gold
members.
The Company's worldwide car rental operations and certain other activities
generated $3.3 billion in revenue and $165.5 million in income before taxes
during 1996.
Industrial and Construction Equipment Rental
The Company, through its wholly-owned subsidiary, HERC, believes that it
maintains the leading market share in the U.S. industrial and construction
equipment rental market. HERC rents a broad
18
<PAGE> 19
range of earth moving equipment, materials handling equipment, aerial and
electrical equipment, air compressors, compaction equipment and
construction-related trucks through a network of 120 branch locations. The
Company estimates that 1995 annual revenues for the U.S. equipment rental market
were $15 billion. This market is fragmented with over 7,000 participants and
12,000 locations. According to the Rental Equipment Register, an industry
publication, only 23 of the top 100 equipment rental companies in the United
States had rental revenues in excess of $25 million in 1995.
HERC maintains an established national accounts program with over 1,700
customers who generated 43% of HERC's revenues in 1996. The Company believes
that HERC's fleet is the largest and most modern of its kind in the United
States. As of December 31, 1996, HERC maintained a fleet with an original
investment cost of approximately $908 million and a weighted average age of 19.7
months. HERC generated $392.3 million in revenue and $91.0 million in income
before taxes during 1996.
Strategic Information Systems
Centralized control of major business processes, achieved through the use of the
Company's strategic systems technology, provides the disciplined environment
which enables the Company to deliver consistent quality services at its car
rental and equipment rental operations. The Company maintains real-time
communications with its many locations by means of what it believes is the
largest private data network in the industry. Key components of the Company's
strategic systems include: (i) a global reservations system, which operates
through real-time, on-line centers on five continents, (ii) a yield management
system, which is designed to optimize revenue through controlling,
simultaneously, the availability of various rates as well as the availability of
cars, (iii) a competitive rate detection system, which monitors rate changes and
provides "scouting" routines to identify future rates and (iv) a cost allocation
model, which provides contribution data by location, business segment, car and
equipment category and customer account.
Other
Other activities of the Company include self-insurance operations for both its
car rental and industrial and construction equipment rental businesses, car
leasing operations in certain international markets, the sales of its used cars
and equipment, third party claim management services and telecommunications
services in the United States.
-------------------------
The Company, which was incorporated in Delaware in 1967, is a successor to
corporations that have been engaged in the automobile and truck leasing and
rental business since 1918. As a result of a series of transactions in 1993 and
1994, the Company became a wholly-owned subsidiary of Ford. Prior to that time
and until 1987, when Ford first acquired an ownership interest in the Company,
the Company had been a subsidiary of UAL Corporation (formerly Allegis
Corporation) ("UAL"), which had acquired the Company's outstanding capital stock
from RCA Corporation ("RCA") in 1985. See Notes 1, 5 and 7 of the Notes to the
Company's consolidated financial statements included in this Prospectus.
The Company's principal executive offices are located at 225 Brae Boulevard,
Park Ridge, New Jersey 07656, and its telephone number is (201) 307-2000.
19
<PAGE> 20
USE OF PROCEEDS
The proceeds to the Company from the Offerings, after the deduction of
underwriting discounts and expenses payable by the Company, are estimated to be
$ million ($ million if the Underwriters' over-allotment options are
exercised in full), substantially all of which is expected to be used to reduce
short-term indebtedness (commercial paper) of the Company. The indebtedness to
be repaid was incurred to repay an intercompany note issued by the Company to
Ford in the amount of $460 million. See "Dividend Policy".
DIVIDEND POLICY
The Company's Board of Directors currently intends to declare quarterly
dividends on both the Class A Common Stock and Class B Common Stock. It is
expected that the first quarterly dividend payment will be $0.05 per share (a
rate of $0.20 annually), with the initial dividend to be declared and paid in
the third quarter of 1997. The declaration and payment of dividends by the
Company are subject to the discretion of its Board of Directors. Any
determination as to the payment of dividends will depend upon, among other
things, general business conditions, the Company's financial results,
contractual, legal and regulatory restrictions regarding the payment of
dividends by the Company's subsidiaries, the credit ratings of the Company and
such other factors as the Board of Directors may consider to be relevant.
Certain debt instruments under which the Company has issued debt securities
restrict the Company's ability to pay dividends. Such restrictions generally
provide that the Company may not pay dividends, invest in its own shares or
permit investments by certain subsidiaries of the Company ("Restricted
Subsidiaries") in the Company's shares subsequent to a specified date if,
together with total investments by the Company and its Restricted Subsidiaries
in subsidiaries that are not Restricted Subsidiaries made subsequent to such
specified date, the aggregate of any such dividends or investments exceeds the
sum of (i) a specified dollar amount, (ii) the aggregate net income of the
Company and its Restricted Subsidiaries earned subsequent to such specified date
and (iii) net proceeds received from capital stock issued subsequent to such
specified date. Immediately following the Offerings, the Company will be
permitted to pay $ in dividends under the most restrictive of such covenants.
See "Use of Proceeds" and "Capitalization". The last to mature of the
outstanding securities of the Company containing restrictions on the Company's
ability to pay dividends has a final maturity of November 1, 2009.
The Company paid no cash dividends to Ford during 1994 and 1996 and paid a cash
dividend on its common stock to Ford of $25 million in 1995. On February 27,
1997, the Company paid a dividend of $460 million on its common stock to Ford in
the form of an intercompany note. The dividends historically paid by the Company
are not indicative of its future dividend policy.
20
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of December
31, 1996 (i) on an actual basis and (ii) as adjusted to give effect to (a) the
payment by the Company of a dividend of $460 million on its common stock to Ford
in the form of an intercompany note, (b) the borrowing of $460 million to repay
the intercompany note to Ford, (c) the reclassification of 741 shares of common
stock, par value $1.00 per share, owned by Ford into 65,956,000 shares of Class
B Common Stock, (d) the issuance and sale by the Company of 17,400,000 shares of
Class A Common Stock in the Offerings at an assumed initial public offering
price of $22.50 per share (the midpoint of the range set forth on the cover of
this Prospectus), (e) the reclassification of all of the Company's outstanding
Preferred Stock, Series A and Preferred Stock, Series B beneficially owned by
Ford into 21,600,000 shares of Class A Common Stock and (f) assuming an initial
public offering price of $22.50 per share, the receipt of net proceeds of $
million from the sale by the Company of 17,400,000 shares of Class A Common
Stock in the Offerings and the application of such proceeds as set forth under
"Use of Proceeds". This table should be read in conjunction with the financial
statements and the related notes thereto contained in the Company's consolidated
financial statements included in this Prospectus.
<TABLE>
<CAPTION>
-------------------------
AS OF DECEMBER 31, 1996
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Dollars in thousands
The Company's debt:
Promissory notes, debentures, etc. ....................... $3,517,254 $
Subordinated promissory notes
Senior................................................. 149,828
Junior................................................. 399,756
Debt of the Company's subsidiaries.......................... 1,025,006
---------- ----------
Total Debt................................................ 5,091,844
---------- ----------
Stockholders' Equity:
Common Stock, par value $1.00 per share, shares issued --
200 Class A, 51 Class B and 490 Class C................ 1 --
Common Stock, par value $0.01 per share, shares issued --
39,000,000 Class A and 65,956,000 Class B(1)........... --
Preferred Stock --
Series A, 10% cumulative............................... 236,000 --
Series B, various rates cumulative..................... 249,900 --
Additional capital paid-in................................ 59,008
Retained earnings......................................... 435,352
Translation adjustment.................................... 9,129
Unrealized holding losses for available-for-sale
securities............................................. (25)
---------- ----------
Total stockholders' equity................................ 989,365
---------- ----------
Total capitalization...................................... $6,081,209 $
========== ==========
</TABLE>
- -------------------------
(1) Excludes shares of Class A Common Stock reserved for issuance pursuant
to an employee benefit plan. See "Management -- Long-Term Equity Compensation
Plan".
21
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The selected consolidated income statement data for each of the years in the
three-year period ended December 31, 1996, and consolidated balance sheet data
as of December 31, 1996 and 1995 presented below were derived from the audited
consolidated financial statements of the Company and the related notes thereto
included in this Prospectus. The selected consolidated income statement data for
each of the years in the two-year period ended December 31, 1993, and
consolidated balance sheet data as of December 31, 1994, 1993 and 1992 presented
below were derived from audited consolidated financial statements of the Company
and the related notes thereto not included in this Prospectus. The financial
data presented below and the related notes thereto should be read in conjunction
with the consolidated financial statements of the Company and the related notes
thereto included in this Prospectus.
<TABLE>
<CAPTION>
----------------------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994 1993 1992
Dollars in millions, except per share data -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues
Car rental.................................................. $3,161.6 $2,911.7 $2,581.2 $2,177.5 $2,124.1
Industrial and construction equipment rental................ 392.3 332.3 263.1 215.8 208.8
Car leasing................................................. 35.4 35.6 231.4 209.3 241.0
Other (a)................................................... 79.0 121.0 218.7 252.2 242.3
-------- -------- -------- -------- --------
Total revenues.......................................... 3,668.3 3,400.6 3,294.4 2,854.8 2,816.2
-------- -------- -------- -------- --------
Expenses
Direct operating............................................ 1,795.1 1,724.8 1,766.2 1,647.1 1,627.5
Depreciation of revenue earning equipment (b)............... 892.7 803.9 702.7 523.9 496.8
Selling, general and administrative......................... 425.2 392.5 385.5 336.0 353.3
Interest, net of interest income of $10.4, $16.8, $7.2,
$11.3 and $3.6............................................ 298.8 307.1 277.2 245.4 306.9
-------- -------- -------- -------- --------
Total expenses.......................................... 3,411.8 3,228.3 3,131.6 2,752.4 2,784.5
-------- -------- -------- -------- --------
Income before income taxes.................................. 256.5 172.3 162.8 102.4 31.7
Provision for taxes on income (c)........................... 97.9 67.1 71.7 49.0 21.7
-------- -------- -------- -------- --------
Income before cumulative effect of change in accounting
principle................................................. 158.6 105.2 91.1 53.4 10.0
Cumulative effect on prior years of change in method of
accounting for postretirement benefits (d)................ -- -- -- -- (4.3)
-------- -------- -------- -------- --------
Net income.................................................. $ 158.6 $ 105.2 $ 91.1 $ 53.4 $ 5.7
======== ======== ======== ======== ========
Pro forma net income per share (e).......................... $ 1.51
========
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
AT DECEMBER 31
1996 1995 1994 1993 1992
Dollars in millions -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Revenue earning equipment
Cars.................................................. $4,318.3 $3,627.2 $3,854.4 $2,417.0 $1,871.2
Other equipment....................................... 717.4 543.0 406.0 285.5 251.4
Total assets............................................ 7,649.2 6,656.6 6,520.8 4,688.5 4,222.0
Total debt.............................................. 5,091.8 4,297.5 4,413.9 2,940.5 2,549.9
Stockholders' equity.................................... 989.4 836.3 735.9 616.7 579.5
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
YEARS ENDED OR AT DECEMBER 31
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Car rental and other operations:
Number of owned and licensee locations.................... 5,435 5,480 5,498 5,594 5,687
Number of owned locations................................. 2,208 2,171 2,254 2,369 2,487
Peak number of owned and licensee cars operated during
period.................................................. 389,000 376,800 378,700 332,500 323,700
Average number of owned cars operated during period....... 283,900 263,600 276,100 236,500 230,300
Number of transactions of owned car rental operations
during period (in thousands)............................ 20,110 18,799 17,811 15,623 14,887
Average revenue per transaction of owned car rental
operations during period (in whole dollars)............. $ 157 $ 155 $ 145 $ 139 $ 143
Equipment rental operations:
Number of locations....................................... 120 104 95 85 89
Average cost of rental equipment operated during period
(in millions)........................................... $ 822.9 $ 650.4 $ 504.1 $ 428.3 $ 423.2
</TABLE>
22
<PAGE> 23
- -------------------------
(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,
primarily from net proceeds received in excess of book value on the disposal of
revenue earning equipment. Effective 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 this change, depreciation of
revenue earning equipment for the year 1995 and the year 1994 decreased by $12.0
million and $9.6 million, respectively.
(c) 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 Company and its former parent
companies, UAL Corporation ("UAL") and RCA Corporation ("RCA"). 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.
(d) Effective January 1, 1992, the Company 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.
(e) Based on 104,956,000 shares outstanding after the Offerings, which excludes
shares subject to over-allotment options granted by the Company to the
Underwriters and shares reserved for issuance pursuant to an employee benefit
plan. Due to the changes in the Company's capital structure, historical share
and per share data will not be comparable to, or meaningful in the context of,
future periods. See "Capitalization".
23
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is engaged principally in the business of renting and leasing cars
and renting industrial and construction equipment. The Company's revenues
principally are derived from rental and related charges. Revenues consist of:
- Car rental revenues (revenues from all owned car operations,
including loss or collision damage waivers, liability insurance and
other products)
- Industrial and construction equipment rental revenues
- Car leasing revenues
- Other revenues (fees from the Company's licensees, revenues from the
Company's claim management and telecommunications services and,
prior to 1995, a car dealership operation in Europe)
The Company's expenses consist of:
- Direct operating expenses (primarily wages and related benefits;
concessions and commissions paid to airport authorities, travel
agents and others; and other costs relating to the operation and
rental of the revenue earning equipment, such as maintenance and
reservations)
- Depreciation expense relating to revenue earning equipment
(including net gains or losses on the disposal of such equipment).
Revenue earning equipment includes cars and industrial and
construction equipment.
- Selling, general and administrative expenses (including advertising)
- Interest expense relating primarily to the funding of the
acquisition of revenue earning equipment
The Company's profitability is primarily a function of the volume and pricing of
rental transactions and the utilization of cars and equipment. Significant
changes in the purchase price of cars and equipment or interest rates can also
have a significant effect on the Company's profitability, depending on the
ability of the Company to adjust pricing for these changes. The Company's
business requires significant expenditures for cars and equipment and the
Company consequently requires substantial liquidity to finance such
expenditures.
At December 31, 1996, 83% of the cars in the Company's car rental fleet were
subject to repurchase by automobile manufacturers under guaranteed repurchase
programs pursuant to which automobile manufacturers agree to repurchase cars,
subject to certain car conditions and mileage requirements, at a specified price
after a minimum period of service. In the United States, the Company expects the
percentage of its car rental fleet subject to repurchase programs to decrease.
See "Risk Factors -- Risk of Economic Downturn" and "-- Risks Related to
Decreased Acquisition of Cars Through Repurchase Programs" and "Business --
Worldwide Car Rental -- Car Acquisition". The Company's industrial and
construction equipment rental fleet is not subject to such guaranteed repurchase
programs.
The following discussion and analysis provides information that management
believes to be relevant to understanding the Company's consolidated financial
condition and results of operations. This discussion should be read in
conjunction with the financial statements and the related notes thereto
contained in the Company's consolidated financial statements included in this
Prospectus.
24
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth for each of the years indicated, the percentage
of operating revenues represented by certain items in the Company's consolidated
statement of income:
<TABLE>
<CAPTION>
---------------------------
PERCENTAGE OF REVENUES
YEARS ENDED DECEMBER 31
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Revenues:
Car rental................................................ 86.2% 85.6% 78.4%
Industrial and construction equipment rental.............. 10.7 9.8 8.0
Car leasing............................................... .9 1.0 7.0
Other..................................................... 2.2 3.6 6.6
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Expenses:
Direct operating.......................................... 48.9 50.7 53.6
Depreciation of revenue earning equipment................. 24.3 23.6 21.3
Selling, general and administrative....................... 11.6 11.6 11.7
Interest, net of interest income.......................... 8.2 9.0 8.4
----- ----- -----
93.0 94.9 95.0
----- ----- -----
Income before income taxes.................................. 7.0 5.1 5.0
Provision for taxes on income............................... 2.7 2.0 2.2
----- ----- -----
Net income.................................................. 4.3% 3.1% 2.8%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Revenues
The Company achieved record revenues of $3,668.3 million in 1996, which
increased by 7.9% from $3,400.6 million in 1995.
Revenues from car rental operations of $3,161.6 million in 1996 increased by
8.6% from $2,911.7 million in 1995. This increase resulted primarily from an
increase in the number of transactions both in the United States and
international operations and an increase in prices primarily in the United
States, while prices remained substantially unchanged for the Company's
international operations. These increases were partly offset by a decrease in
revenues due to changes in foreign exchange rates.
Revenues from industrial and construction equipment rental of $392.3 million in
1996 increased by 18.1% from $332.3 million in 1995, primarily due to an
increase in volume resulting from the opening of new locations and an
acquisition in 1996 and increased activity in industrial related markets, both
from new and existing customers.
Revenues from all other sources of $114.4 million in 1996 decreased by 26.9%
from $156.6 million in 1995, primarily due to lower revenues in the Company's
claim administration service operations, a large part of which was sold as of
February 29, 1996.
Expenses
Total expenses of $3,411.8 million in 1996 increased by 5.7% from $3,228.3
million in 1995, although total expenses as a percentage of revenues decreased
to 93.0% in 1996 from 94.9% in 1995.
Direct operating expenses of $1,795.1 million in 1996 increased by 4.1% from
$1,724.8 million in 1995, but were lower in 1996 as a percentage of revenues due
to more efficient fixed cost coverage. Wages and related benefits and
concessions and commissions decreased as a percentage of revenues, partly offset
by increased expenses related to the development of the Company's global
reservations and strategic information systems.
25
<PAGE> 26
Depreciation of revenue earning equipment for the car rental and car leasing
operations of $814.8 million in 1996 increased by 9.2% from $745.9 million in
1995, primarily due to an increase in the number of cars operated and an
increase in the cost of cars acquired in both the United States and
international operations. These increases were partly offset by an improvement
in the net proceeds received in 1996 in excess of book value on the disposal of
the cars (which resulted in a gain of $2.5 million in 1996 as compared to a loss
of $7.5 million in 1995) due to improved market conditions for the sale of used
vehicles.
Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $77.9 million in 1996 increased by 34.3% from
$58.0 million in 1995, primarily due to an increase in both the volume and cost
of equipment operated. This increase was partly offset by an improvement in the
net proceeds received in 1996 in excess of book value on the disposal of the
equipment to $20.7 million in 1996 from $13.8 million in 1995 due to an increase
in the volume of equipment sold and improved market conditions for the sale of
used equipment.
In view of the favorable market environment in 1996 and 1995 for the sale of
used equipment in the industrial and construction equipment rental business,
effective January 1, 1997, certain estimated useful lives being used to compute
the provision for depreciation will be increased to reflect the anticipated
changes in the estimated residual values to be realized when the equipment is
sold. This should result in lower annual depreciation charges and lower gains on
the disposal of the used equipment than has been the case in 1996 and 1995.
Selling, general and administrative expenses of $425.2 million in 1996 increased
by 8.3% from $392.5 million in 1995, but remained at 11.6% of revenue. The
increase in 1996 resulted from increases in advertising costs, sales expenses
and general and administrative costs.
Interest expense of $298.8 million in 1996 decreased 2.7% from $307.1 million in
1995, primarily due to lower interest rates in 1996, partially offset by higher
debt levels (which were required to finance growth and, increases in the cost of
cars and industrial and construction equipment), and lower interest income
received in 1996 as compared to 1995. See Note 2 to the Notes to the Company's
consolidated financial statements included in this Prospectus.
The tax provision of $97.9 million in 1996 increased 45.9% from $67.1 million in
1995. The effective tax rate in 1996 was 38.2% as compared to 38.9% in 1995.
This change was primarily due to the higher income before income taxes in 1996,
partly offset by a one-time credit of $13.9 million included in 1996. This
credit resulted from adjustments made to tax accruals in connection with tax
audit evaluations and the effects of prior years' tax sharing arrangements
between the Company and its former parent companies. The tax provision in 1995
included $6.5 million of credits relating to foreign taxes paid which were
offset against U.S. income tax liabilities. Reported tax provisions for each of
the years 1996 and 1995 also include a required tax provision of $5.8 million
resulting from the amortization of intangible assets that is not deductible for
tax purposes. See Notes 1, 8 and 12 of the Notes to the Company's consolidated
financial statements included in this Prospectus.
Net Income
The Company achieved record net income of $158.6 million in 1996 representing an
increase of 50.8% from $105.2 million in 1995. This increase was primarily due
to higher revenues in the U.S. car and industrial and construction equipment
rental operations, the tax credit of $13.9 million included in 1996 referred to
above, decreased expenditures in 1996 as a percentage of revenues particularly
in the U.S. car rental operations, partly offset by increased expenditures in
1996 as a percentage of revenues in the international car rental operations.
26
<PAGE> 27
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Revenues
The Company achieved record revenues of $3,400.6 million in 1995, which
increased by 3.2% from $3,294.4 million in 1994.
Revenues from car rental operations of $2,911.7 million in 1995 increased by
12.8% from $2,581.2 million in 1994, resulting primarily from increases in the
volume of transactions, higher prices, as well as favorable changes in foreign
exchange rates.
Revenues from industrial and construction equipment rental of $332.3 million in
1995 increased by 26.3% from $263.1 million in 1994, primarily due to an
increase in volume resulting from the opening of new locations and increased
activity in industrial related markets both from new and existing customers.
Revenues from all other sources of $156.6 million in 1995 decreased by 65.2%
from $450.1 million in 1994, primarily due to the sale of the Company's car
leasing and car dealership operations in Europe effective January 1, 1995. See
Note 5 to the Notes to the Company's consolidated financial statements included
in this Prospectus.
Expenses
Total expenses of $3,228.3 million in 1995 increased by 3.1% from $3,131.6
million in 1994. As a percent of revenues total expenses remained substantially
unchanged in 1994.
Direct operating expenses of $1,724.8 million in 1995 decreased by 2.3% from
$1,766.2 million in 1994, and as a percentage of revenues to 50.7% in 1995 from
53.6% in 1994. This improvement was principally due to the sale of the Company's
European car leasing and car dealership operations in 1995 and lower costs in
the U.S. car rental operations for public liability and property damage claims,
partly offset by an increase in all other operating costs resulting from the
increase in the volume of business.
Depreciation of revenue earning equipment for the car rental and car leasing
operations of $745.9 million in 1995 increased by 12.5% from $662.9 million in
1994, primarily due to an increase in the cost of cars and lower net proceeds
received in 1995 in excess of book value on the disposal of the cars (which
resulted in a loss of $7.5 million in 1995 as compared to a gain of $9.8 million
in 1994) due to a weak U.S. market for the sale of used cars in 1995. These
increases were partly offset by lower depreciation due to the sale of the
European car leasing operation in 1995.
Depreciation of revenue earning equipment for the industrial and construction
equipment rental operations of $58.0 million in 1995 increased by 45.7% from
$39.8 million in 1994, primarily due to increases in the volume of equipment
operated and the cost of equipment. These increases were partly offset by a
reduction in depreciation of $12.0 million in 1995 due to changes made effective
July 1, 1994 increasing certain useful lives being used to compute the provision
for depreciation to reflect changes in the estimated residual values to be
realized upon disposal of equipment. Gains on the sale of equipment of $13.8
million in 1995 were substantially unchanged from 1994.
Selling, general and administrative expenses of $392.5 million in 1995 increased
by 1.8% from $385.5 million in 1994, remaining substantially the same as a
percentage of revenues. The increase in 1995 resulted from increases in sales
expense, general and administrative costs and advertising expense. These
increases were also partly caused by changes in foreign exchange rates.
Interest expense of $307.1 million in 1995 increased by 10.8% from $277.2
million in 1994, primarily due to higher interest rates and debt levels which
were required to finance growth and increases in the cost of cars and industrial
and construction equipment, partly offset by higher interest income in 1995
compared to 1994. See Note 2 to the Notes to the Company's consolidated
financial statements included in this Prospectus.
27
<PAGE> 28
The tax provision of $67.1 million in 1995 decreased by 6.4% from $71.7 million
in 1994. The effective tax rate in 1995 was 38.9% as compared to 44.0% in 1994.
These decreases were primarily due to $6.5 million of credits in 1995 relating
to foreign taxes paid which were offset against U.S. income tax liabilities,
partly offset by the provision required in 1995 due to higher income before
income taxes. Reported tax provisions for each of the years 1995 and 1994 also
include a required tax provision of $5.8 million resulting from the amortization
of intangible assets that is not deductible for tax purposes. See Notes 1, 8 and
12 of the Notes to the Company's consolidated financial statements included in
this Prospectus.
Net Income
The Company achieved record net income of $105.2 million in 1995 representing an
increase of 15.5% from $91.1 million in 1994. This increase was primarily due to
lower expenses in 1995 as a percentage of revenues in the international car
rental operations principally as a result of the sale of the Company's European
car leasing and car dealership operations in 1995, and higher revenues in the
U.S. industrial and construction equipment rental operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's domestic and foreign operations are funded by cash provided by
operating activities, and by extensive financing arrangements maintained by the
Company in the United States, Europe, Australia, New Zealand, Canada and Brazil.
The Company's investment grade credit ratings provide it with access to global
capital markets to meet its borrowing needs. On February 5, 1997, S&P affirmed
the Company's short-term credit rating at A-1 and reduced its long-term credit
rating from A to A-. On February 28, 1997, Moody's confirmed the Company's
short-term and long-term credit ratings at P1 and A3, respectively. The
Company's primary use of funds is for the acquisition of revenue earning
equipment which consists mainly of cars and industrial and construction
equipment. For the year ended December 31, 1996, the Company's expenditures for
revenue earning equipment were $8,204 million (partially offset by proceeds from
the sale of such equipment of $6,445 million). For 1997, the Company expects its
expenditures for revenue earning equipment (net of proceeds from the sale of
such equipment) to be higher than they were in 1996. These assets are purchased
by the Company in accordance with the terms of programs negotiated with
automobile and equipment manufacturers. Particularly for rental cars, financing
requirements are highly seasonal, typically reaching an annual peak during the
second and third calendar quarters as fleet levels build up in response to
increased rental demand during that period. The typical low point for cash needs
occurs during the fourth quarter, coinciding with lower levels of fleet and
rental demand. There are well developed methods of disposing of the Company's
used cars and equipment which are capable of accommodating the Company's short
fleet rotation requirements. See "Business -- Worldwide Car Rental -- Used Car
Sales" and "-- Car Acquisition". The Company also makes capital investments for
property and non-revenue earning equipment, although the amount of these
expenditures ($180 million in 1996, and an estimate of up to $250 million in
1997) are substantially lower than the expenditures for revenue earning
equipment. The Company's customer receivables are also liquid with approximately
30 days of total annual sales outstanding.
To finance its domestic requirements, the Company maintains an active commercial
paper program. In July 1996, the seasonal borrowing peak in the 1996 business
cycle, the Company had outstanding $1.9 billion of commercial paper. In January
1996, the seasonal borrowing trough, the outstanding amount was approximately
$900 million.
The Company is active in the U.S. domestic medium-term and long-term debt
markets. In recent years, the Company has issued approximately $300 million to
$400 million annually in investment grade medium-term and long-term debt with
various maturities. The proceeds are used for general corporate purposes and to
reduce short-term borrowings. From time to time, the Company files with the
Securities and Exchange Commission shelf registration statements relating to
debt securities to allow for the
28
<PAGE> 29
issuance of unsecured senior, senior subordinated and junior subordinated debt
securities on terms to be determined at the time the securities are offered for
sale. At December 31, 1996, the Company had available $400 million for issuance
under an effective registration statement. The total amount of medium-term and
long-term debt outstanding as of December 31, 1996 was $2.6 billion with
maturities ranging from 1997 to 2009. This includes $269 million in term loans
from Ford, of which $250 million matures on November 15, 1999 and $19 million
matures on July 1, 1997. See Note 2 of the Notes to the Company's consolidated
financial statements included in this Prospectus.
Borrowing for the Company's international operations consists mainly of loans
obtained from local and international banks. All borrowings by international
operations either are in the international operation's local currency or, if in
non-local currency, are fully hedged to minimize foreign exchange exposure. The
Company guarantees only the borrowings of its subsidiaries in Australia and
Canada, which consist principally of commercial paper denominated in local
currency. At December 31, 1996, the total debt for the foreign operations was
$1,025 million, of which $981 million was short-term (original maturity of less
than one year) and $44 million was long-term. At December 31, 1996, the total
amounts outstanding (in millions of U.S. dollars) under the Australian and
Canadian commercial paper programs were $123 and $19, respectively.
At December 31, 1996, the Company had committed bank credit facilities totaling
$2.3 billion. Of this amount, $2.1 billion are represented by a combination of
5-year and 364-day global committed credit facilities provided by 31
relationship banks. In addition to direct borrowings by the Company, these
agreements allow any subsidiary of the Company to borrow under the facilities on
the basis of a guarantee by the Company. The 5-year agreements, totalling $1,185
million, currently expire on June 30, 2001, and the 364-day agreements,
totalling $895 million, expire on June 25, 1997. The 5-year agreements have an
evergreen feature which provides for the automatic extension of the expiration
date one year forward unless timely notice is provided by the bank. The 364-day
agreements permit the Company to convert any amount outstanding prior to
expiration into a two-year term loan. See "Description of Certain Indebtedness
- -- Ford Ownership Event of Default". In addition to these bank credit
facilities, in February 1997 Ford extended to the Company a line of credit of
$500 million, expiring June 30, 1999. 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. Following the Offerings, Ford may
not be willing to extend additional credit to the Company, may change or
terminate existing credit facilities it provides to the Company in accordance
with their terms or may limit the ability of the Company to raise additional
equity capital. See "Risk Factors -- Limitations Upon Liquidity, Capital Raising
and Dividends; Interest Rate Risk -- Impact of Relationship with Ford". The
Company intends to continue to maintain committed credit facilities in an amount
equal to 100% of its anticipated commercial paper outstanding from time to time.
The Company has developed an interest rate risk management policy to protect
itself from fluctuations in interest rates on its short-term debt portfolio and
on its leasing portfolios. The policy is specific as to transaction purpose,
acceptable hedging instruments, approval levels required, counterparty
eligibility and exposure, effectiveness monitoring and documentation standards.
In the United States and Canada, derivatives are used to provide interest rate
protection while accessing short-term funding in the commercial paper markets.
In Australia and New Zealand, where the Company also has leasing businesses,
derivatives are used to effectively match-fund car leases, which have terms from
one to five years, with funding of the same term. As the value of the car on
lease depreciates, the funding supporting the car also decreases. See "Risk
Factors -- Limitations upon Liquidity, Capital Raising and Dividends; Interest
Rate Risk -- Interest Rate Risk".
Interest rate hedges provide the Company with an effective means of minimizing
interest rate risk. The Company has entered into arrangements to manage its
exposure to fluctuations in interest rates. These arrangements consist of
interest-rate swap agreements ("swaps") and forward rate agreements ("FRAs").
The differential paid or received on these agreements is recognized as an
adjustment to interest expense. The purpose and effect of these agreements are
to make the Company less susceptible
29
<PAGE> 30
to changes in interest rates by effectively converting certain variable rate
debt to fixed rate debt. Because of the relationship of current market rates to
historical fixed rates, the effect at December 31, 1996 of the swap and FRA
agreements is to give the Company an overall effective weighted-average rate on
debt of 6.53%, with 41% of debt effectively subject to variable interest rates,
compared to a weighted-average interest rate on debt of 6.48%, with 49% of debt
subject to variable interest rates when not considering the swap and FRA
agreements.
At December 31, 1996, the notional amount of these agreements aggregated $368.4
million of swaps. These notional amounts, however, are not reflective of the
Company's obligations under these agreements because the Company is only
obligated to pay the net amount of the interest rate differential between the
fixed and variable rates specified in the contracts. The Company's exposure to
any credit loss in the event of non-performance by the counterparties is further
mitigated by the fact that all of these financial instruments are with financial
institutions that are rated "A" or better by the major credit rating agencies.
Exposure to individual counterparties is monitored to ensure diversification of
risk. At December 31, 1996, the fair value of all outstanding contracts, which
is representative of the Company's obligations under these contracts, assuming
the contracts were terminated at that date, was approximately a net payable of
$4.0 million. The $368.4 million notional principal matures as follows (in
millions): 1997, $240.7; 1998, $73.3; 1999, $43.4; 2000, $10.7; 2001, $0.2; and
2002, $0.1.
The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in foreign exchange rates for certain foreign currency
loans and selected marketing programs. These arrangements consist of foreign
exchange forward contracts and the purchase of foreign exchange options where
the Company has no risk. At December 31, 1996 the total notional amount of these
instruments was $23.5 million and the fair value of all outstanding contracts,
which is representative of the Company's obligations under these contracts,
assuming the contracts were terminated at that date, was approximately a net
payable of $.1 million.
The Company's decision to withdraw earnings or investments from foreign
countries is, in some cases, influenced by exchange controls and the utilization
of foreign tax credits and may also be affected by fluctuations in exchange
rates for foreign currencies and by revaluation of such currencies in relation
to the U.S. dollar by the governments involved. Foreign operations have been
financed to a substantial extent through loans from local lending sources in the
currency of the countries in which such operations are conducted. Car rental
operations in foreign countries are, from time to time, subject to governmental
regulations imposing varying degrees of currency restrictions. Currency
restrictions and other regulations historically have not had a material impact
on the Company's operations as a whole.
In 1997, the Company will commence implementing in all of its strategic
information systems a year 2000 date conversion project to address all necessary
code changes, testing and implementation. Project completion is planned for the
middle of 1999 at an estimated total cost of approximately $15 million.
Car rental is a seasonal business, with decreased travel in both the business
and leisure segments in the winter months and heightened activity during the
spring and summer. To accommodate increased demand, the Company increases its
available fleet and staff during the second and third quarters. As business
demand declines, fleet and staff are decreased as well. However, certain
operating expenses, including rent, insurance, and administrative overhead,
remain fixed and cannot be adjusted for seasonal demand. In certain geographic
markets, the impact of seasonality has been reduced by emphasizing leisure or
business travel in the off-seasons.
30
<PAGE> 31
The table below shows capital expenditures (net of proceeds received from the
sale of revenue earning equipment) and financial results by quarter for 1996 and
1995.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Capital Operating
Expenditures Income Income (Loss)
(Net of Sale (Pre-Tax Income Before Net
Proceeds Before Net Income Income
Received) Revenues Interest Expense) Taxes (Loss)
Dollars in millions ------------ -------- ----------------- ------------- ------
<S> <C> <C> <C> <C> <C>
1996
First Quarter.................. $1,028.1 $ 803.1 $ 82.5 $ 15.2 $ 8.8
Second Quarter................. 1,000.1 911.4 144.3 69.3 39.5
Third Quarter.................. 67.1 1,060.0 219.9 138.2 74.2
Fourth Quarter................. (201.6) 893.8 108.7 33.9 36.1
-------- -------- -------- ------ ------
Total Year................ $1,893.7 $3,668.3 $555.4 $256.6 $158.6
======== ======== ======== ====== ======
1995
First Quarter.................. $ 819.1 $ 735.7 $ 69.7 $ (.7) $ (.3)
Second Quarter................. 1,083.1 858.5 115.1 34.5 19.6
Third Quarter.................. (261.1) 989.8 194.1 109.6 65.1
Fourth Quarter................. (405.2) 816.6 100.5 28.9 20.8
-------- -------- -------- ------ ------
Total Year................ $1,235.9 $3,400.6 $479.4 $172.3 $105.2
======== ======== ======== ====== ======
</TABLE>
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per Share", which
specifies changes in computing and reporting earnings per share. The adoption of
FAS 128 by the Company in 1997 will not affect the Company's 1996 pro forma net
income per share.
31
<PAGE> 32
BUSINESS
GENERAL
The Company and its affiliates and independent licensees operate what the
Company 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 Company's "Hertz" brand name is recognized worldwide as a leader in quality
rental and leasing services and products. The Company, 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. For the year ended December 31, 1996, the Company
generated record revenues, income before taxes and net income of $3.7 billion,
$256.5 million and $158.6 million, respectively. The Company and its
predecessors have been profitable in every year since 1952, when one of the
Company's predecessors first became a public company.
Car Rental
The Company believes it maintains the largest network of company-owned car
rental locations both in the United States and in Europe, and the largest number
of on-airport car rental locations in the world, enabling the Company to provide
consistent quality, pricing and service worldwide. The Company derives
approximately 77% of its car rental revenues from on-airport locations.
According to information disclosed by the largest 153 U.S airports, the Company
maintained the leading on-airport car rental market share at such airports
during 1996 of over 30% in terms of revenues and has maintained market share at
approximately this level during each of the last five years. This market has
grown at a compounded annual rate of approximately 11% since 1992 to over $6
billion in revenues in 1996, based on information provided by such airports. The
Company also believes it maintained the leading on-airport car rental market
share in Europe during 1996 of approximately 30% in terms of revenues. The
Company has recently begun to provide replacement car rental services from
off-airport locations under the H.I.R.E. brand name. The Company estimates that
total 1996 revenues for the car rental industry in the United States were in
excess of $14 billion, and that total 1995 revenues for the car rental industry
in Europe were in excess of $5 billion.
During 1996, approximately 51% of the Company's worldwide car rental revenues
were generated from business travelers and approximately 49% from leisure
travelers. The Company has a worldwide marketing and sales organization of over
800 people focused on both commercial accounts/group sales and the travel
industry, including travel agents, as well as a comprehensive program of retail
and trade advertising, direct mail and other targeted marketing. At December 31,
1996, the Company's business customers included 357 of the Fortune 500
companies. The Company was named a primary supplier to 149 of the 347 Fortune
500 companies who named a primary/secondary supplier. The Company has received
numerous awards and designations around the world for its car rental business
from independent third parties.
The Company's Hertz #1 Club Gold service provides an expedited rental service to
members at approximately 650 locations worldwide. At December 31, 1996, there
were approximately two million active Hertz #1 Club Gold members who accounted
for approximately 35% of the Company's U.S. car rental transactions in 1996.
Through its many travel industry relationships with airlines and hotels, the
Company has targeted the most frequent travelers to become Hertz #1 Club Gold
members.
The Company's worldwide car rental operations and certain other activities
generated $3.3 billion in revenue and $165.5 million in income before taxes
during 1996.
Industrial and Construction Equipment Rental
The Company, through its wholly-owned subsidiary, HERC, believes that it
maintains the leading market share in the U.S. industrial and construction
equipment rental market. HERC rents a broad range of earth moving equipment,
materials handling equipment, aerial and electrical equipment, air
32
<PAGE> 33
compressors, compaction equipment and construction-related trucks through a
network of 120 branch locations. The Company estimates that 1995 annual revenues
for the U.S. equipment rental market were $15 billion. This market is fragmented
with over 7,000 participants and 12,000 locations. According to the Rental
Equipment Register, an industry publication, only 23 of the top 100 equipment
rental companies in the United States had rental revenues in excess of $25
million in 1995.
HERC maintains an established national accounts program with over 1,700
customers who generated 43% of HERC's revenues in 1996. The Company believes
that HERC's fleet is the largest and most modern of its kind in the United
States. As of December 31, 1996, HERC maintained a fleet with an original
investment cost of approximately $908 million and a weighted average age of 19.7
months. HERC generated $392.3 million in revenue and $91.0 million in income
before taxes during 1996.
Strategic Information Systems
Centralized control of major business processes, achieved through the use of the
Company's strategic systems technology, provides the disciplined environment
which enables the Company to deliver consistent quality services at its car
rental and equipment rental operations. The Company maintains real-time
communications with its many locations by means of what it believes is the
largest private data network in the industry. Key components of the Company's
strategic systems include: (i) a global reservations system, which operates
through real-time, on-line centers on five continents, (ii) a yield management
system, which is designed to optimize revenue through controlling,
simultaneously, the availability of various rates as well as the availability of
cars, (iii) a competitive rate detection system, which monitors rate changes and
provides "scouting" routines to identify future rates and (iv) a cost allocation
model, which provides contribution data by location, business segment, car and
equipment category and customer account.
Other
Other activities of the Company include self-insurance operations for both its
car rental and industrial and construction equipment rental businesses, car
leasing operations in certain international markets, the sales of its used cars
and equipment, third party claim management services and telecommunications
services in the United States.
BUSINESS STRATEGY
The Company believes that it is well positioned to capitalize upon the growth
opportunities available in both the global car rental and industrial and
construction equipment rental markets. The Company's strategy for continued
growth is to:
Capitalize on the opportunities presented by the changing ownership in the
domestic car rental industry
For the past several years, the car rental industry has experienced an
environment characterized by low price increases that have not kept pace with
rising fleet costs, resulting in significant operating losses for many
competitors in the industry. Management believes that there will be an increase
in industry profitability, in part as a consequence of the recent change in
ownership of many domestic car rental companies. Management intends to
capitalize on this favorable industry environment by selectively increasing
prices and continuing to improve its low cost structure relative to its
competitors.
Leverage the "Hertz" brand name, recognized worldwide, in existing and new
business ventures
The Company believes that the "Hertz" brand name provides an ideal platform to
expand into new ventures. For example, the Company has re-entered the retail
used car sales market. Once the largest retailer of used cars in the United
States, the Company intends to use its recognized brand name and reputation to
offer quality used cars. Key elements of the Company's retail used car sales
strategy include free initial warranty, no-haggle pricing and providing a
complete maintenance history for each
33
<PAGE> 34
car. The Company has 41 used car sales locations from coast to coast,
substantially all of which were profitable in 1996 with a substantial expansion
underway for 1997. In addition, in 1997, the Company will pilot a new retail
used car sales concept under the "Hertz" brand name offering a larger selection
of used cars.
The Company has also entered the estimated $3.5 billion replacement/local car
rental segment in the United States under the H.I.R.E. brand name and in Europe
under the "Hertz" brand name. The H.I.R.E. business unit currently operates at
50 locations in six states with expansion underway. The Company expects that
H.I.R.E. generally will hold its cars for 18 to 24 months, compared with 5 to 12
months for the Company's domestic car rental business, resulting in lower
monthly holding costs. In Europe, the Company currently operates in the
replacement/local car rental market through its existing suburban car rental
locations.
Improve operating efficiency and enhance customer service through the continued
use and refinement of strategic information systems
The Company has invested over $600 million during the past five years in
strategic systems and intends to continue to invest in advanced technology. The
Company's centralized reservations system is integrated with its fleet
management information systems, resulting in improved vehicle utilization. This
system is being upgraded to a state of the art, client-server based reservations
system. In addition, the Company's yield management system employs techniques to
optimize, simultaneously, rental rates and car availability. The Company is in
the process of consolidating various European reservations centers into a single
facility in Ireland, resulting in anticipated cost savings while providing
uniformly high quality service. In its industrial and construction equipment
rental business, the use of its strategic information systems enables the
Company to monitor carefully the utilization of equipment by specific operation.
Through continued investments in these systems, the Company believes it will
expand its market share, increase its profitability and sustain its leadership
position with respect to the quality and breadth of services provided to its
customers.
Maintain consistent quality, pricing and service worldwide through continued
ownership of locations
The Company believes it maintains the largest network of company-owned car
rental locations both in the United States and in Europe. Because of its
extensive ownership base, the Company is capable of capitalizing worldwide on
business from global tourist and travel organizations and multinational
corporations. The Company believes that its extensive worldwide ownership of its
operations contributes to the consistency of its high-quality service, strict
cost control, fleet utilization, yield management, competitive pricing and
ability to offer one-way rentals through its Rent It Here-Leave It There
program. Under appropriate circumstances, the Company also intends to expand
through joint ventures in emerging markets.
Expand the industrial and construction equipment rental business both in the
United States and abroad
The Company believes that HERC, as the largest nationwide provider of industrial
and construction equipment rental services in the United States, is well
positioned to expand through continued growth of its fleet and the opening and
acquisition of new locations. HERC intends to continue to emphasize profitable
expansion through: (i) continuing to focus on low equipment costs through its
status as one of the largest purchasers of new equipment in the United States,
(ii) improving productivity through use of the Company's strategic information
systems, (iii) expanding its used equipment sales operations available for
buyers seeking to purchase well-maintained, late model equipment at competitive
prices, (iv) diversifying its customer base across industry sectors and (v)
capitalizing on the trend of equipment users toward outsourcing to a single
nationwide provider. In addition, HERC intends to expand in international
markets over the long term by applying its successful U.S. operating philosophy.
34
<PAGE> 35
Achieve superior performance by direct linkage of management compensation to
operating unit performance
All worldwide car rental and equipment rental operating units are managed under
an individual "profit center" philosophy, whereby profit and loss statements are
generated monthly by city. Management incentives are based primarily upon the
financial results of the specific operation managed. Additional consideration is
given for total operating unit and consolidated corporate financial performance.
This "profit center" management is supported and monitored by division and
corporate level management equipped with sophisticated management information
systems which allow detailed review of each operation and business discipline.
BUSINESS SEGMENTS
The Company's business consists of two significant segments, car rental and
certain other activities, and the rental of industrial and construction
equipment. Set forth below is certain information with respect to these segments
for the year ended December 31, 1996.
<TABLE>
<CAPTION>
------------------------------------------
YEAR ENDED DECEMBER 31, 1996
INDUSTRIAL
AND
CONSTRUCTION
CAR RENTAL AND EQUIPMENT
OTHER(a) RENTAL
--------------- ------------
AMOUNT % AMOUNT % TOTAL
Dollars in millions ------ - ------ - -----
<S> <C> <C> <C> <C> <C>
Revenues........................................... $ 3,276 89% $ 392 11% $ 3,668
Amortization of intangibles........................ 18 100 -- -- 18
Operating income (pre-tax income before
interest)........................................ 421 76 134 24 555
Income before income taxes......................... 166 65 91 35 257
Revenue earning equipment, net, at end of year..... 4,318 86 718 14 5,036
</TABLE>
- -------------------------
(a) Includes interest and goodwill relating to the acquisition of the Company by
UAL and Park Ridge Corporation.
The Company, together with its affiliates and independent licensees, operates in
approximately 5,500 locations throughout the United States and in approximately
140 foreign countries and jurisdictions. Set forth below is certain information
with respect to the Company's U.S. and foreign operations for the year ended
December 31, 1996 (substantially all of the Company's foreign operations consist
of car rental and leasing operations).
<TABLE>
<CAPTION>
----------------------------------------
YEAR ENDED DECEMBER 31, 1996
U.S.(a) FOREIGN
------------- -------------
AMOUNT % AMOUNT % TOTAL
Dollars in millions ------ - ------ - -----
<S> <C> <C> <C> <C> <C>
Revenue............................................. $ 2,723 74% $ 945 26% $3,668
Amortization of intangibles......................... 17 94 1 6 18
Operating income (pre-tax income before interest)... 451 81 104 19 555
Income before income taxes.......................... 196 76 61 24 257
Revenue earning equipment, net, at end of year...... 3,997 79 1,039 21 5,036
</TABLE>
- -------------------------
(a) Includes interest and goodwill relating to the acquisition of the Company by
UAL and Park Ridge Corporation.
35
<PAGE> 36
WORLDWIDE CAR RENTAL
Industry Overview
The car rental industry provides car rentals to business and individual
customers worldwide. The car rental industry has been significantly influenced
by general economic conditions as well as developments in the travel industry,
particularly air carrier passenger traffic. Historically, the car rental
industry has been highly seasonal. A significant proportion of the industry's
annual profitability has come during the second and third quarters when leisure
and business travel are at their peak. The industry derives the majority of its
revenues from car rentals and ancillary products such as insurance, refueling
charges, inter-city drop-off charges and loss-damage waivers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".
United States. The Company believes that total annual U.S. revenues for the car
rental industry were in excess of $14 billion for 1996. The U.S. market includes
five major car rental companies serving primarily airport and near airport
locations (the Company, Avis, Inc. ("Avis"), Budget Rent a Car Corporation
("Budget"), National Car Rental System Inc. ("National") and Alamo Rent-A-Car,
Inc. ("Alamo")), one major company serving non-airport locations (Enterprise
Rent-A-Car Company ("Enterprise")) and numerous smaller companies that operate
predominantly in non-airport locations. The major companies operate to varying
degrees through wholly-owned operations, and most have some franchised
operations.
Set forth below are the on-airport market shares of the major car rental
companies at the largest 153 airports in the United States that report
concessionable revenues (i.e., revenues on which airport authorities assess fees
from car rental companies) for the periods indicated:
<TABLE>
<CAPTION>
------------------------------------------
ELEVEN
MONTHS
ENDED
NOVEMBER 30 YEAR ENDED DECEMBER 31
1996 1995 1994 1993
----------- ----- ----- -----
<S> <C> <C> <C> <C>
Hertz................................... 30.2% 30.4% 30.6% 29.1%
Avis.................................... 23.7 22.6 21.9 23.6
National................................ 16.2 15.3 13.8 13.5
Budget.................................. 11.2 12.6 13.9 14.3
Alamo................................... 10.8 11.1 11.0 9.3
Others.................................. 7.9 8.0 8.8 10.2
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
The Company believes that car rentals at airports account for the largest
portion of car rentals in the United States. According to information disclosed
by major U.S. airports, the U.S. on-airport car rental market for the largest
153 airports has grown at a compounded annual rate of approximately 11% since
1992 to over $6 billion in revenues in 1996. The Company believes that, while
rental patterns vary among individual airports, car renters at major U.S.
airports taken as a whole are generally evenly divided between business
travelers and leisure travelers seeking cars for ground travel to vacation
destinations and for weekend use. In addition, the Company believes that car
renters at non-airport locations are generally local residents requiring a
temporary replacement car for their own car while it is being repaired and, to a
lesser extent, local residents seeking the use of a car for leisure or other
purposes.
Since the late 1980s, car rental companies have acquired cars pursuant to
various fleet repurchase programs established by automobile manufacturers under
which the automobile manufacturers agree to repurchase cars at a specific price
during established repurchase periods, subject to certain vehicle condition and
mileage requirements. Repurchase prices under the repurchase programs are based
on either (i) a predetermined percentage of original car cost and the month in
which the car is returned or (ii) the original capitalization cost less a set
daily depreciation amount. These repurchase programs limit a car rental
company's residual risk with respect to cars purchased under the programs. This
enables car rental companies to determine depreciation expense in advance. The
Company believes that most
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cars in the fleets of U.S. car rental companies are these "non-risk" cars. See
"Risk Factors -- Risks Related to Decreased Acquisition or Disposition of Cars
Through Repurchase Programs".
The U.S. car rental industry is recovering from a difficult period, which has
been characterized by substantially rising fleet costs and significant pricing
pressure. In the early 1990s, car rental companies benefited from incentives to
purchase cars provided by automobile manufacturers that desired an additional
distribution outlet for their products. Automobile manufacturers pursued this
outlet as a result of overcapacity and decreased new car demand that prevailed
at the time. These incentives allowed car rental companies to expand
significantly the size of their fleets at relatively low cost and with high cash
incentives. However, an oversupply condition was created within the car rental
industry as a result of these increased fleet sizes. This acted to intensify
competition and depress industry-wide pricing. As general economic conditions in
the United States improved during the years 1992 through 1994, fleet costs
significantly increased. Continued competition inhibited corresponding increases
in average daily rental rates, which had an adverse effect on industry-wide
profitability.
The Company believes that, recently, the U.S. car rental industry has
experienced increases in profitability. Average daily rental rates have
increased as oversupply conditions have been reduced.
Significant changes in the ownership of participants in the domestic car rental
industry have occurred over the past year. HFS, Inc. purchased Avis, Republic
Industries acquired Alamo and National and Team Rental Group, Inc. has reached
an agreement to acquire Budget. The Company believes that these companies will
be increasingly focused on profitability, resulting in increased prices in the
United States.
International. The European market represents the majority of the car rental
industry's revenues outside the United States. The three largest European
markets are France, Germany and the United Kingdom. The Company estimates that
the total 1995 revenues for the car rental industry in Europe were in excess of
$5 billion. The European market consists of a number of worldwide and European
participants, including owned and franchised locations of some of the major U.S.
car rental companies and a number of European companies, including Sixt AG
(Budget), Europcar and EuroDollar. Similar to the U.S. market, the European car
rental industry is characterized by intense competition. Pricing pressure
continues to inhibit increases in average daily rental rates. The industry has
experienced significant growth in the leisure sector due to developing airline
deregulation in the Pan-European market. The Company believes that the leisure
market currently represents approximately 45% of the European market based on
revenues. European car rental companies purchase their fleets from a larger
number of automobile manufacturers than in the United States. These
manufacturers have substantial production capacity, resulting in intense
competition and favorable pricing of cars for car rental companies in recent
years.
Other significant international car rental markets in which the Company competes
include Australia, Canada, New Zealand, Puerto Rico and Brazil.
U.S. Operations
Car Rental. The Company provides car rental services throughout the United
States in or around all major U.S. cities and operates a nationwide, toll-free
reservations system. Car rental facilities are operated at all major airports
and in the central business districts and key suburban commercial centers in
major U.S. cities. The Company estimates that airport revenues accounted for
approximately 84% of its car rental revenues in the United States in 1996. The
Company also maintains arrangements with selected hotels and railroad terminals
to facilitate car rentals at such locations.
The Company uses a wide variety of makes and models of cars for daily rental
purposes, nearly all of which are current year or the previous year's models.
The Company rents cars on a daily, weekend, weekly or monthly basis, with rental
charges computed on a limited or unlimited mileage rate, or on a time rate plus
a mileage charge. The Company's rates vary at different locations depending on
local market, competitive and cost factors, and virtually all rentals are made
utilizing rate plans under which the customer is responsible for gasoline used
during the rental. In addition to car rentals and licensee
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fees, the Company generates revenues from providing customers with ancillary
products and services such as Hertz #1 Club Gold, the Company's Rent It
Here-Leave It There program, supplemental equipment (child seats, ski racks and
portable cellular phones), loss or collision damage waiver, liability insurance
and personal effects coverage, Hertz NeverLost and gasoline payment options.
For the year ended December 31, 1996, the Company conducted operations through
approximately 700 owned locations. Company-owned locations are those locations
through which the Company rents cars which it owns, as compared to licensee
locations through which licensees rent cars that they own. The Company believes
that its extensive worldwide ownership of its operations contributes to the
consistency of its high-quality service, strict cost control, fleet utilization,
yield management, competitive pricing and the Company's ability to offer one-way
rentals through its Rent It Here-Leave It There program. However, in certain
smaller domestic markets, the Company has found it more efficient to operate
through licensees. Domestic licensee locations numbered approximately 400 at
December 31, 1996. Together with its licensees, the Company operated a peak
domestic fleet of more than 242,000 cars in 1996. At December 31, 1996, the
Company owned 94% of all the cars in the combined company-owned and licensee
fleet.
The Company has concession agreements at over 200 airports in the United States.
These agreements are entered into with airport authorities, either through
negotiation or a bidding process, for a fixed number of car rental counter
positions. The agreements typically provide for concession payments based upon a
specified percentage of revenue generated at the airport, subject to a minimum
annual fee, and sometimes include fixed rent for terminal counters or other
leased properties and facilities.
The Company maintains automobile maintenance centers at certain airports and in
certain urban and suburban areas, providing maintenance facilities for the
Company's rental fleet. Many of these facilities, which include sophisticated
car diagnostic and repair equipment, are accepted by automobile manufacturers as
eligible to perform and receive reimbursement for warranty work. Collision
damage and major repairs are generally performed by independent contractors.
The Company believes its U.S. operations are supported by competitively superior
information systems and product delivery. The Company's global reservations
system operates through real-time, on-line centers on five continents. Among
other advantages, this advanced reservations system allows customers throughout
the world to book reservations for rentals at any location worldwide. See "--
Strategic Information Systems". An example of the Company's differentiated
product delivery is its Hertz #1 Club Gold canopied service operated at 38
airports in the United States. This service permits members to bypass the rental
counter and proceed directly to a weather-protected canopied area. In addition,
there are over 200 locations with expedited Gold counter service. See "--
Services Provided -- Hertz #1 Club Gold".
H.I.R.E. -- Insurance Replacement. The Company, under the H.I.R.E. brand name,
provides replacement car rental services primarily to local customers in the
United States whose automobiles are out of service, generally due to an
accident, theft or mechanical problem. A high percentage of these rentals are
referrals from insurance companies, which generally pay for all or a significant
portion of the cost of such rentals.
The Company believes that the insurance replacement business, particularly
because of its lower cost base (resulting from the longer average vehicle
holding periods and other factors) and longer average rental transaction
lengths, represents a significant opportunity for the Company without diluting
penetration in its traditional customer base. By leveraging the Company's brand
name and systems, H.I.R.E. is well positioned for expansion. H.I.R.E. commenced
rental operations in July 1995 and currently operates 50 rental locations in six
states, utilizing a total fleet of approximately 2,600 cars. By December 31,
1997, the Company expects that H.I.R.E. will operate through more than 80
locations with approximately 6,000 cars. The Company intends to capitalize on
agreements with major insurance carriers which are in the process of being
negotiated, and its own sales, technology and marketing expertise to increase
its market share.
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H.I.R.E. rents cars on a daily, weekend, weekly or monthly basis and derives
additional revenues from the sale of loss or collision damage waivers and
gasoline payment options. Rates vary at different locations depending on local
market conditions and competitive factors. H.I.R.E.'s operations are subject to
seasonal fluctuation, with greater activity occurring during the summer months
because of heavier driving activity and the winter months because of hazardous
driving conditions. H.I.R.E. generally will hold its cars for 18 to 24 months,
compared with 5 to 12 months for the Company's domestic car rental business,
resulting in lower monthly holding costs. H.I.R.E. operates a fleet of
predominantly "at risk" cars and disposes of these cars through the Company's
retail sales operations and auctions. See "-- Used Car Sales".
International Operations
At December 31, 1996 the Company, together with its affiliates and licensees,
operated in approximately 140 foreign countries and jurisdictions. Outside the
United States, and primarily in Europe, the Company operates through
approximately 1,450 locations owned by the Company and 2,410 licensee locations,
and during 1996, operated a combined peak fleet of approximately 147,000 cars.
In general, international operations are conducted similarly to those of the
Company in the United States. Although the Company has found it more efficient
to conduct a greater proportion of its international operations through
licensees as compared to the Company's U.S. operations, it continues to conduct
its operations primarily through Company-owned locations in the major European
markets. The international car rental operations of the Company that generated
the highest volumes of business in 1996 were those conducted in France, Germany,
the United Kingdom, Italy, Canada, Spain, Australia and Switzerland. In
addition, the Company owns operations in Puerto Rico, St. Thomas, New Zealand,
Brazil, Belgium, Denmark, Luxembourg, The Netherlands, Norway and Portugal. The
Company believes that, as in the United States, it maintains the leading airport
car rental market share in Europe with a 1996 market share of approximately 30%
in terms of revenues.
As in the United States, the Company offers Hertz #1 Club Gold service at most
major airport locations within Europe, Canada, Australia and New Zealand. The
Company's global reservations system allows customers worldwide to book
reservations in any of the Company's worldwide markets. Additionally, a local or
toll-free telephone number is offered in all major foreign countries which
provides access to the Company's global reservations system.
Services Provided
The Company offers a wide array of services to its customers, subject to varying
conditions, that provide added value to its core service of renting cars. These
services include:
Hertz #1 Club Gold. The Company provides an expedited rental service that
permits members of this service to bypass the rental counter, board the
Company's bus and proceed directly to a weather-protected Hertz #1 Club Gold
canopied area at 38 U.S. airports and Heathrow International Airport in the
United Kingdom. Once at the canopied area the member's name appears in lights on
an electronic sign board which directs the member to his or her car. At over 600
additional locations, expedited Gold counter service is available where canopied
service is not. Since its introduction, Hertz #1 Club Gold has grown to
approximately 650 locations in North America, Europe, Australia and New Zealand.
As a significant source of business, Hertz #1 Club Gold service provides product
differentiation and complements the Company's many other services. At December
31, 1996, there were approximately two million active Hertz #1 Club Gold members
who accounted for approximately 35% of the Company's U.S. car rental
transactions in 1996. Through its many travel industry relationships with
airlines and hotels, the Company has targeted the most frequent travelers to
become Hertz #1 Club Gold members.
The Hertz #1 Club. As a complimentary service, the Company maintains a
computerized profile of customer car rental preferences for its members. By
providing their personal Hertz #1 Club identification numbers at the time of
reservation, customers can save valuable time at the rental counter.
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Global Reservations System. An advanced reservations system allows customers
throughout the world to book reservations worldwide where the Company, its
affiliates or its licensees maintain operations. In the United States and
certain foreign countries, this service is provided toll-free or as a local
call. This system permits travel agents and certain airline reservation agents
to book reservations directly through their systems. The Company's Internet
Website has recently become fully interactive allowing customers to book
reservations electronically on their own.
Instant Return. At over 110 of its airport locations in the United States,
Europe and Australia, the Company offers customers instant return service. At
the point where the car is returned, a Company representative meets the customer
at the car, and provides the customer with a final receipt from a hand-held
computer terminal.
Rent It Here-Leave It There. The Company and its licensees offer customers in
most parts of the world the convenience of leaving a rented car at a Company or
licensee location other than the one from which it was rented. Depending upon
rental location and distance driven, a drop-off charge or a special inter-city
rate may be imposed if the car is not returned to the same location from which
it was rented.
Supplemental Equipment. For an additional charge, the Company offers
supplemental equipment to complement the rental car. Available equipment
includes such items as child seats, ski racks and portable cellular phones. In
addition, the Company offers hand control-equipped cars for the physically
challenged at no extra charge.
Optional Services. At the time of rental, subject to applicable local law, the
Company offers renters the opportunity to purchase optional services such as
Loss Damage Waiver (LDW), Collision Damage Waiver (CDW), Liability Insurance
Supplement (LIS) and combined Personal Accident Insurance and Personal Effects
Coverage (PAI and PEC). These optional services, available for an additional
daily fee, provide additional financial protection for renters and their
passengers. LDW and CDW waive the renter's responsibility to the Company for
loss of or damage to the car while on rental. LIS provides primary liability
coverage from an insurance carrier for protection against third party claims, in
most cases, up to a $1 million combined single limit. PAI and PEC provide
coverage from an insurance carrier for loss of or damage to covered personal
effects as well as accidental injury or death benefits to covered persons.
Computerized Driving Directions. At many locations in North America and Europe,
state of the art counter terminals offer computerized driving directions to
hundreds of area destinations. The unit provides written directions in multiple
languages, and also provides a full color map display of the destination area
that includes local streets and address information. Currently, a point-to-point
enhancement is underway.
Hertz NeverLost. For an additional daily charge at select locations in the
United States, the Company offers a state of the art, in-car satellite
navigation system, known as "Hertz NeverLost". This on-board computer provides
real-time turn-by-turn route guidance that displays the exact location of the
car at all times and can calculate the best route to reach any of the thousands
of destinations within its database. Easy to read icons along with voice
instructions direct customers to their destination. Approximately 7,000 cars are
currently equipped with the system.
Emergency Roadside Assistance. The Company maintains a U.S.-based toll-free,
24-hour centralized emergency roadside assistance number staffed with trained
professionals whose primary goal is to get the customer back on the road with as
little inconvenience as possible. Similar services are offered in selected
foreign countries.
Charge Card. In the United States, the Company's charge cards are issued
predominantly to business accounts. The Company provides customers with
individual invoices for each rental or, if preferred, a monthly statement,
providing for payment on receipt. In Europe, the Company's charge cards are
issued to individuals and business accounts. Depending on the country, the
Company's cards may be in the form of a debit, credit or charge card, providing
for payment on receipt or upon extended terms at set
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interest rates. Currently, there are over 3.7 million charge cards issued
worldwide, charges on which accounted for approximately 7% of 1996 sales.
Revenue Management
The Company uses a point-of-sale revenue management program through which
counter sales representatives sell car upgrades, supplemental equipment and
optional services. This program of identifying and satisfying additional
customer requirements enhances the Company's revenues and transaction yields.
The Company's counter agents receive additional compensation for sales of these
services and products.
Customers
To focus its marketing, sales and pricing functions, the Company divides its
customers into two groups, business and leisure. Business customers include
large commercial accounts, small business accounts and government authorities.
In 1996, business customers generated approximately 51% of the Company's U.S.
car rental revenue on 58% of the Company's U.S. car rental transactions. At
December 31, 1996, the Company's business customers included 357 of the Fortune
500 companies. The Company was designated as the exclusive supplier of rental
cars by 18 of the 40 Fortune 500 companies (or 45%) that named sole suppliers
and the primary supplier of rental cars by 149 of the 347 Fortune 500 companies
(or 43%) that named a primary/secondary supplier.
Leisure customers, including wholesale tour customers, represent the balance of
the Company's U.S. car rental revenues and transactions, or approximately 49% of
the Company's U.S. car rental revenue on 42% of the Company's U.S. car rental
transactions. Revenue per transaction is higher for leisure rentals as compared
to business rentals because leisure rentals are generally for longer periods.
The Company's success in the leisure market is the product of its quality of
service and the Company's competitive pricing. A significant number of leisure
customers are the same customers who rent from the Company on business. Over the
last several years, the relative proportion of the Company's revenues from
business and leisure customers has remained stable.
In 1996, the Company's business customers generated approximately 52% of the
Company's international car rental revenues on 60% of the Company's
international car rental transactions. In 1996, the Company's international
leisure customers generated approximately 48% of the Company's international car
rental revenues on 40% of the Company's international car rental transactions.
Marketing, Sales and Advertising
The Company has a worldwide marketing and sales organization of over 800 people
focused on both commercial accounts/group sales and the travel industry,
including travel agents as well as a comprehensive program of retail and trade
advertising, direct mail and other targeted marketing (such as special rental
packages for skiers, golfers, etc.).
The Company's commercial and group sales force has a staff of over 200
throughout the United States to support larger commercial accounts, smaller
corporate affiliations, government and group relationships (such as the American
Automobile Association, the American Association of Retired Persons, the
American Bar Association, the American Medical Association, etc.). In order to
provide targeted sales to the travel industry community, the Company has over 60
sales employees and over 100 independent contractors throughout the United
States, all of whom service travel agents, airlines, tour wholesalers and
related sources of rentals. As a result, the Company has relationships with more
than 35 domestic and international airlines and in excess of 500 tour operators.
In addition, the Company maintains a comprehensive commission program for travel
agents worldwide.
In the United States, the Company markets to leisure customers predominantly
through television and radio media advertising and through newspaper and
magazine print advertising. Print advertising is primarily rate-related,
highlighting leisure destination rates for weekly and weekend rentals.
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The Company conducts an active national and international advertising program,
the cost of which is supported in part by contributions from the Company's
independent licensees. The Company is also a party to a cooperative advertising
agreement with Ford pursuant to which Ford shares some of the cost of certain of
the Company's advertising programs in the United States and abroad that feature
the Ford name or products. See "Relationship with Ford -- Joint Advertising
Agreement". The advertising programs also involve cooperative advertising
arrangements with airlines, hotels and others in the travel industry.
During the five-year period ended December 31, 1996, the Company's total
advertising and related expenditures (almost all of which were related to car
rental operations) and the sources contributing thereto were approximately as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------
Dollars in Thousands 1996 1995 1994 1993 1992
PAID BY -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
The Company and Subsidiaries.......... $148,034 $134,487 $133,600 $101,281 $104,757
Ford.................................. 45,459 44,112 41,994 40,259 35,692
Licensees............................. 8,454 8,740 8,800 8,154 7,285
-------- -------- -------- -------- --------
Total............................ $201,947 $187,339 $184,394 $149,694 $147,734
======== ======== ======== ======== ========
</TABLE>
In addition, licensees spend additional amounts for local advertising and sales
promotions that feature the "Hertz" name.
Quality Assurance
The Company believes that quality of service is of critical importance to
customer satisfaction and brand loyalty. Accordingly, the Company places a high
priority on monitoring and evaluating customer satisfaction through a series of
rating systems and management reporting. Customer feedback received through
comment cards, customer letters and telephone calls is reported, coded,
tabulated and evaluated. These reports highlight repetitive problem areas and
help to identify the underlying causes that ultimately result in corrective
actions being taken.
The Company's locations receive periodic, unannounced inspections by an internal
team of experienced service quality auditors. The results of these extensive
examinations are tabulated and quality ratings are assigned. These reports
receive significant management attention.
The Company screens and evaluates telephone calls at each of the Company's
toll-free numbers to monitor the quality of customer service. This information
is utilized to improve the quality at the Company's global reservations centers.
Periodic focus groups are also utilized to determine and track customer
perceptions toward the Company's services and pricing compared with its
competition.
The Company's procedures call for each rental car to undergo a quality control
check prior to each rental. These procedures ensure that customers receive
clean, quality cars that meet the Company's high safety and quality standards.
In independent research conducted for the Company, among U.S. car rental
customers over the last three years, the Company has been ranked best overall
car rental company by a significant margin. In addition, the Company has
received numerous awards and designations from independent third parties. Among
others, the Company received the following awards in each of the last three
years: Conde Nast Traveler -- "Readers' Choice Award"; TTG World Travel Awards
- -- "World's Leading Car Rental Company"; Business Traveler Award -- "Best Car
Rental Company"; TTG Europa Travel Award (International) -- "Top Car Rental
Company"; and Asia Pacific Award (awarded by TTG Asia and PTN Asia Pacific) --
"Best Car Rental Company in Asia Pacific".
Car Acquisition
The Company believes it is the largest single private purchaser of new cars in
the world, acquiring approximately 300,000 cars in the United States and a total
of 500,000 cars worldwide during the
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1996 model year. Consequently, the acquisition and disposition of cars are
important activities for the Company and have a significant impact on
profitability. The Company acquires, subject to availability, a majority of its
cars pursuant to various fleet repurchase programs established by automobile
manufacturers. Under these programs, automobile manufacturers agree to
repurchase cars at a specified price during established repurchase periods,
subject to certain car condition and mileage requirements. Repurchase prices
under the repurchase programs are based on either (i) a predetermined percentage
of original car cost and the month in which the car is returned or (ii) the
original capitalization cost less a set daily depreciation amount. These
repurchase programs limit the Company's residual risk with respect to cars
purchased under the programs. For this reason, cars purchased by car rental
companies under repurchase programs are sometimes referred to by industry
participants as "non-risk" cars. Conversely, those cars not purchased under
repurchase programs for which the car rental company is exposed to residual risk
are sometimes referred to as "at risk" cars. During 1996, non-risk cars as a
percentage of all cars operated by the Company's U.S. and international
operations were approximately 91% and 85%, respectively. The Company expects the
percentage of "non-risk" cars in its rental fleet to decrease due primarily to
anticipated changes in the terms to be offered by automobile manufacturers under
repurchase programs. The Company believes such terms will encourage the Company
to purchase a larger proportion of "at risk" cars. For a discussion of the risks
associated with this trend, see "Risk Factors -- Risks Related to Decreased
Acquisition or Disposition of Cars Through Repurchase Programs".
The holding period for the Company's rental cars ranges from 5 to 12 months. The
Company's flexibility to adjust the holding period for cars, particularly under
repurchase programs with automobile manufacturers, enables the Company to adjust
its fleet size up or down relatively quickly in response to changing market
conditions. At December 31, 1996, the average age of rental cars in the
Company's fleet was 7 months.
