SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
(X)ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 0-17018
STRATFORD AMERICAN CORPORATION
(Exact name of small business issuer as specified in its charter)
Arizona 86-0608035
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 E. Arizona Biltmore Circle, Building 2, Suite 1270, Phoenix, Arizona 85016
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (602)956-7809 Securities
registered under Section 12(b) of the Exchange Act: None Securities registered
under Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value
Series "A" Preferred Stock, $.01 Par Value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to
Item 405 of the Regulation S-B is not contained herein, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part of III of this Form
10-KSB or any amendment to this Form 10-KSB [X]
Issuer's revenue for its most recent fiscal year: $12,862,000.
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the February 1997, average bid and asked prices of
$.03 per share, is $1,861,000.
At February 28, 1997, 84,076,806 shares of the issuer's common stock
and no shares of its preferred stock were issued and outstanding.
Certain portions of the registrant's definitive Proxy Statement, which
will be filed with the Commission on or about April 30, 1997, in connection with
the Annual Meeting of Shareholders of the registrant to be held on July 9, 1997,
are incorporated by reference into Part III of this report.
Transitional Small Business Disclosure Format (check one) Yes No X
--- ---
<PAGE>
PART I
ITEM 1. BUSINESS
- ----------------
General
- -------
General Development of Business. Stratford American Corporation (the
"Company"), an Arizona corporation, has several wholly-owned subsidiaries and
one subsidiary of which the Company owns 80%. Unless otherwise specified, the
term "Company" as used herein includes the Company's subsidiaries.
In June 1994, the Company established Stratford American Car Rental
Systems, Inc. ("SCRS") to acquire the assets and franchise rights of
substantially all of the Arizona operations doing business as Dollar Rent A Car.
Narrative Description of Business
- ---------------------------------
The Company, through its subsidiaries, is engaged principally in the
business of leisure and commercial car rental in the State of Arizona and
nominal involvement in real estate management and natural resource exploration
and development. The Company employs 88 full-time employees.
Dollar Rent A Car. In June 1994, through the Company's 80% owned
subsidiary SCRS, the Company acquired the assets and franchise rights to
substantially all of the Arizona operations doing business as Dollar Rent A Car.
As part of the acquisition, additional funds were raised by SCRS from
subordinated notes. The noteholders also own 20% of the outstanding common stock
of SCRS not owned by the Company. See Notes 3 and 12 to the Consolidated
Financial Statements. The status of SCRS as a franchise is governed by a
franchise agreement (the "Franchise Agreement") granted by Dollar Systems, Inc.
(the "Franchisor"). The Franchise Agreement grants to SCRS certain exclusive
territories in which to operate the Dollar Rent A Car vehicle rental business.
These territories include all Arizona counties except the Counties of Coconino,
Navajo and Pima. The Franchise Agreement is in effect for a period of ten years
with an option to renew such agreement for an additional ten years provided that
SCRS has operated its business in compliance with the terms of the Franchise
Agreement. The Franchise Agreement provides the Franchisor with significant
rights regarding the business and operations of SCRS. Specifically, SCRS is
required to operate its franchise in accordance with certain standards contained
in the Franchise Agreement and a referenced Dollar Rent A Car Operations Guide.
This includes certain guidelines relating to the number of vehicles maintained
for rental, and the amount of advertising and promotion expenditures required.
The Franchisor has the right to monitor the operations of SCRS, and certain
defaults by SCRS under the Franchise Agreement would give the Franchisor the
right to terminate the franchise governed by such Franchise Agreement. Any loss
of the franchise could have a material adverse effect on the Company's
business, operating results and financial condition. Certain license fees are
required to be paid monthly based on an agreed upon percentage structure of
gross rental revenues, as provided for by the Franchise Agreement. In May 1995,
an Assistance Agreement between SCRS and Franchisor modified the License
Agreement (see Note 3 to the Consolidated Financial Statements).
2
<PAGE>
SCRS rents cars, trucks, and passenger vans to business and leisure
travelers and others at 11 locations, including all three terminals at Phoenix
Sky Harbor International Airport. SCRS also generates revenue from the sales of
ancillary products such as loss damage waivers, supplemental liability
insurance, personal accident insurance and personal effects insurance. Total
revenues from the car rental operations accounted for approximately 99% of
consolidated revenue during the year ended December 31, 1996.
SCRS has opened four additional locations since its acquisition,
including rental counters at both the America West Arena and the Arizona
Biltmore Resort in Phoenix, the Radisson Resort in Scottsdale, and the Southeast
Regional Office in Mesa, Arizona.
The vehicle rental industry is very competitive and subject to the
pressures of both the rental rates and fleet sizes of competitors as well as the
availability of a reasonably priced fleet. In any given location, SCRS may
encounter competition from national, regional and local companies, many of whom,
particularly those owned by the major vehicle rental companies, have access to
greater financial resources than SCRS. SCRS's main competitors are The Hertz
Corporation, Avis Inc., Alamo Rent a Car Inc., National Car Rental System Inc.,
and Budget Rent a Car Corporation. SCRS's operations are generally the sixth
largest at its Phoenix Sky Harbor Airport locations. There can be no assurance
the Company will be able to compete successfully. Any inability by the Company
to compete successfully would have a material adverse effect on the Company's
business, operating results and financial condition.
Approximately 81% of SCRS's revenue is generated at its airport
facilities. Any event which disrupts air travel patterns at SCRS's airport
facilities for a continued period of time could have a material adverse effect
on SCRS's financial condition and results of operations. These events could
include labor unrest, airline bankruptcies or consolidations, the outbreak of
war or terrorist incidents, natural occurrences, such as earthquakes, and
general economic conditions.
SCRS's rental business is seasonal, and historically, the stronger
revenue months occur from February through May. As a result, any occurrence that
disrupts travel patterns during this period could have a material adverse effect
on SCRS's annual performance. SCRS's weakest revenue months are generally the
months of August, September and December.
Sports Careers. In October 1996, the assets of the Company's subsidiary
Stratford American Sports Corp. ("SASC") were sold. The stock of SASC was
subsequently sold in December 1996. SASC has been accounted for as a
discontinued operation as discussed in Note 14 to the Consolidated Financial
Statements. The Company has no future plans to participate in sports career
related activities.
Real Estate. The Company's only owned real estate property, owned
through a joint venture interest, was sold in March 1995. Total revenues from
real estate operations were insignificant during the year ended December 31,
1996. (See Item 2 - Properties.)
Natural Resources. The Company owns, through its subsidiaries, an
interest in an Alaskan gold mining prospect, and a nominal interest in four oil
and gas wells located in Arkansas and Oklahoma. Total revenues from natural
resource operations were insignificant during the year ended December 31, 1996.
(See Item 2 - Properties.)
3
<PAGE>
ITEM 2. PROPERTIES
- ------------------
Principal Offices. The principal offices of the Company are located at
2400 East Arizona Biltmore Circle, Building 2, Suite 1270, Phoenix, Arizona
85016, telephone (602) 956-7809. The premises are leased at the rate of
approximately $99,000 per year. The term of the current lease expires in
September 1999. The Company believes its office space is sufficient to meet its
operational needs in the near future.
SCRS leases a 2,500 square foot building situated on 2.4 acres of land
for use in its Dollar Rent A Car operations as a service facility and vehicle
staging area. This facility, located at 50 S. 24th Street in Phoenix, Arizona,
is leased at a current rate of approximately $79,000 per year. The lease expires
in May 1999 and contains a five year extension option. SCRS also leases various
facilities for its satellite and airport operations for Dollar Rent A Car under
leases with terms ranging from month to month through ten years. The airport
lease requires minimum annual lease payments of $1,150,000 and a maximum of 10%
of specified airport revenues. This lease expires in October 2000.
Real Estate Properties. As of March 31, 1995, the Company no longer
owns an interest in any real estate projects, and the Company currently has no
plans to invest in real estate opportunities in the foreseeable future.
Effective March 27, 1995, the Company, through its 50% joint venture
interest, sold its interest in University Center property, located in Tempe,
Arizona, consisting of three office buildings with an aggregate 175,000 rentable
square feet and 8 acres of adjacent undeveloped land. As a result of the sale,
the underlying indebtedness, totaling $17,553,000, was completely satisfied
through payments and reductions based on terms of an agreement with First
Interstate Bank of Arizona, N.A.
Natural Resource Properties.
Alaska Gold Exploration. The Company, through Stratford American Gold
Venture Corporation, holds a 41.3% interest in the "Big Hurrah," a gold mine
prospect located near Nome, Alaska. The Company's joint venture partner with
respect to this interest is Cornwall Pacific Alaska, Inc. ("Cornwall").
On September 16, 1988, the Company and Cornwall granted to Solomon Gold
Corporation (formerly known as Thor Gold Alaska, Inc.) ("Solomon") an option to
acquire a 70% interest in the Big Hurrah prospect in consideration of Solomon
expending $3,500,000 by December 31, 1991, on exploration and development of the
prospect. If Solomon exercises the option, the interest of the Company in the
prospect will be reduced to 12.39%. In 1988, Solomon drilled 91 core samples
and, in June 1989, issued a feasibility report in which it recommended continued
exploration and mining of the prospect. The feasibility report assumed a base
price of gold of $400 per ounce.
In July 1989, Solomon invoked the force majeure clause of its option on
the basis that the price of gold dropped to less than $375 per ounce during the
preceding 90 days. Operations have been suspended until the price of gold
exceeds $400 per ounce, adjusted for CPI increases, for 90 consecutive days. The
price of gold as of December 31, 1996 was $371.00 per troy ounce. The
requirement for Solomon to expend $3,500,000 by December 31, 1991 is extended by
the period the force majeure clause is in effect. The Company recorded a
write-down in 1993 for its interest in the Big Hurrah. See Note 6 of the
Consolidated Financial Statements.
Oil and Gas. The Company's oil and gas activities are insignificant as
of December 31, 1996. The Company has not served as an operator with respect to
its oil and gas properties, rather it participates through minor working
interest ownership with only limited management rights. The Company currently
has no plans in the near future to participate in additional oil and gas
activities.
4
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
The Company is not currently a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
No matter was submitted to a vote of the Company's shareholders during
the fourth quarter ended December 31, 1996.
EXECUTIVE OFFICERS
- ------------------
Name Age Office Officer Since
---- --- ------ -------------
David H. Eaton 61 Chief Executive Officer 6/88
Mel L. Shultz 46 President 5/87
Timothy A. Laos 43 Vice President, Chief 3/95
Financial Officer,
Treasurer and Secretary
David H. Eaton has been the Chairman of the Board of Directors of the
Company since February 29, 1988 and its Chief Executive Officer since June 1,
1988. Mr. Eaton earned his Bachelor of Arts degree in Business Administration
and Economics from Wheaton College in 1958 and his Doctor of Jurisprudence
degree from Stanford University in 1961.
Mel L. Shultz has been a Director and the President of the Company
since May 20, 1987. Mr. Shultz was previously involved on his own behalf in real
estate development and oil and gas investment.
Timothy A. Laos, C.P.A., became a Vice President, Chief Financial
Officer, Treasurer and Secretary of the Company effective March 1, 1995. He was
involved in public accounting from 1978 to 1981 including the first two years
employed by Price Waterhouse. From 1984 through 1992, Mr. Laos was the corporate
controller for Martin Oil and Gas Company, an independent oil and gas producer.
From 1992 through 1995, he was the corporate controller for the Haworth
Corporation, a local real estate developer. Mr. Laos earned a Bachelor of
Business Administration degree in accounting from the University of Arizona in
1978.
5
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ----------------------------------------------------------------
Market Information
- ------------------
As of December 31, 1996, the Company's common stock, $0.01 par value,
was listed and traded on the OTC Bulletin Board (symbol: STFA).
The high and low sales prices for each quarter since January 2, 1995,
are as follows:
Time Period High Low
----------- ---- ---
1996: First quarter .03 .02
Second quarter .08 .02
Third quarter .04 .03
Fourth quarter .04 .02
1995: First quarter .06 .0025
Second quarter .08 .02
Third quarter .07 .01
Fourth quarter .04 .01
The above information is based on the bid price as furnished by the
National Quotation Bureau. The quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
Holders
- -------
As of March 31, 1997, the common stock of the Company is estimated to
be held beneficially by approximately 2,000 shareholders. No preferred stock is
outstanding.
Dividends
- ---------
The Company has never paid cash dividends on its common equity. Arizona
law restricts the ability of a corporation to pay dividends. These state law
restrictions materially limit the Company's ability to pay dividends and are
likely to materially limit the future payment of dividends. The Company does not
expect to pay dividends in the foreseeable future, but rather expects to use any
cash otherwise available for distribution to satisfy debt obligations and build
business operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- -----------------------------------------------------------------
Liquidity and Capital Resources.
- --------------------------------
In the fourth quarter, the Company completed the sale of its interest
in SASC, receiving $247,000 in net cash proceeds from the sale. See Note 14 to
the Consolidated Financial Statements for additional information.
In December 1996, the Company, through SCRS, was able to secure a
$3,000,000 credit line from a major bank, including a $2,000,000 line available
for general operational use, and a $1,000,000 line to purchase revenue earning
vehicles. In addition, the Company renewed and increased its vehicle financing
from already existing lines of credit from three other major sources. As a
result, the Company was able to increase its percentage of purchased units by
7%, to 27% of its total fleet. The Company anticipates that this increased fleet
flexibility will assist in reducing overall vehicle costs, although no assurance
can be given that any such reduction will occur.
6
<PAGE>
In May 1995, the Company entered into an Assistance Agreement with
Dollar Systems, Inc. which included the conditional elimination of $1,858,000 in
debt, and an interim reduction in franchise fees during 1995 and 1996. See Note
3 to the Consolidated Financial Statements for additional information. Effective
January 1, 1997, the Company successfully met its requirement for completing the
terms and conditions of debt elimination.
SCRS was able to improve its operating results from its Dollar Rent A
Car operations during 1996, before corporate overhead expenses. The Company
anticipates that with its recently completed financing and with continuation of
improved Dollar Rent A Car operating results as discussed above, it should meet
its operational cash flow needs for the remainder of 1997. However, the vehicle
rental business is highly competitive and subject to the pressures of both
rental rates and fleet sizes of competitors as well as the availability of a
reasonably priced fleet. As such, these various factors are outside the
Company's control and, accordingly, there are no guarantees that either
profitability or adequate cash flows from operations will be achieved.
Results of Operations - Year Ended December 31, 1996, Compared with Year Ended
December 31, 1995
The Company reported a net loss of $268,000 during 1996 in comparison
to net income of $2,826,000 in 1995. The 1996 results include a net gain of
$221,000 from discontinued operations as discussed in Note 14 to the
Consolidated Financial Statements. The 1995 results include an extraordinary
gain of $3,402,000 as a result of a debt reduction as discussed in Note 15 to
the Consolidated Financial Statements. The increase in consolidated depreciation
and amortization is due to recognition of a complete year of depreciation on
revenue earning vehicles during 1996. The increase in consolidated interest
expense is attributable to a complete year of interest expense incurred on the
newly acquired debt to finance revenue earning vehicles.
Vehicle Rental Activities. Revenues from rental car activities
accounted for 99% of total revenues from continued operations in 1996. The 13%
increase in vehicle rental revenues is primarily a result of improved rental
business related to the Super Bowl and Major League Baseball spring training
activities not experienced in the previous year, as well as overall growth
experienced in the Phoenix area. Rentals related to the Super Bowl will not
recur in the foreseeable future as the Super Bowl is not presently scheduled to
be held in Phoenix. SCRS recognized improved operating results before corporate
overhead expenses for 1996 compared to 1995.
Sports Activities. As discussed above, Sports Careers was sold during
1996. The results from discontinued operations includes a loss from operations
of $53,000 attributable to the first nine months of 1996 as compared to a loss
from operations of $8,000 for the complete year of 1995.
Real Estate Activities. Real estate revenues decreased $23,000 from
1995 to 1996 primarily due to the elimination of University Center management
fees subsequent to its sale in March 1995. Ongoing management fee revenue in
1997 will be immaterial.
Capital Requirements
- --------------------
The Company does not have any material plans for future capital
expenditures at the present time.
Impact of Inflation
- -------------------
Inflation has not had a significant impact on the Company's results of
operations. Due to competitive pressures, the Company is not always able to pass
through modest increases in rental rates. Future inflationary increases, if any,
is a factor of which the Company must be cognizant.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
Certain statements contained in this report, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and are subject to the safe harbors created thereby. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results to be materially different from the forward-looking
statements. Such factors include, among others, the following: SCRS's ability to
maintain the Dollar Rent A Car franchise, the Company's ability to compete
successfully, the risk of disruption of air travel patterns, the fact that the
Company's operating results are seasonal, the risk that all of the foregoing
factors or other factors could cause fluctuations in the price of the Company's
common stock, and other risks detailed herein and from time to time in the
Company's other filings with the Securities and Exchange Commission. Given these
uncertainties, readers should not place undue reliance on such forward-looking
statements.
7
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------
Index Page
----- ----
Stratford American Corporation and Subsidiaries Consolidated Financial
Statements December 31, 1996
Independent Auditors' Report 9
Consolidated Balance Sheet as of December 31, 1996 10
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 11
Consolidated Statements of Changes in Shareholders'
Equity (Deficiency) for the years ended
December 31, 1996 and 1995 12
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 13
Notes to Consolidated Financial Statements 14
All schedules are omitted as the required information is inapplicable or not
present in amounts sufficient to require submission of the schedule, or because
the required information is presented in the consolidated financial statements
or notes thereto.
8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Stratford American Corporation
We have audited the accompanying consolidated balance sheet of Stratford
American Corporation and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, shareholders' equity (deficiency), and
cash flows for each of the years in the two-year period then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Stratford American
Corporation and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for each of the years in the two-year period
then ended in conformity with generally accepted accounting principles.
Phoenix, Arizona
March 18, 1996
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 173,000
Receivables:
Trade, less allowance for doubtful accounts of $20,000 687,000
Mortgages 128,000
------------
815,000
Restricted cash 760,000
Revenue earning vehicles, net 7,095,000
Property and equipment, net 462,000
Mining interests 375,000
Other assets 512,000
Franchise rights, less accumulated amortization of $105,000 277,000
------------
$ 10,469,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable, secured by revenue earning vehicles $ 7,070,000
Accounts payable 975,000
Notes payable and other debt 2,219,000
Accrued interest 522,000
Accrued liabilities 366,000
------------
Total liabilities 11,152,000
Shareholders' equity (deficiency):
Nonredeemable preferred stock, par value $.01 per share;
authorized 50,000,000 shares, none issued
Common stock, par value $.01 per share; authorized 100,000,000 shares;
issued and outstanding 84,076,806 shares 841,000
Additional paid-in capital 25,941,000
Retained earnings (deficit) (27,454,000)
Treasury stock, 29,500 shares at cost (11,000)
------------
(683,000)
------------
Commitments and contingencies
------------
$ 10,469,000
============
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Vehicle rental activities $ 12,691,000 $ 11,186,000
Rental property activities 36,000 59,000
Oil and gas production 9,000 27,000
Interest and other income 126,000 87,000
------------ ------------
12,862,000 11,359,000
------------ ------------
EXPENSES:
Vehicle rental operations 11,071,000 10,723,000
Production costs and taxes 4,000 5,000
General and administrative 645,000 643,000
Depreciation, depletion and amortization 1,013,000 263,000
Interest 565,000 293,000
------------ ------------
13,298,000 11,927,000
------------ ------------
LOSS FROM CONTINUING OPERATIONS (436,000) (568,000)
DISCONTINUED OPERATIONS:
Loss from operations of Sports Careers (53,000) (8,000)
Gain on disposal of Sports Careers 221,000
------------ ------------
Net income (loss) from discontinued operations 168,000 (8,000)
LOSS BEFORE EXTRAORDINARY ITEM (268,000) (576,000)
EXTRAORDINARY ITEM-GAIN ON
EXTINGUISHMENT OF DEBT
3,402,000
------------ ------------
NET INCOME (LOSS) $ (268,000) $ 2,826,000
============ ============
Income (loss) per common share:
Loss from continuing operations $ (0.01) $ (0.01)
Income (loss) from discontinued operations 0.01 (0.00)
------------ ------------
Loss before extraordinary item (0.00) (0.01)
Extraordinary item 0.04
------------ ------------
Net income (loss) per common share $ (0.00) $ 0.03
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Total
Additional Retained shareholders'
Common Stock paid-in earnings Treasury Stock equity
Shares Amount capital (deficit) Shares Amount (deficiency)
------ ------ ------- ------------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 84,076,806 $ 841,000 $ 25,780,000 $(30,012,000) 29,500 $ (11,000) $ (3,402,000)
Net income 2,826,000 2,826,000
---------- ------------ ------------ ------------ ------ ---------- ------------
Balance,
December 31, 1995 84,076,806 $ 841,000 $ 25,780,000 $(27,186,000) 29,500 $ (11,000) $ (576,000)
Repurchase of
minority interest 161,000 161,000
Net loss (268,000) (268,000)
---------- ------------ ------------ ------------ ------ ---------- ------------
Balance,
December 31, 1996 84,076,806 $ 841,000 $ 25,941,000 $(27,454,000) 29,500 $ (11,000) $ (683,000)
========== ============ ============ ============ ====== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (268,000) $ 2,826,000
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization from continuing operations 1,013,000 263,000
Depreciation and amortization from discontinued operations 11,000 16,000
Gain on sale of revenue earning vehicles 8,000
Gain on sale of discontinued operations (221,000)
Extraordinary item (3,402,000)
Changes in assets and liabilities:
Decrease (increase) in accounts and mortgages receivable (333,000) 43,000
Decrease (increase) in other assets 93,000 (174,000)
Increase (decrease) in accounts payable 66,000 (378,000)
Increase (decrease) in accrued liabilities 253,000 (90,000)
----------- -----------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 622,000 (896,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Addition to restricted cash (21,000) (138,000)
Proceeds from sales of revenue earning vehicles 4,671,000
Proceeds from sale of joint venture property 1,311,000
Proceeds, net, from sale of subsidiary 247,000
Purchases of property and equipment (170,000) (51,000)
Purchases of revenue earning vehicles (8,478,000) (4,457,000)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (3,751,000) (3,335,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revenue earning vehicle financing 8,460,000 4,412,000
Payments on revenue earning vehicle financing (5,617,000) (185,000)
Proceeds from other debt 225,000
Payments on other debt (147,000) (120,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,921,000 4,107,000
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (208,000) (124,000)
CASH AND CASH EQUIVALENTS, beginning of year 381,000 505,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 173,000 $ 381,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 376,000 $ 132,000
----------- -----------
Equipment acquired in exchange for long-term debt $ 65,000 $ 161,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 1 - NATURE OF BUSINESS
- ---------------------------
Stratford American Corporation (the "Company") is engaged principally in the
business of leisure and commercial car rental in the State of Arizona and
minimal activity in real estate management and natural resource exploration and
development.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with original maturities of
3 months or less to be cash equivalents. The carrying amount approximates fair
value because of the short maturity of the financial instruments.
