SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e)(1) of the
Securities Exchange Act of 1934)
PACIFIC INTERNATIONAL SERVICES CORP.
(Name of the Issuer and Person Filing Statement)
10% Convertible Subordinated Debenture due 2007
(Title of Class of Securities)
Not Applicable
(CUSIP Number of Class of Securities)
Alan M. Robin
Chairman and Chief Executive Officer
Pacific International Services Corp.
1600 Kapiolani Boulevard, Suite 825
Honolulu, Hawaii 96814
(808) 926-4242
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of Person Filing Statement)
October 31, 1995
(Date Tender Offer First Published,
Sent or given to Security Holders)
CALCULATION OF FILING FEE
Transaction Valuation* Amount of Filing Fee
---------------------- --------------------
$3,250,000 $650.00
* Calculated as of October 31, 1995, pursuant to Rule 0-11(a)(4) under the
Securities Act of 1933) as amended, based on the average of the high and low
prices of the Company's Common Stock to be received by the tendering holders
of the Company's 10% Convertible Subordinated Debentures due 2007 on the
NASDAQ Small-Cap listings on October 27, 1995. Assumes that $5.25 million
in principal amount of 10% Convertible Subordinated Debentures due 2007 will
be accepted for exchange pursuant to the Exchange Offer.
( ) Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: Not Applicable
Form or Registration No.: Not Applicable
Filing Party: Not Applicable
Date Filed: Not Applicable
Item 1. SECURITY AND ISSUER.
(a) The name of the issuer is Pacific International Services Corp., a
California corporation (the "Company"). The Company's principal
executive office is located at 1600 Kapiolani Boulevard, Suite
825, Honolulu, Hawaii 96814 (telephone number (808) 926-4242).
(b) This schedule relates to the solicitation made by the Company to
the holders of the Company's outstanding $5,250,000 (face value)
of 10% Convertible Subordinated Debentures Due 2007 (the
"Debentures", the holder of such a Debenture is referred to
herein as a "Debtholder") to tender the Debentures in exchange
for each $1.00 in face amount of the Debentures so tendered and
exchanged, upon and subject to the terms and conditions of the
Offer to Exchange (the "Exchange Offer") and in the related
Letter of Transmittal, each of which is dated as of October 31,
1995 (copies of which are attached hereto as Exhibits (a)(1) and
(a)(2), respectively, and which together constitute the "Offer"),
(i) $.50 in cash, (ii) .769505 shares of the Company's common
stock, $0.10 stated value (the "Common Stock"), and (iii) a
proportionate share of new debentures (the "New Debentures") of
the Company in an aggregate principal amount equal to $1,050,000
less the principal amount of Debentures not so tendered and less
the amount, if any, of a new promissory note which may be issued
to Dollar Systems, Inc. ("Dollar"), as part of the sale by the
Company of substantially all of the assets and certain of the
liabilities comprising the Company's vehicle rental division and
related operations (collectively, the "Division"). The Company
will not accept for tender less than $4,988,000 in face amount of
outstanding Debentures and will accept up to 100% of the
outstanding Debentures. Scott Lang is the only executive officer
or director of the Company who owns any Debentures. Mr. Lang is
the holder of $73,000 of Debentures and has indicated that he
intends to tender his Debentures pursuant to the Exchange Offer.
The information set forth under the captions "Introduction",
"Principal Amount of Debentures; Proation; Extension of the
Exchange Offer", "Transactions and Arrangements Concerning Old
Debentures", and "Exchange of Old Debentures" in the Exchange
Offer is incorporated herein by reference.
(c) The information set forth under the captions "Introduction" and
"Description of the Common Stock" in the Exchange Offer is
incorporated herein by reference.
(d) This statement is being filed by the issuer.
Item 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) - (b) The information set forth under the caption "Source and Amount of
Funds" in the Exchange Offer is incorporated herein by reference.
Item 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
The information set forth in the introductory pages (pages i-vii) of
the Exchange Offer is incorporated herein by reference.
(a) As part of the Proposed Sale (as described in clause (c) of this Item
3), Dollar will be issued 10% of the Company's Common Stock on a fully
diluted basis. In addition, part of the consideration of the
Debtholders for the Exchange Offer will be to receive .769505 shares
of the Company's Common Stock for each $1.00 in face amount of the
Debentures tendered and the issuance of the New Debentures, as more
fully described in clause (b) of Item 1 above.
(b) Concurrent with the Exchange Offer, the Company is also soliciting
from each Debtholder acceptances of a prepackaged plan of
reorganization which will be implemented if the Exchange Offer is not
consummated and the requisite Debtholder acceptance is obtained for
such reorganization. The information set forth under the caption
"Introduction" in the Exchange Offer is incorporated herein by
reference.
(c) As part of the Offer, substantially all of the Company's assets
relating to or used in the Division, are to be sold (the "Proposed
Sale") pursuant to the terms and conditions of a Settlement Agreement
dated as of July 18, 1995 (as have been and may be amended, the
"Settlement Agreement") by and between the Company and Dollar (a copy
of which is attached hereto as Exhibit (c)(1)). 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, including, without limitation, approximately $3,225,000
owed by the Company to Dollar. If the Proposed Sale closes, Dollar
will also receive 10% of the Common Stock of the Company on a fully-
diluted basis as additional consideration 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 is more negative
than negative Six Hundred Thousand Dollars (-$600,000). The Net Worth
Note shall be in a principal amount up to $1,050,000 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 Agreement. The information set forth
under the captions "Introduction", "Source and Amount of Funds" and
"Certain Information About the Company" in the Exchange Offer is
incorporated herein by reference.
(d) Not applicable.
(e) The information set forth under the captions "Introduction" and
"Source and Amount of Funds" in the Exchange Offer is incorporated
herein by reference.
(f) Not applicable.
(g) Not applicable.
(h) Not applicable.
(i) Not applicable.
(j) Not applicable.
Item 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth under the captions "Transactions and Arrangements
Concerning the Old Debentures" and "Miscellaneous" in the Exchange Offer is
incorporated herein by reference.
Neither the Company, nor to the Company's knowledge, any of its executive
officers or directors has engaged in any transactions involving the Debentures
during the period of forty business days prior to the date hereof.
Item 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
Except as stated under the caption "Fees and Expenses" and "Transactions
and Arrangements Concerning Old Debentures" in the Exchange Offer, which is
incorporated herein by reference, there are no contracts, arrangements,
understandings or relationships relating, directly or indirectly, to the
Exchange Offer (whether or not legally enforceable) between the Company, any of
its executive officers or directors and any person with respect to any
securities of the Company. See clause (b) of Item 1 herein describing Scott
Lang's holdings. All officers and directors of the Company who are also
shareholders have indicated they will vote as shareholders to approve the sale
to Dollar.
Item 6. PERSON RETAINED, EMPLOYED OR TO BE COMPENSATED.
Not applicable.
Item 7. FINANCIAL INFORMATION.
(a) - (b) The information set forth under the caption "Certain Information
About the Company" in the Exchange Offer is incorporated herein by reference.
Item 8. ADDITIONAL INFORMATION.
(a) The Company's employment contract with Alan M. Robin, which has
been assumed by South Seas Motors, Inc. for a period of three
years, provides that Mr. Robin will receive an annual salary of
$322,235.00 and upon a change in control or a termination of Mr.
Robin's employment, Mr. Robin could be entitled to a termination
payment based on a sliding scale over time the maximum amount of
which would be equal to two times his base salary in effect at
the time of such termination.
(b) The information set forth under the captions "Certain Conditions
of the Exchange Offer" and "Certain Legal Matters; Regulatory
Approvals" in the Exchange Offer is incorporated herein by
reference.
(c) Not applicable.
(d) The information set forth under the caption "Certain Legal
Matters; Regulatory Approvals" in the Exchange Offer is
incorporated herein by reference.
(e) The Company is not aware of any additional information that would
be material to the decision of a holder of Debentures to exchange
or hold the Debentures subject to the Exchange Offer.
Item 9. MATERIAL TO BE FILED AS EXHIBITS.
(a) (1) (A) Form of Offer to Exchange, dated October 31, 1995 with
attached (i) Liquidation Analysis, (ii) Report of
Independent Public Accountants prepared by Price Waterhouse
LLP and (iii) form of Indenture.
(B) Form of Letter to the Record Holders of Pacific
International Services Corp.'s 10% Convertible Subordinated
Debentures Due 2007
(2) Form of Letter of Transmittal (including Guidelines for
Certification of Taxpayer Identification Number on Substitute w-
9).
(3) Form of Notice of Guaranteed Delivery.
(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and other Nominees regarding the Offer.
(5) Form of Letter to Clients from Brokers, Dealers, Commercial
Banks, Trust Companies and other Nominees regarding the Offer.
(6) Form of Press Release issued by the Company on October 31, 1995.*
(7) Form of Information Agent Agreement between the Company and
Georgeson & Company Inc.*
(8) Form of Depository Agent Agreement between the Company and First
Fidelity Bank, N.A. (excluding exhibits)*
(b) Not Applicable.
(c) (1) Settlement Agreement dated as of July 18, 1995 by and between the
Company and Dollar.*
(d) Not Applicable.
(e) Not Applicable.
(f) Not Applicable.
_______________
*Not mailed to holders of Debentures.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: October 31, 1995
PACIFIC INTERNATIONAL SERVICES CORP.
By: /s/ Alan M. Robin
Chairman and Chief Executive Officer
OFFER TO EXCHANGE
BY
PACIFIC INTERNATIONAL SERVICES CORP.
$5,250,000 in Principal Amount
of its 10% Convertible Subordinated Debentures Due 2007
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON
NOVEMBER 29, 1995
UNLESS THE EXCHANGE OFFER IS EXTENDED.
Pacific International Services Corp., a California corporation (the
"Company"), invites all holders of its 10% Convertible Subordinated
Debentures Due 2007 (the "Old Debentures", the holder of such a Debenture is
referred to herein as an "Old Debtholder") to tender the Old Debentures in
exchange for (i) an aggregate of $0.50 in cash for each $1.00 in face amount
of Old Debentures so tendered (the "Cash Payment"), (ii) 0.769505 shares of
the Company's common stock, $0.10 stated value (the "Common Stock") for each
$1.00 in principal amount of Old Debentures so tendered, and (iii) a
proportionate share of new debentures of the Company, issued pursuant to an
indenture substantially in the form of Annex A hereto (the "New Debentures"),
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, Inc. or
its subsidiary ("Dollar"), 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 Agreement (defined below), upon and subject to the
terms and conditions set forth in this Offer to Exchange and in the related
Letter of Transmittal (which together constitute the "Exchange Offer"). The
Cash Payment, the New Debentures and the 0.769505 shares of Common Stock are
collectively referred to as the "Purchase Price."
The aggregate principal amount of outstanding Old Debentures is
$5,250,000. The Company will accept for exchange not less than $4,988,000 in
principal amount of Old Debentures. Old 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 Old Debentures tendered and accepted for exchange.
All Old Debtholders who tender Old Debentures and whose Old
Debentures are accepted for exchange by the Company shall be deemed (i) to
have waived, with respect to those Old Debentures exchanged, all existing
defaults, and all consequences of such defaults, under the Indenture dated
September 1, 1987 between the Company and Trust Services of America, Inc., as
amended on February 1, 1990 to substitute Chemical Trust Company of
California (as successor by merger to Manufacturers Hanover Trust Co. of
California) as Trustee (the "Indenture"), (ii) to have consented to the
amendment of the Indenture to provide for the deletion of certain covenants
and default provisions thereunder, and (iii) to have consented to the sale
(the "Proposed Sale") by the Company to 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
modified, the "Settlement Agreement") by and between the Company and Dollar.
The Net Worth Note will be issued by the Company to Dollar 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 to be delivered by the
Company to Dollar at the closing of the Proposed Sale is more negative than
negative Six Hundred Thousand Dollars (-$600,000). The Company and Dollar
have agreed that if the Proposed Sale actually closes on or before November
30, 1995, the Proposed Sale will be deemed to have closed on October 31,
1995. AT PRESENT, THE COMPANY ANTICIPATES THAT ALL OR SUBSTANTIALLY ALL OF
THE NET WORTH NOTE, IN AN AGGREGATE AMOUNT NOT TO EXCEED $1,050,000, WILL BE
ISSUED TO OFFSET SHORTFALLS IN THE NET WORTH OF THE DIVISION AS OF THE DEEMED
CLOSING OF THE PROPOSED SALE. FURTHER, THE COMPANY DOES NOT BELIEVE THAT IT
WILL BE ABLE TO MEET THE 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 ("FINOVA").
All Old Debentures properly tendered and not withdrawn may be
exchanged for the Purchase Price, upon and subject to the terms and
conditions of the Exchange Offer, including the proration terms thereof.
The Company is also soliciting (the "Solicitation") from each
holder of Old Debentures, as of the close of business on October 27, 1995
(the "Record Date"), acceptances (the "Plan Acceptances") of a prepackaged
plan of reorganization (the "Plan", and together with the Exchange Offer, the
"Restructuring") of the Company pursuant to which the Old Debentures will be
exchanged for consideration substantially equivalent to the Purchase Price
under the Exchange Offer in the event the Exchange Offer is not consummated.
This Offer to Exchange does not constitute a solicitation of the Debtholders'
vote on the Plan. Such solicitation of acceptances for the Plan is being
made, and may only be made, pursuant to the Solicitation and Disclosure
Statement For Prepackaged Plan of Reorganization issued by the Company dated
October 31, 1995 ("Plan and Disclosure Statement").
IF THE EXCHANGE OFFER IS NOT CONSUMMATED BUT THE REQUISITE PLAN
ACCEPTANCES ARE OBTAINED, THE COMPANY CURRENTLY INTENDS TO COMMENCE PROMPTLY
A CASE UNDER CHAPTER 11 ("CHAPTER 11") OF TITLE 11 OF THE UNITED STATES CODE
AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "BANKRUPTCY CODE")
AND TO USE SUCH PLAN ACCEPTANCES TO OBTAIN CONFIRMATION OF THE PLAN BY A
UNITED STATES BANKRUPTCY COURT OF COMPETENT JURISDICTION (THE "BANKRUPTCY
COURT").
If the Plan is confirmed by the Bankruptcy Court, each holder of
Old Debentures will receive the same consideration as other holders of such
securities, whether or not such holder voted to accept the Plan. Moreover,
upon confirmation, the Plan will be binding on all holders of Old Debentures
regardless of whether or not such persons voted to accept the Plan.
The Plan contains certain provisions which enjoin the assertion or
enforcement of claims against the Company and its affiliates based upon
violations of Federal securities laws. In addition, the Company intends to
seek broad releases of its directors, officers and shareholders which would
include releases of claims based upon alleged violations of Federal
securities laws whensoever arising.
The Company reserves the right to use the Plan Acceptances to seek
confirmation of a plan of reorganization under any other circumstance
permitted by law, including the filing of a voluntary bankruptcy petition by
the Company.
Information and disclosure regarding the background, terms,
conditions and procedures of the Plan are contained in the Plan and
Disclosure Statement issued simultaneously herewith by the Company. The
foregoing description of the Plan is qualified in its entirety by the Plan
and Disclosure Statement.
THE EXCHANGE OFFER IS CONDITIONED UPON AT LEAST $4,988,000 IN
PRINCIPAL AMOUNT OF OLD DEBENTURES BEING TENDERED.
________________________
The Company is making the Exchange Offer because it believes that
unless Proposed Sale is consummated, the Exchange Offer is successful and the
Company is consequently relieved of the debt burden of the exchanged Old
Debentures, the Company's operations will be severely impaired.
The business and profits of the Company have suffered from the
effects of Hurricane Iniki, a decline in rental volume, a doubling of the
Company's fleet holding costs between 1991 and 1995, a reduced sales
inventory at the Company's dealerships and costs associated with the disposal
of Company-owned vehicles. The Company reported consolidated net losses of
$1,427,461, $804,062 and $2,104,502 in 1994, 1993 and 1992, respectively.
The net loss in 1992 resulted primarily from the Company increasing its
insurance reserve as a result of an increase in claims under its self-
insurance program and losses related to Hurricane Iniki. For the three
months ending March 31, 1995, the Company experienced a net loss of $378,141.
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
believes that the consummation of the Proposed Sale will permit the Company
to focus on the automobile dealership business and will enhance the Company's
prospects because the rental car segment has been responsible for the
Company's losses for the last three years.
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 $0.003 TO $0.115 PER DOLLAR OF PRINCIPAL AMOUNT OF OLD DEBENTURES. SEE
EXHIBIT A. SINCE THAT DETERMINATION, THE FINANCIAL CONDITION OF THE COMPANY
HAS DETERIORATED.
The Company's generation of cash from operations is unlikely to be
sufficient to satisfy all of the Company's debt service requirements and
provide funds for continued operations. In order to preserve cash, the
Company decided not to pay interest payment of $262,500 due on the Old
Debentures on September 1, 1995. The failure to pay interest constituted an
event of default under the Indenture on September 30, 1995. If $4,988,000 of
Old Debentures are not tendered and exchanged pursuant to the Exchange Offer,
the Company may be unable to make future interest or principal payments due
under the Old Debentures. As a result of the failure to pay interest, the
Old Debtholders may exercise their rights on default which could result in
acceleration of the Old Debentures, subject to the rights of the Senior
Lenders (as defined in Section 8). Such acceleration could affect the
Company's other indebtedness, most of which is short term in nature or due on
demand. See Section 8.
All Old Debtholders who tender Old Debentures and whose Old
Debentures are accepted for exchange by the Company shall be deemed (i) to
have waived, with respect to those Old Debentures exchanged, all existing
defaults, and all consequences of such defaults, under the Indenture, (ii) to
have consented to the Proposed Sale and (iii) to have consented to the
amendment of the Indenture to provide for the deletion of certain covenants
and default provisions thereunder. Upon completion of the Exchange Offer, if
$4,988,000 or more of Old Debentures are tendered and exchanged, it is the
Company's intention to pay accrued and payable interest on the remaining
outstanding Old Debentures. The Company plans to obtain the funds necessary
to pay this amount from working capital.
The Company is currently in default under a number of financial and
performance covenants, which defaults, when combined with various cross-
default provisions, give the Senior Lenders the right to accelerate and to
demand payment in full of debt of the Company in the aggregate amount in
excess of $9.935 million. Notwithstanding the foregoing, the Senior Lenders
have been advised of the Exchange Offer. In addition, the Company believes
that the Senior Lenders will agree, provided that the Company is otherwise in
compliance with the terms and conditions of such Senior Lenders' credit
facilities upon exchange of the Old Debentures pursuant to the Exchange
Offer, and provided that no further applicable monetary defaults have
occurred with respect to such Senior Lenders' credit facilities, to waive any
applicable default or condition giving rise thereto that existed on the date
of the commencement of the Exchange Offer or that may occur prior to the
exchange of the Old Debentures pursuant to the Exchange Offer. However,
these waivers have not yet been obtained. The obtaining of these waivers
(and the satisfaction of all conditions with respect to the effectiveness
thereof) are conditions to the Exchange Offer. See Section 5.
The Company intends to generate all of the cash portion of the
Purchase Price from the Proposed Sale and significantly reduce its Senior
Debt from the assumption by Dollar of up to $8.5 million of Senior Debt. The
Company believes that a reduction in the amount of outstanding Old Debentures
will (i) reduce the debt service requirements of the Company, (ii) increase
the Company's flexibility in its financial planning and financing activities,
(iii) allow the Company to retain its cash flow for operating purposes, and
(iv) enhance the Company's ability to meet its retained senior debt
obligations. If the Exchange Offer is not successful, it is highly unlikely
that the Company or its vehicle rental operations will be able to continue as
going concerns although South Seas on a stand alone basis could, in the
opinion of management, continue to be viable.
Any Old Debtholder desiring to tender all or any portion of his Old
Debentures should either (1) complete and sign the Letter of Transmittal or a
facsimile copy thereof in accordance with the instructions in the Letter of
Transmittal, mail or deliver it and any other required documents to First
Fidelity Bank, N.A. (the "Depositary"), and either mail or deliver such Old
Debentures to the Depositary or follow the procedure for book-entry delivery
set forth in Section 2 or (2) request his broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for him. An Old
Debtholder having Old Debentures registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact that broker,
dealer, commercial bank, trust company or other nominee if such Old
Debtholder desires to tender such Old Debentures. Old Debtholders who desire
to tender Old Debentures and whose Old Debentures are not immediately
available should tender such Old Debentures by following the procedures for
guaranteed delivery set forth in Section 2.
THE COMMON STOCK TO BE ISSUED PURSUANT TO THE EXCHANGE OFFER IS NOT
REQUIRED TO BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SUCH COMMON STOCK WILL BE FREELY TRADABLE BY THE
RECIPIENT THEREOF UNDER THIS OFFER TO EXCHANGE PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY SECTION 3(a)(9) OF THE SECURITIES ACT AND SIMILAR
STATE LAW EXEMPTIONS UNLESS SUCH RECIPIENT IS A STATUTORY UNDERWRITER UNDER
SECTION 2(11) OF THE SECURITIES ACT OR AN AFFILIATE OF THE COMPANY AS DEFINED
IN RULE 144 UNDER THE SECURITIES ACT. ANY AFFILIATE OF THE COMPANY TENDERING
DEBENTURES PURSUANT TO THIS OFFER TO EXCHANGE WILL RECEIVE COMMON STOCK THAT
CAN ONLY BE SOLD PURSUANT TO RULE 144 OF THE SECURITIES ACT.
THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY
RECOMMENDATION ON BEHALF OF THE COMPANY AS TO WHETHER OLD DEBTHOLDERS 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 CONTAINED IN THIS OFFER TO EXCHANGE OR IN THE LETTER
OF TRANSMITTAL. DO NOT RELY ON ANY SUCH RECOMMENDATION OR ANY SUCH
INFORMATION OR REPRESENTATIONS, IF GIVEN OR MADE, AS HAVING BEEN AUTHORIZED
BY THE COMPANY.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKE ANY
RECOMMENDATION TO ANY OLD DEBTHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING OLD DEBENTURES. EACH OLD DEBTHOLDER MUST MAKE HIS OWN DECISION
WHETHER TO TENDER OLD DEBENTURES AND, IF SO, WHAT AMOUNT OF OLD DEBENTURES TO
TENDER.
NEITHER THE COMMON STOCK NOR THE EXCHANGE OFFER HAS BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE
FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE FAIRNESS OR MERITS OF THIS
OFFER TO EXCHANGE OR THE ACCURACY OR ADEQUACY OF THIS OFFER TO EXCHANGE. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Questions and requests for assistance or for additional copies of
this Offer to Exchange, the Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to the Information Agent, Georgeson & Company Inc.,
or the Depositary, First Fidelity Bank, N.A., at the addresses and the phone
numbers set forth on the last page of this Offer to Exchange.
PLEASE READ THIS OFFER TO EXCHANGE AND RELATED DOCUMENTS IN THEIR
ENTIRETY.
TABLE OF CONTENTS
Description Page
1. PRINCIPAL AMOUNT OF OLD DEBENTURES; PRORATION; EXTENSION THE EXCHANGE
OFFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. PROCEDURE FOR TENDERING OLD DEBENTURES. . . . . . . . . . . . . . . . 8
3. WITHDRAWAL RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4. EXCHANGE OF OLD DEBENTURES . . . . . . . . . . . . . . . . . . . . . 12
5. CERTAIN CONDITIONS OF THE EXCHANGE OFFER. . . . . . . . . . . . . . . 13
6. TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OLD DEBENTURES . . . . . 17
7. SOURCE AND AMOUNT OF FUNDS . . . . . . . . . . . . . . . . . . . . . 18
8. CERTAIN INFORMATION ABOUT THE COMPANY. . . . . . . . . . . . . . . . 18
9. DESCRIPTION OF THE COMMON STOCK . . . . . . . . . . . . . . . . . . . 50
10. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS . . . . . . . . . . . . 51
11. CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . 52
12. WAIVER OF DEFAULTS; AMENDMENTS OF INDENTURE . . . . . . . . . . . . 56
13. EXTENSION OF THE EXCHANGE OFFER; TERMINATION; AMENDMENTS . . . . . . 57
14. FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . 58
15. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
To the owners of 10% Convertible Subordinated
Debentures Due 2007 of Pacific International Services Corp.:
INTRODUCTION
The Exchange Offer
Pacific International Services Corp., a California corporation (the
"Company"), invites all holders of its 10% Convertible Subordinated
Debentures Due 2007 (the "Old Debentures", the holders of such Old Debentures
being the "Old Debtholders") to exchange the Old Debentures (i) for $0.50,
for each $1.00 in principal amount of Old Debentures tendered (the "Cash
Payment"), (ii) for 0.769505 shares of the Company's common stock, $0.10
stated value (the "Common Stock"), for each $1.00 in principal amount of Old
Debentures, and (iii) a proportionate share of new debentures of the Company,
issued pursuant to an indenture substantially in the form of Annex A hereto
(the "New Debentures"), 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, Inc. or its subsidiary ("Dollar") which is evidenced by a
promissory note (the "Net Worth Note") containing substantially the same
covenant, default and payment terms as the New Debentures and which is
incurred pursuant to the Settlement Agreement (defined below), upon and
subject to the terms and conditions set forth in this Offer to Exchange and
in the related Letter of Transmittal (which together constitute the "Exchange
Offer"). The Cash Payment, the New Debentures and the 0.769505 shares of
Common Stock are collectively referred to as the "Purchase Price."
The Company will accept for exchange not less than $4,988,000 in
principal amount of such Old Debentures. Old Debentures must be tendered in
integral multiples of $1,000.
Accrued interest, including interest payable on September 1, 1995,
on the Old Debentures tendered and accepted for exchange will not be paid.
All Old Debtholders who tender Old Debentures and whose Old
Debentures are accepted for exchange by the Company shall be deemed (i) to
have waived, with respect to those Old Debentures exchanged, all existing
defaults, and all consequences of such defaults, under the Indenture dated
September 1, 1987 between the Company and Trust Services of America, Inc., as
amended on February 1, 1990 to substitute Chemical Trust Company of
California (as successor by merger to Manufacturers Hanover Trust Co. of
California) as Trustee (the "Indenture"), (ii) to have consented to the
amendment of the Indenture to provide for the deletion of certain covenants
and default provisions thereunder, and (iii) to have consented to the sale
(the "Proposed Sale") by the Company to 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
modified, the "Settlement Agreement") by and between the Company and Dollar.
The Net Worth Note will be issued by the Company to Dollar 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 to be delivered by the
Company to Dollar at the closing of the Proposed Sale is more negative than
negative Six Hundred Thousand Dollars (-$600,000). The Company and Dollar
have agreed that if the Proposed Sale actually closes on or before November
30, 1995, the Proposed Sale will be deemed to have closed on October 31,
1995. AT PRESENT, THE COMPANY ANTICIPATES THAT ALL OR SUBSTANTIALLY ALL OF
THE NET WORTH NOTE, IN AN AGGREGATE AMOUNT NOT TO EXCEED $1,050,000, WILL BE
ISSUED TO OFFSET SHORTFALLS IN THE NET WORTH OF THE DIVISION AS OF THE DEEMED
CLOSING OF THE PROPOSED SALE.
