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
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-17018
STRATFORD AMERICAN CORPORATION
(Name of small business issuer 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 revenues for its most recent fiscal year: $9,832,000, including
discontinued operations.
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the February 28, 1999 average bid and asked prices of
$.65 per share, is $2,761,000.
At February 28, 1999, 5,871,787 shares of the issuer's common stock and no
shares of its preferred stock were issued and outstanding.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
Certain portions of the registrant's definitive Proxy Statement, which will
be filed with the Commission on or about April 30, 1999, in connection with the
Annual Meeting of Shareholders of the registrant to be held on July 2, 1999, are
incorporated by reference into Part III of this report.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
General Development of Business. Stratford American Corporation, an Arizona
corporation, (the "Company"), has several wholly-owned subsidiaries and one
subsidiary of which it owns 82%. Unless otherwise specified, the term "Company"
as used herein includes the Company's subsidiaries.
NARRATIVE DESCRIPTION OF BUSINESS
The Company presently has no significant operations. Through one of its
subsidiaries, the Company owns and leases certain real estate property. The
Company employs 6 full-time employees.
DOLLAR RENT A CAR. On October 1, 1998, the Company's subsidiary, Stratford
American Car Rental Systems, Inc. ("SCRS"), sold the franchise rights and all
other assets of its Dollar Rent A Car operations, to Dollar Rent A Car Systems,
Inc., an Oklahoma corporation ("Dollar"). On the same day, SCRS exercised an
option to purchase the property which includes the Phoenix Dollar Rent A Car
base operation facilities located near Sky Harbor International Airport.
Simultaneously, Dollar entered into a long term lease with SCRS to utilize the
base operations. The Dollar Rent A Car operations portion of SCRS has been
accounted for as a discontinued operation as discussed in Note 3 to the
Consolidated Financial Statements. The Company has no future plans to
participate in car rental related activities.
NATURAL RESOURCES. The Company owns, through its subsidiaries, an interest
in an Alaskan gold mining prospect. In December 1997, the remaining book value
of this mining interest was written off completely due to impairment caused by
continued depressed gold prices. A nominal interest in several oil and gas wells
located in Arkansas and Oklahoma were effectively turned over and assigned to a
third party during 1997, based on a completed payout agreement. The Company has
no other interest in any oil and gas properties. Total revenues from natural
resource operations were insignificant during the year ended December 31, 1998.
(See Item 2 Properties.)
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 owns and leases a 2,500 square foot building situated on 2.4 acres of
land to Dollar 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 $125,000 per year with a 2.5%
increase to occur each year, beginning October 1, 1999. The lease expires June
30, 2009.
2
<PAGE>
NATURAL RESOURCE PROPERTIES
ALASKA GOLD EXPLORATION. In December 1997, the Company determined
that its 41.3% interest in the "Big Hurrah," a gold mine prospect located near
Nome, Alaska, had no value and was completely written off at that time. See Note
6 to the Consolidated Financial Statements.
OIL AND GAS. The Company's remaining oil and gas properties were assigned
to a third party during 1997 based on a completed payout agreement. The Company
has no other interest in any oil and gas properties.
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, 1998.
EXECUTIVE OFFICERS
NAME AGE OFFICE OFFICER SINCE
---- --- ------ -------------
David H. Eaton 63 Chief Executive Officer 6/88
Mel L. Shultz 48 President 5/87
Timothy A. Laos 45 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.
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., has been the Vice President, Chief
Financial Officer, Treasurer and Secretary of the Company since March 1, 1995.
Mr. Laos was previously involved in public accounting as well as various
accounting management positions in private industry.
3
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock, $0.01 par value, is currently listed and
traded on the OTC Bulletin Board (symbol: STFA).
The high and low bid prices for each quarter during the last two fiscal
years, are as follows:
Time Period High Low
----------- ---- ---
1997: First quarter .675 .30
Second quarter .60 .375
Third quarter .525 .39
Fourth quarter .825 .45
1998: First quarter .90 .60
Second quarter .825 .675
Third quarter .7125 .375
Fourth quarter .6875 .40625
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. On July 20, 1998, subsequent to approval by the Company's Board of
Directors and shareholders, the Company effected a fifteen-to-one reverse split
of the Company's common stock. All applicable bid prices above have been
adjusted to reflect this fifteen-to-one reverse split.
HOLDERS
As of February 28, 1999, 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 may restrict the ability of a corporation to pay 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.
RECENT SALES OF UNREGISTERED SECURITIES
On March 26, 1999, the Company sold 450,000 shares of its common stock to
Donald Diamond at $1 per share for $450,000, and an additional 50,000 shares to
David Goldstein also at $1 per share for $50,000, pursuant to Securities and
Exchange Commission Regulation D under the Securities Act of 1933, as amended.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company incurred a consolidated loss from continuing operations for
the fourth quarter of 1998. Continuing operations in the fourth quarter of 1998
consisted primarily of rental property operations as the vehicle rental business
was sold on October 1, 1998.