Restricted Cash
- ---------------
Restricted cash consists of a bank certificate of deposit and a vehicle loan
deposit account. The carrying amount of restricted cash approximates fair value,
as interest on the instruments are at current market rates.
Revenue Earning Vehicles
- ------------------------
Revenue earning vehicles are stated at cost less accumulated depreciation. The
straight-line method is used to depreciate revenue earning vehicles to their
estimated residual values over the anticipated periods of use based on the
Company's fleet plan, typically ranging from 6 to 14 months.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost. Depreciation is recorded based on
the straight-line method over the estimated useful lives of the related assets
ranging from 3 to 7 years. Leasehold improvements are amortized over the lesser
of the lease term or the estimated useful lives.
Mining Interests
- ----------------
The Company capitalizes the acquisition costs and related exploration costs
until such time as the property to which they relate is brought into production,
is abandoned, or impairment in value occurs. The costs incurred to date relate
to acquisition and exploration activities and will be amortized on a unit of
production basis following commencement of production, written off if the
property is abandoned, or written down to impaired value if impairment occurs.
Franchise Rights
- ----------------
Franchise rights are recorded at cost. Amortization is recorded using the
straight-line method over the term and renewal option period of the franchise
agreement (20 years).
14
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes." This 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 basis of assets and liabilities. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
Income (Loss) Per Common Share
- ------------------------------
Income (loss) per common share is computed using the weighted average number of
common shares of stock outstanding during the years presented excluding common
shares of stock acquired by the Company. Common stock equivalents (options) have
been excluded from the earnings per share computation as the effect of their
inclusion would be anti-dilutive in 1996. In 1995, common stock equivalents have
been included using the treasury stock method. The weighted average number of
common shares outstanding during the years ended December 31, 1996 and 1995 are
84,076,806 and 85,127,306, respectively.
Recent Accounting Pronouncements
- --------------------------------
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS No. 121") which requires impairment losses to be recorded
on long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS No. 121 in the first quarter of 1996 and this adoption did
not have a material impact on the consolidated financial statements.
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, "Accounting for the
Stock-Based Compensation" ("SFAS No. 123") which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value based method defined in SFAS
No. 123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123. No stock options were granted in 1995 or 1996, thus there are
no further disclosures required under SFAS No. 123.
15
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Use of Estimates
- ----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Reclassifications
- -----------------
Certain amounts in the accompanying 1995 financial statements have been
reclassified to conform with the 1996 presentation.
NOTE 3 - ACQUISITION OF DOLLAR RENT A CAR FRANCHISE
- ---------------------------------------------------
Effective June 1, 1994, Stratford American Corporation, through an 80% owned
subsidiary, acquired the franchise rights to substantially all of the Arizona
operations of Dollar Rent A Car. This transaction was consummated in accordance
with a May 19, 1994 Sale and Purchase Agreement between Stratford American Car
Rental Systems, Inc. ("SCRS") and The John Douglas Corporation ("JDC"), Douglas
F. and Bette Jane Mitchell and John Rector, Jr. In addition to the franchise
rights, the acquisition included cash, accounts receivable, equipment and other
assets relating to the Arizona operations of JDC as of May 31, 1994. SCRS also
assumed the May 31, 1994 JDC accounts payable, accrued expenses and other
current liabilities. As such, the adjusted fair value of the related assets and
liabilities, are as follows:
Accounts receivable $ 389,000
Other current assets 19,000
Equipment 108,000
Other assets 70,000
Franchise rights 381,000
Accounts payable (965,000)
Other accrued liabilities (252,000)
Note payable - Dollar Systems, Inc. (42,000)
---------
Net Cash Acquired $ 292,000
=========
Separately, a License Agreement dated May 31, 1994 was also entered into between
SCRS and Dollar Systems, Inc., the Dollar Rent A Car franchisor. A $1,900,000
note payable to Dollar Systems, Inc. was executed by SCRS which required monthly
payments of $18,000 including principal and interest at 8% and matured in June
2000. On May 16, 1995, an agreement between SCRS and Dollar Systems, Inc. was
executed which served to adjust the previously set cost of the license
agreement. Along with other license concessions, the remaining note payable
balance to Dollar Systems, Inc., totaling $1,858,000, was eliminated, provided
that the Company does not default on any obligations due to Dollar Systems, Inc.
through the end of 1996, in which case half of the balance would become due in
June 2000. Effective January 1, 1997, the Company successfully met its
requirement for completing the terms and conditions of debt elimination.
During 1994, $1,275,000 in proceeds from 12% subordinated notes were received to
provide working capital, to pay for closing costs and to provide cash, reflected
as restricted cash in the accompanying Consolidated Balance Sheet, to secure a
$750,000 letter of credit issued on behalf of Dollar Systems, Inc. These notes
require quarterly payments of interest only and mature on May 31, 1997. In 1995,
a principal payment of $50,000 was made to a note holder. The note holders own
20% of the outstanding common stock of SCRS.
16
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 4 - REVENUE EARNING VEHICLES
- ---------------------------------
Revenue earning vehicles consist of the following as of December 31, 1996:
Revenue earning vehicles $7,444,000
Less accumulated depreciation (349,000)
----------
$7,095,000
==========
The Company also leases vehicles under operating lease agreements which require
the Company to provide normal maintenance and liability coverage. The agreements
have initial terms of 6 to 9 months. The vehicles are returned to the lessor at
the end of the lease term. Total vehicle lease expense was $4,009,000 and
$4,588,000 for 1996 and 1995, respectively.
NOTE 5 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following as of December 31, 1996:
Service equipment $ 183,000
Computer software and equipment 277,000
Furniture and fixtures 208,000
Leasehold improvements 101,000
----------
768,000
Accumulated depreciation and amortization (306,000)
---------
$ 462,000
=========
NOTE 6 - MINING INTERESTS
- -------------------------
In 1985, the Company acquired the right to conduct mineral exploration and
development pursuant to a mining lease in Alaska through the issuance of 105,000
common shares. In February 1990, an additional 200,000 shares of the Company's
common stock were issued in connection with this acquisition. Pursuant to an
agreement dated September 16, 1988, the Company assigned its 41.3% interest in
the joint venture to a wholly-owned subsidiary, Stratford American Gold Venture
Corporation ("SAGVC"). Under the terms of an agreement of September 16, 1988,
the Company and its joint venture partner granted to a third party an option to
acquire a 70% interest in the property. Upon the third party exercising such
option, SAGVC will hold a 12.39% interest in the property.
This third party has not conducted exploration activities since July 1989, as
permitted by the agreement. Activity is not required until the price of gold
exceeds a price in excess of $400 for a period of ninety consecutive days. The
Company recorded a write-down of $551,000 in 1993 as a result of the length of
time without exploration activities and the inability of the price of gold to
exceed $400 per ounce since those activities ceased.
17
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 7 - MORTGAGES RECEIVABLE
- -----------------------------
Mortgages receivable, secured by second deeds of trust on residential property,
bear interest at 10.5% per annum. Total principal and interest payments are
amortized over the 30-year life of the mortgages and are payable in equal
monthly installments. The principal payments to be received on the mortgages
receivable are as follows:
Year ending December 31:
1997 $ 5,000
1998 5,000
1999 6,000
2000 6,000
2001 7,000
Thereafter 99,000
--------
$128,000
========
NOTE 8 - NOTES PAYABLE AND LINES OF CREDIT SECURED BY REVENUE EARNING VEHICLES
- ------------------------------------------------------------------------------
Notes payables and lines of credit secured by revenue earning vehicles consist
of the following as of December 31, 1996:
Notes payable to General Motors Corporation
with various termination dates during 1997;
secured by certain revenue earning vehicles;
2% to 2.5% of principal due monthly; interest
at 10.75% due monthly. $2,115,000
Notes payable under a $5.0 million line of credit to
Ford Motor Credit with various termination dates
during 1998; secured by certain revenue earning
vehicles; 2.25% of principal due monthly; interest
at 30-day Federal Reserve rate plus 3.25% (8.50%
at December 31, 1996) due monthly. 1,933,000
Amounts under $3.65 million line of credit to Nissan
Motors Acceptance Corporation with various
termination dates during 1998; secured by certain
revenue earning vehicles; 2% of principal due
monthly; interest at prime plus 2% (10.25% at
December 31, 1996) due monthly. 3,022,000
$1.0 million asset based line of credit with Imperial Bank
of California, effective through December 11, 1998;
secured by certain revenue earning vehicles;
2% of principal due monthly; interest at prime plus
1.5% (9.75% at December 31, 1996) due monthly.
----------
$7,070,000
==========
Unused revenue earning vehicle lines of credit at December 31, 1996 were
approximately $4,695,000.
18
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 9 - NOTES PAYABLE AND OTHER DEBT
- -------------------------------------
Notes payable and other debt consist of the following as of December 31, 1996:
Subordinated notes payable; due May 31,
1997, interest due quarterly at 12%. $1,225,000
$2.0 million Revolving line of credit effective
through December 11, 1998; secured by certain
pledged common shares of SCRS; interest
at prime plus 1.5% (9.75% at December 31, 1996)
due monthly. 225,000
Note payable; due April 1997, interest due
quarterly commencing August 1994 at
lender's reference rate (8.25% at December
31, 1996); guaranteed by certain directors
of the Company; outstanding balance
includes estimated future interest payments
totaling $4,500. 304,000
Capital lease obligations. (Note 11) 143,000
Other; interest rates ranging from 10.5% to 12%,
maturing through 2010. 322,000
----------
$2,219,000
==========
Included in other is a $214,000 convertible debenture note payable to an officer
of the Company which is due on demand. Interest accrues at the rate of 12%.
Accrued interest at December 31, 1996 amounts to $144,000. The note can be
converted, at the holder's election, into 1,367,629 shares of $0.01 par value
common stock, based on the market value of the common stock on the date the note
was executed.
Under notes payable and other debt loan provisions in effect as outlined above,
principal payments due are as follows:
Year ending December 31:
1997 $1,800,000
1998 270,000
1999 35,000
2000 15,000
2001 13,000
Thereafter 86,000
----------
$2,219,000
==========
19
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires that the Company disclose estimated
fair values for its financial instruments.
The carrying amount of receivables, accounts payable and accrued expenses
approximates fair value as they are expected to be collected or paid within 90
days of year end. The fair value of the Company's debt is estimated based on
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
Limitations
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument; they
are subjective in nature and involve uncertainties, matters of judgment and,
therefore, cannot be determined with precision. These estimates do not reflect
any premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular instrument. Changes in assumptions
could significantly affect these estimates.
Since the fair value is estimated as of December 31, 1996, the amounts that will
actually be realized or paid at settlement or maturity of the instruments could
be significantly different.
The estimated fair values of the Company's financial instruments are as follows:
December 31, 1996
--------------------------
Carrying
Amount Fair Value
------ -----------
Cash and restricted cash $ 933,000 $ 933,000
Mortgages receivable 128,000 128,000
Notes payable and other debt:
Vehicle finance notes 7,070,000 7,070,000
Subordinated notes 1,225,000 1,225,000
Other debt 994,000 994,000
---------- ----------
Total notes payable and other debt $9,289,000 $9,289,000
========== ==========
20
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 11 - OBLIGATIONS UNDER CAPITAL LEASES
- ------------------------------------------
The Company has computer equipment, telephone equipment and vehicle service and
maintenance equipment under capital lease agreements, which expire in 1998
through 2001. The combined cost of the equipment is $226,000 and is included in
computer and service equipment (Note 5). Accumulated amortization totaled
$56,000 as of December 31, 1996.
A summary of the present value of future minimum capital lease payments are as
follows:
Year ending December 31:
1997 $ 82,000
1998 47,000
1999 22,000
2000 12,000
2001 8,000
--------
Total minimum capital lease payments 171,000
Less amount representing interest 28,000
--------
Present value of future minimum capital lease payments $143,000
========
NOTE 12 - MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
- ------------------------------------------------------
In June 1994, Stratford American Car Rental Systems, Inc. ("SCRS") issued common
stock equal to 20% of the outstanding shares as consideration due under certain
loans obtained for use in the acquisition of the Dollar Rent A Car operations.
The Company owns 80% of the outstanding shares of SCRS.
NOTE 13 - COMMON STOCK OPTIONS
- ------------------------------
As of December 31, 1996, options to purchase 6,500,000 shares of the Company's
common stock were outstanding.
An option to purchase 3,000,000 shares was granted to an officer of the Company
in 1994. In March 1997, before the date of expiration, the option to purchase
all 3,000,000 shares was exercised for an aggregate exercise price of $30,000.
Options to purchase 3,500,000 shares were granted to certain Advisory Committee
members in 1992.
Exercise Date of
price expiration
----- ----------
Options granted - 1994 3,000,000 $.01 March 1997
Options granted - 1992 3,500,000 $.05 September 1997
---------
6,500,000
=========
The exercise price was greater than or equal to the market price when the
options were granted or extended. All options are currently exercisable.
21
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 14 - SALE OF DISCONTINUED OPERATIONS
- -----------------------------------------
In the fourth quarter of 1996, the Company sold its interest in Stratford
American Sports Corp. ("SASC"). Prior to the sale, the Company repurchased the
minority interest for a nominal amount, resulting in a capital contribution to
additional paid-in capital. The liquidation was finalized on December 30, 1996.
SASC has been accounted for as a discontinued operation and, accordingly, its
results of operations are segregated for all periods presented in the
consolidated financial statements. Revenue and related losses associated with
the discontinued operations are as follows:
Years ended December 31,
------------------------
1996 1995
---- ----
Revenue $841,000 $1,066,000
======== ==========
Income (loss) from discontinued operations $168,000 $ (8,000)
======== ==========
There was no income tax benefit associated with the loss from discontinued
operations for the years ended December 31, 1996 and 1995 as the losses for
those same years served to reduce net operating loss carry forwards attributable
to SASC.
NOTE 15 - EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
- ------------------------------------------------------
Effective March 27, 1995, the Company, through a 50% owned joint venture, sold
its interest in the University Center property, located in Tempe, Arizona. As a
result of the sale, the underlying indebtedness, totaling $17,553,000 in
principal and accrued interest, was completely retired through payments and
reductions based on terms of a debt extinguishment agreement with a bank. The
net effect of the above resulted in a gain of $3,402,000 which has been recorded
as an extraordinary item in the accompanying Consolidated Statement of
Operations.
22
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 16 - INCOME TAXES
- ----------------------
There was no income tax benefit associated with the loss from continuing
operations, the loss before extraordinary item or the extraordinary item for the
years ended December 31, 1996 and 1995. The extraordinary gain in 1995 served to
reduce net operating loss carryforwards.
The following net operating loss and investment tax credit carryforwards are
available at December 31, 1996, to offset future taxable income and income taxes
as follows:
Year
expires Amount
------- ------
Net operating loss 2003-2010 $10,300,000
Investment tax credits 1997-2000 200,000
If certain substantial changes in the Company's ownership should occur, there
would be an annual limitation on the amount of the carryforwards which can be
utilized, which could potentially impair the ability to utilize the full amount
of the carryforward.
There are no deferred tax assets or liabilities reflected in the accompanying
Consolidated Balance Sheet as of December 31, 1996. The tax effect associated
with the types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that exist as of December 31,
1996 are as follows:
Property and equipment, due to differences
in depreciation $ (209,000)
Allowance for mining interest impairment 220,000
Net operating loss carryforwards and
investment tax credits 4,028,000
-----------
4,039,000
Valuation allowance (4,039,000)
Net deferred tax asset $ 0
===========
The valuation allowance offsets the deferred tax asset due to the taxable losses
the Company has experienced in recent years. The valuation allowance decreased
by $923,000 in 1996.
23
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE 17 - LEASE COMMITMENTS
- ---------------------------
Stratford American Car Rental Systems, Inc., an 80% owned subsidiary of the
Company ("SCRS"), leases various facilities for its satellite and airport
operations for Dollar Rent A Car pursuant to operating leases with terms ranging
from month to month through ten years. The Phoenix Sky Harbor Airport location
is subject to the most significant lease which requires minimum annual lease
payments of $1,150,000 and a maximum of 10% of specified airport revenues. SCRS
also leases its Dollar Rent A Car service facility pursuant to an operating
lease with an option to purchase. The lease expires in May 1999 and contains a
five year extension option. Total rental expense on all facilities was
$1,720,000 in 1996 and $1,512,000 in 1995.
The aggregate future minimum lease commitments under operating leases with
noncancelable terms in excess of one year are as follows:
Year ending December 31:
1997 $1,352,000
1998 1,331,000
1999 1,258,000
2000 958,000
----------
Total: $4,899,000
==========
24
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
(a) Previous independent accountants
(i) On February 14, 1996, Stratford American Corporation dismissed
Price Waterhouse LLP as its independent accountants.
(ii) The report of Price Waterhouse LLP on the financial statements
for the fiscal year ended December 31, 1994 contained no adverse
opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principle.
The report of Price Waterhouse LLP on the financial statements
for the fiscal year ended December 31, 1993 contained no adverse
opinion or disclaimer of opinion but did contain an explanatory
paragraph as to uncertainty, stating that the Registrant had a
net capital deficiency, raising substantial doubt about the
Registrant's ability to continue as a going concern.
(iii)The Board of Directors, as a whole, serves as the Audit
Committee. In that capacity, the Board of Directors participated
in and approved the decision to change independent accountants.
(iv) In connection with its audits for the two most recent fiscal
years and through February 14, 1996, there have been no
disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements
if not resolved to the satisfaction of Price Waterhouse LLP
would have caused them to make reference thereto in their report
on the financial statements for such years.
(v) The Registrant has received from Price Waterhouse LLP a letter
addressed to the SEC stating whether or not it agrees with the
above statements. A copy of such letter, dated February 15,
1996, is filed as Exhibit 16 to this Form 8-K.
(b) New independent accountants
(i) The Registrant engaged KPMG Peat Marwick LLP as its new
independent accountants as of February 14, 1996. During the two
most recent fiscal years and through February 14, 1996, the
Registrant has not consulted with KPMG Peat Marwick LLP on items
which (1) were or should have been subject to SAS 50 or (2)
concerned the subject matter of a disagreement or reportable
event with the former auditor, (as described in Regulation S-K
Item 304(a)(2)).