All Old Debentures properly tendered and not withdrawn may be
exchanged for the Purchase Price, upon and subject to the terms and
conditions of the Exchange Offer, including the proration terms hereof. Upon
completion of the Exchange Offer, if at least $4,988,000 of Old Debentures
but less than all of Old Debentures are tendered and exchanged, it is the
Company's intention to pay accrued and payable interest the remaining
outstanding Old Debentures. The Company plans to obtain the funds necessary
to pay this amount from working capital.
In October 1987, the Company sold $17,250,000 of the Old Debentures
under the Indenture. The remaining Old Debentures represent unsecured
general obligations of the Company. The Company is obligated to pay interest
on the Old Debentures semi-annually on March 1 and September 1 of each year
to the persons who are registered holders at the close of business on the
February 15 and August 15 immediately preceding the interest payment date.
Interest is computed on the basis of a 360 day year of twelve 30 day months.
The Old Debentures mature on September 1, 2007. The holders of Old
Debentures are entitled at any time on or before September 1, 2007 to convert
the Old Debentures into Common Stock at $3.30 in principal amount of Old
Debentures per share, subject to certain conditions.
In July 1991, the Company exchanged (the "Prior Exchange")
2,916,000 shares of its Common Stock and $3,840,000 for $12,000,000 principal
amount of Old Debentures pursuant to the terms of an exchange offer. As a
result of the Prior Exchange, the aggregate principal amount of the Company's
remaining outstanding Old Debentures was reduced to $5,250,000.
THE COMPANY HAS BEEN ADVISED THAT SCOTT LANG IS THE ONLY EXECUTIVE
OFFICER OR DIRECTOR OF THE COMPANY WHO OWNS ANY OLD DEBENTURES. MR. LANG IS
THE HOLDER OF $73,000 OF OLD DEBENTURES AND HE HAS INDICATED THAT HE INTENDS
TO TENDER HIS OLD DEBENTURES PURSUANT TO THE EXCHANGE OFFER.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKE ANY
RECOMMENDATION TO ANY OLD DEBTHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING OLD DEBENTURES. EACH OLD DEBTHOLDER MUST MAKE HIS OWN DECISION
WHETHER TO TENDER OLD DEBENTURES AND, IF SO, WHAT AMOUNT OF OLD DEBENTURES TO
TENDER.
The $5,250,000 in principal amount of Old Debentures that the
Company is offering to accept for exchange represents 100% of the principal
amount of Old Debentures currently outstanding. If, before the Expiration
Date (as defined in Section 1), $4,988,000 in principal amount of Old
Debentures are properly tendered and not withdrawn, the Company will exchange
Old Debentures (i) for $0.50, for each $1.00 in principal amount of Old
Debentures tendered (the "Cash Payment"), (ii) for 0.769505 shares of the
Company's common stock, $0.10 stated value (the "Common Stock") for each
$1.00 in principal amount of Old Debentures so tendered and not withdrawn and
(iii) for a proportionate share of the New Debentures. See Section 1.
Tendering Old Debtholders will not be obligated to pay brokerage commissions,
solicitation fees or, subject to Instruction 6 of the Letter of Transmittal,
transfer taxes on the Company's exchange of Old Debentures. In addition, the
Company will pay all fees and expenses of the Depositary in connection with
the Exchange Offer. See Section 14.
There is no established trading market for the Old Debentures. The
Old Debentures are convertible into shares of Common Stock at any time on or
before September 1, 2007 at the rate of $3.30 in principal amount of Old
Debentures per share. Prior to January 18, 1994 the Company's common stock
was traded in the over-the-counter market and price quotations were reported
by the National Association of Securities Dealers through the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") under
the symbol PISC. The Company's common stock is currently traded on the
NASDAQ Small-Cap Market under the same symbol. 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 is attempting to obtain extensions to these
deadline but it is uncertain whether it will be successful. The following
table sets forth the high and low sales prices for each quarterly period
during the past two and one-half years. Such prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Closing
Price Range
High Low
1993 1st Quarter $15/32 $5/32
2nd Quarter 5/16 1/4
3rd Quarter 7/16 9/32
4th Quarter 7/8 9/32
1994 1st Quarter 13/16 7/16
2nd Quarter 15/16 1/2
3rd Quarter 3/4 7/16
4th Quarter 3/4 3/8
1995 1st Quarter 7/8 13/32
2nd Quarter 9/16 5/16
Although the Company has no current plans to acquire additional
Old Debentures, to the extent that less than 100% of the Old Debentures are
tendered pursuant to this Offer to Exchange, the Company may in the future
purchase additional Old Debentures on the open market, in private
transactions, through tender offers or otherwise. Any such purchases may be
on the same terms or on terms which are more or less favorable to Old
Debtholders than the terms of the Exchange Offer. However, Rule 13e-4 under
the Securities Exchange Act of 1934 prohibits the Company and its affiliates
from purchasing the Common Stock or any Old Debentures, other than pursuant
to the Exchange Offer, until at least ten business days after the Expiration
Date. Any possible future purchases by the Company will depend on many
factors, including the market price of the Common Stock and the Old
Debentures, the results of the Exchange Offer, the Company's business and
financial position and general economic and market conditions.
The Plan
INFORMATION AND DISCLOSURE REGARDING THE BACKGROUND, TERMS, CONDITIONS
AND PROCEDURES OF THE PLAN ARE CONTAINED IN A SOLICITATION AND DISCLOSURE
STATEMENT FOR PREPACKAGED PLAN OF REORGANIZATION ISSUED BY THE COMPANY DATED
OCTOBER 31, 1995 (THE "SOLICITATION AND DISCLOSURE STATEMENT"). THE
FOLLOWING DESCRIPTION OF THE PLAN IS QUALIFIED IN ITS ENTIRETY BY THE
SOLICITATION AND DISCLOSURE STATEMENT.
THE PLAN WOULD GENERALLY GIVE EFFECT TO THE SAME TRANSACTIONS
CONTEMPLATED BY THE EXCHANGE OFFER AND, IF LESS THAN $4,988,000 OF THE OLD
DEBENTURES ARE TENDERED IN THE EXCHANGE OFFER, BUT THE REQUISITE PLAN
ACCEPTANCES ARE OBTAINED, THE COMPANY INTENDS TO IMPLEMENT THE RESTRUCTURING
PURSUANT TO THE PLAN. Generally, in order for the Plan to be approved by
holders of claims and interests, Plan Acceptances must be received from (1)
the holders of Old Debentures constituting at least two-thirds of the Old
Debentures in dollar amount and (2) more than one-half in number of the
holders of Old Debentures that vote to accept or reject the Plan; provided
that satisfaction of the foregoing clauses (1) and (2) shall be determined
without including any acceptances of any "insiders" (as defined by 11 U.S.C.
Section 101 et seq. (the "Bankruptcy Code"); the satisfaction of both (1) and
(2) being called the "Requisite Plan Acceptances"). Because, under the
Bankruptcy Code, only those Old Debtholders who vote to accept or reject the
Plan will be counted for purposes of determining acceptance or rejection of
the Plan by the class of Old Debtholders, the Plan could be approved with the
affirmative vote of significantly less than two-thirds in amount of the
outstanding Old Debentures. Even if the Requisite Plan Acceptances are
obtained in accordance with the Solicitation and Disclosure Statement, the
Plan may not be confirmed by a United States Bankruptcy Court of competent
jurisdiction (the "Bankruptcy Court").
The Company has reserved the right to modify the terms of the Plan, if
and to the extent that the Company determines that such amendments or
modifications are necessary or desirable in order to confirm the Plan. The
Company will give Old Debtholders notice of such modifications as may be
required by applicable law. No provision of the Plan affecting the treatment
of claims relating to the Old Debentures may be modified without a
resolicitation of Plan Acceptances if the modification materially adversely
affects the Old Debtholders. After a bankruptcy reorganization case has been
commenced, a party in interest, including an Old Debtholder, may object to
the Plan on grounds that the Plan does not meet the requirements of chapter
11 of the Bankruptcy Code. In addition, pursuant to Section 1109(b) of the
Bankruptcy Code, all parties in interest, including creditors of the Company,
have standing to be heard by the Bankruptcy Court on any issue that may arise
in a chapter 11 proceeding.
The Plan includes certain provisions which discharge and enjoin the
assertion or enforcement of claims against the Company, including any claims
based upon violations of Federal securities laws. In addition, the Company
intends to seek releases of its affiliates, stockholders, directors, officers
and others (the "Third Party Releases"), which would include releases of
claims based upon alleged violations of Federal securities laws arising prior
to the Effective Date. There can, however, be no assurances that the
injunction provisions or such releases, if obtained, would be valid with
respect to such claims. The Company also intends to provide an
indemnification of certain released persons to the extent of the value of
certain claims of such persons held against the Company and to be released by
them. Under certain circumstances, that is, if the Plan is determined to be
unconfirmable with the Third Party Release in their current form, at the
election of the Company, the scope of this indemnification may be expanded in
conjunction with a specific limitation or curtailment of the Third Party
Releases.
1. PRINCIPAL AMOUNT OF OLD DEBENTURES; PRORATION; EXTENSION THE EXCHANGE
OFFER.
Upon and subject to the terms and conditions of the Exchange
Offer, the Company will accept for exchange up to $5,250,000, but no less
than $4,988,000, in principal amount of Old Debentures which are properly
tendered and not withdrawn prior to the Expiration Date. The term
"Expiration Date" means 12:00 midnight, New York City time, on November 29,
1995, unless and until the Company shall have extended the period of time
during which the Exchange Offer is open, in which event the term "Expiration
Date" shall refer to the latest time and date at which the Exchange Offer, as
so extended by the Company, shall expire. Currently the Company is
restricted from extending the Expiration Date since the Settlement Agreement
requires that the actual closing occur on or before November 30, 1995. See
Section 13 for a description of the Company's right to extend the time during
which the Exchange Offer is open and to delay, terminate or amend the
Exchange Offer. See Section 5 for the conditions to the Company's
obligations to accept any tenders.
If:
(a) the Company changes the consideration to be exchanged
for the Old Debentures or the Company changes the principal amount
of Old Debentures being sought, and
(b) the Exchange Offer is scheduled to expire less than ten
business days from and including the date that notice of such
increase or decrease is first published, sent or given in the
manner specified in Section 13,
the Exchange Offer will be extended for ten business days from and including
the date of such notice. For purposes of the Exchange Offer, a "business
day" means any day other than a Saturday, Sunday or federal holiday and
consists of the time period from 12:01 A.M. through 12:00 midnight, New York
City time.
All Old Debentures exchanged pursuant to the Exchange Offer will
be exchanged for the Purchase Price. All Old Debentures not exchanged
pursuant to the Exchange Offer will be returned to the tendering Old
Debtholders at the Company's expense promptly following the Expiration Date.
In the event that proration of the New Debentures for the tendered
Old Debentures is required, if any New Debentures are to be issued after
taking into account indebtedness in respect of the Net Worth Note which may
be owing to Dollar pursuant to the Proposed Sale and after taking into
account the Old Debentures which are not tendered pursuant to the Exchange
Offer, the Company will determine the final proration factor promptly after
the Expiration Date. Although the Company does not expect to be able to
announce the final results of such proration until approximately seven New
York Stock Exchange trading days after the Expiration Date, it will announce
preliminary results of proration by press release promptly after the
Expiration Date. Old Debtholders may obtain such preliminary information
from the Information Agent and may be able to obtain such information from
their brokers.
AT PRESENT, THE COMPANY ANTICIPATES THAT ALL OR SUBSTANTIALLY ALL
OF THE NET WORTH NOTE, IN AN AGGREGATE AMOUNT NOT TO EXCEED $1,050,000, WILL
BE ISSUED TO OFFSET SHORTFALLS IN THE NET WORTH OF THE DIVISION AS OF THE
DEEMED CLOSING OF THE PROPOSED SALE. AS A RESULT, THE COMPANY ANTICIPATES
THAT IT IS UNLIKELY THAT IT WILL ISSUE ANY SIGNIFICANT AMOUNT OF NEW
DEBENTURES.
2. PROCEDURE FOR TENDERING OLD DEBENTURES.
Proper Tender of Old Debentures. For Old Debentures to be
properly tendered pursuant to the Exchange Offer:
(a) the Old Debentures (or confirmation of receipt of such
Old Debentures pursuant to the procedures for book-entry transfer
set forth below), together with a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile
thereof) with any required signature guarantees, and any other
documents required by the Letter of Transmittal, must be received
at or before the Expiration Date by the Depositary at one of its
addresses set forth on the last page of this Offer to Exchange; or
(b) the tendering Old Debtholder must comply with the
guaranteed delivery procedure set forth below.
Signature Guarantees and Method of Delivery. No signature
guarantee is required on the Letter of Transmittal if (i) the Letter of
Transmittal is signed by the registered holder of the Old Debentures tendered
therewith, and delivery of the Purchase Price is to be made directly to such
registered holder, or (ii) Old Debentures are tendered for the account of a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office, branch or agency in the United States (each
such entity being hereinafter referred to as an "Eligible Institution"). In
all other cases, all signatures on the Letter of Transmittal must be
guaranteed by an Eligible Institution. See Instruction 1 of the Letter of
Transmittal.
If an Old Debenture is registered in the name of a person other
than the signer of a Letter of Transmittal, or if payment of the Purchase
Price is to be made, to a person other than the registered holder, then the
Old Debenture must be accompanied by the assignment form attached to the
Debentures signed exactly as the name of the registered holder appears on the
Old Debenture, with the signature on the assignment form guaranteed by an
Eligible Institution. See Instruction 5 of the Letter of Transmittal.
In all cases, delivery of the Purchase Price for Old Debentures
tendered and accepted for exchange pursuant to the offer will be made only
after timely receipt by the Depositary of such Old Debentures (or a timely
confirmation of a book-entry transfer of such Old Debentures into the
Depositary's account at one of the Book-Entry Transfer Facilities), a
properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof) and any other documents required by the Letter of
Transmittal. The method of delivery of all documents, including
certificates, the Letter of Transmittal and any other required documents, is
at the election and risk of the tendering Old Debtholder. If delivery is by
mail, registered mail with return receipt requested, properly insured, is
recommended.
Federal Income Tax Withholding. To prevent backup federal income
tax withholding equal to 20% of the gross payments made pursuant to the
Exchange Offer, each Old Debtholder who does not otherwise establish an
exemption from such withholding must notify the Depositary of such Old
Debtholder's correct taxpayer identification number (or certify that such
taxpayer is awaiting a taxpayer identification number) and provide certain
other information by completing the Substitute Form W-9 included in the
Letter of Transmittal. Foreign Old Debtholders who are individuals must
submit Form W-8 in order to avoid backup withholding.
The Depositary will withhold 30% of the gross payments payable to
a foreign Old Debtholder unless the Depositary determines that a reduced rate
of withholding or an exemption from withholding is applicable. For this
purpose, a foreign Old Debtholder is an Old Debtholder that is not (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States
or any political subdivision thereof, or (iii) an estate or trust the income
of which is subject to United States federal income taxation regardless of
the source of such income. The Depositary will determine an Old Debtholder's
status as a foreign Old Debtholder and eligibility for a reduced rate of, or
an exemption from, withholding by reference to the Old Debtholder's address
and to any outstanding certificates or statements concerning eligibility for
a reduced rate of, or exemption from, withholding unless facts and
circumstances indicate that reliance is not warranted. A foreign Old
Debtholder who has not previously submitted the appropriate certificates or
statements with respect to a reduced rate of, or exemption from, withholding
for which such Old Debtholder may be eligible should consider doing so in
order to avoid over-withholding.
For a discussion of certain other federal income tax
consequences to tendering Old Debtholders, see Section 11.
Book-Entry Delivery. The Depositary will establish an account
with respect to the Old Debentures at each of the Book-Entry Transfer
Facilities for purposes of the Exchange Offer within two business days after
the date of this Offer to Exchange. Any financial institution that is a
participant in the Book-Entry Transfer Facility's system may make book-entry
delivery of the Old Debentures by causing such facility to transfer such Old
Debentures into the Depositary's account in accordance with such facility's
procedure for such transfer. Even though delivery of Old Debentures may be
effected through book-entry transfer into the Depositary's account at one of
the Book-Entry Transfer Facilities, a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof), with any
required signature guarantees and other required documents, must, in any
case, be transmitted to and received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Exchange at or prior
to the Expiration Date, or the guaranteed delivery procedure set forth below
must be followed. Delivery of the Letter of Transmittal and any other
required documents to one of the Book-Entry Transfer Facilities does not
constitute delivery to the Depositary.
Guaranteed Delivery. If an Old Debtholder desires to tender Old
Debentures pursuant to the Exchange Offer and such Old Debtholder's Old
Debentures are not immediately available (or the procedures for book-entry
transfer cannot be completed on a timely basis) or time will not permit all
required documents to reach the Depositary at or before the Expiration Date,
such Old Debentures may nevertheless be tendered, provided that all of the
following conditions are satisfied:
(a) such tender is made by or through an Eligible
Institution;
(b) the Depositary receives (by hand, mail, telegram, telex
or facsimile transmission), at or prior to the Expiration Date, a
properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form the Company has provided with this Offer
to Exchange (indicating the principal amount of Old Debentures
being tendered); and
(c) all tendered Old Debentures in proper form for transfer
(or confirmation of book-entry transfer of such Old Debentures into
the Depositary's account at one of the Book-Entry Transfer
Facilities), together with a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof) and
any other documents required by the Letter of Transmittal, are
received by the Depositary within five New York Stock Exchange
trading days after the date the Depositary receives such Notice of
Guaranteed Delivery.
Determinations of Validity; Rejection of Old Debentures; Waiver of
Defects; No Obligation to Give Notice of Defects. All questions as to the
validity, form, eligibility (including time of receipt) and acceptance for
exchange of any tender of Old Debentures will be determined by the Company,
in its sole discretion, which determination shall be final and binding on all
parties. The Company reserves the absolute right to reject any or all
tenders it determines not to be in proper form or the acceptance of or
payment for which may, in the opinion of the Company's counsel, be unlawful.
The Company also reserves the absolute right to waive any of the conditions
of the Exchange Offer and any defect or irregularity in the tender of any
particular Old Debentures. No tender of Old Debentures will be deemed to be
properly made until all defects and irregularities have been cured or waived.
None of the Company, the Depositary, the Information Agent or any other
person is or will be obligated to give notice of any defects or
irregularities in tenders, and none of them will incur any liability for
failure to give any such notice.
3. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 3, tenders of Old
Debentures pursuant to the Exchange Offer are irrevocable. Old Debentures
tendered pursuant to the Exchange Offer may be withdrawn at any time before
the Expiration Date.
For a withdrawal to be effective, the Depositary must timely
receive (at one of its addresses set forth on the last page of this Offer to
Exchange) a written, telegraphic, telex or facsimile transmission notice of
withdrawal. Such notice of withdrawal must specify the name of the person
having deposited the Old Debentures to be withdrawn, the principal amount of
Old Debentures to be withdrawn and the name of the registered holder, if
different from that of the person who tendered such Old Debentures. If the
Old Debentures have been delivered or otherwise identified to the Depositary,
then, prior to the release of such Old Debentures, the tendering Old
Debtholder must also submit the serial numbers shown on the particular Old
Debentures to be withdrawn and the signature on the notice of withdrawal must
be guaranteed by an Eligible Institution (except in the case of Old
Debentures tendered by an Eligible Institution). If Old Debentures have been
tendered pursuant to the procedure for book-entry transfer set forth in
Section 2, the notice of withdrawal must specify the name and the number of
the account at the applicable Book-Entry Transfer Facility to be credited
with the withdrawn Old Debentures and otherwise comply with the procedures of
such facility. All questions as to the form and validity (including time of
receipt) of notices of withdrawal will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all
parties. None of the Company, the Depositary, the Information Agent or any
other person is or will be obligated to give any notice of any defects or
irregularities in any notice of withdrawal, and none of them will incur any
liability for failure to give any such notice. Any Old Debentures properly
withdrawn will thereafter be deemed not tendered for purposes of the Exchange
Offer. Withdrawn Old Debentures may, however, be retendered at or before the
Expiration Date by again following any of the procedures described in Section
2.
4. EXCHANGE OF OLD DEBENTURES.
Promptly after the Expiration Date, upon the terms and subject to
the conditions of the Exchange Offer, the Company will accept for exchange
properly tendered Old Debentures. Accrued interest on the Old Debentures
tendered and accepted will not be paid. For purposes of the Exchange Offer,
the Company will be deemed to have accepted for exchange, subject to
proration of the New Debentures, if any are to be issued after taking into
account indebtedness in respect of the New Note (as defined in the Settlement
Agreement) which may be owing to Dollar pursuant to the Proposed Sale and
after taking into account the Old Debentures which are not tendered pursuant
to the Exchange Offer, Old Debentures which are tendered and not withdrawn
when, as and if it gives oral or written notice to the Depositary of its
acceptance such Old Debentures for exchange pursuant to the Exchange Offer.
Delivery of the Purchase Price for Old Debentures exchanged
pursuant to the Exchange Offer will be made by depositing the aggregate
Purchase Price (consisting of a check for the aggregate Cash Payments, a
stock certificate representing the appropriate amount of Common Stock and
prorated portion of the New Debentures if any are to be issued after taking
into account indebtedness in respect of the New Note (as defined in the
Settlement Agreement) which may be owing to Dollar pursuant to the Proposed
Sale and after taking into account the Old Debentures which are not tendered
pursuant to the Exchange Offer) therefor with the Depositary, which will act
as agent for tendering Old Debtholders for the purpose of receiving payment
from the Company (or in the case of the Cash Payment, the Escrow Agent; See
-- Section 7) and transmitting payment to the tendering Old Debtholders. In
the event of proration, the Company will determine the proration factor and
will pay the Purchase Price for those tendered Old Debentures accepted for
exchange promptly after the Expiration Date; however, the Company does not
expect to be able to announce the final results of any such proration until
approximately seven New York Stock Exchange trading days after the Expiration
Date. Old Debentures not exchanged will be returned (or, in the case of Old
Debentures tendered by book-entry transfer, such Old Debentures will be
credited to the account maintained with one of the Book-Entry Transfer
Facilities by the participant therein who so delivered such Old Debentures)
promptly after the Expiration Date without expense to the tendering Old
Debtholders. Under no circumstances will the Company pay interest on the
Purchase Price.
The Company will pay all transfer taxes, if any, payable on the
transfer to it of Old Debentures acquired pursuant to the Exchange Offer;
provided, however, that if payment of the Purchase Price is to be made to, or
(in the circumstances permitted by the Exchange Offer) if non-exchanged Old
Debentures (or portions thereof) are to be registered in the name of any
person other than the registered holder, or if tendered Old Debentures are
registered in, the name of any person other than the person signing the
Letter of Transmittal, the amount of all transfer taxes, if any (whether
imposed on the registered holder or such other person), payable on account of
the transfer to such person will be deducted from the Purchase Price unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted. See Instruction 6 of the Letter of Transmittal.
Payment for Old Debentures may be delayed in the event of
difficulty in determining the principal amount of Old Debentures validly
tendered. See Section 1. In addition, if certain events occur, the Company
may not be obligated to exchange Old Debentures pursuant to the Exchange
Offer. See Section 5.
5. CERTAIN CONDITIONS OF THE EXCHANGE OFFER.
Notwithstanding any other provision of the Exchange Offer, the
Company shall not be required to accept for exchange any Old Debentures
tendered, and may terminate or amend the Exchange Offer or may postpone
(subject to the requirements of the Securities Exchange Act of 1934 requiring
prompt payment for or return of Old Debentures) the acceptance for exchange
of, and the payment for, Old Debentures tendered, if at any time on or after
October 31, 1995, and at or before the time of exchange of any such Old
Debentures, any of the following events shall have occurred (or shall have
been determined by the Company to have occurred) which, in the Company's sole
judgment in any such case and regardless of the circumstances (including any
action or omission to act by the Company), makes it inadvisable to proceed
with the Exchange Offer or with such exchange:
(a) there shall have been threatened, instituted or pending
any action or proceeding by any government or governmental,
regulatory or administrative authority or any other person or
before any court or governmental, regulatory or administrative
authority which:
(1) challenges the making of the Exchange Offer, the
exchange of Old Debentures pursuant to the Exchange Offer or
otherwise relates in any manner to the Exchange Offer; or
(2) in the Company's sole judgment, could materially
affect the business, condition (financial or otherwise),
income, operations or prospects of the Company or otherwise
materially impair in any way the contemplated future conduct
of the business of the Company or any of its subsidiaries or
materially impair the Exchange Offer's contemplated benefits
to the Company; or
(b) there shall have been any action threatened, pending or
taken, or approval withheld, or any statute, rule, regulation,
judgment, order or injunction proposed, promulgated, amended,
enforced or deemed to be applicable to the Exchange Offer or the
Company by any court or any government or governmental, regulatory
or administrative authority which, in the Company's sole judgment,
would might directly or indirectly:
(1) make the acceptance for exchange or exchange of,
some or all of the Old Debentures illegal or otherwise
restrict prohibit consummation of the Exchange Offer;
(2) delay or restrict the ability the Company, or
render the Company unable, to accept for exchange or exchange
some all of the Old Debentures;
(3) materially impair the contemplate benefits of the
Exchange Offer or the Proposed Sale to the Company; or
(4) materially affect the business, condition
(financial or otherwise), income, operations or prospects of
the Company, or otherwise materially impair in any way the
contemplated future conduct of the business of the Company or
any of its subsidiaries; or
(c) there shall have occurred:
(1) the declaration of any banking moratorium or
suspension of payments in respect of banks in the United
States;
(2) any general suspension of trading in, or
limitation on prices for, securities on any United States
national securities exchange or in the over-the-counter
market;
(3) the commencement of a war, armed hostilities or
any other national or international crisis directly or
indirectly involving the United States;
(4) any limitation (whether or not mandatory) by any
governmental, regulatory or administrative agency or
authority on, or any event which, in the Company's sole
judgment, might affect, the extension of credit by banks or
other lending institutions in the United States;
(5) any significant increase or decrease in the market
price of the Old Debentures or the Common Stock or any change
in the general political, market, economic or financial
conditions in the United States or abroad that could have a
material adverse effect on the business, condition (financial
or otherwise), income, operations, Old Debenture or stock
ownership or prospects of the Company, or the trading in the
Old Debentures or the Common Stock; or
(6) in the case of any of the foregoing existing at
the time of the commencement of the Exchange Offer, in the
Company's sole judgment, a material acceleration or worsening
thereof;
(d) any change shall occur or be threatened in the business,
condition (financial or otherwise), income, operations, Old
Debenture or stock ownership or prospects of the Company, which, in
the Company's sole judgment, is or may be material to the Company;
or
(e) a tender or exchange offer for any or all of the stock
of the Company or the Old Debentures (other than the Exchange
Offer), or any merger, business combination or other similar
transaction with or involving the Company or any of its
subsidiaries, shall have been proposed, announced or made by any
person or entity; or
(f) at least $4,988,000 in principal amount of Old
Debentures shall not have been tendered and or if tendered shall
have been withdrawn on or prior to the Expiration Date; or
(g) the Company is unable, for any reason, to obtain
sufficient funds to pay Cash Payment from the proceeds of the
Proposed Sale for the tendered Old Debentures; or
(h) a default shall exist under the Old Debentures
immediately after the exchange of the Old Debentures pursuant to
the Exchange Offer or under any other indebtedness of the Company
as of the date of the exchange of the Old Debentures pursuant to
the Exchange Offer; or
(i) any conditions to the Proposed Sale shall not have been
satisfied; or
(j) the waivers from the Senior Lenders described in Section
8 are not effective; or
(k) a voluntary or involuntary bankruptcy case under the
Bankruptcy Code is instituted with respect to the Company; or
(l) the Settlement Agreement is terminated for any reason
other than the closing of the Proposed Sale.
