<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
1600 KAPIOLANI BLVD., SUITE 825
HONOLULU, HAWAII 96814
To Our Shareholders:
On behalf of the Board of Directors of Pacific International Services
Corp., a California corporation (together with any successors thereto, the
"Company"), I cordially invite you to attend a Special Meeting of Shareholders
of the Company (including any adjournment or postponement thereof, the "Special
Meeting") to be held at 1:30 p.m., Hawaii time, on November 27, 1995, at Pacific
Club, 1451 Queen Emma Street, Honolulu, Hawaii.
At the Special Meeting, you will be asked (i) to consider and vote upon a
proposal to approve the sale (the "Proposed Sale") by the Company to Dollar
Systems, Inc. or its subsidiary ("Dollar") of substantially all of the Company's
assets relating to or used in operation of the Company's vehicle rental and
related operations (collectively, the "Division"), pursuant to the terms and
conditions of a Settlement Agreement dated as of July 18, 1995 (as amended, the
"Settlement Agreement") by and between the Company and Dollar, and (ii) to
transact such other business as may properly come before the Special Meeting.
The purchase price for the assets of the Division is comprised of (i)
$2,625,000 in cash and (ii) the assumption by Dollar of certain liabilities
relating to the Division. The assumed liabilities are estimated by the
Company as of October 31, 1995 to be approximately $8.9 million in debt, $3.5
million in accrued Dollar lease and other payments, $2.1 million past-due
airport concession payments, $1.8 million in non-recurring self-insurance and
environmental reserves and $.025 million in accrued senior debt interest.
Based upon the above, the Company believes the aggregate purchase
consideration of cash and assumed liabilities will be approximately $19.2
million. If Dollar elects to close the Proposed Sale, Dollar will also
receive 10% of the Common Stock of the Company on a fully-diluted basis and
the Company may elect to issue and, if so issued, Dollar shall accept, a
promissory note (the "Net Worth Note"), to the extent that the net worth of
the Division as of the deemed closing of the Proposed Sale as shown on an
unaudited balance sheet (the "Unaudited Balance Sheet") to be delivered by
the Company to Dollar at the closing of the Proposed Sale (the "Unaudited Net
Worth") is more negative than negative Six Hundred Thousand Dollars
(-$600,000) (the "Minimum Net Worth Requirement"). The Net Worth Note shall
be in a principal amount up to $1,050,000 (with such maximum subject to
decrease as described herein) and shall have minimal covenants, a balloon
principal payment due September 1, 2007 and semi-annual interest payments at
a PER ANNUM rate of 10%. THE COMPANY DOES NOT BELIEVE THAT IT WILL BE ABLE TO
MEET THE MINIMUM NET WORTH REQUIREMENT, EVEN WITH THE ISSUANCE OF A NET WORTH
NOTE, UNLESS THE COMPANY IS ABLE TO OBTAIN CERTAIN COMPROMISES RELATING TO
ITS OBLIGATIONS TO THE HAWAII DEPARTMENT OF TRANSPORTATION, CERTAIN EXCISE
TAX CLAIMS WHICH MAY BE ASSERTED BY THE HAWAII DEPARTMENT OF REVENUE AND
FINOVA CAPITAL CORPORATION (FORMERLY GREYHOUND FINANCIAL CORPORATION,
"FINOVA"). Dollar and the Company have agreed that the closing of the
Proposed Sale shall be deemed to have occurred on October 31, 1995 (the
"Settlement Date") regardless of the actual date of the consummation of the
sale, transfer and conveyance of the Division's assets by the Company and the
purchase of the Division's assets by Dollar paying the consideration
described above and the settlement of certain contested claims by Dollar and
the Company to the extent provided in the Settlement Agreement, and the
making of other agreements, all as contemplated by the Settlement Agreement
(the date of such consummation is referred to as the "Closing").
The net cash proceeds of the Proposed Sale will be applied to the
payment of $.50 for each $1.00 in face amount of tendered securities described
below, and together with the issuance of up to 30% of the Common Stock of the
Company on a fully-diluted basis and the issuance of up to $1,050,000 in new
debentures (as described herein), will be used, if the exchange offer described
herein is successful in accordance with its terms, as consideration to the
holders (the "Debentureholders") of the Company's $5,250,000 outstanding
principal amount of 10% Convertible Subordinated Debentures Due 2007 (the
"Debentures") in exchange for (i) the tendering by the Debentureholders of their
Debentures pursuant to an exchange offer being made by the Company to the
Debentureholders (the "Exchange Offer") and (ii) the amendment of the Indenture
(as heretofore amended, the "Indenture") dated September 1, 1987 between the
Company and Chemical Trust Company of California, as Trustee (as successor to
Trust Services of America, Inc.), pursuant to which the Debentures have been
issued, to provide for limited covenant obligations for the Company
thereunder. The net cash proceeds of the Proposed Sale, to the extent not
applied to the $.50 per $1.00 in face amount exchange described above shall
be returned to Dollar. In addition to the $.50 for each $1.00 in face amount
of tendered Debentures being paid from the net cash proceeds of the Proposed
Sale, each tendering Debentureholder under the Exchange Offer will receive
(a) 0.769505 shares of Common Stock for each $1.00 in face amount of
Debentures tendered and (b) its pro rata share of new debentures of the
Company, to be issued pursuant to an Indenture substantially similar to the
<PAGE>
Indenture but with minimal covenants and with no equity conversion feature
(the "New Debentures") in an original face amount of (1) $1,050,000 less
(2) the face amount of any Debentures not tendered pursuant to the Exchange
Offer (the "Non-Tendered Debentures") and (3) less the original principal
amount of the Net Worth Note, if any (collectively, together with net cash
proceeds of the Proposed Sale, the "Exchange Consideration"). Following
consummation of the Transactions hereinafter defined, the aggregate principal
amount of indebtedness of the Company in respect of the Non-Tendered Debentures,
if any, the New Debentures and the Net Worth Note will not exceed $1,050,000.
The Exchange Offer is conditioned upon tendering of 95% in face amount of the
Debentures (the "Minimum Tender").
In the event the Minimum Tender is not received, the Company intends to
file a prepackaged Chapter 11 plan of reorganization (the "Prepackaged Plan").
The Prepackaged Plan provides that each Debentureholder would receive (i) its
pro rata share of $2,625,000 (less certain allowed priority and any allowed
administrative claims), (ii) 0.769505 shares of the Common Stock of the
Company for each $1.00 in face amount of Debentures tendered and (iii) its
pro rata share of the New Debentures, in an original face amount as described
above (the "Plan Consideration"). At a minimum the Prepackaged Plan, if
implemented by the Company and confirmed by the bankruptcy court, would
result (a) in the cash portion of the Plan Consideration under the
Prepackaged Plan available for distribution to the Debentureholders being
reduced to the extent of certain allowed priority and any allowed
administrative claims and (b) the Debentureholders sharing the Plan
Consideration on a pro rata basis with the holders, if any, of allowed claims
of the class to which the Debentures belong. The Company believes that,
should the Prepackaged Plan be implemented, administrative expenses for fees
of attorneys and other professional advisors could exceed $200,000. The
Company is not presently able to estimate the amount of claims of the class
to which the Debentures belong since the Company is presently not aware of
any such creditors other than the Debentureholders. The Prepackaged Plan
contemplates that contingent claimants will be unimpaired by the Prepackaged
Plan. The Prepackaged Plan, with its present distributions, cannot be
confirmed over the affirmative objection of the Debentureholders. The
Company has not received the results of its solicitation of the
Debentureholder votes on the Prepackaged Plan. As a condition to the
Closing, the Company must have received the tender and/or consent of
Debentureholders holding in the aggregate at least 95% of the face value of
the Debentures to the Proposed Sale or, alternatively, both (1) at least
two-thirds (by face amount of Debentures) of the Debentureholders voting in
the consent solicitation for the Prepackaged Plan must have approved the
Prepackaged Plan and (2) at least a majority in number of the
Debentureholders voting in the consent solicitation for the Prepackaged Plan
must have approved the Prepackaged Plan; provided, that, satisfaction of the
foregoing clauses (1) and (2) shall be determined without including any
acceptances of "insiders" (as defined by 11 U.S.C. Section 101 ET SEQ. (the
"Bankruptcy Code") the satisfaction of both of such conditions being called
the "Requisite Plan Acceptances").
Following consummation of the Proposed Sale and consummation of the
Exchange Offer or the Prepackaged Plan you will retain your equity interest in
the Company which will have substantially reduced its long-term debt
obligations. Your retained equity interest in the Company will be diluted to
the extent that Dollar receives the Common Stock contemplated by the Proposed
Sale and to the extent the exchanging Debentureholders receive the Common Stock
contemplated by the Exchange Offer or the Debentureholders receive Common Stock
as contemplated by the Prepackaged Plan. The proposed sale does not include the
stock South Seas Motors, Inc., the Company's wholly-owned subsidiary.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED SALE AND
EXCHANGE OFFER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSED SALE AND THE
EXCHANGE OFFER. In arriving at its recommendation, the Board of Directors gave
careful consideration to a number of factors as described in the enclosed Proxy
Statement, including an opinion of Houlihan, Lokey, Howard & Zukin, the
Company's financial advisor, that the consideration to be received by the
Company pursuant to the Settlement Agreement (as more fully described in the
enclosed Proxy Statement) is fair to the Company.
The Board of Directors has for some time considered the strategic direction
of the Company in light of, among other things, the long-term competitive forces
facing the Division and the current levels of long-term liabilities owing by the
Company, and the potential for future earnings and growth of the Division.
Based on these and other considerations more fully discussed in the enclosed
Proxy Statement, the Board of
<PAGE>
Directors believes that the proposed sale of the
Division to Dollar and the consummation of the Exchange Offer with the
Debentureholders is expedient and fair and in the best interests of the Company
and its shareholders.
Details of the proposed sale and the Exchange Offer and other important
information are included in the accompanying Proxy Statement. Please give this
material your careful attention.
Whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy card and return it in the enclosed prepaid
envelope. If you attend the Special Meeting, you may vote in person even if you
have previously returned your proxy card. Your prompt cooperation will be
greatly appreciated.
Yours sincerely,
/s/ Alan M. Robin
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CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
1600 Kapiolani Blvd., Suite 825
Honolulu, Hawaii 96814
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on November 27, 1995
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To all Shareholders of
Pacific International Services Corp.
NOTICE IS HEREBY GIVEN that a Special Meeting (including any adjournment or
postponement thereof, the "Special Meeting") of Shareholders of Pacific
International Services Corp., a California corporation (together with any
successors thereto, the "Company"), will be held at the Pacific Club, 1451 Queen
Emma Street, Honolulu, Hawaii, on November 27, 1995 at the hour of 9:00 a.m.,
Hawaii time, for the following purpose:
1. To consider and vote upon a proposal to approve the sale (the
"Proposed Sale") by the Company to Dollar Systems, Inc. ("Dollar") of
substantially all of the Company's assets relating to or used in
operation of the Company's vehicle rental and related operations
(collectively, the "Division"), pursuant to the terms and conditions
of a Settlement Agreement dated as of July 18, 1995 (as amended the
"Settlement Agreement") by and between the Company and Dollar; and
2. To transact such other business as may properly come before the
Special Meeting.
Only shareholders of record at the close of business on November 8, 1995
are entitled to notice of, and to vote at, such meeting or any adjournment or
adjournments thereof.
By Order of the Board of Directors
/s/ Alan M. Robin
--------------------
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
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WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND
RETURN IT TO THE COMPANY IN THE PRE-ADDRESSED ENVELOPE PROVIDED FOR THAT
PURPOSE. ANY SHAREHOLDER MAY REVOKE HIS PROXY AT ANY TIME BEFORE THE MEETING BY
WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY
ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
1600 Kapiolani Blvd., Suite 825
Honolulu, Hawaii 96814
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PROXY STATEMENT
------------------
SPECIAL MEETING OF SHAREHOLDERS
To be held on November 27, 1995
This Proxy Statement is being furnished to the holders of the Common Stock,
no par value ("Common Stock") of Pacific International Services Corp., a
California corporation (together with any successors thereto, variously referred
to as "PISC" or the "Company") in connection with the solicitation of proxies by
the Board of Directors of the Company to be used at a Special Meeting of
Shareholders of the Company (including any adjournment or postponement thereof,
the "Special Meeting") to be held on November 27, 1995 at 9:00 a.m., Hawaii
time, at the Pacific Club, 1451 Queen Emma Street, Honolulu, Hawaii.
At the Special Meeting, shareholders of the Company will be asked (i) to
consider and vote upon a proposal to approve the sale (the "Proposed Sale") by
the Company to Dollar Systems, Inc. or its subsidiary ("Dollar") of
substantially all of the Company's assets relating to or used in operation of
the Company's vehicle rental and related operations (collectively, the
"Division"), pursuant to the terms and conditions of a Settlement Agreement
dated as of July 18, 1995 (as amended, the "Settlement Agreement") by and
between the Company and Dollar, and (ii) to transact such other business as may
properly come before the Special Meeting. A copy of the Settlement Agreement
together with the First through Sixth Amendments thereto and the current forms
of Exhibits B (Agreed Practices), H (Specified Excluded Assets of Seller), L
(Specified Retained Liabilities of Seller), Q (Stock Pledge Agreement) and X
(Notice of Modification of Existing Franchise) thereto is attached to this Proxy
Statement as Annex A.
The purchase price for the assets of the Division is comprised of (i)
$2,625,000 in cash and (ii) the assumption by Dollar of certain liabilities
relating to the Division. The assumed liabilities are estimated by the
Company as of October 31, 1995 to be approximately $8.9 million in debt, $3.5
million in accrued Dollar lease and other payments, $2.1 million in past-due
airport concession payments, $1.8 million in non-recurring self-insurance and
environmental reserves and $0.25 million in accrued senior debt interest.
Based upon the above, the Company believes the aggregate purchase
consideration of cash and assumed liabilities will be approximately $19.2
million. If Dollar elects to close the Proposed Sale, Dollar will also
receive 10% of the Common Stock of the Company on a fully-diluted basis and
the Company may elect to issue and, if so issued, Dollar shall accept, a
promissory note (the "Net Worth Note"), to the extent that the net worth of
the Division as of the deemed closing of the Proposed Sale as shown on an
unaudited balance sheet (the "Unaudited Balance Sheet") to be delivered by
the Company to Dollar at the closing of the Proposed Sale (the "Unaudited Net
Worth") is more negative than negative Six Hundred Thousand Dollars
(-$600,000) (the "Minimum Net Worth Requirement"). The Net Worth Note shall
be in a principal amount up to $1,050,000 (with such maximum subject to
decrease as described herein) and shall have minimal covenants, a balloon
principal payment due September 1, 2007 and semi-annual interest payments at
a PER ANNUM rate of 10%. Dollar and the Company have agreed that the closing
of the Proposed Sale shall be deemed to have occurred on October 31, 1995
(the "Settlement Date") regardless of the actual date of the consummation of
the sale, transfer and conveyance of the Division's assets by the Company and
the purchase of the Division's assets by Dollar paying the consideration
described above and the settlement of certain contested claims by Dollar and
the Company to the extent provided in the Settlement Agreement, and the
making of other agreements, all as contemplated by the Settlement
1
<PAGE>
Agreement (the date of such consummation is referred to as the "Closing").
See -- "Terms of the Proposed Sale".
The net cash proceeds of the Proposed Sale will be applied to the
payment of $.50 for each $1.00 in face amount of tendered securities
described below, and together with the issuance of up to 30% of the Common
Stock of the Company on a fully-diluted basis and the issuance of up to
$1,050,000 in new debentures (as described herein), will be used, if the
exchange offer described herein is successful in accordance with its terms,
as consideration to the holders (the "Debentureholders") of the Company's
$5,250,000 outstanding principal amount of 10% Convertible Subordinated
Debentures Due 2007 (the "Debentures") in exchange for (i) the tendering by
the Debentureholders of their Debentures pursuant to an exchange offer being
made by the Company to the Debentureholders (the "Exchange Offer") and (ii)
the amendment of the Indenture (as heretofore amended, the "Indenture") dated
September 1, 1987 between the Company and Chemical Trust Company of
California, as Trustee (as successor to Trust Services of America, Inc.),
pursuant to which the Debentures have been issued, to provide for limited
covenant obligations for the Company thereunder. The net cash proceeds of
the Proposed Sale, to the extent not applied to the $.50 per $1.00 in face
amount exchange described above shall be returned to Dollar. In addition to
the $.50 for each $1.00 in face amount of tendered Debentures being paid from
the net cash proceeds of the Proposed Sale, each tendering Debentureholder
under the Exchange Offer will receive (a) 0.769505 shares of Common Stock for
each $1.00 in face amount of Debentures tendered and (b) its pro rata share
of new debentures of the Company, to be issued pursuant to an Indenture
substantially similar to the Indenture but with minimal covenants and with no
equity conversion feature (the "New Debentures") in an original face amount
of (1) $1,050,000 less (2) the face amount of any Debentures not tendered
pursuant to the Exchange Offer (the "Non-Tendered Debentures") and (3) less
the original principal amount of the Net Worth Note, if any (collectively,
together with net cash proceeds of the Proposed Sale, the "Exchange
Consideration"). Following consummation of the Transactions hereinafter
defined, the aggregate principal amount of indebtedness of the Company in
respect of the Non-Tendered Debentures, if any, the New Debentures and the
Net Worth Note will not exceed $1,050,000. The Exchange Offer is conditioned
upon tendering of 95% in face amount of the Debentures (the "Minimum
Tender"). See -- "The Exchange Offer".
In the event the Minimum Tender is not received, the Company intends to
file a prepackaged Chapter 11 plan of reorganization (the "Prepackaged Plan").
The Prepackaged Plan provides that each Debentureholder would receive (i) its
pro rata share of $2,625,000 (less certain allowed priority and any allowed
administrative claims), (ii) 0.769505 shares of the Common Stock of the
Company for each $1.00 in face amount of Debentures tendered and (iii) its
pro rata share of the New Debentures, in an original face amount as described
above (the "Plan Consideration"). At a minimum the Prepackaged Plan, if
implemented by the Company and confirmed by the bankruptcy court, would
result (a) in the cash portion of the Plan Consideration under the
Prepackaged Plan available for distribution to the Debentureholders being
reduced to the extent of certain allowed priority and any allowed
administrative claims and (b) the Debentureholders sharing the Plan
Consideration on a pro rata basis with the holders, if any, of allowed claims
of the class to which the Debentures belong. The Company believes that,
should the Prepackaged Plan be implemented, administrative expenses for fees
of attorneys and other professional advisors could exceed $200,000. The
Company is not presently able to estimate the amount of claims of the class
to which the Debentures belong since the Company is presently not aware of
any such creditors other than Debentureholders. The Prepackaged Plan
contemplates that contingent claimants will be unimpaired by the Prepackaged
Plan. The Prepackaged Plan, with its present distributions, cannot be
confirmed over the affirmative objection of the Debentureholders. The
Company has not received the results of its solicitation of the
Debentureholder votes on the Prepackaged Plan. As a condition to the
Closing, the Company must have received the tender and/or consent of
Debentureholders holding in the aggregate at least 95% of the face value of
the Debentures to the Proposed Sale or, alternatively, both (1) at least
two-thirds (by face amount of Debentures) of the Debentureholders voting in
the consent solicitation for the Prepackaged Plan must have approved the
Prepackaged Plan and (2) at least a majority in number of the
Debentureholders voting in the consent solicitation for the Prepackaged Plan
must have approved the Prepackaged Plan; provided, that, satisfaction of the
foregoing clauses (1) and (2) shall be determined without including any
acceptances of "insiders" (as defined by 11 U.S.C. Section 101 ET SEQ. (the
2
<PAGE>
"Bankruptcy Code") the satisfaction of both of such conditions being
called the "Requisite Plan Acceptances"). See -- "The Prepackaged Plan".
The consummation of the Proposed Sale and the Exchange Offer or the
Prepackaged Plan and the other transactions contemplated by the Settlement
Agreement are collectively referred to as the "Transactions".
If the Transactions do not close as planned, the Board of Directors
believes that it is doubtful that the vehicle rental operations and the Company
as a whole could continue as going concerns, although South Seas on a stand
alone basis could, in the opinion of management, continue to be viable.
THE COMPANY IS SOLICITING YOUR PROXY SOLELY IN CONNECTION WITH APPROVAL OF
THE PROPOSED SALE, AND SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
SPECIAL MEETING. THE APPROVAL OF THE SHAREHOLDERS IS NOT BEING SOLICITED FOR
THE CONSUMMATION OF THE EXCHANGE OFFER, THE PREPACKAGED PLAN OR THE ISSUANCE OF
PREVIOUSLY AUTHORIZED SHARES OF COMMON STOCK TO THE DEBENTUREHOLDERS OR DOLLAR
IN CONNECTION THEREWITH.
The Proposed Sale is not being effected as part of a liquidation and
dissolution of the Company or in contemplation thereof. Rather, the Company
intends to use the proceeds of the Proposed Sale to consummate the Exchange
Offer or to redeem the Debentures through the Prepackaged Plan and thereby
substantially reduce the Company's long-term debt obligations. Your retained
equity interest in the Company will be diluted to the extent that Dollar
receives 10% of the Common Stock of the Company on a fully-diluted basis and to
the extent the Debentureholders receive previously authorized Common Stock
pursuant to the Exchange Offer or the Prepackaged Plan. The Proposed Sale does
not include the stock of South Seas Motors, Inc., the Company's wholly-owned
subsidiary ("South Seas"), through which the Company operates the automobile
dealership segment of its business. The Company does not intend to include
South Seas in the Prepackaged Plan. The Company believes that the consummation
of the Transactions will permit the Company to focus on the automobile
dealership business and will enhance the Company's prospects because the
Company's rental car segment has been primarily responsible for the Company's
losses for the last three years.
The close of business on November 8, 1995 (the "Record Date") has been
fixed as the record date for determining holders of shares of Common Stock
entitled to vote at the Special Meeting. Approval of the Proposed Sale will
require the affirmative vote of a majority of the shares of the outstanding
Common Stock. THEREFORE, FAILURE TO VOTE IS EQUIVALENT TO A VOTE AGAINST
APPROVAL OF THE PROPOSED SALE. The officers and directors of the Company, as a
group, holders of approximately 10.83% of the outstanding shares of Common
Stock (excluding shares of Common Stock which are issuable upon conversion of
the Debentures and which were not outstanding and entitled to vote as of the
Record Date), intend to vote all of their shares of Common Stock for approval
of the Proposed Sale. Assuming such shares are voted IN FAVOR of the
Proposed Sale, the affirmative vote of approximately 3,164,781 additional
shares of Common Stock (representing approximately 39.17% of the shares of
Common Stock currently outstanding) would be required to approve the Proposed
Sale. As of the Record Date, 8,079,800 shares of Common Stock were
outstanding and entitled to vote. Each outstanding share of Common Stock
will be entitled to one vote on each matter considered at the Special
Meeting. There are no other classes of voting securities of the Company
outstanding. See "Voting -- General."
If the enclosed form of proxy is properly executed and returned, it will be
voted at the Special Meeting in accordance with the specifications thereof. If
no instructions are specified in the proxy, the shares represented thereby will
be voted in favor of the Proposed Sale. A proxy may be revoked, at any time
before it has been voted, upon written notice to the Secretary of the Company,
by submitting a subsequently dated proxy or by attending the Special Meeting and
withdrawing the proxy.
3
<PAGE>
This Proxy Statement and the enclosed form of proxy is being mailed on or
about November 15, 1995, to shareholders of record on the Record Date entitled
to vote at the Special Meeting. The Company will bear the cost of solicitation
of proxies by the Board of Directors, including charges and expenses of
brokerage firms, banks and others for forwarding solicitation materials to
beneficial holders. In addition to the use of the mails, proxies may be
solicited by officers and employees of the Company, without remuneration, by
personal contact, telephone or telegraph. The Company has retained Georgson
and Company Inc. to aid in the solicitation of proxies. Georgson and
Company Inc. has also been retained to assist the Company in the solicitation
of tenders to the Exchange Offer and consents to the Prepackaged Plan. A fee
of $7,500, plus out-of-pocket costs and expenses, will be paid by the Company
to Georgson and Company Inc. for their services.
The Company's principal executive offices are located at 1600 Kapiolani
Boulevard, Suite 825, Honolulu, Hawaii 96814 and its telephone number is (808)
926-4242. Dollar's principal executive offices are located at 5330 East 31st
Street, Tulsa, Oklahoma 74103 and its telephone number is (918) 669-3000.
THE PROPOSED SALE
PURPOSE AND BACKGROUND OF THE PROPOSED SALE
The Company was incorporated in Hawaii on April 8, 1974, as Olson Car
Rental Corp. and changed its name to Pacific International Sales Corp. on August
2, 1983. The Company's name was subsequently changed to Pacific International
Services Corp. In November 1983, the Company changed its domicile to
California. The Company's Common Stock was then sold to the public pursuant to
the terms of a unit offering, and the Company became publicly held. On June 2,
1987, the Company's Common Stock began trading on NASDAQ under the symbol
"PISC". The Company participated in a telephone hearing with an advisory
committee of NASDAQ on October 5, 1995 (the "NASDAQ Hearing) to determine
whether the Common Stock would be deleted for failure to satisfy minimum trading
value and capital requirements of the NASDAQ. The Company was advised on
October 12, 1995 that NASDAQ had granted an exception to these requirements
subject to certain conditions including that the Company receive the approval of
its shareholders for the Proposed Sale by October 31, 1995 and that the
Proposed Sale be consummated by November 15, 1995. The Company was
subsequently notified by NASDAQ on November 8, 1995 that these deadlines have
been extended to November 30, 1995.
The Company operates two business segments: passenger vehicle rental
operations and automobile dealership operations. The Company's vehicle rental
operations are carried out directly by the Company under the name Dollar Rent A
Car pursuant to an exclusive License Agreement, dated April 3, 1974, as amended
(the "License Agreement"), with Dollar. The Company's automobile dealership
operations are carried out through South Seas.
The Company acquired Cutter Jeep Renault, Inc., a Jeep Eagle dealership in
Hawaii on October 30, 1987. Cutter Jeep Renault, Inc. subsequently changed its
name to South Seas Motors, Inc. The Company combined certain of its existing
operations and the operations of South Seas Motors, Inc. into a full-service car
and truck dealership which is now operated as South Seas. South Seas has two
locations on the island of Oahu, South Seas Jeep Eagle ("SSJE") and Oahu
Chrysler Jeep ("OCJ"). South Seas also operated a used car dealership in
Kaneohe which was closed in December 1993.
SSJE is located at the corner of Nimitz Highway and Lagoon Drive near
Honolulu International Airport. SSJE sells new Jeep, Eagle and Hyundai
vehicles. The Hyundai line was added in 1993. SSJE is the only Hyundai
dealership in Oahu. OCJ began business in 1992 in the Waipahu area of leeward
Oahu. OCJ sells new Chrysler, Plymouth, Jeep and Eagle vehicles. Both
locations also sell used cars. The Company believes that SSJE is the state's
leading Jeep and Hyundai dealer by sales volume.
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During 1994, South Seas' combined retail sales averaged approximately 81
new vehicles and 130 used vehicles per month. In 1993, South Seas' combined
retail sales averaged approximately 97 new vehicles and 160 used vehicles per
month. The decrease in 1994 was mainly due to the limited availability of new
inventory from Chrysler Corporation ("Chrysler") during 1994 and the closure of
the separate used car dealership in Kaneohe. For the first nine months of 1995,
South Seas' combined retail sales averaged approximately 85 new vehicles and 160
used vehicles per month.
The business and profits of the Company have suffered from several factors
which have primarily affected the rental car segment. The Company's fleet
holding costs have doubled between 1991 and 1995. Tourism and business in
Hawaii have been negatively impacted over the last several years by a number of
factors. Hurricane Iniki devastated the island of Kauai and caused casualty
losses and loss of business which reduced rental car demand in Kauai through the
first part of 1995. The Gulf War and general recession both disrupted tourism
to Hawaii from key markets and depressed visitor arrivals to Hawaii through
1994. The effects of the foregoing factors included a decline in the Company's
rental volume and a corresponding increase in fleet holding costs. In addition,
there has been increased competition for high volume wholesale accounts from
corporate car rental companies which has negatively impacted the Company's daily
rental volume. The Company's fleet holding costs have increased significantly
over the past three years.
The Company's business also suffered because in 1993 automobile
manufacturers, as part of a stated effort to cut manufacturing losses, reduced
sales of cars to rental car customers for 1994 model year vehicles. General
Motors ("GM"), which controlled National and Avis and was the major supplier for
Alamo (all major car-rental operators), established an 85,000-car minimum for
its rental fleet customers, effectively excluding Dollar and thus the Company.
Ford Motor Company ("Ford"), which controlled Hertz and Budget, devised a
formula that left Dollar and thus the Company with an insignificant allocation
of automobiles. In Hawaii, the Company lost its access to GM cars because GM
cut its total fleet sales from 850,000 cars/year to 400,000 cars/year. Ford
also cut its allocation of cars after acquiring 100% of Hertz, and no longer
supplies cars to the Company.
In response to the limited availability of cars, Dollar offered a lease
program to the Company, at significantly higher cost compared to the programs
previously made available to the Company by Ford and GM, resulting in the
Company's rental fleet cost doubling between 1991 and 1995.
In response to the Company's financial difficulties, the Company obtained
an assistance agreement from Dollar in 1994 (the "1994 Assistance Agreement").
Pursuant to the terms of the 1994 Assistance Agreement, Dollar (i) reduced the
fees payable under the License Agreement during 1994, (ii) waived and
discharged certain fees owed by the Company under the License Agreement prior to
1994, (iii) increased certain incentive credits, rebates and allowances to the
Company and (iv) advanced the Company $1,400,000 to allow the Company to make
certain payments to Dollar. (See - THE COMPANY; Dollar).
Due to the Company's continuing financial difficulties, in March of 1995
after lengthy negotiations, the Company obtained a commitment in principle
from Dollar for certain assistance for 1995 (the "1995 Assistance
Commitment"). Under this commitment, the Company would have received
substantial economic benefits and resolved certain disputes between the
Company and Dollar. However, the parties were unable to agree upon the final
documentation with respect to the 1995 Assistance Commitment. (See - THE
COMPANY; Dollar).
Pending further negotiations, the Company withheld certain payments
asserted by Dollar to be owing to Dollar under the License Agreement. Dollar
filed a legal action in U.S. District Court to compel the Company to execute the
documentation proposed by Dollar to embody its understanding of the 1995
Assistance Commitment. Shortly thereafter, Dollar sent the Company notices
purporting to terminate the License Agreement and the Master Lease Agreement
dated October 22, 1993 between Dollar and the Company (the "Master Lease
Agreement"). The Company subsequently commenced its own legal action against
Dollar for damages and injunctive relief based on violations of the License
Agreement and Hawaii
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law. Subsequent discussions led to execution of a standstill agreement,
later amended and extended, and, finally to negotiation of the Settlement
Agreement. The parties have agreed to suspend all litigation without prejudice
but may choose to recommence proceedings should the Transactions fail to close.
(See - TERMS OF THE PROPOSED SALE; Standstill Agreement; Settlement of Claims).
The Company reported consolidated net losses of $1,427,461, $804,062 and
$2,104,502 in 1994, 1993 and 1992, respectively. For the three months ending
March 31, 1995, the six months ending June 30, 1995 and the nine months
ending September 30, 1995, the Company experienced net losses of $378,141,
$1,977,615 and $2,438,453, respectively. None of the losses were
attributable to the operations of South Seas.
ADVANTAGES AND DISADVANTAGES OF THE TRANSACTIONS
The Company has entered into the Settlement Agreement and wishes to
consummate the Transactions because it believes that unless the Transactions are
successful and the Company is consequently relieved of the liabilities of the
Division being assumed by Dollar and of the debt burden of the Debentures being
compromised as part of the Exchange Offer or Prepackaged Plan, the Company's
operations will be severely impaired.
The Company is incurring and will continue to incur substantial transaction
costs including legal and accounting and other professional fees related to the
Transactions. Although Dollar permanently forgave up to $300,000 of obligations
of the Company under the License Agreement, and even though in the event of the
Closing Dollar will assume all operating obligations of the Division after
October 31, 1995, the Company believes that support from Dollar will not
continue if the Transactions do not close as planned. IF THE TRANSACTIONS DO
NOT CLOSE AS PLANNED, AND FURTHER ASSISTANCE FROM DOLLAR IS NOT MADE AVAILABLE,
IT IS DOUBTFUL THAT THE VEHICLE RENTAL OPERATIONS AND THE COMPANY AS A WHOLE
COULD CONTINUE AS GOING CONCERNS, ALTHOUGH SOUTH SEAS ON A STAND ALONE BASIS
COULD, IN THE OPINION OF MANAGEMENT, CONTINUE TO BE VIABLE. The stock of South
Seas has been pledged as part of the Settlement Agreement to Dollar to secure
certain of the Company's obligations to Dollar. (See - TERMS OF THE PROPOSED
SALE; Pledge of Stock of South Seas).
A disadvantage of the Transactions from the perspective of the Company's
stockholders is the dilution of their retained equity interests in the Company
to the extent that Dollar receives 10% of the Common Stock of the Company on a
fully-diluted basis and to the extent the Debentureholders receive approximately
30% of the Common Stock of the Company on a fully-diluted basis pursuant to
either the Exchange Offer or the Prepackaged Plan. However, the Company
believes that if the Transactions do not close, it is doubtful that the vehicle
rental operations and the Company as a whole could continue as going concerns.
In addition, if the Company is required to implement the Settlement Agreement
through the Prepackaged Plan, the consent of the Stockholders to the Prepackaged
Plan will be unnecessary since they are a junior class of creditors (relative
to the Debentureholders who will constitute a more senior class of impaired
creditors) and a senior class will have approved the Prepackaged Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS FOR PROPOSED SALE
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
PROPOSED SALE. THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS APPROVAL OF THE
PROPOSED SALE BY THE SHAREHOLDERS OF THE COMPANY.
The material factors considered by the Board of Directors in making such
recommendation include the following:
- - - The Board of Directors viewed the price offered by Dollar as representing a
fair price (of cash and assumed liabilities) for the Division on a current
basis.
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- - - The advice of the Company's financial advisors that the purchase price
represented a premium over various implied equity values under various
types of business analyses.
- - - The Proposed Sale will provide the cash necessary to enable the Company
to substantially reduce its long-term debt obligations with respect to
the Debentures.
- - - The Proposed Sale is in conjunction with the Settlement Agreement that
eliminates the risk of litigation with Buyer, including the risk that Buyer
could terminate Seller's rights under the License Agreement and the Master
Lease, and the risk that Seller might not prevail in its causes of action
asserted against Buyer.
- - - The Proposed Sale should result in no substantial income tax consequences
due to the availability of tax loss carryforwards. (See - Certain Effects
of the Proposed Sale, Federal Income Tax Consequences).
- - - Dollar has agreed to assume substantially all of the Company's liabilities
associated with the Division (excluding the Debentures and certain other
retained liabilities), including substantially all of the Company's bank
debt and vehicle financing arrangements in respect to the Division.
- - - The consummation of the Proposed Sale was viewed as a better option for the
Company and its shareholders than the uncertainty of the pursuit of
pending litigation with and against Dollar.
Although the purchase price, assumption of liabilities and reduction of long-
term debt obligations in respect of the Debentures were the principal factors
considered by the Board of Directors, the decision to approve and recommend the
Proposed Sale was a combination of all of the factors listed above. In this
regard, the structure of the Proposed Sale and the Company's ability to be in a
position to satisfy its remaining obligations were also important to the Board
of Directors in approving the Proposed Sale.
IN JULY 1995, THE COMPANY ENGAGED HOULIHAN, LOKEY, HOWARD & ZUKIN TO,
AMONG OTHER THINGS, ASSIST IN THE DEVELOPMENT OF A LIQUIDATION ANALYSIS OF THE
COMPANY IN THE EVENT THE SALE TO DOLLAR DID NOT OCCUR AND IT BECAME UNABLE TO
CONTINUE ITS OPERATIONS. THE LIQUIDATION ANALYSIS PREPARED BY THE COMPANY
DETERMINED THAT IN THE MOST PROBABLE CASE SCENARIO (AS OF JUNE 30, 1995), IF A
LIQUIDATION WERE TO OCCUR, ONLY BETWEEN A RANGE OF $54,588 AND $2,092,540 WOULD
BE AVAILABLE AFTER PAYING PRIORITY CLAIMS, LIQUIDATION EXPENSES AND SECURED
CREDITORS. THIS RESIDUAL CASH BALANCE WOULD HAVE BEEN SHARED AMONG THE OLD
DEBTHOLDERS AND ALL OTHER UNSECURED CREDITORS AND, AT THAT TIME, WOULD HAVE
RESULTED IN A PAYMENT TO THE OLD DEBTHOLDERS OF RANGING FROM $0.03 TO $0.115 PER
DOLLAR OF PRINCIPAL AMOUNT OF OLD DEBENTURES. SEE ANNEX C. SINCE THAT
DETERMINATION, THE FINANCIAL CONDITION OF THE COMPANY HAS DETERIORATED.
OPINION OF FINANCIAL ADVISOR
GENERAL. The Company has retained Houlihan, Lokey, Howard & Zukin
("Houlihan"), an independent investment banking concern, to provide it with an
opinion as to the fairness of the Proposed Sale from a financial point of view.
Houlihan, as part of its investment banking activities, is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements, financial
restructurings and other financial services. Houlihan had not performed any
investment banking or financial advisory services for the Company prior to its
retention in July 1995 as financial advisor to the Company for the purposes of
the Proposed Sale.
Houlihan delivered its written opinion dated October 27, 1995, to the Board
of Directors of the Company to the effect that, as of such date, the Proposed
Sale was fair, from a financial point of view, to the Company and its existing
shareholders. In arriving at its opinions, Houlihan, among other things,
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(i) reviewed the Company's Annual Reports to Shareholders and audited financial
statements on Form 10-K for the fiscal years ended December 31, 1993 and
December 31, 1994, and quarterly reports on Form 10-Q for the most recent
quarters ended March 31 and June 30, 1995, respectively, and preliminary
unaudited financial statements for the fiscal quarter ended September 30, 1995,
(ii) reviewed certain internal information, including pro forma financial
forecasts and projections prepared by the Company's management, (iii) conducted
discussions with members of senior management of the Company concerning its
operations, financial condition, future prospects and projected operations and
performance, (iv) reviewed the historical market prices and trading volume for
the Company's publicly traded stock, (v) reviewed the Settlement Agreement and
the exhibits thereto, (vi) reviewed certain other publicly available filings of
the Company during the years 1993, 1994 and 1995, (vii) reviewed publicly
available financial data for certain companies and transactions which were
viewed as similar by Houlihan, and (viii) conducted such other studies and
analyses and performed such other investigations and took into account such
other matters as Houlihan deemed necessary and appropriate for the purposes of
its opinion. The summary of the analysis contained herein does not purport to
be complete and is qualified in its entirety by reference to such written
analysis. Houlihan also took into account its general experience in the
industry and dealings with similar transactions.
In rendering its opinion, Houlihan relied without independent verification
upon the accuracy, completeness and fair presentation of all financial and other
information provided to it by the Company, or that it otherwise reviewed for
purposes of such opinion, and its opinion is conditioned on such information
being complete and accurate in all material respects. Houlihan did not
independently verify any such information or any underlying assumptions and did
not make or obtain any independent appraisals or physical inspection of the
assets or liabilities of the Company, nor has it been furnished with any such
appraisals.
With respect to the financial forecasts, Houlihan assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the management of the Company as to the expected future financial
performance of the Company. Houlihan's opinion is necessarily based on
economic, monetary and market conditions as they exist and can be evaluated as
of the date of its opinion. A COPY OF THE OPINION OF HOULIHAN, DATED
OCTOBER 27, 1995, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITS ON REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS PROXY
STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE
OCTOBER 27, 1995 OPINION OF HOULIHAN SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE
COMPANY'S SHAREHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY.
Houlihan's opinion is directed only to the fairness from a financial point
of view of the consideration to be received by the Company in the Proposed Sale
and does not constitute a recommendation to any shareholder as to how such
shareholder should vote at the Special Meeting. Furthermore, the opinion does
not address the underlying business decision to effect the Proposed Sale. The
consideration to be received by the Company in the Proposed Sale was determined
through negotiations between representatives of the Company and representatives
of Dollar and was approved by the Board of Directors of the Company. (See -
"Recommendations of the Board of Directors.") Houlihan was not authorized to
solicit, nor did Houlihan solicit, third-party indications of interest for the
acquisition of all or any portion of the Company's assets or capital stock.
SELECTION OF HOULIHAN. The Company selected Houlihan as its financial
advisor because of Houlihan's national reputation in restructurings and
valuations, its knowledge of the car rental industry, its willingness to commit
senior people to the rendering of the fairness opinion and its reasonable fees.
METHODOLOGY. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of these methods to the particular circumstances.
The Company has been advised that the most common analyses used in reviewing the
fairness of consideration in the sale of a vehicle rental business are a
discounted cash flow analysis, a
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comparative transaction analysis and a comparable company analysis. All of
these analysis were used by Houlihan for its fairness opinion on the Proposed
Sale. The Company was not provided copies of the supporting material
utilized by Houlihan in conducting these analyses.
In requesting the opinion, the Company did not impose any limitations on
the scope of the investigations that Houlihan conducted to enable it to deliver
its opinion. In arriving at its fairness opinion, Houlihan did not attribute
particular weight to any single analysis or factor and made qualitative
judgments based on the significance and relevance of each analysis and factor.
The matters considered by Houlihan in arriving at its opinion are based
upon numerous macroeconomic, operating and financial assumptions and involve the
application of complex methodologies and educated judgment. Any estimates
incorporated in the analyses performed by Houlihan are not necessarily
indicative of actual past or future values or results, which may be
significantly more or less favorable than such estimates.
The following is a summary of certain financial and comparative analyses
performed by Houlihan in connection with its opinion, dated as of October 27,
1995, which it discussed with the Board of Directors. The summary of the
financial and comparative analyses set forth below does not purport to be a
complete description of the analyses employed by Houlihan in reaching its
opinion. Houlihan believes that its analyses must be considered as a whole and
that selecting portions of its analysis and of the factors considered by it,
without considering all such factors and analyses, could create a misleading
view of the processes underlying its opinion. Arriving at the fairness opinion
is a complete process not necessarily susceptible to partial or summary
description.
Subject to the foregoing, the following sets forth a summary of the
analyses and factors which Houlihan has advised the Company and its Board of
Directors were considered by Houlihan in arriving at its fairness opinion.
DISCOUNTED CASH FLOW ANALYSIS: Houlihan performed a discounted cash
flow analysis of the projected free cash flows of the Division for the
fiscal years ending December 31, 1995 through December 31, 2000. All
assumptions, including capital expenditures, utilized in the discounted
cash flow analysis were based on projections provided by the Company. Free
cash flow represents the after tax operating cash flow available to the
Company before debt service (EBITDA less taxes, capital expenditures and
changes in working capital). It is utilized in a discounted cash flow
analyses because it represents the cash flow from operations available for
distribution to debt and equity holders after required investments in
working capital and capital expenditures. The range of discount rates
chosen in the discounted cash flow analyses was based upon the estimated
weighted average cost of capital ("WACC") based on the analysis of the WACC
for comparable public companies and analysis of the risks associated with
these particular companies and their financial projections as the
comparable companies. The range of terminal values chosen was based upon a
reasonable estimation of what multiple of EBITDA the Division could be sold
for in the future. This range is based upon what other companies in the
same industry have been sold for in completed transactions and how other
comparable public companies trade as a multiple EBITDA. Because of the
Division's historical negative operating results and its negative projected
net worth, the discounted cash flow analysis had substantial impact on
Houlihan's conclusion with respect to its opinion.
COMPARISON OF COMPARABLE ACQUISITIONS: Houlihan analyzed the implied
transaction multiples in several selected transactions which it deemed
comparable to the Proposed Sale (collectively, the "Selected
Transactions"). Houlihan compared transaction values as multiples of the
last 12 months of EBITDA, EBIT (EBITDA less depreciation and amortization)
and compared these multiples to the multiples implied by the Proposed Sale
for the Company. The operating losses of the Division limited the impact
of this analysis on Houlihan Lokey's conclusion with respect to its
opinion.
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COMPARISON OF COMPARABLE COMPANIES: Using publicly available
information, Houlihan analyzed, among other things, the market values and
trading multiples of selected vehicle rental companies, which it deemed
comparable to the Division in varying degrees. The analysis involved
multiplication of various cash flow measures (primarily EBITDA and EBIT)
for the latest twelve months and projected years 1995 and 1996, as well as
the Net Book Value of the Division, by risk-adjusted multiples. The
multiples were based on those of comparable companies and were adjusted
based on comparisons of size, profitability, liquidity, financial leverage,
growth and other factors. No company used in the comparable company
analyses described above is identical to the Division. Accordingly, as
with the comparable acquisition analysis, an analysis of the results of the
foregoing is not entirely mathematical; rather, it involves complex
considerations and judgements concerning differences in financial and
operating characteristics and other factors that could affect public
trading value of the comparable companies to which the Division is being
compared. The operating losses and negative projected net worth of the
Division limited the impact of this analysis on Houlihan Lokey's conclusion
with respect to its opinion.
Houlihan believes that these analyses support the conclusion that the
consideration to be paid by Dollar for the Division pursuant to the Proposed
Sale is fair from a financial point of view to the Company and its shareholders.
FEES AND REIMBURSEMENT OF EXPENSES. Pursuant to its engagement letter with
Houlihan, the Company paid Houlihan a fee of $37,500 upon execution of the
engagement letter, a fee of $37,500 upon execution of the Settlement Agreement
and a fee of $50,000 for rendering or being ready to render its fairness opinion
(for aggregate fees after rendering or being prepared to render such opinion of
$125,000). In addition, the Company has agreed to reimburse Houlihan for its
reasonable out-of-pocket expenses incurred in connection with rendering its
opinion and providing services to the Company and to indemnify Houlihan against
certain liabilities in connection with its services as financial advisor to the
Company, including certain liabilities under the United States federal
securities laws.
In addition, Houlihan is rendering an opinion that the consideration to
be paid by Dollar for the Division constituted an exchange for "fair
equivalent value". Houlihan is receiving a non-refundable fee of $25,000 for
this opinion.
CERTAIN EFFECTS OF THE PROPOSED SALE
The consummation of the Proposed Sale will have certain material effects on
the Company and its business and operations. Among the effects are the
following:
CHANGE IN BUSINESS AND OPERATIONS OF THE COMPANY. The Company has
historically been involved in the passenger vehicle rental and automobile
dealership businesses. The Company's automobile dealership operations are
currently carried out through South Seas. The vehicle rental business is
currently carried out directly by the Company. The Proposed Sale will result in
the disposition of substantially all of the Company's passenger vehicle rental
assets. Upon consummation of the Proposed Sale, the Company will continue to
own 100% of the outstanding stock of South Seas through which the Company
operates its automobile dealership businesses. The stock of South Seas has been
pledged to Dollar to secure certain of the Company's obligations to Dollar and
such pledge will continue after the Proposed Sale is consummated. (See - TERMS
OF THE PROPOSED SALE; Pledge of Stock of South Seas).
CONVERTIBLE SUBORDINATED DEBENTURES. Pursuant to the Exchange Offer, the
Debentureholders are being offered (i) $.50 for each $1.00 in face amount of
Debentures tendered, (ii) 0.769505 shares of the Common Stock for each $1.00 in
face amount of Debentures tendered and (iii) a pro rata share of the New
Debentures in an original face amount of (a) $1,050,000 less (b) the Non-
Tendered Debentures, if any, and less (c) the original principal amount of the
Net Worth Note, if any. Following consummation of the
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Transactions, the aggregate principal amount of indebtedness of the Company
in respect of the Non-Tendered Debentures, if any, the New Debentures and the
Net Worth Note will not exceed $1,050,000. See -- "The Exchange Offer".
As a condition to the Closing, the Company must have received either the
Minimum Tender and/or consent to the Proposed Sale of Debentureholders holding
in the aggregate at least 95% of the face amount of the Debentures or,
alternatively, receipt of the Requisite Plan Acceptances. As part of its
Exchange Offer, the Company intends to amend the Indenture to provide for
limited covenant obligations for the Company thereunder. See -- "The Exchange
Offer".
In the event the Proposed Sale is effected through the Prepackaged
Plan, the Debentureholders would receive (i) a pro rata share of cash
consideration of $2,625,000 received by the Company in the Proposed Sale
(less the amount of certain allowed priority and any allowed administrative
claims), (ii) 0.769505 shares of the Common Stock for each $1.00 in face
amount of Debentures and (iii) a pro rata share of the New Debentures in an
original face amount of (a) $1,050,000 less (b) the original principal amount
of the Net Worth Note, if any. This consideration would be shared by the
Debentureholders pro rata with the holders, if any, of allowed claims of the
class to which the Debentures belong. The Prepackaged Plan further
contemplates that the class of contingent claimants will be unimpaired by the
Prepackaged Plan. The Company believes that, should the Prepackaged Plan be
implemented, administrative expenses for fees of attorneys and other
professional advisors could exceed $200,000. Following consummation of the
Transactions, the aggregate principal amount of indebtedness of the Company
in respect of the Non-Tendered Debentures, if any, the New Debentures and the
Net Worth Note will not exceed $1,050,000.
BANK DEBT AND CREDIT ARRANGEMENTS. The "Liabilities" being assumed by
Dollar include the Company's liabilities under the Company's (i) $3,645,000
Credit and Security Agreement, dated as of June 14, 1994, with Bank of
Hawaii, (ii) $15,000,000 Loan and Security Agreement, dated as of November
30, 1994, with Finova, (iii) $300,000 Amended Loan and Authorization and
Agreement, dated as of November 19, 1992, with the U.S. Small Business
Administration, (iv) $20,000,000 Loan Agreement, dated as of January 9, 1990,
with General Motors Acceptance Corporation, (v) $1,000,000 Term Loan
Agreement, as amended, dated as of September 30, 1988, with First Hawaiian
Bank (successor by acquisition to First Interstate Bank of Hawaii), and (vi)
Mortgage Note executed in favor of Bank of Hawaii and dated as of May 24,
1989. The following amounts were outstanding with respect to the foregoing
liabilities as of September 30, 1995: (a) $104,000, (b) $6,632,000, (c)
$25,000, (d) $392,000, (e) $386,000 and (f) $162,000. (See -- Section 3 of
the Settlement Agreement and the definition of "Liabilities") As of
September 30, 1995, the Company was not in compliance with its covenants
with the above financial institutions. The Liabilities being assumed by
Dollar also include the Company's liabilities to Dollar under the License and
various other contractual arrangements with Dollar which as of the Settlement
Date shall not, pursuant to the Settlement Agreement, exceed $3,225,000.
As a result of the foregoing, following consummation of the Proposed
Sale, the Company will have no outstanding bank debt or line of credit.
South Seas will have debt with respect to (i) $13,500,000 line of credit with
Chrysler Credit Corporation, (ii) $1,000,000 Mortgage bank debt with Bank of
Hawaii related to its South Seas Jeep Eagle dealership and (iii) $800,000
Mortgage bank debt with Bank of Hawaii related to its Oahu Chrysler Jeep
facility. As of September 30, 1995, outstanding balances for these
facilities were $7,132,000, $562,000 and $504,000, respectively. The
Company has been notified by Bank of Hawaii that it will extend its
$1,000,000 Mortgage bank debt related to the South Seas Jeep Eagle dealership
which otherwise would have matured on November 30, 1995 in return for an
increase in the applicable interest rate from a maximum of prime plus 1.75%
to prime plus 3.5% per annum.
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SEVERANCE ARRANGEMENTS. As part of the liabilities to be retained by the
Company following the Proposed Sale, the Company shall retain all employment-
related liabilities, accruals or similar obligations of any kind whatsoever as
to any employees of the Division not hired by Dollar as of Closing including,
without limitation, claims for salary, fringes, unemployment compensation,
severance, accrued vacation, accrued leave or any other statutory or other
allowances to such employees arising after Closing by reason of the Proposed
Sale, together with any unemployment insurance or Hawaii dislocated workers
allowance payable to Division employees even if they are hired by Dollar upon
the Closing (collectively, the "Retained Employee Liabilities"). In the event
of a Prepackaged Plan, the Company believes that all or substantially all of the
Retained Employee Liabilities will be priority claims and will be paid in full
out of the cash proceeds of the Proposed Sale. The obligation of the Company to
close the Proposed Sale is subject to the certain conditions (which may be
waived by the Company at Closing), including that the Retained Employee
Liabilities shall not equal or exceed Twenty-Five Thousand Dollars ($25,000).
Notwithstanding any provision of the Settlement Agreement to the contrary, for
purposes of determining whether the $25,000 limitation for closing purposes has
been met or exceeded, the Retained Employee Liabilities will be deemed to relate
only to accruals or statutory entitlements as of the Closing, and not future
salary or benefits pursuant to contracts or otherwise.
EMPLOYEE STOCK OPTIONS AND ESOP. During 1994, the Company established an
incentive stock option plan under which options to purchase up to 200,000
shares of Common Stock may be granted. Under this plan, the option exercise
price is equal to 100% of the fair market value of the Common Stock on the date
of grant. Options for 50,000 shares of Common Stock remain outstanding and
unexercised under this plan as of December 31, 1994. The unexercised options
are subject to anti-dilution protection. The Company's original incentive stock
option plan expired on May 3, 1993 and the remaining outstanding options under
this original plan expired in September 1995.
During 1994, the Company also established a new non-statutory stock option
plan under which options to purchase up to 200,000 shares of Common Stock may
be granted. Under this plan, the exercise price of any option granted shall not
be less than the lesser of 85% of the fair market value of the Common Stock on
the date of grant or 85% of the fair market value of the Common Stock on the
date of exercise. The original non-statutory stock option plan terminated on
June 20, 1994. No options were outstanding under either plan as December 31,
1994.
As of December 31, 1993, the Company had outstanding non-recourse
promissory notes totaling $1,139,000 from optionees in connection with the
exercise of their options to acquire 929,500 shares of Common Stock. Included
in the non-recourse notes, were notes in the aggregate principal amount of
$554,000 from current executive officers and/or directors of the Company.
Exercise prices on these shares ranged from $1.06 to $2.12 per share. The
promissory notes matured on July 11, 1994 on which date the market value of the
Company's Common Stock was $.81 per share. No payments were received on these
notes, and accordingly, the Company canceled these shares of Common Stock.
Proceeds from the exercise of options are credited to Common Stock to the
extent of $0.10 per share and the balance credited to additional paid-in
capital. Under its non-statutory plan, benefits relating to the excess of
quoted market value on the measurement date over the exercise price of options
are charged to compensation expense and credited to additional paid-in capital.
RIGHTS OF SHAREHOLDERS AND TRADING IN SECURITIES. The Transactions will
result in the issuance of an amount of previously authorized shares of Common
Stock for the Debentures resulting in the Debentureholders who tender
pursuant to the Exchange Offer receiving their pro rata share of up to 30% of
the outstanding Common Stock of the Company, on a fully-diluted basis,
following consummation of the Transactions. If the Minimum Tender is not
obtained and the Transactions are consummated pursuant to the Prepackaged
Plan, the Debentureholders will receive 30% of the outstanding Common Stock
of the Company, on a fully-diluted basis. The Proposed Sale will result in
the issuance of an amount of previously authorized shares of Common Stock to
Dollar resulting in Dollar receiving 10% of the outstanding Common Stock of
the
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Company, on a fully-diluted basis, following consummation of the
Transactions. See -- "THE EXCHANGE OFFER; Principal Transactions" and "THE
PREPACKAGED PLAN." The Company's Common Stock consists of 50,000,000
authorized shares, no par value, of which 8,079,800 shares are currently
outstanding. See -- "Description of Common Stock".
As a result of these issuances of previously authorized stock, the
existing shareholders' effective voting power and equity ownership of the
Company will be diluted. To the extent the Company prevails in retaining its
listing in accordance with the conditions imposed by the NASDAQ pursuant to
the NASDAQ Hearing, the Common Stock will continue to be listed with the
NASDAQ. The Company is unable to predict the potential effects of the
Transactions, including the Proposed Sale, on stock appreciation, trading
activity and the market price of the Common Stock.
FEDERAL INCOME TAX CONSEQUENCES. The Proposed Sale and the exchange of the
Debentures pursuant to the Exchange Offer will be taxable events for the Company
for both Federal and state income tax purposes. As of December 31, 1994, the
Company had approximately $10,000,000 in federal net operating loss
carryforwards and approximately $8,900,000 in state net operating loss
carryforwards available to offset a gain on the Proposed Sale and the exchange
of the Debentures pursuant to the Exchange Offer. Because the Company will be
able to apply its net operating loss carryforwards, there should be no
substantial income tax consequences. The Company may have some Federal
alternative minimum tax exposure due to the Proposed Sale as a result of
limitations on the use of Federal net operating loss carryforwards for
alternative minimum tax purposes. However, the amount of the possible Federal
alternative minimum tax due to the Proposed Sale is dependent on what other
income or loss is recognized in 1995, including the amount, if any, of COD
Income (as defined below).
The Proposed Sale will not result in any tax consequences to the
shareholders of the Company other than to those shareholders who are
Debentureholders who elect to exchange their Debentures pursuant to the Exchange
Offer.
The Exchange Offer may result in cancellation of indebtedness income ("COD
Income") to the Company. At this time, the amount of the COD Income which will
be attributed to the Company, if any, as a result of the Exchange Offer is not
clear nor is it clear how much, if any, of the Company's net operating loss
carryforwards will be available to offset COD Income, if any.
No COD income should result to the Company under the Prepackaged Plan
because any discharge of indebtedness will occur in a case under Title 11 of
the Bankruptcy Code. However, to the extent COD income which would otherwise
result does not occur because discharge occurs in a case under Title 11 of
the Bankruptcy Code, the Company will be required to reduce the amount of its
tax attributes (including, but not limited to, net operating loss and tax
credit carryforwards) available for use for future tax years. At this time,
the amount of COD income that would result but for the discharge of
indebtedness occurring in a case under Title 11 of the Bankruptcy Code is not
clear, nor is it clear how much, if any, of the Company's tax attributes will
be available for use in future tax years.
Regardless of whether the Proposed Sale is effected through the Exchange
Offer or the Prepackaged Plan, the Company's ability to utilize its net
operating losses and other tax attributes on a going forward basis may be
significantly limited by the operation of Section 382 and related provisions of
the Internal Revenue Code. However, the potential extent of such limitations is
not clear at this time.
ACCOUNTING TREATMENT. The Proposed Sale will be accounted for as a sale
of certain assets and the transfer of certain liabilities. Upon the
consummation thereof, the excess of the sum of the consideration received by
the Company and the liabilities assumed by Dollar over the sum of the book
value of the assets sold, the amount of the Net Worth Note, if any, and the
Common Stock issued to Dollar, will be recognized as a gain from discontinued
operations in the Company's books.
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The Exchange Offer will be accounted for as a retirement of the
Company's outstanding debt and issuance of additional shares of Common Stock
and, to the extent issued, the issuance of New Debentures. Upon the
consummation thereof, the excess of the face value of Debentures exchanged
over the fair value of the consideration paid (Common Stock plus cash plus
New Debentures, if any) by the Company will be recognized as an extraordinary
gain on the Company's books.
Consummation of the Prepackaged Plan will be similarly accounted for as a
retirement of the Company's outstanding debt and issuance of additional shares
of Common Stock and, to the extent issued, the issuance of New Debentures. Upon
the consummation thereof, the excess of the face value of Debentures exchanged
over the fair value of the consideration paid (Common Stock plus New Debentures,
if any, plus cash less allowed administrative and priority claims) by the
Company will be recognized as a gain on the Company's books.
GOVERNMENTAL AND REGULATORY APPROVALS. The Proposed Sale is subject to
applicable antitrust laws and review by the Antitrust Division of the Department
of Justice (the"Antitrust Division") and the Federal Trade Commission (the
"FTC"). Under the provisions of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the Proposed Sale may not be
consummated until the expiration of a 30 calendar day waiting period. The
Company filed notification reports, together with requests for early termination
of the waiting period, with the Antitrust Division and the FTC under the HSR Act
on September 29, 1995. The FTC granted early termination of the waiting period
on October 12, 1995.
In connection with the Proposed Sale, the Company is required to comply
with the provisions of the Hawaii Dislocated Workers Act (the "DWA"). The DWA
requires the Company to provide written notice of the Proposed Sale to each of
its employees and to the Director of the Hawaii Department of Labor and
Industrial Relations (the "DLIR") at least 45 days prior to its occurrence (the
"DWA Notice"). The Company provided the DWA Notice to its employees and the
DLIR on August 31, 1995.
Under Hawaii law, the Company is also required to make a report of the
Proposed Sale (the "Bulk Sales Report") to the Hawaii Department of Taxation not
later than 10 days after the transfer of the Assets has occurred. The Company
intends to file the Bulk Sales Report with the Hawaii Department of Taxation
immediately prior to the transfer of the Assets to Dollar.
The Company is aware of no other governmental or regulatory approvals
required for the consummation of the Proposed Sale, other than compliance with
applicable securities laws.
TERMS OF THE PROPOSED SALE
The detailed terms and conditions of the Proposed Sale are contained in the
Settlement Agreement, which together with Exhibits B (Agreed Practices), H
(Specified Excluded Assets of Seller), L (Specified Retained Liabilities of
Seller), Q (Stock Pledge Agreement) and X (Notice of Modification of Existing
Franchise) thereto together with the First through Sixth Amendments thereto, is
attached hereto as Annex A and made a part of this Proxy Statement. THE
FOLLOWING DISCUSSION SETS FORTH A DESCRIPTION OF CERTAIN MATERIAL TERMS AND
CONDITIONS OF THE SETTLEMENT AGREEMENT AND IS QUALIFIED BY THE MORE COMPLETE
INFORMATION SET FORTH IN THE SETTLEMENT AGREEMENT. THE COMPANY'S SHAREHOLDERS
ARE URGED TO READ THE SETTLEMENT AGREEMENT IN ITS ENTIRETY. Section references
in the following discussion refer to the corresponding section of the Settlement
Agreement.
PRINCIPAL TRANSACTIONS
PURCHASE AND SALE. Pursuant to the Settlement Agreement, the Company shall
issue to Dollar 10% of the Common Stock on a fully-diluted basis (as measured
assuming consummation of the Transactions) and
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shall sell to Dollar substantially all of the Company's assets relating to or
used in operation of the Division. (See Section 3(a) and the definition of
Assets in Section 1.) For the year ended December 31, 1994 and the nine
months ended September 30, 1995, the Division generated net losses of
$897,000 and $2,484,000, respectively, and the Company had net losses of
$1,427,461 and $2,438,453, respectively. (See -- Selected Financial
Information.) The Division constituted approximately 90% and 72% of the
total assets of the Company on a book value basis as of December 31, 1994 and
September 30, 1995, respectively.
The Settlement Agreement provides for the sale by the Company to Dollar
of the assets of the Company which comprise the Division for an aggregate
purchase price equal to (i) $2,625,000 in cash, (ii) the assumption by
Dollar of the Liabilities, as more fully described in this Proxy Statement.
The assumed liabilities are estimated by the Company as of October 31, 1995
to be approximately $8.9 million in debt, $3.5 million in accrued Dollar
lease and other payments, $2.1 million in past-due airport concession
payments, $1.8 million in non-recurring self-insurance and environmental
reserves and $0.25 million in accrued senior debt interest. Based upon the
above, the Company believes the aggregate purchase consideration of cash and
assumed liabilities will be approximately $19.2 million. In addition, if
Dollar elects to close the Proposed Sale, the Company may elect to issue and
Dollar shall accept the Net Worth Note in a principal amount not to exceed
$1,050,000, less the amount of Non-Tendered Debentures, if any, to offset, on
a dollar-for-dollar basis, shortfalls in the Unaudited Net Worth from the
Minimum Net Worth Requirement. In the event that the sum of the principal
amount of the Net Worth Note and the Non-Tendered Debentures is less than
$1,050,000. New Debenutres will be issued to the tendering Debentureholders
to cause the sum of the principal amount of the Net Worth Note plus the face
amount of the Non-Tendered Debentures and the New Debentures to equal
$1,050,000. So long as the conditions precedent are met on or before
November 30, 1995, Dollar and the Company have agreed that the Closing shall
be deemed to have occurred on the Settlement Date (except for the effect of
representations and warranties, as well as indemnities, which are extended to
the actual date of Closing). Following consummation of the Transactions, the
aggregate principal amount of indebtedness of the Company in respect of the
Non-Tendered Debentures, if any, the New Debentures and the Net Worth Note
will not exceed $1,050,000. The cash proceeds, less any amounts required to
pay allowed priority and administrative claims under the Prepackaged Plan (if
any), will be paid to an escrow agent at the Closing. (See -- Closing). The
Company believes that, should the Prepackaged Plan be implemented,
administrative expenses for fees of attorneys and other professional advisors
could exceed $200,000. (See Section 4 and TERMS OF THE PROPOSED SALE). The
Company will retain liability for all "Retained Liabilities". Retained
Liabilities is defined in the Settlement Agreement and includes, without
limitation, (a) the Debentures; (b) any liabilities, claims or obligations of
the Company, known or unknown, fixed or contingent, liquidated or
unliquidated, accrued or unaccrued, arising or that may arise from any
asserted or unasserted claims, except (1) the Liabilities which are set forth
on the Unaudited Balance Sheet, (2) the specified liabilities of the Company
to be listed on Exhibit I to the Settlement Agreement, which will be updated
at the Closing and (3) the specified liabilities on Exhibit J to the
Settlement Agreement, describing Off-balance Sheet Liabilities, which will
likewise be updated at the Closing; (c) all claims, liabilities or
obligations of South Seas; (d) all claims, liabilities or obligations of the
Company relating to South Seas; (e) liabilities of the Company to South Seas
or any other officer, director, shareholder or affiliate of the Company; (f)
liabilities relating to or arising from or that constitute liens against
assets not sold to Dollar; (g) any and all potential claims against the
Company related to a dispute between the Company and Hyundai Motor America
regarding 700 1995 Hyundai Elantras ordered from Hyundai Motor America which
claims have been asserted by Hyundai to be less than $113,000 as of September
21, 1995; (h) any and all claims against the Company related to the Maui base
yard construction dispute with Tinsmith, Inc. which the Company believes have
been settled; (i) any employment-related liabilities, accruals or obligations
of any kind whatsoever as to any employees of the Company (or South Seas) not
hired by Dollar including, without limitation, claims for salary, fringes,
unemployment compensation, severance, accrued vacation, accrued leave or any
other statutory or other allowances to such employees arising after Closing
by reason of the contemplated transactions; (j) any unemployment insurance or
Hawaii dislocated worker's allowance payable to the Company's employees even
if they are hired by Dollar upon Closing; (k) any and all claims against the
Company for employment practices including terminations before Closing and
(l) any claims or obligations for punitive and/or exemplary damages or for
civil or criminal or regulatory fines or penalties for the period on or
before the actual date of the Closing. (See Section 1 of the Settlement
Agreement for definition of "Off-balance Sheet Liabilities.")