25
<PAGE>
PART III
ITEMS 9, 10, 11 AND 12
- ----------------------
The information called for by Part III (Items 9, 10, 11 and 12) is
incorporated herein by reference from the material included under the captions
"Elections of Directors," "Principal Shareholders," and "Executive Compensation"
in Stratford American Corporation's definitive proxy statement (to be filed
pursuant to Regulation 14A) for its Annual Meeting of Shareholders to be held
July 9, 1997 (the "1997 Proxy Statement"), except that the information regarding
executive officers called for by Item 401 of Regulation S-B is included in Part
I of this report on page 5. The 1997 Proxy Statement is being prepared and will
be filed with the Securities and Exchange Commission in definitive form on or
about April 30, 1997 and will be furnished to shareholders on or about June 1,
1997.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
- -----------------------------------------------
(a) Financial Statements and Financial Statement Schedules - See "Item 7 -
Financial Statements and Supplementary Data" above.
(b) Reports on Form 8-K
Report dated February 14, 1996 with respect to the change in
independent auditors from Price Waterhouse LLP to KPMG Peat Marwick
LLP, including a letter from Price Waterhouse LLP.
(c) Exhibits - See index beginning on page 28
(d) Financial Statement Schedules - See "Item 7 - Financial Statements and
Supplementary Data."
26
<PAGE>
Signatures
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STRATFORD AMERICAN CORPORATION
Date: March 31, 1997 By /s/ David H. Eaton
--------------------------------------
David H. Eaton, Chairman of the Board
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: March 31, 1997 By /s/ David H. Eaton
--------------------------------------
David H. Eaton, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: March 31, 1997 By /s/ Mel L. Shultz
---------------------------------------
Mel L. Shultz, President and Director
Date: March 31, 1997 By /s/ William G. Was, Jr.
---------------------------------------
William G. Was, Jr., Director
Date: March 31, 1997 By /s/ Gerald J. Colangelo
---------------------------------------
Gerald J. Colangelo, Director
Date: March 31, 1997 By /s/ Timothy A. Laos
---------------------------------------
Timothy A. Laos, Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
27
<PAGE>
EXHIBITS INDEX
Exhibits 10.55 through 10.62, 22.1 and 27.1 are the only exhibits originally
filed with this report. The Company hereby incorporates all other exhibits by
reference pursuant to Rule 12b-32, each of which (except Exhibits 3.3, 10.12,
10.17 through 10.54) was filed as an exhibit to the Company's Registration on
Form 10 which was filed July 22, 1988, and amended on October 7, 1988, and
December 8, 1988. Exhibit 3.3 was filed with the Company's Registration
Statement on Form S-1 on June 12, 1989, with the Securities and Exchange
Commission. Exhibit 10.12 was filed as Exhibit 10.30 to the 10-K for the four
months ended December 31, 1988, which was filed with the Securities and Exchange
Commission on April 11, 1989. Exhibits 10.17 and 10.18 were filed as Exhibits
10.1 and 10.2 to the Company's Form 10-Q for the Quarterly Period Ended June 30,
1990, which was filed on August 14, 1990, with the Securities and Exchange
Commission. Exhibits 10.19 and 10.20 were filed as Exhibits 10.44 and 10.46 to
the Company's Registration on Form S-1 which was filed with the Securities and
Exchange Commission on October 1, 1990, and amended on November 8, 1990. Exhibit
10.21 was filed as Exhibit 10.3 to the Company's Form 10-Q for the Quarterly
Period Ended June 30, 1991, which was filed with the Securities and Exchange
Commission on August 14, 1991. Exhibit 10.22 was filed as Exhibit 10.44 to the
Company's Form 10-K for the year ended December 31, 1991, which was filed with
the Securities and Exchange Commission on April 14, 1992. Exhibits 10.23 through
10.34 were filed as Exhibits 10.1 through 10.8 and 10.12 through 10.15 to the
Company's Form 10-Q for the Quarterly Period Ended June 30, 1992, which was
filed with the Securities and Exchange Commission on August 14, 1992. Exhibits
10.35 and 10.36 were filed as Exhibits 10.60 and 10.61 to the Company's Form
10-K for the year ended December 31, 1992, which was filed with the Securities
and Exchange Commission on April 15, 1993. Exhibit 10.37 was filed as Exhibit
10.1 to the Company's Form 10-QSB for the Quarterly Period Ended September 30,
1993, which was filed with the Securities and Exchange Commission on November
11, 1993. Exhibits 10.38 through 10.41 were filed as Exhibits 1 through 4 to the
Company's Form 8-K which was filed with the Securities and Exchange Commission
on June 14, 1994 and amended on August 9, 1994. Exhibit 10.39 was refiled as
Exhibit 10.2 to the Company's Form 10-QSB for the Quarterly Period Ended
September 30, 1994, which was filed with the Securities and Exchange Commission
on November 15, 1994. Exhibits 10.42 and 10.43 were filed as Exhibits 1 and 2 to
the Company's Form 8-K which was filed with the Securities and Exchange
Commission on April 11, 1995. Exhibits 10.44 through 10.48 were originally filed
with Form 10-KSB for the year ended December 31, 1994, which was filed with the
Securities and Exchange Commission on April 14, 1995. Exhibit 10.49 was filed as
Exhibit 10.1 to the Company's Form 10-QSB for the Quarterly Period Ended June
30, 1995, which was filed with the Securities and Exchange Commission on August
14, 1995. Exhibit 10.50 was filed as Exhibit 16.1 to the Company's Form 8-K
which was filed with the Securities and Exchange Commission on February 22,
1996. Exhibits 10.51 through 10.54 were originally filed with Form 10-KSB for
the year ended December 31, 1995, which was filed with the Securities and
Exchange Commission on April 15, 1996.
Number Description Page
------ ----------- ----
3.1 Articles of Incorporation N/A
3.2 By-laws N/A
3.3 Articles of Amendment to Articles of Incorporation N/A
4.1 Form of Common Stock Certificate N/A
4.2 Form of Series "A" Preferred Stock Certificate N/A
4.3 Article IV of the Articles of Incorporation N/A
4.4 Article III of the Bylaws N/A
28
<PAGE>
Number Description Page
------ ----------- ----
10.1 Joint Venture Agreement for University Center Developers,
date as of February 19, 1987 N/A
10.2 Indemnification Agreement, dated as of May 19, 1988,
between the Company and Mel L. Shultz N/A
10.3 Schedule of Omitted Indemnification Agreements N/A
10.4 Indemnification Agreement, dated as of February 19, 1988,
relating to guarantees N/A
10.5 Indemnification Agreement, dated as of May 10, 1988,
relating to guarantees N/A
10.6 Registration Agreement, dated as of February 19, 1988, N/A
10.7 Agreement, dated as of February 18, 1988, relating to
restrictions against preferred shares N/A
10.8 Trust Agreement, dated as of June 18, 1987 N/A
10.9 Joint Venture Agreement, dated as of July 2, 1985,
between Night Hawk Resources Corporation and
Cornwall Pacific Alaska, Inc. N/A
10.10 Settlement Agreement and Release, effective July 1, 1988 N/A
10.11 Settlement Agreement, dated as of July 18, 1988 N/A
10.12 Judgment in Action No. CB72760, dated September 13, 1988 N/A
10.13 Assignment of Joint Venture Interest N/A
10.14 Agreement made September 13, 1988, among Golden Zone
Zone, Inc., Cornwall Pacific Alaska, Inc., Stratford American
Resource Corporation, and Thor Gold Alaska, Inc. N/A
10.15 Share Sale and Registration Agreement, dated January 31, 1989 N/A
10.16 Purchase Agreement with Mark A. Tudi, dated November 3, 1989 N/A
10.17 Joint Operating Agreement, dated February 1, 1988 N/A
10.18 Promissory Note, dated March 15, 1990 N/A
10.19 Stratford American Corporation Convertible Debenture
Note dated March 15, 1990 N/A
10.20 Agreement, dated as of July 24, 1990, with Minco American
Corporation N/A
10.21 Guaranty dated June 28, 1991, from Stratford American
Corporation to NBB Oil and Gas Partners (U.S.A.) N/A
29
<PAGE>
Number Description Page
------ ----------- ----
10.22 Assignment and Assumption Agreement, dated as of November 19,
1991, between Stratford American Oil and Gas Corporation and
SA Oil and Gas Corporation N/A
10.23 Convertible Note Agreement dated April 27, 1992 between
Stratford American Sports Corp. and Arthur J. Martori N/A
10.24 Pledge Agreement dated April 27, 1992 by Stratford American
Corporation to Arthur J. Martori N/A
10.25 Stockholders' Agreement dated April 27, 1992 among Stratford
American Sports Corp., Stratford American Corporation, and
Arthur J. Martori N/A
10.26 Convertible Note dated April 27, 1992 by Stratford American
Sports Corp. and Arthur J. Martori N/A
10.27 Restructure Agreement dated May 19, 1992 between Stratford
American Properties Corporation and Security Pacific
Bank Arizona N/A
10.28 Promissory Notes dated May 19, 1992 from Stratford American
Properties Corporation to Security Pacific Bank Arizona N/A
10.29 Deed of Trust, Assignment of Rents, Security Agreement and
Financing Statement dated May 19, 1992 by Stratford American
Properties Corporation to Security Pacific Bank Arizona N/A
10.30 Continuing Guaranty dated May 19, 1992 by certain officers and
directors of Stratford American Properties Corporation to
Security Pacific Bank Arizona N/A
10.31 Debt Restructuring Agreement dated July 1, 1992 between
First Interstate Bank of Arizona, N.A., University Center
Developers, Stratford American Properties Corporation and
Stratford American Corporation N/A
10.32 Replacement Promissory Notes A, B and C dated July 1, 1992
by University Center Developers to First Interstate Bank
of Arizona, N.A. N/A
10.33 Replacement Unconditional Guarantee of Payment dated July 7,
1992 from Stratford American Properties Corporation to First
Interstate Bank of Arizona, N.A. N/A
10.34 Replacement Unconditional Guarantee of Payment dated July 7,
1992 from Stratford American Corporation to First Interstate
Bank of Arizona, N.A. N/A
10.35 Settlement Agreement effective April 16, 1993 between Greyhound
Real Estate Finance Company and Stratford American Properties
Corporation N/A
10.36 Settlement Agreement dated April 13, 1993 among Fairfield
Acceptance Corporation, Fairfield Communities, Inc.,
Stratford American Corporation and Stratford American
Properties Corporation N/A
30
<PAGE>
Number Description Page
------ ----------- ----
10.37 Master Loan Modification and Extension Agreement dated
September 28, 1993 N/A
10.38 Sale and Purchase Agreement between Stratford American Car
Rental Systems, Inc. and The John Douglas Corporation,
Douglas F. and Bette Jane Mitchell and John Rector, Jr.
dated May 19, 1994 N/A
10.39 License Agreement between Dollar Systems, Inc. and Stratford
American Car Rental Systems, Inc. effective June 1, 1994 N/A
10.40 Promissory Note between Dollar Systems, Inc. and Stratford
American Car Rental Systems, Inc. effective June 1, 1994 N/A
10.41 Registrant's Press Release dated June 2, 1994 N/A
10.42 Sale and Purchase Agreement between University Center
Developers and St. Paul Properties, Inc. dated March 8, 1995 N/A
10.43 Registrant's Press Release dated March 30, 1995 N/A
10.44 Agreement and Release dated September 1, 1994 among F. R.
Hill, Jr., as Trustee, Stratford American Resource Corporation
And Stratford American Corporation N/A
10.45 Assignment dated September 1, 1994 from Stratford American
Resource Corporation to F. R. Hill, Jr., as Trustee N/A
10.46 Assignment dated September 1, 1994 from Stratford American
Energy Corporation to Tenison Oil Company N/A
10.47 Clarification to Joint Venture Agreement for University Center
Developers, dated as of March 10, 1995 N/A
10.48 Clarification and First Amendment to Joint Venture Agreement
for University Center Developers, dated as of March 10, 1995 N/A
10.49 Assistance Agreement between Stratford American Car Rental
Systems, Inc. and Dollar Systems, Inc. dated May 16, 1995 N/A
10.50 Letter of Price Waterhouse LLP dated February 15, 1996 N/A
10.51 Guaranty from Stratford American Corporation to General
Motors Acceptance Corporation dated August 9, 1995 N/A
10.52 Continuing Guaranty from Stratford American Corporation
to Ford Motor Credit Company dated July 14, 1995 N/A
10.53 Guaranty Agreement from Stratford American Corporation
to Nissan Motor Acceptance Corporation dated August 9, 1995 N/A
10.54 Lease Plan Financing and Security Agreement between Stratford
American Car Rental Systems, Inc. and Nissan Motor Acceptance
Corporation dated August 9, 1995 N/A
31
<PAGE>
Number Description Page
------ ----------- ----
10.55 Credit Agreement by and among Stratford American Corporation,
Stratford American Car Rental Systems, Inc. and Imperial Bank,
dated December 11, 1996 33
10.56 Revolving Line of Credit Note by Stratford American Corporation
and Stratford American Car Rental Systems, Inc. to Imperial
Bank, dated December 11, 1996 53
10.57 Revolving Line of Credit Note by Stratford American Corporation
and Stratford American Car Rental Systems, Inc. to Imperial
Bank, dated December 11, 1996 57
10.58 Security Agreement by Stratford American Corporation and
Stratford American Car Rental Systems, Inc. to Imperial Bank,
dated December 11, 1996 61
10.59 Continuing Security Agreement by Stratford American Corporation
and Stratford American Car Rental Systems, Inc. to Imperial Bank,
dated December 11, 1996 70
10.60 General Pledge Agreement by Stratford American Corporation
to Imperial Bank, dated December 11, 1996 80
10.61 Subordination and Standstill Agreement by and among Stratford
American Corporation, Stratford American Car Rental Systems, Inc.
and Imperial Bank, dated December 11, 1996 91
10.62 Subordination Agreement by Dollar Rent A Car Systems, Inc. and
Imperial Bank, dated December 11, 1996 99
11.1 Statement regarding computation of per share earnings N/A
22.1 Subsidiaries 102
27.1 Financial Data Schedule 103
Note: Shareholders may obtain copies of Exhibits by making written request to
the Secretary of the Corporation and paying copying costs of $0.10 per page,
plus postage.
32
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of December 11, 1996, by and among
STRATFORD AMERICAN CORPORATION, an Arizona corporation, and STRATFORD AMERICAN
CAR RENTAL SYSTEMS, INC., an Arizona corporation (collectively, individually,
jointly and severally, the "Borrower"), and IMPERIAL BANK ("Bank").
RECITAL
-------
Borrower has requested from Bank the credit accommodations described
below (each, a "Credit" and collectively, the "Credits"), and Bank has agreed to
provide the Credits to Borrower on the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
---------
THE CREDITS
-----------
SECTION 1.1. CORPORATE REVOLVING LINE OF CREDIT.
(a) Corporate Revolving Line of Credit. Subject to the terms and
conditions of this Agreement, Bank hereby agrees to make advances to Borrower
from time to time up to and including December 11, 1998, not to exceed at any
time the aggregate principal amount of Two Million Dollars ($2,000,000.00)
("Corporate Revolving Line of Credit"), the proceeds of which shall be used for
general corporate purposes related exclusively to car rental operations,
including issuance of letters of credit. Borrower's obligation to repay advances
under the Corporate Revolving Line of Credit shall be evidenced by a promissory
note substantially in the form of Exhibit A attached hereto ("Corporate
Revolving Line of Credit Note"), all terms of which are incorporated herein by
this reference.
(b) Letter of Credit Subfeature. As a subfeature under the Corporate
Revolving Line of Credit, Bank agrees from time to time during the term thereof
to issue standby letters of credit to be used exclusively for car rental
operations(each, a "Letter of Credit" and collectively, "Letters of Credit");
provided however, that the form and substance of each Letter of Credit shall be
subject to approval by Bank, in its sole discretion; and provided further, that
the aggregate undrawn amount of all outstanding Letters of Credit shall not at
any time exceed Two Million Dollars ($2,000,000.00), less all principal amounts
outstanding under the Corporate Revolving Line of Credit. Each Letter of Credit
shall be issued for a term not to exceed eighteen (18) months, as designated by
Borrower; provided however, that no Letter of Credit shall have an expiration
date subsequent to the maturity date of the Line of Credit. The undrawn amount
of all Letters of Credit shall be reserved under the Corporate Revolving Line of
Credit and shall not be available for borrowings thereunder, and all such
amounts shall
<PAGE>
be considered used amounts under the Corporate Revolving Line of Credit and the
Asset Based Line of Credit. Each Letter of Credit shall be subject to the
additional terms and conditions of the Letter of Credit Agreement and related
documents, if any, required by Bank in connection with the issuance thereof
(each, a "Letter of Credit Agreement" and collectively, "Letter of Credit
Agreements"). Each draft paid by Bank under a Letter of Credit shall be deemed
an advance under the Corporate Revolving Line of Credit and shall be repaid by
Borrower in accordance with the terms and conditions of this Agreement
applicable to such advances; provided however, that if advances under the
Corporate Revolving Line of Credit are not available, for any reason, at the
time any draft is paid by Bank, then Borrower shall immediately pay to Bank the
full amount of such draft, together with interest thereon from the date such
amount is paid by Bank to the date such amount is fully repaid by Borrower, at
the rate of interest applicable to advances under the Corporate Revolving Line
of Credit. In such event Borrower agrees that Bank, in its sole discretion, may
debit any demand deposit account maintained by Borrower with Bank for the amount
of any such draft.
(c) Borrowing and Repayment. Borrower may from time to time during the
term of the Corporate Revolving Line of Credit borrow, partially or wholly repay
its outstanding borrowings, and reborrow, subject to all of the limitations,
terms and conditions contained herein or in the Corporate Revolving Line of
Credit Note; provided however, that the total outstanding borrowings under the
Corporate Revolving Line of Credit shall not at any time exceed the maximum
principal amount available thereunder, as set forth above.
(d) Mandatory Prepayment. Without notice or demand, if the sum of the
outstanding principal balance of the advances plus the undrawn and drawn amounts
under all Letters of Credit shall at any time exceed the Corporate Revolving
Line of Credit, the Borrower shall immediately prepay the advances to the extent
necessary to eliminate such excess.
SECTION 1.2. ASSET BASED LINE OF CREDIT.
(a) Asset Based Line of Credit. Subject to the terms and conditions of
this Agreement, Bank hereby agrees to make advances to Borrower from time to
time up to and including December 11, 1998, not to exceed at any time the
aggregate principal amount of One Million Dollars ($1,000,000.00) ("Asset Based
Line of Credit"), the proceeds of which shall be used to purchase new and
pre-owned late model (within two (2) model years) revenue earning vehicles.
Borrower's obligation to repay advances under the Asset Based Line of Credit
shall be evidenced by a promissory note substantially in the form of Exhibit B
attached hereto ("Asset Based Line of Credit Note"), all terms of which are
incorporated herein by this reference.
(b) Limitation on Borrowings. Outstanding borrowings under the Asset
Based Line of Credit, to a maximum of the principal
2.
<PAGE>
amount set forth above, shall not at any time exceed an aggregate of eighty
percent (80%) of the purchase price (including taxes and licensing fees) of the
new vehicles and seventy-five percent (75%) of the purchase price (including
taxes and licensing fees) of late model, pre-owned vehicles.
(c) Borrowing and Repayment. Borrower may from time to time during the
term of the Asset Based Line of Credit borrow, partially or wholly repay its
outstanding borrowings, and reborrow, subject to all of the limitations, terms
and conditions contained herein or in the Asset Based Line of Credit Note;
provided however, that the total outstanding borrowings under the Asset Based
Line of Credit shall not at any time exceed the maximum principal amount
available thereunder, as set forth above. With respect to any advance made
hereunder, Borrower shall repay each and every such advance in an amount equal
to two percent (2%) of the original outstanding principal balance plus interest
due monthly with remaining outstanding balance due at maturity. Additionally,
upon the sale of a vehicle securing the Asset Based Line of Credit Note, the
principal balance of the Note shall be repaid in an amount equal to the
remaining loan balance of the vehicle, calculated at the face amount of the
original advance less two percent (2%) amortization of the vehicle per month.
(d) Mandatory Prepayment. Without notice or demand, if the sum of the
outstanding principal balance of the advances shall at any time exceed the Asset
Based Line of Credit, the Borrower shall immediately prepay the advances to the
extent necessary to eliminate such excess.
SECTION 1.3. INTEREST/FEES.
(a) Interest. The outstanding principal balance of each Credit shall
bear interest at the rate per annum one and one-half percent (1.5%) above the
Prime Rate in effect from time to time.