Over the five years ended December 31, 1996, on a weighted average basis,
approximately 68% of the cars acquired by the Company for its U.S. car rental
fleet, and approximately 34% of the cars acquired by the Company for its
international fleet, were manufactured by Ford. During 1996, approximately 64%
of the cars acquired by the Company domestically were manufactured by Ford, 5%
were manufactured by General Motors Corporation, 5% were manufactured by
Chrysler Corporation and the remainder were manufactured by various Japanese,
Korean and European manufacturers. The percentage of Ford cars acquired by the
Company for its U.S. car rental fleet is expected to remain at these or higher
levels in the future. See Note 7 to the Notes to the Company's consolidated
financial statements included in this Prospectus. In its foreign operations, the
Company utilizes cars manufactured abroad by subsidiaries of Ford and by other
manufacturers. In 1996, approximately 28% of the cars acquired by the Company
for its international fleet were manufactured by Ford, which represented the
largest percentage of any automobile manufacturer in that year. Negotiations
with automobile manufacturers include determination of the initial purchase
price of the car and establishment of the payment terms. New car repurchase
programs or residual value guarantees, approval for using the Company's
facilities for warranty repairs, as well as the establishment of cooperative
advertising and promotion programs also are negotiated with the manufacturers.
See "Relationship with Ford -- Car Supply Agreement".
Purchases of cars are financed through funds provided from operations and by
active and ongoing global borrowing programs. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources".
Used Car Sales
The Company disposes of "at risk" cars as well as those "non-risk" cars that are
not returned to the manufacturer through auctions, 41 domestic retail car sales
locations and, in Europe, through wholesale operations. Upon the sale of a car,
the difference between the net proceeds from sale and the remaining book value
is recorded as an adjustment to depreciation in the period when sold. See Note 7
of the Notes to the Company's consolidated financial statements included in this
Prospectus.
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In connection with its expectation that the percentage of "at risk" cars in its
rental fleet will increase, the Company expects to expand its domestic retail
network by approximately 44% (or 18 locations) during 1997. The Company also
plans to open up to three large-scale retail sales locations in the fourth
quarter of 1997, at each of which the Company expects to sell 2,500 to 3,500
units annually, compared with the current average individual location volume of
over 400 units per year.
In expanding its retail used car sales operations, the Company intends to
leverage the "Hertz" brand name and its reputation for innovation, customer
service and vehicle maintenance. Key elements of the Company's retail expansion
plan, which the Company has successfully employed in the past, include no-haggle
pricing and providing a complete maintenance history for each car. Specifically
tailored strategic information systems provide for timely and highly centralized
control of car inventories and pricing. Generally, cars sold by the Company
continue to be covered by the manufacturer's warranty. The Company provides a 12
month/12,000 mile powertrain warranty from time of sale for no additional charge
and various comprehensive warranties covering all major components for
additional charges.
Licensees
While the Company believes that its extensive worldwide ownership of its
operations provides an important competitive advantage, the Company has found it
more efficient to operate through licensees in certain markets. As of December
31, 1996, the Company's licensees operated from approximately 3,200 locations
worldwide. The Company believes that its licensee arrangements are important to
the Company's business because they enable the Company to offer expanded
national and international service and a broader Rent It Here-Leave It There
program. The Company's wholly-owned subsidiaries, Hertz System, Inc. ("System")
and Hertz International, Ltd. ("International"), issue licenses under franchise
arrangements to independent licensees and affiliates who are engaged in the car
renting business in the United States and in many foreign countries and
jurisdictions.
Licensees generally pay fees based on the number of cars they operate and/or on
revenues. The operations of all licensees, including the purchase and ownership
of vehicles, are financed independently by the licensee with the Company having
no investment interest in the licensee (except for two foreign licensees) or in
the licensee's fleet. Licensees also share in the cost of the Company's
advertising program, reservations system, sales force and certain other
services. In return, licensees are provided with the use of the "Hertz" brand
name, management and administrative assistance, training, the availability of
the Company's charge cards, The Hertz #1 Club, reservations service, the Rent It
Here-Leave It There program and other services. System, which owns the Company's
service marks and trademarks and certain proprietary know-how used by licensees,
establishes the uniform standards and procedures under which all such licensees
operate.
System licenses ordinarily are limited as to transferability without the
Company's consent and are terminable by the Company only for cause or after a
fixed term. Licensees may generally terminate for any reason on 90 days notice
to System. Initial license fees or the price for the sale to a licensee of a
corporate location may be payable over a term of several years. New licenses
continue to be issued, and, from time to time, licensee businesses are purchased
by the Company.
In 1988, the Company sold its 50% interest in Hertz Penske Truck Leasing, Inc.,
which has been succeeded by Penske Truck Leasing Co., L.P., ("Penske"), and
entered into a license agreement under which Penske has the right, as a licensee
of the Company, to conduct a one-way truck rental business (including trailers)
using the "Hertz" name for a 10 year period ending in 1998. With certain
exclusions the license agreement covers the entire United States.
Car Leasing
Hertz owns 100% of its car leasing operations in Australia, New Zealand and
Brazil. Leases are generally closed-end where the Company is subject to risk
with respect to the market value of cars at the time of disposition.
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Effective January 1, 1995, the Company sold its European car leasing and car
dealership operations to Hertz Leasing International, Inc., an indirect,
wholly-owned subsidiary of Ford ("HLI"), at an amount equal to its book value of
approximately $61 million. As part of the transaction and for additional
consideration payable over five years, Ford received the worldwide rights
(subject to certain existing license rights and excluding Australia, New Zealand
and Brazil) to use and sublicense others to use the Hertz name in the conduct of
car leasing businesses (i.e., rentals having terms of one year or longer). Prior
to completion of the Offerings, Ford will transfer back to the Company, subject
to a transition period of not less than one year, the right to use the "Hertz"
name in the conduct of the car leasing business, but will continue to make
payments in respect of its previous obligation. See Note 5 to the Notes to the
Company's consolidated financial statements included in this Prospectus.
Following such transfer, the Company may consider opportunities to expand its
car leasing business.
INDUSTRIAL AND CONSTRUCTION EQUIPMENT RENTAL OPERATIONS
Industry Overview
Through its wholly-owned subsidiary, HERC, the Company operates what it believes
to be the largest industrial and construction equipment rental business in the
United States. The equipment rental industry serves a wide variety of
industrial, construction and homeowner customers. The Company estimates that
1995 annual revenues for the U.S. equipment rental industry were $15 billion.
The equipment rental industry is highly fragmented and consists of a large
number of small, independent businesses serving local markets. The Company
believes that there are over 7,000 equipment rental operators in the United
States with approximately 12,000 locations. According to the Rental Equipment
Register, only 23 of the top 100 equipment rental firms in the United States had
rental revenues in excess of $25 million in 1995. Management believes the
equipment rental industry in the United States offers substantial consolidation
opportunities for large, well-capitalized companies such as HERC. Relative to
small regional competitors, large multi-regional operators such as the Company
benefit from several competitive advantages, including access to capital, the
ability to offer a broad range of modern equipment, purchasing power with
equipment suppliers, sophisticated management information systems, national
brand identity and the ability to service national accounts. In addition,
multi-regional operators are less sensitive to local economic downturns.
Renting has become a more attractive alternative for companies to meet their
equipment needs. Customers are replacing fixed costs inherent in purchasing
equipment with variable costs by renting and achieving greater operating
flexibility and improved productivity of capital. Because of the significant
capital investments required to purchase heavy equipment, the shift to renting
has been particularly pronounced in the heavy equipment categories in which HERC
specializes. Changes under the Tax Reform Act of 1986, such as repeal of the
investment tax credit and the requirement for longer depreciable lives for tax
purposes, have also made renting more attractive to customers.
Products and Services Offered
Industrial and construction equipment rental represents HERC's principal service
offered. HERC rents over 150 types of equipment, major categories of which
include earth moving equipment, materials handling equipment, aerial and
electrical equipment, air compressors, compaction equipment and
construction-related trucks. Earth moving, materials handling and aerial
equipment accounted for 72% of HERC's net fleet investment at December 31, 1996.
HERC's more than 33,000 pieces of rental equipment have a weighted average age
of 19.7 months and an original investment cost of
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<PAGE> 46
approximately $908 million at December 31, 1996. The Company believes that
HERC's fleet is the largest, youngest and best maintained in the industry.
HERC is one of the largest sellers of used industrial and construction equipment
in the United States. It has developed an extensive used equipment sales program
that disposed of equipment having an original cost of over $140 million in 1996.
HERC has a dedicated used equipment sales force and, in addition, has developed
an export market through its overseas contacts. Additionally, HERC has in the
past and may, from time to time in the future, employ a broker network in the
United States to dispose of its used equipment.
HERC's comprehensive line of equipment enables HERC to be a single source for
its customers' equipment needs. Certain customers are beginning, however, to
require a single source not only for equipment rental but also for supplies and
maintenance operations. In response to this trend, HERC anticipates entering the
market for supplies and maintenance operations in 1997 through selected
acquisitions or otherwise.
The Company believes that HERC's superior customer service differentiates it
from its competitors. HERC also offers the following additional services:
- National network of branches to meet local demand and timely
delivery
- Customer driven performance system to monitor customer service
- Customized management information system reports
- 24 hour service for industrial accounts
- Customer safety training programs
- In-house and field maintenance by factory trained mechanics
Facilities
HERC currently operates 120 equipment rental branches ("branches"), 115 of which
are located in the United States across 31 states, and 5 of which are located in
France and Spain.
The following table shows the number of HERC branches over the 5 years ended
December 31, 1996:
<TABLE>
<CAPTION>
------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning locations......................................... 104 95 85 89 93
New openings................................................ 17 9 11 -- 2
Locations closed............................................ (1) -- (1) (4) (6)
--- --- -- -- --
Ending locations............................................ 120 104 95 85 89
=== === == == ==
</TABLE>
HERC's rental locations are generally situated in industrial or commercial
zones. The average location is two acres in size and includes a customer service
center, an equipment service area and storage facilities for equipment. The
branches are built or conformed to the specifications of the HERC prototype
branch which stresses efficiency, safety and environmental compliance. Each
branch has stand-alone maintenance and fueling facilities and showrooms. Of the
120 present locations, 89 are leased from third parties and 31 are owned.
Customers
HERC's customers consist predominantly of commercial accounts and represent a
wide variety of industries, such as railroad, automobile manufacturing,
petrochemicals, movie production, ship building and construction. Serving a
number of different industries enables HERC to reduce its dependence on a single
or limited number of customers in the same business. HERC has over 58,000
customers, and in 1996 no single customer of HERC accounted for more than 3% of
its revenues. HERC primarily targets large customers in medium to large
metropolitan markets.
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<PAGE> 47
HERC has sought over the past several years to diversify and stabilize its
revenue mix by reducing the portion of its revenues which are derived from
customers which operate in the more cyclical construction industry. The
following table shows the percentage of HERC revenues derived from different
types of customers in 1996 and 1990:
<TABLE>
<CAPTION>
------------
1996 1990
---- ----
<S> <C> <C>
Construction................................................ 46% 57%
Industrial.................................................. 34 27
Government.................................................. 4 5
Other....................................................... 16 11
--- ---
Total.................................................. 100% 100%
=== ===
</TABLE>
HERC operations in the United States are organized and managed in eight
geographic regions. During each of the five years ended December 31, 1996, no
single geographic region accounted for more than 20% of HERC's revenues. This
geographic diversification means HERC is better positioned to withstand a
regional recession than its local or regional competitors who, the Company
believes, are highly dependent on the economic condition of a single region.
The table below sets forth the percentage of HERC's revenues derived from each
of HERC's operating regions for the year ended December 31, 1996.
<TABLE>
<CAPTION>
----------
REGION PERCENTAGE
------ ----------
<S> <C>
Southeast................................................... 20%
Western..................................................... 14
Northeast................................................... 13
Northwest................................................... 13
Florida..................................................... 12
Southwest................................................... 12
Midwest..................................................... 11
Northcentral................................................ 5
----------
Total..................................................... 100%
==========
</TABLE>
Sales and Marketing
HERC focuses its major sales and marketing strategy on large local and
multi-regional users of industrial and construction equipment. The strategy is
led by a national accounts sales organization consisting of 15 people and is
backed by a field sales force of 340 highly trained sales professionals. Each
branch has its own dedicated sales force.
HERC's national account program began in 1983 and has over 1,700 national
account agreements with major regional and national companies. Revenues from
national accounts have grown at a 25.6% compound annual rate from $11 million in
1984, the first full year of the national accounts program, to $170 million in
1996, representing 43% of HERC's 1996 revenues.
HERC's national sales force effectively emphasizes HERC's strengths such as its
geographically diverse system of branches and the size, consistency and quality
of HERC's fleet. HERC reaches its smaller accounts through a local sales force.
The Company believes that the combination of HERC's professional sales force,
high quality fleet and the ability to transfer equipment from various locations
to satisfy local demands provides a competitive advantage.
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<PAGE> 48
Information Systems
The Company believes that HERC uses the most sophisticated information systems
in the equipment rental industry and that HERC has benefitted substantially from
the Company's investment in strategic information systems used by the car rental
business.
Using techniques substantially the same as those employed in the Company's car
rental operations, HERC uses its information systems, which link its various
rental locations, to enhance profitability by allowing centralized management
control of each piece of equipment in the rental fleet, monitoring demand by
location to assist in maintaining high utilization and managing the acquisition
and disposition of equipment.
Equipment Maintenance
Each HERC facility performs its own preventive maintenance. Centralized computer
programs link all HERC facilities to monitor on-time preventive maintenance as
well as annual American National Standard Institute and Department of
Transportation inspections. This process is designed to ensure peak equipment
performance and availability, and reduces the need for major repairs, resulting
in approximately 99% of HERC's fleet being rented or available for rental at any
time. Other automated programs track mandatory safety and service modifications
and equipment deadlines. HERC has developed comprehensive in-house warranty
programs to repair equipment on behalf of manufacturers and is eligible to
receive reimbursement for such work.
Equipment Acquisition
Equipment purchasing is centralized to leverage and maintain what the Company
believes is the lowest average fleet costs within the equipment rental industry.
The Company believes that HERC is the largest single buyer of industrial and
construction equipment within the equipment rental industry. During 1996, HERC
made $378.4 million of rental equipment acquisitions and other capital
expenditures.
HERC selectively buys its equipment from vendors with reputations for high
product quality, reliability and significant market share. Some of HERC's
leading suppliers include Case Corporation, Lull Industries, Inc, the Gradall
Co., Deere & Company (John Deere equipment), Ingersoll-Rand Company, JLG
Industries, Inc. and Ford.
Centralized purchasing has allowed HERC to standardize its fleet specifications
by model and geographic needs, allowing for economies of scale. HERC has
developed a fully automated fleet planning and purchasing process that
streamlines and expedites fleet orders.
The Company believes that HERC's fleet age is a major competitive advantage and
assures customer satisfaction with equipment as well as lower maintenance costs.
Through aggressive used equipment sales, the Company has been able to maintain
an average fleet age of 19.7 months.
The Company is generally "at risk" with respect to all the equipment used in its
industrial and construction and equipment rental sales operations.
Fleet Disposal
The Company believes that HERC is the largest distributor of used industrial and
construction equipment in the United States and has established itself as a
highly reliable supplier of used equipment. In 1996, HERC disposed of equipment
having an original cost of over $140 million. All used equipment is sold
directly from branch locations.
Pricing for used HERC equipment has been centralized. Relationships with major
equipment brokers and wholesalers allow HERC to trim fleet levels and mix to
improve utilization. HERC publishes The Source magazine two to three times per
year and distributes it nationally to over 40,000 customers and
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<PAGE> 49
prospects. This full color publication advertises price, model, year and
location of used equipment for sale. The Company also prints a Spanish version.
This overall used equipment strategy has allowed HERC to maintain what it
believes to be the youngest fleet in the industry by selling off assets that are
between 24 and 60 months old on average. With a younger fleet, HERC has
significantly reduced its maintenance and repair costs which are largely covered
by manufacturer warranties. The Company has been able to exploit its significant
presence in the U.S. market for sales of used industrial and construction
equipment, to actively manage its fleet size and, in particular, to reduce fleet
levels during typical seasonal downturns.
STRATEGIC INFORMATION SYSTEMS
Centralized control, achieved through the use of the Company's strategic systems
technology, of major business processes such as reservations, rate structures
and fleet control provides the disciplined environment in which the Company can
deliver consistent quality service at its car rental and equipment rental
operations. The Company has over 3,900 MIPS (millions of instructions per
second) of computing power and over four Terabytes (trillion characters) of
online data storage to run its global reservations, point-of-sale,
administrative and financial systems. The Company maintains real-time
communications with its many locations by means of what it believes is the
largest private data network in the industry.
In 1991, the Company began centralizing its worldwide information technology
resources in Oklahoma City, Oklahoma. This project, which is expected to be
completed by 1999, is expected to allow the Company to gain efficiencies in
support and development and to continue improving productivity and cost
effectiveness.
Global Reservations System
The Company's global reservations system operates through real-time, on-line
centers on five continents. Direct access with other computerized reservations
systems allow real-time processing for travel agents and corporate travel
departments. Company rental locations worldwide depend upon the global
reservations system to provide information critical to fleet and personnel
planning, rate management and the timely computerized delivery of reservations.
Customer information captured and made available in the reservations process
support such premium services as Hertz #1 Club Gold.
The Company's reservations system annually handles approximately 40 million
incoming calls, during which customers inquire about locations, rates and
availability, and place or modify reservations. In addition, millions of
inquiries and reservations come to the Company through travel agents and travel
industry partners. The Company maintains and continually monitors quality
standards for accuracy and consistency in the reservations process. Regardless
of where in the world the customer may be, the Company's reservations system is
designed to ensure that availability of cars, rates and personal profile
information is reliably applied and that correct information is delivered at the
proper time to the customer's rental destination.
The Company expects to complete its transition to a state of the art,
client-server based reservations system at its Oklahoma City reservations center
in the second quarter of 1997. This new system is expected to allow for greater
accuracy and speed in processing reservations, thereby improving customer
service. The client-server architecture minimizes the need for additional
computer equipment as the demands of the business grow. Additionally, the design
of the new system is expected to be more flexible, facilitating rapid response
to changing market demands.
The Company also is in the process of consolidating individual European
reservations centers into a single facility in Ireland. As a result, the Company
expects to realize substantial cost savings, while providing uniformly high
service levels. Currently, the European and domestic reservations systems are
linked, providing for global reservation capabilities.
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<PAGE> 50
Yield Management System
Yield management affords the opportunity to achieve greater returns from a fixed
number of assets. The Company's yield management system is designed to optimize
revenue through controlling, simultaneously, the availability of various rates
as well as the availability of cars. The system monitors the flow of demand over
time on a location by location basis, in order to supply a sufficient number of
cars at those times when available rates are high.
Enhancements to the yield management system are produced on an ongoing basis.
The Company is currently developing a car distribution optimization program,
which is expected to be fully integrated with the yield management system, and
anticipates that this program will be made available throughout the Company's
major locations in the United States by 1998. This enhancement is expected to
facilitate the distribution of cars among rental locations within a regional
area to take maximum advantage of demand and price opportunities over a period
of time.
In the Company's European operations, the yield management system is expected to
be introduced with modifications appropriate to those markets.
Competitive Rate Detection
The Company recognizes that it is essential to respond promptly to pricing
changes in the marketplace. The ability to respond rests on the ability to
detect pricing changes when they occur. The Company believes it has the most
sophisticated competitive price detection software in the industry. Developed
internally and using global distribution systems (such as United Airlines'
Apollo system and American Airlines' Sabre system) for its source of
information, competitors' rates are electronically canvassed nightly. "Scouting"
routines are used to identify future rates in the marketplace. If rate changes
are detected, they result in more in-depth canvassing, as appropriate. The
benefit of this system is to provide enhanced awareness of competitive rate
changes far more frequently, and for a greater number of locations and time
periods, than would otherwise be available.
Internationally, canvassing is generally done manually, due to the limited
information available concerning competitors in the global distribution systems.
However, the Company's European operations have in place a reporting system
which, while dependent on manual input, parallels the information available in
the United States.
Cost Allocation Model
The Company's cost allocation model supports the Company's objective that all
segments of its businesses must provide contributions above a strategically set
threshold. Contribution per rental day is determined by location, business
segment and car and equipment category by using data from the financial
management system, the fleet accounting system, the marketing database and the
yield management process. Additional models, based on this core cost allocation
model, allow the sales department to determine the profitability of customer
accounts by rental location.
To support the Company's European operations, a comparable cost allocation model
is used to reflect the individual operating environments of the respective
countries and to manage profitability.
Disaster Recovery; Year 2000 Date Conversion
The Company's systems disaster recovery planning is a comprehensive, ongoing
process which is updated as products are developed, tested and modified.
Disaster recovery for reservations, financial and other strategic systems is
provided at alternative locations serviced by third parties or at Company
maintained facilities.
In 1997, the Company will commence, for all of its systems, a year 2000 date
conversion project to address all necessary code changes, testing and
implementation. Project completion is planned for the middle of 1999 at an
estimated total cost of approximately $15 million. The Company expects its year
50
<PAGE> 51
2000 date conversion project to be completed on a timely basis. However, there
can be no assurance that the systems of other companies on which the Company's
systems rely also will be timely converted or that any such failure to convert
by another company would not have an adverse effect on the Company's systems.
OTHER OPERATIONS OF THE COMPANY
Claim Management
The Company's wholly-owned subsidiary, Hertz Claim Management Corporation,
provides claim administration services to the Company and to numerous customers.
These services include investigating, evaluating, negotiating and disposing of a
wide variety of claims, including third-party, first-party, bodily injury,
property damage, general liability and product liability, but not the
underwriting of risks. Prior to March 1, 1996, the Company, through a
subsidiary, also administered for the Company's operations and others, workers'
compensation and medical, dental and other employee health benefit claims. That
subsidiary, renamed HCM Claim Management Corporation, was sold at a profit to an
investor group during 1996. However, Hertz Claim Management Corporation
continues to administer liability claims for the Company and for outside
clients.
Telecommunications
In 1991, the Company began purchasing and reselling telecommunications services
through its subsidiary, Hertz Technologies, Inc. ("HTI"). HTI takes advantage of
the Company's negotiated rates with its telecommunications carriers to market
custom designed rate packages and services to small and medium size businesses
throughout the United States. Available services include call detail and
management reports, inbound/outbound call packages and travel calling card
services that include voice mail and fax options.
The knowledge of competitive telecommunications services gained from developing
a leading management information system for the Company's car rental operations
has resulted in significant savings to the Company. Due to the nature of the
telecommunications business, there is very little overhead or capital investment
required. Services are sold through independent sales agents and other groups.
HTI provides its services from Oklahoma City, Oklahoma.
SELF INSURANCE
For its domestic operations, the Company is, where permitted by applicable local
law, a qualified self insurer against liability resulting from accidents under
certificates of self insurance for financial responsibility in all states where
its cars are registered. The Company also self insures general public liability
and property damage for all domestic operations. Since July 1, 1987, all claims
have been retained and borne by the Company up to a limit of $5 million for each
occurrence, and the Company has maintained insurance with unaffiliated carriers
in excess of $5 million up to $450 million per occurrence. Hertz Claim
Management Corporation, a wholly-owned subsidiary of the Company, administers
this public liability and property damage program through a network of eight
regional offices throughout the United States.
For its international operations, the Company purchases insurance to comply with
local legal requirements. From January 1, 1993 through December 31, 1996,
vehicle liability insurance purchased locally from unaffiliated carriers by
Company-owned operations in Europe was reinsured by Hertz International RE
Limited, a wholly-owned subsidiary of the Company operating as a reinsurer in
Dublin, Ireland. Hertz International RE Limited is responsible for the first
$1.5 million of motor vehicle liability for each accident during this period,
with excess liability insurance coverage maintained by the Company with
unaffiliated carriers. Effective January 1, 1997, the Company replaced the
unaffiliated carrier that was the fronted insurer for claims up to $1.5 million
by establishing a wholly-owned subsidiary, Probus Insurance Company Europe
Limited ("Probus"), a direct writer domiciled in Dublin, Ireland. Probus now
underwrites the Company's Pan-European motor vehicle liability program (except
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<PAGE> 52
in Switzerland and Denmark) up to $1.5 million per occurrence. Excess coverage
for claims that exceed $1.5 million per occurrence continue to be maintained
with unaffiliated carriers. In the Company's international operations other than
Europe, the Company is self-insured at various amounts up to $100,000 per
occurrence, and maintains excess liability insurance coverage up to $450 million
per occurrence with unaffiliated carriers.
Provisions for public liability and property damage on self-insured domestic
claims and reinsured foreign claims are made by charges to expense based upon
evaluations of estimated ultimate liabilities on reported and unreported claims.
At December 31, 1996, this liability was estimated at $321 million for combined
domestic and foreign operations.
Ordinarily, collision damage costs and the costs of stolen or unaccounted for
cars are carried on a self-insured basis, with such costs being charged to
expense as incurred.
HERC generally requires its customers to provide their own liability insurance
on rented equipment with HERC held harmless under various agreements.
Other types of insurance usually carried by business organizations, such as
workers compensation, (i.e., on a fronted basis up to $5 million per occurrence)
property (including boiler and machinery and business interruption), commercial
crime and fidelity, performance bonds and directors and officer's liability
insurance, are purchased from various insurance companies in amounts deemed
adequate by the Company for the respective hazards. The Company and its
directors and officers participate as additional insureds in certain insurance
policies maintained by Ford. See "Relationship with Ford".
COMPETITION
The markets in which the Company operates are highly competitive. In any given
location, the Company may encounter competition from national, regional and
local companies. In the United States, the Company's principal competitors in
the business car rental market are Avis and National, and in the leisure market,
the Company's principal competitor is Alamo. In Europe, the Company's principal
competitors in the car rental market are Avis, Europcar and, operating
principally through licensees, Budget. The Company competes primarily on the
basis of customer service and price. In addition, the Company believes extensive
worldwide ownership of its operations and its access to the global capital
markets provide it with an advantage over its competitors.
The Company, through H.I.R.E., intends to expand its presence in the insurance
replacement market in the United States where Enterprise Rent-a-Car is currently
the dominant participant.
The Company believes that HERC is the largest equipment rental company in the
United States. HERC's competitors range from large national companies such as
U.S. Rentals, BET Plant Services and Prime Equipment to small regional
businesses. HERC's competitive success is, in part, due to its state of the art
systems for monitoring, controlling and developing its branch network, its
capacity to maintain a comprehensive rental fleet and its established national
accounts program.
The Company believes that price is one of the primary competitive factors in the
car and industrial and construction equipment rental markets. Competitors of the
Company, many of which have access to substantial capital, may seek to compete
aggressively on the basis of pricing. To the extent that the Company matches
downward competitor pricing, it could have an adverse impact on the Company's
results of operations. To the extent that the Company is not willing to match
competitor pricing, it could also have an adverse impact on the Company's
results of operations as the Company may lose market share.
EMPLOYEES
On December 31, 1996, the Company employed approximately 21,000 persons in its
domestic and foreign operations. Labor contracts covering the terms of
employment of approximately 5,400 employees in the United States are presently
in effect under 167 active contracts with local unions,
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<PAGE> 53
affiliated primarily with the International Brotherhood of Teamsters and the
International Association of Machinists (AFL-CIO). Labor contracts which cover
approximately 1,500 of these employees will expire during 1997. Employee
benefits in effect include group life insurance, hospitalization and surgical
insurance, pension plans, and an income savings plan. Overseas employees are
covered by a wide variety of union contracts and governmental regulations
affecting, among other things, compensation, job retention rights and pensions.
The Company has had no material work stoppage as a result of labor problems
during the last 10 years. The Company believes its labor relations to be good.
In addition to the employees referred to above, the Company employs a
substantial number of temporary workers, and engages outside services, as is
customary in the industry principally for the non-revenue movement of the rental
fleet between locations.
LEGAL PROCEEDINGS
In July 1996, the Company was sued in Harris County, Texas District Court in a
purported class action in which the plaintiff alleges that the Company's
practice of providing certain insurance products violates the Texas Insurance
Code because the Company did not obtain approval to sell insurance or obtain
regulatory approval of the premiums it charges. The complaint seeks restitution
of excessive premiums, equitable rescission of all insurance contracts entered
into by the class members, a declaratory judgment that the Company is selling
insurance illegally in Texas and injunctive relief. Currently the action is in
its preliminary stages and the class has not been certified. While it is
possible that the action could result in significant liability to the Company,
the Company does not expect the action to have a material adverse effect on the
Company's consolidated financial position or results of operations. For a
discussion of a related inquiry by the Texas Department of Insurance, see "--
Governmental Regulation and Environmental Matters".
The U.S. Department of Labor has commenced an inquiry into the Company's
classification of certain employees as "exempt" for purposes of federal labor
laws and whether such employees have been improperly denied overtime pay. While
an adverse outcome of the inquiry could have an adverse effect on the Company's
results of operations for the quarter in which it occurs, the Company does not
believe any adverse outcome would have a material adverse effect on the
Company's results of operations for a full year or on the Company's consolidated
financial position.
The Company is involved in a legal proceeding through which the Company is
challenging the legality of a New York City ordinance that would prohibit the
Company's practice of assessing higher rental rates for renters who reside in
certain New York City boroughs. See "-- Government Regulation and Environmental
Matters".
In addition to the foregoing, various legal actions, claims and governmental
inquiries and proceedings are pending or may be instituted or asserted in the
future against the Company and its subsidiaries. Litigation is subject to many
uncertainties, and the outcome of the individual litigated matters is not
predictable with assurance. It is possible that certain of the actions, claims,
inquiries or proceedings, including those discussed above, could be decided
unfavorably to the Company or the subsidiary involved. Although the amount of
liability with respect to these matters cannot be ascertained, potential
liability in excess of related accruals is not expected to materially affect the
consolidated financial position or results of operations of the Company.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Throughout the world, the Company is subject to numerous types of governmental
controls, including those relating to price regulation and advertising, currency
controls, labor matters, charge card operations, environmental protection, used
car sales and franchising.
The Company's operations, as well as those of its competitors, could be affected
by any limitation in the fuel supply or by any imposition of mandatory
allocation or rationing regulations. In the event of a severe disruption of fuel
supplies, the operations of all car and industrial and construction equipment
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<PAGE> 54
renting and leasing companies could be adversely affected. Historically, there
has been no disruption of operations resulting from lack of fuel availability.
Since 1992, in the Company's New York region (which includes parts of New Jersey
and Connecticut), the Company has been assessing higher rental rates for renters
who reside in the New York City boroughs of The Bronx, Brooklyn or Queens to
offset costs resulting from a higher incidence of accidents involving renters
residing in such boroughs. The City of New York passed an ordinance prohibiting
such pricing practice. The Company filed suit against The City of New York
claiming that such ordinance was in violation of federal anti-trust laws. The
Company's claim was rejected in U.S. District Court, and the Company appealed to
the U.S. Court of Appeals for the Second Circuit. That Court remanded the
proceeding to the U.S. District Court for trial. Pending the outcome of the
action in the U.S. District Court, the Court has stayed the ordinance,
permitting the Company to continue its pricing practice. If the Company is
ultimately unsuccessful in challenging the ordinance, the Company believes it
could take actions to mitigate the higher costs that would be experienced from
such rentals. Accordingly, the Company believes that an adverse outcome would
not have a material adverse effect on the Company's consolidated financial
position or results of operations.
The Texas Department of Insurance (the "TDI") is currently reviewing the
Company's practice of offering certain insurance products underwritten by
unaffiliated third parties to car rental customers in Texas. Among other things,
the TDI is considering whether the Company's counter sales representatives in
Texas should be licensed to sell insurance. While the Company does not believe
that the enrollment of customers in such policies requires that representatives
be licensed to sell insurance, the Company is unable to predict what
determination the TDI will make or what action, if any, it will take. The
Company does not believe, however, that the outcome of this matter will have a
material adverse effect on the Company's consolidated financial position or
results of operations.
The environmental legal and regulatory requirements applicable to the Company's
operations pertain to (i) the operation of automobiles, trucks and other
vehicles such as heavy equipment and buses; (ii) the ownership and operation of
tanks for the storage of petroleum products, including gasoline, diesel fuel and
used oil; and (iii) the generation, storage, transportation and disposal of
waste materials, including used oil, car wash sludge and waste water. The
Company has made, and will continue to make, expenditures to comply with
environmental laws and regulations.
The use of automobiles and other vehicles is subject to various governmental
requirements designed to limit environmental damage, including that caused by
emissions and noise. Generally, these requirements are met by the manufacturer
except, on occasion, equipment failure requiring repair by the Company. Measures
are being taken at certain locations in states that require the installation of
Stage II Vapor Recovery equipment to reduce the loss of vapor during the fueling
process.
The Company operates approximately 500 underground tanks nationwide to store
petroleum products, and the Company believes its tanks are maintained in
material compliance with environmental regulations, including federal and state
financial responsibility requirements for corrective action and third party
claims due to releases. The Company has established a compliance program for its
tanks to ensure that (i) the tanks are properly registered with the state in
which the tanks are located; and (ii) the tanks have been either upgraded or
replaced to meet federal and state leak detection and spill, overfill and
corrosion protection requirements. The Company anticipates spending
approximately $2.9 million in 1997 and approximately $1 million in 1998 to
complete the registration and upgrade or replacement of such tanks.
The Company is also incurring and providing for expenses for the cleanup of
contamination from fuel discharges at its owned and leased properties, as well
as contamination at other locations at which the Company's wastes have
reportedly been identified. With respect to cleanup expenditures for fuel
discharges at the Company's owned or leased properties, the Company has received
reimbursement, in whole or in part, from certain states that maintain
underground storage tank petroleum cleanup funds. Such funds have been
established to assist tank owners in the payment of cleanup costs associated
with releases from registered tanks. The Company expects to continue to receive
reimbursement for cleanup
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<PAGE> 55
costs incurred due to releases from certain of its tanks. With respect to
off-site locations at which the Company's wastes have reportedly been
identified, the Company has been and continues to be required to contribute to
cleanup costs due to strict joint and several cleanup liability under federal
and state statutes for companies that send wastes to such off-site locations for
disposal. The Company has recovered a substantial amount of such costs incurred
through settlements with its insurance carriers.
Environmental legislation and regulations and related administrative policies
have changed rapidly in recent years. There is a risk that governmental
environmental requirements, or enforcement thereof, may become more stringent in
the future and that the Company may be subject to legal proceedings brought by
government agencies or private parties with respect to environmental matters. In
addition, with respect to cleanup of contamination, additional locations at
which wastes generated by the Company may have been released or disposed, and of
which the Company is currently unaware, may in the future become the subject of
cleanup for which the Company may be liable, in whole or part. Accordingly,
while the Company believes that it is in substantial compliance with applicable
requirements of environmental laws, there can be no assurance that the Company's
future environmental liabilities will not be material to the Company's results
of operations or financial condition.
PROPERTIES
As of December 31, 1996, the Company's owned operations were carried on at 2,328
locations worldwide, including rental and sales offices, car sales locations and
service facilities located on or near airports and in central business districts
in major U.S. cities and suburban areas. Most of such premises are leased,
except for 115 that are owned in fee. The Company has various concession
agreements with governmental authorities charged with the operation of airports
under arrangements generally providing for payment of rents and a percentage of
revenues with a guaranteed annual minimum fee. See Note 9 of the Notes to the
Company's consolidated financial statements included in this Prospectus.
The Company has three major facilities in the vicinity of Oklahoma City,
Oklahoma (one of which is operated under a capital lease and two of which are
owned) at which reservations for its worldwide car rental operations are
processed, global strategic information systems are serviced and major domestic
and international accounting functions are performed. The Company maintains its
executive offices in a facility leased from a joint venture, in which the
Company has a 50% interest, in Park Ridge, New Jersey. The Company is exploring
purchasing the remaining 50% equity interest in the joint venture that owns the
facility. The Company does not expect such transaction to have a material
adverse effect on its financial position.
RELATIONSHIP WITH FORD
Immediately prior to the Offerings, Ford and a Ford subsidiary will be the only
stockholders of the Company. Upon completion of the Offerings, Ford will
beneficially own 55.4% of the outstanding Class A Common Stock (51.9% if the
Underwriters' over-allotment options are exercised in full) and 100% of the
outstanding Class B Common Stock of the Company (which Class B Common Stock is
entitled to five votes per share on any matter submitted to a vote of the
Company's stockholders). Upon completion of the Offerings, the common stock
beneficially owned by Ford will represent in the aggregate 95.3% of the combined
voting power of all of the Company's outstanding common stock (or 94.6% if the
Underwriters' over-allotment options are exercised in full). For as long as Ford
continues to beneficially own shares of common stock representing more than 50%
of the combined voting power of the Company's common stock, Ford will be able to
direct the election of all of the members of the Company's Board of Directors
and exercise a controlling influence over the business and affairs of the
Company, including any determinations with respect to mergers or other business
combinations involving the Company, the acquisition or disposition of assets by
the Company, the incurrence of indebtedness by the Company, the issuance of any
additional common stock or other equity securities, the repurchase or redemption
of common stock or preferred stock and the payment of dividends. Similarly, Ford
will have the power to determine matters submitted to a vote of the Company's
stockholders without the consent of the Company's other stockholders, will have
the power to prevent a
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<PAGE> 56
change in control of the Company and could take other actions that might be
favorable to Ford. See "Management".
Ford has advised the Company that its current intent is to continue to hold all
of the common stock beneficially owned by it following the Offerings. However,
Ford is not subject to any contractual obligation to retain its controlling
interest, except that each of the Company and Ford has agreed, subject to
certain exceptions, not to sell or otherwise dispose of any shares of Class A
Common Stock or Class B Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of J.P. Morgan Securities Inc.
As a result, there can be no assurance concerning the period of time during
which Ford will maintain its beneficial ownership of common stock of the Company
owned by it following the Offerings. See "Underwriting".
Beneficial ownership of at least 80% of the total voting power and value of the
outstanding Common Stock is required in order for Ford to include the Company in
its consolidated group for federal income tax purposes, and beneficial ownership
of at least 80% of the total voting power and 80% of each class of nonvoting
capital stock is required in order for Ford to be able to effect a tax-free
spin-off or certain other tax-free transactions.
In addition, by virtue of its controlling beneficial ownership and the terms of
a tax-sharing agreement between the Company and Ford, Ford will effectively
control all of the Company's tax decisions, and conflicts of interest regarding
tax matters between the Company and Ford may arise. See "-- Tax-Sharing
Agreement".
Certain of the Company's airport concession agreements require the consent of
the airport authority in connection with changes in ownership of the Company.
For a description of certain provisions of the Company's Restated Certificate of
Incorporation concerning the allocation of business opportunities that may be
suitable for both the Company and Ford, See "Description of Capital Stock --
Certain Certificate of Incorporation and By-law Provisions -- Corporate
Opportunities".
Set forth below are descriptions of certain agreements, relationships and
transactions between the Company and Ford.
CAR SUPPLY AGREEMENT
The Company and Ford have entered into a car supply agreement (the "Car Supply
Agreement") having a term of ten years, commencing September 1, 1997 and ending
August 31, 2007. Under the Car Supply Agreement, Ford and the Company 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 Company and the Company 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 Company's fleet requirements for its car rental
business conducted in the United States; (b) 35% of the Company's fleet
requirements for its car rental business conducted in Europe; and (c) 55% of the
Company'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 Company 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 Company and other daily car rental companies. In addition,
for each model year, Ford must supply cars to the Company 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.
See "Business -- Worldwide Car Rental -- Car Acquisition".
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<PAGE> 57
JOINT ADVERTISING AGREEMENT
The Company and Ford have entered into a joint advertising agreement (the "Joint
Advertising Agreement") having a term of ten years, commencing on September 1,
1997 and ending August 31, 2007. Under the Joint Advertising Agreement, Ford has
agreed to pay to the Company one-half of the Company'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 Company's advertising costs exceed
such limit and the Company 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 Company 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 Company 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
Company any amount for its advertising costs for that year, except to the extent
that the Company'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 Company 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 Company were not competitive with
the terms and conditions for the supply of cars offered by other automobile
manufacturers to the Company and other daily car rental companies. In no event,
however, will Ford be required to pay any amount for the Company's advertising
costs for any year if the Ford Vehicle Share for the corresponding model year is
less than 40%.
For information regarding amounts paid by Ford to the Company for its
advertising costs in past years under a similar agreement, see "Business --
Worldwide Car Rental -- Marketing, Sales and Advertising".
CORPORATE AGREEMENT
The Company and Ford intend to enter into a corporate agreement (the "Corporate
Agreement") under which the Company will grant to Ford a continuing option,
assignable to any of its subsidiaries, to purchase, under certain circumstances,
additional shares of Class B Common Stock or shares of nonvoting capital stock
of the Company (the "Stock Option"). The Stock Option may be exercised
simultaneously with the issuance of any equity security of the Company (other
than in the Offerings or upon the exercise of the Underwriters' over-allotment
options), with respect to Class B Common Stock, only to the extent necessary to
maintain its then-existing percentage of the total voting power and value of the
Company and, with respect to shares of nonvoting capital stock, to the extent
necessary to own 80% of each outstanding class of such stock. The purchase price
of the shares of Class B Common Stock purchased upon any exercise of the Stock
Option, subject to certain exceptions, will be based on the market price of the
Class A Common Stock, and the purchase price of nonvoting capital stock will be
the price at which such stock may be purchased by third parties. The Stock
Option expires in the event that Ford reduces its beneficial ownership of Common
Stock in the Company to Common Stock representing less than 45% of the
outstanding shares of Common Stock.
The Corporate Agreement will further provide that, upon the request of Ford, the
Company will use its best efforts to effect the registration under the
applicable federal and state securities laws of any of the shares of Common
Stock and nonvoting capital stock (and any other securities issued in respect of
or in exchange for either) beneficially owned by Ford for sale in accordance
with Ford's intended method of disposition thereof, and will take such other
actions as may be necessary to permit the sale thereof in other jurisdictions,
subject to certain specified limitations. Ford will also have the right which,
subject to certain limitations, it may exercise at any time and from time to
time, to include the shares of Common Stock and nonvoting capital stock (and any
other securities issued in respect of or in exchange for either) beneficially
owned by it in certain other registrations of common equity securities of the
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<PAGE> 58
Company initiated by the Company on its own behalf or on behalf of its other
stockholders. The Company will agree to pay all out-of-pocket costs and expenses
in connection with each such registration that Ford requests or in which Ford
participates. Subject to certain limitations specified in the Corporate
Agreement, such registration rights will be assignable by Ford and its assigns.
The Corporate Agreement will contain indemnification and contribution
provisions: (i) by Ford and its permitted assigns for the benefit of the Company
and related persons; and (ii) by the Company for the benefit of Ford and the
other persons entitled to effect registrations of Common Stock (and other
securities) pursuant to its terms and related persons.
The Corporate Agreement will also provide that for so long as Ford maintains
beneficial ownership of a majority of the number of outstanding shares of Common
Stock, the Company may not take any action or enter into any commitment or
agreement which may reasonably be anticipated to result, with or without notice
and with or without lapse of time, or otherwise, in a contravention (or an event
of default) by Ford of: (i) any provision of applicable law or regulation,
including but not limited to provisions pertaining to the Internal Revenue Code
of 1986, as amended, or the Employee Retirement Income Security Act of 1974, as
amended; (ii) any provision of Ford's certificate of incorporation or by-laws;
(iii) any credit agreement or other material instrument binding upon Ford or its
assets or (iv) any judgment, order or decree of any governmental body, agency or
court having jurisdiction over Ford or its assets.
The Corporate Agreement will provide that the Company will enter into a similar
agreement for the benefit of the Class B Transferee (as defined below), if any.
TAX-SHARING AGREEMENT
The Company is, and after the Offerings will continue to be, included in Ford's
federal consolidated income tax group, and the Company's federal income tax
liability will be included in the consolidated federal income tax liability of
Ford and its subsidiaries. In certain circumstances, certain of the Company's
subsidiaries will also be included with certain Ford subsidiaries in combined,
consolidated or unitary income tax groups for state and local tax purposes. The
Company and Ford entered into a tax-sharing agreement (the "Tax-Sharing
Agreement"). Pursuant to the Tax-Sharing Agreement, the Company and Ford will
make payments between them such that, with respect to any period, the amount of
taxes to be paid by the Company, subject to certain adjustments, will be
determined as though the Company were to file separate federal, state and local
income tax returns (including, except as provided below, any amounts determined
to be due as a result of a redetermination of the tax liability of Ford arising
from an audit or otherwise) as the common parent of an affiliated group of
corporations filing combined, consolidated or unitary (as applicable) federal,
state and local returns rather than a consolidated subsidiary of Ford with
respect to federal, state and local income taxes. With respect to foreign tax
credits, the Company's right to reimbursement will be determined based on the
usage of such foreign tax credits by the consolidated group.
In determining the amount of tax-sharing payments under the Tax-Sharing
Agreement, Ford will prepare or cause to be prepared pro forma returns with
respect to federal and applicable state and local income taxes that reflect the
same positions and elections used by Ford in preparing the returns for Ford's
consolidated group and other applicable groups. Ford will continue to have all
the rights of a parent of a consolidated group (and similar rights provided for
by applicable state and local law with respect to a parent of a combined,
consolidated or unitary group), will be the sole and exclusive agent for the
Company in any and all matters relating to the income, franchise and similar
liabilities of the Company, will have sole and exclusive responsibility for the
preparation and filing of consolidated federal and consolidated or combined
state and local income tax returns (or amended returns), and will have the
power, in its sole discretion, to contest or compromise any asserted tax
adjustment or deficiency and to file, litigate or compromise any claim for
refund on behalf of the Company related to such return.
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<PAGE> 59
In general, the Company will be included in Ford's consolidated group for
federal income tax purposes for so long as Ford beneficially owns at least 80%
of the total voting power and value of the outstanding common stock. Each member
of a consolidated group is jointly and severally liable for the federal income
tax liability of each other member of the consolidated group. Accordingly,
although the Tax-Sharing Agreement allocates tax liabilities between the Company
and Ford, during the period in which the Company is included in Ford's
consolidated group, the Company could be liable in the event that any federal
tax liability is incurred, but not discharged, by any other member of Ford's
consolidated group. See "Risk Factors -- Control by and Relationship with Ford".
COMMERCIAL PAPER DEALER AGREEMENTS
The Company maintains a Sales Agency Agreement with Ford Financial Services,
Inc., an NASD registered broker-dealer and an indirect, wholly-owned subsidiary
of Ford ("FFS"), whereby FFS acts as a dealer for the Company's domestic
commercial paper program. The Company pays fees to FFS which range from .035% to
.05% per annum of commercial paper placed depending upon the monthly average
dollar value of the notes outstanding in the portfolio. In 1996, the Company
paid FFS $556,754 of such fees. FFS is under no obligation to purchase any of
the notes for its own account. FFS has acted as the sole commercial paper dealer
for the Company since October 1994. The Company, through its subsidiary Hertz
Australia Pty. Limited ("Hertz Australia"), has a similar agreement with Ford
Credit Australia Limited, also an indirect, wholly-owned subsidiary of Ford.
CREDIT FACILITY AND LOANS
As discussed under "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources", Ford has extended
to the Company a $500 million committed credit facility under which the Company
may borrow, repay and reborrow amounts from time to time at rates of interest
based on London Interbank Offered Rates. The Company will pay Ford an annual
commitment fee on the undrawn amounts equal to (i) for the period from the date
of the agreement to and including June 30, 1997, the rate of .09% and (ii) for
the period from July 1, 1997 to and including the expiration date of the
facility, a rate to be agreed upon. The credit agreement expires on June 30,
1999, but is automatically extended annually for an additional year unless Ford
gives notice of termination. No amounts are currently outstanding under this
facility.
Ford also has lent to the Company an aggregate of $269 million, of which $250
million matures on November 15, 1999 and $19 million matures on July 1, 1997.
OTHER RELATIONSHIPS AND TRANSACTIONS
The Company and Ford also engage in other arms' length transactions in the
ordinary course of their respective businesses. These include HERC providing
equipment rental services to Ford, the Company providing insurance claim
management services to Ford and the Company providing car rental services to
Ford. In addition, an affiliate of Ford provides equipment resale financing to
HERC's customers and relocation services to employees of the Company.
The Company is named as an additional insured under certain of Ford's insurance
policies for which the Company pays its allocated portion of the premiums.
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MANAGEMENT
The following table sets forth certain information with respect to the executive
officers and directors of the Company, and their ages as of February 3, 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
NAME AGE POSITION AND OFFICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Frank A. Olson 64 Chairman of the Board, Chief Executive Officer and Director
Craig R. Koch 50 President, Chief Operating Officer and Director
Daniel I. Kaplan 54 Executive Vice President
Brian J. Kennedy 55 Executive Vice President, Marketing and Sales
Joseph R. Nothwang 50 Executive Vice President and General Manager,
U.S. Car Rental Division
William Sider 63 Executive Vice President and Chief Financial Officer and
Director
Robert J. Bailey 62 Senior Vice President
Donald F. Steele 58 Senior Vice President, Employee Relations
Paul M. Tschirhart 56 Senior Vice President and General Counsel
Antoine E. Cau 49 Vice President
Leo A. Massad, Jr. 65 Controller
Robert H. Rillings 56 Treasurer
John M. Devine 52 Director
Peter J. Pestillo 58 Director
</TABLE>
All directors are elected annually to serve until the next annual meeting of
stockholders and until their successors have been elected and qualified. Upon
completion of the Offerings, the Company will have a Board of Directors
consisting of the five current members of the Company's Board of Directors
identified above. After completion of the Offerings, the Company anticipates
that the size and composition of the Board of Directors will be changed and will
include three directors who will be officers of the Company, three directors who
will be officers of Ford and two directors who will be persons not associated
with the Company or Ford. Ford will have the ability to change the size and
composition of the Company's Board of Directors and committees of the Board of
Directors. See "Relationship with Ford".
The Company's Board of Directors is expected to appoint directors who are not
affiliated with the Company or Ford to a compensation committee of the Board of
Directors (the "Compensation Committee") and an audit committee of the Board of
Directors (the "Audit Committee") after such directors are elected. Both such
committees will be comprised solely of independent directors. The Compensation
Committee will establish remuneration levels for certain officers of the Company
and perform such functions as may be delegated to it under the Company's
employee benefit programs and executive compensation programs. The Audit
Committee will select and engage, on behalf of the Company, the independent
public accountants to audit the Company's annual financial statements. The Audit
Committee also will review and approve the planned scope of the annual audit.
The Board of Directors may, from time to time, establish certain other
committees to facilitate the management of the Company.
Officers are elected at the organizational meeting of the Board of Directors
held each year for a term of one year, and they are elected to serve until the
next annual meeting.
MR. OLSON has been Chairman of the Board of Directors since June 1980, and a
director of the Company since November 1974. From June 9, 1987 to December 12,
1987 he was Chairman of the Board, President and Chief Executive Officer of UAL
Corporation, Elk Grove, Illinois (the Company's former parent). He is also a
director of Becton, Dickinson and Co., Franklin Lakes, New Jersey; Cooper
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Industries, Inc., Houston, Texas; Unicom Corporation, Chicago, Illinois; and
Fund American Holdings, Inc., Lebanon, New Hampshire.
MR. KOCH was elected President and Chief Operating Officer of the Company on
September 1, 1993. From February 1988 through August 1993 he served as Executive
Vice President and President of North America Car Rental operations of the
Company. He served as President and Chief Operating Officer of the Company from
May 1987 to February 1988. In October 1983 he became Executive Vice President
and General Manager of the Company's Car Rental Division after having served as
Vice President and General Manager since March 1980. He previously served as a
director of the Company from May 1987 to July 1993 and from October 1983 to
September 1985.
MR. KAPLAN was elected Executive Vice President of the Company in May 1987.
Previously, he was Vice President, Materials and Support Services from July 1982
to September 1982 and continued as a Vice President until May 1987. In September
1982, he was elected a director and President of Hertz Equipment Rental
Corporation, a subsidiary of the Company.
MR. KENNEDY was elected Executive Vice President, Marketing and Sales of the
Company in February 1988. From May 1987 through January 1988, he served as
Executive Vice President and General Manager of the Car Rental Division of the
Company, prior to which, from October 1983, he served as Senior Vice President,
Marketing.
MR. NOTHWANG was elected Executive Vice President of the Company and General
Manager
U.S. Car Rental in August 1995. He served as Vice President and General Manager
U.S. Car Rental from September 1993 to August 1995. Previously he served as
Division Vice President, Region Operations since 1985. He has served in various
operating positions since 1976.
MR. SIDER was elected Executive Vice President and Chief Financial Officer of
the Company in February 1988. From June 25, 1987 to December 31, 1987, he served
as Chief Financial Officer of UAL Corporation, Elk Grove, Illinois. From October
1983 to February 1988, he served as Senior Vice President, Finance of the
Company. In April 1981, he was elected Vice President, Finance, and in 1980
served as Vice President and Controller of the Company. He has been a director
of the Company since October 1983.
MR. BAILEY was elected Senior Vice President of the Company in May 1990.
Previously, he served in various functions with the Company since 1956, except
for the years 1966 and 1981.
MR. STEELE was elected Senior Vice President, Employee Relations of the Company
in July 1984. Previously, he served in various functions with the Company since
1972.
MR. TSCHIRHART was elected Senior Vice President and General Counsel of the
Company in October 1986, and also served as Secretary from February 1988 to
November 1992. Previously, he served as Senior Counsel for United Airlines,
Inc., Elk Grove, Illinois, since 1982.
MR. CAU was elected Vice President of the Company and President of Hertz
International, Ltd., a subsidiary of the Company, in April 1990. Previously, he
served in various functions with Hertz International, Ltd. foreign operations
since 1973.
MR. MASSAD was elected Controller of the Company in July 1986. Previously, he
served in various positions with the Company since 1965.
MR. RILLINGS was elected Treasurer of the Company in November 1986. Previously,
he served in various positions with the Company since 1961.
MR. DEVINE was elected a director of the Company and became a member of the
Compensation Committee in August 1996. Mr. Devine was elected Executive Vice
President of Ford in November 1996, and also is Chief Financial Officer of Ford,
a position which he assumed in October 1994. Mr. Devine also is a director of
Associates First Capital Corporation, an affiliate of the Company. From April
1991 until June 1994 he served as Chairman and Chief Executive Officer of First
Nationwide
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Bank, a wholly-owned subsidiary of Ford. Previously, Mr. Devine served in
various positions with Ford since 1967.
MR. PESTILLO was elected a director of the Company in July 1993, and has also
served as Chairman of the Compensation Committee since August 1989. He is
Executive Vice President, Corporate Relations of Ford. He was Vice President,
Corporate Relations and Diversified Businesses of Ford from April 1990 to
January 1993. From January 1986 to April 1990 he was Vice President, Employee
and External Affairs for Ford. He is also a director of Rouge Steel Company.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned and/or paid to the
Company's five most highly compensated executive officers for services rendered
in all capacities to the Company for the fiscal years ended December 31, 1996,
1995 and 1994. Compensation of the executive officers is reviewed and approved
by the Company's Compensation Committee and is determined in part by the
operating performance and the contributions made to the consolidated results of
the Company.
Summary Compensation Table (5)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
ANNUAL COMPENSATION
--------------------------------------
OTHER LONG-TERM
ANNUAL COMPENSATION ALL OTHER
YEAR SALARY(1) BONUS(2) COMPENSATION(3) PAYOUTS(2) COMPENSATION(4)
Dollars in thousands ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Frank A. Olson................. 1996 $731 $900 $-- $ -- $ 5
Chairman of the Board and 1995 694 500 -- 645 5
Chief Executive Officer 1994 650 728 -- 680 5
Craig R. Koch.................. 1996 439 475 -- -- 5
President and Chief 1995 424 258 -- 323 5
Operating Officer 1994 400 318 -- 340 5
William Sider.................. 1996 337 280 -- -- 5
Executive Vice President 1995 325 163 -- 194 5
and Chief Financial Officer 1994 305 244 204 5
Antoine E. Cau................. 1996 303 154 80 -- --
Vice President 1995 296 185 82 310 --
1994 255 208 78 326 --
Joseph R. Nothwang............. 1996 241 209 -- -- 5
Executive Vice President 1995 231 106 -- 129 5
1994 215 121 -- 68 5
</TABLE>
- -------------------------
(1) Amounts included consist of salary payments for the respective year and
amounts deferred pursuant to section 401(k) of the Internal Revenue Code of
1986, as amended.
(2) Includes executive and long-term incentive bonuses earned and paid for the
respective year. Amounts to be paid under the Long-Term Incentive Plan for 1996
performance have not yet been determined.
(3) Includes the following for the years 1996, 1995 and 1994 (in thousands):
$42, $42 and $41 housing allowance; $11, $12 and $11 automobile use; and $27,
$28 and $26 tax equalization payments, respectively.
(4) Represents the amounts contributed by the Company to the Income Savings Plan
for the respective year.
(5) The Company did not grant or issue any stock options or stock appreciation
rights during the years covered by this table.
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INCENTIVE COMPENSATION PLANS
The Company has an Executive Incentive Compensation Plan for key employees and
certain officers of the Company and its subsidiaries. The grant of awards and
the size thereof depends upon the degree to which each operation's financial
targets (pre-tax income and return on total average equity, each as defined in
the plan) approved by senior officers of the Company and members of the
Company's Compensation Committee, are reached or exceeded. Performance is
measured annually, and the awards are paid in full in the following year, or may
be deferred pursuant to a prior election by a participant, to a period selected
by the participant.
In 1991, the Company established a Long-Term Incentive Plan for certain officers
and other key employees of the Company and its subsidiaries. The grant of awards
and the size thereof will be determined by the achievement of certain
qualitative and quantitative performance targets. A new four year performance
cycle begins on each January 1. Performance generally is measured in four year
periods and awards will be made in cash at the end of each performance period.
The performance factors used include net income of the Company relative to the
net income average for the Dow 30 Industrials, market share and customer
satisfaction. To phase in this plan, transitional grants were made as of January
1, 1991, covering one-year, two-year and three-year performance periods. Target
and maximum award grants in place for 1996 to the Company's five most highly
compensated executive officers are set forth in the table below.
Long-Term Incentive Plans -- Awards in Last Fiscal Year
<TABLE>
<CAPTION>
-----------------------------------------------
PERFORMANCE
OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
PERIOD UNTIL NON-STOCK PRICE-BASED PLANS
Dollars in Thousands MATURATION OR ------------------------------
PAYOUT THRESHOLD TARGET MAXIMUM
NAME ------------- --------- ------ -------
<S> <C> <C> <C> <C>
Frank A. Olson....................................... (1) $0 $500 $1,000
Craig R. Koch........................................ (1) 0 250 500
William Sider........................................ (1) 0 150 300
Antoine E. Cau....................................... (1) 0 240 480
Joseph R. Nothwang................................... (1) 0 150 300
</TABLE>
- -------------------------
(1) Awards for 1996 will be determined by 1996 performance versus performance
for the four years ended December 31, 1995 and will be paid in 1997.
Target award grants have also been made for the performance years 1997, 1998 and
1999 versus performance for the previous four years. The amount of the payments
for the performance years subsequent to 1996 can range from zero to twice the
amount of the target. Such target award grants made for the performance years
1997, 1998 and 1999, respectively, to the Company's five most highly compensated
officers are as follows (in thousands): Mr. Olson $500, $500 and $600; Mr. Koch
$300, $300 and $350; Mr. Sider $150, $150 and $180, Mr. Cau $240, $240 and $240;
Mr. Nothwang $200, $200 and $200.
The Company also maintains Field Incentive Compensation Plans for certain
employees of the Company and its subsidiaries. Awards are made and paid annually
based on the achievement of revenue and pre-tax income objectives. Each award is
determined and approved by the Company's Compensation Committee.
INCOME SAVINGS PLAN
The Income Savings Plan of the Company was established effective August 30,
1985. Prior thereto, qualified employees of the Company participated in the RCA
Income Savings Plan ("RCA Plan"). The assets and liabilities maintained under
the RCA Plan attributable to participating employees of the Company were
transferred as of September 1, 1985 to the Company's Income Savings Plan (the
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<PAGE> 64
"Plan"). Under the Plan, the Company continued substantially the same provisions
as provided under the RCA Plan, except for the following: (1) the RCA Stock Fund
as an investment option was discontinued and fund assets were reinvested in
other investment funds as elected by the participants, and (2) the eligibility
requirement for qualified employees hired on or after September 30, 1985 was
changed to two years of service in lieu of the one year of service previously
required. Effective January 1, 1989, the eligibility requirement was again
reduced to one year of service.
The Plan is a defined contribution plan available, as specified in the Plan, to
certain full-time and part-time employees of the Company who have been credited
with the Company for at least 1,000 hours of service during any twelve
consecutive months commencing on the day he/she is credited with his/her first
hour of service (or any anniversary thereof). Employees covered by a collective
bargaining agreement are not eligible unless their collective bargaining
agreement makes the Plan applicable to them.
Prior to July 1, 1987, the Company contributed a fixed percentage (4%) of
eligible employees' base salary to the Plan. Employees could also make their own
before-tax and after-tax contributions of their base salary, subject to
percentage and monetary limitations. Effective July 1, 1987, the Plan was
amended whereby the Company contributes only 66.7% of the first 6% of the
employee's contribution for a maximum match contribution by the Company of 4% of
the employee's base salary. Employee after-tax contributions were eliminated.
Effective January 1, 1988, the Plan was further amended to change the Company's
contribution from 66.7% to 50% of the first 6% of the employee's contribution
for a maximum match contribution by the Company of 3% of the employee's base
salary. Effective July 1, 1991, the Company's contribution was suspended and was
resumed on January 1, 1992.
Employees hired prior to January 1, 1987 become fully vested when contributions
are made. Employees hired on or after January 1, 1987 are immediately fully
vested in the contributions the employee made and become fully vested in the
amount contributed by the Company after the employee completes five years of
service. Each Plan member determines the fund distribution to which
contributions will be applied. The funds include the General Common Stock Fund,
a commingled index fund investing in common stock (shares in medium to
large-size companies chosen for the purpose of approximating the rate of growth
for the S&P 500 Composite Stock Index); the Fixed Income Fund invested in a
managed commingled fund with high quality fixed rate securities, including
guaranteed investment contracts, as well as with insurance companies that
guarantee interest rates at agreed upon levels and a Balanced Fund consisting of
a mix of stocks or bonds ranging from 30% to 70% (stocks are in medium to large-
size companies and bonds are in U.S. Treasury and Agency and highly-rated
corporate issues). The performance of the Balanced Fund is measured against an
index consisting of a 50% weighing of the S&P 500 and a 50% weighing of the
Salomon Broad Bond Investment Grade Bond Index. Plan funds may be invested in
interim investments prior to investments in the General Common Stock Fund, Fixed
Income Fund and the Balanced Fund. Distributions and withdrawals are based on
the unit value of the employee's account as of a specified month end valuation
date and are subject to conditions stated in the Plan.
PENSION PLAN
Effective August 30, 1985, the Company established the Retirement Plan for the
Employees of the Company ("Hertz Plan"). Prior thereto, the Company participated
in the Retirement Plan for the Employees of RCA Corporation and Subsidiary
Companies ("RCA Plan"). The assets and liabilities associated with benefits
accrued by participating employees of the Company as of August 30, 1985 were
retained under the RCA Plan. Benefits accrued by the Company's employees through
August 30, 1985 will be paid under the RCA Plan. The RCA Plan was replaced by a
restated Hertz Plan which continued the RCA Plan for the Company's employees
without interruption.
The Hertz Plan is qualified under the Internal Revenue Code of 1986, as amended,
and is a defined benefit plan for which contributions were made by the employees
up to June 30, 1987 and by the employer.
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Effective July 1, 1987, the Hertz Plan was revised to an "Account Balance
Pension Plan" under which the Company pays the entire cost and employees are no
longer required to contribute. Employees are eligible for participation in the
Hertz Plan on the first day of the month coinciding with or following the date
on which they complete one year of continuous service, as defined by the
Employee Retirement Income Security Act of 1974 ("ERISA"). Employees covered by
a collective bargaining agreement are not eligible unless their union contract
makes the Hertz Plan applicable to them. Effective July 1, 1987, a qualified
employee's cash balance account was credited with an annual cash balance credit
equal to 3% of their pensionable earnings. For each plan year beginning January
1, 1996 and thereafter, a qualified employee's cash balance account shall be
credited with an annual cash balance credit equal to: (a) 3% of his/her
pensionable earnings for that plan year in the case of a qualified employee who
is credited with less than 60 continuous months of service from his/her most
recent date of hire, or (b) 4% of his/her pensionable earnings for that plan
year in the case of a qualified employee who is credited with 60 or more
continuous months of service from his/her most recent date of hire. In the case
of a qualified employee who is first credited with 60 continuous months of
service after January 1 of a plan year, the percentage of his/her pensionable
earnings utilized in determining his/her annual cash balance credit for that
plan year shall be increased to 4% effective as of the first day of the month
coincident with or next following his/her completion of 60 continuous months of
service from his/her most recent date of hire. This benefit is credited with
guaranteed interest rates compounded annually based on rates issued by the
Pension Benefit Guaranty Corporation in effect for the preceding December. In
addition, all qualified employees age 50 or over with 10 or more years of
credited service as of July 1, 1987, will have an additional amount of their
pensionable earnings credited to their cash balance account as follows: 1% for
ages 50 through age 54 as of July 1, 1987, 2% for ages 55 through 59 as of July
1, 1987 and 3% for ages 60 and over as of July 1, 1987.
Officers of the Company and its subsidiaries participate in the Hertz Plan. The
amount of the normal retirement benefit under this plan is determined as a
percentage of final average compensation (highest five consecutive of last ten
years of covered compensation), and based upon years of credited service up to
July 1, 1987 plus the value of their cash balance account accrued after July 1,
1987. The benefits are not offset by Social Security. Compensation covered by
the Hertz Plan means all salary and wages, including overtime and premium pay,
sales commissions and amounts paid under executive and field compensation plans,
but excluding the compensation paid under the Long-Term Incentive Plan. The
Company has instituted non-qualified unfunded pension plans for certain of its
executives to pay those benefits which are excess to those provided under the
qualified plans which include (1) the Benefit Equalization Plan that provides
equalization benefits that cannot be provided under the Hertz Plan due to
limitations imposed by the Internal Revenue Code of 1986, as amended, and (2)
the Supplemental Retirement and Savings Plan that, when combined with the Hertz
Plan, provides a benefit as if the pre-July 1, 1987 benefit formula had remained
in effect until the participants' normal retirement date. Set forth on the next
page is a table indicating annual pension benefits payable under both the Hertz
Plan and the non-qualified Supplemental Retirement and Savings Plan. The table
indicates benefits applicable for participants in specified remuneration and
years of service classifications, based on retirement at age 65, and for life
annuity (other annuity options are available, which would influence the amounts
shown on the following page).
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Pension Plan Table
<TABLE>
<CAPTION>
FINAL --------------------------------------------------------
AVERAGE YEARS OF PARTICIPATION IN PLAN
PENSIONABLE 15 20 25 30 35
COMPENSATION -------- -------- -------- ---------- ----------
<C> <C> <C> <C> <C> <C>
$ 175,000 $ 41,026 $ 54,701 $ 68,376 $ 82,051 $ 95,726
225,000 52,996 70,661 88,326 105,991 123,656
275,000 64,966 86,621 108,276 129,931 151,586
325,000 76,936 102,581 128,226 153,871 179,516
375,000 88,906 118,541 148,176 177,811 207,446
425,000 100,876 134,501 168,126 201,751 235,376
475,000 112,846 150,461 188,076 225,691 263,306
525,000 124,816 166,421 208,026 249,631 291,236
575,000 136,786 182,380 227,976 273,571 319,167
625,000 148,756 198,341 247,927 297,511 347,096
675,000 160,726 214,301 267,876 321,452 375,026
725,000 172,696 230,261 287,826 345,391 402,956
775,000 184,666 246,221 307,776 369,331 430,886
825,000 196,636 262,181 327,726 393,271 458,816
1,000,000 238,531 318,041 397,551 477,061 556,571
1,500,000 358,231 477,641 597,051 716,461 835,871
2,000,000 477,931 637,241 796,551 955,861 1,115,171
2,500,000 597,631 796,841 996,051 1,195,261 1,394,471
</TABLE>
Total credited service with the Company and its subsidiaries for persons named
in the cash compensation table is as follows: Mr. Olson -- 30 years; Mr. Koch --
25 years; Mr. Sider -- 30 years; and Mr. Nothwang -- 20 years. Mr. Cau does not
participate in the Hertz Plan or the RCA Plan.
In addition to the above, the Company maintains a non-qualified plan to provide
a Special Supplemental Executive Pension Benefit (the "SEP Benefit") for Messrs.
Olson and Sider. The SEP is intended to provide any necessary excess benefit to
ensure the designated participants receive an aggregate pension benefit (from
all qualified and non-qualified plans) equal to 50% of the participant's final
average earnings as defined under the Hertz Plan. The projected annual life
annuity SEP Benefit payable at age 65 to Mr. Olson is $137,000 and to Mr. Sider
is $31,000.
COMPENSATION OF DIRECTORS
It is anticipated that directors who do not receive compensation as officers or
employees of the Company or any of its affiliates will be paid an annual board
membership fee of $25,000, an attendance fee of $1,000 for each meeting of the
Board of Directors and an annual membership fee of $5,000 for service on any
committee of the Board of Directors. The Company does not pay any additional
compensation to directors who receive compensation as officers or employees of
the Company or any of its affiliates.
EMPLOYMENT AGREEMENTS
Messrs. Olson, Koch and Sider serve the Company under employment agreements
which currently expire on January 31, 2000, April 30, 2002 and June 30, 1997,
respectively. Mr. Cau serves a subsidiary of the Company under an employment
agreement dated April 9, 1993, that is terminable by either party under certain
circumstances stated therein. The employment agreements do not provide for any
compensatory plan or arrangement upon termination of employment or change in
control, except for the compensation of Mr. Cau. The employment agreement of Mr.
Koch is automatically extended one (1) additional year on May 1 of each year
unless not later than December 31st of the preceding year, the Company or Mr.
Koch shall have given notice not to extend the agreement.
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<PAGE> 67
LONG-TERM EQUITY COMPENSATION PLAN
The Company will sponsor a stock-based incentive plan (the "ECP") covering the
Company's five most highly compensated executive officers (the "Named Executive
Officers") and other executives of the Company. The Company adopted the ECP in
1997 prior to the Offerings. Awards granted under the ECP are based on shares of
Class A Common Stock.
The ECP is administered by a committee appointed by the Company's Board of
Directors. After the completion of the Offerings, the ECP will be administered
by the Compensation Committee. The ECP provides for the grant of incentive and
nonqualified stock options, stock appreciation rights, restricted stock,
performance shares and performance units (individually, an "Award" or
collectively, "Awards"). Only officers or certain salaried employees of the
Company with potential to contribute to the future success of the Company or its
subsidiaries will be eligible to receive Awards under the ECP (initially
approximately employees). The administrator of the ECP has the discretion to
select the employees to whom Awards will be granted, to determine the type, size
and terms and conditions applicable to each Award and the authority to
interpret, construe and implement the provisions of the ECP. The administrator's
decisions will be binding.