The following assets will be sold by the Company to Dollar as part of the
Proposed Sale (the "Assets"): all of the Company's assets relating to or used
in operation of the Division and all books and records in any form pertaining
thereto (excluding the Excluded Assets, which are to be retained by Company).
The following assets (the "Excluded Assets") will be retained by the Company and
not sold to Dollar: any assets, properties or rights of Company not set forth in
the Unaudited Balance Sheet, the stock
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of South Seas, and all other assets of Company not relating to and not used in
the business of the Division, and the specified assets of Company listed on
Exhibit H to the Settlement Agreement.
COMMON STOCK. As part of the Proposed Sale, Dollar will receive an amount
of the previously authorized Common Stock of the Company resulting in Dollar
owning 10% of the Common Stock, on a fully-diluted basis, at consummation of the
Transactions, and will receive one demand registration right exercisable during
the period beginning eighteen (18) months after the date of Dollar's receipt of
the Company's Common Stock pursuant to the Transactions and ending five years
after such date. Any such demand would require a shelf registration of 18
months. Dollar is also to receive unlimited incidental or "piggyback"
registration rights if the Company files a registration statement. Although the
Company does not anticipate participating in a "going-private" transaction,
Dollar will have a right to put its Common Stock to the Company for the average
trading price of the Common Stock for the immediately preceding 30 day period in
the event the Company's status changes from being a company subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended.
NONCOMPETITION AGREEMENTS. At the Closing, (i) the Company shall execute
and deliver a noncompetition agreement, whereby the Company shall obligate
itself not to compete with or solicit against Dollar in accordance therewith for
a period of five (5) years from the date thereof; and (ii) the Company shall
cause Alan Robin, President, Chairman of the Board, President and Chief
Executive Officer of the Company, to execute and deliver a noncompetition
agreement, whereby Alan Robin shall obligate himself not to compete with or
solicit against Dollar in accordance therewith for a period of thirty (30)
months from the date of Closing.
SETTLEMENT OF CLAIMS. At Closing, (i) the Company shall execute and
deliver a general release; (ii) the Company shall cause Alan Robin, President,
Chairman of the Board and Chief Executive Officer of the Company, to execute and
deliver a general release; (iii) Dollar shall execute and deliver a general
release; (iv) South Seas shall execute and deliver a general release; and (v)
the Company, Dollar and if necessary, other affiliates thereof named in
litigation, shall execute a dismissal agreement; provided that the general
releases executed by the parties shall not affect their rights with respect to
obligations surviving Closing under the Settlement Agreement and related
documents. The Company and Dollar respectively undertake to cause any such
other necessary parties who are their affiliates to execute and deliver a
dismissal agreement with respect to the pending cases (hereinafter defined).
The various releases constitute general releases of all claims which Dollar has
against the Company, Alan Robin or South Seas or which any of such parties have
against Dollar or certain of its affiliates. The dismissal agreements to be
executed by the parties constitute agreements by Dollar and the Company for the
filing of stipulations for dismissal with prejudice in the following litigation:
PACIFIC INTERNATIONAL SERVICES CORP. V. CHRYSLER CORPORATION, PENTASTAR
TRANSPORTATION GROUP, DOLLAR SYSTEMS, INC., AND GARY L. PAXTON, in the United
States District Court for the District of Hawaii, Case No. 9500445-SPK and
DOLLAR SYSTEMS INC. V PACIFIC INTERNATIONAL SERVICES CORP., in the United States
District Court for the Northern District of Oklahoma, Case No. 95-C-488B
(collectively, the "Pending Cases").
The Pending Cases have resulted, in part, from the failure of Dollar and
the Company to agree upon the final documentation with respect to the 1995
Assistance Commitment. Pending further negotiations, the Company withheld
certain payments asserted by Dollar to be owing to Dollar under the License
Agreement. Dollar filed a legal action in U.S. District Court to compel the
Company to execute the documentation proposed by Dollar to embody its
understanding of the 1995 Assistance Commitment. Shortly thereafter, Dollar
sent the Company notices purporting to terminate the License Agreement and the
Master Lease Agreement dated October 22, 1993 between Dollar and the Company
(the "Master Lease Agreement"). The
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Company subsequently commenced its own legal action against Dollar for
damages and injunctive relief based on violations of the License Agreement
and Hawaii law. Subsequent discussions led to execution of a standstill
agreement, later amended and extended, and, finally to negotiation of the
Settlement Agreement. The parties have agreed to suspend all litigation
without prejudice but may choose to recommence proceedings should the
Transactions fail to close.
In addition, under the Settlement Agreement the Company and Dollar agreed
to certain assistance for the Company during the period prior to the Closing.
Specifically, Dollar agreed to permanently waive and forgive certain system fees
due under the License Agreement accruing from June 1, 1995 to the earlier of (i)
the termination of the Settlement Agreement, (ii) the Settlement Date and (iii)
the accrual of an aggregate amount of such waived fees totalling $300,000.
Dollar has further agreed to assume al liabilities of the Division arising after
the Settlement Date (including amounts owing to Dollar) which arise in the
ordinary course of business and which are otherwise not in violation of the
Company's covenants and representations and warranties in the Settlement
Agreement. Dollar also agreed that the extension by the Company of certain of
its trade payables and other obligations for periods up to 90 days beyond their
respective due dates would not constitute a default by the Company of its
obligation under the Settlement Agreement to conduct its business in the
ordinary course.
CONSULTING AGREEMENT. At the Closing, Alan Robin will agree to consult
with Dollar up to twenty hours per month for the first three months after the
Closing for no compensation. In the event Dollar, in its sole discretion,
determines that it would like Mr. Robin to continue thereafter on a consulting
basis, he will be paid $50,000 per year as a retainer and will commit up to 20
hours per month. Said agreement will be cancelable on an annual basis.
Dollar has indicated that it intends to retain Mr. Robin for at least one year
under the retainer.
STANDSTILL AGREEMENT
Concurrent with the execution of the Settlement Agreement, the Company and
Dollar executed a Standstill Agreement (the "Standstill Agreement"). Pursuant
to the Standstill Agreement, Dollar and the Company have agreed (i) to cease and
desist from any further litigation activities against one another, including but
not limited to the filing of additional cases, as well as motions or other
pleadings in the Pending Cases, until November 30, 1995 subject to early
termination by either party upon written notice to the other party (the
"Standstill Period"), (ii) make joint application to the courts in which the
Pending Cases are filed for orders extending all then effective deadlines for
the filing of pleadings for a period not less than the Standstill Period and
(iii) extend the termination dates for certain agreements to the date 24 hours
after the end of the Standstill Period. Failure to close the Transactions,
including the Proposed Sale, may mean reinstitution of the Pending Cases.
PLEDGE OF STOCK OF SOUTH SEAS
Contemporaneously with the execution of the Settlement Agreement, the
Company executed and delivered a Stock Pledge Agreement (as amended, the "Stock
Pledge Agreement"), pledging as a first and preferred lien and without any
junior liens, one hundred percent (100%) of the issued and outstanding capital
stock of South Seas to secure the following:
(i) Payments under the Master Lease Agreement (subject to customary
offsets but none accruing on or before April 30, 1995 except as otherwise
specifically provided in the Settlement Agreement) accruing or becoming due
and payable from and after May 1, 1995 until the earlier of the Closing or
termination of the Settlement Agreement;
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(ii) The payment of all other obligations of the Company to Dollar
accruing or becoming due and payable from and after May 1, 1995 until the
earlier of the Closing or termination of the Settlement Agreement;
(iii) Dollar's money damages and incidental, out-of-pocket losses
as awarded by the final, non-appealable order of a court for failure or
refusal to close the Settlement Agreement after satisfaction (or waiver by
the party entitled to the satisfaction) of all conditions precedent to the
obligation of both parties to the Closing;
(iv) Claims asserted by Dollar under the Settlement Agreement for
breaches of indemnity obligations (including, without limitation,
indemnities against breaches of representations and warranties as to the
fair presentation in all material respects of the Unaudited Balance Sheet)
within one (1) year of the closing of the Transactions (the "Secured
Indemnity Period"); and (v) All of the Company's obligations under the
Net Worth Note; and
(v) All of the Company's obligations under the Net Worth Note.
Unless Dollar shall have declared a breach of the obligations secured by
the South Seas stock pledge within one year after the Closing, the South Seas
stock pledge shall terminate. Notwithstanding the foregoing, if a voluntary or
involuntary petition for relief under the Bankruptcy Code is filed by or against
the Company on or before the 367th day after the Closing, the pledge and
security interest contemplated in the South Seas stock pledge shall not lapse.
If Dollar shall have declared a breach of the obligations secured by the South
Seas stock pledge within such one year period, or if such a petition for relief
is filed by or against the Company within such 367-day period, the pledge and
security interest contemplated by the South Seas stock pledge shall remain in
full force and effect, and the agent described in the following paragraph shall
continue to hold the South Seas stock. In the event of the Company's
bankruptcy, as described in this paragraph, the pledge and security interest
contemplated herein shall remain in full force and effect until (i) all breaches
of indemnity obligations described in clause (iv) above, (if any) are resolved
and fully satisfied; and (ii) the earlier to occur of (x) entry of a final order
waiving and releasing all claims, rights and causes of action against Dollar,
(including, without limitation, claims, rights and causes of action assertable
against Buyer arising under Chapter 5 of the Bankruptcy Code), or (y) expiration
of all statutes of limitation within which claims, rights and causes of action
assertable against Dollar under Chapter 5 of the Bankruptcy Code must be
commenced. (See -- Section 7(c)).
The pledge and security interest in the South Seas stock, to the extent
securing the obligations described in clauses (i) and (ii) above, shall remain
perfected through the times provided therein; provided, however, Dollar has
agreed to take no action to foreclose its security in respect of said
obligations owed it accruing after September 30, 1995 prior to the termination
of the Settlement Agreement, and provided further, that upon Closing, the pledge
and security interest insofar as relating to these obligations, as well as the
obligations described in clause (iii) above, shall lapse. The pledge and
security interest in the South Seas stock, to the extent securing the
obligations described in clause (v) above, shall terminate upon the earlier
of (a) the effective date of the confirmation of the Prepackaged Plan or (b)
ten (10) days following the successful completion of the Exchange Offer.
Pursuant to the Agency Agreement executed on July 18, 1995 (the "Agency
Agreement"), the South Seas stock is held by Liberty Bank and Trust Company of
Tulsa, N.A., as agent, to perfect Dollar's lien. The Company's remaining
operations following consummation of the Proposed Sale will be conducted through
South Seas.
DUE DILIGENCE PERIOD
The Company has agreed from and after the date of the Settlement Agreement
until the Closing to permit Dollar and its representatives full access to the
Company's operations, and business and financial records, contracts and
prospects files and any and all other documentation to permit Dollar to complete
its due diligence procedures and review. In addition, the Company and Dollar
have agreed that Dollar shall have through the Closing to complete its due
diligence (the "Due Diligence Period").
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TERMINATION RIGHT
Dollar has the right at any time prior to the Closing to terminate the
Settlement Agreement for any reason or no reason at all, as well as other rights
of termination at other times. (See TERMS OF THE PROPOSED SALE - Termination.)
DEBENTURES
The Company has agreed to seek the tender of the Debentures from, and/or
the consent to the Proposed Sale of, the Debentureholders owning Debentures
constituting at least 95% in face amount of the outstanding Debentures to the
Proposed Sale pursuant to the Exchange Offer. (See Section 9(l).) If the
Exchange Offer is consummated, each tendering Debentureholder will receive a pro
rata share of the Exchange Consideration. (See -- The Exchange Offer) The
Company has also agreed to solicit the consent of the Debentureholders to the
Prepackaged Plan. In the event the Proposed Sale is effected through a
Prepackaged Plan, each Debentureholder will receive a share of the Plan
Consideration which will be shared pro rata with the holders, if any, of allowed
claims which are of the same class to which the Debentures belong. The Company
is not presently aware of any such creditors. The Company believes that, should
the Prepackaged Plan be implemented, administrative expenses for fees of
attorneys and other professional advisors could exceed $200,000. (See -- The
Prepackaged Plan)
EMPLOYEES
The Company has agreed, on and after the date of the Settlement Agreement
to the Closing, to permit Dollar to interview certain employees of the Company.
The Company has further agreed to permit Dollar to hire any one or more of such
employees on terms that are mutually acceptable between Dollar and each such
employee. Dollar and the Company have agreed that it is not a condition of the
Closing that Dollar successfully negotiate the employment of any such employee.
In the event Dollar elects not to retain the services of any employee of the
Company, the Company shall specifically retain as a retained liability, and
Dollar does not assume, any liability for accrued salary, vacation leave, sick
leave, unpaid fringes, severance, Hawaii Dislocated Workers Act allowance or any
other liability whatsoever due in respect of any such employee. (See Section
19(d)(1).) Subject to satisfaction of Dollar's hiring policies, Dollar has
indicated that it intends to hire substantially all of the Division's employees.
In addition, Dollar has agreed to assume the remaining term of the
Company's employment commitment to Sirio Maggiacomo which ends December 31,
1997, which term shall be honored by Dollar unless grounds exist for
termination with cause in which event Dollar will be excused from further
obligation; provided, however, Dollar's total obligation to accept such
commitment shall not be less than (i) $140,000 per year as to base salary and
bonus and (ii) Dollar's standard benefits package offered to its employees.
Upon the Closing, the Company and Mr. Maggiacomo shall enter into an
agreement terminating his existing Employment Agreement with the Company
entered into effective January 1, 1995, and affirming he has no claim against
Dollar pursuant thereto or otherwise except to the extent specifically
provided in the Settlement Agreement. (See Section 19(d)(1)(i).)
REPRESENTATIONS AND WARRANTIES
The Company and Dollar have made various representations and warranties of
the kind customary in agreements for the sale of vehicle leasing assets,
including, among other things, valid existence and good standing of their
respective businesses and the satisfaction of legal requirements for the
Proposed Sale.
The Company has represented and warranted (subject to specified
exceptions) to Dollar concerning, among other matters: (i) the good standing
of the Corporation under the laws of its state of incorporation, its
corporate power to own its properties and carry on its businesses as
currently conducted and its qualification as a foreign corporation in
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certain jurisdictions, (ii) the title of the Company to its properties and
assets, (iii) the absence of any conflict between the Settlement Agreement
and the charter or by-laws of the Company, any material agreement to which
the Company is a party or is bound and any decree, order or judgment,
statute, rule or regulation applicable to the Company, (iv) the completeness
and accuracy of documents, exhibits and other disclosures made to Dollar, (v)
the fair presentation in all material respects of certain audited financial
statements and of the Unaudited Balance Sheet (including the calculation of
the Unaudited Net Worth), (vi) the absence of material undisclosed
liabilities, (vii) the compliance by the Company with all applicable laws and
regulations, (viii) the absence of undisclosed material litigation, (ix) the
filing of all required federal, state and local tax returns and payment of or
provision for taxes, (x) the absence of default in certain material
contracts, (xi) the absence of certain material events subsequent to December
31, 1994 and (xii) the status of certain employee benefit plans. (See
Section 15.)
Dollar has represented and warranted to the Company concerning, among other
matters, (i) its due organization and good standing in its state of
incorporation and its corporate power to own its properties and carry on its
businesses as currently conducted, (ii) the power and authorization of Dollar to
enter into the Settlement Agreement, and (iii) the absence of any conflict
between the Settlement Agreement and the charter or by-laws of Dollar, any
material agreement to which either it is a party or it is bound and any decree,
order, judgment, statute, rule or regulation applicable by the Settlement
Agreement. (See Section 16.)
CLOSING CONDITIONS
Dollar has an absolute right to decide not to close the Transactions for
any reason whatsoever up until the Closing. Moreover, the obligations of the
Company and Dollar to consummate the Proposed Sale are subject to the
satisfaction or waiver of certain conditions, including all representations
and warranties of the other party being true as of Closing; all agreements
and conditions of the other party to be performed or complied with at or
prior to Closing; and the occurrence of certain events described in "Certain
Effects of the Proposed Sale--Governmental and Regulatory Approvals."
The Company's obligation to consummate the Proposed Sale is subject to
additional conditions, including, without limitation, the approval of the
Proposed Sale by the shareholders of the Company and certain other conditions.
(See Section 10.)
Dollar's obligation to consummate the Proposed Sale is subject to
additional conditions, including, without limitation, receipt by the Company
of all requisite third party consents (including, without limitation,
consents from the Company's third-party lenders, lessors and concession
grantors); delivery by the Company of tax clearance certificates from the
State of Hawaii and other relevant taxing authorities (if any); the Company
having received either the Minimum Tender or the Requisite Plan Acceptances;
there having been no action, proceeding, investigation, regulation or
litigation instituted, proposed or threatened before any court, governmental
agency or legislative body which would, in the reasonable judgment of Dollar
have a materially adverse effect on the Assets, the Liabilities or the
Division, taken as a whole; no previously undisclosed off-balance sheet
liability or liabilities relating to the Division equalling or in excess of
$250,000 in the aggregate shall occur, exist or accrue; the Company's total
debt due and payable to Dollar shall not exceed $3,225,000, as adjusted
pursuant to the Settlement Agreement; and the Division's Unaudited Net Worth,
determined in accordance with the Agreed Practices identified on Exhibit B to
the Settlement Agreement, shall not be more negative than the Minimum Net
Worth Requirement, provided that if Dollar elects to close the Proposed Sale
at its option the Company may elect to issue and Dollar shall accept the Net
Worth Note, in an aggregate principal amount not to exceed $1,050,000 (less
the sum of Non-Tendered Debentures, if any, plus the New Debentures, if any),
to Dollar to offset on a dollar-for-dollar basis shortfalls in the Unaudited
Net Worth from the Minimum Net Worth Requirement. (See Sections 4(c) and 9.)
Following consummation of the Transactions, the aggregate principal amount
of indebtedness of the Company in respect of the Non-Tendered Debentures, if
any, the New Debentures and the Net Worth Note will not exceed $1,050,000.
FURTHER, THE COMPANY DOES NOT BELIEVE THAT IT WILL BE ABLE TO MEET THE
MINIMUM NET WORTH REQUIREMENT, EVEN WITH THE ISSUANCE OF A NET WORTH NOTE,
UNLESS THE COMPANY IS ABLE TO OBTAIN CERTAIN COMPROMISES RELATING TO ITS
OBLIGATIONS TO THE HAWAII DEPARTMENT OF TRANSPORTATION, CERTAIN EXCISE TAX
CLAIMS WHICH MAY BE ASSESSED BY THE HAWAII DEPARTMENT OF REVENUE AND FINOVA.
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In addition to these closing conditions, the Company has agreed that it
shall not (i) have prepaid professional fees as of the Settlement Date which
when added to payments by the Company or professional fees made from the cash of
the Division after the Settlement Date would exceed $185,000 in the aggregate
and (ii) pay any Retained Liability from cash of the Division after the
Settlement Date, other than the professional fees described in clause (i)
(subject to the $185,000 cap) and other than certain potential excise taxes
which are anticipated to be payable, if at all, on or before Closing.
In order for the Prepackaged Plan to be confirmed, the requirements of
Section 1129 of the Bankruptcy Code must be met including the receipt of the
Requisite Plan Acceptances. See -- "The Prepackaged Plan".
CLOSING
The Closing will occur at the offices of Torkildson, Katz, Jossem, Fonseca,
Jaffe, Moore & Hetherington, Honolulu, Hawaii, on November 15, 1995, or at such
other place and time as soon thereafter as may be mutually agreed between the
Company and Dollar in writing, provided that in no event shall the date of the
Closing be extended past November 30, 1995 without the mutual consent of Dollar
and the Company. Upon satisfaction of conditions to the Closing, including
requisite consents of the Company's shareholders and the Debentureholders (to
either the Exchange Offer or the Prepackaged Plan), the Closing will be
consummated with the cash payment of $2,625,000 being held in escrow pending the
outcome of the Exchange Offer and the consent solicitation for the Prepackaged
Plan; provided that the escrowed funds will be distributed following the
earliest of (i) receipt of written instructions from Dollar and the Company to
do so; or (ii) a final, non-appealable order of a court of competent
jurisdiction instructing the escrow agent to pay particular portions of the
escrowed funds to a particular party or particular parties. Liberty Bank and
Trust Company of Tulsa, N.A. has agreed to act as escrow agent for Dollar and
the Company. Dollar and the Company have agreed that the Closing shall be
deemed to have occurred on the Settlement Date. (See Section 11.)
POST-CLOSING BALANCE SHEET REVIEW
Within sixty (60) days of the Closing, Dollar shall, at its sole expense,
have prepared and delivered a final audited balance sheet (the "Final Balance
Sheet"), reflecting the Assets and Liabilities transferred to Dollar at the
Closing and determined as of the Settlement Date. The Final Balance Sheet shall
contain a calculation of the net worth (the "Final Net Worth") of the assets and
liabilities of the Division transferred to, and assumed by, Dollar, determined
as of the Settlement Date. Both the Unaudited Balance Sheet and the Final
Balance Sheet, and the respective assets and liabilities reflected thereon,
shall be prepared in accordance with generally accepted accounting principles
("GAAP") applied on a basis consistent with that of the audited financial
statements of the Company as of and for the year ended December 31, 1994,
reported on by Price Waterhouse (such principles are referred to as "GAAP
Consistently Applied"). Where there are alternative principles under GAAP, the
principles to be used shall be those consistently used by the Company in
preparing its said audited financial statements as of and for the year ended
December 31, 1994, assuming such principles are acceptable under GAAP. The
application of the GAAP Consistently Applied standard to the Unaudited Balance
Sheet and to the Final Balance Sheet shall be subject to modification or
clarification in accordance with the Agreed Practices.
Following receipt of the Final Balance Sheet, together with a draft
independent auditors' report from Deloitte & Touche, the Company will have
fifteen (15) days to notify Dollar whether it agrees or disagrees with
Dollar's calculation of any negative or downward adjustment to the Unaudited
Net Worth. This notification shall state the basis of the Company's
disagreement, including its calculation of the Final Net Worth. If the
Company and Dollar are unable to resolve their disagreements regarding the
Unaudited Balance Sheet and the Final Balance Sheet, they shall refer such
disagreement to Arthur Andersen & Company, or such other nationally
recognized independent accounting firm mutually selected by the
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Company and Dollar (the "Deciding Accountant"). The Deciding Accountant
shall render a final determination of the Final Net Worth within thirty (30)
days after such disagreement is referred to the Deciding Accountant and shall
be binding on the Company and Dollar.
In lieu of conducting an audit and presenting the Final Balance Sheet,
Dollar may elect to perform or have performed on its behalf certain procedures
at its sole discretion to determine that the Unaudited Balance Sheet has been
fairly presented in accordance with GAAP Consistently Applied as modified or
clarified by the Agreed Practices and that such other financial information
disclosed in the exhibits and schedules to the Settlement Agreement has also
been fairly presented (the "Reported Information"). If Dollar elects to perform
such procedures, it shall conduct the procedures within the same time periods
specified for the final Balance Sheet. Likewise, Dollar will, if it disagrees
with the Reported Information, furnish a letter with adequate supporting
documentation to the Company, and respond to the Company's inquiries, all in the
same time periods prescribed in the review process for the Final Balance Sheet.
If necessary, the Deciding Accountant will act to finalize any discrepancies in
the Reported Information to assure the same are fairly presented pursuant to the
standards noted above.
INDEMNIFICATION
The Company has agreed to indemnify, defend and hold Dollar harmless from,
against and in respect of any Loss incurred or suffered by Dollar:
(a) with respect to any of the Company's contracts, obligations,
agreements or liabilities not assumed by Dollar under the Settlement
Agreement including, without limitation, any Retained Liabilities;
(b) with respect to any Liability to the extent that such Loss arose
from or was the result of any situation or set of facts, the existence of
which would cause there to be a breach of a warranty, representation,
covenant or agreement by the Company under the Settlement Agreement or
under any Seller Delivered Agreement;
(c) with respect to any litigation, claim or proceeding arising out
of the Company's operations prior to Closing not constituting a Liability,
Off-balance Sheet Liability or not listed on Schedule 15(j) to the
Settlement Agreement;
(d) with respect to all claims, controversies, legal actions and
proceedings arising out of the Company's operations prior to Closing
brought by or on behalf of any creditor, agent, employee or former employee
of the Company or any other third party or governmental agency that do not
constitute Liabilities;
(e) with respect to any income, sales, payroll, excise, surcharge or
other tax liabilities of the Company whatsoever not constituting a
Liability or not disclosed in writing on Schedule 15(c) to the Settlement
Agreement (including, without limitation, assessments, additions to taxes,
deficiencies, penalties and interest and the costs and expenses relating to
examinations or audits of the taxes of the Company);
(f) with respect to any bulk sales, fraudulent conveyance or similar
laws or any other laws creating a lien or other adverse interest in, upon
or with respect to the Assets by reason of the transactions contemplated by
the Settlement Agreement, provided that the foregoing indemnity shall not
be applicable to claims arising out of Liabilities which have been assumed;
(g) with respect to any dispute among the Company, its shareholders,
directors, officers, employees, agents, Affiliates and Debenture holders;
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(h) for any claim asserted against Dollar with respect to any
disputes regarding goods or services which were provided or were to be
provided by the Company prior to Closing not constituting a Liability, Off-
balance Sheet Liability or not listed on Schedule 15(j) to the Settlement
Agreement;
(i) with respect to any claim by any governmental agency arising from
actions or failures to act of the Company;
(j) with respect to any taxes, costs, fees or expenses that the
Settlement Agreement provides are to be paid or otherwise borne by the
Company;
(k) with respect to operations of the Company's business prior to
Closing, except for the Liabilities;
(l) with respect to any claim for successor liability or similar
theory which would, pursuant to applicable law, impose liability on Dollar
for any aspects of the Company's operations before Closing, except to the
extent the same expressly constitutes a Liability under the Settlement
Agreement;
(m) to the extent the bankruptcy case contemplated by the Prepackaged
Plan shall have been commenced, (i) claims by the Company or others for tax
liabilities arising prior to or after the commencement of such case, (ii)
liability for administrative expenses contemplated by Bankruptcy Code
Section 503(b) alleged to be payable to any person or entity related in any
way to the Company or the bankruptcy case, whether or not such
administrative expenses are or become an allowed administrative expense,
(iii) from the Company altering or amending the terms of the Settlement
Agreement, the Exchange Offer, the Prepackaged Plan or the disclosure
statement prepared as part of the Prepackaged Plan without Dollar's
consent, either before or after confirmation of the Prepackaged Plan by the
bankruptcy court, to the extent such alteration or amendment impairs or
detracts from the benefits to be derived thereunder by Dollar, directly or
indirectly, and (iv) recovery (or the alleged right to recover) against
Dollar under any claim, right or cause of action whatsoever asserted by the
Company (in its own right or as debtor in possession under the bankruptcy
case), or by any trustee appointed therein pursuant to Bankruptcy Code
Section 1104, or by any of the Company's shareholders or creditors,
including, without limitation, claims, rights and causes of action arising
under Chapter 5 of the Bankruptcy Code or under the Uniform Fraudulent
Transfers Act or similar statutes, in each case including costs and
reasonable attorneys' fees incurred by Dollar in defending against such
matters and in enforcing the terms of such agreements; and
(n) without limiting, or being in any manner limited by, the
foregoing, as a result of misrepresentation, breach of a representation,
warranty, covenant or agreement on the part of the Company under the
Settlement Agreement or any Seller Delivered Agreement. (See Section
20(b).)
Dollar has agreed to indemnify, defend and hold the Company harmless from,
against and in respect of any Loss incurred or suffered by the Company:
(a) with respect to any Liability except to the extent that such Loss
arose from or was the result of any situation or set of facts in existence
as of the Closing, the existence of which would cause there to be a breach
of a warranty, representation, covenant or agreement by the Company under
the Settlement Agreement or the Seller Delivered Agreements;
(b) With respect to Dollar's operation of the Division after Closing,
except for the Retained Liabilities and except to the extent that any such
Loss arose from or was the result of any situation or set of facts in
existence on the Closing, the existence of which would cause there to be a
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breach of a warranty, representation, covenant or agreement by the Company
of the Proposed Sale under the Settlement Agreement or the Seller Delivered
Agreements; and
(c) without limiting or being in any manner limited by the foregoing,
as a result of a misrepresentation, breach of a representation, warranty,
covenant or agreement on the part of Dollar under the Settlement Agreement
or the Buyer Delivered Documents.
For purposes of the Settlement Agreement, "Loss" means any liability, loss,
cost, claim, damage, injury, expense or payment, including without limitation
the related actual fees and expenses of attorneys, consultants and other experts
(see Section 20(a)); "Seller Delivered Agreements" means all agreements,
certificates, instruments and documents executed and delivered (or to be
executed and delivered) by the Company or its officers pursuant to the
Settlement Agreement (see Section 15(a)(2)); and "Buyer Delivered Documents"
means all agreements, certificates, instruments and documents executed and
delivered (or to be executed and delivered) by Dollar or its officers pursuant
to the Settlement Agreement (see Section 16(a)(2).)
The indemnification obligations of the Company and Dollar under the
Settlement Agreement shall be extinguished unless the party claiming the right
to be indemnified notifies the indemnitor of facts which it thinks are the basis
for indemnification hereunder on or before the third (3rd) anniversary of the
Closing; provided, however, that notwithstanding the foregoing, no time deadline
shall apply to any willful or intentional breach of or failure to comply with
any representation, warranty, covenant or agreement in the Settlement Agreement.
(See Section 20(e)(1).) The indemnification obligations of the Company under
the Settlement Agreement shall be secured for a period of one (1) year from the
date of the Closing by the pledge of the stock of South Seas.
Neither the Company nor South Seas shall have any liability whatsoever
under the indemnification provisions of the Settlement Agreement unless and
until, and only to the extent that, the total Losses for which the Company would
otherwise be liable, exceed One Hundred Fifty Thousand Dollars ($150,000) in the
aggregate and then such liability shall be for the full amount of such Losses in
excess of $150,000; provided, however, that the minimum Loss specified herein
shall not apply to any willful or intentional breach of or failure to comply
with any representation, warranty, covenant or agreement in the Settlement
Agreement or the Seller Delivered Agreements or Buyer Delivered Documents,
respectively, nor as to any Loss sustained by Dollar relating to any Retained
Liabilities. (See Section 20(e)(2).)
At the Closing, South Seas will execute and deliver a South Seas Commitment
Agreement (the "South Seas Commitment Agreement") pursuant to which South Seas
will agree to be jointly and severally liable to Dollar for claims made against
the Company pursuant to the indemnification provisions of the Settlement
Agreement. The $150,000 deductible under the indemnification provisions of the
Settlement Agreement shall be cumulative as between South Seas and the Company
and not with each such entity afforded a separate $150,000 deductible. South
Seas' commitment under the South Seas Commitment Agreement shall continue for
three (3) years from the Closing.
TERMINATION
Dollar has the unqualified right to terminate the Settlement Agreement and
rescind the Proposed Sale, in the following circumstances or at the times
indicated below: (i) upon non-acceptance of the content of the Company's
schedules (or exhibits required to be updated) to the Settlement Agreement prior
to Closing, or upon updating of such schedules (or exhibits required to be
updated) as required by the Settlement Agreement periodically (with Dollar to
accept or reject the same within five (5) days of receipt by Dollar's designated
representative, with silence being deemed acceptance) and at Closing; (ii) upon
failure of a condition to the obligation of Dollar to close under the Settlement
Agreement, or breach of a representation, warranty, covenant or agreement by the
Company pursuant to the Settlement Agreement;
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(iii) upon exercise by the Company of a right to rescind the amendment to its
License Agreement as described on Exhibit X to the Settlement Agreement or
(iv) for any other reason in Dollar's sole discretion prior to the Closing
(the foregoing, together with any other right that Dollar has to terminate
the Settlement Agreement, collectively referred to as the "Permitted
Termination Events".) (See Section 21(a).)
In addition, the Settlement Agreement can be terminated and the Proposed
Sale abandoned on the occurrence of the following events: (i) the Company and
Dollar mutually agree in writing to such termination and abandonment; (ii)
Dollar gives written notice of termination because one or more of the conditions
to its obligation to consummate the Proposed Sale have not been satisfied or
waived by Dollar; (iii) the Company gives written notice of termination because
one or more of the conditions to its obligation to consummate the Proposed Sale
have not been satisfied or waived by the Company; or (iv) either Dollar or the
Company gives written notice of termination on or before Closing, for failure to
accept or otherwise reach agreement upon an Agreed Practice proposed by the
other party. (See Sections 21(a)(1) and 21(d).)
Under the terms of the Settlement Agreement, if the Closing has not
occurred for whatever reason by November 30, 1995 the Settlement Agreement
(unless extended by mutual agreement of Dollar and the Company) shall
automatically terminate. (See Section 21(a)(7).)
If Dollar elects to terminate the Settlement Agreement in accordance with
the terms thereof, Dollar shall be entitled to retain all payments made by the
Company pursuant to existing agreements, and the pledge of the South Seas stock
shall remain in place to the extent at such time amounts that are secured by
such pledge are accrued or due and unpaid by the Company to Dollar (or are
subject to good faith disputes in accordance with the Settlement Agreement).
Pursuant to the Settlement Agreement, the Company irrevocably and unqualifiedly
waived any and all right to assert any challenge, claim or objection to Dollar's
exercise of its right to terminate the Settlement Agreement for any reason at,
during or upon the Permitted Termination Events, whether or not with
justification, and including, without limitation, any assertion by the Company
that Dollar's termination constitutes breach of any statutory or implied
covenant of good faith, fair dealing or other duty, or as constituting any type
of interference with prospective business advantage, contractual or business
relationship, discrimination, economic duress or any other similar or dissimilar
tort, breach of contract or any other theory of recovery whatsoever. (See
Section 21(d).)
REMEDIES
In addition to the indemnity rights of Dollar and the Company under the
Settlement Agreement and remedies available under applicable law, Dollar and the
Company shall each have the following rights and remedies under the Settlement
Agreement:
(a) Dollar may foreclose its security interest in the South Seas
stock to the extent permitted by the Settlement Agreement, the Stock Pledge
Agreement or the Agency Agreement.
(b) Either party may recover money damages for breach of
representations, warranties, covenants, agreements and indemnities after
the Closing or for failure or refusal to close after satisfaction (or
waiver by the party entitled to the satisfaction) of all conditions
precedent to the obligation of both parties to the Closing.
(c) For breach of representations, warranties, covenants, agreements
and indemnities before Closing, the non-defaulting party will be entitled
to rescission, with the parties each being restored to their respective
status before the Settlement Agreement, subject to the termination
provisions of the Settlement Agreement, each with the ability to proceed
with the Pending Cases or any other remedy; provided, however, that the
passage of time shall not preclude Dollar in its discretion from asserting
upon exercise of a rescissionary remedy that the 1995 Assistance
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Commitment between the parties has failed, with Dollar being entitled to
claim the increased amounts due it from the Company if such assistance is
determined to have failed.
(d) For failure or refusal to close after fulfillment by both parties
of all their respective conditions, the enforcing party may seek specific
performance of the Settlement Agreement. A party may also seek specific
performance for breach of a covenant or agreement hereunder. The parties
irrevocably agree in the circumstances where specific performance is
authorized hereunder that there is no adequate remedy available at law.
(e) Upon breach of a Settlement Agreement representation, warranty,
covenant or agreement by the Company under the Settlement Agreement, Dollar
may terminate the Settlement Agreement whereupon the respective rights and
liabilities of the parties with respect to the Master Lease Agreement and
License Agreement shall be subject to the terms of such agreements and the
Standstill Agreement.
(f) For violation of the noncompetition agreements by the Company or
Alan Robin, Dollar shall be entitled to injunctive relief.
(g) For breach or violation of the covenants set forth in Section
17(a)(21) of the Settlement Agreement, Dollar shall conclusively be deemed
to be entitled to the appointment of (i) (during any period in which the
Company is not a debtor in a case filed under the Bankruptcy Code); a
receiver of the Company's assets appointed pursuant to the statute of
the State of Hawaii; and (ii) (during any period in which the
Company is a debtor in a case pending under the Bankruptcy Code) a
trustee pursuant to Code Section 1104. The Company has expressly agreed
that its breach or violation of such covenants shall constitute
sufficient grounds for the granting of such relief under all applicable
statutes. (See Section 22.)
THE EXCHANGE OFFER
The detailed terms and conditions of the Exchange Offer will be contained
in the Offer to Exchange and Solicitation of Plan Acceptances and in the Letter
of Transmittal (the "Offer and Solicitation Documents") to be sent to the
Debentureholders when the Exchange Offer is made. Copies of the Offer and
Solicitation Documents, once prepared and disseminated to the Debentureholders,
will be available for review or copying at the offices of the Company shown on
the cover of this Proxy Statement. THE FOLLOWING DISCUSSION SETS FORTH A
DESCRIPTION OF CERTAIN MATERIAL TERMS AND CONDITIONS OF THE EXCHANGE OFFER AND
IS QUALIFIED BY THE MORE COMPLETE INFORMATION SET FORTH IN THE OFFER AND
SOLICITATION DOCUMENTS.
PRINCIPAL TRANSACTIONS
The Company intends to invite each of the Debentureholders to tender the
Debentures in exchange for (a) $.50 in cash for each $1.00 in principal amount
of Debentures so tendered (the "Cash Payment"), (b) 0.769505 shares of the
Company's Common Stock for each $1.00 in principal amount of Debentures so
tendered, and (c) a pro rata share of the New Debentures in an original face
amount of (i) $1,050,000 less (ii) the face amount of the Non-Tendered
Debentures, if any, and less (iii) the original principal amount of the Net
Worth Note, if any. Following consummation of the Transactions, the aggregate
principal amount of indebtedness of the Company in respect of the Non-Tendered
Debentures, if any, the New Debentures and the Net Worth Note will not exceed
$1,050,000. If the Exchange Offer is successful, and assuming a 100% tender
pursuant thereto, the Company will issue 4,039,901 shares of Common Stock to
the Debentureholders. In addition, the Company would issue 1,346,633 shares to
Dollar pursuant to the Proposed Sale.
The Company will accept for exchange not less than $4,988,000 in principal
amount of Debentures. Debentures must be tendered in integral multiples of
$1,000. Accrued interest, including interest payable on September 1, 1995, will
not be paid on the Debentures tendered and accepted for exchange. All
Debentureholders who tender Debentures and whose Debentures are accepted for
exchange by the Company shall be deemed to have consented to the Proposed Sale.
Accrued interest payable on September 1, 1995, will be paid on the Non-Tendered
Debentures.
In addition, all Debentureholders who tender Debentures and whose
Debentures are accepted for exchange by the Company shall be deemed (i) to have
waived, with respect to those Debentures exchanged, all existing defaults, and
all consequences of such defaults, under the Indenture, and (ii) to have
consented to the following amendments to the Indenture:
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(a) the deletion in its entirety of Section 5.01 of the Indenture
(When Corporation May Merge, etc.);
(b) the deletion of (A) subsections (4) (relating to Indenture
covenant defaults) and (5) (relating to defaults with respect to other
indebtedness) of Section 6.01 of the Indenture (Events of Default) and (B)
of the last full paragraph of Section 6.01 of the Indenture (Events of
Default); and
(c) the amendment of the references to "25%" in (A) Section 6.02 of
the Indenture (Acceleration) and (B) subsection (2) of Section 6.06 of
the Indenture (Limitation on Suits), to be references to "50%".
The Common Stock to be issued pursuant to the Exchange Offer will not have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or the state securities laws of any state, and will be offered and sold
in reliance on an exemption from registration provided by Section 3(a)(9) of the
Securities Act and similar state law exemptions. Therefore, such Common Stock
cannot be resold unless it is subsequently registered under the Securities Act
and under applicable state securities laws or an exemption from registration is
available. Certificates representing the Common Stock to be issued to the
Debentureholders will bear a legend to this effect.
The Company currently intends to make the Exchange Offer to the
Debentureholders prior to the Special Meeting. Once the Company has made the
Exchange Offer to the Debentureholders, the Exchange Offer must remain open for
a period of twenty working days.
The Company has not authorized any person to make any recommendation on
behalf of the Company as to whether Debentureholders should tender or refrain
from tendering Debentures pursuant to the Exchange Offer. The Company has not
authorized any person to give any information or to make any representation in
connection with the Exchange Offer on behalf of the Company other than those
which will be contained in the Offer and Solicitation Documents. The Company
has retained Georgson & Company Inc. as Information Agent and First Fidelity
Bank, N.A. as Depositary in connection with the Exchange Offer. The
Information Agent may contact Debentureholders by mail, telephone, telex,
telegraph and personal interviews, and may request brokers, dealers and other
nominee Debentureholders to forward materials relating to the Exchange Offer to
beneficial owners. The Depositary and the Information Agent will receive
reasonable and customary compensation for their services. The Company will also
reimburse the Depositary and the Information Agent for out-of-pocket expenses,
including reasonable attorneys' fees, and has agreed to indemnify the Depositary
and the Information Agent against certain liabilities in connection with the
Exchange Offer, including certain liabilities under the federal securities laws.
THE COMPANY IS SOLICITING ITS SHAREHOLDERS' PROXIES SOLELY IN CONNECTION
WITH APPROVAL OF THE PROPOSED SALE, AND SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE SPECIAL MEETING. THE APPROVAL OF THE SHAREHOLDERS IS NOT BEING
SOLICITED FOR THE CONSUMMATION OF THE EXCHANGE OFFER, THE PREPACKAGED PLAN OR
THE ISSUANCE OF PREVIOUSLY AUTHORIZED SHARES OF COMMON STOCK TO THE
DEBENTUREHOLDERS OR DOLLAR IN CONNECTION THEREWITH.
THE PREPACKAGED PLAN
The Prepackaged Plan would generally give effect to the same exchange
contemplated by the Exchange Offer and the Company intends to implement the
Transactions pursuant to the Prepackaged Plan if the Minimum Tender is not
received. Implementation of the Prepackaged Plan will be subject to receipt of
the Requisite Plan Acceptances. Under the Bankruptcy Code, only those
Debentureholders who vote to accept or reject the Prepackaged Plan will be
counted for purposes of determining acceptance or rejection of the Prepackaged
Plan by the Debentureholders; therefore, the Prepackaged Plan could be approved
with the affirmative vote of less than two-thirds in amount of the outstanding
Debentures. Even if all the Requisite
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Plan Acceptances are obtained or are deemed to have be obtained, the
Prepackaged Plan may not be confirmed by the bankruptcy court unless the
requirements of Section 1129 of the Bankruptcy Code are satisfied (see
Section 1129 discussion below).
The Prepackaged Plan will administer all of the assets of the Company
which will be composed of, among other items, property specifically not
acquired by Dollar under the Settlement Agreement and causes of action. A
substantial majority of the Company's assets will have been transferred
pre-bankruptcy to Dollar pursuant to the Settlement Agreement. The cash
payment by Dollar under the Settlement Agreement is not property of the
Company because it is being held in escrow for the benefit of
Debentureholders, the holders of certain allowed priority and all allowed
administrative claims, creditors having allowed claims of the same class as
the Debentureholders. The Prepackaged Plan provides for releases of the
Company's affiliates, stockholders, directors, officers and others (the
"Third Party Releases") as a material part of the implementation of the
Prepackaged Plan. A substantial majority of the Company's liabilities will
also have been assumed pre-bankruptcy by Dollar pursuant to the Settlement
Agreement. The remaining liabilities will be classified as either priority
claims (under the provisions of the Bankruptcy Code), secured claims,
debentureholder claims and unsecured non-priority claims other than
debentureholder claims which are not contingent or disputed or paid in the
ordinary course of the bankruptcy case implemented as part of the Prepackage
Plan, contingent claims, existing equity claims or option holder claims.
At a minimum the Prepackaged Plan could result (i) in the cash
portion of the Plan Consideration being reduced to the extent of certain
allowed priority and all allowed administrative claims and (ii) the
Debentureholders sharing the Plan Consideration on a pro rata basis with the
holders, if any, of allowed claims of the class to which the Debentures
belong as described above. The Company is not presently aware of any other
creditors in the same class as the Debentureholders. The Company believes
that, should the Prepackaged Plan be implemented, administrative expenses for
fees of attorneys and other professional advisors could exceed $200,000. The
Prepackaged Plan contemplates that contingent claims will be separately
classified and unimpaired by the Prepackaged Plan.
Pursuant to the Prepackaged Plan, each outstanding share of Common
Stock will remain outstanding and holders thereof will receive no additional
consideration under the Prepackaged Plan on account of the Common Stock. Any
options to acquire Common Stock will be cancelled and holders thereof will
receive no consideration. The Transactions, if consummated through the
Prepackaged Plan, will result in the Debentureholders receiving 30% of the
outstanding Common Stock of the Company, on a fully-diluted basis, following
consummation of the Transactions and in Dollar receiving 10% of the
outstanding Common Stock of the Company, on a fully-diluted basis, following
consummation of the Transactions. If the Prepackaged Plan is implemented, the
Company will issue 4,039,901 shares of Common Stock to the Debentureholders.
In addition, the Company would issue 1,346,633 shares to Dollar pursuant to
the Proposed Sale.
Creditors will not be required to file proofs of claim or interest or take
other action to enforce such rights against the Company except creditors who
dispute the amount listed for their claims in the Company's schedules and
related filings. The Company will seek a bankruptcy court order on the first
day of the Chapter 11 case to permit the Company to, and upon entry of such
order the Company will, pay in the ordinary course of business the pre-
bankruptcy trade claims of trade creditors who have agreed to provide the
Company with customary trade terms or to reinstate customary trade terms.
Pursuant to Section 1108 of the Bankruptcy Code, the Company will pay the post-
bankruptcy claims of trade creditors who provide the Company with goods and
services.
EMPLOYEES AND TRADE CREDITORS OF SOUTH SEAS WILL NOT BE AFFECTED BY THE
PREPACKAGED PLAN, UNLESS THEY ARE CREDITORS OF THE COMPANY.
In evaluating the Transactions and the Prepackaged Plan, parties will be
advised to consider, among other risks, (i) the highly leveraged position of the
Company and its recent operating results, (ii) the highly competitive and
fragmented nature of the car rental and sales industries, (iii) the
uncertainties related to the financial projections of the Company which will be
contained in the solicitation of consents to the
28
<PAGE>
Prepackaged Plan, (iv) the seasonality of the Company's business, (v) the
possible disruption of the Company's business as a result of the solicitation
of consents to the Prepackaged Plan and the commencement of a reorganization
case, (vi) the possible invalidation of the solicitation of acceptances by the
bankruptcy court, (vii) the risk of non-confirmation of the Prepackaged Plan,
(viii) the absence of a public trading market for, and potential volatility of
the price of the securities received by the Debentureholders in the
Transactions, (ix) the uncertainty as to the occurrence of the effective date
of the confirmation of the Prepackaged Plan and (x) certain federal income tax
considerations. The parties evaluating the Transactions and the Prepackaged
Plan will also be advised that the Company's management, based on advice of the
Company's litigation counsel, believes that closing the Proposed Sale (and
ratifying the Settlement Agreement through the Prepackaged Plan) is in the best
interest of the Company's creditors and stockholders, and that the releases of
Dollar to be effected by the Settlement Agreement are justified by the fact that
the prospective benefits of litigation are outweighed by, among other things,
(i) operating losses incurred by the Division which impair the Company's ability
to continue operations as conducted prior to consummation of the Settlement
Agreement; (ii) the fact that the cost to prosecute and defend the civil actions
by and against Dollar are prohibitively high; and (iii) the elimination of risks
associated with litigation with Dollar, including the risk that Dollar could
terminate the Company's rights under the License Agreement and the Master Lease,
and the risk that Company would not prevail in its causes of action asserted
against Dollar.
The Expiration Date for the solicitation of consents to the Prepackaged
Plan is anticipated to be 5:00 p.m. California time, on November 29, 1995,
unless extended by the Company, in which case the "Expiration Date" shall mean
the time and date to which the solicitation of consents by the Debentureholders
to the Prepackaged Plan has been extended. The Company currently intends to
make the consent solicitation with respect to the Prepackaged Plan concurrently
with the making of the Exchange Offer to the Debentureholders (I.E, prior to the
Special Meeting). Once the Company has made the consent solicitation with
respect to the Prepackaged Plan to the Debentureholders, the Company intends
that the consent solicitation will remain open for the same period as the
Exchange Offer.
If the Requisite Plan Acceptances from Debentureholders are obtained and
the Company elects to commence a Chapter 11 case, at the confirmation hearing
for such case, the bankruptcy court can confirm the Prepackaged Plan if all the
requirements of Section 1129(a) of the Bankruptcy Code are met. Among the
requirements for confirmation of a Prepackaged Plan under Section 1129(a) of the
Bankruptcy Code are: (i) that the Prepackaged Plan (and the Company, as the
Prepackaged Plan proponent) complies with the applicable provisions of the
Bankruptcy Code; (ii) that the Prepackaged Plan was proposed in good faith and
not by means forbidden by law; (iii) that with respect to each impaired class of
claims or interests, each holder of a claim or interest in the class has either
accepted the plan or will receive or retain under the plan an amount of property
that is not less than the amount such holder would receive in a liquidation
under Chapter 7 of the Bankruptcy Code; (iv) that the Prepackaged Plan is
feasible; and (v) that at least one class of impaired claims (if any) has
accepted the Prepackaged Plan.
If the Prepackaged Plan is accepted by the Debentureholders, the Company
intends to seek to have the Prepackaged Plan confirmed pursuant to Section
1129(b) of the Bankruptcy Code, the "cramdown" provisions, which respect to any
non-accepting classes as contemplated by the Bankruptcy Code. The Prepackaged
Plan will be so confirmed if the bankruptcy court's determination that the
statutory requirements of Section 1129(b) are satisfied, which means (i) all of
the requirements of Section 1129(a) of the Bankruptcy Code are satisfied, except
Subsection (8) which requires each class approve the plan or be unimpaired and
(ii) the plan provide that (a) secured creditors receive either (1) a
continuation of their liens plus deferred cash payments totalling at least the
allowed amount of the secured claims; (2) a lien on the proceeds from the sale
of property subject to the secured creditors' existing liens plus either
deferred cash payments totalling at least the allowed amount of the secured
claims or the indubitable equivalent of the secured claims; or (3) the
indubitable equivalent of their secured claims; (b) members of a class of non-
accepting secured claims receive (1) property equal to the allowed amount of the
unsecured claims; or (2) no creditors of a class junior to the non-accepting
unsecured class receive or retain any property under the plan
29
<PAGE>
on account of their claims or interests; and (c) equity interests receive
(1) property in the amount equal to the greatest of the allowed amount of any
fixed liquidation preference to which such equity interest is entitled; or (2)
no junior class of equity interest receives or retains any property under the
plan or account of their equity interest.
THE COMPANY IS SOLICITING ITS SHAREHOLDERS' PROXIES SOLELY IN CONNECTION
WITH APPROVAL OF THE PROPOSED SALE, AND SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE SPECIAL MEETING. THE APPROVAL OF THE SHAREHOLDERS IS NOT BEING
SOLICITED FOR THE CONSUMMATION OF THE EXCHANGE OFFER, THE PREPACKAGED PLAN OR
THE ISSUANCE OF PREVIOUSLY AUTHORIZED SHARES OF COMMON STOCK TO THE
DEBENTUREHOLDERS OR DOLLAR IN CONNECTION THEREWITH.
VOTING
GENERAL
The affirmative vote of the holders of a majority of the total voting power
of the outstanding shares of Common Stock as of the Record Date is necessary for
the approval of the Proposed Sale. The enclosed form of proxy provides a means
for shareholders to vote for approval of the Proposed Sale, to vote against the
Proposed Sale or to abstain from voting with regard to the approval of the
Proposed Sale. Each properly executed proxy received in time for the meeting
will be voted as specified therein. IF A SHAREHOLDER EXECUTES AND RETURNS A
PROXY BUT DOES NOT SPECIFY OTHERWISE, THE SHARES REPRESENTED BY SUCH
SHAREHOLDER'S PROXY WILL BE VOTED "FOR" THE APPROVAL OF THE PROPOSED SALE.
Because the approval of the Proposed Sale requires a vote based on the
total outstanding number of shares, abstentions and broker non-votes will be
equivalent to a vote against the Proposed Sale. Accordingly, the Company urges
each shareholder to vote and urges shareholders whose shares are held in the
name of their broker, bank or other nominee to instruct such person to vote
their shares.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE PROPOSED SALE.
The officers and directors of the Company, as a group, and holders of
approximately 10.3% of the outstanding shares of Common Stock (excluding
shares of Common Stock which were issuable upon conversion of the Debentures
and which are not outstanding and entitled to vote as of the Record Date),
intend to vote all of their shares of Common Stock for approval of the
Proposed Sale. Assuming such shares are voted in favor of the Proposed Sale,
the affirmative vote of only 3,164,781 additional shares of Common Stock
(representing approximately 39.7% of the shares of Common Stock currently
outstanding) would be required to approve the Proposed Sale. As of the
Record Date, 8,079,800 shares of Common Stock were outstanding and entitled
to vote.
DISSENTERS' RIGHTS
Under the laws of the State of California, the Company's shareholders who
object to the Proposed Sale will not be entitled to dissenters' rights.
30
<PAGE>
INTEREST OF CERTAIN PERSONS IN THE PROPOSED SALE
The directors and named executive officers of the Company own 877,332
shares of Common Stock and Sirio Maggiacomo, Executive Vice President and Chief
Operating Officer of the Company, has options to acquire an additional 100,000
shares of Common Stock which option is presently exercisable for 80,000 shares.
This option is subject to anti-dilution protection as may be deemed appropriate
by the Board of Directors of the Company. Scott Lang, a director of the
Company, owns $73,000 in face amount of the Debentures which are currently
convertible into 2,212 shares of Common Stock. Mr. Lang has indicated that he
intends to tender his Debentures pursuant to the Exchange Offer. (See "SECURITY
OWNERSHIP OF MANAGEMENT".)
In addition certain employees may be retained by Dollar under current or
renegotiated employment agreements. (See "TERMS OF THE PROPOSED SALE-
Employees".)
SELECTED FINANCIAL INFORMATION
The following selected financial data relating to the Company for the
periods set forth below has been derived from the consolidated financial
statements of the Company. Such data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto of the
Company appearing elsewhere herein.
31
<PAGE>
<TABLE>
<CAPTION>
(In thousands and except per share amounts, ratios and other data)
Year ended December 31, Nine months ended
1994 1993 1992 1991 1990 September 30, September 30,
---- ---- ---- ---- ---- 1995 1994
As Restated (4)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Operating Revenues
Vehicle rental $54,126 $54,163 $51,790 $45,316 $47,293 $37,852 $42,056
Vehicle sales (1) 39,699 43,988 31,521 23,172 27,835 34,258 30,917
Total operating 93,825 98,151 83,311 68,488 75,128 72,110 72,973
revenues
Operating costs and
expenses 94,140 97,492 84,124 69,394 78,890 74,023 71,197
------- ------- ------- ------- -------- ------- -------
Operating income (loss) (315) 659 (813) (906) (3,762) (1,913) 1,776
Interest income 57 79 101 224 277 26 40
Other interest expense (898) (914) (773) (1,098) (1,792) (683) (656)
Gain from sale of
leasehold interests - - - 104 4,866 - -
Other, net (271) (417) (620) (428) - 132 (66)
------- ------- ------- ------- -------- ------- -------
Income (loss) before
income taxes and
extraordinary items (1,427) (593) (2,105) (2,104) (411) (2,438) 1,094
Income taxes - (211) - - - - -
------- ------- ------- ------- -------- ------- -------
Loss before
extraordinary items (1,427) (804) (2,105) (2,104) (411) (2,438) 1,094
Extraordinary items (2) - - - 5,614 - - -
------- ------- ------- ------- -------- ------- -------
Net income (loss) $(1,427) $(804) $(2,105) $3,510 $(411) $(2,438) 1,094
------- ------- ------- ------- -------- ------- -------
------- ------- ------- ------- -------- ------- -------
Income (loss) per
share:
Before extraordinary
items $(0.18) $(0.09) $(0.23) $(0.28) $(0.07) $(0.30) $0.12
Extraordinary items(2) - - - 0.74 - - -
------- ------- ------- ------- -------- ------- -------
Net Income (loss) $(0.18) $(0.09) $(0.23) $0.46 $(0.07) $(0.30) $0.12
------- ------- ------- ------- -------- ------- -------
------- ------- ------- ------- -------- ------- -------
Weighted average shares
outstanding 8,080 9,009 9,009 7,551 6,093 8,080 9,009
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, Nine months ended
1994 1993 1992 1991 1990 September 30, September 30,
---- ---- ---- ---- ---- 1995 1994
As Restated (4)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
BALANCE SHEET DATA
Total Assets $69,272 $71,892 $110,802 $104,300 $95,434 $37,097 $60,207
Senior Debt 48,034 49,563 90,127 86,547 68,664 17,285 36,952
Convertible
subordinated debentures 5,250 5,250 5,250 5,250 17,250 5,250 5,250
Shareholders' equity $2,091 $3,518 $4,323 $6,427 $1,823 $(347) $4,613
OTHER DATA
Vehicles operated at 5,228 6,623 7,002 7,165 6,445 4,173 5,228
period end (3)
Rental vehicles sold 5,275 7,529 6,648 6,116 8,519 2,601 3,185
during period
</TABLE>
(1) Exclusive of sales from the rental fleet. The gains or losses on
sales of vehicles from the rental fleet are included in depreciation
expense.
(2) Includes a gain of $4,221 or $0.56 per share, net of income
taxes, resulting from a debenture exchange and a credit of $1,393
or $0.18 per share resulting from the utilization of net operating
loss carryforwards.
(3) Excluding vehicles held for sale by automobile dealerships.
(4) Certain amounts as of and for the year ended December 31, 1990 have
been restated. During the preparation of claims information for the
year ended December 31, 1991, the Company identified 1990 claims and
other information that was available as of December 31, 1990 but had
not been submitted to the actuary for preparation of the 1990
actuarial report. The Company has obtained a revised actuarial
report as of December 31, 1990, and has increased the $650
previously reported reserve by $766 resulting in an adjusted
reserve balance of $1,416. The accompanying financial statements
as of and for the year ended December 31, 1990 have been restated
to correct the aforementioned error.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS AND BALANCE SHEET
The following Unaudited Pro Forma Statement of Operations and
Unaudited Balance Sheet of the Company is based on and should be read in
conjunction with the audited consolidated financial statements and other
financial information of the Company included elsewhere in this Proxy
Statement. This information is presented based upon the contemplated
Proposed Sale which qualifies as a disposal of a segment of a business in
accordance with APB Opinion Number 30. The following Unaudited Pro Forma
Statement of Operations of the Company reflects the Company's results of
operations excluding the Division. In addition, the Unaudited Pro Forma
Statements of Operations for the year ended December 31, 1994 and the nine
month periods ended September 30, 1995 and 1994, give effect to the
Exchange Offer and the consideration given to Dollar as part of the
Proposed Sale as if such transactions had occurred on January 1, 1994. The
Unaudited Pro Forma Balance Sheet gives effect to the Proposed Sale and the
Exchange Offer as if such transactions had occurred on September 30, 1995.
No separate pro forma presentation reflecting the Prepackaged Plan is
necessary since the pro forma effect of the Prepackaged Plan with respect
to the Company will be the same as a successful Exchange Offer (assuming a
100% tender in the Exchange Offer). The allowed administrative expenses of
the Prepackaged Plan will reduce on a dollar-for-dollar basis the cash
payable to the Debentureholders.
33
<PAGE>
<TABLE>
<CAPTION>
(In thousands and except per share amounts, ratios and other data)
Year Ended December 31, 1994
----------------------------
Historical Rental Car Subtotal(a) Adjustment(b) Proforma
---------- ---------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Operating Revenues
Vehicle rental $54,126 $54,126 $0 $0
Vehicle sales 39,699 - 39,699 39,699
------- ------- -------- --------- -------
Total operating revenue 93,825 54,126 39,699 0 39,699
Operating costs and expenses 94,140 54,508 39,632 0 39,632
------- ------- -------- --------- -------
Operating income (loss) (315) (382) 67 67
Interest income 57 55 2 2
Other interest expense (898) (299) (599) 420 (179)
Gain from sale of leasehold interests - - -
Other, net (271) (271) 0 - 0
------- ------- -------- --------- -------
Income (loss) before income taxes (1,427) (897) (530) 420 (110)
Income Taxes - - - - -
------- ------- -------- --------- -------
Net income (loss) $(1,427) $(897) $(530) $420 ($110)(d)
------- ------- -------- --------- -------
------- ------- -------- --------- -------
Net income (loss) per share ($0.18) ($0.11) ($.07) ($.01)
Weighted average shares outstanding 8,080 8,080 8,080 5,387 (c) 13,467
</TABLE>
(a) - Reflects the Company's results of operations excluding the
vehicle rental division.
(b) - Proforma adjustments reflect the elimination of interest expense
of $525 on $5,250 of debentures, which bear interest
at 10%, due to the exchange offer and increase in interest
expense of $105 on new debt of $1,050 bearing interest
at 10%.
(c) - Additional shares to be issued in connection with the exchange offer
and the sale of the vehicle rental division to Dollar.
(d) - The expected gain of $2,770 on the proposed sale and exchange
offer has been excluded because such amounts are non recurring.
34
<PAGE>
<TABLE>
<CAPTION>
(In thousands and except per share amounts, ratios and other data)
Year Ended December 31,
----------------------------
1993 1992
---- ----
Historical Rental Car Proforma(a) Historial Rental Car Proforma
---------- ---------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Operating Revenues
Vehicle rental $54,163 $54,163 $0 $51,790 $51,790 $0
Vehicle sales 43,988 - 43,988 31,521 - 31,521
------- ------- ------ ------- -------- -------
Total operating revenue 98,151 54,163 43,988 83,311 51,790 31,521
Operating costs and expenses 97,492 53,974 43,518 84,124 53,126 30,998
------- ------- ------ ------- -------- -------
Operating income (loss) 659 189 470 (813) (1,336) 523
Interest income 79 77 2 101 99 2
Other interest expense (914) (231) (683) (773) (211) (562)
Gain from sale of leasehold interests - - - - - -
Other, net (417) (271) (146) (620) (510) (110)
------- ------- ------ ------- -------- -------
Income (loss) before income taxes (593) (236) (357) (2,105) (1,958) (147)
Income Taxes (211) (211) 0 - - -
------- ------- ------ ------- -------- -------
Net income (loss) $(804) $(447) $(357) $(2,105) $(1,958) $(147)
------- ------- ------ ------- -------- -------
------- ------- ------ ------- -------- -------
Net income (loss) per share ($.09) ($0.05) ($0.04) ($0.23) ($0.22) ($0.02)
Weighted average shares outstanding 9,009 9,009 9,009 9,009 9,009 9,009
</TABLE>
(a) - Reflects the Company's results of operations excluding the vehicle
rental division.
35
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995
------------------------------------
Historical Rental Car Subtotal Adjustment(a) Proforma
---------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Operating Revenues
Vehicle rental $37,852 $37,852 $0 $0
Vehicle sales 34,258 - 34,258 34,258
------- ------- -------- -------
Total operating revenue 74,023 37,852 34,258 0 34,258
Operating costs and expenses 74,023 40,134 33,889 0 33,889
------- ------- -------- -------
Operating income (loss) (1,913) (2,282) 369 369
Interest income 26 26 0 0
Other interest expense (683) (360) (323) 342 19
Gain from sale of leasehold interests - - - - -
Other net 132 132 0 0
------- ------- -------
Income (loss) before income taxes (2,438) (2,438) 46 342 388
Income taxes - - -
------- ------- -------
Net income (loss) ($2,438) ($2,484) $46 $342 $388 (c)
------- ------- -------- ------ -------
------- ------- -------- ------ -------
Net income (loss) per share ($0.30) ($0.31) ($0.01) $0.03
Weighted average shares outstanding 8,080 8,080 8,080 5,387 (b) 13,467
</TABLE>
(a) - Pro Forma adjustments reflect the elimination of interest expense
of $525 on $5,250 of debentures, which bear interest at 10%,
due to the exchange offer and increase in interest expense of
$105 on new debt of $1,050 bearing interest at 10%.