The foregoing conditions are for the Company's sole benefit and
may be asserted by the Company regardless of the circumstances giving rise to
any such condition (including an action or inaction by the Company) or may be
waived by the Company in whole or in part. The Company's failure at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed ongoing right which may be
asserted at any time and from time to time. Any determination by the Company
concerning the events described in this Section 5 shall be final and shall be
binding on all parties.
6. TRANSACTIONS AND ARRANGEMENTS CONCERNING THE OLD DEBENTURES.
The Company has been advised that Scott Lang is the only executive
officer or director of the Company who owns any old debentures. Mr. Lang is
the holder of $73,000 of Old Debentures and he has indicated that he intends
to tender his Old Debentures pursuant to the Exchange Offer.
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
Old Debentures pursuant to the terms of an exchange offer. As a result of
the Exchange, the Company's outstanding Old Debentures were reduced to
$5,250,000 in aggregate principal amount.
In order to preserve cash, the Company decided not to pay interest
payment of $262,500 due on the Old Debentures on September 1, 1995. The
failure to pay interest constituted an event of default under the Indenture
on September 30, 1995. Accrued interest, including interest payable on
September 1, 1995, on the Old Debentures tendered and accepted for exchange
will not be paid.
Based upon the Company's records and upon information provided to
the Company by its directors, executive officers and affiliates, neither the
Company nor, to the best of the Company's knowledge, any of the directors or
executive officers of the Company or its subsidiaries nor any associates of
any of the foregoing has effected any transactions in the Old Debentures
during the 40 business day period prior to the date hereof. Except as set
forth above in this Section 6, neither the Company nor, to the best of the
Company's knowledge, any of its affiliates, directors or executive officers,
is a party to any contract, arrangement, understanding or relationship with
any other person relating, directly or indirectly, to the Exchange Offer with
respect to the Old Debentures or any securities of the Company.
7. SOURCE AND AMOUNT OF FUNDS.
Assuming that the Company receives tenders of Old Debentures which
are not withdrawn of at least $4,988,000 in principal amount and all other
conditions to the Exchange Offer are satisfied, and the Escrow Agent (defined
below) makes the Cash Payment to the tendering Old Debtholders, the Company
expects the maximum aggregate cash cost, including all fees and expenses
applicable to the Exchange Offer, to be at least $2,494,000 but not more than
$2,625,000.
The amount of the Cash Payment is expected to be received from the
cash proceeds of $2,625,000 from the Proposed Sale which shall have been
deposited by Dollar with Liberty Bank and Trust Company of Tulsa, N.A. who
has agreed to act as escrow agent (the "Escrow Agent") for Dollar and the
Company with respect to the cash paid by Dollar as part of the Proposed Sale.
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. While the Company expects the
conditions to the Proposed Sale to be satisfied prior to the exchange date,
there is no assurance that such conditions will be satisfied and the Proposed
Sale consummated. Under the terms of the Settlement Agreement, the Proposed
Sale must close by no later than November 30, 1995. In addition, under the
Proposed Sale, Dollar has the unqualified right to terminate the Settlement
Agreement and abandon the Proposed Sale for any reason whatsoever at any time
prior to the closing of the Proposed Sale.
8. CERTAIN INFORMATION ABOUT THE COMPANY.
General. The Company was organized under the laws of the State of
California on November 10, 1983. The Company's executive office and its
mailing address is at 1600 Kapiolani Boulevard, Suite 825, Honolulu, Hawaii
96814. Its telephone number is (808) 926-4242.
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.
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.
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, General Motors ("GM") and Ford
Motor Company ("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 Corporation ("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.
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
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.
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, 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.
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
operations. As of December 31, 1994, South Seas had $574,000 of outstanding
mortgage debt related to OCJ.
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
$22,697,361 for the six months ended June 30, 1995, as compared with
$20,933,924 for the same period in 1994. Unit sales for the first half of
1995 were 1479, compared to 1333 in the prior year. New car sales for the
six month period were about the same reaching 538 in 1995 versus 552 in 1994,
while used car sales increased to 941 from 781 in 1994.
For the first six months of 1995, operating income was $151,920.
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, 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 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 June 30, 1995,
December 31, 1994 and 1993, $9,258,000, $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.
These financing obligations will be assumed by Dollar on the consummation of
the Proposed Sale.
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.
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. The Company's
obligations under the Lease Program will be assumed by Dollar on the
consummation of the Proposed Sale.
As of December 31, 1994, 1,900 vehicles in the Company's rental
vehicle fleet were leased from Dollar.
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 June 30, 1995, the Company had
decreased its outstanding balance under these credit lines to approximately
$735,000 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. These financing obligations will be assumed by Dollar on
the consummation of the Proposed Sale.
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.
These financing obligations will be assumed by Dollar on the consummation of
the Proposed Sale. The Company is negotiating with Finova regarding these
defaults and anticipates reaching a compromise prior to the closing of the
Proposed Sale and the consummation of the Exchange Offer.
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 June 30, 1995, the Company had
$7,996,000 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. Currently the Company is arrears
on two principal payments to Finova. The Company has requested and has
received a verbal commitment from Finova to forgive one principal payment in
order to assist the Company in meeting its minimum net worth requirement.
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.
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 June 30,
1995, $550,000 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 June
30, 1995, $281,000 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 June 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.
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 June 30, 1995, SSJE and OCJ collectively $9,258,000 outstanding under
these lines of credit. These financing obligations will not be assumed by
Dollar as part of consummation of the Proposed Sale and will be retained by
SSJE and OCJ if the Proposed Sale is consummated.
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. These financing obligations will be assumed by Dollar if the Proposed
Sale is consummated.
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 June 30, 1995, the Company had
an outstanding balance of approximately $161,000 under the mortgage loan for
its baseyard facility on Oahu, SSJE had an outstanding balance of
approximately $578,000 under the mortgage loan for its dealership and OCJ had
an outstanding balance of approximately $528,000 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 $161,000 mortgage loan will be assumed by Dollar as part
of consummation of the Proposed Sale. The other financing obligations will
not be assumed by Dollar as part of consummation of the Proposed Sale and
will be retained by SSJE and OCJ if the Proposed Sale is consummated. 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 June 30, 1995, $416,000 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 June 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 June 30, 1995, $76,000 of principal for
this loan remained outstanding and the Company was not in compliance with
certain of the covenants thereunder. This financing obligation will be
assumed by Dollar if the Proposed Sale is consummated.
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.
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.
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 m 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.
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 June 30, 1995, the Company's estimated reserve for self-
insurance liability was $1,873,422. 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.
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.
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 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
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.
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 ("USEPA") 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 USEPA 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 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.
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.
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.
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.
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 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.
The Company also leases smaller facilities which are used for
service facilities for its OCJ and South Seas Motors dealerships.
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.
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.
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.
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 Company in respect of this
property. The DOT is also presently engaged in negotiations 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.
Senior Lenders. The Bank, First Hawaiian and Finova, together
with FMCC, GMAC and Chrysler Credit, are sometimes herein referred to as the
"Senior Lenders". The credit facilities provided by the Bank, First Hawaiian
and Finova, together with the credit facilities provided to the Company by
FMCC, GMAC and Chrysler, are sometimes herein referred to as the "Senior
Credit Facilities".
Each of the Senior Lenders has been advised of, and has informally
indicated a willingness not to object to the Exchange Offer and the Proposed
Sale. In addition, the Senior Lenders have indicated that, provided that the
Company is otherwise in compliance with the terms and conditions of such
Senior Lenders' Credit Facilities after the exchange of Old Debentures
pursuant to the Exchange Offer, and provided that no applicable monetary
defaults have occurred with respect to such Senior Lenders' Senior Credit
Facilities, such Senior Lenders will waive any applicable default or
condition giving rise thereto that existed on the date of the commencement of
the Exchange Offer or that may occur prior to the exchange of the Old
Debentures pursuant to the Exchange Offer or the Proposed Sale. However,
these waivers have not yet been obtained by the Company.
The Company has reviewed its Senior Credit Facilities which are
not being assumed by Dollar on the consummation of the Proposed Sale with the
respective Senior Lenders party thereto and, based on the pro forma
statements of financial condition attached to this document, has concluded
that it will be in compliance with such facilities after the Proposed Sale
and the Exchange Offer have been successfully consummated.
Miscellaneous. Additional information concerning the Company is
set forth in the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, Annual Report on Form 10-K for the year ended December
31, 1994 and the Company's 1994 Annual Report to Stockholders. Reports on
Forms 10-K and 10-Q, as well as other periodic reports, proxy statements and
other information, are regularly filed by the Company with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934. Such
materials may be inspected at the Securities and Exchange Commission's public
reference facilities at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; and should also be available for inspection and
copying at the Security and Exchange Commission's regional offices at Room
1100, 26 Federal Plaza, New York, New York 10007; 5757 Wilshire Boulevard,
Los Angeles, California 90036; and 219 South Dearborn Street, Chicago,
Illinois 60604. Copies of such materials may also be obtained for
prescribed rates from the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Historical and Pro Forma Condensed Financial Data of the Company
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 the
consolidated financial statements and notes thereto of the Company attached
hereto.
(In thousands and except per share amounts, ratios and other data)
<TABLE>
<CAPTION>
Year ended December 31, Six months
ended
1994 1993 1992 1991 1990 June June
As 30, 30,
Restated 1995 1994
(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 $24,536 $27,185
Vehicle 39,699 43,988 31,521 23,172 27,835 22,697 20,934
sales (1)
Total 93,825 98,151 83,311 68,488 75,128 47,233 48,119
operating
revenues
Operating
costs and 94,140 97,492 84,124 69,394 78,890 48,919 47,163
expenses
Operating
income (315) 659 (813) (906) (3,762) (1,686) 956
(loss)
Interest 57 79 101 224 277 20 25
income
Other
interest (898) (914) (773) (1,098) (1,792) (433) (431)
expense
Gain from
sale of - - - 104 4,866 - -
leasehold
interests
Other, net (271) (417) (620) (428) - 132 (36)
Income
(loss)
before
income taxes (1,427) (593)(2,105) (2,104) (411) (1,977) 514
and
extraordinary
items
Income taxes - (211) - - - - -
Loss before
extraordinary
items (1,427) (804)(2,105) (2,104) (411) (1,977) 514
Extraordinary - - - 5,614 - - -
items (2)
Net income
(loss) $(1,427) $(804)$(2,105) $3,510 $(411) $(1,977) $514
Income
(loss) per
share:
Before
extra-
ordinary $(0.18) $(0.09) $(0.23) $(0.28) $(0.07) $(0.24) $0.06
items
Extraordinary
items (2) - - - 0.74 - - -
Net Income
(loss) $(0.18) $(0.09) $(0.23) $0.46 $(0.07) $(0.24) $0.06
Weighted
average
shares 8,080 9,009 9,009 7,551 6,093 8,080 9,009
outstanding
BALANCE
SHEET DATA
Total Assets $69,272 $71,892 $110,802 $104,300 $95,434 $42,395 $61,250
Senior Debt 48,034 49,563 90,127 86,547 68,664 22,131 37,460
Convertible
subordinated 5,250 5,250 5,250 5,250 17,250 5,250 5,250
debentures
Shareholders' $2,091 $3,518 $4,323 $6,427 $1,823 $113 $4,032
equity
OTHER DATA
Vehicles 5,228 6,623 7,002 7,165 6,445 4,954 6,063
operated at
period end
(3)
Rental 5,275 7,529 6,648 6,116 8,519 2,386 2,794
vehicles
sold during
period
(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 $4,221,000 or $0.56 per share, net of
income taxes, resulting from a debenture exchange and a
credit of $1,393,000 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 $650,000 previously
reported reserve by $766,000, resulting in an adjusted
reserve balance of $1,416,000. The accompanying financial
statements as of and for the year ended December 31, 1990
have been restated to correct the aforementioned error.
</TABLE>
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 Exchange Offer. 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 and financial
position excluding the Division. In addition, the Unaudited Pro Forma
Statements of Operations for the year ended December 31, 1994 and the six
month periods ended June 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 June 30, 1995.
(In thousands and except per share amounts, ratios and other data)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
Historical Rental Subtotal Adjustment Proforma
Car (a) (b)
OPERATING DATA
Operating Revenues
<S> <C> <C> <C> <C> <C>
Vehicle rental $54,126 $54,126 $0 $0
Vehicle sales 39,699 - 39,699 39,699
Total operating 93,825 54,126 39,699 0 39,699
revenue
Operating costs 94,140 54,508 39,632 0 39,632
and expenses
Operating income
(loss) (315) (382) 67 67
Interest income 57 55 2 2
Other interest (898) (299) (599) 420 (179)
expense
Gain from sale of - - -
leasehold
interests
Other, net (271) (271) 0 0
Income (loss) (1,427) (897) (530) 420 (110)
before income taxes
Income Taxes - - -
Net income (loss) $(1,427) $(897) $(530) $420 ($110)(d)
Net income (loss) ($0.18) ($0.11) ($.07) ($.01)
per share
Weighted average 8,080 8,080 8,080 5,387(c) 13,467
shares outstanding
(a) - Reflects the Company's results of operations excluding the vehicle
rental division.
(b) - Proforma adjustments reflect the elimination of interest expense
of $525,000 on $5,250,000 of debentures, which bear interest at
10%, due to the exchange offer and increase in interest expense of
$105,000 on new debt of $1,050,000 bearing interest at 10%.
(c) - Additional shares to be issued in connection with the exchange
offer.
(d) - The expected gain of $160,916 on the proposed sale and exchange
offer has been excluded because such amounts are non recurring.
</TABLE>
(In thousands and except per share amounts, ratios and other data)
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992
Historical Rental Proforma(a) Historical Rental Proforma(a)
Car Car
OPERATING DATA
Operating Revenues
<S> <C> <C> <C> <C> <C> <C>
Vehicle rental $54,163 $54,163 $0 $51,790 $51,790 $0
Vehicle sales 43,988 - 43,988 31,521 - 31,521
Total operating 98,151 54,163 43,988 83,311 51,790 31,521
revenue
Operating costs 97,492 53,974 43,518 84,124 53,126 30,998
and expenses
Operating income
(loss) 659 189 470 (813) (1,336) 523
Interest income 79 77 2 101 99 2
Other interest (914) (231) (683) (773) (211) (562)
expense
Gain from sale of - - - - - -
leasehold
interests
Other, net (417) (271) (146) (620) (510) (110)
Income (loss) (593) (236) (357) (2,105) (1,958) (147)
before income
taxes
Income Taxes (211) (211) 0 - - -
Net income (loss) $(804) $(447) $(357) $(2,105) $(1,958) $(147)
Net income (loss) ($.09) ($0.05) ($0.04) ($0.23) ($0.22) ($0.02)
per share
Weighted average 9,009 9,009 9,009 9,009 9,009 9,009
shares outstanding
(a) - Reflects the Company's results of operations excluding the vehicle
rental division.
</TABLE>
Six Months Ended June 30, 1995
<TABLE>
<CAPTION>
Historical Rental Car Subtotal Adjustment(a) Proforma
OPERATING DATA
Operating Revenues
<S> <C> <C> <C> <C> <C>
Vehicle rental $24,536 $24,536 $0 $0
Vehicle sales 22,697 - 22,697 22,697
Total operating 47,233 24,536 22,697 0 22,697
revenue
Operating costs 48,919 26,462 22,457 0 22,457
and expenses
Operating income (1,686) (1,926) 240 240
(loss)
Interest income 20 20 0 0
Other interest (443) (142) (301) 211 (91)
expense
Gain from sale of - - - - -
leasehold
interests
Other net 132 132 0 0
Income (loss) (1,977) (1,916) (61) 211 150
before income
taxes
Income taxes - - -
Net income (loss) ($1,977) ($1,916) ($61) $211 $150(c)
Net income (loss) ($0.24) ($0.24) ($0.01) $0.01
per share
Weighted average 8,080 8,080 8,080 5,387(b) 13,467
shares outstanding
(a) - Pro Forma adjustments reflect the elimination of interest expense
of $525,000 on $5,250,000 of debentures, which bear interest at
10%, due to the exchange offer and increase in interest expense of
$105,000 on new debt of $1,050,000 bearing interest at 10%.
(b) - Additional shares to be issued in connection with the exchange
offer.
(c) - The expected gain of $160,916 on the proposed sale and exchange
offer has been excluded because such amounts are non recurring.
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
1994
Historical Rental Car Subtotal Adjustment(a) Proforma
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Operating Revenues
Vehicle rental $27,185 $27,185 $0 $0
Vehicle sales 20,934 - 20,934 20,934
Total operating 48,119 27,185 20,934 0 20,934
revenue
Operating costs 47,163 26,364 20,799 0 20,799
and expenses
Operating income 956 821 135 135
(loss)
Interest income 25 23 2 2
Other interest (431) (130) (301) 211 (91)
expense
Gain from sale of - - -
leasehold
interests
Other net (36) (36) 0 0
Income (loss) 514 678 (164) 211 (47)
before income
taxes
Income taxes - - -
Net income (loss) $514 $678 ($164) $211 $47 (c)
Net income (loss) $0.06 $0.08 ($0.02) $0.00
per share
Weighted average 9,009 9,009 9,009 5,387(b) 14,396
shares outstanding
(a) - Pro Forma adjustments reflect the elimination of interest expense
of $525,000 on $5,250,000 of debentures, which bear interest at
10%, due to the exchange offer and increase in interest expense of
$105,000 on new debt of $1,050,000 bearing interest at 10%.
(b) - Additional shares to be issued in connection with the exchange
offer.
(c) - The expected gain of $160,916 on the proposed sale and exchange
offer has been excluded because such amounts are non recurring.
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
BALANCE SHEET
June 30, 1995
Historical Rental Car(a) Subtotal Adjustment(b) Proforma
<S> <C> <C> <C> <C> <C>
Cash $428 $232 $196 $196
Accounts receivable, net 12,079 8,877 3,202 3,202
Prepaids and other 12,982 2,590 10,392 10,392
Revenue earning vehicles, 9,251 8,841 410 $410
net
Furniture, equip. & 7,655 4,607 3,048 3,048
leasehold improvements
Total assets $42,395 $25,147 $17,248 $0 $17,248
Accounts payable $7,775 $6,617 $1,158 $1,158
Accrued expenses and 7,126 6,058 1,068 1,068
other
Senior debt 22,131 11,655 10,476 1,050 11,526
Convertible subordinated 5,250 0 5,250 (5,250) $0
debentures
Shareholders' equity 113 817 ($704) 4,200 $3,496
Total liabilities & $42,395 $25,147 $17,248 $0 $17,248
equity
Book value per share 0.01 0.10 (0.09) 0.29
(a) - Assets and liabilities of the rental car division to be sold.
(b) - Reflects assumption of 100% redemption of the outstanding
debentures of $5,250,000 in exchange for cash of $2,625,000,
issuance of additional debt of $1,050,000, and additional shares
of common stock aggregating 4,039,901 shares.
Sale of rental car division to Dollar and exchange offer is
summarized as follows:
Carrying value of debentures $5,250,000
Common stock issued (4,039,901) (757,481)
Redeemable common stock issued (1,345,633 shares)(252,494)
Issuance of additional debt (1,050,000)
Net book value of assets sold (817,000)
Cash from sale of the vehicle rental division 2,625,000
Cash paid to debentureholders (2,625,000)
Gain on the transaction $2,373,025
(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.
</TABLE>
9. DESCRIPTION OF THE COMMON STOCK.
The Company is currently authorized to issue 50,000,000
shares of Common Stock $0.10 stated value. Of these amount 8,079,800 shares
are currently issued and outstanding. The following brief description of the
Common Stock is qualified in its entirety by reference to the Company's
Certificate of Incorporation, as amended, copies of which are on file with
the SEC.
All of the issued and outstanding shares of Common Stock are
fully paid and nonassessable. The holders of the Common Stock are entitled
to one vote for each share owned of record on all matters to be voted on by
shareholders and, upon the giving of notice as required by law, are entitled
to cumulate their vote in the election of directors. Holders of Common Stock
have equal rights, share for share, to receive dividends when declared by the
Board of Directors out of legally available funds in the event of any
liquidation, dissolution or winding-up, holders of Common Stock will be
entitled to share ratably in the assets available for distribution. No
holder of Common Stock has any preemptive rights.
The Company will issue 0.769505 shares of the Company's
common stock, $0.10 stated value (the "Common Stock") for each $1.00 in
principal amount of Old Debentures so tendered and not withdrawn.
THE COMMON STOCK TO BE ISSUED PURSUANT TO THE EXCHANGE OFFER
IS NOT REQUIRED TO BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND SUCH COMMON STOCK WILL BE FREELY TRADABLE BY THE
RECIPIENT THEREOF UNDER THIS OFFER TO EXCHANGE PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY SECTION 3(a)(9) OF THE SECURITIES ACT AND SIMILAR
STATE LAW EXEMPTIONS UNLESS SUCH RECIPIENT IS A STATUTORY UNDERWRITER UNDER
SECTION 2(11) OF THE SECURITIES ACT OR AN AFFILIATE OF THE COMPANY AS DEFINED
IN RULE 144 UNDER THE SECURITIES ACT. ANY AFFILIATE OF THE COMPANY TENDERING
DEBENTURES PURSUANT TO THIS OFFER TO EXCHANGE WILL RECEIVE COMMON STOCK THAT
CAN ONLY BE SOLD PURSUANT TO RULE 144 OF THE SECURITIES ACT.
THE COMMON STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER
REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON
OR ENDORSED THE FAIRNESS OR MERITS OF THIS EXCHANGE OFFERING OR THE ACCURACY
OR ADEQUACY OF THIS OFFER TO EXCHANGE. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
10. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS.
The Company is not aware of any license or regulatory permit
that appears to be material to its business that might be adversely affected
by its acquisition of Old Debentures as contemplated in the Exchange Offer or
of any approval or other action by any government or governmental,
administrative or regulatory authority or agency, domestic or foreign, that
would be required for the Company's acquisition or ownership of Old
Debentures as contemplated by the Exchange Offer. Should any such approval
or other action be required, the Company currently contemplates that it will
seek such approval or other action. The Company cannot predict whether it
may determine that it is required to delay the acceptance for exchange of, or
exchange of, Old Debentures tendered pursuant to the Exchange Offer pending
the outcome of any such matter. There can be no assurance that any such
approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such
approval or other action might not result in adverse consequences to the
Company's business. The Company's obligation under the Exchange Offer to
accept for payment and pay for Old Debentures is subject to certain
conditions. See Section 5.
The Company reserves the right to challenge the validity of
any allegedly applicable state laws or to disregard the provisions of any
such law on the grounds that they are invalid. Nothing in the Exchange Offer
nor any action taken in connection herewith is intended to constitute a
waiver by the Company of the right so to challenge or so disregard any and
all such laws and rules and regulations thereunder.
11. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following is a summary of the material United States
federal income tax considerations of the Exchange Offer. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"),
regulations, rulings and decisions in effect on the date of this Offer to
Exchange (or, in the case of certain Treasury regulations, now in proposed
form), all o which are subject to change. This summary does not discuss all
aspects of state, local or foreign taxation and does not discuss all the tax
considerations that may be relevant to a particular Old Debtholder in light
of his personal investment circumstances, or to certain types of Old
Debtholders that may be subject to special tax rules, such as financial
institutions, tax-exempt organizations, insurance companies, dealers in stock
or securities, and foreign corporations and individuals who are not citizens
or residents of the United States. The discussion with respect to exchanging
Old Debtholders is limited to those Old Debtholders who have held Old
Debentures as "capital assets" and who will hold the Common Stock as "capital
assets" within the meaning of Section 1221 of the Code.
OLD DEBTHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS IN
DETERMINING THE TAX CONSIDERATIONS THAT MAY BE RELEVANT IN CONNECTION WITH
THE EXCHANGE OFFER, INCLUDING THE APPLICATION TO THEIR PARTICULAR SITUATION
OF THE TAX CONSIDERATIONS DISCUSSED BELOW AS WELL AS THE APPLICATION OF
STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
General. Whether the exchange of Old Debentures for Common
Stock, the New Debentures, if any, and the Cash Payment pursuant to the
Exchange Offer will constitute a "tax-free" recapitalization under the Code
will depend in part upon whether the Old Debentures are considered to be
"securities" within the meaning of the Code provisions governing
reorganizations. The test as to whether a debt instrument is "security"
involves an overall evaluation of the nature of the debt instrument, with the
term of the instrument usually regarded as a significant factor. A term of
ten years or more ordinarily is sufficient to bring a debt instrument within
the definition of a security, and accordingly, the Old Debentures are likely
to be treated as "securities." Consequently, subject to the foregoing, the
exchange of Old Debentures for Common Stock, New Debentures and the Cash
Payment will constitute a recapitalization under the Code.
Accordingly, except as hereinafter provided, (i) an
exchanging Old Debtholder will recognize any realized gain, if any, on the
exchange, but only to the extent of the cash received, (ii) no loss will be
recognized by an exchanging Old Debtholder, (iii) the Common Stock received
for the Old Debentures will have an initial tax basis equal to the adjusted
tax basis of the Old Debentures exchanged therefor increased by the amount of
any gain recognized on the exchange and decreased by the cash received, and
(iv) the Common Stock will have a holding period that includes the period
during which the Old Debtholder held the Old Debentures exchanged therefor.
Realized gain, for this purpose, would be equal to the excess, if any, of (i)
the sum of the cash and fair market value of the Common Stock received, over
(ii) the exchanging Old Debtholder's adjusted tax basis in the Old Debentures
surrendered therefor.
If the exchange of Old Debentures for Common Stock and cash
would not constitute a recapitalization, an exchanging Old Debtholder would
recognize gain or loss equal to the difference between (i) the sum of the
cash and fair market value of the Common Stock received, and (ii) the
exchanging Old Debtholder's adjusted tax basis in the Old Debentures
surrendered therefor. Such gain or loss would be capital gain or loss
(subject to the market discount rules discussed below), provided the
exchanging Old Debtholder held the Old Debentures exchanged therefor as
capital assets, and would be long-term capital gain or loss if the Old
Debentures were held for more than one year. Each such Old Debtholder's
holding period for the Common Stock would commence on the day after the
exchange.