The total number of shares of Class A Common Stock that may be subject to Awards
under the ECP is or % of all outstanding Common Stock as of the tenth
business day following the closing date of the Offerings, or ( shares if the
Underwriters' over-allotment options are exercised in full), including Awards
granted prior to the Offerings and subject to adjustment as provided in the ECP.
No more than shares of Class A Common Stock may be subject to stock
options, with or without any related stock appreciation rights, or stand-alone
stock appreciation rights, awarded to any individual participant under the ECP
in any one calendar year. Class A Common Stock issued under the ECP may be
either authorized but unissued shares (subject to a maximum limit of
shares), treasury shares or any combination thereof. No more than shares of
Class A Common Stock may be granted under the ECP as Awards of performance-based
"Restricted Stock" (as herein defined) to any individual participant in any one
calendar year and which are intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended. The maximum aggregate payout (determined as of the end of the
applicable performance period) with respect to Awards of "Performance Shares" or
"Performance Units" (as such terms are hereinafter defined) that may be granted
under the ECP to any individual participant in any one calendar year and which
are intended to qualify as performance-based compensation under Section 162(m)
of the Internal Revenue Code of 1986, as amended, shall be equal to the closing
trading price on the New York Stock Exchange of shares of Class A Common
Stock. Any shares of Class A Common Stock in addition to
shares to be issued as Awards under the ECP or pursuant to Awards granted under
the ECP will be obtained by the Company either through forfeitures of shares of
Restricted Stock (to the extent that such shares are made available again for
issuance under the ECP) or from treasury shares (to the extent that the Company
is permitted by applicable law to acquire its own shares). Any shares of Class A
Common Stock subject to an Award which lapses, expires or is otherwise
terminated without the issuance of such shares may become available for new
Awards.
The Company intends to grant Awards to the Named Executive Officers and other
selected participants which will be contingent on the successful completion of
the Offerings. The terms of the Awards will be
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<PAGE> 68
set forth in award agreements ("Award Agreements"). These Awards are summarized
in the following table and are described below:
ECP Table
<TABLE>
<CAPTION>
NO. OF
NO. OF SHARES OF NONQUALIFIED
NAME AND POSITION RESTRICTED STOCK STOCK OPTIONS(1)
----------------- ---------------- ----------------
<S> <C> <C>
Frank A. Olson..............................................
Chairman of the Board and
Chief Executive Officer
Craig R. Koch...............................................
President and Chief
Operating Officer
William Sider...............................................
Executive Vice President
and Chief Financial Officer
Antoine E. Cau..............................................
Vice President
Joseph R. Nothwang..........................................
Executive Vice President
All Executive Officers as a Group (including those listed
above)....................................................
Non-Employee Directors......................................
All Other Employees as a Group..............................
</TABLE>
- -------------------------
(1) The Company intends to grant these options with an exercise price equal to
the initial public offering price set forth on the cover page of this
Prospectus.
The principal terms of the Award Agreements are as follows:
(i) An Award will be granted to the Chairman and Chief Executive Officer,
which will consist of shares of Restricted Stock that will vest on the
third anniversary of the date of grant,
(ii) An Award will be granted to each Named Executive Officer other than
the Chairman and Chief Executive Officer and to approximately other
officers, which will consist of shares of Restricted Stock that will vest
33% on the third anniversary of the date of grant, an additional 33% on the
fourth anniversary of the date of grant, and in full on the fifth
anniversary of the date of grant,
(iii) An Award will be granted to each Named Executive Officer and to a
significantly larger group of eligible employees, which will consist of
Options that will vest 33% on the first anniversary of the date of grant,
an additional 33% on the second anniversary of the date of grant and in
full on the third anniversary of the date of grant.
Set forth below is a brief description of the Awards that may be granted under
the ECP:
Stock Options. Options (each an "Option") to purchase shares of Class A Common
Stock, which may be incentive or nonqualified stock options, may be granted
under the ECP at an exercise price (the "Option Price") determined by the
administrator of the ECP in its discretion, provided that the Option Price may
be no less than the closing trading price of the Class A Common Stock on the New
York Stock Exchange on the date of grant, except the initial grants described
above will be granted with an exercise price equal to the initial public
offering price set forth on the cover page of this Prospectus. Each Option
represents the right to purchase one share of Class A Common Stock at the
specified Option Price.
Options will expire not later than 10 years after the date on which they are
granted and will become exercisable at such times and in such installments as
determined by the administrator of the ECP.
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<PAGE> 69
Payment of the Option Price must be made in full at the time of exercise in
cash, certified or bank check. As determined by the administrator of the ECP,
payment in full or in part may also be made by tendering to the Company shares
of Class A Common Stock having a fair market value equal to the Option Price (or
such portion thereof). The Committee may also allow a cashless exercise of such
options.
Stock Appreciation Rights. An Award of a stock appreciation right ("SAR") may be
granted under the ECP. Generally, one SAR is granted with respect to one share
of Class A Common Stock. The SAR entitles the participant, upon the exercise of
the SAR, to receive an amount equal to the appreciation in the underlying share
of Class A Common Stock. The appreciation is equal to the difference between (i)
the "base value" of the SAR (which is determined with reference to the closing
trading price of the Class A Common Stock on the New York Stock Exchange on the
date the SAR is granted), and (ii) the closing trading price of the Class A
Common Stock on the New York Stock Exchange on the date the SAR is exercised.
Upon the exercise of a vested SAR, the exercising participant will be entitled
to receive the appreciation in the value of one share of Class A Common Stock as
so determined, payable at the discretion of the participant in cash, shares of
Class A Common Stock, or some combination thereof, subject to the availability
of shares of Class A Common Stock to the Company.
SARs will expire not later than 10 years after the date on which they are
granted. SARs become exercisable at such times and in such installments as
determined by the administrator of the ECP.
Tandem Option/SARs. An Option and a SAR may be granted "in tandem" with each
other (a "Tandem Option/SAR"). An Option and a SAR are considered to be in
tandem with each other because the exercise of the Option aspect of the tandem
unit automatically cancels the right to exercise the SAR aspect of the tandem
unit, and vice versa. The Option may be an incentive stock option or a
nonqualified stock option, and the Option may be coupled with one SAR, more than
one SAR or a fractional SAR in any proportionate relationship selected by the
Compensation Committee. Descriptions of the terms of the Option and the SAR
aspects of a Tandem Option/SAR are provided above.
Restricted Stock. An Award of restricted stock ("Restricted Stock") is an Award
of Class A Common Stock that is subject to such restrictions as the
administrator of the ECP deems appropriate, including forfeiture conditions and
restrictions against transfer for a period specified by the administrator of the
ECP. Restricted Stock Awards may be granted under the ECP for services and/or
payment of cash. Restrictions on Restricted Stock may lapse in installments
based on factors selected by the administrator of the ECP. Prior to the
expiration of the restricted period, except as and only if provided by the
administrator of the ECP, a grantee who has received a Restricted Stock Award
generally has the rights of a stockholder of the Company, including the right to
vote and to receive cash dividends on the shares subject to the Award. Stock
dividends issued with respect to a Restricted Stock Award may be treated as
additional shares under such Award and may be subject to the same restrictions
and other terms and conditions that apply to the shares with respect to which
such dividends are issued.
Performance Shares and Performance Units. A performance share Award (a
"Performance Share") and/or a performance unit Award (a "Performance Unit") may
be granted under the ECP. Each Performance Unit will have an initial value that
is established by the administrator of the ECP at the time of grant. Each
Performance Share will have an initial value equal to the closing trading price
of one share of Class A Common Stock on the New York Stock Exchange on the date
of grant. Such Awards may be earned based upon satisfaction of certain specified
performance criteria, subject to such other terms and conditions as the
administrator of the ECP deems appropriate. Performance objectives will be
established before, or as soon as practicable after, the commencement of the
performance period during which performance will be measured (the "Performance
Period") and may be based on net earnings, operating earnings or income, net
income, absolute and/or relative return on equity, capital invested or assets,
earnings per share, cash flow, profits, earnings growth, revenue growth,
comparisons to peer companies, share price, total shareholder return, economic
value added, expense reduction, customer satisfaction, any combination of the
foregoing and/or such other measures, including individual measures of
performance, as the administrator of the ECP deems appropriate. Prior to the
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<PAGE> 70
end of a Performance Period, the administrator of the ECP, in its discretion,
may adjust the performance objectives to reflect an event that may materially
affect the performance of the Company, including, but not limited to, market
conditions or a significant acquisition or disposition of assets or other
property by the Company. The extent to which a grantee is entitled to payment in
settlement of such an Award at the end of the Performance Period will be
determined by the administrator of the ECP, in its discretion, based on whether
the performance criteria have been met and payment will be made in cash or in
shares of Class A Common Stock in accordance with the terms of the applicable
Award Agreements.
Additional Information. Under the ECP, if there is any change in the
capitalization of the Company, a corporate transaction, a reorganization or a
partial liquidation of the Company, such proportionate adjustments as may be
necessary (in the form determined by the administrator of the ECP) to reflect
such change will be made to prevent dilution or enlargement of the rights with
respect to the aggregate number of shares of Class A Common Stock for which
Awards in respect thereof may be granted under the ECP, the number of shares of
Class A Common Stock covered by each outstanding Award and the price per share
in respect thereof. Unless otherwise provided in an Award Agreement, an
individual's rights under the ECP may not be assigned or transferred (except in
the event of death). An individual's rights under the ECP are subject to
forfeiture for competitive activity or activity that is inimical to the best
interest of the Company.
The ECP will remain in effect until terminated by the board of directors and
thereafter until all Awards granted thereunder are satisfied by the issuance of
shares of Class A Common Stock and/or the payment of cash or the ECP is
otherwise terminated pursuant to the terms of the ECP or under any Award
Agreements. Notwithstanding the foregoing, no Awards may be granted under the
ECP after the tenth anniversary of the effective date of the ECP. The board of
directors may at any time terminate, modify or amend the ECP; provided, however,
that no such amendment, modification or termination may materially adversely
affect an optionee's or grantee's rights under any Award theretofore granted
under the ECP, except with the consent of such optionee or grantee.
Certain Federal Income Tax Consequences of Awards. Certain of the federal income
tax consequences to ECP participants and the Company of Awards granted under the
ECP are generally set forth in the following summary.
An employee to whom an Option which is an incentive stock option ("ISO") that
qualifies under Section 422 of the Internal Revenue Code of 1986, as amended, is
granted will not recognize income at the time of grant or exercise of such
Option. No federal income tax deduction will be allowable to the Company upon
the grant or exercise of such ISO. However, upon the exercise of an ISO, any
excess in the fair market price of the Class A Common Stock over the Option
Price constitutes a tax preference item that may have alternative minimum tax
consequences for the employee. When the employee sells such shares more than one
year after the date of transfer of such shares and more than two years after the
date of grant of such ISO, the employee will normally recognize a long-term
capital gain or loss equal to the difference, if any, between the sales price of
such shares and the aggregate Option Price and the Company will not be entitled
to a federal income tax deduction with respect to the exercise of the ISO or the
sale of such shares. If the employee does not hold such shares for the required
period, when the employee sells such shares, the employee will recognize
ordinary compensation income and possibly capital gains or losses in such
amounts as are prescribed by the Internal Revenue Code of 1986, as amended, and
the regulations thereunder and the Company will generally be entitled to a
federal income tax deduction in the amount of such ordinary compensation income.
An employee to whom an Option which is a nonqualified stock option ("NSO") is
granted will not recognize income at the time of grant of such Option. When the
employee exercises such NSO, the employee will recognize ordinary compensation
income equal to the difference, if any, between the Option Price paid and the
fair market value, as of the date of Option exercise, of the shares of Class A
Common Stock the employee receives. The tax basis of such shares to such
employee will be equal to the Option Price paid plus the amount includible in
the employee's gross income, and the employee's holding period for such shares
will commence on the date of exercise. Subject to the applicable
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<PAGE> 71
provisions of the Internal Revenue Code of 1986, as amended, and regulations
thereunder, the Company will generally be entitled to a federal income tax
deduction in respect of an NSO in an amount equal to the ordinary compensation
income recognized by the employee upon the exercise of the NSO.
OWNERSHIP OF COMMON STOCK
Ford owns 100% of the common stock of the Company outstanding prior to the
Offerings. Upon completion of the Offerings, Ford will beneficially own 55.4% of
the outstanding Class A Common Stock (51.9% if the Underwriters' over-allotment
options are exercised in full) and 100% of the outstanding Class B Common Stock
and, accordingly, will own Common Stock representing approximately 83.4% of the
economic interest in the Company (81.4% if the Underwriter's overallotment
options are exercised in full) and representing approximately 95.3% of the
combined voting power of the Company's outstanding common stock (94.6% if the
Underwriters' over-allotment options are exercised in full). See "Relationship
with Ford".
The principal executive offices of Ford are located at The American Road,
Dearborn, Michigan 48121.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company will consist of (i) 440,000,000
shares of Class A Common Stock and 140,000,000 shares of Class B Common Stock
and (ii) 40,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock"). Of the 440,000,000 shares of Class A Common Stock,
17,400,000 shares are being offered in the Offerings (excluding 2,610,000 shares
subject to over-allotment options granted by the Company to the Underwriters),
140,000,000 shares will be reserved for issuance upon conversion of Class B
Common Stock into Class A Common Stock and shares have been reserved for
issuance pursuant to an employee benefit plan. See "Management -- Long-Term
Equity Compensation Plan". Of the 140,000,000 shares of Class B Common Stock,
65,956,000 shares will be outstanding and beneficially owned by Ford as of the
closing date of the Offerings. As of the closing date of the Offerings, there
will be no preferred stock outstanding. A description of the material terms and
provisions of the Company's Restated Certificate of Incorporation affecting the
relative rights of the Class A Common Stock, the Class B Common Stock and the
Preferred Stock is set forth below. The following description of the capital
stock of the Company is intended as a summary only and is qualified in its
entirety by reference to the form of the Company's Restated Certificate of
Incorporation filed with the Registration Statement of which this Prospectus
forms a part and to Delaware corporate law.
COMMON STOCK
Voting Rights
The holders of Class A Common Stock and Class B Common Stock generally have
identical rights except that holders of Class A Common Stock are entitled to one
vote per share. Holders of Class B Common Stock are entitled to five votes per
share on all matters to be voted on by stockholders, subject to the right of
Ford or the Class B Transferee (as defined below), as the case may be, to reduce
from time to time the number of votes per share of Class B Common Stock by
written notice to the Company specifying the reduced number of votes per share.
Holders of shares of Class A Common Stock and Class B Common Stock are not
entitled to cumulate their votes in the election of directors. Generally, all
matters to be voted on by stockholders must be approved by a majority (or, in
the case of election of directors, by a plurality) of the votes entitled to be
cast by all shares of Class A Common Stock and Class B Common Stock present in
person or represented by proxy, voting together as a single class, subject to
any voting rights granted to holders of any Preferred Stock. Except as otherwise
provided by
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law, and subject to any voting rights granted to holders of any outstanding
Preferred Stock, amendments to the Company's Restated Certificate of
Incorporation must be approved by a majority of the combined voting power of all
Class A Common Stock and Class B Common Stock, voting together as a single
class. However, amendments to the Company's Restated Certificate of
Incorporation that would alter or change the powers, preferences or special
rights of the Class A Common Stock or the Class B Common Stock so as to affect
them adversely also must be approved by a majority of the votes entitled to be
cast by the holders of the shares affected by the amendment, voting as a
separate class. Notwithstanding the foregoing, any amendment to the Company's
Restated Certificate of Incorporation to increase or decrease the authorized
shares of any class shall be approved upon the affirmative vote of the holders
of a majority of the Common Stock, voting together as a single class.
Dividends
Holders of Class A Common Stock and Class B Common Stock will share ratably in
any dividend declared by the Board of Directors, subject to any preferential
rights of any outstanding Preferred Stock. Dividends consisting of shares of
Class A Common Stock and Class B Common Stock may be paid only as follows: (i)
shares of Class A Common Stock may be paid only to holders of shares of Class A
Common Stock, and shares of Class B Common Stock may be paid only to holders of
Class B Common Stock; and (ii) shares shall be paid proportionally with respect
to each outstanding share of Class A and Class B Common Stock.
The Company may not subdivide or combine shares of either class of Common Stock
without at the same time proportionally subdividing or combining shares of the
other class.
Conversion
Each share of Class B Common Stock is convertible while held by Ford, any of its
subsidiaries or the Class B Transferee (as defined below), if any, at the option
of the holder thereof into one share of Class A Common Stock. Following the
occurrence of a distribution, if any, of shares of Class B Common Stock to
stockholders of Ford in a transaction intended to be tax-free under section 355
of the Internal Revenue Code of 1986, as amended (a "tax-free spin-off"), shares
of Class B Common Stock shall not be convertible into shares of Class A Common
Stock at the option of the holder thereof.
Except as provided below, any shares of Class B Common Stock transferred to a
person other than Ford or any of its subsidiaries or the Class B Transferee or
any of its subsidiaries shall automatically convert to shares of Class A Common
Stock upon such disposition. Shares of Class B Common Stock representing more
than a 50% economic interest in the Company transferred by Ford or any of its
subsidiaries in a single transaction to one unrelated person (the "Class B
Transferee") shall not automatically convert to shares of Class A Common Stock
upon such disposition. Any shares of Class B Common Stock retained by Ford or
any of its subsidiaries following any such disposition to the Class B Transferee
shall automatically convert to shares of Class A Common Stock upon such
disposition. Shares of Class B Common Stock transferred to stockholders of Ford
or stockholders of the Class B Transferee as a distribution intended to be a
tax-free spin-off shall not convert to shares of Class A Common Stock upon the
occurrence of a tax-free spin-off. Following a tax-free spin-off, shares of
Class B Common Stock shall be transferable as Class B Common Stock, subject to
applicable laws; provided, however, that shares of Class B Common Stock shall
automatically convert into shares of Class A Common Stock on the fifth
anniversary of the tax-free spin-off, unless prior to such tax-free spin-off,
Ford or the Class B Transferee, as the case may be, delivers to the Company an
opinion of counsel reasonably satisfactory to the Company (which, in the case of
Ford, shall include Ford's Chief Tax Officer) to the effect that such conversion
would preclude Ford or the Class B Transferee, as the case may be, from
obtaining a favorable ruling from the Internal Revenue Service that the
distribution would be a tax-free spin-off. If such an opinion is received,
approval of such conversion shall be submitted to a vote of the holders of the
Common Stock as soon as practicable after the fifth anniversary of the tax-free
spin-off unless Ford or the Class B Transferee, as the case may be, delivers to
the Company an opinion of counsel reasonably satisfactory to the Company (which,
in the case of
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Ford, shall include Ford's Chief Tax Officer) prior to such anniversary that
such vote would adversely affect the status of the tax-free spin-off. Approval
of such conversion will require the affirmative vote of the holders of a
majority of the shares of both the Class A Common Stock and Class B Common Stock
present and voting, voting together as a single class, with each share entitled
to one vote for such purpose. No assurance can be given that such conversion
would be consummated. The requirement to submit such conversion to a vote of the
holders of Common Stock is intended to ensure tax treatment of the tax-free
spin-off is preserved should the Internal Revenue Service challenge such
automatic conversion as violating the 80% vote requirement. Ford has no current
plans with respect to a tax-free spin-off of the Company.
All shares of Class B Common Stock shall automatically convert into Class A
Common Stock if a tax-free spin-off has not occurred and the number of
outstanding shares of Class B Common Stock beneficially owned by Ford or the
Class B Transferee, as the case may be, falls below 20% of the aggregate number
of outstanding shares of Common Stock. This will prevent Ford or the Class B
Transferee, as the case may be, from decreasing its economic interest in the
Company to less than 20% while still retaining control of more than 55% of the
Company's voting power. Automatic conversion of the Class B Common Stock into
Class A Common Stock if a tax-free spin-off has not occurred and Ford or the
Class B Transferee, as the case may be, decreases its economic interest in the
Company to less than 20% is intended to ensure that Ford or the Class B
Transferee, as the case may be, retains voting control by virtue of its
ownership of Class B Common Stock only if it has a significant economic interest
in the Company. All conversions will be effected on a share-for-share basis.
Other Rights
In the event of any merger or consolidation of the Company with or into another
company in connection with which shares of Common Stock are converted into or
exchangeable for shares of stock, other securities or property (including cash),
all holders of Common Stock, regardless of class, will be entitled to receive
the same kind and amount of shares of stock and other securities and property
(including cash).
On liquidation, dissolution or winding up of the Company, after payment in full
of the amounts required to be paid to holders of Preferred Stock, if any, all
holders of Common Stock, regardless of class, are entitled to share ratably in
any assets available for distribution to holders of shares of Common Stock.
No shares of either class of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock. However, see
"Relationship with Ford -- Corporate Agreement" with respect to certain rights
of Ford to purchase additional shares of Common Stock.
Upon consummation of the Offerings, all the outstanding shares of Class A Common
Stock and Class B Common Stock will be legally issued, fully paid and
nonassessable.
PREFERRED STOCK
The Preferred Stock is issuable from time to time in one or more series and with
such designations and preferences for each series as shall be stated in the
resolutions providing for the designation and issue of each such series adopted
by the Board of Directors of the Company. The Board of Directors is authorized
by the Company's Restated Certificate of Incorporation to determine, among other
things, the voting, dividend, redemption, conversion and liquidation powers,
rights and preferences and the limitations thereon pertaining to such series.
The Board of Directors, without stockholder approval, may issue Preferred Stock
with voting and other rights that could adversely affect the voting power of the
holders of the Common Stock and could have certain anti-takeover effects. The
Company has no present plans to issue any shares of Preferred Stock. The ability
of the Board of Directors to issue Preferred Stock without stockholder approval
could have the effect of delaying, deferring or preventing a change in control
of the Company or the removal of existing management.
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CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
Corporate Opportunities
The Company's Restated Certificate of Incorporation will provide that: Ford
shall have no duty to refrain from engaging in the same or similar activities or
lines of business as the Company, and neither Ford nor any officer or director
thereof (except as provided below) shall be liable to the Company or its
stockholders for breach of any fiduciary duty by reason of any such activities
of Ford. In the event that Ford acquires knowledge of a potential transaction or
matter which may be a corporate opportunity for both Ford and the Company, Ford
shall have no duty to communicate or offer such corporate opportunity to the
Company and shall not be liable to the Company or its stockholders for breach of
any fiduciary duty as a stockholder of the Company by reason of the fact that
Ford pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another person, or does not communicate information
regarding such corporate opportunity to the Company.
In the event that a director or officer of the Company who is also a director or
officer of Ford acquires knowledge of a potential transaction or matter which
may be a corporate opportunity for both the Company and Ford, such director or
officer of the Company shall have fully satisfied and fulfilled the fiduciary
duty of such director or officer of the Company and its stockholders with
respect to such corporate opportunity if such director or officer acts in a
manner consistent with the following policy:
(i) a corporate opportunity offered to any person who is an officer of the
Company, and who is also a director but not an officer of Ford, shall
belong to the Company;
(ii) a corporate opportunity offered to any person who is a director but
not an officer of the Company, and who is also a director or officer of
Ford, shall belong to the Company if such opportunity is expressly offered
to such person in writing solely in his or her capacity as a director of
the Company, and otherwise shall belong to Ford; and
(iii) a corporate opportunity offered to any person who is an officer of
both the Company and Ford shall belong to the Company if such opportunity
is expressly offered to such person in writing solely in his or her
capacity as an officer of the Company, and otherwise shall belong to Ford.
For purposes of the foregoing:
(i) A director of the Company who is Chairman of the Board of Directors of
the Company or of a committee thereof shall not be deemed to be an officer
of the Company by reason of holding such position (without regard to
whether such position is deemed an officer of the Company under the By-laws
of the Company), unless such person is a full-time employee of the Company;
and
(ii) (A) The term "Company" shall mean the Company and all corporations,
partnerships, joint ventures, associations and other entities in which the
Company beneficially owns (directly or indirectly) fifty percent or more of
the outstanding voting stock, voting power, partnership interests or
similar voting interests, and (B) the term "Ford" shall mean Ford and all
corporations, partnerships, joint ventures, associations and other entities
(other than the Company, defined in accordance with clause (A) of this
section (ii)) in which Ford beneficially owns (directly or indirectly)
fifty percent or more of the outstanding voting stock, voting power,
partnership interests or similar voting interests.
The foregoing provisions of the Company's Restated Certificate of Incorporation
shall expire on the date that Ford ceases to own beneficially Common Stock
representing at least 20% of the total voting power of all classes of
outstanding Common Stock and no person who is a director or officer of the
Company is also a director or officer of Ford or any of its subsidiaries (other
than the Company).
In addition to any vote of the stockholders required by the Company's Restated
Certificate of Incorporation, until the time that Ford ceases to own
beneficially Common Stock representing at least 20% of the total voting power of
all classes of outstanding Common Stock, the affirmative vote of the holders of
more than 80% of the total voting power of all classes of outstanding Common
Stock shall
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be required to alter, amend or repeal in a manner adverse to the interests of
Ford and its subsidiaries (other than the Company), or adopt any provision
adverse to the interests of Ford and its subsidiaries (other than the Company),
and inconsistent with, the corporate opportunity provisions described above.
Accordingly, so long as Ford beneficially owns Common Stock representing at
least 20% of the total voting power of all classes of outstanding Common Stock,
it can prevent any such alteration, amendment, repeal or adoption.
Any person purchasing or otherwise acquiring Common Stock will be deemed to have
notice of, and to have consented to, the foregoing provisions of the Company's
Restated Certificate of Incorporation.
Provisions That May Have an Anti-Takeover Effect
Certain provisions of the Company's Restated Certificate of Incorporation and
By-laws summarized below may be deemed to have an anti-takeover effect and may
delay, deter or prevent a tender offer or takeover attempt that a stockholder
might consider to be in its best interest, including attempts that might result
in a premium being paid over the market price for the shares held by
stockholders.
The Company's Restated Certificate of Incorporation will provide that, subject
to any rights of holders of Preferred Stock to elect additional directors under
specified circumstances, the number of directors of the Company will be fixed by
the By-laws. The By-laws will provide that, subject to any rights of holders of
Preferred Stock to elect directors under specified circumstances, the number of
directors will be fixed from time to time exclusively by resolution of the Board
of Directors adopted by the vote of directors constituting a majority of the
total number of directors that the Company would have if there were no vacancies
on the Company's Board of Directors, but shall consist of not more than twelve
nor less than three directors. In addition, the Restated Certificate of
Incorporation and By-laws will provide that, subject to any rights of holders of
Preferred Stock, and unless the Company's Board of Directors otherwise
determines, any vacancies will be filled by the affirmative vote of a majority
of the remaining members of the Board of Directors, though less than a quorum,
or by a sole remaining director; except as otherwise provided by law, any such
vacancy may not be filled by the stockholders.
The Company's By-laws will provide for an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as for other stockholder proposals
to be considered at annual meetings of stockholders. In general, notice of
intent to nominate a director or raise matters at such meetings will have to be
received in writing by the Company not less than 60 nor more than 90 days prior
to the anniversary of the previous year's annual meeting of stockholders, and
must contain certain information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the stockholder
submitting the proposal. The Company's Restated Certificate of Incorporation and
By-laws will also provide that special meetings of stockholders may be called
only by certain specified officers of the Company or by any such officer at the
request in writing of the Board of Directors; special meetings of stockholders
cannot be called by stockholders. In addition, the Company's Restated
Certificate of Incorporation will provide that any action required or permitted
to be taken by stockholders may be effected by written consent; provided,
however, that on and after the date on which neither Ford nor the Class B
Transferee continues to beneficially own 50% or more of the total voting power
of all classes of outstanding Common Stock, any action required or permitted to
be taken by stockholders may be effected only at a duly called annual or special
meeting of stockholders and may not be effected by a written consent by
stockholders in lieu of such a meeting.
The Company's Restated Certificate of Incorporation will also provide that the
affirmative vote of the holders of at least 75% of the total voting power of all
classes of outstanding Common Stock, voting together as a single class, is
required to amend, repeal or adopt any provision inconsistent with the foregoing
provisions of the Restated Certificate of Incorporation. The Restated
Certificate of Incorporation and By-laws will further provide that the By-laws
may be altered, amended or repealed by the Company's Board of Directors or by
the affirmative vote of the holders of at least 75% of the total voting power of
all classes of outstanding Common Stock, voting together as a single class.
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In addition to the foregoing, certain of the Company's airport concession
agreements require the consent of the airport authority in connection with
transfers of varying percentages of the Company's common stock. See
"Relationship with Ford".
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation subject to Section 203 of the Delaware
General Corporation Law (the "Delaware Law"). Section 203 provides that, subject
to certain exceptions specified therein, a corporation shall not engage in any
business combination with any "interested stockholder" for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares) or (iii) on or subsequent to such time, the business combination
is approved by the board of directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Except as specified in Section 203 of the Delaware
Law, an interested stockholder is defined to include (x) any person that is the
owner of 15% or more of the outstanding voting stock of the corporation, or is
an affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date and (y) the affiliates and associates of
any such person. Under certain circumstances, Section 203 of the Delaware Law
makes it more difficult for an "interested stockholder" to effect various
business combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. By virtue of its ownership of 15% or more of the outstanding voting
stock of the Company for more than a three-year period, Ford and its
subsidiaries are not themselves restricted from engaging in a business
combination with the Company pursuant to Section 203 of the Delaware Law.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Restated Certificate of Incorporation provides that no director of
the Company shall be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) in respect of certain unlawful
dividend payments or stock redemptions or repurchases or (iv) for any
transaction from which the director derived an improper personal benefit. The
effect of these provisions will be to eliminate the rights of the Company and
its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of fiduciary
duty as a director (including breaches resulting from grossly negligent
behavior), except in the situations described above.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be First Chicago
Trust Company of New York.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have 39,000,000 shares of
Class A Common Stock issued and outstanding (41,610,000 if the Underwriters'
over-allotment options are exercised in full) and 65,956,000 shares of Class B
Common Stock issued and outstanding. All of the shares of Class A Common Stock
to be sold in the Offerings will be freely tradeable without restrictions or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for any shares
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purchased by an "affiliate" of the Company (as that term is defined in Rule 144
adopted under the Securities Act ("Rule 144")), which will be subject to the
resale limitations of Rule 144. All of the outstanding shares of Class B Common
Stock are beneficially owned by Ford and have not been registered under the
Securities Act and may not be sold in the absence of an effective registration
statement under the Securities Act other than in accordance with Rule 144 or
another exemption from registration. Ford has certain rights to require the
Company to effect registration of shares of Common Stock owned by Ford, which
rights may be assigned. See "Relationship with Ford -- Corporate Agreement".
In general, under Rule 144 as currently in effect, a person (or persons whose
shares are required to be aggregated) who has beneficially owned shares of
Common Stock for at least one year, including a person who may be deemed an
"affiliate", is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of one percent of the total number of
shares of the class of stock sold or the average weekly reported trading volume
of the class of stock being sold or the average weekly reported trading volume
of the class of stock being sold during the four calendar weeks preceding such
sale. A person who is not deemed an "affiliate" of the Company at any time
during the three months preceding a sale and who has beneficially owned shares
for at least two years is entitled to sell such shares under Rule 144 without
regard to the volume limitations described above. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through the use
of one or more intermediaries controls, is controlled by, or is under common
control with, such issuer. Rule 144A under the Securities Act ("Rule 144A")
provides a non-exclusive safe harbor exemption from the registration
requirements of the Securities Act for specified resales of restricted
securities to certain institutional investors. In general, Rule 144A allows
unregistered resales of restricted securities to a "qualified institutional
buyer", which generally includes an entity, acting for its own account or for
the account of other qualified institutional buyers, that in the aggregate owns
or invests at least $100 million in securities of unaffiliated issuers. Rule
144A does not extend an exemption to the offer or sale of securities that, when
issued, were of the same class as securities listed on a national securities
exchange or quoted on an automated quotation system. The shares of Class B
Common Stock outstanding as of the date of this Prospectus would be eligible for
resale under Rule 144A because such shares, when issued, were not of the same
class as any listed or quoted securities. The foregoing summary of Rule 144 and
Rule 144A is not intended to be a complete description thereof.
Prior to the Offerings, there has been no market for the Class A Common Stock,
and no prediction can be made as to the effect, if any, that market sales of
outstanding shares of Class B Common Stock, or the availability of such shares
for sale, will have on the market price of the Class A Common Stock prevailing
from time to time. Nevertheless, sales of substantial amounts of Class B Common
Stock beneficially owned by Ford in the public market, or the perception that
such sales could occur, could adversely affect prevailing market prices for the
Class A Common Stock offered in the Offerings.
Although Ford in the future may effect or direct sales or other dispositions of
Common Stock that would reduce its beneficial ownership interest in the Company,
Ford has advised the Company that its current intent is to continue to hold all
of the Common Stock beneficially owned by it following the Offerings. However,
Ford is not subject to any contractual obligation to retain its controlling
interest except that Ford and the Company have agreed, subject to certain
exceptions, not to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of J.P. Morgan Securities Inc. As a result, there can be no assurance
concerning the period of time during which Ford will maintain its beneficial
ownership of Common Stock owned by it following the Offerings. See
"Underwriting". Beneficial ownership of at least 80% of the total voting power
and value of the outstanding Common Stock is required in order for Ford to
continue to include the Company in its consolidated group for federal income tax
purposes, and beneficial ownership of at least 80% of the total voting power and
80% of each class of nonvoting capital stock is required in order for Ford to be
able to effect a tax-free spin-off or certain other tax-free transactions. See
"Relationship with Ford".
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DESCRIPTION OF CERTAIN INDEBTEDNESS
GENERAL
In connection with the funding of its operations, the Company and certain of its
foreign subsidiaries from time to time issue publicly and privately held debt
securities (the "Debt Securities"). At December 31, 1996, the Company and its
subsidiaries had an aggregate of $5.1 billion in Debt Securities outstanding.
MATURITIES AND INTEREST RATES
The Debt Securities have maturities ranging from 1997 to 2009 with interest
rates ranging from 2.0% to 12% (excluding immaterial borrowings by the Company's
operation in Brazil, which accrue interest at higher rates due to the high
inflationary environment in that country). Certain Debt Securities issued by the
Company are redeemable at the option of the holders, including $100 million of
Debt Securities due 2009, which are redeemable in 1999, and $150 million of Debt
Securities due 2006, which are redeemable in 2002. If such Debt Securities are
redeemed, the last to mature of the Debt Securities would mature in 2005. See
Note 2 of the Notes to the Company's consolidated financial statements included
in this Prospectus.
COVENANTS
Certain debt instruments under which the Company has issued Debt Securities or
guarantees contain the following restrictive covenants:
Limitations on Mergers
The Company may not, subject to certain exceptions, 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
Company or certain subsidiaries of the Company ("Restricted Subsidiaries")
immediately prior thereto would become subject to any security interest, unless
certain publicly held Debt Securities issued by the Company are secured equally
and ratably with (or prior to) the debt secured by such security interest.
Limitations on Certain Loans and Advances
The Company 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 Company or to any affiliate of such person (other than the Company
or a Restricted Subsidiary) if the aggregate outstanding amount of senior
indebtedness of the Company and its Restricted Subsidiaries exceeds 400% of the
consolidated net worth and subordinated indebtedness of the Company and its
Restricted Subsidiaries.
Limitations on Secured Debt
Subject to certain exceptions, including those set forth below, the Company may
not create, incur, assume or guarantee, and may not cause, suffer or permit a
Restricted Subsidiary to create, incur, assume or guarantee, any secured
indebtedness without making effective provisions whereby certain Debt Securities
then outstanding and any other indebtedness of or guaranteed by the Company or
such Restricted Subsidiary then entitled thereto, subject to applicable
priorities of payment, shall be secured by the security interest securing such
secured indebtedness 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 indebtedness remains outstanding; provided,
however, that the foregoing prohibition shall not be applicable to (i) any
security interest in favor of the Company or a Restricted Subsidiary; (ii)
certain pre-existing security interests; (iii) security interests existing on
property at the time it is acquired by the Company or a Restricted Subsidiary,
provided, such security interest is limited
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to all or part of the property so acquired; (iv)(a) 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
(b) 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 Company 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 Company 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 Company or any Restricted Subsidiary which was a Restricted
Subsidiary prior to such transaction; and (v) security interests on certain
business equipment.
Notwithstanding the foregoing provisions, the Company and any one or more
Restricted Subsidiaries may issue, assume or guarantee secured indebtedness
which would otherwise be subject to the foregoing restrictions in an aggregate
amount which, together with all other secured indebtedness of the Company and
its Restricted Subsidiaries which would otherwise be subject to the foregoing
restrictions (not including indebtedness permitted to be secured as described
under "-- Limitations on Secured Debt" 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 clause (ii) under "-- Limitations on Sale and Leaseback
Transactions" below), do not at the time of incurrence exceed 10% of the
consolidated net worth and subordinated indebtedness of the Company and its
Restricted Subsidiaries.
Limitations on Sale and Leaseback Transactions
The Company may not, and may not permit any Restricted Subsidiary to, engage in
any sale and leaseback transaction unless (i) the Company or such Restricted
Subsidiary would be entitled, without reference to the provisions described
under "-- Limitations on Secured Debt" above, to incur secured indebtedness 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
certain outstanding Debt Securities as provided under "-- Limitations on Secured
Debt" or (ii) the Company or a Restricted Subsidiary 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) to the repayment of senior
indebtedness of the Company or of any Restricted Subsidiary (other than senior
indebtedness owed to the Company or any Restricted Subsidiary) then prepayable.
Limitations on Dividends
The Company may not pay dividends, invest in its own shares or permit
investments by its Restricted Subsidiaries in the Company's shares subsequent to
a specified date if, together with total investments by the Company and its
Restricted Subsidiaries in subsidiaries that are not Restricted Subsidiaries
made subsequent to such specified date, the aggregate of any such dividends or
investments exceeds the sum of (i) a specified dollar amount, (ii) the aggregate
net income of the Company and its Restricted Subsidiaries earned subsequent to
such specified date and (iii) net proceeds received from capital stock issued
subsequent to such specified date. Immediately following the Offerings, the
Company will be permitted to pay $ in dividends under the most restrictive of
such covenants. See "Use of Proceeds" and "Capitalization".
The last to mature of the outstanding securities of the Company containing any
of the foregoing restrictions listed above have a final maturity of November 1,
2009.
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FORD OWNERSHIP EVENT OF DEFAULT
The Company's global credit facilities, under which $2.1 billion in loans is
available from 31 banks, include as an event of default Ford's failure to own,
directly or indirectly, 100% of the outstanding voting stock of the Company.
Prior to completion of the Offerings, the Company intends to amend such credit
facilities to eliminate such event of default and, in lieu thereof, provide that
if Ford ceases to own, directly or indirectly, capital stock of the Company
having at least 51% of the total voting power of all capital stock of the
Company outstanding, then: (i) certain borrowing rates and, in respect of
certain of the credit facilities, the facility fees will be determined by a
pricing matrix based on the Company's credit ratings, (ii) if the Company's
long-term credit rating declines below A- by S&P and A3 by Moody's then the
Company will be required to maintain a minimum consolidated net worth of $500
million and (iii) if the Company's credit rating declines below BBB+ by S&P and
Baa1 by Moody's, then the Company cannot allow its consolidated senior
debt-to-equity ratio to exceed 8.5 to 1.
In addition, a series of the Company's publicly-issued debt securities contains
the Ford ownership event of default described above. Prior to completion of the
Offerings, the Company intends to solicit the consent of the bondholders to
eliminate such event of default.
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain U.S. federal income and estate
tax consequences of the ownership and disposition of Class A Common Stock by a
Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is any person who is, for
U.S. federal income tax purposes, a foreign corporation, a non-resident alien
individual, a foreign partnership or a foreign estate or trust. This discussion
does not address all aspects of U.S. federal income and estate taxes and does
not deal with foreign, state and local consequences that may be relevant to such
Non-U.S. Holders in light of their personal circumstances. Furthermore, this
discussion is based on provisions of the Internal Revenue Code of 1986, as
amended, existing and proposed regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change (possibly with retroactive effect). EACH
PROSPECTIVE PURCHASER OF CLASS A COMMON STOCK IS ADVISED TO CONSULT A TAX
ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF CLASS A COMMON STOCK AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY U.S. STATE, MUNICIPALITY OR
OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends paid to a Non-U.S. Holder of Class A Common Stock generally will be
subject to withholding of U.S. federal income tax either at a rate of 30% of the
gross amount of the dividends or at such lower rate as may be specified by an
applicable income tax treaty. However, dividends that are effectively connected
with the conduct of a trade or business by the Non-U.S. Holder within the United
States and, where a tax treaty applies, are attributable to a U.S. permanent
establishment of the Non-U.S. Holder, are not subject to the withholding tax,
but instead are subject to U.S. federal income tax on a net income basis at
applicable graduated individual or corporate rates. Any such effectively
connected dividends received by a foreign corporation may, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
Under current law, dividends paid to an address outside the United States are
presumed to be paid to a resident of such country (unless the payer has
knowledge to the contrary) for purposes of the withholding discussed above and,
under the current interpretation of United States Treasury regulations, for
purposes of determining the applicability of a tax treaty rate. Under proposed
United States Treasury regulations not currently in effect, however, a Non-U.S.
Holder of Class A Common Stock who wishes to claim the benefit of an applicable
treaty rate (and avoid backup withholding, as discussed
80
<PAGE> 81
below) would be required to satisfy applicable certification and other
requirements. Currently, certain certification and disclosure requirements must
be complied with in order to be exempt from withholding under the effectively
connected income exemption discussed above.
A Non-U.S. Holder of Class A Common Stock eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax with
respect to gain recognized on a sale or other disposition of Class A Common
Stock unless (i) the gain is effectively connected with a trade or business of
the Non-U.S. Holder in the United States, and, where a tax treaty applies, is
attributable to a U.S. permanent establishment of the Non-U.S. Holder, (ii) in
the case of a Non-U.S. Holder who is an individual and holds the Class A Common
Stock as a capital asset, such holder is present in the United States for 183 or
more days in the taxable year of the sale or other disposition and certain other
conditions are met, (iii) the Non-U.S. Holder is subject to tax pursuant to
certain provisions of the Code applicable to U.S. expatriates or (iv) the
Company is or has been a "U.S. real property holding corporation" for U.S.
federal income tax purposes. The Company believes it is not and does not
anticipate becoming a "U.S. real property holding corporation" for U.S. federal
income tax purposes.
An individual Non-U.S. Holder described in clause (i) above, will, unless an
applicable treaty provides otherwise, be taxed on the net gain derived from the
sale under regular graduated U.S. federal income tax rates. An individual
Non-U.S. Holder described in clause (ii) above, will be subject to a flat 30%
tax on the gain derived from the sale, which may be offset by certain U.S.
source capital losses.
If a Non-U.S. Holder that is a foreign corporation falls under clause (i) above,
it will be taxed on its gain under regular graduated U.S. federal income tax
rates and may be subject to an additional branch profits tax at a 30% rate,
unless it qualifies for a lower rate under an applicable income tax treaty.
FEDERAL ESTATE TAX
Class A Common Stock owned or treated as owned by an individual Non-U.S. Holder
at the time of death will be included in such holder's gross estate for U.S.
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise, and therefore may be subject to U.S. federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
Under current law, backup withholding at the rate of 31% generally will not
apply to dividends paid to a Non-U.S. Holder at an address outside the United
States (unless the payer has knowledge that the payee is a U.S. person). Under
proposed United States Treasury regulations not currently in effect, however, a
Non-U.S. Holder will be subject to backup withholding unless applicable
certification requirements are met.
Payment of the proceeds of a sale of Class A Common Stock by or through a U.S.
office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner provides the payer with its name and
address and certifies under penalties of perjury that it is a Non-U.S. Holder,
or otherwise establishes an exemption. In general, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
Class A Common Stock by or through a foreign office of a foreign broker. If,
however, such broker is, for U.S. federal income tax purposes a U.S. person, a
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<PAGE> 82
controlled foreign corporation, or a foreign person that derives 50% or more of
its gross income for a certain period from the conduct of a trade or business in
the United States, such payments will be subject to information reporting, but
not backup withholding, unless (1) such broker has documentary evidence in its
records that the beneficial owner is a Non-U.S. Holder and certain other
conditions are met, or (2) the beneficial owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
The backup withholding and information reporting rules are under review by the
Treasury Department and their application to the Class A Common Stock could be
changed by future regulations. Non-U.S. Holders should consult their tax
advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom, the procedure for
obtaining such an exemption, if available, and the possible application of the
proposed United States Treasury regulations addressing the withholding and the
information reporting rules.
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<PAGE> 83
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "U.S. Underwriting Agreement"),
the U.S. Underwriters named below, for whom J.P. Morgan Securities Inc.,
Goldman, Sachs & Co., Lehman Brothers Inc., Salomon Brothers Inc and Smith
Barney Inc. are acting as representatives (the "U.S. Representatives"), have
severally agreed to purchase, and the Company has agreed to sell to them, the
respective number of shares of Class A Common Stock set forth opposite their
names below. Under the terms and subject to the conditions contained in an
Underwriting Agreement dated the date of this Prospectus (the "International
Underwriting Agreement" and, together with the U.S. Underwriting Agreement, the
"Underwriting Agreements"), the International Managers named below, for whom
J.P. Morgan Securities Ltd., Goldman Sachs International, Lehman Brothers
International (Europe), Salomon Brothers International Limited, Smith Barney
Inc. ABN AMRO Rothschild, Banque Nationale de Paris, Commerzbank
Aktiengesellschaft, Credit Lyonnais and Morgan Grenfell & Co. Limited are acting
as representatives (the "International Representatives"), have severally agreed
to purchase and the Company has agreed to sell to them, the respective number of
shares of Class A Common Stock set forth opposite their names below. The closing
of the offering made hereby is a condition to the closing of the International
Offering, and vice versa. The U.S. Underwriters and the International Managers
are collectively referred to as the "Underwriters". Under the terms and
conditions of the Underwriting Agreements, the Underwriters are obligated to
take and pay for all such shares of Class A Common Stock, if any are taken.
Under certain circumstances, the commitments of nondefaulting Underwriters may
be increased as set forth in the Underwriting Agreements.
<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
U.S. UNDERWRITERS ----------------
<S> <C>
J.P. Morgan Securities Inc. ................................
Goldman, Sachs & Co. .......................................
Lehman Brothers Inc. .......................................
Salomon Brothers Inc........................................
Smith Barney Inc. ..........................................
Subtotal.................................................. 15,660,000
</TABLE>
<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
INTERNATIONAL MANAGERS ----------------
<S> <C>
J.P. Morgan Securities Ltd. ................................
Goldman Sachs International.................................
ABN AMRO Rothschild.........................................
Banque Nationale de Paris...................................
Commerzbank Aktiengesellschaft..............................
Credit Lyonnais.............................................
Lehman Brothers International (Europe)......................
Morgan Grenfell & Co. Limited...............................
Salomon Brothers International Limited......................
Smith Barney Inc............................................
Subtotal.................................................. 1,740,000
Total.................................................. 17,400,000
</TABLE>
83
<PAGE> 84
The U.S. Underwriters and the International Managers have entered into an
Agreement Between Syndicates (the "Agreement Between Syndicates") which provides
for the coordination of their activities. Pursuant to the Agreement Between
Syndicates, sales may be made between the U.S. Underwriters and the
International Managers of such number of shares as they may mutually agree. The
price of any shares so sold shall be the offering price, less such amount as may
be mutually agreed upon by the U.S. Representatives and the International
Representatives, but not exceeding the selling concession to dealers applicable
to such shares. To the extent there are sales between the U.S. Underwriters and
the International Managers pursuant to the Agreement Between Syndicates, the
number of shares initially available for sale by the U.S. Underwriters or by the
International Managers may be more or less than the amount appearing on the
cover page of this Prospectus with respect to the Offerings. Neither the U.S.
Underwriters nor the International Managers are obligated to purchase from the
other any unsold shares. The Underwriters have agreed to reimburse the Company
for certain expenses in the amount of $ .
Pursuant to the Agreement Between Syndicates, each U.S. Underwriter has
represented and agreed that (i) it is not purchasing any Class A Common Stock
for the account of anyone other than a United States or Canadian Person and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any Class A Common Stock or distribute any prospectus relating to the Offerings
outside the United States or Canada or to anyone other than a United States or
Canadian Person. Pursuant to the Agreement Between Syndicates, each
International Manager has represented and agreed that (i) it is not purchasing
Class A Common Stock for the account of any United States or Canadian Person and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any Class A Common Stock or distribute any prospectus relating to
the Offerings within the United States or Canada or to any United States or
Canadian Person. The foregoing limitations do not apply to certain transactions
specified in the Agreement Between Syndicates, including stabilization
transactions and transactions between the U.S. Underwriters and the
International Managers pursuant to the Agreement Between Syndicates. As used
herein, "United States or Canadian Person" means any individual who is a
national or a resident of the United States or Canada or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or any political subdivision thereof (other than
a branch located outside the United States or Canada), and includes any United
States or Canadian branch of a person who is otherwise not a United States or
Canadian Person.
Pursuant to the Agreement Between Syndicates, each U.S. Underwriter has
represented that it has not offered or sold, and agreed not to offer or sell,
any Class A Common Stock, directly or indirectly, in Canada in contravention of
the securities laws of Canada or any province or territory thereof and has
represented that any offer of Class A Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchased from it any
of the Class A Common Stock in Canada or to, or for the benefit of, any resident
of Canada in contravention of the securities laws of Canada or any province or
territory thereof and that any offer of Class A Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such offer is made, and that such
dealer will deliver to any other dealer to whom it sells any of such Class A
Common Stock a notice containing substantially the same statement as is
contained in this sentence.
Pursuant to the Agreement Between Syndicates, each International Manager has
also represented and agreed that (i) it has not offered or sold and prior to the
expiration of the period six months from the closing date for the issuance of
the Class A Common Stock, will not offer or sell any Class A Common Stock to
persons in the United Kingdom, except to those persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for purpose of their businesses or otherwise in
circumstances that have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Class A Common Stock in, from or
otherwise
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<PAGE> 85
involving the United Kingdom and (iii) it has only issued and passed on and will
only issue and pass on in the United Kingdom any document received by it in
connection with the issue of the Class A Common Stock to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the document may
otherwise lawfully be issued or passed on.
The Underwriters propose initially to offer the Class A Common Stock directly to
the public at the price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the initial
public offering of the Class A Common Stock, the public offering price and such
concession may be changed.
The Company has granted to the U.S. Underwriters an option expiring at the close
of business on the 30th day after the date of this Prospectus, to purchase up to
2,349,000 additional shares of Class A Common Stock at the initial public
offering price, less the underwriting discount. The U.S. Underwriters may
exercise such option solely for the purpose of covering over-allotments, if any.
If the U.S. Underwriters exercise their option, each U.S. Underwriter will have
a firm commitment, subject to certain conditions, to purchase approximately the
same number of option shares as the number of shares of Class A Common Stock to
be purchased by that U.S. Underwriter shown in the foregoing table bears to the
total number of shares of Class A Common Stock initially offered by the U.S.
Underwriters hereby. The Company has granted the International Managers a
similar option exercisable for up to 261,000 additional shares of Class A Common
Stock.
In connection with the Offerings, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A Common
Stock. Specifically, the Underwriters may over-allot in connection with the
Offerings, creating a syndicate short position. In addition, the Underwriters
may bid for, and purchase, shares of Class A Common Stock in the open market to
cover syndicate short positions or to stabilize the price of the Class A Common
Stock. Finally, the underwriting syndicate may reclaim selling concessions
allowed for distributing the Class A Common Stock in the Offerings if the
syndicate repurchases previously distributed Class A Common Stock in syndicate
covering transactions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Class A Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time
The Company and Ford have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company and Ford have agreed that during the period beginning from the date
of this Prospectus and continuing to and including the date 180 days after the
date of this Prospectus they will (i) not offer, sell, contract to sell or
otherwise dispose of any securities of the Company which are substantially
similar to the Class A Common Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, Class A Common Stock or any such substantially similar
securities or (ii) enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, the economic consequence of
ownership of Class A Common Stock or any securities substantially similar to the
Class A Common Stock (other than (i) pursuant to employee stock option plans
existing on, or upon the conversion or exchange of convertible or exchangeable
securities outstanding as of, the date of this Prospectus and (ii) the issuance
of Common Stock in connection with the transactions described in this
Prospectus), without the prior written consent of J.P. Morgan Securities Inc.
The Underwriters have reserved for sale, at the initial public offering price,
shares of the Class A Common Stock for certain employees of the Company and its
affiliates in the United States and, subject to local laws, internationally, who
have expressed an interest in purchasing such shares of Class A Common Stock in
the Offerings. Such employees are expected to purchase, in the aggregate, not
more than 10% of the Class A Common Stock offered in the Offerings. The number
of shares available for
85
<PAGE> 86
sale to the general public in the Offerings will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered to the general public on the same basis as other shares offered
hereby.
The Class A Common Stock has been approved for listing on the New York Stock
Exchange, upon notice of issuance, under the trading symbol "HRZ". In order to
meet the requirements for listing the Class A Common Stock on the New York Stock
Exchange, the Underwriters have undertaken to sell lots of 100 or more shares of
Class A Common Stock to a minimum of 2,000 beneficial owners.
Prior to the Offerings, there has been no public market for the Class A Common
Stock. The initial public offering price for the shares of Class A Common Stock
offered hereby will be determined by agreement among the Company and the
Underwriters. Among the factors considered in making such determination will be
the history of and the prospects for the industry in which the Company competes,
an assessment of the Company's management, the present operations of the
Company, the historical results of operations of the Company and the trend of
its revenues and earnings, the prospects for future earnings of the Company, the
general condition of the securities markets at the time of the Offerings and the
prices of similar securities of generally comparable companies. There can be no
assurance that an active trading market will develop for the Class A Common
Stock or that the Class A Common Stock will trade in the public market
subsequent to the Offerings at or above the initial public offering price.
The Underwriters have advised the Company that they do not expect that sales to
accounts over which they exercise discretionary authority will exceed 5% of the
shares offered hereby.
From time to time in the ordinary course of their respective businesses, certain
of the Underwriters and their affiliates have engaged in and may in the future
engage in commercial and/or investment banking transactions with the Company and
its affiliates.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will be passed upon for
the Company by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York and for the Underwriters by
Shearman & Sterling, New York, New York. Simpson Thacher & Bartlett and Shearman
& Sterling have in the past provided, and may continue to provide, legal
services to Ford and its affiliates.
EXPERTS
The Consolidated Balance Sheet of the Company as of December 31, 1996 and 1995
and the Consolidated Statements of Income and Retained Earnings and Cash Flows
for each of the three years in the period ended December 31, 1996 included in
this Prospectus, have been included herein in reliance on the report of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement"), under the Securities Act and the rules and regulations thereunder,
for the registration of the Class A Common Stock offered hereby. This
Prospectus, which forms a part of the Registration Statement, does not contain
all the information set forth in the Registration Statement, certain parts of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Class A
Common Stock offered hereby, reference is made to the Registration Statement.
Statements
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<PAGE> 87
contained in this Prospectus as to the contents of any contract or other
document referred to herein are not necessarily complete and, where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all respects by the provisions of such exhibit,
to which reference is hereby made. The Registration Statement can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of all or any portion of the Registration
Statement can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Registration Statement is publicly available through the
Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov.
The Class A Common Stock has been approved for listing on the New York Stock
Exchange (the "NYSE"), upon notice of issuance, under the symbol "HRZ". In
addition, certain debt securities of the Company are listed for trading on the
NYSE. Copies of the Registration Statement and reports and other information are
available for inspection and copying at the office of the NYSE at 20 Broad
Street, New York, New York 10005.
The Company is currently subject to abbreviated informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in
accordance with General Instruction J(1)(a) and (b) to Form 10-K and in
accordance therewith files reports and other information with the Commission.
Such reports and other information can be inspected and copied at the offices of
the Commission set forth above. Copies of such material can be obtained from the
Public Reference Section of the Commission at the address set forth above at
prescribed rates. In addition, such material is publicly available through the
Commission's site on the Internet located at the address set forth above. As a
result of the Offerings, the Company will become subject to the full
informational requirements of the Exchange Act. The Company will fulfill its
obligations with respect to such requirements by filing periodic reports and
other information with the Commission. The Company intends to furnish its
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm.
87
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
The Hertz Corporation and Subsidiaries
Report of Independent Accountants......................... F-2
Consolidated Balance Sheet at December 31, 1996 and
1995................................................... F-3
Consolidated Statement of Income for the years ended
December 31, 1996, 1995 and 1994....................... F-4
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994........... F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....................... F-6
Notes to Consolidated Financial Statements................ F-8
Schedule II -- Valuation and Qualifying Accounts for the
years ended December 31, 1996, 1995 and 1994........... F-30
</TABLE>
F-1
<PAGE> 89
REPORT OF INDEPENDENT ACCOUNTANTS
To The Hertz Corporation:
We have audited the accompanying consolidated balance sheet of The Hertz
Corporation (a wholly-owned subsidiary of Ford Motor Company) and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity and cash flows and the financial statement schedule
listed in F-1 for each of the three years ended December 31, 1996. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Hertz
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years ended December 31, 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
January 24, 1997, except for Note 14,
as to which the date is March 13, 1997
F-2
<PAGE> 90
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
------------------------
DECEMBER 31
1996 1995
Dollars in thousands ---------- ----------
<S> <C> <C>
ASSETS
Cash and equivalents (Note 13).............................. $ 179,311 $ 137,257
Receivables, less allowance for doubtful accounts of $12,268
(1995 -- $7,985) (Schedule II)............................ 798,686 789,801
Due from affiliates (Notes 5 and 7)......................... 456,025 407,442
Inventories, at lower of cost or market..................... 20,220 17,930
Prepaid expenses and other assets (Note 4).................. 80,530 83,345
Revenue earning equipment, at cost (Note 7):
Cars...................................................... 4,698,656 3,951,351
Less accumulated depreciation.......................... (380,391) (324,193)
Other equipment........................................... 908,106 705,084
Less accumulated depreciation.......................... (190,677) (162,073)
---------- ----------
Total revenue earning equipment...................... 5,035,694 4,170,169
---------- ----------
Property and equipment, at cost:
Land, buildings and leasehold improvements................ 515,063 473,930
Service equipment......................................... 554,134 507,640
---------- ----------
1,069,197 981,570
Less accumulated depreciation.......................... (526,466) (485,680)
---------- ----------
Total property and equipment......................... 542,731 495,890
---------- ----------
Franchises, concessions, contract costs and leaseholds, net
of amortization........................................... 10,117 7,722
Cost in excess of net assets of purchased businesses, net of
amortization (Note 5)..................................... 525,853 547,074
---------- ----------
Total assets......................................... $7,649,167 $6,656,630
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable (Note 7)................................... $ 468,817 $ 585,663
Accrued salaries and other compensation..................... 171,508 142,096
Other accrued liabilities................................... 384,191 330,923
Accrued taxes............................................... 105,524 74,714
Debt (Notes 2 and 13)....................................... 5,091,844 4,297,484
Public liability and property damage (Schedule II).......... 321,118 311,669
Deferred taxes on income (Note 8)........................... 116,800 77,800
Commitments and contingencies (Notes 9, 11 and 13)
Stockholders' equity (Notes 1 and 2):
Preferred stock --
Series A, 10% cumulative............................... 236,000 236,000
Series B, various rates cumulative..................... 249,900 249,900
Common stock, par value $1 per share, shares issued -- 200
Class A, 51 Class B and 490 Class C.................... 1 1
Additional capital paid-in................................ 59,008 59,008
Retained earnings......................................... 435,352 276,733
Translation adjustment (Note 3)........................... 9,129 14,539
Unrealized holding gains (losses) for available-for-sale
securities (Note 4).................................... (25) 100
---------- ----------
Total stockholders' equity........................... 989,365 836,281
---------- ----------
Total liabilities and stockholders' equity........... $7,649,167 $6,656,630
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 91
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
--------------------------------------
Years ended December 31
1996 1995 1994
Dollars in thousands ---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Car rental.......................................... $3,161,605 $2,911,703 $2,581,157
Industrial and construction equipment rental........ 392,322 332,328 263,154
Car leasing (Note 5)................................ 35,407 35,548 231,372
Other (Note 5)...................................... 79,049 121,009 218,718
---------- ---------- ----------
Total revenues................................... 3,668,383 3,400,588 3,294,401
---------- ---------- ----------
Expenses:
Direct operating.................................... 1,795,157 1,724,791 1,766,228
Depreciation of revenue earning equipment (Note
7)............................................... 892,678 803,862 702,644
Selling, general and administrative................. 425,179 392,518 385,470
Interest, net of interest income of $10,449, $16,798
and $7,210 (Note 2).............................. 298,800 307,073 277,228
---------- ---------- ----------
Total expenses................................... 3,411,814 3,228,244 3,131,570
---------- ---------- ----------
Income before income taxes............................ 256,569 172,344 162,831
Provision for taxes on income (Note 8)................ 97,950 67,138 71,749
---------- ---------- ----------
Net income............................................ $ 158,619 $ 105,206 $ 91,082
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 92
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
UNREALIZED
COMMON HOLDING GAINS
AND ADDITIONAL (LOSSES) FOR TOTAL
PREFERRED CAPITAL RETAINED TRANSLATION AVAILABLE-FOR- STOCKHOLDERS'
STOCK PAID-IN EARNINGS ADJUSTMENT SALE SECURITIES EQUITY
Dollars in thousands --------- ---------- -------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1993......................... $ 439,901 $100,099 $105,445 $(28,749) $ -- $ 616,696
Net Income..................... 91,082 91,082
Translation adjustment changes
during the year.............. 23,478 23,478
Redemption of preferred
stock........................ (104,000) (104,000)
Redemption of common and
preferred stock in excess of
par value and related
expenses..................... (41,091) (41,091)
Stock issued in exchange for
subordinated promissory
note......................... 150,000 150,000
Unrealized holding losses for
available-for-sale
securities................... (222) (222)
--------- -------- -------- -------- ----- ---------
Balances at December 31,
1994......................... 485,901 59,008 196,527 (5,271) (222) 735,943
Net Income..................... 105,206 105,206
Cash dividend on common stock
paid to Ford Motor Company... (25,000) (25,000)
Translation adjustment changes
during the year.............. 19,810 19,810
Unrealized holding gains for
available-for-sale securities
during the year.............. 322 322
--------- -------- -------- -------- ----- ---------
Balances at December 31,
1995......................... 485,901 59,008 276,733 14,539 100 836,281
Net Income..................... 158,619 158,619
Translation adjustment changes
during the year.............. (5,410) (5,410)
Unrealized holding losses for
available-for-sale securities
during the year.............. (125) (125)
--------- -------- -------- -------- ----- ---------
Balances at December 31,
1996......................... $ 485,901 $ 59,008 $435,352 $ 9,129 $ (25) $ 989,365
========= ======== ======== ======== ===== =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 93
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
Dollars in thousands ----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 158,619 $ 105,206 $ 91,082
Non-cash expenses:
Depreciation of revenue earning equipment....... 892,678 803,862 702,644
Depreciation of property and equipment.......... 82,457 79,696 68,646
Amortization of intangibles..................... 18,232 19,978 19,401
Provision for public liability and property
damage........................................ 133,417 134,926 159,049
Provision for losses for doubtful accounts...... 9,912 4,926 6,813
Write-off of interest on Park Ridge Limited
Partnership promissory note................... -- -- 8,586
Deferred income taxes........................... 39,000 28,500 4,700
Other........................................... (3,060) -- --
Revenue earning equipment expenditures............. (8,204,179) (7,255,250) (6,873,281)
Proceeds from sales of revenue earning equipment... 6,445,337 6,163,455 4,747,409
Changes in assets and liabilities, net of effects
from sale in 1996 of certain claim
administration service operations, and in 1995
of the European car leasing and car dealership
operations --
Receivables................................... (20,482) (180,613) (181,439)
Due from affiliates........................... (48,583) (35,843) (43,087)
Inventories and prepaid expenses and other
assets..................................... (1,325) (1,422) 30,463
Accounts payable.............................. (117,767) 311,498 70,001
Accrued liabilities........................... 85,192 9,785 74,633
Accrued taxes................................. 30,316 6,067 6,656
Payments of public liability and property damage
claims and expenses............................. (123,928) (127,814) (118,380)
----------- ----------- -----------
Net cash flows (used for) provided by operating
activities.................................... $ (624,164) $ 66,957 $(1,226,104)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 94
THE HERTZ CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
Dollars in thousands ----------- --------- ----------
<S> <C> <C> <C>
Cash flows from investment activities:
Property and equipment expenditures.................. $ (179,802) $(178,279) $ (150,569)
Proceeds from sales of property and equipment........ 44,950 34,148 35,839
Available-for-sale securities --
Purchases......................................... (6,219) (6,375) (8,145)
Sales............................................. 6,422 6,625 5,221
Proceeds from sale in 1996 of certain claim
administration service operations and in 1995 of
the European car leasing and car dealership
operations, net of cash and equivalents........... 15,346 56,560 --
Purchases of various operations (see supplemental
disclosures below)................................ (6,054) -- (2,044)
----------- --------- ----------
Net cash flows used for investing activities.... (125,357) (87,321) (119,698)
----------- --------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............. 304,604 329,157 719,289
Repayment of long-term debt.......................... (205,276) (340,442) (207,195)
Short-term borrowings:
Proceeds.......................................... 1,379,740 984,870 736,430
Repayments........................................ (1,180,063) (945,283) (614,439)
Ninety day term or less, net...................... 492,526 54,487 864,816
Cash dividend on common stock paid to Ford Motor
Company........................................... -- (25,000) --
Payment for the redemption of common and preferred
stock and related expenses........................ -- -- (145,091)
----------- --------- ----------
Net cash flows provided from financing
activities................................... 791,531 57,789 1,353,810
----------- --------- ----------
Effect of foreign exchange rate changes on cash........ 44 83 3,184
----------- --------- ----------
Net increase in cash and equivalents during the
period............................................... 42,054 37,508 11,192
Cash and equivalents at beginning of year.............. 137,257 99,749 88,557
----------- --------- ----------
Cash and equivalents at end of year.................... $ 179,311 $ 137,257 $ 99,749
=========== ========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for --
Interest (net of amounts capitalized)............. $ 300,120 $ 313,139 $ 257,652
Income taxes...................................... 38,899 33,775 36,341
</TABLE>
In connection with acquisitions made during the years 1996 and 1994,
liabilities assumed were $36 million and $27 million, respectively.
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 95
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Merger, Change in Ownership and Capitalization
The Hertz Corporation (the "Company"), which was incorporated in Delaware in
1967, is a successor to corporations which were engaged in the automobile and
truck leasing and rental business since 1918. UAL Corporation ("UAL") (formerly
Allegis Corporation) purchased all of the Company's outstanding capital stock
from RCA Corporation ("RCA") on August 30, 1985. Park Ridge Corporation ("Park
Ridge"), which was 80%-owned by Ford Motor Company ("Ford"), purchased all of
the Company's outstanding capital stock from UAL on December 30, 1987. By 1989,
Ford reduced its ownership interest in Park Ridge to 49%. On July 19, 1993, Park
Ridge (which had no material assets other than the Company) was merged with and
into the Company, with the prior stockholders of Park Ridge becoming the
stockholders of the Company. The merger has been recorded as a "pooling of
interests".
In March 1994, Ford acquired the Company's common stock owned by Commerzbank
Aktiengesellschaft. On April 29, 1994, the Company redeemed its preferred and
common stock owned by AB Volvo for $145 million, borrowing the funds from Ford
to pay for the redemption, and Ford purchased all of the common stock of the
Company owned by Park Ridge Limited Partnership ("Partnership"). This resulted
in the Company becoming a wholly-owned subsidiary of Ford. In addition, the $150
million subordinated promissory note of the Company held by Ford Motor Credit
Company, a wholly-owned subsidiary of Ford ("FMCC"), was exchanged for $150
million of the Series B Preferred Stock of the Company, and a promissory note in
the amount of $18.5 million, owed by the Partnership to the Company was assumed
by Ford ("Ford Note"). In connection with these transactions, notes payable were
increased by $145 million, the Series A Preferred Stock was reduced by $104
million, and additional capital paid-in was reduced by $41 million; interest
expense was increased by $8.6 million and provision for taxes was decreased by
$3.0 million; and subordinated promissory notes were reduced by $150 million and
Series B Preferred Stock was increased by $150 million. The Ford Note was repaid
in 1996.
As of December 31, 1996, 100% of the Common Stock of the Company was owned by
Ford and 100% of the outstanding Preferred Stock was owned by FMCC.
F-8
<PAGE> 96
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The capital stock of the Company authorized, issued and outstanding as of
December 31, 1996, 1995 and 1994 is set forth below.
<TABLE>
<CAPTION>
--------------------------------------
PAR VALUE NUMBER OF SHARES
PER ISSUED AND
SHARE AUTHORIZED OUTSTANDING
--------- ---------- -----------
<S> <C> <C> <C>
Series A Preferred Stock:
Balance December 31, 1993................................ $100 4,500,000 3,400,000
Redemption in 1994....................................... -- (1,040,000)
--------- ----------
Balance December 31, 1994, 1995 and 1996................. $100 4,500,000 2,360,000
==== ========= ==========
Series B Preferred Stock
Balance December 31, 1993................................ $100 1,000,000 999,000
Issued in exchange for subordinated promissory note in
1994.................................................. 100 1,500,000 1,500,000
--------- ----------
Balance December 31, 1994, 1995 and 1996................. $100 2,500,000 2,499,000
==== ========= ==========
Class A Common Stock
Balance December 31, 1993, 1994, 1995 and 1996........... $ 1 200 200
==== ========= ==========
Class B Common Stock
Balance December 31, 1993................................ $ 1 800 311
Redemption in 1994....................................... -- (260)
--------- ----------
Balance December 31, 1994, 1995 and 1996................. $ 1 800 51
==== ========= ==========
Class C Common Stock
Balance December 31, 1993, 1994, 1995 and 1996........... $ 1 800 490
==== ========= ==========
</TABLE>
The holders of Series A Preferred Stock and Series B Preferred Stock are
entitled, when, as and if declared by the Board of Directors of the Company, to
cumulative annual dividends, but payable only out of funds legally available
therefor, compounded annually (if in arrears). The annual dividend rate through
December 31, 1998 is 10% for the Series A Preferred Stock and at various rates
which average 4.5% for the Series B Preferred Stock. Commencing January 1, 1999
the annual dividend rates for the Series A Preferred Stock and Series B
Preferred Stock are subject to adjustment and are reset on an annual basis. The
Series A Preferred Stock and the Series B Preferred Stock are redeemable by
their terms at the option of the Company at any time, and do not have any voting
rights, except that the holders of the Series A Preferred Stock shall have the
right to elect two directors in the event of default, and the holders of the
Series B Preferred Stock will be granted voting rights in the event of
significant and continuing net operating losses.