(b) - Additional shares to be issued in connection with the exchange offer
and the sale of the vehicle rental division to Dollar.
(c) - The expected gain of $2,770 on the proposed sale and exchange
offer has been excluded because such amounts are non recurring.
36
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995
------------------------------------
Historical Rental Car Subtotal Adjustment(a) Proforma
---------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Operating Revenues
Vehicle rental $42,058 $42,056 $0 $0
Vehicle sales 30,917 - 30,917 30,917
------- ------- ------- ------ -------
Total operating revenue 72,973 42,056 30,917 0 30,917
Operating costs and expenses 71,197 40,619 30,578 0 30,578
------- ------- ------- ------ -------
Operating income (loss) 1,776 1,437 339 339
Interest income 40 37 3 3
Other interest expense (656) (336) (320) 342 22
Gain from sale of leasehold interests - - -
Other net (66) (66) 0 0
------- ------- ------- ------ -------
Income (loss) before income taxes 1,094 1,072 22 342 364
Income taxes - - -
------- ------- ------- ------ -------
Net income (loss) $1,094 $1,072 $22 $342 $364 (c)
------- ------- ------- ------ -------
------- ------- ------- ------ -------
Net income (loss) per share $0.12 $0.12 ($0.00) $0.03
Weighted average shares outstanding 9,009 9,009 9,009 5,387 (b) 14,396
</TABLE>
(a) - Pro Forma adjustments reflect the elimination of interest expense
of $394 on $5,250 of debentures, which bear interest at
10%, due to the exchange offer and increase in interest expense
of $78 on new debt of $1,050 bearing interest at 10%.
(b) - Additional shares to be issued in connection with the exchange
offer and the sale of the vehicle rental division to Dollar.
(c) - The expected gain of $2,770 on the proposed sale and exchange
offer has been excluded because such amounts are non recurring.
37
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1995
------------------
Historical Rental Car(a) Subtotal Adjustment(b) Proforma
---------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Cash $1,083 $780 $303 $303
Accounts receivable, net 10,570 7,909 2,661 2,661
Prepaids and other 11,141 2,172 6,969 6,969
Revenue earning vehicles, net 6,773 6,241 352 352
Furniture, equip. & leasehold improvements 7,530 4,535 2,995 2,995
------- -------- ------- ------ -------
Total assets $37,097 $21,817 $15,280 $0 $15,280
------- -------- ------- ------ -------
------- -------- ------- ------ -------
Accounts payable $8,761 $7,530 $1,231 $1,231
Accrued expenses and other 6,148 4,882 1,266 1,266
Senior debt 17,285 8,985 8,300 1,050 9,350
Convertible subordinated debentures 5,250 0 5,250 (5,250) $0
Redeemable common stock (c) 252 252
Shareholders' equity (347) 420 (767) 3,948 3,181
------- -------- ------- ------ -------
Total liabilities & equity $37,097 $21,817 $15,280 $0 $15,280
------- -------- ------- ------ -------
------- -------- ------- ------ -------
Book value per share (0.04) 0.05 (0.09) 0.24
</TABLE>
(a) - Assets and liabilities of the rental car division to be sold.
(b) - Sale of rental car division to Dollar and exchange offer is
summarized as follows:
Carrying value of debentures $5,250
Common stock issued (4,039,901) (758)
Redeemable common stock issued (1,346,633 shares) (252)
Issuance of additional debt (1,050)
Net book value of assets sold (420)
Cash from sale of the vehicle rental division 2,625
Cash paid to debentureholders (2,625)
------
Gain on the transaction $2,770
------
------
Pro forma gain per share $0.21
The pro forma gain on the Proposed Sale cannot be seperately
calculated from the pro forma gain on the Exchange Offer as the
additional note payable pf $1,050 may be issuable to either the
Debentureholders or to Dollar depending on various factors not
determinable until the Proposed Sale and Exchange Offer are
finalized. The pro forma effect of the issuances of common stock
is based on the material value of such stock of $0.18 per share
as quoted on NASDAQ.
(c) - Common stock issued to Dollar is classified as redeemable common
stock because Dollar has the right to put its common stock to the
Company in the event the Company is no longer subject to the
reporting requirements of the Securities and Exchange Commission
Act of 1934.
(d) - Unless Dollar shall have declared a breach of the obligations
secured by the South Seas stock pledge within one year after the
Closing, the South Seas stock pledge shall terminate, subject
to a tolling on the occurrence of certain bankruptcy events. In
addition, the pledge and security interest in the South Seas
stock, to the extent securing obligations to Dollar accruing
after May 1, 1995 (including obligations accruing under the
Master Lease Agreement), shall be perfected for obligations
accruing through the earlier of Closing or termination of
the Settlement Agreement and such security interest shall
lapse at Closing. The pledge and security interest in the
South Seas stock, to the extent securing the Company's
obligations under the Net Worth Note, shall terminate upon
the earlier of (i) the effective date of the confirmation of
the Prepackaged Plan or (ii) ten (10) days following the
successful completion of the Exchange Offer. See -- "TERMS OF
THE PROPOSED SALE; Pledge of Stock of South Seas".
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1995
The Company reported a consolidated net loss of $460,840 or
$.006 per share for the third quarter of 1995, compared to net income of
$580,118 or $.007 per share for the same quarter last year. For
38
<PAGE>
the nine months ended September 30, 1995, the Company reported a net loss of
$2,438,453 or $0.30 per share, compared to net income of $1,094,102 or $0.13
per share for the same period last year.
Operating revenues from the Company's vehicle rental division for
the three months ended September 30, 1995, totaled $13,316,356, a decrease of
10.46% from revenues of $14,871,537 for the third quarter of 1994. The
decrease in revenue for the quarter resulted from lower rental day volume
compared to the same period in 1994, continuing a decline that also affected the
first and second quarters. Rental division operating revenues totaled
$37,851,906 for the nine month period ended September 30, 1995, versus
$42,056,236 for the corresponding period in 1994. Although the reduction
in unit volume affected most of the Company's markets, the sharpest declines
were in the Company's business generated through reservations from Dollar
on the U.S. mainland, and from the local impulse market. The Company continued
to make progress in increasing its average daily rental yield, however, the
increase of approximately 6.4% in third quarter yield was not sufficient to
offset lower unit volume.
Total direct fleet holding costs, which include lease payments,
depreciation, interest, car sales and other fleet expenses (freight, dealer
profit and license) increased by 8% for the third quarter of 1995 compared to
the same period in 1994, based on an average fleet size 18% lower than in 1994,
reflecting the continuing significant increase in holding costs on a per unit
basis.
Other operating costs and expenses, including personnel, occupancy and
other direct operating costs were down by almost $930,000 for the three
months ended September 30, 1995 compared to the same period in 1994.
Legal and accounting expense for the three months ended September 30, 1995
were $554,208 as compared to $188,846 in the same period last year, primarily
due to expenses incurred for the Proposed Sale.
The Company's vehicle sales operations generated revenues of
$34,258,179 and $11,560,818 for the nine months and three months ended
September 30, 1995, as compared with $30,917,012 and $9,983,088 for the same
periods in 1994. The increase in revenues from vehicle sales reflects price
increases on new vehicles sales and higher sales of used vehicles. Operating
expenses related to the Company's vehicle sales division increased from
prior year levels in proportion to the revenue increases.
RESULTS OF OPERATIONS - THREE YEARS ENDED DECEMBER 31, 1994
CONSOLIDATED RESULTS
The Company reported a consolidated net loss of $1,427,000 or
$.18 per share for the year ended December 31, 1994, as compared with a
consolidated net loss of $804,000 or $.09 per share in 1993 and a consolidated
net loss of $2,105,000 or $.23 per share in 1992. The 1992 results reflect
the Company increasing its insurance reserve as a result of an increase in
claims experience under its self-insurance program and losses related to
Hurricane Iniki.
VEHICLE RENTAL DIVISION OPERATING RESULTS
The Company reported an operating loss for its vehicle division
of $382,000 for the year ended December 31, 1994. The Company realized
operating income of $189,000 and incurred an operating loss of $1,336,000 for
the years ended December 31, 1993 and 1992, respectively.
Increased fleet holding costs and uncharacteristically low rental
volume primarily during November and December were the significant factors
contributing to the Company's loss for 1994. Rental day volume during the
fourth quarter decreased 8.4% when compared to the same period in 1993; total
rental volume per day during 1994 decreased 4.3% from 1993 volume.
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Reduced volume can be attributed to two factors; first, increased
competition for high volume wholesale accounts from corporate owned car rental
companies and, second, reduced advertising nationwide by Dollar limited the
potential of the Company to increase the cumulative impact of its retail rental
volume from consumers and travel agents. Although the Company was able to
maintain annual revenue levels when compared to 1993 by marginally increasing
its average daily yield, yield increases were not substantial enough to offset
increased fleet holding costs.
Fleet holding costs for 1994 increased $1,382,000. This increase was
solely due to increased vehicle fleet cost and not increased fleet size as
the Company reduced the annual average size of its rental fleet from 5,774
for 1993 to 5,505 during 1994. Increases in the prime interest rate from
6% to 8.5% during 1994 negatively impacted fleet holding costs as interest
charges on all of the Company's leased fleet and a majority of its financed
fleet float with the prime rate. In addition, during the fourth quarter of
1994, the Company revised two estimates related to fleet holding cost.
First, the Company reduced its estimated holding period related to a leased
vehicle's period of service as a result of decreased rental volume, as
vehicles were returned at an average of one month earlier than originally
planned. This change reduced the total in-service retention credits
estimated to be earned ratably over a leased vehicle's period of service.
Secondly, the Company incurred higher reconditioning costs during the fourth
quarter and therefore, increased its estimate related to future vehicle
reconditioning costs. These changes resulted in additional fleet holding
costs of $856,000 during the fourth quarter. At December 31, 1994, the
Company's rental vehicle fleet, not all of which were on rent at that date,
aggregated 5,228. At December 31, 1993 and 1992 the fleet totaled 6,623
and 7,002, respectively.
In 1994, Dollar provided the Company with certain financial assistance
pursuant to the terms of the 1994 Assistance Agreement. Under the 1994
Assistance Agreement, Dollar, among other concessions, reduced the license
fees payable by the Company to Dollar in 1994 which resulted in a savings of
approximately $488,000. The Company also received approximately $868,000 in
additional fleet allowances and $518,000 in freight credits, which were
subsequently awarded to offset added shipping costs associated with returning
vehicles to mainland auctions.
Operating income in 1993 resulted mainly from the Company increasing its
average daily rental yield to offset increased fleet holding costs primarily
resulting from increases in the various domestic automobile manufacturers'
repurchase and leasing programs. In addition, fleet insurance expense
decreased significantly from 1992 as claims experience in 1993 improved. The
1992 operating loss reflects increased fleet holding costs in 1992 model year
vehicles and increases to the Company's reserve for potential bodily injury
claims and the settlement estimates for known claims.
Operating results for all three years exclude income taxes and interest
expense related to the Debentures, both of which are absorbed wholly by the
vehicle rental division, and interest expense related to mortgage financing.
Operating results in 1993 and 1992 exclude the losses incurred from the
uninsured damage to the Company's Kauai rental fleet caused by Hurricane
Iniki.
VEHICLE SALES OPERATING RESULTS
The Company's vehicle sales subsidiary reported operating income of
$67,000 in 1994, $470,000 in 1993, and $523,000 in 1992. Overall new car
unit sales for 1994 decreased by 15.8% from 1993. Chrysler's lack of production
and restrictive distribution guidelines during 1994 limited the availability of
Chrysler vehicle inventory at both of the Company's dealerships. This reduced
sales inventory significantly impaired South Seas' ability to maximize revenue
and profitability as Chrysler new car sales for 1994 decreased by approximately
one-third from 1993. Although Hyundai unit sales increased in 1994, this
increase did not offset the significant decrease in Chrysler unit sales because
the revenue and gross profits generated from Hyundai unit sales are less than
those generated from Chrysler unit sales.
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During 1993, the Company absorbed a $574,000 loss from its Kaneohe
vehicle dealership. This loss includes $137,000 which was incurred upon
closure of the dealership and is classified as a non-operating expense. The
Company closed this satellite dealership in December 1993 when it was unable
to acquire a new car franchise for that location and determined that
profitable operations solely as a used car dealership were not possible.
Unit sales volume during 1993 increased by 52.6% at the remaining two
dealerships when compared to 1992. Through September 1992, the Company
operated only one vehicle dealership and one satellite location.
VEHICLE RENTAL DIVISION REVENUES
The Company's vehicle rental division reported revenues of $54,126,000
for the year ended December 31, 1994 compared to $54,163,000 in revenues
recorded in 1993. Total vehicle rental days in 1994 were lower than 1993 by
4.3%. Vehicle rental days during the fourth quarter of 1994 were down 8.4%
from the same period in 1993, which is significant considering fleet levels
were raised in anticipation of increased holiday business. Furthermore, the
Company was unable to offset its loss of certain high volume wholesale
accounts with a future increase in its retail rental volume mainly due to the
temporary reductions and realignment in Dollar's advertising strategy during
1994. Although volume decreased, the Company was able to marginally increase
its average yield per day for the year and generate comparable revenues to
1993 on lower rental day volume.
The Company achieved higher revenues in 1993 when compared to 1992
resulting mainly from overall increased daily rental pries because vehicle
rental days decreased by 5.4% from 1992 levels as the tourist economy in
Hawaii continued to suffer in 1993.
VEHICLE SALES REVENUES
The Company's car sales subsidiary reported revenues of $39,699,000
for the year ended December 31, 1994, a 9.8% decrease from the $43,988,000 in
revenues recorded during 1993. Total new car sales decreased by 15.8% from 1993
levels. Chrysler new car sales alone decreased 33.7% mainly due to the lack of
inventory resulting from product allocation restrictions instituted by Chrysler.
Although SSJE sold approximately 160 more new Hyundai vehicles during 1994 as
compared to 1993, the price of new Hyundai cars are significantly less than
Chrysler cars. Consequently, the revenue from the increased Hyundai sales did
not make up for the decreased Chrysler sales. Based on discussions with
Chrysler and inventory shipments received during the first six months of 1995,
management does not anticipate experiencing similar Chrysler inventory shortages
during 1995.
The Company's increased revenues in 1993 over 1992 are a direct
result of higher sales volume. During most of 1993, the Company operated two
full service vehicle dealerships and one satellite dealership, as compared to
the one dealership and one satellite location through September 1992. Excluding
the revenue generated by the Kaneohe dealership which closed during 1993, this
division's revenues would have still increased $7,703,000 or 24.4%.
VEHICLE RENTAL DIVISION OPERATING EXPENSES
During 1993, eligibility requirements to obtain rental fleet under
certain domestic automobile manufacturer repurchase programs for 1994 model
year vehicles were significantly revised. The Company could no longer rely
on Ford and GM as its primary source of rental fleet vehicles. As a result,
the Company leased approximately 4,000 vehicles for its 1994 rental fleet
through Dollar. Holding costs under the lease program offered by Dollar were
higher than holding costs under the Ford and GM repurchase programs. To
remain competitive with other car rental companies in the Hawaii market, the
Company obtained certain concessions from Dollar in the 1994 Assistance
Agreement which reduced some of the fleet
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holding costs. Despite such concessions, lease rates and vehicle
reconditioning expenses (which are included in depreciation expense), still
increased the Company's direct fleet holding cost from 1993. Direct fleet
holding costs include lease payments, depreciation, fleet interest, and other
fleet expenses (freight, dealer profit, and license) and totaled $21,997,000
in 1994 as compared to $20,615,000 in 1993. (Depreciation expense includes
the rental vehicles' depreciation, realized and unrealized gains or losses on
"risk" sales or manufacturer turnbacks, and amortized fleet rebates and
allowances). Over the past three years, the Company's annual fleet size
averaged 5,505, 5,774 and 5,688 units for 1994, 1993 and 1992,
respectively,
The Company incurred a charge of $350,000 in 1994 related to a four
year old claim settled in 1995. The Company opted to settle this case and
mitigate further damages due to unfavorable rulings in similar cases which
were decided during the latter portion of 1994. The Company originally set a
reserve for this claim at statutory limits of $50,000.
The Company's borrowing rate during 1994 increased in conjunction with
the national prime rate. Interest expense related to leased vehicles is not
reported separately as monthly lease rates charged are inclusive of interest,
however for every 1% increase in the prime rate, lease rates increased by an
average of $15 per vehicle. Any interest charges related to the leased
vehicles are included in a rental fleet lease expense and offset the
$2,000,000 decrease in interest on fleet debt which is a direct result of
replacing repurchase program cars with leased vehicles. The decrease in
interest expense on the Company's rental fleet during 1993 reflected the
initial transition of replacing repurchase program cars with leased vehicles.
LIQUIDITY AND CAPITAL RESOURCES
The absence of an increase in the Company's rental vehicle
revenue and substantially higher lease payments on Chrysler vehicles, versus
principal and interest payments on repurchase program vehicles, adversely
impacted the Company's operating cash flow during 1994. Furthermore, the
Company's cash flow was negatively affected by cash downpayments required to
purchase rental fleet vehicles and increased loan amortization percentages
required by financing entities to satisfy collateral requirements related to
vehicle financing.
As a result of its cash flow situation, the Company evaluated and
initiated several cost-cutting measures during March 1995, the most significant
being labor reductions which are estimated to result in savings of approximately
$600,000.
SIGNIFICANT TRANSACTIONS
During 1994, the Company obtained the 1994 Assistance Agreement.
Pursuant to the terms of the agreement: Dollar (i) reduced the fees payable
under the License Agreement for the period from January 1, 1994 to December 31,
1994; (ii) waived and discharged any obligation for certain fees owed under the
License Agreement prior to January 1, 1994; (iii) increased certain incentive
credits, rebates and fleet allowances under the lease program; and (iv)
advanced the Company $1,400,000 to be used by the Company exclusively to pay
amounts owed to Dollar under its 1994 lease program.
The Company paid interest on the advance at a floating rate equal
to the prime rate plus 1.5%. Principal reductions of this debt were made by way
of an assignment of incentive credits and fleet allowances owed by Dollar to the
Company. As of December 31, 1994, approximately $513,000 remained outstanding
to Dollar.
In consideration for the bond, the Company was required to: (i)
indemnify Dollar and certain of its affiliates in connection with the issuance
of the bond; (ii) assign to Dollar its receivable from the sale of the
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asian rights under the License Agreement; (iii) assign to Dollar its interest
in the License Agreement; and (iv) grant to Dollar a junior mortgage of its
leasehold interest in its SSJE and OCJ locations.
The Company received substantial economic benefits under certain
assistance agreements and commitments from Dollar which attempted to (i) provide
parity with other Dollar licenses located in the U.S. mainland and (ii) make the
Company competitive with the "corporate store" rental companies doing business
in Hawaii. Unfortunately due to many factors, including but not limited to the
Company's geographic location and financial condition, that such assistance has
not made the Company profitable and the Company will need future financial
assistance, notwithstanding management's implementation of various cost-cutting
programs and shifts in customer base and mix. Although Dollar assisted the
Company in remedying some of its cash flow problems during 1994, no such
assistance is available in 1995.
VEHICLE RENTAL DIVISION
As a part of the 1994 Assistance Agreement, Dollar advanced
$1,400,000 to the Company. This advance was partially repaid through
competitive credits earned by the Company during the year and approximately
$513,000 remained outstanding at December 31, 1994.
Furthermore, pursuant to the 1994 Assistance Agreement, Chrysler
Insurance Co. (an affiliate of Dollar) renewed a previously posted $3,400,000
surety bond with the Insurance Department of the State of Hawaii on behalf of
the Company to satisfy the Company's self insurance requirements. The Company
indemnified Dollar and certain of its affiliates in connection with the issuance
of the bond. To secure the Company's indemnification of those parties, the
Company: (i) assigned to Dollar its receivable from the sale of the Asian
franchise rights; (ii) assigned to Dollar its interest in its License Agreement;
and (iii) granted to Dollar a junior mortgage covering the Company's leasehold
interest in its SSJE and OCJ locations.
As of February 1995, the Company enrolled with a commercial
insurance carrier to handle all future property and casualty claims. Since the
Company is no longer self insured, additional surety bonds will no longer be
required for the State of Hawaii.
Over the past two years, the Company completely replaced its
computer systems for car rental reservations and accounting with an advance
rental counter computer software system developed jointly with a software
development company. The system is fully operational at all rental locations.
Lease financing covered most of the related expenditures and as of December 31,
1994, the Company had outstanding $656,000 of capital lease financing.
As of December 31, 1994, the Division had $661,000 of outstanding
mortgage debt related to its baseyard facilities on Oahu and Kauai. Under the
most restrictive covenant of the Kauai loan agreement, the Company is required
to maintain a defined debt to net worth ratio. As of December 31, 1994, the
Company was not in compliance with this covenant, but has obtained a written
waiver from the bank regarding such non-compliance. In addition, $176,000
remains outstanding as of December 31, 1994 from a U.S. Small Business
Administration loan received during 1993 which was used to finance capital
improvements necessary to repair damages suffered from Hurricane Iniki.
The losses sustained by Hurricane Iniki in 1992 continued to be
mitigated by recoveries from renters who had not purchased loss damage waivers.
Claims in excess of $610,000 were filed by the Company against those renters
who had declined the loss damage waiver. The estimate of collectible
receivables for such claims recorded in late 1992 was $519,000. At December 31,
1994, $20,000 remains outstanding which the Company expects to collect.
VEHICLE SALES
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During 1993, the Company completed expansion of two service
facilities at its dealerships located in Nimitz Highway and at the Waipahu
Industrial Park. The Company expects these facilities to be profitable based on
the capacity to service large numbers of vehicles. These projects were financed
solely through working capital generated by the vehicle sales operations. As of
December 31, 1994, South Seas had $574,000 of outstanding mortgage debt related
to OCJ.
In March 1992, the Company's South Seas subsidiary entered into
a lease of approximately 55,000 square feet of property in the Waipahu
Industrial park. The lease, for which the Company paid a lease premium of
$450,000, expires in 2021. The Company invested a total of $958,000, of which
$800,000 was financed by the Bank of Hawaii, to acquire this leasehold and
upgrade the facility to a full service operation. The Company renovated the
building located at this site and moved its Waipahu Jeep Eagle operations during
August 1992. During 1992, Chrysler granted South Seas a Chrysler Plymouth
franchise which complemented its existing Jeep Eagle operations at this
location.
South Seas leased approximately 28,300 and 8,500 square feet of
property in Kaneohe on the island of Oahu. The Company closed the dealership in
December 1993. The leases expire in 2003 and 1998, respectively. The Company
has assigned the leases for both properties without losses on these assignments.
South Seas' various loan agreements prohibit the payment of
dividends or other distributions to the Company.
FINANCING
The Company's primary source of capital to finance the purchase
of its rental fleet has traditionally been through borrowings from manufacturer
financing affiliates, banks and other lenders.
During 1994, the Company obtained a $15,000,000 line of credit
with Finova to finance the purchase of 700 Hyundai vehicles under a guaranteed
depreciation program ("GDP"). Under the GDP the manufacturer guarantees the
maximum depreciation amount that any of its vehicles will incur over a stated
period, resulting in a fixed residual value when sold. The Company also
financed approximately 600 leased vehicles purchased from the 1994 Dollar
Systems Leasing Program under this line of credit. The Company received various
credit incentives and allowances to purchase these vehicles and reclassify these
vehicles to "risk". The Company intends to dispose of these vehicles by mid-
1996. As of December 31, 1994, the Company had $14,700,000 outstanding under
this line. Under the most restrictive covenants contained in the Finova loan
agreement in effect as of December 31, 1994, the Company was required to
maintain a defined minimum consolidated net worth and minimum debt service
coverage ratio. The Company was not in compliance with certain of these
covenants at December 31, 1994, but has obtained a written waiver from Finova
regarding such non-compliance. In addition, the Company is negotiating with
Finova to attempt to compromise the most recently due principal payment of
$225,000 in respect of this indebtedness and the Company has received a
verbal indication from Finova of its willingness to waive this principal
payment.
During 1994, the Company obtained various lines of credit with
the Bank of Hawaii totalling $19,984,000. The Company principally used these
amounts to extend financing on portions of its fleet to coincide with
manufacturer repurchase program deadlines and to obtain both repurchase program
and "risk" vehicles from domestic (Ford) and foreign (Hyundai) manufacturers.
As of December 31, 1994, the Company had $7,792,000 outstanding under these
lines.
Under the most restrictive covenants contained in one of the
Bank of Hawaii agreements in effect as of December 31, 1994, the Company was
required to maintain a defined (i) minimum consolidated net worth; (ii) minimum
working capital; (iii) minimum interest coverage ratio; and (iv) minimum cash
flow coverage. The Company was not in compliance with certain of these
covenants at December 31, 1994. However, as of March 23, 1995, the Company had
decreased its outstanding balance under these lines to approximately $1,700,000.
In addition, as part of its fleet plan for 1995, certain of the vehicles
securing these
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were disposed of prior to July 1995, resulting in a balance under these lines
as of September 30, 1995 of approximately $108,000. The Company anticipates
that the proceeds from the disposal of these vehicles will cover the amount
outstanding under the lines of credit. Consequently, the Company does not
expect the Bank of Hawaii to declare it in default for noncompliance with
these covenants, nor does it expect its operations or financial condition to
be materially affected by such noncompliance.
Prior to 1994, the Company purchased substantially all of its
rental vehicles from either GM or Ford and financed these vehicles with General
Motors Acceptance Corp. ("GMAC"), Ford Motor Credit Company ("FMCC"), and the
Bank of Hawaii. The Company is maintaining its credit lines with GMAC and FMCC
in the amounts of $20,000,000 and $7,500,000, respectively, of which
$8,863,000 and $8,622,000 were outstanding under each respective line of
credit at December 31, 1994. FMCC allowed the Company to exceed its credit line
limit during 1994.
Vehicles are financed for terms ranging from six months to two
years and require monthly debt service ranging from 1% to 3% of the original
principal amount or refinanced balance. The vehicles subject to repurchase
programs are held an average of eight to ten months. The Company holds the
vehicles not subject to repurchase anywhere from six to twenty-four months. Of
the Company's $48,034,000 of senior debt as of December 31, 1994,
approximately $39,977,000 represented debt relating to rental vehicle financing
compared with $37,803,000 at December 31, 1993. Although the overall size of
the Company's rental fleet has decreased, a larger number of vehicles in the
fleet as of December 31, 1994 are being financed. The Company's payments with
respect to the repurchase program vehicles are limited to the payments falling
due during the intended holding period, except with respect to those vehicles
that are purchased as "risk" vehicles or vehicles that become "risk" as a
result of rejection under the repurchase programs.
As eligibility for fleet allocations under Ford and GM repurchase
programs become more restrictive, it became necessary for the Company to lease
the majority of this 1994 model year rental fleet from Dollar. The Company
obtained approval from Dollar to lease approximately 4,000 1994 Chrysler
vehicles for its rental fleet under the 1994 Dollar Fleet Leasing Program. The
Company's average service life for these vehicles was approximately twelve and a
half months. As of December 31, 1994, approximately 1,900 vehicles in the
Company's rental fleet were being leased under the 1994 lease program. The
Company received approval to place orders with Dollar under the 1995 Dollar
Fleet Leasing Program ("1995 Lease Program") for approximately 4,300 vehicles to
satisfy its 1995 rental fleet requirements. As of December 31, 1994, the
Company received approximately 600 of these ordered vehicles.
As of December 31, 1994, approximately 59% of the Company's
vehicles were subject to repurchase programs or were leased, compared with 79%
and 82% as of December 31, 1993 and 1992, respectively.
Pursuant to the terms of the 1994 Assistance Agreement between
the Company and Dollar, Dollar agreed to advance the Company $1,400,000 by
permitting the Company to reduce certain monthly lease payments which would
otherwise be due to Dollar under the 1994 lease program. The Company paid
interest on the advance at a floating rate equal to the prime rate plus 1.5%.
The terms of the agreement required monthly payments of interest only, with
principal payments made by way of an assignment by the Company to Dollar of the
incentive credits and fleet allowances owed by Dollar to the Company under the
1994 lease program.
The Company's competitors are also subject to increased fleet
expenses which have caused an increase in vehicle rental rates in Hawaii.
However, there is no assurance that the Company will be successful in obtaining
increased rates from its customers to cover its entire fleet price increase. An
inability to recover all of the increasing costs would have an adverse effect on
the Company's operations.
During 1993, GM offered the Company various credit incentives and
allowances to reclassify certain repurchase program vehicles to "risk" vehicles.
The Company is required to hold these vehicles for either a
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minimum of 20,000 miles or 12 months from the original purchase date. The
Company sold the majority of these vehicles as of December 31, 1994 and
intended to dispose of the remaining vehicles during the three quarters of
1995.
In 1992, the Company purchased 1992 model year subcompact
vehicles outside the repurchase programs because these vehicles were unavailable
in sufficient quantities under the programs. These vehicles were sold to the
Company and included rebates consistent with the GM Long Term Risk Program. In
addition, the Company also received certain freight concessions related to these
vehicles. In 1993, the Company was successful in disposing of these vehicles
and recorded a gain of approximately $300,000. None of these vehicles remain in
the rental fleet as of December 31, 1994.
New vehicle inventory purchased for sale by South Seas is
purchased under a $13,500,000 line of credit with Chrysler Credit Corporation.
These vehicles are typically financed until the conclusion of the following
model year. As of September 30, 1995, December 31, 1994 and December 31,
1993, outstanding balances under these lines totaled $7,132,000, $4,402,000
and $7,851,000, respectively.
ENVIRONMENTAL MATTERS
The Company has seven underground and one above ground petroleum
product storage tanks and one underground waste oil storage tank on its
properties. The Company is subject to the federal and state laws governing the
ownership and operation of these storage tanks. These laws require the Company
to test periodically the integrity of these tanks and to mitigate and remediate
the environmental effects of any releases of products from the storage tanks.
In 1993, the Company was advised of a petroleum leak at the
baseyard location for vehicle rental operations on the island of Oahu. A Phase
I environmental assessment indicated that the soil and groundwater in certain
portions of the baseyard had been materially impacted by the leakage of waste
oil and petroleum products. The Company then initiated a Phase II environmental
assessment to determine the extent of the petroleum and waste oil contamination.
The Phase II assessment, together with the closure and removal of the waste oil
storage tank was completed in 1994. During 1993, the Company recorded a reserve
of $150,000 for the estimated future cost of the remedial efforts at the
baseyard location. As of December 31, 1994, $49,000 remains in the reserve
which the Company feels is adequate based on projections provided by the
Company's environmental consultants.
During November 1994, the Company received several citations from
the United States Environmental Protection Agency (EPA) relating to one of its
baseyard locations on the island of Hawaii. The most significant comment cited
the Company for not performing certain acceptable leak and precision tightness
procedures as part of its annual testing. The Company's environmental
consultants who performed the tank test clarified the necessary procedures with
the EPA and are working with the Company to ensure that proper testing
procedures are performed for all of the Company's tanks. No leaks or
contamination were discovered during the testing by the environmental
consultants.
On June 15, 1995, the Company received a notice of violation from
the U.S. Environmental Protection Agency ("USEPA") for several non-conformance
issues relating to its Kauai facility. These violations have been corrected and
the Company has received written confirmation of the corrective steps it has
taken from the USEPA. In addition, the Company and Dollar discovered in the
course of the due diligence conducted by Dollar's environmental advisors ground
contamination at its Molokai facility which the Company has been advised by its
environmental advisors could require remediation costs estimated to be between
$50,000 and $100,000. If the Transactions occur, Dollar will assume this
liability.
APPLICATION OF FINANCIAL ACCOUNTING STANDARDS NO. 109
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Statement of Financial Accounting Standards No. 109 ("FAS 109"),
Accounting for Income Taxes, was issued by the Financial Accounting Standards
Board ("FASB") in February 1992. FAS 109 changes the Company's method of
accounting for income taxes from the deferred method (APB 11) to an asset and
liability approach. The asset and liability approach requires the recognition
of deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between the carrying amounts and tax bases of assets
and liabilities.
The Company adopted FAS 109 in January 1993. The adoption of FAS
109 did not result in an adjustment to the consolidated financial statements for
the cumulative effect of a change in accounting for income taxes. Temporary
differences resulting in deferred tax liabilities principally include rental
fleet and related incentives. Temporary differences resulting in deferred tax
assets include loss carryforwards, self insurance and fleet reserves, and bad
debt reserves. A valuation allowance for the net deferred tax asset was
established because of the uncertainty as to the Company's ability to generate
future taxable income of an amount to ensure its recoverability.
APPLICATION OF FINANCIAL ACCOUNTING STANDARDS NO. 121
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 ("FAS 121"), Accounting for the Impairment of Long-Lived
Assets, which requires that an entity review potential impairment when events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Management believes the adoption of FAS 121 will not
have a material effect on the financial statements reflected in this Proxy
Statement.
INFLATION
The Company has experienced the impact of inflation on operating
and occupancy costs. Most of the Company's leases require the Company to pay
taxes, maintenance, insurance, repairs and utility costs, all of which are
subject to inflationary pressures. The Company has negotiated rate increases
indexed to the consumer price index with certain of its major wholesale
customers, and generally seeks to increase rental rates during periods of rising
costs.
THE COMPANY
HAWAII ECONOMY AND TOURISM INDUSTRY
Hawaii's year-round tropical climate and scenic resources support
a tourism industry that attracted over 6.4 million tourists in 1994, an increase
of 5% in the number of visitors from 1993, reversing a decline over the three
years prior to 1994. The Hawaii Visitors Bureau ("HVB") reports that Hawaii had
approximately 71,000 hotel rooms and condominium rental units as of December
31, 1994. In 1994, the average daily census of visitors in the State of Hawaii
was approximately 158,000, aggregate annual visitor expenditures were estimated
at $10.4 billion and the average length of stay of visitors was 8.9 days.
Hawaii is served by many domestic and international air carriers,
as well as a growing number of charter flights which added approximately 500,000
available seats during 1994. Hawaii also has three established interisland
airlines. According to the Honolulu International Airport statistician,
Hawaii's air carriers handled over 23 million enplaned and deplaned passengers
during 1994, with an estimated 13.2 million interisland and 9.8 million overseas
and transit passengers. Although availability of airlift to Hawaii is cited by
some observers as a limiting factor, in the long run air seat capacity is mainly
a function of market demand. Hawaii remains the most popular destination for
airline frequent flyer program awards.
The Company's passenger vehicle rental operation follows the
general trend of the tourism industry with demand peaking during holiday periods
and the summer months. Revenues from passenger vehicle rentals are affected by
variables including general economic conditions, availability and pricing of
scheduled and chartered airlift, competition from other destinations and
vacation experiences such as cruise lines and gaming, the amount and
effectiveness of industry-wide advertising and promotional efforts vis-a-vis
consumers and the travel agency distribution system, and the overall pricing and
value of the Hawaii vacation product.
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The City and County of Honolulu, Motor Vehicle Division, reports
that during 1994 approximately 799,000 passenger motor vehicles were registered
in the State of Hawaii of which approximately 69% were registered on the island
of Oahu. According to the Hawaii Automobile Dealers' Association, new car and
truck sales were approximately 83,000 units in 1994.
PASSENGER VEHICLE RENTAL OPERATIONS
The Company conducts its passenger vehicle rental operations at
14 customer service locations on the islands of Oahu, Maui, Kauai, Hawaii and
Molokai in the State of Hawaii, which include terminal concession locations in
the major airports on each island. The Company is also represented by an
independent agent on the island of Lanai. See "Properties".
The Company maintains a fleet of passenger vehicles consisting of
compact, mid-size and full-size passenger vehicles, convertibles and minivans.
Over the past several years the Company has operated vehicles in its rental
fleet manufactured by all of the major domestic manufacturers and has no
exclusive automobile purchasing relationships, although the majority of the
Company's fleet for model years 1994 and 1995 have been Chrysler products.
Additionally during 1994, the Company purchased vehicles from Hyundai Motor
America ("Hyundai").
For several years prior to 1994, GM and Ford were the Company's
primary suppliers of rental fleet vehicles. The Company purchased nearly all of
its rental fleet under these companies' respective repurchase programs, whereby
vehicles purchased under these programs were subject to repurchase by the
manufacturer at pre-determined prices, depending on the vehicles' length of
service and condition at the time of return ("Repurchase Programs"). During
1993, Ford and GM reduced the overall number of 1994 model year fleet vehicles
allocated to the car rental industry and significantly revised the eligibility
requirements to obtain rental fleet under Repurchase Programs. The Company
could no longer rely on Ford and GM for rental fleet vehicles which made it
necessary for the Company to obtain an alternate primary source for its 1994
rental fleet vehicles. As a result, during the last half of 1993 and throughout
1994, the Company leased the majority of its 1994 model year vehicles from
Dollar, which is a second-tier subsidiary of Chrysler. Dollar continues to be
the Company's primary supplier of rental vehicles in 1995. Under Dollar's Fleet
Leasing Program ("Lease Program"), lessees are responsible for returning
vehicles to specified auctions on the U.S. mainland and are charged for
applicable vehicle reconditioning costs, transportation charges, and mileage
penalties. The Company's fleet holding cost per vehicle under the Lease Program
is significantly higher than that under the Repurchase Programs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Significant Transactions.
During the year, the Company entered into a fleet relationship
with Hyundai. The Company purchased vehicles on both a "risk" basis, whereby
the Company assumes responsibility for vehicle disposal, and a GDP, whereby the
manufacturer guarantees a maximum depreciation amount that any of its vehicles
will incur over a stated period which fixes a vehicle's residual value when
sold.
Although there is no assurance that such fleet programs will
continue, certain manufacturers have indicated that they expect similar programs
to continue for the 1996 model year, despite cutbacks in the number of vehicles
allocated to rental car companies under the 1995 model year programs.
In addition to purchasing risk vehicles, the Company reclassifies
portions of its non-risk rental fleet to risk resulting from either vehicles
being rejected upon return to the manufacturer or credits and incentives offered
by manufacturers to reclassify certain vehicle models. During 1994, the
Company reclassified approximately 600 of its 1994 leased fleet to risk and
received various credit incentives and allowances which minimized the carrying
costs of the vehicles. In the prior year, the Company reclassified certain 1992
and 1993 model year GM Repurchase Program vehicles. The Company received
certain incentive credits and fleet allowances in return for reclassifying these
vehicles under the GM Long Term Risk Program. The
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Company operated these GM vehicles as part of its 1994 rental fleet and sold
a majority of these vehicles throughout the year. In 1992, the Company also
purchased subcompact vehicles under the Risk Program because these vehicles
were not made available in sufficient quantities under manufacturers'
repurchase programs. These vehicles were sold to the Company and included
rebates consistent with the Risk Program and included certain freight
concessions. The Company has been able to profitably dispose of its "risk"
vehicle fleet. See "Rental Vehicle Disposition".
The Company's rental vehicles, not all of which were on rent at
the respective dates, totaled 5,228, 6,623, and 7,002 at December 31, 1994,
1993, and 1992, respectively. The size of the Company's total fleet, however,
varies during the course of each year, depending primarily upon demand factors
and fleet considerations.
RENTAL VEHICLE DISPOSITION
Both the Lease and Repurchase Programs charge the Company for a
portion of the transportation of the rental vehicles back to the U.S. mainland
for sale. In addition, vehicle reconditioning charges are assessed in order to
get the vehicles into saleable condition, and to a lesser extent mileage
penalties are also assessed. GM and Ford repurchase all eligible model vehicles
at an amount equal to the dealer cost, less the depreciation, freight,
reconditioning, and mileage charges per vehicle. For the 1994 model year Dollar
received the leased vehicles at designated auctions and subsequently charged the
Company for a portion of freight expenses, reconditioning costs, and mileage
penalties.
Certain manufacturers have informed the Company that they expect
Repurchase and Lease Programs to continue, although the holding cost of rental
vehicles purchased under the program may increase and the number of vehicles
offered under the programs may continue to decrease. Although the Repurchase
Programs currently in effect provide the Company with an insufficient quantity
of rental fleet vehicles, the Company believes Dollar's Lease Programs will be
available to satisfy the Company's future rental fleet needs.
Disposal of risk rental vehicles is the responsibility of the
Company. During the year the Company profitably disposed of the remaining
subcompact vehicles purchased in 1992 and the majority of the GM vehicles
purchased in 1993.
AUTOMOBILE DEALERSHIPS
On October 30, 1987, the Company acquired Cutter Jeep Renault,
Inc., a Jeep Eagle dealership in Hawaii. The Company combined certain existing
operations of Cutter Jeep Renault into a full-service car and truck dealership.
The subsidiary's name was subsequently changed from Cutter Jeep Renault, Inc. to
South Seas Motors, Inc. South Seas operates two locations on the island of
Oahu, SSJE and OCJ.
The Company leases a 62,000 square foot property at the corner
of Nimitz Highway and Lagoon Drive near Honolulu International Airport for its
SSJE automobile dealership. The lease expires in December 2002. During 1993,
the Company subleased an 8,400 square foot property across the street from its
SSJE dealership location and completed expansion of its service facility for
this dealership. The sublease expires in December 2002. Management anticipates
negotiating for renewal on a timely basis.
During 1993, South Seas completed expansion of two service
facilities at its dealerships located on Nimitz Highway and in Waipahu
Industrial Park. The Company expects these facilities to be increasingly
profitable over time based on the capacity to service large numbers of vehicles
as business at both locations matures. South Seas financed these projects
solely through working capital generated by its vehicle sales
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operations. As of December 31, 1994, South Seas had $574,000 of outstanding
mortgage debt related to SSJE.
In March 1992, South Seas entered into a lease of approximately
55,000 square feet of property in the Waipahu Industrial Park for OCJ. The
lease, for which South Seas paid a lease premium of $450,000, expires in 2021.
South Seas invested a total of $958,000, of which $800,000 was financed by the
Bank of Hawaii, to acquire this leasehold and upgrade the facility to a full
service operation. South Seas renovated the building located at the Waipahu
Industrial Park and moved its Waipahu Jeep Eagle operations during August 1992.
During 1992, Chrysler granted South Seas a Chrysler Plymouth franchise which
complemented its existing Jeep Eagle operations at this location.
South Seas leased approximately 28,300 and 8,500 square feet of
property in Kaneohe on the island of Oahu. South Seas closed the dealership in
Kaneohe in December 1993. The leases expire in 2003 and 1998, respectively.
South Seas assigned the leases for both properties without losses on these
assignments.
During 1994, combined sales at SSJE and OCJ averaged
approximately 81 new vehicles and 130 used vehicles per month. In 1993,
combined retail sales at SSJE and OCJ averaged approximately 97 new vehicles and
160 used vehicles per month. The decrease in 1994 was mainly due to the limited
availability of new Chrysler inventory during 1994 and the closure of a separate
used car dealership in Kaneohe. For the first six months of 1995, combined
retail sales at SSJE and OCJ averaged approximately 90 new vehicles and 157 used
vehicles per month.
The Company's car sales divisions reported revenues of
$39,698,728 for the year ended December 31, 1994, a 9.8% decrease from the
$43,987,934 in revenues recorded during 1993. Total new car sales decreased by
14.4% from 1993 levels. Chrysler new car sales alone decreased 33.7% mainly due
to the lack of inventory resulting from product allocation restrictions
instituted by Chrysler and shortages on most high-demand models. Although
SSJE's location sold approximately 160 more new Hyundai vehicles during 1994 as
compared to 1993, the prices of new Hyundai cars are significantly less than
Chrysler cars. Consequently the revenue from the increased Hyundai sales did
not make up for the decreased Chrysler sales.
Inventory shipments on certain models began to increase during
the first six months of 1995, and management does not anticipate experiencing
similar Chrysler inventory shortages during the rest of 1995.
South Seas' increased revenues in 1993 over 1992 were a direct
result of higher sales volume. During most of 1993, South Seas operated two
full service vehicle dealership plus the Kaneohe temporary used-car facility, as
compared to the prior year with one full service dealership and the satellite
location in Waipahu, which was being developed through September 1992.
Excluding the revenue generated by the Kaneohe dealership which closed in 1993,
the division's revenue would have still increased $7,703,000 or 24.4%.
The Company's vehicle sales divisions generated revenues of
$34,258,179 for the nine months ended September 30, 1995, as compared with
$30,917,012 for the same period in 1994. Unit sales for the first half of 1995
were 2,216, compared to 2,474 in the prior year. New car sales for the nine
month period were 773 in 1995 versus 1,277 in 1994, and used car sales
increased to 1,443 from 1,197 in 1994.
For the first nine months of 1995, operating income was $258,428.
The Company's vehicle sales locations generated operating income of $67,000 in
1994, $470,000 in 1993, and $523,000 in 1992.
Chrysler's lack of production and its restrictive distribution
guidelines negatively impacted the Company's dealerships during 1994 by reducing
sales inventories. This reduced sales inventory significantly impaired the
dealerships' ability to maximize revenue and profitability as Chrysler new car
sales for 1994,
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this increase did not offset the significant decrease in Chrysler unit sales
because the revenue and gross profits generated from Hyundai unit sales are
less then those generated from Chrysler unit sales.
During 1993 the Company absorbed a $574,000 loss from its
Kaneohe vehicle dealership. This loss included $137,000 which was incurred
upon closure of the dealership and was classified as a non-operating expense.
The Company closed this satellite dealership in December 1993 when it was unable
to acquire a new car franchise for Kaneohe and determined that operating that
location solely as a used car dealership would result in continuing losses.
Unit sales volume during 1993 increased by 52.6% at the remaining two
dealerships when compared to 1992.
SSJE and OCJ are maturing dealerships and will exhibit gradual
but significant changes in their business mix and profitability over the next
two to five years. Management anticipates improvement in the dealerships'
Customer Satisfaction Index ("CSI"), resulting from increased management
attention, intensified training and expanded service facilities resulting in
increased customer referrals and repeat business, as well as lowering
advertising costs relative to sales volume. Management also anticipates
continued growth of service, parts and warranty business at both dealerships.
This is a function of past sales, the construction and expansion of parts and
service facilities, and increases in sales volume. The contribution from
service, parts and warranty departments will help to stabilize revenue and
profitability over time. Gross profit in these departments increased from
$1,128,103 in 1993 to $1,661,241 in 1994.
Planned introduction of leasing would add another revenue segment
without any material increase in overhead. Leasing has grown significantly and
has become a major factor in the new car business and management anticipates
that leasing could represent up to 10% of dealership revenues by the end of
1995.
Although the overall economic outlook for the State of Hawaii is
basically flat for the near-term (2-4 years), there are several factors that
support a forecast for continued moderate growth at the Company's existing
dealerships. At SSJE, sales to military personnel comprise a significant
portion of sales volume, and the outlook for continued and even expanded
military presence on leeward Oahu (including Pearl Harbor, Hickam Air Field,
Schofield Barracks, etc.) is favorable.
The outlook for interest rates, as they may affect car sales and
related economic activity in Hawaii, appears reasonable. Chryslers' product
line is vastly improved, and the new minivan line, Chrysler's flagship, has been
very well received and all indications are that Chrysler products will continue
to control the dominant share of the lucrative minivan market. Chrysler has
also updated the Jeep Grand Cherokee and Jeep Wrangler which had enjoyed very
good customer acceptance.
The Hyundai product line has also been completely re-engineered
since 1994. As the only Hyundai dealer on Oahu and the leading dealer
statewide, SSJE is in the best position to take advantage of these new products
and the extensive national advertising undertaken by Hyundai Motor America.
To capitalize on these opportunities, the Company's management
will devote attention to maximizing sustained profitability at the Company's
dealerships. Even though the dealerships represented about 50% of the Company's
total revenues in the first half of 1995, the crisis at the Division has been
the primary focus of the Company's attention.
The first element of growth will be to focus on increased
revenues and profit at the two existing Oahu locations, as described above.
Management believes that the conditions for success are already in place
including expanded facilities, upgraded customer service, improved sales
management, and stronger financial planning and controls.
From this base, management intends to seek opportunities to profit from
the well-documented consolidation that is occurring in the automobile
dealership industry. Over the past decade, many dealerships have either
closed or been acquired by stronger management groups. Historically, the auto
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manufacturers have granted new-car franchises to individual dealers, many of
which have passed from generation to generation, but not all of which have
been able to adapt successfully to the up to date management approaches
required today.
The Company's operations and its capital base are most likely to
arise in "secondary" markets on the U.S. mainland. The Company's management has
been successful in identifying and securing three prime dealership locations in
Hawaii and has established dealerships at two of these locations; however the
Company was not able to secure a new car franchise for the third site, at
Kaneohe on windward Oahu. Therefore the Company will systematically review
other dealership acquisition opportunities as they arise, through factory and
personal contacts. Management's philosophy will be to continue to groom
dealership managers so that they will be qualified and motivated to become
equity partners in acquired dealerships. Acquisitions may be made with a
combination of cash, earn-out financing and stock.
FLEET FINANCING
The Company finances its rental vehicles through Dollar's leases,
commercial financing sources, and the financing affiliates of GM and Ford.
During 1994, a significant portion of the Company's rental fleet was leased
through Dollar. South Seas and OCJ finance their new car inventory under
$13,500,000 in lines of credit with Chrysler Credit Corporation. These loans
bear interest at a floating rate equal to the prime rate plus 1%. Interest only
is payable, with final maturity with respect to loans relating to vehicles of a
particular model year occurring in August of the following year. The Company
had outstanding as of September 30, 1995, December 31, 1994 and 1993,
$7,132,000, $4,402,000 and $7,851,000, respectively, of financing under these
lines of credit. South Seas and OCJ presently sell most retail paper to
Chrysler Credit and Bank of Hawaii.
The Company's interest rate on its fleet debt, for the most part,
fluctuates with the "prime lending rate". Prime rate fluctuations affect
monthly lease rates under the Lease Program. As such, the Company's fleet
holding cost is very sensitive to major changes in interest rates.
RENTAL VEHICLE LEASING
Pursuant to terms of the Master Lease Agreement, Dollar agreed to
lease to the Company vehicles for its rental fleet in accordance with the fleet
mix requirements of its Lease Program. The Company leased approximately 4000
1994 model year Chrysler vehicles under the Lease Program and approximately
4,000 1995 model year Chryslers for its 1995 fleet. The elements of the Lease
Program offer delivery of the vehicles in Hawaii, incentive credits, rebates,
fleet allowances and return of the vehicle contingent upon the condition of the
vehicles when returned and whether the Company has held the vehicles for a
specified minimum holding period.
The Company's fleet holding cost per vehicle under the Lease
Program is significantly higher than that under the Repurchase Programs. During
1994 and in 1995, the Company secured certain assistance from Dollar to reduce
the Company's fleet holding costs; however, the Company believes it is still
incurring higher fleet holding costs relative to its competitors net fleet
holding costs. There is no assurance that the Company will be able to obtain
assistance from Dollar in future years. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Significant
Transactions."
As of December 31, 1994, 1,900 vehicles in the Company's rental
vehicle fleet were leased from Dollar.
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COMMERCIAL FLEET FINANCING
As of December 31, 1994, the Company maintained various lines of
credit with the Bank of Hawaii (the "Bank") which provided up to $19,984,000 in
financing for its rental fleet vehicles. These credit lines were used for
vehicles subject to manufacturer repurchase, vehicles purchased outside the
repurchase programs ("risk vehicles"), and vehicles rejected upon turn back by
the Company to the manufacturer. These loans bear interest at a floating rate
equal to the prime rate plus 1% to 2.75%. Loans relating to vehicles subject to
manufacturer repurchase are amortized at monthly rates ranging from 2% to 3% of
the wholesale invoice cost of the financed vehicles. Loans relating to risk
vehicles or relating to vehicles rejected upon turn back by the Company to the
manufacturer are amortized in monthly installments equal to 3% of the wholesale
invoice cost or refinanced balance. As of December 31, 1994 and 1993,
$7,792,000 and $10,934,000, respectively, were outstanding with the Bank.
Under the most restrictive covenants contained in one of the
agreements in effect as of December 31, 1994, the Company was required to
maintain a defined (i) minimum consolidated net worth; (ii) minimum working
capital; (iii) minimum interest coverage ratio; and (iv) minimum cash flow
coverage. The Company was not in compliance with certain of these covenants at
December 31, 1994. However, as of September 30, 1995, the Company had
decreased its outstanding balance under these credit lines to approximately
$104,000 and the Company anticipates this balance to be paid off in the next
several months. In addition, as part of its fleet plan for 1995, certain of
the vehicles securing two of these credit lines were disposed of prior to
July 1995 and the balance of such vehicles are scheduled for disposal over
the next several months. The Company anticipates that the proceeds from the
disposal of these vehicles will cover the amount outstanding under the related
lines of credit. Consequently, the Company does not expect the Bank to
declare it in default for noncompliance with these covenants, nor does it
expect its operations or financial condition to be materially affected by
such noncompliance.
During 1994, the Company obtained a $15,000,000 line of credit
with Finova to finance the Lease Program. These loans bear interest at a
floating rate equal to the prime rate plus 1.75%. Loans relating to vehicles
subject to the GDP are amortized at the monthly rate of 3% of the invoice cost
of the financed vehicles. Loans relating to risk vehicles are amortized in
monthly installments equal to 2.5% to 3% of the invoiced cost. As of December
31, 1994, the Company had $14,700,000 outstanding under this line.
Under the most restrictive covenants contained in the Finova loan
agreement in effect as of December 31, 1994, the Company was required to
maintain a defined minimum consolidated net worth and a minimum debt service
coverage ratio. The Company was not in compliance with certain of these
covenants at December 31, 1994, but had obtained a written waiver from Finova
regarding such non-compliance. As of September 30, 1995, the Company had
$6,632,000 outstanding under the Finova loan agreement and still was not
in compliance with certain of these covenants. At present no waiver is
continuing in existence for these defaults. The Company is negotiating
with Finova regarding these defaults and anticipates reaching a compromise
prior to the Closing. The Company has requested and has received a verbal
commitment from Finova to forgive one principal payment of $225,000 in order
to assist the Company in meeting its minimum net worth requirement.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Financing."
MANUFACTURER AFFILIATE FLEET FINANCING
The Company receives its manufacturer affiliate financing for its
rental vehicle fleet through General Motors Acceptance Corporation ("GMAC'), an
affiliate of GM and Ford Motor Credit Company ("FMCC"), an affiliate of Ford.
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Pursuant to the terms of the loan agreement dated January 9,
1990, as amended for 1994, between the Company and GMAC, GMAC has agreed to
make loans under revolving credit notes based upon the value of the vehicles
purchased, to a maximum of $20,000,000. These loans bear interest at a floating
rate equal to the prime rate plus 0.75% to 2%, and are due and payable in 15 to
24 months after the vehicles are placed in service. Loans relating to vehicles
subject to manufacturer repurchase are amortized at monthly rates ranging from
1% to 1.6% of the wholesale invoice cost of the financed vehicles. Loans
relating to vehicles not subject to manufacturer repurchase or relating to
vehicles not accepted for repurchase are amortized in monthly installments equal
to 2.5% of the wholesale invoice cost or refinanced balance. As of December 31,
1994 and 1993, $8,863,000 and $17,741,000 were outstanding under the
agreement with GMAC. As of September 30, 1995, $392,000 was outstanding
under the agreement with GMAC. Currently, the line with GMAC has expired
and Dollar has agreed as a part of the Proposed Sale to assume the outstanding
balance of approximately $100,000.
The agreement with GMAC contains negative covenants restricting
the Company's ability to, among other things, (i) incur liens, security
interests or encumbrances with respect to any vehicles; (ii) declare any
dividend or make any distribution to shareholders; (iii) merge or consolidate
with any other company or dispose of all or substantially all of its assets; or
(iv) acquire all or substantially all of the assets of another company.
Pursuant to the terms of the Promissory Note dated December 23,
1983, as amended, from the Company to FMCC, FMCC agreed to make loans under
security agreements based upon the value of the vehicles purchased, to a maximum
of $7,500,000. These loans bear interest at a fixed rate equal to the prune
rate in effect when the borrowing occurs plus 1% to 1.5%, and are due and
payable 13 months after the vehicles are placed in service. Loans are amortized
at rates ranging from 1.3% to 2.3% of the wholesale invoice cost of the financed
vehicles. As of December 31, 1994 and 1993, $8,622,000 and $9,127,000 were
outstanding under the agreement with FMCC. As of September 30, 1995, $221,000
was outstanding under the agreement with FMCC.
The agreement with FMCC contains negative covenants restricting
the Company's ability to, among other things, (i) guaranty the debt of others
and (ii) merge or consolidate with any other company or dispose of all or a
substantial portion of its assets. In addition, the agreement with FMCC
requires the Company to maintain a specific debt to tangible net worth. As of
September 30, 1995, the Company was not in compliance with certain of the
covenants under the agreement with FMCC. Therefore, the Company does not
believe that there would be any additional availability under this facility.
Based upon the restrictive eligibility requirements imposed by GM
and Ford which resulted in decreased rental fleet allocations for the Company,
present financing needs required of both GMAC and FMCC are expected to be
minimal. The Company has maintained favorable relationships with these entities
in the past and expects to continue any financing agreements as necessary;
however no assurance can be given that such agreements will be available. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financing".
AUTOMOBILE DEALERSHIP FINANCING
South Seas and OCJ finance their new car inventory under lines of
credit having aggregate availability of $13,500,000 with Chrysler Credit
Corporation. These loans bear interest at a floating rate equal to the prime
rate plus 1%. Interest only is payable, with final maturity with respect to
loans relating to vehicles of a particular model year occurring in August of the
following year. SSJE and OCJ collectively had outstanding as of December 31,
1994 and 1993, $4,402,000 and $7,851,000, respectively, of financing under
these lines of credit. As of September 30, 1995, SSJE and OCJ collectively
had approximately $7,132,000 outstanding under these lines of credit. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financing".
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OTHER FINANCING
Over the past two years, the Company completely replaced its
computer systems for car rental reservations and accounting with an advanced
rental customer computer software system developed jointly with a software
development company. The system is fully operational at all rental locations.
Lease financing covered most of the related expenditures and as of December 31,
1994, the Company had outstanding $656,000 of capital lease financing.
Payments of $18,000 are made monthly, with the leases maturing in 1998.
The Company, South Seas and OCJ collectively had outstanding as of
December 31, 1994, $1,370,000 of mortgage loans owed to the Bank for the
Company's baseyard facility on Oahu, and the dealership for SSJE and the
facility for OCJ. Aggregate principal and interest payments for this
mortgage loans of $29,500 are made monthly, with the mortgage loans maturing
from June 1995 through February 1998. As of September 30, 1995, the Company
had an outstanding balance of approximately $162,000 under the mortgage loan
for its baseyard facility on Oahu, SSJE had an outstanding balance of
approximately $562,000 under the mortgage loan for its dealership and OCJ
had an outstanding balance of approximately $504,000 under the mortgage loan
for its facility. The Company, SSJE and OCJ were not in compliance with
certain of the covenants under these loans. The Company has received an
extension until November 30, 1995 on the matured loans for the baseyard
facility. OCJ has received an extension until November 30, 1995 on the
matured loans for its facility. The Company has been notified by the Bank
that it will extend its mortgage bank debt related to the SSJE dealership
which would have otherwise matured on November 30, 1995 in return for an
increase in the applicable interest rate to prime plus 3.5% per annum. The
Bank has advised the Company that the increase is designed to motivate the
Company to seek alternative sources of refinancing for this indebtedness.
The Company is pursuing such alternatives. Other future credit arrangements
will be reviewed by the Company in light of the capital needs of the Company
and South Seas.
The Company had outstanding as of September 30, 1995, $386,000 of
mortgage debt owed to First Hawaiian Bank ("First Hawaiian") for its baseyard
facility in Kauai. Principal is amortized on a monthly basis with payments
of $13,500 per month through October 1998. Under the most restrictive
covenant of the related loan agreement, the Company is required to maintain a
defined debt to net worth ratio. As of December 31, 1994, the Company was
not in compliance with this covenant, but had obtained a written waiver from
First Hawaiian regarding such non-compliance and as of September 30, 1995,
the Company continued not to be in compliance with certain of the covenants
thereunder. These financing obligations will be assumed by Dollar as part of
consummation of the Proposed Sale and will not be retained by the Company if
the Proposed Sale is consummated.
During 1993, the Company received a $500,000 loan from the
United States Small Business Administration to cover losses resulting from
Hurricane Iniki during September, 1992. The loan, which bears interest at the
rate of 6%, is being amortized through October 1995 with total interest and
principal payments of $17,000 per month. As of September 30, 1995, $25,000 of
principal for this loan remained outstanding and the Company was not in
compliance with certain of the covenants thereunder.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Financing."
LICENSE
The Company became the exclusive licensee of Dollar for the State
of Hawaii pursuant to a license agreement dated April 3, 1974. In 1990, Dollar
became a wholly-owned subsidiary of Pentastar Corporation, which is a wholly-
owned subsidiary of Chrysler Corporation.
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In 1988, Dollar granted the Company license rights in Japan, The
Peoples' Republic of China, South Korea, Hong Kong, Taiwan, Guam and other South
and Western Pacific territories and countries ("Asian rights"). However the
majority of these Asian rights were repurchased by Dollar in 1991. The balance
of these rights were assigned to Dollar as part of the 1994 Assistance
Agreement.
The License was modified pursuant to the terms of the 1994
Assistance Agreement, whereby Dollar Systems reduced the license fees payable by
the Company to Dollar System during 1994 and also procured a Bond on behalf of
the Company to satisfy the Company's self-insurance requirements. In connection
with the issuance of the Bond, the Company assigned Dollar its receivable from
the sale of the Asian rights as part of the collateral for the self-insurance
surety Bond with the State of Hawaii. See "Dollar", "Insurance" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
The License grants to the Company the right to conduct its
"vehicle renting business" under the name Dollar Rent A Car and similar names.
The License relates to the short-term rental of motor trucks, trailers and
passenger vehicles. Pursuant to the License, Dollar provides the Company with
necessary support and certain marketing and reservation assistance.
Specifically, the Company benefits from Dollar's available resources and
facilities, and Dollar's worldwide reservation system, advertising, publicity,
public relations, sales promotion, and certain promotional materials.
The License does not have a fixed term. The Company, however,
does have the right to terminate the License at any time by giving 60 days prior
written notice to Dollar. Dollar may terminate the License if the Company
defaults in the performance of its obligations under the License and fails to
cure its defaults within the period of time provided under the License. The
License provides that it will terminate automatically if the Company attempts to
assign its interest under the License without consent. In the event of
termination, the License requires the Company to assign to Dollar, upon their
request, all of its airport contracts, concessions, leases and other
arrangements pertaining to the use of real estate, and provides that Dollar
shall thereafter have the right to conduct vehicle rental operations at all such
locations for its own benefit, or to designate another licensee. Such
termination would also prohibit the Company from using all trade names,
trademarks, signs, advertising, promotional materials and similar items of
identification associated with Dollar. Any such termination would, of course,
have a material adverse effect upon the Company and its operations.
The License also affords Dollar certain rights of approval
concerning members of management of the Company. In the event of the
termination of employment of Alan M. Robin, Chairman, President and Chief
Executive Officer of the Company, the License provides that the Company shall
within 90 days give Dollar written notice of the identity and qualifications of
the person to be designated as Chief Executive Officer of the Company, subject
to the consent of Dollar, which consent shall not unreasonably be withheld. In
the event Dollar reasonably determines that the person identified in such notice
is not qualified, Dollar shall within 30 days notify the Company that it has
elected to withhold its consent, and must specify in reasonable detail all
deficiencies in the qualifications of such person upon which it has relied in
making such determination. The License further provides that the procedure set
forth above shall be repeated until the Company and Dollar have reached an
agreement concerning the identity of the person to be designated as Chief
Executive Officer of the Company.
The Company pays Dollar a license fee which consists of a
percentage of revenues adjusted for certain allowances and offsets. In
addition, the Company pays for reservations made through Dollar's worldwide
reservation system.
Upon consummation of the Proposed Sale, Dollar will terminate the
License and the Company will have no further obligations or rights with respect
thereto.
56
<PAGE>
INSURANCE
From April 1, 1987 through February 5, 1995, the Company was
self-insured in the State of Hawaii with respect to statutory no-fault and auto
liability claims up to $500,000 per occurrence resulting from accidents
involving its rental vehicles. Claims were adjusted using Company employee
adjusters, supervised by a Company employed licensed adjuster who also serves as
the Company's risk manager. During February 1995, the Company elected to
enroll with a commercial insurance carrier to cover all future statutory no-
fault and auto liability claims. Under this policy, the Company maintains
coverage for claims up to $500,000 per occurrence with a $25,000 deductible.
The Company is self-insured for the amount of claims in excess of $500,000 per
occurrence.
In addition to the liability the Company may have for its own
negligence, the Company also has liability to a renter of vehicles in Hawaii
based upon the "no-fault" doctrine and to others based upon the "third party
liability" doctrine. Under the no-fault doctrine, the Company's liability to
renters, their passengers and pedestrians (including those on cycles or mopeds)
is limited to $20,000 per person for medical expenses and wage losses. With
respect to third party liability, the Company's liability is limited to $25,000
per injured claimant for bodily injury, and $10,000 property damage per
accident.
As of September 30, 1995, the Company's estimated reserve for self-
insurance liability was $1,443,713. The Company believes that this reserve is
adequate based upon historical information available. However, an increase in
the cost of self-insured claims could adversely affect the Company's financial
condition and results of operations. See note 7 of the Notes to Consolidated
Financial Statements of the Company.