Accrued Interest on the Old Debentures. Under Section
354(a)(2)(B) of the Code, an Old Debtholder exchanging Old Debentures for
Common Stock and cash pursuant to the Exchange Offer will be treated as
receiving interest income to the extent that the Common Stock and cash
received by the Old Debtholder is "attributable to" accrued but unpaid
interest on the Old Debentures since the beginning of the Old Debtholder's
holding period. The Company in its information filings with the Internal
Revenue Service (the "Service") intends to take the position that no portions
of the Common Stock and cash received in exchange for the Old Debentures will
be attributable to accrued but unpaid interest. Accordingly, if this
treatment is respected, an exchanging Old Debtholder will not recognize any
interest income on the exchange (and will recognize a loss if the unpaid
interest has already been accrued as income). There is no assurance,
however, that the Company's intended treatment of the Old Debentures' accrued
but unpaid interest will be respected by the Service. If a contrary position
were successfully asserted by the Service, ordinary income would be
recognized by exchanging Old Debtholders to the extent the Common Stock and,
cash received is attributable to accrued but unpaid interest on the Old
Debentures. This will also have an effect on the Old Debtholder's initial
tax basis and holding period of the Common Stock received in exchange for the
Old Debentures. Old Debtholders should consult their own tax advisors
regarding the allocation of Common Stock and cash to accrued but unpaid
interest on the Old Debentures and make their own independent determination
whether any portion of the Common Stock, the New Debentures, if any, and the
Cash Payment received in the Exchange Offer should be treated as received in
payment of accrued interest.
Market Discount on the Old Debentures or Common Stock. The
Code generally requires holders of "market discount bonds" to treat as
interest income any gain realized on the disposition of such bonds to the
extent of the market discount accrued during the holder's period of
ownership. A "market discount bond" generally is a debt obligation purchased
at a market discount, subject to a statutory de minimis exception. For this
purpose, a purchase at a market discount includes a purchase at or after the
original issue at a price below the stated redemption price at maturity.
An exception to the market discount rules is made for
certain nonrecognition transactions, such as the Exchange Offer. According
to this exception, exchanging Old Debtholders will be required to treat
accrued market discount as interest income at the time of the exchange only
to the extent gain is recognized by the exchanging Old Debtholder pursuant to
the Exchange Offer. However, on a subsequent disposition of the Common Stock
received in the Exchange Offer, gain realized on the disposition will be
treated as ordinary income to the extent of the market discount accrued by
the exchanging Old Debtholder prior to the Exchange Offer but not recognized
at the time of the exchange.
A taxpayer's accrued market discount generally equals a
percentage of the bond's market discount, which is based on the number of
days the taxpayer held the bond at the time of its disposition, over the
number of days from the date the taxpayer acquired the bond to its date of
maturity. Also, holders of market discount bonds are required, under certain
circumstances, to defer the deduction of all or a portion of the interest on
indebtedness incurred or maintained to acquire or carry market discount
bonds. Neither the rule treating accrued market discount as ordinary income
on a disposition nor the rule deferring interest deductions applies if the
holder of a "market discount bond" elects to include the accrued market
discount in income currently. This election would apply to all market
discount bonds acquired on or after the first day of the first taxable year
to which the election applies, and may be revoked only with the consent of
the Service.
Sale or Exchange of Common Stock. In general, subject to
the market discount rules discussed above, the sale, exchange or redemption
of the Common Stock received in the offer will result in capital gain or loss
equal to the difference between the amount realized and the Old Debtholder's
adjusted tax basis in the Common Stock immediately before such sale, exchange
or redemption. For a discussion of the determination of an Old Debtholder's
initial tax basis in the Common Stock, see "Exchange of Old Debentures for
Common Stock and Cash General."
Consequences to Non-Exchanging Holders. The Exchange Offer
will not result in the recognition of income, gain or loss to Old Debtholders
who do not participate in the Exchange Offer.
Consequences to the Common Stock Holders. The Exchange
Offer will have no United States federal income tax consequences to the
Common Stock Holders in their capacity as stockholders of the Company.
Effect of the Exchange Offer on the Company. If a debtor
corporation transfers stock to a creditor in satisfaction of its
indebtedness, the debtor generally will realize cancellation of indebtedness
("COD") income to the extent that the fair market value of the stock
transferred is less than the adjusted issue price of the debt surrendered in
exchange therefor. Based on certain assumptions contained in this Offer to
Exchange, including the assumption that $5,250,000 in principal amount of Old
Debentures will be exchanged, the Company could realize as much as $2,625,000
of COD income (if the Common Stock were to have no value as of the date of
the Exchange Offer and if no New Debentures were issued in exchange for the
Old Debentures) as a result of the Exchange Offer. However, the Company has
a substantial net operating loss carryforward that the Company believes will
be sufficient to offset any COD income that may be included in the Company's
gross income as a result of the offer.
It is believed that the Exchange Offer, by itself, will not
cause the Company to undergo an "ownership change" under the rules of Section
382 of the Code. If applicable, Section 382 would limit the Company's
ability to carry forward any net operating loss existing after the Company's
calculation of its gross income for the taxable year of the Exchange Offer
(including the recognition of any COD income resulting from the Exchange
Offer) to taxable years after the Exchange Offer (including a portion of the
taxable year which includes the Exchange Offer). If an ownership change were
to occur, the Company's annual use of its carryforward of net operating
losses generally could not exceed an amount equal to the product of (i) the
fair market value of the stock outstanding (reduced by certain capital
contributions) immediately before the offer, and (ii) the federal long-term
tax-exempt rate.
12. WAIVER OF DEFAULTS; AMENDMENT OF INDENTURE.
All Old Debtholders who tender Old Debentures and whose Old
Debentures are accepted for exchange by the Company shall be deemed (i) to
have waived, with respect to those Old Debentures exchanged, all existing
defaults, and all consequences of such defaults, under the Indenture, (ii) to
have consented to the following amendments to the Indenture:
(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) amending 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%".
13. EXTENSION OF THE EXCHANGE OFFER; TERMINATION; AMENDMENTS.
The Company expressly reserves the right, in its sole
discretion, at any time and from time to time, to extend the period of time
during which the Exchange Offer is open by giving oral or written notice of
such extension to the Depositary and making a public announcement thereof.
Currently the Company is restricted from extending the Expiration Date since
the Settlement Agreement requires that the actual closing occur on or before
November 30, 1995. The Company also expressly reserves the right, in its
sole discretion, to terminate the Exchange Offer and not accept for payment
or pay for any Old Debentures or, subject to applicable law, to postpone
payment for Old Debentures upon the occurrence of any of the conditions
specified in Section 5 by giving oral or written notice of such termination
or postponement to the Depositary and making a public announcement thereof.
The Company's reservation of the right to delay payment for Old Debentures
which it has accepted for payment is limited by Rule 13e-4(f)(5) promulgated
under the Securities Exchange Act of 1934, which requires that the Company
must pay the consideration offered or return the Old Debentures tendered
promptly after termination or withdrawal of a tender offer. Subject to
compliance with applicable law, the Company further reserves the right, in
its sole discretion, to amend the Exchange Offer in any respect or to waive
the limitation on the maximum and minimum principal amount of Old Debentures
to be exchanged pursuant to the Exchange Offer. Amendments to the Exchange
Offer may be made at any time and from time to time by public announcement
thereof, such announcement, in the case of an extension, to be issued no
later than 9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date. Any public announcement made pursuant
to the Exchange Offer will be disseminated promptly to Old Debtholders in a
manner reasonably designed to inform Old Debtholders of such change. Without
limiting the manner in which the Company may choose to make a public
announcement, the Company currently intends to make public announcement by
making a release to the Dow Jones News Service. The rights reserved by the
Company in this paragraph are in addition to the Company's right to terminate
the Exchange Offer pursuant to Section 5.
If the Company materially changes the terms of the Exchange
Offer or the information concerning the Exchange Offer, or if it waives a
material condition of the Exchange Offer, the Company will disseminate
additional tender offer materials and extend the Exchange Offer to the extent
required by Rules 13e-4(d)(2) and 13e-4(e)(2), promulgated under the
Securities Exchange Act of 1934. These rules require that the minimum period
during which an offer must remain open following material changes in the
terms of the offer or information concerning the offer (other than a change
in price or a change in percentage of securities sought) will depend on the
facts and circumstances, including the relative materiality of such terms or
information. If (a) the Company increases or decreases the price to be paid
for Old Debentures, or the Company decreases the principal amount of Old
Debentures being sought, and (b) the Exchange Offer is scheduled to expire at
any time earlier than the expiration of a period ending on the tenth business
day from, and including, the date that notice of such increase or decrease is
first published, sent or given, the offer will be extended until the
expiration of such period of ten business days.
14. FEES AND EXPENSES.
The Company has retained Georgeson & Company Inc. as
Information Agent and First Fidelity Bank, N.A. as Depositary in connection
with the Exchange Offer. The Information Agent may contact Old Debtholders
by mail, telephone, telex, telegraph and personal interviews, and may request
brokers, dealers and other nominee Old Debtholders 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 will not pay fees or commissions to any broker,
dealer, commercial bank, trust company or other person for soliciting any Old
Debentures pursuant to the Exchange Offer. The Company will, however, on
request, reimburse such persons for customary handling and mailing expenses
incurred in forwarding materials in respect of the offer to the beneficial
owners for which they act as nominees. No such broker, dealer, commercial
bank or trust company has been authorized to act as the Company's agent for
purposes of this Exchange Offer. The Company will pay (or cause to be paid)
any transfer taxes on its exchange of Old Debentures, except as otherwise
provided in Instruction 6 of the Letter of Transmittal.
15. MISCELLANEOUS.
The Exchange Offer is not being made to, nor will the
Company accept tenders from, holders of Old Debentures in any jurisdiction in
which the Exchange Offer or its acceptance would not comply with the
securities or Blue Sky laws of such jurisdiction. In any jurisdiction the
securities or Blue Sky laws of which require the Exchange Offer to be made by
a licensed broker or dealer, the Exchange Offer is being made on the
Company's behalf by one or more registered brokers or dealers licensed under
the laws of such jurisdiction.
Pursuant to Rule 13e-4 under the Exchange Act, the Company
has filed with the Commission an Issuer Tender Exchange Offer Statement on
Schedule 13E-4, together with exhibits, with respect to the Exchange Offer.
The foregoing documents, including exhibits and any amendments thereto, which
furnish certain additional information with respect to the Exchange Offer,
may be examined and copies may be obtained at the same places and in the same
manner as with information concerning the Company as set forth in Section 8
(except that such information will not be available at the regional offices
of the Commission).
PACIFIC INTERNATIONAL SERVICES CORP.
October 31, 1995
Addresses for Information Agent and for Depositary:
Information Agent
Georgeson & Company Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Depositary
By Mail: By Hand:
P.O. Box 1380 Corporate Trust/Special Operations
Newark, New Jersey 07101 10 Bank Street - 3rd Floor
Newark, New Jersey 070102
(Eligible Institutions Only)
Facsimile Transmission Number (201) 430-4797
Confirmation Number (201) 430-4762
Information Number (800) 458-0924
Exhibit A
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 2,174 326 544
Receivables
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 750 500
Claims
3,250 2,400
Net Liquidation Proceeds
Available for $9,736 $13,838
Distribution
</TABLE>
<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 5,151 0.3% 11.5%
Expenses
Secured Accrued 1,390 100.0% 100.0%
Expenses
Vehicle Financing 9,569 72.4% 84.9%
Debt
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>
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.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF PACIFIC INTERNATIONAL SERVICES CORP.
Page
----
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
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
/s/ Price Waterhouse LLP
Honolulu, Hawaii
March 28, 1995, except as to Note 16,
which is as of October 31, 1995
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
============ ===========
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
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
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)
------------ ------------ ------------
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
============ ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
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
Subscrip
-tions
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
========== ======== =========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
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
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
Supplemental schedule of noncash investing and financing activities:
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 -
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
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
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.
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>
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
----------- -----------
OTHER DEBT:
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 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 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.
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:
Year Ended December 31,
1994 1993 1992
----------- ----------- -----------
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
=========== =========== ===========
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.
6. OTHER INCOME AND EXPENSES
Year Ended December 31,
1994 1993 1992
----------- ----------- ----------
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)
============ =========== ============
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 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.
Deferred tax assets (liabilities) are comprised of the following:
December 31,
1994 1993
---------- ----------
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)
========== ==========
$ - $ -
========== ==========
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:
Year Ended December 31,
1994 1993 1992
---------- ----------- ----------
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 $ -
========= ========== =========
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 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:
Options Outstanding
------------------------------------------------
Shares Price Per Share Amount
------------- ---------------- -------------
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
============= ================ =============
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.
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.
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
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.
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:
1994 1993
----------- -----------
Computer equipment $1,028,000 $966,000
Less accumulated
amortization (464,000) (253,000)
----------- -----------
Property under capital
leases - net $ 564,000 $713,000
=========== ===========
Future minimum payments under non cancelable operating leases and capital
leases as of December 31, 1994 are as follows:
Operating Leases Capital Leases
---------------- ----------------
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
================
Occupancy related rental expense, including property taxes, was as follows:
Year Ended December 31,
---------------------------------------
1994 1993 1992
---- ---- ----
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
========== ========== ==========
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 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 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 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 $1.98 million (unaudited)
for the six months ended June 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 is pursuing
extensions of the deadlines for satisfaction of these conditions.
INDEX TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
OF PACIFIC INTERNATIONAL SERVICES CORP.
Page
----
FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 1994
AND JUNE 30, 1995:
Condensed Consolidated Balance Sheets as of December
31, 1994 and June 30, 1995 (unaudited) F-33
Condensed Consolidated Statements of Operations
for the three months ended June 30, 1994 and
June 30, 1995 and for the six months ended
June 30, 1994 and June 30, 1995 (unaudited) F-35
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1994
and June 30, 1995 (unaudited) F-37
Note to Condensed Consolidated Financial Statements F-40
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
--------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $427,922 $831,952
Receivables, net 12,078,821 10,023,512
Automobile dealership
vehicle inventories 9,238,175 4,961,600
Inventories and prepaid
expenses 1,709,205 899,453
Rental vehicles, at cost,
less accumulated
depreciation 9,250,585 42,367,410
Furniture, equipment and
leasehold improvements,
net of accumulated
depreciation and
amortization 7,655,056 8,149,846
Other assets 2,034,941 2,038,462
----------- -----------
Total Assets $42,394,705 $69,272,235
=========== ===========
LIABILITIES AND SHAREHOLDERS EQUITY
Accounts payable $7,774,627 $5,744,507
Accrued expenses and
other liabilities 7,125,689 8,152,270
Senior debt 22,131,009 48,034,463
Convertible subordinated
debentures 5,250,000 5,250,000
----------- -----------
Total liabilities 42,281,325 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
Additional paid-in capital 9,102,181 9,102,181
Accumulated deficit (9,796,781) (7,819,166)
----------- -----------
Total shareholders' equity 113,380 2,090,995
----------- -----------
Total liabilities and
shareholders' equity $42,394,705 $69,272,235
=========== ===========
SEE ACCOMPANYING NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Vehicle rental $11,921,078 $13,283,130 $24,535,550 $27,184,699
Vehicle sales 11,950,869 10,883,066 22,697,361 20,933,924
------------ ----------- ----------- -----------
Total operating
revenues 23,871,947 24,166,196 47,232,911 48,118,623
------------ ----------- ----------- -----------
Operating costs
and expenses:
Cost of vehicles sold 9,124,519 8,364,102 17,194,272 15,847,197
Depreciation of
rental vehicles 1,693,586 969,558 3,508,142 2,901,337
Interest on fleet
debt 491,977 517,488 1,392,995 1,142,441
Other direct fleet 4,077,710 3,138,941 6,620,770 5,450,425
Personnel 3,340,155 3,750,420 6,736,082 7,316,757
Occupancy 2,147,973 2,156,534 4,311,281 4,303,128
Other direct
operating 2,562,232 3,095,202 5,443,502 6,596,890
Other selling,
general and
administrative 1,930,327 1,939,547 3,712,335 3,605,229
------------ ----------- ----------- -----------
Total operating
costs and
expenses 25,368,479 23,931,792 48,919,379 47,163,404
------------ ----------- ----------- -----------
Income (loss)
from operations (1,496,532) 234,404 (1,686,468) 955,219
Interest income 11,003 15,720 20,068 25,265
SEE ACCOMPANYING NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------------------------------
1995 1994 1995 1994
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other interest expense (245,985) (229,906) (443,255) (430,490)
Other, net 132,040 (17,853) 132,040 (36,010)
------------ ----------- ----------- -----------
Net income (loss) $(1,599,474) $2,365 $(1,977,615) $513,984
============ =========== ============ ===========
Earnings (loss)
per common share $(0.20) $0.00 $(0.24) $0.06
============ =========== ============ ===========
SEE ACCOMPANYING NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating
activities:
Net income (loss) $(1,977,615) $513,984
Adjustments to reconcile
net income (loss) to net cash
provided by operating activities:
(Gain) or Loss on sale of
rental vehicles 710,042 (572,064)
Depreciation of rental
vehicles and amortization
of related costs 4,062,886 3,701,469
Depreciation and amortization,
other 594,536 506,824
Provision for losses on
rental vehicles 399,897 389,289
Provision for losses
on receivables 369,237 108,490
Provision for self-insurance 103,994 881,742
Change in assets
and liabilities:
Receivables (2,424,546) (2,749,231)
Automobile dealership
vehicle inventories (4,276,575) 2,239,130
Inventories, prepaid
expenses and other assets (806,231) (694,582)
Accounts payable 2,030,120 1,501,796
Accrued expenses and
other liabilities (1,130,575) (37,452)
Notes payable for
automobile dealership
vehicle inventories 13,609,831 6,583,005
------------ -----------
Net cash provided by
operating activities 11,265,001 12,372,400
------------ -----------
Cash flows from investing
activities:
Proceeds from the sale
of rental vehicles 10,977,352 6,587,676
Purchases of rental vehicles (230,510) (1,278,992)
Proceeds from the sale of furniture,
equipment and leasehold
improvements 160,476 -
Additions to furniture, equipment
and leasehold improvements (274,864) (913,953)
------------ -----------
Net cash provided by
investing activities 10,632,454 4,394,731
------------ -----------
Cash flows from
financing activities:
Principal payments of
senior debt (22,301,485) (16,530,790)
------------ -----------
Net cash used in
financing activities (22,301,485) (16,530,790)
------------ -----------
Net increase (decrease) in cash (404,030) 236,341
Cash and cash equivalents at
beginning of period 831,952 1,719,123
------------ -----------
Cash and cash equivalents
at end of period $427,922 $1,955,464
============ ===========
Supplemental schedule of noncash investing and financing
activities:
Senior debt incurred for
additions to rental vehicles $827,660 $20,484,068
Senior debt incurred from
conversion of lease obligations $ - $1,400,000
Rental vehicle purchases not
yet financed $39,688 $1,350,619
Reduction of senior debt
resulting from turnback
of rental vehicles $(18,063,993) $(25,739,992)
Capital lease obligation
incurred from purchase of
equipment $ - $72,911
</TABLE>
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 Offer to Exchange for
the years ended December 31, 1994, 1993 and 1992.
Certain prior year amounts have been reclassified to conform to the 1995
presentation.
PACIFIC INTERNATIONAL SERVICES CORP.
To
CHEMICAL TRUST COMPANY OF CALIFORNIA
Trustee
INDENTURE
Dated as of ____________________, 199__
10% Subordinated Debentures Due 2007
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions. . . . . . . . . . . . . . . . . . 1
Section 1.2. Other Definitions. . . . . . . . . . . . . . . 3
Section 1.3. Incorporation by Reference of
Trust Indenture Act . . . . . . . . . . . . . 3
Section 1.4. Rules of Construction . . . . . . . . . . . . 3
ARTICLE 2
THE SECURITIES
Section 2.1. Form and Dating . . . . . . . . . . . . . . . 4
Section 2.2. Execution and Authentication . . . . . . . . . 4
Section 2.3. Registrar and Paying Agent . . . . . . . . . . 4
Section 2.4. Paying Agent to Hold Money in
Trust . . . . . . . . . . . . . . . . . . . . 5
Section 2.5. Securityholder Lists . . . . . . . . . . . . . 5
Section 2.6. Transfer and Exchange . . . . . . . . . . . . 5
Section 2.7. Replacement Securities . . . . . . . . . . . . 6
Section 2.8. Outstanding Securities . . . . . . . . . . . . 6
Section 2.9. Temporary Securities . . . . . . . . . . . . . 6
Section 2.10. Cancellation . . . . . . . . . . . . . . . . 7
Section 2.11. Defaulted Interest . . . . . . . . . . . . . 7
ARTICLE 3
REDEMPTION
Section 3.1. Notices to Trustee . . . . . . . . . . . . . . 7
Section 3.2. Selection of Securities to be
Redeemed . . . . . . . . . . . . . . . . . . 8
Section 3.3. Notice of Redemption . . . . . . . . . . . . . 8
Section 3.4. Effect of Notice of Redemption . . . . . . . . 9
Section 3.5. Deposit of Redemption Price . . . . . . . . . 9
Section 3.6. Securities Redeemed in Part . . . . . . . . . 9
ARTICLE 4
COVENANTS
Section 4.1. Payment of Securities . . . . . . . . . . . . 9
Section 4.2. SEC Reports . . . . . . . . . . . . . . . . . 9
Section 4.3. Compliance Certificate . . . . . . . . . . . . 10
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1. Events of Default . . . . . . . . . . . . . . 10
Section 5.2. Acceleration . . . . . . . . . . . . . . . . . 11
Section 5.3. Other Remedies . . . . . . . . . . . . . . . . 11
Section 5.4. Waiver of Past Defaults . . . . . . . . . . . 11
Section 5.5. Control by Majority . . . . . . . . . . . . . 12
Section 5.6. Limitation on Suits . . . . . . . . . . . . . 12
Section 5.7. Rights of Holders to Receive
Payment . . . . . . . . . . . . . . . . . . . 12
Section 5.8. Collection Suit by Trustee . . . . . . . . . . 13
Section 5.9. Trustee May File Proofs of
Claim . . . . . . . . . . . . . . . . . . . . 13
Section 5.10. Priorities . . . . . . . . . . . . . . . . . 13
Section 5.11. Undertaking For Costs . . . . . . . . . . . . 13
ARTICLE 6
TRUSTEE
Section 6.1. Duties of Trustee . . . . . . . . . . . . . . 14
Section 6.2. Rights of Trustee . . . . . . . . . . . . . . 15
Section 6.3. Individual Rights of
Trustee, etc . . . . . . . . . . . . . . . . 15
Section 6.4. Trustee's Disclaimer . . . . . . . . . . . . . 16
Section 6.5. Notice of Defaults . . . . . . . . . . . . . . 16
Section 6.6. Reports by Trustee to Holders . . . . . . . . 16
Section 6.7. Compensation and Indemnity . . . . . . . . . . 16
Section 6.8. Replacement of Trustee . . . . . . . . . . . . 17
Section 6.9. Successor Trustee by
Merger, etc . . . . . . . . . . . . . . . . . 18
Section 6.10. Eligibility; Disqualification . . . . . . . . 18
Section 6.11. Preferential Collection of
Claims Against Corporation . . . . . . . . . 18
ARTICLE 7
SATISFACTION AND DISCHARGE OF INDENTURE
Section 7.1. Satisfaction and Discharge of
Indenture . . . . . . . . . . . . . . . . . . 18
Section 7.2. Application of Trust Money . . . . . . . . . . 19
Section 7.3. Repayment to Corporation . . . . . . . . . . . 19
ARTICLE 8
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.1. Without Consent of Holders . . . . . . . . . . 19
Section 8.2. With Consent of Holders . . . . . . . . . . . 19
Section 8.3. Compliance with Trust Indenture
Act . . . . . . . . . . . . . . . . . . . . . 20
Section 8.4. Revocation and Effect of
Consents . . . . . . . . . . . . . . . . . . 20
Section 8.5. Notation on or Exchange of
Securities . . . . . . . . . . . . . . . . . 21
Section 8.6. Trustee to Sign Amendments,
etc. . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 9
SUBORDINATION
Section 9.1. Agreement to Subordinate . . . . . . . . . . . 21
Section 9.2. Certain Definitions . . . . . . . . . . . . . 21
Section 9.3. Liquidation, Dissolution,
Bankruptcy . . . . . . . . . . . . . . . . . 22
Section 9.4. Default on Senior Debt . . . . . . . . . . . . 22
Section 9.5. Acceleration of Securities . . . . . . . . . . 23
Section 9.6. When Distribution Must be
Paid Over . . . . . . . . . . . . . . . . . . 23
Section 9.7. Notice of Corporation . . . . . . . . . . . . 23
Section 9.8. Subrogation . . . . . . . . . . . . . . . . . 23
Section 9.9. Relative Rights . . . . . . . . . . . . . . . 23
Section 9.10. Subordination May Not Be
Impaired by Corporation . . . . . . . . . . . 24
Section 9.11. Distribution or Notice to
Representative . . . . . . . . . . . . . . . 24
Section 9.12. Rights of Trustee and Paying
Agent . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 10
MISCELLANEOUS
Section 10.1. Trust Indenture Act Controls . . . . . . . . 24
Section 10.2. Notices . . . . . . . . . . . . . . . . . . . 25
Section 10.3. Communication by Holders with
Other Holders . . . . . . . . . . . . . . . . 25
Section 10.4. Certificate and Opinion as to
Conditions Precedent . . . . . . . . . . . . 25
Section 10.5. Statements Required in
Certificate or Opinion . . . . . . . . . . . 26
Section 10.6. When Treasury Securities
Disregarded . . . . . . . . . . . . . . . . . 26
Section 10.7. Rules by Trustee, Paying Agent
and Registrar . . . . . . . . . . . . . . . . 26
Section 10.8. Legal Holidays . . . . . . . . . . . . . . . 26
Section 10.9. Governing Law . . . . . . . . . . . . . . . . 27
Section 10.10. No Adverse Interpretation of
Other Agreements . . . . . . . . . . . . . . 27
Section 10.11. No Recourse Against Others . . . . . . . . . 27
Section 10.12. Successors . . . . . . . . . . . . . . . . . 27
Section 10.13. Duplicate Originals . . . . . . . . . . . . 27
Section 10.14. Appointment of Agent for
Service . . . . . . . . . . . . . . . . . . 27
INDENTURE, dated as of ____________________, 199___, between PACIFIC
INTERNATIONAL SERVICES CORP., a California corporation ("Corporation"), and
CHEMICAL TRUST COMPANY OF CALIFORNIA, a California corporation, as trustee
("Trustee").
WHEREAS, the Corporation executed an Indenture dated September 1, 1987
between the Company and Trust Services of America, Inc., as amended on February
1, 1990 to substitute Manufacturers Hanover Trust Co. of California as Trustee
and as subsequently amended on ____________________, 19___ to substitute
Chemical Trust Company of California as Trustee (the "Indenture") pursuant to
which the Corporation issued 10% Convertible Subordinated Debentures Due 2007
(the "Debentures"); and
WHEREAS, the Corporation has as a result of [an Exchange Offer or
Prepackage Plan] agreed to issue in exchange for the Debentures, inter alia, new
debentures (the "Securities").
NOW, THEREFORE, each party agrees as follows:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"Board of Directors" means the Board of Directors of the Corporation
or the Executive Committee of the Board.
"Corporation" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Registrar's books.
"Indenture" means this Indenture as amended or supplemented from time
to time.
"Officer" means the Chief Executive Officer, any Vice President or the
Secretary of the Corporation.
"Officers' Certificate" means a certificate signed by two officers or
by an Officer and an Assistant Treasurer or Assistant Secretary of the
Corporation. See Sections 10.4 and 10.5.