The holders of the Class A Common Stock and Class B Common Stock have one vote
per share and no special preferences. The holders of the Class C Common Stock
have one vote per share and have the right to designate three directors, until
such time as fewer than 40 shares thereof (adjusted for stock splits and the
like) shall be outstanding, provided, however, that the Class C Common Stock
shall in any event have 40% of the general voting power and the right to elect
not less than 40% of the members of such Board of Directors, until such time as
fewer than 40 shares thereof (as so adjusted) shall be outstanding. The Class C
Common Stock is convertible into Class B Common Stock on a share for share basis
at any time at the holder's option. Under certain circumstances, shares of Class
B Common Stock convert or are convertible into an equivalent number of shares of
Class A Common Stock.
F-9
<PAGE> 97
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Principles of Consolidation
The consolidated financial statements include the accounts of The Hertz
Corporation and its domestic and foreign subsidiaries. All significant
intercompany transactions are eliminated.
Consolidated Statement of Cash Flows
For purposes of this statement, the Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. See Merger, Change of Ownership and Capitalization for noncash
investing and financing activities.
Depreciable Assets
The provisions for depreciation and amortization are computed on a straight-line
basis over the estimated useful lives of the respective assets, as follows:
<TABLE>
<CAPTION>
Revenue Earning Equipment: --------------
<S> <C>
Cars...................................................... 3 to 6 years
Other equipment........................................... 3 to 11 years
Buildings................................................... 20 to 50 years
Leasehold improvements...................................... Term of lease
Service cars and service equipment.......................... 3 to 25 years
Franchises, concessions, contract costs and leaseholds...... 10 to 40 years
Cost in excess of net assets of purchased businesses........ 10 to 40 years
</TABLE>
Hertz follows the practice of charging maintenance and repairs, including the
cost of minor replacements, to maintenance expense accounts. Costs of major
replacements of units of property are charged to property and equipment accounts
and depreciated on the basis indicated above. Gains and losses on dispositions
of property and equipment are included in income as realized. Upon disposal of
revenue earning equipment, depreciation expense is adjusted for the difference
between the net proceeds from sale and the remaining book value.
Environmental Conservation
The use of automobiles and other cars is subject to various governmental
controls designed to limit environmental damage, including that caused by
emissions and noise. Generally, these controls are met by the manufacturer,
except in the case of occasional equipment failure requiring repair by Hertz. To
comply with environmental regulations, measures are being taken at certain
locations to reduce the loss of vapor during the fueling process and to maintain
and replace underground fuel storage tanks. Hertz is also incurring and
providing for expenses for the cleanup of fuel discharges and other alleged
violations of environmental laws arising from the disposition of waste products.
Hertz does not believe that it will be required to make any material capital
expenditures for environmental control facilities or to make any other material
expenditures to meet the requirements of governmental authorities in this area.
Liabilities for these expenditures are recorded when it is probable that
obligations have been incurred and the amounts can be reasonably estimated.
Public Liability and Property Damage
Provisions for public liability and property damage on self-insured domestic
claims and reinsured foreign claims are made by charges to expense based upon
evaluations of estimated ultimate liabilities on reported and unreported claims.
For its domestic operations, the Company is, where permitted by
F-10
<PAGE> 98
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
applicable local law, a qualified self-insurer against liability resulting from
accidents under certificates of self-insurance for financial responsibility in
all states wherein its vehicles are registered. The Company also self-insures
general public liability and property damage for all domestic operations. Since
July 1, 1987, all claims have been retained and borne by the Company up to a
limit of $5 million for each occurrence, and the Company has maintained
insurance with unaffiliated carriers in excess of $5 million up to $450 million
per occurrence.
For its foreign operations, the Company purchases insurance to comply with local
legal requirements. From January 1, 1993 through December 31, 1996, vehicle
liability insurance purchased locally from unaffiliated carriers by Company
owned operations in Europe was reinsured by Hertz International RE Limited, a
wholly-owned subsidiary of the Company operating as a reinsurer in Dublin,
Ireland. Hertz International RE Limited effectively responded to the first $1.5
million of motor vehicle liability for each accident during this period, with
excess liability insurance coverage maintained by the Company with unaffiliated
carriers. Effective January 1, 1997, the Company replaced an unaffiliated
carrier that was the fronted insurer for claims up to $1.5 million per
occurrence by establishing a wholly-owned subsidiary, Probus Insurance Company
Europe Limited ("Probus"), a direct writer domiciled in Dublin, Ireland. Probus
now underwrites the Company's European vehicle liability program (except in
Switzerland and Denmark) up to $1.5 million per occurrence. Excess coverage for
claims that exceed $1.5 million continues to be maintained with unaffiliated
carriers. In the Company's foreign operations other than Europe, the Company is
self insured at various amounts up to $100,000 per occurrence, and maintains
excess liability insurance coverage up to $450 million per occurrence with
unaffiliated carriers.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated at the rate of
exchange in effect on the balance sheet date; income and expenses are translated
at the average rate of exchange prevailing during the year. The related
translation adjustments are reflected in the stockholders' equity section of the
consolidated balance sheet. Foreign currency gains and losses resulting from
transactions are included in earnings.
Income Taxes
Effective April 30, 1994, the Company and its domestic subsidiaries are filing
consolidated Federal income tax returns with Ford. The Company and its domestic
subsidiaries filed consolidated Federal income tax returns after December 31,
1987; prior thereto, from September 1, 1985 to December 31, 1987 they were
included in the consolidated Federal income tax return of UAL, and prior thereto
in the consolidated Federal income tax return of RCA. The Company provides for
current and deferred taxes as if it filed a separate consolidated tax return
with its domestic subsidiaries, except that under a tax sharing arrangement with
Ford, the Company's right to reimbursement for foreign tax credits is determined
based on the usage of such foreign tax credits by the consolidated group. By
virtue of its controlling beneficial ownership of the Company, Ford effectively
controls all of the Company's tax decisions. The Company and its subsidiaries
account for investment tax credits under the flow-through method. As of December
31, 1996, U.S. income taxes have not been provided on $209 million in
undistributed earnings of subsidiaries that have been or are intended to be
permanently reinvested outside the United States or are expected to be remitted
free of taxes.
F-11
<PAGE> 99
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Advertising
Hertz is a party to a cooperative advertising agreement with Ford pursuant to
which Ford participates in some of the cost of certain of Hertz' advertising
programs in the United States and abroad which feature the Ford name or
products. The amounts contributed by Ford for the years ended December 31, 1996,
1995 and 1994 were (in millions) $45.4, $44.1 and $42.0, respectively. This
program is expected to continue in the future. The Company incurred advertising
expense for the years ended December 31, 1996, 1995 and 1994 of (in millions)
$148.0, $134.5 and $133.6, respectively.
Pension and Income Saving Plans
Qualified domestic employees, after completion of specified periods of service,
are eligible to participate in the Retirement Plan for the Employees of The
Hertz Corporation ("Hertz Retirement Plan") and in the Income Savings Plan of
The Hertz Corporation ("Hertz Income Savings Plan"). Payments are made to
pension plans of others pursuant to various collective bargaining agreements.
Under the Hertz Retirement Plan, the Company pays the entire cost and employees
are not required to contribute. For each plan year beginning January 1, 1996 and
thereafter, a qualified employee's cash balance account is credited with an
annual cash balance credit equal to: (a) 3% of his/her pensionable earnings for
that plan year in the case of a qualified employee who is credited with less
than 60 continuous months of service from his/her most recent date of hire, or
(b) 4% of his/her pensionable earnings for that plan year in the case of a
qualified employee who is credited with 60 or more continuous months of service
from his/her most recent date of hire. In the case of a qualified employee who
is first credited with 60 continuous months of service after January 1 of a plan
year, the percentage of his/her pensionable earnings utilized in determining
his/her annual cash balance credit for that plan year shall be increased to 4%
effective as of the first day of the month coincident with or next following
his/her completion of 60 continuous months of service from his/her most recent
date of hire. This benefit is credited with guaranteed interest rates compounded
annually based on rates issued by the Pension Benefit Guaranty Corporation in
effect for the preceding December. In addition, all qualified employees age 50
or over with 10 or more years of credited service as of July 1, 1987, will have
an additional amount of their pensionable earnings credited to their account.
Hertz' funding policy is to contribute at least the minimum amount required by
the Employee Retirement Income Security Act of 1974.
Under the Hertz Income Savings Plan, the Company contributes 50% of the first 6%
of the employee's contribution for a maximum match contribution by the Company
of 3% of the employee's base salary.
Most of the Company's foreign subsidiaries have defined benefit retirement plans
or are required to participate in government plans. These plans are all funded,
except in Germany, where an unfunded liability is recorded. In certain
countries, when the subsidiaries make the required funding payments, they have
no further obligations under such plans.
Impairment of Long-Lived Assets and Certain Identifiable Intangibles
The Company evaluates the carrying value of goodwill for potential impairment on
an ongoing basis. Such evaluations compare operating income before amortization
of goodwill to the amortization recorded for the operations to which the
goodwill relates. The Company also considers projected future operating results,
trends and other circumstances in making such estimates and evaluations. In
addition, the Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable.
F-12
<PAGE> 100
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Use of Estimates and Assumptions
Use of estimates and assumptions as determined by management is required in the
preparation of consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those estimates
and assumptions. Certain amounts for prior periods have been reclassified to
conform with 1996 presentations.
NOTE 2 -- DEBT
Debt of the Company and its subsidiaries (in thousands of dollars) consists of
the following:
<TABLE>
<CAPTION>
-----------------------
DECEMBER 31
1996 1995
---------- ----------
<S> <C> <C>
Notes payable, including commercial paper, average interest
rate: 1996, 5.6%; 1995, 5.8%.............................. $1,498,002 $1,036,413
Promissory notes, average interest rate: 1996, 7.3%; 1995,
7.6% (effective average interest rate: 1996, 7.4%; 1995,
7.7%); net of unamortized discount: 1996, $3,602; 1995,
$3,019; due 1997 to 2005.................................. 1,941,398 1,694,641
Property and equipment lease obligations, average interest
rate: 1996, 7.5%; 1995, 7.9%; due 1997 to 1998............ 2,554 3,602
Medium-term notes, average interest rate: 1996, 9.3%; 1995,
9.4%; due 1997............................................ 75,300 119,175
Senior subordinated promissory notes, average interest rate:
1996, 9.7%; 1995, 9.5% (effective average interest rate:
1996, 9.8%; 1995, 9.6%); net of unamortized discount:
1996, $172; 1995, $313; due 1997 to 1998.................. 149,828 249,687
Junior subordinated promissory notes, average interest rate
6.9%; net of unamortized discount: 1996, $244; 1995, $286;
due 2000 to 2003.......................................... 399,756 399,714
Subsidiaries' debt:
Short-term borrowings --
Banks, average interest rate: 1996, 5.1%; 1995, 6.0%,
in foreign currencies................................. 782,765 684,634
Commercial paper, average interest rate: 1996, 6.2%;
1995, 5.8%, in foreign currencies..................... 141,805 11,357
Others, average interest rate: 1996, 2.7%; 1995, 3.7%,
in foreign currencies................................. 56,518 51,200
Other borrowings, average interest rate: 1996, 7.4%; 1995,
7.0%; in foreign currencies............................ 43,918 47,061
---------- ----------
Total....................................................... $5,091,844 $4,297,484
========== ==========
</TABLE>
The aggregate amounts of maturities of debt, in millions, are as follows: 1997,
$2,718.9 (including $2,478.9 of commercial paper, demand and other short-term
borrowings); 1998, $374.5; 1999, $451.1; 2000, $249.8; 2001, $398.9; after 2001,
$898.6. Included in these maturities at the earliest possible redemption date
are the following promissory notes of the Company which have put options that
can be exercised by the holders of such notes as follows: $5 million at 9.3% due
in 2005, that can be redeemed at the option of the holders in 1997; $25 million
at 9% due in 2000, that can be redeemed at the option of the holders in 1997,
1998 or 1999; $100 million at 9% due 2009, that can be redeemed at the option of
the holders in 1999; and $150 million at 6.3% due 2006, that can be redeemed at
the option of the holders in 2002.
F-13
<PAGE> 101
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- DEBT -- (CONTINUED)
The Company and its subsidiaries have entered into arrangements to manage
exposures to fluctuations in interest rates. See Note 13 -- Financial
Instruments.
During the year ended December 31, 1996, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $2,129.2 commercial paper, $838.1
banks and $137.2 other; monthly average amounts outstanding $1,615.9 commercial
paper (weighted average interest rate 5.6%), $754.2 banks (weighted average
interest rate 5.3%) and $91.1 other (weighted average interest rate 2.5%).
During the year ended December 31, 1995, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $1,853.8 commercial paper, $1,083.5
banks and $193.5 other; monthly average amounts outstanding $1,292.6 commercial
paper (weighted average interest rate 6.1%), $828.2 banks (weighted average
interest rate 6.4%) and $108.6 other (weighted average interest rate 4.3%).
During the year ended December 31, 1994, short-term borrowings, in millions,
were as follows: maximum amounts outstanding $1,021.3 commercial paper, $1,247.6
banks and $194.1 other; monthly average amounts outstanding $659.9 commercial
paper (weighted average interest rate 4.9%), $975.5 banks (weighted average
interest rate 5.8%) and $95.5 other (weighted average interest rate 5.3%).
The net amortized discount charged to interest expense for the years ended
December 31, 1996, 1995 and 1994 relating to debt and other liabilities, in
millions, was $.9, $.9, and $1.3, respectively. In addition, interest expense,
in millions, for the years 1995, and 1994 was reduced by $1.3 and $1.6,
respectively, of interest income, relating to refunds of prior years' state,
local and federal income taxes.
In 1996, the Company renewed the following two committed bank facilities with a
group of thirty-one commercial banks, which will be utilized to support
commercial paper and other short-term borrowings in the aggregate amount of
$2.08 billion: (i) five year credit agreement for $1.185 billion is committed
until June 30, 2001. The termination date is automatically extended for an
additional one-year period each June 30, unless the bank gives notice to the
contrary. A facility fee of .09% per annum is payable on the entire commitment
amount; and (ii) 364-day credit agreement for $895 million, renewed in June
1996, is committed through June 25, 1997. A facility fee of .0625% per annum is
payable on the entire commitment amount.
The Company also entered into a revolving loan agreement with Ford on June 8,
1994 under which the Company could borrow from Ford from time to time up to $250
million outstanding. See Note 14 -- Subsequent Events. Obligations of the
Company under this agreement would rank pari passu with the Company's senior
debt securities. A commitment fee of .09% per annum is payable on the unused
available credit. In addition, at December 31, 1996, the Company and a
subsidiary had $269 million of outstanding loans from Ford.
The Company had consolidated unused committed lines of credit subject to
customary terms and conditions, which includes unused amounts under the three
facilities indicated above, of approximately $2.4 billion at December 31, 1996.
The Company maintains a Sales Agency Agreement with Ford Financial Services,
Inc., an NASD registered broker-dealer and an indirect, wholly-owned subsidiary
of Ford ("FFS"), whereby FFS acts as the exclusive dealer for the Company's
domestic commercial paper program. The Company pays fees to FFS which range from
.035% to .05% per annum of commercial paper placed depending upon the monthly
average dollar value of the notes outstanding in the portfolio. In 1996, the
Company paid FFS $556,754 of such fees. FFS is under no obligation to purchase
any of the notes for its own account. FFS has acted as the Company's exclusive
commercial paper dealer since October 1994, and the Sales Agency Agreement may
not be amended or terminated without the written consent of both parties. The
F-14
<PAGE> 102
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- DEBT -- (CONTINUED)
Company, through its subsidiary Hertz Australia Pty. Limited ("Hertz
Australia"), has a similar agreement with Ford Credit Australia Limited, also an
indirect, wholly-owned subsidiary of Ford Motor Company.
The terms of the Company's loan agreements limit the payment of cash dividends.
At December 31, 1996, approximately $331 million of consolidated stockholders'
equity was free of such limitations.
NOTE 3 -- FOREIGN CURRENCY
Foreign currency exchange gains and losses included in net income were net gains
of $3.4 million, $2.0 million and $1.2 million for the years ended December 31,
1996, 1995 and 1994, respectively.
NOTE 4 -- AVAILABLE-FOR-SALE SECURITIES
As of December 31, 1996, Prepaid Expenses and Other Assets in the consolidated
balance sheet include available-for-sale securities at fair value (in thousands)
of $5,405 (cost $5,432). The fair value is calculated using information provided
by outside quotation services. These securities include various governmental and
corporate debt obligations, with the following maturity dates (in thousands):
fair value $113 (cost $116) in 1997; fair value $4,373 (cost $4,376) 1998
through 2002; fair value $899 (cost $929) 2003 through 2012; $20 fair value
(cost $11) after 2012. For the year ended December 31, 1996, proceeds of $6.4
million from the sale of available-for-sale securities were received, and a
gross realized gain of $105,813 and gross realized loss of $134,474 were
included in earnings. Actual cost was used in computing the realized gain and
loss on the sale. For the year ended December 31, 1996, unrealized holding
losses and unrealized holding gains, net of taxes, included in Stockholders'
Equity were $62,000 and $37,000, respectively.
NOTE 5 -- PURCHASES AND SALES OF OPERATIONS
In June 1996, the Company acquired all of the capital stock of a foreign
licensee car rental and leasing operation and the assets of a domestic car
rental operation. In February 1996, the Company acquired the assets of a
domestic construction equipment rental operation. The costs related to these
acquisitions exceeded the net assets acquired by $6.1 million.
In May 1996, the Company sold certain of its claim administration service
operations effective February 29, 1996, which included the administration of
workers' compensation claims and other related services, and health related
benefit claims. The net proceeds from the sale approximated $15.3 million, which
exceeded its book value by approximately $3 million. The total assets of these
operations at February 29, 1996 were $15.5 million and revenues for the year
ended December 31, 1995 were $31.0 million, with negligible net income.
Therefore, the Company believes that this transaction will not have a material
effect on its financial position or results of operations.
On July 31, 1994, Axus, S.A., a car leasing company of the Company which
operates in various countries in Europe, acquired an additional interest in
Locaplan S.A., a car leasing operation in France, increasing its ownership from
50% to 100%. The cost relating to this acquisition approximated $2.3 million,
which exceeded the net assets acquired by approximately $2.2 million. Commencing
in August 1994, the accounts of this operation have been included in the
consolidated financial statements of the Company, which did not have a material
effect on the Company's consolidated financial position or results of
operations. These operations were sold by the Company effective January 1, 1995
to Hertz Leasing International, Inc. ("HLI"), at an amount equal to its book
value of approximately $61 million. HLI is an indirect, wholly-owned subsidiary
of Ford. For additional consideration payable over five
F-15
<PAGE> 103
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- PURCHASES AND SALES OF OPERATIONS -- (CONTINUED)
years, except for Australia, New Zealand and Brazil, Ford has received the
worldwide rights (subject to certain existing license rights) to use and
sublicense others to use the "Hertz" name in the conduct of car leasing
businesses -- $9.3 million was received in each of the years 1996 and 1995. The
unaudited total assets as of December 31, 1994 and unaudited total revenues and
net income for the year ended December 31, 1994 of the Company's European car
leasing and car dealership operations were (in millions) $482, $295 and $6,
respectively. This transaction did not have a material effect on the Company's
financial position or results of operations.
At December 31, 1996, a foreign subsidiary of the Company had $10.9 million of
loans receivable including related interest from foreign subsidiaries of HLI,
which mature in 1997.
In connection with the acquisition of the Company by Park Ridge in December 1987
and UAL in August 1985, the excess of the purchase price over the consolidated
equity of the Company at the time of these purchases was $658.3 million. These
costs are being amortized by the Company over 40 years. The unamortized amount
of such costs at December 31, 1996 was $501.3 million.
NOTE 6 -- PENSION AND INCOME SAVINGS PLAN AND POSTRETIREMENT BENEFIT PLANS
The following tables set forth the funded status and the net periodic pension
cost of the Hertz Retirement Plan covering its domestic ("U.S.") employees and
the retirement plans for foreign
F-16
<PAGE> 104
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PENSION AND INCOME SAVINGS PLAN AND POSTRETIREMENT BENEFIT PLANS --
(CONTINUED)
operations ("Non-U.S.") and amounts included in the consolidated balance sheet
and statement of income (in millions of dollars):
<TABLE>
<CAPTION>
-----------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
U.S. NON-U.S. U.S. NON-U.S.
------- -------- ------ --------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit
obligation --
Vested................................................ $ (73.7) $(34.1) $(62.6) $(27.9)
Nonvested............................................. (8.9) (4.8) (8.4) (3.7)
------- ------ ------ ------
Total.............................................. $ (82.6) $(38.9) $(71.0) $(31.6)
======= ====== ====== ======
Actuarial present value of projected benefit
obligation............................................ $(111.4) $(49.3) $(98.9) $(37.3)
Plan assets at fair value............................... 101.1 32.5 90.4 25.5
------- ------ ------ ------
Projected benefit obligation in excess of plan assets... (10.3) (16.8) (8.5) (11.8)
Unrecognized net (gain) loss............................ (20.0) 9.9 (14.2) 5.0
Prior service cost not yet recognized in net periodic
pension cost.......................................... -- -- .2 --
Remaining unrecognized net obligation................... 1.0 -- 1.3 --
------- ------ ------ ------
Pension liability included in the balance sheet......... $ (29.3) $ (6.9) $(21.2) $ (6.8)
======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------------------ ------------------ -----------------
U.S. NON-U.S. U.S. NON-U.S. U.S. NON-U.S.
------ -------- ------ -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost -- benefits earned during
the period............................ $ 8.0 $ 4.0 $ 5.3 $ 2.2 $ 6.4 2.3
Interest cost on projected benefit
obligation............................ 7.0 2.3 6.1 2.1 7.2 1.5
Return on assets:
Actual (gain) loss.................... (14.1) (1.9) (21.3) (1.5) .7 (1.5)
Deferred gain (loss).................. 7.5 -- 15.4 -- (6.1) --
Net amortization and deferral........... .8 -- .2 .1 1.8 .1
------ ----- ------ ----- ----- -----
Net periodic pension cost included in
the income statement.................. $ 9.2 $ 4.4 $ 5.7 $ 2.9 $10.0 $ 2.4
====== ===== ====== ===== ===== =====
</TABLE>
Significant assumptions used for the U.S. plan were as follows: weighted average
discount rate of 7.25% at December 31, 1996, 7.0% during 1996 (8.25% during 1995
and 7% during 1994); 5.5% rate of increase in future compensation levels (5.1%
for 1995 and 5.5% for 1994); and expected long-term rate of return on assets of
9%. Assumptions used for the Non-U.S. plans vary by country and are made in
accordance with local conditions, but do not vary materially from those used in
the U.S. plan. Plan assets consist principally of investments in stocks,
government bonds and other fixed income securities.
The provisions charged to income for the years ended December 31, 1996, 1995 and
1994 for all other pension plans were approximately (in millions) $6.7, $6.1 and
$6.0, respectively.
The provisions charged to income for the years ended December 31, 1996, 1995 and
1994 for the Hertz Income Savings Plan were approximately (in millions) $3.8,
$3.4 and $3.0, respectively.
F-17
<PAGE> 105
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PENSION AND INCOME SAVINGS PLAN AND POSTRETIREMENT BENEFIT PLANS --
(CONTINUED)
The estimated cost for postretirement health care and life insurance benefits is
accrued on an actuarially determined basis. The following sets forth the plans'
status, reconciled with the amounts included in the consolidated balance sheet
and statement of income (in millions):
<TABLE>
<CAPTION>
------------
DECEMBER 31
ACTUARIAL PRESENT VALUE OF ACCUMULATED BENEFIT OBLIGATION -- 1996 1995
- ------------------------------------------------------------ ---- ----
<S> <C> <C>
Retirees.................................................... $1.8 $1.7
Active employees eligible to retire....................... 2.0 3.0
Other active employees.................................... 4.3 3.5
---- ----
Total accumulated benefit obligation...................... 8.1 8.2
Unrecognized net gain..................................... 1.0 .3
---- ----
Accrued liability included in the balance sheet........... $9.1 $8.5
==== ====
</TABLE>
<TABLE>
<CAPTION>
--------------------
YEARS ENDED
DECEMBER 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Benefits attributed to employees' service................... $.3 $ .2 $ .2
Interest on accumulated benefit obligation.................. .5 .5 .4
Amortization of net gain.................................... -- (.1) (.3)
--- ---- ----
Net periodic postretirement benefit cost............... $.8 $ .6 $ .3
=== ==== ====
</TABLE>
The significant assumptions used for the postretirement benefit plans were as
follows: weighted average discount rate of 7.5% at December 31, 1996, 7.25%
during 1996 (8.75% in 1995 and 7.5% in 1994), 5.5% rate of increase in future
compensation levels (5.3% in 1995 and 5.5% in 1994), 7.5% weighted average
health care cost trend rate through 2001 (8.3% in 1995 and 9% in 1994), and 6.7%
weighted average trend rate in ten years (7.5% in 1995 and 8% in 1994). Changing
the assumed health care cost trend rates by one percentage point in each year
would change the accumulated postretirement benefit obligation as of December
31, 1996 by approximately $555,000, and the aggregate service and interest cost
components of net periodic postretirement benefit cost for 1996 by approximately
$90,000.
NOTE 7 -- REVENUE EARNING EQUIPMENT
Revenue earning equipment is used in the rental of cars and industrial and
construction equipment and the leasing of cars under closed-end leases where the
disposition of the cars upon termination of the lease is for the account of
Hertz. Revenue is recorded as earned under the terms of the rental or leasing
contract. Revenue on open contracts is accrued to the balance sheet date based
on the terms in the contracts. Expenses are recorded as incurred. Over the three
years ended December 31, 1996, on a weighted average basis, approximately 66% of
the cars acquired by the Company for its U.S. rental car fleet, and
approximately 33% of the cars acquired by the Company for its international
fleet, were manufactured by Ford. During 1996, approximately 64% of the cars
acquired by the Company domestically were manufactured by Ford. The percentage
of Ford cars acquired by the Company 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 Company for its international fleet were manufactured
by Ford, which represented the largest percentage of any automobile manufacturer
in that year.
Under operating leases, aggregate minimum future rentals for cars leased at
December 31, 1996 are receivable approximately as follows (in millions): $25 in
1997, $15 in 1998, $6 in 1999, and $1 in
F-18
<PAGE> 106
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- REVENUE EARNING EQUIPMENT -- (CONTINUED)
2000. Cars under lease at December 31, 1996 which are owned by Hertz amounted to
$95 million, net of accumulated depreciation of $25 million.
The average holding periods of cars and other revenue earning equipment are as
follows: cars used in the car rental business, 5 to 12 months; cars used in the
car leasing business, 36 months; and equipment used in the industrial and
construction equipment rental business, 24 to 60 months. At December 31, 1996,
the average ages of owned cars and other revenue earning equipment are as
follows: cars used in the rent a car business, 7 months; cars used in the car
leasing business, 19 months; and equipment used in the industrial and
construction equipments rental business, 19.7 months. At December 31, 1996, the
Company was subject to residual risk with respect to 17% of all cars in its
worldwide car rental and leasing operations and 100% of the equipment in the
industrial and construction equipment rental business.
Depreciation of revenue earning equipment includes the following (in thousands
of dollars):
<TABLE>
<CAPTION>
--------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Depreciation of revenue earning equipment.................. $904,504 $753,999 $651,413
Adjustment of depreciation upon disposal of the
equipment............................................. (23,221) (6,356) (22,983)
Rents paid for vehicles leased............................. 11,395 56,219 74,214
-------- -------- --------
Total................................................. $892,678 $803,862 $702,644
======== ======== ========
</TABLE>
Effective July 1, 1994, certain lives being used to compute the provision for
depreciation of revenue earning equipment used in the Company's industrial and
construction equipment rental business were increased to reflect changes in the
estimated residual values to be realized when the equipment is sold. As a result
of this change, depreciation of revenue earning equipment for the years 1995 and
1994 were decreased by $12.0 million and $9.6 million, respectively.
The adjustment of depreciation upon disposal of revenue earning equipment for
the years ended December 31, 1996, 1995, and 1994 included (in millions) net
gains of $20.7, $13.8 and $13.2, respectively, on the sale of industrial and
construction equipment, net gains of $2.5, net losses of $7.5 and net gains of
$9.8, respectively, on the sale of cars used in the rent a car and car leasing
operations.
In view of the favorable market conditions in 1995 and 1996 for the sale of used
equipment in the industrial and construction equipment rental business,
effective January 1, 1997, certain estimated useful lives being used to compute
the provision for depreciation will be increased to reflect the anticipated
changes in the estimated residual values to be realized when the equipment is
sold. This should result in lower annual depreciation charges and lower gains on
the disposal of the used equipment than has been the case in 1996 and 1995.
As of December 31, 1996 and 1995, Ford owed the Company and its subsidiaries
$445.1 million and $358.6 million, respectively, in connection with various car
repurchase and warranty programs. As of December 31, 1996 and 1995, the Company
and its subsidiaries owed Ford $26.6 million and $9.4 million, respectively
(which amounts are included in Accounts Payable in the consolidated balance
sheet) in connection with cars purchased. These transactions were made and are
being paid in the ordinary course of business.
During the year ended December 31, 1996, the Company purchased Ford cars at a
cost of approximately $4.3 billion, and sold these cars to Ford or its
affiliates under various repurchase programs for approximately $3.2 billion.
F-19
<PAGE> 107
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- TAXES ON INCOME
The provision for taxes on income consists of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
----------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Current:
Federal................................................... $31,360 $ 10,381 $38,797
Foreign................................................... 18,832 29,422 20,016
State and local........................................... 8,758 (1,165) 8,236
------- -------- -------
Total current........................................ 58,950 38,638 67,049
------- -------- -------
Deferred:
Federal................................................... 23,772 35,577 2,027
Foreign................................................... 6,228 (11,577) (127)
State and local........................................... 9,000 4,500 2,800
------- -------- -------
Total deferred....................................... 39,000 28,500 4,700
------- -------- -------
Total provision...................................... $97,950 $ 67,138 $71,749
======= ======== =======
</TABLE>
The principal items in the deferred tax provision (benefit) are as follows (in
thousands of dollars):
<TABLE>
<S> <C> <C> <C>
Difference between tax and book depreciation................ $ 64,176 $ 34,790 $ 9,234
Accrued and prepaid expense deducted for tax purposes when
paid or incurred.......................................... (39,427) 13,671 (14,517)
Tax operating loss utilized (carryforwards)................. (7,217) 1,507 (2,636)
Federal alternative minimum tax credit utilized
(carryforwards)........................................... 10,217 (10,217) 1,072
Foreign tax credit utilized (carryforwards)................. 11,251 (11,251) --
Investment tax credit utilized.............................. -- -- 11,547
-------- -------- --------
Total deferred provision............................... $ 39,000 $ 28,500 $ 4,700
======== ======== ========
</TABLE>
The principal items in the deferred tax liability at December 31, 1996 and 1995
are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Difference between tax and book depreciation................ $ 309,368 $ 245,192
Accrued and prepaid expense deducted for tax purposes when
paid or incurred.......................................... (148,526) (109,099)
Tax operating loss carryforwards............................ (12,626) (5,409)
Foreign tax credit carryforwards............................ -- (11,251)
Federal alternative minimum tax credit carryforwards........ (31,416) (41,633)
--------- ---------
Total.................................................. $ 116,800 $ 77,800
========= =========
</TABLE>
The tax operating loss carryforwards at December 31, 1996 of $12.6 million
relate to certain foreign operations and have the following expiration dates (in
millions): $1.0 in 2001, $.2 in 2002, $.2 in 2006, and $11.2 with no expiration
dates. It is anticipated that such operations will become profitable in the
future and the carryforwards will be fully utilized.
As of December 31, 1996, the alternative minimum tax credit carryforwards of
$31.4 million (which have no expiration date) will be utilized upon reversal of
timing differences and against future taxable income.
F-20
<PAGE> 108
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- TAXES ON INCOME -- (CONTINUED)
The principal items accounting for the difference in taxes on income computed at
the U.S. statutory rate of 35% and as recorded are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Computed tax at statutory rate.............................. $ 89,799 $60,320 $56,991
State and local income taxes, net of Federal income tax
benefit................................................... 11,543 2,168 7,173
Tax effect on the amortization of the cost in excess of the
Company's net assets acquired by Park Ridge and UAL....... 5,762 5,764 5,760
Adjustments made to tax accruals in connection with tax
audit evaluations and the effects of prior years' tax
sharing arrangements between companies, UAL and RCA....... (13,945) -- (1,511)
Income taxes on foreign earnings at effective rates
different from the U.S. statutory rate, including the
anticipated realization of certain foreign tax benefits
and the effect of subsidiaries' gains and losses and
exchange adjustments with no tax effect................... 5,937 (3,890) 1,987
All other items, net, none of which exceeded 5% of computed
tax....................................................... (1,146) 2,776 1,349
-------- ------- -------
Total provision........................................ $ 97,950 $67,138 $71,749
======== ======= =======
</TABLE>
NOTE 9 -- LEASE AND CONCESSION AGREEMENTS
Hertz has various concession agreements which provide for payment of rents and a
percentage of revenue with a guaranteed minimum and real estate leases under
which the following amounts were expensed (in thousands of dollars):
<TABLE>
<CAPTION>
------------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Rents...................................................... $ 47,328 $ 49,903 $ 50,066
Concession fees:
Minimum fixed obligations................................ 123,014 121,632 114,920
Additional amounts, based on revenues.................... 131,904 121,461 107,685
-------- -------- --------
Total................................................. $302,246 $292,996 $272,671
======== ======== ========
</TABLE>
As of December 31, 1996, minimum obligations under existing agreements referred
to above are approximately as follows (in thousands of dollars):
<TABLE>
<CAPTION>
----------------------
RENTS CONCESSIONS
-------- -----------
<S> <C> <C>
Years ended December 31,
1997...................................................... $ 41,492 $90,128
1998...................................................... 36,638 66,049
1999...................................................... 30,726 45,970
2000...................................................... 26,363 29,577
2001...................................................... 23,178 13,187
Years after 2001............................................ 130,531 46,242
</TABLE>
F-21
<PAGE> 109
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LEASE AND CONCESSION AGREEMENTS -- (CONTINUED)
In addition to the above, Hertz has various leases on cars and office and
computer equipment under which the following amounts were expensed (in thousands
of dollars):
<TABLE>
<CAPTION>
---------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cars........................................................ $11,395 $56,219 $74,214
Office and computer equipment............................... 21,772 23,965 23,679
------- ------- -------
Total.................................................. $33,167 $80,184 $97,893
======= ======= =======
</TABLE>
As of December 31, 1996, minimum obligations under existing agreements referred
to above that have a maturity of more than one year are as follows (in
thousands): office and computer equipment 1997, $8,279; 1998, $4,784; 1999,
$1,514; 2000, $66; 2001, $8.
NOTE 10 -- SEGMENT INFORMATION
The Company's business consists of two significant segments: Rental and leasing
of automobiles and certain other activities ("car rental"); and rental of
industrial, construction and materials handling equipment ("industrial and
construction equipment rental"). The contributions of these segments to other
financial data are summarized as follows (in millions of dollars):
<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues
Car rental................................................ $ 3,276 $ 3,068 $ 3,031
Industrial and construction equipment rental.............. 392 333 263
------- ------- -------
Total................................................... $ 3,668 $ 3,401 $ 3,294
======= ======= =======
Depreciation of revenue earning equipment
Car rental................................................ $ 815 $ 746 $ 663
Industrial and construction equipment rental.............. 78 58 40
------- ------- -------
Total................................................... $ 893 $ 804 $ 703
======= ======= =======
Depreciation of property and equipment
Car rental................................................ $ 71 $ 71 $ 61
Industrial and construction equipment rental.............. 11 9 8
------- ------- -------
Total................................................... $ 82 $ 80 $ 69
======= ======= =======
Amortization of intangibles
Car rental................................................ $ 18 $ 20 $ 19
Industrial and construction equipment rental.............. -- -- --
------- ------- -------
Total................................................... $ 18 $ 20 $ 19
======= ======= =======
Operating income (pre-tax income before interest)
Car rental................................................ $ 421 $ 356 $ 353
Industrial and construction equipment rental.............. 134 123 87
------- ------- -------
Total................................................... $ 555 $ 479 $ 440
======= ======= =======
Income before income taxes
Car rental................................................ $ 166 $ 87 $ 107
Industrial and construction equipment rental.............. 91 85 56
------- ------- -------
Total................................................... $ 257 $ 172 $ 163
======= ======= =======
Total assets at end of year
Car rental................................................ $ 6,779 $ 5,993 $ 6,023
Industrial and construction equipment rental.............. 870 664 498
------- ------- -------
Total................................................... $ 7,649 $ 6,657 $ 6,521
======= ======= =======
</TABLE>
F-22
<PAGE> 110
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenue earning equipment, net, at end of year
Car rental................................................ $ 4,318 $ 3,627 $ 3,854
Industrial and construction equipment rental.............. 718 543 406
------- ------- -------
Total................................................... $ 5,036 $ 4,170 $ 4,260
======= ======= =======
Revenue earning equipment and property and equipment
Car rental
Expenditures............................................ $ 8,006 $ 7,144 $ 6,789
Proceeds from sale...................................... (6,386) (6,122) (4,718)
------- ------- -------
Net expenditures...................................... $ 1,620 $ 1,022 $ 2,071
======= ======= =======
Industrial and construction equipment rental
Expenditures............................................ $ 378 $ 290 $ 235
Proceeds from sale...................................... (104) (76) (65)
------- ------- -------
Net expenditures...................................... $ 274 $ 214 $ 170
======= ======= =======
</TABLE>
The Company operates in the United States and in foreign countries. The
operations within major geographic areas are summarized as follows (in millions
of dollars):
<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues
United States............................................. $ 2,723 $ 2,510 $ 2,258
Foreign operations (substantially Europe)................. 945 891 1,036
------- ------- -------
Total................................................... $ 3,668 $ 3,401 $ 3,294
======= ======= =======
Depreciation of revenue earnings equipment
United States............................................. $ 789 $ 717 $ 540
Foreign operations (substantially Europe)................. 104 87 163
------- ------- -------
Total................................................... $ 893 $ 804 $ 703
======= ======= =======
Depreciation of property and equipment
United States............................................. $ 63 $ 60 $ 51
Foreign operations (substantially Europe)................. 19 20 18
------- ------- -------
Total................................................... $ 82 $ 80 $ 69
======= ======= =======
Amortization of intangibles
United States............................................. $ 17 $ 19 $ 18
Foreign operations (substantially Europe)................. 1 1 1
------- ------- -------
Total................................................... $ 18 $ 20 $ 19
======= ======= =======
Operating income (pre-tax income before interest)
United States............................................. $ 451 $ 357 $ 315
Foreign operations (substantially Europe)................. 104 122 125
------- ------- -------
Total................................................... $ 555 $ 479 $ 440
======= ======= =======
Income before income taxes
United States............................................. $ 196 $ 98 $ 94
Foreign operations (substantially Europe)................. 61 74 69
------- ------- -------
Total................................................... $ 257 $ 172 $ 163
======= ======= =======
Total assets at end of year
United States............................................. $ 5,805 $ 4,971 $ 4,762
Foreign operations (substantially Europe)................. 1,844 1,686 1,759
------- ------- -------
Total................................................... $ 7,649 $ 6,657 $ 6,521
======= ======= =======
Revenue earning equipment, net, at end of year
United States............................................. $ 3,997 $ 3,240 $ 3,119
Foreign operations (substantially Europe)................. 1,039 930 1,141
------- ------- -------
Total................................................... $ 5,036 $ 4,170 $ 4,260
======= ======= =======
</TABLE>
F-23
<PAGE> 111
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenue earning equipment and property and equipment
United States
Expenditures............................................ $ 6,011 $ 5,413 $ 5,226
Proceeds from sale...................................... (4,360) (4,452) (3,405)
------- ------- -------
Net expenditures...................................... $ 1,651 $ 961 $ 1,821
======= ======= =======
Foreign operations (substantially Europe)
Expenditures............................................ $ 2,373 $ 2,021 $ 1,798
Proceeds from sale...................................... (2,130) (1,746) (1,378)
------- ------- -------
Net expenditures...................................... $ 243 $ 275 $ 420
======= ======= =======
</TABLE>
NOTE 11 -- LITIGATION
In July 1996, the Company was sued in Harris County, Texas District Court in a
purported class action in which this plaintiff alleges that the Company's
practice of providing certain insurance products violates the Texas Insurance
Code because the Company did not obtain approval to sell insurance or obtain
regulatory approval of the premiums it charges. The complaint seeks restitution
of excessive premiums, equitable rescission of all insurance contracts entered
into by the class members, a declaratory judgment that the Company is selling
insurance illegally in Texas and injunctive relief. While it is possible that
the action could result in significant liability to the Company, the Company
does not expect the action to have a material adverse effect on the Company's
consolidated financial position or results of operations.
The U.S. Department of Labor has commenced an inquiry into the Company's
classification of certain employees as "exempt" for purposes of federal labor
laws and whether such employees have been improperly denied overtime pay. While
an adverse outcome of the inquiry could have an adverse effect on the Company's
results of operations for the quarter in which it occurs, the Company does not
believe that an adverse outcome would have a material adverse effect on the
Company's results of operations for a full year, or on the Company's
consolidated financial position.
Since 1992, in the Company's New York region (which includes parts of New Jersey
and Connecticut), the Company has been assessing higher rental rates for renters
who reside in the New York City boroughs of The Bronx, Brooklyn or Queens to
offer costs resulting from a higher incidence of accidents involving renters
residing in such boroughs. The City of New York passed an ordinance prohibiting
such pricing practice. The Company filed suit against The City of New York
claiming that such ordinance was in violation of federal anti-trust laws. The
Company's claim was rejected in U.S. District Court, and the Company appealed to
the U.S. Court of Appeals for the Second Circuit. That Court remanded the
proceeding to the U.S. District Court for trial. Pending the outcome of the
action in the U.S. District Court, the Court has stayed the ordinance,
permitting the Company to continue its pricing practice. If the Company is
ultimately unsuccessful in challenging the ordinance, the Company believes it
could take actions to mitigate the higher costs that would be experienced from
such rentals. Accordingly, the Company believes that an adverse outcome would
not have a material adverse effect on the Company's consolidated financial
position or results of operations.
In addition to the foregoing, various legal actions, claims and governmental
inquiries and proceedings are pending or may be instituted or asserted in the
future against the Company and its subsidiaries. Litigation is subject to many
uncertainties, and the outcome of the individual litigated matters is not
predictable with assurance. It is possible that certain of the actions, claims,
inquiries or proceedings, including those discussed above, could be decided
unfavorably to the Company or the subsidiary involved. Although the amount of
liability with respect to these matters cannot be ascertained, potential
F-24
<PAGE> 112
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- LITIGATION -- (CONTINUED)
liability in excess of related accruals is not expected to materially affect the
consolidated financial position or results of operations of the Company.
NOTE 12 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of the quarterly operating results during 1996 and 1995 were as
follows (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------
OPERATING INCOME INCOME (LOSS)
(PRETAX INCOME BEFORE INCOME NET INCOME
REVENUES BEFORE INTEREST) TAXES (LOSS)
-------- ---------------- ------------- ----------
<S> <C> <C> <C> <C>
1996
First quarter......................... $ 803,142 $ 82,487 $ 15,172 $ 8,788
Second quarter........................ 911,401 144,260 69,284 39,545
Third quarter......................... 1,060,028 219,943 138,249 74,208
Fourth quarter........................ 893,812 108,679 33,864 36,078
---------- -------- -------- --------
Total Year......................... $3,668,383 $555,369 $256,569 $158,619
========== ======== ======== ========
1995
First quarter......................... $ 735,679 $ 69,705 $ (646) $ (365)
Second quarter........................ 858,555 115,089 34,515 19,637
Third quarter......................... 989,756 194,070 109,584 65,092
Fourth quarter........................ 816,598 100,553 28,891 20,842
---------- -------- -------- --------
Total Year......................... $3,400,588 $479,417 $172,344 $105,206
========== ======== ======== ========
</TABLE>
The tax provision in the fourth quarter of 1996 includes credits of $13.9
million resulting from adjustments made to tax accruals in connection with tax
audit evaluations and the effects of prior years' tax sharing arrangements
between the Company and its former parent companies, UAL and RCA.
Effective July 1, 1994, certain 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 when the equipment is sold. As a result
of this change, pre-tax income before interest includes credit adjustments of
$10.8 million in the first quarter of 1995 and $1.2 million in the second
quarter of 1995 as a result of decreasing depreciation of revenue earning
equipment.
The tax provision in the fourth quarter of 1995 includes $6.5 million of credits
relating to foreign taxes paid which were offset against U.S. income tax
liabilities.
NOTE 13 -- FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and trade receivables. The
Company places its cash equivalents with financial institutions and limits the
amount of credit exposure to any one financial institution. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising the Company's customer base, and their dispersion
across different businesses and geographic areas. All borrowings by foreign
operations are either in the foreign operation's local
F-25
<PAGE> 113
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- FINANCIAL INSTRUMENTS -- (CONTINUED)
currency or, if in non-local currency, on a fully hedged basis to minimize
foreign exchange exposure. As of December 31, 1996, the Company had no
significant concentration of credit risk.
Cash and Equivalents
Fair value approximates cost indicated on the balance sheet at December 31,
1996, because of the short-term maturity of these instruments.
Debt
Fair value is estimated based on quoted market rates as well as borrowing rates
currently available to the Company for loans with similar terms and average
maturities. Carrying value was used as fair value for borrowings with an initial
maturity of 92 days or less. The fair value of all debt at December 31, 1996
approximated $5.12 billion compared to carrying value of $5.09 billion.
Public Liability and Property Damage
Provisions for public liability and property damage on self-insured domestic
claims and reinsured foreign claims are made by charges to expense based upon
evaluations of estimated ultimate liabilities on reported and unreported claims.
These liabilities are anticipated to be paid in the future which range between
one and five years. The fair value of these liabilities at December 31, 1996
approximates $290 million compared to carrying value of $321 million. The fair
value was estimated using a 6.9% interest rate, which represents the long-term
borrowing rate available to the Company at December 31, 1996.
Financial Instruments
The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in interest rates. These arrangements consist of
interest-rate swap agreements ("swaps") and forward rate agreements ("FRAs").
The differential paid or received on these agreements is recognized as an
adjustment to interest expense. These agreements are not entered into for
trading purposes. The effect of these agreements is to make the Company less
susceptible to changes in interest rates by effectively converting certain
variable rate debt to fixed rate debt. Because of the relationship of current
market rates to historical fixed rates, the effect at December 31, 1996 of the
swap and FRA agreements is to give the Company an overall effective
weighted-average rate on debt of 6.53%, with 41% of debt effectively subject to
variable interest rates, compared to a weighted-average interest rate on debt of
6.48%, with 49% of debt subject to variable interest rates when not considering
the swap and FRA agreements. At December 31, 1996, these agreements expressed in
notional amounts aggregated $368.4 million swaps. Notional amounts are not
reflective of the Company's obligations under these agreements because the
Company is only obligated to pay the net amount of interest rate differential
between the fixed and variable rates specified in the contracts. The Company's
exposure to any credit loss in the event of non-performance by the
counterparties is further mitigated by the fact that all of these financial
instruments are with significant financial institutions that are rated "A" or
better by the major credit rating agencies. At December 31, 1996, the fair value
of all outstanding contracts, which is representative of the Company's
obligations under these contracts, assuming the contracts were terminated at
that date, was approximately a net payable of $4.0 million.
The Company and its subsidiaries have entered into arrangements to manage
exposure to fluctuations in foreign exchange rates for certain foreign currency
loans and selected marketing programs. These arrangements consist of foreign
exchange forward contracts and the purchase of foreign exchange
F-26
<PAGE> 114
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- FINANCIAL INSTRUMENTS -- (CONTINUED)
options. At December 31, 1996 the total notional amount of these instruments was
$23.5 million and the fair value of all outstanding contracts, which is
representative of the Company's obligations under these contracts, assuming the
contracts were terminated at that date, was approximately a net payable of $.1
million.
The fair value of the interest rate and foreign currency instruments were
estimated using market prices provided by financial institutions. The following
is the estimated fair value and notional amount of the outstanding instruments
at December 31, 1996 and their maturity dates (in millions):
<TABLE>
<CAPTION>
---------------------------------
FAIR NOTIONAL
MATURITY VALUE(a) AMOUNT(b)
-------- -------- ---------
<S> <C> <C> <C>
Interest Rate Instruments
1997 $240.7
- - Assets.................................................... $ --
- - Liabilities............................................... .5
1998 73.3
- - Assets.................................................... --
- - Liabilities............................................... 1.0
1999 43.4
- - Assets.................................................... (.1)
- - Liabilities............................................... 2.2
2000 10.7
- - Assets.................................................... --
- - Liabilities............................................... .2
2001 .2
- - Assets.................................................... --
- - Liabilities............................................... --
2002 .1
- - Assets.................................................... --
- - Liabilities............................................... --
----- ------
Total.................................................. $(4.0) $368.4
===== ======
Foreign Currency Instruments(c)
1997 $ 16.8
- - Assets.................................................... $ --
- - Liabilities............................................... .1
1998 6.7
- - Assets.................................................... --
- - Liabilities............................................... --
----- ------
Total.................................................. $ (.1) $ 23.5
===== ======
</TABLE>
- -------------------------
(a) Fair value is representative of the Company's obligation under the
contracts, assuming the contracts were terminated at December 31, 1996.
(b) The notional amount represents the contract amount and does not represent
the amount at risk.
(c) As of December 31, 1996, no one currency represented the majority of the
outstanding foreign currency instruments, except for the option to sell pound
sterling and buy U.S. dollars in the notional amount of $12.0 million.
F-27
<PAGE> 115
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- SUBSEQUENT EVENTS
In February 1997, Ford extended to the Company a line of credit of $500 million,
expiring June 30, 1999. 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 that time, the revolving loan agreement
between the Company and Ford dated June 8, 1994 was terminated.
On February 27, 1997, the Company issued to Ford 1,290 shares of its 5.11%
Cumulative Series C Preferred Stock having an aggregate liquidation preference
of $129 million for a purchase price equal to the aggregate liquidation
preference.
On February 27, 1997, the Company paid a dividend of $460 million on its common
stock to Ford in the form of a 5.475% promissory note, which was fully repaid on
March 10, 1997.
On February 28, 1997, the Company filed a Registration Statement on Form S-1 in
connection with the proposed initial public offering of the Company's Class A
Common Stock (the "Offering").
The Company and Ford have entered into a Car Supply Agreement which will
commence on September 1, 1997 for a period of ten years. Under the Car Supply
Agreement, Ford and the Company 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 Company and the Company 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 Company's fleet
requirements for its car rental business conducted in the United States; (b) 35%
of the Company's fleet requirements for its car rental business conducted in
Europe; and (c) 55% of the Company'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 Company 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 Company and other daily car
rental companies. In addition, for each model year, Ford must supply cars to the
Company 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 Company and Ford have entered into a Joint Advertising Agreement which will
commence on September 1, 1997 for a period of ten years. Under the Joint
Advertising Agreement, Ford has agreed to pay to the Company one-half of the
Company'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. In addition, if for any year, one-half of the Company's
advertising costs exceed such limit and the Company 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 Company 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 Company 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
Company any amount for its advertising costs for that year, except to the extent
that the Company'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 Company 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 Company were not competitive with
the terms and conditions for the supply of cars offered by other automobile
F-28
<PAGE> 116
THE HERTZ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- SUBSEQUENT EVENTS -- (CONTINUED)
manufacturers to the Company and other daily car rental companies. In no event,
however, will Ford be required to pay any amount for the Company's advertising
costs for any year if the Ford Vehicle Share for the corresponding model year is
less than 40%.
F-29
<PAGE> 117
SCHEDULE II
THE HERTZ CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
--------------------------------------------------------------------
ADDITIONS DEDUCTIONS
BALANCE AT ---------- ----------------------
BEGINNING OF CHARGED TO TRANSLATION BALANCE AT
YEAR INCOME ADJUSTMENTS OTHER END OF YEAR
------------ ---------- ----------- ----- -----------
Dollars in thousands
<S> <C> <C> <C> <C> <C>
1996
Allowance for doubtful accounts... $ 7,985 $ 9,912 $ 59 $ 5,570(a) $ 12,268
======== ======== ===== ======== ========
Public liability and property
damage.......................... $311,669 $133,417 $ 40 $123,928(b) $321,118
======== ======== ===== ======== ========
1995
Allowance for doubtful accounts... $ 10,026 $ 4,926 $(319) $ 7,286(a) $ 7,985
======== ======== ===== ======== ========
Public liability and property
damage.......................... $304,328 $134,926 $(229) $127,814(b) $311,669
======== ======== ===== ======== ========
1994
Allowance for doubtful accounts... $ 6,862 $ 6,813 $(521) $ 4,170(a) $ 10,026
======== ======== ===== ======== ========
Public liability and property
damage.......................... $264,158 $159,049 $ 403 $118,476(b) $304,328
======== ======== ===== ======== ========
</TABLE>
- -------------------------
(a) Amounts written off, net of recoveries. The year 1995 includes $2 million,
which represents the balance at December 31, 1994 relating to the European Car
Leasing and Car Dealership operations sold by the Company effective January 1,
1995.
(b) Payments of claims and expenses.
F-30
<PAGE> 118
[HERTZ LOGO]
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 145,528
NASD fee.................................................... 30,500
NYSE listing fee............................................ 242,975
Blue Sky fees and expenses.................................. 15,000
Printing expenses........................................... 1,100,000
Legal fees and expenses..................................... 600,000
Accounting fees............................................. 70,000
Miscellaneous............................................... 295,997
----------
Total.................................................. $2,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporation's best interests, and, for criminal
proceedings, had no reasonable cause to believe his or her conduct was illegal.
A Delaware corporation may indemnify officers and directors against expenses
(including attorneys' fees) in connection with the defense or settlement of an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such officer or director actually and reasonably incurred.
In accordance with the Delaware Law, the Restated Certificate of Incorporation
of the Company contains a provision to limit the personal liability of the
directors of the Company for violations of their fiduciary duty. This provision
eliminates each director's liability to the Company or its stockholders for
monetary damages except (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware Law providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions or (iv)
for any transaction from which a director derived an improper personal benefit.
The effect of this provision is to eliminate the personal liability of directors
for monetary damages for actions involving a breach of their fiduciary duty of
care, including any such actions involving gross negligence.
Pursuant to underwriting agreements filed as exhibits to registration statements
relating to underwritten offerings of securities, the underwriters parties
thereto have agreed to indemnify each officer and director of the Company and
each person, if any, who controls the Company within the meaning of the
Securities Act of 1933, against certain liabilities, including liabilities under
said Act.
The directors and officers of the Company are covered by directors' and
officers' insurance policies relating to Ford Motor Company and its
subsidiaries.
II-1
<PAGE> 120
The Restated Certificate of Incorporation of the Company provides for
indemnification of the officers and directors of the Company to the full extent
permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Company has issued and sold the following
unregistered securities:
1. On April 29, 1994, the Company issued 1,500,000 shares of its Variable Rate
Cumulative Series B Preferred Stock, par value $100 per share, to Ford Motor
Credit Company ("FMCC") in exchange for a $150 million subordinated promissory
note of the Company held by FMCC.
2. On February 27, 1997, the Company issued 1,290 shares of its 5.11% Cumulative
Series C Preferred Stock, par value $.01 per share, to Ford in exchange for U.S.
treasury securities having an aggregate fair market value at that time of $129
million.
The Company believes that the transactions described above were exempt from
registration under Section 4(2) of the Securities Act of 1933 because in each
case the subject securities were sold to a single sophisticated investor who was
purchasing for investment without a view to further distribution.
II-2
<PAGE> 121
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C> <C>
1 -- Form of U.S. Underwriting Agreement*
3(a) -- Form of Restated Certificate of Incorporation of the
Company*
3(b) -- Form of By-laws of the Company*
4(a) -- Specimen Certificate of Class A Common Stock of the Company*
4(b) -- Indenture dated as of April 1, 1986 between the Company and
The Chase Manhattan Bank (formerly known as Chemical Bank),
as successor by merger to Manufacturers Hanover Trust
Company, as Trustee (incorporated herein by reference from
the Company's Registration Statement No. 33-4725 on Form
S-3)***
4(c) -- First Supplemental Indenture dated as of April 2, 1990
between the Company and The Chase Manhattan Bank (formerly
known as Chemical Bank), as successor by merger to
Manufacturers Hanover Trust Company, as Trustee**
4(d) -- Indenture dated as of June 1, 1989 between the Company and
The Bank of New York, as Trustee (incorporated herein by
reference from the Company's Registration Statement No.
33-293919 on Form S-3)***
4(e) -- Form of Indenture dated as of July 1, 1993 between the
Company and Citibank, N.A., as Trustee (incorporated herein
by reference from the Company's Registration Statement No.
33-62902 on Form S-3)***
4(f) -- Form of Indenture dated as of December 2, 1994 between the
Company and First Union National Bank (formerly known as
First Fidelity Bank, National Association), as Trustee
(incorporated herein by reference from the Company's
Registration Statement No. 33-54183 on Form S-3)***
5(a) -- Opinion and Consent of Simpson Thacher & Bartlett regarding
the legality of the Class A Common Stock**
10(a) -- Form of Corporate Agreement between the Company and Ford*
10(b) -- Car Supply Agreement between the Company and Ford**
10(c) -- Joint Advertising Agreement between the Company and Ford*+
10(d) -- Tax-Sharing Agreement between the Company and Ford*
10(e) -- The Hertz Corporation Benefit Equalization Plan**
10(f) -- The Hertz Corporation Supplemental Retirement and Savings
Plan, as amended**
10(g) -- The Hertz Corporation Executive Incentive Compensation
Plan**
10(h) -- The Hertz Corporation Long Term Incentive Plan**
10(i) -- Form of The Hertz Corporation Special Supplemental Executive
Pension Benefit for Frank A. Olson and William Sider**
10(j) -- Employment Agreement between the Company and Frank A. Olson*
10(k) -- Employment Agreement between the Company and Craig R. Koch*
10(l) -- Employment Agreement between the Company and William Sider
(incorporated herein by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1992)***
10(m) -- Employment Agreement between Hertz International, Ltd. and
Antoine E. Cau*
10(n) -- Employment Agreement between the Company and Brian J.
Kennedy*
10(o) -- Employment Agreement between the Company and Daniel I.
Kaplan*
10(p) -- Long-Term Equity Compensation Plan****
21 -- Subsidiaries of the Company**
23(a) -- Consent of Coopers & Lybrand L.L.P.*
23(b) -- Consent of Simpson Thacher & Bartlett (included in Exhibit
5(a))
24 -- Power of Attorney**
27 -- Financial Data Schedule**
</TABLE>
- -------------------------
* Filed herewith.
** Previously filed.
*** Incorporated by reference.
****To be filed by amendment.
+ The Company has applied for confidential treatment of portions of this
Exhibit. Accordingly, portions thereof have been omitted and filed
separately.
II-3
<PAGE> 122
FINANCIAL STATEMENT SCHEDULES
All applicable financial statement schedule disclosure requirements are set
forth in the notes to the Company's consolidated financial statements.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Borough of Park
Ridge, State of New Jersey, on the 13th day of March, 1997.
THE HERTZ CORPORATION
By: /s/ WILLIAM SIDER
------------------------------------
Title: Executive Vice President
and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, Chief March 13, 1997
- ------------------------------------------ Executive Officer and Director
(Frank A. Olson) (Principal Executive Officer)
* President, Chief Operating Officer March 13, 1997
- ------------------------------------------ and Director
(Craig R. Koch)
/s/ WILLIAM SIDER Executive Vice President, Chief March 13, 1997
- ------------------------------------------ Financial Officer and Director
(William Sider) (Principal Financial Officer)
* Controller (Principal Accounting March 13, 1997
- ------------------------------------------ Officer)
(Leo A. Massad, Jr.)
* Director March 13, 1997
- ------------------------------------------
(John M. Devine)
* Director March 13, 1997
- ------------------------------------------
(Peter J. Pestillo)
* /s/ WILLIAM SIDER Attorney-In-Fact March 13, 1997
----------------------------------------
(William Sider)
</TABLE>
II-5
<PAGE> 124
APPENDIX DESCRIBING GRAPHIC MATERIAL
PURSUANT TO RULE 304 OF REGULATION S-T
Inside Front cover
Picture 1.
Picture of Hertz #1 Club Gold canopied area.
Picture 2.
Picture of woman behind rental counter.
Picture 3.
Picture of various pieces of industrial and construction rental
equipment.
Picture 4 (gatefold).
Map of world indicating countries in which the Company operates and
countries in which the Company offers Hertz #1 Club Gold service.
Inside Back Cover
Picture of sign reading "Hertz Rent a Car" with globe in background.
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------
<S> <C> <C>
1 -- Form of U.S. Underwriting Agreement*
3(a) -- Form of Restated Certificate of Incorporation of the
Company*
3(b) -- Form of By-laws of the Company*
4(a) -- Specimen Certificate of Class A Common Stock of the Company*
4(b) -- Indenture dated as of April 1, 1986 between the Company and
The Chase Manhattan Bank (formerly known as Chemical Bank),
as successor by merger to Manufacturers Hanover Trust
Company, as Trustee (incorporated herein by reference from
the Company's Registration Statement No. 33-4725 on Form
S-3)***
4(c) -- First Supplemental Indenture dated as of April 2, 1990
between the Company and The Chase Manhattan Bank (formerly
known as Chemical Bank), as successor by merger to
Manufacturers Hanover Trust Company, as Trustee**
4(d) -- Indenture dated as of June 1, 1989 between the Company and
The Bank of New York, as Trustee (incorporated herein by
reference from the Company's Registration Statement No.
33-293919 on Form S-3)***
4(e) -- Form of Indenture dated as of July 1, 1993 between the
Company and Citibank, N.A., as Trustee (incorporated herein
by reference from the Company's Registration Statement No.
33-62902 on Form S-3)***
4(f) -- Form of Indenture dated as of December 2, 1994 between the
Company and First Union National Bank (formerly known as
First Fidelity Bank, National Association), as Trustee
(incorporated herein by reference from the Company's
Registration Statement No. 33-54183 on Form S-3)***
5(a) -- Opinion and Consent of Simpson Thacher & Bartlett regarding
the legality of the Class A Common Stock**
10(a) -- Form of Corporate Agreement between the Company and Ford*
10(b) -- Car Supply Agreement between the Company and Ford**
10(c) -- Joint Advertising Agreement between the Company and Ford*+
10(d) -- Tax-Sharing Agreement between the Company and Ford*
10(e) -- The Hertz Corporation Benefit Equalization Plan**
10(f) -- The Hertz Corporation Supplemental Retirement and Savings
Plan, as amended**
10(g) -- The Hertz Corporation Executive Incentive Compensation
Plan**
10(h) -- The Hertz Corporation Long Term Incentive Plan**
10(i) -- Form of The Hertz Corporation Special Supplemental Executive
Pension Benefit for Frank A. Olson and William Sider**
10(j) -- Employment Agreement between the Company and Frank A. Olson*
10(k) -- Employment Agreement between the Company and Craig R. Koch*
10(l) -- Employment Agreement between the Company and William Sider
(incorporated herein by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1992)***
10(m) -- Employment Agreement between Hertz International, Ltd. and
Antoine E. Cau*
10(n) -- Employment Agreement between the Company and Brian J.
Kennedy*
10(o) -- Employment Agreement between the Company and Daniel I.
Kaplan*
10(p) -- Long-Term Equity Compensation Plan****
21 -- Subsidiaries of the Company**
23(a) -- Consent of Coopers & Lybrand L.L.P.*
23(b) -- Consent of Simpson Thacher & Bartlett (included in Exhibit
5(a))
24 -- Power of Attorney**
27 -- Financial Data Schedule**
</TABLE>
- -------------------------
* Filed herewith.
** Previously filed.
*** Incorporated by reference.
**** To be filed by amendment.
+ The Company has applied for confidential treatment of portions of this
Exhibit. Accordingly, portions thereof have been omitted and filed
separately.
<PAGE> 1
EXHIBIT 1
THE HERTZ CORPORATION
_______ Shares of Class A Common Stock, par value $0.01 per share
Underwriting Agreement
___________, 1997
J.P. Morgan Securities Inc.
Goldman, Sachs & Co.
Lehman Brothers Inc.
Salomon Brothers Inc
Smith Barney Inc.
As Representatives of the several
underwriters listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
The Hertz Corporation, a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters"), for whom
you are acting as representatives (the "Representatives") an aggregate of
__________ shares of Class A Common Stock, par value $0.01 per share, of the
Company (the "Underwritten Shares") and, for the sole purpose of covering
over-allotments in connection with the sale of the Underwritten Shares, at the
option of the Underwriters, up to an additional __________ shares (the "Option
Shares") of Class A Common Stock, par value $0.01 per share, of the Company.
The Underwritten Shares and the Option Shares are herein referred to as the
"Shares". The shares of Common Stock, par value $0.01 per share, of the Company
to be outstanding after giving effect to the sale of the Shares are herein
referred to as the "Stock". The Company is a wholly- owned subsidiary of Ford
Motor Company, a Delaware corporation ("Ford"). As used herein, "Principal
Subsidiaries" shall mean those subsidiaries of the Company named in Schedule II
hereto and subsidiaries of the Company shall include the Principal
Subsidiaries.
It is understood and agreed to by all parties that the Company
and Ford are concurrently entering into an agreement (the "International
Underwriting Agreement") providing for the sale by the Company of up to a total
of ________ shares of Stock (the
<PAGE> 2
"International Shares"), including the over-allotment option thereunder,
through arrangements with certain underwriters outside the United States (the
"International Underwriters"), for whom J.P. Morgan Securities Ltd., Goldman
Sachs International, Lehman Brothers International (Europe), Salomon Brothers
International Limited, Smith Barney Inc., ABN AMRO Rothschild, Banque
Nationale de Paris, Commerzbank Aktiengesellschaft, Credit Lyonnais and
Morgan Grenfell & Co. Limited are acting as international representatives.
Anything herein or therein to the contrary notwithstanding, the respective
closings under this Agreement and the International Underwriting Agreement are
hereby expressly made conditional on one another. The Underwriters hereunder
and the International Underwriters are simultaneously entering into an
Agreement between U.S. and International Underwriting Syndicates (the
"Agreement Between Syndicates") which provides, among other things, for the
transfer of shares of Stock between the two syndicates. Two forms of
prospectus are to be used in connection with the offering and sale of shares of
Stock contemplated by the foregoing, one relating to the Shares hereunder and
the other relating to the International Shares. The latter form of prospectus
will be identical to the former except for certain substitute pages. Except as
used in Sections 3, 4, 5, 10 and 12 herein, and except as the context may
otherwise require, references hereinafter to the Shares shall include all the
shares of Stock which may be sold pursuant to either this Agreement or the
International Underwriting Agreement, and, except as the context may otherwise
require, references herein to any prospectus whether in preliminary or final
form, and whether as amended or supplemented, shall include both the U.S. and
the international versions thereof.
1. The Company represents and warrants to, and agrees
with, each of the Underwriters that:
(a) A registration statement on Form S-1 (File No.
333-22517) in respect of the Shares has been filed with the Securities and
Exchange Commission (the "Commission"); such registration statement and any
post-effective amendment thereto, each in the form heretofore delivered to
you, and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such form;
other than the Current Report on Form 8-K dated February 28, 1997 and the
registration statement on Form 8-A dated March __, 1997 filed by the
Company, no other document with respect to such registration statement has
heretofore been filed with the Commission; and no stop order suspending the
effectiveness of such registration statement has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in such registration
statement or filed with the Commission pursuant to Rule 424(a) of the rules
and regulations of the Commission under the Securities Act of 1933, as
amended (the "Act"), is hereinafter called a "Preliminary Prospectus"; the
various parts of such registration statement, including all exhibits
thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act
in accordance with Section 6(a) hereof and deemed by virtue of Rule 430A
under the Act
<PAGE> 3
3
to be part of the registration statement at the time it was declared
effective, each as amended at the time such part of the registration
statement became effective, are hereinafter collectively called the
"Registration Statement"; such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus");
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
you expressly for use therein;
(c) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the Registration
Statement or the Prospectus will conform, in all material respects, to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date as
to the Registration Statement and any amendment thereto and as of the
applicable filing date as to the Prospectus and any amendment or supplement
thereto, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through you expressly for use
therein;
(d) Except as contemplated in the Prospectus, subsequent
to the respective dates as of which information is given in the
Registration Statement and the Prospectus, neither the Company nor any of
its subsidiaries has incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, which are material to the Company and its subsidiaries,
considered as a whole, and there has not been any material adverse change,
on a consolidated basis, in the capital stock, short-term debt or long-term
debt of the Company and its subsidiaries, or any material adverse change in
the financial condition, business, business prospects or results of
operations of the Company and its subsidiaries, considered as a whole;
(e) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and
conduct its business as described in the
<PAGE> 4
4
Prospectus, and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, except to the extent that the
failure to so qualify or be in good standing would not have a material
adverse effect on the financial condition or results of operations of the
Company and its subsidiaries, considered as a whole; and each subsidiary of
the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, except to the extent that the failure to so qualify or be in
good standing would not have a material adverse effect on the financial
condition or results of operations of the Company and its subsidiaries,
considered as a whole;
(f) The Company will have, not later than the First Time
of Delivery (as defined in Section 5 hereof), an authorized capitalization
as set forth in the Prospectus; all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description thereof contained in
the Prospectus; all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable; and the Company owns directly or
indirectly all of the outstanding shares of capital stock of each of the
Principal Subsidiaries, free and clear of all liens, encumbrances, equities
or claims;
(g) This Agreement and the International Underwriting
Agreement have each been duly authorized, executed and delivered on behalf
of the Company;
(h) The Shares to be issued and sold by the Company to
the Underwriters hereunder and under the International Underwriting
Agreement have been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein and in the
International Underwriting Agreement, will be duly and validly issued and
fully paid and non-assessable and will conform to the description of the
Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company
hereunder and under the International Underwriting Agreement, the
compliance by the Company with all of the provisions of this Agreement and
the International Underwriting Agreement and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under (in each case material to the Company and its
subsidiaries, considered as a
<PAGE> 5
5
whole), any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the property or assets of the Company or any of
its subsidiaries is subject, nor will such action result in any violation
of the provisions of the certificate of incorporation or by-laws of the
Company or any of its subsidiaries, nor will such action result in any
violation (in each case material to the Company and its subsidiaries,
considered as a whole) of any applicable statute or any applicable order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement and the
International Underwriting Agreement, except (i) the registration under the
Act of the Shares; (ii) the registration of the Shares under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); (iii) such consents,
approvals or authorizations as may be required under any concession
agreements with any airport authorities; (iv) the listing of the Shares on
the New York Stock Exchange (the "Exchange"); and (v) such consents,
approvals, authorizations, registrations or qualifications as may be
required under securities or Blue Sky laws of any jurisdiction in
connection with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters;
(j) Neither the Company nor any of its subsidiaries is
(i) in violation of its certificate of incorporation or by-laws, (ii) in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound or (iii)
in violation of any applicable statute or any applicable order, rule or
regulation (including, without limitation, those relating to the protection
of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws")) of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties, except, in
the case of Clause (i), with respect to the Company's subsidiaries which
are not Principal Subsidiaries, where such violation would not have a
material adverse effect on the financial condition or results of operations
of the Company and its subsidiaries, considered as a whole, and except, in
the case of Clauses (ii) and (iii), where such default or violation would
not have a material adverse effect on the financial condition or results of
operations of the Company and its subsidiaries, considered as a whole;
(k) The Company and its subsidiaries each owns or
possesses all governmental licenses, permits, certificates, consents,
orders, approvals and other authorizations (including, without limitation,
those relating to Environmental Laws)
<PAGE> 6
6
issued by the appropriate state, federal or foreign regulatory agencies or
bodies (collectively, "Governmental Licenses") necessary to carry on its
business as presently conducted, with such exceptions as do not have a
material adverse effect on the financial condition or results of operations
of the Company and its subsidiaries, considered as a whole, and neither the
Company nor any of its subsidiaries has received any notice of proceedings
relating to revocation or modification of any such Governmental Licenses
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding would have a material adverse effect on the
financial condition or results of operations of the Company and its
subsidiaries, considered as a whole;
(l) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock and under the caption
"Certain United States Tax Consequences to Non-United States Holders",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate in all material respects;
(m) Other than as set forth or contemplated in the
Prospectus, there are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property
of the Company or any of its subsidiaries is the subject in which there is
a reasonable possibility of an adverse decision which, individually or in
the aggregate, could have a material adverse effect or prospective material
adverse effect, on the financial condition or results of operations of the
Company and its subsidiaries considered as a whole; and, to the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(n) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or an
entity "controlled" by an "investment company", as such terms are defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(o) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes;
and
(p) The financial statements, including the notes
thereto, of the Company and its subsidiaries included in the Registration
Statement and Prospectus present fairly the financial condition of the
Company and its subsidiaries as of the dates indicated and the results of
operations and changes in financial position for the periods therein
specified in conformity with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise
stated therein). Coopers & Lybrand L.L.P., who have certified certain
financial statements of the Company and its
<PAGE> 7
7
subsidiaries included in the Registration Statement and the Prospectus, as
amended or supplemented, are, to the best knowledge of the Company,
independent public accountants with respect to the Company and its
subsidiaries as required by the Act and the rules and regulations of the
Commission thereunder.