(b) Prime Rate. The term "Prime Rate" shall mean at any time the rate
of interest most recently announced within Bank as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof in such
internal publication or publications as Bank may designate. Each change in the
rate of interest shall become effective on the date each Prime Rate change is
announced within Bank.
(c) Computation and Payment. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Corporate Revolving Line of Credit Note and the Asset
Based Line of Credit Note (collectively, the "Notes").
3.
<PAGE>
(d) Commitment Fee. Borrower shall pay to Bank a non-refundable
commitment fee for both the Corporate Revolving Line of Credit and the Asset
Based Line of Credit equal to 0.50% of the committed Credit amount, which fee
shall be due and payable in full at closing.
(e) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
one quarter of one percent (0.25%) per annum (computed on the basis of a 360-day
year, actual days elapsed) on the average daily unused amount of the Corporate
Revolving Line of Credit and the Asset Based Line of Credit, which fee shall be
calculated on a quarterly basis by Bank and shall be due and payable by Borrower
in arrears within ten (10) days after each billing is sent by Bank.
(f) Letter of Credit Fees. Borrower shall pay to Bank (i) fees due and
payable upon the issuance of each Letter of Credit equal to one percent (1.0%)
per annum (computed on the basis of a 360-day year, actual days elapsed) of the
face amount thereof, and (ii) fees upon the payment or negotiation by Bank of
each draft under any Letter of Credit and fees upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation, the
transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such
activity.
SECTION 1.4. COLLATERAL. As security for all indebtedness of Borrower
to Bank under the Corporate Revolving Line of Credit, Borrower hereby grants to
Bank security interests of first priority in (i) all Borrower's inventory,
documents, accounts, instruments, securities, chattel paper (whether as obligor
or obligee), non-competition agreements, general intangibles, equipment
(including titled vehicles), patents, trademarks, fixtures and leasehold
improvements (whether or not constituting equipment), other fixed assets of any
nature, leasehold estates, escrowed funds, bonds, insurance policies, trade
names, and deposit accounts of Borrower, whether now owned or hereafter
acquired, and all proceeds or products of (including, without limitation, all
insurance proceeds or condemnation awards that may become payable with respect
to), and all books, records and files relating to, any of the foregoing, and
(ii) stock pledge of all of the issued and outstanding common stock of Stratford
American Car Rental Systems, Inc.
As security for all indebtedness of Borrower to Bank under the Asset
Based Line of Credit, Borrower hereby grants to Bank security interests of first
priority in all vehicles purchased by Borrower with loan funds under this
Credit.
Notwithstanding anything contained herein to the contrary, Borrower and
Bank hereby acknowledge and agree that the following items shall not be
collateral for any Credit (the "Excluded Collateral"): (i) all vehicles owned or
leased by Borrower that are subject to financing or lease agreements with third
parties other than Bank.
4.
<PAGE>
SECTION 1.5. SUBORDINATION OF DEBT. All obligations of Borrower to
Susan L. Drescher-Mulzet, T.W.P. Company, Wells Fargo Equity Corporation, Glen
Campbell, Jerry Colangelo, Louis Gossett, Jr., Edwin C. Lynch, John W. Teets,
and Anthony Wauterlek shall be subordinated in right of repayment to all
obligations of Borrower to Bank, as evidenced by and subject to the terms of
subordination agreements in form and substance satisfactory to Bank.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly organized
and existing and in good standing under the laws of the State of Arizona, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and
each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the "Loan
Documents") have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
5.
<PAGE>
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated September 30, 1996, a true copy of which has been
delivered by Borrower to Bank prior to the date hereof, (a) is complete and
correct and presents fairly the financial condition of Borrower, (b) discloses
all liabilities of Borrower that are required to be reflected or reserved
against under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in which it is now
engaged in compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is
6.
<PAGE>
in compliance in all material respects with all applicable Federal or state
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any of Borrower's
operations and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, the Federal Toxic Substances Control Act, as any of
the same may be amended, modified or supplemented from time to time. None of the
operations of Borrower is the subject of any Federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment. Borrower has no material contingent liability in connection
with any release of any toxic or hazardous waste or substance into the
environment.
SECTION 2.12. OWNERSHIP OF ASSETS AND CONDUCT OF BUSINESS. Borrower has
full power and authority to own its property and assets and to carry on its
business as now being conducted. Borrower owns the Collateral free of all
security interests or other encumbrances except for the following (the
"Permitted Liens"): (i) security interest, encumbrances and leases executed in
the normal course of Borrower's business, (ii) security interests and
encumbrances specifically approved in this Agreement, (iii) purchase money
security interests granted by Borrower in the normal course of Borrower's
business, (iv) the existing security interest and encumbrance granted by
Borrower to Bank One, Arizona, NA, and (v) the existing security interest and
encumbrance granted by Borrower to Dollar Systems, Inc., which encumbrance shall
be subordinated to Bank's financing and encumbrances. Other than the Permitted
Liens, no financing statement in favor of a person or entity other than Bank
covering the Collateral is filed or recorded in any public office.
SECTION 2.13. REAFFIRMATION AND SURVIVAL OF REPRESENTATIONS AND
WARRANTIES. Each request by Borrower for an advance under this Agreement shall
constitute an affirmation on the part of Borrower that the representations and
warranties contained in this Section 2 are true and correct as of the time of
such request and that the relevant conditions precedent set forth in this
Agreement have been fully satisfied. All representations and warranties made
herein shall survive the execution of this Agreement until the Credits have
matured and have been fully paid and performed.
SECTION 2.14. PURPOSE OF LOAN. Borrower represents and warrants to Bank
that: (a) the entire proceeds of all advances under this Agreement will be used
solely and exclusively for business and commercial purposes; (b) no portion of
any advance hereunder will be used for any personal, consumer, family, household
or similar purpose; and (c) no portion of any Advance hereunder will be used for
the immediate, incidental or ultimate purpose of "purchasing" or "carrying" any
"margin stock" as
7.
<PAGE>
described in Regulation U (12 C.F.R., part 221) of the Board of Governors of the
Federal Reserve System, or for the purpose of reducing or retiring any
indebtedness which was originally incurred for such purpose.
SECTION 2.15. STOCK OWNERSHIP. Stratford American Corporation
represents and warrants to Bank that it owns 80% of the issued and outstanding
shares of common stock of Stratford American Car Rental Systems, Inc.
ARTICLE III
-----------
CONDITIONS
----------
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following (collectively the "Loan Documents"),
duly executed:
(i) This Agreement and the Notes.
(ii) Continuing Security Agreement: Rights to Payment and
Inventory.
(iii) Security Agreement: Equipment and Fixtures.
(iv) General Pledge Agreement.
(v) Subordination and Standstill Agreement.
(vi) UCC-1 Financing Statements.
(vii) Such other documents as Bank may require under any other
Section of this Agreement.
(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies
8.
<PAGE>
satisfactory to Bank, and where required by Bank, with loss payable endorsements
in favor of Bank.
(e) Subordinated Debt. Borrower shall have delivered to Bank copies of
all documentation relating to all subordinated debt, which shall be subject to
Bank's review and approval.
(f) Franchise Agreement. Borrower shall have delivered to Bank copies
of its franchise agreement with Dollar Systems, Inc., which shall be subject to
Bank's review and approval.
(g) Subordination Agreement. Borrower shall have delivered to Bank a
subordination agreement relating to the subordination of Dollar Systems, Inc.
security interests and liens in favor of Bank's security interests and liens.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
ARTICLE IV
----------
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank,
the amount by which the outstanding principal balance of any of the Credits at
any time exceeds any limitation on borrowings applicable thereto.
9.
<PAGE>
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) Within one hundred twenty (120) days after the end of each fiscal
year: (1) detailed financial statements (including a balance sheet and a profit
and loss statement and a statement of cash flow), setting forth, on a
consolidated basis in consolidating form for Borrower and any subsidiary of
Borrower, all assets, liabilities and net worth as of the end of such fiscal
year (and the immediately preceding fiscal year) and any profit and loss for the
relevant fiscal year (and the immediately preceding fiscal year), which
statements shall be audited by (and accompanied by the unqualified opinion of) a
Certified Public Accountant acceptable to the Bank; and (2) copies of all 10K
reports filed with the Securities Exchange Commission;
(b) not later than forty-five (45) days after and as of the end of each
fiscal quarter, copies of the 10Q reports filed with the Securities Exchange
Commission.
(c) contemporaneously with each quarterly financial statement of
Borrower, a certificate of the chief financial officer of Borrower that Borrower
is in compliance with all financial covenants and that said financial statements
are accurate;
(d) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
10.
<PAGE>
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation Federal and state income taxes and state
and local property taxes and assessments, except such (a) as Borrower may in
good faith contest or as to which a bona fide dispute may arise, and (b) for
which Borrower has made provision, to Bank's satisfaction, for eventual payment
thereof in the event Borrower is obligated to make such payment.
SECTION 4.8. LITIGATION. Borrower will give Bank prompt notice of:
(a) Any litigation or claims that may or could materially and adversely
affect the repayment of any Credits, the performance by Borrower under the Loan
Documents or the financial condition or operations of Borrower; and
(b) All complaints and charges filed by or with any governmental
authority or any other person or entity (i) that could materially and adversely
affect the Collateral or any portion thereof or any of the Loan Documents, or
(ii) exercising supervision or control of Borrower, or its business or assets,
that could impair the security of Bank or adversely affect any of its rights
under any of the Loan Documents.
SECTION 4.9. FINANCIAL CONDITION. On a consolidated basis, maintain
Borrower's financial condition as follows using generally accepted accounting
principles consistently applied and used consistently with prior practices
(except to the extent modified by the definitions herein), with compliance
determined commencing with Borrower's financial statements for the period ending
December 31, 1996:
(a) Net profit, measured on an annual basis, not less than $200,000 as
of December 31, 1997, and $400,000 as of December 31, 1998.
(b) Debt to Cash Flow Ratio not less than 3.0:1.0 measured quarterly on
a rolling twelve (12) month basis defined as total long term debt divided by
EBITDA for the prior twelve (12) month period.
(c) Maintain a minimum of seventy-five percent (75%) of existing
subordinated debt as subordinated debt or converting a minimum of seventy-five
percent (75%) of existing subordinated debt to equity upon maturity in May,
1997.
11.
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(d) Revenue earning vehicles ratio of not less than 1.0:1.0, measured
on a quarterly basis, and calculated as follows: revenue earning vehicles, net
divided by notes secured by revenue earning vehicles.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower, or any action, claim, investigation,
suit or proceeding pending or asserted by or before any governmental authority,
arbitrator, court or administrative agency challenging or denying Borrower's
qualification for tax treatment as if it were a partnership for income tax
purposes; (c) the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency with respect to
any Plan; or (d) any termination or cancellation of any insurance policy which
Borrower is required to maintain, or any uninsured or partially uninsured loss
through liability or property damage, or through fire, theft or any other cause
affecting Borrower's property in excess of an aggregate of $250,000.00.
SECTION 4.11. INDEMNIFICATION OF BANK.
(a) Borrower (the "Indemnitor") shall indemnify, defend and hold Bank
and its past and current officers, directors, employees, attorneys and agents,
and their respective successors and assigns (collectively, the "Indemnitees"),
harmless for, from, and against any and all claims (including without
limitation, attorneys' fees) asserted against any Indemnitee by any person,
entity or governmental authority arising out of or in connection with the
ownership or use of any portion of the Collateral (except as to claims which
arise solely out of an Indemnitee's gross negligence or willful misconduct). If,
in the reasonable judgment of Bank, the Indemnitor is incapable of defending, or
unwilling to defend, the relevant Indemnitee(s) against such claims or fail to
defend the relevant Indemnitee(s) against such claims in a manner Bank
reasonably deems appropriate, Bank shall be entitled to appear in any action or
proceeding to defend the relevant Indemnitee(s) against such claims, and the
Indemnitor shall reimburse Bank for all costs incurred by Bank in connection
therewith, including reasonable attorneys' fees, within ten (10) days after
demand therefor. Any failure to so reimburse Bank within the specified time
period shall constitute a Default under this Agreement, and the unreimbursed
amount shall be added to the outstanding balance of the Credits and bear
interest at the interest rate until paid.
(b) The relevant Indemnitee(s), at its sole option, shall be entitled
to settle or compromise any claim asserted against it, and such settlement shall
be binding upon the Indemnitor for purposes of the foregoing indemnification;
provided, however, that the
12.
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Indemnitor may settle or compromise any such claim, or decide not to settle or
compromise any such claim, as long as all Indemnitees are fully released from
any and all liability thereon. Payment by Bank pursuant to such settlement or
compromise, or payment by Bank of any judgment or claim successfully asserted
against an Indemnitee or the Collateral, shall be added to the outstanding
balance of the Credits and bear interest at the interest rate until paid.
(c) The agreements contained in this Section (4.11) shall survive
repayment of the Credits and the termination of any other portions of this
Agreement.
SECTION 4.12. USE OF ADVANCES; PAYMENT OF COSTS AND EXPENSES RELATING
TO COLLATERAL. Borrower shall use all advances from the Loans solely for
permitted purposes for the particular advances described in this Agreement.
Borrower shall promptly pay all costs and expenses relating to the Collateral,
but may contest in good faith the validity or amount thereof provided that
Borrower shall have furnished Bank a cash deposit or other appropriate security
in an amount and form satisfactory to Bank to protect Bank against the creation
of any lien on, or any sale or forfeiture of, any Collateral. Upon the final
determination of Borrower, contest, Borrower shall promptly pay any sums
determined to be due, whereupon any deposit or security provided by Borrower
shall be returned to Borrower.
SECTION 4.13. LICENSES, PERMITS AND BONDS; MANAGEMENT. Borrower shall
maintain in full force and effect all rights, licenses and bonding commitments
necessary to carry on its primary business. Borrower shall maintain the
corporate existence and shall maintain executive personnel and management at a
level of experience and ability equivalent to present personnel and management.
SECTION 4.14. FURTHER DOCUMENTS OR ACTS. Borrower, at its expense,
shall execute and deliver, or cause to be executed and delivered, to Bank such
other writings, including current and updated certified copies of corporate
borrowing resolutions, and shall do or cause to be done such other acts as Bank
may reasonably require in connection with the Credits.
SECTION 4.15. BANK'S COSTS AND FEES.
(a) In addition to any requirements under the Loan Documents and the
documents relating to this Agreement, Borrower hereby agrees that all reasonable
expenses of Bank, including, all legal fees and costs of the law firm of Snell &
Wilmer L.L.P.(up to a maximum of 4,750.00) and all allocated costs for the
services of Bank's in-house staff such as appraisals, incurred in connection
with or to be incurred in the future and related to (a) the negotiation,
preparation, execution, and delivery of this Agreement, and all related
instruments, including, without limitation, all charges for recording, filing,
appraisal fees, and
13.
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expenses of Bank's outside and in-house counsel and all expenses for the
Commitment; (b) the protection of the rights of Bank in connection with the
transactions and documents described herein; (c) the enforcement of payment of
Borrower, obligations to Bank, whether by judicial proceedings or otherwise; (d)
the enforcement of payment of such obligations by any action or participation
in, or in connection with, a case or proceeding under any chapter of the federal
Bankruptcy Code, or any successor statute thereto, including without limitation
defense of any matter brought by a debtor therein, making any attempt to enforce
remedies therein, or proposing a plan or participating in the plan process; (e)
Bank's review of documentation and other information delivered by Borrower
pursuant to the Loan Documents and this Agreement from time to time; (f) all
expenses paid by Bank on Borrower's behalf; and (g) all legal fees of Bank's
outside and in-house counsel (as determined by the court or arbitrator and not
by a jury if any action or arbitration is commenced, including without
limitation, any allocated costs of in-house counsel), and disbursements related
to any of the above and/or the Credits (collectively "Bank Expenses"), shall be
immediately reimbursed to Bank by Borrower upon Bank's request therefor.
ARTICLE V
---------
NEGATIVE COVENANTS
------------------
Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article I hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
(b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date hereof, and (c) the Permitted Liens.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable
14.
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instruments for deposit or collection in the ordinary course of business),
accommodation endorser or otherwise for, nor pledge or hypothecate any assets of
Borrower as security for, any liabilities or obligations of any other person or
entity, except any of the foregoing in favor of Bank and the Permitted Liens.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances
to or investments in any person or entity, except any of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof.
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding.
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except the Permitted Liens, any of the
foregoing in favor of Bank or which is existing as of, and disclosed to Bank in
writing prior to, the date hereof.
SECTION 5.8. CHANGE IN FISCAL YEAR ACCOUNTING METHODS. Borrower shall
not, without having received the prior written consent of Bank, change its
fiscal year or other accounting periods or change its method of accounting other
than to conform to GAAP applied on a consistent basis.
ARTICLE VI
----------
EVENTS OF DEFAULT
-----------------
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees
or other amounts payable under any of the Loan Documents and the expiration of
five (5) days after written notice from Bank to Borrower of such failure.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other Loan
Document (other than those referred to in subsections (a) and (b) above), and
with respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any
15.
<PAGE>
contract or instrument (other than any of the Loan Documents) pursuant to which
Borrower has incurred any debt or other liability to any person or entity,
including Bank, including the expiration of all applicable notice and cure
periods.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower, all of which is
not dismissed or released within thirty (30) days the entry of any such matter.
(f) Borrower shall suffer or consent to or apply for the appointment of
a receiver, trustee, custodian or liquidator of itself or any of its property,
or shall generally fail to pay its debts as they become due, or shall make a
general assignment for the benefit of creditors; Borrower shall file a voluntary
petition in bankruptcy, or seeking reorganization, in order to effect a plan or
other arrangement with creditors or any other relief under the Bankruptcy Reform
Act, Title 11 of the United States Code, as amended or recodified from time to
time ("Bankruptcy Code"), or under any state or Federal law granting relief to
debtors, whether now or hereafter in effect; or any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other applicable state or
Federal law relating to bankruptcy, reorganization or other relief for debtors
is filed or commenced against Borrower, or Borrower shall file an answer
admitting the jurisdiction of the court and the material allegations of any
involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order
for relief shall be entered against Borrower by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or Federal
law relating to bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in
good faith believes impairs, or is substantially likely to impair, the prospect
of payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower or any of their
directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by Borrower; (b)
the obligation, if any, of Bank to extend any further credit under any of the
Loan Documents shall immediately cease and terminate; and (c) Bank shall have
all rights, powers and remedies available under
16.
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each of the Loan Documents, or accorded by law, including without limitation the
right to resort to any or all security for any of the Credits and to exercise
any or all of the rights of a beneficiary or secured party pursuant to
applicable law. All rights, powers and remedies of Bank may be exercised at any
time by Bank and from time to time after the occurrence of an Event of Default,
are cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: STRATFORD AMERICAN CORPORATION
2400 East Arizona Biltmore Circle
Building 2, Suite 1270
Phoenix, Arizona 85016
Attn: Mel L. Shultz
BANK: IMPERIAL BANK
4343 East Camelback Road, Suite 444
Phoenix, Arizona 85018
Attn: R. Mark Chambers
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), incurred by
Bank in connection with (a) the negotiation and preparation of this
17.
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Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank's rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding relating to Borrower.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any of the Credits, Borrower or its business, or any
collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to the Credits and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only by a written instrument executed by
each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, except to the
extent Bank has greater rights or remedies under Federal law, whether as a
national bank or
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otherwise, in which case such choice of California law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law.
SECTION 7.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall constitute
one and the same Agreement.
SECTION 7.11. REFERENCE PROVISION. Each controversy, dispute or claim
("Claim") between the parties arising out of or relating to this Agreement,
which is not settled in writing within ten days after the "Claim Date" (defined
as the date on which a party gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in Los Angeles, California in accordance with the provisions of Section 638 et
seq. of the California Code of Civil Procedure, or their successor section
("CCP"), which shall constitute the exclusive remedy for the settlement of any
Claim, including whether such Claim is subject to the reference proceeding and
the parties waive their rights to initiate any legal proceedings against each
other in any court or jurisdiction other than the Superior Court of Los Angeles
(the "Court"). The referee shall be a retired Judge selected by mutual agreement
of the parties, and if they cannot so agree within thirty days after the Claim
Date, the referee shall be selected by the Presiding Judge of the Court. The
referee shall be appointed to sit as a temporary judge, as authorized by law.
The referee shall (a) be requested to set the matter for hearing within sixty
(60) days after the Claim Date and (b) try any and all issues of law or fact and
report a statement of decision upon them, if possible, within ninety (90) days
of the Claim Date. Any decision rendered by the referee will be final, binding
and conclusive and judgment shall be entered pursuant to CCP 644 in the Court.