As a self insured entity, the Company was required to post a
surety bond or cash collateral with the Insurance Department of the State of
Hawaii to maintain its self insurance certificate. As part of the 1994
Assistance Agreement Dollar procured the extension of a previously posted
$3,400,000 bond (the "Bond") on behalf of the Company to meet these
requirements. The Company is required to indemnify Dollar and certain of its
affiliates in connection with the Bond. To secure the Company's indemnification
of those parties, the Company: (i) assigned to Dollar its receivable from the
sale of the Asian rights, (ii) assigned to Dollar its interest in the License,
and (iii) granted to Dollar a junior mortgage covering the Company's leasehold
interest in its SSJE and OCJ locations. See "Dollar" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources".
MARKETING AND CUSTOMERS
The Company's passenger vehicle rental customers consist principally of
tourists, convention visitors and other group travelers, business people, and
local residents. Vehicle rental bookings are made through travel industry
distribution channels including retail agents and wholesale travel marketers
such as tour operators, hotel chains, condominium management companies,
airlines and ground operators as well as by walk-up customers at airport and
in-town locations.
The Company has focused much of its marketing efforts on
developing marketing partnerships and contractual relationships with wholesale
tour operators, hotels and airlines that provide pre-packaged travel
arrangements to consumers through independent travel agents. Pre-packaged
travel arrangements comprised approximately 50% of the Company's vehicle rentals
in 1994, 1993 and 1992. Typically, such contracts are for a term of one to
five years at net wholesale rates that reflect the Company's savings in
marketing, advertising, and retail commission expense. These contracts provide
tour operators the flexibility to include car rentals with air, hotel and other
travel arrangements.
The Company has an agreement with Pleasant Travel Service, a California
corporation doing business as Pleasant Hawaiian Holidays ("Pleasant"),
pursuant to which the Company has agreed to provide passenger rental vehicles
to Pleasant's customers at special rates. Pleasant has agreed to use the
Company
57
<PAGE>
for up to 475,000 vehicle rental days annually in connection with its
published and advertised Hawaii tour packages that include the rental of a
vehicle. Pleasant has been, and continues to be, a major tour operator in
Hawaii. Pleasant currently makes travel arrangements for approximately
20,000 tourists to Hawaii per month. The agreement with Pleasant extends
through December 15, 2002, is renewable and may be terminated by either party
without cause upon one year's notice and by Pleasant upon 90 days notice if
the Company defaults in the performance of its obligations and fails to cure
the default within a 30-day period following receipt of a notice of such
default. Pleasant is not required to use the Company as its exclusive rental
car supplier. Pleasant has indicated that due to its increased business
volume, up to 15% of Pleasant's car rental volume may be assigned to a
supplemental provider commencing February 1, 1996.
During 1994, 1993 and 1992 revenues generated under the agreement
with Pleasant were approximately $8,390,000, $5,183,000, and $5,815,000,
respectively, exclusive of charges to individual renters for loss damage
waivers, gasoline and upgrades. These amounts represented approximately
15.5%, 9.6%, and 11.5% of the Company's vehicle rental revenued in those
years, respectively. The increase in 1994 is attributable to Pleasant's
startup of scheduled air service from the west coast operated by American
Trans Air ("ATA"). ATA provided Pleasant with approximately 200,000
available air seats to Hawaii pursuant to a multi-year agreement. There can
be no assurance, however, that the Company will continue to realize sales
volume at this level from the Pleasant arrangement, or that if such revenues
are realized, that they will generate profits.
In order to obtain maximum benefits from these sources, the Company has
begun to devote additional manpower and data processing resources to monitor
these sources and adjust rates more frequently to compete in these markets.
By implementing yield management systems and exercising greater control over
inventory allocation and price movements, management expects continued
improvement in fleet utilization and prices. Due to higher fleet related
costs and reduced availability of inventory, the Company's marketing efforts
during 1994 emphasized increasing rates and yield and greater selectivity in
acquiring and assigning inventory to travel industry accounts.
The Company pays commissions to travel agencies on this retail business
at competitive commission levels, generally based on volume. The Company
also pays the Licensor a fee for each reservation received.
The Company receives certain marketing support from the Licensor.
The Company also conducts limited consumer and travel trade advertising
throughout the State of Hawaii, on the U. S. mainland and in Japan. The Company
also participates in model year advertising programs funded by Chrysler. Such
programs support both the Company's direct promotional efforts, as well as
cooperative advertising programs with certain wholesale customers both within
and outside the State of Hawaii. The Company contracts with a general sales
agency for sales support in Japan.
COMPETITION
The vehicle rental industry in the State of Hawaii is highly
competitive. The vehicle rental companies as a group compete with bus tours,
mini-bus tours and public transportation. All of the major national companies,
including Hertz, Avis, National, Budget and Alamo, operate in Hawaii, as well as
various independently owned vehicle rental businesses. The major competitors of
the Company each have substantially greater resources than the Company and,
unlike the Company, are neither licensees nor franchisees. These competitors
have the ability to provide additional resources to their Hawaii operations and
to subsidize their Hawaii operations with funds generated from other locations.
The Company's vehicle sales operations compete with other new and used
car dealerships on the island of Oahu. The Company competes with two other
Jeep Eagle dealerships, one other Chrysler Plymouth dealership and many other
new car dealerships that sell vehicles manufactured by other domestic
58
<PAGE>
and foreign manufacturers. Certain dealers have greater resources, hold
multiple dealerships and are therefore able to devote more advertising
dollars to their dealership operations.
EMPLOYEES
As of December 31, 1994, the Company had approximately 453 full
and part time employees, of which 104 were employed at South Seas. The Company
has no collective bargaining obligations or agreements and management considers
relations with its employees to be generally good.
GOVERNMENT REGULATION
The vehicle rental and sales industries in Hawaii are subject to
federal, state, and local government regulations generally applicable to bus and
vehicle owners, including those relating to licensing and safety of vehicles,
the sale of loss damage waivers, new and used vehicle sales, and environmental
protection.
The Company's counter spaces and operational facilities at the
Honolulu International Airport are leased from the Department of Airport
Properties, a division of the State Department of Transportation. The Company's
counter spaces and operational facilities at other airports are leased from the
respective airport authorities in the counties of Kauai, Maui and Hawaii. (See
THE COMPANY; Properties.)
The Company has seven underground and one above ground petroleum
product storage tanks and one underground waste oil storage tank on its
properties. The Company is subject to the federal and state laws governing the
ownership and operation of these storage tanks. These laws require the Company
to test periodically the integrity of these tanks and to mitigate or remedy the
environmental effects of any releases of products from the storage tanks. In
1993, the Company was advised of a petroleum leak at the baseyard location for
vehicle rental operations on the island of Oahu. The closure and removal of the
waste oil storage tank was completed in 1994. The Company has recorded adequate
reserves in anticipation of any further remedial efforts at the baseyard
location.
During November 1994, the Company received several citations
from the United States Environmental Protection Agency (EPA) relating to one of
its baseyard locations on the island of Hawaii. The most significant comment
cited the Company for not performing certain acceptable leak and precision
tightness procedures as part of its annual testing. The Company's environmental
consultants who performed the tank test clarified the necessary procedures with
the EPA and are working with the Company to ensure that proper testing
procedures are performed for all of the Company's tanks. No leaks or
contamination were discovered during the testing by the environmental
consultants.
The Company does not expect to be materially affected by the
Americans With Disabilities Act because it has the ability to service disabled
persons from its "on airport" locations and these airports will be required to
be in compliance with that Act.
In 1992, certain legislation was enacted in the State of Hawaii
which has an impact on the Company's self insurance program. Under this
legislation, the Company's maximum insurance obligation with respect to No Fault
medical and wage loss payments was increased from $15,000 to $20,000 per
claimant. Bodily injury liability insurance provided to drivers of the
Company's vehicles was reduced from $35,000 per claimant to $25,000 per
claimant. In addition, the payment of medical expenses related to No Fault
coverage incurred after January 1, 1993 is subject to a fee schedule, which has
reduced the No Fault payments required by the Company by about 15% for 1993 as
compared to 1992. Under these laws, medical treatment is also subject to
frequency guidelines which should further reduce the Company's costs.
59
<PAGE>
During 1993 and 1994 no legislation was passed in the Hawaii
legislature which would result in significant additional costs for the Company
and its major competitors and eventually result in increases in the price that
vehicle rental companies charge their customers.
PROPERTIES
As of December 31, 1994, the Company operated from 14 customer
service locations on the islands of Oahu, Maui, Kauai, Hawaii and Molokai in the
State of Hawaii. The Company believes that its concessions, baseyards and other
facilities are adequate for its business operations for the next two to three
years. During 1994, the Company's fixed and minimum rent expense amounted to
$3,934,000. In addition, the Company paid percentage rent of $2,201,000. See
note 15 of the Notes to Consolidated Financial Statements of the Company.
OAHU PROPERTIES
The Company operates its airport counter spaces, baseyard, and
other facilities at the Honolulu International Airport under a concession with
the State of Hawaii which expires in February 1998. The concession provides the
Company with 15,000 square feet for its washing, fueling and maintenance area,
and 131 rental car parking spaces.
The Company also operates a baseyard facility on Oahu which it
leases from the State of Hawaii. The baseyard facility's permanent improvements
consist of office space, repair and maintenance facilities, fueling facilities,
and vehicle washing and parking space. The Company, along with the other car
rental companies which occupy similar baseyard facilities in the immediate area,
renewed its lease term through February 1998.
The Company's Waikiki rental operations are based at two
facilities. Its vehicle rental and storage facility is located in the Island
Colony Hotel, at which the Company has a lease expiring in October 1997. The
Company's other Waikiki facility, which the Company began leasing in March 1993,
includes vehicle return space, washing facilities and vehicle parking space.
The facility is operated on 26,400 square feet of property located on Kalakaua
Avenue. The original lease term expired in October 1995. The Company began
operating under a month to month lease effective November 1, 1995. The landlord
for this property is currently undergoing a reorganization pursuant to Chapter
11 of the Bankruptcy Code and the Company is negotiating with the debtor in
possession to obtain a month to month lease with a 120 day cancellation notice.
The Company has received no indication that it will be asked to vacate this
property.
The Company also operates vehicle rental counter space and
vehicle storage facilities at seven major Waikiki hotels.
The Company leases approximately 13,600 square feet of office
space which it uses for its corporate and reservation Operations. The lease was
renewed during 1994 and expires in July 2000.
The Company leases a 62,000 square foot property at the comer of
Nimitz Highway and Lagoon Drive near the Honolulu International Airport for its
SSJE automobile dealership. The lease was amended to expire in December 2002.
During 1993 the Company subleased a 8,400 square foot property across the of
its dealership location and completed expansion of its service facility for this
dealership. The sublease expires in December 2002. See "THE COMPANY -
Automobile Dealerships".
The Company leases approximately 55,000 square feet of property
in the Waipahu Industrial Park for its OCJ dealership. The lease expires in
March 2021. During 1992, the Company renovated the building
60
<PAGE>
located at this location and moved its Waipahu operations to the renovated
building. See "THE COMPANY - Automobile Dealerships".
The Company leased approximately 28,300 and 8,500 square feet
of property in Kaneohe which was previously used for its South Seas Motors
dealership, which was closed at the end of 1993. The leases expire in October
2003 and August 1998, respectively. During 1994 the Company assigned the
leases for each facility. See "THE COMPANY - Automobile Dealerships".
The Company also leases smaller facilities which are used for
service facilities for its OCJ and South Seas Motors dealerships. See "THE
COMPANY - Automobile Dealerships".
MAUI PROPERTIES
The Company has concessions from the State of Hawaii at the
Kahului, Maui airport for counter space and ready spaces, and a lease for a
fully equipped baseyard facility in Kahului. The concessions and baseyard
leases in Kahului expire in December 1998.
The Company leases a fully equipped baseyard at the Kaanapali
Transportation Center which expires in May 1997. The Company also operates
vehicle rental counter space and vehicle storage facilities at a major hotel
near the Kaanapali Resort.
During March 1994, the Company terminated its lease expiring in
July 2004 for a 31,000 square foot parcel in Kahului, at which the Company
previously operated a car sales lot. The Company did not incur a significant
expense associated with this termination and it completed settlement of all
claims in connection therewith in November 1994.
ISLAND OF HAWAII PROPERTIES
The Company has concessions from the State of Hawaii at the
airports located in Hilo and Kona for counter space and ready space. These
concessions expire in December 1998. The Company also leases baseyard
facilities in Hilo and Kona. The Hilo lease was renewed during the year and
expires in September 1999; the Kona lease expires in December 1998. At these
baseyards, the Company has office space, maintenance facilities, fueling
facilities, vehicle washing and parking.
KAUAI PROPERTIES
The Company has concessions from the State of Hawaii at the
airport located in Lihue for counter space and ready spaces and licenses a
three-acre parcel which the Company uses for its offices, baseyard and repair,
wash and fuel facilities. The concession and base yard leases expire in
December 1998.
LEASES WITH THE HAWAII DEPARTMENT OF TRANSPORTATION
The Company is currently in discussions with the Hawaii Department of
Transportation (the "DOT") regarding several lease issues. As of October 28,
1995, the Company had been billed approximately $2,200,000 in respect of its
leases with the DOT (excluding the quarterly aggregate rental payment in the
amount of approximately $576,000 due in November 1995). As part of its due
diligence in connections with requests from the Company for consents to the
Proposed Sale, the DOT discovered a parcel in Maui which has been used by the
Company but for which the Company had not been previously billed. The DOT
has indicated that it is seeking back rent of $20,000 per calendar quarter
from January 1, 1994 forward from the
61
<PAGE>
Company in respect of this property. The DOT is also presently engaged in
discussions with the major Hawaii rental car operators regarding proposed
increases in ground rents and operating rents owed by such companies. The
proposed rent increases, which the DOT is seeking to have retroactively
effective to January 1, 1994, could result in liabilities to the Company of
approximately $40,000 per quarter for its leases with DOT in Maui and
approximately $75,000 per quarter for its leases with DOT in Kona, Hawaii,
Molokai and Kauai. Dollar has indicated its support (subject to the Proposed
Sale closing) for the Company's made a proposal to DOT to pay $2,000,000 in
respect of the presently billed lease payments (which may include a
compromise of the unbilled lease payment of approximately $576,000) and in
October 1995 the DOT applied a $288,000 letter of credit to these billed
amounts. The DOT is being asked to accept these amounts in satisfaction of
the billed amounts and to agree not to pursue its claims with respect to the
newly discovered Maui property or the proposed rent increases for the period
preceding the closing of the Proposed Sale.
LEGAL PROCEEDINGS
Except for the Pending Cases, the Company is not a party to any
litigation which it believes will have a material adverse impact on its
operations. At September 30, 1995, the Company's reserve for the future
payment of claims and expenses incurred in connection with the Company's
self-insurance program was $1,443,713.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the Record Date, the
beneficial ownership of each person (including any "group" as that term is used
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) who is known by the Company to be the beneficial owner of more
than 5% of the Company's outstanding common Stock. Unless otherwise indicated,
each person listed has sole voting and investment power with respect to the
shares beneficially owned.
62
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares of Common Stock outstanding
Name and Address beneficially owned Common Stock (1)
- - ------------------------------------- ----------------------- ----------------
<S> <C> <C>
Alan M. Robin 816,932 10.1%
1600 Kapiolani Blvd., #825,
Honolulu, Hawaii 96814
Principal Mutual Life Insurance Company 1,605,253 (3) 19.9%
711 High Street
Des Moines, Iowa 50392-0001
Invista Capital Management, Inc. 1,605,253 (3) 19.9%
699 Walnut, 1500 Hub Tower
Des Moines, Iowa 50309
Franklin Resources, Inc. 597,272 (4) 7.4%
777 Mariners Island Boulevard
San Mateo, California 94403
Nick S. Cutter 1,086,350 (5) 13.4%
2865 Pukoloa Street
Honolulu, Hawaii 96819
All directors and executive officers 995,413 (1)(2) 12.3%
as a group (five (5) persons)
</TABLE>
(1) Includes 2,212 shares issuable upon conversion of the
Debentures.
(2) Includes options to purchase 80,000 shares which are presently
exercisable.
(3) Principal Mutual Life Insurance company and Invista Capital
Management, Inc. have shared voting power and shared dispositive
power with respect to these shares. Includes 130,000 shares
issuable upon conversion of the Debentures.
(4) Represents shares issuable upon conversion of $1,950,000
principal amount of the Debentures.
(5) includes 950,000 shares owned by Cutter Management Co., a
company of which Nick S. Cutter serves as President and director,
52,350 shares held by a pension plan controlled by Nick S.
Cutter, and 84,000 shares held by Gerald Cutter, the father of
Nick S. Cutter.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of the Record Date, the
beneficial ownership of the equity securities of the Company and of the
Debentures of each of the directors of the Company, each "named executive
officer" (as defined in Item 402(a)(3) of Regulation S-K promulgated by the
Securities Exchange Commission and the instructions thereto) of the Company and
all executive officers and directors of the Company as a group. Unless
otherwise indicated, the named person directly owns the securities listed and
exercises sole voting and investment power with respect thereto. Such table has
been prepared from information obtained from the respective officers and
directors.
63
<PAGE>
Name and Address Shares of Common Percentage of Face Amount
- - ------------------------ Stock outstanding of Debentures
beneficially owned Common Stock beneficially
------------------ (1) owned
Alan M. Robin (a) 816,932 10.1% None
Sirio Maggiacomo (a) 132,000 (1) 1.6% None
Scott H. Lang (a) 10,212 (2) * $73,000
Raymond I. Miyashiro (a) 400 * None
Paul J. Finazzo (a) None N.A. None
Rodney E. Gardiner (a) None N.A. None
J. George Hetherington (a) None N.A. None
Robert L. Solomon (a) None N.A. None
Richard Bauman (a) None N.A. None
Barbara Lau (a) None N.A. None
Stephen Robin (a) None N.A. None
Ronald Jones (a) None N.A. None
Robert Fishman (a) None N.A. None
All directors and 957,332 (1) 11.85% None
executive officers
as a group (thirteen
(13) persons)
*Less than 1%
(a) 1600 Kapiolani Blvd., #825, Honolulu, Hawaii 96814
(1) Includes options to purchase 80,000 shares which are presently
exercisable.
(2) Includes 2,212 shares issuable on conversion of Debentures held
by Mr. Lang.
DESCRIPTION OF COMMON STOCK
The Company's Common Stock consists of 50,000,000 authorized
shares, no par value, of which 8,079,800 shares are currently outstanding.
The Company's preferred stock consists of 5,000,000 authorized shares, no par
value, of which no such shares are currently outstanding.
PRICE RANGE OF SECURITIES
The Company's Common Stock is currently traded on the NASDAQ
Small-Cap Market under the symbol PISC. Prior to January 18, 1994 the Common
Stock was traded under the same symbol on the NASDAQ National Market System.
The Company participated in the NASDAQ Hearing to determine
64
<PAGE>
whether the Company's Common Stock would be delisted for failure to satisfy
minimum trading value and capital requirements of the NASDAQ. The Company
was advised on October 12, 1995 that the NASDAQ had granted an exception to
these requirements subject to certain conditions including that the Company
receive the approval of its shareholders for the Proposed Sale by October 31,
1995 and that the Proposed Sale be consummated by November 15, 1995. The
Company was subsequently notified by NASDAQ on November 8, 1995 that these
deadlines have been extended to November, 1995. The Company was subsequently
notified by NASDAQ on November 8, 1995 that these deadlines have been
extended to November 30, 1995.
The following sets forth, for the fiscal quarter indicated, the
high and low closing bid prices per share. The prices per share reflects the
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions:
<TABLE>
<CAPTION>
1995 High Low
---- ---
<S> <C> <C>
1st Quarter 7/8 13/32
2nd Quarter 9/16 5/16
3rd Quarter 7/16 1/8
1994 High Low
---- ---
1st Quarter 13/16 7/16
2nd Quarter 15/16 1/2
3rd Quarter 3/4 7/16
4th Quarter 3/4 3/8
1993 High Low
---- ---
1st Quarter 15/32 5/32
2nd Quarter 5/16 1/4
3rd Quarter 7/16 9/32
4th Quarter 7/8 9/32
</TABLE>
As of the Record Date, the Company had approximately 1,094 holders of
record of its Common Stock.
DIVIDENDS
The Company has never declared or paid a cash dividend on its
Common Stock and is currently prohibited from paying any dividends under the
terms of various loan agreements. See Note 4 of the Notes to Consolidated
Financial Statements of the Company. The Board of Directors does not anticipate
paying any cash dividends in the foreseeable future. Subject to restrictions
under various credit arrangements, future dividend policy will depend on a
number of factors, including future earnings, capital requirements, the
financial condition and prospects of the Company and such other factors as the
Board of Directors deems relevant.
65
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. The reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Regional Offices of the Commission at 7 World Trade Center, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material also can be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Copies of
the Prepackaged Plan and of the Exchange Offer, each to the extent prepared, and
copies of the Settlement Agreement, with all completed exhibits and schedules
attached, will be available for review or copying at the offices of the Company
shown on the cover of this Proxy Statement.
OTHER INFORMATION
Representatives of Price Waterhouse LLP, independent accountants
for the Company, are expected to attend the Special Meeting, will be afforded an
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions by shareholders.
The Board of Directors is not aware that any matters other than
those set forth herein and in the Notice of Special Meeting of Shareholders will
come before the meeting. Should any other matters requiring the vote of the
shareholders arise, it is intended that the proxies will be voted in respect
thereof in accordance with the best judgment of the person or persons voting the
proxy in the interest of the Company.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF PACIFIC INTERNATIONAL SERVICES CORP.
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994,
1993 AND 1992:
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993 F-3
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992 F-5
Consolidated Statements of Changes in Shareholders' Equity F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 F-8
Notes to Consolidated Financial Statements F-11
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Pacific International Services Corp.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of Pacific International Services
Corp. and its subsidiaries (the Company) at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1994, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standings which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As more fully described in Note 16, the Company was unable to consummate the
1995 Assistance Agreement with Dollar Systems, Inc. in May 1995 and, as a
consequence, incurred significantly higher rental fleet costs, freight charges
and miscellaneous system fees which negatively impacted operations and cash
flows. Further, the Company has incurred significant recurring operating losses
and negative cash flow, and is in default on its principal bank debt covenants.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regards to these matters are
described in Notes 1 and 16. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
Honolulu, Hawaii
March 28, 1995, except as to Note 16,
which is as of October 31, 1995
F-2
<PAGE>
F-3
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $831,952 $1,719,123
Receivables, net 10,023,512 11,079,476
Automobile dealership vehicle inventories 4,961,600 6,847,532
Inventories and prepaid expenses 899,453 1,214,633
Rental vehicles:
Cost 47,264,408 49,211,223
Accumulated depreciation and reserves (4,896,998) (7,862,333)
----------- -----------
42,367,410 41,348,890
----------- -----------
Furniture, equipment and leasehold
improvements:
Furniture and equipment 5,125,758 4,202,178
Leasehold improvements 7,747,054 6,937,956
----------- -----------
12,872,812 11,140,134
Accumulated depreciation and amortization (4,722,966) (3,621,547)
----------- -----------
8,149,846 7,518,587
----------- -----------
Other assets 2,038,462 2,164,248
----------- -----------
Total Assets $69,272,235 $71,892,489
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1993
---- ----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Accounts payable $5,744,507 $4,438,091
Accrued expenses and
other liabilities 8,152,270 9,123,241
Senior debt 48,034,463 49,562,701
Convertible subordinated
debentures 5,250,000 5,250,000
------------ ------------
Total liabilities 67,181,240 68,374,033
------------ ------------
Shareholders' equity:
Preferred stock with no
par value, authorized
15,000,000 shares,
none issued
Common Stock, stated
value $0.10 per share,
authorized 50,000,000
shares, issued and
outstanding 8,079,800 and
9,009,300 shares,
respectively 807,980 900,930
Additional paid-in capital 9,102,181 10,147,994
Accumulated deficit (7,819,166) (6,391,705)
------------ ------------
2,090,995 4,657,219
Subscriptions receivable - (1,138,763)
------------ ------------
Total shareholders' equity 2,090,995 3,518,456
------------ ------------
Commitments and
contingencies (Note 15) - -
Total liabilities and
shareholders' equity $69,272,235 $71,892,489
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operating revenues:
Vehicle rental $54,126,236 $54,163,237 $51,789,993
Vehicle sales 39,698,728 43,987,934 31,520,987
------------ ------------ ------------
Total operating
revenues 93,824,964 98,151,171 83,310,980
------------ ------------ ------------
Operating costs and
expenses:
Cost of vehicles sold 29,744,940 32,704,204 23,930,595
Personnel 14,276,815 14,275,370 12,295,739
Rental vehicle lease 11,131,821 2,262,915 112,666
Occupancy 8,750,824 8,468,984 7,460,174
Rental vehicle
depreciation 6,727,800 10,109,042 10,066,361
Interest on fleet debt 2,571,399 5,081,405 5,403,833
Other direct operating 13,403,338 16,817,951 17,338,963
Other selling,
general and
administrative 7,532,962 7,772,792 7,515,547
------------ ------------ ------------
Total operating
costs and
expenses 94,139,899 97,492,663 84,123,878
------------ ------------ ------------
Income (loss) from
operations (314,935) 658,508 (812,898)
Other income (expense):
Interest income 57,438 79,289 101,326
Other interest expense (898,246) (913,785) (772,496)
Other, net (271,718) (416,631) (620,434)
------------ ------------ ------------
Loss before income
taxes (1,427,461) (592,619) (2,104,502)
Provision for income
taxes - 211,443 -
------------ ------------ ------------
Net loss $(1,427,461) $(804,062) $(2,104,502)
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(continued)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Loss per common and
common equivalent
share:
Net loss $(0.18) $(0.09) $(0.23)
----------- ----------- ------------
----------- ----------- ------------
Weighted average number
of common shares
outstanding 8,079,800 9,009,300 9,009,300
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-in Accumulated Subscription
Shares Amount Capital Deficit Receivable Total
---------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1991 9,009,300 $900,930 $10,147,994 $(3,483,141) $(1,138,763) $ 6,427,020
Net loss -- -- -- (2,104,502) -- (2,104,502)
---------- -------- ----------- ----------- ----------- -----------
December 31, 1992 9,009,300 900,930 10,147,994 (5,587,643) (1,138,763) 4,322,518
Net loss -- -- -- (804,062) -- (804,062)
---------- -------- ----------- ----------- ----------- -----------
December 31, 1993 9,009,300 900,930 10,147,994 (6,391,705) (1,138,763) 3,518,456
Subscriptions
canceled (929,500) (92,950) (1,045,813) -- 1,138,763 --
Net loss -- -- -- (1,427,461) -- (1,427,461)
---------- -------- ----------- ----------- ----------- -----------
December 31, 1994 $8,079,800 $807,980 $9,102,181 $(7,819,166) -- $2,090,995
---------- -------- ----------- ----------- ----------- -----------
---------- -------- ----------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-8
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
1994 1993 1992
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,427,461) $(804,062) $(2,104,502)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Gain from involuntary conversion -- -- (169,000)
Loss on closure of automobile dealership -- 136,720 --
(Gain) loss on sale of rental vehicles (265,179) 309,717 1,301,396
Loss on disposal of property and equipment -- 62,298 --
Depreciation of rental vehicles and
amortization of related costs 8,053,482 16,506,025 11,829,121
Depreciation and amortization, other 1,101,418 799,198 814,213
Provision for losses on rental vehicles 1,137,913 234,365 605,900
Provision for losses on receivables 489,477 362,026 463,793
Provision for collision damage 314,548 377,217 744,237
Provision for equipment losses -- 200,000 126,000
Provision for self-insurance 2,267,465 3,158,685 4,791,307
Change in assets and liabilities:
Receivables (320,643) (3,053,249) (1,816,892)
Automobile dealership vehicle inventories 14,940,308 17,076,857 10,599,534
Inventories, prepaid expenses and other
assets 440,966 -- 410,827
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-9
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
Consolidated Statements of Cash Flows
(continued)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Accounts payable 1,306,416 (411,317) 2,743,431
Accrued expenses and
other liabilities (1,838,436) (288,283) (2,508,488)
Notes payable for
automobile
dealership vehicle
inventories (16,100,896) (14,898,184) (10,973,711)
------------ ----------- -----------
Net cash provided
by operating
activities 10,099,378 19,768,013 16,857,166
------------ ----------- -----------
Cash flows from investing
activities:
Maturity of short-term
investments -- -- 503,654
Proceeds from involuntary
conversion -- -- 414,902
Purchases of rental vehicles (1,521,079) (2,781,561) (509,459)
Additions to furniture,
equipment and leasehold
improvements (1,648,865) (2,171,668) (1,731,306)
Proceeds from the sale of
rental vehicles 9,734,768 5,383,438 2,634,254
------------ ----------- -----------
Net cash provided by
investing activities 6,564,824 430,209 1,312,045
------------ ----------- -----------
Cash flows from financing
activities:
Proceeds from borrowings -- 622,096 1,002,154
Principal payments of
senior debt (17,551,373) (23,215,374) (17,609,585)
------------ ----------- -----------
Net cash used in
financing activities (17,551,373) (22,593,278) (16,607,431)
------------ ----------- -----------
Net increase (decrease)
in cash and cash
equivalents (887,171) (2,395,056) 1,561,780
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-10
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
Consolidated Statements of Cash Flows
(continued)
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Senior debt incurred for
additions to rental vehicles $42,781,629 $58,750,713 $84,966,109
Senior debt incurred for
additions to automobile
dealership vehicle
inventories $13,938,869 $14,158,772 $13,473,629
Senior debt incurred from
conversion of lease
obligations $1,400,000 -- --
Automobile dealership
vehicle inventories not
yet financed -- $281,000 $1,311,000
Reduction of senior debt
resulting from turnback
of rental vehicles $(26,080,268) $(81,456,558) $(68,589,289)
Capital lease obligation
incurred for purchase
of equipment $83,813 $536,981 --
Cash paid for:
Interest $3,472,336 $6,209,934 $6,078,540
Income taxes -- $150,000 --
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-11
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company does business as Dollar Rent A Car under an exclusive license
for the State of Hawaii with Dollar Systems, Inc. ("Dollar Systems") and
also operates two automobile dealership which sell Chrysler, Jeep, Eagle
and Hyundai vehicles. The Company incurred consolidated losses of
$1,427,000, $804,000 and $2,105,000 in 1994, 1993 and 1992, respectively.
The Company's vehicle rental and vehicle sales segments have been adversely
impacted by the overall sluggish Hawaiian economy for the past few years.
Additionally, during 1994 increased fleet costs and new car inventory
shortages along with increases in other operating costs combined to
adversely impact the Company's operations and cash flows. Management has
taken action to improve the financial condition of the Company by adding
products at car rental counters to increase average daily rental yields,
minimizing increases in fleet holding costs by increasing utilization and
purchasing lower cost vehicles, and reducing labor and other operating
expenses. Additionally, the Company is attempting to increase its retail
rental volume with additional advertising and marketing support from Dollar
Systems. Furthermore, the Company has been able to secure financial
assistance from Dollar Systems during 1994 and in 1995 to alleviate some of
the increased rental fleet costs and remedy some of the Company's cash flow
problems (see note 15). Management believes that these actions will help
to alleviate the cash flow and operating difficulties currently facing the
Company.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and it's wholly-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Recognition of Vehicle Rental Revenue
The Company recognizes income based on completed rental agreements and on
management's estimate of the earned portion of rental agreements for
vehicles on rent at the end of each accounting period.
Interest on Fleet Debt
Interest on fleet debt includes interest on debt incurred to maintain both
the rental vehicles and the automobile dealership vehicle inventories.
Inventories
Automobile dealership vehicle inventories are stated at the lower of cost
or market, cost being determined on the specific identification
F-12
<PAGE>
basis. Parts and other inventories are stated at the lower of cost or
market, cost being determined on the first-in first-out basis.
Rental Vehicles
Rental vehicles are recorded at their wholesale invoice cost and are
depreciated on a straight-line basis consistent with the vehicle
manufacturers' repurchase program specifications. Depreciation rates vary
from 1% to 3% of the capitalized cost per month. Related fleet rebates and
allowances are amortized over the average holding period of the rental
fleet and are credited against depreciation expense on the Consolidated
Statements of Operations.
Gains or losses on sales or turnbacks of rental vehicles to the
manufacturers, including unrealized loss reserves are included in the line
item depreciation of rental vehicles on the Consolidated Statements of
Operations. Vehicles sold by the Company's automobile dealerships are
reported as vehicle sales and cost of vehicles sold.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are recorded at cost and depreciated on a straight-
line basis over their estimated useful lives of 5 to 7 years. Leasehold
improvements are recorded at cost and amortized on a straight-line basis
generally over the shorter of their estimated useful lives or the related
lease term of 10 to 18 years.
Intangible Assets
Intangible assets including goodwill, franchise rights and debt issue costs
aggregating $1,366,000, net of accumulated amortization of $521,000, is
included in other assets and is amortized on a straight-line basis over
periods ranging from 10 to 40 years.
Balance Sheet Classification
Consistent with industry practice, and the nature of its most significant
assets and liabilities, the Company does not classify its balance sheet
into current or long-term categories.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents as of December 31,
1994, 1993 and 1992 represent certificates of deposit and money market
accounts aggregating $150,000, $466,000 and $3,434,000, respectively.
Cash and certificates of deposit of $288,000 at December 31, 1994 are
pledged against certain airport leases with the State of Hawaii and are
included in other assets.
F-13
<PAGE>
Reclassifications
Certain reclassifications were made to the 1993 and 1992 financial
statements to conform to the 1994 presentation.
Additionally, cash flows related to the assumption and reduction of senior
debt, and the acquisition and turnback or sale of rental vehicles and
automobile dealership vehicle inventories for 1992 have been reclassified
to better reflect the effect of non-cash transactions as it relates to the
Consolidated Statements of Cash Flows. These items are included in the
supplemental disclosures of cash flow information.
2. RECEIVABLES
<TABLE>
<CAPTION>
December 31,
1994 1993
----------- -----------
<S> <C> <C>
Receivable from manufacturers $1,877,232 $2,908,926
Trade 2,440,243 2,684,956
Subrogation 2,707,303 2,539,347
Vehicle sales and leases 2,726,581 2,045,176
Unbilled rentals 635,584 829,656
Warranty 445,896 623,318
Credit card and collections 188,219 241,605
Other 280,544 477,095
----------- -----------
11,301,602 12,350,079
Less allowance for doubtful
accounts (1,278,090) (1,270,603)
----------- -----------
$10,023,512 $11,079,476
----------- -----------
----------- -----------
</TABLE>
3. ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
December 31,
1994 1993
---------- ----------
<S> <C> <C>
Reserve for self-insurance $3,011,200 $2,807,300
Accrued taxes other than
income taxes 1,503,342 1,232,344
Accrued rents 952,881 777,671
Customer deposits and refunds 912,572 357,985
Accrued interest 501,318 528,877
Accrued commission 279,700 307,260
Accrued salaries and wages 244,522 257,063
Accrued franchise fees 131,458 236,726
Deferred lease program credits 86,764 2,143,966
Other 528,513 474,049
---------- ----------
$8,152,270 $9,123,241
---------- ----------
---------- ----------
</TABLE>
F-14
<PAGE>
4. SENIOR DEBT
<TABLE>
<CAPTION>
December 31,
1994 1993
---------- ----------
<S> <C> <C>
RENTAL FLEET DEBT:
Debt obligations secured
by substantially all
of the Company's rental fleet:
Notes payable to credit
granting affiliates of
major manufacturers,
principal and interest
payable monthly in two years
or less $17,484,682 $26,868,287
Notes payable under lines of
credit, principal and
interest payable monthly,
maturity in two years or
less 22,492,333 10,934,412
----------- -----------
Total rental fleet debt 39,977,015 37,802,699
----------- -----------
VEHICLE SALES DEBT:
Notes payable under $8,250,00
line of credit with credit
granting affiliate of major
automobile manufacturer,
interest only payable monthly,
secured by automobile
dealership vehicle inventories 4,402,326 7,851,459
Vehicle purchases not
yet financed -- 281,000
----------- -----------
Total vehicle sales debt 4,402,326 8,132,459
----------- -----------
Total vehicle debt obligations 44,379,341 45,935,158
----------- -----------
</TABLE>
F-15
<PAGE>
OTHER DEBT:
<TABLE>
<S> <C> <C>
Mortgage loans at prime rate
plus 1.5% or 1.75%, principal
and interest payable monthly,
maturing in June 1995
through October 1998, secured
by certain leasehold interests 1,844,061 2,187,058
Notes payable to the credit
granting affiliate of a major
automobile manufacturer,
interest from 8.69% to 9.19%,
principal and interest payable
monthly, maturing in 1996,
secured by certain vehicles 107,622 188,487
Other 1,703,439 1,251,998
----------- -----------
Total other debt 3,655,122 3,627,543
----------- -----------
$48,034,463 $49,562,701
----------- -----------
----------- -----------
</TABLE>
Rental Fleet Debt
As of December 31, 1994 the Company has a financing agreement with the
credit affiliate of a major automobile manufacturer providing up to
$20,000,000 in rental fleet financing. Interest on notes executed under
this agreement, payable monthly, is based on the lender's prime rate plus
.75% to 2%. Interest rates on notes executed in 1994 and 1993 ranged from
6.75% to 10.50% and 6.75% to 7.75%, respectively. Borrowings under the
financing agreements totaled $8,863,000 and $17,741,000 as of December 31,
1994 and 1993, respectively.
As of December 31, 1994, the Company has a loan agreement with the credit
affiliate of another automobile manufacturer providing up to $7,500,000 in
rental fleet financing. Under this agreement, loans are made under lease
plan security agreements based upon the value of the vehicles purchased.
Loans under this agreement bear interest at prime rate plus 1% to 1.5%. As
of December 31, 1994 and 1993, $8,622,000 and $9,127,000 were outstanding,
with interest rates on notes executed during those years ranging from 7% to
9.5% and 7.5%, respectively. This credit affiliate allowed the Company to
exceed its credit line limit during 1994.
As of December 31, 1994, the Company has loan agreements with a bank
providing up to $19,984,000 in financing for its rental fleet vehicles. Of
this amount $16,000,000 was used for vehicles subject to manufacturer
repurchase and the remainder used to finance vehicles rejected upon turn
back to the manufacturer and vehicles purchased outside the repurchase
programs. Loans under these agreements bear interest at prime rate plus 1%
to 2.75%. As of December 31, 1994 and
F-16
<PAGE>
1993, $7,792,000 and $10,934,000 were outstanding, with interest rates
on notes executed during those years ranging from 7% to 11.25% and 7%
to 8.5%, respectively.
As of December 31, 1994, the Company has a loan agreement with a financing
company providing up to $15,000,000 in financing for its rental vehicles.
Of this amount $8,350,000 was used to purchase vehicles under a guaranteed
depreciation program and the remainder used to finance "risk" vehicle
purchases. Loans under this agreement bear interest at prime rate plus
1.75%. As of December 31, 1994, $14,700,000 was outstanding at an interest
rate of 10.25%. This was the first year the Company financed rental
vehicles through this financing company.
Rental fleet debt agreements and certain other debt agreements contain
negative covenants restricting the Company's ability to, among other
things, declare any dividend or make any distribution to shareholders.
Under the most restrictive covenants contained in the bank's and financing
company's loan agreements, the Company is required to maintain a defined
cash flow, debt service coverage ratio, and tangible net worth. As of
December 31, 1994, the Company was not in compliance with certain of these
covenants, but has obtained a written waiver from the financing company
regarding such non-compliance. The Company is working to correct the
default under its loan agreements with the bank. The Company does not
expect its operations or financial position to be adversely affected by
such non-compliance based upon its scheduled disposal/sale of rental fleet
vehicles which fully secure the debt.
Vehicle Sales Debt
The Company has a $8,250,000 credit agreement with the credit affiliate of
a major automobile manufacturer to cover the financing of new car and truck
inventories. Interest only is payable at the credit affiliate's prime
lending rate plus 1% with final maturity with respect to loans relating to
vehicles of a particular model year occurring in August of the following
year. The interest rate in 1994 and 1993 under this agreement ranged from
7.25% to 9.5% and 7%, respectively. Borrowings under this agreement
totaled $4,402,000 and $7,851,000 at December 31, 1994 and 1993,
respectively.
The credit agreement prohibits the payment of dividends or other
distributions by South Seas Motors, Inc., a wholly-owned subsidiary of the
Company. At December 31, 1994 restricted net assets of South Seas
aggregated $3,547,000.
Other Debt
The Company has outstanding as of December 31, 1994 and 1993, $1,370,000
and $1,597,000, respectively, of mortgage bank debt related to its baseyard
facility on Oahu, its South Seas Jeep Eagle dealership and its Oahu
Chrysler Jeep facility. Principal and interest payments
F-17
<PAGE>
of $29,500 are made monthly and the mortgage debt matures from June 1995
through February 1998.
The Company has outstanding as of December 31, 1994 and 1993, $474,000 and
$590,000, respectively, of mortgage bank debt relating to its baseyard
facility in Kauai. Principal and interest are paid on a monthly basis with
payments of $13,500 per month through October 1998. Under the most
restrictive covenant of the related loan agreement, the Company is required
to maintain a defined debt to net worth ratio.
As of December 31, 1994, the Company was not in compliance with certain
covenants contained in these agreements, but the Company has obtained
written waivers through December 31 1995 from each bank regarding such non-
compliance.
The Company has outstanding as of December 31, 1994, $513,000 of debt owned
to Dollar Systems related to an advance of $1,400,000 of lease obligations
during 1994. Principal reductions were made by way of an assignment of
incentive credits and fleet allowances owed by Dollar Systems to the
Company. The balance outstanding will be consolidated as part of the
Dollar Systems' assistance package (see note 15).
The Company has outstanding as of December 31, 1994 and 1993, $176,000 and
$367,000, respectively, from the United States Small Business
Administration to cover losses suffered during Hurricane Iniki in September
1992. The loan bears interest at 6% per year, principal and interest
payments of $17,000 per month and matures in October 1995.
Pursuant to the terms of a credit agreement dated June 26, 1991 (the
"Credit Agreement") between the Company and Bank of Hawaii (the "Bank"),
the Bank advanced funds in the amount of $1,285,000 at the Bank's base rate
plus 2.5%. The proceeds of the loan were used to complete an exchange
offer. See "Subordinated Debentures; 1991 Exchange." The loan was secured
by certain real property leasehold interests of the Company. The loan was
paid off in January 1993.
Convertible Subordinated Debentures
In October 1987, the Company sold $17,250,000 of 10% convertible
subordinated debentures (the "Debentures"). The Debentures were issued
under an Indenture dated as of September 1, 1987 ("Indenture") between the
Company and Trust Services of America, Inc. ("Trust Services"), as Trustee.
Chemical Trust Company currently serves as Trustee under the Indenture.
The Debentures represent unsecured general obligations of the Company. The
Company pays interest only on the Debentures semi-annually on March 1 and
September 1 of each year. The Debentures mature on September 1, 2007.
The holders of Debentures are entitled at any time on or before September
1, 2007 to convert the Debentures into Common Stock of the Company at $3.30
per share, subject to certain conditions.
F-18
<PAGE>
The Indenture requires the Company to redeem, through a mandatory sinking
fund commencing on September 1, 1994, and on each succeeding September 1,
Debentures with an aggregate principal amount equal to five percent of the
original principal amount of the Debentures issued under the Indenture, at
100% of the principal amount thereof, plus interest accrued to the
redemption date. Debentures acquired and delivered, converted or redeemed
by the Company, other than through the mandatory sinking fund, may be used,
at the principal amount thereof, to reduce the amount of any mandatory
sinking fund payment. In July 1991, the Company exchanged (the "Exchange")
2,916,000 shares of its Common Stock and $3,840,000 for $12,000,000
principal amount of Debentures pursuant to the terms of an exchange offer.
As a result of the Exchange, sinking fund requirements have been satisfied.
The payment of principal and interest on the Debentures are subordinated in
right to the payment of all senior debt of the Company.
Other Financing Information
The aggregate maturities of senior debt for each of the five years
subsequent to December 31, 1994 are as follows: 1995, $36,201,000; 1996,
$10,727,000; 1997, $464,000; 1998, $565,000; and 1999, $77,000. Vehicle
loans may be retired early, which in each instance, will accelerate
maturity.
5. OPERATING REVENUES
Operating revenues include Hawaii General Excise Tax ("GET") and, in 1994
and 1993, Hawaii Motor Vehicle Rental Surcharge ("Surcharge") collected
from customers. The amounts remitted to the State of Hawaii are included
in other direct operating expense on the Consolidated Statements of
Operations. A breakdown of these tax and surcharge revenues is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
---------- ---------- ----------
<C> <C> <C> <C>
GET and Surcharge relating
to vehicle rental revenue $5,173,037 $5,283,390 $5,297,890
GET related to vehicle
sales revenue 1,275,370 1,276,707 933,282
---------- ---------- ----------
Total GET and Surcharge
included in revenues $6,448,407 $6,560,097 $6,231,172
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Revenue from the sale of loss damage waivers totaled $3,644,000, $3,378,000,
and $3,624,000 in 1994, 1993, and 1992, respectively, and are included in
vehicle rental revenue.
F-19
<PAGE>
6. OTHER INCOME AND EXPENSES
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
------------ ----------- ----------
<S> <C> <C> <C>
Hurricane damages to
rental vehicles $ (25,000) $ (106,495) $ (427,000)
Gain from involuntary
conversion of equipment
and leasehold
improvements resulting
from hurricane -- -- 169,000
Loss related to termination
of Compact Rent A Car -- (87,198) (118,000)
Loss related to the sale/
closure of automobile
dealership -- (136,720) (109,444)
Termination of lease (135,000) -- --
Real estate investment
expense (70,918) (65,464) (65,464)
Other (40,800) (20,754) (69,526)
------------ ----------- -----------
Total $ (271,718) $ (416,631) $ (620,434)
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
7. SELF-INSURANCE
As of December 31, 1994, the Company was self-insured with respect to no-fault
and auto liability claims on its rental vehicles in the State of Hawaii for up
to $500,000 per occurrence. In accordance with its self-insurance certificate
from the State of Hawaii, the Company furnished a $3,400,000 bond as security
with the Hawaii Insurance Commissioner. The bond was arranged by Dollar
Systems, which was granted a security interest in the Company's license
agreement ("License") to secure the Company's performance. In addition to an
assignment of the Company's security interest in the License as collateral,
the Company also assigned to Dollar Systems its receivable from the sale of
the Asian Franchise Rights ("Asian Rights") and granted Dollar Systems a
junior mortgage of its leasehold interest in its South Seas Jeep Eagle and
Oahu Chrysler Jeep locations (see note 15). During February 1995, the Company
elected to enroll with a commercial insurance carrier to handle all future no
fault and auto liability claims. Under its policy, the Company maintains
coverage up to $500,000 with a $25,000 deductible. The Company maintains
insurance for claims in excess of $500,000 with liability limits of $500,000
per occurrence, which is underwritten by a third party insurance company. The
Company is self-insured for any loss in excess of $1,000,000 per occurrence.
The Company does not intend to renew its excess policy when it expires on
March 31, 1995.
As of December 31, 1994 and 1993, the Company's reserve for self-insurance
(including the reserve for future legal expense) was $3,011,000 and
$2,807,000, respectively. Self insurance expense for the
F-20
<PAGE>
years ended December 31, 1994, 1993 and 1992 was $2,267,000, $3,159,000, and
$4,791,000 respectively.
The Company is also self-insured for collision and comprehensive losses on its
rental vehicles. In most cases, the renter's personal automobile policy
protects the Company against physical damage to Company vehicles by the
renter. The Company provides a limited physical damage waiver to renters who
purchase Loss Damage Waivers ("LDW"). The effect of LDW is to waive a portion
of the renters' responsibility for physical damage to Company vehicles. As of
December 31, 1994 and 1993, the Company's reserve for collision damage was
$421,000 and $515,000, respectively.
8. INCOME TAXES
In January 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. The adoption of FAS
109 changes the Company's method of accounting for income taxes from the
deferred method (APB 11) to an asset and liability approach. Previously the
Company deferred the past tax effects of timing differences between financial
reporting and taxable income. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
bases of those assets and liabilities.
The adoption of FAS 109 did not result in an adjustment for the cumulative
effect of a change in income taxes.
No income taxes were provided during the years ended December 31, 1994 and
1992 based on losses sustained for financial reporting and income tax
purposes. The 1993 provision for income taxes principally represents current
federal alternative minimum tax.
F-21
<PAGE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
---------- ----------
<S> <C> <C>
Rental fleet $(3,154,000) $(1,040,700)
Rental fleet incentives (723,000) (322,300)
----------- ------------
Gross deferred tax
liabilities (3,877,000) (1,363,000)
----------- ------------
Loss carryforward 4,616,000 1,020,900
Self insurance reserve 1,217,000 934,500
Bad debt reserve 245,000 175,700
Rental fleet reserves 170,000 335,500
Inventory 124,000 132,600
---------- ---------
Gross deferred tax assets 6,372,000 2,599,200
---------- ---------
Net deferred tax assets 2,495,000 1,236,200
Deferred tax assets
valuation allowance (2,495,000) (1,236,200)
----------- -----------
----------- -----------
$ -- $ --
----------- -----------
----------- -----------
</TABLE>
The net increase of $1,259,000 in the valuation allowance for deferred
taxes relates primarily to net operating losses generated in 1994. The
principal component of the valuation allowance relates to the uncertainty
of realizing certain deferred tax assets related to loss carryforwards.
The differences between the expected provision for income tax at the
Federal statutory rate and income tax expense reported are summarized as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Expected tax benefit
at 34% $(485,000) $(201,500) $(715,500)
State taxes net of Federal
income tax benefit (57,000) (25,000) (77,200)
Net operating loss for
which no benefit has
been recognized 542,000 226,500 738,800
Alternative minimum tax -- 130,000 --
Other -- 81,443 53,900
----------- ---------- ---------
$ -- $211,443 $ --
----------- ---------- ---------
----------- ---------- ---------
</TABLE>
F-22
<PAGE>
As of December 31, 1994, the Company has net operating loss carryforwards for
Federal and State income tax purposes of approximately $10,000,000 and
$8,900,000, respectively, which expire from 2005 through 2009. The Tax Reform
Act of 1986 imposes certain conditions and possible limitations on the future
availability of net operating loss carryforwards, including annual limitations
on the amount of the carryforwards which could be utilized arising from
substantial changes in the Company's ownership.
At the request of the State of Hawaii Department of Taxation, the Company
agreed to extend the statutory limitation period prescribed under the Hawaii
Revised Statutes related to certain general excise (GET), use and corporate
income tax returns. Accordingly, its 1986 - 1989 GET and use tax returns and
its 1990 corporate tax return remain open for adjustments through June 30,
1996.
The State of Hawaii has indicated its intent to audit the Company's tax
returns for open years. Management does not anticipate any exposure to
material assessments of additional tax in excess of $250,000; however, the
Hawaii State Department of Taxation has not yet completed audit fieldwork.
Accordingly, the outcome of the audit is uncertain at this time.
9. STOCK OPTION PLANS
During 1994, the Company established a new incentive stock option plan under
which options to purchase up to 200,000 shares of Common Stock may be granted.
Under this plan, the option exercise price is equal to 100% of the fair market
value of the Common Stock on the date of grant. Options for 50,000 shares of
Common Stock remain outstanding under this plan as of December 31, 1994. The
Company's original incentive stock option plan expired on May 3, 1993.
Options for 100,000 shares of Common Stock remain outstanding under this plan
as of December 31, 1994 and expire in September 1995.
During 1994, the Company also established a new non-statutory stock option
plan under which options to purchase up to 200,000 shares may be granted.
Under this plan, the exercise price of any option granted shall not be less
than the lesser of 85% of the fair market value of the Common Stock on the
date of grant or 85% of the fair market value of the Common Stock on the date
of exercise. The original non-statutory stock option plan terminated on June
20, 1994. No options are outstanding under either plan as of December 31,
1994.
As of December 31, 1993, the Company had outstanding non-recourse promissory
notes totaling $1,139,000 from optionees in connection with the exercise of
their options to acquire 929,500 shares of Common Stock. Included in the
non-recourse notes, were notes in the aggregate principal amount of $554,000
from current executive officers and/or directors of the Company. Exercise
prices on these shares ranged from $1.06 to $2.12 per share. The promissory
notes matured on July 11, 1994 on which date the market value of the Company's
Common Stock was $.81 per share. No
F-23
<PAGE>
payments were received on these notes, and accordingly, the Company canceled
these shares of outstanding Common Stock.
Proceeds from the exercise of options are credited to Common Stock to the
extent of $0.10 per share and the balance credited to additional paid-in
capital. Under its non-statutory plan, benefits relating to the excess of
quoted market value on the measurement date over the selling price are charged
to compensation expense and credited to additional paid-in capital.
Activity under both stock option plans is summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------
Shares Price Per Share Amount
------------- ---------------- -------------
<S> <C> <C> <C>
December 31, 1991 153,000 $0.56 to $2.38 $ 182,140
Expired (53,000) 2.38 (126,140)
------------- ---------------- -------------
December 31, 1992 100,000 0.56 56,000
Granted 50,000 0.25 12,500
------------- ---------------- -------------
December 31, 1993 150,000 0.25 to 0.56 68,500
Expired (50,000) 0.25 (12,500)
Granted 50,000 0.43 21,500
------------- ---------------- -------------
December 31, 1994 150,000 $0.43 to $0.56 $77,500
------------- ---------------- -------------
------------- ---------------- -------------
</TABLE>
As of December 31, 1994 and 1993, options for 350,000 and 935,000 shares,
respectively, were available for grant. As of December 31, 1994, options for
100,000 shares were exercisable at prices ranging from $.43 to $.56 per share.
10. RELATED PARTY TRANSACTIONS
The Company had a consulting agreement with Paul J. Finazzo, a member of the
Company's Board of Directors and its former Chairman, which expired on
December 31, 1994 and provided for consulting fees of $180,000 per year.
A company purchased in August 1992 by Stanley Heller, a member of the
Company's Board of Directors and a former officer of the Company, is a
wholesale customer of the Company's vehicle rental operations. This company
paid the Company a net $1,577,000, $2,504,000 and $2,151,000 in 1994, 1993 and
1992, respectively, for vehicle rentals at prevailing wholesale rates.
The Company paid Mr. Heller consulting fees of $24,000 during each of the
years 1994, 1993 and 1992.
F-24
<PAGE>
Certain companies owned by Raymond I. Miyashiro, a member of the Company's
Board of Directors, are wholesale customers of the Company's vehicle rental
operations. These companies paid the Company $1,239,000 in 1994, $979,000 in
1993, and $480,000 in 1992 for vehicle rentals at prevailing wholesale rates.
During 1993, the Company also sold transportation vehicles for a total of
$343,000 to a transportation company owned by Mr. Miyashiro.
During 1994, 1993 and 1992, the Company purchased $15,000, $27,000, and
$33,000 respectively, of airline tickets at prevailing market rates from a
travel agency owned by Mr. Miyashiro.
During 1994, 1993 and 1992, the Company paid $123,000, $125,000 and $86,000,
respectively, for legal services to a law firm of which J. George
Hetherington, a member of the Company's Board of Directors, is a shareholder.
At December 31, 1993, Alan M. Robin, Stanley S. Heller and Robert L. Solomon
owed the Company $212,000, $212,000 and $130,000, respectively, pursuant to
non-recourse promissory notes due in 1994 issued in exchange for shares of
Common Stock under the Company's 1983 ESOP (note 9). These notes were allowed
to lapse and, as a result, the shares of Common Stock issued in relation to
these notes were canceled in 1994.
The Company sold used vehicles for an aggregate consideration approximating
$56,000 in 1992, to a company controlled by the son of the Company's
President.
11. MAJOR CUSTOMER
The Company has an agreement, to provide rental vehicles, with a major tour
operator which expires in December 1997. Vehicle rental revenues, exclusive
of optional charges arranged between the Company and the renter, for loss
damage waivers, gasoline, vehicle upgrades and other optional charges and
exclusive of excise taxes and surcharges, approximated $8,390,000, $5,183,000,
and $5,815,000, for the years ended December 31, 1994, 1993 and 1992,
respectively.
12. SAVINGS AND RETIREMENT PLAN
The Company has a defined contribution savings and retirement plan (the Plan)
available to substantially all employees with more than one year of service.
The Company contributes 10% of employee contributions with a maximum of $300
per employee per year. During the years ended December 31, 1994 and 1993, the
Company contributed $26,000 and $28,000, respectively, to the Plan.
13. SIGNIFICANT CONCENTRATION OF BUSINESS
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash equivalents and trade receivables.
F-25
<PAGE>
The Company places its temporary cash investments with high credit qualified
financial institutions.
Substantially all of the Company's business activity is within the State of
Hawaii.
14. BUSINESS SEGMENTS
The Company's activities comprise two segments: (1) the short-term rental of
vehicles and (2) the purchase and sale of new and used vehicles. Summary data
for 1994, 1993 and 1992 follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994
---------------------------------------
Vehicle Rental Vehicle Sales Total
---------------- --------------- -------------
<S> <C> <C> <C>
Revenues $54,126,236 $39,698,728 $93,824,964
Depreciation and
amortization 6,032,804 1,334,586 7,367,390
Operating income (loss) (382,040) 67,105 (314,935)
Total assets (as of
year end) 58,700,484 10,571,751 69,272,235
Capital expenditures:
Vehicle fleet 45,123,906 126,834 45,250,740
Fixed assets 1,142,911 505,954 1,648,865
Year Ended December 31, 1993
---------------------------------------
Vehicle Rental Vehicle Sales Total
---------------- --------------- -------------
Revenues $54,163,237 $43,987,934 $98,151,171
Depreciation and
amortization 12,264,003 257,845 12,521,848
Operating income 188,916 469,592 658,508
Total assets (as of
year end) 58,305,590 13,586,899 71,892,489
Capital expenditures:
Vehicle fleet 60,776,585 1,036,690 61,813,275
Fixed assets 1,806,010 902,638 2,708,648
Year Ended December 31, 1992
---------------------------------------
Vehicle Rental Vehicle Sales Total
---------------- --------------- -------------
Revenues $51,789,993 $31,520,987 $83,310,980
Depreciation and
amortization 11,820,063 9,058 11,829,121
Operating income (loss) (1,335,719) 522,821 (812,898)
Total assets (as of
year end) 96,130,423 14,671,803 110,802,226
</TABLE>
F-26
<PAGE>
<TABLE>
<S> <C> <C> <C>
Capital expenditures:
Vehicle fleet 84,545,449 641,662 85,187,111
Fixed assets 324,846 1,406,460 1,731,306
</TABLE>
15. COMMITMENTS AND CONTINGENT LIABILITIES
License Agreement
The Company is the exclusive licensee of Dollar Systems for the State of
Hawaii pursuant to the License dated April 3, 1974, which grants the Company
the right to conduct its vehicle rental business under the name Dollar Rent A
Car.
Pursuant to the term of the License, which does not have a fixed term, Dollar
Systems may terminate the License if the Company defaults in the performance
of its obligations under the License and fails to cure its defaults, within a
specified period. The License provides that it will terminate automatically
if the Company attempts to assign its interest under the License without
consent. In the event of termination, the License requires the Company to
assign to Dollar Systems, upon their request, all of its airport contracts,
concessions, leases and other arrangements pertaining to the use of real
estate, and provides that Dollar Systems shall thereafter have the right to
conduct vehicle rental operations at all such locations for its own benefit,
or to designate another licensee. Such termination would also prohibit the
Company from using all trade names, trademarks, signs, advertising,
promotional materials and similar items of identification associated with
Dollar Systems.
Assistance Agreements
In March 1994, the Company reached an agreement with Dollar Systems and
certain of its affiliates. Pursuant to the terms of the agreement, Dollar
Systems reduced the fees payable under the License for the period from January
1, 1994 to December 31, 1994, and thereafter the fees paid under the License
will increase to the amount provided for in the License. In addition, Dollar
Systems waived and discharged any obligation for certain fees owed under the
License prior to January 1, 1994, and also increased certain incentive
credits, rebates and fleet allowances under the Dollar Systems' 1994 Fleet
Leasing Program ("Lease Program"). Furthermore, Dollar Systems procured a
bond in an amount sufficient to satisfy the Company's self insurance
requirements (see note 7), and also agreed to advance the Company a maximum of
$1,400,000 (see note 4).
In return for issuing the bond, the Company indemnified Dollar Systems and
certain of its affiliates in connection with the issuance of the bond,
assigned to Dollar Systems its receivable from the sale of the Asian Rights
under the License, assigned to Dollar Systems its interest in the License, and
granted to Dollar Systems a junior mortgage of its leasehold interest in its
South Seas Jeep Eagle and Oahu Chrysler Jeep locations. In return for making
the advance, the Company assigned to Dollar Systems all amounts owed to the
Company under the Lease Program.
F-27
<PAGE>
The Company entered into a commitment, in principle, with Dollar Systems and
certain of its affiliates on March 21, 1995. Pursuant to the terms of this
commitment, Dollar Systems will reduce the fees payable under the License for
the period from January 1, 1995 to December 31, 1995 and provide certain
credits related to return freight on 1994 and 1995 model year vehicles. In
addition, Dollar Systems will accept a convertible $3,000,000 note from the
Company representing balances due to Dollar Systems at December 31, 1994 for
fleet charges and franchise and miscellaneous system fees. In the event of a
default by the Company of its obligations to Dollar Systems, the Company will
issue a sufficient number of additional shares enabling Dollar Systems to
exercise an option to convert the outstanding indebtedness due from the
Company for up to 55% of the outstanding Common Stock and voting power of the
Company. The note will be collateralized by mortgage liens on and security
interests in all of the Company's assets.
The terms of the note include: (i) interest at 2% over prime, with interest
only payments monthly for the first two years; (ii) monthly principal and
interest payments of $50,000 commencing May 1, 1997 for three years with the
balance of the note due April 1, 2000; (iii) payments to Dollar Systems for
net increases, if any, in the Company's cash account balances at December 31,
1995 and 1996 over December 31, 1994.
Lease Commitments
The Company operates its airport locations, corporate office, rental stations
and base yards under operating leases expiring at various dates through 2021.
In addition, the Company leases approximately 4,300 vehicles for its 1995
rental fleet under a leasing program with Dollar Systems specifying a maximum
holding period of thirteen months. The Company also leases certain computer
equipment used in both its vehicle rental and vehicle sales operations under
capital leases expiring through 1998.
Assets recorded under capital lease obligations and included in furniture and
equipment at December 31, 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Computer equipment $1,028,000 $966,000
Less accumulated
amortization (464,000) (253,000)
----------- -----------
Property under capital
leases - net $ 564,000 $713,000
---------- -----------
---------- -----------
</TABLE>
F-28
<PAGE>
Future minimum payments under non cancelable operating leases and capital
leases as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Operating Leases Capital Leases
---------------- ----------------
<S> <C> <C>
1995 $3,239,000 $271,000
1996 2,979,000 265,000
1997 2,882,000 173,000
1998 1,580,000 101,000
1999 973,000 --
Thereafter 13,901,000 --
---------------- ----------------
Total minimum rental
payments $25,554,000 810,000
---------------- ----------------
---------------- ----------------
Less amount
representing interest (154,000)
----------------
----------------
Present value of future
minimum payments
($196,000 represents
current portion) $656,000
----------------
----------------
</TABLE>
Occupancy related rental expense, including property taxes, was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Fixed and minimum rents $4,130,480 $4,310,067 $3,886,297
Excess percentage rents 2,200,849 1,958,459 1,939,436
---------- ---------- ----------
Total $6,331,329 $6,268,526 $5,825,733
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The leases contain clauses which provide for future rental increases at
varying intervals based on consumer price index increases. The table above
reflects future obligations based on current rent levels. In addition to
rent, the Company is obligated to pay Hawaii general excise tax, property
taxes, insurance, and maintenance costs, as well as excess percentage rents
based on airport revenues, at major facilities.
Environmental Matters
The Company has seven underground and one above-ground petroleum product
storage tanks and one underground waste oil storage tank on its properties.
The Company is subject to the federal and state laws governing the ownership
and operation of these storage tanks. These laws require the Company to test
periodically the integrity of these tanks and
F-29
<PAGE>
to mitigate and remediate the environmental effects of any releases of
products from the storage tanks.
In 1993, the Company was advised of a petroleum leak at the baseyard location
for vehicle rental operations on the island of Oahu. A Phase I environmental
assessment indicated that the soil and groundwater in certain portions of the
baseyard had been impacted by the leakage of waste oil and petroleum products.
The Company then initiated a Phase II environmental assessment to determine
the extent of the petroleum and waste oil contamination. The Phase II
assessment, together with the closure and removal of the waste oil storage
tank was completed in 1994. During 1993, the Company recorded a reserve of
$150,000 for the estimated future cost of the remedial efforts at the baseyard
location. As of December 31, 1994, $49,000 remains in the reserve which the
Company feels is adequate based on projections provided by the Company's
environmental consultants.
During November 1994, the Company received several citations from the United
States Environmental Protection Agency (EPA) relating to one of its baseyard
locations on the island of Hawaii. The most significant comment cited the
Company for not performing certain acceptable leak and precision tightness
procedures as a part of its annual testing. The Company's environmental
consultants who performed the tank test clarified the necessary procedures
with the EPA and are working with the Company to ensure that proper testing
procedures are performed for all of the Company's tanks. No leaks or
contamination were discovered during the testing by the environmental
consultants.
Other
The Company from time to time enters into agreements pursuant to which it
remains contingently liable for loans made to certain retail purchasers of
vehicles. As of December 31, 1994, the balance of these loans for which the
Company and its subsidiaries are contingently liable totaled $107,000. In
general, the Company may not be called upon to make a payment under these
agreements unless it obtains possession of the vehicle. The Company may then
pursue its rights against the retail customer, who is the primary obligor
under each vehicle loan.