2. Ford represents and warrants to, and agrees with,
each of the Underwriters that:
(a) Ford has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware;
(b) All issued shares of capital stock of the Company are
owned directly by Ford, free and clear of all liens, encumbrances, equities
or claims;
(c) This Agreement and the International Underwriting
Agreement have each been duly authorized, executed and delivered on behalf
of Ford;
(d) The issue and sale of the Shares by the Company
hereunder and under the International Underwriting Agreement, the
compliance by the Company and Ford with all of the provisions of this
Agreement and the International Underwriting Agreement and the consummation
of the transactions herein and therein contemplated will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under (in each case material to Ford and its
subsidiaries, considered as a whole), any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which Ford
is a party or by which Ford is bound or to which any of the property or
assets of Ford is subject, nor will such action result in any violation of
the provisions of the certificate of incorporation or by-laws of Ford, nor
will such action result in any violation (in each case material to Ford and
its subsidiaries, considered as a whole) of any applicable statute or any
applicable order, rule or regulation of any court or governmental agency or
body having jurisdiction over Ford or any of its properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company and Ford of
the transactions contemplated by this Agreement and the International
Underwriting Agreement, except (i) the registration under the Act of the
Shares; (ii) the registration of the Shares under the Exchange Act; (iii)
such consents, approvals or authorizations as may be required under any
concession agreements with any airport authorities; (iv) the listing of the
Shares on the Exchange; and (v) such consents, approvals, authorizations,
registrations or qualifications as may be required under securities or Blue
Sky laws of any jurisdiction in connection with the purchase and
distribution of the Shares by the Underwriters and the International
Underwriters; and
<PAGE> 8
8
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to (i) offer, sell, contract to sell or otherwise dispose
of any securities of the Company which are substantially similar to the
Shares, including but not limited to any securities that are convertible
into or exchangeable for, or that represent the right to receive, Stock or
any such substantially similar securities or (ii) enter into any swap,
option, future, forward or other agreement that transfers, in whole or in
part, the economic consequence of ownership of Stock or any securities
substantially similar to the Shares, without the prior written consent of
J.P. Morgan Securities Inc.
3. Subject to the terms and conditions herein set forth,
(a) the Company agrees to issue and sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at a purchase price per share of $_____, the number of Underwritten
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Option Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the
purchase price per share set forth in Clause (a) of this Section 3, that
portion of the number of Option Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Option Shares by a fraction, the
numerator of which is the maximum number of Option Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Option Shares which all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to
purchase at their election up to _________ Option Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
over-allotments in the sale of the Underwritten Shares. Any such election to
purchase Option Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Option Shares to be purchased
and the date on which such Option Shares are to be delivered, as determined by
you but in no event earlier than the First Time of Delivery (as defined in
Section 5 hereof) or, unless you and the Company otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
4. Upon the authorization by you of the release of the
Underwritten Shares and, if applicable, the Option Shares, the several
Underwriters propose to offer the Underwritten Shares and, if applicable, the
Option Shares for sale upon the terms and conditions set forth in the
Prospectus.
<PAGE> 9
9
5. (a) The Shares to be purchased by each Underwriter
hereunder, in temporary or definitive form, and in such authorized
denominations and registered in such names as J.P. Morgan Securities Inc. may
request upon at least forty-eight hours prior notice to the Company, shall be
delivered by or on behalf of the Company to you, for the account of such
Underwriter, against payment by or on behalf of such Underwriter of the
purchase price therefor by wire or interbank transfer to an account specified
by the Company in immediately available funds. The Company will cause the
certificates representing the Shares to be made available for checking and
packaging at least twenty-four hours prior to the Time of Delivery (as defined
below) with respect thereto at the office of J.P. Morgan Securities Inc., 60
Wall Street, New York, New York 10260 (the "Designated Office"). The time and
date of such delivery and payment shall be, with respect to the Underwritten
Shares, 9:30 a.m., New York City time, on ________, 1997 or such other time and
date as you and the Company may agree upon in writing, and, with respect to the
Option Shares, 9:30 a.m., New York time, on the date specified by you in the
written notice given by you of the Underwriters election to purchase such
Option Shares, or such other time and date as you and the Company may agree
upon in writing. Such time and date for delivery of the Underwritten Shares
are herein called the "First Time of Delivery", such time and date for delivery
of the Option Shares, if not the First Time of Delivery, are herein called the
"Second Time of Delivery", and each such time and date for delivery are herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of
Delivery by or on behalf of the parties hereto pursuant to Section 8 hereof,
including the cross receipt for the Shares and any additional documents
requested by the Underwriters pursuant to Section 8(j) hereof, will be
delivered at the offices of Shearman & Sterling, 599 Lexington Avenue, New
York, New York 10022 (the "Closing Location"), and the Shares will be delivered
at the Designated Office, all at such Time of Delivery. A meeting will be held
at the Closing Location at 3:00 p.m., New York City time, on the New York
Business Day next preceding such Time of Delivery, at which meeting the final
drafts of the documents to be delivered pursuant to the preceding sentence will
be available for review by the parties hereto. For the purposes of this
Section 5 "New York Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in New
York are generally authorized or obligated by law or executive order to close.
6. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form reasonably
approved by you and to file such Prospectus pursuant to Rule 424(b) under
the Act not later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) under
the Act; to make no further amendment or any supplement to the Registration
Statement or Prospectus which shall be reasonably disapproved by you
<PAGE> 10
10
promptly after reasonable notice thereof; to advise you, promptly after it
receives notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to advise you, promptly after it receives notice thereof,
of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
Prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or Prospectus or suspending any such qualification,
promptly to use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you
may reasonably request to qualify the Shares for offering and sale under
the securities laws of such states or territories of the United States as
you may request and to comply with such laws so as to permit the
continuance of sales and dealings therein in such jurisdictions for as
long as may be necessary to complete the distribution of the Shares,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(c) To furnish the Underwriters with copies of the
Prospectus as amended or supplemented in such quantities as you may from
time to time reasonably request, and, if the delivery of a prospectus is
required at any time prior to the expiration of nine months after the time
of issue of the Prospectus in connection with the offering or sale of the
Shares and if at such time either (i) any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or (ii) if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order
to comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of issue
of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
<PAGE> 11
11
(d) To make generally available to security holders of
the Company as soon as practicable, but in any event not later than
eighteen months after the effective date of the Registration Statement (as
defined in Rule 158(c) under the Act), an earnings statement of the Company
and its subsidiaries (which need not be audited) complying with Section
11(a) of the Act and the rules and regulations thereunder (including, at
the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to (i) offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder and under the International Underwriting
Agreement, any securities of the Company which are substantially similar to
the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities or (ii) enter
into any swap, option, future, forward or other agreement that transfers,
in whole or in part, the economic consequence of ownership of Stock or any
securities substantially similar to the Shares (other than (i) pursuant to
employee stock option plans existing on, or upon the conversion or exchange
of convertible or exchangeable securities outstanding as of, the date of
this Agreement and (ii) the issuance of Stock and Class B Common Stock, par
value $0.01 per share, of the Company in connection with the transactions
described in the Prospectus), without the prior written consent of J.P.
Morgan Securities Inc.;
(f) To furnish to its stockholders as soon as practicable
after the end of each fiscal year, commencing with the fiscal year ended
December 31, 1997, an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants);
(g) During a period of two years from the effective date
of the Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) generally furnished to
stockholders, and to deliver to you as soon as they are available, copies
of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Company is listed; and during a period of one year from
the effective date of the Registration Statement, to furnish J.P. Morgan
Securities Inc. such additional information concerning the business and
financial condition of the Company as J.P. Morgan Securities Inc. may from
time to time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission), it being understood that such information
shall be subject to such confidentiality and use restrictions as may be
agreed upon from time to time and that such information shall not
<PAGE> 12
12
require the preparation of reports or other documents not otherwise
prepared by the Company in the normal course of its business;
(h) To use the net proceeds received by it from the sale
of the Shares pursuant to this Agreement and the International Underwriting
Agreement in the manner specified in the Prospectus under the caption "Use
of Proceeds"; and
(i) To use its best efforts to list, subject to notice of
issuance, the Shares on the Exchange.
7. The Company covenants and agrees with the several
Underwriters that the Company will pay or cause to be paid the following: (i)
the fees, disbursements and expenses of the Company's counsel and accountants
in connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of duplicating any
Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreement and the Blue
Sky Memorandum; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws or, to the extent
applicable, the state insurance securities laws as provided in Section 6(b)
hereof, including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky Memorandum; (iv) all fees and expenses in connection with listing the
Shares on the Exchange; (v) the filing fees incident to securing any required
review by the NASD of the terms of the sale of the Shares; (vi) the cost of
preparing stock certificates; (vii) the cost and charges of any transfer agent
or registrar; and (viii) all other reasonable costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section. It is understood, however, that,
except as provided in this Section, and Sections 9 and 12 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees
of their counsel, stock transfer taxes on resale of any of the Shares by them,
and any advertising expenses connected with any offers they may make. It is
further understood that the Underwriters will reimburse the Company in respect
of the foregoing expenses of the Company in the aggregate amount of $________,
payable at the First Time of Delivery.
8. The obligations of the Underwriters hereunder, as to
the Shares to be delivered at each Time of Delivery, shall be subject, in their
discretion, to the condition that all representations and warranties and other
statements of the Company and Ford herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and Ford shall have
performed all of their obligations in all material respects hereunder
theretofore to be performed and the following additional conditions:
<PAGE> 13
13
(a) The Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the Act and
in accordance with Section 6(a) hereof; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information
on the part of the Commission shall have been complied with to your
reasonable satisfaction;
(b) Shearman & Sterling, counsel for the Underwriters,
shall have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to the incorporation of the Company, the validity of
the Shares being delivered at such Time of Delivery, the Registration
Statement, the Prospectus, and other related matters as you may reasonably
request, and such counsel shall have received such papers and information
as they may reasonably request to enable them to pass upon such matters;
(c) Simpson Thacher & Bartlett, special counsel for the
Company, shall have furnished to you their written opinion, dated such Time
of Delivery, in form and substance reasonably satisfactory to you, to the
effect that:
(i) The Company has been duly incorporated and is
validly existing and in good standing as a corporation under
the laws of the State of Delaware and has full corporate power
and authority to conduct its business as described in the
Registration Statement and Prospectus;
(ii) The Company has an authorized capitalization
as set forth in the Prospectus and the Shares have been duly
authorized and, upon payment and delivery in accordance with
this Agreement and with the International Underwriting
Agreement, will be validly issued, fully paid and
non-assessable;
(iii) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by the Company;
(iv) The issue and sale of the Shares at such Time
of Delivery by the Company and the compliance by the Company
with all of the provisions of this Agreement and the
International Underwriting Agreement will not breach or result
in a default under any of the agreements identified in Annex
II hereto, nor will such action violate the Restated
Certificate of Incorporation or By-laws of the Company or any
federal or New York statute or the Delaware General
Corporation Law or any rule or regulation that has been issued
pursuant to any federal or New York statute or the Delaware
General Corporation Law;
<PAGE> 14
14
(v) No consent, approval, authorization, order,
registration or qualification of or with any federal or New
York court or governmental agency or body or any Delaware
court or governmental agency or body acting pursuant to the
Delaware General Corporation Law is required for the issue and
sale of the Shares by the Company or the compliance by the
Company with all of the provisions of this Agreement and the
International Underwriting Agreement, except for (i) the
registration under the Act and the Exchange Act of the Shares;
(ii) such consents, approvals or authorizations as may be
required under any concession agreements with any airport
authorities; (iii) the listing of the Shares on the Exchange;
and (iv) such consents, approvals, authorizations,
registrations or qualifications as may be required under
securities or Blue Sky laws of any jurisdiction in connection
with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters;
(vi) The statements made in the Prospectus under
the caption "Description of Capital Stock", insofar as they
purport to constitute summaries of the terms of the Stock
(including the Shares), constitute accurate summaries of the
terms of such Stock in all material respects;
(vii) The statements made in the Prospectus under
the caption "Certain United States Tax Consequences to
Non-United States Holders", insofar as they purport to
constitute summaries of matters of United States federal tax
law and regulations or legal conclusions with respect thereto,
constitute accurate summaries of the matters described therein
in all material respects;
(viii) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose
has been instituted or threatened by the Commission; and
(ix) The Registration Statement (or, if
applicable, the Registration Statement as amended by any
post-effective amendment prior to such Time of Delivery) as of
its effective date and the Prospectus (or, if applicable, the
Prospectus as amended or supplemented prior to such Time of
Delivery) as of its date (other than the financial statements,
related schedules and other financial data contained therein
or omitted therefrom, as to which such counsel need express no
opinion) complied as to form in all material respects with the
requirements of the Act and the applicable rules and
regulations of the Commission thereunder.
<PAGE> 15
15
In passing on the form of the Registration Statement (or, if
applicable, the Registration Statement as amended by any post-effective
amendment prior to such Time of Delivery) and the Prospectus (or, if
applicable, the Prospectus as amended or supplemented prior to such Time of
Delivery), such counsel may state that it has not independently verified
the accuracy, completeness or fairness of the statements made or included
therein and takes no responsibility therefor and that such opinion is based
upon such counsel's examination of the Registration Statement (or, if
applicable, the Registration Statement as amended by any post-effective
amendment prior to such Time of Delivery), the Prospectus (or, if
applicable, the Prospectus as amended or supplemented prior to such Time of
Delivery), its investigation made in connection with the preparation of the
Registration Statement (or, if applicable, the Registration Statement as
amended by any post-effective amendment prior to such Time of Delivery) and
the Prospectus (or, if applicable, the Prospectus as amended or
supplemented prior to such Time of Delivery) and its participation in
conferences with certain officers and employees of the Company, with
representatives of Coopers & Lybrand L.L.P., with counsel to the Company
and any others referred to in such opinion; subject to the same
qualifications, such counsel shall also state that they have no reason to
believe that the Registration Statement (or, if applicable, the
Registration Statement as amended by any post-effective amendment prior to
such Time of Delivery) as of its effective date contained any untrue
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary in order to make the statements therein
not misleading or that the Prospectus (or, if applicable, the Prospectus as
amended or supplemented prior to such Time of Delivery) contains or, as of
its date, contained any untrue statement of a material fact or omits or, as
of its date, omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading, except that in each case, such counsel need not
express a belief with respect to financial statements, related schedules or
other financial data.
In rendering such opinion, such counsel may rely as to certain
matters of fact on certificates of officers of the Company and of public
officials and may state that they express no opinion as to the laws of any
jurisdiction other than the federal law of the United States, the law of
the State of New York and the Delaware General Corporation Law.
(d) Paul M. Tschirhart, Esq., Senior Vice President and
General Counsel of the Company, or such counsel satisfactory to you in your
reasonable judgment, shall have furnished to you his written opinion, dated
such Time of Delivery, in form and substance satisfactory to you, to the
effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware,
<PAGE> 16
16
with power and authority (corporate and other) to own its
properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization
as set forth in the Prospectus; all of the issued shares of
capital stock of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the
Prospectus; and the Shares being delivered at such Time of
Delivery have been duly authorized and, upon payment and
delivery in accordance with this Agreement and the
International Underwriting Agreement, will be validly issued,
fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in
which it owns or leases properties or conducts any business so
as to require such qualification, except to the extent that
the failure to so qualify or be in good standing would not
have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries,
considered as a whole (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall
state that they believe that both you and they are justified
in relying upon such opinions and certificates);
(iv) Each Principal Subsidiary has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation,
with power and authority to own its properties and conduct its
business as described in the Prospectus; each other subsidiary
of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, with power and authority to
own its properties and conduct its business as described in
the Prospectus, except to the extent that the failure to be so
duly incorporated or validly existing would not have a
material adverse effect on the financial condition or results
of operations of the Company and its subsidiaries, considered
as a whole; and each subsidiary has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in
which it owns or leases properties or conducts any business so
as to require such qualification, except to the extent that
the failure to so qualify or be in good standing would not
have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries,
considered as a whole; all of the issued shares of capital
stock of each such subsidiary have been duly and
<PAGE> 17
17
validly authorized and issued, are fully paid and
non-assessable, except to the extent that failure to be so duly
and validly authorized and issued, fully paid and
non-assessable would not have a material adverse effect on the
financial condition or results of operations of the Company and
its subsidiaries considered as a whole; and the Company owns
directly or indirectly all of the outstanding shares of capital
stock of each of the Principal Subsidiaries, free and clear of
all liens, encumbrances, equities or claims (such counsel being
entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect to matters of fact
upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that they
believe that both you and they are justified in relying upon
such opinions and certificates);
(v) To the best of such counsel's knowledge and
other than as set forth or contemplated in the Prospectus,
there are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of
which any property of the Company or any of its subsidiaries
is the subject in which there is a reasonable possibility of
an adverse decision which, individually or in the aggregate,
could have a material adverse effect on the financial
condition, business, business prospects or results of
operations of the Company and its subsidiaries, considered as
a whole; and, to such counsel's knowledge, no such proceedings
are threatened or contemplated by governmental authorities or
threatened by others;
(vi) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by the Company;
(vii) The issue and sale of the Shares being
delivered at such Time of Delivery by the Company, the
compliance by the Company with all of the provisions of this
Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute
a default under (in each case material to the Company and its
subsidiaries, considered as a whole), any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or
instrument known to such counsel to which the Company or any
of its subsidiaries is a party or by which the Company or any
of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the
provisions of the certificate of incorporation or by-laws of
the Company or any of the Principal Subsidiaries, nor will
such action result in any violation (in each case material to
the Company and its subsidiaries, considered as a whole)
<PAGE> 18
18
of the provisions of the certificate of incorporation or
by-laws of the Company's other subsidiaries, nor will such
action result in any violation (in each case material to the
Company and its subsidiaries, considered as a whole) of any
applicable statute or any applicable order, rule or regulation
known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement and the
International Underwriting Agreement, except (i) the
registration under the Act and the Exchange Act of the Shares;
(ii) such consents, approvals or authorizations as may be
required under any concession agreements with any airport
authorities; (iii) the listing of the Shares on the Exchange;
and (iv) such consents, approvals, authorizations,
registrations or qualifications as may be required under
securities or Blue Sky laws of any jurisdiction in connection
with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters;
(ix) Neither the Company nor any of its
subsidiaries is (i) in violation of its certificate of
incorporation or by-laws, (ii) in default in the performance
or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument
to which it is a party or by which it or any of its properties
may be bound or (iii) in violation of any applicable statute
or any applicable order, rule or regulation (including,
without limitation, those relating to Environmental Laws) of
any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their
properties, except, in the case of Clause (i), with respect to
the Company's subsidiaries which are not Principal
Subsidiaries, where such violation would not have a material
adverse effect on the financial condition or results of
operations of the Company and its subsidiaries, considered as
a whole, and except, in the case of Clauses (ii) and (iii),
where such default or violation would not have a material
adverse effect on the financial condition or results of
operations of the Company and its subsidiaries, considered as
a whole;
(x) The statements set forth in the Prospectus
under the caption "Description of Capital Stock", insofar as
they purport to constitute a summary of the terms of the Stock
are accurate in all material respects;
<PAGE> 19
19
(xi) The Registration Statement has become
effective under the Act and, to the best knowledge of such
counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for
that purpose has been instituted or threatened by the
Commission;
(xii) The Company is not an "investment company" or
an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act;
(xiii) The Company and its subsidiaries each owns or
possesses all Governmental Licenses necessary to carry on its
business as presently conducted, with such exceptions as do
not have a material adverse effect on the financial condition
or results of operations of the Company and its subsidiaries,
considered as a whole, and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating
to revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding would have a
material adverse effect on the financial condition or results
of operations of the Company and its subsidiaries, considered
as a whole; and
(xiv) The Registration Statement and the Prospectus
and any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the
financial statements, related schedules and other financial
data contained therein or omitted therefrom, as to which such
counsel need express no opinion), as of their respective
effective dates or issue dates, as the case may be, complied
as to form in all material respects with the requirements of
the Act and the applicable rules and regulations of the
Commission thereunder, although he does not assume any
responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in
subsection (x) of this Section 8(d).
Such counsel shall also state that he has no reason to believe
that, as of its effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of Delivery (other
than the financial statements, related schedules and other financial data
contained therein or omitted therefrom, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements, related schedules and other financial data contained therein or
omitted therefrom, as to which such counsel need express no opinion)
<PAGE> 20
20
contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as of
such Time of Delivery, the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of Delivery
(other than the financial statements, related schedules and other financial
data contained therein or omitted therefrom, as to which such counsel need
express no opinion) contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
and such counsel does not know of any amendment to the Registration
Statement required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration Statement
or required to be described in the Registration Statement or the Prospectus
which are not filed or described as required. With respect to this
paragraph, such counsel may state that such counsel's opinion and belief
are based upon such counsel's participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof and such
investigation as such counsel deems necessary or appropriate.
(e) John M. Rintamaki, Esq., Secretary and Assistant
General Counsel of Ford, or such counsel satisfactory to you in your
reasonable judgment, shall have furnished to you his written opinion, dated
such Time of Delivery, in form and substance satisfactory to you, to the
effect that:
(i) Ford has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Delaware;
(ii) All issued shares of capital stock of the
Company (other than the Shares) are owned directly or
indirectly by Ford, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local
counsel and in respect to matters of fact upon certificates of
officers of Ford, provided that such counsel shall state that
he believes that both you and he are justified in relying
upon such opinions and certificates);
(iii) This Agreement and the International
Underwriting Agreement have been duly authorized, executed and
delivered by Ford;
(iv) The issue and sale of the Shares being
delivered at such Time of Delivery by the Company, the
compliance by the Company and Ford with all of the provisions
of this Agreement and the International Underwriting Agreement
and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or
violation of any of
<PAGE> 21
21
the terms or provisions of, or constitute a default under (in
each case material to Ford and its subsidiaries, considered as
a whole), any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to such
counsel to which Ford is a party or by which Ford is bound or
to which any of the property or assets of Ford is subject, nor
will such action result in any violation of the provisions of
the certificate of incorporation or by-laws of Ford, nor will
such action result in any violation (in each case material to
Ford and its subsidiaries, considered as a whole) of any
applicable statute or any applicable order, rule or regulation
known to such counsel of any court or governmental agency or
body having jurisdiction over Ford or any of its properties;
and
(v) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company and Ford of
the transactions contemplated by this Agreement and the
International Underwriting Agreement, except (i) the
registration under the Act and the Exchange Act of the Shares;
(ii) such consents, approvals or authorizations as may be
required under any concession agreements with any airport
authorities; (iii) the listing of the Shares on the Exchange;
and (iv) such consents, approvals, authorizations,
registrations or qualifications as may be required under
securities or Blue Sky laws of any jurisdiction in connection
with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters.
In rendering such opinion, such counsel may state that he
expresses no opinion as to the laws of any jurisdiction outside the United
States.
(f) On the date of the Prospectus at a time prior to the
execution of this Agreement, at 10:00 a.m., New York City time, on the
effective date of any post-effective amendment to the Registration
Statement filed subsequent to the date of this Agreement and also at each
Time of Delivery, Coopers & Lybrand L.L.P. shall have furnished to you a
letter or letters, dated the respective date of delivery thereof, in form
and substance satisfactory to you, to the effect set forth in Annex I
hereto;
(g) Except as contemplated in the Prospectus, subsequent
to the respective dates as of which information is given in the
Registration Statement and the Prospectus, neither the Company nor any of
its subsidiaries has incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, which are material to the Company and its subsidiaries,
considered as a whole, and there has not been any material adverse change,
on a consolidated basis, in the capital stock, short-term debt or long-term
debt of the Company and its subsidiaries, or
<PAGE> 22
22
any material adverse change, or any development involving a prospective
material adverse change, in the condition (financial or other), business,
net worth or results of operations of the Company and its subsidiaries,
considered as a whole the effect of which, in any such case, is in the
reasonable judgment of the Representatives so material and adverse as to
make it impracticable or inadvisable to proceed with the public offering or
the delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(h) On or after the date hereof there shall not have
occurred any of the following: (i) a suspension or material limitation in
trading in securities generally on the Exchange; (ii) a suspension or
material limitation in trading in the Company s securities on the Exchange;
(iii) a general moratorium on commercial banking activities declared by
either Federal or New York State authorities; or (iv) the outbreak or
escalation of hostilities involving the United States which have resulted
in the declaration by the United States of a national emergency or war, if
the effect of any such event specified in Clauses (i) through (iv), in the
reasonable judgment of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(i) The Shares to be sold by the Company at such Time of
Delivery shall have been duly listed, subject to notice of issuance, on the
Exchange; and
(j) The Company shall have furnished or caused to be
furnished to you at such Time of Delivery certificates of officers of the
Company satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsections (a) and (g) of this Section and as to such other matters as
you may reasonably request.
9. (a) The Company and Ford, jointly and severally,
will indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company
<PAGE> 23
23
and Ford shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through you expressly
for use therein and provided further that the Company shall not be liable to
any Underwriter under the indemnity agreement in this subsection (a) with
respect to any Preliminary Prospectus to the extent that any such loss, claim,
damage or liability of such Underwriter results from the fact that such
Underwriter sold Shares to a person as to whom it shall be established that
there was not sent or given, at or prior to written confirmation of such sale,
a copy of the Prospectus or of the Prospectus as then amended or supplemented
in any case where such delivery is required by the Act if the Company
previously furnished copies thereof in the quantity requested in accordance
with Section 6(c) hereof to such Underwriter and the loss, claim, damage or
liability of such Underwriter results from an untrue statement or omission of a
material fact contained in the Preliminary Prospectus and corrected in the
Prospectus or the Prospectus as then amended or supplemented.
(b) Each Underwriter will indemnify and hold harmless the
Company and Ford against any losses, claims, damages or liabilities to which
the Company or Ford may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through you expressly for use therein; and will reimburse the
Company and Ford for any legal fees or other expenses reasonably incurred by
the Company or Ford in connection with investigating or defending any such
action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to
<PAGE> 24
24
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. If the indemnifying party does not assume the defense of such
action, it is understood that the indemnifying party shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to one separate firm of local attorneys in each
such jurisdiction) at any time for all such indemnified parties, which firms
shall be designated in writing by you, if the indemnified parties under this
Section consist of any Underwriter or any of their respective controlling
persons, or by the Company or Ford, if the indemnified parties under this
Section 9 consist of the Company or Ford or any of the Company's or Ford's
directors, officers or controlling persons. The indemnifying party shall not
be liable for any settlement of an action or claim for monetary damages which
an indemnified party may effect without the consent of the indemnifying party,
which consent shall not be unreasonably withheld.
(d) If the indemnification provided for in this Section 9
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and Ford on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and Ford on the one hand and the Underwriters on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and Ford on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
of the Shares purchased under this Agreement (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters with respect to the Shares purchased
under this Agreement, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined
<PAGE> 25
25
(i) by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or Ford on the one
hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission and (ii) with respect to any Underwriter, by reference to
the extent (if any) to which such losses, claims, damages or liabilities (or
actions in respect thereof) with respect to any Preliminary Prospectus result
from the fact that such Underwriter sold Shares to a person as to whom it shall
be established that there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus or of the Prospectus as
then amended or supplemented in any case where such delivery is required by the
Act if the Company previously furnished copies thereof in the quantity
requested in accordance with Section 6(c) hereof to such Underwriter and the
loss, claim, damage or liability of such Underwriter results from an untrue
statement or omission of a material fact contained in the Preliminary
Prospectus and corrected in the Prospectus or the Prospectus as then amended or
supplemented. The Company, Ford and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and Ford under this
Section 9 shall be in addition to any liability which the Company and Ford may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls any Underwriter within the meaning of the Act; and
the obligations of the Underwriters under this Section 9 shall be in addition
to any liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of the
Company (including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company) and of
Ford and to each person, if any, who controls the Company or Ford within the
meaning of the Act.
<PAGE> 26
26
10. (a) If any Underwriter shall default in its
obligation to purchase the Shares which it has agreed to purchase hereunder at
a Time of Delivery, you may in your discretion arrange for you or another party
or other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled to
a further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In
the event that, within the respective prescribed periods, you notify the
Company that you have so arranged for the purchase of such Shares, or the
Company notifies you that it has so arranged for the purchase of such Shares,
you or the Company shall have the right to postpone such Time of Delivery for a
period of not more than seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or
in any other documents or arrangements, and the Company agrees to file promptly
any amendments to the Registration Statement or the Prospectus which in the
opinion of Shearman & Sterling, counsel for the Underwriters, and Simpson
Thacher & Bartlett, special counsel for the Company, may thereby be made
necessary. The term "Underwriter" as used in this Agreement shall include any
person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have
not been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you and
the Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate number
of all the Shares to be purchased at such Time of Delivery, or if the Company
shall not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the Company to
sell the Option Shares) may thereupon be terminated either by the Company or,
through you, by such Underwriters as have agreed to purchase in the aggregate
50% or more of the aggregate number of remaining Shares to be purchased at such
Time of Delivery (provided, however, that nothing
<PAGE> 27
27
herein contained shall obligate any Underwriter to purchase additional Shares
at such Time of Delivery in excess of the amount required to be purchased by
such Underwriter pursuant to Section 10(b) hereof) without liability on the
part of any non-defaulting Underwriter or the Company, except for the expenses
to be borne by the Company and the Underwriters as provided in Section 7 hereof
and the indemnity and contribution agreements in Section 9 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
11. The respective indemnities, agreements,
representations, warranties and other statements of the Company, Ford and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Company or Ford, or any officer or director or
controlling person of the Company or Ford, and shall survive delivery of and
payment for the Shares.
12. If this Agreement shall be terminated pursuant to
Section 10 hereof or as a result of the failure of any condition set forth in
Section 8(h) hereof, the Company and Ford shall not then be under any liability
to any Underwriter, except as provided in Sections 7 and 9 hereof; but, if for
any other reason, any Shares are not delivered by or on behalf of the Company
as provided herein, the Company will reimburse the Underwriters through you for
all out-of-pocket expenses, including reasonable fees and disbursements of
counsel, as approved in writing by you, reasonably incurred by the Underwriters
in making preparations for the purchase, sale and delivery of the Shares not so
delivered, but the Company and Ford shall then be under no further liability to
any Underwriter in respect of the Shares not so delivered except as provided in
Sections 7 and 9 hereof.
13. In all dealings hereunder, you shall act on behalf of
each of the Underwriters, and the parties hereto shall be entitled to act and
rely upon any statement, request, notice or agreement on behalf of any
Underwriter made or given by you jointly or by J.P. Morgan Securities Inc. on
behalf of you as the representatives.
All statements, requests, notices and agreements hereunder
shall be in writing, and if to the Underwriters shall be delivered or sent by
mail or facsimile transmission to you as the Representatives, c/o J.P. Morgan
Securities Inc., 60 Wall Street, New York, New York 10260 (telefax: (212)
648-5705), Attention: Syndicate Department; if to the Company shall be
delivered or sent by mail or facsimile transmission to the Company at 225 Brae
Boulevard, Park Ridge, New Jersey (telefax: (201) 307-2748), Attention: General
Counsel; and if to Ford shall be delivered or sent by mail or facsimile
transmission to Ford at The American Road, Dearborn, Michigan 48121 (telefax:
(313) 337-9591), Attention: Secretary; provided, however, that any notice to
an Underwriter pursuant to Section 9(c) hereof shall be delivered or sent by
mail or facsimile transmission directly to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting
<PAGE> 28
28
such Questionnaire, which address will be supplied to the Company or Ford by
you upon request. Any such statements, requests, notices or agreements shall
take effect at the time of receipt thereof.
14. This Agreement shall be binding upon, and inure
solely to the benefit of, the Underwriters, the Company, Ford and, to the
extent provided in Sections 9 and 11 hereof, the officers and directors of the
Company and Ford and any person who controls the Company, Ford or any
Underwriter, and their respective heirs, executors, administrators, successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
15. Time shall be of the essence of this Agreement. As
used herein, the term "business day" shall mean any day when the Commission's
office in Washington, D.C. is open for business.
16. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
17. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
<PAGE> 29
29
If the foregoing is in accordance with your understanding,
please sign and return to us four counterparts hereof, and upon the acceptance
hereof by you, on behalf of each of the Underwriters, this letter and such
acceptance hereof shall constitute a binding agreement among each of the
Underwriters, the Company and Ford. It is understood that your acceptance of
this letter on behalf of the Underwriters is pursuant to the authority set
forth in a form of Agreement Among U.S. Underwriters, the form of which has
been submitted to the Company and Ford for examination upon request, but
without warranty on your part as to the authority of the signers thereof.
Very truly yours,
THE HERTZ CORPORATION
By:_____________________
Name:
Title:
FORD MOTOR COMPANY
By:_____________________
Name:
Title:
Accepted:___________, 1997
J.P. MORGAN SECURITIES INC.
GOLDMAN, SACHS & CO.
LEHMAN BROTHERS INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
By: J.P. MORGAN SECURITIES INC.
Acting on behalf of themselves and the
several Underwriters listed in
Schedule I hereto
By:_________________________
Name:
Title:
<PAGE> 30
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
UNDERWRITTEN OPTION
SHARES TO BE SHARES TO BE
PURCHASED PURCHASED TOTAL
------------ ------------ -----
UNDERWRITER
- -----------
<S> <C> <C> <C>
J.P. Morgan Securities Inc. . . . . . . . . . . . . . . . _________ _______ _________
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . _________ _______ _________
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . _________ _______ _________
Salomon Brothers Inc . . . . . . . . . . . . . . . . . . _________ _______ _________
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . ========== ========= ==========
</TABLE>
<PAGE> 31
SCHEDULE II
LIST OF PRINCIPAL SUBSIDIARIES
Hertz International, Ltd.
Hertz Equipment Rental Corporation
Hertz International RE Limited
<PAGE> 32
ANNEX I
Pursuant to Section 8(f) of the Underwriting Agreement, the
accountants shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants
with respect to the Company and its subsidiaries within the meaning of
the Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined
by them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports
thereon, copies of which have been furnished separately to the
representatives of the Underwriters (the "Representatives");
(iii) If applicable, they have made a review in accordance
with standards established by the American Institute of Certified
Public Accountants of the unaudited condensed consolidated statements
of income, consolidated balance sheets and consolidated statements of
cash flows included in the Prospectus as indicated in their reports
thereon copies of which have been separately furnished to the
Representatives and on the basis of specified procedures including
inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited
condensed consolidated financial statements referred to in paragraph
(vi)(A)(i) below comply as to form in all material respects with the
applicable accounting requirements of the Act and the related
published rules and regulations, nothing came to their attention that
caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
published rules and regulations;
(iv) The unaudited selected financial information with
respect to the consolidated results of operations and financial
position of the Company as of December 31, 1996 and 1995 and for the
three years in the period ended December 31, 1996 included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements for
1996, 1995 and 1994;
(v) They have compared the information in the Prospectus
under selected captions with the disclosure requirements of Regulation
S-K and on the basis of limited
<PAGE> 33
Ann. I - 2
procedures specified in such letter nothing came to their attention as
a result of the foregoing procedures that caused them to believe that
this information does not conform in all material respects with the
disclosure requirements of Items 301 and 402 of Regulation S- K;
(vi) On the basis of limited procedures, not constituting
an examination in accordance with generally accepted auditing
standards, consisting of a reading of the unaudited financial
statements and other information referred to below, a reading of the
latest available interim financial statements of the Company and its
subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and
its subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe
that:
(A) (i) the unaudited consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally
accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were
not included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with
the basis for the audited consolidated financial statements
included in the Prospectus;
(D) if applicable, any unaudited pro forma
consolidated condensed financial statements included in the
Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the
published rules and regulations thereunder or the pro forma
adjustments have not
<PAGE> 34
Ann. I - 3
been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five
days prior to the date of such letter, there have been any
changes in the consolidated capital stock (other than
issuances of capital stock upon exercise of options and stock
appreciation rights, upon earn-outs of performance shares and
upon conversions of convertible securities, in each case which
were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current
assets or stockholders equity or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts
shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which
are described in such letter; and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (D) there were any
decreases in consolidated net revenues or consolidated net
income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in
each case as compared with the comparable period of the
preceding year and with any other period of corresponding
length specified by the Representatives, except in each case
for decreases or increases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records
of the Company and its subsidiaries, which appear in the Prospectus,
or in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found
them to be in agreement.
<PAGE> 35
ANNEX II
LIST OF MATERIAL AGREEMENTS
1. Indenture dated as of April 1, 1986 between the Company and The Chase
Manhattan Bank (formerly known as Chemical Bank), as successor by
merger to Manufacturers Hanover Trust Company, as Trustee
2. First Supplemental Indenture dated as of April 12, 1990 between the
Company and The Chase Manhattan Bank (formerly known as Chemical
Bank), as successor by merger to Manufacturers Hanover Trust Company,
as Trustee
3. Indenture dated as of June 1, 1989 between the Company and The Bank of
New York, as Trustee
4. Indenture dated as of July 1, 1993 between the Company and Citibank,
N.A., as Trustee
5. Indenture dated as of December 2, 1994 between the Company and First
Union National Bank (formerly known as First Fidelity Bank, National
Association), as Trustee
6. Corporate Agreement, dated _______, 1997, between the Company and Ford
Motor Company
7. Car Supply Agreement, dated February 20, 1997, between the Company and
Ford Motor Company
8. Joint Advertising Agreement, dated February 20, 1997, between a
subsidiary of the Company and Ford Motor Company
<PAGE> 1
EXHIBIT 3(a)
RESTATED
CERTIFICATE OF INCORPORATION
OF
THE HERTZ CORPORATION
* * * * *
The Hertz Corporation, a Delaware corporation, the original
Certificate of Incorporation of which was filed with the Secretary of State of
the State of Delaware on April 19, 1967 under the name New Aitch, Inc., HEREBY
CERTIFIES that this Restated Certificate of Incorporation restating,
integrating and amending its Restated Certificate of Incorporation, as amended,
that was originally filed with the Secretary of State of the State of Delaware
on July 19, 1993, was duly adopted by its Board of Directors and its
stockholders in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware (the "Delaware General Corporation Law").
1. NAME OF CORPORATION. The name of the corporation is THE
HERTZ CORPORATION (the "Corporation").
2. REGISTERED OFFICE AND REGISTERED AGENT. The address of
the Corporation's registered office in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle.
The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
3. PURPOSE. The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law as the same exists or may hereafter be
amended.
4. CAPITAL STOCK. (a) The total number of shares of stock
that the Corporation shall have authority to issue is 620,001,290 of which (i)
1,290 shares shall be shares of 5.11% Cumulative Series C Preferred Stock, par
value $.01 per share (the "Series C Preferred Stock", (ii) 40,000,000 shares
shall be shares of preferred Stock, par value $.01 per share (the "Preferred
Stock"), (iii) 440,000,000 shares shall be shares of Class A Common Stock, par
value $.01 per share ("Class A Common Stock") and (iv) 140,000,000 shares
shall be shares of Class B Common Stock, par value $.01 per share ("Class B
Common Stock", and together with the Class A Common Stock, "Common Stock").
(b) The number of authorized shares of any class or classes
of stock may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a majority
of the votes entitled to be cast by the holders of the Common Stock of the
Corporation, voting together as a single class, irrespective of the
<PAGE> 2
2
provisions of Section 242(b)(2) of the Delaware General Corporation Law or any
corresponding provision hereinafter enacted.
(c) The following is a statement of the relative powers,
preferences and participating, optional or other special rights, and the
qualifications, limitations and restrictions of the Class A Common Stock and
Class B Common Stock of the Corporation:
(1) Except as otherwise set forth below in this Article 4,
the relative powers, preferences and participating, optional or other
special rights, and the qualifications, limitations or restrictions of
the Class A Common Stock and Class B Common Stock shall be identical
in all respects.
(2) Subject to the rights of the holders of any outstanding
preferred stock and subject to any other provisions of this Restated
Certificate of Incorporation, holders of Class A Common Stock and
Class B Common Stock shall be entitled to receive such dividends and
other distributions in cash, stock of any corporation (other than
Common Stock) or property of the Corporation as may be declared
thereon by the Board of Directors from time to time out of assets or
funds of the Corporation legally available therefor and shall share
equally on a per share basis in all such dividends and other
distributions. In the case of dividends or other distributions
payable in Common Stock, including distributions pursuant to stock
splits or divisions of Common Stock, only shares of Class A Common
Stock shall be paid or distributed with respect to Class A Common
Stock and only shares of Class B Common Stock shall be paid or
distributed with respect to Class B Common Stock. The number of
shares of Class A Common Stock and Class B Common Stock so distributed
shall be equal in number on a per share basis. Neither the shares of
Class A Common Stock nor the shares of Class B Common Stock may be
reclassified, subdivided or combined unless such reclassification,
subdivision or combination occurs simultaneously and in the same
proportion for each class.
(3)(A) At every meeting of the stockholders of the
Corporation every holder of Class A Common Stock shall be entitled to
one vote in person or by proxy for each share of Class A Common Stock
standing in his or her name on the transfer books of the Corporation,
and every holder of Class B Common Stock shall be entitled to five
votes in person or by proxy for each share of Class B Common Stock
standing in his or her name on the transfer books of the Corporation
in connection with the election of directors and all other matters
submitted to a vote of stockholders, subject to the right of Ford
Motor Company (together with its successors, "Ford") or the Class B
Transferee (as defined in paragraph (c)(6)(B) below), as the case may
be, which at the time shall own beneficially all of the outstanding
shares of Class B Common Stock to reduce from time to time the number
of votes per share to which the holders of Class B Common Stock are
entitled to any number of votes per share of Class B Common Stock less
than five (but not fewer than one) by written notice to the
Corporation, which notice shall (i) specify the reduced number of
votes per share, (ii) be included with the records of the Corporation
maintained by the Secretary and (iii), for so long thereafter as there
shall be shares of Class B Common Stock outstanding, be referred to or
reflected in any proxy or information statement provided to
<PAGE> 3
3
holders of the Common Stock in connection with any matter to be
voted upon by such holders; provided, however, that with respect to
any proposed conversion of the shares of Class B Common Stock into
shares of Class A Common Stock pursuant to paragraph (c)(6)(B) below,
every holder of a share of Common Stock, irrespective of class, shall
have one vote in person or by proxy for each share of Common Stock
standing in his or her name on the transfer books of the Corporation.
Except as may be otherwise required by law or by this Article 4, the
holders of Class A Common Stock and Class B Common Stock shall vote
together as a single class, subject to any voting rights which may be
granted to holders of Preferred Stock, on all matters submitted to a
vote of stockholders of the Corporation.
(B) Except as otherwise provided by law, and subject to any
rights of the holders of any outstanding preferred stock, the
provisions of this Restated Certificate of Incorporation shall not be
modified, revised, altered or amended, repealed or rescinded in whole
or in part, without the approval of a majority of the votes entitled
to be cast by the holders of the Class A Common Stock and the Class B
Common Stock, voting together as a single class; provided, however,
that with respect to any proposed amendment of this Restated
Certificate of Incorporation which would alter or change the powers,
preferences or special rights of the shares of Class A Common Stock or
Class B Common Stock so as to affect them adversely, the approval of a
majority of the votes entitled to be cast by the holders of the shares
affected by the proposed amendment, voting separately as a class,
shall be obtained in addition to the approval of a majority of the
votes entitled to be cast by the holders of the Class A Common Stock
and the Class B Common Stock voting together as a single class as
hereinbefore provided. Any increase or decrease (but not below the
number of shares thereof then outstanding) in the authorized number of
shares of any class or classes of stock of the Corporation or creation,
authorization or issuance of any securities convertible into, or
warrants, options or similar rights to purchase, acquire or receive,
shares of any such class or classes of stock shall be deemed not to
affect adversely the powers, preferences or special rights of the
shares of Class A Common Stock or Class B Common Stock.
(C) Every reference in this Restated Certificate of
Incorporation to a majority or other proportion of shares of Common
Stock, Class A Common Stock or Class B Common Stock shall refer to
such majority or other proportion of the votes to which such shares of
Common Stock, Class A Common Stock or Class B Common Stock are
entitled.
(4) In the event of any dissolution, liquidation or winding
up of the affairs of the Corporation, whether voluntary or
involuntary, after payment in full of the amounts required to be paid
to the holders of any outstanding preferred stock, the remaining
assets and funds of the Corporation shall be distributed pro rata to
the holders of Class A Common Stock and Class B Common Stock. For
purposes of this paragraph (c)(4), the voluntary sale, conveyance,
lease, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the assets of the
Corporation or a consolidation or merger of the Corporation with one
or more other corporations (whether or not the Corporation is the
corporation surviving such
<PAGE> 4
4
consolidation or merger) shall not be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary.
(5) In case of any reorganization or any consolidation of the
Corporation with one or more other corporations or a merger of the
Corporation with another corporation, each holder of a share of Class
A Common Stock shall be entitled to receive with respect to such share
the same kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reorganization,
consolidation or merger by a holder of a share of Class B Common Stock
and each holder of a share of Class B Common Stock shall be entitled
to receive with respect to such share the same kind and amount of
shares of stock and other securities and property (including cash)
receivable upon such reorganization, consolidation or merger by a
holder of a share of Class A Common Stock.
(6)(A) Prior to the date on which shares of Class B Common
Stock are issued to stockholders of Ford, or the Class B Transferee in
a Tax-Free Spin-Off (as defined in paragraph (c)(6)(B) below), each
record holder of shares of Class B Common Stock may convert such
shares into an equal number of shares of Class A Common Stock by
surrendering the certificates for such shares, accompanied by any
required tax transfer stamps and by a written notice by such record
holder to the Corporation stating that such record holder desires to
convert such shares of Class B Common Stock into the same number of
shares of Class A Common Stock and requesting that the Corporation
issue all of such shares of Class A Common Stock to persons named
therein, setting forth the number of shares of Class A Common Stock to
be issued to each such person and the denominations in which the
certificates therefor are to be issued. To the extent permitted by
law, such voluntary conversion shall be deemed to have been effected at
the close of business on the date of such surrender. Following a
Tax-Free Spin-Off, shares of Class B Common Stock shall no longer be
convertible into shares of Class A Common Stock except as set forth in
paragraph (c)(6)(B) below.
(B) Prior to a Tax-Free Spin-Off, each share of Class B
Common Stock shall automatically convert into one share of Class A
Common Stock upon the transfer of such share if, after such transfer,
such share is not beneficially owned by Ford or any subsidiary of Ford
or, as set forth below in this paragraph (c)(6)(B), the Class B
Transferee or any subsidiary of the Class B Transferee. Shares of
Class B Common Stock shall not convert into shares of Class A Common
Stock (i) in any transfer effected in connection with a distribution
of Class B Common Stock to stockholders of Ford or of the Class B
Transferee in a transaction intended to be tax-free under Section 355
of the Internal Revenue Code of 1986, as amended from time to time
(the "Code"), (a "Tax-Free Spin-Off") or (ii) except as otherwise set
forth below in this paragraph (c)(6)(B), in any transfer after a
Tax-Free Spin-Off. For purposes of this paragraph (c)(6), a Tax-Free
Spin-Off shall be deemed to have occurred at the time shares are first
transferred to stockholders of Ford or to stockholders of the Class B
Transferee, as the case may be, following receipt of an affidavit
described in clauses
<PAGE> 5
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(vi) or (vii) of the first sentence of paragraph (c)(6)(D) below. For
purposes of this paragraph (c)(6), the term "beneficially owned" with
respect to shares of Class B Common Stock means ownership by a person
or entity who, directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise controls the
voting power (which includes the power to vote or to direct the
voting) of such Class B Common Stock and the term "subsidiary" means
as to any person or entity, all corporations, partnerships, joint
ventures, associations and other entities in which such person or
entity beneficially owns (directly or indirectly) 50% or more of the
outstanding voting stock, voting power, partnership interests or
similar voting interests. Prior to a Tax-Free Spin-Off, shares of
Class B Common Stock representing more than a 50% economic interest in
the then outstanding Common Stock taken as a whole transferred by Ford
or any of its subsidiaries in a single transaction to one unrelated
person (together with its successors, the "Class B Transferee") or any
subsidiary of the Class B Transferee shall not automatically convert
to Class A Common Stock upon the transfer of such shares. Any shares
of Class B Common Stock retained by Ford or any of its subsidiaries
following any such transfer of shares of Class B Common Stock to the
Class B Transferee shall automatically convert into shares of Class A
Common Stock upon such transfer. For purposes of this paragraph
(c)(6), each reference to a "person" shall be deemed to include not
only a natural person, but also a corporation, partnership, joint
venture, association, or legal entity of any kind; each reference to a
"natural person" (or to a "record holder" of shares, if a natural
person) shall be deemed to include in his or her representative
capacity a guardian, committee, executor, administrator or other legal
representative of such natural person or record holder.
In the event of a Tax-Free Spin-Off, shares of Class
B Common Stock shall automatically convert into shares of Class A
Common Stock on the fifth anniversary of the date on which shares of
Class B Common Stock are first transferred to stockholders of Ford or
of the Class B Transferee, as the case may be, in a Tax-Free Spin-Off
unless, prior to such Tax-Free Spin-Off, Ford or the Class B
Transferee, as the case may be, delivers to the Corporation an opinion
of counsel reasonably satisfactory to the Corporation (which, in the
case of Ford, shall include Ford's Chief Tax Officer) to the effect
that such conversion would preclude Ford or the Class B Transferee, as
the case may be, from obtaining a favorable ruling from the Internal
Revenue Service that the distribution would be a Tax-Free Spin-Off
under the Code. If such an opinion is received, approval of such
conversion shall be submitted to a vote of the holders of the Common
Stock as soon as practicable after the fifth anniversary of the
Tax-Free Spin-Off unless Ford or the Class B Transferee, as the case
may be, delivers to the Corporation an opinion of counsel reasonably
satisfactory to the Corporation (which, in the case of Ford, shall
include Ford's Chief Tax Officer) prior to such anniversary to the
effect that such vote would adversely affect the status of the
Tax-Free Spin-Off. At the meeting of stockholders called for such
purpose, every holder of Common Stock shall be entitled to one vote in
person or by proxy for each share of Common Stock standing in his or
her name on the transfer books of the Corporation. Approval of such
conversion shall require the approval of a majority of the votes
entitled to be cast by the holders of the Class A Common Stock and
Class B
<PAGE> 6
6
Common Stock present and voting, voting together as a single
class, and the holders of the Class B Common Stock shall not be
entitled to a separate class vote. Such conversion shall be effective
on the date on which such approval is given at a meeting of
stockholders called for such purpose.
Each share of Class B Common Stock shall
automatically convert into one share of Class A Common Stock if at any
time prior to a Tax-Free Spin-Off the number of outstanding shares of
Class B Common Stock owned by Ford or any of its subsidiaries or the
Class B Transferee or any of its subsidiaries, as the case may be, is
less than 20% of the aggregate number of shares of Common Stock then
outstanding.
The Corporation will provide notice of any automatic
conversion of all outstanding shares of Class B Common Stock to
holders of record of the Common Stock as soon as practicable following
such conversion, provided, however, that the Corporation may satisfy
such notice requirement by providing such notice prior to such
conversion. Such notice shall be provided by mailing notice of such
conversion first class postage prepaid, to each holder of record of
the Common Stock, at such holder's address as it appears on the
transfer books of the Corporation; provided, however, that no failure
to give such notice nor any defect therein shall affect the validity
of the automatic conversion of any shares of Class B Common Stock.
Each such notice shall state, as appropriate, the following:
(a) the automatic conversion date;
(b) that all outstanding shares of Class B Common
Stock are automatically converted;
(c) the place or places where certificates for such
shares are to be surrendered for conversion; and
(d) that no dividends will be declared on the shares
of Class B Common Stock converted after such conversion date.
Immediately upon such conversion, the rights of the
holders of shares of Class B Common Stock as such shall cease and such
holders shall be treated for all purposes as having become the record
owners of the shares of Class A Common Stock issuable upon such
conversion; provided, however, that such persons shall be entitled to
receive when paid any dividends declared on the Class B Common Stock
as of a record date preceding the time of such conversion and unpaid
as of the time of such conversion, subject to paragraph (c)(6)(F)
below.
(C) Prior to a Tax-Free Spin-Off, holders of shares of Class
B Common Stock may (i) sell or otherwise dispose of or transfer any or
all of such shares held by them, respectively, only in connection with
a transfer which meets the qualifications of paragraph (c)(6)(D)
below, and under no other circumstances, or (ii) convert any or all of
such shares into shares of Class A Common Stock
<PAGE> 7
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as provided in paragraph (c)(6)(A) above. Prior to a Tax-Free
Spin-Off, no one other than those persons in whose names shares of
Class B Common Stock become registered on the original stock ledger of
the Corporation by reason of their record ownership of shares of common
stock of the Corporation which are reclassified into shares of Class B
Common Stock, or transferees or successive transferees who receive
shares of Class B Common Stock in connection with a transfer which
meets the qualifications set forth in paragraph (c)(6)(D) below, shall
by virtue of the acquisition of a certificate for shares of Class B
Common Stock have the status of an owner or holder of shares of Class B
Common Stock or be recognized as such by the Corporation or be
otherwise entitled to enjoy for his or her own benefit the special
rights and powers of a holder of shares of Class B Common Stock.
Holders of shares of Class B Common Stock may at any and all
times transfer to any person the shares of Class A Common Stock
issuable upon conversion of such shares of Class B Common Stock.
(D) Prior to a Tax-Free Spin-Off, shares of Class B Common
Stock shall be transferred on the books of the Corporation and a new
certificate therefor issued, upon presentation at the office of the
Secretary of the Corporation (or at such additional place or places as
may from time to time be designated by the Secretary or any Assistant
Secretary of the Corporation) of the certificate for such shares, in
proper form for transfer and accompanied by all requisite stock
transfer tax stamps, only if such certificate when so presented shall
also be accompanied by any one of the following:
(i) an affidavit from Ford stating that
such certificate is being presented to effect a transfer by
Ford of such shares to a subsidiary of Ford; or
(ii) an affidavit from Ford stating that
such certificate is being presented to effect a transfer by
any subsidiary of Ford of such shares to Ford or another
subsidiary of Ford; or
(iii) an affidavit from Ford stating that
such certificate is being presented to effect a transfer by
Ford or any of its subsidiaries of such shares to the Class B
Transferee or a subsidiary of the Class B Transferee as
contemplated by paragraph (c)(6)(B); or
(iv) an affidavit from the Class B
Transferee stating that such certificate is being presented to
effect a transfer by the Class B Transferee of such shares to
a subsidiary of the Class B Transferee; or
(v) an affidavit from the Class B
Transferee stating that such certificate is being presented to
effect a transfer by any subsidiary of the Class B Transferee
of such shares to the Class B Transferee or another subsidiary
of the Class B Transferee; or
<PAGE> 8
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(vi) an affidavit from Ford stating that
such certificate is being presented to effect a transfer by
Ford of such shares to the stockholders of Ford in connection
with a Tax-Free Spin-Off; or
(vii) an affidavit from the Class B
Transferee stating that such certificate is being presented to
effect a transfer by the Class B Transferee of such shares to
the stockholders of the Class B Transferee in connection with
a Tax-Free Spin-Off.
Each affidavit of a record holder furnished pursuant to this
paragraph (c)(6)(D) shall be verified as of a date not earlier than
five days prior to the date of delivery thereof, and, where such
record holder is a corporation or partnership, shall be verified by an
officer of the corporation or by a general partner of the partnership,
as the case may be.
If a record holder of shares of Class B Common Stock shall
deliver a certificate for such shares, endorsed by him or her for
transfer or accompanied by an instrument of transfer signed by him or
her, to a person who receives such shares in connection with a
transfer which does not meet the qualifications set forth in this
paragraph (c)(6)(D), then such person or any successive transferee of
such certificate may treat such endorsement or instrument as
authorizing him or her on behalf of such record holder to convert such
shares in the manner above provided for the purpose of the transfer to
himself or herself of the shares of Class A Common Stock issuable upon
such conversion, and to give on behalf of such record holder the
written notice of conversion above required, and may convert such
shares of Class B Common Stock accordingly.
If such shares of Class B Common Stock shall improperly have
been registered in the name of such a person (or in the name of any
successive transferee of such certificate) and a new certificate
therefor issued, such person or transferee shall surrender such new
certificate for cancellation, accompanied by the written notice of
conversion above required, in which case (A) such person or transferee
shall be deemed to have elected to treat the endorsement on (or
instrument of transfer accompanying) the certificate so delivered by
such former record holder as authorizing such person or transferee on
behalf of such former record holder so to convert such shares and so
to give such notice, (B) the shares of Class B Common Stock registered
in the name of such former record holder shall be deemed to have been
surrendered for conversion for the purpose of the transfer to such
person or transferee of the shares of Class A Common Stock issuable
upon conversion, and (C) the appropriate entries shall be made on the
books of the Corporation to reflect such action.
In the event that the Board of Directors of the Corporation
(or any committee of the Board of Directors, or any officer of the
Corporation, designated for the purpose by the Board of Directors)
shall determine, upon the basis of facts not disclosed in any
affidavit or other document accompanying the certificate for shares of
Class B Common Stock when presented for transfer, that such shares of
Class B Common
<PAGE> 9
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Stock have been registered in violation of the provisions of
paragraph (c)(6), or shall determine that a person is enjoying for his
or her own benefit the special rights and powers of shares of Class B
Common Stock in violation of such provisions, then the Corporation
shall take such action at law or in equity as is appropriate under the
circumstances. An unforeclosed pledge made to secure a bona fide
obligation shall not be deemed to violate such provisions.
(E) Prior to the occurrence of a Tax-Free Spin-Off, every
certificate for shares of Class B Common Stock shall bear a legend on
the face thereof reading as follows:
"The shares of Class B Common Stock represented by
this certificate may not be transferred to any person in
connection with a transfer that does not meet the
qualifications set forth in paragraph (c)(6)(D) of Article 4
of the Restated Certificate of Incorporation of this
corporation as amended and no person who receives such shares
in connection with a transfer which does not meet the
qualifications prescribed by paragraph (c)(6)(D) of said
Article 4 is entitled to own or to be registered as the record
holder of such shares of Class B Common Stock, but the record
holder of this certificate may at any time convert such shares
of Class B Common Stock into the same number of shares of
Class A Common Stock. Each holder of this certificate, by
accepting the same, accepts and agrees to all of the
foregoing."
Upon and after the transfer of shares in a Tax-Free Spin-Off,
shares of Class B Common Stock shall no longer bear the legend set
forth above in this paragraph (c)(6)(E).
(F) Upon any conversion of shares of Class B Common Stock
into shares of Class A Common Stock pursuant to the provisions of this
paragraph (c)(6), any dividend, for which the record date or payment
date shall be subsequent to such conversion, which may have been
declared on the shares of Class B Common Stock so converted shall be
deemed to have been declared, and shall be payable, with respect to
the shares of Class A Common Stock into or for which such shares of
Class B Common Stock shall have been so converted, and any such
dividend which shall have been declared on such shares payable in
shares of Class B Common Stock shall be deemed to have been declared,
and shall be payable, in shares of Class A Common Stock.
(G) The Corporation shall not reissue or resell any shares of
Class B Common Stock which shall have been converted into shares of
Class A Common Stock pursuant to or as permitted by the provisions of
this paragraph (c)(6), or any shares of Class B Common Stock which
shall have been acquired by the Corporation in any other manner. The
Corporation shall, from time to time, take such appropriate action as
may be necessary to retire such shares and to reduce the authorized
amount of Class B Common Stock accordingly.
<PAGE> 10
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The Corporation shall at all times reserve and keep available,
out of its authorized but unissued Common Stock, such number of shares
of Class A Common Stock as would become issuable upon the conversion
of all shares of Class B Common Stock then outstanding.
(H) In connection with any transfer or conversion of any
stock of the Corporation pursuant to or as permitted by the provisions
of this paragraph (c)(6), or in connection with the making of any
determination referred to in this paragraph (c)(6):
(i) the Corporation shall be under no obligation to
make any investigation of facts unless an officer, employee or
agent of the Corporation responsible for making such transfer
or determination or issuing Class A Common Stock pursuant to
such conversion has substantial reason to believe, or unless
the Board of Directors (or a committee of the Board of
Directors designated for the purpose) determines that there is
substantial reason to believe, that any affidavit or other
document is incomplete or incorrect in a material respect or
that an investigation would disclose facts upon which any
determination referred to in paragraph (c)(6)(F) above should
be made, in either of which events the Corporation shall make
or cause to be made such investigation as it may deem
necessary or desirable in the circumstances and have a
reasonable time to complete such investigation; and
(ii) neither the Corporation nor any director,
officer, employee or agent of the Corporation shall be liable
in any manner for any action taken or omitted in good faith.
(I) The Corporation will not be required to pay any
documentary, stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Class A Common Stock on
the conversion of shares of Class B Common Stock pursuant to this
paragraph (c)(6), and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Corporation
the amount of any such tax or has established, to the satisfaction of
the Corporation, that such tax has been paid.
(d) All rights to vote and all voting power (including,
without limitation thereto, the right to elect directors) shall be vested
exclusively, in accordance with paragraph (c)(3) and paragraphs (d) through
(g), inclusive, in the holders of Common Stock, voting together as a single
class, except as otherwise expressly provided by the Board of Directors
pursuant to Article 6 of this Restated Certificate of Incorporation or as
otherwise expressly required by the law of the State of Delaware.
(e) No stockholder shall be entitled to exercise any right of
cumulative voting. If, however, any stockholder should at any time become
entitled to exercise a right of cumulative voting, whether by express
requirement of the law of the State of Delaware or otherwise, then at all
elections of directors each holder of Class A Common Stock shall be
<PAGE> 11
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entitled to cast one vote for each share of Class A Common Stock held by him or
her, each holder of Class B Common Stock shall be entitled to cast the number
of votes to which each share of Class B Common Stock is then entitled pursuant
to paragraph (c)(3)(A) above for each share of Class B Common Stock held by him
or her and each holder of Full Voting Preferred Stock (as defined in Article 6,
paragraph (b)), if any, of any series shall be entitled to cast the number of
votes (which may be one vote or more or less than one vote) for each share of
Full Voting Preferred Stock held by him or her which the Board of Directors
shall have determined pursuant to Article 6 in establishing voting rights with
respect to such series, in each case multiplied by the number of directors to
be elected, and each such holder shall be entitled to cast all of his or her
votes for a single director or to distribute them among the number of directors
to be voted for, or to cast his or her votes for any two or more of them as he
or she may see fit.
(f) At any meeting of stockholders, the presence in person or
by proxy of the holders of shares entitled to cast a majority of all the votes
which could be cast at such meeting by the holders of all of the outstanding
shares of stock of the Corporation entitled to vote on every matter that is to
be voted on without regard to class at such meeting shall constitute a quorum.
(g) At every meeting of stockholders, the holders of Class A
Common Stock, the holders of Class B Common Stock and the holders of Full
Voting Preferred Stock, if any, shall vote together as a class, and their votes
shall be counted and totalled together; and at any meeting of stockholders duly
called and held at which a quorum (determined in accordance with the provisions
of paragraph (f)) is present, (i) in all matters other than the election of
directors, a majority of the votes which could be cast at such meeting upon a
given question and (ii) in the case of the election of directors, a plurality
of the votes which could be cast at such meeting upon such election, by such
holders who are present in person or by proxy, shall be necessary, in addition
to any vote or other action that may be expressly required by the provisions of
this Restated Certificate of Incorporation or by the law of the State of
Delaware, to decide such question or election, and shall decide such question
or election if no such additional vote or other action is so required.
(h) Each holder of Preferred Stock shall be entitled to vote
to the extent, if any, provided by the Board of Directors pursuant to Article
6.
(i) Immediately upon the effectiveness of this Restated
Certificate of Incorporation, (i) each share of common stock of the Corporation
issued and outstanding immediately prior to such effectiveness shall be changed
into and reclassified as [ ] shares of Class B Common Stock and (ii)
each share of preferred stock of the Corporation issued and outstanding
immediately prior to such effectiveness other than the Series C Preferred Stock
shall be changed into and reclassified as [ ] shares of Class A Common
Stock.
5. SERIES C PREFERRED STOCK. (a) (1) The holders of shares
of the Series C Preferred Stock shall not have any voting powers either general
or special, except as required by law or as provided in this Article 5.
<PAGE> 12
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(2) If an Event of Default (as defined below) shall have
occurred and be continuing, the number of directors constituting the Board of
Directors shall, without further action and notwithstanding any provision
herein or in the Corporation's By-Laws to the contrary, be increased such that
the holders of shares of the Series C Preferred Stock, voting separately as a
class, shall be entitled to elect two additional directors (the "Series C
Directors") at a special meeting of such holders called by the Secretary of the
Corporation in accordance with a written request of the holders of at least 10%
of the outstanding shares of Series C Preferred Stock. Except as set forth in
this Section 5(a)(2), each of the Series C Directors shall hold office until
his successor shall be duly elected by the holders of shares of Series C
Preferred Stock, voting separately as a class, at any annual or other meeting
of stockholders of the Corporation held to elect directors. The right of the
holders of the shares of Series C Preferred Stock to elect the Series C
Directors shall continue until no Event of Default shall be continuing, whether
as a result of such Event of Default being cured or otherwise, whereupon the
holders of shares of Series C Preferred Stock shall be divested of such right,
subject to such right vesting again upon the reoccurrence of an Event of
Default. Upon such divestment, the terms of office of the Series C Directors
shall terminate and the number of the directors of the Corporation shall be
reduced correspondingly. Any Series C Director may be removed, with or without
cause, by the holders of Series C Preferred Stock or, with cause, by the Board
of Directors. Any vacancy among the Series C Directors may be filled solely by
the holders of shares of Series C Preferred Stock, voting separately as a
class.
For the purposes of this Article 5, "Event of Default" shall
mean failure to pay the full Redemption Price upon redemption of the Series C
Preferred Stock pursuant to Section 5(d) and "Redemption Price" shall mean an
amount per share equal to $100,000 plus accrued and unpaid dividends thereon.
(b)(1) The holders of shares of the Series C Preferred Stock
shall be entitled to receive, when and as declared by the Board of Directors
out of any funds legally available for the payment of dividends, cumulative
cash dividends per share of Series C Preferred Stock payable quarterly on March
1, June 1, September 1 and December 1 in each year commencing on June 1, 1997.
Dividends with respect to shares of Series C Preferred Stock shall accrue from
the date of issuance of such shares, at the rate of 5.11% per annum.
(2) The cumulative cash dividends for any share of the Series
C Preferred Stock which remain unpaid at the end of any calendar year shall
accrue additional cumulative cash dividends for each subsequent calendar year
at the rate established for the accrual of dividends on such share of the
Series C Preferred Stock during such subsequent year pursuant to Section
5(b)(1) above. Except as set forth in this Section 5(b), no other dividends
shall accrue, cumulate, be declared or paid with respect to shares of the
Series C Preferred Stock. All dividends provided for by this Section 5(b)
shall accrue based on the number of days in a year of 360 days with twelve
30-day months.
(c) In the event of dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, the holders of the shares of
the Series C Preferred Stock shall be entitled to receive the Redemption Price
for each such share before any dividend or distribution shall be made to the
holders of the Common Stock. If the assets of the
<PAGE> 13
13
Corporation distributable to the stockholders on liquidation, dissolution or
winding up shall be insufficient to pay the aggregate amount to be paid to the
holders of the shares of the Series C Preferred Stock, such assets shall be
distributed to the holders of the shares of the Series C Preferred Stock
ratably, without preference or priority, in proportion to the amounts which
would otherwise be paid to each such holder under this Section 5(c).
(d) The Series C Preferred Stock is redeemable at the
option of the Corporation, in whole at any time, or in part from time to time,
on not less that two days' notice, at an amount per share equal to the
Redemption Price. On and after the later of the redemption date established
pursuant to the notice set forth above and the date on which funds are made
available for such redemption, dividends will cease to accumulate on shares of
the Series C Preferred Stock called for Redemption. The Board of Directors may
cause the transfer books of the Corporation to be closed as to the shares of
the Series C Preferred Stock to be redeemed and such shares shall be canceled
and not reissued and the authorized capital correspondingly reduced.
(e) Shares of the Series C Preferred Stock acquired by the
Corporation may not be reissued.