All discovery permitted by this Agreement shall be completed no later than
fifteen (15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery for any reason whatsoever, including, without limitation,
legal objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducing
discovery. Depositions may be taken by either party upon seven (7) days written
notice, and, request for production of inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties.
b. The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or
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provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject to the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties expressly reserve the right to
findings of fact, conclusions of law, a written statement of decision, and the
right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
STRATFORD AMERICAN CORPORATION,
an Arizona corporation
By:/s/ Mel L. Shultz
-----------------------------
Title: President
--------------------------
STRATFORD AMERICAN CAR RENTAL SYSTEMS, INC.,
an Arizona corporation
By:/s/ Mel L. Shultz
-----------------------------
Title: President
--------------------------
IMPERIAL BANK
By:/s/ R. Mark Chambers
-----------------------------
Title: Vice President
--------------------------
20.
REVOLVING LINE OF CREDIT NOTE
$2,000,000.00 Phoenix, Arizona
December 11, 1996
FOR VALUE RECEIVED, the undersigned STRATFORD AMERICAN CORPORATION, an
Arizona corporation, and STRATFORD AMERICAN CAR RENTAL SYSTEMS, INC., an Arizona
corporation (collectively, individually, jointly and severally, the
"Borrower"),promises to pay to the order of IMPERIAL BANK ("Bank") at its office
at Lending Services, No. 2560, 9920 South La Cienega Boulevard, Inglewood,
California 90301, or at such other place as the holder hereof may designate, in
lawful money of the United States of America and in immediately available funds,
the principal sum of Two Million Dollars ($2,000,000.00), or so much thereof as
may be advanced and be outstanding, with interest thereon, to be computed on
each advance from the date of its disbursement (computed on the basis of a
360-day year, actual days elapsed) at a fluctuating rate per annum one and
one-half percent (1.50%) above the Prime Rate in effect from time to time.
A. DEFINITIONS:
As used herein, the following terms shall have the meanings set forth
after each:
1. "Business Day" means any day except a Saturday, Sunday or any other
day designated as a holiday under Federal or Arizona statute or regulation.
2. "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or . publications as Bank may
designate.
B. INTEREST; LATE CHARGE:
1. Payment of Interest. Interest accrued on this Note shall be payable
on the first day of each month, commencing January, 1997.
2. Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to five percent (5'-.) above
the interest rate in effect from time to time.
3. Late Charge. If any payment of interest and/or principal is not
received by the holder hereof when such payment is due, then in addition to the
remedies conferred upon the holder hereof and the other loan documents, a late
charge of five percent (5%) of the
<PAGE>
amount of the installment due and unpaid will be added to the delinquent amount
to compensate the holder hereof for the expense of handling the delinquency for
any payment past due in excess of fifteen (15) days, regardless of any notice
and cure periods.
C. BORROWING AND REPAYMENT:
1. Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with or governing this Note;
provided however ' that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for any Borrower, which balance may be endorsed hereon from time to time
by the holder. The outstanding principal balance of this Note shall be due and
payable in full on December 11, 1998.
2. Advances. Advances hereunder, to the total amount of the principal
sum stated above, may be made by the holder at the oral or written request of
(a) Mel L. Shultz or David H. Eaton, any one acting alone, who are authorized to
request advances and direct the disposition of any advances until written notice
of the revocation of such authority is received by the holder at the office
designated above, or (b) any person, with respect to advances deposited to the
credit of any account of any Borrower with the holder, which advances, when so
deposited, shall be conclusively presumed to have been made to or for the
benefit of each Borrower regardless of the fact that persons other than those
authorized to request advances may have authority to draw against such account.
The holder shall have no obligation to determine whether any person requesting
an advance is or has been authorized by any Borrower.
3. Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
4. Prepayment.
(a) Borrower may prepay principal at any time, in any amount and
without penalty.
D. EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
1. The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note and the expiration of five (5) days after written
notice from Bank to Borrower of such failure.
2.
<PAGE>
2. The filing of a petition by or against any Borrower, any guarantor
of this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.
3. The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
4. Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder, including the
expiration of all applicable notice and cure periods.
5. Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves false.
6. Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
7. Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust or other document executed in connection with
or securing this Note, including the expiration of all applicable notice and
cure periods.
E. MISCELLANEOUS:
1. Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are expressly
waived by each Borrower, and the obligation, if any, of the holder to extend any
further credit hereunder shall immediately cease and terminate. Each Borrower
shall pay to the holder immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys, fees (to
include outside counsel fees and all allocated costs of the holder's in-house
counsel), incurred by the holder in connection with the enforcement of the
3.
<PAGE>
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to any Borrower.
2 . Obligations Joint and Several. Should more than one person or
entity sign this Note as a Borrower, the obligations of each such Borrower shall
be joint and several.
3. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, except to the extent Bank
has greater rights or remedies under Federal law, whether as a national bank or
otherwise, in which case such choice of Arizona law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law.
STRATFORD AMERICAN CORPORATION,
an Arizona corporation
By: /s/ Signature Illegible
-----------------------------------------
Title: President
-------------------------------------
STRATFORD AMERICAN CAR RENTAL
SYSTEMS, INC., an Arizona corporation
By: /s/ Signature Illegible
----------------------------------------
Title: President
------------------------------------
4.
REVOLVING LINE OF CREDIT NOTE
$1,000,000.00 Phoenix, Arizona
December 11, 1996
FOR VALUE RECEIVED, the undersigned STRATFORD AMERICAN CORPORATION, an
Arizona corporation, and STRATFORD AMERICAN CAR RENTAL SYSTEMS, INC., an Arizona
corporation (collectively, individually, jointly and severally, the
"Borrower"),promises to pay to the order of IMPERIAL BANK ("Bank") at its office
at Lending Services, No. 2560, 9920 South La Cienega Boulevard, Inglewood,
California 90301, or at such other place as the holder hereof may designate, in
lawful money of the United States of America and in immediately available funds,
the principal sum of One Million Dollars ($1,000,000.00), or so much thereof as
may be advanced and be outstanding, with interest thereon, to be computed on
each advance from the date of its disbursement (computed on the basis of a
360-day year, actual days elapsed) at a fluctuating rate per annum one and
one-half percent (1.50%) above the Prime Rate in effect from time to time.
A. DEFINITIONS:
As used herein, the following terms shall have the meanings set forth
after each:
1. "Business Day" means any day except a Saturday, Sunday or any other
day designated as a holiday under Federal or Arizona statute or regulation.
2. "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
B. INTEREST; PRINCIPAL; LATE CHARGE:
1. Payment of Interest/Principal. Interest accrued on this Note shall
be payable on the first day of each month, commencing January, 1997. In
addition, Borrower shall make such principal payments as set forth in Section
1.2(c) of the Credit Agreement.
2. Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to five percent (5%) above
the interest rate in effect from time to time.
3. Late Charge. If any payment of interest and/or principal is not
received by the holder hereof when such payment is due, then in addition to the
remedies conferred upon the holder hereof and
<PAGE>
the other loan documents, a late charge of five percent (5%) of the amount of
the installment due and unpaid will be added to the delinquent amount to
compensate the holder hereof for the expense of handling the delinquency for any
payment past due in excess of fifteen (15) days, regardless of any notice and
cure periods.
C. BORROWING AND REPAYMENT:
1. Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for any Borrower, which balance may be endorsed hereon from time to time
by the holder. The outstanding principal balance of this Note shall be due and
payable in full on December 11, 1998.
2. Advances. Advances hereunder, to the total amount of the principal
sum stated above, may be made by the holder at the oral or written request of
(a) Mel L. Shultz or David H. Eaton, any one acting alone, who are authorized to
request advances and direct the disposition of any advances until written notice
of the revocation of such authority is received by the holder at the office
designated above, or (b) any person, with respect to advances deposited to the
credit of any account of any Borrower with the holder, which advances, when so
deposited, shall be conclusively presumed to have been made to or for the
benefit of each Borrower regardless of the fact that persons other than those
authorized to request advances may have authority to draw against such account.
The holder shall have no obligation to determine whether any person requesting
an advance is or has been authorized by any Borrower.
3. Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
4. Prepayment.
(a) Borrower may prepay principal at any time, in any amount and
without penalty.
D. EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
1. The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note and the expiration of five (5) days after written
notice from Bank to Borrower of such failure.
2.
<PAGE>
2. The filing of a petition by or against any Borrower, any guarantor
of this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.
3. The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
4. Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder, including the
expiration of all applicable notice and cure periods.
5. Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves false.
6. Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
7. Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust or other document executed in connection with
or securing this Note, including the expiration of all applicable notice and
cure periods.
E. MISCELLANEOUS:
1. Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are expressly
waived by each Borrower, and the obligation, if any, of the holder to extend any
further credit hereunder shall immediately cease and terminate. Each Borrower
shall pay to the holder immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of the holder's in-house
counsel), incurred by the holder in connection with the enforcement of the
3.
<PAGE>
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to any Borrower.
2. Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
3. Governing Law. The indebtedness evidenced hereby shall be payable in
lawful money of the United States. In any action brought under or arising out of
this Note, each obligor, including successor(s) or assign(s) hereby consents to
the application of California law, with the exception of provisions on conflicts
of laws, to the jurisdiction of any competent court within the State of
California, and to service of process by any means authorized by California law.
STRATFORD AMERICAN CORPORATION,
an Arizona corporation
By: /s/ Mel L. Shultz
-----------------------------
Title: President
---------------------------
STRATFORD AMERICAN CAR RENTAL
SYSTEMS, INC., an Arizona
corporation
By: /s/ Mel L. Shultz
-----------------------------
Title: President
---------------------------
4.
SECURITY AGREEMENT:
EQUIPMENT AND FIXTURES
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned STRATFORD AMERICAN CORPORATION, an Arizona corporation, and
STRATFORD AMERICAN CAR RENTAL SYSTEMS, INC., an Arizona corporation, or any of
them ("Debtor"), hereby grants and transfers to IMPERIAL BANK ("Bank") a
security interest in all titled vehicles, goods, tools, machinery, furnishings,
furniture and other equipment and fixtures, now or at any time hereafter, and
prior to the termination hereof, owned or acquired by Debtor, wherever located,
whether in the possession of Debtor or any other person and whether located on
Debtor's property or elsewhere, and all improvements, replacements, accessions
and additions thereto, excluding, however, the "Excluded Collateral" (as defined
in the Credit Agreement) (collectively called "Collateral"), and including all
of the foregoing which are now or hereafter affixed or to be affixed to, and
whether or not severed and removed from, the real property described on Schedule
1 attached hereto and incorporated herein by this reference, together with
whatever is receivable or received when any of the Collateral or proceeds
thereof are sold, leased, collected, exchanged or otherwise disposed of, whether
such disposition is voluntary or involuntary, including without limitation, (a)
all accounts, contract rights, chattel paper, instruments, general intangibles
and rights to payment of every kind now or at any time hereafter arising out of
any such sale, lease, collection, exchange or other disposition of any of the
foregoing, (b) all rights to payment, including returned premiums, with respect
to any insurance relating to any of the foregoing, and (c) all rights to payment
with respect to any cause of action affecting or relating to any of the
foregoing (hereinafter called "Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment
and performance of: (a) all present and future Indebtedness of Debtor to Bank;
(b) all obligations of Debtor and rights of Bank under this Agreement; and (c)
all present and future obligations of Debtor to Bank of other kinds. The word
"Indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Debtor, or any of them,
heretofore, now or hereafter made incurred or created, whether voluntary or
involuntary and however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly with others, or whether recovery upon such
Indebtedness may be or hereafter becomes unenforceable.
3. TERMINATION. This Agreement will terminate upon the performance of
all obligations of Debtor to Bank, including without limitation, the payment of
all Indebtedness of Debtor to Bank existing or committed by Bank at the time
Bank receives written notice from Debtor of the termination of this Agreement.
<PAGE>
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans
hereunder. Any money received by Bank in respect of the Collateral may be
deposited, at Bank's option, into a non-interest bearing account over which
Debtor shall have no control, and the same shall, for all purposes, be deemed
Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Bank that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to grant a security interest
in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine,
free from liens, adverse claims, setoffs, default, prepayment, defenses and
conditions precedent of any kind or character, except as heretofore disclosed to
Bank in writing; (d) all statements contained herein are true and complete; (e)
except the Permitted Liens (as defined in the Credit Agreement), no financing
statement covering any of the Collateral or Proceeds, and naming any secured
party other than Bank, is on file in any public office; and (f) Debtor is not in
the business of selling goods of the kind included within the Collateral subject
to this Agreement, and Debtor acknowledges that no sale of any Collateral,
including without limitation, any Collateral which Debtor may deem to be
surplus, has been or shall be consented to or acquiesced in by Bank, except as
specifically set forth in writing by Bank.
6. COVENANTS OF DEBTOR.
(a) Debtor agrees in general: (i) to pay Indebtedness secured hereby
when due; (ii) to indemnify Bank against all losses, claims, demands,
liabilities and expenses of every kind caused by property subject hereto; (iii)
to pay all costs and expenses, including reasonable attorneys' fees, incurred by
Bank in the perfection, preservation, realization, enforcement and exercise of
its rights, powers and remedies hereunder; (iv) to permit Bank to exercise its
powers; (v) to execute and deliver such documents as Bank deems necessary to
create, perfect and continue the security interests contemplated hereby; and
(vi) not to change its chief place of business or the places where Debtor keeps
any of the Collateral or Debtor's records concerning the Collateral and Proceeds
without first giving Bank written notice of the address to which Debtor is
moving same.
(b) Debtor Agrees with Regard to the Collateral and Proceeds: (i) to
insure the Collateral with Bank as loss payee, in form and amounts, under
agreements, against risks and liabilities, and with insurance companies
satisfactory to Bank; (ii) to operate the Collateral in accordance with all
applicable statutes, rules and regulations relating to the use and control
thereof, and not to use the Collateral for any unlawful purpose or in any way
that would void any insurance required to be carried in connection therewith;
(iii) not to permit any lien on the Collateral or Proceeds, including without
limitation, liens arising from repairs to or storage of the Collateral, except
in favor of Bank; (iv) to pay when due all license fees, registration fees and
other charges in
2.
<PAGE>
connection with any Collateral; (v) not to remove the Collateral from Debtor's
premises without Bank's prior written consent, unless the Collateral consists of
mobile goods as defined in the California Uniform Commercial Code, in which case
Debtor agrees not to remove or permit the removal of the Collateral from its
state of domicile for a period in excess of thirty (30) calendar days; (vi) not
to sell, hypothecate or otherwise dispose of any of the Collateral or Proceeds,
or any interest therein, without Bank's prior written consent; (vii) other than
in the ordinary course of Debtor's business, not to rent, lease or charter the
Collateral without Bank's prior written consent; (viii) to permit Bank to
inspect the Collateral at any time; (ix) to keep, in accordance with generally
accepted accounting principles, complete and accurate records regarding all
Collateral and Proceeds, and to permit Bank to inspect the same and make copies
thereof at any reasonable time; (x) if requested by Bank, to receive and use
reasonable diligence to collect Proceeds, in trust and as the property of Bank,
and to immediately endorse as appropriate and deliver such Proceeds to Bank
daily in the exact form in which they are received together with a collection
report in form satisfactory to Bank; (xi) not to commingle Proceeds or
collections thereunder with other property; (xii) to give only normal allowances
and credits and to advise Bank thereof immediately in writing if they effect any
Collateral or Proceeds; (xiii) upon the occurrence and continuation of an Event
of Default (as defined in the Credit Agreement), in the event Bank elects to
receive payments of Proceeds hereunder, to pay all expenses incurred by Bank in
connection therewith, including expenses of accounting, correspondence,
collection efforts, reporting to account or contract debtors, filing, recording,
record keeping and expenses incidental thereto; and (xiv) to provide any service
and do any other acts which may be necessary to maintain, preserve and protect
all Collateral and, as appropriate and applicable, to keep the Collateral in
good and saleable condition and repair, to deal with the Collateral in
accordance with the standards and practices adhered to generally by owners of
like property, and to keep all Collateral and Proceeds free and clear of all
defenses, rights of offset and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney in fact to
perform any of the following powers, which are coupled with an interest, are
irrevocable until termination of this Agreement and may be exercised from time
to time by Bank's officers and employees, or any of them, whether or not Debtor
is in default: (a) upon the occurrence and continuation of an Event of Default
(as defined in the Credit Agreement), to perform any obligation of Debtor
hereunder in Debtor's name or otherwise; (b) upon the occurrence and
continuation of an Event of Default (as defined in the Credit Agreement), to
give notice of Bank's rights in the Collateral and Proceeds, to enforce the same
and make extension agreements with respect thereto; (c) upon the occurrence and
continuation of an Event of Default (as defined in the Credit Agreement), to
release persons liable on Proceeds and to give
3.
<PAGE>
receipts and acquittances and compromise disputes in connection therewith; (d)
upon the occurrence and continuation of an Event of Default (as defined in the
Credit Agreement), to release security; (e) to resort to security in any order;
(f) to prepare, execute, file, record or deliver notes, assignments, schedules,
designation statements, financing statements, continuation statements,
termination statements, statements of assignment, applications for registration
or like papers to perfect, preserve or release Bank's interest in the Collateral
and Proceeds; (g) upon the occurrence and continuation of an Event of Default
(as defined in the Credit Agreement), to receive, open and read mail addressed
to Debtor; (h) upon the occurrence and continuation of an Event of Default (as
defined in the Credit Agreement), to take cash, instruments for the payment of
money and other property to which Bank is entitled; (i) to verify facts
concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) upon the occurrence and
continuation of an Event of Default (as defined in the Credit Agreement), to
endorse, collect, deliver and receive payment under instruments for the payment
of money constituting or relating to Proceeds; (k) to prepare, adjust, execute,
deliver and receive payment under insurance claims, and to collect and receive
payment of and endorse any instrument in payment of loss or returned premiums or
any other insurance refund or return, and to apply such amounts received by
Bank, at Bank's sole option, toward repayment of the Indebtedness or replacement
of the Collateral; (l) upon the occurrence and continuation of an Event of
Default (as defined in the Credit Agreement), to exercise all rights, powers and
remedies which Debtor would have, but for this Agreement, with respect to all
the Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises
in inspecting the Collateral; and (n) to do all acts and things and execute all
documents in the name of Debtor or otherwise, deemed by Bank as necessary,
proper and convenient in connection with the preservation, perfection or
enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral and Proceeds, and upon the failure
of Debtor to do so, Bank at its option may pay any of them and shall be the sole
judge of the legality or validity thereof and the amount necessary to discharge
the same. Any such payments made by Bank shall be obligations of Debtor to Bank,
due and payable immediately upon demand, together with interest at a rate
determined in accordance with the provisions of Section 12 hereof, and shall be
secured by the Collateral and Proceeds, subject to all terms and conditions of
this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement, subject to the expiration
of all applicable notice and cure periods set forth in the Credit Agreement: (a)
any default in the payment or performance of any obligation, or any defined
event
4.
<PAGE>
of default, under (i) any contract or instrument evidencing any Indebtedness, or
(ii) any other agreement between any Debtor and Bank, including without
limitation any loan agreement, relating to or executed in connection with any
Indebtedness; (b) any representation or warranty made by any Debtor herein shall
prove to be incorrect, false or misleading in any material respect when made;
(c) any Debtor shall fail to observe or perform any obligation or agreement
contained herein; (d) any attachment or like levy on any property of any Debtor;
and (e) Bank, in good faith, believes any or all of the Collateral and/or
Proceeds to be in danger of misuse, dissipation, commingling, loss, theft,
damage or destruction, or otherwise in jeopardy or unsatisfactory in character
or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall
have the right to declare immediately due and payable all or any Indebtedness
secured hereby and to terminate any commitments to make loans or otherwise
extend credit to Debtor. Bank shall have all other rights, powers, privileges
and remedies granted to a secured party upon default under the Uniform
Commercial Code or otherwise provided by law, including without limitation, the
right to contact all persons obligated to Debtor on any Collateral or Proceeds
and to instruct such persons to deliver all Collateral and/or Proceeds directly
to Bank. All rights, powers, privileges and remedies of Bank shall be
cumulative. No delay, failure or discontinuance of Bank in exercising any right,
power, privilege or remedy hereunder shall affect or operate as a waiver of such
right, power, privilege or remedy; nor shall any single or partial exercise of
any such right, power, privilege or remedy preclude, waive or otherwise affect
any other or further exercise thereof or the exercise of any other right, power,
privilege or remedy. Any waiver, permit, consent or approval of any kind by Bank
of any default hereunder, or any such waiver of any provisions or conditions
hereof, must be in writing and shall be effective only to the extent set forth
in writing. It is agreed that public or private sales, for cash or on credit, to
a wholesaler or retailer or investor, or user of property of the types subject
to this Agreement, or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and credit risks of
such sales. While an Event of Default exists: (a) Debtor will deliver to Bank
from time to time, as requested by Bank, current lists of all Collateral and
Proceeds; (b) Debtor will not dispose of any of the Collateral or Proceeds
except on terms approved by Bank; (c) at Bank's request, Debtor will assemble
and deliver all Collateral and Proceeds, and books and records pertaining
thereto, to Bank at a reasonably convenient place designated by Bank; and (d)
Bank may, without notice to Debtor, enter onto Debtor's premises and take
possession of the Collateral.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Indebtedness, Bank may transfer
5.