4
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On October 1, 1998 (the "Closing Date"), Stratford American Car Rental
Systems, Inc. ("SCRS"), a subsidiary of the Company, sold the personal property,
equipment, improvements, fixtures, gasoline inventory, goodwill and general
intangibles used in or related to SCRS's business to Dollar Rent A Car Systems,
Inc., an Oklahoma corporation ("Dollar"), pursuant to the terms of the
Acquisition Agreement (the "Acquisition Agreement") between SCRS and Dollar.
Additionally, pursuant to the Acquisition Agreement, SCRS terminated the Master
Lease Agreement by and between SCRS and Dollar, dated June 1, 1994, under which
SCRS leased vehicles for use in its business, as well as other agreements
related to the Master Lease Agreement.
The Acquisition Agreement provided for the payment by Dollar to SCRS of
the sum of $3,835,000 as the purchase price. The purchase price consisted of the
sum of $3,635,000 paid in cash to SCRS on the Closing Date net of any
obligations, actual or estimated, owed to and by Dollar under the normal course
of operations of SCRS, and a holdback amount of $200,000 related to any
obligations or indemnities of SCRS, under the Acquisition Agreement. In December
1998, Dollar remitted $100,000 of the holdback amount to SCRS, subsequent to the
transfer of all rental vehicles back to Dollar under the Master Lease Agreement,
pursuant to the Acquisition Agreement. In January 1999, Dollar and SCRS
finalized all post-closing obligations between each party in accordance with the
Acquisition Agreement. As provided by the Post-Closing Statement agreed to and
signed by both parties, an additional $75,000 of the holdback was remitted to
SCRS with the remaining $25,000 related to any obligations, or indemnities, to
be held until October 1, 1999. The assets sold and agreements terminated
pursuant to the Acquisition Agreement accounted for over 99% of the Company's
total revenues in 1998. The Company anticipates that with its current cash
position due to the related sale, it should meet its operational cash flow needs
for the remainder of 1999. However, due to any unforeseen circumstances that
could occur outside the Company's control, there can be no assurance that
adequate cash flows from the Company's present cash position and operations will
be achieved.
On the same day as the Closing Date, SCRS exercised an option to purchase
the property which includes the Phoenix Dollar Rent A Car base operation
facilities located near Sky Harbor International Airport. Simultaneously, Dollar
entered into a long term lease with SCRS to utilize the base operations.
The Company continues to aggressively seek potential acquisitions in
establishing its future direction. There can be no assurance that it will be
able to locate suitable acquisition candidates or make any such acquisitions.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1998, COMPARED WITH YEAR ENDED
DECEMBER 31, 1997
The Company reported net income of $3,701,000 during 1998 in comparison to
a net loss of $1,199,000 in 1997. The 1998 results include net income of
$3,884,000 from discontinued operations as discussed in Note 3 to the
Consolidated Financial Statements. The 1997 results include a loss of $375,000
from impairment of a mining interest as discussed in Note 6 to the Consolidated
Financial Statements. Additionally, the 1997 results include a net loss of
$766,000 from discontinued operations as discussed in Note 3 to the Consolidated
Financial Statements. General and administrative expenses for both 1998 and 1997
reflect only a small portion of total general and administrative expenses
actually incurred by the Company due to the allocation of those related expenses
attributable to discontinued operations during both years. Total general and
administrative expenses incurred during 1998 and 1997, before allocation to
discontinued operations, were $645,000 and $602,000 respectively. The change in
the results
5
<PAGE>
from discontinued operations of Dollar Rent A Car from a loss of $766,000 in
1997 to income of $1,018,000 in 1998 was primarily due to the Company's ability
to bill and collect airport access charges from its customers which did not
occur during the first five months of 1997. Additionally, the Company recognized
greater losses on the sale of risk vehicles in a weak vehicle wholesale market
during 1997 as compared to minimal losses incurred during 1998.
VEHICLE RENTAL ACTIVITIES. Revenues from rental car activities accounted
for 99% of total revenues from operations in 1998. As previously discussed, the
rental car business was sold to Dollar Rent A Car Systems, Inc. effective
October 1, 1998 and has been accounted for as a discontinued operation as
discussed in Note 3 to the Consolidated Financial Statements.
OTHER ACTIVITIES Rental property ownership and lease management is the
Company's only current activity. Gross lease income is currently at $125,000 per
year.
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.