6. PREFERRED STOCK. (a) Shares of Preferred Stock may be
issued from time to time in one or more series. Subject to the limitations set
forth in this Restated Certificate of Incorporation and any limitations
prescribed by the law of the State of Delaware, the Board of Directors is
expressly authorized, prior to issuance of any series of Preferred Stock, to
fix by resolution or resolutions providing for the issue of any series, the
number of shares included in such series and the designation, relative powers,
preferences and participating, optional or other special rights, and the
qualifications, limitations or restrictions of such series. Pursuant to the
foregoing general authority vested in the Board of Directors, but (except as
provided in the proviso to clause (v) of this Article 6) not in limitation of
the powers conferred on the Board of Directors thereby and by the law of the
State of Delaware, the Board of Directors is expressly authorized to determine
with respect to each series of Preferred Stock:
(i) the distinctive designation of such series and the
number of shares (which number from time to time may be decreased by
the Board of Directors, but not below the number of such shares then
outstanding, or may be increased by the Board of Directors unless
otherwise provided in creating such series) constituting such series;
(ii) the rate and time at which, and the preferences
and conditions under which, dividends shall be payable on shares of
such series, the status of such dividends as cumulative, or
non-cumulative, the date or dates from which dividends, if cumulative,
shall accumulate, and the status of such shares as participating or
non-participating after the payment of dividends as to which such
shares are entitled to any preference;
(iii) the right, if any, of holders of shares of such
series to convert such shares into, or to exchange such shares for,
shares of any other class or classes (other
<PAGE> 14
14
than Class B Common Stock) or of any other series of the same
class, the prices or rates of conversion or exchange, and adjustments
thereto, and any other terms and conditions applicable to such
conversion or exchange;
(iv) the rights and preferences, if any, of the holders
of shares of such series upon the liquidation, dissolution or winding
up of the affairs of, or upon any distribution of the assets of, the
Corporation, which amount may vary depending upon whether such
liquidation, dissolution, or winding up is voluntary or involuntary,
and, if voluntary, may vary at different dates, and the status of the
shares of such series as participating or non-participating after the
satisfaction of any such rights and preferences;
(v) the voting powers, if any, of the holders of
shares of such series which may, without limiting the generality of
the foregoing, include (A) the general right to one vote (or more or
less than one vote) per share on every matter (including, without
limitation, the election of directors) voted on by the stockholders
without regard to class and (B) the limited right to vote, as a series
by itself or together with other series of Preferred Stock or together
with all series of Preferred Stock as a class, upon such matters,
under such circumstances and upon such conditions as the Board of
Directors may fix, including, without limitation, the right, voting as
a series by itself or together with other series of Preferred Stock or
together with all series of Preferred Stock as a class, to elect one
or more directors of the Corporation in the event there shall have
been a default in the payment of dividends on any one or more series
of Preferred Stock; provided, however, that notwithstanding the
provisions of the preceding subclause (B) or any other provisions of
this paragraph (a) to the contrary, the holders of Preferred Stock,
considered in the aggregate (whether voting by individual series or
together with other series of Preferred Stock or together with all
series of Preferred Stock as a class), shall not have the right to a
separate class vote for the election of one or more directors of the
Corporation except in the event there shall have been a default in the
payment of dividends on any one or more series of Preferred Stock and,
in such event, shall not have the right to a separate class vote for
more than a total of two directors;
(vi) the times, terms and conditions, if any, upon
which shares of such series shall be subject to redemption, including
the amount which the holders of shares of such series shall be
entitled to receive upon redemption (which amount may vary under
different conditions or at different redemption dates) and the amount,
terms, conditions and manner of operation of any purchase, retirement
or sinking fund to be provided for the shares of such series;
(vii) the limitations, if any, applicable while shares
of such series are outstanding on the payment of dividends or making
of distributions on, or the acquisition or redemption of, Class A
Common Stock or Class B Common Stock or any other class of shares
ranking junior, either as to dividends or upon liquidation, to the
shares of such series;
<PAGE> 15
15
(viii) the conditions or restrictions, if any, upon the
issue of any additional shares (including additional shares of such
series or any other class) ranking on a parity with or prior to the
shares of such series either as to dividends or upon liquidation; and
(ix) any other relative powers, preferences and
participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, of shares of such
series;
in each case, so far as not inconsistent with the provisions of this
Restated Certificate of Incorporation or the Delaware General
Corporation Law. Unless otherwise provided by the Board of Directors,
all shares of Preferred Stock shall be identical and of equal rank
and, unless otherwise provided by the Board of Directors, all shares
of each series of Preferred Stock shall be identical and of equal rank
except as to the dates from which cumulative dividends, if any,
thereon shall be cumulative.
(b) As used in this Restated Certificate of
Incorporation, the term "Full Voting Preferred Stock" shall mean Preferred
Stock of any one or more series the holders of which shall be entitled to vote
on every matter (including, without limitation, the election of directors)
voted on by the stockholders without regard to class.
7. COMPUTATION; USE OF TERMS. (a) In determining the
number or the record holders of outstanding shares of any class of stock of the
Corporation for the purpose of computing or determining the method of computing
the vote or determining the right to vote at any meeting of stockholders or of
a class of stockholders, the original stock ledger of the Corporation as at the
close of business on the record date fixed for such meeting or, if the stock
transfer books of the Corporation shall have been closed for a period
immediately preceding the date of such meeting, then as at the close of
business on the date as of which such stock transfer books were so closed,
shall be conclusive for all purposes, and in determining the number or the
record holders of outstanding shares of any class of stock of the Corporation
for any other purpose, the original stock ledger of the Corporation as at the
close of business on the date as of which the determination is being made,
shall be conclusive for all purposes; all notwithstanding any other provision
of this Restated Certificate of Incorporation.
(b) Wherever a term shall be used in the singular in
this Restated Certificate of Incorporation, it shall be deemed in all
appropriate circumstances to include also the plural, and wherever a term shall
be so used in the plural, it shall similarly be deemed to include also the
singular.
8. DURATION. The Corporation is to have perpetual
existence.
9. PROPERTY OF STOCKHOLDERS NOT SUBJECT TO CORPORATE
DEBTS. The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
<PAGE> 16
16
10. POWERS OF THE BOARD OF DIRECTORS. (a) In
furtherance, and not in limitation, of the powers conferred by statute, the
Board of Directors is expressly authorized:
To make, alter or repeal the By-laws of the Corporation; to
set apart out of any funds of the Corporation available for dividends
a reserve or reserves for any proper purpose and to abolish the same
in the manner in which it was created, and to fix and determine and to
vary the amount of the working capital of the Corporation; to
determine the use and disposition of the working capital and of any
surplus or net profits over and above the capital of the Corporation
determined as provided by law, and to fix the times for the
declaration and payment of dividends; to authorize and cause to be
executed mortgages and liens, without limit as to amount, upon
the real and personal property of the Corporation; and to fix
and determine the fees and other compensation to be paid by the
Corporation to its directors;
To determine from time to time whether and to what extent, and
at what times and places, and under what conditions and regulations,
the accounts and books of the Corporation (other than the stock
ledger), or any of them, shall be open to inspection of the
stockholders; and no stockholder shall have any right to inspect any
account, book or document of the Corporation except as conferred by
statute, unless authorized by a resolution of the stockholders or
directors; and
To make donations for the public welfare or for charitable,
scientific or educational purposes; and to cause the Corporation to
cooperate with other corporations or with natural persons, or to act
alone, in the creation and maintenance of community funds or
charitable, scientific, or educational instrumentalities, and to make
donations for the public welfare or for charitable, scientific, or
educational purposes.
As used in this Restated Certificate of Incorporation, the term
"entire Board of Directors" means the total number of directors which the
Corporation would have if there were no vacancies.
(b) The Corporation may in its By-laws confer powers upon
its directors in addition to the foregoing, and in addition to the powers and
authorities expressly conferred upon them by the laws of the State of Delaware.
11. BOARD OF DIRECTORS - NUMBER AND VACANCIES. (a) Subject
to any rights of holders of any outstanding preferred stock to elect additional
directors under specified circumstances, the number of directors of the
Corporation shall be not more than twelve (12) nor less than three (3), with
the exact number to be fixed from time to time as provided in the By-laws of
the Corporation.
(b) Subject to any rights of holders of Preferred Stock, and
unless the Corporation's Board of Directors otherwise determines, any vacancy
occurring in the Board of Directors caused by death, resignation, increase in
number of directors or otherwise may be filled by the affirmative vote of a
majority of the remaining members of the Board of
<PAGE> 17
17
Directors, though less than a quorum, or by a sole remaining director. Except
as otherwise provided by law, any such vacancy may not be filled by the
stockholders of the Corporation.
(c) Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 75% of the total voting power of all classes of outstanding
capital stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with this Article 11.
12. CONDUCT OF CERTAIN AFFAIRS OF THE CORPORATION. (a) In
anticipation that the Corporation will cease to be a wholly-owned subsidiary of
Ford, but that Ford will remain a substantial stockholder of the Corporation,
and in anticipation that the Corporation and Ford may engage in the same or
similar activities or lines of business and have an interest in the same areas
of corporate opportunities, and in recognition of the benefits to be derived by
the Corporation through its continued contractual, corporate and business
relations with Ford (including possible service of officers and directors of
Ford as officers and directors of the Corporation), the provisions of this
Article 12 are set forth to regulate and define the conduct of certain affairs
of the Corporation as they may involve Ford and its officers and directors, and
the powers, rights, duties and liabilities of the Corporation and its officers,
directors and stockholders in connection therewith.
(b) Ford shall have no duty to refrain from engaging in the
same or similar activities or lines of business as the Corporation, and neither
Ford nor any officer or director thereof (except as provided in paragraph (c)
below) shall be liable to the Corporation or its stockholders for breach of any
fiduciary duty by reason of any such activities of Ford. In the event that
Ford acquires knowledge of a potential transaction or matter which may be a
corporate opportunity for both Ford and the Corporation, Ford shall have no
duty to communicate or offer such corporate opportunity to the Corporation and
shall not be liable to the Corporation or its stockholders for breach of any
fiduciary duty as a stockholder of the Corporation by reason of the fact that
Ford pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another person, or does not communicate information
regarding such corporate opportunity to the Corporation.
(c) In the event that a director or officer of the
Corporation who is also a director or officer of Ford acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for both
the Corporation and Ford, such director or officer of the Corporation shall
have fully satisfied and fulfilled the fiduciary duty of such director or
officer to the Corporation and its stockholders with respect to such corporate
opportunity, if such director or officer acts in a manner consistent with the
following policy:
(i) A corporate opportunity offered to any person who
is an officer of the Corporation, and who is also a director but not
an officer of Ford, shall belong to the Corporation; (ii) a corporate
opportunity offered to any person who is a director but not an officer
of the Corporation, and who is also a director or officer of Ford
shall belong to the Corporation if such opportunity is expressly
offered to such person in writing solely in his or her capacity as a
director of the Corporation, and otherwise shall belong to Ford; and
(iii) a corporate opportunity offered to any person who is an
<PAGE> 18
18
officer of both the Corporation and Ford shall belong to the
Corporation if such opportunity is expressly offered to such person in
writing solely in his or her capacity as an officer of the
Corporation, and otherwise shall belong to Ford.
(d) Any person purchasing or otherwise acquiring any interest
in shares of the capital stock of the Corporation shall be deemed to have
notice of and to have consented to the provisions of this Article 12.
(e) For purposes of this Article 12 only:
(1) A director of the Corporation who is Chairman of the
Board of Directors of the Corporation or of a committee thereof shall
not be deemed to be an officer of the Corporation by reason of holding
such position (without regard to whether such position is deemed an
office of the Corporation under the By-Laws of the Corporation),
unless such person is a full-time employee of the Corporation; and
(2) (A) The term "Corporation" shall mean the Corporation and
all corporations, partnerships, joint ventures, associations and other
entities in which the Corporation beneficially owns (directly or
indirectly) 50% or more of the outstanding voting stock, voting power,
partnership interests or similar voting interests and (B) the term
"Ford" shall mean Ford and all corporations, partnerships, joint
ventures, associations and other entities (other than the Corporation,
defined in accordance with clause (A) of this paragraph (e)(2)) in
which Ford beneficially owns (directly or indirectly) 50% or more of
the outstanding voting stock, voting power, partnership interests or
similar voting interests.
(f) Notwithstanding anything in this Restated Certificate of
Incorporation to the contrary, (i) the foregoing provisions of this Article 12
shall expire on the date that Ford ceases to own beneficially Common Stock
representing at least 20% of the total voting power of all classes of
outstanding Common Stock of the Corporation and no person who is a director or
officer of the Corporation is also a director or officer of Ford; and (ii) in
addition to any vote of the stockholders required by this Restated Certificate
of Incorporation, until the time that Ford ceases to own beneficially Common
Stock representing at least 20% of the total voting power of all classes of
outstanding Common Stock of the Corporation, the affirmative vote of the
holders of more than 80% of the total voting power of all classes of
outstanding Common Stock of the Corporation shall be required to alter, amend
or repeal in a manner adverse to the interests of Ford, or adopt any provision
adverse to the interests of Ford and inconsistent with, any provision of this
Article 12. Neither the alteration, amendment or repeal of this Article 12 nor
the adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article 12 shall eliminate or reduce the effect of this
Article 12 in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article 12, would accrue or arise, prior to such
alteration, amendment, repeal or adoption.
13. MEETINGS. (a) If the By-Laws so provide, the
stockholders and the directors may hold their meetings, and the Corporation may
have one or more offices, either
<PAGE> 19
19
inside or outside of the State of Delaware. The books and records of the
Corporation (subject to the provisions of the laws of the State of Delaware)
may be kept either inside or outside of the State of Delaware at such places as
from time to time may be determined by the Board of Directors.
(b) Any corporate action required to be taken at any annual
or special meeting of stockholders of the Corporation, or any corporate action
which may be taken at any annual or special meeting of the stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the corporate action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation by delivery to its registered office in
Delaware (either by hand or by certified or registered mail, return receipt
requested), its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded; provided, however, that on and after the date on
which neither Ford nor the Class B Transferee continues to beneficially own 50%
or more of the total voting power of all classes of outstanding Common Stock,
any corporate action required to be taken at any annual or special meeting of
the stockholders, or any corporate action which may be taken at any annual or
special meeting of the stockholders, may be taken only at a duly called annual
or special meeting of stockholders and may not be taken by written consent of
the stockholders in lieu of such meeting.
So long as stockholders are entitled to consent to
corporate action in writing without a meeting in accordance with this paragraph
(b), every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the date
the earliest dated consent is delivered to the Corporation, a written consent
or consents signed by a sufficient number of holders to take action are
delivered to the Corporation in the manner prescribed in this paragraph (b).
(c) Unless otherwise prescribed by law or this Restated
Certificate of Incorporation, special meetings of stockholders may be held at
any time on call of the Chairman of the Board of Directors, a Vice Chairman of
the Board of Directors, the President or, at the request in writing of a
majority of the Board of Directors, any officer.
(d) Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 75% of the total voting power of all classes of outstanding
capital stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with this Article 13.
14. LIMITATION ON LIABILITY OF DIRECTORS. (a) A
director of the Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability
<PAGE> 20
20
(i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General
Corporation Law or
(iv) for any transaction from which the director
derived an improper personal benefit.
(b) If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article 14 to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
(c) Any repeal or modification of this Article 14 by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
15. INDEMNIFICATION AND INSURANCE. (a) Each person who
was or is made a party or is threatened to be made a party to or is involved in
any action, suit or proceeding, whether civil, criminal, administrative,
investigative or otherwise (hereinafter a "proceeding"), by reason of the fact
that he or she, or a person of whom he or she is the legal representative, is
or was a director, officer or employee of the Corporation or is or was serving
at the request of the Corporation as a director, officer or employee of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer or employee or in any other capacity while serving as a director,
officer or employee, shall be indemnified and held harmless by the Corporation
to the fullest extent authorized by the Delaware General Corporation Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including penalties, fines, judgments, attorney's fees, amounts paid or to be
paid in settlement and excise taxes or penalties imposed on fiduciaries with
respect to (i) employee benefit plans, (ii) charitable organizations or (iii)
similar matters) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer or employee and shall inure to the benefit of his or
her heirs, executors and administrators; provided, however, that the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person (other
than pursuant to paragraph (b) of this Article 15) only if such proceeding (or
part thereof) was authorized by the Board of Directors of the Corporation. The
right to indemnification conferred in this paragraph (a) of Article 15 shall be
a contract right and shall include the right to be paid by the Corporation the
expenses
<PAGE> 21
21
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this paragraph (a)
of Article 15 or otherwise.
(b) If a claim which the Corporation is obligated to pay
under paragraph (a) of this Article 15 is not paid in full by the Corporation
within 60 days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required,
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
(c) The provisions of this Article 15 shall cover claims,
actions, suits and proceedings, civil or criminal, whether now pending or
hereafter commenced, and shall be retroactive to cover acts or omissions or
alleged acts or omissions which heretofore have taken place. If any part of
this Article 15 should be found to be invalid or ineffective in any proceeding,
the validity and effect of the remaining provisions shall not be affected.
(d) The right to indemnification and the payment of
expenses incurred in defending a proceeding in advance of its final disposition
conferred in this Article 15 shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of this
Restated Certificate of Incorporation, By-Law, agreement, vote of stockholders
or disinterred directors or otherwise.
(e) The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss,
<PAGE> 22
22
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
(f) The Corporation may, to the extent authorized from
time to time by the Board of Directors, grant rights to indemnification, and
rights to be paid by the Corporation the expenses incurred in defending any
proceeding in advance of its final disposition, to any agent of the Corporation
to the fullest extent of the provisions of this Article 15 with respect to the
indemnification and advancement of expenses of directors, officers and
employees of the Corporation.
16. LIMITATION OF ACTIONS. Every asserted right of
action by or on behalf of the Corporation or by or on behalf of any stockholder
against any past, present or future member of the Board of Directors, or any
committee thereof, or against any officer or employee of the Corporation or any
subsidiary thereof, arising out of or in connection with any bonus,
supplemental compensation, stock investment, stock option or other plan or
plans for the benefit of any employee, irrespective of the place where such
right of action may arise or be asserted and irrespective of the place of
residence of any such director, member, officer or employee, shall cease and be
barred upon the expiration of three years from the later of the following
dates: (a) the date of any alleged act or omission in respect of which such
right of action may be asserted to have arisen, or (b) the date upon which the
Corporation shall have made generally available to its stockholders information
with respect to, as the case may be, the aggregate amount credited for a fiscal
year to a bonus or supplemental compensation reserve, or the aggregate amount
of awards in a fiscal year of bonuses or supplemental compensation, or the
aggregate amount of stock optioned or made available for purchase during a
fiscal year, or the aggregate amount expended by the Corporation during a
fiscal year in connection with any other plan for the benefit of such
employees, to all or any part of which such asserted right of action may
relate; and every asserted right of action by or on behalf of any employee,
past, present or future, or any spouse, child, or legal representative thereof,
against the Corporation or any subsidiary thereof arising out of or in
connection with any such plan, irrespective of the place where such asserted
right of action may arise or be asserted, shall cease and be barred by the
expiration of three years from the date of the alleged act or omission in
respect of which such right of action shall be asserted to have arisen.
17. BY-LAWS AMENDMENTS. The By-Laws of the Corporation
may be altered, amended or repealed at any meeting of the Board of Directors or
of the stockholders, provided that notice of such alteration, amendment or
repeal be contained in the notice of such meeting of the Board of Directors or
stockholders (subject, in the case of meetings of stockholders, to the
provisions of Article II of the By-laws), as the case may be. All such
amendments must be approved by the affirmative vote of the holders of at least
75% of the total voting power of all classes of outstanding capital stock,
voting together as a single class (if effected by action of the stockholders),
or by the affirmative vote of directors constituting not less than a majority
of the entire Board of Directors (if effected by action of the Board of
Directors).
<PAGE> 23
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18. AMENDMENTS. The Corporation reserves the right to
amend, alter, change or repeal any provision contained in this Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by the
law of the State of Delaware, and all rights of the stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF, The Hertz Corporation has caused this
Restated Certificate of Incorporation to be signed on this ___day of _____,
1997 in its name.
THE HERTZ CORPORATION
By:
--------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 3(b)
BY-LAWS
OF
THE HERTZ CORPORATION
(THE "COMPANY")
ADOPTED _________, 1997
ARTICLE I.
OFFICES
The registered office of the Company shall be in the City of
Wilmington, County of New Castle, State of Delaware. The Company may also have
one or more offices at such other places, either inside or outside of the State
of Delaware, as the Board of Directors may from time to time determine or as
the business of the Company may require. The books and records of the Company
may be kept (subject to the provisions of the laws of the State of Delaware) at
any place, either inside or outside of the State of Delaware, as from time to
time may be determined by the Board of Directors.
ARTICLE II.
STOCKHOLDERS
SECTION 1. PLACE OF MEETING.
Meetings of stockholders (whether annual or special) shall be held at
such place, either inside or outside of the State of Delaware, as the Board of
Directors shall from time to time determine.
SECTION 2. ANNUAL MEETING.
The annual meeting of stockholders shall be held on the last Thursday
of May of each year or at such other time as shall be determined by the Board
of Directors. Should said day be a legal holiday, such annual meeting shall be
held on the preceding regular business day. If, for any reason, the annual
meeting be not held at the time aforesaid, the directors shall fix another date
for such meeting.
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SECTION 3. SPECIAL MEETINGS.
Unless otherwise prescribed by law or by the Company's certificate of
incorporation, as amended from time to time (the "Charter"), special meetings
of stockholders may be held at any time on call of the Chairman of the Board of
Directors, a Vice Chairman of the Board of Directors, the President, or, at the
request in writing of a majority of the Board of Directors, any officer. Such
request shall state the purpose or purposes of the proposed meeting.
SECTION 4. NOTICE OF MEETINGS.
Except as otherwise provided by law, at least twenty (20) days' notice
of stockholders' meetings stating the time and place and the objects thereof
shall be given by the Chairman of the Board of Directors, a Vice Chairman of
the Board of Directors, the President, the Secretary or an Assistant Secretary
to each stockholder of record having voting power in respect of the business to
be transacted thereat. Subject to Section 5 of this Article II, no business
other than that stated in the notice shall be transacted at any meeting.
SECTION 5. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders. (1) Nominations of persons
for election to the Board of Directors and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders
(a) pursuant to the Company's notice of meeting delivered pursuant to Section 4
of this Article II, (b) by or at the direction of the Board of Directors or (c)
by any stockholder of the Company who is entitled to vote at the meeting, who
complied with the notice procedures set forth in paragraphs (A)(2) and (A)(3)
of this Section 5 and who was a stockholder of record at the time such notice
is delivered to the Secretary of the Company.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Section 5, the stockholder must have given timely notice thereof
in writing to the Secretary of the Company and such business must be a proper
subject for stockholder action under the General Corporation Law of the State
of Delaware. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Company not less than sixty
(60) days nor more than ninety (90) days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than thirty (30) days or delayed
by more than sixty (60) days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the ninetieth
day prior to such annual meeting and not later than the close of business on
the later of the sixtieth day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934,
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as amended (the "Exchange Act"), (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Company's books, and of such beneficial
owner and (ii) the class and number of shares of the Company which are owned
beneficially and of record by such stockholder and such beneficial owner. If
the stockholder or beneficial owner intends to solicit proxies in support of
any such nomination or proposal, such stockholder's notice shall also include a
representation to that effect.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 5 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Company at least seventy
(70) days prior to the first anniversary of the preceding year's annual
meeting, a stockholders's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Company not later than the close of business
on the tenth day following the day on which such public announcement is first
made by the Company.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Company's notice of meeting pursuant to
Section 4 of this Article II. Nominations of persons for election to the Board
of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Company's notice of meeting (a) by
or at the direction of the Board of Directors or (b) by any stockholder of the
Company who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Section 5 and who is a stockholder of record at
the time such notice is delivered to the Secretary of the Company. Nominations
by stockholders of persons for election to the Board of Directors may be made
at such a special meeting of stockholders if the stockholder's notice required
by paragraph (A)(2) of this Section 5 shall be delivered to the Secretary at
the principal executive offices of the Company not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the sixtieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(C) General. (1) Only persons who are nominated in accordance
with the procedures set forth in this Section 5 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 5. Except as otherwise provided by
law, the Charter or these By-Laws, the chairman of the meeting shall
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have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with this
Section 5 and, if any proposed nomination or business is not in compliance with
this Section 5, or if a stockholder or beneficial owner solicits proxies in
support of a nomination or proposal without having made the representation
required in paragraph (A)(2) of this Section 5, to declare that such proposal or
nomination shall be disregarded.
(2) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Company with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 5, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 5. Nothing in this Section 5 shall be deemed to affect
any rights of stockholders to request inclusion of proposals in the Company's
proxy statement pursuant to Rule 14a- 8 under the Exchange Act.
SECTION 6. QUORUM.
At any meeting of stockholders, the number of shares the holders of
which shall be present or represented by proxy in order to constitute a quorum
for, and the votes that shall be necessary for, the transaction of any business
shall be as expressly provided in Article 4 of the Charter. At any meeting of
stockholders at which a quorum is not present, the person serving as chairman
of the meeting or the holders of shares entitled to cast a majority of all of
the votes which could be cast at such meeting by the holders of outstanding
shares of stock of the Company who are present in person or by proxy and who
are entitled to vote on every matter that is to be voted on without regard to
class at such meeting may adjourn the meeting from time to time.
SECTION 7. ORGANIZATION AND CONDUCT OF BUSINESS.
The Chairman of the Board of Directors shall act as chairman of
meetings of the stockholders. The Board of Directors may designate any other
officer or director of the Company to act as chairman of any meeting in the
absence of the Chairman of the Board of Directors, and the Board of Directors
may further provide for determining who shall act as chairman of any
stockholders' meeting in the absence of the Chairman of the Board of Directors
and such designee. The person serving as chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order.
The Secretary of the Company shall act as secretary of all meetings of
the stockholders, but in the absence of the Secretary the presiding officer may
appoint any other person to act as secretary of any meeting.
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SECTION 8. PROXIES AND VOTING.
At any meeting of stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure
established for the meeting. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
paragraph may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
SECTION 9. STOCK LISTS.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
SECTION 10. RATIFICATION.
Any transaction questioned in any stockholders' derivative suit, or
any other suit to enforce alleged rights of the Company or any of its
stockholders, on the ground of lack of authority, defective or irregular
execution, adverse interest of any director, officer or stockholder,
nondisclosure, miscomputation or the application of improper principles or
practices of accounting may be approved, ratified and confirmed before or after
judgment by the Board of Directors or by the holders of the Company's Class A
Common Stock, par value $.01 per share ("Class A Common Stock") and the holders
of the Company's Class B Common Stock, par value $.01 per share ("Class B
Common Stock") voting as provided in paragraph (g) of Article 4 of the Charter,
and, if so approved, ratified or confirmed, shall have the same force and
effect as if the questioned transaction had been originally duly authorized,
and said approval, ratification or confirmation shall be binding upon the
Company
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and all of its stockholders and shall constitute a bar to any claim or
execution of any judgment in respect of such questioned transaction.
SECTION 11. INSPECTORS OF ELECTION.
The Board of Directors may, and to the extent required by law, shall,
in advance of any meeting of stockholders, appoint one or more inspectors to
act at the meeting, decide upon the qualification of voters, count the votes,
decide the results and make a written report thereof in accordance with the
General Corporation Law of the State of Delaware. The Board of Directors may
designate one or more persons as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting may, and to the extent
required by law, shall, appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. Every vote taken
by ballots shall be counted by an inspector or inspectors appointed by the
chairman of the meeting.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. NUMBER, TERM OF OFFICE AND ELIGIBILITY.
Subject to any rights of holders of preferred stock to elect
additional directors under specified circumstances, the number of directors of
the Company shall be fixed from time to time exclusively by resolution of the
Board of Directors adopted by the affirmative vote of directors constituting
not less than a majority of the total number of directors that the Company
would have if there were no vacancies on the Company's Board of Directors, but
shall consist of not more than twelve (12) nor less than three (3) directors.
Each director shall be elected annually by ballot by the holders of Class A
Common Stock and the holders of Class B Common Stock voting as provided in
paragraph (g) of Article 4 of the Charter at the annual meeting of
stockholders, to serve until his or her successor shall have been elected and
shall have qualified, except as provided in this Section 1. No person may be
elected or re-elected a director of the Company if at the time of his or her
election or re-election he or she shall have attained the age of seventy years,
and the term of any director who shall have attained such age while serving as
a director shall terminate as of the time of the first annual meeting of
stockholders following his or her seventieth birthday; provided, however, that
the Board of Directors by resolution may waive such age limitation in any year
and from year to year with respect to any director or directors. Subject to
any rights of holders of Preferred Stock, and unless the Board of Directors
otherwise determines, any vacancy occurring in the Board of Directors caused by
death, resignation, increase in number of directors or otherwise may be filled
by the affirmative vote of a majority of the remaining members of the Board of
Directors, though less than a quorum, or by a sole remaining director, and
except as otherwise provided by law, any such vacancy may not be filled by the
stockholders of the Company,
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and any director so elected shall hold office until the next election of
directors and until his or her successor is duly elected and qualified, or
until his or her earlier death, resignation or removal.
SECTION 2. MEETINGS.
Meetings of the Board of Directors may be held at such place, either
inside or outside of the State of Delaware, as may from time to time be
designated by the Chairman of the Board of Directors, a Vice Chairman of the
Board of Directors, the President or resolution of the Board of Directors or as
may be specified in the call of any meeting. In the absence of any such
designation, the meetings shall be held at the principal office of the Company
in Park Ridge, New Jersey.
An annual meeting of the Board of Directors shall be held on the same
day as, and as soon as practicable following the annual meeting of stockholders
or at such other time or place as shall be determined by the Board of Directors
at its regular meeting next preceding said annual meeting of stockholders.
Regular meetings of the Board of Directors shall be held on the last Thursday
of February, May, August and November of each year or at such other time as
shall be determined by the Board of Directors. Should said day be a legal
holiday, such regular meeting shall be held on the next Thursday that is not a
legal holiday.
Special meetings of the Board of Directors may be held at any time on
the call of the Chairman of the Board of Directors, a Vice Chairman of the
Board of Directors, the President or the Board of Directors. Meetings may be
held at any time or place without notice if all the directors are present or if
those not present waive notice of the meeting in writing.
SECTION 3. NOTICE OF MEETINGS.
The Secretary or an Assistant Secretary shall give notice of the time
and place of meetings of the Board of Directors (excepting the annual meeting
of directors) by (i) mailing or sending via courier such notice not later than
during the second day preceding the day on which such meeting is to be held, or
(ii) by (a) sending a facsimile transmission or other form of electronic
communication containing such notice or (b) delivering such notice personally
or by telephone, in each case, not later than during the first day preceding
the day on which such meeting is to be held to each director. Unless otherwise
stated in the notice thereof any and all business may be transacted at any
meeting.
SECTION 4. QUORUM AND ORGANIZATION OF MEETINGS.
One-third of the total number of members of the Board of Directors as
constituted from time to time, but in no event less than three, shall
constitute a quorum for the transaction of business; but if at any meeting of
the Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time, and the meeting may be
held as adjourned without further notice or waiver. Except as otherwise
provided by law or by the Charter or these By-Laws, a majority of the directors
present at any duly constituted meeting may decide any question brought before
such meeting.
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Meetings shall be presided over by the Chairman of the Board of Directors or,
in his or her absence, by such other person as the Board of Directors may
designate or the members present may select.
SECTION 5. POWERS.
In addition to the powers and authorities by these By-Laws expressly
conferred upon them, the Board of Directors shall have and may exercise all
such powers of the Company and do all such lawful acts and things that are not
by statute, the Charter or these By-Laws directed or required to be exercised
or done by the stockholders. Without prejudice to or limitation of such
general powers and any other powers conferred by statute, the Charter or these
By-Laws, the Board of Directors shall have the following powers:
(1) To determine, subject to the requirements of law and
of paragraph (c)(2) of Article 4 of the Charter, what, if any,
dividends shall be declared and paid to the stockholders out of net
profits, current or accumulated, or out of surplus or other assets of
the Company available for dividends.
(2) To fix, and from time to time to vary, the amount of
working capital of the Company, and to set aside from time to time out
of net profits, current or accumulated, or surplus of the Company such
amount or amounts as they in their discretion may deem necessary and
proper as, or as a safeguard to the maintenance of, working capital,
as a reserve for contingencies, as a reserve for repairs, maintenance,
or rehabilitation, as a reserve for revaluation of profits of the
Company or for such other proper purpose as may in the opinion of the
directors be in the best interests of the Company; and in their sole
discretion to abolish or modify any such provision for working capital
or any such reserve, and to credit the amount thereof to net profits,
current or accumulated, or to the surplus of the Company.
(3) To purchase, or otherwise acquire for the Company,
any business, property, rights or privileges which the Company may at
the time be authorized to acquire, at such price or consideration and
generally on such terms and conditions as they think fit; and at their
discretion to pay therefor either wholly or partly in money, stock,
bonds, debentures or other securities of the Company.
(4) To create, make and issue mortgages, bonds, deeds of
trust, trust agreements or negotiable or transferable instruments or
securities, secured by mortgage or otherwise, and to do every other
act and thing necessary to effect the same.
(5) To appoint any person or corporation to accept and
hold in trust for the Company any property belonging to the Company,
or in which it is interested, or for any other purpose, and to execute
such deeds and do all things requisite in relation to any such trust.
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(6) To remove any officer of the Company with or without
cause, and from time to time to devolve the powers and duties of any
officer upon any other person for the time being.
(7) To confer upon any officer of the Company the power
to appoint, remove and suspend subordinate officers, agents and
employees.
(8) To determine who shall be authorized on the Company's
behalf, either generally or specifically, to make and sign bills,
notes, acceptances, endorsements, checks, releases, receipts,
contracts, conveyances and all other written instruments executed on
behalf of the Company.
(9) To make and change regulations, not inconsistent with
these By-Laws, for the management of the Company's business and
affairs.
(10) To adopt and, unless otherwise provided therein, to
amend and repeal, from time to time, bonus and supplemental
compensation plans for employees (including employees who are officers
or directors) of the Company or any subsidiary. Power to construe,
interpret, administer, modify or suspend any such plan shall be vested
in the Board of Directors or a committee thereof.
(11) To adopt a retirement plan, or plans, for the purpose
of making retirement payments to employees (including employees who
are officers or directors) of the Company or of any subsidiary
thereof; and to adopt a group insurance plan, or plans, for the
purpose of enabling employees (including employees who are officers or
directors) of the Company or of any subsidiary thereof to acquire
insurance protection; any such retirement plan or insurance plan,
unless otherwise provided therein, shall be subject to amendment or
revocation by the Board of Directors.
(12) To delegate any of the powers of the Board of
Directors in the course of the business of the Company to any officer,
employee or agent, and to appoint any person the agent of the Company,
with such powers (including the power to subdelegate) and upon such
terms as the Board of Directors may think fit.
SECTION 6. RELIANCE UPON BOOKS, REPORTS AND RECORDS.
Each director, each member of any committee designated by the Board of
Directors and each officer, in the performance of his or her duties, shall be
fully protected in relying in good faith upon such information, opinions,
reports or statements presented to the Company by any of its officers or
employees, or by committees of the Board of Directors, or by any other person,
as to matters such director, member or officer, as the case may be, reasonably
believes are within such person's professional or expert competence and who has
been selected with reasonable care by the Board of Directors or by any such
committee, or in relying in good faith upon other records of the Company.
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SECTION 7. COMPENSATION OF DIRECTORS.
Directors, as such, may receive, pursuant to resolution of the Board
of Directors, fixed fees and other compensation for their services as
directors, including, without limitation, services as members of committees of
the Board of Directors; provided, however, that nothing herein contained shall
be construed to preclude any director from serving the Company in any other
capacity and receiving compensation therefor.
SECTION 8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE.
Unless otherwise provided by the Charter or these By-Laws, members of
the Board of Directors, or any committee designated by the Board of Directors,
may participate in a meeting of the Board of Directors or such committee by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 8 shall constitute presence
in person at such meeting.
ARTICLE IV.
COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS.
There are hereby established as committees of the Board of Directors
an Audit Committee, a Compensation Committee and a Nominating Committee, each
of which shall have the powers and functions set forth in Sections 2, 3 and 4
hereof, respectively, and such additional powers as may be delegated to it by
the Board of Directors. The Board of Directors may from time to time establish
additional standing committees or special committees of the Board of Directors,
each of which shall have such powers and functions as may be delegated to it by
the Board of Directors. The Board of Directors may abolish any committee
established by or pursuant to this Section 1 as it may deem advisable. Each
such committee shall consist of two or more directors, the exact number being
determined from time to time by the Board of Directors. Designations of the
chairman and members of each such committee, and, if desired, a vice chairman
and alternates for members, shall be made by the Board of Directors. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member. Each committee shall have a secretary who shall be designated by its
chairman. A vice chairman of a committee shall act as the chairman of the
committee in the absence or disability of the chairman.
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SECTION 2. AUDIT COMMITTEE.
The Audit Committee shall select and engage, on behalf of the Company,
independent public accountants to (1) audit the books of account and other
corporate records of the Company and (2) perform such other duties as the Audit
Committee may from time to time prescribe. The Audit Committee shall transmit
financial statements certified by such independent public accountants to the
Board of Directors after the close of each fiscal year. The selection of
independent public accountants for each fiscal year shall be made in advance of
the annual meeting of stockholders in such fiscal year and shall be submitted
for ratification or rejection at such meeting. The Audit Committee shall
confer with such accountants and review and approve the scope of the audit of
the books of account and other corporate records of the Company. The Audit
Committee shall have the power to confer with and direct the officers of the
Company to the extent necessary to review the internal controls, accounting
practices, financial structure and financial reporting of the Company. From
time to time the Audit Committee shall report to and advise the Board of
Directors concerning the results of its consultation and review and such other
matters relating to the internal controls, accounting practices, financial
structure and financial reporting of the Company as the Audit Committee
believes merit review by the Board of Directors. The Audit Committee also
shall perform such other functions and exercise such other powers as may be
delegated to it from time to time by the Board of Directors.
SECTION 3. COMPENSATION COMMITTEE.
The Compensation Committee shall fix from time to time the salaries of
(i) members of the Board of Directors who are officers or employees of the
Company, (ii) the President, all Senior Executive Vice Presidents, all Executive
Vice Presidents and all Senior Vice Presidents of the Company and (iii) Vice
Presidents of the Company who are elected officers of the Company. It also
shall perform such functions as may be delegated to it under the provisions of
any bonus, supplemental compensation, special compensation or stock option plan
of the Company.
SECTION 4. NOMINATING COMMITTEE.
The Nominating Committee from time to time shall consider and make
recommendations to the Board of Directors with respect to nominations or
elections of directors and officers of the Company and the appointments of such
other employees of the Company as shall be referred to the Nominating
Committee.
The Nominating Committee from time to time shall consider the size and
composition of the Board of Directors and make recommendations to the Board of
Directors with respect to such matters. Prior to the annual meeting of
stockholders each year, and prior to any special meeting of stockholders at
which a director is to be elected, the Nominating Committee shall recommend to
the Board of Directors persons proposed to constitute the nominees whose
election at such meeting will be recommended by the Board of Directors.
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The authority vested in the Nominating Committee by this Section 4
shall not derogate from the power of individual members of the Board of
Directors to recommend or place in nomination persons other than those
recommended by the Nominating Committee.
The Nominating Committee also shall perform such other functions and
exercise such other powers as may be delegated to it from time to time by the
Board of Directors.
SECTION 5. OTHER COMMITTEES.
The Board of Directors, or any committee, officer or employee of the
Company, may establish additional standing committees or special committees to
serve in an advisory capacity or in such other capacities as may be permitted
by law, the Charter and these By-Laws. The members of any such committee need
not be members of the Board of Directors. Any committee established pursuant
to this Section 5 may be abolished by the Board of Directors or by the person
or body by whom it was established as he, she or it may deem advisable. Each
such committee shall consist of two or more members, the exact number being
determined from time to time by such person or body. Designations of members
of each such committee and, if desired, alternates for members, shall be made
by such person or body, at whose will all such members and alternates shall
serve. The chairman of each such committee shall be designated by such person
or body. Each such committee shall have a secretary who shall be designated by
the chairman.
SECTION 6. RULES AND PROCEDURES.
Each committee may fix its own rules and procedures and shall meet at
such times and places as may be provided by such rules, by resolution of the
committee or by call of the chairman or vice chairman. Notice of meeting of
each committee, other than of regular meetings provided for by its rules or
resolutions, shall be given to committee members. The presence of one-third of
its members, but not less than two, shall constitute a quorum of any committee,
and all questions shall be decided by a majority vote of the members present at
the meeting. All action taken at each committee meeting shall be recorded in
minutes of the meeting.
SECTION 7. APPLICATION OF ARTICLE.
Whenever any provision of any other document relating to any committee
of the Company named therein shall be in conflict with any provision of this
Article IV, the provisions of this Article IV shall govern, except that if such
other document shall have been approved by the stockholders, voting as provided
in the Charter, or by the Board of Directors, the provisions of such other
document shall govern.
<PAGE> 13
13
ARTICLE V.
OFFICERS
SECTION 1. OFFICERS.
The Officers of the Company shall include a Chairman of the Board of
Directors and may include one or more Vice Chairmen of the Board of Directors,
each of whom shall be chosen from among the directors, and a President, one or
more Senior Executive Vice Presidents, one or more Executive Vice Presidents,
one or more Senior Vice Presidents, one or more Vice Presidents, a Treasurer, a
Controller, a General Counsel and a Secretary, each of whom shall be elected by
the Board of Directors to hold office until his or her successor shall have
been chosen and shall have qualified. The Board of Directors, the Chairman of
the Board of Directors and the President may elect or appoint one or more
Assistant Vice Presidents, one or more Assistant Treasurers, one or more
Assistant Controllers, one or more Assistant General Counsels, one or more
Assistant Secretaries, and the Board of Directors may elect or appoint such
other officers as it may deem necessary, or desirable, each of whom shall have
such authority, shall perform such duties and shall hold office for such term
as may be prescribed by the Board of Directors from time to time. Any person
may hold at one time more than one office, excepting that the duties of the
President and Secretary shall not be performed by one person.
SECTION 2. CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board of Directors shall be the Chief Executive
Officer of the Company. Subject to the provisions of these By-Laws and to the
direction of the Board of Directors, he or she shall have ultimate authority
for decisions relating to the general management and control of the affairs and
business of the Company and shall perform all other duties and exercise all
other powers commonly incident to the position of Chief Executive Officer or
which are or from time to time may be delegated to him or her by the Board of
Directors, or which are or may at any time be authorized or required by law.
He or she shall preside at all meetings of the Board of Directors. He or she
may redelegate from time to time and to the full extent permitted by law, in
writing, to officers or employees of the Company any or all of such duties and
powers, and any such redelegation may be either general or specific. Whenever
he or she so shall delegate any of his or her authority, he or she shall file a
copy of the redelegation with the Secretary of the Company.
SECTION 3. VICE CHAIRMEN OF THE BOARD OF DIRECTORS.
Subject to the provisions of these By-Laws and to the direction of the
Board of Directors and of the Chief Executive Officer, the Vice Chairmen of the
Board of Directors shall have such powers and shall perform such duties as from
time to time may be delegated to them by the Board of Directors or by the Chief
Executive Officer, or which are or may at any time be authorized or required by
law.
<PAGE> 14
14
SECTION 4. PRESIDENT.
Subject to the provisions of these By-Laws and to the direction of the
Board of Directors and of the Chief Executive Officer, the President shall have
such powers and shall perform such duties as from time to time may be delegated
to him or her by the Board of Directors or by the Chief Executive Officer, or
which are or may at any time be authorized or required by law.
SECTION 5. SENIOR EXECUTIVE VICE PRESIDENTS, EXECUTIVE VICE
PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE PRESIDENTS.
Each of the Senior Executive Vice Presidents, each of the Executive
Vice Presidents, each of the Senior Vice Presidents and each of the other Vice
Presidents shall have such powers and shall perform such duties as may be
delegated to him or her by the Board of Directors, the Chairman of the Board of
Directors, the President or such other officer or officers to whom he or she is
directly responsible.
SECTION 6. TREASURER AND ASSISTANT TREASURER.
The Treasurer, subject to the direction of the Board of Directors,
shall have the care and custody of all funds and securities of the Company
which may come into his or her hands. When necessary or proper he or she shall
endorse on behalf of the Company, for collection, checks, notes and other
obligations, and shall deposit all funds of the Company in such banks or other
depositaries as may be designated by the Board of Directors or by such officers
or employees as may be authorized by the Board of Directors so to designate.
He or she shall perform all acts incident to the office of Treasurer, subject
to the control of the Board of Directors and such other officer or officers to
whom he or she is directly responsible. He or she may be required to give a
bond for the faithful discharge of his or her duties, in such sum and upon such
conditions as the Board of Directors may require.
At the request and direction of the Treasurer or, in the case of his
or her absence or inability to act, any Assistant Treasurer may act in his or
her place. In the case of the death of the Treasurer, or in the case of his or
her absence or inability to act without having designated an Assistant
Treasurer to act temporarily in his or her place, the Assistant Treasurer so to
perform the duties of the Treasurer shall be designated by the Chairman of the
Board of Directors, a Vice Chairman of the Board of Directors, the President or
an Executive Vice President.
SECTION 7. SECRETARY AND ASSISTANT SECRETARY.
The Secretary shall keep full and accurate minutes of the meetings of
the stockholders and of the Board of Directors in the proper record book of the
Company provided therefor, and, when required, the minutes of meetings of the
committees, and shall be responsible for the custody of all such minutes.
Subject to the direction of the Board of Directors, the Secretary shall have
custody of the stock ledgers and documents of the Company. He or she shall
have custody of the corporate seal of the Company and shall affix and attest
such seal to
<PAGE> 15
15
any instrument whose execution under seal shall have been duly authorized. He
or she shall give due notice of meetings and, subject to the direction of the
Board of Directors, shall perform all other duties commonly incident to his or
her office or as properly required of him or her by the Chairman of the Board
of Directors and such other officer or officers to whom he or she is directly
responsible and shall enjoy all other powers commonly incident to his or her
office.
At the request and direction of the Secretary or, in the case of his
or her absence or inability to act, any Assistant Secretary may act in his or
her place. In the case of the death of the Secretary, or in the case of his or
her absence or inability to act without having designated an Assistant
Secretary to act temporarily in his or her place, the Assistant Secretary or
other person so to perform the duties of the Secretary shall be designated by
the Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors, the President or an Executive Vice President.
SECTION 8. ASSISTANT VICE PRESIDENTS AND OTHER OFFICERS.
Each assistant vice president and other officers shall perform such
duties commonly incident to his or her office or as properly required of him or
her by the Chairman of the Board of Directors and such other officer or
officers to whom he or she is directly responsible.
SECTION 9. GENERAL COUNSEL.
The General Counsel shall have general supervision of all matters of a
legal nature concerning the Company. He or she shall perform all such duties
commonly incident to his or her office or as properly required of him or her by
the Chairman of the Board of Directors and such other officer or officers to
whom he or she is directly responsible.
SECTION 10. CONTROLLER.
The Controller shall keep and maintain the books of account of the
Company in such manner that they fairly present the financial condition of the
Company and its subsidiaries. The Controller shall have such powers and shall
perform such duties as may be delegated to him or her by the Board of
Directors, the Chairman of the Board of Directors, the President or the
appropriate Executive Vice President, Senior Vice President or Vice President
or such other officer or officers to whom he or she is directly responsible.
SECTION 11. SALARIES.
Salaries of officers, agents or employees shall be fixed from time to
time by the Board of Directors or by such committee or committees, or person or
persons, if any, to whom such power shall have been delegated by the Board of
Directors. An employment contract, whether with an officer, agent or employee,
if expressly approved or specifically authorized by the Board of Directors, may
fix a term of employment thereunder; and such contract, if so approved or
authorized, shall be valid and binding upon the Company in accordance with the
<PAGE> 16
16
terms thereof, provided that this provision shall not limit or restrict in any
way the right of the Company at any time to remove from office, discharge or
terminate the employment of any such officer, agent or employee prior to the
expiration of the term of employment under any such contract.
SECTION 12. VACANCIES.
A vacancy in any office filled by election of the Board of Directors
may be filled by the Board of Directors by the election of a new officer who
shall hold office, subject to the provisions of this Article V, until the
regular meeting of the directors following the next annual meeting of the
stockholders and until his or her successor is elected.
SECTION 13. REMOVAL OR DISCHARGE.
Any officer may be removed or discharged by the Chairman of the Board
of Directors at any time excepting an officer who is also a director. Any
officer who also is a director may be discharged at any time by the Board of
Directors.
ARTICLE VI.
RESIGNATIONS
Any director, officer or agent of the Company, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, the Chairman of the Board of Directors, a Vice Chairman of the Board
of Directors, the President or the Secretary of the Company. Any such
resignation shall take effect at the time specified therein, or if the time be
not specified therein, then upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective.
<PAGE> 17
17
ARTICLE VII.
CAPITAL STOCK - DIVIDENDS - SEAL
SECTION 1. CERTIFICATES OF SHARES.
The certificates for shares of the capital stock of the Company shall
be in such form, not inconsistent with the Charter, as shall be approved by the
Board of Directors. The certificates shall be numbered and signed by the
Chairman of the Board of Directors, a Vice Chairman of the Board of Directors,
the President, an Executive Vice President, a Senior Vice President or a Vice
President, and also by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary. Any and all signatures may be facsimiles.
All certificates shall bear the name of the persons owning the shares
represented thereby, shall state the number of shares represented by such
certificate and the date of issue; and such information shall be entered in the
Company's original stock ledger.
SECTION 2. ADDRESSES OF STOCKHOLDERS.
It shall be the duty of every stockholder to notify the Company of his
or her post office address and of any change therein. The latest address
furnished by each stockholder shall be entered on the original stock ledger of
the Company and the latest address appearing on such original stock ledger
shall be deemed conclusively to be the post office address and the last-known
post office address of such stockholder. If any stockholder shall fail to
notify the Company of his or her post office address, it shall be sufficient to
send corporate notices to such stockholder at the address, if any, understood
by the Secretary to be his or her post office address, or in the absence of
such address, to such stockholder, at the General Post Office in the City of
Wilmington, State of Delaware.
SECTION 3. LOST, DESTROYED OR STOLEN CERTIFICATE.
Any person claiming a stock certificate in lieu of one lost, destroyed
or stolen, shall give the Company an affidavit as to his, her or its ownership
of the certificate and of the facts which go to prove that it has been lost,
destroyed or stolen. If required by the Board of Directors, he, she or it also
shall give the Company a bond, in such form as may be approved by the Board of
Directors, sufficient to indemnify the Company against any claim that may be
made against it on account of the alleged loss of the certificate or the
issuance of a new certificate. A new certificate shall be issued upon receipt
of such an affidavit and, if required, upon the giving of such a bond.
SECTION 4. RECORD OF HOLDER OF SHARES.
The Company shall be entitled to treat the holder of record of any
share or shares as the holder in fact thereof, and accordingly shall not be
bound to recognize any equitable or other claims to or interest in such shares
on the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the General
<PAGE> 18
18
Corporation Law of the State of Delaware. The Company shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner.
SECTION 5. RECORD DATE.
In order that the Company may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise
any rights in respect of any change, conversion or exchange of stock (other
than conversions or exchanges pursuant to Article 4 of the Charter) or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of rights or
to exercise any rights of change, conversion or exchange of stock (other than
conversions or exchanges pursuant to Article 4 of the Charter) or for any other
purpose, the record date shall be at the close of business on the day on which
the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
If stockholders are entitled to consent to corporate action in writing
without a meeting in accordance with the General Corporation Law of the State
of Delaware and the Charter, in order that the Company may determine the
stockholders entitled to so consent, the Board of Directors may fix a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
be not more than ten (10) days after the date upon which the resolution fixing
the record date is adopted and if no record date has been fixed by the Board of
Directors and if no prior action by the Board of Directors is required by the
General Corporation Law of the State of Delaware, the record date shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Company in the manner prescribed by
Article 13 of the Charter. If stockholders are entitled to consent to
corporate action in writing without a meeting in accordance with the General
Corporation Law of the State of Delaware and the Charter, and no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law of the State of Delaware
with respect to the proposed action by written consent of the stockholders, the
record date for determining stockholders entitled to consent to corporate
<PAGE> 19
19
action in writing shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
SECTION 6. REGULATIONS.
The Board of Directors shall have power and authority to make all such
rules and regulations not inconsistent with any of the provisions of Article 4
of the Charter, as it may deem expedient, concerning the issue, transfer and
registration of certificates for shares of the stock of the Company.
SECTION 7. CORPORATE SEAL.
The corporate seal shall be in such form as shall from time to time be
approved by the Board of Directors. If and when so authorized by the Board of
Directors, a duplicate of the seal may be kept and used by the Secretary or
Treasurer or by any Assistant Secretary or Assistant Treasurer.
ARTICLE VIII.
EXECUTION OF CONTRACTS AND OTHER DOCUMENTS
SECTION 1. CONTRACTS, ETC.
Except as otherwise prescribed in these By-Laws, such officers,
employees or agents of the Company as shall be specified by the Board of
Directors shall sign, in the name and on behalf of the Company, all deeds,
bonds, contracts, mortgages and other instruments or documents, the execution
of which shall be authorized by the Board of Directors; and such authority may
be general or confined to specific instances. Except as so authorized by the
Board of Directors, no officer, agent or employee of the Company shall have
power or authority to bind the Company by any contract or engagement or to
pledge, mortgage, sell or otherwise dispose of its credit or any of its
property or to render it pecuniarily liable for any purpose or in any amount.
SECTION 2. CHECKS, DRAFTS, ETC.
Except as otherwise provided in these By-Laws, all checks, drafts,
notes, bonds, bills of exchange or other orders, instruments or obligations for
the payment of money shall be signed by such officer or officers, employee or
employees, or agent or agents, as the Board of Directors shall by resolution
direct. The Board of Directors may, in its discretion, also provide by
resolution for the countersignature or registration of any or all such orders,
instruments or obligations for the payment of money.
<PAGE> 20
20
ARTICLE IX.
FISCAL YEAR
The fiscal year of the Company shall begin the first day of January in
each year.
ARTICLE X.
MISCELLANEOUS
SECTION 1. ORIGINAL STOCK LEDGER.
As used in these By-Laws and in the Charter, the words "original stock
ledger" shall mean the record maintained by the Secretary of the Company of the
name and address of each of the holders of shares of any class of stock of the
Company, and the number of shares and the numbers of the certificates for such
shares held by each of them, taking into account transfers at the time made by
and recorded on the transfer sheets of each of the Transfer Agents of the
Company although such transfers may not have been posted in the record
maintained by the Secretary.
SECTION 2. NOTICES AND WAIVERS THEREOF.
Whenever any notice whatever is required by these By-Laws, the Charter
or any of the laws of the State of Delaware to be given to any stockholder,
director or officer, such notice, except as otherwise provided by the laws of
the State of Delaware, may be given personally or by telephone or be given by
facsimile transmission or other form of electronic communication, addressed to
such stockholder at the address set forth as provided in Section 2 of Article
VII of these By-Laws, or to such director or officer at his or her Company
location, if any, or at such address as appears on the books of the Company, or
the notice may be given in writing by depositing the same in a post office, or
in a regularly maintained letter box, or by sending it via courier in a
postpaid, sealed wrapper addressed to such stockholder at the address set forth
in Section 2 of Article VII of these By-Laws, or to such director or officer at
his or her Company location, if any, or such address as appears on the books of
the Company.
Any notice given by facsimile transmission or other form of electronic
communication shall be deemed to have been given when it shall have been
transmitted. Any notice given by mail or courier shall be deemed to have been
given when it shall have been mailed or delivered to the courier.
A waiver of any such notice in writing, including by facsimile
transmission, signed or dispatched by the person entitled to such notice or by
his or her duly authorized attorney, whether before or after the time stated
therein, shall be deemed equivalent to the notice required to be given, and the
presence at any meeting of any person entitled to notice thereof shall be
deemed a waiver of such notice as to such person.
<PAGE> 21
21
SECTION 3. VOTING UPON STOCKS.
The Board of Directors (whose authorization in this connection shall
be necessary in all cases) may from time to time appoint an attorney or
attorneys or agent or agents of the Company, or may at any time or from time to
time authorize the Chairman of the Board of Directors, any Vice Chairman of the
Board of Directors, the President, any Senior Executive Vice President, any
Executive Vice President, any Senior Vice President, any Vice President, the
Treasurer or the Secretary to appoint an attorney or attorneys or agent or
agents of the Company, in the name and on behalf of the Company, to cast the
votes which the Company may be entitled to cast as a stockholder or otherwise
in any other corporation or association, any of the stock or securities of
which may be held by the Company, at meetings of the holders of the stock or
other securities of such other corporation or association, or to consent in
writing to any action by any such other corporation or association and the
Board of Directors or any aforesaid officer so authorized may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and the Board of Directors or any aforesaid officer so authorized
may from time to time authorize the execution and delivery, on behalf of the
Company and under its corporate seal, or otherwise, of such written proxies,
consents, waivers or other instruments as may be deemed necessary or proper in
the premises.
ARTICLE XI.
AMENDMENTS
These By-Laws may be altered, amended or repealed at any meeting of
the Board of Directors or of the stockholders, provided that notice of such
alteration, amendment or repeal be contained in the notice of such meeting of
the Board of Directors or stockholders (subject, in the case of meetings of
stockholders, to the provisions of Article II of these By-Laws), as the case
may be. All such amendments must be approved by the affirmative vote of the
holders of at least 75% of the total voting power of all classes of outstanding
capital stock, voting together as a single class (if effected by action of the
stockholders), or by the affirmative vote of directors constituting not less
than a majority of the total number of directors that the Company would have if
there were no vacancies on the Company's Board of Directors (if effected by
action of the Board of Directors).
<PAGE> 1
EXHIBIT 4(a)
[FRONT SIDE OF STOCK CERTIFICATE]
NUMBER SHARES
HZ_________
HERTZ
INCORPORATED UNDER THE LAWS CUSIP
OF THE STATE OF DELAWARE THE HERTZ CORPORATION
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK, $.01 PAR VALUE,
OF
The Hertz Corporation, transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated: COUNTERSIGNED AND REGISTERED:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
BY , TRANSFER AGENT
AND REGISTRAR
AUTHORIZED OFFICER
SECRETARY CHAIRMAN OF THE BOARD
[CORPORATE SEAL]
<PAGE> 2
[REVERSE SIDE OF STOCK CERTIFICATE]
THE HERTZ CORPORATION
The Corporation will furnish without charge to each stockholder who so
requests, the designations, powers, preferences and relative participating,
optional or other special rights of each class of stock or series thereof of the
Corporation and the qualifications, limitations or restrictions of such
preferences and/or rights. Any such request should be made to the Secretary of
the Corporation or to the Transfer Agent and Registrar named on the face of
this certificate.
The following abbreviations, when used in the inscription on the
face of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ___________ Custodian ________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform gifts to Minors
Act_________________________
JT TEN - as joint tenants with (State)
right of survivorship
and not as tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------
- ----------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of the stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________, Attorney, to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated
-----------------------------
------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
------------------------
SIGNATURE(S) GUARANTEED: THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED GUARANTEE MEDALLION PROGRAM).
<PAGE> 1
EXHIBIT 10(a)
CORPORATE AGREEMENT
THIS CORPORATE AGREEMENT ("Agreement") is entered into as of
_________, 1997 by and between FORD MOTOR COMPANY, a Delaware corporation
("Ford"), and THE HERTZ CORPORATION, a Delaware corporation ("Hertz").
RECITALS
A. Ford beneficially owns all of the issued and outstanding
Class A Common Stock, par value $.01 per share ("Class A Common Stock"), of
Hertz and owns all of the issued and outstanding Class B Common Stock, par
value $.01 per share ("Class B Common Stock"), of Hertz, and Hertz is a member
of Ford's "affiliated group" of corporations (the "Ford Group") for federal
income tax purposes.
B. The parties are contemplating the possibility that Hertz
will issue shares of Class A Common Stock in an initial public offering (the
"Initial Public Offering") registered under the Securities Act of 1933, as
amended.
C. The parties desire to enter into this Agreement to set
forth their agreement regarding (i) Ford's rights to purchase additional shares
of Class B Common Stock upon any issuance of certain classes of capital stock
of Hertz to any person to permit Ford to maintain its percentage ownership
interest in Hertz, (ii) Ford's rights to purchase shares of non-voting classes
of capital stock of Hertz to permit Ford to own 80 percent of each class of
such stock outstanding, (iii) certain registration rights with respect to Class
B Common Stock (and any other securities issued in respect thereof or in
exchange therefor) and (iv) certain representations, warranties, covenants and
agreements applicable so long as Hertz is a subsidiary of Ford.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Ford and Hertz, for
themselves, their successors, and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. As used in this Agreement, the following
terms will have the following meanings, applicable both to the singular and the
plural forms of the terms described:
<PAGE> 2
2
"Affiliate" means, with respect to a given Person, any Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to vote a
majority of the securities having voting power for the election of directors
(or other Persons acting in similar capacities) of such Person or otherwise to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Agreement" has the meaning ascribed thereto in the preamble
hereto, as such agreement may be amended and supplemented from time to time in
accordance with its terms.
"Applicable Stock" means at any time the (i) shares of Common
Stock owned by the Ford Entities that were owned on the date hereof, plus (ii)
shares of Class B Common Stock purchased by the Ford Entities pursuant to
Article II of this Agreement, plus (iii) shares of Common Stock that were
issued to Ford Entities in respect of shares described in either clause (i) or
clause (ii) in any reclassification, share combination, share subdivision,
share dividend, share exchange, merger, consolidation or similar transaction or
event.
"Class A Common Stock" has the meaning ascribed thereto in the
recitals to this Agreement.
"Class B Common Stock" has the meaning ascribed thereto in the
recitals to this Agreement.
"Class B Common Stock Option" has the meaning ascribed thereto
in Section 2.1(a).
"Class B Common Stock Option Notice" has the meaning ascribed
thereto in Section 2.2.
"Common Stock" means the Class B Common Stock, the Class A
Common Stock, any other class of Hertz' capital stock representing the right to
vote generally for the election of directors and, for so long as Hertz
continues to be a subsidiary corporation includable in a consolidated federal
income tax return of the Ford Group, any other security of Hertz treated as
stock for purposes of Section 1504 of the Internal Revenue Code of 1986, as
amended.
"Company Securities" has the meaning ascribed thereto in
Section 3.2(b).
"Disadvantageous Condition" has the meaning ascribed thereto
in Section 3.1(a).
<PAGE> 3
3
"Ford Entities" means Ford and Subsidiaries of Ford (other
than Subsidiaries that constitute Hertz Entities), and "Ford Entity" shall mean
any of the Ford Entities.
"Ford Ownership Reduction" means any decrease at any time in
the Ownership Percentage to less than 45%.
"Ford Transferee" has the meaning ascribed thereto in Section
3.9.
"Ford" has the meaning ascribed thereto in the preamble
hereto.
"Ford Group" has the meaning ascribed thereto in the recitals
to this Agreement.
"Hertz" has the meaning ascribed thereto in the preamble
hereto.
"Hertz Entities" means Hertz and its Subsidiaries, and "Hertz
Entity" shall mean any of the Hertz Entities.
"Holder" means Ford, the other Ford Entities and any
Transferee.
"Holder Securities" has the meaning ascribed thereto in
Section 3.2(b).
"Initial Public Offering" has the meaning ascribed thereto in
the recitals to this Agreement.
"Initial Public Offering Date" means the date of completion of
the initial sale of Class A Common Stock in the Initial Public Offering.
"Issuance Event" has the meaning ascribed thereto in Section
2.2.
"Issuance Event Date" has the meaning ascribed thereto in
Section 2.2.
"Market Price" of any shares of Class A Common Stock on any
date means (i) the average of the last sale price of such shares on each of the
five trading days immediately preceding such date on the New York Stock
Exchange, Inc. or, if such shares are not listed thereon, on the principal
national securities exchange or automated interdealer quotation system on which
such shares are traded or (ii) if such sale prices are unavailable or such
shares are not so traded, the value of such shares on such date determined in
accordance with agreed-upon procedures reasonably satisfactory to Hertz and
Ford.
<PAGE> 4
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"Nonvoting Stock" means any class of Hertz' capital stock not
representing the right to vote generally for the election of directors.
"Nonvoting Stock Option" has the meaning ascribed thereto in
Section 2.1(c).
"Nonvoting Stock Option Notice" has the meaning ascribed
thereto in Section 2.2.
"Other Holders" has the meaning ascribed thereto in Section
3.2(c).
"Other Securities" has the meaning ascribed thereto in Section
3.2.
"Ownership Percentage" means, at any time, the fraction,
expressed as a percentage and rounded to the next highest thousandth of a
percent, whose numerator is the aggregate Value of the Applicable Stock and
whose denominator is the aggregate Value of outstanding shares of Common Stock
of Hertz; provided, however, that any shares of Common Stock issued by Hertz in
violation of its obligations under Article II of this Agreement shall not be
deemed outstanding for the purpose of determining the Ownership Percentage.
For purposes of this definition, "Value" means, with respect to any share of
stock, the value of such share determined by Ford under principles applicable
for purposes of Section 1504 of the Internal Revenue Code of 1986, as amended.
"Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization,
government (and any department or agency thereof) or other entity.
"Registrable Securities" means shares of Class B Common Stock,
shares of Class A Common Stock and any stock or other securities into which or
for which such Common Stock may hereafter be changed, converted or exchanged
and any other shares or securities issued to Holders of such Common Stock (or
such shares or other securities into which or for which such shares are so
changed, converted or exchanged) upon any reclassification, share combination,
share subdivision, share dividend, share exchange, merger, consolidation or
similar transaction or event or pursuant to the Nonvoting Stock Option. As to
any particular Registrable Securities, such Registrable Securities shall cease
to be Registrable Securities when (i) a registration statement with respect to
the sale by the Holder thereof shall have been declared effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (ii) they shall have been distributed to the
public in accordance with Rule 144, (iii) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been
<PAGE> 5
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delivered by Hertz and subsequent disposition of them shall not require
registration or qualification of them under the Securities Act or any state
securities or blue sky law then in effect or (iv) they shall have ceased to be
outstanding.
"Registration Expenses" means any and all expenses incident to
performance of or compliance with any registration of securities pursuant to
Article III, including, without limitation, (i) the fees, disbursements and
expenses of Hertz' counsel and accountants and the fees and expenses of counsel
selected by the Holders in accordance with this Agreement in connection with
the registration of the securities to be disposed of, such fees and expenses of
such counsel selected by the Holders to be reasonable in the reasonable
discretion of Hertz; (ii) all expenses, including filing fees, in connection
with the preparation, printing and filing of the registration statement, any
preliminary prospectus or final prospectus, any other offering document and
amendments and supplements thereto and the mailing and delivering of copies
thereof to any underwriters and dealers; (iii) the cost of printing or
producing any underwriting agreements and blue sky or legal investment
memoranda and any other documents in connection with the offering, sale or
delivery of the securities to be disposed of; (iv) all expenses in connection
with the qualification of the securities to be disposed of for offering and
sale under state securities laws, including the fees and disbursements of
counsel for the underwriters or the Holders of securities in connection with
such qualification and in connection with any blue sky and legal investment
surveys; (v) the filing fees incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of
the securities to be disposed of; (vi) transfer agents' and registrars' fees
and expenses and the fees and expenses of any other agent or trustee appointed
in connection with such offering; (vii) all security engraving and security
printing expenses; (viii) all fees and expenses payable in connection with the
listing of the securities on any securities exchange or automated interdealer
quotation system or the rating of such securities, (ix) any other fees and
disbursements of underwriters customarily paid by the sellers of securities,
but excluding underwriting discounts and commissions and transfer taxes, if
any, and (x) other reasonable out-of-pocket expenses of Holders other than
legal fees and expenses referred to in clause (i) above.
"Rule 144" means Rule 144 (or any successor rule to similar
effect) promulgated under the Securities Act.
"Rule 415 Offering" means an offering on a delayed or
continuous basis pursuant to Rule 415 (or any successor rule to similar effect)
promulgated under the Securities Act.
"SEC" means the United States Securities and Exchange
Commission.
<PAGE> 6
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"Securities Act" means the Securities Act of 1933, as amended,
or any successor statute.
"Selling Holder" has the meaning ascribed thereto in Section
3.4(e).
"Subsidiary" means, as to any Person, any corporation,
association, partnership, joint venture or other business entity of which more
than 50% of the voting capital stock or other voting ownership interests is
owned or controlled, directly or indirectly, by such Person or by one or more
of the Subsidiaries of such Person or by a combination thereof. "Subsidiary,"
when used with respect to Ford or Hertz, shall also include any other entity
affiliated with Ford or Hertz, as the case may be, that Ford and Hertz may
hereafter agree in writing shall be treated as a "Subsidiary" for the purposes
of this Agreement.
"Transferee" has the meaning ascribed thereto in Section 3.9.
1.2. Internal References. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement and
references to the parties shall mean the parties to this Agreement.
ARTICLE II
OPTIONS
2.1. Options. (a) Hertz hereby grants to Ford, on the terms
and conditions set forth herein, a continuing right (the "Class B Common Stock
Option") to purchase from Hertz, at the times set forth herein, such number of
shares of Class B Common Stock as is necessary to allow the Ford Entities to
maintain the Ownership Percentage. The Class B Common Stock Option shall be
assignable, in whole or in part and from time to time, by Ford to any Ford
Entity. The exercise price for the shares of Class B Common Stock purchased
pursuant to the Class B Common Stock Option shall be the Market Price of the
Class A Common Stock as of the date of first delivery of notice of exercise of
the Class B Common Stock Option by Ford (or its permitted assignee hereunder)
to Hertz.
(b) The provisions of Section 2.1(a) hereof notwithstanding,
the Class B Common Stock Option granted pursuant to Section 2.1(a) shall not
apply and shall not be exercisable in connection with the issuance by Hertz of
any shares of Common Stock pursuant to any stock option or other executive or
employee benefit or compensation plan maintained by Hertz, so long as, from and
after the date hereof and prior to the issuance of such shares, Hertz has
repurchased from shareholders and not subsequently reissued a number of shares
equal or greater to the number of shares to be issued in any such issuance.
<PAGE> 7
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(c) Hertz hereby grants to Ford, on the terms and conditions
set forth herein, a continuing right (the "Nonvoting Stock Option" and,
together with the Class B Common Stock Option, the "Options") to purchase from
Hertz, at the times set forth herein, such number of shares of Nonvoting Stock
as is necessary to allow the Ford Entities to own 80 percent of each class of
outstanding Nonvoting Stock. The Nonvoting Stock Option shall be assignable,
in whole or in part and from time to time, by Ford to any Ford Entity. The
exercise price for the shares of Nonvoting Stock purchased pursuant to the
Nonvoting Stock Option shall be the price at which such Nonvoting Stock is then
being sold to third parties, or, if no Nonvoting Stock is being sold, the fair
market value thereof as determined in good faith by the Board of Directors of
Hertz.
2.2. Notice. At least 20 business days prior to the issuance
of any shares of Common Stock (other than in connection with the Initial Public
Offering, including the full exercise of all underwriters' over-allotment
options granted in connection therewith and other than issuances of Common
Stock to any Ford Entity) or the first date on which any event could occur
that, in the absence of a full or partial exercise of the Class B Common Stock
Option, would result in a reduction in the Ownership Percentage, Hertz will
notify Ford in writing (a "Class B Common Stock Option Notice") of any plans it
has to issue such shares or the date on which such event could first occur. At
least 20 business days prior to the issuance of any shares of Nonvoting Stock
(other than issuances of Nonvoting Stock to any Ford entity) or the first date
on which any event could occur that, in the absence of a full or partial
exercise of the Nonvoting Stock Option, would result in the Ford Entities
owning less than 80 percent of each class of outstanding Nonvoting Stock, Hertz
will notify Ford in writing (a "Nonvoting Stock Option Notice" and, together
with a Class B Common Stock Option Notice, an "Option Notice") of any plans it
has to issue such shares or the date on which such event could first occur.