<PAGE>
all or any part of the Collateral or Proceeds and shall be fully discharged
thereafter from all liability and responsibility with respect to any of the
foregoing so transferred, and the transferee shall be vested with all rights and
powers of Bank hereunder with respect to any of the foregoing so transferred;
but with respect to any Collateral or Proceeds not so transferred, Bank shall
retain all rights, powers, privileges and remedies herein given. Any proceeds of
any disposition of any of the Collateral or Proceeds, or any part thereof, may
be applied by Bank to the payment of expenses incurred by Bank in connection
with the foregoing, including reasonable attorneys' fees, and the balance of
such proceeds may be applied by Bank toward the payment of the Indebtedness in
such order of application as Bank may from time to time elect.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), incurred by
Bank in exercising any right, power, privilege or remedy conferred by this
Agreement or in the enforcement thereof, including any of the foregoing incurred
in connection with any bankruptcy proceeding relating to Debtor or the valuation
of the Collateral and/or Proceeds, including without limitation, the seeking of
relief from or modification of the automatic stay or the negotiation and
drafting of a cash collateral order. All of the foregoing shall be paid by
Debtor with interest at the default interest rate set forth in the Notes (as
defined in the Credit Agreement).
13. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid
in full, the power of sale and all other rights, powers, privileges and remedies
granted to Bank hereunder shall continue to exist and may be exercised by Bank
at any time and from time to time irrespective of the fact that the Indebtedness
or any part thereof may have become barred by any statute of limitations, or
that the personal liability of Debtor may have ceased, unless such liability
shall have ceased due to the payment in full of all Indebtedness secured
hereunder.
14. MISCELLANEOUS. The obligations of Debtor are joint and several;
presentment, protest, notice of protest, notice of dishonor and notice of
nonpayment are waived with respect to any Proceeds to which Bank is entitled
hereunder; any right to direct the application of payments or security for any
Indebtedness of Debtor, or indebtedness of customers of Debtor, and any right to
require proceedings against others or to require exhaustion of security are
waived; and consent to extensions, forbearances or alterations of the terms of
Indebtedness, the release or substitution of security, and the release of
guarantors is given with respect to Proceeds subject to this Agreement; provided
however, that in each instance, Bank believes in good faith that the action in
question is commercially reasonable in that it does
6.
<PAGE>
not unreasonably increase the risk of nonpayment of the Indebtedness to which
the action applies. Until all indebtedness shall have been paid in full, no
Debtor shall have any right of subrogation or contribution, and each Debtor
hereby waives any benefit of or right to participate in any of the Collateral or
Proceeds or any other security now or hereafter held by Bank.
15. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Bank at the address specified in any
other loan documents entered into between Debtor and Bank and to Debtor at the
address of its chief executive office (or personal residence, if applicable)
specified below or to such other address as any party may designate by written
notice to each other party, and shall be deemed to have been given or made as
follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon
the earlier of the date of receipt or three (3) days after deposit in the U.S.
mail, first class and postage prepaid; and (c) if sent by telecopy, upon
receipt.
16. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal represen tatives, successors and assigns of the
parties, provided, however, the creation and enforcement of any UCC security
interest and lien shall be governed by the laws of the State of Arizona.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
Debtor warrants that its chief executive office (or personal residence,
if applicable) is located at the following address: 2400 East Arizona Biltmore
Circle, Building 2, Suite 1270, Phoenix, Arizona 85016.
Debtor warrants that the Collateral (except goods in transit) is
located or domiciled at the following additional addresses: See Schedule 1
attached hereto and incorporated herein by this reference.
7.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of
December 11, 1996.
STRATFORD AMERICAN CORPORATION, IMPERIAL BANK
an Arizona corporation
By: /s/ Mel L. Shultz By: /s/ R. Mark Chambers
-------------------------- --------------------------
Title: President Title: Vice President
----------------------- -----------------------
STRATFORD AMERICAN CAR RENTAL SYSTEMS, INC.,
an Arizona corporation
By: /s/ Mel L. Shultz
--------------------------
Title: President
-----------------------
8.
<PAGE>
SCHEDULE 1
Dollar Rent A Car Phoenix Locations
America West Arena Sun City/Surprise
201 E. Jefferson 12129 W. Bell Road
Phoenix, Arizona 85004 Sun City West, Arizona
514-8444 583-4718
Arizona Biltmore Hotel Sky Harbor Airport
2400 E. Missouri Terminal 2 267-0097
Phoenix, Arizona 85016 Terminal 3 267-0996
956-9012 Terminal 4 264-0995
Deer Valley Airport Dollar Rent A Car Main Office
702 W. Deer Valley Road 50 S. 24th Street
Deer Valley, Arizona Phoenix, Arizona 85034
861-0366 275-7588
Holiday Inn Tempe
915 E. Apache Blvd.
Tempe, Arizona
829-1523
Scottsdale Radisson Resort
7171 N. Scottsdale Road
Scottsdale, Arizona 85258
947-7295
Southeast Regional Location
2828 S. Country Club
Mesa, Arizona
497-9298
West Valley Regional Location
8708 W. Thunderbird
Peoria, Arizona 85381
486-7990
CONTINUING SECURITY AGREEMENT:
RIGHTS TO PAYMENT AND INVENTORY
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned STRATFORD AMERICAN CORPORATION, an Arizona corporation, and
STRATFORD AMERICAN CAR RENTAL SYSTEMS, INC., an Arizona corporation, or any of
them ("Debtor"), hereby grants and transfers to IMPERIAL BANK ("Bank") a
security interest in all accounts, deposit accounts, accounts receivable,
chattel paper, instruments, documents and general intangibles (collectively
called "Rights to Payment"), now existing or at any time hereafter, and prior to
the termination hereof, arising (whether they arise from the sale, lease or
other disposition of inventory or from performance of contracts for service,
manufacture, construction, repair or otherwise or from any other source
whatsoever), including all securities, guaranties, warranties, indemnity
agreements, insurance policies and other agreements pertaining to the same or
the property described therein, and in all goods returned by Debtor's customers,
together with a security interest in all inventory, goods held for sale or lease
or to be furnished under contracts for service, goods so leased or furnished,
raw materials, component parts, work in process or materials used or consumed in
Debtor's business and all warehouse receipts, bills of lading and other
documents evidencing goods owned or acquired by Debtor, and all goods covered
thereby, now or at any time hereafter, and prior to the termination hereof,
owned or acquired by Debtor, wherever located, and all products thereof
(collectively called "Inventory"), whether in the possession of Debtor,
warehousemen, bailees or any other person and whether located at Debtor's places
of business or elsewhere, excluding, however, the "Excluded Collateral" (as
defined in the Credit Agreement)(with all Rights to Payment and Inventory
referred to herein collectively as the "Collateral"), together with whatever is
receivable or received when any of the Collateral or proceeds thereof are sold,
leased, collected, exchanged or otherwise disposed of, whether such disposition
is voluntary or involuntary, including without limitation, all Rights to
Payment, including returned premiums, with respect to any insurance relating to
any of the foregoing, and all Rights to Payment with respect to any cause of
action affecting or relating to any of the foregoing (hereinafter called
"Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment
and performance of: (a) all present and future Indebtedness of Debtor to Bank;
(b) all obligations of Debtor and rights of Bank under this Agreement; and (c)
all present and future obligations of Debtor to Bank of other kinds. The word
"Indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Debtor, or any of them,
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
<PAGE>
be liable individually or jointly with others, or whether recovery upon such
Indebtedness may be or hereafter becomes unenforceable.
3. TERMINATION. This Agreement will terminate upon the performance of
all obligations of Debtor to Bank, including without limitation, the payment of
all Indebtedness of Debtor to Bank existing or committed by Bank at the time
Bank receives written notice from Debtor of the termination of this Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans
hereunder. Any money received by Bank in respect of the Collateral may be
deposited, at Bank's option, into a non-interest bearing account over which
Debtor shall have no control, and the same shall, for all purposes, be deemed
Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Bank that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to grant a security interest
in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine,
free from liens, adverse claims, setoffs, default, prepayment, defenses and
conditions precedent of any kind or character, except as heretofore disclosed to
Bank in writing; (d) all statements contained herein and, where applicable, in
the Collateral are true and complete; (e) except the Permitted Liens (as defined
in the Credit Agreement), no financing statement covering any of the Collateral
or Proceeds, and naming any secured party other than Bank, is on file in any
public office; (f) all persons appearing to be obligated on Rights to Payment
and Proceeds have authority and capacity to contract and are bound as they
appear to be; (g) all property subject to chattel paper has been properly
registered and filed in compliance with law and to perfect the interest of
Debtor in such property; and (h) all Rights to Payment and Proceeds comply with
all applicable laws concerning form, content and manner of preparation and
execution, including where applicable Federal Reserve Regulation Z and any State
consumer credit laws.
6. COVENANTS OF DEBTOR.
(a) Debtor Agrees in General: (i) to pay Indebtedness secured hereby
when due; (ii) to indemnify Bank against all losses, claims, demands,
liabilities and expenses of every kind caused by property subject hereto; (iii)
to pay all costs and expenses, including reasonable attorneys' fees, incurred by
Bank in the perfection, preservation, realization, enforcement and exercise of
its rights, powers and remedies hereunder; (iv) to permit Bank to exercise its
powers; (v) to execute and deliver such documents as Bank deems necessary to
create, perfect and continue the security interests contemplated hereby; and
(vi) not to change its chief place of business or the places where Debtor keeps
any of the Collateral or Debtor's records concerning the Collateral and Proceeds
without first giving Bank written notice of the address to which Debtor is
moving same.
2.
<PAGE>
(b) Debtor Agrees with Regard to the Collateral and Proceeds: (i) to
insure Inventory and, where applicable, Rights to Payment with Bank as loss
payee, in form and amounts, under agreements, against risks and liabilities, and
with insurance companies satisfactory to Bank; (ii) not to use any Inventory for
any unlawful purpose or in any way that would void any insurance required to be
carried in connection therewith; (iii) not to remove Inventory from Debtor's
premises without Bank's prior written consent and upon such terms and conditions
as Bank may require, except for deliveries to buyers in the ordinary course of
Debtor's business and except Inventory which consists of mobile goods as defined
in the California Uniform Commercial Code, in which case Debtor agrees not to
remove or permit the removal of the Inventory from its state of domicile for a
period in excess of thirty (30) calendar days; (iv) not to permit any lien on
the Collateral or Proceeds, including without limitation, liens arising from the
storage of Inventory, except in favor of Bank; (v) not to sell, hypothecate or
dispose of any of the Collateral or Proceeds, or any interest therein, except
sales of Inventory to buyers in the ordinary course of Debtor's business,
without Bank's prior written consent; (vi) to furnish reports to Bank of all
acquisitions, returns, sales and other dispositions of Inventory in such form
and detail and at such times as Bank may require; (vii) to permit Bank to
inspect the Collateral at any time; (viii) to keep, in accordance with generally
accepted accounting principles, complete and accurate records regarding all
Collateral and Proceeds, and to permit Bank to inspect the same and make copies
thereof at any reasonable time; (ix) if requested by Bank, to receive and use
reasonable diligence to collect Rights to Payment and Proceeds, in trust and as
the property of Bank, and to immediately endorse as appropriate and deliver such
Rights to Payment and Proceeds to Bank daily in the exact form in which they are
received together with a collection report in form satisfactory to Bank; (x) not
to commingle Rights to Payment, Proceeds or collections thereunder with other
property; (xi) to give only normal allowances and credits and to advise Bank
thereof immediately in writing if they affect any Rights to Payment or Proceeds;
(xii) on demand, to deliver to Bank returned property resulting from, or payment
equal to, such allowances or credits on any Rights to Payment or Proceeds or to
execute such documents and do such other things as Bank may reasonably request
for the purpose of perfecting, preserving and enforcing its security interest in
such returned property; (xiii) from time to time, when requested by Bank, to
prepare and deliver a schedule of all Collateral and Proceeds subject to this
Agreement and to assign in writing and deliver to Bank all accounts, contracts,
leases and other chattel paper, instruments, documents and other evidences
thereof; (xiv) in the event Bank elects to receive payments of Rights to Payment
or Proceeds hereunder upon the occurrence and continuation of an Event of
Default (as defined in the Credit Agreement), to pay all expenses incurred by
Bank in connection therewith, including expenses of accounting, correspondence,
collection efforts, reporting to account or contract debtors, filing, recording,
record keeping and
3.
<PAGE>
expenses incidental thereto; and (xv) to provide any service and do any other
acts which may be necessary to maintain, preserve and protect all Collateral
and, as appropriate and applicable, to keep all Collateral in good and saleable
condition, to deal with the Collateral in accordance with the standards and
practices adhered to generally by users and manufacturers of like property, and
to keep all Collateral and Proceeds free and clear of all defenses, rights of
offset and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney in fact to
perform any of the following powers, which are coupled with an interest, are
irrevocable until termination of this Agreement and may be exercised from time
to time by Bank's officers and employees, or any of them, whether or not Debtor
is in default: (a) upon the occurrence and continuation of an Event of Default
(as defined in the Credit Agreement), to perform any obligation of Debtor
hereunder in Debtor's name or otherwise; (b) upon the occurrence and
continuation of an Event of Default (as defined in the Credit Agreement), to
give notice of Bank's rights in the Collateral and Proceeds, to enforce the same
and make extension agreements with respect thereto; (c) upon the occurrence and
continuation of an Event of Default (as defined in the Credit Agreement), to
release persons liable on Collateral or Proceeds and to give receipts and
acquittances and compromise disputes in connection therewith; (d) upon the
occurrence and continuation of an Event of Default (as defined in the Credit
Agreement), to release security; (e) to resort to security in any order; (f) to
prepare, execute, file, record or deliver notes, assignments, schedules,
designation statements, financing statements, continuation statements,
termination statements, statements of assignment, applications for registration
or like papers to perfect, preserve or release Bank's interest in the Collateral
and Proceeds; (g) upon the occurrence and continuation of an Event of Default
(as defined in the Credit Agreement), to receive, open and read mail addressed
to Debtor; (h) upon the occurrence and continuation of an Event of Default (as
defined in the Credit Agreement), to take cash, instruments for the payment of
money and other property to which Bank is entitled; (i) to verify facts
concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) upon the occurrence and
continuation of an Event of Default (as defined in the Credit Agreement), to
endorse, collect, deliver and receive payment under instruments for the payment
of money constituting or relating to Proceeds; (k) to prepare, adjust, execute,
deliver and receive payment under insurance claims, and to collect and receive
payment of and endorse any instrument in payment of loss or returned premiums or
any other insurance refund or return, and to apply such amounts received by
Bank, at Bank's sole option, toward repayment of the Indebtedness or replacement
of the Collateral; (l) upon the occurrence and continuation of an Event of
Default (as defined in the Credit Agreement), to exercise all rights, powers and
remedies which Debtor would have, but for this Agreement, with respect to all
Collateral and Proceeds subject
4.
<PAGE>
hereto; (m) to enter onto Debtor's premises in inspecting the Collateral; (n)
upon the occurrence and continuation of an Event of Default (as defined in the
Credit Agreement), to make withdrawals from and to close deposit accounts or
other accounts with any financial institution, wherever located, into which
Proceeds may have been deposited, and to apply funds so withdrawn to payment of
the Indebtedness; (o) to preserve or release the interest evidenced by chattel
paper to which Bank is entitled hereunder and to endorse and deliver evidences
of title incidental thereto; and (p) to do all acts and things and execute all
documents in the name of Debtor or otherwise, deemed by Bank as necessary,
proper and convenient in connection with the preservation, perfection or
enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral and Proceeds, and upon the failure
of Debtor to do so, Bank at its option may pay any of them and shall be the sole
judge of the legality or validity thereof and the amount necessary to discharge
the same. Any such payments made by Bank shall be obligations of Debtor to Bank,
due and payable immediately upon demand, together with interest at a rate
determined in accordance with the provisions of Section 12 hereof, and shall be
secured by the Collateral and Proceeds, subject to all terms and conditions of
this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement, subject to the expiration
of all applicable notice and cure periods set forth in the Credit Agreement: (a)
any default in the payment or performance of any obligation, or any defined
event of default, under (i) any contract or instrument evidencing any
Indebtedness, or (ii) any other agreement between any Debtor and Bank, including
without limitation any loan agreement, relating to or executed in connection
with any Indebtedness; (b) any representation or warranty made by any Debtor
herein shall prove to be incorrect, false or misleading in any material respect
when made; (c) any Debtor shall fail to observe or perform any obligation or
agreement contained herein; (d) any attachment or like levy on any property of
any Debtor; and (e) Bank, in good faith, believes any or all of the Collateral
and/or Proceeds to be in danger of misuse, dissipation, commingling, loss,
theft, damage or destruction, or otherwise in jeopardy or unsatisfactory in
character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall
have the right to declare immediately due and payable all or any Indebtedness
secured hereby and to terminate any commitments to make loans or otherwise
extend credit to Debtor. Bank shall have all other rights, powers, privileges
and remedies granted to a secured party upon default under the Uniform
Commercial Code or otherwise provided by law, including without
5.
<PAGE>
limitation, the right to contact all persons obligated to Debtor on any
Collateral or Proceeds and to instruct such persons to deliver all Collateral
and/or Proceeds directly to Bank. All rights, powers, privileges and remedies of
Bank shall be cumulative. No delay, failure or discontinuance of Bank in
exercising any right, power, privilege or remedy hereunder shall affect or
operate as a waiver of such right, power, privilege or remedy; nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. Any waiver, permit,
consent or approval of any kind by Bank of any default hereunder, or any such
waiver of any provisions or conditions hereof, must be in writing and shall be
effective only to the extent set forth in writing. It is agreed that public or
private sales, for cash or on credit, to a wholesaler or retailer or investor,
or user of property of the types subject to this Agreement, or public auction,
are all commercially reasonable since differences in the sales prices generally
realized in the different kinds of sales are ordinarily offset by the
differences in the costs and credit risks of such sales. While an Event of
Default exists: (a) Debtor will deliver to Bank from time to time, as requested
by Bank, current lists of all Collateral and Proceeds; (b) Debtor will not
dispose of any of the Collateral or Proceeds except on terms approved by Bank;
(c) at Bank's request, Debtor will assemble and deliver all Collateral and
Proceeds, and books and records pertaining thereto, to Bank at a reasonably
convenient place designated by Bank; and (d) Bank may, without notice to Debtor,
enter onto Debtor's premises and take possession of the Collateral. With respect
to any sale by Bank of any Collateral subject to this Agreement, Debtor hereby
expressly grants to Bank the right to sell such Collateral using any or all of
Debtor's trademarks, trade names, trade name rights and/or proprietary labels or
marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Indebtedness, Bank may transfer all or any part of the
Collateral or Proceeds and shall be fully discharged thereafter from all
liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Bank hereunder with respect to any of the foregoing so transferred; but with
respect to any Collateral or Proceeds not so transferred, Bank shall retain all
rights, powers, privileges and remedies herein given. Any proceeds of any
disposition of any of the Collateral or Proceeds, or any part thereof, may be
applied by Bank to the payment of expenses incurred by Bank in connection with
the foregoing, including reasonable attorneys' fees, and the balance of such
proceeds may be applied by Bank toward the payment of the Indebtedness in such
order of application as Bank may from time to time elect.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank
immediately upon demand the full amount of all payments,
6.
<PAGE>
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of Bank's in-house
counsel), incurred by Bank in exercising any right, power, privilege or remedy
conferred by this Agreement or in the enforcement thereof, including any of the
foregoing incurred in connection with any bankruptcy proceeding relating to
Debtor or the valuation of the Collateral and/or Proceeds, including without
limitation, the seeking of relief from or modification of the automatic stay or
the negotiation and drafting of a cash collateral order. All of the foregoing
shall be paid by Debtor with interest at the default interest rate set forth in
the Notes (as defined in the Credit Agreement).
13. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid
in full, the power of sale and all other rights, powers, privileges and remedies
granted to Bank hereunder shall continue to exist and may be exercised by Bank
at any time and from time to time irrespective of the fact that the Indebtedness
or any part thereof may have become barred by any statute of limitations, or
that the personal liability of Debtor may have ceased, unless such liability
shall have ceased due to the payment in full of all Indebtedness secured
hereunder.