The Company is a party to various claims and legal actions which are
incidental to the conduct of its business. In the opinion of management,
after consultation with legal counsel, the ultimate disposition of these
matters will not have a material adverse effect on the Company's operations or
financial condition.
16. SUBSEQUENT EVENTS
In May 1995, after lengthy negotiations, the Company and Dollar Systems were
unable to agree upon the final documentation with respect to the 1995
Assistance Agreement (see Note 15). Pending further negotiations, the Company
withheld certain payments due to Dollar Systems under its License Agreement
and Master Lease Agreement. Dollar Systems filed a legal action to compel the
Company to execute the documentation proposed
F-30
<PAGE>
by Dollar Systems to embody its understanding of the 1995 Assistance
Agreement. The Company responded by commencing its own legal action
against Dollar Systems for damages and injunctive relief based on
violations of the franchise agreement and Hawaii law. Dollar Systems
then sent notices to the Company purporting to terminate the License
Agreement and Master Lease Agreement. Subsequent discussions led to a
Settlement Agreement encompassing among other things, the sale of the
Company's vehicle rental operations. The parties have terminated all
litigation without prejudice and may recommence proceedings should the
transactions fail to close.
Under the terms of the Settlement Agreement dated July 18, 1995 (as
subsequently modified by the First through Sixth Amendments, the "Settlement
Agreement")), the parties agreed to stay the litigation and signed documents
under which Dollar Systems will acquire substantially all of the assets and
certain liabilities of the Company's vehicle rental division. In addition to
the settlement of the litigation, the proposed acquisition has a stated
purchase price of $2,625,000 in cash, plus the assumption by Dollar of certain
liabilities relating to the vehicle rental division, including ordinary
operating expenses after October 31, 1995 and approximately $3,225,000 owed by
the Company to Dollar. Concurrently, with the closing of such acquisition,
the Company will issue common stock to Dollar equal to 10% on a fully diluted
basis. This transaction is subject to due diligence review and other
conditions and to consents and approvals of certain persons, including the
Company's shareholders and bondholders. Dollar Systems has the unqualified
right for any reason or for no reason at all to terminate the Settlement
Agreement. The assets and liabilities of the Company's vehicle sales
division, as well as certain other liabilities and obligations, will remain
with the Company. The parties will also release various claims against each
other. The transaction is scheduled to close by November 30, 1995 and Dollar
and the Company have agreed that the Proposed Sale will be deemed to have
closed on October 31, 1995. In the meantime, the Company continues to operate
the vehicle rental division, including efforts to increase revenue,
utilization and yield per rental day, and to control its operating costs.
In connection with sale of substantially all of the assets and liabilities of
the Company's vehicle rental division (the "Proposed Sale"), the Company plans
to seek to use the cash consideration received in the Proposed Sale and,
together with certain shares of previously authorized Common Stock, to solicit
exchange offer tenders for its outstanding convertible subordinated
debentures. The tendering bondholders will receive (i) 0.769505 shares for
each $1.00 in face amount of tendered debentures, (ii) $0.50 for each $1.00 in
face amount of tendered debentures and (iii) a proportionate share of new
debentures (the "New Debentures") of the Company in an aggregate principal
amount equal to (a) $1,050,000 less (b) the principal amount of old debentures
not so tendered and less (c) the original principal amount of indebtedness of
the Company to Dollar Systems, if any, which may be evidenced by a promissory
note (the "Net Worth Note") containing substantially the same covenant,
default and payment terms as the New Debentures and which will be incurred
pursuant to the Settlement
F-31
<PAGE>
Agreement. The aggregate principal amount of indebtedness of the Company
following the Proposed Sale in respect of the New Debentures, the old
debentures, if any, not tendered in the exchange offer and the Net Worth
Note shall not exceed $1,050,000.
As a condition to closing of the Proposed Sale, the Company must have received
the tender and/or consent of bondholders holding in the aggregate at least 95%
of the face value of the debentures to the Proposed Sale or, alternatively,
both (i) at least two-thirds (by face amount of debentures) of the holders
voting in the consent solicitation for the Prepackaged Plan must have approved
the Prepackaged Plan and (ii) at least a majority in number of the holders
voting in the consent solicitation for the Prepackaged Plan must have approved
the Prepackaged Plan (exclusive of "insiders"). As part of the exchange
offer, the Company intends to amend the debenture indenture to provide for no
further covenant obligations for the Company thereunder.
If the Prepackaged Plan is approved and implemented in lieu of the exchange
offer, the bondholders will receive substantially the same consideration as in
the exchange offer, provided that under the Prepackaged Plan administrative
expenses which will be paid prior to payments to the bondholders will be
incurred which the Company believes could exceed $200,000.
While the transaction is pending, the Company is incurring and will continue
to incur substantial transaction costs including legal, accounting and other
professional fees. Although Dollar Systems has agreed to certain interim
financial assistance it is unlikely that support from Dollar Systems will
continue if the transaction does not close as planned. If the transaction
does not close, and further assistance from Dollar Systems is not made
available, there is substantial doubt about the Company's ability to continue
as a going concern.
The Company has incurred significant losses for the last several years and at
December 31, 1994 has an accumulated deficit of $7.8 million. Additionally,
the Company reported a net loss of $2.44 million (unaudited) for the nine
months ended September 30, 1995 and is in default on its principal bank debt
covenants. The accompanying financial statements have been prepared assuming
the Company will continue as a going concern.
On October 5, 1995 the Company was notified by NASDAQ that it was considering
whether the Company's stock would continue to be listed on the exchange for
failure to satisfy minimum trading value and capital requirements of NASDAQ.
The Company was advised on October 12, 1995 that the NASDAQ had granted an
exception to these requirements subject to certain conditions including that
the Company receive the approval of its shareholders for the Proposed Sale by
October 31, 1995 and that the Proposed Sale be consummated by November 15,
1995. The Company was subsequently notified by NASDAQ on November 8, 1995
that these deadlines have been extended to November 30, 1995. The Company
is currently in negotiations with the Hawaii Department of Transportation
(DOT) to settle certain asserted but unbilled amounts for past rents and
proposed rent redeterminations. The Company has disputed the DOT's claims
which in the aggregate could be as much as $920,000. Although management
anticipates a timely and favorable outcome, if not resolved these claims
could have an adverse impact on the closing of the Proposed Sale and/or on
the consummation of the Prepackaged Plan.
F-32
<PAGE>
INDEX TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
OF PACIFIC INTERNATIONAL SERVICES CORP.
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30,
1994 AND SEPTEMBER 30, 1995:
Condensed Consolidated Balance Sheets as of December
31, 1994 and September 30, 1995 (unaudited) F-33
Condensed Consolidated Statements of Operations
for the three months ended September 30, 1994 and
September 30, 1995 and for the nine months ended
September 30, 1994 and September 30, 1995 (unaudited) F-35
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1994
and September 30, 1995 (unaudited) F-37
Note to Condensed Consolidated Financial Statements F-40
</TABLE>
F-33
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,082,853 $831,952
Receivables, net 10,570,176 10,023,512
Automobile dealership
vehicle inventories 7,922,345 4,961,600
Inventories and prepaid
expenses 1,216,688 899,453
Rental vehicles, at cost,
less accumulated
depreciation 6,773,343 42,367,410
Furniture, equipment and
leasehold improvements,
net of accumulated
depreciation and
amortization 7,530,374 8,149,846
Other assets 2,001,423 2,038,462
----------- -----------
Total Assets $37,097,202 $69,272,235
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS EQUITY
Accounts payable $ 8,761,148 $ 5,744,507
Accrued expenses and
other liabilities 6,148,293 8,152,270
Senior debt 17,285,221 48,034,463
Convertible subordinated
debentures 5,250,000 5,250,000
----------- -----------
Total liabilities 37,444,662 67,181,240
----------- -----------
Shareholders' equity:
Preferred stock with no par
value, authorized 15,000,000
shares; none issued
Common Stock, stated value
$0.10 per share,
authorized 50,000,000
shares, issued and
outstanding 8,079,800
shares 807,980 807,980
</TABLE>
SEE ACCOMPANYING NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-34
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
(Unaudited)
<S> <C> <C>
Additional paid-in capital 9,102,181 9,102,181
Accumulated deficit (10,257,621) (7,819,166)
------------ -----------
Total shareholders' equity (347,460) 2,090,995
------------ -----------
Total liabilities and
shareholders' equity $ 37,097,202 $69,272,235
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-35
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
---------------------------------------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Vehicle rental $13,316,356 $14,871,537 $37,851,906 $42,056,236
Vehicle sales 11,560,818 9,983,088 34,258,179 30,917,012
------------ ----------- ----------- -----------
Total operating
revenues 24,877,174 24,854,625 72,110,085 72,973,248
------------ ----------- ----------- -----------
Operating costs
and expenses:
Cost of vehicles sold 8,722,269 7,333,551 25,916,541 23,180,748
Depreciation of
rental vehicles 1,547,141 1,907,942 4,755,283 4,809,280
Interest on fleet
debt 330,549 665,125 1,723,454 1,807,566
Other direct fleet 4,222,125 2,545,219 11,142,895 7,995,644
Personnel 3,310,346 3,506,238 10,046,428 10,822,994
Occupancy 2,293,928 2,294,794 6,605,209 6,597,923
Other direct
operating 2,810,230 3,879,971 8,253,730 10,476,860
Other selling,
general and
administrative 1,867,433 1,901,147 5,579,768 5,506,375
------------ ----------- ----------- -----------
Total operating
costs and
expenses 25,103,931 24,033,987 74,023,308 71,197,390
------------ ----------- ----------- -----------
Income (loss)
from operations (226,757) 820,638 (1,913,223) 1,775,858
Interest income 5,974 14,418 26,042 39,685
</TABLE>
SEE ACCOMPANYING NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-36
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other interest expense (240,057) (225,085) (683,312) (655,576)
Other, net - (29,853) 132,040 (65,865)
------------ ----------- ----------- -----------
Net income (loss) $(460,840) $580,118 $(2,438,453) 1,094,102
============ =========== ============ ===========
Earnings (loss)
per common share $(0.06) $0.07 $(0.30) $0.13
============ =========== ============ ===========
</TABLE>
SEE ACCOMPANYING NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-37
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating
activities:
Net income (loss) $(2,438,453) $1,094,102
Adjustments to reconcile
net income (loss) to net cash
provided by operating activities:
(Gain) or Loss on sale of
rental vehicles 692,941 294,227
Depreciation of rental
vehicles and amortization
of related costs 5,055,561 6,488,919
Depreciation and amortization,
other 881,414 789,313
Provision for losses on
rental vehicles 830,255 984,918
Provision for losses
on receivables 453,821 218,039
Provision for self-insurance 103,994 1,676,067
Change in assets
and liabilities:
Receivables (1,000,485) (1,556,161)
Automobile dealership
vehicle inventories (2,960,745) 1,117,755
Inventories, prepaid
expenses and other assets (280,196) (336,072)
Accounts payable 3,016,641 1,035,836
Accrued expenses and
other liabilities (2,107,921) (2,881,208)
Notes payable for
automobile dealership
vehicle inventories 16,246,957 11,215,588
------------ -----------
Net cash provided by
operating activities 18,493,784 20,141,323
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-38
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
Condensed Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from investing
activities:
Proceeds from the sale
of rental vehicles 11,955,943 8,954,302
Purchases of rental vehicles (536,879) (1,446,985)
Proceeds from the sale of furniture,
equipment and leasehold
improvements 160,476 -
Additions to furniture, equipment
and leasehold improvements (326,433) (1,277,623)
------------ -----------
Net cash provided by
investing activities 11,253,107 6,229,694
------------ -----------
Cash flows from
financing activities:
Principal payments of
senior debt (29,495,990) (26,566,287)
------------ -----------
Net cash used in
financing activities (29,495,990) (26,566,287)
------------ -----------
Net increase (decrease) in cash 250,901 (195,270)
Cash and cash equivalents at
beginning of period 831,952 1,719,123
------------ -----------
Cash and cash equivalents
at end of period $1,082,853 $1,523,853
============ ===========
</TABLE>
SEE ACCOMPANYING NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
F-39
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
Condensed Consolidated Statements of Cash Flows, continued
Supplemental schedule of noncash investing and financing
activities:
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Senior debt incurred for
additions to rental vehicles $373,869 $27,456,175
Senior debt incurred from
conversion of lease obligations $ - $1,400,000
Rental vehicle purchases not
yet financed $58,592 $ -
Reduction of senior debt
resulting from turnback
of rental vehicles $(18,026,070) $(24,801,476)
Capital lease obligation
incurred from purchase of
equipment $93,400 $72,911
</TABLE>
F-40
<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
In the opinion of management, the unaudited financial information included
in this report contains all adjustments, consisting of normal recurring
adjustments only, necessary for a fair presentation of the results of
operations for the interim periods covered and the financial condition of
the Company at the dates of the balance sheets. The operating results for
the interim periods are not necessarily indicative of the results to be
expected for the full fiscal year. The accounting policies followed by the
Company are set forth in Note 1 to the consolidated financial statements
included in this Proxy Statement for the years ended December 31, 1994,
1993 and 1992.
Certain prior year amounts have been reclassified to conform to the 1995
presentation.
F-41
<PAGE>
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is executed and entered into effective
July 18, 1995, by and between PACIFIC INTERNATIONAL SERVICES CORP., a California
corporation ("Seller"), and DOLLAR SYSTEMS, INC., a Delaware corporation, or its
permitted assigns ("Buyer").
RECITALS:
a. Seller owns a vehicle rental and related business operated
under a license with Buyer as a separate and distinct division in the State of
Hawaii; and
b. Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, the business consisting of substantially all such vehicle
rental division's assets and assume substantially all such vehicle rental
division's liabilities; and
c. Seller and Buyer have initiated certain litigation against
one another, and Seller has also sued other parties, as hereafter described; and
d. Seller and Buyer desire to settle the claims which are the
subject matter of such litigation, as well as any and all other controversies
between them except for any rights and responsibilities under this Agreement.
NOW, THEREFORE, in consideration of the premises, covenants and
agreements of the parties set forth herein and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
meanings set forth below:
(a) "AA" shall mean Arthur Andersen & Company, who may serve as
the Deciding Accountant in accordance with Section 5(e) hereof.
(b) "ADR" means alternative dispute resolution through
submission for binding determination to a private adjudicator, as more
particularly described in Section 19(b) hereof.
(c) "Affiliate" means any person or entity controlling,
controlled by, or under common control with another person or entity.
(d) "Agency Agreement" means the Agency Agreement executed as of
the date hereof and attached hereto as Exhibit A to perfect
<PAGE>
Buyer's lien on all issued and outstanding South Seas stock as provided in
the Stock Pledge Agreement.
(e) "Agreed Practices" means accounting practices, procedures
and/or methodologies specifically identified on Exhibit B hereto and agreed to
by Seller and Buyer. The Agreed Practices shall be meant to clarify options
selected under GAAP or other procedures followed by Seller in its December 31,
1994 audited financial statements which may not specifically follow GAAP. The
Agreed Practices shall not permit departures from GAAP unless specifically
identified on Exhibit B.
(f) "Agreement" means this Settlement Agreement together with
all exhibits and schedules thereto incorporated herein by reference, whether
attached as of the date of execution hereof or later, and as modified to
reflect permitted changes in the exhibits and schedules from time to time and
made as of the Closing, which such changes are subject to the approval of the
other party as provided elsewhere herein.
(g) "Assets" means all of the assets of Seller relating to or
used in operation of the Division and including all books and records in any
form pertaining thereto (excluding the Excluded Assets, which are to be retained
by Seller), and which are set forth as assets on the balance sheet constituting
a part of the Preliminary Financial Information, AND a detailed description of
which is also attached hereto as Exhibit C (which shall include Assets and
rights of Seller relating to the Division which are not set forth in the
Financial Statements including, without limitation, permits, contract rights,
customer lists, etc.), and which Exhibit C will be updated to reflect permitted
changes in the Assets on hand at the time of Closing. The Assets will also be
described in the Bill of Sale and reflected as assets in the Unaudited Closing
Balance Sheet and finalized in the Final Closing Balance Sheet. The Assets
shall expressly include all of the existing contract rights in favor of Seller
created pursuant to paragraph 10 of that certain Agreement dated September 30,
1991, by and among Seller, Buyer and Dollar Rent A Car Systems, Inc.
(h) "Assumption Agreement" means the agreement in substantially
the form attached hereto as Exhibit D pursuant to which Buyer assumes the
Liabilities at the time of Closing.
(i) "Basic Documents" means this Agreement, and the Assumption
Agreement, Bill of Sale, PISC Noncompetition Agreement, Robin Noncompetition
Agreement, Agency Agreement, Stock Pledge Agreement, the PISC General Release,
the Dollar General Release, the Robin General Release, the Holdback Agreement,
Standstill Agreement and Dismissal Agreement.
(j) "Bill of Sale" means the Bill of Sale and General Conveyance
in substantially the form of Exhibit E attached hereto, with its attachments
listing and itemizing the Assets as of the
-2-
<PAGE>
Closing, which will evidence the sale and conveyance of the Assets from
Seller to Buyer.
(k) "Buyer Delivered Agreements" shall have the meaning set
forth in Section 16(a)(2) of this Agreement.
(l) "Cash Amount" shall have the meaning set forth in Section
4(a) hereof, and shall finally be determined upon imposition of the procedures
set forth in Section 5 of this Agreement.
(m) "Closing" means the consummation of the sale, transfer and
conveyance of the Assets by Seller and the purchase of the Assets by Buyer
paying the Estimated Cash Amount, if any, the assumption of the Liabilities by
Buyer, and the settlement of claims by Buyer and Seller to the extent provided
herein, and the making of other agreements, all as contemplated by this
Agreement.
(n) "D&T" means Deloitte & Touche L.L.P., auditors for Buyer.
(o) "Debentures" means Seller's outstanding $5,250,000 10%
Convertible Subordinated Debentures due 2007.
(p) "Debt Ceiling Covenant" shall have the meaning set forth in
Section 17(a)(18).
(q) "Deciding Accountant" shall have the meaning set forth in
Section 5(e) hereof.
(r) "Disagreement Notice" shall have the meaning set forth in
Section 5(d) hereof.
(s) "Dismissal Agreement" means the agreement in substantially
the form of Exhibit F attached hereto.
(t) "Division" means the business of Seller as it relates to all
vehicle rental and related operations heretofore operated by Seller under
Buyer's system and its License Agreement with Buyer.
(u) "Dollar General Release" means the agreement in
substantially the form of Exhibit G attached hereto.
(v) "Elective Net Worth Amount" means in the event the Minimum
Net Worth Requirement has not been met but Buyer elects to close pursuant to
Section 4(c)(2) hereof, the amount by which the Net Worth is more negative than
negative Two Million One Hundred Thousand Dollars (-$2,100,000) as reflected on
the Unaudited Closing Balance Sheet.
(w) "Estimated Cash Amount" shall mean a dollar amount
determined in the same manner as the Cash Amount except that such determination
shall be made with reference to the Unaudited Closing Balance Sheet rather than
with reference to the Final Closing Balance Sheet.
-3-
<PAGE>
(x) "Excluded Assets" means the assets of Seller at Closing
which are specifically retained by Seller (including all books and records in
any form pertaining thereto) including, without limitation, (i) the South Seas
stock (but which is subject to the Stock Pledge Agreement) and all other assets
of Seller not relating to and not used in the business of the Division; (ii) all
items of Assets which are disposed of by Seller in the ordinary course of its
business prior to Closing and as permitted hereby; (iii) the specified assets of
Seller listed on Exhibit H hereto which will be updated at Closing, and which
shall include, without limitation, any receivables from Seller's officers,
directors, shareholders or Affiliates including, without limitation, South Seas,
as well as any investments in Seller's shareholders or Affiliates including,
without limitation, South Seas. The Excluded Assets shall specifically include,
I.E., there shall be expressly excluded from the Assets being acquired by Buyer,
any corporate minute books and records, shareholder transfer records or ledgers,
or other organizational or corporate governance information of Seller or South
Seas.
(y) "Final Closing Balance Sheet" means the audited balance
sheet of the Division, prepared in accordance with GAAP Consistently Applied as
modified and clarified by the Agreed Practices, as of the date of Closing, which
shall reflect resolution of all claims described in Sections 19(a) and (b), if
any, pending at Closing, as finally accepted in accordance with the provisions
specified herein.
(z) "Final Net Worth" means the Net Worth of the Division as set
forth on the Final Closing Balance Sheet. The Final Net Worth will be
determined in accordance with GAAP Consistently Applied as modified and
clarified by the Agreed Practices.
(aa) "Financial Statements" shall have the meaning set forth in
Section 15(b)(1) hereof.
(bb) "GAAP" means generally accepted accounting principles.
(cc) "GAAP Consistently Applied" means GAAP applied on a basis
consistent with that of the audited financial statements of the Seller as of and
for the year ended December 31, 1994, reported on by PW. Where there are
alternative principles under GAAP, the principles to be used shall be those
consistently used by the Seller in preparing its said audited financial
statements as of and for the year ended December 31, 1994, assuming such
principles are acceptable under GAAP.
(dd) "HSR Act" means the Hart Scott Rodino Antitrust Improvements
Act of 1976, as amended.
(ee) "Holdback Agreement" means the Holdback Agreement in
substantially the form of Exhibit K attached hereto pursuant to
-4-
<PAGE>
which the Holdback Amount, if any, will be held pending final
determination of the Cash Amount.
(ff) "Holdback Amount" means the amount held by the escrow agent
under the Holdback Agreement pursuant to Section 6 hereof, if any.
(gg) "ISRB" shall have the meaning set forth in Section 19(c)
hereof.
(hh) "Liabilities" means and includes only those specific
contracts, leases, agreements, litigation claims and detailed liabilities of
Seller relating to operation of the Division listed on Exhibit I attached
hereto, and which will be updated to reflect permitted changes in the
Liabilities at the Closing, AND as the same are reflected as a liability in the
Unaudited Closing Balance Sheet and as finalized in the Final Closing Balance
Sheet, and including also the information identified on Exhibit J hereto
pertaining to Off-balance Sheet Liabilities which will likewise be updated as of
the time of Closing, together with all books and records in any form pertaining,
identifying or memorializing the Liabilities (but not adding thereto other
liabilities not expressly set forth above). Notwithstanding the foregoing: (i)
no liabilities and obligations of any kind whatsoever (whether accrued,
absolute, liquidated or unliquidated, contingent, known, unknown or otherwise)
that are not expressly included as a Liability on Exhibit I hereto as of the
time of Closing, and as reflected in the Unaudited Closing Balance Sheet and as
finalized in the Final Closing Balance Sheet, or Exhibit J hereto as updated to
the time of Closing pertaining to Off-balance Sheet Liabilities, shall be
assumed by the Buyer; and (ii) any income, general, excise or conveyance taxes
or other taxes incurred by Seller in connection with the Closing shall not be
assumed as a part of the Liabilities.
(ii) "License Agreement" means the License Agreement dated April
3, 1974, as amended, by and between Buyer and Seller, and pursuant to which
Seller has been authorized to conduct the business of the Division in the State
of Hawaii.
(jj) "Master Lease" means the Master Lease Agreement between
Buyer and Seller dated October 22, 1993.
(kk) "Minimum Net Worth Requirement" shall mean a Net Worth as
reflected on the Unaudited Closing Balance Sheet of not more negative than
negative Two Million One Hundred Thousand Dollars (-$2,100,000).
(ll) "Net Worth" means the net worth of the Division, i.e.,
Assets (including all intangibles other than goodwill) minus Liabilities (other
than Off-balance Sheet Liabilities), as evidenced by the Unaudited Closing
Balance Sheet and as finalized in the Final Closing Balance Sheet.
-5-
<PAGE>
(mm) "Notice of Third Party Claim" shall have the meaning set
forth in Section 20(f)(1) hereof.
(nn) "Off-balance Sheet Adverse Event" means the occurrence,
existence or accrual of one or more previously undisclosed Off-balance Sheet
Liability or Liabilities not originally listed on Exhibit J hereto equalling or
exceeding Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate.
(oo) "Off-balance Sheet Liability" means any obligation which is
not shown as a liability on the Division's balance sheet constituting a part of
the Preliminary Financial Information, and is listed on Exhibit J hereto with
respect to such obligations initially, including certain litigation claims, and
as the same will be updated to the date of Closing in the same manner as
Seller's schedules. Off-balance Sheet Liabilities shall expressly include but
shall not be limited to expenses and liabilities that are unknown to Seller upon
preparation of its schedules and exhibits that may be incurred by Buyer after
Closing that are in excess of the amounts Seller has reserved for such expenses
and liabilities on the Unaudited Closing Balance Sheet as finalized in the Final
Closing Balance Sheet; subject, however, to Seller's obligation to fully provide
the information required in preparation of the exhibits and schedules hereto.
(pp) "PISC General Release" means the agreement in substantially
the form of Exhibit M attached hereto.
(qq) "PISC Noncompetition Agreement" means the agreement in
substantially the form of Exhibit N attached hereto.
(rr) "Preliminary Financial Information" means the unaudited
balance sheet, income statement and statement of cash flows of the Division as
of June 30, 1995, together with account level detail, detailed supporting
receivables and reserves, and a forecast of cash flow and estimated Net Worth
and balance sheet for the Division as of October 31, 1995 and November 30, 1995.
(ss) "PW" means Price Waterhouse L.L.P, auditors for Seller.
(tt) "Retained Employee Liabilities" shall mean employment-
related liabilities, accruals or similar obligations of any kind whatsoever as
to any employees of the Division not hired by Buyer as of the Closing including,
without limitation, claims for salary, fringes, unemployment compensation,
severance, accrued vacation, accrued leave or any other statutory or other
allowances to such employees arising after Closing by reason of the contemplated
transaction, together with any unemployment insurance or Hawaii dislocated
workers allowance payable to Division employees even if they are hired by Buyer
upon Closing. Notwithstanding any provision hereof to the contrary, Retained
Employee Liabilities relate only to accruals or statutory entitlements as of
Closing, and not future salary or benefits pursuant to contracts or
-6-
<PAGE>
otherwise including, without limitation, Seller's commitment described in
Section 19(d)(1)(ii) if not assumed by Buyer in its sole discretion.
(uu) "Retained Liabilities" means the liabilities of Seller at
Closing which are specifically retained by Seller (including all books and
records in any form pertaining thereto) and which Seller shall pay, perform and
discharge, and for which Buyer is not responsible nor is it assuming, which
liabilities include, without limitation, (i) the Debentures; (ii) any
liabilities, claims or obligations of Seller, known or unknown, fixed or
contingent, liquidated or unliquidated, accrued or unaccrued, arising or that
may arise from any asserted or unasserted claims, or as specified on Exhibit L
hereto, in each case OTHER THAN the Liabilities which are set forth on the
Unaudited Closing Balance Sheet and as finalized in the Final Closing Balance
Sheet, and the specified liabilities of Seller listed on Exhibit I hereto which
will be updated at Closing, or on Exhibit J hereto describing Off-balance Sheet
Liabilities which will likewise be updated at Closing; (iii) all claims,
liabilities or obligations of South Seas; (iv) all claims, liabilities or
obligations of Seller relating to South Seas; (v) liabilities of Seller to South
Seas or any other officer, director, shareholder or Affiliate of Seller; or (vi)
liabilities relating to or arising from or that constitute liens against the
Excluded Assets. Items to be listed on Exhibit L hereto, as described in (ii)
above, shall include, without limitation, any and all claims against Seller
related to cancellation of 700 1995 Hyundai Elantras ordered from Hyundai Motor
America; Maui base yard construction dispute with Tinsmith, Inc. in the
estimated amount of $55,735.84; dispute with General Motors Acceptance
Corporation on audit of returned vehicle charges for 1992 and 1993 in the
estimated amount of $263,614.20; any employment-related liabilities, accruals or
obligations of any kind whatsoever as to any employees of Seller (or South Seas)
not hired by Buyer as of the Closing including, without limitation, claims for
salary, fringes, unemployment compensation, severance, accrued vacation, accrued
leave or any other statutory or other allowances to such employees arising after
Closing by reason of the contemplated transaction; any unemployment insurance or
Hawaii dislocated worker's allowance payable to Seller's employees even if they
are hired by Buyer upon Closing; any and all claims against Seller for
employment practices including terminations before Closing; and any claims or
obligations for punitive and/or exemplary damages or for civil or criminal or
regulatory fines or penalties for the period on or before the date of Closing.
(vv) "Review Period" shall have the meaning set forth in Section
5(d) hereof.
(ww) "Robin General Release" means the agreement in substantially
the form of Exhibit O attached hereto.
-7-
<PAGE>
(xx) "Robin Noncompetition Agreement" means the agreement in
substantially the form of Exhibit P attached hereto.
(yy) "Seller Delivered Agreements" shall have the meaning set
forth in Section 15(a)(2) of this Agreement.
(zz) "South Seas" means South Seas Motors, Inc., a Hawaii
corporation, which is a wholly-owned subsidiary of Seller.
(aaa) "Standstill Agreement" means the agreement in the form of
Exhibit Y hereto executed as of the date of this Agreement.
(bbb) "Stock Pledge Agreement" means the agreement executed as
of the date hereof in the form of Exhibit Q attached hereto.
(ccc) "Unaudited Closing Balance Sheet" means the unaudited
balance sheet of the Division as of the Closing (or as near as practicable),
prepared by Seller, which will not reflect payment by Buyer, if required, of the
Estimated Cash Amount. The Unaudited Closing Balance Sheet shall be prepared in
accordance with GAAP Consistently Applied as modified or clarified by the Agreed
Practices.
(ddd) "Unaudited Net Worth" means the Net Worth of the Division
as disclosed on the Unaudited Closing Balance Sheet.
(eee) "Vehicle Return Procedures" means the procedures attached
hereto as Exhibit R.
2. PREPARATION OF EXHIBITS AND SCHEDULES.
(a) Seller and Buyer understand and agree that, in order to
expedite the execution of this Agreement by both parties hereto, and in order to
avoid the delay necessary to finalize all exhibits to this Agreement, on or
before 5:00 p.m. C.D.T. on July 26, 1995, Seller and Buyer shall have agreed
upon, and upon such agreement shall be deemed to have incorporated herein by
reference, all exhibits hereto not attached at the time of execution of this
Agreement. The parties will exchange appropriate written evidence of agreement
on such remaining exhibits. In the event the exhibits have not been agreed upon
by 5:00 p.m. C.D.T. on July 26, 1995, then Buyer or Seller shall be permitted to
terminate and rescind this Agreement, each in their sole discretion, or mutually
extend and/or re-extend the period of time for the exhibits to be finalized.
Notwithstanding anything to the contrary provided in this Agreement, (i) the
parties shall have until conclusion of Buyer's due diligence period as described
in Section 8 hereof to propose to each other, and to either accept or reject,
the terms and scope of the Agreed Practices, and (ii) exhibits to be updated at
Closing shall be supplemented and presented at the times and in the manner
required for schedules under Section 2(b) hereof.
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(b) SCHEDULES. Seller and Buyer also understand and agree that,
in order to expedite the execution of this Agreement, and in order to avoid the
delay necessary to compile schedules of exceptions to the representations and
warranties set forth below, on or before 5:00 p.m. C.D.T. on July 26, 1995,
Seller will deliver to Buyer its schedules identified herein, and any item
listed on such schedules shall be deemed to supplement or state an exception to
the identified representations and warranties made by Seller as they are made on
the date hereof, even if there is not an appropriate cross reference to a
schedule appearing in Section 15 hereof. Upon receipt of such schedules, and
through the due diligence period, during which time Buyer shall be afforded the
opportunity to review and examine the materials and information referenced on
such schedules, Buyer may terminate this Agreement, without any liability to
Seller, if anything set forth on such schedules is unacceptable to Buyer in its
sole discretion. Such schedules shall be updated by Seller during the period
from their delivery to the Closing not later than the tenth (10th) day of each
month with respect to matters which should properly have been added to such
schedules as to events, conditions, circumstances or transactions occurring or
discovered during the most recently completed calendar month. Seller shall
furnish its final schedules hereto (as well as exhibits which are required to be
updated) not less than five (5) business days before the Closing (provided such
advance delivery does not release Seller from the obligation to update through
and including the date of Closing as to new or previously unknown matters),
during which time Buyer may review such changes and may terminate this
Agreement, without any liability of Buyer to Seller, if anything set forth on
such schedules is unacceptable to Buyer in its sole discretion. Notwithstanding
any provision in this Agreement to the contrary, all references to the
representations and warranties of Seller made herein shall be deemed to relate
only to such representations and warranties as modified or supplemented, from
time to time, by the schedules hereto, and irrespective of whether or not the
text of Section 15 currently cross references a schedule. In addition,
representations and warranties appearing in this Agreement upon execution
hereof, and until initial delivery of the schedules as required hereby, shall
not be deemed completed or made until the time of initial delivery of the
applicable schedules.
3. PRINCIPAL TRANSACTIONS.
(a) PURCHASE AND SALE. At the Closing provided for in Section
11 of this Agreement: (i) the Seller shall sell, convey, assign and transfer
the Assets and assign the Liabilities to the Buyer; (ii) the Buyer shall
purchase the Assets, make payment of the Estimated Cash Amount, if any, and
assume the Liabilities; and (iii) each of the Seller and the Buyer shall take
the other actions that Sections 12 and 13 of this Agreement, respectively,
contemplates that each such party will take.
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(b) NONCOMPETITION AGREEMENTS. At Closing, (i) Seller shall
execute and deliver the PISC Noncompetition Agreement, whereby Seller shall
obligate itself not to compete with or solicit against Buyer in accordance
therewith for a period of two (2) years from the date of Closing; and (ii)
Seller shall cause Alan Robin to execute and deliver the Robin Noncompetition
Agreement, whereby he shall obligate himself not to compete with or solicit
against Buyer in accordance therewith for a period of one (1) year from the date
of Closing. Seller acknowledges and agrees and shall cause Robin to acknowledge
and agree that payment of the purchase price and the other consideration
received by Seller and Robin pursuant hereto is full, fair and adequate
consideration for all of their respective covenants and agreements in this
Agreement including, without limitation, the PISC Noncompetition Agreement, the
PISC General Release, the Robin General Release and the Robin Noncompetition
Agreement.
(c) SETTLEMENT OF CLAIMS. At Closing, (i) Seller shall execute
and deliver the PISC General Release; (ii) Seller shall cause Alan Robin to
execute and deliver the Robin General Release; (iii) Buyer shall execute and
deliver the Dollar General Release; and (iv) Seller, Buyer and if necessary,
other Affiliates named in litigation, shall execute the Dismissal Agreement.
Seller and Buyer respectively undertake to cause any such other necessary
parties who are their Affiliates to execute and deliver the Dismissal Agreement.
4. PURCHASE CONSIDERATION.
(a) DETERMINATION. In addition to Buyer's execution and
delivery of the Assumption Agreement at Closing and acceptance of the
Liabilities indicated thereby, the cash purchase price to be paid by Buyer for
the Assets ("Cash Amount"), which will be disbursed to the trustee for the
Debentures, shall be One Million Five Hundred Thousand Dollars ($1,500,000),
less that amount of the Net Worth that is more negative than negative Six
Hundred Thousand Dollars (-$600,000) immediately before and as of the date of
Closing, or alternatively, plus that amount of the Net Worth that is more
positive than negative Six Hundred Thousand Dollars (-$600,000) immediately
before and as of the date of Closing.
(b) NET WORTH. In determining the Net Worth at the time of
Closing:
(1) The valuation of Assets and Liabilities of the Division
in both the Unaudited Closing Balance Sheet and the Final Closing
Balance Sheet shall be presented in accordance with GAAP
Consistently Applied as modified or clarified by the Agreed
Practices. There shall be no changes from the Agreed Practices
unless specifically agreed otherwise in writing by Seller and
Buyer.
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(2) All determinations of Net Worth will be based on GAAP
Consistently Applied as modified or clarified by the Agreed
Practices, I.E., historical cost, and shall exclude goodwill.
(3) The Liabilities for purposes of determining Net Worth
shall be inclusive of indebtedness of Seller to Buyer; subject,
however, to exclusion from such debt any amounts which are then
the subject of a good faith dispute being resolved in accordance
with the procedures outlined in Section 19(a) and (b) hereof.
(4) Neither Excluded Assets nor Retained Liabilities shall
for any purpose under this Agreement be considered in the
computation of Net Worth.
(c) LIMITS. The Cash Amount payable pursuant hereto is subject
to the following limits:
(1) The operation of Section 4(a) hereof shall not require
under any circumstance that Buyer pay a Cash Amount (or Estimated
Cash Amount at Closing) exceeding the sum of Two Million One
Hundred Thousand Dollars ($2,100,000).
(2) The operation of Section 4(a) hereof shall not require
that Buyer or Seller complete the purchase and sale contemplated
hereby in the event the Unaudited Net Worth of the Division is
more negative than negative Two Million One Hundred Thousand
Dollars (-$2,100,000) at the time of Closing. In such event,
either Seller or Buyer may terminate this Agreement without
liability to the other. If Buyer elects to close, however, under
circumstances where the Unaudited Net Worth is more negative than
negative Two Million One Hundred Thousand Dollars (-$2,100,000),
Seller shall not be required to pay Buyer the Elective Net Worth
Amount.
5. ADJUSTMENTS TO ESTIMATED CASH AMOUNT. The Cash Amount shall be
determined and adjusted from the Estimated Cash Amount as follows:
(a) UPWARD ADJUSTMENT. The Cash Amount shall be adjusted
upward, on a dollar-for-dollar basis, to the extent that the Final Net Worth
exceeds or is more positive than the amount of Unaudited Net Worth.
(b) DOWNWARD ADJUSTMENT. The Cash Amount shall be adjusted
downward, on a dollar-for-dollar basis, to the extent the Final Net Worth is
less than or more negative than the Unaudited Net Worth.
(c) FINAL CLOSING BALANCE SHEET. Buyer shall, at Buyer's sole
cost and expense, prepare and deliver to Seller within sixty (60) days of the
date of Closing the Final Closing Balance Sheet which shall include, in addition
to the other information set forth
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therein, the Final Net Worth, and reflect resolution of any disputes subject
to Sections 19(a) and (b) hereof (but not Section 20(f)(3), if applicable).
The Final Closing Balance Sheet, and the Assets and Liabilities reflected
thereon, shall be prepared and determined in accordance with GAAP
Consistently Applied as modified or clarified by the Agreed Practices, and
shall be accompanied by an independent auditor's report thereon of Buyer's
independent auditors, D&T, to the effect that the Final Closing Balance
Sheet, and the Assets and Liabilities reflected thereon, were prepared and
determined in accordance with GAAP Consistently Applied as modified or
clarified by the Agreed Practices. The Final Closing Balance Sheet shall be
accompanied by a supplementary schedule setting forth the calculation of the
adjustment to the Cash Amount from the Estimated Cash Amount contemplated by
Section 5(a) or (b), as the case may be. Buyer and D&T shall make available
to Seller upon Seller's request and its independent auditor, PW, all work
papers, books and records used in the preparation and audit of the Final
Closing Balance Sheet, and shall provide copies of the same to Seller upon
Seller's request.
(d) REVIEW PERIOD. Seller shall have fifteen (15) business days
after its receipt of (i) the Final Closing Balance Sheet and related
supplementary schedules, and (ii) if requested by Seller, all work papers, books
and records used in the preparation and audit of the Final Closing Balance
Sheet, to review them ("Review Period"). On or prior to the expiration of the
Review Period, Seller shall notify Buyer in writing whether it agrees or
disagrees with Buyer's calculation of any adjustment to the Cash Amount or where
no Estimated Cash Amount was paid the determination of Final Net Worth more
negative than the Unaudited Net Worth and, if it disagrees (the "Disagreement
Notice"), the basis of its disagreement, including its calculation of any
adjustment to the Cash Amount or Final Net Worth, respectively. If Buyer does
not receive the Disagreement Notice on or prior to the expiration of the Review
Period, Seller shall be deemed to have approved the Final Closing Balance Sheet
and Buyer's calculation of any adjustment to the Cash Amount applicable thereto
and the Final Net Worth.
(e) DISAGREEMENT PROCEDURE. If Buyer receives the Disagreement
Notice, Seller and Buyer shall, in good faith, attempt to resolve the
disagreement within fifteen (15) business days after Buyer's receipt of the
Disagreement Notice. If they cannot resolve the disagreement within such time
period, they promptly shall refer such disagreement for resolution to AA, or if
AA is unable to serve or declines to act, or if at the time of such referral AA
is not independent of each of Buyer and Seller, such other firm of independent
accountants of recognized national standing as mutually selected by Buyer and
Seller (AA or such other firm being referred to herein as the "Deciding
Accountant"). The determination of the Deciding Accountant as to the
calculation and amount of any adjustment to the Cash Amount and the Final Net
Worth shall be rendered within thirty (30) days after such disagreement is
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referred to the Deciding Accountant, and shall be binding upon the parties
hereto.
(f) COOPERATION WITH DECIDING ACCOUNTANT. Each of Buyer and the
Seller shall furnish to the Deciding Accountant, at its own cost and expense,
such documents and information as the Deciding Accountant may request, and each
party may also furnish to the Deciding Accountant such other information and
documents as it deems relevant, in all cases with copies (where it would not be
unreasonably costly or burdensome to provide copies) or notification (with
reasonable rights of access) being given by the other party. The fees and
expenses payable to the Deciding Accountant shall be borne one-half by Seller
and one-half by Buyer.
(g) RESOLUTION. The Final Closing Balance Sheet as agreed to by
the parties or as determined by the Deciding Accountant, and the Final Net Worth
reflected thereon, shall be considered the "Final Closing Balance Sheet" and the
"Final Net Worth," respectively, for all purposes of this Agreement. The latter
of the date (i) on which the parties agreed upon the Final Closing Balance Sheet
and the calculation of any adjustment to the Cash Amount and the Final Net
Worth, or (ii) the date on which the Deciding Accountant renders its decision
with respect thereto, or (iii) resolution of all good faith disputes in
accordance with Sections 19(a) and (b) hereof (but not Section 20(f)(3) hereof),
shall be called the "Final Settlement Date."
(h) FINAL PAYMENT. Within five (5) business days after the
Final Settlement Date, (i) if the Cash Amount exceeds the Estimated Cash Amount
paid at Closing, Buyer shall pay to the trustee for the Debentures the amount of
such excess by wire transfer to an account identified in writing by Seller, and
(ii) if the Estimated Cash Amount paid at Closing exceeds the Cash Amount, or
if, in a circumstance where no Estimated Cash Amount was paid, the Final Net
Worth is more negative than the Unaudited Net Worth, Seller shall pay to Buyer
the amount of the excess of the Estimated Cash Amount over the Cash Amount, or
the amount of Final Net Worth which is more negative than the amount of
Unaudited Net Worth, respectively, by wire transfer to an account of Buyer
identified in writing by Buyer to the extent not satisfied by disbursement of
the Holdback Amount, if an Estimated Cash Amount was paid, pursuant to the
Holdback Agreement.
(i) FINAL ALLOCATIONS. Any adjustments to the Cash Amount or as
a result of determination of the Final Net Worth required by application of this
Section 5 shall be allocated among the Assets (or to the residual) in the same
manner or proportion as the allocation required by Section 13(e) hereof.
6. HOLDBACK REQUIREMENTS. In order to better assure that Buyer will
pay no more than the Cash Amount if it is determined to be less than the
Estimated Cash Amount paid at Closing, Seller and Buyer agree that the greater
of (i) ten percent (10%) of the
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Estimated Cash Amount or (ii) the portion of the Estimated Cash Amount which
exceeds One Million Five Hundred Thousand Dollars ($1,500,000) (the greater
of such amounts being the "Holdback Amount"), which is otherwise to be paid
to the trustee for the Debentures at Closing, will instead be delivered in
escrow pursuant to the terms of the Holdback Agreement. The terms of the
Holdback Agreement shall provide, among other things, that if the Estimated
Cash Amount paid at Closing exceeds the Cash Amount, the escrow agent
pursuant thereto shall pay to Buyer at the time required by Section 5 the
lesser of the amount of such excess or the Holdback Amount. Any sums still
held under the Holdback Agreement after disbursement of the Holdback Amount
to Buyer will be paid over to the trustee for the Debentures.
7. SOUTH SEAS STOCK PLEDGE.
(a) PLEDGE. Contemporaneously with the execution of this
Agreement, Seller shall execute and deliver the Stock Pledge Agreement, pledging
as a first and preferred lien and without any junior liens, one hundred percent
(100%) of the issued and outstanding capital stock of South Seas to secure the
following:
(1) The Master Lease payments (subject to customary offsets
but none accruing on or before April 30, 1995 except as otherwise
specifically provided in Section 19(a) hereof) accruing or
becoming due and payable from and after May 1, 1995 until the
earlier of Closing or termination of this Agreement;
(2) The payment of all other obligations of Seller to Buyer
accruing or becoming due and payable from and after May 1, 1995
until the earlier of Closing or termination of this Agreement and
expressly including amounts that are hereafter disputed and are
subject to the procedure outlined in Sections 19(a) and (b)
hereof, during the pendency of the dispute and until resolution
(but not claims submitted for ADR as described in Section
20(f)(3) hereof);
(3) Buyer's money damages and incidental, out of pocket
losses as awarded by the final, non-appealable order of a court
for failure or refusal to close after satisfaction (or waiver by
the party entitled to the satisfaction) of all conditions
precedent to the obligation of both parties to the Closing;
(4) The amount of the downward adjustment from the
Estimated Cash Amount to the Cash Amount necessitated upon
receipt of the Final Closing Balance Sheet, to the extent not
satisfied by the Holdback Amount;
(5) In a circumstance where no Estimated Cash Amount was
paid, the amount by which the Final Net Worth is more negative
than the Unaudited Net Worth amount;
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(6) If Closing occurs, any amounts or Assets required to be
returned by Buyer pursuant to the order of a court under any
preference or fraudulent transfer law; provided, however, that if
as of that date which is ninety-one (91) days after Closing (i)
Seller has not filed a voluntary petition for relief under the
Federal Bankruptcy Code, as amended, (ii) an involuntary petition
has not been filed against Seller under the Federal Bankruptcy
Code, as amended, or (iii) no such action or assertion in such
bankruptcy case has been filed or made, then the subject pledge
and lien shall lapse insofar as its secures the obligation
described in this Section 7(a)(6). If any such filing is made,
or action or assertion in such bankruptcy case is made on or
before such ninety-first (91st) day, then this lien shall
continue through completion of any such case under the Federal
Bankruptcy Code, as amended, and until resolution by the final,
non-appealable order of a court.
(b) SECONDARY COLLATERAL. Insofar and only insofar as the South
Seas stock secures adjustments necessitated upon receipt of the Final Closing
Balance Sheet, and in the event the Estimated Cash Amount paid at Closing
exceeds the Cash Amount, Buyer shall first receive the Holdback Amount from the
escrow agent under the Holdback Agreement, and then any amount remaining
unsatisfied thereafter shall be secured by the South Seas stock.
(c) AGENT. Pursuant to the Agency Agreement executed on the
date hereof, the South Seas stock is held by Liberty Bank and Trust Company of
Tulsa, N.A., to perfect Buyer's lien.
8. DUE DILIGENCE. From and after the date hereof and prior to the
Closing, Seller agrees to permit Buyer and its representatives full access to
the Assets, Liabilities and the Division's operations, and its business and
financial records, contracts and prospects files and any and all other
documentation to permit it to complete its due diligence procedures and review.
In addition, the parties agree that Buyer shall complete due diligence
procedures and review of Preliminary Financial Information and Division
operations within forty-five (45) days after initial delivery of complete and
conforming schedules (as well as exhibits which are required to be updated) by
Seller pursuant to Section 2(b) of this Agreement. At Seller's request, Buyer
shall confirm in writing within two (2) days after Seller's initial submission
of its schedules (as well as initial exhibits which are required to be updated),
whether or not the Buyer believes that Seller's submissions as of such time have
been sufficiently "complete and conforming" to commence the 45-day period. In
the event in response to initial deliveries, Buyer within two (2) days requests
supplementation or clarification, then upon Seller's response Seller may again
request such confirmation. Buyer has the right at any time during such 45-day
period to terminate this Agreement for any reason or no reason at all, as well
as other rights of termination at other times, as more particularly provided in
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Section 21(d) hereof. The Agreed Practices will be finalized by the parties
before completion of the 45-day period described herein. Upon entering into
this Agreement, three Agreed Practices have been identified and placed on
Exhibit B. These do not constitute all of the Agreed Practices as the same are
expressly permitted to be developed by the parties during the 45-day period
described herein. Seller has specifically requested Buyer accept such exhibit
without Buyer doing field work or other verifications necessary to substantively
review the content of Exhibit B as of the date of this Agreement. However, if
the transaction proceeds beyond the 45-day due diligence period, the three
Agreed Practices as identified on today's date will be used in developing the
Unaudited Closing Balance Sheet and Final Closing Balance Sheet. Due to Buyer
not having yet tested or reviewed the application of such Agreed Practices as of
the date of execution hereof, however, it is expressly understood that within
the 45-day period Buyer may terminate this Agreement without any liability to
Seller for any reason, and even if such reason is solely Buyer's dissatisfaction
with the application of any one or more of the Agreed Practices identified on
Exhibit B on the date hereof.
9. CONDITIONS TO THE OBLIGATION OF BUYER TO CLOSE.
All of the obligations of Buyer under this Agreement are subject
to the fulfillment of each of the following conditions, any one or more of which
may be waived by the Buyer as a condition to Closing:
(a) The representations and warranties of the Seller contained
in this Agreement or in any certificate, exhibit, schedule or other document
executed and delivered by Seller pursuant to, or in connection with, this
Agreement shall be true as of the date when made, shall be deemed to be made
again at and as of the date of Closing and shall be true at and as of the
Closing.
(b) The Seller shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or at the Closing.
(c) Between December 31, 1994 and the Closing: (i) no damage to
or destruction of the Assets which would constitute a materially adverse change
in the condition of the Assets shall have occurred; (ii) no event shall have
occurred or failed to occur as a result of which performance by the Buyer of any
of the Liabilities would be materially more burdensome; and (iii) no materially
adverse change in the Division shall have occurred. Seller's experiencing
operating losses since December 31, 1994 as reflected in the Preliminary
Financial Information shall not be deemed a failure of this condition.
(d) The Seller shall have provided the Buyer with all necessary
consents by third parties that all contracts, agreements, leases, concessions,
borrowings, commitments, arrangements,
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undertakings and understandings included in the Assets or the Liabilities
which would otherwise be in default (assuming that any required notice of
default has been given and any periods for cure have expired) or subject to
cancellation or nonrecurring payments as a result of the transactions
contemplated by this Agreement, shall continue unaltered after the Closing
and for their term (assuming no subsequent amendment or termination or any
other action by Buyer causing such alteration), affirmative consents to
assignment, transfer or assumption are given, and none of such consents shall
affect the rights of the Buyer thereunder with respect to the Assets, the
Liabilities or the Division.
(e) No action, proceeding, investigation, regulation or
litigation shall have been instituted or threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain, prohibit or
obtain damages in respect of, or which is related to, or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, or which,
in the reasonable judgment of the Buyer, would have a materially adverse effect
on the Assets, the Liabilities or the Division, taken as a whole.
(f) All authorizations, consents, permits and approvals of any
domestic or foreign governmental or public unit, agency, body, authority or
other person or entity necessary for the valid consummation of the transactions
contemplated by (and other compliance with or performance under) this Agreement
of Buyer shall have been obtained by Buyer including, without limitation, the
waiting period applicable to the consummation of the transactions contemplated
hereby under the HSR Act shall have expired or early termination thereof shall
have been granted.
(g) The Buyer shall have received all necessary consents to the
transactions contemplated by this Agreement required under all loan agreements,
financing arrangements, commitments, contracts, and other agreements to which
the Buyer or its Affiliates is subject or bound including, without limitation,
the consent of the board of directors of its parent, Pentastar Transportation
Group, Inc.
(h) The shareholders of the Seller shall have approved, in
accordance with the charter documents and bylaws of the Seller and applicable
law (including, without limitation, the Securities Exchange Act of 1934, as
amended), the transactions contemplated by this Agreement.
(i) There shall not exist or have occurred any Off Balance Sheet
Adverse Event.
(j) All of the Assets shall be free and clear of any liens,
mortgages, security interests or other encumbrances, save and except for those
securing the Liabilities.
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(k) Seller shall have satisfied the Minimum Net Worth
Requirement as of the date of and immediately before Closing, as reflected on
the Unaudited Closing Balance Sheet.
(l) Seller shall have obtained the tender and/or consent of
holders owning in the aggregate a minimum of eighty percent (80%) of the face
value of all outstanding Debentures to the conveyance and transfer of Assets at
the Closing.
(m) Seller shall deliver consents from its existing lenders to
the extent Buyer considers necessary or appropriate (including, without
limitation, releases of liens and waivers of cross-defaults and cross-collateral
requirements, if any, as to the Retained Liabilities).
(n) Seller shall have received a fairness opinion on the
transactions contemplated hereby to its board of directors from Houlihan, Lokey,
Howard & Zukin or another investment banking firm reasonably satisfactory to
Buyer, a copy of which such opinion will be delivered to Buyer promptly after
received by Seller.
(o) Compliance by Seller with all notice and related payment and
withholding requirements under bulk transfer laws, to the extent applicable.
(p) Compliance by Seller with the Debt Ceiling Covenant.
(q) Completion of environmental due diligence by Buyer and
Buyer's satisfaction with the results thereof in its sole determination.
(r) Completion of vehicle inspections and vehicle reviews
satisfactory to Buyer.
(s) Seller shall deliver consents of lessors and concession
grantors and estoppel certificates with respect to the leases and concessions
constituting Liabilities in a form satisfactory to Buyer.
(t) Seller shall deliver releases and consents as may be
required by Buyer from Seller's lenders or contract parties with respect to the
transfer of the Assets or assumption of the Liabilities.
(u) Seller shall deliver the solvency certificate described in
Section 12(z) hereof.
10. CONDITIONS TO THE OBLIGATION OF SELLER TO CLOSE.
All of the obligations of Seller under this Agreement are subject
to the fulfillment of each of the following conditions, any one or more of which
may be waived by the Seller as a condition to Closing:
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(a) The representations and warranties of the Buyer contained in
this Agreement or in any certificate, exhibit, schedule or other document
executed and delivered by Buyer pursuant to, or in connection with, this
Agreement shall be true as of the date when made, shall be deemed to be made
again at and as of the date of Closing and shall be true at and as of the
Closing.
(b) The Buyer shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or at the Closing.
(c) No action, proceeding, investigation, regulation or
litigation shall have been instituted or threatened or proposed before any
court, governmental agency or legislative body to enjoin, restrain, prohibit or
obtain damages in respect of, or which is related to, or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, or which,
in the reasonable judgment of the Seller, would have a materially adverse effect
on the Buyer's ability to execute and deliver this Agreement.
(d) All authorizations, consents and approvals of any domestic
or foreign governmental or public unit, agency, body, authority or other person
or entity necessary for the valid consummation of the transactions contemplated
by (and other compliance with or performance under) this Agreement shall have
been obtained including, without limitation, the waiting period applicable to
the consummation of the transactions contemplated hereby under the HSR Act shall
have expired or early termination thereof shall have been granted.
(e) The shareholders of the Seller shall have approved, in
accordance with the charter documents and bylaws of the Seller and applicable
law (including, without limitation, the Securities Exchange Act of 1934, as
amended), the transactions contemplated by this Agreement.
(f) Seller shall have obtained the tender and/or consent of
holders owning in the aggregate a minimum of eighty percent (80%) of the face
value of all outstanding Debentures to the conveyance and transfer of Assets at
the Closing.
(g) Seller shall have received a fairness opinion on the
transactions contemplated hereby to its board of directors from Houlihan, Lokey,
Howard & Zukin or another investment banking firm reasonably satisfactory to
Buyer.
(h) Seller shall have satisfied the Minimum Net Worth
Requirement as of the date of and immediately before Closing, as reflected on
the Unaudited Closing Balance Sheet.
(i) Seller shall have received consents from its existing
lenders to the extent Buyer considers necessary or appropriate
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(including, without limitation, releases of liens and waivers of
cross-defaults and cross-collateral requirements, if any, as to the Retained
Liabilities).
(j) Seller shall have received consents of lessors and
concession grantors and estoppel certificates with respect to the leases and
concessions constituting Liabilities in a form satisfactory to Buyer.
(k) The Retained Employee Liabilities shall not equal or exceed
Twenty-Five Thousand Dollars ($25,000).
(l) Seller shall have received releases and consents as may be
required by Buyer from Seller's lenders or contract parties with respect to the
transfer of the Assets or assumption of the Liabilities.
11. CLOSING.
Subject to the terms and conditions of this Agreement, the
Closing shall take place at the offices of Torkildson, Katz, Jossem, Fonseca,
Moore & Hetherington, Honolulu, Hawaii, on October 31, 1995, or at such other
place and time as soon thereafter as possible as may be mutually agreed between
the parties hereto in writing, provided that in no event shall the date of
Closing be extended past November 30, 1995. At the request of Buyer, the
parties shall conduct a pre-Closing conference to review the status of
satisfaction and completion of the items required hereby, which would not be
convened earlier than two (2) business days before the Closing.
12. DELIVERIES BY SELLER AT CLOSING.
At the Closing, Seller shall deliver to Buyer the following
properly executed documents:
(a) The Bill of Sale together with such other bills of sale,
deeds, endorsements, assignments and other good and sufficient instruments of
conveyance as appropriate to convey to the Buyer all title to and interest in
the Assets duly executed by the Seller.
(b) Appropriate assurances as to Liabilities relating to
substitution of parties, no defaults, estoppel certificates, consents to
assignment and transfer, and also generally showing the total amounts required
to be paid as of the Closing (including principal, interest, penalties, fees and
premiums) to pay or prepay in full all indebtedness for borrowed money
constituting Liabilities, together with (i) releases or termination statements
of all mortgages, deeds to secure debt, deeds of trust, security interests,
pledges, liens and other charges, encumbrances or adverse claims on the Assets
from such creditors, lessors and any other creditor of the Seller which
constitute Retained Liabilities, sufficient in the sole determination of the
Buyer to release all
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such liens and encumbrances on the Assets, and (ii) evidence satisfactory to
the Buyer of the Seller's arrangements to satisfy out of funds that would not
constitute Assets, all liabilities which are not Liabilities and which must
be satisfied in order to obtain the releases and termination statements
referred to above including, without limitation, any penalties, fees and
premiums payable in respect of the foregoing.
(c) Certificates dated as of the Closing and executed by the
president of the Seller (i) stating that the representations of the Seller in
the Agreement are true and correct on and as of the Closing with the same effect
as though such representations and warranties had been made on and as of such
date and that the covenants and agreements to be performed or complied with by
the Seller prior to or at the Closing have been conformed and complied with;
(ii) certifying the corporate action of the Seller represented and warranted
pursuant to Section 15(a)(2) of this Agreement and certifying that all such
action is still in full force and effect and that it is all the action adopted
in connection with the transactions contemplated by this Agreement, including a
certification as to the text of such corporate action; and (iii) setting forth
the names and titles of the officers of the Seller executing this Agreement and
the other agreements, instruments and documents executed and delivered by the
Seller pursuant to this Agreement, the signatures of such officers and the seal
of the Seller; and with the signature and title of the president certified by
another officer of the Seller.
(d) The Assumption Agreement with respect to the Liabilities.
(e) Title certificates, registrations and other documentation
necessary to transfer motor vehicles and any other certificated assets included
in the Assets, duly completed in favor of the Buyer and duly executed by the
Seller.
(f) Certificates of corporate and tax good standing for the
Seller from the Secretary of State or other appropriate official of the states
of California and Hawaii, dated no earlier than ten (10) days before the
Closing.
(g) Legal opinion of counsel for Seller in a form reasonably
satisfactory to Buyer.
(h) Assignment of all Dollar System trademarks and rights to
telephone numbers and directory advertising, and compliance with licensee
cessation of business requirements as reflected in of the License Agreement.
(i) Unaudited Closing Balance Sheet as of Closing, to ascertain
Estimated Cash Amount and verify compliance with the Minimum Net Worth
Requirement.
(j) The PISC Noncompetition Agreement.
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(k) The Robin Noncompetition Agreement.
(l) The PISC General Release.
(m) The Robin General Release.
(n) The Dismissal Agreement.
(o) Evidence of tender and/or consent of holders of 80% of the
face value of the Debentures to the purchase and sale of the Assets in a form
reasonably satisfactory to Buyer.
(p) Commitment of South Seas to be jointly and severally liable
with Seller for Seller's indemnity obligations in Section 20 in the form of
Exhibit S hereto.
(q) An affidavit from the Seller and any other party or parties
required pursuant to Section 1445 of the Internal Revenue Code, as amended, and
any regulations relating thereto, stating under penalty of perjury (i) that
neither the Seller nor any other party so swearing is a "Foreign Person," (ii)
the U.S. taxpayer identification number of Seller and any other party, and (iii)
such other information as may be required by any regulations promulgated in
connection with said Section 1445.
(r) Termination by Seller of all agreements to which it is a
party with Buyer (other than this Agreement, including exhibits which constitute
contracts) including, without limitation, the License Agreement and the Master
Lease.
(s) Hawaii state tax clearance certificate issued within ten
(10) days preceding the Closing.
(t) Evidence of timely filing by Seller of the Hawaii bulk sales
report with the Hawaii State Tax Department.
(u) Waiver of experience rating for Hawaii unemployment
insurance purposes, if requested by Buyer.
(v) Consents of lessors and concession grantors and estoppel
certificates with respect to the leases and concessions constituting Liabilities
in a form satisfactory to Buyer.
(w) Such releases and consents as may be required by Buyer from
Seller's lenders or contract parties with respect to the transfer of the Assets
or assumption of the Liabilities.
(x) Evidence of termination of Mr. Maggiacomo's employment
commitment and acceptance of terms offered by Buyer as required by Section
19(d)(i) and, if applicable, the same evidence as to Mr. Fabella, as stated in
Section 19(d)(ii).
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(y) A copy of the fairness opinion Seller has obtained, as
described in Section 9(n), if not previously delivered.
(z) A solvency certificate in the form of Exhibit T hereto from
the chief financial officer of Seller, certifying as to the net worth of Seller
on a pro forma basis after giving effect to the Closing.
(aa) Such other documents as shall be reasonably required or
necessary to consummate the transactions contemplated by this Agreement and the
exhibits as may be reasonably requested by Buyer.
13. DELIVERIES BY BUYER AT CLOSING.
At the Closing, Buyer shall deliver to Seller the following
properly executed documents:
(a) The Assumption Agreement with respect to the Liabilities.
(b) Certificates dated as of the Closing and executed by the
president of the Buyer (i) stating that the representations of the Buyer in the
Agreement are true and correct on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of such date
and that the covenants and agreements to be performed or complied with by the
Buyer prior to or at the Closing have been conformed and complied with; (ii)
certifying the corporate action of the Buyer represented and warranted pursuant
to Section 16(a)(2) of this Agreement and certifying that all such action is
still in full force and effect and that it is all the action adopted in
connection with the transactions contemplated by this Agreement, including a
certification as to the text of such corporate action; and (iii) setting forth
the names and titles of the officers of the Buyer executing this Agreement and
the other agreements, instruments and documents executed and delivered by the
Buyer pursuant to this Agreement, the signatures of such officers and the seal
of the Buyer; and with the signature and title of the president certified by
another officer of the Buyer.
(c) Legal opinion of counsel for Buyer in a form reasonably
satisfactory to Seller.
(d) Payment of the Estimated Cash Amount by wire transfer or
other immediately available funds to the trustee for the Debentures, subject to
disbursement of the Holdback Amount to the escrow agent under the Holdback
Agreement, if applicable.
(e) Preliminary allocation of purchase price for financial and
tax reporting purposes based upon Unaudited Closing Balance Sheet, which will be
subject to adjustment upon receipt of the Final Closing Balance Sheet; provided
however, Buyer in its discretion may defer delivery of the allocation as
provided in Section 5(i) hereof.
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(f) Closing statement showing Estimated Cash Amount with all
adjustments.
(g) The Dollar General Release.
(h) The Dismissal Agreement.
(i) Termination by Buyer of all agreements to which it is a
party with Seller (other than this Agreement, including exhibits which
constitute contracts) including, without limitation, the License Agreement and
the Master Lease.
(j) Such other documents as shall be reasonably required or
necessary to consummate the transactions contemplated by this Agreement and the
exhibits as may be reasonably requested by Seller.
14. POST-CLOSING EVENTS.
Following Closing, the parties will continue to comply with the
terms of this Agreement and all exhibits hereto and will cause the following
events, among others, to occur:
(a) Seller will deliver physical possession of all facilities of
the Division.
(b) In the event Buyer waives the requirement for any consent,
estoppel or other assurances to be provided by Seller hereunder and permits the
Closing to occur, Seller shall use diligent good faith efforts to obtain same
after the Closing and will deliver any such consents obtained to Buyer.
(c) For a period of two (2) years after the Closing, each party
shall make available to the other for examination and copying, upon the
reasonable request and during regular business hours and without interfering
with the business of the other, all books and records of or relating to the
Division.
(d) Buyer may open mail addressed to Seller strictly for the
purpose of determining if any such mail includes payment on any account
receivable included in the Assets or relates to the business of the Division.
Any other such mail will be promptly delivered to Seller. For purposes of
opening mail and depositing payments of accounts receivable included in the
Assets, Seller will at Closing appoint Buyer its attorney-in-fact with authority
to open mail addressed to Seller to collect for its own account all accounts
receivable and other items transferred to Buyer hereunder and to endorse any
check or other item payable to Seller on account of any account receivable or
other item included in the Assets. Seller shall promptly transfer and deliver
to Buyer any cash or other property which Seller may receive in respect of such
accounts receivable or items after the Closing.