YEAR 2000 ISSUES
The Company is in the process of completing a review of its Year 2000
issues and has completed its review of internal systems. The majority of the
Company's application software programs are Year 2000 compliant. The Company
believes that with modifications and updates to existing software (primarily by
the software vendors), the Year 2000 problem will not pose significant
operational problems for the Company's internal systems. The Company also
believes that any remediation costs to become Year 2000 compliant will not be
material. The Company is also continuing to verify the Year 2000 readiness of
third parties and will develop a contingency plan at that point in time when the
Company believes a material vendor, customer, or other third party will not be
compliant.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this report, including 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: the fact that the Company, following the
sale of assets to Dollar, has no significant operations; the risk that the
Company will not be able to complete any acquisitions to re-establish
significant operations; the risk that all of the foregoing factors or other
factors could cause fluctuations in the Company's operating results and the
price of the Company's common stock; and other risks detailed in this report 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.
6
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX PAGE
Stratford American Corporation and Subsidiaries Consolidated
Financial Statements
Independent Auditors' Report 8
Consolidated Balance Sheet as of December 31, 1998 9
Consolidated Statements of Operations for the years ended
December 31, 1998 and 1997 10
Consolidated Statements of Shareholders'
Equity (Deficiency) for the years ended
December 31, 1998 and 1997 11
Consolidated Statements of Cash Flows for the years
ended December 31, 1998 and 1997 12
Notes to Consolidated Financial Statements 13
Certain 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.
7
<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, 1998, 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 a 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, 1998, 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.
KPMG LLP
Phoenix, Arizona
February 26, 1999, except as to Note 15
which is as of March 26, 1999
8
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Cash and cash equivalents $ 2,111,000
Receivables:
Trade, less allowance for doubtful accounts of $2,000 179,000
Mortgages 51,000
------------
230,000
Rental properties, net 500,000
Other assets 74,000
------------
$ 2,915,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 34,000
Notes payable and other debt 509,000
Accrued liabilities 149,000
Net liabilities of discontinued operations 20,000
Minority interest 304,000
------------
Total liabilities 1,016,000
Shareholders' equity:
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 5,871,787 shares 59,000
Additional paid-in capital 26,803,000
Retained earnings (deficit) (24,952,000)
Treasury stock, 1,967 shares at cost (11,000)
------------
1,899,000
------------
Commitments, contingencies and subsequent event
$ 2,915,000
============
See accompanying notes to consolidated financial statements.
9
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---------- -----------
REVENUES:
Interest and other income $ 112,000 $ 62,000
---------- -----------
EXPENSES:
General and administrative 211,000 64,000
Depreciation and amortization 25,000 17,000
Interest 50,000 39,000
Loss on impairment - mining interest 375,000
Minority interest 9,000
---------- -----------
295,000 495,000
---------- -----------
LOSS FROM CONTINUING OPERATIONS (183,000) (433,000)
DISCONTINUED OPERATIONS:
Income (loss) from operations of Dollar
Rent A Car, net of tax of $20,000 in 1998 1,018,000 (766,000)
Gain on sale of Dollar Rent A Car, net of
tax of $62,000 3,287,000
Minority interest (421,000)
---------- -----------
Income (loss) from discontinued operations 3,884,000 (766,000)
---------- -----------
NET INCOME (LOSS) $3,701,000 $(1,199,000)
========== ===========
Basic and diluted net income (loss) per share:
Loss from continuing operations $ (0.03) $ (0.08)
Income (loss) from discontinued operations $ 0.66 $ (0.13)
---------- -----------
Basic and diluted net income (loss) per share $ 0.63 $ (0.21)
========== ===========
See accompanying notes to consolidated financial statements.