"Opinion of Counsel" means a written opinion from legal counsel
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Corporation or the Trustee. See Sections 10.4 and 10.5.
"Principal" of a Security means the principal of the Security plus,
when appropriate, the premium, if any, on the Security.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described above issued under this
Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-
77bbbb) as in effect on the date of this Indenture, except as provided in
Section 8.3.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
Section 1.2. Other Definitions.
Defined
Term in Section
"Bankruptcy Law" . . . . . . . . . 5.1
"Custodian" . . . . . . . . . . . 5.1
"Event of Default" . . . . . . . . 5.1
"Indebtedness" . . . . . . . . . . 5.1
"Legal Holiday" . . . . . . . . . 10.8
"Paying Agent" . . . . . . . . . . 2.3
"Registrar" . . . . . . . . . . . 2.3
"Representative" . . . . . . . . . 9.2
"Senior Debt" . . . . . . . . . . 9.2
Section 1.3. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC;
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" mens the Trustee;
and
"obligor" on the indenture securities means the Corporation.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them.
Section 1.4. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting
principles;
(3) "or" is not exclusive; and
(4) words in the singular include the plural, and in the plural
include the singular.
ARTICLE 2
THE SECURITIES
Section 2.1. Form and Dating. The Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A.
The terms and provisions in the Securities shall constitute, and are hereby
expressly made, a part of the Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Security shall be dated the date of its authentication.
Section 2.2. Execution and Authentication. At least two Officers
shall sign the Securities for the Corporation by mutual or facsimile signature.
The Corporation's seal shall be impressed, affixed, imprinted or reproduced on
the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall be
valid nevertheless.
A Security shall not be valid until the Trustee manually signs the
certificates of authentication on the Security. The signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount not to exceed $_____________ upon a written order or
orders of the Corporation signed by two Officers or by an Officer and an
Assistant Treasurer or Assistant Secretary of the Corporation. The aggregate
principal amount of Securities outstanding at any time is herein called the
"principal amount of the Securities" and may not exceed $____________, except as
provided in Section 2.7.
The Trustee may appoint an authenticating agent acceptable to the
Corporation to authenticate Securities. Except as limited in its appointment,
an authenticating agent may authenticate Securities whenever the Trustee may do
so. Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent.
Section 2.3. Registrar and Paying Agent. The Corporation shall
maintain an office or agency where Securities may be presented for registration
of transfer or for exchange ("Registrar"), and an office or agency where
Securities may be presented for payment ("Paying Agent"). The Registrar shall
keep a register of Securities and of their transfer and exchange. The
Corporation may have one or more co-registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Corporation shall enter into an appropriate agency agreement with
any Registrar, Paying Agent, or co-registrar not a party to this Indenture. The
agreement shall implement the provisions of this Indenture that relate to such
agent. The Corporation shall notify the Trustee of the name and address of any
such agent. If the Corporation fails to maintain a Registrar or Paying Agent,
the Trustee shall act as such.
The Corporation initially appoints the Trustee as Registrar and Paying
Agent.
Section 2.4. Paying Agent to Hold Money in Trust. Each Paying Agent
shall hold in trust for the benefit of Securityholders or the Trustee all money
held by the Paying Agent for the payment of principal of or interest on the
Securities, and shall notify the Trustee of any default by the Corporation in
making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay any money held by it to the Trustee. If the
Corporation acts as Paying Agent, it shall segregate the money and hold it as a
separate trust fund. The Corporation at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon doing so the Paying Agent shall
have no further liability for the money.
Section 2.5. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Corporation shall furnish to the Trustee on or before each
interest payment date and at such other times as the Trustee may request in
writing a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of Securityholders.
Section 2.6. Transfer and Exchange. Where a Security is presented to
the Registrar or a co-registrar with a request to register a transfer, the
Registrar shall register the transfer as requested if the requirements of
Section 8-401(1) of the Uniform Commercial Code are met. Where Securities are
presented to the Registrar or a co-registrar with a request to exchange them for
an equal principal amount of Securities of other denominations, the Registrar
shall make the exchange as requested if the same requirements are met. To
permit registration of transfers and exchanges, the Trustee shall authenticate
Securities at the Registrar's request. The Corporation may charge a reasonable
fee for any registration of transfer or exchange but not for any exchange
pursuant to Sections 2.9, 3.6 or 8.5. The Corporation shall not be required to
make transfers or exchanges of Securities for a period of 15 days before a
selection of Securities to be redeemed or before an interest payment.
Section 2.7. Replacement Securities. If the Holder of a Security
claims that the Security has been mutilated, lost, destroyed or wrongfully
taken, the Corporation may issue and the Trustee shall authenticate a
replacement Security at the request of the Corporation if the requirements of
Section 8-405 of the Uniform Commercial Code are met. Such holder shall furnish
an indemnity bond sufficient, in the judgment of the Corporation and the
Trustee, to protect the Corporation, the Trustee, the Paying Agent, the
Registrar or any co-registrar from any loss which any of them may suffer if a
Security is replaced. The Corporation and the Trustee may charge for their
expenses in replacing a Security. Each replacement Security is an additional
obligation of the Company.
Section 2.8. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those cancelled
by it or delivered to it for cancellation and those described in this Section.
A Security does not cease to be outstanding because the Corporation or an
affiliate of the Corporation holds the Security.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent holds on a redemption date or maturity date money
sufficient to pay Securities payable on that date, then on and after that date
(in the case of a redemption, if notice of redemption has been given) such
Securities cease to be outstanding and interest on them ceases to accrue.
If a Security is called for redemption or if it matures in less than a
year and if the Corporation has satisfied its obligations to pay the Security,
the Corporation and the Trustee need not treat the Security as outstanding in
determining whether Holders of the required principal amount of Securities have
concurred in any direction, waiver or consent.
Section 2.9. Temporary Securities. Until definitive Securities are
ready for delivery, the Corporation may prepare and the Trustee shall
authenticate temporary Securities. Temporary Securities shall be substantially
in the form of definitive Securities but may have variations that the
Corporation considers appropriate for temporary Securities. Without
unreasonable delay, the Corporation shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities.
Section 2.10. Cancellation. The Corporation at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for transfer,
exchange or payment. The Trustee and no one else shall cancel and destroy all
Securities surrendered for transfer, exchange, payment or cancellation. The
Corporation may not issue new Securities to replace Securities it has paid or
delivered to the Trustee for cancellation.
Section 2.11. Defaulted Interest. If the Corporation defaults in a
payment of interest on the Securities, it shall pay the defaulted interest to
the persons who are Securityholders on a subsequent special record date. The
Corporation shall fix the special record date and payment date. At least 15
days before the special record date, the Corporation shall mail to each
Securityholder and the Trustee a notice that states the special record date, the
payment date, and the amount of defaulted interest to be paid. The Corporation
may pay defaulted interest in any other lawful manner.
ARTICLE 3
REDEMPTION
Section 3.1. Notices to Trustee. If the Corporation wants to redeem
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee of the redemption date and the principal amount of Securities to be
redeemed. The election of the Corporation to redeem any Securities shall be
evidenced by a resolution of the Board of Directors, and can be made at any time
and from time to time after the date hereof. The Corporation shall furnish to
the Trustee a written statement signed by an Officer of the Corporation (1)
stating that there exists no Default or Event of Default and (2) if the
redemption is to occur prior to _____________, 199_, evidencing (in reasonable
detail) satisfaction of the conditions contained in paragraph 5 of the
Securities relating to redemption prior to _______________, 199_. If the
Corporation wants to reduce the principal amount of the Securities that it must
redeem pursuant to paragraph 6 of the Securities, it shall notify the Trustee of
the principal amount of Securities to be credited. The Corporation shall give
each notice provided for in this Section at least 45 days before the redemption
date.
Section 3.2. Selection of Securities to be Redeemed. If less than
all the Securities are to be redeemed, the Trustee shall select the Securities
to be redeemed by a method the Trustee considers fair and appropriate. The
Trustee shall make the selection from outstanding Securities not previously
called for redemption. The Trustee may select for redemption portions of the
principal of Securities that have denominations larger than $1,000. Securities
and portions of them it selects shall be in amounts of $1,000 or a whole
multiple of $1,000. Provisions of this Indenture that apply to Securities
called for redemption also apply to portions of Securities called for
redemption.
Section 3.3. Notice of Redemption. At least 15 days but not more
than 60 days before a date for redemption of Securities, the Corporation shall
mail a notice of redemption by first class mail to each holder of Securities to
be redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) that interest on Securities called for redemption ceases to
accrue on and after the redemption date; and
(6) that in the event any Security is to be redeemed in part only,
the portion of the principal amount thereof (equal to $1,000 or any
integral multiple thereof) to be redeemed and that, on and after the
redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof
(equal to $1,000 or any integral multiple thereof) will be issued.
At the Corporation's request, the Trustee shall give the notice of
redemption in the Corporation's name and at its expense. In such event the
Corporation will provide the Trustee with the information required by clauses
(1) through (7) above.
Section 3.4. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date.
Section 3.5. Deposit of Redemption Price. Prior to the redemption
date, the Corporation shall deposit with the Paying Agent money sufficient to
pay the redemption price of and accrued interest on all Securities to be
redeemed on that date.
Section 3.6. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part, the Trustee shall authenticate for the Holder
a new Security equal in principal amount to the unredeemed portion of the
Security surrendered.
ARTICLE 4
COVENANTS
Section 4.1. Payment of Securities. The Corporation shall promptly
pay the principal of and interest on the Securities on the dates and in the
manner provided in the Securities. Principal and interest shall be considered
paid on the date due if the Paying Agent holds on that date money designated for
and sufficient to pay all principal and interest then due; provided, however,
money held by the Trustee for the benefit of holders of Senior Debt pursuant to
the provisions of Article 9 hereof shall not be considered paid within the
meaning of this Section 4.1.
The Corporation shall pay interest on overdue principal at the rate
borne by the Securities, and it shall pay interest on overdue installments of
interest at the same rate to the extent lawful.
Section 4.2. SEC Reports. The Corporation shall file with the
Trustee within 15 days after it files them with the SEC, copies of the annual
report and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Corporation is required to file with the SEC pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. The Corporation
also shall comply with the provisions of TIA Section 314(a).
Section 4.3. Compliance Certificate. The Corporation shall deliver
to the Trustee within 120 days after the end of each fiscal year of the
Corporation an Officers' Certificate stating whether or not the signers know of
any Default that occurred during the fiscal year. If they do, the certificate
shall describe the Default and its status. The Corporation also shall deliver
to the Trustee an Officer's Certificate promptly upon the occurrence of a
Default, describing the Default and its status.
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1. Events of Default. An "Event of Default" occurs if:
(1) the Corporation defaults in the payment of interest on any
Security when the same becomes due and payable and the default
continues for a period of 30 days or more;
(2) The Corporation defaults in the payment of the principal of
any Security when the same becomes due and payable at maturity, upon
redemption or otherwise, regardless of whether such payment is
prohibited by the provisions of Article 9;
(3) the Corporation pursuant to or within the meaning of any
Bankruptcy Law;
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of it
or for any substantial part of its property, or
(D) makes a general assignment for the benefit of its
creditors; or
(4) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Corporation in an
involuntary case,
(B) appoints a Custodian of the Corporation or for any
substantial part of its property, or
(C) orders the winding up or liquidation of the
Corporation,
and the order or decree remains unstayed and in effect for 60
days.
The term "Bankruptcy Law" means Title 11, United States Code, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian, or similar
official under any Bankruptcy Law.
Section 5.2. Acceleration. If an Event of Default occurs and is
continuing, the Trustee by notice to the Corporation, or the Holders of at least
50% in principal amount of the outstanding Securities by notice to the
Corporation and the Trustee, may declare the principal of and accrued interest
on all the Securities to be due and payable. Upon such declaration such
principal and interest shall be due and payable immediately. The Holders of a
majority in principal amount of the outstanding Securities by notice to the
Trustee may rescind an acceleration and its consequences if all existing Events
of Default have been cured or waived and if the rescission would not conflict
with any judgment or decree and of all payments due to the Trustee.
Section 5.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy by proceeding at law or
in equity to collect the payment of principal of or interest on the Securities
or to enforce the performance of any provision of the Securities and this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
Section 5.4. Waiver of Past Defaults. Subject to Section 8.2, the
Holders of a majority in principal amount of the outstanding Securities by
notice to the Trustee may waive an existing Default or Event of Default and its
consequences. When a Default or Event of Default is waived, it is cured and
stops continuing, but such waiver shall not extend to any subsequent or other
Default or Event of Default or impair any consequent right.
Section 5.5. Control by Majority. The Holders of a majority in
principal amount of the outstanding Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture or, subject to
Section 6.1, that the Trustee determines is unduly prejudicial to the rights of
other Securityholders or would involve the Trustee in personal liability.
Section 5.6. Limitation on Suits. A Securityholder may not pursue
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that
an Event of Default is continuing;
(2) the Holders of at least 50% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loan, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer to indemnify; and
(5) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee
a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over the other
Securityholder.
Section 5.7. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Security, on or after the respective
due dates expressed in the Security, or to bring suit for the enforcement of any
such payment on or after such respective dates shall not be impaired or affected
without the consent of the Holder.
Section 5.8. Collection Suit by Trustee. If an Event of Default in
payment of interest or principal specified in Section 5.1(1), (2) or (3) occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Corporation for the whole amount of
principal and interest remaining unpaid.
Section 5.9. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Corporation, its creditors
or its property and, unless prohibited by law or applicable regulations, may
vote on behalf of the Holders in any election of a trustee in bankruptcy or
other person performing similar functions.
Section 5.10. Priorities. If the Trustee collects any money pursuant
to this Article, it shall pay out the money in the following order.
First: to the Trustee for amounts due under Section 6.7;
Second: to holders of Senior Debt to the extent required by
Article 9;
Third: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
Fourth: to the Corporation.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section.
Section 5.11. Undertaking For Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 5.7, or a suit by Holders of
more than 10% in principal amount of the outstanding Securities.
ARTICLE 6
TRUSTEE
Section 6.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise its rights and powers and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions, which by any provision of this Indenture
are specifically required to be furnished to the Trustee, to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the Corporation. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 6.2. Rights of Trustee.
(a) Subject to Section 6.1, the Trustee may rely on any document
believed by it to be genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys or agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers.
(e) The Trustee may consult with counsel and the written advice of
such counsel or any opinion of counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
Section 6.3. Individual Rights of Trustee, etc. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Corporation or its affiliates with the same
rights it would have if it were not Trustee. Any Paying Agent, Registrar or co-
registrar may do the same with like rights. However, the Trustee must comply
with Sections 6.10 and 6.11.
Section 6.4. Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the
Securities, it shall not be accountable for the Corporation's use of the
proceeds from the Securities, and it shall not be responsible for any statement
in the Securities other than its certificate of authentication.
Section 6.5. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 90 days after it occurs. Except in
the case of a default in payment on any Security, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Securityholders.
Section 6.6. Reports by Trustee to Holders. Within 60 days after
each __________ beginning with the __________ following the date of this
Indenture, the Trustee shall mail to each Securityholder a brief report dated as
of _________ that complies with TIA Section 313(a). The Trustee also shall
comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange on which the Securities are
listed. The Corporation agrees to notify the Trustee whenever the Securities
become listed on any stock exchange.
Section 6.7. Compensation and Indemnity. The Corporation shall pay
to the Trustee from time to time reasonable compensation for its services (which
compensation shall not be limited by any provision of law in regard to the
compensation of the trustee of an express trust). The Corporation shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred by it. Such expenses shall include the reasonable compensation and
expenses of the Trustee's agents and counsel. The Corporation agrees to
indemnify the Trustee and its officers, directors, agents and employees for and
to hold them harmless against any loss or liability incurred by them in
connection with the acceptance or administration of this trust, including the
costs and expenses of defending themselves against any claim or liability in
connection with the exercise or performance of any of their powers or duties
hereunder. The Trustee shall notify the Corporation promptly of any claim for
which it or any of such persons may seek indemnity. The Corporation need not
reimburse any expense or indemnify against any loss or liability incurred by the
Trustee or any of such persons through negligence or bad faith or for a
settlement made without the Corporation's consent.
To secure the Corporation's payment obligations in this Section, the
Trustee shall have a senior claim to which the Securities are hereby made
subordinate on all money or property held or collected by Trustee, except that
held in trust to any principal of and interest on particular Securities.
Section 6.8. Replacement of Trustee. The Trustee may resign by so
notifying the Corporation. The Holders of a majority in principal amount of the
outstanding Securities may remove the Trustee by so notifying the removed
Trustee and may appoint a successor Trustee with the Corporation's consent. The
Corporation may remove the Trustee if:
(1) the Trustee fails to comply with Section 6.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Corporation shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Corporation. Immediately after
that, the retiring Trustee shall transfer all property held by it as Trustee to
the successor Trustee, the resignation or removal of the retiring Trustee shall
then become effective, and the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. A successor Trustee
shall mail notice of its succession to each Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Corporation or
the Holders of at least 10% in principal amount of the Securities may petition
any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 6.10, any Securityholders
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Section 6.9. Successor Trustee by Merger, etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation, the
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee.
Section 6.10. Eligibility; Disqualification. This Indenture shall
always have a Trustee who satisfies the requirements of TIA Section 310(a)(1).
The Trustee shall have a combined capital and surplus of at least $20,000,000 as
set forth in its most recent published annual report of condition. The Trustee
shall comply with TIA Section 310(b), including the optional provision permitted
by the second sentence of TIA Section 310(b)(9).
Section 6.11. Preferential Collection of Claims Against Corporation.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE 7
SATISFACTION AND DISCHARGE OF INDENTURE
Section 7.1. Satisfaction and Discharge of Indenture. If at any time
(a) the Corporation shall have delivered to the Trustee for cancellation all
Securities theretofore authenticated (other than any Securities destroyed, lost
or stolen and replaced or paid as provided in Section 2.7), or (b) all such
Securities not theretofore delivered to the Trustee for cancellation shall have
become due and payable or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice for redemption and the
Corporation shall deposit with the Trustee as trust funds an amount (other than
moneys paid to the Corporation in accordance with Section 7.3) sufficient to pay
at maturity or upon redemption all such Securities not theretofore delivered to
the Trustee for cancellation, including principal and interest due or to become
due to such date of maturity or date fixed for redemption, as the case may be,
and Article 9 permits such deposit and if, in either case, (y) the Corporation
shall also pay all other sums payable hereunder by the Corporation, and (z) the
Corporation shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of the Indenture have been
complied with, then this Indenture shall cease to be of further effect, and the
Trustee, on demand of and at the cost and expense of the Corporation, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture. Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Corporation under Sections 2.3, 2.4, 2.5, 2.6, 6.7 and
6.8 shall survive until the Securities are no longer outstanding. Thereafter,
the Corporation's obligations under Sections 6.7 and 7.3 shall survive.
Section 7.2. Application of Trust Money. The Trustee shall hold in
trust money deposited with it pursuant to Section 7.1. It shall apply the
deposited money in accordance with this Indenture, first, to the payment of
amounts owed pursuant to Section 6.7 and, second, through the Paying Agent to
the payment of principal of and interest on the Securities. Money so held in
trust is not subject to Article 9.
Section 7.3. Repayment to Corporation. The Trustee and the Paying
Agent shall promptly pay to the Corporation upon request any excess money or
securities held by them at any time. Unless an abandoned property law otherwise
requires, the Trustee and the Paying Agent shall pay to the Corporation upon
request any money held by them for the payment of principal or interest that
remains unclaimed for two years.
ARTICLE 8
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 8.1. Without Consent of Holders. The Corporation may amend
or supplement this Indenture or the Securities without notice to or consent of
any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for uncertificated Securities in addition to or in
place of certificated Securities; or
(3) to make any change that does not materially adversely affect the
rights of any Securityholder.
Section 8.2. With Consent of Holders. The Corporation may amend or
supplement this Indenture or the Securities without notice to any Securityholder
but with the written consent of the Holders of more than 50% in principal amount
of the outstanding Securities. However, without the consent of each
Securityholder affected, an amendment, supplement or waiver, including a waiver
pursuant to Section 5.4, may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or change the time for payment of interest on
any Security;
(3) reduce the principal of or change the fixed maturity of any
Security or alter the redemption provisions with respect thereto;
(4) make any Security payable in money other than that stated in the
Security;
(5) make any change in Article 9 that adversely affects the rights of
any Securityholder; or
(6) make any change in Section 5.4 or 5.7 or this Section.
An amendment under this Section may not make any change that adversely
affects the rights under Article 9 of any holder of an issue of Senior Debt
unless the holders of the issue consent to the change.
After an amendment under this Section becomes effective, the
Corporation shall mail to Securityholders a notice briefly describing the
amendment.
Section 8.3. Compliance with Trust Indenture Act. Every amendment
to or supplement of this Indenture or the Securities shall comply with the TIA
as then in effect.
Section 8.4. Revocation and Effect of Consents. A consent to an
amendment, supplement or waiver by a Holder of a Security shall bind the Holder
and every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent is not made on the Security. However, any such Holder or subsequent
Holder may revoke the consent as to such Holder's Security or portion of the
Security. The Trustee must receive the notice of revocation before the date the
amendment, supplement or waiver becomes effective.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder unless it makes a change described in Section 8.2. In
that case the amendment, supplement or waiver shall bind each Holder of a
Security who has consented to it and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security.
Section 8.5. Notation on or Exchange of Securities. If an amendment,
supplement or waiver changes the terms of a Security, the Trustee may require
the Holder of the Security to deliver it to the Trustee. The trustee may place
an appropriate notation on the Security about the changed terms and return it to
the Holder. Alternatively, if the Corporation or the Trustee so determine, the
Corporation in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms.
Section 8.6. Trustee to Sign Amendments, etc.. The Trustee shall
sign any amendment, supplement or waiver authorized pursuant to this Article if
the amendment, supplement or waiver does not adversely affect the rights,
duties, liabilities or immunities of the Trustee. If it does, the Trustee may
but need not sign it. In signing such amendment, supplement or waiver the
Trustee shall be entitled to receive, and (subject to Section 6.1) shall be
fully protected in relying upon, an Opinion of Counsel stating that such
amendment, supplement or waiver is authorized or permitted by this Indenture.
The Corporation may not sign an amendment or supplement until the Board of
Directors approves it.
ARTICLE 9
SUBORDINATION
Section 9.1. Agreement to Subordinate. The Corporation agrees, and
each Securityholder by accepting a Security agrees, that the indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article, to the prior payment in full of all
Senior Debt, and that the subordination is for the benefit of the holders of
Senior Debt.
Section 9.2. Certain Definitions. "Representative" means the
indenture trustee or other trustee, agent or representative for an issue of
Senior Debt.
"Senior Debt" means the principal of and unpaid interest on (a) all
indebtedness of the Corporation (other than the Securities), whether outstanding
on the date of execution of this Indenture or thereafter created, incurred or
assumed, which is (i) for money borrowed or (ii) evidenced by a note or similar
instrument given in connection with the acquisition of any business, properties
or assets, including securities, (b) any indebtedness of others of the kinds
described in the preceding clause (a) for the payment of which the Corporation
is responsible or liable as grantor or otherwise and (c) amendments, renewals,
extensions and refundings of any such indebtedness, unless in any instrument or
instruments evidencing or securing such indebtedness or pursuant to which the
same is outstanding, or in any such amendment, renewal, extension or refunding,
it is provided that such indebtedness is not superior in right of payment to the
Securities.
A distribution may consist of cash, securities, or other property.
Section 9.3. Liquidation, Dissolution, Bankruptcy. Upon any
distribution to creditors of the Corporation in a liquidation or dissolution of
the Corporation or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Corporation or its property:
(1) holders of Senior Debt shall be entitled to receive payment in
full in cash of the principal of and interest (including interest accruing
after the commencement of any such proceeding) to the date of payment on
the Senior Debt before Securityholders shall be entitled to receive any
payment of principal of or interest on Securities; and
(2) until the Senior Debt is paid in full in cash, any distribution
to which Securityholders would be entitled but for this Article shall be
made to holders of Senior Debt as their interests may appear, except that
Securityholders may receive securities that are subordinated to Senior Debt
to at least the same extent as the Securities.
Section 9.4. Default on Senior Debt. The Corporation may not pay
principal of or interest on the Securities and may not acquire any Securities
for cash or property other than capital stock of the Corporation or securities
that are subordinated to Senior Debt to at least the same extent as the
Securities if:
(1) any Senior Debt is not paid when due or any other default on
Senior Debt occurs and continues for any period of time and after any
notice the passage and giving of which is necessary to permit holders of
Senior Debt to accelerate its maturity; and
(2) the nonpayment or default is the subject of judicial proceedings
or the Corporation receives a notice of the nonpayment or default from a
person who may give it pursuant to Section 9.12.
The Corporation may resume payments on the Securities and may acquire
them when:
(1) the default is cured or waived or
(2) 150 days pass after the notice is given if the default is not the
subject of judicial proceeding,
if this Article otherwise permits the payment or acquisition at that time.
Section 9.5. Acceleration of Securities. If payment of the
Securities is accelerated because of an Event of Default, the Corporation shall
promptly notify holders of Senior Debt of the acceleration. The Corporation may
pay the Securities when 120 days pass after the acceleration occurs if this
Article permits the payment at that time.
Section 9.6. When Distribution Must be Paid Over. If a distribution
is made to Securityholders that because of this Article should not have been
made to them, the Securityholders who receive the distribution shall hold it in
trust for holders of Senior Debt and pay it over to them as their interests may
appear.
Section 9.7. Notice of Corporation. The Corporation shall promptly
notify the Trustee and the Paying Agent of any facts known to the Corporation
that would cause a payment of principal of or interest on the Securities to
violate this Article.
Section 9.8. Subrogation. After all Senior Debt is paid in full and
until the Securities are paid in full, Securityholders shall be subrogated to
the rights of holders of Senior Debt to receive distributions applicable to
Senior Debt to the extent that distributions otherwise payable to the
Securityholders have been applied to the payment of Senior Debt. A distribution
made under this Article to holders of Senior Debt which otherwise would have
been made to Securityholders is not, as between the Corporation and
Securityholders, a payment by the Corporation on Senior Debt.
Section 9.9. Relative Rights. This Article defines the relative
rights of Securityholders and holders of Senior Debt. Nothing in this Indenture
shall:
(1) impair, as between the Corporation and Securityholders, the
obligation of the Corporation, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their terms;
(2) affect the relative rights of Securityholders and creditors of
the Corporation other than holders of Senior Debt; or
(3) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Debt to receive distributions otherwise payable to Securityholders.
If the Corporation fails because of this Article to pay principal of
or interest on a Security on the due date, the failure is still a Default.
Section 9.10. Subordination May Not Be Impaired by Corporation. No
right of any holder of Senior Debt to enforce the subordination of the
indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Corporation or by its failure to comply with this Indenture.
Section 9.11. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Debt, the
distribution may be made and the notice given to their Representative.