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(e) A solvency certificate will be delivered immediately after
the Closing in the same form as Exhibit T hereto, but with certifications as to
net worth no longer made on a pro forma basis.
15. REPRESENTATIONS AND WARRANTIES OF SELLER.
Subject to Section 2(b) hereof, Seller hereby represents and
warrants to Buyer on the date of this Agreement and again on and as of the
Closing:
(a) THE SELLER.
(1) STATUS. The Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State
of California, and is qualified and in good standing in every
jurisdiction where the failure to qualify would have a materially
adverse effect on its business or where applicable law requires
that it be so qualified or subjects it to any cost, restriction
or penalty for failing to qualify (including, without limitation,
assessment of taxes, fees or penalties for prior periods). The
Seller has the corporate power to own its properties and carry on
its business as now being conducted, to execute and deliver this
Agreement and to consummate the transactions contemplated by it
and otherwise to comply with or perform its obligations under
this Agreement. Set forth on Schedule 15(a)(1) is a true and
correct copy of the Seller's articles or certificate of
incorporation, as amended, certified by the California Secretary
of State, and of the Seller's bylaws, as amended, certified by
the secretary of the Seller.
(2) POWERS; AUTHORIZATION; BINDING NATURE. With respect to
this Agreement and any other agreements, certificates,
instruments and documents executed and delivered (or to be
executed and delivered) by Seller or its officers pursuant to
this Agreement (such agreements, certificates, instruments and
documents, being the "Seller Delivered Agreements"): (i) the
Seller has the power and authority to execute and deliver this
Agreement and the Seller Delivered Agreements and to consummate
the transactions contemplated by them and otherwise to comply
with or perform its obligations under this Agreement and the
Seller Delivered Agreements; (ii) the execution and delivery by
the Seller of this Agreement and the Seller Delivered Agreements
and the consummation by the Seller of the transactions
contemplated by them have been duly authorized by all necessary
action on the part of the Seller (including, without limitation,
before Closing by appropriate shareholder approval under
applicable corporation law and consent of holders of the
requisite amount of Debentures) in compliance with the Seller's
articles or certificate of incorporation, as amended, its bylaws,
as amended, and applicable law (except that Buyer acknowledges
that shareholder consent and Debenture holder consent and/or
tender may not be effective until
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Closing); (iii) this Agreement and the Seller Delivered
Agreements constitute valid and binding agreements of the Seller
that are enforceable against the Seller in accordance with their
terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and other laws affecting creditors' rights
generally and the discretion of the courts in granting equitable
remedies; and (iv) the other transfer and assumption instruments
included in the Seller Delivered Agreements effectively convey
to, and vest in, the Buyer all of the Seller's right, title and
interest to and in the Assets and the Liabilities.
(3) ABSENCE OF VIOLATIONS OR CONFLICTS. Except as set
forth on Schedule 15(a)(3) hereto, the execution and delivery by
the Seller of this Agreement and the Seller Delivered Agreements
and the consummation by the Seller of the transactions
contemplated herein and therein (i) will not constitute a
violation of, be in conflict with, constitute a default under or
result in the creation or imposition of any security interest,
lien or other encumbrance or adverse claim in, upon or with
respect to the Assets, the Liabilities or the Division under (A)
any term or provision of the articles or certificate of
incorporation, as amended, or bylaws, as amended, of the Seller,
(B) any agreement, commitment or understanding to which the
Seller is a party or to which the Seller, the Assets, the
Liabilities or the Division are subject or bound, (C) any
judgment, decree or order of any court or governmental agency or
(D) any statute, law, rule, regulation, release or other official
pronouncement and (ii) will not create or cause the acceleration
of the maturity of any Liability.
(4) NO GOVERNMENTAL CONSENTS REQUIRED. Except as set forth
on Schedule 15(a)(4) to this Agreement, no consent, approval,
order or authorization of, or registration, declaration or filing
with, any domestic or foreign governmental or public unit,
agency, body or authority on the part of the Seller is required
in connection with the execution and delivery of, consummation of
any transaction contemplated by, or performance of or compliance
with its obligations under this Agreement or the Seller Delivered
Agreements.
(5) QUALIFICATION; PLACES OF BUSINESS; NAMES. Set forth on
Schedule 15(a)(5) is a complete list of (i) each jurisdiction in
which the Seller is qualified to do business, (ii) the street
address, city and county of the principal place of business of
the Seller in each such jurisdiction, and (iii) a complete list
of all other locations (with a designation of the Seller's
principal place of business) at which the Seller conducts
business or at which the Assets are located. The Seller
conducts business only under its corporate name, South Seas or
Buyer's tradenames.
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(6) SUBSIDIARIES AND OWNERSHIP INTERESTS. Set forth on
Schedule 15(a)(6) hereto is a complete list of (i) all equity
investments of the Seller in any corporation, partnership, joint
venture or other business enterprise or entity, or any agreements
or commitments for such investments; and (ii) all debt
instruments owned by the Seller.
(7) BANK ACCOUNTS. Schedule 15(a)(7) contains a complete
list of each account with the account number, name, telephone
number and address of the bank or other financial institution in
which the Seller maintains any account or safe deposit box
relating to the Division.
(b) FINANCIAL MATTERS.
(1) FINANCIAL STATEMENTS. Attached as Schedule 15(b)(1) to
this Agreement are true and complete copies of the audited
balance sheet of the Seller as of December 31, 1994, and the
related audited statements of income, retained earnings and cash
flows for the period then ended and the unaudited financial
statements constituting a part of the Preliminary Financial
Information (collectively with the Unaudited Closing Balance
Sheet and Final Closing Balance Sheet, the "Financial
Statements"). The Financial Statements are prepared in
accordance with GAAP Consistently Applied, as modified or
clarified by the Agreed Practices, and fairly present the
financial position and results of operations of the Seller or
Division, respectively, as of the periods indicated. Seller
shall expressly be deemed to make the foregoing representations
and warranties as to the Unaudited Closing Balance Sheet and the
Final Closing Balance Sheet when required to be delivered in
accordance with the terms hereof. It is understood the unaudited
portions of the Financial Statements do not include complete
footnotes.
(2) NO UNDISCLOSED LIABILITIES. The Seller has no
liabilities or obligations, absolute, accrued, contingent or
otherwise, except for (i) such liabilities as are fully reflected
or reserved against in the Financial Statements as of the date
thereof and as described on Exhibit I hereto; (ii) Off-balance
Sheet Liabilities, as set forth on Exhibit J hereto; and (iii)
Retained Liabilities.
(3) ABSENCE OF MATERIAL CHANGE. Except as set forth in
Schedule 15(b)(3) to this Agreement or as otherwise contemplated
in this Agreement or the other exhibits or schedules hereto,
since December 31, 1994 the Seller has operated in the ordinary
course of business and without limiting the foregoing, since
December 31, 1994 there has not been: (i) any change in the
assets or liabilities of the Seller with respect to the Division
other than changes in the ordinary course of business, none of
which has been materially adverse; (ii) any damage, destruction
or loss, whether or not
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covered by insurance, materially and adversely affecting the
Assets; (iii) any sale, transfer, lease, removal or other
disposition of any of the Assets, except for transactions in the
ordinary course of business; (iv) any mortgage, deed to secure
debt, deed of trust, pledge, lien, restriction, encumbrance,
charge or adverse claim whatsoever imposed upon any of the Assets
or the Liabilities; (v) capital expenditures or commitments by
the Seller for additions to property, plant or equipment that are
included in the Assets exceeding Fifty Thousand Dollars ($50,000)
in aggregate amount; (vi) any sale or granting to any party or
parties of any license, franchise, option or other right of any
nature whatsoever to sell, distribute, or otherwise deal in or
with products, merchandise or services of the Seller; (vii) any
waiver, compromise or other settlement by the Seller of any its
rights under any contract or other agreement that constitutes a
Liability; (viii) any strike or other work stoppage or slow down
or threat thereof, or any loss of employees or any event or
condition of any character relating to the employees of the
Seller that materially and adversely affects the Assets,
Liabilities or Division; or (ix) any other material contract or
commitment entered into by the Seller other than contracts or
commitments entered into in the ordinary course of business.
Buyer's experiencing operating losses since December 31, 1994 as
reflected in the Balance Sheet constituting a part of the
Preliminary Financial Information shall not be deemed a breach of
this Section 15(b)(3).
(4) BOOKS AND RECORDS. The books and records of the Seller
are complete and correct in all material respects, have been
maintained in accordance with customary business practices and
accurately reflect the basis for the financial condition and
results of operations of the Seller or Division, respectively, as
set forth in the Financial Statements.
(5) RESERVES. As indicated in Section 15(b)(1) above,
Seller's reserves in the Financial Statements including, without
limitation, with respect to accounts receivable, liability
insurance and damaged vehicle turnbacks and reconditioning, will
be determined in accordance with GAAP Consistently Applied as
clarified or modified by the Agreed Practices. The presentation
of reserves in all Financial Statements will be updated to and
current as of the date of such respective Financial Statement and
the reserves will be computed in accordance with GAAP
Consistently Applied as clarified or modified by the Agreed
Practices.
(c) TAXES.
(1) GENERAL. The Seller has properly completed and filed
all tax returns required to be filed by it, and no filing
extensions for any returns are in effect. Except as set forth on
Schedule 15(c), the Seller has paid and satisfied
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all taxes, estimated tax payments, deficiency assessments,
additions to tax, penalties and interest (whether or not
requiring the filing of returns). All taxes, assessments and
levies which the Seller was required by law to withhold or
collect including, without limitation, sales, unemployment and
payroll taxes, have been duly withheld and collected, and have
been paid over to the proper governmental authorities or are held
by the Seller in separate bank accounts for such payment (whether
or not the time for paying over or setting aside such amounts has
elapsed or occurred) and are duly set forth on the books of the
Seller.
(2) EXAMINATIONS. Except as set forth on Schedule 15(c) to
this Agreement, neither the tax returns nor the books and records
of the Seller have been examined or audited by any government
representatives, nor has the Seller received any notice from any
governmental authority that it intends to conduct such an audit
or examination. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any
tax return for any period with respect to the Seller.
(d) PROPERTIES.
(1) OWNED PROPERTIES. Schedule 15(d)(1) to this Agreement
sets forth: (i) a complete and accurate list of all real
properties in which the Seller holds legal or equitable title;
(ii) a complete and accurate list of all material items of plant
and equipment located on any such real properties and all
material items of plant or equipment located anywhere; (iii) a
complete and accurate list of all motor vehicles owned by the
Seller and used in the Division (including vehicle ID numbers and
certificate of title numbers); and (iv) a summarized description
of all other property that constitutes part of the Assets.
(2) LEASED PROPERTIES. Schedule 15(d)(2) to this Agreement
includes a complete and accurate list of all agreements, written
or oral leases, subleases or rental agreements (and any related
contract, agreement, commitment, undertaking or understanding and
all amendments, modifications and supplements thereof) pursuant
to which the Seller leases, subleases or rents any real or
personal property that is used in the operation of the Division.
Schedule 15(d)(2) hereto also contains a complete and accurate
list of all material items of plant and equipment subject to any
lease, as well as a complete and accurate list of all motor
vehicles leased by the Seller and used in the Division (including
vehicle I.D. numbers and certificate of title numbers) other than
motor vehicles leased by Buyer to Seller.
(3) TITLE. Except as set forth in Schedule 15(d)(3) to
this Agreement, the Seller has good and marketable (and in the
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case of real property, fee simple) title to all the Assets, with
no imperfections of title thereto. Seller has not received any
Assets without giving an adequate and fair consideration for the
same.
(4) LIENS. Except as set forth in Schedule 15(d)(4) to
this Agreement, none of the Assets is subject to any mortgage,
deed to secure debt, deed of trust, pledge, lien, security
interest, restriction, encumbrance, easement, covenant, lease,
rental, or charge or claim whatsoever except (i) in the case of
real property, liens for ad valorem taxes not yet due and
payable; and (ii) liens imposed by law and incurred in the
ordinary course of business for obligations not yet due and
payable to landlords, carriers, warehousemen, laborers,
materialmen and the like. All such obligations described in (ii)
shall be paid in full by the Seller on or before the Closing.
(5) CONDITION OF PROPERTIES. (i) THE REPRESENTATIONS AND
WARRANTIES OF SELLER IN THIS AGREEMENT RELATING TO THE ASSETS ARE
IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESSED OR
IMPLIED, OF SELLER PERTAINING THERETO. EXCEPT AS PROVIDED IN THIS
AGREEMENT, THE TANGIBLE PERSONAL PROPERTY COMPRISING THE ASSETS
WILL BE CONVEYED BY SELLER TO BUYER "AS IS, WHERE IS" WITHOUT
RECOURSE AND WITHOUT REPRESENTATION OR WARRANTY EXCEPT AS TO
TITLE, EXPRESSED OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
SELLER MAKES NO REPRESENTATION OR WARRANTY AS TO MERCHANTABILITY
OR FITNESS OF SAME. Except as set forth in Schedule 15(d)(5) to
this Agreement: (ii) all operating locations of the Division
include the right of ingress and egress over public rights-of-
way; (iii) all necessary surface water drainage, sewer and other
utility services are available to all such locations through
facilities located in public rights-of-way or valid and existing
private easements, and the Seller has not experienced during the
last five (5) years any material curtailment or interruption of
its operations as a result of the unavailability of any utility
or energy source including, without limitation, water, sewer,
natural gas, propane, heating fuel or electricity, and the Seller
has received no notice to the effect that, nor is the Seller
aware of any reason why, such utility services shall not be
available in quantities sufficient for the operation of the
Division; (iv) the Seller has not received notice of and has no
knowledge of, and to the knowledge of Seller there is no basis
for any dispute with any real or personal property lessor of any
of the Assets or property subject to lease constituting a
Liability, nor are there pending lease rental renegotiations; (v)
the Seller has not received notice of and has no knowledge of,
and to the knowledge of Seller there is no basis for any dispute
with any other party to any of the airport or other concession
agreements to which Seller is subject, nor are there pending any
concession renegotiations; (vi) the Seller
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is not (A) in violation of any applicable building, zoning,
antipollution, environmental, health, safety or other law,
ordinance or regulation in respect of any of the Assets (I) in
any respect that involves a hazardous substance (as such term
is defined in 42 U.S.C. Section 9601 (14)), or a "recognized
hazard" (as such term is used under the Occupational Safety
and Health Act of 1970), or (II) in any other material
respect, or (B) in receipt of any current notice alleging such
a violation; (v) there has been no "release" (as such term is
defined in 42 U.S.C. Section 9601 (22)) by the Seller or, to
the knowledge of the Seller, by any predecessor in title to
the Seller, of any "hazardous substance", or any petroleum or
petroleum derived product from or upon any Assets or locations
owned, operated or leased by Seller; (vi) there are no
nonconforming uses, zoning or building code variances, or any
other use restrictions or special permits not set forth in the
local zoning laws and building codes with respect to any of
the real property and improvements included in the Assets or
Division locations; and (vii) the Seller has not received
notice of and has no knowledge of, and to the knowledge of the
Seller, there is no basis for (A) any pending or contemplated
condemnation, eminent domain or re-zoning proceeding affecting
any of the Assets or Division locations, (B) any proposal or
other consideration for increasing the assessed value for
state, county, local or other ad valorem or similar taxes by
an amount that would materially affect the profitability of
any operations conducted from such property, (C) any pending
or contemplated proceedings or public improvements which could
or might result in the levy of any special tax or assessment
against any of the Assets or Division locations, or (D) any
outstanding requirements or recommendations by fire
underwriters or rating boards or any insurance companies or
holders of any mortgages or other security interests requiring
or recommending any repairs or work be done with reference to
any of the Assets or Division locations. Set forth on
Schedule 15(d)(5) are the locations of all "underground
storage tanks" (as such term is defined in 42 U.S.C. Section
6991) located on the real property included in the Assets or
locations owned, operated or leased by Seller for the
Division, the substances currently stored therein and, to the
best of the Seller's knowledge, all substances previously
stored therein, and copies of all filings required by law in
respect of such underground storage tanks.
(6) ALL NECESSARY PROPERTIES. Except for the Excluded
Assets, the Assets constitute all of the properties which the
Seller uses in connection with the operation of the Division as
presently conducted and, except as disclosed in Schedule 15(d)(6)
to this Agreement, none of the Assets is in the possession of,
owned by or are entitled to be used by any person other than the
Seller.
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(e) LIABILITIES.
(1) GENERAL. The Seller has listed on Schedule 15(e)(1)
and delivered to the Buyer true and accurate copies of all
ongoing customer and other contracts (except outstanding vehicle
rental agreements which will be delivered at Closing), leases and
agreements, (together with all amendments, modifications and
supplements thereof and waivers or consents thereunder) that
constitute a Liability.
(2) STATUS OF LIABILITIES. Except as set forth in Schedule
15(e)(2) to this Agreement: (i) neither the Seller nor, to the
knowledge of the Seller, any other party is in default in
connection with any Liability; (ii) no act or event has occurred
which, with notice or lapse of time or both, constitutes a
default under any Liability with respect to the Seller or, to the
knowledge of the Seller, any other parties; (iii) there is no
basis for any claim or default under any Liability with respect
to the Seller or, to the knowledge of the Seller, any other
party; (iv) to the knowledge of the Seller, there is no
outstanding notice of cancellation or termination in connection
with any Liability; (v) each Liability is the valid, binding and
enforceable agreement of the Seller and, to the knowledge of the
Seller, of each other party thereto (except as enforceability may
be limited by applicable bankruptcy and other laws affecting
creditors' rights and principles of equity), which is in full
force and effect in accordance with its terms and will not be
affected by, or require the consent of any other party to, the
transactions contemplated by this Agreement; (vi) the Seller has
received no prepayments for services to be rendered after the
Closing; (vii) there is no existing dispute involving any
Liability (except with Buyer as disclosed in writing herein);
(viii) no party has any existing right of offset with respect to
any Liability, nor is there any condition or state of facts in
existence which with the passing of time or giving of notice or
both would result in any such right of offset; (ix) there are no
security deposits posted in connection with any Liability; and
(x) Seller is not in default of the Master Lease (exclusive of
any Master Lease arrearages represented in the Debt Ceiling
Covenant).
(f) INVENTORIES. The inventories of the Seller included in the
Assets consist of items which are presently usable or salable in the ordinary
course of business, are of a quantity sufficient for the conduct of business in
the ordinary course, and are not excessive or deficient, but are reasonable,
adequate and appropriate.
(g) INTANGIBLE PROPERTIES. Set forth on Schedule 15(g) is a
complete and accurate list of all patents, patent applications, trademarks,
servicemarks, corporate names, trade names, and copyrights currently in use or
used in the past five (5) years by
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the Seller, and other proprietary rights owned, licensed or used by the
Seller (collectively the "Intangible Properties"). Except as provided in
Schedule 15(g) to this Agreement, the Seller owns all Intangible Properties
and the Seller has and has had the sole unrestricted right to produce,
market, license and sell, lease and rent all of its Intangible Properties.
The consummation of the transactions contemplated by this Agreement will
validly transfer to the Buyer all right, title and interest to all of the
Intangible Properties and will not alter or impair any such rights. The
Intangible Properties do not infringe on any rights of any third parties, and
no claims have been asserted since December 31, 1984 by any person against
the use by Seller, or challenging or questioning the validity or
effectiveness, of any of the Intangible Properties, or any agreement relating
thereto, to which Seller is a party, and there is no valid basis for any such
claim.
(h) LABOR RELATIONS. Except as set forth on Schedule 15(h) to
this Agreement, the Seller is in compliance in all material respects with all
federal, state and other governmental laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and has not
engaged in any unfair labor practice. There is no collective bargaining
agreement which is binding on the Seller.
(i) EMPLOYEE PLANS AND MATTERS. Except as set forth and
described in Schedule 15(i) to this Agreement, the Seller does not maintain, nor
is it required to contribute to nor does it or its employees otherwise
participate in (and has not during the preceding five (5) years maintained,
contributed to or otherwise participated in) an "employee benefit plan" or a
"multi-employer plan" (as such terms are defined in the Employee Retirement
Income Security Act of 1974, as amended ["ERISA"]), including without limitation
any pension, profit-sharing, retirement, stock purchase or stock option plan, or
any other retirement, compensation or fringe benefit plan, program or
arrangement of any kind whatsoever, whether formal or informal, providing for
benefits for, or for the welfare of, any or all of the employees or former
employees of the Seller or their dependents or beneficiaries (an "Employee
Plan"). Schedule 15(i) sets forth the name and address of each trustee or other
fiduciary of each Employee Plan, and accurately reflects the total assets,
accrued benefits or liabilities, and other obligations of any kind whatsoever of
any such Employee Plan maintained by the Seller. The Seller has fully complied
with all provisions of ERISA and any and all other laws, rules, regulations,
releases and other official pronouncements applicable to any Employee Plan.
The Seller does not have any liability for unpaid contributions to an Employee
Plan, for unpaid compensation, fringe benefits (including, without limitation,
accrued sick leave or vacation pay), severance or workers compensation as of the
close of business on the Closing not disclosed as to nature, amount and by
employee on said Schedule 15(i); provided, however, as the same constitutes a
Retained Liability, Seller need not provide such information for any employees
other than employees Buyer has
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indicated it will elect to retain as of the Closing. Except for Seller's
employment agreements with Sirio Maggiacomo and Teddy Fabella, the
disposition of which are addressed in Sections 19(d)(1)(i) and (ii),
respectively, Seller has no employment agreements, employment commitments, or
employment-related agreements, E.G., consulting, non-competition, or
non-solicitation agreements or, if it has same, Seller's obligations shall
expressly be deemed to constitute a Retained Liability hereunder, but Seller
shall enforce for the benefit of Buyer any non-competition or
non-solicitation agreements in its favor pertaining to the business of the
Division.
(j) LITIGATION; COMPLIANCE WITH LAW. In addition to and without
limiting the representations and warranties in Section 15(b) and (d) of this
Agreement with respect to the Assets and the Liabilities, except as set forth in
Schedule 15(j) of this Agreement, (i) the Seller is not and since December 31,
1989 has not been a party to, engaged in or, to the knowledge of the Seller,
threatened with, any claim, controversy, legal action, or other proceeding
whether or not before any court, quasi-judicial authority or administrative
agency, any adverse determination of which might affect the Seller by damages or
losses equalling or exceeding Ten Thousand Dollars ($10,000), its ownership or
possession of any of the Assets or its rights under any of the Liabilities, or
the operation of the Division; (ii) the Seller has not been charged since
December 31, 1989 with any violation of, or received notice or warning from any
governmental authority with respect to any failure or alleged failure to comply
with, any provision of federal, state or other applicable law or administrative
regulations, any adverse determination of which might affect Seller or the
Division by damages or losses equalling or exceeding Ten Thousand Dollars
($10,000), nor, to the knowledge of the Seller, been under investigation with
respect to any such matter in which any adverse determination might have such
adverse effect; (iii) the Seller is not and since December 31, 1989 has not been
in violation of any law, judgment, order, decree, lien, regulation or rule of
any court, quasi-judicial authority or governmental authority applicable to it;
and (iv) the products, services, Division locations, operations and processes
and business operations produced, occupied, owned, operated or used by the
Seller are and since December 31, 1989 have been in compliance with all
applicable laws including, without limitation, the provisions of all
antipollution, occupational safety and health and environmental protection laws
and all rules and regulations promulgated under such laws.
(k) COMPLIANCE WITH LAWS. Except as set forth on Schedule
15(k), Seller is in compliance with all applicable laws, ordinances, statutes,
rules, regulations and orders promulgated by any federal, state or local
governmental body or agency relating to the Division and the operation of the
Assets.
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(l) PERMITS. Schedule 15(l) to this Agreement sets forth a
complete and accurate list of all occupancy certificates, licenses and permits
held by the Seller in connection with the ownership, possession, use or
occupancy of any of the Assets, leased property, or operation of the Division.
Except as set forth on Schedule 15(l), such certificates, licenses and permits
are the only ones required for such ownership, possession, use or occupancy of
the Assets or such operation of the Division. All such certificates, licenses
and permits are in full force and effect, and the Seller is in full compliance
with the terms thereof. Except as otherwise provided in Schedule 15(l), the
consummation of the transactions contemplated by this Agreement will validly
transfer to the Buyer all right, title and interest to all of said certificates,
licenses and permits and will not alter or impair any such rights.
(m) MAJOR SUPPLIERS AND CUSTOMERS. Schedule 15(m) to this
Agreement sets forth (i) the name of, and a brief description of the goods or
services supplied by, each supplier of goods or services to the Division to whom
Seller paid in the aggregate Fifty Thousand Dollars ($50,000) or more during the
twelve-month period ending December 31, 1994, and (ii) the name of, and a brief
description of the goods or services supplied to, each customer of the Division
whose purchase of goods or services from Seller during such period equalled or
exceeded five percent (5%) of the gross sales of the Division during such
period. Except to the extent set forth in said Schedule 15(m), (i) since
December 31, 1994 no change has occurred to the best of the Seller's knowledge
in the business relationship of the Seller with any customer or supplier listed
on said Schedule 15(m), the results of which would have a materially adverse
effect on the Seller or operations of the Division, and (ii) the Seller knows of
no reason why any such customer or supplier is expected to cease, or make any
material reduction in, its purchases of goods or services from, or supply of
goods or services to, the Seller (including South Seas).
(n) TRANSACTIONS WITH AFFILIATES. Except as set forth on
Schedule 15(n), no Affiliate, officer, director or shareholder of the Seller, no
entity that is an Affiliate of any officer, director or shareholder of the
Seller and no relative or spouse (or relative of such spouse) who resides with
such officer, director or shareholder:
(1) owns, directly or indirectly, in whole or in part, any
tangible or intangible property that the Seller has rights in
respect of such property; or
(2) has any cause of action or other claim whatsoever
against, or owes any amount to, the Seller, except for claims in
the ordinary course of business, such as travel and other
incidental advances or services, accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and
agreements existing on the date hereof; or
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(3) has not borrowed from, or entered into any business
transaction, agreement, arrangement or understanding of any other
nature with the Seller.
(o) INSURANCE. Set forth on Schedule 15(o) is a complete list
of all self insurance programs and all property, casualty and liability
insurance policies of Seller currently in force (including, without limitation,
policy numbers, insurers and amounts), together with copies of all inspection
reports concerning the Assets or Division locations issued by any industrial
risk inspector and received by the Seller. With respect to liability insurance
policies, set forth on Schedule 15(o) is a list of all policies (whether or not
currently in force) maintained by the Seller since December 31, 1989, and except
as disclosed by the Seller on Schedule 15(o) the Seller's current policies cover
claims made on an "occurrences" basis. All insurance policies pursuant to which
any such insurance is provided are in full force and effect as of the date of
Closing. No notice of cancellation or termination of any such insurance
policies has been given to the Seller by the carrier of any such policy. All
premiums due on Seller's insurance have been paid in full.
(p) POWERS OF ATTORNEY. The Seller has no powers of attorney or
similar authorizations outstanding, other than limited powers of attorney
contained in or relating to financing agreements, security agreements, deeds of
trust or other similar instruments relating to the Seller's financing, copies of
all which will be delivered pursuant to Section 15(e)(1) hereof.
(q) BROKERS AND FINDERS FEES. Neither the Seller nor anyone
acting on its behalf will claim or be owed any broker's or finder's fee in
respect of the Closing.
(r) WHOLESALE TOUR OPERATORS. Seller has not granted any of its
wholesale tour operators any discounts from its current prices which are
indicated on Schedule 15(r) hereof. Set forth on Schedule 15(r) is an itemized
listing of Seller's tour business revenue during the years 1993, 1994 and
through June 30, 1995, together with the average daily rate generated per motor
vehicle leased in conjunction with the tour business revenue.
(s) FULL DISCLOSURE. No representation or warranty by Seller in
the Basic Documents or other statement in writing or exhibit, schedule or
certificate furnished or to be furnished to Buyer by or on behalf of Seller in
connection with the transactions thereby contemplated contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which they are made. There is no fact known to
Seller that materially adversely affects the Assets, Liabilities or Division
which has not been disclosed in the Agreement or in the schedules or exhibits
hereto or other
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documents, certificates or statements furnished to Buyer pursuant hereto or
thereto.
16. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller on the date of
this Agreement and again on and as of the Closing:
(a) THE BUYER.
(1) STATUS. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware, and is qualified and in good standing in every
jurisdiction where the failure to qualify would have a materially
adverse effect on its business or where applicable law requires
that it be so qualified or subjects it to any cost, restriction
or penalty for failing to qualify (including, without limitation,
assessment of taxes, fees or penalties for prior periods). The
Buyer has the corporate power to own its properties and carry on
its business as now being conducted, to execute and deliver this
Agreement and to consummate the transactions contemplated by it
and otherwise to comply with or perform its obligations under
this Agreement.
(2) POWERS; AUTHORIZATION; BINDING NATURE. With respect to
this Agreement and any other agreements, certificates,
instruments and documents executed and delivered (or to be
executed and delivered) by Buyer or its officers pursuant to this
Agreement (such agreements, certificates, instruments and
documents, being the "Buyer Delivered Agreements"): (i) the
Buyer has the power and authority to execute and deliver this
Agreement and the Buyer Delivered Agreements and to consummate
the transactions contemplated by them and otherwise to comply
with or perform its obligations under this Agreement and the
Buyer Delivered Agreements; (ii) the execution and delivery by
the Buyer of this Agreement and the Buyer Delivered Agreements
and the consummation by the Buyer of the transactions
contemplated by them have been duly authorized by all necessary
action on the part of the Buyer in compliance with the Buyer's
articles or certificate of incorporation, as amended, its bylaws,
as amended, and applicable law; (iii) this Agreement and the
Buyer Delivered Agreements constitute valid and binding
agreements of the Buyer that are enforceable against the Buyer in
accordance with their terms, except as enforceability may be
limited by applicable bankruptcy, insolvency and other laws
affecting creditors' rights generally and the discretion of the
courts in granting equitable remedies; and (iv) the other
transfer and assumption instruments included in the Buyer
Delivered Agreements effectively convey to, and vest in, the
Buyer all of the Seller's right, title and interest to and in the
Assets and the Liabilities.
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(3) ABSENCE OF VIOLATIONS OR CONFLICTS. The execution and
delivery by the Buyer of this Agreement and the Buyer Delivered
Agreements and the consummation by the Buyer of the transactions
contemplated herein and therein will not constitute a violation
of or be in conflict with any agreement to which the Buyer is a
party or to which the Buyer is subject or bound, under (i) any
judgment, decree or order of any court or governmental agency or
(ii) any statute, law, rule, regulation, release or other
official pronouncement.
(4) NO GOVERNMENTAL CONSENTS REQUIRED. Except for
compliance with the HSR Act, and customary qualification and
obtaining permits and licenses necessary to conduct the business
of the Division in the State of Hawaii, no consent, approval,
order or authorization of, or registration, declaration or filing
with, any domestic or foreign governmental or public unit,
agency, body or authority on the part of the Buyer is required in
connection with the execution and delivery of, consummation of
any transaction contemplated by, or performance of or compliance
with its obligations under this Agreement or the Buyer Delivered
Agreements.
17. COVENANTS OF SELLER.
(a) AFFIRMATIVE COVENANTS OF SELLER. Seller covenants and
agrees that, so long as this Agreement remains in full force and effect, from
the date hereof to the Closing, Seller will:
(1) Carry on the business of the Division in accordance
with applicable law and good and acceptable business practices
and maintain books, accounts and records in the usual, regular
and ordinary manner;
(2) Maintain the Assets in good operating condition and
repair;
(3) Maintain and preserve the business organization of the
Division and Seller's relationship with employees, customers,
lessors, lenders, vendors, concession grantors, suppliers and
others having business relationships with the Division;
(4) Perform and timely pay all of the obligations of Seller
and the Division under existing leases, contracts, commitments,
agreements, purchase orders and open accounts; provided, however,
not more than forty percent (40%) in the dollar amount of the
Seller's accounts payable, as they exist from time to time, may
be extended beyond sixty (60) days from their respective due
date; provided there shall be expressly excluded from such
percentage limitation and the basis on which the same is
calculated, respectively: (i) any charges from Buyer to Seller,
which must be paid at the time they are due; and (ii) all past
due indebtedness of Seller to Buyer
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shall not be considered in the computation base. In all events,
no accounts payable of Seller shall be extended beyond ninety
(90) days of its respective due date;
(5) Operate business in ordinary course;
(6) Cause the conditions precedent required of Buyer set
forth in this Agreement identified in Sections 9(a), (b), (j)
[except involuntary liens, which do not constitute Liabilities
and must be removed before Closing], (o) and (p) to be satisfied
including, without limitation, remaining current on all invoices
and payments due Buyer hereafter;
(7) Cooperate with Buyer as to arrangements for the
transfer of the Assets and Liabilities in an orderly fashion at
Closing;
(8) Maintain in full force and effect all insurance now in
effect covering the Assets and not default with respect to any
provision of, and give all notices and make all claims under, all
insurance policies in a due and timely fashion;
(9) Upon actual knowledge, promptly give notice to Buyer of
any claim or litigation, threatened or instituted, or any other
adverse event or occurrence involving or affecting any of the
Assets, Liabilities or the Division;
(10) Make all filings that are necessary to transfer the
Assets, Liabilities and the Division to Buyer in connection with
approvals or consents of third parties and governmental agencies
and obtain all applicable waivers of preferential rights to
purchase and consents to assign and transfer the Assets;
(11) Comply with or cause to be complied with all applicable
laws, rules, regulations and orders of all federal, state and
local governments or governmental agencies materially affecting
or relating to the Assets including, without limitation,
compliance with all applicable bulk sales laws and giving of all
required WARN or similar notices related to timely giving notice
of cessation of Seller's operation of the Division or closure of
such business to Division employees and Seller's own required HSR
Act filings;
(12) Through Closing permit a Buyer's oversight person to
supervise Buyer's due diligence and transition with continuous
access to Seller's operations with Seller's full cooperation;
(13) Segregate Division transactions and accounts from South
Seas or any other non-Division transactions and accounts, I.E.,
no commingling will be permitted;
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(14) Deliver to Buyer financial statements consisting of a
balance sheet, income statement and statement of cash flows on
the fifteenth day of each month with respect to operations
conducted and concluded in the last completed calendar month,
together with an updated forecast of cash flow and projected Net
Worth through Closing. Seller shall also report to Buyer in
writing on non-monetary requirements to close, e.g. status of
shareholder and Debenture activities, as well as obtaining
required consents, on the first (1st) and fifteenth (15th) days
of each month;
(15) Exercise diligent good faith efforts to obtain required
shareholder and Debenture holder consents;
(16) Exercise diligent good faith efforts to assist Buyer
with third party consents and other transition issues including,
without limitation, those required pursuant to the terms of
Sections 9(d) and (m);
(17) File timely all federal, state and local tax returns
and reports including, but not limited to, income, franchise,
documentary, surcharge, excise, ad valorem, property, rental,
transfer, use, Hawaii Motor Vehicle and Tour Vehicle Surcharge
Tax and other taxes with respect to its business and properties
and to pay all taxes or assessments, except for taxes being
contested in good faith by appropriate proceedings, as they
become due, including those that shall become due by reason of
the Closing under this Agreement. Seller shall pay and perform,
on a timely basis, all duties and obligations owed Buyer
including, without limitation, those established pursuant to the
Master Lease and License Agreement except as modified by Section
19(g) hereof;
(18) For purposes of this Agreement only, Seller covenants
that its total debt due and payable (not accrued, but with the
recognition Master Lease payments may be extended to and paid on
the 15th day of each month during the term hereof) to Buyer at
any given point in time between now and Closing (as hereafter
described, the "Debt Ceiling Covenant") will not exceed Three
Million Two Hundred Twenty-Five Thousand Dollars ($3,225,000)
assuming assistance referenced in the March 21, 1995 letter
agreement between the parties applies, which neither party either
admits or concedes by this reference. The ceiling amount
indicated of Three Million Two Hundred Twenty-Five Thousand
Dollars ($3,225,000) shall be inclusive of all existing disputes
compromised in full upon and as of April 30, 1995 as provided in
Section 19(e), but exclusive of good faith disputes hereafter
handled in accordance with the procedures described in Sections
19(a) and (b) below; and
(19) Seller shall promptly advise Buyer in writing of any
material adverse change or the occurrence of any event which
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involves any substantial possibility of a material adverse
change, in the condition (financial or other), results of
operations, assets, liabilities, businesses or prospects of
Seller or the Division.
(b) NEGATIVE COVENANTS OF SELLER. Seller covenants and agrees
that, so long as this Agreement remains in full force and effect, from and after
the date hereof until the Closing, without Buyer's prior written consent, which
may be given or withheld in Buyer's sole determination, Seller will not:
(1) Take or permit any action that would materially and
adversely affect the business of the Division or the Assets or
Liabilities as a whole;
(2) Sell or transfer any of the Assets other than in the
ordinary course of business or permit or allow any of the Assets
to become subject to any lien (except by operation of law where
the amount is not due), mortgage, option, pledge, security
interest or other claim or encumbrance of any kind or character;
(3) Modify any existing lease, contract, commitment or
other agreement relating to the business of the Division or the
Assets, or enter into any new lease, contract, commitment or
other agreement except with respect to vehicle rentals in the
ordinary course of business;
(4) Conduct negotiations with other parties for a sale of
the Division or South Seas nor a controlling equity interest in
either, nor any other merger, consolidation, liquidation,
recapitalization, reorganization or other extraordinary corporate
transaction, involving Seller or South Seas;
(5)(i) Grant any increase in compensation other than normal
merit increases consistent with Seller's general prevailing
practices to any officer or employee, (ii) enter into or amend or
alter materially any collective bargaining agreement or any
bonus, incentive compensation, deferred compensation, profit
sharing, retirement, pension, group insurance, death benefit or
other fringe benefit plan, trust agreement, or arrangement or any
employment or consulting agreement, except as may be required to
comply with ERISA or except in the ordinary course of the
administration of its existing plans or agreements;
(6) Create, incur, assume, guarantee or otherwise become
liable with respect to any obligation for borrowed money,
indebtedness, capitalized lease or similar obligation, except in
the ordinary course of business consistent with past practices
for working capital purposes, or to make any loan or advance to
or investment in any person or entity;
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(7) Permit its own or South Seas' certificate or articles
of incorporation or bylaws or the indenture for the Debentures to
be amended;
(8) Make changes in accounting methodologies, principles
and practices;
(9) Declare, set aside or pay any dividends, interest or
other distributions of any nature whatsoever on its securities
and will not permit there to be issued or redeemed, repurchased
or otherwise acquired any securities of Seller or South Seas
(other than the anticipated redemption of Debentures as
contemplated hereby);
(10) Amend, terminate or waive any material right whether or
not in the ordinary course of business;
(11) Make or commit to make any capital expenditure, capital
addition or capital improvement;
(12) Make any loans to, or enter into any business
transaction, agreement, arrangement or understanding of any other
nature with any officer, director, shareholder, Affiliate
(including, without limitation South Seas) or any entity in which
any of the foregoing has an interest, except for transactions
contemplated by this Agreement; and
(13) Make any intercompany transfers of cash or assets,
except the buying and selling of parts and used vehicles in the
ordinary course of business, consistent with the procedures
outlined on Schedule 15(n) hereto.
(14) Do or omit to do any act, or permit any act or omission
to act, which would cause a material breach of any
representation, warranty, agreement or covenant made by Seller
herein or materially adversely affect the business of the
Division, Assets or Liabilities.
18. COVENANTS OF BUYER.
Buyer covenants and agrees that, so long as this Agreement
remains in full force and effect, from the date hereof to the Closing, Buyer
will:
(a) Conduct its due diligence review and procedures within the
time contemplated hereby and in a manner which does not unreasonably and unduly
interfere with the operation of the Division;
(b) Cooperate with Seller as to arrangements for the transfer of
the Assets and Liabilities in an orderly fashion at Closing;
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(c) Comply with or cause to be complied with in all material
respects all applicable laws, rules, regulations and orders of all federal,
state and local governments or governmental agencies materially affecting or
relating to the Closing including, without limitation, timely making Buyer's HSR
Act filings and paying the required fee;
(d) Exercise diligent good faith efforts to assist Seller with
third-party consents and other transition issues including, without limitation,
those required pursuant to the terms of Sections 9(d) and (m);
(e) Do or omit to do any act, or permit any act or omission to
act, which would cause a material breach of any representation, warranty,
agreement or covenant made by Buyer herein;
(f) Inform Seller within five (5) days prior to Closing the
identities of the employees of Seller Buyer will employ upon occurrence of the
Closing; and
(g) Not in connection with Buyer's preparation of the Final
Closing Balance Sheet, make changes in Seller's accounting methodologies,
principles and practices, as long as the application of such methodologies,
principles and practices would result in amounts determined in accordance with
GAAP Consistently Applied as modified or clarified by the Agreed Practices.
19. OTHER AGREEMENTS.
(a) DISPUTED CHARGES. In light of resolution of all disputes
hereafter described as to the amount of payments, charges and debt owing from
Seller to Buyer, or credits owing from Buyer to Seller, as of and as to charges,
invoices or credits relating to transactions occurring on or before April 30,
1995, in accordance with the compromise set forth in Section 19(e) below, the
parties agree there are no outstanding disputes or disagreements which Seller
and Buyer have with respect to charges, invoices or credits which have been
respectively received by the parties and the net amount of which were unpaid as
of April 30, 1995, but subject to the conditions expressed in Section 19(e)
below. With respect to any other charges, invoices or credits which Buyer and
Seller hereafter dispute in good faith (which may include disputes relating to
charges, invoices or credits on 1994 model year vehicles that have not gone
through auction), the following procedures will apply: Buyer will submit its
invoices to Seller with sufficient supporting documentation explaining the
amount owed. Seller will have ten (10) days from receipt to review and submit
to Buyer the amount, if any, that it disputes together with sufficient
supporting documentation for its position. Buyer will have ten (10) days to
respond from receipt of Seller's position, again with supporting documentation.
If the parties cannot reach agreement within five (5) days after Buyer's
response, the disputed amount will be immediately submitted for ADR and, if time
permits,
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resolved prior to Closing. Once an amount is determined due and owing
through ADR, it shall be immediately paid. If amounts submitted for ADR
remain unresolved as of Closing, the Closing shall not be delayed, but the
amount resolved after Closing shall be included in the post-closing
adjustments to the Final Closing Balance Sheet as specified in Section 5
hereof.
(b) ADR PROCEDURES. Any dispute submitted for ADR will be
subject to binding resolution before a mutually agreeable private adjudicator,
with a determination to be made within fifteen (15) business days after the
submission for disputes under Section 19(a) hereof. The specific procedures
applicable in ADR for both Section 19(a) and Section 20(f)(3) claims are set
forth on Exhibit U hereto.
(c) FLEET PROCEDURES. The following criteria shall apply
concerning the fleet issues identified below for the 1994 and 1995 model years:
(1) All eligible 1995 Model Year (MY) vehicles except the
vehicles listed below are eligible for an In Service Retention
Bonus ("ISRB") of $2.50 per day when the vehicle has been in
service for 243 days (94MY:240 days, approximately eight months)
retroactive to the 183rd day (94MY:180th day) of service subject
to the conditions listed below. The 1995 MY vehicles not eligible
for ISRB are: A-Bodies leased under the short term program and
Neons, A-Bodies and 1995 LWB Minivans leased under the Special
Long Term Program. This bonus will be earned if the date a
vehicle is returned to auction (the Auction Return Date) is a
minimum of 243 days (94MY:240 days) from the Lease Start Date and
the vehicle is not rejected from the Buyer Program. The $2.50
per day is payable for the number of days in service less 183
days (94MY:180 days, representing approximately six months) less
15 days for vehicles returned in Hawaii to a mainland auction.
For vehicles exceeding the Maximum Lease Term of 13.5 months up
to 14.5 months (15 months less 15 days), Buyer will be able to
pass through as a credit to Seller up to a maximum ISRB of
$637.50 (450-180-15 days times $2.50) per vehicle. For vehicles
exceeding 14.5 months in service Buyer agrees to pass through as
a credit to Seller all ISRB received from Chrysler, although
there is no assurance that this ISRB will be received. If a
vehicle is rejected from the program for any reason or is not
accepted for return for any reason, the ISRB will not be earned.
If a vehicle is rejected after the ISRB has been paid, the ISRB
Fleet Credit will be charged back to Seller's account.
(2) Regarding transportation costs (water and surface) on
1994 model year vehicles, Buyer pays $683.00 per vehicle, and on
1995 model vehicles, Buyer pays as set forth in the Vehicle
Return Procedures.
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(3) The Lease Start Date is the date of arrival in Hawaii
(as indicated by date Seller signs bill of lading receipt), plus
three (3) days for 1995 models, and plus five (5) days for 1994
models;
(4) The Lease End Date is the Auction Return Date less 15
days for 1994 vehicles and less either 15 to 20 days for 1995
vehicles as set forth in the Vehicle Return Procedures.
(5) With respect to cars not yet sold at auction, debits
will not be booked by Buyer until the accompanying credit, if
any, has been issued. Buyer will maintain separate records to
document the status of these "off A/R" (from Buyer's viewpoint)
transactions which will not count toward the Debt Ceiling
Covenant until the respective credit has been applied and no
further credits are anticipated.
(6) Sections 19(c)(1) through (5) above are not intended to
amend, except as otherwise specifically provided above, any other
applicable provision in Buyer's 1994 or 1995 Fleet Lease Program.
(7) Except as otherwise defined herein, capitalized terms
used in this Section 19(c) shall have the meaning ascribed to
them in the respective 1994 or 1995 Fleet Lease Program sponsored
by Buyer.
(8) Seller acknowledges that the Vehicle Return Procedures
have not previously been implemented by Buyer. As a consequence,
and due to Buyer's unfamiliarity with Hawaii shipping and
transportation issues, Seller agrees to consider in good faith
reasonable modifications to the Vehicle Return Procedures which
do not result in Seller being responsible for shipping costs to
the mainland, nor materially diminish or change the respective
rights and obligations of the parties as reflected thereon, nor
extend the Lease End Date.
(d) EMPLOYEES.
(1) BUYER'S NEGOTIATION WITH SELLER'S EMPLOYEES. On and
after the date hereof to the time of Closing, Seller agrees to
permit Buyer to interview the employees of Seller listed Exhibit
V hereto and to agree to permit Buyer to hire any one or more of
such employees on terms that are mutually acceptable between
Buyer and each such employee. Buyer and Seller agree that it is
not a condition of Closing that Buyer successfully negotiate the
employment of any such employee. In the event Buyer elects not
to retain the services of any employee of Seller, Seller shall
specifically retain as a Retained Liability, and Buyer does not
assume, any liability for accrued salary, vacation leave, sick
leave, unpaid fringes, severance, Hawaii Dislocated Workers Act
allowance or
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any other liability whatsoever due in respect of any
such employee.
(i) Buyer shall assume the remaining term of Seller's
employment commitment to Sirio Maggiacomo which ends
December 31, 1997, which term shall be honored by Buyer
unless grounds exist for termination with cause in which
event Buyer will be excused from further obligation;
provided, however, Buyer's total obligation to accept such
commitment shall not exceed $140,000 per year as to base
salary and Buyer's standard benefits package offered to its
employees. Upon the Closing, Seller and Mr. Maggiacomo
shall enter into an agreement terminating his existing
Employment Agreement with Seller entered into effective
January 1, 1995, and affirming he has no claim against Buyer
pursuant thereto or otherwise except to the extent
specifically provided herein.
(ii) With respect to Seller's employment commitment of
$45,500 per year ending June 19, 1997 to Teddy Fabella (plus
$200/month car allowance in lieu of company car), Seller
agrees that Buyer will not be obligated to assume such
commitment until it has had the opportunity to interview
Mr. Fabella and satisfy itself as to his qualifications, in
Buyer's sole discretion. Upon the Closing and if Buyer has
elected to retain his services, Seller and Mr. Fabella shall
enter into an agreement terminating his existing employment
commitment with Seller entered into effective May 29, 1995,
and affirming he has no claim against Buyer pursuant thereto
or otherwise except for the specific monetary amounts
described above. If any offer of employment by Buyer is
extended to Teddy Fabella, it will be understood that the
same will be subject to termination for cause and without
further liability to Buyer in advance of June 19, 1997.
(e) COMPROMISE OF EXISTING DISPUTES. As of April 30, 1995,
Buyer understands that Seller had disputed approximately Eight Hundred Fifty-
Eight Thousand Dollars ($858,000) of miscellaneous charges and invoices from
Buyer to Seller. As consideration for Buyer's entering into, performing and
closing this Agreement, Seller and Buyer agree to resolve and compromise in
favor of Seller a portion of such claims as identified on Exhibit W hereto, and
to resolve and compromise in favor of Buyer a portion of such remaining claims
by agreeing that the final amount due and owing in respect of such controversies
equals Two Hundred Twenty-Five Thousand Dollars ($225,000), irrespective of
whether or not the Exhibit W sums plus Two Hundred Twenty-Five Thousand Dollars
($225,000) equals Eight Hundred Fifty-Eight Thousand Dollars ($858,000). The
compromise amount of Two Hundred Twenty-Five Thousand Dollars ($225,000) will
immediately and through the Closing be reflected as a Liability on the Division
balance sheet. As additional consideration to Buyer for making such compromise,
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Seller waives and relinquishes any right to claim any offset or other amount due
and owing, if any, in respect of reconciliation of actual transportation charges
compared to permitted allowances or other freight credits for return of all
vehicles, or Product Promotion Allowance, both with respect to Buyer's 1994
Model Year Fleet Lease Program. If, for any reason, this Agreement is
terminated before Closing, then all of the agreements made by the parties in
this Section 19(e) will likewise be deemed rescinded, with each of Seller and
Buyer permitted to pursue and prosecute claims in respect of amounts they
consider owing or to become owing as described in this Section 19(e) or
otherwise.
(f) NOTICE OF MODIFICATION. To the extent required by
applicable law, upon execution hereof, Buyer hereby delivers to Seller a Notice
of Modification of Existing Franchise in the form of Exhibit X hereto,
pertaining generally to the agreements described in Section 19(g) below. In the
event Seller elects to rescind such amendments or modifications as set forth in
accordance with the terms of Exhibit X, then this Agreement shall be deemed
immediately terminated without further notice.
(g) WAIVER OF SYSTEM FEES. Buyer shall permanently waive and
forgive Seller's obligation to pay system fees under the License Agreement (but
not its reporting requirements) to Buyer computed at a two percent (2%) level
(but no other fees), accruing from June 1, 1995 only until the earlier to occur
of (i) termination of this Agreement, (ii) Closing, or (iii) a cumulative waiver
of Three Hundred Thousand Dollars ($300,000) in amount of system fees has been
allowed in accordance herewith. From the point in time that the waiver
described herein is to expire until Closing or termination hereof, system fees
shall thereafter accrue and be payable as otherwise required in accordance with
the terms of the License Agreement at a two percent (2%) level. This waiver is
absolute until it ceases in accordance with the terms hereof.
(h) RESERVES. All entries as to Seller's reserves in Financial
Statements including, without limitation, for accounts receivable, liability
insurance and damaged vehicle turnbacks and reconditioning, will be updated and
determined in accordance with GAAP Consistently Applied as modified and
clarified by the Agreed Practices as of the date of each respective Financial
Statement. Part of such updating is Seller's responsibility to provide
information as current as possible as of the date of the Financial Statements
involved which, in the case of each of the Unaudited Closing Balance Sheet and
Final Closing Balance Sheet, shall obligate Seller to perform all of the
procedures and make all adjustments it would customarily make with respect to
the Unaudited Closing Balance Sheet and the Final Closing Balance Sheet as if
such were normal year-end audited statements, except as otherwise set forth in
Agreed Practices. Accordingly, and subject to the Agreed Practices,
irrespective of whether or not a given procedure, evaluation, updating, review
or other matter might be undertaken with respect to reserves for preparation of
a balance sheet by
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Seller in its ordinary course as of October 31, 1995, or the date of Closing,
such shall nevertheless be performed, undertaken and prepared for purposes of
developing the Unaudited Closing Balance Sheet and Final Closing Balance
Sheet. Notwithstanding anything to the contrary expressed herein, in
preparing the Unaudited Closing Balance Sheet, Seller will not be required
(i) to make a physical inventory of vehicles, (ii) perform or cause to be
performed an actuarial study with respect to self insurance reserves, or
(iii) make independent confirmation of assets or liabilities.
(i) STANDSTILL AGREEMENT. Upon execution hereof, Seller and
Buyer have entered into the Standstill Agreement in the form of Exhibit Y
hereto, and agree to perform and observe the conditions stated therein.
20. INDEMNIFICATION.
(a) LOSS. For purposes of this Agreement, "Loss" shall mean any
liability, loss, cost, claim, damage, injury, expense or payment, including
without limitation the related actual fees and expenses of attorneys,
consultants and other experts.
(b) BY THE SELLER. The Seller agrees to indemnify, defend and
hold the Buyer harmless from, against and in respect of any Loss incurred or
suffered by the Buyer:
(1) with respect to any of Seller's contracts, obligations,
agreements or liabilities not assumed by the Buyer under this
Agreement including, without limitation, any Retained
Liabilities;
(2) with respect to any Liability to the extent that such
Loss arose from or was the result of any situation or set of
facts, the existence of which would cause there to be a breach of
a warranty, representation, covenant or agreement by the Seller
under this Agreement or under any Seller Delivered Agreement;
(3) with respect to any litigation, claim or proceeding
arising out of Seller's operations prior to Closing not
constituting a Liability, Off-balance Sheet Liability or not
listed on Schedule 15(j) to this Agreement;
(4) with respect to all claims, controversies, legal
actions and proceedings arising out of Seller's operations prior
to Closing brought by or on behalf of any creditor, agent,
employee or former employee of the Seller or any other third
party or governmental agency that do not constitute Liabilities;
(5) with respect to any income, sales, payroll, excise,
surcharge or other tax liabilities of the Seller whatsoever not
constituting a Liability or not disclosed in writing on
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Schedule 15(c) hereto (including, without limitation,
assessments, additions to taxes, deficiencies, penalties and
interest and the costs and expenses relating to examinations or
audits of the taxes of the Seller);
(6) with respect to any bulk sales, fraudulent conveyance
or similar laws or any other laws creating a lien or other
adverse interest in, upon or with respect to the Assets by reason
of the transactions contemplated by this Agreement, provided that
the foregoing indemnity shall not be applicable to claims arising
out of Liabilities which have been assumed;
(7) with respect to any dispute among the Seller, its
shareholders, directors, officers, employees, agents, Affiliates
and Debenture holders;
(8) for any claim asserted against Buyer with respect to
any disputes regarding goods or services which were provided or
were to be provided by Seller prior to Closing not constituting a
Liability, Off-balance Sheet Liability or not listed on Schedule
15(j) hereto;
(9) with respect to any claim by any governmental agency
arising from actions or failures to act of the Seller;
(10) with respect to any taxes, costs, fees or expenses that
this Agreement provides are to be paid or otherwise borne by the
Seller;
(11) with respect to operations of Seller's business prior
to the Closing, except for the Liabilities;
(12) with respect to any claim for successor liability or
similar theory which would, pursuant to applicable law, impose
liability on the Buyer for any aspects of the Seller's operations
before Closing, except to the extent the same expressly
constitutes a Liability hereunder; and
(13) without limiting, or being in any manner limited by,
the foregoing, as a result of misrepresentation, breach of a
representation, warranty, covenant or agreement on the part of
the Seller under this Agreement or the Seller Delivered
Agreements.
(c) BY THE BUYER. The Buyer agrees to indemnify, defend and
hold the Seller harmless from, against and in respect of any Loss incurred or
suffered by the Seller:
(1) with respect to any Liability except to the extent that
such Loss arose from or was the result of any situation or set of
facts in existence on the Closing, the existence of which would
cause there to be a breach of a warranty,
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representation, covenant or agreement by the Seller under this
Agreement or the Seller Delivered Agreements;
(2) With respect to Buyer's operation of the Division after
Closing, except for the Retained Liabilities and except to the
extent that any such Loss arose from or was the result of any
situation or set of facts in existence on the Closing, the
existence of which would cause there to be a breach of a
warranty, representation, covenant or agreement by the Seller
under this Agreement or the Seller Delivered Agreements; and
(3) without limiting or being in any manner limited by the
foregoing, as a result of a misrepresentation, breach of a
representation, warranty, covenant or agreement on the part of
the Buyer under this Agreement or the Buyer Delivered Documents.
(d) GENERAL. Any right of indemnity of any party pursuant to
this Agreement shall be in addition to and shall not operate as a limitation on
any other right to indemnity of such party pursuant to this Agreement, any
document or instrument executed in connection with the consummation of the
transaction contemplated hereby, or otherwise under applicable law.
(e) LIMITATIONS. The foregoing indemnification obligations are
subject to the following:
(1) TIME LIMITATIONS. The obligation of indemnity shall be
extinguished unless the party claiming the right to be
indemnified notifies the indemnitor of facts which it thinks are
the basis for indemnification hereunder on or before the third
(3rd) anniversary of the Closing; provided, however, that
notwithstanding the foregoing, no time deadline shall apply to
any willful or intentional breach of or failure to comply with
any representation, warranty, covenant or agreement in this
Agreement.
(2) DEDUCTIBLE. Neither the Seller nor the Buyer shall
have any liability whatsoever under this Section 20 unless and
until, and only to the extent that, the total Losses for which
the Seller on the one hand, or the Buyer, on the other hand,
would otherwise be liable, exceed One Hundred Thousand Dollars
($100,000) in the aggregate; provided, however, that the minimum
Loss specified herein shall not apply to any willful or
intentional breach of or failure to comply with any
representation, warranty, covenant or agreement in this Agreement
or the Seller Delivered Agreements or Buyer Delivered Agreements,
respectively, nor as to any Loss sustained by Buyer relating to
any Retained Liabilities.
(3) APPLICATION OF LIMITATIONS. All limitations described
in this Section 20 shall apply not only to any right of
contractual indemnity established hereunder, but also for
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breach of representation, warranty, covenant or agreement by
either party hereto, or other remedy available under applicable
law.
(f) CLAIMS BY PARTIES HERETO. All claims for indemnification
under this Agreement shall be resolved in accordance with the following
procedures:
(1) NOTICE OF FACTS FORMING BASIS FOR CLAIM. Notice must
be given of facts which are the basis of an indemnification claim
under this Section 20 within the time periods required by Section
20(e)(1).
(2) THIRD PARTY CLAIMS; RIGHT TO CONTEST. With respect to
any Loss based upon an asserted liability or obligation to a
person or entity not a party to this Agreement for which either
the Seller or the Buyer claims the right to be indemnified
pursuant to this Section 20, the Buyer or the Seller, as the case
may be, shall give prompt (within the time required for the
filing of any responsive pleading in the case of litigation)
written notice to the other party (the "Notice of Third Party
Claim") even though Section 20(f)(1) above might permit a later
notice. In no event shall the provisions of this Section 20(f)
reduce or lessen the obligations of the Seller or the Buyer under
this Section 20(f)(2), if the party furnishing the Notice of
Third Party Claim shall respond to a third party claim if such
action is reasonably required to minimize damages or avoid a
forfeiture or penalty or because of a requirement imposed by law.
The party furnishing the Notice of Third Party Claim may not
settle such claims or actions without the consent of the other
party to this Agreement, which consent shall not be unreasonably
withheld.
(3) NOTICE OF FIXED OR DETERMINED LOSS. When a Loss is
paid or is otherwise fixed or determined, then the Buyer or the
Seller claiming indemnification under this Agreement shall give
the other notice of such Loss, in reasonable detail and
specifying the amount of such Loss, and the sections of this
Agreement upon which the claim for indemnification for such Loss
is based. If the recipient of the notice desires to dispute such
claim, it shall, within thirty (30) days after notice of the
claim of Loss against pursuant to this Section 20(f)(3) is deemed
received, give counternotice, setting forth the basis for
disputing such claim, to the Buyer or the Seller, as the case may
be. If no such counternotice is given within such thirty (30)
day period, then such Loss shall be promptly satisfied. If a
counternotice is given, the parties shall pursue ADR in
accordance with Section 19(b) hereof.
(g) SURVIVAL. The representations and warranties, as well as
covenants and agreements performable after Closing, made by the parties in this
Agreement or in any certificate, exhibit, schedule or other document executed
and delivered by a party pursuant to, or
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in connection with, this Agreement, shall expressly survive the Closing. No
investigation made by the Buyer or the Seller nor any disclosure made after
the date of this Agreement shall affect the enforceability of, or the
remedies available under this Agreement with respect to the breaches of, such
representations, warranties, covenants, agreements and undertakings or their
survival.
21. TERMINATION.
(a) TERMINATION RIGHTS. The obligations of Seller and Buyer
under this Agreement can be terminated and the transactions contemplated by it
abandoned upon the following conditions, or when authorized under applicable
law, with notice of termination to be furnished in writing:
(1) By Buyer as provided in Section 21(d) below;
(2) Pursuant to the mutual written agreement of Seller and
Buyer;
(3) By Buyer, if any of the conditions to its obligation to
consummate the Closing are not satisfied or waived by Buyer as of
the Closing;
(4) By Seller, if any of the conditions to its obligation
to consummate the Closing are not satisfied or waived by Seller
by the Closing;
(5) By Seller or Buyer at any time on or before the end of
Buyer's 45-day due diligence period described in Section 8, for
failure to accept or otherwise reach agreement upon an Agreed
Practice proposed by the other party including, without
limitation, any Agreed Practice pertaining to the manner in which
Seller's reserves in the Financial Statements are to be computed;
(6) By Seller or Buyer as provided in Section 4(c)(2)
above; and
(7) The failure of the Closing to have occurred for
whatever reason by November 30, 1995 (unless extended by mutual
written agreement of the parties), in which event the Agreement
shall automatically terminate.
(b) ASSISTANCE CLAIM. In the event of termination of this
Agreement, the passage of time shall not preclude Buyer in its discretion from
asserting that the assistance referenced in the March 21, 1995 agreement between
the parties has failed, with Buyer being entitled to claim the increased amounts
due if such assistance is determined to have failed.
(c) CONTRACT TERMINATION CLAIMS. Upon termination of this
Agreement, the respective rights and liabilities of Buyer and
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Seller with respect to the Master Lease and License Agreement shall be
governed by the terms of such agreements and the Standstill Agreement.
(d) EFFECT OF TERMINATION. It is agreed by Seller that Buyer
has the unqualified right to terminate this Agreement and rescind this
transaction, in addition to any other time expressly provided herein or by
applicable law, in the following circumstances or at the times indicated below:
(i) upon completion of or during its due diligence procedures and review; (ii)
upon failure to have agreed upon the exhibits by the time required herein; (iii)
upon non-acceptance of the content of Seller's schedules (or exhibits required
to be updated) hereto during or by conclusion of the due diligence period, or
upon updating of such schedules (or exhibits required to be updated) as required
hereby periodically (with Buyer to accept or reject same within five (5) days of
receipt by Buyer's hereafter designated representative, with silence being
deemed acceptance) and at the Closing; (iv) upon failure of a condition to the
obligation of Buyer to close hereunder, or breach of a representation, warranty,
covenant or agreement by Seller pursuant hereto; or (v) upon exercise by Seller
of a right to rescind the amendment to its License Agreement as described on
Exhibit X hereto (as to all the foregoing, whether expressly enumerated, or
described before the colon appearing in the fifth (5th) line of this Section
21(d), the "Permitted Termination Events"); this Agreement may be terminated and
rescinded upon Buyer's written notice with the parties restored to their
respective positions existing before entering into this Agreement; provided, (x)
Buyer shall be entitled to retain all payments made by Seller pursuant to
existing agreements, and (y) the pledge of the South Seas stock shall remain in
place to the extent at such time amounts that are secured by the pledge pursuant
to Section 7(a)(1), 7(a)(2), or 7(a)(3) are accrued or due and payable by Seller
to Buyer (or are subject to good faith disputes in accordance with Section 19(a)
and (b) hereof). As a material inducement to Buyer to enter into this
Agreement, and particularly considering the similar nature of such claims which
have heretofore been raised in the litigation which is the subject of the
Standstill Agreement and the fact that the exhibits and schedules are to be
developed and modified from time to time after the date hereof, Seller hereby
irrevocably and unqualifiedly waives any and all right to assert any challenge,
claim or objection to Buyer's exercise of its right to terminate this Agreement
for any reason at, during or upon the Permitted Termination Events, whether or
not with justification, and including, without limitation, any assertion by
Seller that Buyer's termination constitutes breach of any statutory or implied
covenant of good faith, fair dealing or other duty, or as constituting any type
of interference with prospective business advantage, contractual or business
relationship, discrimination, economic duress or any other similar or dissimilar
tort, breach of contract or any other theory of recovery whatsoever.
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22. REMEDIES.
(a) In addition to the indemnity rights of Buyer and Seller
under Section 20 of this Agreement and remedies available under applicable law,
Buyer and Seller shall each have the following rights and remedies:
(1) Buyer may foreclose its security interest in the South
Seas stock to the extent permitted by this Agreement, the Stock
Pledge Agreement or the Agency Agreement.
(2) Either party may recover money damages for breach of
representations, warranties, covenants, agreements and
indemnities after the Closing or for failure or refusal to close
after satisfaction (or waiver by the party entitled to the
satisfaction) of all conditions precedent to the obligation of
both parties to the Closing.