10
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Total
Common Stock Additional Retained Treasury Stock shareholders'
------------------ paid-in earnings ---------------- equity
Shares Amount capital (deficit) Shares Amount (deficiency)
------ ------ ------- --------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 5,605,120 $56,000 $26,726,000 $(27,454,000) 1,967 $(11,000) $ (683,000)
Common stock issued 266,667 3,000 77,000 80,000
Net loss (1,199,000) (1,199,000)
--------- ------- ----------- ------------ ----- -------- -----------
Balance,
December 31, 1997 5,871,787 $59,000 $26,803,000 $(28,653,000) 1,967 $(11,000) $(1,802,000)
Net income 3,701,000 3,701,000
--------- ------- ----------- ------------ ----- -------- -----------
Balance,
December 31, 1998 5,871,787 $59,000 $26,803,000 $(24,952,000) 1,967 $(11,000) $ 1,899,000
========= ======= =========== ============ ===== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
-------- --------
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Loss from continuing operations $ (183,000) $(432,000)
Adjustments to reconcile loss from continuing
operations to net cash provided by (used for)
continuing operating activities:
Depreciation and amortization 25,000 17,000
Loss on impairment of mining interest 375,000
Loss on write off of stock investment 39,000
Minority interest in consolidated subsidiary 9,000
Changes in assets and liabilities:
Decrease (increase) in accounts and
mortgages receivable (144,000) 50,000
Decrease (increase) in other assets 5,000 (29,000)
Decrease in accounts payable (70,000) (2,000)
Increase in accrued liabilities 80,000 28,000
---------- ---------
NET CASH PROVIDED BY (USED FOR) CONTINUING
OPERATING ACTIVITIES (239,000) 7,000
---------- ---------
CASH FLOWS FROM CONTINUING INVESTING ACTIVITIES:
Purchase of rental property (501,000)
Purchases of property and equipment (20,000)
----------
NET CASH USED FOR CONTINUING INVESTING ACTIVITIES (521,000)
----------
CASH FLOWS FROM CONTINUING FINANCING ACTIVITIES:
Payment on other debt (147,000) (409,000)
Proceeds from rental property financing 226,000
Proceeds from issuance of common stock 80,000
---------- ---------
NET CASH PROVIDED BY (USED FOR) CONTINUING
FINANCING ACTIVITIES 79,000 (329,000)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS 2,624,000 317,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,943,000 (5,000)
CASH AND CASH EQUIVALENTS, beginning of year 168,000 173,000
---------- ---------
CASH AND CASH EQUIVALENTS, end of year 2,111,000 168,000
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 46,000 $ 16,000
========== =========
See accompanying notes to consolidated financial statements.
12
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STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
NOTE 1 - NATURE OF BUSINESS
Stratford American Corporation (the "Company") presently has no
significant operations. Through one of its subsidiaries, the Company owns and
leases certain real estate, its only remaining business segment.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
On July 20, 1998, subsequent to approval by the Company's Board of
Directors and shareholders, the Company effected a fifteen-to-one reverse stock
split of the Company's common stock. All share amounts, share prices and net
income (loss) per share have been retroactively adjusted to reflect this reverse
split.
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.
RENTAL PROPERTIES
Rental properties are recorded at cost. Depreciation is recorded based on
the straight-line method over an estimated useful life of 39 years.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. 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. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
NET INCOME (LOSS) PER COMMON SHARE
The Company calculates basic and diluted net income (loss) per share in
accordance with the provisions of Statement of Financial Accounting Standards
No. 128 "Earnings Per Share". Basic net income (loss) per share is computed
using the weighted average number of common shares outstanding during each
period ( 5,871,787 shares for 1998 and 5,793,248 shares for 1997). Diluted net
income (loss) per share is the same as basic net income (loss) per share in both
1998 and 1997 due to the antidilutive effect of common stock equivalents on loss
from continuing operations.
13
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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 1997 financial statements have been
reclassified to conform with the 1998 presentation.
NOTE 3 - SALE OF DISCONTINUED OPERATIONS
On October 1, 1998 (the "Closing Date"), Stratford American Car Rental
Systems, Inc. ("SCRS"), a subsidiary of the Company, sold the personal property,
equipment, improvements, fixtures, gasoline inventory, goodwill and general
intangibles used in or related to SCRS's business to Dollar Rent A Car Systems,
Inc., an Oklahoma corporation ("Dollar"), pursuant to the terms of the
Acquisition Agreement (the "Acquisition Agreement") between SCRS and Dollar.
Additionally, pursuant to the Acquisition Agreement, SCRS terminated the Master
Lease Agreement by and between SCRS and Dollar, dated June 1, 1994, under which
SCRS leased vehicles for use in its business, as well as other agreements
related to the Master Lease Agreement.
The Acquisition Agreement provided for the payment by Dollar to SCRS of
the sum of $3,835,000 as the purchase price. The purchase price consisted of the
sum of $3,635,000 paid in cash to SCRS on the Closing Date net of any
obligations, actual or estimated, owed to and by Dollar under the normal course
of operations of SCRS, and a holdback amount of $200,000 related to any
obligations or indemnities of SCRS, under the Acquisition Agreement. In December
1998, Dollar remitted $100,000 of the holdback amount to SCRS, subsequent to the
transfer of all rental vehicles back to Dollar under the Master Lease Agreement,
pursuant to the Acquisition Agreement. In January 1999, Dollar and SCRS
finalized all post-closing obligations between each party in accordance with the
Acquisition Agreement. As provided by the Post-Closing Statement agreed to and
signed by both parties, an additional $75,000 of the holdback was remitted to
SCRS with the remaining $25,000 related to any obligations, or indemnities, to
be held until October 1, 1999. The assets sold and agreements terminated
pursuant to the Acquisition Agreement accounted for over 99% of the Company's
total revenues in 1998.