Section 9.12. Rights of Trustee and Paying Agent. The Trustee or
Paying Agent may continue to make payments on the Securities until it receives
written notice that payments may not be made under this Article. The
Corporation, the Registrar or co-registrar, the Paying Agent, a Representative
or a holder of Senior Debt may give the notice. If an issue of Senior Debt has
a Representative, only the Representative may give the notice. Prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Sections 6.1 and 6.2, shall be entitled in all respects conclusively to assume
that no such fact exists.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. The Registrar,
co-registrar and the Paying Agent may do the same with like rights.
ARTICLE 10
MISCELLANEOUS
Section 10.1. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies, or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
Section 10.2. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first-
class mail addressed as follows:
if to the Corporation:
Pacific International Services Corp.
1600 Kapiolani Boulevard, Suite 825
Honolulu, Hawaii 96814
Attention: Chief Executive Officer
if to the Trustee:
Chemical Trust Company of California
_______________________________
_______________________________
The Corporation or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
by first class mail to him at his address as it appears on the registration
books of the Registrar and shall be sufficiently given to him if so mailed
within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Section 10.3. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Corporation, the Trustee, the Registrar and anyone else shall
have the protection of TIA Section 312(c).
Section 10.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Corporation to the Trustee to take any
action under this Indenture, the Corporation shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 10.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
Section 10.6. When Treasury Securities Disregarded. In determining
whether the Holders of the required principal amount of Securities have
concurred in any direction, waiver or consent, Securities owned by the
Corporation or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Corporation shall be
disregarded, except that for the purpose of determining whether the Trustee
shall be protected in relying on such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
Section 10.7. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar or the Paying Agent may make reasonable rules for its functions.
Section 10.8. Legal Holidays. A "Legal Holiday" is a Saturday, a
Sunday, a legal holiday or a day on which banking institutions are not required
to be open. If a payment date is a Legal Holiday at a place of payment, payment
shall be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
Section 10.9. Governing Law. The internal laws (and not the law
pertaining to choice or conflict of laws) of the State of California shall
govern this Indenture and the Securities.
Section 10.10. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Corporation. Any such indenture, loan or debt agreement may not be used
to interpret this Indenture.
Section 10.11. No Recourse Against Others. All liability described
in paragraph 16 of the Securities of any director, officer, employee or
stockholder, as such, of the Corporation is waived and released.
Section 10.12. Successors. All agreements of the Corporation in this
Indenture and the Securities shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
Section 10.13. Duplicate Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
Section 10.14. Appointment of Agent for Service. By the execution
and delivery of this Indenture, the Corporation hereby appoints the Trustee as
its agent upon which process may be served in any legal action or proceeding
which may be instituted in any Federal or State court in Los Angeles,
California, arising out of or relating to the Securities or this Indenture.
Service of process upon such agent at the office of such agent at
__________________________________________________, Attention: Corporate Trust
Department (or such other address in California as may be the corporate trust
office of the Trustee), and written notice of said service to the Corporation by
the person serving the same addressed as provided in Section 10.2, shall be
deemed in every respect effective service of process upon the Corporation in any
such legal action or proceeding, and the Corporation hereby submits to the
jurisdiction of any such court in which any such legal action or proceeding is
so instituted. Such appointment shall be irrevocable so long as the Holders
shall have any rights pursuant to the terms thereof or of this Indenture until
the appointment of a successor by the Corporation with the consent of the
Trustee and such successor's acceptance of such appointment. The Corporation
further agrees to take any and all action, including the execution and filing of
any and all such documents and instruments as may be necessary to continue such
designation and appointment of such agent or successor. By the execution and
delivery of this Indenture, the Trustee hereby agrees to act as such agent and
undertakes promptly to notify the Corporation of receipt by it of service of
process in accordance with this Section 10.14.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
PACIFIC INTERNATIONAL SERVICES
(Seal) CORP., a California corporation
By:
Attest:
CHEMICAL TRUST COMPANY OF
(Seal) CALIFORNIA, as Trustee
By:
Attest:
EXHIBIT A
FORM OF FACE OF DEBENTURE
No. $
PACIFIC INTERNATIONAL SERVICES CORP.
___% Subordinated Debenture Due 200_
Pacific International Services Corp., a California corporation,
promises to pay to
or registered assigns, the principal sum of
Dollars on ______________, 200_.
Interest Payment Dates: __________________________
Record Dates: __________________________
Additional provisions of this Security are set forth on the other side
of this Security.
PACIFIC INTERNATIONAL SERVICES (Seal)CORP., a
California corporation
By:
Date of Authentication:
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION:
Chemical Trust Company
of California, as Trustee,
certifies that this is one
of the Securities referred
to in the within-mentioned
Indenture. By:
By:
Authorized Signatory
FORM OF REVERSE SIDE OF DEBENTURE
PACIFIC INTERNATIONAL SERVICES CORP.
10% Subordinated Debenture Due 2007
1. INTEREST.
Pacific International Services Corp., a California corporation
("Corporation"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Corporation will pay interest
semi-annually on March 1 and September 1 of each year. Interest on the
Securities will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from _________________, 1995. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT.
The Corporation will pay interest on the Securities (except defaulted
interest) to the persons who are registered holders of Securities at the closing
of business on the February 15 and August 15 next preceding the interest payment
date even if Securities are canceled after the record date and on or before the
interest payment date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Corporation will pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Corporation may pay principal
and interest by check payable in such money. It may mail an interest check to a
holder's registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, Chemical Trust Company of California ("Trustee"),
________________________________________, will act as Paying Agent and
Registrar. The Corporation may appoint and change any Paying Agent, Registrar
or co-registrar without notice. The Corporation may act in such capacity.
4. INDENTURE.
The Corporation issued the Securities under an Indenture dated as of
___________________, 199__ ("Indenture"), between the Corporation and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code Sections 77aaa-77bbbb) as in effect on the date of the Indenture.
The Securities are subject to all such terms, and Securityholders are referred
to the Indenture and such Act for a statement of those terms. The Securities
are unsecured general obligations of the Corporation limited to $_____________
in aggregate principal amount.
5. OPTIONAL REDEMPTION.
The Corporation may redeem any of the Securities at any time and from
time to time after the date hereof at a redemption price of 100% of the
principal amount plus accrued interest to the redemption date.
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed at least 15 days but not more than
60 days before the redemption date to each holder of Securities to be redeemed
to the holder's registered address. On and after the redemption date interest
ceases to accrue on Securities or portions of them called for redemption.
Securities in denominations larger than $1,000 may be redeemed in part but only
in whole multiples of $1,000.
7. SUBORDINATION.
The Securities are subordinated to Senior Debt, which is broadly
defined and includes all indebtedness for borrowed money or evidenced by a note
or similar instrument given for certain purposes and any guarantee, endorsement
or other contingent obligation in respect thereto, except any indebtedness,
liability or obligation that by its terms is not senior in right or payment to
the Securities and certain indebtedness, which itself is subordinated. To the
extent provided in the Indenture, Senior Debt must be paid before the Securities
may be paid. The Corporation agrees, and each Securityholder by accepting a
Security agrees, to the subordination and authorizes the Trustee to give it
effect.
8. DENOMINATIONS, TRANSFER, EXCHANGE.
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not transfer or exchange any Securities selected
for redemption, except that, where public notice has been given that a Security
is to be redeemed in part, the portion of the Security not to be redeemed may be
transferred. Also, it need not transfer or exchange any Securities for a period
of 15 days before a selection of Securities to be redeemed or before an interest
payment.
9. PERSONS DEEMED OWNERS.
The registered holder of this Security may be treated as the owner of
it for all purposes.
10. UNCLAIMED MONEY.
If moneys or the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent will pay the money back to the
Corporation at its request. After that, holders entitled to the money must look
only to the Corporation and not to the Trustee for payment unless an abandoned
property law designates another person.
11. SATISFACTION AND DISCHARGE OF INDENTURE.
When all outstanding Securities become due and payable or by their
terms are to become due and payable or are to be called for redemption under
arrangements satisfactory to the Trustee for the giving of notice of redemption,
the Corporation may deliver to the Trustee sufficient funds to pay at maturity
or upon redemption all such Securities not previously delivered to the Trustee
for cancellation, including principal and accrued interest and all other sums
then payable by the Corporation under the Indenture, and thereupon the
Corporation will, with certain exceptions, be discharged from the Indenture and
the Securities.
12. AMENDMENT, SUPPLEMENT, WAIVER.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the holders of more than 50%
in principal amount of the outstanding Securities, and any existing default or
compliance with any provision may be waived with the written consent of the
holders of a majority in principal amount of the outstanding Securities.
Without the consent of any Securityholder, the Corporation may amend or
supplement the Indenture or the Securities to cure any ambiguity, omission,
defect or inconsistency, or to provide for uncertificated Securities in addition
to or in place of certificated Securities, or to make any change that does not
materially adversely affect the rights of any Securityholder.
13. SUCCESSOR CORPORATION.
When a successor corporation assumes all the obligations of its
predecessor under the Securities and the Indenture, the predecessor corporation
will be released from those obligations.
14. DEFAULTS AND REMEDIES.
If an Event of Default (as defined in the Indenture) occurs and is
continuing, the Trustee or the holders of at least 50% in principal amount of
the outstanding Securities may declare the principal of and accrued interest on
all the Securities to be due and payable immediately. Securityholders may not
enforce the Indenture or the Securities except as provided in the Indenture.
The Trustee may refuse to enforce the Indenture or the Securities unless it
receives indemnity satisfactory to it. Subject to certain limitations, holders
of a majority in principal amount of the outstanding Securities may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Securityholders notice of any continuing default (except a default in payment of
principal or interest) if it determines that withholding notice is in their
interest. The Corporation must furnish an annual compliance certificate to the
Trustee and periodic notice of defaults.
15. TRUSTEE DEALINGS WITH THE CORPORATION.
Chemical Trust Company of California, the Trustee under the Indenture,
in its individual or other capacity may become the owner or pledgee of
Securities and may otherwise deal with and collect obligations owed to it by the
Corporation or its affiliates and may otherwise deal with the Corporation or its
affiliates with the same rights it would have if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the
Corporation shall not have any liability for any obligations of the Corporation
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
17. AUTHENTICATION.
This Security shall not be valid until the Trustee signs the
certification of authentication on the other side of this Security.
18. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gifts to Minors
Act).
The Corporation will furnish to any Securityholder upon written
request and without charge a copy of the Indenture. Requests may be made to:
Secretary, Pacific International Services Corp., 1600 Kapiolani Boulevard, Suite
825, Honolulu, Hawaii 96814.
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
\ \
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint agent to transfer this
Security on the books of the Corporation. The agent may substitute another to
act for him.
Date: Your Signature:
(Sign exactly as your name appears on the other side of this Security.)
Pacific International Services Corp.
October 31, 1995
To the Record Holders of
Pacific International Services
Corp.'s 10% Convertible
Subordinated Debentures Due 2007
In connection with the distribution to you today of the Offer to Exchange
dated October 31, 1995 (the "Offer") made by Pacific International Services
Corp. (the "Company"), it has come to the Company's attention that an incorrect
reference to the "consolidated financial statements and notes thereto of the
Company appearing in the Company's Proxy Statement filed with the SEC in
connection with the Proposed Sale (copies of which are available from the
Information Agent at the addresses indicated elsewhere herein....)" may have
been contained in the paragraph immediately following the heading "Historical
and Pro Forma Condensed Financial Data of the Company" on or about page 43 of
the Offer to Exchange. The correct reference should have been to the
"consolidated financial statements and notes thereto of the Company attached
hereto."
Similarly, the reference to "Proxy Statement" contained in the "NOTE TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) should have been a
reference to "Offer to Exchange".
PACIFIC INTERNATIONAL SERVICE'S CORP.
By: /s/ Alan M. Robin
Its: Chairman, CEO and President
LETTER OF TRANSMITTAL
To Accompany
10% Convertible Subordinated
Debentures
Due September l, 2007
of
PACIFIC INTERNATIONAL SERVICES CORP.
Tendered Pursuant to the Offer to Exchange
Dated October 31, 1995
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK TIME, ON
WEDNESDAY, NOVEMBER 29, 1995, UNLESS THE OFFER IS EXTENDED.
To: FIRST FIDELITY BANK, N.A., Depositary
By Mail: By Hand:
P.O. Box 1380 Corporate Trust/Special Operations
Newark, New Jersey 07101 10 Bank Street - 3rd Floor
Newark, New Jersey 070102
(Eligible Institutions Only)
Facsimile Transmission Number (201) 430-4797
Confirmation Number (201) 430-4762
Information Number (800) 458-0924
DESCRIPTION OF DEBENTURES TENDERED
(See Instructions 3, 4 and 9)
Name(s) and Address(es) of Registered Debenture(s) Tendered
Owner(s) (Please Fill in Exactly as Name(s) (Attach signed list
Appear(s) on Debenture(s)) if necessary)
Principal Principal
Amount Amount of
Debenture Represented by
Debentures
Number(s)* Debenture(s)
Tendered**
Total Principal Amount of
Debentures Tendered***
* Need not be completed if Debentures are delivered by book-entry transfer.
** If you desire to tender less than all of the principal amount of Debentures
evidenced by any Debenture listed above, please indicate in this column the
principal amount of Debentures you wish to tender. Otherwise, the entire
principal amount of all listed Debentures will be deemed to have been
tendered. See Instruction 4.
*** The principal amount of Debenture tendered must be an integral multiple of
$1,000.
Delivery of this instrument to an address other than those shown above
or transmission of instructions via a facsimile or telex number other than those
listed above does not constitute a valid delivery.
This Letter of Transmittal is to be used only (a) if Debentures (as
defined below) are to be physically forwarded with it, or (b) if a tender of
Debentures is to be made by book-entry transfer to the account maintained by the
Depositary at The Depository Trust company ("DTC"), the Midwest Securities Trust
Company ("MSTC") or the Philadelphia Depository Trust Company ("PDTC")
(collectively, the "Book-Entry Transfer Facilities") pursuant to Section 2 of
the Offer to Exchange.
Debtholders whose Debentures are not immediately available or who
cannot deliver their Debentures and all other documents required by this Letter
of Transmittal to the Depositary at or before the Expiration Date (as defined in
the Offer to Exchange) (or who are unable to comply with the procedure for
book-entry transfer on a timely basis) must tender their Debentures according to
the guaranteed delivery procedure set forth in Section 2 of the Offer to
Exchange. See Instruction 2. Delivery of documents to one of the Book-Entry
Transfer Facilities does not constitute delivery to the Depositary.
CHECK HERE IF TENDERED DEBENTURES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH ONE OF THE BOOK-ENTRY
FACILITIES AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
Check Box of applicable Book-Entry Transfer Facility:
DTC ^ ^ MSTC ^ ^ PDTC^ ^
Account Number:
Transaction Code Number:
CHECK HERE IF DEBENTURES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(s)
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution Which Guaranteed Delivery:
Check Box of applicable Book-Entry Transfer Facility and give Account Number
if Delivered by Book-Entry Transfer:
DTC ^ ^ MSTC ^ ^ PDTC^ ^
Account Number:
Transaction Code Number:
Ladies and Gentlemen:
The undersigned hereby tenders to Pacific International Services Corp.,
a California corporation (the "Company"), the principal amount of 10%
Convertible Subordinated Debentures Due September 1, 2007 (the "Debentures") as
set forth above, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Company's Offer to Exchange dated October 31, 1995,
receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which together constitute the "Offer"). The undersigned understands that for
each $1.00 in principal amount of Debentures properly tendered and accepted by
the Company he/she will receive $0.50 in cash (the "Cash Payment"), .769505
shares of the Company's common stock $0.10 stated value (the "Common Stock") and
a pro rata share of new debentures (the "New Debentures") of the Company in an
aggregate principal amount equal to $1,050,000 less the face amount of any
Debentures not tendered and less the original principal amount, if any, of a new
promissory note (the "Net Worth Note") which may be issued to Dollar Systems,
Inc., as part of the sale by the Company of substantially all of the assets and
liabilities comprising the Company's vehicle rental division. The Cash Payment,
the .769505 shares of Common Stock and the issuance of the New Debentures are
collectively referred to as the "Purchase Price". Accrued interest will not be
paid on the Debentures tendered and accepted for exchange. All Debtholders who
tender Debentures and whose Debentures are accepted for exchange by the Company
shall be deemed to have waived, with respect to those Debentures exchanged, all
existing defaults and all consequences of such defaults, under the Indenture
dated September 1, 1988 between the Company and Chemical Trust Company of
California (as successor trustee to Manufacturers Hanover Trust Co. of
California) as Trustee, as amended.
Subject to and effective upon acceptance for exchange of the Debentures
tendered hereby in accordance with the terms of the Offer (including, if the
Offer is extended or amended, the terms or conditions of any such extension or
amendment), the undersigned hereby sells, assigns, and transfers to or upon the
order of the Company all right, title and interest in and to all Debentures
tendered hereby or orders the registration of such Debentures tendered by
book-entry transfer that are exchanged pursuant to the Offer; and hereby
irrevocably constitutes and appoints the Depositary as attorneys-in-fact of the
undersigned with respect to such Debentures, with full power of substitution
(such power of attorney being an irrevocable power coupled with an interest),
to:
(a) deliver such Debentures, or transfer ownership of such Debentures
on the account books maintained by a Book-Entry Transfer Facility, together in
either such case with all accompanying evidences of transfer and authenticity,
to or upon the order of the Company;
(b) present such Debentures for cancellation and transfer on the
Company's books; and
(c) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Debentures, subject to the next paragraph, all in
accordance with the terms of the Offer.
The undersigned hereby represents and warrants that:
(a) the undersigned "owns" the Debentures tendered hereby within the
meaning of Rule 10b-4 promulgated under the Securities Exchange Act of 1934, as
amended, and has full power and authority to validly tender, sell, assign, and
transfer the Debentures tendered hereby;
(b) when and to the extent the Company accepts the Debentures for
exchange, the Company will acquire good, marketable, and unencumbered title to
them, free and clear of all security interests, liens, charges, encumbrances,
conditional sales agreements, or other obligations relating to their sale or
transfer, and not subject to any adverse claim;
(c) on request the undersigned will execute and deliver any additional
documents the Depositary or the Company deems necessary or desirable to complete
the assignment, transfer, and purchase of the Debentures tendered hereby; and
(d) the undersigned has read and agrees to all of the terms of the
Offer.
The names and addresses of the registered holders should be printed, if
they are not already printed above, as they appear on the Debentures tendered
hereby. The principal amount of Debentures that the undersigned wishes to
tender should be indicated in the appropriate boxes.
The undersigned understands that all Debentures properly tendered and
not withdrawn will be exchanged at the Purchase Price, upon the terms and
subject to the conditions of the Offer and that the Company will return all
other Debentures.
The undersigned recognizes that the Company may terminate or amend the
Offer or may not be required to exchange any of the Debentures tendered hereby.
In any of such events, the undersigned understands that any Debentures not
tendered or not exchanged will be returned to the undersigned at the address
indicated above, unless otherwise indicated under the Special Payment
Instructions or Special Delivery Instructions below. The undersigned recognizes
that the Company has no obligation, pursuant to the Special Payment
Instructions, to transfer any Debentures from the name of their registered
holder, or to order the registration or transfer of such Debentures tendered by
book-entry transfer, if the Company exchanges none of the Debentures represented
by such debentures or tendered by such book-entry transfer.
The undersigned understands that acceptance of Debentures by the
Company for exchange will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Offer.
The check for the Cash Payment, the certificate's representing the
Common Stock and the New Debentures for such of the tendered Debentures as are
accepted for exchange will be issued to the order of the undersigned and mailed
to the address indicated above unless otherwise indicated under the Special
Payment Instructions or the Special Delivery Instructions below.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned, and any
obligations of the undersigned under this Letter of Transmittal shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as stated in the Offer to Exchange, this tender is
irrevocable.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 4, 5 and 7)(See Instructions 1, 4, 5 and 7)
To be completed ONLY if DebenturesTo be completed ONLY if Debentures
representing the principal amount not representing the principal amount
tendered or not exchanged, and/or any check,not tendered or not exchanged and/or
stock certificate or new debenture any check, stock certificate or new
representing the Purchase Price of debenture representing the Purchase
Debentures exchanged, are to be issued inPrice of Debentures exchanged, issued
the name of and sent to someone other in the name of the undersigned, are
than the undersigned. to be sent to someone other than the
undersigned, or to the undersigned at an
address other than that shown above.
Issue Debenture Deliver Debenture
Check Certificates Check Certificates
__ New Debenture to: __ New Debenture to:
Name: Name:
(Please Print) (Please Print)
Address: Address:
(Include Zip Code) (Include Zip Code)
(Tax Identification or Social (Tax Identification or Social
Security Number) Security Number)
HOLDER(S) OF DEBENTURES SIGN HERE
(See Instructions 1 and 5)
Must be signed by registered holder(s) exactly as name(s)
appear(s) on Debentures(s) or on a security position listing
or by person(s) authorized to become a registered holder(s)
by certificates and documents transmitted with this Letter
of Transmittal. If signature is by attorneys-in-fact,
executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary or
representative capacity, please set forth the full title.
See Instruction 5.
(Signature(s) of Holder(s))
Dated , 1995
Name(s)
(Please Print)
Area Code and Telephone Number
(Tax Identification or
Social Security Number(s))
GUARANTEE OF SIGNATURE(S) (if required)
(See Instructions 1 and 5)
Authorized Signature
Name
(Please Print)
Title
Name of Firm
Address
(Include Zip Code)
Area Code and Telephone Number
Dated: , 1995
PLEASE COMPLETE THE SUBSTITUTE FORM W-9 ON THE TENTH PAGE OF THIS LETTER OF
TRANSMITTAL.
INSTRUCTIONS
Forming Part of the Terms of the Offer
1. Guarantee of Signatures. No signature guarantee is required if
either:
(a) this Letter of Transmittal is signed by the registered holder of
the Debentures (which term, for purposes of this document, shall include any
participant in a Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of Debentures) tendered with this
Letter of Transmittal and payment and delivery are to be made directly to
such holder; or
(b) such Debentures are tendered for the account of a member firm of
a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office, branch, or agency in the United States (each being
referred to as an "Eligible Institution").
In all other cases, an Eligible Institution must guarantee all signatures on
this Letter of Transmittal. See Instruction 5.
2. Delivery of Letter of Transmittal and Debentures; Guaranteed
Delivery Procedure. This Letter of Transmittal is to be used only if Debentures
are to be forwarded with it to the Depositary or if tenders are to be made
pursuant to the procedure for tender by book-entry transfer set forth in
Section 2 of the Offer to Exchange. Certificates for all physically tendered
Debentures, or confirmation of a book-entry transfer into the Depositary's
account at a Book-Entry Transfer Facility of Debentures tendered electronically,
together in each case with a properly completed and duly executed Letter of
Transmittal or manually signed facsimile of it, and any other documents required
by this Letter of Transmittal should be mailed or delivered to the Depositary at
the appropriate address set forth herein and must be received by the Depositary
at or before the Expiration Date (as defined in the Offer to Exchange).
Debtholders whose Debentures are not immediately available or who
cannot deliver Debentures and all other required documents to the Depositary
before the Expiration Date, or whose Debentures cannot be delivered on a timely
basis pursuant to the procedure for book-entry transfer, may tender their
Debentures by or through an Eligible Institution by properly completing and duly
executing and delivering a Notice of Guaranteed Delivered (or facsimile of it)
and by otherwise complying with the guaranteed delivery procedure set forth in
Section 2 of the Offer to Exchange. Pursuant to completion of such procedure,
all physically tendered Debentures, or book-entry confirmations, as the case may
be, as well as a properly completed and duly executed Letter of Transmittal and
all other documents required by this Letter of Transmittal, must be received by
the Depositary within five New York Stock Exchange trading days after receipt by
the Depositary of such Notice of Guaranteed Delivery, all as provided in
Section 2 of the Offer to Exchange.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by telegram, telex, facsimile transmission, or mail to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in such Notice. For Debentures to be validly tendered pursuant to the
guaranteed delivery procedure, the Depositary must receive the Notice of
Guaranteed Delivery at or before the Expiration Date.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING DEBENTURES, IS AT
THE ELECTION AND RISK OF THE TENDERING DEBTHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
The Company will not accept any alternative, conditional or contingent
tenders, nor tenders other than in $l,000 denominations. All tendering
Debtholders, by execution of this Letter of Transmittal (or a facsimile of it),
waive any right to receive any notice of the acceptance of their tender.
3. Inadequate Space. If the space provided in the box captioned
"Description of Debentures Tendered" is inadequate, the Debenture numbers and/or
the principal amount of Debentures that are being tendered should be listed on a
separate signed schedule and attached to this Letter of Transmittal.
4. Partial Tenders and Unpurchased Debentures. (Not applicable to
Debtholders who tender by book-entry transfer.) Tenders of Debentures will be
accepted only in integral multiples of $1,000. If less than the entire
principal amount of all of the Debentures is to be tendered, fill in the
principal amount of Debentures which is to be tendered in the column entitled
"Principal Amount of Debentures Tendered." In such case, if any tendered
Debentures are accepted for exchange, a new Debenture for the remaining
principal amount will be issued and sent to the registered holder, unless
otherwise specified in the "Special Payment Instructions" or "Special Delivery
Instructions" boxes on this Letter of Transmittal, promptly after the Expiration
Date. The principal amount of Debentures listed and delivered to the Depositary
are deemed to have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Assignments and Endorsements.
(a) If this Letter of Transmittal is signed by the registered
holder(s) of the Debentures tendered hereby, the signature must correspond
exactly with the name(s) as written on the face of the Debenture without any
change whatever.
(b) If the Debentures are registered in the names of two or more
joint holders, each such holder must sign this Letter of Transmittal.
(c) If any tendered Debentures are registered in different names on
several Debentures, it will be necessary to complete, sign, and submit as many
separate Letters of Transmittal (or facsimiles of it) as there are different
registrations of Debentures.
(d) When this Letter of Transmittal is signed by the registered
holder(s) of the Debentures listed and transmitted hereby, no endorsement(s) or
separate assignment is required unless payment is to be made or the Debentures
not tendered or not exchanged are to be issued, to a person other than the
registered holder(s). Signatures on such Debentures must be guaranteed by an
Eligible Institution. If this Letter of Transmittal is signed by a person other
than the registered holder of the Debentures, however, the Debentures must be
accompanied by a signed copy of the form of assignment that is attached to the
Debentures signed exactly as the name(s) of the registered holder(s) appear(s)
on the Debentures, and signatures on such Debentures or assignment forms must be
guaranteed by an Eligible Institution. See Instruction 1.
(e) If this Letter of Transmittal or any Debentures or allonges are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit the
proper evidence satisfactory to the Company of their authority to so act.
6. Transfer Taxes. Except as provided in this Instruction, no
transfer tax stamps or funds to cover such stamps need accompany this Letter of
Transmittal. The Company will pay or cause to be paid any transfer taxes
payable on the transfer to it of Debentures exchanged pursuant to the Offer.
If, however:
(a) payment of the Purchase Price is to be made to any person(s)
other than the registered holder(s);
(b) Debentures not tendered or not accepted for purchase are to be
registered in the name of any person(s) other than the registered holder(s);
or
(c) tendered Debentures are registered in the name(s) of any
person(s) other than the person(s) signing this Letter of Transmittal,
the Depositary will deduct from the Purchase Price the amount of any transfer
taxes (whether imposed on the registered holder or such other person) payable on
account of the transfer to such person, unless satisfactory evidence of the
payment of such taxes, or an exemption from them, is submitted.