Each Option Notice must specify the date on which Hertz intends to issue such
additional shares or on which such event could first occur (such issuance or
event being referred to herein as an "Issuance Event" and the date of such
issuance or event as an "Issuance Event Date"), the number of shares Hertz
intends to issue or may issue and the other terms and conditions of such
Issuance Event.
2.3. Option Exercise and Payment. The Class B Common Stock
Option may be exercised by Ford (or any Ford Entity to which all or any part of
the Class B Common Stock Option has been assigned) for a number of shares equal
to or less than the number of shares that are necessary for the Ford Entities
to maintain, in the aggregate, the then-current Ownership Percentage. The
Nonvoting Stock Option may be exercised by Ford (or any Ford Entity to which
all or any part of the Nonvoting Stock Option has been assigned) for a number
of shares equal to or less than the number of shares that are necessary for the
Ford Entities to own, in the aggregate, 80 percent of each class of outstanding
<PAGE> 8
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Nonvoting Stock. Each Option may be exercised at any time after receipt of an
applicable Option Notice and prior to the applicable Issuance Event Date by the
delivery to Hertz of a written notice to such effect specifying (i) the number
of shares of Class B Common Stock or Nonvoting Stock, as the case may be, to be
purchased by Ford, or any of the Ford Entities and (ii) a calculation of the
exercise price for such shares. Upon any such exercise of either Option, Hertz
will, prior to the applicable Issuance Event Date, deliver to Ford (or any Ford
Entity designated by Ford), against payment therefor, certificates (issued in
the name of Ford or its permitted assignee hereunder or as directed by Ford)
representing the shares of Class B Common Stock or Nonvoting Stock, as the case
may be, being purchased upon such exercise. Payment for such shares shall be
made by wire transfer or intrabank transfer of immediately-available funds to
such account as shall be specified by Hertz, for the full purchase price for
such shares.
2.4. Effect of Failure to Exercise. Except as provided in
Section 2.6, any failure by Ford to exercise either Option, or any exercise for
less than all shares purchasable under either Option, in connection with any
particular Issuance Event shall not affect Ford's right to exercise the
relevant Option in connection with any subsequent Issuance Event.
2.5. Initial Public Offering. Notwithstanding the
foregoing, Ford shall not be entitled to exercise the Class B Common Stock
Option in connection with the Initial Public Offering of the Class A Common
Stock if, upon the completion of the Initial Public Offering, including the
full exercise of all underwriters' over-allotment options granted in connection
therewith, the Ownership Percentage would be no less than 80%.
2.6. Termination of Options. The Options shall terminate
upon the occurrence of any Issuance Event that, after considering Ford's
response thereto and to any other Issuance Events, results in the Ownership
Percentage being less than 45%, other than any Issuance Event in violation of
this Agreement. Each Option, or any portion thereof assigned to any Ford
Entity other than Ford, also shall terminate in the event that the Person to
whom such Option, or such portion thereof has been transferred, ceases to be a
Ford Entity for any reason whatsoever.
ARTICLE III
REGISTRATION RIGHTS
3.1. Demand Registration - Registrable Securities.
(a) Upon written notice provided at any time after the Initial Public Offering
Date from any Holder of Registrable Securities requesting that Hertz effect the
registration under the Securities Act of any or all of the Registrable
Securities held by such Holder, which notice shall specify the intended method
or
<PAGE> 9
9
methods of disposition of such Registrable Securities, Hertz shall use its best
efforts to effect the registration under the Securities Act and applicable
state securities laws of such Registrable Securities for disposition in
accordance with the intended method or methods of disposition stated in such
request (including in a Rule 415 Offering, if Hertz is then eligible to
register such Registrable Securities on Form S-3 (or a successor form) for such
offering); provided that:
(i) with respect to any registration statement filed,
or to be filed, pursuant to this Section 3.1, if Hertz shall furnish
to the Holders of Registrable Securities that have made such request a
certified resolution of the Board of Directors of Hertz (adopted by
the affirmative vote of a majority of the directors not designated by
the Ford Entities) stating that in the Board of Directors' good faith
judgment it would (because of the existence of, or in anticipation of,
any acquisition or financing activity, or the unavailability for
reasons beyond Hertz's reasonable control of any required financial
statements, or any other event or condition of similar significance to
Hertz) be significantly disadvantageous (a "Disadvantageous
Condition") to Hertz for such a registration statement to be
maintained effective, or to be filed and become effective, and setting
forth the general reasons for such judgment, Hertz shall be entitled
to cause such registration statement to be withdrawn and the
effectiveness of such registration statement terminated, or, in the
event no registration statement has yet been filed, shall be entitled
not to file any such registration statement, until such
Disadvantageous Condition no longer exists (notice of which Hertz
shall promptly deliver to such Holders). Upon receipt of any such
notice of a Disadvantageous Condition, such Holders shall forthwith
discontinue use of the prospectus contained in such registration
statement and, if so directed by Hertz, each such Holder will deliver
to Hertz all copies, other than permanent file copies then in such
Holder's possession, of the prospectus then covering such Registrable
Securities current at the time of receipt of such notice; provided,
that the filing of any such registration statement may not be delayed
for a period in excess of six months due to the occurrence of any
particular Disadvantageous Condition;
(ii) after any Ford Ownership Reduction, the Holders of
Registrable Securities may collectively exercise their rights under
this Section 3.1 (through notice delivered by Holders owning in the
aggregate a majority in economic interest of the Registrable
Securities then held by Holders) on not more than three occasions (it
being acknowledged that prior to any Ford Ownership Reduction, there
shall be no limit to the number of occasions on which such Holders
(other than any Ford Transferees and their Affiliates (other than Ford
Entities)) may exercise such rights);
<PAGE> 10
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(iii) Except as otherwise provided herein, the Holders of
Registrable Securities shall not have the right to exercise
registration rights pursuant to this Section 3.1 within the 180-day
period following the registration and sale of Registrable Securities
effected pursuant to a prior exercise of the registration rights
provided in this Section 3.1; and
(iv) the Holders of Registrable Securities shall not have
the right to exercise registration rights pursuant to this Section 3.1
within the 180-day period following the effective date of the
Registration Statement in connection with the Initial Public Offering.
(b) Notwithstanding any other provision of this Agreement to
the contrary, a registration requested by a Holder of Registrable Securities
pursuant to this Section 3.1 shall not be deemed to have been effected (and,
therefore, not requested for purposes of paragraph (a) above), (i) unless it
has become effective, (ii) if after it has become effective such registration
is interfered with by any stop order, injunction or other order or requirement
of the SEC or other governmental agency or court for any reason other than a
misrepresentation or an omission by such Holder and, as a result thereof, the
Registrable Securities requested to be registered cannot be completely
distributed in accordance with the plan of distribution set forth in the
related registration statement or (iii) if the conditions to closing specified
in the purchase agreement or underwriting agreement entered into in connection
with such registration are not satisfied or waived other than by reason of some
act or omission by such Holder of Registrable Securities.
(c) In the event that any registration pursuant to this
Section 3.1 shall involve, in whole or in part, an underwritten offering, the
Holders of a majority of the Registrable Securities to be registered shall have
the right to designate an underwriter or underwriters reasonably acceptable to
Hertz as the lead or managing underwriters of such underwritten offering and,
in connection with each registration pursuant to this Section 3.1, such Holders
may select one counsel reasonably acceptable to Hertz to represent all such
Holders.
(d) Hertz shall have the right to cause the registration of
additional equity securities for sale for its account, the account of any Hertz
Entity or any existing or former directors, officers or employees of the Hertz
Entities in any registration of Registrable Securities requested by the Holders
pursuant to paragraph (a) above; provided, however, that if the registration
and sale of such additional equity securities would require Ford or any Ford
Entity to exercise the Options to maintain the then-current Ownership
Percentage or ownership of 80% of each class of outstanding Nonvoting Stock,
then the number of such additional equity securities shall be reduced so that
<PAGE> 11
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exercise of the Options would not be necessary for Ford or any Ford Entity to
maintain such ownership levels and, provided, further, that if such Holders are
advised in writing (with a copy to Hertz) by a nationally recognized investment
banking firm selected by such Holders reasonably acceptable to Hertz (which
shall be the lead underwriter or a managing underwriter in the case of an
underwritten offering) that, in such firm's good faith view, all or a part of
such additional equity securities cannot be sold and the inclusion of such
additional equity securities in such registration would be likely to have an
adverse effect on the price, timing or distribution of the offering and sale of
the Registrable Securities then contemplated by any Holder, the registration of
such additional equity securities or part thereof shall not be permitted. The
Holders of the Registrable Securities to be offered may require that any such
additional equity securities be included in the offering proposed by such
Holders on the same conditions as the Registrable Securities that are included
therein. In the event that the number of Registrable Securities requested to
be included in a registration statement by the Holders thereof exceeds the
number which, in the good faith view of such investment banking firm, can be
sold without adversely affecting the price, timing, distribution or sale of
securities in the offering, the number shall be allocated pro rata among the
requesting Holders on the basis of the relative number of Registrable
Securities then held by each such Holder (provided that any number in excess of
a Holder's request may be reallocated among the remaining requesting Holders in
a like manner).
3.2. Piggyback Registration. In the event that Hertz at any
time after the Initial Public Offering Date proposes to register any of its
Common Stock, any other of its equity securities or securities convertible into
or exchangeable for its equity securities (collectively, including Common
Stock, "Other Securities") under the Securities Act, whether or not for sale
for its own account, in a manner that would permit registration of Registerable
Securities for sale for cash to the public under the Securities Act, it shall
at each such time give prompt written notice to each Holder of Registrable
Securities of its intention to do so and of the rights of such Holder under
this Section 3.2. Subject to the terms and conditions hereof, such notice
shall offer each such Holder the opportunity to include in such registration
statement such number of Registerable Securities as such Holder may request.
Upon the written request of any such Holder made within 15 days after the
receipt of Hertz' notice (which request shall specify the number of Registrable
Securities intended to be disposed of and the intended method of disposition
thereof), Hertz shall use its best efforts to effect, in connection with the
registration of the Other Securities, the registration under the Securities Act
of all Registerable Securities which Hertz has been so requested to register,
to the extent required to permit the disposition (in accordance with such
intended method of disposition thereof) of
<PAGE> 12
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the Registrable Securities so requested to be registered; provided, that:
(a) if, at any time after giving such written notice of its
intention to register any Other Securities and prior to the effective date of
the registration statement filed in connection with such registration, Hertz
shall determine for any reason not to register the Other Securities, Hertz may,
at its election, give written notice of such determination to such Holders and
thereupon Hertz shall be relieved of its obligation to register such
Registrable Securities in connection with the registration of such Other
Securities, without prejudice, however, to the rights of the Holders of
Registrable Securities immediately to request that such registration be
effected as a registration under Section 3.1 to the extent permitted
thereunder;
(b) if the registration referred to in the first sentence of
this Section 3.2 is to be an underwritten registration on behalf of Hertz, and
a nationally recognized investment banking firm selected by Hertz advises Hertz
in writing that, in such firm's good faith view, all or a part of such
Registrable Securities cannot be sold and the inclusion of all or a part of
such Registrable Securities in such registration would be likely to have an
adverse effect upon the price, timing or distribution of the offering and sale
of the Other Securities then contemplated, Hertz shall include in such
registration: (i) first, all Other Securities Hertz proposes to sell for its
own account ("Company Securities"), (ii) second, up to the full number of
Registrable Securities held by Holders constituting Ford Entities that are
requested to be included in such registration (Registrable Securities that are
so held being sometimes referred to herein as "Holder Securities") in excess of
the number of Company Securities to be sold in such offering which, in the good
faith view of such investment banking firm, can be sold without adversely
affecting such offering (and (x) if such number is less than the full number of
such Holder Securities, such number shall be allocated by Ford among such Ford
Entities and (y) in the event that such investment banking firm advises that
less than all of such Holder Securities may be included in such offering, such
Ford Entities may withdraw their request for registration of their Registrable
Securities under this Section 3.2 and 90 days subsequent to the effective date
of the registration statement for the registration of such Other Securities
request that such registration be effected as a registration under Section 3.1
to the extent permitted thereunder), (iii) third, up to the full number of
Registrable Securities held by Holders (other than Ford Entities) of
Registrable Securities that are requested to be included in such registration
in excess of the number of Company Securities and Holder Securities to be sold
in such offering which, in the good faith view of such investment banking firm,
can be so sold without so adversely affecting such offering (and (x) if such
number is less than the full number of such Registrable
<PAGE> 13
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Securities, such number shall be allocated pro rata among such Holders on the
basis of the number of Registrable Securities requested to be included therein
by each such Holder and (y) in the event that such investment banking firm
advises that less than all of such Registrable Securities may be included in
such offering, such Holders may withdraw their request for registration of
their Registrable Securities under this Section 3.2 and 90 days subsequent to
the effective date of the registration statement for the registration of such
Other Securities request that such registration be effected as a registration
under Section 3.1 to the extent permitted thereunder) and (iv) fourth, up to
the full number of the Other Securities (other than Company Securities), if
any, in excess of the number of Company Securities and Registrable Securities
to be sold in such offering which, in the good faith view of such investment
banking firm, can be so sold without so adversely affecting such offering (and,
if such number is less than the full number of such Other Securities, such
number shall be allocated pro rata among the holders of such Other Securities
(other than Company Securities) on the basis of the number of securities
requested to be included therein by each such Holder);
(c) if the registration referred to in the first sentence of
this Section 3.2 is to be an underwritten secondary registration on behalf of
holders of Other Securities (the "Other Holders"), and the lead underwriter or
managing underwriter advises Hertz in writing that in their good faith view,
all or a part of such additional securities cannot be sold and the inclusion of
such additional securities in such registration would be likely to have an
adverse effect on the price, timing or distribution of the offering and sale of
the Other Securities then contemplated, Hertz shall include in such
registration the number of securities (including Registrable Securities) that
such underwriters advise can be so sold without adversely affecting such
offering, allocated pro rata among the Other Holders and the Holders of
Registrable Securities on the basis of the number of securities (including
Registrable Securities) requested to be included therein by each Other Holder
and each Holder of Registrable Securities; provided, that if such registration
statement is to be filed at any time after a Ford Ownership Reduction, if such
Other Holders have requested that such registration statement be filed pursuant
to demand registration rights granted to them by Hertz, Hertz shall include in
such registration (i) first, Other Securities sought to be included therein by
the Other Holders pursuant to the exercise of such demand registration rights,
(ii) second, the number of Holder Securities sought to be included in such
registration in excess of the number of Other Securities sought to be included
in such registration by the Other Holders which in the good faith view of such
investment banking firm, can be so sold without so adversely affecting such
offering (and (x) if such number is less than the full number of such Holder
Securities, such number shall be allocated by Ford among such Ford Entities and
(y) in the event that such investment banking firm advises that less than all
of
<PAGE> 14
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such Holder Securities may be included in such offering, such Ford Entities may
withdraw their request for registration of their Registrable Securities under
this Section 3.2 and 90 days subsequent to the effective date of the
registration statement for the registration of such Other Securities request
that such registration be effected as a registration under Section 3.1 to the
extent permitted thereunder) and (iii) third, the number of Registrable
Securities sought to be included in such registration by Holders (other than
Ford Entities) of Registrable Securities in excess of the number of Other
Securities and the number of Holder Securities sought to be included in such
registration which, in the good faith view of such investment banking firm, can
be so sold without so adversely affecting such offering (and (x) if such number
is less than the full number of such Registrable Securities, such number shall
be allocated pro rata among such Holders on the basis of the number of
Registrable Securities requested to be included therein by each such Holder and
(y) in the event that such investment banking firm advises that less than all
of such Registrable Securities may be included in such offering, such Holders
may withdraw their request for registration of their Registrable Securities
under this Section 3.2 and 90 days subsequent to the effective date of the
registration statement for the registration of such Other Securities request
that such registration be effected as a registration under Section 3.1 to the
extent permitted thereunder);
(d) Hertz shall not be required to effect any registration of
Registrable Securities under this Section 3.2 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange
offers, subscription offers, dividend reinvestment plans or stock option or
other executive or employee benefit or compensation plans; and
(e) no registration of Registrable Securities effected under
this Section 3.2 shall relieve Hertz of its obligation to effect a registration
of Registrable Securities pursuant to Section 3.1.
3.3. Expenses. Except as provided herein, Hertz shall pay
all Registration Expenses with respect to a particular offering (or proposed
offering). Notwithstanding the foregoing, each Holder and Hertz shall be
responsible for its own internal administrative and similar costs, which shall
not constitute Registration Expenses.
3.4. Registration and Qualification. If and whenever Hertz
is required to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 3.1 or 3.2, Hertz shall as promptly as
practicable:
(a) prepare, file and use its reasonable best efforts to
cause to become effective a registration statement under the
<PAGE> 15
15
Securities Act relating to the Registrable Securities to be offered;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities until the earlier of (A) such
time as all of such Registrable Securities have been disposed of in accordance
with the intended methods of disposition set forth in such registration
statement and (B) the expiration of six months after such registration
statement becomes effective; provided, that such six-month period shall be
extended for such number of days that equals the number of days elapsing from
(x) the date the written notice contemplated by paragraph (f) below is given by
Hertz to (y) the date on which Hertz delivers to the Holders of Registrable
Securities the supplement or amendment contemplated by paragraph (f) below;
(c) furnish to the Holders of Registrable Securities and to
any underwriter of such Registrable Securities such number of conformed copies
of such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each preliminary
prospectus and any summary prospectus), in conformity with the requirements of
the Securities Act, such documents incorporated by reference in such
registration statement or prospectus, and such other documents, as the Holders
of Registrable Securities or such underwriter may reasonably request, and upon
request a copy of any and all transmittal letters or other correspondence to or
received from, the SEC or any other governmental agency or self-regulatory body
or other body having jurisdiction (including any domestic or foreign securities
exchange) relating to such offering;
(d) use its reasonable best efforts to register or qualify
all Registrable Securities covered by such registration statement under the
securities or blue sky laws of such U.S. jurisdictions as the Holders of such
Registrable Securities or any underwriter to such Registrable Securities shall
request, and use its reasonable best efforts to obtain all appropriate
registrations, permits and consents in connection therewith, and do any and all
other acts and things which may be necessary or advisable to enable the Holders
of Registrable Securities or any such underwriter to consummate the disposition
in such jurisdictions of its Registrable Securities covered by such
registration statement; provided, that Hertz shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
such jurisdiction wherein it is not so qualified or to consent to general
service of process in any such jurisdiction;
<PAGE> 16
16
(e) (i) use its best efforts to furnish to each Holder of
Registrable Securities included in such registration (each, a "Selling Holder")
and to any underwriter of such Registrable Securities an opinion of counsel for
Hertz addressed to each Selling Holder and dated the date of the closing under
the underwriting agreement (if any) (or if such offering is not underwritten,
dated the effective date of the registration statement) and (ii) use its best
efforts to furnish to each Selling Holder a "cold comfort" letter addressed to
each Selling Holder and signed by the independent public accountants who have
audited the financial statements of Hertz included in such registration
statement, in each such case covering substantially the same matters with
respect to such registration statement (and the prospectus included therein) as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of
securities and such other matters as the Selling Holders may reasonably request
and, in the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements;
(f) as promptly as practicable, notify the Selling Holders in
writing (i) at any time when a prospectus relating to a registration pursuant
to Sections 3.1 or 3.2 is required to be delivered under the Securities Act of
the happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and (ii) of any request by the SEC
or any other regulatory body or other body having jurisdiction for any
amendment of or supplement to any registration statement or other document
relating to such offering, and in either such case, at the request of the
Selling Holders prepare and furnish to the Selling Holders a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading;
(g) if reasonably requested by the lead or managing
underwriters, use its best efforts to list all such Registrable Securities
covered by such registration on each securities exchange and automated
inter-dealer quotation system on which a class of common equity securities of
Hertz is then listed;
(h) to the extent reasonably requested by the lead or
managing underwriters, send appropriate officers of Hertz to attend any "road
shows" scheduled in connection with any such registration, with all
out-of-pocket costs and expense incurred
<PAGE> 17
17
by Hertz or such officers in connection with such attendance to be paid by
Hertz; and
(i) furnish for delivery in connection with the closing of
any offering of Registrable Securities pursuant to a registration effected
pursuant to Sections 3.1 or 3.2 unlegended certificates representing ownership
of the Registrable Securities being sold in such denominations as shall be
requested by the Selling Holders or the underwriters.
3.5. Conversion of Other Securities, Etc. In the event that
any Holder offers any options, rights, warrants or other securities issued by
it or any other Person that are offered with, convertible into or exercisable
or exchangeable for any Registrable Securities, the Registrable Securities
underlying such options, rights, warrants or other securities shall continue to
be eligible for registration pursuant to Sections 3.1 and 3.2.
3.6. Underwriting; Due Diligence. (a) If requested by the
underwriters for any underwritten offering of Registrable Securities pursuant
to a registration requested under this Article III, Hertz shall enter into an
underwriting agreement with such underwriters for such offering, which
agreement will contain such representations and warranties by Hertz and such
other terms and provisions as are customarily contained in underwriting
agreements of Hertz to the extent relevant and as are customarily contained in
underwriting agreements generally with respect to secondary distributions to
the extent relevant, including, without limitation, indemnification and
contribution provisions substantially to the effect and to the extent provided
in Section 3.7, and agreements as to the provision of opinions of counsel and
accountants' letters to the effect and to the extent provided in Section
3.4(e). The Selling Holders on whose behalf the Registrable Securities are to
be distributed by such underwriters shall be parties to any such underwriting
agreement and the representations and warranties by, and the other agreements
on the part of, Hertz to and for the benefit of such underwriters, shall also
be made to and for the benefit of such Selling Holders. Such underwriting
agreement shall also contain such representations and warranties by such
Selling Holders and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
when relevant, including, without limitation, indemnification and contribution
provisions substantially to the effect and to the extent provided in Section
3.7.
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act pursuant to this Article III, Hertz shall give the Holders of such
Registrable Securities and the underwriters, if any, and their respective
counsel and accountants, such reasonable and customary access to its books and
records and such opportunities to discuss the business of Hertz with its
officers and the independent public accountants
<PAGE> 18
18
who have certified the financial statements of Hertz as shall be necessary, in
the opinion of such Holders and such underwriters or their respective counsel,
to conduct a reasonable investigation within the meaning of the Securities Act.
3.7. Indemnification and Contribution. (a) In the case of
each offering of Registrable Securities made pursuant to this Article III,
Hertz agrees to indemnify and hold harmless, to the extent permitted by law,
each Selling Holder, each underwriter of Registrable Securities so offered and
each Person, if any, who controls any of the foregoing Persons within the
meaning of the Securities Act and the officers, directors, affiliates,
employees and agents of each of the foregoing, against any and all losses,
liabilities, costs (including reasonable attorney's fees and disbursements),
claims and damages, joint or several, to which they or any of them may become
subject, under the Securities Act or otherwise, including any amount paid in
settlement of any litigation commenced or threatened, insofar as such losses,
liabilities, costs, claims and damages (or actions or proceedings in respect
thereof, whether or not such indemnified Person is a party thereto) arise out
of or are based upon any untrue statement by Hertz or alleged untrue statement
by Hertz of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or in any offering memorandum
or other offering document relating to the offering and sale of such
Registrable Securities prepared by Hertz or at its direction, or any amendment
thereof or supplement thereto, or in any document incorporated by reference
therein, or any omission by Hertz or alleged omission by Hertz to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however that Hertz shall not be
liable to any Person in any such case to the extent that any such loss,
liability, cost, claim or damage arises out of or relates to any untrue
statement or alleged untrue statement, or any omission, if such statement or
omission shall have been made in reliance upon and in conformity with
information relating to a Selling Holder, another holder of securities included
in such registration statement or underwriter furnished to Hertz by or on
behalf of such Selling Holder, other holder or underwriter specifically for use
in the registration statement (or in any preliminary or final prospectus
included therein), offering memorandum or other offering document, or any
amendment thereof or supplement thereto. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of any
Selling Holder, any other holder or any underwriter and shall survive the
transfer of such securities. The foregoing indemnity agreement is in addition
to any liability that Hertz may otherwise have to each Selling Holder, other
holder or underwriter of the Registrable Securities or any controlling person
of the foregoing and the officers, directors, affiliates, employees and agents
of each of the foregoing; provided, further, that, in the case of an offering
with respect to which a Selling Holder has designated the lead or managing
underwriters (or a
<PAGE> 19
19
Selling Holder is offering Registrable Securities directly, without an
underwriter), this indemnity does not apply to any loss, liability, cost, claim
or damage arising out of or relating to any untrue statement or alleged untrue
statement or omission or alleged omission in any preliminary prospectus or
offering memorandum if a copy of a final prospectus or offering memorandum was
not sent or given by or on behalf of any underwriter (or such Selling Holder or
other holder, as the case may be) to such Person asserting such loss,
liability, cost, claim or damage at or prior to the written confirmation of the
sale of the Registrable Securities as required by the Securities Act and such
untrue statement or omission had been corrected in such final prospectus or
offering memorandum.
(b) In the case of each offering made pursuant to this
Agreement, each Selling Holder, by exercising its registration rights
hereunder, agrees to indemnify and hold harmless, and to cause each underwriter
of Registrable Securities included in such offering (in the same manner and to
the same extent as set forth in Section 3.7(a)) to agree to indemnify and hold
harmless, Hertz, each other underwriter who participates in such offering, each
other Selling Holder or other holder with securities included in such offering
and in the case of an underwriter, such Selling Holder or other holder, and
each Person, if any, who controls any of the foregoing within the meaning of
the Securities Act and the officers, directors, affiliates, employees and
agents of each of the foregoing, against any and all losses, liabilities, costs
(including reasonable attorney's fees and disbursements), claims and damages to
which they or any of them may become subject, under the Securities Act or
otherwise, including any amount paid in settlement of any litigation commenced
or threatened, insofar as such losses, liabilities, costs, claims and damages
(or actions or proceedings in respect thereof, whether or not such indemnified
Person is a party thereto) arise out of or are based upon any untrue statement
or alleged untrue statement by such Selling Holder or underwriter, as the case
may be, of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or in any offering memorandum
or other offering document relating to the offering and sale of such
Registrable Securities prepared by Hertz or at its direction, or any amendment
thereof or supplement thereto, or any omission by such Selling Holder or
underwriter, as the case may be, or alleged omission by such Selling Holder or
underwriter, as the case may be, of a material fact required to be stated
therein or necessary to make the statements therein not misleading, but in each
case only to the extent that such untrue statement of a material fact is
contained in, or such material fact is omitted from information relating to
such Selling Holder or underwriter, as the case may be, furnished to Hertz by
or on behalf of such Selling Holder or underwriter, as the case may be,
specifically for use in such registration statement (or in any preliminary or
final prospectus included therein), offering memorandum or other offering
document, or any amendment thereof or supplement
<PAGE> 20
20
thereto. The foregoing indemnity is in addition to any liability which such
Selling Holder or underwriter, as the case may be, may otherwise have to Hertz,
or controlling persons and the officers, directors, affiliates, employees, and
agents of each of the foregoing; provided, however, that, in the case of an
offering made pursuant to this Agreement with respect to which Hertz has
designated the lead or managing underwriters (or Hertz is offering securities
directly, without an underwriter), this indemnity does not apply to any loss,
liability, cost, claim, or damage arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus or offering memorandum if a copy of a final prospectus
or offering memorandum was not sent or given by or on behalf of any underwriter
(or Hertz, as the case may be) to such Person asserting such loss, liability,
cost, claim or damage at or prior to the written confirmation of the sale of
the Registrable Securities as required by the Securities Act and such untrue
statement or omission had been corrected in such final prospectus or offering
memorandum.
(c) Each party indemnified under paragraph (a) or
(b) above shall, promptly after receipt of notice of a claim or action against
such indemnified party in respect of which indemnity may be sought hereunder,
notify the indemnifying party in writing of the claim or action; provided, that
the failure to notify the indemnifying party shall not relieve it from any
liability that it may have to an indemnified party on account of the indemnity
agreement contained in paragraph (a) or (b) above otherwise than under such
subsection. If any such claim or action shall be brought against an
indemnified party, and it shall have notified the indemnifying party thereof,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified party and indemnifying parties may exist in respect of
such claim, the indemnifying party shall be entitled to participate therein,
and, to the extent that it wishes, jointly with any other similarly notified
indemnifying party, to assume the defense thereof with counsel satisfactory to
the indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party). After notice from
the indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 3.7 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation. If the indemnifying
party does not assume the defense of such claim or action, it is understood
that the indemnifying party shall not, in connection with any one such claim or
action or separate but substantially similar or related claims or actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to one separate firm of local attorneys in each
such jurisdiction) at any time for all such indemnified parties. Any
indemnifying
<PAGE> 21
21
party against whom indemnity may be sought under this Section 3.7 shall not be
liable to indemnify an indemnified party if such indemnified party settles such
claim or action without the consent of the indemnifying party, which consent
shall not be unreasonably withheld.
(d) If the indemnification provided for in this Section 3.7
shall for any reason be unavailable (other than in accordance with its terms)
to an indemnified party in respect of any loss, liability, cost, claim or
damage referred to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, cost, claim or
damage in such proportion as shall be appropriate to reflect (i) the relative
benefits received by the indemnifying party on the one hand and the indemnified
party on the other hand or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law or if the indemnified party failed to give
the notice required under paragraph (c) above, the relative benefits and the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other with respect to the statements or omissions which resulted
in such loss, liability, cost, claim or damage as well as any other relevant
equitable considerations. The relative benefits received by the indemnifying
party and the indemnified party shall be deemed to be in the same respective
proportion as the net proceeds (before deducting expenses) of the offering
received by such party (or, in the case of an underwriter, such underwriter's
discounts and commissions) bear to the aggregate offering price of the
Registrable Securities or Other Securities. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the indemnifying party on the one hand or the
indemnified party on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission, but not by reference to any indemnified party's stock
ownership in Hertz. The amount paid or payable by an indemnified party as a
result of the loss, cost, claim, damage or liability, or action in respect
thereof, referred to above in this paragraph (d) shall be deemed to include,
for purposes of this paragraph (d), any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) Indemnification and contribution similar to that
specified in the preceding paragraphs of this Section 3.7 (with appropriate
modifications) shall be given by Hertz, the Selling Holders and underwriters
with respect to any required
<PAGE> 22
22
registration or other qualification of securities under any state law or
regulation or governmental authority.
(f) The obligations of the parties under this Section 3.7
shall be in addition to any liability which any party may otherwise have to any
other party.
3.8. Rule 144 and Form S-3. Commencing 90 days after the
Initial Public Offering Date, Hertz shall use its best efforts to ensure that
the conditions to the availability of Rule 144 set forth in paragraph (c)
thereof shall be satisfied. Upon the request of any Holder of Registrable
Securities, Hertz will deliver to such Holder a written statement as to whether
it has complied with such requirements. Hertz further agrees to use its
reasonable efforts to cause all conditions to the availability of Form S-3 (or
any successor form) under the Securities Act of the filing of registration
statements under this Agreement to be met as soon as practicable after the
Initial Public offering Date. Notwithstanding anything contained in this
Section 3.8, Hertz may deregister under Section 12 of the Securities Exchange
Act of 1934, as amended, if it then is permitted to do so pursuant to said Act
and the rules and regulations thereunder.
3.9. Transfer of Registration Rights. Any Holder may
transfer all or any portion of its rights under Article III to any transferee
of a number of Registrable Securities owned by such Holder exceeding three
percent (3%) of the outstanding class or series of such securities at the time
of transfer (each transferee that receives such minimum number of Registrable
Securities, a "Transferee"); provided, that each Transferee of Registrable
Securities (other than Ford Entities) to which Registrable Securities are
transferred, sold or assigned directly by a Ford Entity (such Transferee, a
"Ford Transferee"), together with any Affiliate of such Ford Transferee (and
any subsequent direct or indirect Transferees of Registrable Securities from
such Ford Transferee and any Affiliates thereof) shall be entitled to request
the registration of Registrable Securities pursuant to this Section 3.9 only
once prior to a Ford Ownership Reduction and thereafter shall only be entitled
to request the registration of Registrable Securities pursuant to Section
3.1(a)(ii) and, provided, further, that no Transferee shall be entitled to
request registration pursuant to this Section 3.9 for an amount of Registrable
Securities equal to less than $50,000,000. Any transfer of registration rights
pursuant to this Section 3.9 shall be effective upon receipt by Hertz of (i)
written notice from such Holder stating the name and address of any Transferee
and identifying the number of Registrable Securities with respect to which the
rights under this Agreement are being transferred and the nature of the rights
so transferred and (ii) a written agreement from such Transferee to be bound by
the terms of this Article III and Sections 5.3, 5.4, 5.9, 5.10, and 5.12 of
this Agreement. The Holders may exercise their rights hereunder in such
priority as they shall agree upon among themselves.
<PAGE> 23
23
3.10. Holdback Agreement. If any registration pursuant to
this Article III shall be in connection with an underwritten public offering of
Registrable Securities, each Selling Holder agrees not to effect any public
sale or distribution, including any sale under Rule 144, of any equity security
of Hertz or any security convertible into or exchangeable or exercisable for
any equity security of Hertz, in the case of Registrable Securities (otherwise
than through the registered public offering then being made), within 7 days
prior to or 90 days (or such lesser period as the lead or managing underwriters
may permit) after the effective date of the registration statement (or the
commencement of the offering to the public of such Registrable Securities in
the case of Rule 415 offerings). Hertz hereby also so agrees; provided, that,
subject to Section 3.6(a) hereof, Hertz shall not be so restricted from
effecting any public sale or distribution of any security in connection with
any merger, acquisition, exchange offer, subscription offer, dividend
reinvestment plan or stock option or other executive or employee benefit or
compensation plan.
3.11. Registration of Preferred Stock. Hertz agrees that it
shall from time to time enter into one or more agreements with Ford and/or the
Class B Transferee, if any, in form and substance reasonably satisfactory to
the parties thereto, granting to Ford or the Class B Transferee, as the case
may be, registration rights for the registration of any shares of preferred
stock of Hertz that may hereafter be owned, directly or indirectly, by Ford or
the Class B Transferee, as the case may be, substantially upon the same terms
and conditions as those contained in Article III for the benefit of Ford.
ARTICLE IV
CERTAIN COVENANT AND AGREEMENTS
4.1. No Violations. (a) For so long as the Ownership
Percentage is equal to or greater than 50%, Hertz covenants and agrees that it
will not take any action or enter into any commitment or agreement which may
reasonably be anticipated to result, with or without notice and with or without
lapse of time or otherwise, in a contravention or event of default by any Ford
Entity of (i) any provisions of applicable law or regulation, including but not
limited to provisions pertaining to the Internal Revenue Code of 1986, as
amended, or the Employee Retirement Income Security Act of 1974, as amended,
(ii) any provision of Ford's or Ford Holdings, Inc.'s certificate of
incorporation or bylaws, (iii) any credit agreement or other material
instrument binding upon Ford or Ford Holdings, Inc. or (iv) any judgment, order
or decree of any governmental body, agency or court having jurisdiction over
Ford or Ford Holdings, Inc. or any of their respective assets.
(b) Hertz and Ford agree to provide to the other any
information and documentation requested by the other for the
<PAGE> 24
24
purpose of evaluating and ensuring compliance with Section 4.1(a) hereof.
(c) Notwithstanding the foregoing Sections 4.1(a) and 4.1(b),
nothing in this Agreement is intended to limit or restrict in any way Ford's
rights as a shareholder of Hertz.
4.2. Confidentiality. Except as required by law, regulation
or legal or judicial process, Ford agrees that neither it nor any Ford Entity
nor any of their respective directors, officers or employees will without the
prior written consent of Hertz disclose to any Person any material, non-public
information concerning the business or affairs of Hertz acquired from any
director, officer or employee of Hertz (including any director, officer or
employee of Hertz who is also a director, officer or employee of Ford).
ARTICLE V
MISCELLANEOUS
5.1. Limitation of Liability. Neither Ford nor Hertz shall
be liable to the other for any special, indirect, incidental or consequential
damages of the other arising in connection with this Agreement.
5.2. Subsidiaries. Ford agrees and acknowledges that Ford
shall be responsible for the performance by each Ford Entity of the obligations
hereunder applicable to such Ford Entity.
5.3. Amendments. This Agreement may not be amended or
terminated orally, but only by a writing duly executed by or on behalf of the
parties hereto. Any such amendment shall be validly and sufficiently
authorized for purposes of this Agreement if it is signed on behalf of Ford and
Hertz by any of their respective presidents or vice presidents.
5.4. Term. This Agreement shall remain in effect until all
Registrable Securities held by Holders have been transferred by them to Persons
other than Transferees; provided, that the provisions of Section 3.7 shall
survive any such expiration.
5.5. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement or such provision
of the application of such provision to such party or circumstances, other than
those to which it is so determined to be invalid, illegal or unenforceable,
shall remain in full force and effect to the fullest extent permitted by law
and shall not be affected thereby, unless such a construction would be
unreasonable.
<PAGE> 25
25
5.6. Notices. All notices and other communications required
or permitted hereunder shall be in writing, shall be deemed duly given upon
actual receipt, and shall be delivered (a) in person, (b) by registered or
certified mail, postage prepaid, return receipt requested or (c) by facsimile
or other generally accepted means of electronic transmission (provided that a
copy of any notice delivered pursuant to this clause (c) shall also be sent
pursuant to clause (b)), addressed as follows:
(a) if to Hertz, to:
The Hertz Corporation
225 Brae Boulevard
Park Ridge, New Jersey 07656
Attention: General Counsel
Telecopy No.: 201-307-2748
(b) If to Ford, to:
Ford Motor Company
The American Road
Dearborn, Michigan 48121
Attention: Secretary
Telecopy No.: 313-337-9591
or to such other addresses or telecopy numbers as may
be specified by like notice to the other parties.
5.7. Further Assurances. Ford and Hertz shall execute,
acknowledge and deliver, or cause to be executed,
acknowledged and delivered, such instruments and take such
other action as may be necessary or advisable to carry out
their obligations under this Agreement and under any exhibit,
document or other instrument delivered pursuant hereto.
5.8. Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be
deemed an original instrument, but all of which together shall
constitute but one and the same agreement.
5.9. Governing Law. This Agreement and the
transactions contemplated hereby shall be construed in
accordance with, and governed by, the laws of the State of
Delaware.
5.10. Entire Agreement. This Agreement constitutes
the entire understanding of the parties hereto with
respect to the subject matter hereof.
5.11. Class B Transferee. Hertz agrees that it shall
enter into an agreement with the Class B Transferee (as
defined in Hertz' Restated Certificate
<PAGE> 26
26
of Incorporation), if any, in form and substance reasonably
satisfactory to the Class B Transferee and Hertz (i) granting
to the Class B Transferee options for the purchase of
Class B Common Stock and Nonvoting Stock substantially upon the
same terms and conditions as those contained in Article II,
(ii) granting to the Class B Transferee registration rights for
the registration of Registrable Securities substantially upon
the same terms and conditions as those contained in Article III
for the benefit of Ford and (iii) containing other covenants
and agreement for the benefit of the Class B Transferee that
are substantially similar to the other covenants and agreements
contained in this Agreement for the benefit of Ford; provided,
that such agreement shall contain terms (including covenants
and agreements of the Class B Transferee) for the benefit of
Hertz that are substantially similar to the terms (including
the covenants and agreements of Ford) for the benefit of Hertz
contained herein.
5.12. Successors. This Agreement shall be binding
upon, and shall inure to the benefit of, the parties
hereto and their respective successors and assigns. Nothing
contained in this Agreement, express or implied, is intended to
confer upon any other person or entity any benefits, rights or
remedies.
5.13. Specific Performance. The parties hereto
acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or
were otherwise breached. Accordingly, it is agreed that they
shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof in any court of
competent jurisdiction in the United States or any state
thereof, in addition to any other remedy to which they may be
entitled at law or equity.
<PAGE> 27
27
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
Ford Motor Company
By:
-----------------------
Name:
Title:
The Hertz Corporation
By:
-----------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10C
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN
OMITTED AND FILED SEPARATELY PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT. THE
SYMBOL "****" HAS BEEN INSERTED IN PLACE OF
THE PORTIONS SO OMITTED.
February 20, 1997
Hertz System, Inc.
225 Brae Boulevard
Park Ridge, New Jersey 07656
Dear Sirs:
The purpose of this letter is to set forth the terms and conditions of
the agreement between HERTZ SYSTEM, INC. ("Hertz") and FORD MOTOR COMPANY
("Ford") for a joint advertising program in which Hertz and its affiliates
(hereinafter sometimes collectively referred to as "Hertz") will promote the
rental and leasing of vehicles manufactured by or for Ford and its affiliated
companies ("Ford Vehicles"). According to the understanding of the parties:
1. The joint advertising program (i) will be for a term commencing as
of September 1, 1997, and subject to Paragraph 15 hereof, ending on August 31,
2007, (ii) will be conducted primarily in the United States of America, and
also in other countries, and (iii) will be conducted in such media or manner as
Hertz may select, provided that not more than 10% of the expense of the program
per year will be in purely local advertising and not more than 15% of the
expense of the program per year will be in collateral material, such as direct
mail literature, primarily associated with the Hertz # 1 Club Gold and related
programs. Each period of September 1 to and including the next following
August 31 shall be called an Advertising Year hereunder.
2. Subject to the provisions of Paragraph 3(a), Ford will pay
one-half of the costs of such joint advertising to the extent that it is
considered Eligible Advertising under Paragraph 4 hereof. Without prior
discussion with and approval by Ford, Ford's share of such costs (the "Base
Amount") will not exceed $39.0 million in the Advertising Year ending on August
31, 1998 (the "1998 Advertising Year"). For each of the Advertising Years
beginning after August 31, 1998, the Base Amounts shall be calculated as
follows:
(a) for the 1999 Advertising Year, an amount equal to $39.0 million
multiplied by: (i) a fraction, the numerator of which is the CPI for April 1998
and the denominator of which shall be the CPI for April 1997, or (ii) ****,
whichever is smaller.
(b) for the 2000 Advertising Year, an amount equal to the 1999 Base
Amount multiplied by: (i) a fraction, the numerator of which is the CPI for
April 1999 and the denominator of which shall be the CPI for April 1998, or
(ii) ****, whichever is smaller.
<PAGE> 2
Page 2
(c) for the 2001 Advertising Year, an amount equal to the 2000 Base
Amount multiplied by: (i) a fraction, the numerator of which is the CPI for
April 2000 and the denominator of which shall be the CPI for April 1999, or
(ii) ****, whichever is smaller.
(d) for the 2002 Advertising Year, an amount equal to the 2001 Base
Amount multiplied by: (i) a fraction, the numerator of which is the CPI for
April 2001 and the denominator of which shall be the CPI for April 2000, or
(ii) ****, whichever is smaller.
(e) for the 2003 Advertising Year, an amount equal to the 2002 Base
Amount multiplied by: (i) a fraction, the numerator of which is the CPI for
April 2002 and the denominator of which shall be the CPI for April 2001, or
(ii) ****, whichever is smaller.
(f) for the 2004 Advertising Year, an amount equal to the 2003 Base
Amount multiplied by: (i) a fraction, the numerator of which is the CPI for
April 2003 and the denominator of which shall be the CPI for April 2002, or
(ii) ****, whichever is smaller.
(g) for the 2005 Advertising Year, an amount equal to the 2004 Base
Amount multiplied by: (i) a fraction, the numerator of which is the CPI for
April 2004 and the denominator of which shall be the CPI for April 2003, or
(ii) ****, whichever is smaller.
(h) for the 2006 Advertising Year, an amount equal to the 2005 Base
Amount multiplied by: (i) a fraction, the numerator of which is the CPI for
April 2005 and the denominator of which shall be the CPI for April 2004, or
(ii) ****, whichever is smaller.
(i) for the 2007 Advertising Year, an amount equal to the 2006 Base
Amount multiplied by: (i) a fraction, the numerator of which is the CPI for
April 2006 and the denominator of which shall be the CPI for April 2005, or
(ii) ****, which ever is smaller.
As used herein, "CPI" means the United States Department of Labor's Bureau of
Labor Statistics Revised Consumer Price Index for All Urban Consumers, or the
successor of such Index. The costs of such joint advertising shall include
Hertz s direct costs, including costs of materials, of preparing and
distributing Hertz charge cards or Hertz-sponsored credit cards and related
materials (but not other costs of Hertz's charge card department), of preparing
and distributing direct mail advertising material (advertising which is
contemplated by this Agreement), and of administering the Hertz advertising
department.
3. (a) As it is the express purpose and intent of the joint
advertising program (and the payments provided thereunder) to increase the
demand for the rental of, and thereby increase the demand for the purchase by
retail buyers of, Ford Vehicles, it is the understanding and agreement of the
parties hereto that, during each Advertising Year, Ford will not be required to
pay Hertz any amounts under Paragraph 2 if the Ford Vehicle Share is not at
least 55%; provided, however, that Ford will be required to pay such amounts to
the extent that Hertz's failure to achieve a 55% Ford Vehicle Share was
attributable to (i) Ford s failure to make Ford Vehicles available for
acquisition by Hertz in quantities sufficient to achieve a 55% Ford
<PAGE> 3
Page 3.
Vehicle Share, or (ii) the fact that Ford Fleet Programs were not competitive
with those similar fleet programs offered by other automotive manufacturers, as
to terms and conditions; provided further, however, that in no event shall Ford
be required to pay Hertz under Paragraph 2 should the Ford Vehicle Share be
less than 40%.
Notwithstanding the preceding sentence, if Ford's failure to make available
sufficient quantities of Ford Vehicles is caused by a production disruption of
more than one year due to (i) a shortage or curtailment of material, labor,
transportation or utility service; (ii) any labor or production difficulty;
(iii) any governmental action; or (iv) any cause beyond the reasonable control
of Ford, then the parties will negotiate in good faith to reduce the amounts
under Paragraph 2 above by amounts reflective of the nature, extent and
duration of the production disruption and the Ford Vehicle Share actually
achieved. For the purposes of this Agreement, (i) "Ford Vehicle Share" means
the percentage that new Ford Vehicles acquired in an Advertising Year for Hertz
s domestic U.S. corporate fleet represent of the total vehicles acquired for
such domestic U.S. corporate fleet in such Advertising Year,(ii) "Ford Fleet
Programs" mean the price discount, guaranteed resale or repurchase, incentive
or similar programs offered by Ford and Ford affiliates whose primary business
is the sale or manufacture and sale of vehicles, and (iii) Hertz's domestic
U.S. corporate fleet shall not include the fleets of independent businesses or
individuals licensed by Hertz for the daily car rental business as part of the
Hertz System.
(b) In addition to the Base Amount payments for joint advertising
under Paragraph 2 above, Ford will pay Hertz 100% of the cost of Eligible
Advertising in excess of those costs qualifying for the maximum contribution
under Paragraph 2, related solely to corporate car rental programs during each
Advertising Year in accordance with the schedule below:
<TABLE>
<CAPTION>
If the FordVehicle Share Ford's additional payment for Eligible
Should Reach: Advertising of Corporate Car Rental
Programs will be (in millions):
<S> <C>
58% ****
**** ****
**** ****
**** ****
**** ****
**** ****
**** ****
**** ****
**** ****
**** ****
**** ****
**** ****
**** ****
</TABLE>
<PAGE> 4
Page 4.
Ford's additional payments will be subject to the same annual increases, based
on the CPI, as defined in Paragraph 2 above.
Ford shall be required to make additional payments hereunder only to the extent
that Hertz's total expenditure for Eligible Advertising in an Advertising Year
exceeds those costs subject to Ford s one-half contribution under Paragraph 2.
By way of example:
<TABLE>
<CAPTION>
Eligible Advertising
Costs & Ford Contribution Amount of Hertz
Hertz Total under Paragraph 2 Entitlement to
Expenditure for Supplemental Support
Eligible Advertising Eligible Adv. Based Upon **** Ford
In Advertising Year Adv. Payment Vehicle Share
(Mils) (Mils) (Mils) (Mils)
<S> <C> <C> <C> <C>
Example A **** **** **** ****
Example B **** **** **** ****
Example C **** **** **** ****
</TABLE>
The calculation of such additional payments for Hertz's corporate advertising
costs will be subject to the following terms:
(i) By no later than August 15 of each Advertising Year, Hertz will
submit to Ford a written estimate of the Ford Vehicles to be delivered
to Hertz and its Ford Vehicle Share for the following Advertising
Year.
(ii) On the first day of each quarter, of each Advertising Year, Ford
will pay Hertz one quarter of that year's amount of supplemental
support as calculated from the schedule in this Paragraph 3(b) based on
the written estimate of Ford Vehicle Share for its domestic U.S.
corporate fleet submitted by Hertz in accordance with Paragraph 3(b)(i)
above.
(iii) By no later than August 15 of each Advertising Year, Hertz will
provide Ford with a reconciliation of Hertz's total vehicle deliveries
to its domestic U.S.corporate fleet and Ford Vehicles delivered to its
domestic U.S. corporate fleet during that Advertising Year. If Hertz's
Ford Vehicle Share falls short of the Ford Vehicle Share estimated
pursuant to Paragraph 3(b)(i), the September 1 payment in the following
<PAGE> 5
Page 5.
Advertising Year will be reduced by any amounts prepaid by Ford
pursuant to Paragraph 3(b)(ii) based on the actual Ford Vehicle Share
attained; provided however, that no reduction in such payment shall be
required if Hertz s failure to achieve the estimated Ford Vehicle
Share was attributable to a failure by Ford to make Ford Vehicles
available in quantities sufficient to achieve the estimated Ford
Vehicle Share. Notwithstanding the preceding sentence, if Ford's
failure to make available sufficient quantities of Ford Vehicles is
caused by a production disruption of more than one year due to (i) a
shortage or curtailment of material, labor, transportation or utility
service; (ii) any labor or production difficulty; (iii) any
governmental action; or (iv) any cause beyond the reasonable control
of Ford, then the parties will negotiate in good faith to reduce the
amounts under Paragraph 2 above by amounts reflective of the nature,
extent and duration of the production disruption and the Ford Vehicle
Share actually achieved. If any refund is due Ford, pursuant to this
provision with respect to the Advertising Year ending on August 31,
2007, Hertz will make payment of such amount to Ford no later than
September 15, 2007.
4. To be considered Eligible Advertising under the joint
advertising program, advertising must:
a. be published, or placed or controlled by Hertz or its
affiliates; and
b. indicate that Hertz features Ford Vehicles or refer to
Ford Vehicles at least once in a phrase, such as
"Hertz rents Fords and other fine cars (or in a
manner with a leadership and influence value)," and
with a prominence that is reasonably satisfactory to
Ford; and
c. where feasible, use or contain a pictorial
representation of a Ford Vehicle approved by Ford, in
a manner and with a prominence reasonably
satisfactory to Ford; and
d. not contain any pictorial representation, trade name
or endorsement of, or testimonial to, any vehicle
other than a Ford Vehicle, or any reference by name
to any vehicle manufacturer other than Ford or one of
its affiliates, except as Ford may otherwise consent,
it being understood that vehicles other than Ford
Vehicles may be mentioned and pictured (i) in Hertz's
tariffs, directories or rate sheets distributed
outside the continental United States or distributed
inside the continental United States for rentals
outside the continental United States, (ii) in the
<PAGE> 6
Page 6.
advertising with Ford's consent, which shall not be
unreasonably withheld, of a vehicle for which, at the
time, there is no comparable Ford Vehicle, and (iii)
in advertising with Ford's consent, which shall not be
unreasonably withheld, in any country in which Ford
Vehicles represent less than 25% of the total Hertz
corporate fleet in such country; and
e. comply with the provisions of Paragraphs 5 and 6
hereof.
5. While this Agreement is in effect, Hertz will not use, and to the
extent practicable will not permit any of its affiliates to use, and will use
its best efforts to prevent its licensees and affiliates from using, any
advertising that contains the Ford script-in-oval trademark, the word "Ford" in
script or any statement that is detrimental to Ford or any of Ford's
affiliates, or to the good name of Ford or any of its affiliates, or to any
product made or sold by Ford or its affiliates.
6. Ford will furnish Hertz, from time to time, pictorial
representations and vehicles for Hertz-sponsored photo shoots of Ford Vehicles
for use in Eligible Advertising. Each pictorial representation of a Ford
Vehicle used in an Eligible Advertisement originally released more than one
month after the public introduction of a new model of such Ford Vehicle will,
if practicable, be a pictorial representation of such new model.
7. Hertz will hold in confidence all pictorial representations of
Ford Vehicles, and all information and data disclosed by Ford to Hertz
hereunder; and will not use or disclose the same to others except as required
to carry out the purpose of this Agreement or as authorized by Ford in writing.
Hertz will impose, insofar as practicable, a similar restriction on Ford's
behalf on its parent and on its affiliates and will use its best efforts to
cause its licensees and the licensees of its parent and affiliates and all
others to whom it discloses any of such material to hold such representations,
information and data in confidence.
8. Hertz will use all reasonable efforts to obtain all Eligible
Advertising at competitive rates and charges and will notify Ford in writing of
the agency or agencies handling the same from time to time. Hertz will furnish
to Ford upon request, during the term hereof, copies or examples of all
advertising, including, without limitation, print advertisements, collateral
material, mat services, telecommunication material, and outdoor displays
prepared for Hertz or on Hertz's behalf and placed by or through its
advertising agencies during the month preceding such request.
<PAGE> 7
Page 7.
9. While this Agreement is in effect, Ford will pay Hertz, toward
Ford's share of the costs of Eligible Advertising, as provided in Paragraph 2
hereof, on the first day of each quarter (i.e., September 1, December 1, March
1 and June 1) in each Advertising Year during the term hereof, one-quarter of
the respective annual amounts specified in Paragraph 2.
a. In no event will Ford be required hereunder to
contribute:
(i) any portion of funds paid by Hertz s
licensees (other than Hertz s parent or
affiliates) for local advertising, or
(ii) any portion of funds used directly or
indirectly for tariffs, directories or rate
sheets, to the extent used to advertise
vehicles other than Ford Vehicles, except as
Ford may otherwise consent, and
b. As soon as practicable after the end of each quarter
of each 12 month period beginning January 1 and
ending December 31 during the term of this Agreement
("Calendar Year"), and as soon as practicable after
the termination of this Agreement, Hertz will deliver
to Ford a statement in reasonable detail for such
quarter or for the final period preceding
termination, certified by Hertz' s treasurer,
controller, or an assistant treasurer or assistant
controller, setting forth the amount spent or
committed by Hertz during said period for Eligible
Advertising. Ford may at any time proportionately
reduce any quarterly payment if, during the year, the
sum of its quarterly payments thus far in such year
substantially exceeds 50% of the cost thus far for
Eligible Advertising, and may continue such reduction
as long as such excess exists.
c. As soon as practicable at the end of each Calendar
Year prior to the termination hereof, and in no event
later than April 1 of the following Calendar Year,
Hertz will deliver to Ford a statement in reasonable
detail for such Calendar Year, certified by its
treasurer, controller, assistant treasurer or
assistant controller, setting forth receipts for and
expenditures or commitments made, charged or
chargeable to said Calendar Year, and Hertz will pay
to Ford or charge to the next quarterly payment any
excess of Ford s payments in that Calendar Year over
50% of the total amount expended or committed for
Eligible Advertising for such Calendar Year. For
this purpose, Ford's payments
<PAGE> 8
Page 8.
in any Advertising Year will be pro-rated equally over
each month in each Calendar Year as appropriate.
d. Within a reasonable time after any termination of
this Agreement, Hertz will deliver to Ford a
statement in reasonable detail, certified by its
treasurer, controller, assistant treasurer, or
assistant controller, setting forth its expenditures
for Eligible Advertising during the period between
the first day of the Calendar Year in which such
termination will have occurred and the date of such
termination, and also setting forth the amount held
in its advertising funds or the advertising funds of
its parent or affiliates as of the date of
termination of this Agreement, less all accrued
liabilities chargeable thereto, or commitments made
as of said date, plus prepaid expenses which may have
been charged to such funds, such as for non-Ford
components of spectacular outdoor displays (which
will have been amortized over the shorter of the term
of the applicable lease or five years from the date
such display commenced), which will be restored to
such funds on a prorata basis, plus the amount, if
any, by which expenditures are in excess of the
limitations agreed upon for local advertising and
collateral material (herein sometimes called "the
termination date balance of such funds") and Hertz
will simultaneously with the delivery of said
statement to Ford, pay the portion of the termination
date balance of such funds which Ford has theretofore
contributed, or Ford will pay to the funds any sum so
shown to be due, as the case may be.
10. Subject to Paragraph 11 hereof, Hertz will have sole discretion
and control over all copy, art work, editorial matter, media, and release dates
for all Eligible Advertising.
11. Hertz warrants that no Eligible Advertising, and no other item
released by Hertz or anyone under its control that contains any pictorial
representation of a Ford Vehicle or any reference to Ford or its affiliates,
will violate the copyright or right of privacy of, or constitute a libel or
slander or actionable derogation of, or violate any legal or equitable right
of, any person or entity.
12. Hertz will indemnify and hold harmless Ford, its dealers, its
affiliates and their dealers from and against all claims by third parties,
damages, liabilities, losses, costs and expenses arising out of or connected
with any Eligible Advertising or any other advertising, promotion or publicity
released by Hertz or under Hertz's control. Ford will indemnify and
<PAGE> 9
Page 9.
hold harmless Hertz, its affiliates, and Hertz's licensees and the licensees of
its affiliates, from and against all claims by third parties, damages,
liabilities, losses, costs and expenses arising out of or connected with the
use, pursuant to this Agreement, of any pictorial representation, information
or data furnished by Ford hereunder.
13. This Agreement is not made in connection with or as part of any
transaction related to the sale of any Ford Vehicle or Vehicles, and nothing
contained herein will be construed as imposing, directly or indirectly, any
obligation on anyone to purchase or supply any Ford Vehicle or Vehicles.
14.(a) Except as otherwise specifically provided in this Agreement, if there
is published, placed or paid for by Hertz or anyone under its control, by its
parent or any of its affiliates, any advertising of any make of vehicle other
than a Ford Vehicle which Ford believes has reduced or may reduce the value to
Ford or its affiliates of the joint advertising program provided hereunder,
Ford in its sole discretion may, after thorough discussion with Hertz,
terminate this Agreement as of the end of any month by giving Hertz at least
twenty (20) days' prior notice of termination. However, Ford shall have no
right of termination with respect to (i) advertising published, placed, or paid
for by any of Hertz's licensees or any licensee of any of its affiliates,
unless such advertising is published or placed with the approval or consent of
Hertz or its affiliates, (ii) advertising published or placed with Ford's
consent of a vehicle for which, at the time, there is no comparable Ford
Vehicle, or (iii) advertising published or placed with Ford's consent in any
country in which Ford Vehicles represent less than 25% of the total Hertz
corporate fleet in such country.fp
(b) If either Hertz or Ford shall be in breach of any provision of
this Agreement, the other may terminate this Agreement as of the last day of
any succeeding month by giving at least twenty (20) days' prior notice of
termination to the party in breach unless such breach is cured within such
notice period, or, if not capable of being cured within said notice period, the
curing thereof is commenced and proceeds with all due diligence during said
notice period and is cured within sixty (60) days after such notice.
15. This Agreement will not terminate as provided in Paragraph 1,
unless either party has served the other not less than one (1) year prior
thereto (e.g., not later than September 1, 2006) with notice of its intent to
terminate this Agreement. In the absence of such notice, this Agreement will
continue from year to year thereafter until terminated by notice, in accordance
with the provisions hereof. Without limiting in any way the application of the
other provisions hereof, to the extent this Agreement continues past August 31,
2007, Ford's
<PAGE> 10
Page 10.
payments to Hertz under Paragraphs 2 and 3 will be subject to adjustments for
inflation, if any, using the formula set forth in Paragraph 2.
16. If this Agreement is rendered illegal by enactment of a statute
or a final decision by a court or governmental agency of competent
jurisdiction, either party may terminate the Agreement after reasonable
consultation with the other party. If, during the term hereof, any federal or
state law is enacted which would require Ford, by reason of the existence of
this Agreement, to provide its franchised automobile dealers, operating as
such, with annual payments in an aggregate amount equal to or greater than
those provided to Hertz, either in the form of price reductions or otherwise,
then Ford, at its option, may terminate this Agreement, effective immediately,
without any further obligations by either party to the other except as to such
obligations that are due and payable as of the effective date of termination.
17. Ford, through its duly authorized agents or representatives, may
examine all pertinent records of Hertz, its parent, or its affiliates at any
and all reasonable times for the purposes of determining, and to the extent
necessary for the determination of, the accuracy of all statements that may be
furnished by Hertz to Ford hereunder. Such records will include all documents
pertaining to the advertising funds of Hertz or its affiliates, and to the
number of vehicles in Hertz's domestic U.S. corporate fleet.
18. At Ford's request from time to time and upon not less than ten
(10) days' prior notice to Hertz, Hertz's duly authorized officials shall meet
with Ford representatives at Hertz's headquarters for the purpose of discussing
the joint advertising program, particularly as it relates to Ford's name (or
Ford's affiliates names) and good will or any of its trade or service marks.
Hertz will use any such trade or service marks only in strict accordance with
written authorization received from Ford and will in good faith, when not
inconsistent with Hertz's objectives, seek to meet Ford's other requests or
objections. Major changes in advertising campaigns or strategy will be
discussed with Ford in advance of implementation.
19. This Agreement may not be changed in any way except in writing
signed and delivered by the duly authorized representatives of Ford and Hertz.
20. Any notice, consent, approval or other communication required or
permitted hereunder will be in writing, will be given by registered or
certified United States mail and will be deemed given when deposited in the
mail, postage paid and addressed as follows:
<PAGE> 11
Page 11.
(a) if to Ford:
Ford Motor Company
Office of the Secretary
The American Road
Dearborn, Michigan 48121; and
(b) if to Hertz:
Chairman of the Board
Hertz System, Inc.
225 Brae Boulevard
Park Ridge, New Jersey 07656
Such addresses may be changed by notice given in like manner.
21. This Agreement will be deemed to be a Michigan agreement and will
be construed and governed by the laws of the State of Michigan.
22. The joint advertising agreement dated as of January 1, 1988
("1988 Agreement"), between Ford and Hertz shall terminate as of midnight,
August 31, 1997, and this Agreement shall supersede the 1988 Agreement.
<PAGE> 12
Page 12.
If the foregoing correctly states the understanding of both parties,
on this subject, please sign and return a copy of this letter.
Yours very truly,
FORD MOTOR COMPANY
By:/s/ R.L.Rewey
-----------------------------------
R. L. Rewey
Vice President - Marketing
& Sales
AGREED:
HERTZ SYSTEM, INC.
By:/s/ F.A. Olson
- -----------------------------
Frank A. Olson
Chairman of the Board
<PAGE> 1
EXHIBIT 10.(D)
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT dated as of March 10, 1997 is made and
entered into by Ford Motor Company, a Delaware corporation ("FORD") and The
Hertz Corporation, a Delaware corporation ("HERTZ") and the Hertz Affiliates.
RECITALS
WHEREAS, Ford is the common parent corporation of an affiliated group of
corporations within the meaning of Section 1504(a) of the Internal Revenue
Code of 1986, as amended (the "CODE") and of combined groups as defined under
similar laws of other jurisdictions ("FORD GROUP") and Hertz and the Hertz
Affiliates are members of such groups; and
WHEREAS, the groups of which Ford is the common parent and Hertz and the
Hertz Affiliates are members file or intend to file Consolidated Returns and
Combined Returns; and
WHEREAS, Ford and Hertz desire to provide for the allocation of
liabilities, procedures to be followed, and other matters with respect to
certain taxes for taxable periods beginning after December 31, 1996.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS
1.1. "HERTZ AFFILIATE" means any corporation or other entity directly or
indirectly controlled by Hertz which is includible in the Hertz Group.
1.2. "HERTZ GROUP" means the affiliated group of corporations as defined
in Section 1504(a) of the Code, or similar group of entities as defined under
similar laws of other jurisdictions, of which Hertz would be the common parent
if it were not a subsidiary of Ford, and any corporation or other entity which
may be or become a member of such group from time to time.
1.3. "HERTZ GROUP COMBINED TAX LIABILITY" means, with respect to any
taxable year, the Hertz Group's liability for Non-Federal Combined Taxes as
determined under Section 2.4 of this Agreement.
1.4. "HERTZ GROUP FEDERAL INCOME TAX LIABILITY" means, with respect to
any taxable year, the Hertz Group's liability for Federal Income Taxes as
determined under Section 2.3 of this Agreement.
1
<PAGE> 2
1.5. "AUDIT" includes any audit, assessment of Taxes, other examination
by any Tax Authority, proceeding, or appeal of such proceeding relating to
Taxes, whether administrative or judicial.
1.6. "COMBINED GROUP" means a group of corporations or other entities
that files a Combined Return.
1.7. "COMBINED RETURN" means any Tax Return with respect to Non-Federal
Taxes filed on a consolidated, combined (including nexus combination, worldwide
combination, domestic combination, line of business combination or any other
form of combination) or unitary basis wherein one or more members of the Hertz
Group join in the filing of a Tax Return with Ford or a Ford subsidiary that is
not also a member of the Hertz Group.
1.8. "CONSOLIDATED GROUP" means the affiliated group of corporations
within the meaning of Section 1504(a) of the Code of which Ford is the common
parent and which includes the Hertz Group.
1.9. "CONSOLIDATED RETURN" means any Tax Return with respect to Federal
Income Taxes filed by the Consolidated Group pursuant to Section 1501 of the
Code.
1.10. "CREDITABLE FOREIGN TAXES" means the foreign taxes paid, accrued or
deemed paid by members of the Hertz Group that could be allowable as a credit
under Section 901 of the Code.
1.11. "DECONSOLIDATION" means any event pursuant to which Hertz and the
Hertz Group cease to be includible in the Consolidated Group or the Combined
Group.
1.12. "DECONSOLIDATION DATE" means the close of business on the day on
which a Deconsolidation occurs. Unless otherwise required by the relevant Tax
Authority or a court of competent jurisdiction, Ford and Hertz, for itself and
the Hertz Group, agree to file all Tax Returns, and to take all other actions,
relating to Federal Income Taxes or Non-Federal Combined Taxes in a manner
consistent with the position that Hertz and the Hertz Group are includible in
the Consolidated Group and the Combined Group for all days from the date hereof
through and including a Deconsolidation Date.
1.13. "ESTIMATED TAX INSTALLMENT DATE" means the installment due dates
prescribed in Section 6655(c) of the Code (presently April 15, June 15,
September 15 and December 15).
1.14. "FEDERAL INCOME TAXES" means any tax imposed under Subtitle A of
the Code (including the taxes imposed by Sections 11, 55, 59A, and 1201(a) of
the Code), including any interest, additions to tax, or penalties applicable
thereto, and any other income based United States federal taxes which are
hereinafter imposed upon corporations.
1.15. "FINAL DETERMINATION" means (a) the final resolution of any tax (or
other matter) for a taxable period, including any related interest or
penalties, that, under applicable law, is not subject to further appeal, review
or modification through proceedings or otherwise, including (1) by the
expiration of a statute of limitations (giving effect to any extension, waiver
or mitigation thereof) or a period for the filing of claims for refunds,
amended returns, appeals from adverse
2
<PAGE> 3
determinations, or recovering any refund (including by offset), (2) by a
decision, judgment, decree, or other order by a court of competent
jurisdiction, which has become final and unappealable, (3) by a closing
agreement or an accepted offer in compromise under Section 7121 or 7122 of the
Code, or comparable agreements under laws of other jurisdictions, (4) by
execution of an Internal Revenue Service Form 870 or 870AD, or by a comparable
form under the laws of other jurisdictions (excluding, however, any such form
that reserves (whether by its terms or by operation of law) the right of the
taxpayer to file a claim for refund and/or the right of the Taxing Authority to
assert a further deficiency), or (5) by any allowance of a refund or credit,
but only after the expiration of all periods during which such refund or credit
may be recovered (including by way of offset) or (b) the payment of tax by any
member of the Consolidated Group or Combined Group with respect to any item
disallowed or adjusted by a Taxing Authority provided that Ford determines that
no action should be taken to recoup such payment.
1.16. "FOREIGN TAX AMOUNT" means, with respect to any taxable year, the
amount determined under Section 2.5 of this Agreement.
1.17. "NON-FEDERAL COMBINED TAXES" means any Non-Federal Taxes with
respect to which a Combined Return is filed.
1.18. "NON-FEDERAL SEPARATE TAXES" means any Non-Federal Tax that is not
a Non-Federal Combined Tax.
1.19. "NON-FEDERAL TAXES" includes all state and local charges, fees,
levies, imposts, duties, or other assessments of a similar nature, including
without limitation, income, alternative or add-on minimum, gross receipts,
excise, employment, sales, use, transfer, license, payroll, franchise,
severance, stamp, occupation, windfall profits, withholding, Social Security,
unemployment, disability, ad valorem, estimated, highway use, commercial rent,
capital stock, paid up capital, recording, registration, property, real
property gains, value added, business license, custom duties, or other tax or
governmental fee of any kind whatsoever, imposed or required to be withheld by
any Tax Authority (excluding any governmental agency of the United States)
including any interest, additions to tax, or penalties applicable thereto.
1.20. "PRE-DECONSOLIDATION PERIOD" means a taxable period ending on or
prior to the Deconsolidation Date.
1.21. "PRO FORMA HERTZ GROUP COMBINED RETURN" means a pro forma
non-federal combined tax return or other schedule prepared pursuant to Section
2.4 of this Agreement.
1.22. "PRO FORMA HERTZ GROUP CONSOLIDATED RETURN" means a pro forma
consolidated federal income tax return prepared pursuant to Section 2.3 of this
Agreement.
1.23. "POST-DECONSOLIDATION PERIOD" means a taxable period beginning
after the Deconsolidation Date.
1.24. "REDETERMINATION AMOUNT" means, with respect to any taxable year,
the amount determined under Section 3.8 of this Agreement.
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1.25. "STRADDLE PERIOD" means a taxable period beginning on or prior to
and ending after the Deconsolidation Date.
1.26. "TAX ASSET" means any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any other
deduction, credit or tax attribute which could reduce taxes (including without
limitation deductions and credits related to alternative minimum taxes).
1.27. "TAX AUTHORITY" includes the Internal Revenue Service and any
state, local, or other governmental authority responsible for the
administration of any Taxes.
1.28. "TAXES" means Federal Income Taxes and Non-Federal Taxes.
1.29. "TAX RETURN" means any return, declaration, statement, report,
schedule, certificate, form, information return or any other document (and any
related or supporting information) including an amended tax return required to
be supplied to, or filed with, a Tax Authority with respect to Taxes.