On the same day as the Closing Date, SCRS exercised an option to purchase
the property which includes the Phoenix Dollar Rent A Car base operation
facilities located near Sky Harbor International Airport for $502,000.
Simultaneously, Dollar entered into a long term lease with SCRS to utilize the
base operations. See Note 5.
The vehicle rental business of SCRS has been accounted for as a
discontinued operation and, accordingly, its net liabilities, results of
operations and cash flows are segregated for all periods presented in the
consolidated financial statements.
14
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STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
The components of net liabilities of discontinued operations as of
December 31, 1998 are as follows:
December 31, 1998
-----------------
Accounts receivable, net $ 5,000
Accounts payable (25,000)
--------
(20,000)
========
Following is a summary of the operating results and sale of the
discontinued operations for the years ended December 31, 1998 and 1997.
Year Ended December 31,
---------------------------
1998 1997
---- ----
Revenues $9,720,000 $12,999,000
Expenses 8,702,000 13,765,000
---------- -----------
Income (loss) from
discontinued operations, net
of tax of $20,000 in 1998 $1,018,000 $ (766,000)
========== ===========
Gain on sale of discontinued
operations, net of tax
of $62,000 3,287,000
==========
There was no income tax benefit associated with the loss from discontinued
operations for the year ended December 31, 1997 as the loss for the period
served to increase net operating loss carryforwards attributable to the Company.
The tax associated with the income from discontinued operations and gain on sale
of discontinued operations in 1998 resulted from alternative minimum tax
limitations on net operating loss carryforwards applied to those amounts.
NOTE 4 - 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:
1999 $ 3,000
2000 4,000
2001 4,000
2002 4,000
2003 5,000
Thereafter 31,000
-------
$51,000
=======
15
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - RENTAL PROPERTIES
Rental property consists of the following as of December 31, 1998:
Land $201,000
Buildings and improvements 301,000
Accumulated depreciation (2,000)
--------
$500,000
========
Effective October 1, 1998, the Company entered into a long-term lease agreement
with Dollar related to this rental property. The property is leased to Dollar at
a current rate of $125,000 per year with a 2.5% increase to occur each year,
beginning October 1, 1999. The lease expires on June 30, 2009.
NOTE 6 - MINING INTEREST
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 would 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 $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 fact that the price of gold had not exceeded $400
per ounce since those activities ceased. In December 1997, the remaining book
value of $375,000 was written off due to impairment caused by continued
depressed gold prices.
NOTE 7 - NOTES PAYABLE AND OTHER DEBT
Notes payable and other debt consist of the following as of December 31,
1998:
Note payable; matures June 2003, principal
and interest payments due monthly, interest @ 10% $216,000
Note payable to an officer of the Company
matures September 2002, principal and interest due
monthly, interest @ 12% 216,000
Capital lease obligations (Note 9) 30,000
Other; interest @ 10.5%, matures 2010 47,000
--------
$509,000
========
16
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
Under notes payable and other debt loan provisions in effect as outlined
above, principal payments due are as follows:
Year ending December 31:
1999 $263,000
2000 47,000
2001 49,000
2002 46,000
2003 50,000
Thereafter 54,000
--------
$509,000
========
In February 1999, the $216,000 note payable to an officer was paid by the
Company. As such, the above maturity table reflects this $216,000 note as being
due in 1999.
NOTE 8 - 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 cash and cash equivalents, trade receivables,
accounts payable and accrued liabilities 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 mortgages receivable and debt is estimated to be equal to its
carrying value and is 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, 1998, the amounts
that will actually be realized or paid at settlement or maturity of the
instruments could be significantly different.
17
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - OBLIGATIONS UNDER CAPITAL LEASES
The Company has telephone equipment capital lease agreements, which expire
in 2000 through 2001. The combined cost of the equipment is $60,000 and is
included in other assets.
A summary of the present value of future minimum capital lease payments
are as follows:
Year ending December 31:
1999 $17,000
2000 11,000
2001 8,000
-------
Total minimum capital lease payments 36,000
Less amount representing interest 6,000
-------
Present value of future minimum capital lease payments $30,000
=======
NOTE 10 - MINORITY INTEREST
In June 1994, 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. In August 1998, a 2%
shareholder sold its shares back to the Company at an agreed upon price. The
Company owns 82% of the outstanding shares of SCRS as of December 31, 1998.
At December 31, 1998, the Company has recorded $304,000 in minority
interest liability, which represents the 18% minority interest share in the
cumulative net income of SCRS and the gain on sale of the Dollar discontinued
operations. The Company has allocated certain corporate general and
administrative expenses to SCRS for the period of time that SCRS operated the
Dollar franchise based on the percentage of consolidated revenues generated by
those operations. Management believes this allocation methodology is reasonable.