7. Special Payment and Delivery Instructions. If Debentures not
tendered or not exchanged and/or checks for the Cash Payment, stock certificates
representing the Common Stock and the New Debentures are to be issued in the
name of a person other than the signer of the Letter of Transmittal or if such
certificates, New Debentures and/or checks are to be sent to someone other than
the signer of the Letter of Transmittal or to the signer at a different address,
the captioned boxes "Special Payment Instructions" and/or "Special Delivery
Instructions" on this Letter of Transmittal should be completed.
8. Irregularities. The Company will determine, in its sole
discretion, all questions as to the validity, form, eligibility (including time
of receipt) and acceptance for exchange of any tender of Debentures and its
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any or all tenders determined by it not to be in
proper form or the acceptance of or exchange for which may, in the opinion of
the Company's counsel, be unlawful. The Company also reserves the absolute
right to waive any of the conditions of the Offer or any defect or irregularity
in the tender of any particular Debentures and the Company's interpretation of
the terms of the Offer (including these instructions) will be final and binding
on all parties. No tender of Debentures will be deemed to be properly made
until all defects and irregularities have been cured or waived. Unless waived,
any defects or irregularities in connection with tenders must be cured within
such time as the Company shall determine. None of the Company, the Depositary,
the Information Agent or any other person is or will be obligated to give notice
of defects or irregularities in tenders, nor shall any of them incur any
liability for failure to give any such notice.
9. INTENTIONALLY OMITTED.
10. Questions and Requests for Assistance and Additional Copies.
Questions and requests for assistance may be directed to, or additional copies
of the Offer to Exchange, the Notice of Guaranteed Delivery, and this Letter of
Transmittal may be obtained from the Information Agent at its address and
telephone number set forth in the Letter of Transmittal.
11. Substitute Form W-9. Each tendering Debtholder (or other payee)
is required to provide the Depositary with a correct taxpayer identification
number ("TIN") on the Substitute Form W-9 which is provided under "Important Tax
Information" below, and to indicate that the Debtholder (or other payee) is not
subject to backup withholding by checking the box in Part 2 of the form.
Failure to provide the information on the form or to check the box in Part 2 of
the form may subject the tendering Debtholder (or other payee) to 31% federal
income tax withholding on the payments made to the Debtholder (or other payee)
with respect to Debentures exchanged pursuant to the Offer. The box in Part 3
of the form may be checked if the tendering Debtholder (or other payee) has not
been issued a TIN and has applied for a TIN or intends to apply for a TIN in the
near future. If the box in Part 3 is checked and the Depositary is not provided
with a TIN within sixty (60) days, the Depositary will withhold 31% on all such
payments thereafter until a TIN is provided to the Depositary.
12. Waiver of Conditions. The conditions of the Offer may be waived
by the Company, in whole or in part, at any time and from time to time in the
Company's sole discretion, in the case of any Debentures tendered.
13. Lost or Destroyed Certificates. If any Debenture(s) has been
lost or destroyed, the Debtholder should promptly notify First Fidelity Bank,
N.A., of this fact in writing, or call 1-800-458-0924. The Debtholder will then
be instructed as to the procedure to be followed in order to replace the
Debenture(s). This Letter of Transmittal and related documents cannot be
processed until procedures for replacing lost or destroyed Debentures have been
followed.
IMPORTANT: This Letter of Transmittal or a manually signed facsimile
of it (together with the Debentures or confirmation of book-entry transfer and
all other required documents) or the Notice of Guaranteed Delivery must be
received by the Depositary at or before the Expiration Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Debtholder whose tendered Debentures
are accepted for exchange is required by law to provide the Depositary with such
Debtholder's correct TIN on Substitute Form W-9 below. If the Depositary is not
provided with the correct TIN, the Internal Revenue Service may subject the
Debtholder or other payee to a $50 penalty. In addition, payments that are made
to such Debtholder or other payee with respect to Debentures pursuant to the
Offer may be subject to backup withholding.
Certain Debtholders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign Debtholder to qualify as an
exempt recipient, the Debtholder must submit a Form W-8, signed under penalties
of perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for more instructions.
If backup withholding applies, the Depositary is required to withhold
31% of any such payments made to the Debtholder or other payee. Backup
withholding is not an additional tax. Instead, the amount withheld is allowed
as a credit against the payee's tax liability. If withholding results in an
overpayment of taxes, a refund may be obtained.
Purpose of Substitute Form W-9
To prevent backup withholding on payments made to a Debtholder or
other payee with respect to Debentures exchanged pursuant to the Offer, the
Debtholder is required to notify the Depositary of the Debtholder's correct TIN
by completing the form below, certifying that the TIN provided on Substitute
Form W-9 is correct (or that such Debtholder is awaiting a TIN) and that:
(a) the Debtholder has not been notified by the Internal Revenue
Service that the Debtholder is subject to backup withholding as a result of
failure to report all interest or dividends; or
(b) the Internal Revenue Service has notified the Debtholder that the
Debtholder is no longer subject to backup withholding.
What Number to Give the Depositary
The Debtholder is required to give the Depositary the TIN (e.g.,
social security number or employer identification number) of the record holder
of the Debentures. If the Debentures are in more than one name or are not in
the name of the actual holder, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
PAYER'S NAME: FIRST FIDELITY BANK, N.A.
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR TIN ON
THE LINE AT RIGHT AND CERTIFY
Form W-9 BY SIGNING AND DATING BELOW
Social Security No. or
Employer Identification
No.
Department of the Part 2 -- Check the box if you are Not subject to
backup
Treasury; Internal withholding under the provisions of Section
3406(a)(1)(C)
Revenue Service Payers of the Internal Revenue Code because (1) you have NOT
been
Request for Taxpayer notified that you are subject to backup withholding as
a
Identification Number result of failure to report all interest or dividends
or
(TIN) (2) the Internal Revenue Service has notified you that
you are no longer subject to backup withholding.
CERTIFICATION -- UNDER THE PENALTIES OF
PERJURY, I CERTIFY THAT THE INFORMATION Part 3
PROVIDED ON THIS FORM IS TRUE, CORRECT
AND COMPLETE. Awaiting TIN
Signature Date
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECK THE BOX
IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a tax-payer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
Signature Date
The Information Agent is:
GEORGESON & COMPANY INC.
Wall Street Plaza
New York, NY 10005
Managing Director
Telephone:
Banks and Brokers Call Collect: (212) 440-9800
Call Tollfree: 1-800-223-2064
Facsimile:
(212) 440-9009
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
For this type of account:Give the SOCIAL SECURITY NUMBER of--
1. An individual's account The individual
2. Two or more individuals (joint account) The actual owner of the
account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint account) The actual owner of the account
or, if joint funds, either
person(1)
4. Custodian account of a minor (Uniform Gift The minor(1)
to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is
the only contributor, the
minor(1)
6. Account in the name of a guardian or The ward, minor, or incompetent
committee for a designated ward, minor, person(3)
or incompetent person
7. a. The usual revocable savings trust The grantor-trustee(1)
account (grantor is also trustee)
b. So-called trust account that is not The actual owner(1)
legal or valid trust under State law
8. Sole proprietorship account The Owner(4)
9. A valid trust, estate, or pension trust Legal entity (Do not
furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated
in the account title.)(5)
10. Corporate account The Corporation
11. Religious, charitable, or educational The Organization
organization account
12. Partnership account held in the name of The Partnership
the business
13. Association, club, or other tax-exempt The Organization
organization
14. A broker or registered nominee The broker or nominee
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
15. Account with the Department of The public entity
Agriculture in the name of a public
entity (such as a State or local
government, school district, or prison)
that receives agricultural program payments
1. List first and circle the name of the person whose number you furnish.
2. Circle the minor's name and furnish the minor's social security number.
3. Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
4. Show the name of the owner.
5. List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 3<PAGE>
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
0 A corporation.
0 A financial institution.
0 An organization exempt from tax under Section 501(a), or an individual
retirement plan.
0 The United States or any agency or instrumentality thereof.
0 A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
0 A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
0 An international organization or any agency, or instrumentality thereof.
0 A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
0 A real estate investment trust.
0 A common trust fund operated by a bank under Section 584(a).
0 An exempt charitable remainder trust, or a non-exempt trust described in
Section 4947(a)(1).
0 An entity registered at all times under the Investment Company Act of 1940.
0 A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
0 Payments to nonresident aliens subject to withholding under Section 1441.
0 Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
0 Payments of patronage dividends where the amount received is not paid in
money.
0 Payments made by certain foreign organizations.
0 Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
0 Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and
you have not provided your correct taxpayer identification number to
the payer.
0 Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
0 Payments described in Section 6049(b)(5) to nonresident aliens.
0 Payments on tax-free covenant bonds under Section 1451.
0 Payments made by certain foreign organizations.
0 Payments made to a nominee.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 4<PAGE>
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Sections 6041, 6041A(a),
8045, and 8050A.
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
Page 5
Privacy Act Notice. Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Beginning January 1, 1984, payers
must generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) Penalty for failure to Furnish Taxpayer Identification Number. If you fail
to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being
due to negligence and will be subject to a penalty of 5% on any portion of
an under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) Civil Penalty for False Information With Respect to Withholding. If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
10% CONVERTIBLE SUBORDINATE DEBENTURES
DUE SEPTEMBER 1, 2007
OF
PACIFIC INTERNATIONAL SERVICES CORP.
This form or a facsimile of it must be used to accept the Offer, as
defined below, if:
(a) the 10% Convertible Subordinated Debentures Due September 1, 2007
(the "Debentures") of Pacific International Services Corp., a California
corporation, are not immediately available; or
(b) the procedure for book-entry transfer cannot be completed on a
timely basis; or
(c) time will not permit the Letter of Transmittal or other required
documents to reach the Depositary before the Expiration Date (as defined in
Section 1 of the Offer to Exchange as defined below).
This form or a facsimile of it, signed and properly completed, may be
delivered by hand, mail, telegram, telex or facsimile transmission to the
Depositary. See Section 2 of the Offer to Exchange.
To: FIRST FIDELITY BANK, N.A., Depositary
By Mail: By Hand:
P.O. Box 1380 Corporate Trust/Special Operations
Newark, New Jersey 07101 10 Bank Street - 3rd Floor
Newark, New Jersey 070102
(Eligible Institutions Only)
Facsimile Transmission Number (201) 430-4797
Confirmation Number (201) 430-4762
Information Number (800) 458-0924
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN THAT SHOWN ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THAT LISTED ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tenders to Pacific International Services
Corp., a California corporation (the "Company"), upon and subject to the terms
and conditions set forth in the Offer to Exchange, dated October 31, 1995 (the
"Offer to Exchange") and the related Letter of Transmittal (which together
constitute the "Offer"), receipt of which is hereby acknowledged, the principal
amount of Debentures specified below, pursuant to the guaranteed delivery
procedure set forth in Section 2 of the Offer to Exchange.
Principal Amount
Principal of
Debenture Amount of Debentures
Number(s)* Debentures Tendered**
Total
* Need not be completed if Debentures are delivered by book-entry transfer.
** Must be an integral multiple of $1,000.
NOTE: SIGNATURES MUST BE PROVIDED BELOW AND ON THE FOLLOWING PAGE.
^ ^ ^ ^
^ Debenture Nos. (If Available) ^ ^ SIGN HERE: ^
^ ^ ^ ^
^ ^ ^ ^
^ ^ ^ ^
^ ^ ^ ^
^ Name(s) ^ ^ ^
^ ^ ^ Dated: ^
^ ^ ^ If Debentures tendered by ^
^ ^ ^ book-entry transfer, ^
^ (Please type or print) ^ ^ check one box: ^
^ ^ ^ ^
^ ^ ^ ^ ^ The Depository ^
^ ^ ^ Trust Company ^
^ ^ ^ ^ ^ Midwest Securities ^
^ Address(es) ^ ^ Trust Companies ^
^ ^ ^ ^ ^ Philadelphia ^
^ ^ ^ Depository Trust ^
^ Area Code and Telephone No. ^ ^ Company ^
^ ^ ^ Account Number: ^
^ ^ ^ ^
GUARANTEE
The undersigned is (1) a member firm of a registered national
securities exchange; (2) a member of the National Association of Securities
Dealers, Inc.; or (3) a commercial bank or trust company having an office,
branch, or agency in the United States, and represents that:
(a) the above-named person(s) "own(s)" the Debentures tendered hereby
within the meaning of Rule 10b-4 promulgated under the Securities Exchange
Act of 1934, as amended; and
(b) such tender of Debentures complies with such Rule 10b-4;
and guarantees that the Depositary will receive the Debentures tendered hereby
in proper form for transfer, or Debentures will be tendered pursuant to the
procedures for book-entry transfer at The Depository Trust Company, the Midwest
Securities Trust Company or the Philadelphia Depository Trust Company, in each
case, together with a properly completed and duly executed Letter of
Transmittal, and any other documents required by the Letter of Transmittal (or a
manually signed facsimile of them), all within five New York Stock Exchange
trading days after the date the Depositary receives this Guarantee.
Name of Firm:
Authorized
Signature:
Name:
(Please Print)
Title:
Address:
Zip Code:
Area Code and
Telephone Number:
Dated: , 1995
PACIFIC INTERNATIONAL SERVICES CORP.
OFFER TO EXCHANGE
$5,250,000 IN PRINCIPAL AMOUNT OF
10% CONVERTIBLE SUBORDINATED DEBENTURES
DUE SEPTEMBER 1, 2007
October 31, 1995
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Pacific International Services Corp., a California corporation (the
"Company") is offering all holders of its 10% Convertible Subordinated
Debentures Due September 1, 2007 (the "Debentures"; the holder of such a
Debenture is referred to herein as a "Debtholder") the opportunity to exchange
each $1.00 in face amount of Debentures for $0.50 in cash (the "Cash Payment"),
.769505 shares of the Company's common stock, $0.10 stated value (the "Common
Stock") and a pro rata share of new debentures (the "New Debentures") of the
Company in an aggregate principal amount equal to $1,050,000 less the face
amount of any Debentures not tendered and less the original principal amount, if
any, of a new promissory note which may be issued to Dollar Systems, Inc., as
part of the sale by the Company of substantially all of the assets and certain
of the liabilities comprising the Company's vehicle rental division, each upon
and subject to the terms and conditions set forth in its Offer to Exchange (the
"Offer to Exchange") dated October 31, 1995, and in the related Letter of
Transmittal (which together constitute the "Offer"). The Company will not
accept for exchange less than $4,988,000 in face amount of outstanding
Debentures and will accept up to 100% of the outstanding Debentures. Accrued
interest will not be paid on the Debentures tendered and accepted. All
Debtholders who tender Debentures and whose Debentures are accepted for exchange
by the Company shall be deemed to have waived, with respect to those Debentures
accepted for exchange, all existing defaults and all consequences of such
defaults under the Indenture dated September 1, 1987 between the Company and
Chemical Trust Company of California (as successor trustee to Manufacturers
Hanover Trust Co. of California) as Trustee, as amended. We enclose the
materials listed below relating to the Offer.
THE OFFER IS CONDITIONED UPON AT LEAST $4,988,000 IN PRINCIPAL AMOUNT
OF DEBENTURES BEING TENDERED.
For your information and for forwarding to your clients for whom you
hold Debentures registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Offer to Exchange, dated October 31, 1995;
2. Letter to Clients which may be sent to clients for whose accounts
you hold Debentures registered in your name or in the name of your nominee,
with space provided for obtaining such clients' instructions with regard to
the Offer;
3. Letter of Transmittal for your use and for the information of your
clients (together with accompanying Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9); and
4. Notice of Guaranteed Delivery to be used to accept the Offer if:
(i) the Debentures are not immediately available, (ii) the procedure for
book-entry transfer cannot be completed on a timely basis, or (iii) time
will not permit the Letter of Transmittal or other required documents to
reach the Depositary before the Expiration Date (as defined in Section 1 of
the Offer to Exchange).
YOUR PROMPT ATTENTION IS REQUESTED. WE URGE
YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS
POSSIBLE. THE OFFER, PRORATION PERIOD AND
WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, NOVEMBER 29, 1995,
UNLESS THE OFFER IS EXTENDED.
No fees or commissions will be payable to brokers, dealers or any
other persons for soliciting tenders of Debentures pursuant to the Offer. The
Company will, however, upon request, reimburse you for customary mailing and
handling expenses incurred by you in forwarding any of the enclosed materials to
the beneficial owners of Debentures held by you as a nominee or in a fiduciary
capacity. The Company will pay or cause to be paid any transfer taxes on the
exchange of Debentures, except as otherwise provided in Instruction 6 of the
Letter or Transmittal.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal and any other required documents should be sent
to the Depositary with either the tendered Debentures, or confirmation of their
book-entry transfer, all in accordance with the instructions set forth in the
Letter of Transmittal and the Offer to Exchange.
As described in "Section 2. Procedure for Tendering Debentures" of the
Offer to Exchange, tenders may be made without the concurrent deposit of the
Debentures or concurrent compliance with the procedure for book-entry transfer,
if such tenders are made by or through a broker or dealer which is a member firm
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., or a commercial bank or trust company
having an office, branch or agency in the United States. Debentures so tendered
(or a confirmation of a book-entry transfer of such Debentures into the
Depositary's account at one of the "Book-Entry Transfer Facilities" described in
the Offer to Exchange), together with a properly completed and duly executed
Letter of Transmittal and any other documents required by the Letter of
Transmittal, must be received by the Depositary within five New York Stock
Exchange trading days after timely receipt by the Depositary of a properly
completed and duly executed Notice of Guaranteed Delivery.
Questions or requests for assistance or for additional copies of the
above documents may be directed to the undersigned at its address or telephone
number listed in the Offer to Exchange.
NOTHING CONTAINED HEREIN OR IN THE
ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF THE COMPANY, THE INFORMATION AGENT,
OR THE DEPOSITARY, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
STATEMENT ON BEHALF OF ANY OF THEM IN
CONNECTION WITH THE OFFER OTHER THAN THE
ENCLOSED DOCUMENTS AND THE STATEMENTS THEY
CONTAIN.
PACIFIC INTERNATIONAL SERVICES CORP.
OFFER TO EXCHANGE
$5,250,000 IN PRINCIPAL AMOUNT OF ITS
10% CONVERTIBLE SUBORDINATED DEBENTURES
DUE SEPTEMBER 1, 2007
To Our Clients:
Enclosed for your consideration are the Offer to Exchange, dated October
31, 1995, and the related Letter of Transmittal (which together constitute the
"Offer"), in connection with the offer by Pacific International Services Corp.,
a California corporation (the "Company"), to exchange $5,250,000 in principal
amount of its 10% Convertible Subordinated Debentures Due September 1, 2007 (the
"Debentures"). Pursuant to such Offer the Company will exchange for each $1.00
in face amount of the Debentures that is tendered and accepted, upon and subject
to the terms and conditions of the Offer, $0.50 in cash (the "Cash Payment"),
.769505 shares of the Company's common stock $0.10 stated value (the "Common
Stock"), and a proportionate share of new debentures (the "New Debentures") of
the Company in an aggregate principal amount equal to $1,050,000 less the
principal amount of Debentures not so tendered and less the amount, if any, of a
new promissory note which may be issued to Dollar Systems, Inc., as part of the
sale by the Company of substantially all of the assets and certain of the
liabilities comprising the Company's vehicle rental division. The Company will
not accept for tender less than $4,988,000 in face amount of outstanding
Debentures and will accept up to 100% of the outstanding Debentures. Debentures
must be tendered in integral multiples of $1,000. Accrued interest will not be
paid on the Debentures tendered and accepted. All Debtholders who tender
Debentures and whose Debentures are accepted for exchange by the Company shall
be deemed to have waived, with respect to those Debentures accepted for
exchange, all existing defaults and all consequences of such defaults under the
Indenture dated September 1, 1987 between the Company and Chemical Trust Company
of California (as successor trustee to Manufacturers Hanover Trust Co. of
California) as Trustee, as amended. The Cash Payment, the .769505 shares of the
Common Stock, and the issuance of the New Debentures are collectively referred
to as the "Purchase Price".
We are the holder of record of Debentures held for your account. As such,
we are the only ones who can tender your Debentures, and then only pursuant to
your instructions. We are sending you the Letter of Transmittal for your
information only; you cannot use it to tender Debentures we hold for your
account.
Please instruct us as to whether you wish us to tender any or all of the
Debentures we hold for your account upon and subject to the terms and conditions
of the Offer.
We call your attention to the following:
1. The Offer is conditioned on at least $4,988,000 in principal amount of
Debentures being tendered.
2. The Offer, proration period, and withdrawal rights will expire at
12:00 Midnight, New York City time, on Wednesday, November 29, 1995, unless the
Company extends the Offer.
3. The Offer is for $5,250,000 in principal amount of Debentures,
constituting 100% of the Debentures outstanding as of October 27, 1995.
4. Tendering holders of Debentures will not be obligated to pay any
brokerage commissions, solicitation fees or, subject to Instruction 6 of the
Letter of Transmittal, transfer taxes on the Company's exchange of Debentures
pursuant to the Offer.
5. The principal amount of Debentures tendered must be an integral
multiple of $1,000.
If you wish to have us tender any or all of your Debentures, please so
instruct us by completing, executing, and returning to us the attached
instruction form. An envelope to return your instructions to us is enclosed.
If you authorize us to tender your Debentures, we will tender all such
Debentures unless you specify otherwise on the attached instruction form.
YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO
SUBMIT A TENDER ON YOUR BEHALF ON OR BEFORE THE EXPIRATION OF THE OFFER. THE
OFFER, PRORATION PERIOD, AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, NOVEMBER 29, 1995, UNLESS THE COMPANY EXTENDS THE
OFFER.
The Company is not making the Offer to, nor will it accept tenders from or
on behalf of, holders of Debentures in any jurisdiction in which the Offer or
its acceptance would violate the securities, Blue Sky or other laws of such
jurisdiction. In any jurisdiction the securities or Blue Sky laws of which
require the Offer to be made by a licensed broker or dealer, the Offer is being
made on the Company's behalf by one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
In any jurisdiction the securities or Blue Sky laws of which require the
Offer to be made by a licensed broker or dealer, the Offer is being made on the
Company's behalf by one or more registered brokers or dealers licensed under the
laws of such jurisdiction.
INSTRUCTIONS
WITH RESPECT TO THE OFFER TO EXCHANGE
$5,250,000 IN PRINCIPAL AMOUNT OF
10% CONVERTIBLE SUBORDINATED DEBENTURES
DUE SEPTEMBER 1, 2007
OF
PACIFIC INTERNATIONAL SERVICES CORP.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Exchange dated October 31, 1995, and the related Letter of Transmittal
(which together constitute the "Offer"), in connection with the offer by Pacific
International Services Corp., a California corporation (the "Company"), to
exchange $5,250,000 in principal amount of its 10% Convertible Subordinated
Debentures Due September 1, 2007 (the "Debentures"). The undersigned further
acknowledges that each $1.00 in face amount of Debentures will be exchanged for
$0.50 in cash (the "Cash Payment"), and .769505 shares of the Company's common
stock $0.10 stated value (the "Common Stock"), and a proportionate share of new
debentures (the "New Debentures") of the Company in an aggregate principal
amount equal to $1,050,000 less the principal amount of Debentures not so
tendered and less the amount, if any, of a new promissory note which may be
issued to Dollar Systems, Inc., as part of the sale by the Company of
substantially all of the assets and certain of the liabilities comprising the
Company's vehicle rental division. Accrued interest will not be paid on the
Debentures tendered and accepted. The undersigned agrees that if any of the
Debentures tendered hereby are accepted for exchange, then, with respect to
those Debentures exchanged, the Debtholder hereby waives all existing defaults
and all consequences of such defaults under the Indenture dated September 1,
1987 between the Company and Chemical Trust Company of California (as successor
trustee to Manufacturers Hanover Trust Co. of California) as Trustee, as
amended. The Cash Payment, the .769505 shares of the Common Stock, and the
issuance of the New Debentures are collectively referred to as the "Purchase
Price".
The undersigned hereby instruct(s) you to tender to the Company the
principal amount of Debentures indicated below or, if no amount is indicated,
all Debentures you hold for the account of the undersigned, upon and subject to
the terms of the Offer.
Aggregate amount of Debentures to be tendered by you for us:*
$ in principal amount of Debentures
Signature Box
Signature(s)
Dated
Name(s) and Address(es) (Please Print)
Area Code and Telephone Number
Taxpayer Identification or Social Security
Number________________________
* Unless otherwise indicated, it will be assumed that all of the Debentures
held for the account of the undersigned are to be tendered.
TEXT OF PRESS RELEASE
PACIFIC INTERNATIONAL SERVICES CORP.
Pacific International Services Corp. (the "Company") previously announced
that it had entered into an agreement with Dollar Systems, Inc. ("Dollar"), to
sell (the "Sale") its vehicle rental operations (the "Division"), which includes
an exclusive license to operate as a Dollar Rent a Car licensee in the State of
Hawaii.
The Sale is subject to various conditions which must be satisfied at the
time of the closing which is currently expected to occur on or about November
30, 1995. Upon closing, Dollar will acquire substantially all of the assets of
the Company's rental car operations and will assume substantially all of the
Company's trade debt and certain other non-retained liabilities. As previously
announced, Dollar expects to honor all commitments to the Company's customers
and to retain most or all of the employees of the Company's Dollar Rent A Car
operations in Hawaii, subject to Dollar's customary employment practices.
In connection with the Sale, the Company announced today that it has
commenced an Exchange Offer (the "Exchange Offer") for $5,250,000 in principal
amount of the Company's 10% Convertible Subordinated Debentures Due September 1,
2007 (the "Old Debentures").
Under the Exchange Offer, the Company will invite the holders of its Old
Debentures to tender $1.00 in face amount of Old Debentures for (i) $0.50 in
cash (the "Cash Payment"); (ii) .769505 shares of the Company's common stock;
and (iii) a pro rata share of new debentures (the "New Debentures") of the
Company in an aggregate principal amount equal to $1,050,000 less the face
amount of any Old Debentures not tendered and less the original principal
amount, if any, of a new promissory note which may be issued to Dollar as part
of the Sale (the "Dollar Note"), upon and subject to the terms and conditions
set forth in the Exchange Offer and in the related Letter of Transmittal.
Accrued interest will not be paid on the Old Debentures tendered and
accepted for exchange. The Company will not accept for exchange less than
$4,988,000 in face amount of outstanding Old Debentures and will accept up to
100% of the outstanding Old Debentures. The Exchange Offer, prorations period
and withdrawal rights will expire at midnight New York City time on November 29,
1995, unless the Exchange Offer is extended by the Company.
The Company has been advised that Scott H. Lang is the only director of the
Company that owns any Old Debentures. Mr. Lang owns $73,000 in principal amount
of Old Debentures and has indicated to the Company that he will tender the full
amount of such Old Debentures.
Georgeson & Company Inc. will serve as Information Agent for the Exchange
Offer, and First Fidelity Bank, N.A. will serve as Depositary.