SECTION 2. TAX SHARING
2.1. HERTZ LIABILITY FOR FEDERAL INCOME TAXES AND NON-FEDERAL COMBINED
TAXES. Each taxable year, Hertz shall pay to Ford an amount equal to the sum
of the Hertz Group Federal Income Tax Liability and the Hertz Group Combined
Tax Liability for such taxable year.
2.2 FORD LIABILITY FOR FOREIGN TAX AMOUNT. With respect to each taxable
year, Ford shall pay to Hertz an amount equal to the Foreign Tax Amount for
such taxable year.
2.3. HERTZ GROUP FEDERAL INCOME TAX LIABILITY. (a) IN GENERAL. With
respect to any taxable year, the Hertz Group Federal Income Tax Liability shall
be the sum, for such taxable year, of (1) the Hertz Group's liability for
Federal Income Taxes as determined on the Pro Forma Hertz Group Consolidated
Return, and (2) any interest, penalties and other additions to such taxes.
(b) PRO FORMA FEDERAL RETURN. Each taxable year, Ford shall prepare or
cause to be prepared (and, as requested by Ford, Hertz shall cooperate in
preparing) a pro forma consolidated federal income tax return for the Hertz
Group ("PRO FORMA HERTZ GROUP CONSOLIDATED RETURN") as if the Hertz Group were
not and never were part of the Consolidated Group, but rather were a separate
affiliated group of corporations of which Hertz were the common parent filing a
consolidated federal income tax return pursuant to Section 1501 of the Code.
(c) OPERATING RULES. The Pro Forma Hertz Group Consolidated Return shall
be prepared:
(1) reflecting the elections, methods of accounting, and positions
with respect to specific items made or used in the Consolidated Return;
(2) taking into account any Tax Assets (but excluding any Creditable
Foreign Taxes);
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(3) without regard to any graduated rates of tax; and
(4) reflecting transactions with members of the Consolidated
Group that are not also members of the Hertz Group according to the provisions
of the consolidated return regulations promulgated under the Code governing
intercompany transactions (no item (including income, gains, losses, deductions
and credits) of any member of the Consolidated Group that is not a member of the
Hertz Group shall otherwise be taken into account).
2.4. HERTZ GROUP COMBINED TAX LIABILITY. (a) IN GENERAL. With respect
to any taxable year, the Hertz Group Combined Tax Liability shall be the sum,
for such taxable year, of (1) the Hertz Group's liability for Non-Federal
Combined Taxes as determined on the Pro Forma Hertz Group Combined Return, (2)
any interest, penalties and other additions to such taxes
(b) PRO FORMA COMBINED RETURN. Each taxable year, Ford shall prepare or
cause to be prepared (and, as requested by Ford, Hertz shall cooperate in
preparing) a pro forma combined tax return or other schedule for the Hertz
Group ("PRO FORMA HERTZ GROUP COMBINED RETURN") determined as if the Hertz
Group were not and never were part of the Combined Group, but rather were a
separate group of which Hertz were the common parent filing a combined tax
return.
(c) OPERATING RULES. The Pro Forma Hertz Group Combined Return shall be
prepared by reference to:
(1) the Hertz Group's taxable income or loss from Line 28 of the
Pro Forma Hertz Group Consolidated Return, adjusted to take into account (i)
those members of the Hertz Group which are included in the Combined Return, (ii)
net operating loss carryforwards, and (iii) material adjustments necessary to
reflect the laws of the applicable jurisdiction (e.g., to exclude "SUBPART F
INCOME" and "GROSS-UP");
(2) apportionment factors determined by taking into account only
those members of the Hertz Group which are included in the Combined Return; and
(3) the highest applicable tax rate without regard to any
graduated rates.
(d) ADDITIONAL OPERATING RULES. The following additional provisions
shall apply in determining the Hertz Group Combined Tax Liability:
(1) Ford shall not pay the Hertz Group for any Tax Asset
relating to any Non-Federal Combined Tax, including any net operating loss
carrybacks or carryovers, not otherwise taken into account under Section 2.4(b)
of this Agreement;
(2) the Hertz Group liability with respect to unemployment taxes
for which a Combined Return is filed shall be the lesser of (i) the liability
for such taxes of the members of the Hertz Group which are included in the
Combined Return determined utilizing the tax rate applicable to the Combined
Return and (ii) the liability for such taxes of the members of the Hertz Group
which are included in the Combined Return determined as if such members of the
Hertz Group were not and never were part of the Combined Group, but rather were
a separate group filing a combined unemployment tax return.
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2.5. FOREIGN TAX CREDIT. (a) IN GENERAL. With respect to each taxable
year, the Foreign Tax Amount shall be the amount of actual tax savings
(adjusted to reflect cumulative savings), if any, realized for such taxable
year by the Consolidated Group (taking into account carrybacks and
carryforwards) with respect to Creditable Foreign Taxes.
(b) AMOUNT. (1) GENERAL RULE. The amount of any such tax savings for a
taxable year shall be determined either (i) by comparing the Consolidated
Group's foreign tax credit computed by taking into account the Hertz Group to
the Consolidated Group's foreign tax credit computed without taking into
account the Hertz Group, or (ii) if a deduction is claimed for Creditable
Foreign Taxes, by comparing the Consolidated Group's liability for Federal
Income Taxes computed by taking into account such Creditable Foreign Taxes to
the Consolidated Group's liability for Federal Income Taxes computed without
taking into account such Creditable Foreign Taxes.
(2) LIMITATIONS. In no event shall the amount determined under
Section 2.5(b)(1)(i) of this Agreement for a taxable year exceed the amount of
Creditable Foreign Taxes taken into account during such taxable year.
(3) REDUCTION FOR DEFICIT IN OTHER TAXABLE YEARS. If, for any
taxable year, the Consolidated Group's foreign tax credit computed without
taking into account the Hertz Group exceeds the Consolidated Group's foreign tax
credit computed by taking into account the Hertz Group, the amount of such
excess shall be applied against and reduce the Foreign Tax Amount for any other
taxable year (after taking into account any reduction in such Foreign Tax Amount
by reason of such an excess in a prior taxable year) covered by this Agreement.
If Ford has already paid Hertz the Foreign Tax Amount for a taxable year and
such amount is subsequently reduced under this Section 2.5(b)(3), Hertz shall
pay to Ford the amount of such reduction.
SECTION 3. PAYMENT OF TAXES AND TAX SHARING AMOUNTS
3.1. FEDERAL INCOME TAXES. Ford shall pay to the Internal Revenue
Service all Federal Income Taxes, if any, of the Consolidated Group (including
the Hertz Group) due and payable for all Pre-Deconsolidation Periods.
3.2. NON-FEDERAL COMBINED TAXES. Ford shall pay to the appropriate Tax
Authorities all Non-Federal Combined Taxes, if any, of the Combined Group
(including the Hertz Group) due and payable for all Pre-Deconsolidation Periods
and Straddle Periods.
3.3. NON-FEDERAL SEPARATE TAXES. Hertz shall pay to the appropriate Tax
Authorities all Non-Federal Separate Taxes, if any, of the Hertz Group due and
payable for all Pre-Deconsolidation Periods and Straddle Periods.
3.4. OTHER FEDERAL TAXES. The parties shall each pay to the appropriate
governmental authorities all of their respective Federal Taxes (excluding
Federal Income Taxes for Pre-Deconsolidation Periods, which are governed by
Section 3.1 of this Agreement), if any, due and payable for all
Pre-Deconsolidation Periods, Straddle Periods, and Post-Deconsolidation
Periods.
3.5. TAX SHARING INSTALLMENT PAYMENTS. (a) FEDERAL INCOME TAXES. Not
later than five business days prior to each Estimated Tax Installment Date with
respect to any Pre-
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Deconsolidation Period or Straddle Period, Ford shall determine under Section
6655 of the Code the estimated amount of the related installment of the Hertz
Group Federal Income Tax Liability. Hertz shall then pay to Ford not later
than such Estimated Tax Installment Date the amount thus determined.
(b) NON-FEDERAL COMBINED TAXES. Not later than November 15 of each
taxable year with respect to any Pre-Deconsolidation Period or Straddle Period,
Ford shall deliver to Hertz an estimate of the Hertz Group Combined Tax
Liability for the taxable year determined by using the previous year's
apportionment factors. Hertz shall then pay to Ford, not later than 10
business days after receipt of such estimate, the amount thus determined.
3.6. TAX SHARING TRUE-UP PAYMENTS. (a) FEDERAL INCOME TAXES. Not later
than 30 business days after the Consolidated Return is filed with respect to
any Pre-Deconsolidation Period or Straddle Period, Ford shall deliver to Hertz
a Pro Forma Hertz Group Consolidated Return or other comparable schedule
reflecting the Hertz Group Federal Income Tax Liability. Not later than 10
business days after the date such pro forma or other schedule is delivered,
Hertz shall pay to Ford, or Ford shall pay to Hertz, as appropriate, an amount
equal to the difference, if any, between the Hertz Group Federal Income Tax
Liability for the taxable year and the aggregate amount paid by Hertz with
respect to such taxable year under Section 3.5(a) of this Agreement.
(b) NON-FEDERAL COMBINED TAXES. Not later than November 15 following
each taxable year with respect to any Pre-Deconsolidation Period or Straddle
Period, Ford shall deliver to Hertz a Pro Forma Hertz Group Combined Return or
other comparable schedule reflecting the Hertz Group Combined Tax Liability for
the taxable year. Not later than 10 business days following delivery of such
pro forma or other schedule, Hertz shall pay to Ford, or Ford shall pay to
Hertz, as appropriate, an amount equal to the difference, if any, between the
Hertz Group Combined Tax Liability for the taxable year and the amount paid by
Hertz with respect to such taxable year under Section 3.5(b) of this
Agreement.
3.7. FOREIGN TAX AMOUNTS. (a) IN GENERAL. Not later than 30 business
days after the Consolidated Return is filed with respect to any
Pre-Deconsolidation Period or Straddle Period, Ford shall deliver to Hertz a
schedule reflecting the amounts required to be paid under this Section 3.7.
(b) GENERAL RULE. Ford shall pay to Hertz the Foreign Tax Amount, if
any, with respect to a taxable year in two installments.
(1) Not later than 5 business days after the date the schedule is
delivered, Ford shall pay to Hertz the first installment. The first installment
shall be an amount equal to the lesser of (i) the amount of tax savings for such
taxable year computed under the principles of Section 2.5(b) of this Agreement
without taking into account carrybacks from, or deficits in, succeeding taxable
years, or (ii) the amount of tax savings the Hertz Group would realize for such
taxable year with respect to Creditable Foreign Taxes if the Hertz Group were
not and never were part of the Consolidated Group, but rather were a separate
affiliated group of corporations of which Hertz was the common parent filing a
consolidated federal income tax return pursuant to Section 1501. The amount of
the Hertz Group's tax savings for a taxable year shall be computed by comparing
the Hertz Group's Federal Income Taxes for the taxable year determined under
Section 2.3(c) of this Agreement to the Hertz Group's liability for Federal
Income Taxes
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for the taxable year determined under Section 2.3(c) of this Agreement without
regard to the exclusion of Creditable Foreign Taxes under Section 2.3(c)(2) of
this Agreement.
(2) Ford shall pay Hertz the second installment upon the earlier of
(i) the date at which the ability to claim a credit for such Creditable Foreign
Taxes for such taxable year would expire under Section 904(c) of the Code if
unutilized, or (ii) the Deconsolidation Date. The second installment shall be
an amount equal to the difference, if any, between the Foreign Tax Amount for
such taxable year and the amount paid to Hertz in the first installment under
Section 3.7(b)(1) of this Agreement for such taxable year.
(c) TRUE-UP PAYMENTS. If, for any reason (including a carryback from, or
a deficit in, a succeeding taxable year, but excluding a redetermination taken
into account under Section 3.8 of this Agreement), the Foreign Tax Amount for a
taxable year is reduced, Hertz shall pay to Ford, not later than 5 business
days after the date the schedule is delivered, an amount equal to the
difference, if any, between the amounts Ford has paid to Hertz for such taxable
year under Section 3.7(b) of this Agreement and the amount Ford would have paid
to Hertz under Section 3.7(b) of this Agreement taking into account such
reduction.
3.8. REDETERMINATION AMOUNTS. (a) IN GENERAL. In the event of any
redetermination of any item of income, gain, loss, deduction or credit of any
member of the Consolidated Group or Combined Group as a result of a Final
Determination or any settlement or compromise with any Tax Authority (including
any amended tax return or claim for refund filed by Ford), Hertz shall pay Ford
or Ford shall pay Hertz, as the case may be, the Redetermination Amount.
(b) COMPUTATION. The Redetermination Amount shall be the difference, if
any, between all amounts previously determined under Section 2 of this
Agreement and all amounts that would have been determined under Section 2 of
this Agreement taking such redetermination into account (including any
additions to tax or penalties applicable thereto), together with interest for
each day calculated (1) with respect to redeterminations affecting Federal
Income Taxes, at the rate determined, in the case of payment by Hertz to Ford,
under Section 6621(a)(2) of the Code and, in the case of payment by Ford to
Hertz, under Section 6621(a)(1) of the Code, and (2) with respect to
redeterminations affecting Non-Federal Combined Taxes, under similar laws, if
any, of other jurisdictions.
(c) PAYMENT. Ford shall deliver to Hertz a schedule reflecting the
computation of any Redetermination Amount with respect to any taxable year.
Not later than 5 days after the date such schedule is delivered, Hertz shall
pay Ford, or Ford shall pay Hertz such Redetermination Amount, provided
however, that in no event shall any Redetermination Amount attributable to any
Foreign Tax Amount be paid earlier than the date provided in Section 3.7 of
this Agreement.
3.9. INTEREST. Payments under this Section 3 that are not made within
the prescribed period shall thereafter bear interest at the Federal short-term
rate established pursuant to Section 6621 of the Code.
SECTION 4. PROCEDURAL MATTERS
4.1. AGENT; PREPARATION AND FILING OF RETURNS. Ford shall be the sole
and exclusive agent of Hertz and any member of the Hertz Group in any and all
matters relating to (a) Federal Income Taxes of the Consolidated Group and (b)
any Non-Federal Combined Taxes for all Pre-
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Deconsolidation Periods and Straddle Periods. Ford shall have the sole and
exclusive responsibility for the preparation and filing of any (a) Consolidated
Return or (b) Combined Return for all Pre-Deconsolidation Periods and Straddle
Periods. In its sole discretion, Ford shall have the exclusive right with
respect to any such Consolidated Return or Combined Return (a) to determine (1)
the manner in which such Tax Return shall be prepared and filed, including,
without limitation, the manner in which any item of income, gain, loss,
deduction or credit shall be reported, (2) whether any extensions may be
requested, (3) the elections that will be made by any member of the
Consolidated Group or Combined Group, and (4) whether any amended tax returns
should be filed, (b) to control, contest, and represent the interests of the
Consolidated Group and Combined Group in any Audit and to resolve, settle, or
agree to any adjustment or deficiency proposed, asserted or assessed as a
result of any Audit, (c) to file, prosecute, compromise or settle any claim for
refund, and (d) to determine whether any refunds, to which the Consolidated
Group or Combined Group may be entitled, shall be paid by way of refund or
credited against the tax liability of the Consolidated Group and Combined
Group. Hertz, for itself and its subsidiaries, hereby irrevocably appoints
Ford as its agent and attorney-in-fact to take such action (including the
execution of documents) as Ford may deem appropriate to effect the foregoing.
4.2. FURNISHING INFORMATION. Each member of the Hertz Group shall (a)
furnish to Ford in a timely manner such information and documents as Ford may
reasonably request for purposes of (1) preparing any original or amended
Consolidated Return or Combined Return, (2) contesting or defending any Audit,
and (3) making any determination or computation necessary or appropriate under
this Agreement, (b) cooperate in any Audit of any Consolidated Return or
Combined Return, (c) retain and provide on demand books, records, documentation
or other information relating to any tax return until the later of (1) the
expiration of the applicable statute of limitations (giving effect to any
extension, waiver, or mitigation thereof) and (2) in the event any claim is
made under this Agreement for which such information is relevant, until a Final
Determination with respect to such claim, and (d) take such action as Ford may
deem appropriate in connection therewith. Ford shall provide the Hertz Group
any assistance reasonably required in providing any information requested
pursuant to this Section 4.2.
4.3. EXPENSES. Hertz shall reimburse Ford for any outside legal and
accounting expenses incurred by Ford in the course of the conduct of any Audit
regarding the tax liability of the Combined Group or Consolidated Group, and
for any other expense incurred by Ford in the course of any litigation relating
thereto, to the extent such costs are reasonably attributable to the Hertz
Group and provided Ford has conferred with Hertz as to the portion of the Audit
relating to the Hertz Group. Notwithstanding the foregoing, Ford shall have
the sole discretion to control, contest, represent, file, prosecute, challenge
or settle any Audit pursuant to Section 4.1.
SECTION 5. DECONSOLIDATION
5.1. CONTINUING COVENANTS. Hertz, for itself and the Hertz Affiliates,
covenants that on or after a Deconsolidation it will not, nor will it cause or
permit any member of the Hertz Group to make or change any tax election, change
any accounting method, amend any tax return or take any tax position on any tax
return, take any action, omit to take any action or enter into any transaction
that results in any increased tax liability or reduction of any Tax Asset of
the Ford Group in respect of any Pre-Deconsolidation Period or Straddle Period.
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5.2 REATTRIBUTION OF TAX ASSETS. In the event of a Deconsolidation, Ford
may, at its option, elect to reattribute to itself certain Tax Assets of the
Hertz Group pursuant to Treasury Regulations Section 1.1502-20(g) or similar
provisions of other jurisdictions. If Ford makes such an election, Hertz shall
comply with any applicable requirements, including those of Treasury
Regulations Section 1.1502-20(g)(5).
5.3. CARRYBACKS. Ford agrees to pay to Hertz the actual tax benefit
received by the Ford Group from the use in any Pre-Deconsolidation Period of a
carryback of any Tax Asset of the Hertz Group from a Post-Deconsolidation
Period. Such benefit shall be considered equal to the lesser of (a) the amount
Ford would have paid Hertz had such Tax Asset arisen in a Pre-Deconsolidation
Period and (b) the excess of (1) the amount of Federal Income Taxes imposed on
the Consolidated Group or the amount of Combined Taxes imposed on the Combined
Group, as the case may, that would have been payable by the Consolidated Group
or Combined Group in the absence of such carryback over (2) the amount of
Federal Income Taxes or Combined Taxes, as the case may be, actually paid.
Payment of the amount of such benefit shall be made within 90 days of the
filing of the applicable tax return for the taxable year in which the Tax Asset
is utilized. If subsequent to the payment by Ford to Hertz of any such amount,
there shall be (a) a Final Determination which results in a disallowance or a
reduction of the Tax Asset so carried back or (b) a reduction in the amount of
the benefit realized by the Ford Group as a result of any other Tax Asset that
arises in a Post-Deconsolidation Period, Hertz shall repay to Ford, within 90
days of such event any amount which would not have been payable to Hertz
pursuant to this Section 5.3 had the amount of the benefit been determined in
light of these events. Hertz shall hold Ford harmless for any penalty,
addition to tax or interest payable by any member of the Ford Group as a result
of any such event. Any such amount shall be paid by Hertz to Ford within 90
days of the payment by Ford or any member of the Consolidated Group or Combined
Group of any such penalty, addition to tax, or interest. Nothing in this
Section 5.3 shall require Ford to file a claim for refund of Federal Income
Taxes or Combined Taxes.
SECTION 6. MISCELLANEOUS
6.1. TERM. Except as provided in Section 6.14 and this Section 6.1, this
Agreement shall expire upon the Deconsolidation Date. However, all rights and
obligations arising hereunder with respect to a Pre-Deconsolidation Period or
Straddle Period shall survive until they are fully effectuated or performed.
Further, notwithstanding anything in this Agreement to the contrary, all rights
and obligations arising hereunder with respect to a Post-Deconsolidation Period
shall remain in effect and its provisions shall survive for the full period of
all applicable statutes of limitation (giving effect to any extension, waiver
or mitigation thereof).
6.2. ALLOCATIONS. All computations with respect to the
Pre-Deconsolidation Period ending on the Deconsolidation Date, the immediately
following taxable period of Hertz and the Hertz Group and any Straddle Period
shall be made pursuant to the principles of Treasury Regulations Section
1.1502-76(b), taking into account such elections thereunder as Ford, in its
sole discretion, shall make.
6.3. CHANGES IN LAW. Any reference to a provision of the Code or a
similar law of another jurisdiction shall include a reference to any successor
provision to such provision.
6.4. CONFIDENTIALITY. Each party shall hold and cause its advisors and
consultants to hold in strict confidence, unless compelled to disclose by
judicial or administrative process or, in
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the opinion of its counsel, by other requirements of law, all information
(other than any such information relating solely to the business or affairs of
such party) concerning the other parties hereto furnished it by such other
party or its representatives pursuant to this Agreement (except to the extent
that such information can be shown to have been (a) previously known by the
party to which it was furnished, (b) in the public domain through no fault of
such party, or (c) later lawfully acquired from other sources not under a duty
of confidentiality by the party to which it was furnished), and each party
shall not release or disclose such information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants who
shall be advised of and agree to be bound by the provisions of this Section
6.4. Each party shall be deemed to have satisfied its obligation to hold
confidential information concerning or supplied by the other party if it
exercises the same care as it takes to preserve confidentiality for its own
similar information.
6.5. SUCCESSORS. This Agreement shall be binding on and inure to the
benefit of any successor, by merger, acquisition of assets or otherwise, to any
of the parties hereto (including any successor of Ford and Hertz succeeding to
the tax attributes of such party under Section 381 of the Code), to the same
extent as if such successor had been an original party.
6.6. AUTHORIZATION, ETC. Each of the parties hereto hereby represents
and warrants that it has the power and authority to execute, deliver and
perform this Agreement, that this Agreement has been duly authorized by all
necessary corporate action on the part of such party, that this Agreement
constitutes a legal, valid and binding obligation of each such party and that
the execution, delivery and performance of this Agreement by such party does
not contravene or conflict with any provision of law or of its charter or
bylaws or any agreement, instrument or order binding on such party.
6.7. ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements.
6.8. SECTION CAPTIONS. Section captions used in this Agreement are for
convenience and reference only and shall not affect the construction of this
Agreement.
6.9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan without giving effect to
laws and principles relating to conflicts of law.
6.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
6.11. WAIVERS AND AMENDMENTS. This Agreement shall not be waived,
amended or otherwise modified except in writing, duly executed by all of the
parties hereto.
6.12. SEVERABILITY. In case any one or more of the provisions in this
Agreement should be invalid, illegal or unenforceable, the enforceability of
the remaining provisions hereof will not in any way be effected or impaired
thereby.
6.13. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties to this Agreement and the other members of the
Affiliated Group and should not be
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deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other rights in excess of those existing
without this Agreement.
6.14. OPTION ALLOCATION AGREEMENTS. Hertz agrees that so long as it
purchases vehicles from Ford that are subject to Ford's Daily Rental Repurchase
Program, Hertz will enter into an Option Allocation Agreement in substantially
similar form to that appended hereto as Exhibit A, in which the amount
allocated to the repurchase option shall equal the estimate, reasonably
determined by Ford, of any loss on the resale of such vehicles. Each such
agreement will provide that the parties will reflect the allocations set forth
therein in all federal, state and local income tax returns. The rights and
obligations set forth in this Section 6.14 (and in the Option Allocation
Agreements) shall survive the termination of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by a duly authorized officer as of the date first above written.
FORD MOTOR COMPANY
By /s/ Dennis E. Ross
-----------------------------------
Name: Dennis E. Ross
Title: Chief Tax Officer
THE HERTZ CORPORATION
on behalf of itself and its subsidiaries
By /s/ Robert S. Regan
-----------------------------------
Name: Robert S. Regan
Title: Staff Vice President - Tax
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EXHIBIT 10(j)
1
EMPLOYMENT AGREEMENT
AGREEMENT, dated February 28, 1997, between The Hertz Corporation, a
Delaware corporation (the "Corporation"), and Frank A. Olson (the "Executive").
WHEREAS, the Corporation currently employs the Executive in the
capacity of Chief Executive Officer and the Executive is a key executive
officer of the Corporation; and
WHEREAS, the Corporation desires that the Executive continue in the
employ of the Corporation in his present position, or in a position of equal or
greater responsibility, and the Executive desires to continue to be so
employed, and both parties are willing to make a commitment to continue this
employment relationship for the term of this Agreement, as set forth in Section
2 hereof (the "Term");
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the parties hereby agree as
follows:
1. Employment.
The Corporation hereby agrees to continue to employ and engage the
services of the Executive during the Term as an executive officer of the
Corporation with the title of Chief Executive Officer and the Executive agrees
to serve the Corporation in such capacity and position during the Term.
1. Term.
The Term shall consist of a period commencing on the date hereof and
ending on January 31, 2000, unless terminated pursuant to the provisions of
Section 5 hereof or under any policy established for the Executive with his
consent.
1. Position and Duties.
(a) At the present time, Executive is Chief Executive Officer of the
Corporation. During the Term, the Executive's position, duties and
responsibilities shall be those of Chief Executive Officer of the
<PAGE> 2
2
Corporation, recognizing that, notwithstanding any provision of the Agreement
to the contrary, the Corporation shall have the absolute right to modify or
change the position, duties, responsibilities and title of the Executive in any
respect; provided, however, that the Executive shall continue to be employed in
a senior executive capacity during the Term.
(b) The Executive agrees to devote his full business time during
normal business hours to the business and affairs of the Corporation and to use
his best efforts to promote the interests of the Corporation and to perform
faithfully and efficiently the responsibilities assigned to him in accordance
with the terms of this Agreement, to the extent necessary to discharge such
responsibilities, except for (i) services on corporate, civic or charitable
boards or committees not significantly interfering with the performance of such
responsibilities and (ii) periods of vacation and sick leave to which he is
entitled. It is expressly understood and agreed that the Executive's continuing
service on any boards and committees with which he shall be connected, as a
member or otherwise, as of the date hereof, or any such service approved by the
Corporation during the term of employment, shall not be deemed to interfere
with the performance of the Executive's services for the Corporation pursuant
to this paragraph (b).
(c) During the Term and so long as any payments are being made under
Section 4 hereof, the Executive shall refrain from engaging in any activity
that is directly or indirectly in competition with any activity, or is inimical
to the best interests, of the Corporation or any of its subsidiaries or
affiliates.
4. Compensation and Other Terms of Employment.
(a) Base Salary. During the Term, the Executive shall receive an
annual base salary ("Base Salary"), payable in equal installments not less
frequently than twice per month, at an annual rate at least equal to the
aggregate annual base salary payable to the Executive by the Corporation and
any of its affiliated companies as of the date hereof. The Base Salary shall be
reviewed and may be increased at any time and from time to time in accordance
with the Corporation's regular practices. Any increase in the Base Salary shall
not serve to limit or reduce any other obligation of the Corporation hereunder,
and after any such increase the Base Salary shall not be reduced from such
increased level during the Term. As used in this Agreement, the term
"affiliated companies" shall mean any company (or other business entity)
controlling, controlled by, or under common control with the Corporation.
<PAGE> 3
3
(b) Incentive Compensation. As further compensation, the Executive
will be eligible for awards ("Incentive Compensation") under the Corporation's
bonus and incentive compensation plans determined on no less favorable a basis
than those provided to the Executive under such plans as in effect as of the
date hereof.
(c) Retirement, Savings and Stock Option Plans. In addition to
the Base Salary and Incentive Compensation payable as hereinabove provided,
during the Term the Executive shall be entitled to participate in all savings,
stock option, retirement and employee welfare and benefit plans and programs,
and fringe benefit, vacation, sick leave, insurance and perquisite policies, on
a basis providing him with the opportunity to receive aggregate compensation
and benefits, on a before-tax basis, not less favorable than those provided by
the Corporation and its affiliated companies to the Executive under such plans,
programs and policies as in effect as of the date hereof. Nothing herein shall
be construed to prevent the Corporation or such affiliated companies from
amending or altering any such plans or programs so long as the Executive
continues to have the opportunity to receive aggregate compensation and
benefits, on a before tax basis, at a level not less favorable than those
currently provided. All existing agreements between the Corporation and the
Executive providing for special pension, retirement or similar benefits are
automatically continued for the Term. Any rights to benefits which become
vested under the terms of such plans, programs, policies and agreements but
which are to be paid or provided in future periods shall continue to be so
vested notwithstanding the prior termination of this Agreement.
(d) Expenses. During the Term the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Corporation in
effect as of the date hereof or as they may be amended from time to time.
(e) Office and support Staff. During the Term the Executive shall
be entitled to an office or offices of a size and with furnishings and other
appointments, and to secretarial and other assistance, at least equal to those
provided to the Executive as of the date hereof.
5. Termination.
<PAGE> 4
4
(a) Death. Except for the obligations of the Corporation set forth
in Section 4(c) hereof, this Agreement shall terminate automatically upon the
Executive's death. All benefits and compensation then accrued hereunder, and
under any plans provided for under Section 4(c) hereof, shall be paid to the
Executive's beneficiaries, legal representatives, or heirs as appropriate.
(b) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness the Executive shall have been absent from the
full-time performance of his duties with the Corporation for six (6)
consecutive months, and within thirty (30) days after written notice of
termination is given the Executive shall not have returned to the full-time
performance of his duties, the Executive's employment may be terminated for
disability. During such period of absence, the Executive shall continue to
receive the benefits provided in Section 4 hereof and thereafter the
Executive's benefits shall be determined under the Corporation's disability
insurance plans and policies provided under Section 4(c) hereof.
(c) Cause. The Corporation may terminate the Executive's
employment for Cause. For purposes of this Agreement, "Cause" shall mean (i) an
act or acts of dishonesty on the Executive's part which are intended to result
in his substantial personal enrichment at the expense of the Corporation or the
Executive's conviction of a felony; (ii) any material violation by the
Executive of his responsibilities set forth in Section 3 hereof; or (iii) any
material breach of any provision of this agreement by Executive. If the
Executive's employment is terminated for Cause, the Corporation shall pay the
Executive his full accrued Base Salary through the date of such termination at
the rate in effect at the time of such termination, and the Corporation shall
have no further obligations to the Executive under this Agreement. The
Executive's employment shall not be terminated for Cause unless there shall
have been delivered to the Executive a resolution duly adopted by the Board of
Directors of the Corporation at a meeting of the Board which the Executive,
together with his counsel, has an opportunity upon reasonable notice to attend
and to address the Board, such resolution setting forth with particularity the
basis for terminating the Executive for Cause.
(d) Retirement. The Executive may terminate his employment
hereunder by retirement, including early retirement, during the Term of the
Agreement, under the Corporation's retirement policies existing on the date
hereof or under any policy established for the Executive with his consent,
provided that the Corporation consents to such retirement action.
<PAGE> 5
5
6. Non-exclusivity of Rights.
Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Corporation or any of its affiliated companies
and for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any stock option
or other agreements with the Corporation or any of its affiliated companies,
unless this Agreement is terminated for breach of the provisions contained in
Section 3(c) hereof. Amounts which are vested benefits under any plan or
program of the Corporation or any of its affiliated companies shall be payable
in accordance with the terms of such plan or program.
7. No Set-Off; Legal Fees.
The Corporation's obligation to make the payments provided for
herein and otherwise to perform its obligations hereunder shall not be affected
by any circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have against the
Executive or others unless this Agreement is terminated for cause for breach of
the conditions set forth in Section 3(c) hereof. Unless it is finally
determined by a court of competent jurisdiction that the Corporation has
validly terminated the Executive's employment for Cause, the Corporation agrees
to pay, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur in defending any contest by the Corporation
or others of the validity or enforceability of, or liability under, any
provision of this Agreement, plus interest on the total unpaid amount
determined to be payable hereunder, for the period commencing on the date of
such contest and ending on the date on which the Corporation shall pay such
total amount, provided Executive prevails in such contest.
8. Receipt of Certain Benefits.
It is the mutual intention of the Corporation and the Executive that
the Executive shall receive the full benefit of those compensation plans and
programs of the Corporation, including its retirement and pension plans and
programs, being provided pursuant to Section 4 hereof which provide for
benefits payable over periods beyond the particular year of employment
("Long-Term Plans"). Accordingly, the parties intend that, in the event of any
breach by the Corporation of the terms hereof, damages for such breach shall
include consequential damages for the loss of any benefits under such Long-Term
Plans, which benefits would have
<PAGE> 6
6
become payable under such plans had the Executive completed the Term remaining
at the time of such breach but which are not payable under such plans by reason
of such breach.
9. Confidential Information.
The Executive shall hold in a fiduciary capacity for the benefit of
the Corporation all secret or confidential information, knowledge or data
relating to the Corporation, Ford Motor Company, or any of their subsidiaries
or affiliates, and their respective businesses, which shall have been obtained
by the Executive during his employment by the Corporation or any of its
affiliated companies and which shall not be public knowledge. During and
after the end of the term of employment, the Executive shall not, without the
prior written consent of the Corporation, communicate or divulge any such
information, knowledge or data to anyone other than the Corporation and those
designated by it.
10. No Assignment; Assumption.
This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assignable by the Executive
other than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives. This Agreement shall be binding upon any successor to the
business or assets of the Corporation which assumes this Agreement expressly,
by operation of law or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
<PAGE> 7
7
If to the Executive:
366 Mountain Avenue
Ridgewood, New Jersey 07450
If to the Corporation:
225 Brae Boulevard
Park Ridge, New Jersey 07656
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Corporation may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
1. Integration and Supersession.
This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter hereof. Upon execution by both
parties, this Agreement shall supersede and replace all prior agreements,
understandings and communications on this subject matter, including an
Employment Agreement dated April 16, 1987 between The Hertz Corporation and
Frank A. Olson; and an Amendment to Employment Agreement, dated December 30,
1987, between The Hertz Corporation and Frank A. Olson.
13. Other Relationships.
It is anticipated that Executive may be asked by Corporation to
serve in an emeritus status after the Term of this Agreement. Should Executive
and Corporation agree to such relationship, the terms, conditions, and
compensation therefor shall be separately established in the agreement that
creates said relationship.
<PAGE> 8
8
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be signed in its corporate name and its corporate seal to be hereunto
affixed and to be attested by its Secretary or one of its Assistant
Secretaries, and the Executive has hereunto set his hand, all as of the day and
year first above written.
/s/ Frank A. Olson
--------------------------------
Executive
THE HERTZ CORPORATION
By /s/ Donald F. Steele
------------------------------
Its Senior Vice President, Employee Relations
ATTEST:
/s/ Paul M. Tschirhart
---------------------------
Asst. Secretary
(SEAL)
<PAGE> 1
EXHIBIT 10(k)
1
EMPLOYMENT AGREEMENT
AGREEMENT, dated February 28, 1997, between The Hertz Corporation, a
Delaware corporation (the "Corporation"), and Craig R. Koch the "Executive").
WHEREAS, the Corporation currently employs the Executive in the
capacity of President and Chief Operating Officer and the Executive is a key
executive officer of the Corporation; and
WHEREAS, the Corporation desires that the Executive continue in the
employ of the Corporation in his present position, or other senior executive
position, and the Executive desires to continue to be so employed, and both
parties are willing to make a commitment to continue this employment
relationship for the term of this Agreement, as set forth in Section 2 hereof
(the "Term");
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the parties hereby agree as
follows:
1. Employment.
The Corporation hereby agrees to continue to employ and engage the
services of the Executive during the Term as an executive officer of the
Corporation and the Executive agrees to serve the Corporation in such capacity
and position during the Term.
2. Term.
The Term shall consist of a period commencing on the date hereof and
ending on April 30, 2002; provided, however, that commencing May 1, 1998 and
every May 1 thereafter the Term shall be automatically extended for one (1)
additional year unless not later than December 31 of the preceding year the
Corporation or the Executive shall have given notice not to extend; provided,
further, that in no event shall the original or extended term of this Agreement
extend beyond the Executive's normal retirement date under
<PAGE> 2
2
the Corporation's retirement policies existing on the date hereof or under any
policy established for the Executive with his consent.
1. Position and Duties.
(a) At the present time, Executive is President and Chief Operating
Officer of the Corporation. During the Term, the Executive's position, duties
and responsibilities shall be those of a senior executive of the Corporation,
recognizing that, notwithstanding any provision of the Agreement to the
contrary, the Corporation shall have the absolute right to modify or change the
position, duties, responsibilities and title of the Executive in any respect;
provided, however, that the Executive shall continue to be employed in a senior
executive capacity during the Term.
(b) The Executive agrees to devote his full business time during
normal business hours to the business and affairs of the Corporation and to use
his best efforts to promote the interests of the Corporation and to perform
faithfully and efficiently the responsibilities assigned to him in accordance
with the terms of this Agreement, to the extent necessary to discharge such
responsibilities, except for (i) services on corporate, civic or charitable
boards or committees not significantly interfering with the performance of such
responsibilities and (ii) periods of vacation and sick leave to which he is
entitled. It is expressly understood and agreed that the Executive's continuing
service on any boards and committees with which he shall be connected, as a
member or otherwise, as of the date hereof, or any such service approved by the
Corporation during the term of employment, shall not be deemed to interfere
with the performance of the Executive's services for the Corporation pursuant
to this paragraph (b).
(c) During the Term and so long as any payments are being made under
Section 4 hereof, the Executive shall refrain from engaging in any activity
that is directly or indirectly in competition with any activity, or is inimical
to the bests interests, of the Corporation or any of its subsidiaries or
affiliates.
4. Compensation and Other Terms of Employment.
(a) Base Salary. During the Term, the Executive shall receive an
annual base salary ("Base Salary"), payable in equal installments not less
frequently than twice per month, at an annual rate at least
<PAGE> 3
3
equal to the aggregate annual base salary payable to the Executive by the
Corporation and any of its affiliated companies as of the date hereof. The Base
Salary shall be reviewed and may be increased at any time and from time to time
in accordance with the Corporation's regular practices. Any increase in the
Base Salary shall not serve to limit or reduce any other obligation of the
Corporation hereunder, and after any such increase the Base Salary shall not be
reduced from such increased level during the Term. As used in this Agreement,
the term "affiliated companies" shall mean any company (or other business
entity) controlling, controlled by, or under common control with the
Corporation.
(b) Incentive Compensation. As further compensation, the Executive
will be eligible for awards ("Incentive Compensation") under the Corporation's
bonus and incentive compensation plans determined on no less favorable a basis
than those provided to the Executive under such plans as in effect as of the
date hereof.
(c) Retirement, Savings and Stock Option Plans. In addition to
the Base Salary and Incentive Compensation payable as hereinabove provided,
during the Term the Executive shall be entitled to participate in all savings,
stock option, retirement and employee welfare and benefit plans and programs,
and fringe benefit, vacation, sick leave, insurance and perquisite policies, on
a basis providing him with the opportunity to receive aggregate compensation
and benefits, on a before-tax basis, not less favorable than those provided by
the Corporation and its affiliated companies to the Executive under such plans,
programs and policies as in effect as of the date hereof. Nothing herein shall
be construed to prevent the Corporation or such affiliated companies from
amending or altering any such plans or programs so long as the Executive
continues to have the opportunity to receive aggregate compensation and
benefits, on a before tax basis, at a level not less favorable than those
currently provided. All existing agreements between the Corporation and the
Executive providing for special pension, retirement or similar benefits are
automatically continued for the Term. Any rights to benefits which become
vested under the terms of such plans, programs, policies and agreements but
which are to be paid or provided in future periods shall continue to be so
vested notwithstanding the prior termination of this Agreement.
<PAGE> 4
4
(d) Expenses. During the Term the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Corporation in
effect as of the date hereof or as they may be amended from time to time.
(e) Office and support Staff. During the Term the Executive shall
be entitled to an office or offices of a size and with furnishings and other
appointments, and to secretarial and other assistance, at least equal to those
provided to the Executive as of the date hereof.
5. Termination.
(a) Death. Except for the obligations of the Corporation set forth
in Section 4(c) hereof, this Agreement shall terminate automatically upon the
Executive's death. All benefits and compensation then accrued hereunder, and
under any plans provided for under Section 4(c) hereof, shall be paid to the
Executive's beneficiaries, legal representatives, or heirs as appropriate.
(b) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness the Executive shall have been absent from the
full-time performance of his duties with the Corporation for six (6)
consecutive months, and within thirty (30) days after written notice of
termination is given the Executive shall not have returned to the full-time
performance of his duties, the Executive's employment may be terminated for
disability. During such period of absence, the Executive shall continue to
receive the benefits provided in Section 4 hereof and thereafter the
Executive's benefits shall be determined under the Corporation's disability
insurance plans and policies provided under Section 4(c) hereof.
(c) Cause. The Corporation may terminate the Executive's
employment for Cause. For purposes of this Agreement, "Cause" shall mean (i) an
act or acts of dishonesty on the Executive's part which are intended to result
in his substantial personal enrichment at the expense of the Corporation or
the Executive's conviction of a felony; (ii) any material violation by the
Executive of his responsibilities set forth in Section 3 hereof; or (iii) any
material breach of any provision of this agreement by Executive. If the
Executive's employment is terminated for Cause, the Corporation shall pay the
Executive his full accrued Base Salary through the date of such termination at
the rate in effect at the time of such termination, and the Corporation shall
have no further obligations to the Executive under this Agreement. The
Executive's employment shall
<PAGE> 5
5
not be terminated for Cause unless there shall have been delivered to the
Executive a resolution duly adopted by the Board of Directors of the
Corporation at a meeting of the Board which the Executive, together with his
counsel, has an opportunity upon reasonable notice to attend and to address the
Board, such resolution setting forth with particularity the basis for
terminating the Executive for Cause.
(d) Retirement. The Executive may terminate his employment
hereunder by retirement, including early retirement, during the Term of the
Agreement, under the Corporation's retirement policies existing on the date
hereof or under any policy established for the Executive with his consent,
provided that the Corporation consents to such retirement action.
6. Non-exclusivity of Rights.
Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Corporation or any of its affiliated companies
and for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any stock option
or other agreements with the Corporation or any of its affiliated companies,
unless this Agreement is terminated for breach of the provisions contained in
Section 3(c) hereof. Amounts which are vested benefits under any plan or
program of the Corporation or any of its affiliated companies shall be payable
in accordance with the terms of such plan or program.
7. No Set-Off; Legal Fees.
The Corporation's obligation to make the payments provided for
herein and otherwise to perform its obligations hereunder shall not be affected
by any circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have against the
Executive or others unless this Agreement is terminated for cause for breach of
the conditions set forth in Section 3(c) hereof. Unless it is finally
determined by a court of competent jurisdiction that the Corporation has
validly terminated the Executive's employment for Cause, the Corporation agrees
to pay, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur in defending any contest by the Corporation
or others of the validity or enforceability of, or liability under, any
provision of this Agreement, plus interest on the total unpaid amount
determined to be payable hereunder, for the period commencing on
<PAGE> 6
6
the date of such contest and ending on the date on which the Corporation shall
pay such total amount, provided Executive prevails in such contest.
8. Receipt of Certain Benefits.
It is the mutual intention of the Corporation and the Executive
that the Executive shall receive the full benefit of those compensation
plans and programs of the Corporation, including its retirement and pension
plans and programs, being provided pursuant to Section 4 hereof which provide
for benefits payable over periods beyond the particular year of employment
("Long-Term Plans"). Accordingly, the parties intend that, in the event of any
breach by the Corporation of the terms hereof, damages for such breach shall
include consequential damages for the loss of any benefits under such Long-Term
Plans, which benefits would have become payable under such plans had the
Executive completed the Term remaining at the time of such breach but which are
not payable under such plans by reason of such breach.
9. Confidential Information.
The Executive shall hold in a fiduciary capacity for the benefit of
the Corporation all secret or confidential information, knowledge or data
relating to the Corporation, Ford Motor Company, or any of their subsidiaries
or affiliates, and their respective businesses, which shall have been obtained
by the Executive during his employment by the Corporation or any of its
affiliated companies and which shall not be public knowledge. During and
after the end of the term of employment, the Executive shall not, without the
prior written consent of the Corporation, communicate or divulge any such
information, knowledge or data to anyone other than the Corporation and those
designated by it.
10. No Assignment; Assumption.
This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assignable by the Executive
other than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives. This Agreement shall be binding upon any successor to the
business or assets of the Corporation which assumes this Agreement expressly,
by operation of law or otherwise.
11. Miscellaneous.
<PAGE> 7
7
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
14 Stewart Court
Old Tappan, New Jersey 07675
If to the Corporation:
225 Brae Boulevard
Park Ridge, New Jersey 07656
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Corporation may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
1. Integration and Supersession.
This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter hereof. Upon execution by both
parties, this Agreement shall supersede and replace all prior
<PAGE> 8
8
agreements, understandings and communications on this subject matter, including
an Employment Agreement dated April 16, 1987 between The Hertz Corporation and
Craig R. Koch; and an Amendment to Employment Agreement, dated December 30,
1987, between The Hertz Corporation and Craig R. Koch.
IN WITNESS WHEREOF, the Corporation has caused this Agreement
to be signed in its corporate name and its corporate seal to be hereunto
affixed and to be attested by its Secretary or one of its Assistant
Secretaries, and the Executive has hereunto set his hand, all as of the day and
year first above written.
/s/ Craig R. Koch
---------------------------------------------
Executive
THE HERTZ CORPORATION
By /s/ Donald F. Steele
-----------------------------------------
Its Senior Vice President, Employee Relations
-----------------------------------------
ATTEST:
/s/ Paul M. Tschirhart
- ---------------------------
Asst. Secretary
(Seal)
<PAGE> 1
EXHIBIT 10(m)
[THE HERTZ CORPORATION LETTERHEAD]
April 9, 1993
Mr. Antoine Cau
Dear Antoine,
As a follow up to our discussions and based upon your current position and
responsibilities as President, HEL which commenced as of April, 1990, it is the
Company's position that your original assignment which was estimated to be of
approximately 30 months duration should now be considered permanent in nature
as agreed.
As such, the new terms and conditions related to your position are as follows:
1) You are employed by Hertz Europe Limited and are bound by the conditions
of employment of that company. The English Courts would have sole
jurisdiction should there be any dispute over this employment contract
and only English Law will apply.
2) You will continue to be provided personal housing in accordance with the
terms established in the memorandum of agreement dated December 13, 1990.
3) Your compensation is established with a Base Salary in the amounts of
British Pound Sterling 88,500.00 to be paid in the UK and a Base Salary
in the amount of FF614,190.00 to be paid in France. Any increase
percentage to base salary which may subsequently be approved will be
applied equally to the British Pound Sterling and FF Base Salaries.
4) Any incentive award earned under the Executive Incentive Compensation
Plan will be applied according to the target awards established in
British Pound Sterling's and FF's and applying the award percentage to
those target amounts.
Any award earned under the Long Term Incentive Plan (LTIP) will be
approved in a specific U.S. $ amount in accordance with the previously
approved grant. The U.S. $ award may be paid either in British Pound
Sterling's or FF's at your choosing at the exchange rate in effect at
time of payment.
Notwithstanding the foregoing provisions, the company reserves the right
to make periodic adjustments to any of
<PAGE> 2
Antoine Cau
Continued - Page 2
the above including the right to suspend, modify or terminate either or
both of the referenced Incentive Plans.
5) Hertz Europe Ltd. will continue your affiliation of AGIRC and ARRCO in
France. You will contribute to the British National Insurance System as
well as to the aforementioned French systems.
6) You will be entitled to the use of a company car up to a cubic capacity
of 3000 cc and you will also be entitled to claim 80 Gallons of petrol
per month for private use. You and your wife will be given free private
medical cover under BUPA. (These benefits are taxable.)
7) For the purposes of salary reviews, accidental death insurance, etc., we
shall use a notional base salary of British Pounds Sterling 147,500 per
annum, disregarding exchange rates for that part of it which is paid to
you in France.
8) You will be entitled to home leave once per year. This entitlement is
limited to return business class airfares for you and your wife to
France. The duration of this home leave is limited to your U.K. vacation
entitlement. No other expenses will be paid in lieu of exercising this
option.
9) You will be entitled to the use of Arthur Andersen or any other
accounting firm designated by the Company to assist in the preparation of
your U.K. tax returns.
10) Your service from 1st December 1973 is accepted as being continuous.
Should you subsequently resign your employment, the Company assumes
obligation to repatriate you and your family to France.
11) You will as part of your Conditions of Employment with Hertz Europe
Limited be bound by the following notice periods and non-competition
arrangement.
a) The notice you are required to give in order to terminate your
employment within the company will be (6) months.
b) In the event that the company wishes to terminate your employment
except in the event of serious misconduct then the company will
give you (12) months notice of such termination.
In consideration of the foregoing it is agreed as follows:
<PAGE> 3
Antoine Cau
Continued - Page 3
You will not within twelve months (12) after the date of your resignation from
the company, or the date of the company's notice terminating your employment
within the Hertz Group of Companies, without the consent in writing of The
Hertz Corporation, be directly or indirectly interested in Avis,
Europcar/Interrent, Budget, or Swan National/Eurodollar or any of their parent,
subsidiary or affiliated companies or any successor in title of any of those
companies in the Countries controlled by Hertz Europe.
You will not after termination of your employment within the company (for
whatever reason) endeavour to entice away from the service of the company, its
parent, affiliates or subsidiaries, any person who is at the date of such
termination a key manager thereof. The expression 'key manager' is intended to
include all those having charge of a department or division within the company
or its parent or any of their subsidiaries or affiliates.
Yours sincerely,
/s/ D. F. Steele
----------------
D. F. Steele
Accepted and Agreed: /s/ Antoine Cau 26 April 1993
-----------------------------------------
Antoine Cau Date
<PAGE> 1
EXHIBIT 10(n)
1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of February 28, 1997 between The Hertz
Corporation, a Delaware corporation (the "Corporation"), and Brian J. Kennedy,
(the "Executive").
WHEREAS, the Corporation currently employs the Executive in the
capacity of Executive Vice President, Marketing and Sales, of The Hertz
Corporation, and the Executive is a key executive officer of the Corporation;
and
WHEREAS, the Corporation desires that the Executive continue in the
employ of the Corporation in his present position, or other senior executive
position, and the Executive desires to continue to be so employed, and both
parties are willing to make a commitment to continue this employment
relationship for the term of this Agreement, as set forth in Section 2 hereof
(the "Term");
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the parties hereby agree as
follows:
1. Employment.
The Corporation hereby agrees to continue to employ and engage the
services of the Executive during the Term as an executive officer of the
Corporation and the Executive agrees to serve the Corporation in such capacity
and position during the Term.
2. Term.
The Term shall consist of a period commencing on the date hereof and
ending on February 28, 2000, unless terminated earlier pursuant to Section 5
hereof; provided however, that in no event shall the term of this Agreement
extend beyond the Executive's normal retirement date under the Corporation's
retirement policies existing on the date hereof or under any policy established
for the Executive with his consent.
3. Position and Duties.
(a) At the present time, Executive is Executive Vice President,
Marketing and Sales, of the Corporation. During the Term, the Executive's
position, duties and responsibilities shall be those of a senior executive of
the Corporation, recognizing that, notwithstanding any provision of the
Agreement to the contrary,
<PAGE> 2
2
the Corporation shall have the absolute right to modify or change the position,
duties, responsibilities and title of the Executive in any respect; provided,
however, that the Executive shall continue to be employed in a senior executive
capacity during the Term.
(b) The Executive agrees to devote his full business time during
normal business hours to the business and affairs of the Corporation and to use
his best efforts to promote the interests of the Corporation and to perform
faithfully and efficiently the responsibilities assigned to him in accordance
with the terms of this Agreement, to the extent necessary to discharge such
responsibilities, except for (i) services on corporate, civic or charitable
boards or committees not significantly interfering with the performance of such
responsibilities and (ii) periods of vacation and sick leave to which he is
entitled. It is expressly understood and agreed that the Executive's continuing
service on any boards and committees with which he shall be connected, as a
member or otherwise, as of the date hereof, or any such service approved by the
Corporation during the term of employment, shall not be deemed to interfere
with the performance of the Executive's services for the Corporation pursuant
to this paragraph (b).
(c) During the Term and so long as any payments are being made under
Section 4 hereof, the Executive shall refrain from engaging in any activity
that is directly or indirectly in competition with any activity, or is inimical
to the bests interests, of the Corporation or any of its subsidiaries or
affiliates.
4. Compensation and Other Terms of Employment.
(a) Base Salary. During the Term, the Executive shall receive an
annual base salary ("Base Salary"), payable in equal installments not less
frequently than twice per month, at an annual rate at least equal to the
aggregate annual base salary payable to the Executive by the Corporation and
any of its affiliated companies as of the date hereof. The Base Salary shall be
reviewed and may be increased at any time and from time to time in accordance
with the Corporation's regular practices. Any increase in the Base Salary shall
not serve to limit or reduce any other obligation of the Corporation hereunder,
and after any such increase the Base Salary shall not be reduced from such
increased level during the Term. As used in this Agreement, the term
"affiliated companies" shall mean any company (or other business entity)
controlling, controlled by, or under common control with the Corporation.
<PAGE> 3
3
(b) Incentive Compensation. As further compensation, the Executive
will be eligible for awards ("Incentive Compensation") under the Corporation's
bonus and incentive compensation plans determined on no less favorable a basis
than those provided to the Executive under such plans as in effect as of the
date hereof.
(c) Retirement, Savings and Stock Option Plans. In addition to
the Base Salary and Incentive Compensation payable as hereinabove provided,
during the Term the Executive shall be entitled to participate in all savings,
stock option, retirement and employee welfare and benefit plans and programs,
and fringe benefit, vacation, sick leave, insurance and perquisite policies, on
a basis providing him with the opportunity to receive aggregate compensation
and benefits, on a before-tax basis, not less favorable than those provided by
the Corporation and its affiliated companies to the Executive under such plans,
programs and policies as in effect as of the date hereof. Nothing herein shall
be construed to prevent the Corporation or such affiliated companies from
amending or altering any such plans or programs so long as the Executive
continues to have the opportunity to receive aggregate compensation and
benefits, on a before tax basis, at a level not less favorable than those
currently provided. All existing agreements between the Corporation and the
Executive providing for special pension, retirement or similar benefits are
automatically continued for the Term. Any rights to benefits which become
vested under the terms of such plans, programs, policies and agreements but
which are to be paid or provided in future periods shall continue to be so
vested notwithstanding the prior termination of this Agreement.
(d) Expenses. During the Term the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Corporation in
effect as of the date hereof or as they may be amended from time to time.
5. Termination.
(a) Death. Except for the obligations of the Corporation set
forth in Section 4(c) hereof, this Agreement shall terminate automatically
upon the Executive's death. All benefits and compensation then accrued
hereunder, and under any plans provided for under Section 4(c) hereof, shall be
paid to the Executive's beneficiaries, legal representatives, or heirs as
appropriate.
(b) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness the Executive shall have been absent from the
full-time performance of his duties with the Corporation for six (6)
consecutive months, and within thirty (30) days after written notice of
termination is given the Executive shall not have returned to the full-time
performance of his duties, the Executive's employment may be terminated for
disability. During such period of absence, the Executive shall continue to
receive the benefits provided in Section 4
<PAGE> 4
4
hereof and thereafter the Executive's benefits shall be determined under the
Corporation's disability insurance plans and policies provided under Section
4(c) hereof.
(c) Cause. The Corporation may terminate the Executive's
employment for Cause. For purposes of this Agreement, "Cause" shall mean (i) an
act or acts of dishonesty on the Executive's part which are intended to result
in his substantial personal enrichment at the expense of the Corporation or the
Executive's conviction of a felony; (ii) any material violation by the
Executive of his responsibilities set forth in Section 3 hereof; or (iii) any
material breach of any provision of this agreement by Executive. If the
Executive's employment is terminated for Cause, the Corporation shall pay the
Executive his full accrued Base Salary through the date of such termination at
the rate in effect at the time of such termination, and the Corporation shall
have no further obligations to the Executive under this Agreement. The
Executive's employment shall not be terminated for Cause unless there shall
have been delivered to the Executive a resolution duly adopted by the Board of
Directors of the Corporation at a meeting of the Board which the Executive,
together with his counsel, has an opportunity upon reasonable notice to attend
and to address the Board, such resolution setting forth with particularity the
basis for terminating the Executive for Cause.
(d) Retirement. The Executive may terminate his employment
hereunder by retirement, including early retirement, during the Term of the
Agreement, under the Corporation's retirement policies existing on the date
hereof or under any policy established for the Executive with his consent,
provided that the Corporation consents to such retirement action.
6. Non-exclusivity of Rights.
Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Corporation or any of its affiliated companies
and for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any stock option
or other agreements with the Corporation or any of its affiliated companies,
unless this Agreement is terminated for breach of the provisions contained in
Section 3(c) hereof. Amounts which are vested benefits under any plan or
program of the Corporation or any of its affiliated companies shall be payable
in accordance with the terms of such plan or program.
<PAGE> 5
5
7. No Set-Off; Legal Fees.
The Corporation's obligation to make the payments provided for
herein and otherwise to perform its obligations hereunder shall not be affected
by any circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have against the
Executive or others unless this Agreement is terminated for cause for breach of
the conditions set forth in Section 3(c) hereof. Unless it is finally
determined by a court of competent jurisdiction that the Corporation has
validly terminated the Executive's employment for Cause, the Corporation agrees
to pay, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur in defending any contest by the Corporation
or others of the validity or enforceability of, or liability under, any
provision of this Agreement, plus interest on the total unpaid amount
determined to be payable hereunder, for the period commencing on the date of
such contest and ending on the date on which the Corporation shall pay such
total amount, provided Executive prevails in such contest.
8. Receipt of Certain Benefits.
It is the mutual intention of the Corporation and the Executive that
the Executive shall receive the full benefit of those compensation plans and
programs of the Corporation, including its retirement and pension plans and
programs, being provided pursuant to Section 4 hereof which provide for
benefits payable over periods beyond the particular year of employment
("Long-Term Plans"). Accordingly, the parties intend that, in the event of any
breach by the Corporation of the terms hereof, damages for such breach shall
include consequential damages for the loss of any benefits under such Long-Term
Plans, which benefits would have become payable under such plans had the
Executive completed the Term remaining at the time of such breach but which are
not payable under such plans by reason of such breach.
9. Confidential Information.
The Executive shall hold in a fiduciary capacity for the benefit of
the Corporation all secret or confidential information, knowledge or data
relating to the Corporation, Ford Motor Company, or any of their subsidiaries
or affiliates, and their respective businesses, which shall have been obtained
by the Executive during his employment by the Corporation or any of its
affiliated companies and which shall not be public knowledge. During and
after the end of the term of employment, the Executive shall not, without the
prior written consent of the Corporation, communicate or divulge any such
information, knowledge or data to anyone other than the Corporation and those
designated by it.
<PAGE> 6
6
10. No Assignment; Assumption.
This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assignable by the Executive
other than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives. This Agreement shall be binding upon any successor to the
business or assets of the Corporation which assumes this Agreement expressly,
by operation of law or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
<PAGE> 7
7
If to the Executive:
163 Bay Lane
Water Mill, New York 11976
If to the Corporation:
225 Brae Boulevard
Park Ridge, New Jersey 07656
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Corporation may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
a)
12. Integration and Supersession.
This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter hereof. Upon execution by both
parties, this Agreement shall supersede and replace all prior agreements,
understandings and communications on this subject matter, including an
Employment Agreement dated April 16, 1987 between Allegis Corporation and Brian
J. Kennedy; an Employment Agreement dated June 25, 1997 between The Hertz
Corporation and Brian J. Kennedy, as amended on December 30, 1987; and an
Employment Agreement dated July 1, 1992, between The Hertz Corporation and
Brian J. Kennedy.
<PAGE> 8
8
IN WITNESS WHEREOF, the Corporation has caused this
Agreement to be signed in its corporate name and its corporate seal to be
hereunto affixed and to be attested by its Secretary or one of its Assistant
Secretaries, and the Executive has hereunto set his hand, all as of the day and
year first above written.
/s/ Brian J. Kennedy
---------------------------------------------
Executive
THE HERTZ CORPORATION
By Donald F. Steele
-----------------------------------------
Its Senior Vice President, Employee Relations
-----------------------------------------
ATTEST:
/s/ Paul M. Tschirhart
- ---------------------------
Asst. Secretary
(SEAL)
<PAGE> 1
EXHIBIT 10(o)
1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of February 28, 1997 between The Hertz
Corporation, a Delaware corporation (the "Corporation"), and Daniel I. Kaplan,
(the "Executive").
WHEREAS, the Corporation currently employs the Executive in the
capacity of President of HERC, and the Executive is a key executive officer of
the Corporation; and
WHEREAS, the Corporation desires that the Executive continue in the
employ of the Corporation in his present position, or other senior executive
position, and the Executive desires to continue to be so employed, and both
parties are willing to make a commitment to continue this employment
relationship for the term of this Agreement, as set forth in Section 2 hereof
(the "Term");
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the parties hereby agree as
follows:
1. Employment.
The Corporation hereby agrees to continue to employ and engage the
services of the Executive during the Term as an executive officer of the
Corporation and the Executive agrees to serve the Corporation in such capacity
and position during the Term.
2. Term.
The Term shall consist of a period commencing on the date hereof and
ending on February 28, 2000, unless terminated earlier pursuant to Section 5
hereof; provided however, that in no event shall the term of this Agreement
extend beyond the Executive's normal retirement date under the Corporation's
retirement policies existing on the date hereof or under any policy established
for the Executive with his consent.
3. Position and Duties.
(a) At the present time, Executive is President, HERC, of the
Corporation. During the Term, the Executive's position, duties and
responsibilities shall be those of a senior executive of the Corporation,
recognizing that, notwithstanding any provision of the Agreement to the
contrary, the Corporation shall have the absolute right to modify or change the
position, duties, responsibilities and title of the Executive in any respect;
<PAGE> 2
2
provided, however, that the Executive shall continue to be employed in a senior
executive capacity during the Term.
(b) The Executive agrees to devote his full business time during
normal business hours to the business and affairs of the Corporation and to use
his best efforts to promote the interests of the Corporation and to perform
faithfully and efficiently the responsibilities assigned to him in accordance
with the terms of this Agreement, to the extent necessary to discharge such
responsibilities, except for (i) services on corporate, civic or charitable
boards or committees not significantly interfering with the performance of such
responsibilities and (ii) periods of vacation and sick leave to which he is
entitled. It is expressly understood and agreed that the Executive's continuing
service on any boards and committees with which he shall be connected, as a
member or otherwise, as of the date hereof, or any such service approved by the
Corporation during the term of employment, shall not be deemed to interfere
with the performance of the Executive's services for the Corporation pursuant
to this paragraph (b).
(c) During the Term and so long as any payments are being made under
Section 4 hereof, the Executive shall refrain from engaging in any activity
that is directly or indirectly in competition with any activity, or is inimical
to the bests interests, of the Corporation or any of its subsidiaries or
affiliates.
4. Compensation and Other Terms of Employment.
(a) Base Salary. During the Term, the Executive shall receive an
annual base salary ("Base Salary"), payable in equal installments not less
frequently than twice per month, at an annual rate at least equal to the
aggregate annual base salary payable to the Executive by the Corporation and
any of its affiliated companies as of the date hereof. The Base Salary shall be
reviewed and may be increased at any time and from time to time in accordance
with the Corporation's regular practices. Any increase in the Base Salary shall
not serve to limit or reduce any other obligation of the Corporation hereunder,
and after any such increase the Base Salary shall not be reduced from such
increased level during the Term. As used in this Agreement, the term
"affiliated companies" shall mean any company (or other business entity)
controlling, controlled by, or under common control with the Corporation.
(b) Incentive Compensation. As further compensation, the Executive
will be eligible for awards ("Incentive Compensation") under the Corporation's
bonus and incentive compensation plans determined on no less favorable a basis
than those provided to the Executive under such plans as in effect as of the
date hereof.
<PAGE> 3
3
(c) Retirement, Savings and Stock Option Plans. In addition to
the Base Salary and Incentive Compensation payable as hereinabove provided,
during the Term the Executive shall be entitled to participate in all savings,
stock option, retirement and employee welfare and benefit plans and programs,
and fringe benefit, vacation, sick leave, insurance and perquisite policies, on
a basis providing him with the opportunity to receive aggregate compensation
and benefits, on a before-tax basis, not less favorable than those provided by
the Corporation and its affiliated companies to the Executive under such plans,
programs and policies as in effect as of the date hereof. Nothing herein shall
be construed to prevent the Corporation or such affiliated companies from
amending or altering any such plans or programs so long as the Executive
continues to have the opportunity to receive aggregate compensation and
benefits, on a before tax basis, at a level not less favorable than those
currently provided. All existing agreements between the Corporation and the
Executive providing for special pension, retirement or similar benefits are
automatically continued for the Term. Any rights to benefits which become
vested under the terms of such plans, programs, policies and agreements but
which are to be paid or provided in future periods shall continue to be so
vested notwithstanding the prior termination of this Agreement.
(d) Expenses. During the Term the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the policies and procedures of the Corporation in
effect as of the date hereof or as they may be amended from time to time.
5. Termination.
(a) Death. Except for the obligations of the Corporation set
forth in Section 4(c) hereof, this Agreement shall terminate automatically
upon the Executive's death. All benefits and compensation then accrued
hereunder, and under any plans provided for under Section 4(c) hereof, shall be
paid to the Executive's beneficiaries, legal representatives, or heirs as
appropriate.
(b) Disability. If, as a result of the Executive's incapacity due
to physical or mental illness the Executive shall have been absent from the
full-time performance of his duties with the Corporation for six (6)
consecutive months, and within thirty (30) days after written notice of
termination is given the Executive shall not have returned to the full-time
performance of his duties, the Executive's employment may be terminated for
disability. During such period of absence, the Executive shall continue to
receive the benefits provided in Section 4 hereof and thereafter the Executive's
benefits shall be determined under the Corporation's disability insurance plans
and policies provided under Section 4(c) hereof.
<PAGE> 4
4
(c) Cause. The Corporation may terminate the Executive's
employment for Cause. For purposes of this Agreement, "Cause" shall mean (I) an
act or acts of dishonesty on the Executive's part which are intended to result
in his substantial personal enrichment at the expense of the Corporation or the
Executive's conviction of a felony; (ii) any material violation by the
Executive of his responsibilities set forth in Section 3 hereof; or (iii) any
material breach of any provision of this agreement by Executive. If the
Executive's employment is terminated for Cause, the Corporation shall pay the
Executive his full accrued Base Salary through the date of such termination at
the rate in effect at the time of such termination, and the Corporation shall
have no further obligations to the Executive under this Agreement. The
Executive's employment shall not be terminated for Cause unless there shall
have been delivered to the Executive a resolution duly adopted by the Board of
Directors of the Corporation at a meeting of the Board which the Executive,
together with his counsel, has an opportunity upon reasonable notice to attend
and to address the Board, such resolution setting forth with particularity the
basis for terminating the Executive for Cause.
(d) Retirement. The Executive may terminate his employment
hereunder by retirement, including early retirement, during the Term of the
Agreement, under the Corporation's retirement policies existing on the date
hereof or under any policy established for the Executive with his consent,
provided that the Corporation consents to such retirement action.
6. Non-exclusivity of Rights.
Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Corporation or any of its affiliated companies
and for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any stock option
or other agreements with the Corporation or any of its affiliated companies,
unless this Agreement is terminated for breach of the provisions contained in
Section 3(c) hereof. Amounts which are vested benefits under any plan or
program of the Corporation or any of its affiliated companies shall be payable
in accordance with the terms of such plan or program.
7. No Set-Off; Legal Fees.
The Corporation's obligation to make the payments provided for
herein and otherwise to perform its obligations hereunder shall not be affected
by any circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Corporation may have against the
Executive or others unless this Agreement is terminated for cause for breach of
the conditions set forth in Section 3(c) hereof. Unless
<PAGE> 5
5
it is finally determined by a court of competent jurisdiction that the
Corporation has validly terminated the Executive's employment for Cause, the
Corporation agrees to pay, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur in defending any contest
by the Corporation or others of the validity or enforceability of, or liability
under, any provision of this Agreement, plus interest on the total unpaid
amount determined to be payable hereunder, for the period commencing on the
date of such contest and ending on the date on which the Corporation shall pay
such total amount, provided Executive prevails in such contest.
8. Receipt of Certain Benefits.
It is the mutual intention of the Corporation and the Executive that
the Executive shall receive the full benefit of those compensation plans and
programs of the Corporation, including its retirement and pension plans and
programs, being provided pursuant to Section 4 hereof which provide for
benefits payable over periods beyond the particular year of employment
("Long-Term Plans"). Accordingly, the parties intend that, in the event of any
breach by the Corporation of the terms hereof, damages for such breach shall
include consequential damages for the loss of any benefits under such Long-Term
Plans, which benefits would have become payable under such plans had the
Executive completed the Term remaining at the time of such breach but which are
not payable under such plans by reason of such breach.
9. Confidential Information.
The Executive shall hold in a fiduciary capacity for the benefit of
the Corporation all secret or confidential information, knowledge or data
relating to the Corporation, Ford Motor Company, or any of their subsidiaries
or affiliates, and their respective businesses, which shall have been obtained
by the Executive during his employment by the Corporation or any of its
affiliated companies and which shall not be public knowledge. During and
after the end of the term of employment, the Executive shall not, without the
prior written consent of the Corporation, communicate or divulge any such
information, knowledge or data to anyone other than the Corporation and those
designated by it.
10. No Assignment; Assumption.
This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assignable by the Executive
other than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives. This Agreement shall be binding upon any successor to the
business or assets of the Corporation which assumes this Agreement expressly,
by operation of law or otherwise.
<PAGE> 6
6
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified other than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
<PAGE> 7
7
If to the Executive:
15 Chadwick Road
Livingston, NJ 07039
If to the Corporation:
225 Brae Boulevard
Park Ridge, New Jersey 07656
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Corporation may withhold from any amounts payable under
this Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) This Agreement contains the entire understanding of the
parties hereto with respect to the subject matter hereof. Upon execution by
all parties hereto, this Agreement will supersede and render void all previous
agreements whether written or oral between or among any of the parties
concerning the subject matter of this Agreement.
<PAGE> 8
8
IN WITNESS WHEREOF, the Corporation has caused this
Agreement to be signed in its corporate name and its corporate seal to be
hereunto affixed and to be attested by its Secretary or one of its Assistant
Secretaries, and the Executive has hereunto set his hand, all as of the day and
year first above written.
/s/ D. I. Kaplan
---------------------------------------------
Executive
THE HERTZ CORPORATION
By Donald F. Steele
-----------------------------------------
Its Senior Vice President, Employee Relations
-----------------------------------------
ATTEST:
/s/ Paul M. Tschirhart
- ---------------------------
Asst. Secretary
(SEAL)
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to the registration
statement on Form S-1 (File No. 333-22517) of our report dated January 24, 1997,
except for Note 14, as to which the date is March 13, 1997, on our audits of the
consolidated financial statements and financial statement schedule of The Hertz
Corporation. We also consent to the reference to our firm under the caption
"Experts."
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
March 13, 1997