NOTE 11 - COMMON STOCK OPTIONS
Options to purchase 100,000 shares, at $.50 per share, were granted to
certain directors in November 1998. As of December 31, 1998, options to purchase
133,333 shares of the Company's common stock remain outstanding, with 33,333
shares at an exercise price of $.75 per share expiring in September 1999 and
100,000 shares at an exercise price of $.50 per share expiring in November 2001.
In 1997, options to purchase 266,667 shares of common stock were exercised
for an aggregate purchase price of $80,000.
NOTE 12 - INCOME TAXES
The Company incurred income tax expense of $82,000 for the year ended
December 31, 1998 due to alternative minimum tax limitations on net operating
loss carry forwards applied to income from discontinued operations and the gain
on sale of discontinued operations for the year. There was no income tax benefit
associated with the net loss for the year ended December 31, 1997.
The following net operating loss and investment tax credit carryforwards
are available at December 31, 1998, to offset future taxable income and income
taxes as follows:
Year
expires Amount
------- ------
Net operating loss 2005-2012 $8,100,000
Investment tax credits 1999-2000 179,000
18
<PAGE>
STRATFORD AMERICAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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, 1998. 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, 1998 are as follows:
Allowance for mining interest impairment
and stock investment loss $ 370,000
Net operating loss carryforwards and
investment tax credits 2,700,000
Other 105,000
-----------
3,175,000
Valuation allowance (3,175,000)
-----------
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 $1,282,000 in 1998, but had no effect on net income.
NOTE 14 - OPERATING LEASE COMMITMENTS
The aggregate future minimum lease commitments under noncancelable
operating leases are as follows:
Year ending December 31, 1999 $74,000
Stratford American Corporation leases corporate office space with annual
lease payments of $99,000. The lease expires in September 1999. Total rental
expense was $39,000 in 1998 and $57,000 in 1997. Rental expense for each of the
two years was reduced by income received from subleases, as well as concessions
received from landlord due to damaged tenant improvements incurred during 1998.
NOTE 15 - SUBSEQUENT EVENT
On March 26, 1999, 500,000 shares of the Company's common stock were
issued to certain private investors, at $1 per share.
NOTE 16 - CONTINGENCIES
The Company is involved in litigation and claims arising in the normal
course of operations. In the opinion of management based on consultation with
legal counsel, losses, if any, from the litigation are immaterial; therefore, no
provision has been made in the accompanying financial statements for losses, if
any, that might ultimately result from the outcome of these matters.
19
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not changed its accountants nor had any disagreements with
accountants on matters of accounting principles or practices, financial
disclosures, or auditing scope or procedure during its two most recent fiscal
years.
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 2, 1999 (the "1999 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 4. The 1999 Proxy Statement is being prepared and is
expected to be filed with the Securities and Exchange Commission in definitive
form on or about April 30, 1999 and is expected to be furnished to shareholders
on or about May 31, 1999.
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 October 28, 1998 with respect to the sale of the Company's
Dollar Rent A Car operations effective October 1, 1998, including
Acquisition Agreement dated as of September 24, 1998 and Press Release
dated October 1, 1998.
(c) EXHIBITS - See index beginning on page 22
(d) FINANCIAL STATEMENT SCHEDULES - See "Item 7 - Financial Statements and
Supplementary Data."
20
<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
Registrant
Date: March 31, 1999 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, 1999 By /s/ David H. Eaton
-----------------------
David H. Eaton, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: March 31, 1999 By /s/ Mel L. Shultz
-------------------------
Mel L. Shultz, President and Director
Date: March 31, 1999 By /s/ Gerald J. Colangelo
-------------------------
Gerald J. Colangelo, Director
Date: March 31, 1999 By /s/ Richard H. Dozer
-----------------------
Richard H. Dozer, Director
Date: March 31, 1999 By /s/ Dale M. Jensen
-----------------------
Dale M. Jensen, Director
Date: March 31, 1999 By /s/ Mitchell S. Vance
-----------------------
Mitchell S. Vance, Director
Date: March 31, 1999 By /s/ Timothy A. Laos
-----------------------
Timothy A. Laos, Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
21
<PAGE>
EXHIBITS INDEX
Exhibits 10.39, 27.1 and 27.2 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, 10.11, 10.15 through 10.38,
22.1) 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 10.11 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 10.15 and 10.16 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 10.17 and
10.18 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 10.19 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 10.20 through 10.23 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 10.21 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. Exhibit 10.24 was filed as Exhibit 10.44 to the Company's
Form 10-KSB for the year ended December 31, 1994, which was filed with the
Securities and Exchange Commission on April 14, 1995. Exhibit 10.25 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 10.26 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 10.27 through 10.29 were filed as Exhibits 10.52 through 10.54 to
the Company's Form 10-KSB for the year ended December 31, 1995, which was filed
with the Securities and Exchange Commission on April 15, 1996. Exhibits 10.30
through 10.37 were filed as Exhibits 10.55 through 10.62 to the Company's Form
10-KSB for the year ended December 31, 1996, which was filed with the Securities
and Exchange Commission on March 31, 1997. Exhibit 10.38 was filed as Exhibit
2.1 to the Company's Form 8-K which was filed with the Securities and Exchange
Commission on October 28, 1998. Exhibit 22.1 was filed with Form 10-KSB for the
year ended December 31, 1996, which was filed with the Securities and Exchange
Commission on March 31, 1997.