14. MISCELLANEOUS. The obligations of Debtor are joint and several;
presentment, protest, notice of protest, notice of dishonor and notice of
nonpayment are waived with respect to any Proceeds to which Bank is entitled
hereunder; any right to direct the application of payments or security for any
Indebtedness of Debtor, or indebtedness of customers of Debtor, and any right to
require proceedings against others or to require exhaustion of security are
waived; and consent to extensions, forbearances or alterations of the terms of
Indebtedness, the release or substitution of security, and the release of
guarantors is given with respect to Proceeds subject to this Agreement; provided
however, that in each instance Bank believes in good faith that the action in
question is commercially reasonable in that it does not unreasonably increase
the risk of nonpayment of the Indebtedness to which the action applies. Until
all Indebtedness shall have been paid in full, no Debtor shall have any right of
subrogation or contribution, and each Debtor hereby waives any benefit of or
right to participate in any of the Collateral or Proceeds or any other security
now or hereafter held by Bank.
15. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Bank at the address specified in any
other loan documents entered into between Debtor and Bank and to Debtor at the
address of its chief executive office (or personal residence, if applicable)
specified below or to such other address as any party may designate by written
notice to each other party, and shall be deemed to have been given or made as
follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon
the earlier of the date of receipt or three (3) days
7.
<PAGE>
after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent
by telecopy, upon receipt.
16. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties, provided, however, the creation and enforcement of any UCC security
interest and lien shall be governed by the laws of the State of Arizona.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
Debtor warrants that its chief executive office (or personal residence,
if applicable) is located at the following address: 2400 East Arizona Biltmore
Circle, Building 2, Suite 1270, Phoenix, Arizona 85016.
Debtor warrants that the Collateral (except goods in transit) is
located or domiciled at the following additional addresses: See Schedule 1
attached hereto and incorporated herein by this reference.
8.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of
December 11, 1996.
STRATFORD AMERICAN CORPORATION, IMPERIAL BANK
an Arizona corporation
By: /s/ Mel L. Shultz By: /s/ R. Mark Chambers
-------------------------- --------------------------
Title: President Title: Vice President
----------------------- -----------------------
STRATFORD AMERICAN CAR RENTAL SYSTEMS, INC.,
an Arizona corporation
By: /s/ Mel L. Shultz
--------------------------
Title: President
-----------------------
9.
<PAGE>
SCHEDULE 1
Dollar Rent A Car Phoenix Locations
America West Arena Sun City/Surprise
201 E. Jefferson 12129 W. Bell Road
Phoenix, Arizona 85004 Sun City West, Arizona
514-8444 583-4718
Arizona Biltmore Hotel Sky Harbor Airport
2400 E. Missouri Terminal 2 267-0097
Phoenix, Arizona 85016 Terminal 3 267-0996
956-9012 Terminal 4 264-0995
Deer Valley Airport Dollar Rent A Car Main Office
702 W. Deer Valley Road 50 S. 24th Street
Deer Valley, Arizona Phoenix, Arizona 85034
861-0366 275-7588
Holiday Inn Tempe
915 E. Apache Blvd.
Tempe, Arizona
829-1523
Scottsdale Radisson Resort
7171 N. Scottsdale Road
Scottsdale, Arizona 85258
947-7295
Southeast Regional Location
2828 S. Country Club
Mesa, Arizona
497-9298
West Valley Regional Location
8708 W. Thunderbird
Peoria, Arizona 85381
486-7990
GENERAL PLEDGE AGREEMENT
TO: IMPERIAL BANK
1. GRANT OF SECURITY INTEREST. For valuable consideration, STRATFORD
AMERICAN CORPORATION, an Arizona corporation ("Debtor"), hereby assigns,
transfers to and pledges with IMPERIAL BANK ("Bank") all money and property this
day delivered to and deposited with Bank, together with all other money or
property heretofore delivered or which shall hereafter be delivered to or come
into the possession, custody or control of Bank in any manner or for any purpose
whatsoever during the existence of this Agreement, including, without
limitation, all of the issued and outstanding common stock of Stratford American
Car Rental Systems, Inc. (collectively called "Collateral"), and whether held in
a general or special account or deposit for safekeeping or otherwise, together
with whatever is receivable or received when any of the Collateral or proceeds
thereof are sold, collected, exchanged or otherwise disposed of, whether such
disposition is voluntary or involuntary, including without limitation, (a) all
rights to payment, including returned premiums, with respect to any insurance
relating to any of the foregoing, (b) all rights to payment with respect to any
cause of action affecting or relating to any of the foregoing, and (c) all stock
rights, rights to subscribe, stock splits, liquidating dividends, cash
dividends, dividends paid in stock, new securities or other property of any kind
which Debtor is or may hereafter be entitled to receive on account of any
securities pledged hereunder, including without limitation, stock received by
Debtor due to stock splits or dividends paid in stock or sums paid upon or in
respect of any securities pledged hereunder upon the liquidation or dissolution
of the issuer thereof (hereinafter called "Proceeds"), and in the event that
Debtor receives any such Proceeds, Debtor will hold the same in trust on behalf
of and for the benefit of Bank and will immediately deliver all such Proceeds to
Bank in the exact form received, with the endorsement of Debtor if necessary
and/or appropriate undated stock powers duly executed in blank, to be held by
Bank as part of the Collateral, subject to all terms hereof.
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment
and performance of: (a) all present and future Indebtedness of Debtor to Bank;
(b) all obligations of Debtor and rights of Bank under this Agreement; and (c)
all present and future obligations of Debtor to Bank of other kinds. The word
"Indebtedness" is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Debtor, or any of them,
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly with others, or whether recovery upon such
Indebtedness may be or hereafter becomes unenforceable.
<PAGE>
3. TERMINATION. This Agreement will terminate upon the performance of
all obligations of Debtor to Bank, including without limitation, the payment of
all Indebtedness of Debtor to Bank existing or committed by Bank at the time
Bank receives written notice from Debtor of the termination of this Agreement.
4. OBLIGATIONS OF BANK.
(a) Bank has no obligation to make any loans hereunder. Any money
received by Bank in respect of the Collateral may be deposited, at Bank's
option, into a non-interest bearing account over which Debtor shall have no
control, and the same shall, for all purposes, be deemed Collateral hereunder.
(b) Bank's obligation with respect to Collateral and Proceeds in its
possession shall be strictly limited to the duty to exercise reasonable care in
the custody and preservation of such Collateral and Proceeds, and such duty
shall not include any obligation to ascertain or to initiate any action with
respect to or to inform Debtor of maturity dates, conversion, call or exchange
rights, or offers to purchase the Collateral or Proceeds, or any similar
matters, notwithstanding Bank's knowledge of the same. Bank shall have no duty
to take any steps necessary to preserve the rights of Debtor against prior
parties, or to initiate any action to protect against the possibility of a
decline in the market value of the Collateral or Proceeds. Bank shall not be
obligated to take any action with respect to the Collateral or Proceeds
requested by Debtor unless such request is made in writing and Bank determines,
in its sole discretion, that the requested action would not unreasonably
jeopardize the value of the Collateral and Proceeds as security for the
Indebtedness. Bank may at any time deliver the Collateral and Proceeds, or any
part thereof, to any Debtor, and the receipt thereof by any Debtor shall be a
complete and full acquittance for the Collateral and Proceeds so delivered, and
Bank shall thereafter be discharged from any liability or responsibility
therefor.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Bank that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to pledge the Collateral and
Proceeds; (c) all Collateral and Proceeds are genuine, free from liens, adverse
claims, setoffs, default, prepayment, defenses and conditions precedent of any
kind or character, except as heretofore disclosed to Bank in writing; (d) all
statements contained herein and, where applicable, in the Collateral, are true
and complete; (e) no financing statement covering any of the Collateral or
Proceeds, and naming any secured party other than Bank, is on file in any public
office; and (f) specifically with respect to Collateral and Proceeds consisting
of investment securities, instruments, chattel paper, documents, contracts,
insurance policies or any like property, (i) all persons appearing to be
obligated thereon have authority and capacity to contract and are bound as they
appear to be, and (ii) the same
2.
<PAGE>
comply with applicable laws concerning form, content and manner of preparation
and execution.
6. COVENANTS OF DEBTOR.
(a) Debtor Agrees in General: (i) to pay Indebtedness secured hereby
when due; (ii) to indemnify Bank against all losses, claims, demands,
liabilities and expenses of every kind caused by property subject hereto; (iii)
to pay all costs and expenses, including reasonable attorneys' fees, incurred by
Bank in the perfection, preservation, realization, enforcement and exercise of
its rights, powers and remedies hereunder; (iv) to permit Bank to exercise its
powers; (v) to execute and deliver such documents as Bank deems necessary to
create, perfect and continue the security interests contemplated hereby; and
(vi) not to change its chief place of business or the places where Debtor keeps
any of the Collateral or Debtor's records concerning the Collateral and Proceeds
without first giving Bank written notice of the address to which Debtor is
moving same.
(b) Debtor Agrees with Regard to the Collateral and Proceeds: (i) not
to permit any lien on the Collateral or Proceeds, except in favor of Bank; (ii)
not to attempt to withdraw any funds from any deposit account pledged to Bank
without Bank's prior written consent; (iii) not to sell, hypothecate or
otherwise dispose of any of the Collateral or Proceeds, or any interest therein,
without Bank's prior written consent; (iv) to keep, in accordance with generally
accepted accounting principles, complete and accurate records regarding all
Collateral and Proceeds, and to permit Bank to inspect the same and make copies
thereof at any reasonable time; (v) if requested by Bank, to receive and use
reasonable diligence to collect Proceeds, in trust and as the property of Bank,
and to immediately endorse as appropriate and deliver such Proceeds to Bank
daily in the exact form in which they are received together with a collection
report in form satisfactory to Bank; (vi) not to commingle Collateral or
Proceeds, or collections thereunder, with other property; (vii) in the event
Bank elects to receive payments of Proceeds hereunder, to pay all expenses
incurred by Bank in connection therewith, including expenses of accounting,
correspondence, collection efforts, filing, recording, record keeping and
expenses incidental thereto; (viii) to provide any service and do any other acts
which may be necessary to keep all Collateral and Proceeds free and clear of all
defenses, rights of offset and counterclaims; and (ix) if the Collateral or
Proceeds consists of securities and so long as no Event of Default exists, to
vote said securities and to give consents, waivers and ratifications with
respect thereto, provided that no vote shall be cast or consent, waiver or
ratification given or action taken which would impair Bank's interests in the
Collateral and Proceeds or be inconsistent with or violate any provisions of
this Agreement.
7. POWERS OF BANK. Debtor appoints Bank its true attorney in fact to
perform any of the following powers, which are coupled
3.
<PAGE>
with an interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Bank's officers and employees, or any of them,
whether or not Debtor is in default: (a) upon the occurrence and continuation of
an Event of Default (as defined in the Credit Agreement), to perform any
obligation of Debtor hereunder in Debtor's name or otherwise; (b) to notify any
person obligated on any security, instrument or other document subject to this
Agreement of Bank's rights hereunder; (c) upon the occurrence and continuation
of an Event of Default (as defined in the Credit Agreement), to collect by legal
proceedings or otherwise all dividends, interest, principal or other sums now or
hereafter payable upon or on account of the Collateral or Proceeds; (d) upon the
occurrence and continuation of an Event of Default (as defined in the Credit
Agreement), to enter into any extension, reorganization, deposit, merger or
consolidation agreement, or any other agreement relating to or affecting the
Collateral or Proceeds, and in connection therewith to deposit or surrender
control of the Collateral and Proceeds, to accept other property in exchange for
the Collateral and Proceeds, and to do and perform such acts and things as Bank
may deem proper, with any money or property received in exchange for the
Collateral or Proceeds, at Bank's option, to be applied to the Indebtedness or
held by Bank under this Agreement; (e) upon the occurrence and continuation of
an Event of Default (as defined in the Credit Agreement), to make any compromise
or settlement Bank deems desirable or proper in respect of the Collateral and
Proceeds; (f) to insure, process and preserve the Collateral and Proceeds; (g)
upon the occurrence and continuation of an Event of Default (as defined in the
Credit Agreement), to exercise all rights, powers and remedies which Debtor
would have, but for this Agreement, with respect to all Collateral and Proceeds
subject hereto; and (h) upon the occurrence and continuation of an Event of
Default (as defined in the Credit Agreement), to do all acts and things and
execute all documents in the name of Debtor or otherwise, deemed by Bank as
necessary, proper and convenient in connection with the preservation, perfection
or enforcement of its rights hereunder. To effect the purposes of this Agreement
or otherwise upon instructions of Debtor, or any of them, Bank may cause any
Collateral and/or Proceeds to be transferred to Bank's name or the name of
Bank's nominee. If an Event of Default has occurred and is continuing, any or
all Collateral and/or Proceeds consisting of securities may be registered,
without notice, in the name of Bank or its nominee, and thereafter Bank or its
nominee may exercise, without notice, all voting and corporate rights at any
meeting of the shareholders of the issuer thereof, any and all rights of
conversion, exchange or subscription, or any other rights, privileges or options
pertaining to such Collateral and/or Proceeds, all as if it were the absolute
owner thereof. The foregoing shall include, without limitation, the right of
Bank or its nominee to exchange, at its discretion, any and all Collateral
and/or Proceeds upon the merger, consolidation, reorganization, recapitalization
or other readjustment of the issuer thereof, or upon the exercise by the issuer
thereof or Bank of any right, privilege or option pertaining
4.
<PAGE>
to any shares of the Collateral and/or Proceeds, and in connection therewith,
the right to deposit and deliver any and all of the Collateral and/or Proceeds
with any committee, depository, transfer agent, registrar or other designated
agency upon such terms and conditions as Bank may determine. All of the
foregoing rights, privileges or options may be exercised without liability on
the part of Bank or its nominee except to account for property actually received
by Bank. Bank shall have no duty to exercise any of the foregoing, or any other
rights, privileges or options with respect to the Collateral or Proceeds and
shall not be responsible for any failure to do so or delay in so doing.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral and Proceeds, and upon the failure
of Debtor to do so, Bank at its option may pay any of them and shall be the sole
judge of the legality or validity thereof and the amount necessary to discharge
the same. Any such payments made by Bank shall be obligations of Debtor to Bank,
due and payable immediately upon demand, together with interest at a rate
determined in accordance with the provisions of Section 12 hereof, and shall be
secured by the Collateral and Proceeds, subject to all terms and conditions of
this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement, subject to the expiration
of all applicable notice and cure periods set forth in the Credit Agreement: (a)
any default in the payment or performance of any obligation, or any defined
event of default, under (i) any contract or instrument evidencing any
Indebtedness, or (ii) any other agreement between any Debtor and Bank, including
without limitation any loan agreement, relating to or executed in connection
with any Indebtedness; (b) any representation or warranty made by any Debtor
herein shall prove to be incorrect, false or misleading in any material respect
when made; (c) any Debtor shall fail to observe or perform any obligation or
agreement contained herein; (d) any attachment or like levy on any property of
any Debtor; and (e) Bank, in good faith, believes any or all of the Collateral
and/or Proceeds to be in danger of misuse, dissipation, commingling, loss,
theft, damage or destruction, or otherwise in jeopardy or unsatisfactory in
character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall
have the right to declare immediately due and payable all or any Indebtedness
secured hereby and to terminate any commitments to make loans or otherwise
extend credit to Debtor. Bank shall have all other rights, powers, privileges
and remedies granted to a secured party upon default under the Uniform
Commercial Code or otherwise provided by law, including without limitation, the
right to contact all persons obligated to Debtor on any Collateral or Proceeds
and to instruct such persons to deliver
5.
<PAGE>
all Collateral and/or Proceeds directly to Bank. All rights, powers, privileges
and remedies of Bank shall be cumulative. No delay, failure or discontinuance of
Bank in exercising any right, power, privilege or remedy hereunder shall affect
or operate as a waiver of such right, power, privilege or remedy; nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. Any waiver, permit,
consent or approval of any kind by Bank of any default hereunder, or any such
waiver of any provisions or conditions hereof, must be in writing and shall be
effective only to the extent set forth in writing. It is agreed that public or
private sales, for cash or on credit, to a wholesaler or retailer or investor,
or user of property of the types subject to this Agreement, or public auction,
are all commercially reasonable since differences in the sales prices generally
realized in the different kinds of sales are ordinarily offset by the
differences in the costs and credit risks of such sales. While an Event of
Default exists: (a) Bank may, at any time and at Bank's sole option, liquidate
any time deposits pledged hereunder, whether or not said time deposits have
matured and notwithstanding the fact that such liquidation may give rise to
penalties for early withdrawal of funds; (b) Debtor will not dispose of any of
the Collateral or Proceeds except on terms approved by Bank; (c) Bank may
appropriate the Collateral and apply all Proceeds toward repayment of the
Indebtedness in such order of application as Bank may from time to time elect;
and (d) at Bank's request, Debtor will assemble and deliver all Collateral and
Proceeds, and books and records pertaining thereto, to Bank at a reasonably
convenient place designated by Bank. For any Collateral or Proceeds consisting
of securities, Bank shall have no obligation to delay a sale of any portion
thereof for the period of time necessary to permit the issuer thereof to
register such securities for public sale under any applicable state or Federal
law, even if the issuer thereof would agree to do so.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Indebtedness, Bank may transfer all or any part of the
Collateral or Proceeds and shall be fully discharged thereafter from all
liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Bank hereunder with respect to any of the foregoing so transferred; but with
respect to any Collateral or Proceeds not so transferred, Bank shall retain all
rights, powers, privileges and remedies herein given. Any proceeds of any
disposition of any of the Collateral or Proceeds, or any part thereof, may be
applied by Bank to the payment of expenses incurred by Bank in connection with
the foregoing, including reasonable attorneys' fees, and the balance of such
proceeds may be applied by Bank toward the payment of the Indebtedness in such
order of application as Bank may from time to time elect.
6.
<PAGE>
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), incurred by
Bank in exercising any right, power, privilege or remedy conferred by this
Agreement or in the enforcement thereof, including any of the foregoing incurred
in connection with any bankruptcy proceeding relating to Debtor or the valuation
of the Collateral and/or Proceeds, including without limitation, the seeking of
relief from or modification of the automatic stay or the negotiation and
drafting of a cash collateral order. All of the foregoing shall be paid by
Debtor with interest at the default interest rate set forth in the Notes (as
defined in the Credit Agreement).
13. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid
in full, the power of sale and all other rights, powers, privileges and remedies
granted to Bank hereunder shall continue to exist and may be exercised by Bank
at any time and from time to time irrespective of the fact that the Indebtedness
or any part thereof may have become barred by any statute of limitations, or
that the personal liability of Debtor may have ceased, unless such liability
shall have ceased due to the payment in full of all Indebtedness secured
hereunder.
14. MISCELLANEOUS. The obligations of Debtor are joint and several;
presentment, protest, notice of protest, notice of dishonor and notice of
nonpayment are waived with respect to any Proceeds to which Bank is entitled
hereunder; any right to direct the application of payments or security for any
Indebtedness of Debtor, or indebtedness of customers of Debtor, and any right to
require proceedings against others or to require exhaustion of security are
waived; and consent to extensions, forbearances or alterations of the terms of
Indebtedness, the release or substitution of security, and the release of
guarantors is given with respect to Proceeds subject to this Agreement; provided
however, that in each instance Bank believes in good faith that the action in
question is commercially reasonable in that it does not unreasonably increase
the risk of nonpayment of the Indebtedness to which the action applies. Until
all Indebtedness shall have been paid in full, no Debtor shall have any right of
subrogation or contribution, and each Debtor hereby waives any benefit of or
right to participate in any of the Collateral or Proceeds or any other security
now or hereafter held by Bank.
15. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this
Agreement as Debtor hereby expressly agrees that recourse may be had against his
or her separate property (as well as all marital property) for all his or her
Indebtedness to Bank secured by the Collateral and Proceeds under this
Agreement.
16. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Bank at the
7.
<PAGE>
address specified in any other loan documents entered into between Debtor and
Bank and to Debtor at the address of its chief executive office (or personal
residence, if applicable) specified below or to such other address as any party
may designate by written notice to each other party, and shall be deemed to have
been given or made as follows: (a) if personally delivered, upon delivery; (b)
if sent by mail, upon the earlier of the date of receipt or three (3) days after
deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by
telecopy, upon receipt.
17. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties, provided, however, the creation and enforcement of any UCC security
interest and lien shall be governed by the laws of the State of Arizona.