(3) For breach of representations, warranties, covenants,
agreements and indemnities before Closing, the non-defaulting
party will be entitled to rescission with the parties each being
restored to their respective status before the Agreement, subject
to Section 21, with the ability to proceed with the litigation
pending on the date of this Agreement or any other remedy;
provided, however, that the passage of time shall not preclude
Buyer in its discretion from asserting upon exercise of a
rescissionary remedy that the assistance referenced in the March
21, 1995 agreement between the parties has failed, with it being
entitled to claim the increased amounts due it from Seller if
such assistance is determined to have failed.
(4) For failure or refusal to close after fulfillment by
both parties of all their respective conditions to Closing, the
enforcing party may seek specific performance of this Agreement.
A party may also seek specific performance for breach of a
covenant or agreement hereunder. The parties irrevocably agree
in the circumstances where specific performance is authorized
hereunder that there is no adequate remedy available at law.
(5) Upon breach of representation, warranty, covenant or
agreement by Seller under this Agreement, Buyer may terminate
this Agreement whereupon the respective rights and liabilities of
the parties with respect to the Master Lease and License
Agreement shall be subject to the terms of such agreements and
the Standstill Agreement.
(6) For violation of the PISC Noncompetition Agreement or
Robin Noncompetition Agreement, Buyer shall be entitled to
injunctive relief.
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(b) None of the foregoing rights or remedies shall be exclusive
or in duplication of any other right or remedy under this Agreement, those
available under applicable law, or the indemnity rights and remedies of Buyer
and Seller under Section 20.
(c) Nothing in this Agreement shall be construed to, nor shall
applicable law be deemed for purposes of this Agreement to allow, a party to sue
for money damages for breach of a representation, warranty, covenant, agreement
or indemnity before the Closing; provided, however, this limitation will not
preclude Buyer from maintaining any action against Seller for a violation by
Seller hereafter of its obligations under the Master Lease, License Agreement or
any other contract between such parties except as limited by the Standstill
Agreement.
(d) If, for any reason, the Closing fails to occur, nothing in
this Agreement shall prevent the parties from asserting their respective
positions in litigation pending prior to the execution hereof, all in accordance
with the Standstill Agreement and all amendments thereto.
(e) In any action brought to enforce any provision hereof or any
Basic Document, the prevailing party shall be entitled to its reasonable
attorney's fees in addition to the relief it is seeking.
23. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. At any time and from time to time after
the Closing, at the request of Buyer and without payment of any further
consideration, Seller agrees to execute, acknowledge and deliver all such
further assignments, conveyances and transfer documents, in form and substance
reasonably acceptable to Seller, and other assurances as reasonably may be
requested by Buyer for the purpose of better assigning, conveying and
transferring to Buyer, or reducing to Buyer's possession, any or all of the
Assets or to enable Buyer to exercise and enjoy the rights and benefits with
respect thereto. At any time and from time to time after the Closing, at the
request of Seller and without payment of any further consideration, Buyer agrees
to execute, acknowledge and deliver all such further assumptions and documents,
in form and substance reasonably acceptable to Buyer, and other assurances as
reasonably may be requested by Seller for the purpose of better evidencing the
assumption by Buyer of the Liabilities.
(b) NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given on the date of receipt, if served personally on the party to
whom notice is to be given by actual in person delivery, or if sent by facsimile
(confirmed by transmission receipt), telegraph or similar means of
communication, or on receipt, refusal, or as of the first attempted date of
delivery if unclaimed after mailing, when mailed to the party to whom notice is
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to be given, by certified U.S. mail, return receipt requested, postage prepaid
and properly addressed as follows:
To Seller: Pacific International Services Corp.
1600 Kapiolani Boulevard, Suite 825
Honolulu, Hawaii 96814
Attention: Alan M. Robin
Title: President
FAX: (808) 926-4255
With copies to: H. Wayne Cooper, Esq.
Doerner, Saunders, Daniel & Anderson
320 South Boston, Suite 500
Tulsa, Oklahoma 74103
FAX: (918) 591-5362
J. George Hetherington, Esq.
Torkildson, Katz, Jossem, Fonseca,
Moore & Hetherington
700 Bishop Street, 15th Floor
Honolulu, Hawaii 96813-4187
FAX: (808) 523-6001
To Buyer: Dollar Systems, Inc.
5330 East 31st Street
(or P.O. Box 33167, 74153-1167)
Tulsa, Oklahoma 74135
Attn: Gary L. Paxton
Title: President
FAX: (918) 669-3001
With copies to: Stephen W. Ray, Esq.
Hall, Estill, Hardwick, Gable,
Golden & Nelson, P.C.
320 South Boston, Suite 400
Tulsa, Oklahoma 74103
FAX: (918) 594-0505
John R. Myrdal, Esq.
Case Myrdal Bigelow & Lombardi
737 Bishop Street, Suite 2600
Honolulu, Hawaii 96813
FAX: (808) 523-1888
Each party shall be entitled to specify a different person or address by giving
notice as aforesaid to the other.
(c) ENTIRE AGREEMENT. This Agreement, together with other Basic Documents
and the exhibits and schedules attached hereto, and as the exhibits and
schedules may be amended or supplemented from time to time, constitute the
entire agreement between the parties with respect to the subject matters hereof
and supersede all prior and contemporaneous agreements, understandings,
negotiations and
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discussions, whether oral or written, and may not be altered or amended
except in writing signed by the parties hereto. No provision hereof is
intended to confer upon any person or entity other than the parties hereto
any right, benefit or privilege of the parties described hereunder.
(d) TIME OF ESSENCE; COMPUTATION OF TIME. In all matters under this
Agreement, time is of the essence. Whenever the last day for the exercise of
any privilege or the discharge of any duty under this Agreement shall fall upon
Saturday, Sunday or any federal holiday, the party exercising or discharging
shall have until 5:00 p.m. its local time on the next succeeding regular
business day to exercise such privilege or to discharge such duty; provided,
however, that the foregoing shall not be deemed to extend the effect of the 24
hour period described in the Standstill Agreement to 5:00 p.m. local time on
such next succeeding regular business day where 24 hours would lapse earlier,
provided in all events the affected party shall have at least until 11:00 a.m.
local time on such day.
(e) BINDING EFFECT; ASSIGNMENT. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective permitted transferees, successors and assigns;
provided, however, that neither party hereto may assign its rights or
obligations hereunder without the prior written consent of the other, except
Buyer may assign its rights and obligations to a subsidiary or lower tier
subsidiary.
(f) APPLICABLE LAW; VENUE. This Agreement shall be governed, construed
and enforced in accordance with the laws of the State of Hawaii. Each party
hereto agrees that any legal action or proceeding against it and arising out of
or relating to this Agreement, or any of the other Basic Documents, except the
Stock Pledge Agreement, Agency Agreement, Holdback Agreement or Standstill
Agreement (collectively, the "Oklahoma Agreements"), shall be instituted in the
United States District Court for the District of Hawaii. By execution and
delivery of this Agreement, each party irrevocably submits to the jurisdiction
of such courts in any such action or proceeding as to the Basic Documents other
than the Oklahoma Agreements and waives any objections it may have with respect
to such jurisdiction and venue therein. The foregoing shall not limit the
rights of any party hereto to bring any legal action or proceeding or to obtain
execution of judgment against any party in any appropriate jurisdiction.
(g) AMENDMENTS. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the parties. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof, nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
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(h) WAIVERS. No waiver by any party, whether express or implied, of any
right under the provisions of this Agreement shall constitute a waiver of such
party's rights at any other time.
(i) SEVERABILITY. If a court of competent jurisdiction declares that any
provision of this Agreement or any exhibit hereto is illegal, invalid or
unenforceable, then such provision shall be modified automatically to the extent
necessary to make such provision fully enforceable. If such court does not
modify any such provision as contemplated herein, but instead declares it to be
wholly illegal, invalid or unenforceable, then such provision shall be severed
from this Agreement and such declaration shall in no way affect the legality,
validity and enforceability of the other provisions of this Agreement to which
such declaration does not relate. In this event, this Agreement shall be
construed as if it did not contain the particular provision held to be illegal,
invalid or unenforceable, the rights and obligations of the parties hereto shall
be construed and enforced accordingly, and this Agreement shall remain in full
force and effect.
(j) PRESS RELEASE. Within two (2) business days of initial delivery by
Seller of complete and conforming schedules hereto, Buyer shall, upon
consultation with Seller, issue a press release in a form satisfactory to it,
generally to the effect that, subject to its due diligence, it intends to retain
the managers, supervisors and other key personnel necessary to continue a five
(5) island vehicle rental operation and to honor all customer commitments
constituting Liabilities. Nothing herein shall prevent Seller, upon prior
consultation with Buyer, from issuing such press release as it deems necessary
to comply with its obligations under federal and state securities laws.
(k) EXPENSES. Each party shall bear its own cost and expenses in
connection with the negotiation, preparation and execution of this Agreement.
(l) CONFIDENTIALITY. The Seller and the Buyer agree that the terms and
conditions of this Agreement and of the transactions contemplated by it are to
remain confidential, except to the extent that either party determines it is
necessary under applicable law to disclose such terms and conditions including,
without limitation, disclosures that may be required in light of Seller's status
as a publicly held reporting company with the Securities and Exchange Commission
and also expressly including conveyancing and instruments relating to liens and
encumbrances recorded in the public records.
(m) CONSTRUCTION. Headings provided herein are for the reference of the
parties only, and shall not be used as an aid to construction of this Agreement.
For purposes of enforcement hereof, this Agreement shall be construed as if
having been prepared jointly by the parties hereto, and not by one party to the
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exclusion of the other, to avoid any construction against the party drafting the
Agreement.
(n) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be considered an original, and all of which
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered the day and year first above written.
PACIFIC INTERNATIONAL SERVICES CORP.,
a California corporation
By: /s/ Alan M. Robin
-----------------------------------
Alan M. Robin, President
DOLLAR SYSTEMS, INC.,
a Delaware corporation
By: /s/ Gary Paxton
-----------------------------------
Gary L. Paxton, President
/s/ Alan M. Robin
--------------------------------------
Alan M. Robin, joining herein
personally to affirm his obligations
pursuant to Sections 3(b) and (c)
hereof
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EXHIBIT INDEX
Exhibit
-------
Agency Agreement A
Agreed Practices B
Detailed Identification of Assets C
Assumption Agreement D
Bill of Sale E
Dismissal Agreement F
Dollar General Release G
Specified Excluded Assets of Seller H
Detailed Identification of Liabilities I
Off-balance Sheet Liabilities J
Holdback Agreement K
Specified Retained Liabilities of Seller L
PISC General Release M
PISC Noncompetition Agreement N
Robin General Release O
Robin Noncompetition Agreement P
Stock Pledge Agreement Q
Vehicle Return Procedure R
Commitment of South Seas S
Solvency Certificate T
ADR Procedures U
Employees of Seller V
Existing Disputes W
Notice of Modification of Existing Franchise X
Standstill Agreement Y
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EXHIBIT B
AMENDED AGREED PRACTICES
(1) Despite any actual lease terms, airport leasehold improvements will be
amortized on an assumed eighteen (18) year useful life.
(2) There will be no reserves for potential future losses (E.G., freight
or residual loss) for any existing or future PISC risk vehicles (predominately
Neons which PISC expects to become risk vehicles).
(3) The reserves for reconditioning costs associated with non-risk
vehicles will assume an average life per car of thirteen (13) months and will be
computed at $400 per car for 1994 models and $300 per car for 1995 models. The
reserve will be added to for each month during such thirteen (13) month period,
I.E., $23.08 will be added to the reserve each month for each 1995 car until
13 months of additions to reserve have been made.
(4) Accrued Liability Claims:
(a) Accrued liability claim reserves related to claims for accidents
occurring prior to February 6, 1995 shall be equal to the amount of the
existing reserves as of June 30, 1995 adjusted only for actual claim
payments made by Seller related to these claims from June 30, 1995 through
the Settlement Date. No credit adjustments shall be recorded to the income
statement related to accrued liability claim reserves, for the claim
periods prior to February 6, 1995, from June 30, 1995 through the
Settlement Date.
(b) No reserves will be required for accrued liability claims for
accidents occurring after February 5, 1995 which are covered by the Empire
policy arrangements. All costs for such coverage with Empire shall be
recorded in accordance with the contractual arrangements with Empire. No
credit adjustments shall be recorded to the income statement related to
accrued liability claim reserves, for the policy period beginning
February 6, 1995, from June 30, 1995 through the Settlement Date.
(5) All subrogation receivables and related allowances shall be recorded
in a manner consistent with the practices used by the Seller through June 30,
1995. However, the difference in the net amount recorded by Seller and the
amount computed in accordance
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with the methodology on the addendum attached to this Exhibit B shall not exceed
$1,500,000.
(6) Seller shall add $39,288 as of June 30, 1995 to its collision damage
reserve.
(7) In accordance with Section 19(e) of the Agreement, Seller shall record
a $225,000 compromise payable to Buyer in accordance therewith.
(8) Seller shall be required to establish a reserve for environmental UST
contamination at its location on the island of Molokai only to the extent GAAP
would require an amount in excess of $100,000 be reserved, and in such event the
only amount reserved will be that in excess of $100,000.
(9) Organization costs consisting of Debenture financing expenses of
approximately $342,000 as of June 30, 1995, shall remain as an asset on the
Unaudited Balance Sheet, subject to amortization since June 30, 1995.
(10) The Unaudited Balance Sheet shall reflect as a liability the final
settlement amount of Seller with the Hawaii Department of Transportation as
approved by the Hawaii Land Board, if so approved and if not approved, shall
reflect the assessed amount by or contract obligation with the Department of
Transportation. Seller will accrue the approximate $579,000 in quarterly
percentage rents in the Unaudited Balance Sheet to the extent not compromised
in the settlement discussed above.
(11) Seller will not accrue sick pay.
(12) The Unaudited Balance Sheet shall reflect as a liability the amount
assessed for unpaid taxes before Closing by the Hawaii Department of Revenue
relating to Seller's pending examination for excise taxes, together with
interest and penalties, if applicable, and tax, interest and penalties in
respect of excise taxes which, consistent with said assessment, should have been
paid by Seller in 1994 and 1995.
(13) The Unaudited Balance Sheet shall reflect all transaction taxes due
and payable in connection with or upon the closing as required in
Section 17(a)(17) of the Settlement Agreement.
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EXHIBIT H
The office furniture and personal computer located in Seller's offices
presently used by Seller's Chief Executive Officer.
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EXHIBIT L
1. BANK OF HAWAII MORTGAGE-SOUTH SEAS
This is a PISC-retained liability for the mortgages for the South Seas Jeep
Eagle dealership on Nimitz. The mortgage has been extended beyond its original
maturity of November 30, 1995, at a higher interest rate and PISC may seek
alternative sources of refinancing. Dollar should be released by Bank of Hawaii
from this mortgage.
2. DEFERRED INCOME TAXES
This item relates to PISC and will therefore be retained by PISC.
3. DEBENTURES
PISC's 10% subordinated convertible debentures due 2007 are a retained
liability of PISC. Upon completion of the pending Exchange Offer, accrued
interest, including interest due September 1, 1995, will not be paid. Any new
debentures to be issued under the terms of the Exchange Offer would be
liabilities of PISC.
4. SALARIES AND WAGES PAYABLE/VACATION ACCRUAL
PISC retains liability for the salaries and wages accrued prior to Closing and
for other accrued employee benefits for those employees not retained by Dollar.
5. HYUNDAI DEAL
Hyundai Motor America ("HMA") has billed PISC approximately $113,000 for the
alleged damages arising from PISC's inability to consummate the purchase of 700
vehicles ordered from HMA. PISC retains liability for this amount.
6. TINSMITH
PISC retains liability for the claim asserted by Tinsmith for approximately
$56,000. PISC filed a Completion Notice with the City and County of Maui,
and no lien was filed by Tinsmith during the 45-day period subsequent to filing
of this notice.
7. KIM ROSENBAUM
PISC retains liability for any prospective claim by this individual, a customer
who engaged in an altercation with an employee of PISC at one of PISC's
locations. Both the customer and PISC's employee, who was suspended, filed
complaints with the local police department.
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EXHIBIT O
AMENDED AND RESTATED
STOCK PLEDGE AGREEMENT
This Amended and Restated Stock Pledge Agreement ("Agreement") is
dated October 27, 1995, between DOLLAR SYSTEMS, INC., a Delaware corporation
("Dollar") whose address is 5330 East 31st Street (or P.O. Box 33167, 74153-
1167) Tulsa, Oklahoma 74135 and PACIFIC INTERNATIONAL SERVICES CORP., a
California corporation ("Pledgor"), whose address is 1600 Kapiolani Boulevard,
Suite 825, Honolulu, Hawaii 96814.
In consideration of the obligations of the parties under the
Settlement Agreement dated the July 18, 1995, as amended ("Settlement
Agreement"), and for other good and valuable consideration, the parties agree
and do hereby amend and restate that certain Stock Pledge Agreement dated July
18, 1995 between Dollar and Pledgor as provided herein:
1. CREATION OF SECURITY INTEREST.
1.1 GENERAL. For valuable consideration and to secure to
Dollar the payment and performance of certain "Performance
Obligations" as hereinafter defined, Pledgor hereby
assigns, pledges, hypothecates, transfers and delivers the
Collateral to Dollar, and grants to Dollar a security
interest in the Collateral.
1.2 COLLATERAL. As used herein, the term "Collateral" shall
include: (i) One hundred percent (100%) of the issued and
outstanding capital stock ("Stock") of South Seas Motors,
Inc. (f/k/a Cutter Jeep Renault, Inc.), a Hawaii
corporation ("South Seas"), whether now owned or hereafter
acquired, including, without limitation, 1,000 shares of
common stock of South Seas, $100.00 par value, evidenced by
certificate number 2, as well as any predecessor
certificates if located; (ii) all dividends, interest,
other amounts and revenues, new property, distributions,
stock dividends, securities or other property, rights or
interests to which Pledgor is or may hereafter become
entitled to receive on account of the Stock; and (iii) all
other proceeds and products of the Stock, including without
limitation proceeds from the sale of all or any part of the
Stock.
1.3 PERFORMANCE OBLIGATIONS. As used herein, the term
"Performance Obligations" means:
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(a) The Master Lease payments (subject to customary
offsets but none accruing on or before April 30, 1995
except as otherwise specifically provided in Section 19(a)
of the Settlement Agreement) accruing or becoming due and
payable from May 1, 1995 until the earlier of Closing or
termination of the Settlement Agreement;
(b) The payment of all other obligations of Pledgor to
Dollar accruing or becoming due and payable from May 1,
1995 until the earlier of Closing or termination of the
Settlement Agreement and expressly including amounts that
are hereafter disputed and are subject to the procedure
outlined in Sections 19(a) and (b) of the Settlement
Agreement during the pendency of the dispute and until
resolution;
(c) Dollar's money damages and incidental, out of pocket
losses as awarded by the final non-appealable order of a
court, for Pledgor's failure or refusal to close after
satisfaction (or waiver by the party entitled to
satisfaction) of all conditions precedent to the obligation
of both parties to the Closing;
(d) All obligations of Pledgor to indemnify Dollar, as set
forth in the Settlement Agreement;
(e) All of Pledgor's obligations under this Agreement; and
(f) All of Pledgor's obligations under the Net Worth
Note.
1.4 AGENT. As used herein, the term "Agent" means Liberty Bank
and Trust Company of Tulsa, National Association, Tulsa,
Oklahoma, under and pursuant to that Agency Agreement
attached hereto as Schedule 1.
1.5 PERFECTION. Notwithstanding anything to the contrary set
forth herein or elsewhere, the security interest granted
hereby shall be perfected upon endorsement and delivery of
the Collateral to the Agent.
1.6 DURATION. This Agreement shall have the term expressed in
Section 7(c) of the Settlement Agreement; PROVIDED, THAT
the pledge securing the obligations described in Section
1.3(f) shall terminate upon the earlier of (a) the
Effective Date of the Confirmed Plan or (b) ten (10) days
following the successful completion
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of the exchange offer made to the holders of the Pledgor's
10% convertible subordinated debentures due 2007 on
October 31, 1995.
1.7 EFFECT OF CLOSING. The pledge and security interest
described in Sections 1.3 (a) and (b) above shall remain
perfected through the times provided therein; provided,
however, Buyer will take no action to foreclose its
security in respect of obligations owed it accruing after
September 30, 1995 prior to the termination of this
Agreement, and provided further, that upon Closing, the
pledge and security interest insofar as described in
Sections 1.3(a), (b) and (c) above shall lapse.
2. COLLATERAL. Upon execution of this Agreement, Pledgor shall
endorse and deliver all of the Collateral to the Agent to perfect
Dollar's lien subject to the terms of the Agency Agreement.
Pledgor shall be entitled to vote any securities held as
Collateral, provided however, that in the event of a default
hereunder, Pledgor shall no longer be entitled to vote such
securities and Dollar shall thereafter be entitled to vote such
securities, and provided further, that in no case shall Pledgor
vote such securities or consent by waiver or ratification with
respect to such securities in any manner which would directly or
indirectly impair the Collateral's value or be inconsistent with
any provision hereof.
3. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants
to Dollar that:
3.1 TITLE. Pledgor owns, and with respect to Collateral
acquired after the date hereof, Pledgor will own and will
continue to own during the term of this Agreement, legally
and beneficially, the Collateral free and clear of any
lien, security interest, pledge, claim, or other
encumbrance or any right or option on the part of any third
person to purchase or otherwise acquire the Collateral or
any part thereof. The Pledgor has all voting and other
consensual rights with respect to the Collateral free and
clear of all proxies, voting trusts or voting agreements of
any kind. The Collateral is not subject to any restriction
on transfer or assignment except for compliance with
applicable federal and state securities laws and
regulations promulgated thereunder. Pledgor has the
unrestricted right to pledge the Collateral as contemplated
hereby. All of the Collateral has been duly and validly
issued and is fully paid and nonassessable.
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3.2 AUTHORITY. Pledgor has the authority to execute, deliver,
and perform this Agreement, and the execution, delivery,
and performance of this Agreement by Pledgor does not and
will not conflict with, result in a breach of, or
constitute a default under the provisions of any indenture,
mortgage, deed of trust, security agreement, or other
instrument or agreement or any judgment, decree, order,
law, statute, or other governmental rule or regulation
applicable to Pledgor or any of its property.
3.3 PRINCIPAL PLACE OF BUSINESS. The place where Pledgor keeps
its books and records is located at the address of Pledgor
shown at the beginning of this Agreement.
3.4 LITIGATION. There is no litigation (except that instituted
by Dollar) or governmental proceeding pending or threatened
against Pledgor or any of its properties which if adversely
determined would have a material adverse effect on the
Collateral.
3.5 PERCENTAGE OF STOCK. The Collateral, currently 1,000
shares of South Seas common stock represented by
certificate number 2, constitutes and shall at all times
constitute one hundred percent (100%) of the issued and
outstanding shares of capital stock of South Seas.
3.6 PERFECTED SECURITY INTEREST. This Agreement creates in
favor of Dollar a perfected security interest in the Stock
so long as Dollar, the Agent, or the court clerk if deemed
to hold in an interpleader (but for purposes hereof, with
Agent still being deemed to hold during the pendency of
interpleader) possesses the certificate described in
Section 1.2 hereof. No other security interests have been
granted in, to or against the Collateral.
4. AFFIRMATIVE AND NEGATIVE COVENANTS. Pledgor covenants and agrees
with Dollar that until the Performance Obligations are satisfied,
paid and performed in full:
4.1 ENCUMBRANCES. Pledgor shall not create, permit, or suffer
to exist, and shall defend the Collateral against, any
lien, security interest, or other encumbrance on the
Collateral (including a restriction on voting or transfer
of the Collateral) except the pledge and security interest
of Dollar hereunder, and shall defend Pledgor's rights in
the Collateral and Dollar's security interest in the
Collateral against the claims of all persons and entities.
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4.2 SALE OF COLLATERAL. Pledgor shall not sell, assign, or
otherwise dispose of the Collateral or any part thereof
without the prior written consent of Dollar.
4.3 DISTRIBUTIONS. If Pledgor shall become entitled to receive
or shall receive any stock certificate (including, without
limitation, any certificate representing a stock dividend
or a distribution in connection with any reclassification,
increase, or reduction of capital or issued in connection
with any reorganization), warrant, option or rights,
whether as an addition to, in substitution of, or in
exchange for any Collateral or otherwise, Pledgor agrees to
accept the same as Dollar's agent and to hold the same in
trust for Dollar, and to deliver the same forthwith to the
Agent in the exact form received, with the appropriate
endorsement of Pledgor, to be held by the Agent on behalf
of Dollar as additional Collateral for the Performance
Obligations, subject to the terms hereof. Any sums paid
upon or in respect of the Collateral upon the liquidation
or dissolution of the issuer thereof shall be paid over to
the Agent on behalf of Dollar as additional Collateral for
the Performance Obligations, subject to the terms hereof;
and in case any distribution of capital shall be made on or
in respect of the Collateral or any property shall be
distributed upon or with respect to the Collateral pursuant
to any recapitalization or reclassification of the capital
of the issuer thereof or pursuant to any reorganization of
the issuer thereof, the property so distributed shall be
delivered to the Agent on behalf of Dollar to be held by
it, as additional Collateral for the Performance
Obligations, subject to the terms hereof. All sums of
money and property so paid or distributed in respect of the
Collateral that are received by Pledgor shall, until paid
or delivered to the Agent on behalf of Dollar, be held by
Pledgor in trust as additional security for the Performance
Obligations.
4.4 FURTHER ASSURANCES. At any time and from time to time,
upon the reasonable request of Dollar, and at the sole
expense of Pledgor, Pledgor shall promptly execute and
deliver all such further instruments and documents and take
such further action as Dollar may deem necessary or
desirable to preserve and perfect its security interest in
the Collateral and carry out the provisions and purposes of
this Agreement, including, without limitation, the
execution and filing of such financing statements as Dollar
may require. A carbon, photographic, or other reproduction
of this Agreement
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shall be sufficient as a financing statement and may be
filed as a financing statement.
4.5 INSPECTION RIGHTS. At Dollar's expense, Pledgor shall
permit Dollar and its representatives, and shall cause
South Seas to permit Dollar and its representatives, to
examine, inspect, and copy Pledgor's and South Seas' books
and records at any reasonable time and as often as Dollar
may desire.
4.6 TAXES. Pledgor agrees to pay or discharge prior to
delinquency all taxes, assessments, levies, and other
governmental charges imposed on Pledgor or its property,
except Pledgor shall not be required to pay or discharge
any tax, assessment, levy, or other governmental charge if
(i) the amount or validity thereof is being contested by
Pledgor in good faith by appropriate proceedings diligently
pursued, (ii) such proceedings do not involve any risk of
sale, forfeiture, or loss of the Collateral or any interest
therein, or adequate security has been posted by Pledgor in
respect of said proceedings and (iii) adequate reserves
therefor have been established in conformity with generally
accepted accounting principles.
4.7 NOTIFICATION. Pledgor shall promptly notify Dollar in
writing of (i) any lien, security interest, encumbrance, or
claim made or threatened against the Collateral, (ii) any
material change in the Collateral, including, without
limitation, any material decrease in the value of the
Collateral, and (iii) the occurrence or existence of any
Event of Default (as hereinafter defined) or the occurrence
or existence of any condition or event that, with the
giving of notice or lapse of time or both, would be an
Event of Default.
4.8 BOOKS AND RECORDS; INFORMATION. Pledgor shall keep
accurate and complete books and records of the Collateral
and Pledgor's financial condition. Pledgor shall from time
to time at the request of Dollar deliver to Dollar such
information regarding the Collateral and Pledgor as Dollar
may reasonably request. Pledgor shall mark its books and
records to reflect the security interest of Dollar under
this Agreement.
4.9 ADDITIONAL SECURITIES. Pledgor shall not consent to or
approve, and shall not permit South Seas to consent to or
approve, the issuance of any additional shares of any class
of capital stock of the issuer of the Collateral, or any
securities convertible into, or exchangeable for,
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any such shares or any warrants, options, rights, or other
commitments entitling any person or entity to purchase or
otherwise acquire any such shares.
4.10 ASSURANCE CONCERNING VOTING RIGHTS. Pledgor covenants to
use best efforts to cause Dollar or its successor to be
able to exercise full voting rights with respect to the
Collateral upon the occurrence of an Event of Default.
4.11 PARTICIPATION IN JOINT INSTRUCTION. (a) Upon an Event of
Default, then thereafter upon ten (10) days prior written
notice from Dollar to Pledgor, during which time Pledgor
shall be permitted to cure to Dollar's reasonable
satisfaction, Pledgor shall be obligated to participate in
a joint written instruction to the Agent to release the
Collateral to Dollar; (b) Upon satisfaction in full of the
Performance Obligations, then thereafter upon ten (10) days
prior written notice from Pledgor to Dollar, Dollar shall
be obligated to participate in a joint written instruction
to the Agent to release the Collateral to Pledgor; (c) In
the event either party refuses to participate in
preparation of such a joint instruction, then the other
shall thereafter unilaterally be permitted to instruct the
Agent to interplead the Collateral in accordance with
Oklahoma law.
5. RIGHTS OF DOLLAR AND PLEDGOR.
5.1 POWER OF ATTORNEY. Pledgor hereby irrevocably constitutes
and appoints Dollar and any officer or agent thereof, with
full power of substitution, as Pledgor's true and lawful
attorney-in-fact; with full irrevocable power and authority
in the place and stead and in the name of Pledgor or in its
own name, after the occurrence and during the continuance
of a default pursuant hereto from time to time in Dollar's
discretion, to take any and all action and to execute any
and all documents and instruments which may be reasonably
necessary or desirable to accomplish the purposes of this
Agreement, so long as Dollar is not grossly negligent or
engaged in willful misconduct, and, without limiting the
generality of the foregoing, hereby gives Dollar the power
and right on behalf of Pledgor and in its own name to do
any of the following, without notice to or the consent of
Pledgor:
(a) to demand, sue for, collect, or receive in the name
of Pledgor or in its own name, any money or
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property at any time payable or receivable on
account of or in exchange for any of the Collateral
and, in connection therewith, endorse checks, notes,
drafts, acceptances, money orders, or any other
instruments for the payment of money under the
Collateral;
(b) to pay or discharge taxes, liens, security
interests, or other encumbrances levied or placed on
or threatened against the Collateral;
(c) (i) to receive payment of and receipt for any and
all monies, claims, and other amounts due and to
become due at any time in respect of or arising out
of any Collateral; (ii) to sign and endorse any
drafts, assignments, proxies, stock powers,
verifications, notices, and other documents relating
to the Collateral; (iii) to commence and prosecute
any suit, actions or proceedings at law or in equity
in any court of competent jurisdiction to collect
the Collateral or any part thereof and to enforce
any other right in respect of any Collateral; (iv)
to defend any suit, action, or proceeding brought
against Pledgor with respect to any Collateral; (v)
to settle, compromise, or adjust any suit, action,
or proceeding described above and, in connection
therewith, to give such discharges or releases as
Dollar may deem appropriate; (vi) to exchange any of
the Collateral for other property upon any merger,
consolidation, reorganization, recapitalization, or
other readjustment of the issuer thereof and, in
connection therewith, deposit any of the Collateral
with any committee, depositary, transfer agent,
registrar, or other designated agency upon such
terms as Dollar may determine; (vii) to add or
release any guarantor, indorser, surety, or other
party to any of the Collateral or the Obligations;
(viii) to renew, extend, or otherwise change the
terms and conditions of any of the Collateral or
Performance Obligations; and (ix) to sell, transfer,
pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully
and completely as though Dollar were the absolute
owner thereof for all purposes, and to do, at
Dollar's option and Pledgor's expense, at any time,
or from time to time, all acts and things which
Dollar deems reasonably necessary to protect,
preserve, or
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realize upon the Collateral and Dollar's
security interest therein.
This power of attorney is a power coupled with an interest and
shall be irrevocable. Dollar shall be under no duty to exercise or withhold the
exercise of any of the rights, powers, privileges, and options expressly or
implicitly granted to Dollar in this Agreement, and shall not be liable for any
failure to do so or any delay in doing so. Dollar shall not be liable for any
act or omission or for any error of judgment or any mistake of fact or law in
its individual capacity or in its capacity as attorney-in-fact except acts or
omissions resulting from its gross negligence or willful misconduct. This power
of attorney is conferred on Dollar solely to protect, preserve, and realize upon
its security interest in the Collateral. Notwithstanding the foregoing,
Dollar's rights to dispose of the Collateral pursuant to Section 5.1(c)(ix)
above shall not be exercised unless and until the Collateral has been delivered
to Dollar upon satisfaction of one of the conditions in Section 1.2 of the
Agency Agreement attached hereto as Schedule 1.
5.2 VOTING RIGHTS. So long as no default under the Settlement
Agreement shall have occurred and be continuing, Pledgor
shall be entitled to exercise any and all voting rights
relating or pertaining to the Collateral or any part
thereof. At the request of Dollar, Pledgor shall register
on the books of the Company Dollar's right to vote the
Collateral during the term hereof and in compliance
herewith.
5.3 DIVIDENDS. To the extent the issuer of the Stock may
properly declare and pay dividends, and unless an Event of
Default shall have occurred and be continuing, Pledgor
shall be entitled to receive all cash dividends paid in
respect of the Collateral.
5.4 PERFORMANCE BY DOLLAR OF PLEDGOR'S OBLIGATIONS. If Pledgor
fails to perform or comply with any of its agreements
contained herein and Dollar itself shall cause performance
of or compliance with such agreement, the expenses of
Dollar, together with interest thereon at the rate of 15%
per annum, shall be payable by Pledgor to Dollar on demand
and shall constitute Performance Obligations secured by
this Agreement.
5.5 SETOFF; PROPERTY HELD BY DOLLAR. Upon the occurrence of
an Event of Default, Dollar shall have the right to set
off and apply against the Performance Obligations, at any
time and without notice to Pledgor, any and all deposits
(general or special, time or demand, provisional or final)
or other sums at any time
-9-
<PAGE>
credited by or owing from Dollar to Pledgor. As
additional security for the Performance Obligations,
Pledgor hereby grants a security interest in all money,
instruments, and other property of Pledgor now or
hereafter held by Dollar including, without limitation,
property held in safekeeping. In additional to Dollar's
right of setoff and as further security for the
Obligations, Pledgor hereby grants Dollar a security
interest in all other sums at any time credited by or
owing from Dollar to Pledgor. The rights and remedies of
Dollar hereunder are in addition to other rights and
remedies (including, without limitation, other rights of
setoff and recoupment) which Dollar may have.
5.6 DOLLAR'S DUTY OF CARE. Other than the exercise of
reasonable care in the physical custody of the Collateral
while held by Dollar or Agent hereunder, Dollar and Agent
have shall have no responsibility for or obligation or
duty with respect to all or any part of the Collateral or
any matter or proceeding arising out of or relating
thereto, including, without limitation, any obligation or
duty to collect any sums due in respect thereof or to
protect or preserve any rights against prior parties or
any other rights pertaining thereto, it being understood
and agreed that Pledgor shall be solely responsible for
preservation of all rights in the Collateral. Without
limiting the generality of the foregoing, Dollar or Agent
shall be conclusively deemed to have exercised reasonable
care in the custody of the Collateral if Dollar or Agent
takes such action, for purposes of preserving rights in
the Collateral, as Pledgor may reasonably request in
writing, but no failure or omission or delay by Dollar in
complying with any such request by Pledgor, and no refusal
by Dollar or Agent in complying with any such request by
Pledgor, shall in and of itself be deemed to be a failure
to exercise reasonable care.
5.7 ASSIGNMENT BY DOLLAR. Dollar may from time to time assign
the Collateral and any portion thereof, and the assignee
shall be entitled to all of the rights and remedies, and
responsible for all the duties and obligations, of Dollar
under this Agreement in relation thereto.
5.8 RELEASE OF COLLATERAL. Dollar may at any time release
Collateral or any part thereof to Pledgor, and the receipt
by the Pledgor of such release (which may include a
written instruction to the Agent to surrender
-10-
<PAGE>
the Collateral to Pledgor) shall be a complete and full
discharge of Dollar for Collateral so released, and Dollar
shall thereafter be discharged from any liability or
responsibility therefor.
6. DEFAULT. An "Event of Default," for purposes hereof, shall mean
the failure of Pledgor to keep or perform any of the terms or
provisions of this Agreement or to observe, honor and perform the
terms and requirements of the Performance Obligations or any
post-closing obligation under the Settlement Agreement.
7. REMEDIES. Subject to the limitations set forth in this Section
and in the Agency Agreement attached hereto as Schedule 1, upon
the occurrence of an Event of Default, Dollar shall have the
following rights and remedies:
7.1 To take the actions described in Section 4.11(a) hereof.
7.2 In addition to any other rights and remedies granted to
Dollar in this Agreement and in any other instrument or
agreement securing, evidencing, or relating to the
Performance Obligations, Dollar shall have all of the
rights and remedies of a secured party under the Uniform
Commercial Code as adopted by the State of Oklahoma;
including the right to (A) without demand or notice to
Pledgor, collect, receive, or take possession of the
Collateral or any part thereof, (B) sell or otherwise
dispose of the Collateral, or any part thereof, in one or
more parcels at public or private sale or sales in a
commercially reasonable manner, at Dollar's offices or
elsewhere, for cash, on credit, or for future delivery,
and/or (C) bid and become a purchaser at any sale free of
any right or equity of redemption in Pledgor, which right
or equity is hereby expressly waived and released by
Pledgor. Upon the request of Dollar, Pledgor shall
assemble the Collateral and make it available to Dollar at
any place designated by Dollar that is reasonably
convenient to Pledgor and Dollar. Pledgor agrees that
neither Dollar nor the Agent shall be obligated to give
more than ten (10) days written notice of the time and
place of any public sale or of the time after which any
private sale may take place and that such notice shall
constitute reasonable notice of such matters. In addition
to such notice to Pledgor, Dollar shall furnish the same
form of notice addressed to the five persons, firms or
entities identified in a writing from Pledgor to Dollar,
to the extent provided by Pledgor. Pledgor
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<PAGE>
shall be liable for all expenses of retaking,
holding, preparing for sale, or the like, and all
reasonable attorneys' fees and other expenses
incurred by Dollar in connection with the collection
of the Performance Obligations and the enforcement
of Dollar's rights under this Agreement, all
of which expenses and fees shall constitute additional
Performance Obligations secured by this Agreement. Dollar
may apply the Collateral against the Performance
Obligations in such order and manner as Dollar may elect
in its sole discretion. If the Performance Obligations
are satisfied in full, Pledgor shall have the right to
receive the balance of the proceeds, if any, from the sale
or disposition of the Collateral. Pledgor shall remain
liable for any deficiency if the proceeds of any sale or
disposition of the Collateral are insufficient to pay the
Performance Obligations. Pledgor waives all rights of
marshalling in respect of the Collateral.
7.3 Dollar shall be entitled to receive all cash dividends
payable in respect of the Collateral.
7.4 Dollar shall have the right, but shall not be obligated
to, exercise or cause to be exercised all voting rights
and corporate powers in respect of the Collateral, and
Pledgor shall immediately deliver to Dollar, if requested
by Dollar, irrevocable proxies with respect to the
Collateral in form satisfactory to Dollar.
7.5 Pledgor hereby acknowledges and confirms that Dollar may
be unable to effect a public sale of any or all of the
Collateral by reason of certain prohibitions contained in
the Securities Act of 1933, as amended, and applicable
state securities laws and may be compelled to resort to
one or more private sales thereof to a restricted group of
purchasers who will be obligated to agree, among other
things, to acquire any shares of the Collateral for their
own respective accounts for investment and not with a view
to distribution or resale thereof. Pledgor further
acknowledges and confirms that any such private sale may
result in prices or other terms less favorable to the
seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that the mere
fact that such sale was conducted as a private sale shall
not of itself establish that the sale was not made in a
commercially reasonable manner, and Dollar shall be under
no obligation to take any steps in order to permit the
Collateral to be sold at a public sale. Dollar shall be
under no obligation to
-12-
<PAGE>
delay a sale of any of the Collateral for any period
of time necessary to permit any issuer thereof to
register such Collateral for public sale under the
Securities Act of 1933, as amended, or under applicable
state securities laws.
7.6 On any sale of the Collateral, Dollar is hereby authorized
to comply with any limitation or restriction with which
compliance is necessary, in the view of Dollar's counsel,
in order to avoid any violation of applicable law or in
order to obtain any required approval of the purchaser or
purchasers by any applicable governmental authority.
8. REINSTATEMENT. This Agreement shall continue to be effective or
be reinstated, as the case may be, if at any time any amount
received by Dollar in respect of the Performance Obligations is
rescinded or must otherwise be restored or returned by Dollar
upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Pledgor, or upon the appointment of any
intervenor or receiver of, or trustee or similar official for the
Pledgor, or any substantial part of Pledgor's assets, or
otherwise, all as though such payments had not been made.
9. GENERAL PROVISIONS.
9.1 NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and
shall be deemed to have been duly given on the date of
receipt, if served personally on the party to whom notice
is to be given by actual in person delivery, or if sent by
facsimile (confirmed by transmission receipt), telegraph
or similar means of communication, or on receipt, refusal,
or as of the first attempted date of delivery if unclaimed
after mailing, when mailed to the party to whom notice is
to be given, by certified U.S. mail, return receipt
requested, postage prepaid and properly addressed as
follows:
To Pledgor: Pacific International Services Corp.
1600 Kapiolani Boulevard, Suite 825
Honolulu, Hawaii 96814
Attention: Alan M. Robin
Title: President
FAX: (808) 926-4255
With copies to: H. Wayne Cooper, Esq.
Doerner, Saunders, Daniel & Anderson
320 South Boston, Suite 500
-13-
<PAGE>
Tulsa, Oklahoma 74103
FAX: (918) 591-5362
J. George Hetherington, Esq.
Torkildson, Katz, Jossem, Fonseca,
Moore & Hetherington
700 Bishop Street, 15th Floor
Honolulu, Hawaii 96813-4187
FAX: (808) 523-6001
To Dollar: Dollar Systems, Inc.
5330 East 31st Street
(or P.O. Box 33167, 74153-1167)
Tulsa, Oklahoma 74135
Attn: Gary L. Paxton
Title: President
FAX: (918) 669-3001
With copies to: Stephen W. Ray, Esq.
Hall, Estill, Hardwick, Gable,
Golden & Nelson, P.C.
320 South Boston, Suite 400
Tulsa, Oklahoma 74103
FAX: (918) 594-0505
John R. Myrdal, Esq.
Case Myrdal Bigelow & Lombardi
737 Bishop Street, Suite 2600
Honolulu, Hawaii 96813
FAX: (808) 523-1888
Each party shall be entitled to specify a different person or address
by giving notice as aforesaid to the other.
9.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matters hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written.
9.3 TIME OF ESSENCE; COMPUTATION OF TIME. In all matters under this
Agreement, time is of the essence. Whenever the last day for the
exercise of any privilege or the discharge of any duty under this
Agreement shall fall upon Saturday, Sunday or any federal holiday, the
party exercising or discharging shall have until 5:00 p.m. its local
time on the next succeeding regular business day to exercise such
privilege or to discharge such duty.
-14-
<PAGE>
9.4 BINDING EFFECT; ASSIGNMENT. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective permitted transferees, successors
and assigns; provided, however, that neither party hereto may assign
its rights or obligations hereunder without the prior written consent
of the other, except Buyer may assign its rights and obligations to a
subsidiary or lower tier subsidiary.
9.5 APPLICABLE LAW; VENUE. This Agreement shall be governed, construed
and enforced in accordance with the laws of the State of Oklahoma.
The United States District Court for the Northern District of Oklahoma
shall be the appropriate forum in which to adjudicate disputes
hereunder, and the parties irrevocably consent to the in personam
jurisdiction of such court and agree to waive any arguments that the
same would constitute an inconvenient forum.
9.6 AMENDMENTS. No supplement, amendment, modification or waiver of this
Agreement shall be binding unless executed in writing by the parties.
No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof, nor shall
such waiver constitute a continuing waiver unless otherwise expressly
provided.
9.7 WAIVERS. No waiver by any party, whether express or implied, of any
right under the provisions of this Agreement shall constitute a waiver
of such party's rights at any other time.
9.8 SEVERABILITY. If a court of competent jurisdiction declares that any
provision of this Agreement or any exhibit hereto is illegal, invalid
or unenforceable, then such provision shall be modified automatically
to the extent necessary to make such provision fully enforceable. If
such court does not modify any such provision as contemplated herein,
but instead declares it to be wholly illegal, invalid or
unenforceable, then such provision shall be severed from this
Agreement and such declaration shall in no way affect the legality,
validity and enforceability of the other provisions of this Agreement
to which such declaration does not relate. In this event, this
Agreement shall be construed as if it did not contain the particular
provision held to be illegal, invalid or unenforceable, the rights and
obligations of the parties hereto shall be construed and
-15-
<PAGE>
enforced accordingly, and this Agreement shall remain in full
force and effect.
9.9 EXPENSES. Each party shall bear its own costs and expenses in
connection with the negotiation, preparation and execution of this
Agreement.
9.10 DEFINITIONS. Capitalized terms used herein not otherwise defined
shall have the meanings given to them in the Settlement Agreement.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Stock Pledge Agreement on the 27th day of October, 1995.
DOLLAR SYSTEMS, INC.
By: /s/ Gary L.Paxton
-------------------------
Gary L. Paxton, President
"Dollar"
PACIFIC INTERNATIONAL SERVICES CORP.
By: /s/ Alan M. Robin
------------------------
Alan M. Robin, President
"Pledgor"
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<PAGE>
EXHIBIT X
NOTICE OF MODIFICATION OF EXISTING FRANCHISE
TO: PACIFIC INTERNATIONAL SERVICES CORP.
THE FOLLOWING DISCLOSES INFORMATION CONCERNING SPECIFIC SECTIONS OF YOUR LICENSE
AGREEMENT DATED EFFECTIVE APRIL 3, 1974 (THE "LICENSE AGREEMENT"), WHICH ARE
PROPOSED TO BE MODIFIED PURSUANT TO THE AGREEMENT BETWEEN YOU AND DOLLAR
SYSTEMS, INC. ("AMENDMENT"). ANY AGREEMENT BY YOU TO SUCH MODIFICATION SHALL
NOT BE BINDING IF YOU, WITHIN TEN (10) BUSINESS DAYS AFTER RECEIPT OF THIS
DISCLOSURE STATEMENT, NOTIFY DOLLAR SYSTEMS, INC. IN WRITING THAT THE AGREEMENT
TO SUCH MODIFICATION IS RESCINDED.
(1) (PARAGRAPH AS STATED IN CURRENT LICENSE AGREEMENT, AS AMENDED:)
2.19 TO PAY TO DOLLAR IN CONSIDERATION OF THE BENEFITS TO BE DERIVED BY
LICENSEE FROM OPERATING UNDER THE DOLLAR SYSTEM, SYSTEM FEES IN THE SUM OF
2% OF THE TOTAL GROSS MONTHLY RECEIPTS FROM JANUARY 1, 1994, THROUGH AND
INCLUDING DECEMBER 31, 1994, AND FOR THE PERIOD FROM JANUARY 1, 1995 AND
THEREAFTER, THE SYSTEM FEE SHALL BE INCREASED TO THE SUM OF 3% OF THE TOTAL
GROSS MONTHLY RECEIPTS.
(2) (PARAGRAPH AS AMENDED OR MODIFIED:)
2.19 TO PAY TO DOLLAR IN CONSIDERATION OF THE BENEFITS TO BE DERIVED BY
LICENSEE FROM OPERATING UNDER THE DOLLAR SYSTEM, SYSTEM FEES IN THE SUM OF
2% OF THE TOTAL GROSS MONTHLY RECEIPTS FROM JUNE 1, 1995; PROVIDED,
HOWEVER, DOLLAR SHALL PERMANENTLY WAIVE AND FORGIVE LICENSEE'S OBLIGATION
TO PAY SUCH AMOUNT OF SYSTEM FEES (BUT NOT ITS REPORTING REQUIREMENTS
HEREUNDER) ONLY UNTIL THE EARLIER TO OCCUR OF (I) TERMINATION OF THAT
CERTAIN SETTLEMENT AGREEMENT DATED JULY 18, 1995, BY AND BETWEEN LICENSEE
AND DOLLAR ("SETTLEMENT AGREEMENT"), (II) OCCURRENCE OF THE "CLOSING"
PURSUANT TO THE SETTLEMENT AGREEMENT, OR (III) A CUMULATIVE WAIVER OF THREE
HUNDRED THOUSAND DOLLARS ($300,000) IN AMOUNT OF SYSTEM FEES HAS BEEN
ALLOWED IN ACCORDANCE HEREWITH. FROM THE POINT IN TIME THAT THE WAIVER
DESCRIBED HEREIN IS TO EXPIRE, UNTIL "CLOSING" PURSUANT TO THE SETTLEMENT
AGREEMENT OR ITS TERMINATION, SYSTEM FEES SHALL THEREAFTER ACCRUE AND BE
PAYABLE AS
<PAGE>
OTHERWISE REQUIRED IN ACCORDANCE WITH THE TERMS HEREOF AT THE
LEVEL OF TWO PERCENT (2%) OF THE TOTAL GROSS MONTHLY RECEIPTS.
ANY DESCRIPTION OF THE AMENDMENT OR LICENSE AGREEMENT PROVIDED
HEREIN IS FOR THE PURPOSES OF OUTLINE AND DISCLOSURE AND SUCH
DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IN NO WAY
MODIFIES OR ALTERS THE AMENDMENT OR LICENSE AGREEMENT.
ACKNOWLEDGMENT OF RECEIPT OF DISCLOSURE
OF MODIFIED LICENSE AGREEMENT TERMS
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF A DISCLOSURE OF MODIFICATION OF
THE EXISTING LICENSE AGREEMENT, A COPY OF WHICH IS ATTACHED.
DATED: JULY 18, 1995.
PACIFIC INTERNATIONAL SERVICES CORP.
BY: /S/ ALAN M. ROBIN
------------------------
ALAN M. ROBIN, PRESIDENT
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<PAGE>
FIRST AMENDMENT TO SETTLEMENT AGREEMENT
This First Amendment to Settlement Agreement is executed and
entered into effective September 11, 1995, by and between Pacific International
Services Corp., a California corporation ("Seller"), and Dollar Systems, Inc., a
Delaware corporation, or its permitted assigns ("Buyer").
RECITALS:
A. Effective July 18, 1995, Seller and Buyer entered into that
certain Settlement Agreement ("Agreement") providing for among other terms and
provisions, the sale by Seller to Buyer of its vehicle rental and related
business, and the settlement of litigation by and between such; and
B. In Section 23(g) of the Agreement, Seller and Buyer agreed
it would be necessary for all amendments to the Agreement to be made in writing;
and
C. It is the desire of the Seller and Buyer to amend the
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller and Buyer agree
as follows:
1. Capitalized terms used herein not otherwise defined shall
have the meanings set forth in the Agreement.
2. The following sentence shall be added to the end of Section
1(e): "Item (3) of Exhibit B shall not be construed to reflect any agreement of
Seller and Buyer other than the amount of reserves for non-risk vehicles
comprising a part of Seller's fleet as of the date of Closing which is to be
shown on the Unaudited Closing Balance Sheet and in the Final Closing Balance
Sheet."
3. The following shall be added to Section 1(x):
"Notwithstanding any provision of Exhibit H to the contrary, there shall be
classified as a part of the Excluded Assets: (a) any and all capitalized
organization costs which relate to the offering of Debentures in Seller's
accounts numbered 1980 and 1981 and totalling $342,287 as of June 30, 1995; (b)
any and all prepaid expenses relating to Seller's directors and officers
liability insurance included in Seller's account number 1420 and totalling
$85,038 as of June 30, 1995; (c) any and all prepaid life insurance
<PAGE>
covering Alan M. Robin included in Seller's account number 1420 and totalling
$5,960 at June 30, 1995; and (d) consistent with (iii) above, an account
receivable balance from Paul Finazzo in Seller's account number 1170 and
totalling $19,000 as of June 30, 1995."
4. Sections 1(hh) and 1(uu) are amended by the provisions next
following: "There shall be deleted from Exhibit I hereto, and instead placed on
Exhibit L of this Agreement, the following liabilities: (a) accounts payable
relating to premium expense for directors and officers liability insurance
reflected in Seller's account 2010 and totalling $67,771 as of June 30, 1995;
(b) consistent with (iv) of Section 1(uu), amounts due from Seller to South Seas
in Seller's accounts numbered 2000 and 2010 and totalling $32,004 and $35,192,
respectively, as of June 30, 1995; and (c) payroll expenses, related benefits
and related payroll tax liabilities of any kind pertaining to Seller's employees
to the date of Closing, including amounts as reflected in accounts numbered 2210
and 2215, and which total $11,670 as of June 30, 1995."
5. The following shall be added to Section 1(oo) of the
Agreement: "Notwithstanding any provision of Exhibit J to the Agreement to the
contrary, it is agreed that: (a) item 2 thereof relates only to expenses and
liabilities to be incurred in the future, and not as of the date of Closing; (b)
item 4 is deleted; and (c) with respect to item 5, Off-balance Sheet Liabilities
do not include litigation described on Schedule 15(j) where the party involved
in the litigation is South Seas, and Buyer assumes no obligations to prosecute
or assume the position of South Seas in any litigation whatsoever whether listed
on Schedule 15(j) or not."
6. The following shall be added to the end of Section 1(tt):
"The Retained Employee Liabilities exclude the executive officers of Seller,
specifically, Alan Robin, Richard Bauman, Robert Solomon and Barbara Lau, it
being noted Sirio Maggiacomo is addressed in Section 19(d)(1)(i)."
7. Consistent with Section 1(uu) of the Agreement, the case,
LELA KAEHU V. PACIFIC INT'L SERVICES CORP., D/B/A DOLLAR RENT-A-CAR; FEP No. K-
6809; EEOC No. 37B-95-0001, or any successor or substitute litigation relating
thereto constitutes a Retained Liability, and shall be deemed removed from
Schedule 15(j) hereto or any other provision of this Agreement which would
require Buyer assume the position of Seller in such proceeding. Likewise, the
Retained Liabilities also include all liability, cost, expense and obligation
with respect to Seller's pending investigation by the Securities and Exchange
Commission, heretofore handled by Covington & Burling, Washington, D.C., as
constituting a regulatory matter in accordance with Section 1(uu).
-2-
<PAGE>
8. A new Section 2(c) shall be added to the Agreement to read
as follows: "(c) No provision of this Section 2 nor of Section 21(d)(iii)
hereof shall be construed to waive any objection by Buyer at any time, which
shall expressly survive through preparation of the Final Closing Balance Sheet,
to the extent any financial information heretofore or hereafter furnished by
Seller has not been prepared in accordance with GAAP Consistently Applied. In
other words, the fact that an entry or other financial information may appear in
a previous document delivered hereunder shall not limit Buyer's right to require
in the Unaudited Closing Balance Sheet or Final Closing Balance Sheet that the
same be prepared in accordance with GAAP Consistently Applied."
9. The following shall be added to the end of Section 5(c):
"Only a draft of the independent auditor's report of D&T shall be permissible in
accordance with the provisions of this Article 5 in the event D&T is precluded
from issuing a final written report solely as a result of Seller's refusal to
execute a management representation letter to support issuance of such report."
10. A new sentence is added at the end of Section 8 to read as
follows: "The due diligence period described herein has been extended by
agreement of Seller and Buyer from its previously scheduled expiration date
through and including September 15, 1995."
11. The following shall be added to Section 15(e)(1): "Schedule
15(e)(1) hereto shall be amended to delete from its content item 16 or any other
part of the Agreement which would require Buyer assume obligations with respect
to 700 1995 model year Hyundai Elantra GLS vehicles which were not delivered to
Seller, and as to which Hyundai furnished notice of breach to Seller by letter
dated June 14, 1995, from Robert A. Parker, its Vice President, National Sales.
12. [CLEAN-UP SECTION 17(a)(4) - PAY DEBTS CURRENT;
CLASSIFICATION AND FINDINGS]
13. The following shall be added to the end of Section 19(d):
"It is understood and agreed that Alan Robin and Richard Bauman are to remain
the employees of Seller and Buyer will not interview them for employment."
Except as amended hereby, Seller and Buyer ratify and reaffirm
the Agreement. The amendments made hereby in paragraphs 2 through 6 are
intended to clarify and supplement the respective provisions to which they
relate and shall not be construed by implication to preclude other items,
matters or issues addressed by the existing content of the Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to Settlement Agreement to be duly executed and delivered the day and
year first above written.
PACIFIC INTERNATIONAL SERVICES CORP.,
a California corporation
By: /s/ Alan M. Robin
----------------------------------
Alan M. Robin, President
DOLLAR SYSTEMS, INC.,
a Delaware corporation
By: /s/ Gary L. Paxton
----------------------------------
Gary L. Paxton, President
/s/ Alan M. Robin
----------------------------------
Alan M. Robin, joining herein personally
to affirm his obligations pursuant to
Sections 3(b) and (c) of the Agreement
-4-
<PAGE>
SECOND AMENDMENT TO SETTLEMENT AGREEMENT
This Second Amendment to Settlement Agreement is executed and
entered into effective September 29, 1995, by and between Pacific International
Services Corp., a California corporation ("Seller"), and Dollar Systems, Inc., a
Delaware corporation, or its permitted assigns ("Buyer").
RECITALS:
1. Effective July 18, 1995, Seller and Buyer entered into that
certain Settlement Agreement, as amended by that First Amendment to Settlement
Agreement effective September 11, 1995 (collectively, "Agreement") providing
for, among other terms and provisions, the sale by Seller to Buyer of its
vehicle rental and related business, and the settlement of litigation by and
between such parties; and
2. In Section 23(g) of the Agreement, Seller and Buyer agreed
it would be necessary for all amendments to the Agreement to be made in writing;
and
3. It is the desire of the Seller and Buyer to amend the
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller and Buyer agree
as follows:
1. Capitalized terms used herein not otherwise defined shall
have the meanings set forth in the Agreement.
2. The last sentence of Section 8 is amended to read as
follows:
"The due diligence period and all rights and
responsibilities of Seller and Buyer in
respect of the existence of same including,
without limitation, as to all matters
described in this Section 8 and in Sections
21(a)(5) and (d), is extended by agreement of
Seller and Buyer from its previously
scheduled expiration date through and
including October 6, 1995."
Except as amended hereby, Seller and Buyer ratify and reaffirm
the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to Settlement Agreement to be duly executed and delivered the day and
year first above written.
PACIFIC INTERNATIONAL SERVICES CORP.,
a California corporation
By: /s/ Alan M. Robin
----------------------------------
Alan M. Robin, President
DOLLAR SYSTEMS, INC.,
a Delaware corporation
By: /s/ Gary L. Paxton
----------------------------------
Gary L. Paxton, President
/s/ Alan M. Robin
----------------------------------
Alan M. Robin, joining herein personally
to affirm his obligations pursuant to
Sections 3(b) and (c) of the Agreement
-2-
<PAGE>
THIRD AMENDMENT TO SETTLEMENT AGREEMENT
This Third Amendment to Settlement Agreement is executed and
entered into effective October 6, 1995, by and between Pacific International
Services Corp., a California corporation ("Seller"), and Dollar Systems, Inc., a
Delaware corporation, or its permitted assigns ("Buyer").
RECITALS:
3. Effective July 18, 1995, Seller and Buyer entered into that
certain Settlement Agreement, as amended by the First Amendment to Settlement
Agreement effective September 11, 1995 and the Second Amendment to Settlement
Agreement effective September 29, 1995 (collectively, "Agreement"), providing
for, among other terms and provisions, the sale by Seller to Buyer of its
vehicle rental and related business, and the settlement of litigation by and
between such parties; and
4. In Section 23(g) of the Agreement, Seller and Buyer agreed
it would be necessary for all amendments to the Agreement to be made in writing;
and
5. It is the desire of the Seller and Buyer to amend the
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller and Buyer agree
as follows:
1. Capitalized terms used herein not otherwise defined shall
have the meanings set forth in the Agreement.
2. The last sentence of Section 8 is amended to read as
follows:
"The due diligence period and all rights and
responsibilities of Seller and Buyer in
respect of the existence of same including,
without limitation, as to all matters
described in this Section 8 and in Sections
21(a)(5) and (d), is extended by agreement of
Seller and Buyer from its previously
scheduled expiration date through and
including October 11, 1995."
Except as amended hereby, Seller and Buyer ratify and reaffirm
the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to Settlement Agreement to be duly executed and delivered the day and
year first above written.
PACIFIC INTERNATIONAL SERVICES CORP.,
a California corporation
By: /s/ Alan M. Robin
----------------------------------
Alan M. Robin, President
DOLLAR SYSTEMS, INC.,
a Delaware corporation
By: /s/ Gary L. Paxton
----------------------------------
Gary L. Paxton, President
/s/ Alan M. Robin
----------------------------------
Alan M. Robin, joining herein personally
to affirm his obligations pursuant to
Sections 3(b) and (c) of the Agreement
-2-
<PAGE>
FOURTH AMENDMENT TO SETTLEMENT AGREEMENT
This Fourth Amendment to Settlement Agreement is executed and
entered into effective October 11, 1995, by and between Pacific International
Services Corp., a California corporation ("Seller"), and Dollar Systems, Inc., a
Delaware corporation, or its permitted assigns ("Buyer").
RECITALS:
3. Effective July 18, 1995, Seller and Buyer entered into that
certain Settlement Agreement, as amended by the First Amendment to Settlement
Agreement effective September 11, 1995, the Second Amendment to Settlement
Agreement effective September 29, 1995 and the Third Amendment to Settlement
Agreement effective October 6, 1995 (collectively, "Agreement"), providing for,
among other terms and provisions, the sale by Seller to Buyer of its vehicle
rental and related business, and the settlement of litigation by and between
such parties; and
4. In Section 23(g) of the Agreement, Seller and Buyer agreed
it would be necessary for all amendments to the Agreement to be made in writing;
and
5. It is the desire of the Seller and Buyer to amend the
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller and Buyer agree
as follows:
1. Capitalized terms used herein not otherwise defined shall
have the meanings set forth in the Agreement.
2. The last sentence of Section 8 is amended to read as
follows:
"The due diligence period and all rights and
responsibilities of Seller and Buyer in
respect of the existence of same including,
without limitation, as to all matters
described in this Section 8 and in Sections
21(a)(5) and (d), is extended by agreement of
Seller and Buyer from its previously
scheduled expiration date through and
including October 19, 1995."
<PAGE>
Except as amended hereby, Seller and Buyer ratify and reaffirm
the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to Settlement Agreement to be duly executed and delivered the day and
year first above written.
PACIFIC INTERNATIONAL SERVICES CORP.,
a California corporation
By: /s/ Alan M. Robin
----------------------------------
Alan M. Robin, President
DOLLAR SYSTEMS, INC.,
a Delaware corporation
By: /s/ Gary L. Paxton
----------------------------------
Gary L. Paxton, President
/s/ Alan M. Robin
----------------------------------
Alan M. Robin, joining herein personally
to affirm his obligations pursuant to
Sections 3(b) and (c) of the Agreement
-2-
<PAGE>
FIFTH AMENDMENT TO SETTLEMENT AGREEMENT
This Fifth Amendment to Settlement Agreement is executed and
entered into effective October 18, 1995, by and between Pacific International
Services Corp., a California corporation ("Seller"), and Dollar Systems, Inc., a
Delaware corporation, or its permitted assigns ("Buyer").
RECITALS:
3. Effective July 18, 1995, Seller and Buyer entered into that
certain Settlement Agreement, as amended by the First Amendment to Settlement
Agreement effective September 11, 1995, the Second Amendment to Settlement
Agreement effective September 29, 1995, the Third Amendment to Settlement
Agreement effective October 6, 1995 and the Fourth Amendment to Settlement
Agreement effective October 11, 1995 (collectively, "Agreement"), providing for,
among other terms and provisions, the sale by Seller to Buyer of its vehicle
rental and related business, and the settlement of litigation by and between
such parties; and
4. In Section 23(g) of the Agreement, Seller and Buyer agreed
it would be necessary for all amendments to the Agreement to be made in writing;
and
5. It is the desire of the Seller and Buyer to amend the
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller and Buyer agree
as follows:
1. Capitalized terms used herein not otherwise defined shall
have the meanings set forth in the Agreement.
2. The last sentence of Section 8 is amended to read as
follows:
"The due diligence period and all rights and
responsibilities of Seller and Buyer in
respect of the existence of same including,
without limitation, as to all matters
described in this Section 8 and in Sections
21(a)(5) and (d), is extended by agreement of
Seller and Buyer from its previously
scheduled expiration date through and
including October 31, 1995."
Except as amended hereby, Seller and Buyer ratify and reaffirm
the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Amendment to Settlement Agreement to be duly executed and delivered the day and
year first above written.
PACIFIC INTERNATIONAL SERVICES CORP.,
a California corporation
By: /s/ Alan M. Robin
----------------------------------
Alan M. Robin, President
DOLLAR SYSTEMS, INC.,
a Delaware corporation
By: /s/ Gary L. Paxton
----------------------------------
Gary L. Paxton, President
/s/ Alan M. Robin
----------------------------------
Alan M. Robin, joining herein personally
to affirm his obligations pursuant to
Sections 3(b) and (c) of the Agreement
-2-
<PAGE>
SIXTH AMENDMENT TO SETTLEMENT AGREEMENT
This Sixth Amendment to Settlement Agreement ("Amendment") is executed and
entered into effective October 27, 1995, by and between Pacific International
Services Corp., a California corporation ("Seller"), and Dollar Systems, Inc., a
Delaware corporation, or its permitted assigns ("Buyer").