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
10.1 Indemnification Agreement, dated as of May 19, 1988,
between the Company and Mel L. Shultz N/A
10.2 Schedule of Omitted Indemnification Agreements N/A
10.3 Indemnification Agreement, dated as of February 19, 1988,
relating to guarantees N/A
22
<PAGE>
10.4 Indemnification Agreement, dated as of May 10, 1988,
relating to guarantees N/A
10.5 Registration Agreement, dated as of February 19, 1988, N/A
10.6 Agreement, dated as of February 18, 1988, relating to
restrictions against preferred shares N/A
10.7 Trust Agreement, dated as of June 18, 1987 N/A
10.8 Joint Venture Agreement, dated as of July 2, 1985, between Night
Hawk Resources Corporation and Cornwall Pacific Alaska, Inc. N/A
10.9 Settlement Agreement and Release, effective July 1, 1988 N/A
10.10 Settlement Agreement, dated as of July 18, 1988 N/A
10.11 Judgment in Action No. CB72760, dated September 13, 1988 N/A
10.12 Assignment of Joint Venture Interest N/A
10.13 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
10.14 Share Sale and Registration Agreement, dated January 31, 1989 N/A
10.15 Joint Operating Agreement, dated February 1, 1988 N/A
10.16 Promissory Note, dated March 15, 1990 N/A
10.17 Stratford American Corporation Convertible Debenture
Note dated March 15, 1990 N/A
10.18 Agreement, dated as of July 24, 1990, with Minco American
Corporation N/A
10.19 Master Loan Modification and Extension Agreement dated
September 28, 1993 N/A
10.20 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
10.21 License Agreement between Dollar Systems, Inc. and Stratford
American Car Rental Systems, Inc. effective June 1, 1994 N/A
10.22 Promissory Note between Dollar Systems, Inc. and Stratford
American Car Rental Systems, Inc. effective June 1, 1994 N/A
10.23 Registrant's Press Release dated June 2, 1994 N/A
10.24 Assignment dated September 1, 1994 from Stratford American
Energy Corporation to Tenison Oil Company N/A
10.25 Assistance Agreement between Stratford American Car Rental
Systems, Inc. and Dollar Systems, Inc. dated May 16, 1995 N/A
23
<PAGE>
10.26 Letter of Price Waterhouse LLP dated February 15, 1996 N/A
10.27 Continuing Guaranty from Stratford American Corporation
to Ford Motor Credit Company dated July 14, 1995 N/A
10.28 Guaranty Agreement from Stratford American Corporation
to Nissan Motor Acceptance Corporation dated August 9, 1995 N/A
10.29 Lease Plan Financing and Security Agreement between Stratford
American Car Rental Systems, Inc. and Nissan Motor Acceptance
Corporation dated August 9, 1995 N/A
10.30 Credit Agreement by and among Stratford American Corporation,
Stratford American Car Rental Systems, Inc. and Imperial Bank,
dated December 11, 1996 N/A
10.31 Revolving Line of Credit Note by Stratford American Corporation
and Stratford American Car Rental Systems, Inc. to Imperial
Bank, dated December 11, 1996 N/A
10.32 Revolving Line of Credit Note by Stratford American Corporation
and Stratford American Car Rental Systems, Inc. to Imperial
Bank, dated December 11, 1996 N/A
10.33 Security Agreement by Stratford American Corporation and
Stratford American Car Rental Systems, Inc. to Imperial Bank,
dated December 11, 1996 N/A
10.34 Continuing Security Agreement by Stratford American Corporation
and Stratford American Car Rental Systems, Inc. to Imperial Bank,
dated December 11, 1996 N/A
10.35 General Pledge Agreement by Stratford American Corporation
to Imperial Bank, dated December 11, 1996 N/A
10.36 Subordination and Standstill Agreement by and among Stratford
American Corporation, Stratford American Car Rental Systems, Inc.
and Imperial Bank, dated December 11, 1996 N/A
10.37 Subordination Agreement by Dollar Rent A Car Systems, Inc. and
Imperial Bank, dated December 11, 1996 N/A
10.38 Acquisition Agreement between Stratford American Car Rental
Systems, Inc. and Dollar Rent A Car Systems, Inc. dated
September 24, 1998. N/A
10.39 Net Lease Agreement between Stratford American Car Rental
Systems, Inc. and Dollar Rent A Car Systems, Inc. dated
October 1, 1998. 25
22.1 Subsidiaries N/A
27.1 Financial Data Schedule for December 31, 1998 46
27.2 Restated Financial Data Schedule for December 31, 1997 47
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.