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
Debtor warrants that its chief executive office (or personal residence,
if applicable) is located at the following address: 2400 East Arizona Biltmore
Circle, Building 2, Suite 1270, Phoenix, Arizona 85016.
8.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of
December 11, 1996.
STRATFORD AMERICAN CORPORATION,
an Arizona corporation
By: /s/ Mel L. Shultz
--------------------------
Title: President
-----------------------
IMPERIAL BANK
By: /s/ R. Mark Chambers
--------------------------
Title: Vice President
-----------------------
9.
<PAGE>
JOINDER
-------
The undersigned, shareholders of Stratford American Car Rental Systems,
Inc., hereby join in the foregoing General Pledge Agreement for the sole purpose
of assigning, transferring and pledging to Imperial Bank, all of the
undersigned's rights, title, claims and interest in and to the issued and
outstanding common stock of Stratford American Car Rental Systems, Inc., as
additional collateral for the Bank's loan to Stratford American Corporation and
Stratford American Car Rental Systems, Inc. By joining in, and pledging their
interest in such stock, Imperial Bank hereby acknowledges and agrees that the
undersigned shall have no liability whatsoever for joining in the General Pledge
Agreement and Imperial Bank hereby agrees to take no action against the
undersigned for any principal, interest, fees, expenses, claims or liabilities
arising out of, or relating to, the Indebtedness as defined in the foregoing
General Pledge Agreement.
- ------------------------------
Susan L. Drescher-Mulzet
T.W.P. COMPANY
By:
--------------------------
Title:
-----------------------
- ------------------------------
Glen Campbell
- ------------------------------
Jerry Colangelo
- ------------------------------
Louis Gossett, Jr.
- ------------------------------
Edwin C. Lynch
- ------------------------------
John W. Teets
- ------------------------------
Anthony Wauterlek
10.
<PAGE>
WELLS FARGO EQUITY CORPORATION
By:
--------------------------
Title:
-----------------------
11.
SUBORDINATION AND STANDSTILL AGREEMENT
THIS AGREEMENT is entered into by and among STRATFORD AMERICAN
CORPORATION, an Arizona corporation, and STRATFORD AMERICAN CAR RENTAL SYSTEMS,
INC., an Arizona corporation (collectively, individually, jointly and severally,
the "Borrower"), the undersigned creditors (collectively and individually,
"Creditor"), and IMPERIAL BANK ("Bank").
RECITALS
A. Borrower is indebted to Creditor, and Borrower proposes to obtain
credit or has obtained credit from Bank; and
B. Bank has indicated that it will extend or continue credit to
Borrower if certain conditions are met, including without limitation, the
requirement that Creditor execute this Agreement.
NOW, THEREFORE, as an inducement to Bank to extend or continue credit
and for other valuable consideration, the parties hereto agree as follows:
1. INDEBTEDNESS SUBORDINATED. Creditor subordinates all Indebtedness
now or at any time hereafter owing from Borrower to Creditor (including without
limitation, interest thereon which may accrue subsequent to Borrower becoming
subject to any state or federal debtor-relief statute) ("Junior Debt") to all
Indebtedness now or at any time hereafter owing from Borrower to Bank ("Senior
Debt"). Creditor irrevocably consents and directs that all Senior Debt shall be
paid in full prior to Borrower making any payment on any Junior Debt. Creditor
will, and Bank is authorized in the name of Creditor from time to time to,
execute and file such financing statements and other documents as Bank may
require in order to give notice to other persons and entities of the terms and
provisions of this Agreement. As long as this Agreement is in effect, Creditor
will not take any action or initiate any proceedings, judicial or otherwise, to
enforce Creditor's rights or remedies with respect to any Junior Debt.
2. INDEBTEDNESS DEFINED. The word "Indebtedness" is used herein in its
most comprehensive sense and includes any and all advances, debts, obligations
and liabilities of Borrower heretofore, now or hereafter made, incurred or
created, whether voluntary or involuntary and however arising, whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether Borrower may be liable individually or jointly with
others, including without limitation, obligations and liabilities arising from
notes, repurchase agreements and trust receipts.
3. RESTRICTION OF PAYMENT OF JUNIOR DEBT; DISPOSITION OF PAYMENTS
RECEIVED BY CREDITOR. Other than payments of accrued
<PAGE>
interest to Creditor, provided no default has occurred and is continuing under
the Senior Debt, Borrower will not make, and Creditor will not accept or
receive, any payment or benefit in cash or otherwise (or exercise any right of,
or permit any set-off with respect to, the Junior Debt), directly or indirectly,
on account of principal, interest or any other amounts owing on any Junior Debt.
If any such payment is made in violation of this Paragraph, Creditor shall
promptly deliver the same to Bank in the form received, with any endorsement or
assignment necessary for the transfer of such payment from Creditor to Bank, to
be either (in Bank's sole discretion) held as cash collateral securing the
Senior Debt or applied in reduction of the Senior Debt in such order as Bank
shall determine, and until so delivered, Creditor shall hold such payment in
trust for and on behalf of, and as the property of, Bank. In the event that the
Creditor shall exercise any right of set-off which the Creditor is not permitted
to exercise under the provisions of this Agreement, the Creditor shall promptly
pay over to Bank, in immediately available funds, an amount equal to the amount
of the claims or obligations offset. If the Creditor fails to make any
endorsement required under this Agreement, the Bank, or any of its offices or
employees or agents on behalf of the Bank, is hereby irrevocably appointed as
the attorney in-fact (which appointment is coupled with an interest) for the
Creditor to make such endorsement in the Creditor's name.
4. ACTION ON SUBORDINATED DEBT. The Creditor will not commence any
action or proceeding against the Borrower to recover all or any part of the
Junior Debt, or join with any creditor (unless the Bank shall so join) in
bringing any proceeding against the Borrower under any bankruptcy,
reorganization, readjustment of debt, arrangement of debt receivership,
liquidation or insolvency law or statute of the federal or any state government,
unless and until the Senior Debt has been paid in full.
5. DISPOSITION OF EVIDENCE OF INDEBTEDNESS. If there is any existing
promissory note or other evidence of any Junior Debt, or if any promissory note
or other evidence of Indebtedness is executed at any time hereafter with respect
thereto, then Borrower and Creditor will mark the same with a legend stating
that it is subject to this Agreement, and if asked to do so, will deliver the
same to Bank. Creditor shall not, without Bank's prior written consent, assign,
transfer, hypothecate or otherwise dispose of any claim it now has or may at any
time hereafter have against Borrower at any time that any Senior Debt remains
outstanding and/or Bank remains committed to extend any credit to Borrower.
6. CONTINUING EFFECT. This Agreement shall constitute a continuing
agreement of subordination, and the Bank may, without notice to or consent by
the Creditor, modify any term of the Senior Debt in reliance upon this
Agreement. Without limiting the generality of the foregoing, the Bank may, at
any time and from time to time, either before or after receipt of any such
notice of revocation, without the consent of or notice to the Creditor and
2
<PAGE>
without incurring responsibility to the Creditor or impairing or releasing any
of the Bank's rights or any of the Creditor's obligations hereunder:
(a) change the interest rate or change the amount of payment
or extend the time for payment or renew or otherwise alter the terms of the
Senior Debt or any instrument evidencing the same in any manner;
(b) sell, exchange, release or otherwise deal with any
property at any time securing payment of the Senior Debt or any part thereof;
(c) release anyone liable in any manner for the payment or
collection of the Senior Debt or any part thereof;
(d) exercise or refrain from exercising any right against the
Borrower or any other person (including the Creditor); and
(e) apply any sums received by the Bank, by whomsoever paid
and however realized, to the Senior Debt in such manner as the Bank shall deem
appropriate.
7. TERMINATION BY CREDITOR. Creditor may, to the extent provided
herein, terminate this Agreement by delivering written notice to Bank. Any such
notice must be sent to Bank by registered U.S. mail, postage prepaid, addressed
to its office at 4343 East Camelback Road, Suite 444, Phoenix, Arizona 85018,
Attention: Mark Chambers, or at such other address as Bank shall from time to
time designate. If such notice is received by Bank, this Agreement shall
terminate as of the date of receipt, except that the obligations of Creditor and
the rights of Bank hereunder shall continue with respect to all Senior Debt
which existed at the time of Bank's receipt of such notice, or thereafter arose
pursuant to any agreement to extend credit by which Bank is bound at the time of
its receipt of such notice, and any extensions, renewals or modifications of any
such then existing or committed Senior Debt, including without limitation,
modifications to the amount of principal or interest payable on any Senior Debt
and the release of any security for or any guarantors of all or any portion of
any Senior Debt.
8. INFORMATION. Creditor has established adequate, independent means of
obtaining from Borrower on a continuing basis financial and other information
pertaining to Borrower's financial condition. Creditor agrees to keep adequately
informed from such means of any facts, events or circumstances which might in
any way affect Creditor's risks hereunder, and Creditor agrees that Bank shall
have no obligation to disclose to Creditor information or material about
Borrower which is acquired by Bank in any manner. Bank may, at Bank's sole
option and without obligation to do so, disclose to Creditor any information or
material relating to
3
<PAGE>
Borrower which is acquired by Bank by any means, and Borrower hereby agrees to
and authorizes any such disclosure by Bank.
9. TRANSFER OF ASSETS OR REORGANIZATION OF BORROWER. If any petition is
filed or any proceeding is instituted by or against Borrower under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, or
any other or similar law relating to bankruptcy, insolvency, reorganization or
other relief for debtors, or generally affecting creditors' rights, or seeking
the appointment of a receiver, trustee, custodian or liquidator of or for
Borrower or any of its assets, any payment or distribution of any of Borrower's
assets, whether in cash, securities or any other property, which would be
payable or deliverable with respect to any Junior Debt, shall be paid or
delivered to Bank until all Senior Debt is paid in full. Creditor grants to Bank
the right to enforce, collect and receive any such payment or distribution and
to give releases or acquittance therefor, and Creditor authorizes Bank as its
attorney-in-fact to vote and prove the Junior Debt in any of the above-described
proceedings or in any meeting of creditors of Borrower relating thereto.
10. REPRESENTATIONS AND WARRANTIES. The Creditor hereby represents and
warrants:
(a) The Creditor owns the Junior Debt free and clear of any
lien, security interest or other encumbrance;
(b) The Creditor has all requisite power and authority to
execute, deliver and perform this Agreement;
(c) The execution, delivery and performance by the Creditor of
this Agreement is not and will not contravene any law or governmental regulation
or any contractual restriction binding on or effecting the Creditor;
(d) No authorization or approval or other action by, or notice
to, or filing with any governmental authority or other regulatory body or
consent of any other person is required for the due execution, delivery and
performance by the Creditor of this Agreement; and
(e) This Agreement constitutes the legal, valid and binding
obligation of the Creditor, enforceable against it in accordance with its terms.
11. OTHER AGREEMENTS; NO THIRD PARTY BENEFICIARIES. Bank shall have no
direct or indirect obligations to Creditor of any kind with respect to the
manner or time in which Bank exercises (or refrains from exercising) any of its
rights or remedies with respect to the Senior Debt, Borrower or any of
Borrower's assets. Creditor understands that there may be various agreements
between Bank and Borrower evidencing and governing the Senior Debt, and Creditor
acknowledges and agrees that such agreements are not
4
<PAGE>
intended to confer any benefits on Creditor. Creditor further acknowledges that
Bank may administer the Senior Debt and any of Bank's agreements with Borrower
in any way Bank deems appropriate, without regard to Creditor or the Junior
Debt. Creditor waives any right Creditor might otherwise have to require a
marshaling of any security held by Bank for all or any part of the Senior Debt
or to direct or affect the manner or timing with which Bank enforces any of its
security. Nothing in this Agreement shall impair or adversely affect any right,
privilege, power or remedy of Bank with respect to the Senior Debt, Borrower or
any assets of Borrower, including without limitation, Bank's right to: (a)
waive, release or subordinate any of Bank's security or rights; (b) waive or
ignore any defaults by Borrower; and/or (c) restructure, renew, modify or
supplement the Senior Debt, or any portion thereof, or any agreement with
Borrower relating to any Senior Debt. All rights, privileges, powers and
remedies of Bank may be exercised from time to time by Bank without notice to or
consent of Creditor.
12. BREACH OF AGREEMENT BY BORROWER OR CREDITOR. In the event of any
breach of this Agreement by Borrower or Creditor, then and at any time
thereafter Bank shall have the right to declare immediately due and payable all
or any portion of the Senior Debt without presentment, demand, protest or notice
of dishonor, all of which are hereby expressly waived by Borrower and Creditor.
No delay, failure or discontinuance of Bank in exercising any right, privilege,
power or remedy hereunder shall be deemed a waiver of such right, privilege,
power or remedy; nor shall any single or partial exercise of any such right,
privilege, power or remedy preclude, waive or otherwise affect the further
exercise thereof or the exercise of any other right, privilege, power or remedy.
Any waiver, permit, consent or approval of any kind by Bank with respect to this
Agreement must be in writing and shall be effective only to the extent set forth
in such writing.
13. MISCELLANEOUS. This Agreement shall be binding upon and inure to
the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties. If this Agreement is executed by more
than one Creditor, it shall bind them jointly and severally. All words used
herein in the singular shall be deemed to have been used in the plural where the
context so requires.
14. LIQUIDATED DAMAGES. Inasmuch as the actual damages which could
result from a breach by Creditor of its duties under Paragraph 3 hereof are
uncertain and would be impractical or extremely difficult to fix, Creditor shall
pay to Bank, in the event of any such breach by Creditor, as liquidated and
agreed damages, and not as a penalty, all sums received by Creditor in violation
of this Agreement on account of the Junior Debt, which sums represent a
reasonable endeavor to estimate a fair compensation for the foreseeable losses
that might result from such a breach.
5
<PAGE>
15. COSTS, EXPENSES AND ATTORNEYS' FEES. If any party hereto institutes
any judicial or administrative action or proceeding to enforce any provisions of
this Agreement, or alleging any breach of any provision hereof or seeking
damages or any other judicial or administrative remedy, the prevailing party or
parties in such action or proceeding shall be entitled to receive from the
losing party or parties all costs and expenses, including reasonable attorneys'
fees (to include outside counsel fees and all allocated costs of such party's
in-house counsel), incurred in connection with such action or proceeding.
16. CONFLICT IN AGREEMENTS. If the subordination provisions of any
instrument evidencing Junior Debt conflict with the terms of this Agreement, the
terms of this Agreement shall govern the relationship between the Bank and the
Creditor.
17. NO WAIVER. No waiver shall be deemed to be made by the Bank of any
of its rights hereunder unless the same shall be in writing signed on behalf of
the Bank, and each such waiver, if any, shall be a waiver only with respect to
the specific matter or matters to which the waiver relates and shall in no way
impair the rights of the Bank or the obligations of the Creditor to the Bank in
any other respect at any time.
18. BINDING EFFECT; ACCEPTANCE. This Agreement shall be binding upon
the Creditor and the Creditor's heirs, legal representatives, successors and
assigns and shall inure to the benefit of the Bank and its participants,
successors and assigns irrespective of whether this or any similar agreement is
executed by any other creditor of the Borrower. Notice of acceptance by the Bank
of this Agreement or of reliance by the Bank upon this Agreement is hereby
waived by the Creditor.
19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
20. COUNTERPARTS. This Agreement may be executed in one or more
counterparts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of December 11, 1996.
BORROWER:
STRATFORD AMERICAN CORPORATION,
an Arizona corporation
By: /s/ Mel L. Shultz
--------------------------
Title: President
-----------------------
6
<PAGE>
STRATFORD AMERICAN CAR RENTAL
SYSTEMS, INC., an Arizona
corporation
By: /s/ Mel L. Shultz
--------------------------
Title: President
-----------------------
BANK:
IMPERIAL BANK
By: /s/ R. Mark Chambers
--------------------------
Title: Vice President
-----------------------
CREDITOR:
- ------------------------------
Susan L. Drescher-Mulzet
T.W.P. COMPANY
By:
--------------------------
Title:
-----------------------
- ------------------------------
Glen Campbell
- ------------------------------
Jerry Colangelo
- ------------------------------
Louis Gossett, Jr.
- ------------------------------
Edwin C. Lynch
- ------------------------------
John W. Teets
7
<PAGE>
- ------------------------------
Anthony Wauterlek
WELLS FARGO EQUITY CORPORATION
By:
--------------------------
Title:
-----------------------
8
SUBORDINATION AGREEMENT
WHEREAS, Imperial Bank (hereinafter referred to as "Bank") and Dollar
Rent A Car Systems, Inc., an Oklahoma corporation, formerly known as Dollar
Systems, Inc. (hereinafter referred to as "Dollar"), have or intend to file a
financing statement or statements under the Uniform Commercial Code giving
notice of a security interest in all or some of the property of Stratford
American Car Rental Systems, Inc., an Arizona corporation (hereinafter referred
to as "Stratford"), and the proceeds of thereof; and
WHEREAS, the parties hereto desire to avoid any possible conflicting
security interests arising from the filing of said financing statements;
NOW, THEREFORE, the parties hereto agree as follows:
1. Dollar hereby subordinates all its right, title and interest to the
security interests of Bank with respect to all property of Stratford except for
the property described on Exhibit A hereto (collectively, the "Dollar
Collateral").
2. Bank hereby subordinates all its right, title and interest to the
security interests of Dollar with respect to all property of Stratford
comprising the Dollar Collateral. However, Bank releases any claim of a security
interest in the License Agreement and Master Lease Agreement described on
Exhibit A.
3. Except as herein otherwise provided, priority shall be in accordance
with the Arizona Uniform Commercial Code.
4. This agreement shall remain in effect until written notice is given
by either party of termination. No notice of termination shall impair the rights
or priorities created or acquired hereunder by any of the parties prior to
receipt of said notice of termination.
<PAGE>
IN WITNESS WHEREOF the parties have hereto set their hands this 11 day
of December, 1996.
IMPERIAL BANK
By: /s/ R. Mark Chambers
----------------------------------------
Name: R. Mark Chambers
---------------------------------
Title: Vice President
---------------------------------
DOLLAR RENT A CAR SYSTEMS, INC.
an Oklahoma corporation
By: /s/ Vicki J. Vaniman
----------------------------------------
Vicki J. Vaniman, Vice President
STRATFORD AMERICAN CAR RENTAL
SYSTEMS, INC. an Arizona corporation
By: /s/ Mel L. Shultz
----------------------------------------
Mel L. Shultz, President
2
<PAGE>
EXHIBIT A TO
UNIFORM COMMERCIAL CODE
SUBORDINATION AGREEMENT
The Dollar Collateral shall include all the following, whether now
owned and existing or hereafter acquired or arising:
(a) All right, title and interest of Stratford in that certain Dollar
Systems, Inc. License Agreement dated June 1, 1994;
(b) To the extent not otherwise included, all cash and noncash proceeds
of the foregoing derived from the disposition of such collateral; and
(c) All vehicles now or hereafter leased by Dollar to Stratford under
the Master Lease Agreement dated June 1, 1994, together with all accessories
attached thereto, all chattel paper, all documents of title, and all proceeds
thereof, including insurance proceeds, whether arising out of the sale or other
disposition of said vehicles or otherwise and including all cash, accounts,
contract rights, general intangibles, chattel paper, notes and other obligation
or evidence of obligation to Stratford constituting such proceeds.
Exhibit 22.1
SUBSIDIARIES
Jurisdiction of
Name Incorporation
---- -------------
Stratford American Car Rental Systems, Inc. Arizona
Stratford American Properties Corporation Arizona
Stratford American Resource Corporation Texas
Stratford American Gold Venture Corporation Arizona
Stratford American Energy Corporation Oklahoma
Stratford American Oil and Gas Corporation Arizona Arizona
Cygnus Development Corporation Arizona
101
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT
DECEMBER 31, 1996 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE
YEAR ENDED DECEMBER 31, 1996 OF STRATFORD AMERICAN
CORPORATION AND ITS SUBSIDIARIES AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 933,000
<SECURITIES> 0
<RECEIVABLES> 835,000
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 976,000
<PP&E> 631,000
<DEPRECIATION> 169,000
<TOTAL-ASSETS> 10,469,000
<CURRENT-LIABILITIES> 7,025,000
<BONDS> 0
0
0
<COMMON> 841,000
<OTHER-SE> (1,524,000)
<TOTAL-LIABILITY-AND-EQUITY> 10,469,000
<SALES> 9,000
<TOTAL-REVENUES> 12,862,000
<CGS> 4,000
<TOTAL-COSTS> 12,088,000
<OTHER-EXPENSES> 645,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 565,000
<INCOME-PRETAX> (436,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (436,000)
<DISCONTINUED> 168,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (268,000)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