RECITALS:
3. Effective July 18, 1995, Seller and Buyer entered into that certain
Settlement Agreement, as amended by the First Amendment to Settlement Agreement
effective September 11, 1995, the Second Amendment to Settlement Agreement
effective September 29, 1995, the Third Amendment to Settlement Agreement
effective October 6, 1995, the Fourth Amendment to Settlement Agreement
effective October 11, 1995, and the Fifth Amendment to Settlement Agreement
dated October 18, 1995 (collectively, "Agreement"), providing for, among other
terms and provisions, the sale by Seller to Buyer of its vehicle rental and
related business, and the settlement of litigation by and between such parties;
and
4. In Section 23(g) of the Agreement, Seller and Buyer agreed it would be
necessary for all amendments to the Agreement to be made in writing; and
5. It is the desire of the Seller and Buyer to amend the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller and Buyer agree as follows:
1. Capitalized terms used herein not otherwise defined shall have
the meanings set forth in the Agreement. All references are to Sections of
the Agreement.
2. Section 1(l) shall be amended to read as follows:
"'Cash Amount' shall mean Two Million Six Hundred Twenty-Five
Thousand Dollars ($2,625,000)."
3. The second sentence of Section 1(g) shall be amended to read as
follows:
"The Assets will also be described in the Bill of Sale and
reflected as assets in the Unaudited Balance Sheet and finalized in
the Final Balance Sheet subject,
<PAGE>
however, in the case of said balance sheets, to permitted changes in
the Assets on hand at the time of the Closing."
4. The assumption described in Section 1(h), while made at the time
of Closing, will be effective as of the Settlement Date.
5. The cross-reference to Section 5(e) in Section 1(q) shall be
amended to Section 5(c).
6. The Closing described in Section 1(m) shall be effective as of
the Settlement Date except for the effect of representations and
warranties, as well as indemnities and covenants, which are extended to the
date of actual Closing. Buyer shall be deemed to have assumed upon
Closing any other liabilities of the Division (except for Retained
Liabilities) arising after October 31, 1995 in the ordinary course of
business and without violation by Seller of a representation and
warranty or covenant hereunder.
7. The cross-reference to Section 5(d) in Section 1(r) shall be
amended to Section 5(b).
8. Section 1(w), defining the term, Estimated Cash Amount, shall be
deleted. Reference to such term shall be deemed amended to read Cash
Amount in any place in the Agreement where such term appears.
9. Section 1(y) shall be amended to read as follows:
"'Final Balance Sheet' means the audited balance sheet of the
Division, prepared in accordance with GAAP Consistently Applied as
modified or clarified by the Agreed Practices, as of the Settlement
Date, which shall reflect resolution of all claims described in
Sections 19(a) and (b), if any, pending at the Settlement Date, as
finally determined in accordance with the provisions specified
herein."
Reference to Final Closing Balance Sheet shall be deemed amended to read
Final Balance Sheet in any place in the Agreement where such term appears.
10. Section 1(ee), defining the term, Holdback Agreement, shall be
deleted as such agreement will no longer be entered into between Seller and
Buyer. Reference to the Holdback Agreement shall be deemed deleted in any
other place in the Agreement where such term appears. Exhibit K, which
constituted the form of such agreement, is likewise deleted.
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<PAGE>
11. Section 1(ff), defining the term, Holdback Amount, shall be
deleted. Reference to the Holdback Amount shall be deemed deleted in any
other place in the Agreement where such term appears.
Section 1(kk) is amended to change the monetary amount indicated
to negative Six Hundred Thousand Dollars (-$600,000).
13. The following shall be added to the end of Section 1(oo) of the
Agreement:
"Notwithstanding any provision of Exhibit J to the Agreement to
the contrary, it is agreed that: (a) Item 2 thereof relates only to
expenses and liabilities to be incurred in the future and not as of
the date of Closing; (b) Item 4 is amended to read 'Liabilities under
Mahalo Complimentary Car Rental Vouchers owing to Seller's customers
for 1995 but not expensed by Seller as of Closing (as more fully
described on a Schedule to be attached at Closing) in an aggregate
amount not to exceed $50,000'; and (c) with respect to Item 5, Off-
balance Sheet Liabilities do not include litigation described in
Schedule 15(j) where the party identified as a party in the litigation
is South Seas, and Buyer assumes no obligations to prosecute or assume
the position of South Seas in any litigation whatsoever whether listed
on Schedule 15(j) or not."
14. The following shall be added to Section 1(uu) of the Agreement:
"Other Retained Liabilities shall include (a) the case, LELA
KAEHU V. PACIFIC INT'L SERVICES CORP., D/B/A DOLLAR RENT A CAR; FEP
number K-6809, EEOC number 37B-95-0001, or any successor or substitute
litigation relating thereto shall be deemed removed from Schedule
15(j) hereto or any other provision of this Agreement which would
require Buyer assume the position of Seller in such proceeding,
together with all liability, cost, expense, attorney's fees, or
obligation in respect of same, as the same constitutes a claim against
Seller for employment practices as discussed above; (b) any and all
liability, cost, expense, attorney's fees, obligation or duty to
defend or respond with respect to Seller's pending or any other
investigation by the SEC, currently referenced as HO-2743, in which
Seller has heretofore been represented by Covington and Burling,
Washington, D. C., as the same constitutes a regulatory matter as
provided above (and the same is subject to indemnity by Seller in
favor of Buyer notwithstanding any provision herein to the
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<PAGE>
contrary); and (c) excise and income taxes of Seller under examination
by the Hawaii Department of Revenue as disclosed in Section 15(c),
or open for assessment, together with taxes due upon Closing as
described in Section 17(a)(17), and Seller shall remain obligated to
indemnify Buyer notwithstanding Section 20(b)(5)."
15. The cross reference to Section 5(d) in Section 1(vv) shall be
amended to Section 5(b).
16. Section 1(bbb) is amended to read as follows:
"'Stock Pledge Agreement' means the agreement executed between
Seller and Buyer effective July 18, 1995, as amended and restated by
that certain Amended and Restated Stock Pledge Agreement executed
effective the date of this Sixth Amendment in the form of Exhibit Q
attached to this Sixth Amendment."
17. The first sentence of Section 1(ccc) is amended to read as
follows:
"'Unaudited Balance Sheet' means the unaudited balance sheet of
the Division as of the Settlement Date, prepared by Seller, which will
not reflect payment by Buyer of the Cash Amount."
Reference to Unaudited Closing Balance Sheet shall be deemed amended to
read Unaudited Balance Sheet in any place in the Agreement where such term
appears.
18. The following shall be added as additional provisions to Section
1:
"(fff) 'Allowed Administrative Expense' means expenses allowed by
Final Order pursuant to Code Section 503(b), including, without
limitation, professionals' fees awarded pursuant to Code Sections 327
and 330.
(ggg) 'Bankruptcy Case' means the case under the Code which may
be commenced by Buyer as contemplated in Section 6 of this Agreement.
(hhh) 'Bankruptcy Court' means the United States Bankruptcy
Court for the District of Hawaii.
(iii) 'Code' means the United States Bankruptcy Code (Title 11
U.S.C.), as amended.
-4-
<PAGE>
(jjj) 'Confirmation' means the Bankruptcy Court's entry of an
order confirming the Plan pursuant to Code Section 1129.
(kkk) 'Confirmed Plan' means the Plan, as confirmed by a Final
Order, pursuant to Code Section 1129, containing the terms required by
this Agreement.
(lll) 'Disclosure Statement' means any disclosure statement
prepared and transmitted by Seller to the Holders, in support of the
Plan, pursuant to Code Sections 1125 and 1126.
(mmm) 'Effective Date' shall mean that date upon which the terms
of the Confirmed Plan are to be consummated and given full effect.
(nnn) 'Escrow Agreement' means the agreement in substantially
the form of Exhibit Z attached to this Sixth Amendment to be entered
into by Seller and Buyer at the Closing.
(ooo) 'Escrow Agent' means Liberty Bank and Trust Company of
Tulsa, N.A., who is acting as agent pursuant to the Escrow Agreement.
(ppp) 'Exchange Offer' shall mean the solicitation to Holders
made pursuant to Seller's "Offer to Exchange and Solicitation of Plan
Acceptances" as described in Section 6 of this Agreement.
(qqq) 'Final Order' means an order or judgment of the Bankruptcy
Court (or any court with jurisdiction to exercise appellate or other
jurisdiction over the Bankruptcy Case and/or orders or judgments
issued by the Bankruptcy Court or intermediate appellate courts)
entered in the Bankruptcy Case, which order or judgment is no longer
subject to modification, vacation, rehearing or appellate review.
(rrr) 'Houlihan' means Houlihan Lokey Howard & Zukin, Seller's
investment banker.
(sss) 'Net Worth Note' means the promissory note of Seller to
Buyer in substantially the form of Exhibit AA attached to this Sixth
Amendment to be delivered at the Closing upon the conditions described
in Section 4(c)(2)."
(ttt) '1933 Act' means the Securities Act of 1933, as amended.
-5-
<PAGE>
(uuu) '1934 Act' means the Securities Exchange Act of 1934, as
amended.
(vvv) 'Plan' means the plan of reorganization of Seller, as
described in Section 6 of this Agreement, containing the terms and
provisions required in this Agreement."
(www) 'SEC' means the Securities and Exchange Commission.
(xxx) 'Settlement Date' means October 31, 1995.
(yyy) 'Stock' means Seller's common stock, $0.10 stated value.
19. The last sentence of Section 2(a) shall be amended to read as
follows:
"Notwithstanding anything to the contrary provided in this
Agreement, exhibits to be updated at Closing shall be supplemented and
presented at the times and in the manner required for schedules under
Section 2(b) hereof."
20. The second sentence of Section 2(b) shall be amended to read as
follows:
"(b) Upon receipt of such schedules, and through the due
diligence period which expires upon Closing, during which time Buyer
shall be afforded the opportunity to review and examine the materials
and information referenced on such schedules, Buyer may terminate this
Agreement, without any recourse by Seller, if anything set forth on
such schedules is unacceptable to Buyer in its sole discretion."
21. A new Section 2(c) shall be added to the Agreement to read as
follows:
"(c) No provision of this Section 2 nor of Section 21(d) hereof
shall be construed to waive any objection by Buyer at any time, which
shall expressly survive through determination of the Final Balance
Sheet pursuant to Section 5(e), to the extent any financial
information heretofore or hereafter furnished by Seller has not been
prepared in accordance with GAAP Consistently Applied as modified or
clarified by the Agreed Practices. In other words, the fact that an
accounting entry, balance or other financial information may appear in
a previous document delivered hereunder shall not limit Buyer's
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<PAGE>
right to require in the Unaudited Balance Sheet or Final Balance Sheet
that the same be prepared in accordance with GAAP Consistently Applied
as modified or clarified by the Agreed Practices."
22. Section 3(b) shall be amended to provide that the non-competition
and non-solicitation periods referenced shall be lengthened from two (2)
years in the case of Seller, and one (1) year in the case of Alan Robin, to
five (5) years for Seller and thirty (30) months for Alan Robin, in each
case from the date of actual Closing.
23. Section 4(a) shall be amended to read as follows:
"(a) CASH AMOUNT. In addition to Buyer's execution and delivery
of the Assumption Agreement at Closing and acceptance of the
Liabilities indicated thereby, the cash purchase price to be paid by
Buyer for the Assets shall equal the Cash Amount, which will be paid
to the Escrow Agent acting pursuant to the Escrow Agreement."
24. Section 4(c) shall be amended to read as follows:
"(c) MINIMUM NET WORTH. The Net Worth as reflected on the
Unaudited Balance Sheet shall have the following implications under
this Agreement:
(1) Payment of the Cash Amount is conditioned upon the
Unaudited Net Worth reflecting compliance with the Minimum Net
Worth Requirement.
(2) In the event the Unaudited Net Worth does not satisfy
the Minimum Net Worth Requirement, Buyer, if it does not elect to
terminate this Agreement, will accept the Net Worth Note in an
amount equal to the lesser of (i) the amount by which the Net
Worth of the Division is more negative than negative Six Hundred
Thousand Dollars (-$600,000), or (ii) One Million Fifty Thousand
Dollars ($1,050,000) minus the face amount of any Debentures
which did not tender under the Exchange Offer and remain
outstanding after the completion of an exchange of not less than
95% of the Debentures pursuant to the Exchange Offer.
(3) A Net Worth of the Division more positive than (or less
negative than) the Minimum Net Worth Requirement as reflected in
the Unaudited Balance Sheet or Final Balance Sheet shall not
require Buyer pay any greater purchase consideration than that
expressly provided hereunder.
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<PAGE>
(4) If Buyer accepts the Net Worth Note where the Unaudited
Net Worth is more negative than the sum of Six Hundred Thousand
Dollars plus the principal amount of the Net Worth Note, with
such sum then to be expressed as a negative number, such
acceptance shall be in full satisfaction of any claims Buyer has
in respect of a failure to satisfy the Minimum Net Worth
Requirement except if the Final Net Worth is more negative than
the Unaudited Net Worth."
25. Section 5 shall be amended to read as follows:
"5. DETERMINATION OF FINAL NET WORTH. The Final Net Worth shall
be determined and adjusted from the Unaudited Net Worth as follows:
(a) FINAL BALANCE SHEET. Buyer shall, at Buyer's sole cost
and expense, prepare and deliver to Seller within sixty (60) days
of the date of Closing the draft Final Balance Sheet which shall
include, in addition to the other information set forth therein,
the draft Final Net Worth, and reflect resolution of any disputes
subject to Sections 19(a) and (b) hereof (but not Section
20(f)(3), if applicable). The Final Balance Sheet, and the
Assets and Liabilities reflected thereon, shall be prepared and
determined in accordance with GAAP Consistently Applied as
modified or clarified by the Agreed Practices, and shall be
accompanied by a draft independent auditors' report thereon of
Buyer's independent auditors, D&T, to the effect that the Final
Balance Sheet, presents fairly in all material respects the net
assets (deficiency in assets) sold by Seller effective as of the
Settlement Date on the basis of GAAP Consistently Applied as
modified or clarified by the Agreed Practices. Buyer and D&T
shall make available to Seller upon Seller's request and its
independent auditor, PW, all work papers, books and records used
in the preparation and audit of the draft Final Balance Sheet,
and shall provide copies of the same to Seller upon Seller's
request.
(b) REVIEW PERIOD. Seller shall have fifteen (15) business
days after its receipt of (i) the draft Final Balance Sheet and
related supplementary schedules, and (ii) if requested by Seller,
all work papers, books and records used in the preparation and
audit of the draft Final Balance Sheet, to review them ("Review
Period"). On or
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<PAGE>
prior to the expiration of the Review Period, Seller shall notify
Buyer in writing whether it agrees or disagrees with Buyer's
calculation of any negative or downward adjustment to the
Unaudited Net Worth and, if it disagrees (the "Disagreement
Notice"), the basis of its disagreement, including its
calculation of any adjustment to the Final Net Worth. If
Buyer does not receive the Disagreement Notice on or prior to the
expiration of the Review Period, Seller shall be deemed to have
approved the Final Balance Sheet and Buyer's calculation of the
Final Net Worth.
(c) DISAGREEMENT PROCEDURE. If Buyer receives the
Disagreement Notice, Seller and Buyer shall, in good faith,
attempt to resolve the disagreement within fifteen (15) business
days after Buyer's receipt of the Disagreement Notice. If they
cannot resolve the disagreement within such time period, they
promptly shall refer such disagreement for resolution to AA, or
if AA is unable to serve or declines to act, or if at the time of
such referral AA is not independent of each of Buyer and Seller,
such other firm of independent accountants of recognized national
standing as mutually selected by Buyer and Seller (AA or such
other firm being referred to herein as the "Deciding
Accountant"). The determination of the Deciding Accountant as to
the calculation and amount of the Final Net Worth shall be
rendered within thirty (30) days after such disagreement is
referred to the Deciding Accountant, and shall be binding upon
the parties hereto.
(d) COOPERATION WITH DECIDING ACCOUNTANT. [See Agreement
Section 5(f) for text]
(e) RESOLUTION. The Final Balance Sheet as agreed to by
the parties or as determined by the Deciding Accountant, and the
Final Net Worth reflected thereon or determined under Section
5(f), shall be considered the "Final Balance Sheet" and the
'Final Net Worth,', for all purposes of this Agreement.
(f) ALTERNATIVE. In lieu of conducting the audit and
presenting a Final Balance Sheet, Buyer may elect to perform or
have performed on its behalf certain procedures at its sole
discretion to determine that the Unaudited Balance Sheet has been
fairly presented in all material respects in
-9-
<PAGE>
accordance with GAAP Consistently Applied as modified or
clarified by the Agreed Practices and that such other financial
information disclosed in the exhibits and schedules to the
Agreement has also been fairly presented in all material respects
(the "Reported Information"). If Buyer elects to perform such
procedures, it shall conduct the procedures within the same
time periods specified for the audit. Likewise, Buyer will, if
it disagrees with the Reported Information, furnish a letter
with adequate supporting documentation to Seller, and respond
to Seller's inquiries, all in the same time periods prescribed
in the review process for the audit. If necessary, the
Deciding Accountant will act to finalize any discrepancies in
the Reported Information to assure the same are fairly
presented pursuant to the standards noted above."
26. Section 6 shall be deleted and amended to read as follows:
"6. EXCHANGE OFFER.
(a) TERMS. On or about October 31, 1995, Seller will
commence the Exchange Offer to exchange the Debentures for the
consideration specified below, and which such offer also provides
for solicitation of Plan acceptances pursuant to a prepackaged
bankruptcy from the holders of Debentures and their amendment of
the indenture for the Debentures. The Exchange Offer is intended
to be accomplished pursuant to the requirements of Section
3(a)(9) of the 1933 Act. The Exchange Offer requires a minimum
tender of ninety-five percent (95%) of the outstanding face
amount of the Debentures. If such tender is received, each such
holder will receive (i) .50 on each $1.00 face amount of
Debentures owned by such holder in cash, (ii) 0.769505 shares of
Stock for each $1.00 in face amount of Debentures tendered, and
(iii) the holder's pro rata share of new debentures in the
original face amount of One Million Fifty Thousand Dollars
($1,050,000), less the face amount of Debentures not tendered and
less the original principal amount of the Net Worth Note, if any,
which new debentures will be stripped of any covenant rights or
conversion features except for payment obligations. In the event
Seller elects to proceed with filing of the Bankruptcy Case in
accordance with the Plan acceptances solicited as a
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<PAGE>
part of the Exchange Offer, each holder will upon the Effective
Date instead receive (A) the holder's pro rata share of the Cash
Amount minus claims and expenses described in Section 9(hh), (B)
0.769505 shares of Stock for each $1.00 in face amount of
Debentures tendered, and (C) the holder's pro rata share of One
Million Fifty Thousand Dollar ($1,050,000) principal amount of
Seller's new debentures containing terms and conditions
substantially similar to the existing Debentures, but stripped
of any conversion features and covenant rights except for
payment obligations; but reduced, however, by the amount of
the Net Worth Note if accepted by Buyer, if any. The interest
payable on the Debentures as of September 1, 1995 (except as
to Debentures not tendered and without filing of the
Bankruptcy Case), will be waived by the holders as a part of
completing the Exchange Offer.
(b) CONSENTS TO CLOSING. Upon Seller obtaining the
requisite consents and verifications described in Section 9(l)
and subject to satisfaction of the other conditions precedent to
Buyer's obligations, the Closing shall occur as soon as
practicable thereafter, but in any event not later than November
30, 1995.
(c) ESCROW. At Closing, the Cash Amount shall be
transferred to the Escrow Agent acting pursuant to the Escrow
Agreement. If the Exchange Offer is accomplished without filing
of the Bankruptcy Case, and if less than one hundred percent
(100%) of the holders tender the Debentures, the Cash Amount
shall be reduced by a sum determined by multiplying
the Cash Amount times a fraction, the numerator of which is the
face amount of Debentures not tendered, and the denominator of
which is Five Million Two Hundred Fifty Thousand Dollars
($5,250,000). Upon (i) completion of an exchange of not less
than 95% of the Debentures pursuant to the Exchange Offer or (ii)
the Effective Date, Buyer and Seller shall provide a joint
instruction to the Escrow Agent, as contemplated in the Escrow
Agreement, designating the portions of the "Escrow Amount" (as
defined in the Escrow Agreement) to be delivered to the parties
entitled thereto, as provided herein, in the Exchange Offer
documents, and in the Confirmed Plan."
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<PAGE>
27. A new Section 6A is added to read as follows:
"6A. RECEIPT OF STOCK. For the agreements Buyer makes in this
Sixth Amendment, Buyer shall be entitled to receive from Seller a
portion of its authorized but unissued Stock. The amount and manner
in which the Stock is to be received by Buyer is set forth below:
(a) AMOUNT OF STOCK. At Closing, Buyer shall receive from
Seller ten percent (10%) of the fully diluted Stock, meaning that such
percentage of ownership shall apply when considering the cumulative
effect of (i) then issued and outstanding Stock or any derivative or
other securities convertible into Stock, (ii) Stock received by Buyer,
and (iii) Stock to be received by holders of Debentures under the
Exchange Offer.
(b) REGISTRATION RIGHTS. At any time eighteen (18) months after
Buyer's receipt of the Stock as provided in Section 6A(a) and until
five (5) years thereafter, Buyer shall have the right to make one
written request to Seller stating that Buyer proposes to sell and
distribute publicly the Stock received and that it desires to have the
sale and distribution of such shares registered under the 1933 Act.
Any such exercise of a registration right by Buyer shall be at
Seller's expense including, without limitation, registration expenses,
attorneys' and accountants' fees, Blue Sky costs, printing, transfer
agent fees and expenses, etc., save and except for any of Buyer's
brokerage commissions incurred upon sale by it of the Stock. The
demand registration rights described herein shall be for a shelf
registration of the Stock, and Seller covenants to keep the
registration statement effective pursuant thereto for a period of
eighteen (18) months from when originally declared effective by the
SEC. In addition to the demand registration rights, Buyer shall also
be permitted to enjoy the benefit without cost or expense of having
its Stock registered in any other registration of Stock filed by
Seller. At the Closing, Seller and Buyer shall enter into a
registration rights agreement generally reflecting the provisions
described in this Section 6A, but more specifically identifying all
requirements and procedures for the demand and incidental or piggyback
registration rights described herein. Such registration rights
agreement shall be prepared in a form reasonably acceptable to Buyer
and Seller.
(c) DEREGISTRATION. In the event Seller ever seeks
deregistration with the SEC as a public company in accordance with
Section 12(d) of the 1934 Act, or the SEC
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seeks deregistration of Seller pursuant to 1934 Act
Section 12(j), then immediately thereupon, Buyer shall have the
right and option to require Seller, within five (5) business days
of notice by Buyer to Seller, to acquire all the Stock then owned
by Buyer received pursuant hereto for a price equal to the
average trading price for the Stock for the thirty (30) trading
days immediately preceding the filing by Seller of such
application. If no such trading price information is
available, Seller and Buyer shall mutually agree on another
method of establishing the price for the Stock for purposes
hereof. Seller agrees to give notice to Buyer in the manner
required hereby within two business days of its filing or the
SEC's action for deregistration."
28. Section 7 shall be amended as follows:
(a) The parenthetical in Section 7(a)(2) shall be deleted.
Sections 7(a)(4), (5) and (6) shall be deleted.
(b) New Sections 7(a)(4) and (5) shall be added to read as
follows:
"(4) The amount of any claim by Seller against Buyer for
indemnity in accordance with this Agreement including, without
limitation, the indemnity described in Section 9(aa); and
(5) All of Seller's obligations under the Net Worth
Note."
(c) Section 7(b) shall be deleted, and Section 7(c) shall now be
Section 7(b).
(d) A new Section 7(c) shall be added to read as follows:
"(c) DURATION. Unless Buyer shall have declared a breach
under Section 7(a) within one year (subject to extension as
provided below) after the Closing, the pledge and security
interest contemplated in this Section 7 shall lapse, and Buyer
will execute an instruction to the agent acting pursuant to the
Stock Pledge Agreement to deliver the South Seas stock to Seller.
Notwithstanding the preceding sentence, if a voluntary or
involuntary petition for relief under the Code is filed by or
against Seller on or before the 367th day after the Closing, the
pledge and security interest contemplated herein shall not lapse.
If Buyer shall have declared a default under Section 7(a) within
such one year period, or if such a petition for relief is filed
by or
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against Seller within such 367-day period, the pledge and
security interest contemplated herein shall remain in full force
and effect, and the agent shall continue to hold the South Seas
stock as provided in the Stock Pledge Agreement and in the Agency
Agreement. In the event of Seller's bankruptcy, as described in
this Section 7(c), the pledge and security interest contemplated
herein shall remain in full force and effect until (i) all
breaches of indemnity obligations described in Section 7(a) (if
any) are resolved and fully satisfied; and (ii) the earlier to
occur of (x) entry of a Final Order waiving and releasing all
claims, rights and causes of action against Buyer, (including,
without limitation, claims, rights and causes of action
assertable against Buyer arising under Chapter 5 of the
Bankruptcy Code), or (y) expiration of all statutes of limitation
within which claims, rights and causes of action assertable
against Buyer under Chapter 5 of the Bankruptcy Code must be
commenced"; PROVIDED, THAT the pledge securing the obligations
described in Section 7(a)(5) shall terminate upon the earlier
of (a) the Effective Date of the Confirmed Plan or (b) ten (10)
days following the successful completion of the Exchange
Offer."
(e) A new Section 7(d) shall be added to read as follows:
"(d) EFFECT OF CLOSING. The pledge and security interest
described in subsections (a)(1) and (2) above shall remain
perfected through the times provided therein; provided, however,
Buyer will take no action to foreclose its security in respect of
obligations owed it accruing after September 30, 1995 prior to
the termination of this Agreement, and provided further, that
upon Closing, the pledge and security interest insofar as
described in subsections (a)(1), (2) and (3) above shall lapse."
29. Section 8 of the Agreement is amended to read as follows:
"8. DUE DILIGENCE. From and after the date hereof and until the
Closing, Seller agrees to permit Buyer and its representatives full
access to the Assets, Liabilities and the Division's operations, and
its business and financial records, contracts and prospects files and
any and all other documentation to permit it to complete its due
diligence procedures and review. As a material inducement to Buyer to
make the agreements in this Amendment, Buyer has the right at any time
before Closing to terminate this Agreement for any reason or no
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reason at all, as more particularly provided in Section 21(d) hereof."
30. Section 9(k) of the Agreement shall be amended to read as
follows:
"Seller shall have satisfied the Minimum Net Worth Requirement as
of the Settlement Date, as reflected on the Unaudited Balance Sheet,
or if not, and Closing occurs, Buyer will accept the Net Worth Note."
31. Section 9(l) of the Agreement shall be amended to read as
follows:
"The 'Expiration Date' (as defined in the Exchange Offer) shall
have occurred and not been extended and either (i) at least 95% of the
Debentures shall have been tendered pursuant to the Exchange Offer or
(ii) obtained the acceptances of the Plan from Holders owning in the
aggregate a minimum of 50.1% in number, and 66.7% in amount, of all
outstanding Debentures (determined without including any acceptances
of the Plan by Scott Lang or any "insider" (as defined by the Code)),
to the extent such Holders cast ballots to accept or reject the Plan
pursuant to Code Section 1126, and Buyer shall have received a
certificate from PISC and the "Depositary" as defined in the Exchange
Offer for the Debentures evidencing the foregoing matters."
32. The following additional provisions shall be added to Section 9:
"(v) Buyer shall have approved before submission the information
set forth in the documents to obtain the certificates described in
Section 12(s).
(w) The Disclosure Statement and Plan shall contain evidence
satisfactory to Buyer of, and Buyer shall satisfy itself as to: (i)
the non-impairment (as contemplated by Code Section 1124) of all
creditor classes other than Holders; (ii) Seller's ability to pay all
Retained Liabilities to be paid under the Plan; and (iii) the lack of
any unpaid tax obligations or other obligations giving rise to a claim
entitled to priority under Code Section 507(a), except to the extent
contemplated by Section 9(hh) hereof.
(x) Houlihan shall provide an opinion addressed to Buyer that
the consideration paid to Seller under this Agreement constitutes
"reasonably equivalent value," as contemplated by Code Section 548 and
the Uniform
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Fraudulent Transfers Act as adopted by the State of Hawaii. Such
opinion shall be in form and content satisfactory to Buyer, and shall
be incorporated into and made a part of the Disclosure Statement.
Buyer shall under no circumstance be deemed liable for the payment of
any fee charged by Houlihan for providing such opinion.
(y) The Disclosure Statement must contain a liquidation
analysis, in form and content satisfactory to Buyer, revealing that
the Holders and the Seller's stockholders will receive more under the
Plan than they would in a liquidation occurring without consummation
of this Agreement. Such liquidation analysis shall be prepared by
Seller's chief financial officer, and must be reviewed and deemed
reasonably true and correct by Houlihan.
(z) The Disclosure Statement must contain a cash-flow analysis,
in form and content satisfactory to Buyer, revealing Seller's ability
to meet its Plan and other post-confirmation obligations (including,
without limitation, Retained Liabilities), as they come due. Such
cash flow analysis shall be prepared by Seller's chief financial
officer, and must be reviewed and deemed reasonably true and correct
by PW.
(aa) The Plan must provide, and the Disclosure Statement must
prominently note, that Seller shall indemnify Buyer against (i) claims
by Seller or others for tax liabilities arising prior to or after
commencement of the Bankruptcy Case; (ii) liability for administrative
expenses contemplated by Code Section 503(b) alleged to be payable to
any person or entity related in any way to Seller or the Bankruptcy
Case, whether or not such administrative expenses are or become an
Allowed Administrative Expense; (iii) Seller altering or amending the
terms of this Agreement, the Exchange Offer, the Disclosure Statement
or the Plan, pre- or post-Confirmation, to the extent such alteration
or amendment impairs or detracts from the benefits to be derived
thereunder by Buyer, directly or indirectly; (iv) against the failure
of the Seller to timely and fully perform, from and after Closing, all
of its post-Closing obligations to Buyer as set forth herein,
including, without limitation, those arising under the Seller
Delivered Agreements; and (v) recovery (or the alleged right to
recover) against Buyer under any claim, right or cause of action
whatsoever asserted by Seller (in its own right or as debtor in
possession in the Bankruptcy Case), or by any trustee appointed in the
Bankruptcy Case pursuant to Code Section 1104, or by any
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of Seller's creditors or stockholders, including, without limitation,
claims, rights and causes of action arising under or which may be
asserted under Chapter 5 of the Bankruptcy Code or under the Uniform
Fraudulent Transfers Act or similar statutes. The foregoing
indemnity shall include costs and reasonable attorneys' fees
incurred by Buyer in defending against such matters and in
enforcing the terms of such agreements.
(bb) The Disclosure Statement shall state that Seller's
management, based on advice of Seller's litigation counsel, believes
that closing this Agreement (and ratifying this Agreement through the
Plan) is in the best interest of Seller's creditors and stockholders,
and that the releases of Buyer to be effected by this Agreement are
justified by the fact that the prospective benefits of litigation are
outweighed by, among other things, (i) operating losses incurred by
Seller's rental car division which impair its ability to continue
operations as conducted prior to consummation of this Agreement; (ii)
the fact that the cost to prosecute and defend the civil actions by
and against Buyer are prohibitively high; and (iii) the elimination of
risks associated with litigation with Buyer, including the risk that
Buyer could terminate Seller's rights under the License Agreement and
the Master Lease, and the risk that Seller would not prevail in its
causes of action asserted against Buyer.
(cc) The Plan must provide that Holders expressly consent to the
classification and treatment of all parity (e.g., trade and other
unsecured creditors not paid prior to the commencement of the
Bankruptcy Case who are to be paid in full under the Plan) and
inferior (i.e., stockholders who retain equity under the Plan)
classes. The Disclosure Statement must prominently note such
classification and treatment provisions, and that the Plan could not
be confirmed absent the affirmative acceptance of the Holders as a
class.
(dd) The Plan must classify Buyer as a contingent secured
creditor, based on Seller's indemnity and other post-Closing
obligations owed to Buyer arising under this Agreement (including,
without limitation, those arising under the Seller Delivered
Agreements), and provide that the treatment for such claims, once
liquidated, shall be satisfaction of such claims in full in accordance
with the terms of this Agreement and all Seller Delivered Agreements.
Without limiting the generality of the foregoing, the Plan must
provide (and the Disclosure Statement must prominently note) (i) that
all post-
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Closing obligations of Seller to Buyer arising under this
Agreement and under the Seller Delivered Agreements shall be fully
performed in accordance with their terms from and after Closing; and
(ii) that Seller, in its own right and as debtor-in-possession in the
Bankruptcy Case, and its successors, including any Chapter 7 or
Chapter 11 trustee appointed in the Bankruptcy Case, fully and
unconditionally release (A) Buyer of and from all claims, rights and
causes of action whatsoever including, without limitation, all causes
of action which may or could have been brought against Seller under
Chapter 5 of the Bankruptcy Code; and (B) all parties, known or
unknown, from claims, rights and causes of action which may or could
have been brought against such parties under Chapter 5 of the
Bankruptcy Code. The Disclosure Statement must contain a statement
that Seller's management is of the opinion that the releases described
in (ii) above do not have an adverse impact on any of Seller's
creditors or stockholders, due to the material benefits to be derived
by such parties from ratification of this Agreement pursuant to the
Confirmed Plan.
[(ee) This subsection is intentionally blank.]
(ff) The Plan must provide, and the Disclosure Statement must
note, that the Effective Date shall occur ten (10) days after
Confirmation, unless the Confirmation order is subject to a stay
pending appeal, in which case the Effective Date shall occur on the
earlier of (i) dissolution of the stay pending appeal, or (ii) upon
the Confirmation order becoming a Final Order.
(gg) The Disclosure Statement must contain Seller's management's
estimate of Allowed Administrative Expenses (including professionals'
fees) to be incurred in the Bankruptcy Case through the Effective
Date.
(hh) The Plan must provide, and the Disclosure Statement must
note, that (i) the Escrow shall not terminate, and the Cash Amount
escrowed shall not be distributed, until the occurrence of the
Effective Date of the Confirmed Plan; and (ii) the only parties
eligible under the Plan to receive distributions of the "Escrowed
Amount" (as defined in the Escrow Agreement) are
(A) holders of Allowed Administrative Expenses;
(B) holders of claims against the Seller entitled to
priority under Code Section 507(a)(3); and
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(C) the class of creditors which includes the holders
of Debentures and all unsecured, non-priority creditors
whose claims are not (1) contingent or disputed, or (2) paid
in the ordinary course of Seller's business after
commencement of the Bankruptcy Case (pursuant to Bankruptcy
Court approval of such ordinary course payments).
(ii) The final forms of the Plan, the Disclosure Statement, all
proxy materials to be submitted to Seller's shareholders and all
documents to be submitted to holders of Debentures as part of the
Exchange Offer, shall be provided to Buyer by Seller not less than 48
hours prior to submission to such Debenture holders and shareholders.
(jj) Seller shall have made all of the deliveries required by
Section 12 hereof."
33. Section 10(f) shall be amended to read as follows:
"The 'Expiration Date' (as defined in the Exchange Offer) shall
have occurred and not been extended and either (i) at least 95% of the
Debentures shall have been tendered pursuant to the Exchange Offer or
(ii) obtained the acceptances of the Plan from Holders owning in the
aggregate a minimum of 50.1% in number, and 66.7% in amount, of all
outstanding Debentures (determined without including any acceptances
of the Plan by Scott Lang or any "insider" (as defined by the Code)),
to the extent such Holders cast ballots to accept or reject the Plan
pursuant to Code Section 1126, and Buyer shall have received a
certificate from PISC and the "Depositary" as defined in the Exchange
Offer for the Debentures evidencing the foregoing matters."
34. Section 10(h) shall be amended to read as follows:
"Seller shall have satisfied the Minimum Net Worth Requirement as
of the Settlement Date, as reflected on the Unaudited Balance Sheet,
or if not, and Closing occurs, Buyer will accept the Net Worth Note."
35. A new Section 10(m) shall be added to read as follows:
"(m) Buyer shall have made all of the deliveries required by
Section 13 hereof."
36. Section 12(i) shall be amended to read as follows:
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"Unaudited Balance Sheet as of the Settlement Date, to verify
compliance with the Minimum Net Worth Requirement."
37. Section 12(o) shall be amended to read as follows:
"Evidence of satisfaction of the requirements expressed in
Section 9(l) hereof."
38. Section 12(p) shall be amended to read as follows:
"Commitment of South Seas to be jointly and severally liable with
Seller for Seller's indemnity obligations in Section 20 for a period
of thirty (30) months from the date of actual Closing in the form of
Exhibit S hereto."
39. Section 12(s) shall be amended to read as follows:
"Hawaii state general tax clearance certificate, together with
Hawaii state tax clearance certificate issued in anticipation of a
bulk sale of assets pursuant to H.R.S. Section 237-43, each issued
within ten (10) days preceding the Closing."
40. A new Section 12(bb) shall be added to read as follows:
"The Houlihan opinion required by Section 9(x)."
41. Section 13(d) shall be amended to read as follows:
"Payment of the Cash Amount by wire transfer or other immediately
available funds to the Escrow Agent acting pursuant to the Escrow
Agreement."
42. The deferred delivery of the allocation referred to in Section
13(e) may be postponed by Buyer until determination of the Final Net Worth.
43. Section 13(f) shall be deleted.
44. The time period described in Section 14(c) of the Agreement shall
be extended from two (2) years to six (6) years.
45. A new Section 14(f) shall be added to read as follows:
"(f) Seller shall proceed diligently to cause the Exchange Offer
to be accepted by Holders of ninety-five
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percent (95%) of the face value of the Debentures, as contemplated by
Section 6 of this Agreement. If Seller does not obtain consents and
tenders from such percentage of Holders on or before the Closing,
Seller shall, within ten (10) days after the Closing, cause the
Bankruptcy Case to be commenced, and shall proceed with diligence
to cause the Plan to be confirmed, without modification from the
form of the Plan approved by Buyer prior to Closing. Nothing
herein shall limit Seller from commencing the Bankruptcy Case at
any time after the Closing. Without limiting the generality of the
foregoing, in the event any of provision(s) of the Plan forms the
basis for an objection to the Confirmation, pursuant to Code
Section 1128(b) and/or Fed.R. Bankr.P. 3020, and such provision(s)
can be severed from the Plan without altering the material benefits
to be derived under the Plan by Buyer and Seller, Seller shall,
subject to Buyer's written consent in each instance, amend the Plan
to sever the objected-to provision(s) pursuant to Code Section
1127, and diligently proceed to obtain Plan Confirmation."
46. Section 15(a)(1) is amended by deleting the reference to "duly
organized," contained therein.
47. Section 15(a)(2)(ii) is amended by inserting the phrase "or the
appropriate and necessary acceptances from holders of Debentures to the
Plan" at the end of the first parenthetical occurring therein.
48. The introductory phrase in Section 15(a)(3) is amended to include
a cross reference to Schedule 15(a)(4) in addition to the existing
reference to Schedule 15(a)(3).
49. Section 15(a)(5) is amended by changing the reference to the word
"county" to the word "state".
50. Section 15(b)(1) is modified by deleting all references to the
Final Balance Sheet. The second and third sentences of Section 15(b)(1)
shall be amended to read as follows:
"The Financial Statements in existence as of Closing are prepared
in accordance with GAAP Consistently Applied, and with respect to the
Unaudited Balance Sheet as modified or clarified by the Agreed
Practices, and fairly present in all material respects the financial
position and results of operations of the Seller or Division,
respectively, as of the periods indicated including, without
limitation, fair presentation of the Unaudited Net Worth. Seller
shall expressly be deemed to
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make the foregoing representations and warranties as to the Unaudited
Balance Sheet, when required to be delivered in accordance with the
terms hereof."
51. Section 15(b)(2) shall be amended to read as follows:
"The Seller has no liabilities or obligations, absolute, accrued,
contingent or otherwise, except for (i) such liabilities as are
reflected or reserved against, in accordance with GAAP Consistently
Applied, as modified or clarified by the Agreed Practices, in the
Unaudited Balance Sheet and as described on Exhibit I hereto; (ii)
Off-balance Sheet Liabilities, as set forth on Exhibit J hereto; and
(iii) Retained Liabilities."
52. The reference to "Buyer's" in the last sentence of Section
15(b)(3) shall be changed to a reference to "Seller's".
53. The reference to "Schedule 15(c)" contained in Section 15(c)(1)
shall be changed to "Schedule 15(c)(1)". The following sentences shall be
added to Section 15(c)(1):
"Seller has advised Buyer of an ongoing examination of Hawaii
state excise taxes which are claimed to be owed by Seller. The
auditor is still conducting an examination, and no amounts have yet
been accrued or expensed for any excise taxes which may be asserted to
be due as a result of the auditor's findings. Seller will advise
Buyer in writing by the next business day if an assessment is made for
any excise tax liability against Seller."
54. The reference to "Schedule 15(c)" contained in Section 15(c)(1)
shall be changed to "Schedule 15(c)(2)". The last sentence in Section
15(c)(2) shall be modified to begin with the phrase, "Except as set forth
on Schedule 15(c)(2),".
55. Section 15(d)(1) is amended by inserting the word "material"
before the word "property" in clause (iv) thereof.
56. The last sentence in Section 15(d)(4) shall be modified to begin
with the phrase, "Except for Liabilities shown on the Unaudited Balance
Sheet,".
57. Section 15(d)(5) is amended in its entirety to read as follows:
"(5) CONDITION OF PROPERTIES. (i) THE REPRESENTATIONS AND
WARRANTIES OF SELLER IN THIS
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AGREEMENT RELATING TO THE ASSETS ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESSED OR IMPLIED, OF SELLER
PERTAINING THERETO. EXCEPT AS PROVIDED IN THIS AGREEMENT, THE TANGIBLE
PERSONAL PROPERTY COMPRISING THE ASSETS WILL BE CONVEYED BY SELLER TO
BUYER "AS IS, WHERE IS" WITHOUT RECOURSE AND WITHOUT REPRESENTATION OR
WARRANTY EXCEPT AS TO TITLE, EXPRESSED OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, SELLER MAKES NO REPRESENTATION OR WARRANTY AS
TO MERCHANTABILITY OR FITNESS OF SAME. Except as set forth in
Schedule 15(d)(5) to this Agreement: (ii) the Seller has never had
any problems of ingress and egress with its operating locations and
to its knowledge these locations include the right of ingress and
egress over public rights-of-way; (iii) all necessary surface water
drainage, sewer and other utility services are available to all
such locations through facilities located in public rights-of-way
or valid and existing private easements, and the Seller has not
experienced during the last five (5) years any material curtailment
or interruption of its operations as a result of the unavailability
of any utility or energy source including, without limitation,
water, sewer, natural gas, propane, heating fuel or electricity,
and the Seller has received no notice to the effect that, nor is
the Seller aware of any reason why, such utility services shall not
be available in quantities sufficient for the operation of the
Division; (iv) the Seller has not received notice of and has no
knowledge of, and to the knowledge of Seller there is no basis for
any dispute with any real or personal property lessor of any of the
Assets or property subject to lease constituting a Liability, nor
are there pending lease rental renegotiations; (v) the Seller has
not received notice of and has no knowledge of, and to the
knowledge of Seller there is no basis for any dispute with any
other party to any of the airport or other concession agreements to
which Seller is subject, nor are there pending any concession
renegotiations; (vi) the Seller is not, to its knowledge after due
inquiry, (A) in violation of any applicable building, zoning,
antipollution, environmental, health, safety or other law,
ordinance or regulation in respect of any of the Assets (I) in any
respect that involves a hazardous substance (as such term is
defined in 42 U.S.C. Section 9601 (14)), or a "recognized hazard"
(as such term is used under the Occupational Safety and Health Act
of 1970), or (II) in any other material respect, or (B) in receipt
of any current notice alleging such a violation; (vii) to Seller's
knowledge after due inquiry, there has been no "release" (as such
term is defined in 42 U.S.C. Section 9601 (22)) by the Seller or by
any predecessor in title to the Seller, of any
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"hazardous substance", or any petroleum or petroleum derived product
from or upon any Assets or locations owned, operated or leased by
Seller; (viii) there are no nonconforming uses, zoning or building
code variances, or any other use restrictions or special permits not
set forth in the local zoning laws and building codes with respect to
any of the real property and improvements included in the Assets or
Division locations; and (ix) the Seller has not received notice of
and has no knowledge of, and to the knowledge of the Seller, there
is no basis for (A) any pending or contemplated condemnation,
eminent domain or re-zoning proceeding affecting any of the Assets
or Division locations, (B) any proposal or other consideration for
increasing the assessed value for state, county, local or other ad
valorem or similar taxes by an amount that would materially affect
the profitability of any operations conducted from such property,
(C) any pending or contemplated proceedings or public improvements
which could or might result in the levy of any special tax or
assessment against any of the Assets or Division locations, or (D)
any outstanding requirements or recommendations by fire
underwriters or rating boards or any insurance companies or holders
of any mortgages or other security interests requiring or
recommending any repairs or work be done with reference to any of
the Assets or Division locations. To Seller's knowledge after due
inquiry, set forth on Schedule 15(d)(5) are the locations of all
"underground storage tanks" (as such term is defined in 42 U.S.C.
Section 6991) located on the real property included in the Assets
or locations owned, operated or leased by Seller for the Division,
the substances currently stored therein and, to the best of the
Seller's knowledge, all substances previously stored therein, and
copies of all filings required by law in respect of such
underground storage tanks."
58. The phrase "as part of the delivery of the computer systems
delivered at Closing" shall be added at the end of the first parenthetical
in Section 15(e)(1). The following shall be added to the end of Section
15(e)(1):
"Schedule 15(e)(1) hereto shall be amended to delete from its
content item 16, as well as any other provision of this Agreement,
which would require Buyer to assume obligations with respect to 700
1995 model year Hyundai Elantra GLS vehicles which were not delivered
to Seller, and as to which Hyundai furnished notice of breach to
Seller by letter dated June 14, 1995 from Robert A. Parker, its Vice
President, National Sales."
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59. The text of Section 15(f) is amended to read as follows:
"The inventories of the Seller included in the Assets consist of
items which are presently usable or salable in the ordinary course of
business, are of a quantity sufficient for the conduct of business in
the ordinary course, and no material portion of such inventories are
excessive or deficient."
60. The phrase "except as set forth on other Schedules to this
Agreement" shall be added at the beginning of subsections (ii), (iii) and
(iv) of Section 15(j). The phrase ", to Seller's knowledge after due
inquiry," shall be inserted after the word "Seller" in subsection (iv) of
Section 15(j) but be deemed to modify only antipollution and environmental
protection laws, rules and regulations.
61. The text of Section 15(k) shall be amended to read as follows:
"Except as set forth on Schedule 15(k) and the other Schedules to
this Agreement, Seller is in compliance with all applicable laws,
ordinances, statutes, rules, regulations and orders promulgated by any
federal, state or local governmental body or agency relating to the
Division and the operation of the Assets; PROVIDED that the foregoing
representation is given solely as to the Seller's knowledge after due
inquiry with respect to environmental matters."
62. The text of Section 15(l) shall be amended to read as follows:
"Schedule 15(l) to this Agreement sets forth a complete and
accurate list of all material occupancy certificates, licenses and
permits held by the Seller in connection with the ownership,
possession, use or occupancy of any of the Assets, leased property, or
operation of the Division. Except as set forth on Schedule 15(l),
such certificates, licenses and permits are the only certificates,
licenses and permits required for such ownership, possession, use or
occupancy of the Assets or such operation of the Division. All the
certificates, licenses and permits listed on Schedule 15(l) are in
full force and effect, and the Seller is in full compliance with the
terms thereof. Except as otherwise provided in Schedule 15(l) and to
the extent permitted by law, the consummation of the transactions
contemplated by this Agreement will validly transfer to the Buyer all
right, title and interest to all of said
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certificates, licenses and permits and will not alter or impair any
such rights."
63. The text of Section 15(r) is amended to read as follows:
"Seller has furnished to Buyer true and correct copies of all of
its written agreements with wholesale tour operators and commercial
accounts, together with revenue information for the years 1993, 1994
and through June 30, 1995. No discounts have been granted from the
prices reflected in such written agreements except minor adjustments
in the ordinary course. All such information was originally delivered
to Buyer on July 26, 1995."
64. A new sentence shall be added to end of Section 17(a)(4) to read
as follows:
"From and after the date of this Amendment, there shall be an
exception for violations of the ninety (90) day limitation as to
obligations owed by Seller to Matson Navigation, Finova and the Hawaii
Department of Transportation, together with an additional $50,000 in
miscellaneous obligations which may be extended to be paid after
ninety (90) days of the invoice date."
65. Section 17(a)(12) shall be amended to read as follows:
OP
"(12) Through Closing permit a Buyer's oversight person to
supervise Buyer's due diligence and transition with continuous access
to Seller's operations with Seller's full cooperation, and from the
period November 1, 1995, to the earlier of termination of this
Agreement or Closing, to furnish such person for review on a daily
basis detailed cash receipts and detail of cash disbursements of any
kind, including, but not limited to, checks, wires and bank transfers,
any agreements entered into by Seller either verbal or written, a
detailed aging of accounts payable, a summary of any invoices not
included in the accounts payable listing, as well as all accruals of
liabilities relating to the Division."
66. Section 17(a)(18) shall be amended to permit the Debt Ceiling
Covenant to be exceeded by Seller with respect to obligations of Seller to
Buyer due or accruing after October 31, 1995. Upon Closing occurring, all
of Seller's obligations owed Buyer will be assumed pursuant to the
Assumption Agreement so long as the same are properly reflected on the
Unaudited Balance Sheet; provided that
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<PAGE>
disputes subject to ADR described in Sections 19(a) and (b) shall, upon
final determination, if amounts are found to be owing to Buyer, remain due,
valid and owing. Buyer is not imposing cash flow or cash maintenance tests
hereunder other than in compliance with Sections 19(l), (m) and (o) hereof.
67. The following sentence shall be added to the end of Section
17(a)(19):
"Buyer acknowledges Seller has disclosed to it Seller's
potential delisting for trading on the NASDAQ system."
68. The following new provisions shall be added to Section 17(a):
"(20) Prior to Closing use its best efforts to resolve, quantify
and settle all current and proposed liabilities of Seller to the
Hawaii Department of Transportation or other appropriate authorities
in respect of Seller's airport locations, and also by such date, to
have had all audits completed and assessments made for excise taxes
for the years 1986 through 1989, and for 1992 and 1993, as well as
calculating interest and penalty due thereon, and advising Buyer in
writing of similar such tax obligations for the years 1994 and 1995.
(21) Exercise diligence and good faith in complying with the
terms of Sections 6(a) and 14(f) of this Agreement. In furtherance
thereof, Seller specifically covenants and agrees (i) not to take any
action, or fail to take any action, which could or will cause to occur
any event against which Seller has indemnified Buyer under this
Agreement; and (ii) that the covenants contained in this Section
17(a)(21) shall survive the Closing."
69. The first sentence of Section 19(d)(1)(i) shall be amended to
provide that Buyer's obligation shall not be less than $140,000 per year as
to base salary plus bonus. Section 19(d) shall be amended by adding the
following sentence at the end: "Alan Robin and Richard Bauman are to
remain employees of Seller, and Buyer will not interview them for
employment."
70. A new Section 19(j) shall be added to read as follows:
"(j) CONSULTING BY ALAN ROBIN. For the first three (3) months
after the Closing, without additional payment or consideration
required from Buyer, Alan Robin will consult with Buyer on the
business of the Division and
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<PAGE>
related issues for up to twenty (20) hours per month. In the event
Buyer, in its sole discretion, determines that it would like the
consulting arrangement with Alan Robin to continue thereafter, the
parties will enter into a mutually acceptable consulting agreement
providing for the payment of $50,000 per year as a retainer and
pursuant to which he will commit up to twenty (20) hours per month
of consulting on such matters. Said agreement will be cancelable
by either party on thirty (30) days prior written notice."
71. New Sections 19(k), (l), (m), (n) and (o) shall be added to read
as follows:
"(k) HOULIHAN FEES. Notwithstanding anything to the contrary
contained herein, Seller may pay to Houlihan, after the Settlement
Date and at or prior to Closing, from cash of the Division, a sum not
to exceed Twenty-Five Thousand Dollars ($25,000) as compensation for
delivery of Houlihan's opinion as required by Sections 9(x) and 12(bb)
of this Agreement. Such compensation SHALL NOT be accrued as a
liability of Seller for purposes of the Unaudited Balance Sheet or the
Final Balance Sheet as of the Settlement Date, except to the extent
the total compensation to be paid to Houlihan for such opinion exceeds
Twenty-Five Thousand Dollars ($25,000).
(l) EXCISE TAXES. Notwithstanding anything to the contrary
contained herein, if Seller has the ability to pay (or escrow for the
payment of) excise taxes constituting Retained Liabilities prior to
the Settlement Date, without violating its financial covenants herein,
it shall do so. If Seller does not have available cash with which to
pay (or escrow for the payment of) excise taxes constituting Retained
Liabilities prior to the Settlement Date, without causing a violation
of Seller's financial covenants herein, Seller may pay such excise
taxes after the Settlement Date, and within ten (10) days preceding
the Closing, from cash of the Division, provided, all such excise
taxes shall be accrued as a liability on the Unaudited Balance Sheet.
(m) NO PAYMENT OF RETAINED LIABILITIES. Seller shall not pay
any Retained Liability, other than those identified in Sections 19(l)
and (o), from cash of the Division on or after November 1, 1995.
(n) SECTION 365 RELIEF. At Buyer's request, Seller will seek
relief under Code Section 365 to confirm and/or complete assumption
and assignment of any or all
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<PAGE>
executory contracts and unexpired leases to be assigned by Seller and
assumed by Buyer pursuant to this Agreement.
(o) PROFESSIONAL FEES. Seller will not have prepaid as of
October 31, 1995, fees and expenses of attorneys, accountants,
investment bankers or other advisors engaged to participate in
assisting with or closing of the Agreement or conducting the Exchange
Offer (collectively, "Professional Fees"), in an amount which, when
combined with payments for Professional Fees after October 31, 1995
from cash of the Division, would exceed $185,000 in the aggregate. A
breach of this Section 19(o) shall be considered a breach of a
representation or warranty hereunder. The Professional Fees will be
considered a Retained Liability hereunder except that Seller may use
cash from the Division to satisfy such obligations up to the amount
described herein. In addition, any such prepayments shall not be
placed on the Unaudited Balance Sheet as an asset. On or prior to
Closing, Seller will represent and warrant to Buyer in writing the
amount of unexpired retainers or prepayments of Professional Fees as
of October 31, 1995."
72. The following additional provision shall be added to Section
20(b):
(14) With respect to the matters set forth in Section 9(aa) of
this Agreement."
73. Section 20(e) shall be amended to change the time period in
subsection (1) to thirty (30) months from the date of actual Closing and
the monetary amount in subsection (2) to One Hundred Fifty Thousand Dollars
($150,000).
74. The first sentence of Section 20(g) shall be amended to include
as surviving obligations, compliance by Seller with Sections 17(a)(5),
17(a)(21), 19(l), (m) and (o). A violation of such provisions shall be
deemed a breach of a representation or warranty to which Buyer is entitled
to indemnification in accordance herewith.
75. Section 21(a)(5) shall be amended to permit Agreed Practices to
be proposed in the manner described therein to the date of Closing, with
the attendant consequences enumerated therein, as the due diligence period
has likewise been extended to the date of Closing.
76. Section 21(d) shall be amended to read as follows:
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<PAGE>
"(d) EFFECT OF TERMINATION. It is agreed by Seller that Buyer
has the unqualified right to terminate this Agreement and rescind this
transaction, in addition to any other time provided by applicable law,
at any time and for any reason or for no reason at all. This
Agreement may be terminated and rescinded upon Buyer's written notice
with the parties restored to their respective legal and contract
positions existing before entering into this Agreement; provided, (i)
Buyer shall be entitled to retain all payments made by Seller pursuant
to existing agreements, and (ii) the pledge of the South Seas stock
shall remain in place to the extent at such time amounts that are
secured by the pledge pursuant to Section 7(a)(1), 7(a)(2), or 7(a)(3)
are accrued or due and payable by Seller to Buyer (or are subject to
good faith disputes in accordance with Section 19(a) and (b) hereof).
As a material inducement to Buyer to enter into this Amendment, and
particularly considering the similar nature of such claims which have
heretofore been raised in the litigation which is the subject of the
Standstill Agreement and the fact that the exhibits and schedules are
to be developed and modified from time to time after the date hereof,
Seller hereby irrevocably and unqualifiedly waives any and all right
to assert any challenge, claim or objection to Buyer's exercise of its
right to terminate this Agreement for any reason, for no reason at
all, and at any time prior to Closing, whether or not with
justification, and including, without limitation, any assertion by
Seller that Buyer's termination constitutes breach of any statutory or
implied covenant of good faith, fair dealing or other duty, or as
constituting any type of interference with prospective business
advantage, contractual or business relationship, discrimination,
economic duress or any other similar or dissimilar tort, breach of
contract or any other theory of recovery whatsoever."
77. A new Section 22(a)(7) shall be added to read as follows:
"For breach or violation of the covenants set forth in Section
17(a)(21), Buyer shall conclusively be deemed entitled to the
appointment of (i) (during any period in which the Seller is not a
debtor in a case filed under the Bankruptcy Code) a receiver of
Seller's assets appointed pursuant to the statutes of the State of
Hawaii; and (ii) (during any period in which the Seller is a debtor in
a case pending under the Bankruptcy Code) a trustee pursuant to Code
Section 1104. Seller expressly agrees that its breach or violation of
such
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<PAGE>
covenants shall constitute sufficient grounds for the granting of
such relief under all applicable statutes."
78. The Escrow Agreement and Amended and Restated Stock Pledge
Agreement shall be considered Oklahoma Agreements pursuant to Section
23(f).
Except as amended hereby, Seller and Buyer ratify and reaffirm the
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment to
Settlement Agreement to be duly executed and delivered the day and year first
above written.
PACIFIC INTERNATIONAL SERVICES CORP.,
a California corporation
By: /s/ Alan M. Robin
---------------------------------------------------
Alan M. Robin, President
DOLLAR SYSTEMS, INC.,
a Delaware corporation
By: /s/ Gary L. Paxton
---------------------------------------------------
Gary L. Paxton, President
/s/ Alan M. Robin
------------------------------------------------------
Alan M. Robin, joining herein personally
to affirm his obligations pursuant to
Sections 3(b) and (c) of the Agreement
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<PAGE>
ANNEX B
October 27, 1995
To the Board of Directors of
Pacific International Services Corp.
We understand that pursuant to the terms and conditions of a Settlement
Agreement dated as of July 18, 1995, as amended, (the "Settlement Agreement"),
Pacific International Services Corp. ("PISC" or "the Company") will sell to
Dollar Systems, Inc. ("Dollar") substantially all of the Company's assets
relating or used in its vehicle rental operation ("Rental"), as well as 10% of
the common stock of the Company on a fully diluted basis (the "Proposed Sale").
The Settlement Agreements provide for an aggregate purchase price equal to (i) a
cash payment equal to approximately $2.63 million and (ii) the assumption by
Dollar of the liabilities of Rental, including approximately $8.9 million in
debt, $3.5 million in accrued Dollar lease and other payments, $2.1 million in
past-due airport concession payments, $1.8 million in non-recurring self-
insurance and environmental reserves and $0.25 million in accrued senior debt
interest (each estimated as of October 31, 1995). Based upon the above, the
implied purchase price is $19.2 million. If the net book value of the assets
and liabilities of Rental at close (which will be deemed to occur October 31,
1995) are less than negative $0.6 million, the Company is required to issue
Dollar a promissory note of up to $1.05 million to offset such shortfalls. The
consummation of the Proposed Sale and the other transactions contemplated by the
Settlement Agreement and disclosed to Houlihan Lokey are referred to
collectively herein as the "Transaction".
You have requested our Opinion (the "Opinion") as to the matters set forth
above. This Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, initiate
any discussions with third parties with respect to alternatives to the
Transaction. We have not been asked to express an opinion as to the relative
merits of the Transaction compared to any alternative business strategies that
might exist for the Company.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed PISC's annual reports to shareholders and audited
financial statements on Form 10-K for the fiscal years ended
December 31, 1991, 1992, 1993 and 1994 and unaudited quarterly
reports on Form
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<PAGE>
10-Q for the most recent quarters ended March 31 and
June 30, 1995, respectively, and preliminary unaudited
financial statements for the quarter ended September 30, 1995,
which PISC's management has identified as being the most current
financial statements available;
2. reviewed certain internal information, including pro forma
financial forecasts and projections prepared by the Company;
3. conducted discussions with certain members of the senior
management of the Company concerning its operations, financial
condition, future prospects and projected operations and
performance;
4. reviewed the historical market prices and trading volume for the
Company's publicly traded stock;
5. reviewed certain other publicly available filings of the Company
during the years 1993, 1994 and 1995;
6. discussed results of Dollar's due diligence with Dollar and its
advisors;
7. reviewed publicly available financial data for certain companies
that we deem similar to Rental, and publicly available
information for transactions that we considered similar to the
Transaction;
8. reviewed the Settlement Agreement, and the exhibits thereto,
connected with the Transaction;
9. reviewed issues related to potential environmental, litigation,
fleet risk, self-insurance and excise tax contingent liabilities;
10. discussed with certain members of senior management of the
Company values achievable under a liquidation scenario; and
11. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of Rental and that there has been no material change in
the assets, financial
<PAGE>
To the Board of Directors of
Pacific International Services Corp.
October 27, 1995 PAGE 3
condition, business or prospects of Rental since the date of the most recent
financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to Rental and do not assume any
responsibility with respect to it. We have not made an independent appraisal of
any of the properties or assets of the Company. Our opinion is necessarily
based on business, economic, market and other conditions as they exist and can
be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
Transaction is fair to Pacific International Services Corp. from a financial
point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
/s/ Leland J. Lewis
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<PAGE>
ANNEX C
PACIFIC INTERNATIONAL SERVICES CORP.
LIQUIDATION ANALYSIS SUMMARY
$ IN THOUSANDS
<TABLE>
<CAPTION>
Balance as of Liquidation Value
Description 06/30/95 Low High
----------- ------------ --- ----
<S> <C> <C> <C>
Assets:
Cash $ 232 $ 232 $ 232
Accounts Receivable
Subrogation Receivables 2,174 326 544
Dollar Receivables 3,581 0 0
Vehicle Receivables 835 752 835
Trade Receivables 2,151 1,613 1,828
Other Receivables 170 128 145
-------- ------- --------
Total 8,911 2,818 3,351
Prepaids & Other 1,486 0 372
Net Revenue Earning
Vehicles 8,841 6,173 7,102
PP&E 5,454 1,363 2,182
Intercompany 883 0 0
Other Assets 4,392 2,400 3,000
-------- -------- -------
Total Assets $30,199 $12,986 $16,238
Less:
Net Operating Losses
6/30/95-11/30/95 1,600 1,400
Liquidation Costs 900 500
Administrative Claims 750 500
-------- -------
3,250 2,400
Net Liquidation Proceeds
Available for Distribution $9,736 $13,838
-------- -------
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
Balance as of Recovery Percentage
Description 06/30/95 Low High
----------- ------------- --- ----
<S> <C> <C> <C>
Claims:
Accounts Payable $ 6,616 0.3% 11.5%
Unsecured Accrued
Expenses 5,151 0.3% 11.5%
Secured Accrued Expenses 1,390 100.0% 100.0%
Vehicle Financing Debt 9,569 72.4% 84.9%
Other Debt
Mortgages 1,155 100.0% 100.0%
Other Secured 1,509 14.0% 71.7%
Leased Vehicle
Reclamation Claims 1,179 0.3% 11.5%
Debentures 5,250 0.3% 11.5%
</TABLE>
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<PAGE>
PACIFIC INTERNATIONAL SERVICES CORP.
LIQUIDATION ANALYSIS ASSUMPTIONS
Assumes PISC is closed down pursuant to Chapter 7 liquidation on November 30,
1995. The stock of SSJE is sold assuming SSJE remains a going concern.
Liquidation is assumed to take 90 to 120 days.
Accounts Receivable:
Subrogation Receivables: Recovery Value 15-25%
Dollar Receivables: No Recovery. Assumed offset against
Dollar vehicle reclamation claims.
Vehicle Receivables: Recovery Value 90-100%
Trade Receivables: Recovery Value 80-90%
Other Receivables: Recovery Value 75-85%
Prepaid and Other: Recovery Value 0-25%
Revenue Earnings Vehicles: Recovery Value 80-90%, less vehicle
reconditioning and transportation
to auction costs of $1,050 - $1,150
per vehicle. PISC owned 815
vehicles as of June 30, 1995.
PP&E Recovery Value 25-40%
Intercompany Stock of SSJE is assumed sold for
65%-80% of the net book value of the
dealerships.
Claims:
Accounts Payable: Unsecured. Assumes Dollar Systems
receivables are set off against its
payables.
Secured Accrued Expenses: Includes $1,390 accrued lease
payments to Dollar Systems secured
by SSJE stock.
Vehicle Financing Debt: Secured to the amount of asset
recovery (net of auction costs).
Other Debt: Secured by fixed assets.
Debentures: Unsecured.
Leased Vehicles Reclamation Claims: Assumes claims are asserted by
Dollar Systems for recovery
and reconditioning costs for
4,139 leased vehicles (as of
June 30, 1995). Costs are
estimated as $1,150 per car.
Claim is net of Dollar Systems
receivables as of June 30,
1995 of $3.58 million.
After the secured debt is paid out based on specific recoveries, the remaining
claims are treated pari-passu.
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