In order to expedite the closing of the Sale and the Exchange Offer in the
event the minimum tender of Debentureholders of at least 95% of the face amount
of the Debentures is not received, the Company is also soliciting (the
"Solicitation") from the holders of its Old Debentures, as of the close of
business on October 27, 1995, acceptances (the "Plan Acceptances") of a
prepackaged plan of reorganization (the "Plan") of the Company pursuant to which
the Old Debentures would be exchanged for the consideration described below.
Such solicitation of acceptances for the Plan is being made, and may only be
made, pursuant to the Solicitation and Disclosure Statement For Prepackaged Plan
of Reorganization issued by the Company dated October 31, 1995.
If the Exchange Offer is not consummated but the requisite Plan Acceptances
are obtained, the Company currently intends to commence promptly a case under
chapter 11 of title 11 of the United States Code and the rules and regulations
promulgated thereunder and to use such Plan Acceptances to obtain timely
confirmation of the Plan by a United States Bankruptcy Court of competent
jurisdiction (the "Bankruptcy Court").
Under the Plan, the Company would, with the Bankruptcy Court's approval,
maintain its ordinary course of business, including normal payment of its trade
creditors. If the Plan is confirmed by the Bankruptcy Court, each holder of Old
Debentures (whether or not such holder voted to accept the Plan) will receive
for each $1.00 of face amount of Old Debentures (i) its pro rata portion of the
cash proceed of the Sale plus certain interest thereon but less administrative
claims and certain allowed priority claims, (ii) .769505 shares of the Company's
common stock and (iii) its pro rata portion of the New Debentures less the
original principal amount of the Dollar Note. The Company anticipates that the
consideration received by a holder of an Old Debenture through the Plan would be
less than the consideration received a holder of an Old Debenture under the
Exchange Offer.
September 27, 1995
Pacific International Services Corp.
1600 Kapiolani Blvd.
Suite 825
Honolulu, HI 96814
LETTER OF AGREEMENT
This Letter of Agreement sets forth the terms and conditions of our employment
to solicit proxies for your upcoming Special Meeting.
(a) The services we will perform on your behalf will include the solicitation
of proxies from (1) brokers, banks, and other institutional holders, and
(2) non-objecting beneficial owners ("NOBO's") and individual holders of
record.
(b) For our services, you will pay us a fee of $6,000, of which one half is
payable in advance per the enclosed invoice and the balance at the
completion of the solicitation. You will also pay us a fee of $5.00 per
call to individual shareholders and NOBO's, which fee will include all
telephone charges.
(c) In connection with our performance of services under this agreement you
agree to reimburse us, or pay directly, or, where requested by us in
special situations (such as proxy contests), advance sufficient funds to us
for payment of the following costs and expenses:
--expenses incidental to the solicitation, including preparation and
mailing of the notice and inquiry under Rule 14a-13 of the Securities
Exchange Act of 1934 and postage and freight charges we incur in delivering
material;
--expenses we incur in working with your agents or other parties involved
in the solicitation, including data processing charges, charges for
facsimile transmissions, and charges of couriers for delivery of proxies to
your tabulation;
--expenses we incur at your request or for your convenience, including
printing additional and/or supplemental material, copying, electronic
transmissions and travel expenses of our executives;
--fees and expenses authorized by you resulting from extraordinary
contingencies during the solicitation, including advertising, media
relations, stock watch and analytical services.
(d) If requested, we will check, itemize and pay, on your behalf, from funds
provided by you, the charges of brokers and banks for forwarding proxy
soliciting material to beneficial owners and requesting voting
instructions, including the cost of cables, telegrams, and telephone calls
when necessary. To ensure that we have sufficient funds in your account to
pay these bills promptly, you agree to provide us, at the time we complete
the initial delivery of this proxy material, with a preliminary payment
equal to 75% of the anticipated broker and bank charges for distributing
this material. For this service, you will pay us five dollars and fifty
cents ($5.50) for each broker and bank invoice paid by us. If you prefer
to pay these bills directly, please strike out and initial this clause
before returning the Agreement to us.
(e) In addition to the services covered by this Agreement, you may from time to
time request that we provide you with consulting, reports or other
services. We agree, subject to the availability of personnel, to provide
such consulting, reports, or services at our then-current rates. Our
agreement to provide these services does not constitute a commitment from
Georgeson beyond the term of the Agreement.
(f) You represent to us that you will comply with, and we represent to you that
we will comply with, applicable requirements of law relating to the
solicitation of proxies for such meeting.
(g) Pacific International Services Corp. agrees to indemnify and hold Georgeson
harmless against any loss, damage, expense (including, without limitation,
legal and other related fees and expenses), liability or claim arising out
of Georgeson's fulfillment of the Agreement (except for any loss, damage,
expense, liability or claim arising out of Georgeson's own negligence or
misconduct). At its election, Pacific International Services Corp. may
assume the defense of any such action. Georgeson hereby agrees to advise
Pacific International Services Corp. of any such liability or claim
promptly after receipt of any notice thereof. This indemnification
contained in this paragraph will survive the term of the Agreement.
(h) Georgeson agrees to preserve the confidentiality of all non-public
information provided by Pacific International Services Corp. or its agents
for our use in providing services under this Agreement, or information
developed by Georgeson based upon such non-public information.
If the above is agreed to you, please sign and return the enclosed duplicate of
this Agreement.
ACCEPTED: Sincerely,
PACIFIC INTERNATIONAL
SERVICES CORP. GEORGESON & COMPANY INC.
By: /s/ Alan M. Robin By: /s/ Allan Miller
Title: Chairman, CEO and Title:
President
DEPOSITARY AGENT AGREEMENT
First Fidelity Bank, N.A.
765 Broad Street
4th Floor
Newark, NJ 07102
Attention: Corporate Trust Administrator
Gentlemen:
Pacific International Services Corp., a California corporation (the
"Company") is offering to exchange $5,250,000 in principal amount of its 10%
Convertible Subordinated Debentures Due September 1, 2007 (the "Debentures", the
holder of such a Debenture is referred to herein as a "Debtholder"). The
Company will exchange for each $1.00 in face amount of tendered Debentures, (i)
$0.50 in cash (the "Cash Payment"), (ii) .769505 shares of the Company's common
stock $0.10 stated value (the "Common Stock"), and (iii) a pro rata share of new
debentures (the "New Debentures") of the Company in an aggregate principal
amount equal to $1,050,000 less the face amount of any Debentures not tendered
and less the original principal amount, if any, of a new promissory note which
may be issued to Dollar Systems, Inc., as part of the sale by the Company of
substantially all of the assets and liabilities comprising the Company's vehicle
rental division, each upon and subject to the terms and conditions set forth in
the Offer to Exchange dated October 31, 1995 and in the related Letter of
Transmittal, copies of which are attached hereto as Exhibits A and B,
respectively, and which together, as they may be amended from time to time,
constitute the "Offer". The Cash Payment, the New Debentures and the 0.769505
shares of Common Stock are collectively referred to as the "Purchase Price."
The Company hereby appoints First Fidelity Bank, N.A. to act as Depositary
in connection with the Offer. References hereinafter to "you" shall refer to
First Fidelity Bank, N.A.
The Offer was commenced by the Company on October 31, 1995. The Letter of
Transmittal (which is addressed to you) that accompanies the Offer to Exchange
is to be used by the Debtholders to accept the Offer, and contains instructions
with respect to the delivery of Debentures tendered.
The Offer shall expire at 12:00 Midnight, New York City time on November
29, 1995 (the "Initial Expiration Date"), or at any subsequent date or time to
which the Company may extend the Offer. The Offeror expressly reserves the
right to extend the Offer from time to time and may extend the Offer by giving
notice (confirmed in writing) to you before 9:00 A.M., New York City time, on
the business day following the scheduled expiration date. The later of the
Initial Expiration Date or the latest time and date to which the Offer may be so
extended is hereinafter referred to as the "Exchange Expiration Date".
The Company is also soliciting (the "Solicitation") from each Debtholder,
as of the close of business on October 27, 1995 (the "Record Date"), acceptances
(the "Plan Acceptances") of a prepackaged plan of reorganization (the "Plan") of
the Company, a copy of which are attached hereto as Exhibit C, pursuant to which
the Debentures will be exchanged for consideration substantially equivalent to
the Purchase Price under the Offer to Exchange in the event the Offer to
Exchange is not consummated. The solicitation of acceptances for the Plan is
being made, and may only be made, pursuant to the Solicitation and Disclosure
Statement For Prepackaged Plan of Reorganization (the "Disclosure Statement")
issued by the Company dated October 31, 1995, a copy of which is attached hereto
as Exhibit D.
If the Offer to Exchange is not consummated but the requisite Plan
Acceptances are obtained, the Company currently intends to commence promptly a
case under chapter 11 ("Chapter 11") of title 11 of the United States Code (the
"Bankruptcy Code") and the rules and regulations promulgated thereunder and to
use such Plan Acceptances to obtain confirmation of the Plan by a United States
Bankruptcy Court of competent jurisdiction.
The expiration date for the Solicitation (the "Solicitation Expiration
Date") is 12:00 Midnight New York time, on November 29, 1995, unless extended by
the Company. Debtholders who are owners of the Debentures on the Record Date or
their authorized signatories are eligible to vote on the Plan. Debtholders who
purchased Debentures or whose purchase is registered after the Record Date and
who wish to vote on the Plan must arrange with their seller to receive a proxy
from the Debtholder of record on the Record Date.
The Company hereby further appoints First Fidelity Bank, N.A. to act as
Depositary in connection with the Solicitation.
A. In carrying out your duties as Depositary, with respect to the Offer
to Exchange, you are to act in accordance with the following instructions:
1. You will establish and maintain an account in respect of the
Debentures at The Depository Trust Company ("DTC"), the Midwest Security Trust
Company ("MSTC") and the Philadelphia Depository Trust Company ("PDTC"), in
connection with the Offer, in accordance with Rule 17Ad-14 under the Securities
Exchange Act of 1934, as amended. Any financial institution that is a
participant in the DTC, MSTC or PDTC system may make book-entry transfer of the
Debentures by causing DTC, MSTC, or PDTC to transfer such Debentures into the
account maintained by you pursuant to this paragraph, in accordance with DTC's,
MSTC's or PDTC's procedure for such transfer, and you may effect a withdrawal of
Debentures through such account by book-entry movement. However, although
delivery of Debentures may be effected through book-entry transfer at DTC, MSTC
or PDTC, the Letter of Transmittal or the Notice of Guaranteed Delivery (or
facsimile thereof) with any required signature guarantees and any other
documents must, in any case, be received by you prior to the Exchange Expiration
Date in order for Debentures to be properly tendered.
2. You are to examine each of the Letters of Transmittal and
Debentures and any other documents delivered or mailed to you by or for
Debtholders before the Exchange Expiration Date to ascertain whether (i) the
Letters of Transmittal and any such other documents are duly executed and
properly completed in accordance with instructions set forth therein and (ii)
the Debentures otherwise have been properly tendered. In each case where the
Letter of Transmittal or any other document has been improperly completed or
executed or any of the Debentures are not in proper form for transfer or some
other irregularity in connection with the acceptance of the Offer exists, you
will make a reasonable attempt to inform the presenters of the need for
fulfillment of all requirements and to take any other action as may be necessary
or advisable to cause such irregularity to be corrected.
3. All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of any tender of Debentures will be determined
by the Company in its sole discretion, whose determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any Debentures not in appropriate form or the acceptance of which, in the
opinion of counsel for the Company, would be unlawful. With the approval of an
authorized officer of the Company (such approval, if given orally, to be
confirmed in writing by one of the Officers of the Company set forth on Exhibit
E), or any other party designated by such an officer, you are authorized to
waive any irregularities in connection with any tender pursuant to the Offer.
4. Tenders of Debentures may be made only as set forth in Section 2
of the Offer to Exchange, and Debentures shall be considered properly tendered
to you only when:
(a) Debentures (whether physically delivered or delivered pursuant to
the procedure for book-entry transfer set forth in Section 2 of the Offer
to Exchange, in which latter case confirmation of receipt of such tendered
Debentures must be received by you) are covered by a properly completed and
duly executed Letter of Transmittal received by you (together with any
other required documents) prior to the Exchange Expiration Date, or by an
appropriate Notice of Guaranteed Delivery from an Eligible Institution
received by you in accordance with Section 2 of the Offer to Exchange prior
to the Exchange Expiration Date. For the purposes of these instructions:
an "Eligible Institution" shall be a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office,
branch or agency in the United States; and "an appropriate notice of
Guaranteed Delivery" shall be a Notice of Guaranteed Delivery substantially
in the form attached hereto as Exhibit F, which is either delivered to you
or transmitted to you by telegram, telex, facsimile transmission or letter;
(b) Debentures (together with any other required documents) are
received by you, or you have received confirmation of receipt of such
Debentures pursuant to the book-entry transfer procedures set forth in
Section 2 of the Offer to Exchange, prior to the Exchange Expiration Date
or, in the case of an appropriate Notice of Guaranteed Delivery, along with
a properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof) and any other documents required by the Letter of
Transmittal, within five New York Stock Exchange trading days after the
date of such Notice of Guaranteed Delivery; and
(c) the adequacy of the items relating to Debentures and the related
Letter of Transmittal has been favorably passed upon as provided above.
Notwithstanding the provisions of this paragraph 4, Debentures which
the Offeror shall approve as having been properly tendered shall be considered
to be properly tendered.
A tender made on the basis of an appropriate Notice of Guaranteed
Delivery will not be considered to have been properly made unless all of
Debentures covered thereby have been deposited (either physically or pursuant to
book-entry transfer) within the time periods provided in this paragraph 4 and
Section 2 of the Offer to Exchange; and when all such Debentures have been so
delivered and all other requirements in this paragraph 4 and Section 2 of the
Offer to Exchange have been complied with, the tender will be deemed effected at
the time of receipt by you of the Letter of Transmittal or appropriate Notice of
Guaranteed Delivery as the case may be, provided for in such Section 2 and this
paragraph 4.
5. You shall advise the Company with respect to Debentures received
subsequent to the Exchange Expiration Date and accept its instructions with
respect to disposition of such Debentures.
6. You shall accept tenders:
(a) in cases where the Debentures are registered in two or more names
only if signed by all named holders.
(b) signed by persons acting in a fiduciary or representative
capacity only if such capacity is shown on the Letter of Transmittal and
proper evidence of their authority to so act is submitted.
(c) from persons other than the registered Debtholder only if the
Debentures are properly endorsed or accompanied by an appropriate allonge,
with signatures on such Debentures or allonge being guaranteed by an
Eligible Institution.
You shall accept partial tenders of Debentures where so indicated in
the Letter of Transmittal and shall deliver new Debentures to the transfer agent
for the split-up and the return of untendered Debentures to the person who
deposited them as promptly as practicable.
7. The Company will purchase Debentures duly tendered on the terms
and subject to the conditions set forth in the Offer to Exchange and the Letter
of Transmittal. Upon acceptance by the Company of Debentures, you shall notify
the Company of the number of certificates to be issued, and the names in which
those securities are to be issued. The Company shall cause such certificates to
be issued to you. Upon receipt of such certificates, and in exchange for the
Debentures, you shall forward certificates for Common Stock (at the rate of
.769505 shares for each $1.00 in principal amount of Debentures), you shall
issue checks for the Cash Payment on behalf of the Company as soon as
practicable, and issue the New Debentures in accordance with the Offer to
Exchange; provided, however, that in all cases, payment for Debentures tendered
and exchanged pursuant to the Offer will be made only after timely receipt by
you of: (i) Debentures (or timely confirmation of a book-entry transfer of such
Debentures into your account at DTC, MSTC, or PDTC), (ii) a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), and (iii) any
other required documents. Immediately available funds will be deposited with
you on the day checks are mailed or delivered by you. After such payment, you
shall promptly present the Debentures, and any applicable transfer taxes (to be
furnished pursuant to Section A paragraph 11 of this Agreement).
8. Debentures tendered pursuant to the Offer are irrevocable, except
as set forth in Section 3 of the Offer to Exchange. You are authorized and
directed to return to any person tendering Debentures, without expense to such
person, any Debentures tendered by such person but withdrawn pursuant to Section
3 of the Offer to Exchange and such withdrawn Debentures shall no longer be
considered to be validly tendered.
9. The Company shall not be required to exchange any Debentures
tendered if there shall occur any of the events set forth in Section 5 of the
Offer to Exchange or if any of the other conditions set forth in the Offer are
not met. Notice of any decision by the Company not to Exchange any Debentures
tendered shall be given (and confirmed in writing) by the Company to you.
10. All Common Stock certificates, all New Debentures, all checks or
drafts issued in exchange for the Debentures shall be forwarded by (a)
first-class mail under a blanket surety bond protecting you and the Company from
loss or liability arising out of the non-receipt or non-delivery of such checks,
drafts and certificates or (b) by registered mail insured separately for the
replacement value of each of such checks, drafts and certificates.
11. You shall deliver or cause to be delivered in a timely manner to
each governmental authority to which any transfer taxes are payable in respect
of the transfer of Debentures to the Company your check in the amount of all
transfer taxes so payable, and the Company shall reimburse you for the amount of
any and all transfer taxes payable in respect of the transfer of Debentures to
the Company; provided, however, that you shall use your best efforts to obtain
any refund to which the Company is entitled and that you shall reimburse the
Company for amounts refunded to you in respect of your payment of any such
transfer taxes, at the time such refund is received by you.
12. Letters of Transmittal and Notices of Guaranteed Delivery
submitted in lieu thereof pursuant to Section 2 of the Offer to Exchange shall
be stamped by you as to the date, and, after the expiration of the Offer, the
time, of receipt thereof and shall be preserved by you for a period of time at
least equal to the periods of time your preserve other records pertaining to the
transfer of securities. You shall dispose of unused Letters of Transmittal and
other surplus materials by returning them to the Company. You shall deliver
cancelled Debentures to the Company.
13. You hereby expressly waive any lien, encumbrance or right of
set-off whatsoever that you may have with respect to funds deposited with you
for the Exchange of Debentures and the payment of transfer taxes by reason of
amounts, if any, owed to you by the Company or any of its subsidiaries or
affiliates.
14. You shall arrange to comply with all requirements under the tax
laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file form 1099B with respect to the Cash
Payment with the Internal Revenue Service. The Company understands that you are
required to deduct 20% on payments to holders who have not supplied their
correct Taxpayer Identification Number or the required certification. Such
funds will be turned over to the Internal Revenue Service.
B. In carrying out your duties as Depositary, with respect to the
Solicitation, you are to act in accordance with the following instructions:
1. You are to examine each of the Ballots and any other documents
delivered or mailed to you by or for Debtholders before the Solicitation
Expiration Date to ascertain whether (i) the Ballots and any such other
documents are duly executed and properly completed in accordance with
instructions set forth therein and (ii) the Ballots otherwise have been properly
delivered. In each case where the Ballots or any other document has been
improperly completed, executed or delivered or any of the Ballots are not in
proper form or some other irregularity in connection with the vote, you will
make a reasonable attempt to inform the Debtholder of the need for fulfillment
of all requirements and to take any other action as may be necessary or
advisable to cause such irregularity to be corrected.
2. All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of any Ballot will be determined by the Company
in its sole discretion, whose determination shall be final and binding. The
Company reserves the absolute right to reject any and all Ballots not in
appropriate form or the acceptance of which, in the opinion of counsel for the
Company, would be unlawful. With the approval of an authorized officer of the
Company (such approval, if given orally, to be confirmed in writing by one of
the Officers of the Company set forth on Exhibit E), or any other party
designated by such an officer, you are authorized to waive any irregularities in
connection with any Ballot.
3. Votes may be only cast as set forth in the Disclosure Statement.
All Debtholders as of the Record Date whether or not they tender their
Debentures in the Offer to Exchange, should vote to accept or reject the Plan.
Only the Debtholders who vote will be counted for purposes of determining
whether the Plan has been accepted. Failure of a Debtholder to vote in
accordance with the procedures described in the Disclosure Statement will be
deemed to be an abstention. Abstentions will not be counted as votes for or
against the Plan.
Any Debtholder holding Debentures on the Record Date through a brokerage
firm, commercial bank, trust company or other nominee (a "Nominee") must vote by
completing a Ballot and returning it to the Nominee early enough to permit such
Nominee to transcribe the information onto a Master Ballot and return the Master
Ballot to the Solicitation Agent provided for in the Solicitation before the
Solicitation Expiration Date.
Any Debtholder who has voted on the Plan may: (i) change its vote by
delivering a subsequent properly completed Ballot in accordance with the
procedures described in the Disclosure Statement; or (ii) withdraw its vote by
delivering a written notice of revocation to the Solicitation Agent (or, if the
Debentures are held by a Nominee, to the Nominee so that the Nominee may deliver
such notice of revocation to the Solicitation Agent), so that the Solicitation
Agent receives such notice prior to the earlier of the Solicitation Expiration
Date or the commencement by the Company of a case under Chapter 11 of the
Bankruptcy Code.
4. You shall advise the Company with respect to Ballots received
subsequent to the Solicitation Expiration Date and accept its instructions with
respect to disposition of such Ballots.
C. In carrying out your duties as Depositary, with respect to the Offer
to Exchange and the Solicitation, you are to act in accordance with the
following instructions:
1. As Depositary hereunder you:
(a) shall have no duties or obligations other than those specifically
set forth herein or as may be subsequently agreed to by you and the
Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of
any Debentures thereby deposited with you pursuant to the Offer, and will
not be required to and will make no representation as to the validity,
value or genuineness of the Offer or the Plan;
(c) shall not be obligated to take any legal action hereunder which
might in your judgment
involve any expense or liability, unless you shall have been furnished with
reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter,
telegram, or other document or security delivered to you and reasonably
believed by you to be genuine and to have been signed by the proper party
or parties;
(e) may act upon any tender, statement, request, consent, agreement
or other instrument whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you shall in good
faith reasonably believe to be genuine or to have been signed or
represented by a proper person or persons;
(f) may rely on and shall be protected in acting upon written or oral
instructions from any Vice President or more senior officer of the Company;
(g) may consult counsel satisfactory to you with respect to any
questions relating to your duties and responsibilities and the opinion of
such counsel shall be full and complete authorization and protection in
respect to any action taken, suffered or omitted by you hereunder in good
faith and in accordance with the opinion of such counsel;
(h) shall not advise any person tendering Debentures pursuant to the
Offer as to the wisdom of making such tender or as to the market value or
decline or appreciation in market value of any Debentures; and
(i) shall not advise any person voting pursuant to the Solicitation
as to the wisdom of making such vote.
2. If a Debtholder, broker, dealer, commercial bank or trust company
contacts you requesting additional copies of the Offer to Exchange, Letter of
Transmittal, Notice of Guaranteed Delivery, the Plan or Disclosure Statement you
shall refer such Debtholder, broker, dealer, commercial bank or trust company
to:
Georgeson & Company Inc.
Wall Street Plaza
New York, NY 10005
Attn: Alan Miller
Managing Director
Telephone: (212) 440-9800
Fascimile: (212) 440-9009
3. You are authorized to cooperate with and to furnish information to
any organization (and its representatives) designated from time to time by the
Company in any manner reasonably requested by it in connection with the Offer
and any tenders thereunder, or the Solicitation.
4. At, or as promptly as practicable following, the close of each
business day from the earlier of the commencement of the Offer or the
commencement of the Solicitation to the later of the Exchange Expiration Date or
the Solicitation Expiration Date, you will give telephonic notice (confirmed in
writing as promptly as practicable) of the information set forth on the form of
Daily Report, attached to this letter as Exhibit G, to:
Richard Bauman
Chief Financial Officer
Pacific International Services Corp.
1600 Kapiolani Blvd.
Suite 825
Honolulu, Hawaii 96814
(808) 926-4242
Facsimile (808) 926-4255
In addition, you will also inform, and cooperate in making available to, the
aforementioned person upon oral request made from time to time prior to the
later of either the Exchange Expiration Date or the Solicitation Expiration Date
of such other information as he may reasonably request. Such cooperation shall
include, without limitation, the granting by you to the Company, the person
listed in the preceding sentence and such other persons as they may request, of
access to those persons on your staff who are responsible for (A) receiving
tenders, in order to ensure that immediately prior to the Initial Expiration
Date and each other Exchange Expiration Date, if any, the Company shall have
received information in sufficient detail to enable it to decide whether to
extend the Offer; and (B) receiving Ballots, in order to ensure that immediately
prior to the Solicitation Expiration Date, the Company shall have received
information in sufficient detail to enable it to decide whether the Plan was
accepted. You shall prepare a final list of (A) all persons whose tenders were
accepted, the principal amount of Debentures tendered and the amount accepted,
and (B) all persons who accepted the Plan, and shall deliver said lists to
Richard Bauman of the Company.
5. For services rendered as Depositary hereunder, you shall be
entitled to compensation of TEN THOUSAND DOLLARS ($10,000) which shall be
payable on the date hereof.
6. You hereby acknowledge receipt of the Offer to Exchange, the
Letter of Transmittal, the Plan and the Disclosure Statement and further
acknowledge that you have examined each of them. Any inconsistency between this
Agreement, on the one hand, and the Offer to Exchange, the Letter of
Transmittal, the Plan and the Disclosure Statement (as they may be amended from
time to time), on the other hand, shall be resolved in favor of the latter two
documents, except with respect of the duties, liabilities and indemnification of
you as Depositary.
7. The Company covenants and agrees to indemnify and hold you
harmless against any loss, liability, cost or expense (including attorneys'
fees) incurred without negligence, misconduct or bad faith on your part arising
out of or in connection with any act, omission, delay or refusal made by you in
reasonable reliance upon any signature, endorsement, assignment, certificate,
order, request, notice, instruction, or other instrument or document believed by
you in good faith to be valid, genuine and sufficient, and in accepting any
tender or effecting any transfer of Debentures believed by you in good faith to
be authorized, and in delaying or refusing in good faith to accept any tenders
or effect any transfer of Debentures, and in delaying or refusing in good faith
to accept any Ballots. In no case shall the Company be liable under this
indemnity with respect to any claim against you unless the Company shall be
notified by you, by letter or cable or by telex confirmed by letter, of the
written assertion of a claim against you or of any other action commenced
against you, promptly after you shall have received any such written assertion
or shall have been served with a summons in connection therewith. The Company
shall be entitled to participate at its own expense in the defense of any such
claim or other action and, if the Company so elects, the Company shall assume
the defense of any suit brought to enforce any such claim. In the event that
the Company shall assume the defense of any such suit, the Company shall not be
liable for the fees and expenses of any additional counsel thereafter retained
by you, so long as the Company shall retain counsel reasonably satisfactory to
you to defend such suit.
8. THIS AGREEMENT AND YOUR APPOINTMENT AS DEPOSITARY HEREUNDER SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
AND SHALL INURE TO THE BENEFIT OF, AND THE OBLIGATIONS CREATED HEREBY SHALL BE
BINDING UPON, THE SUCCESSORS AND ASSIGNS OF EACH OF THE PARTIES HERETO.
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
Very truly yours,
PACIFIC INTERNATIONAL SERVICES CORP.
By: /s/ Alan M. Robin
Alan M. Robin
Accepted as of the date
first above written.
FIRST FIDELITY BANK, N.A.
By: /s/ John Hughes
Title: Vice President
[Exhibits Excluded from Conformed Copy]