24
NET LEASE
STRATFORD AMERICAN CAR RENTAL SYSTEMS, INC.
LANDLORD
AND
DOLLAR RENT A CAR SYSTEMS, INC.
TENANT
DATED: OCTOBER 1, 1998
<PAGE>
ARTICLE 1 SUMMARY OF BASIC TERMS............................................1
1.1 The Premises...........................................................1
1.2 The Building...........................................................1
1.3 The Term...............................................................1
1.4 Commencement Date......................................................1
1.5 Expiration Date........................................................1
1.6 Lease Year.............................................................1
1.7 Base Rent..............................................................1
1.8 Description of Tenant's Use of the Premises............................1
1.9 Tenant's Address for Notices...........................................1
1.10 Landlord's Notice Address.............................................1
ARTICLE 2 DELIVERY AND TERM.................................................2
2.1 Term...................................................................2
2.2 Condition..............................................................2
ARTICLE 3 USE OF PREMISES...................................................2
3.1 Permitted Uses.........................................................2
3.2 Insurance Restrictions.................................................2
3.3 Improvements...........................................................2
3.4 Prohibitions...........................................................2
3.5 Compliance with Law....................................................2
3.6 Audit..................................................................3
3.7 Underground Tanks and/or Hazardous Substances..........................3
ARTICLE 4 RENT..............................................................4
4.1 Base Rent..............................................................4
4.2 Late Charges and Interest..............................................4
4.3 Excise Taxes...........................................................4
4.4 Obligations Are Rent...................................................4
ARTICLE 5 OPERATING COSTS...................................................5
5.1 Operating Costs........................................................5
5.2 Intent.................................................................5
ARTICLE 6 TAXES.............................................................5
ARTICLE 7 INSURANCE AND INDEMNITY...........................................5
7.1 Insurance Policies.....................................................5
7.2 Policy Requirements....................................................5
7.3 Evidence of Coverage...................................................6
7.4 Indemnity and Exculpation..............................................6
7.5 Landlord's Policies....................................................6
ARTICLE 8 DAMAGE OR DESTRUCTION.............................................7
1
<PAGE>
ARTICLE 9 CONDEMNATION......................................................7
9.1 Automatic Termination..................................................7
9.2 Optional Termination...................................................7
9.3 Award..................................................................8
ARTICLE 10 MAINTENANCE......................................................8
10.1 By Tenant.............................................................8
ARTICLE 11 UTILITIES........................................................8
ARTICLE 12 LANDLORD RIGHT OF ENTRY..........................................9
ARTICLE 13 SIGNS............................................................9
ARTICLE 14 TENANT ALTERATIONS...............................................9
14.1 Tenant Alterations....................................................9
14.2 Tenant Installations.................................................10
14.3 Mechanics Liens......................................................10
ARTICLE 15 ASSIGNMENT AND SUBLETTING.......................................10
15.1 Consent Required.....................................................10
15.2 Requests for Approval................................................10
15.3 Continued Responsibility.............................................11
15.4 Excess Proceeds......................................................11
15.5 No Waiver............................................................11
15.6 Transfer by Landlord.................................................11
ARTICLE 16 SUBORDINATION AND ATTORNMENT...................................11
16.1 Subordination........................................................11
16.2 Lender Protection....................................................11
ARTICLE 17 ESTOPPEL CERTIFICATES...........................................12
ARTICLE 18 QUIET ENJOYMENT.................................................12
ARTICLE 19 SURRENDER AND HOLDOVER..........................................12
19.1 Surrender............................................................12
19.2 Holdover.............................................................12
ARTICLE 20 BREACH, DEFAULT, AND REMEDIES...................................13
20.1 Default..............................................................13
20.2 Remedies.............................................................13
20.3 Subtenancies.........................................................14
ARTICLE 21 LANDLORD LIABILITY..............................................14
ARTICLE 22 NOTICES.........................................................14
ARTICLE 23 BROKERAGE.......................................................15
2
<PAGE>
ARTICLE 24 GENERAL.........................................................15
24.1 Severability.........................................................15
24.2 Financial Statements.................................................15
24.3 No Waiver............................................................15
24.4 Effect of Payment....................................................15
24.5 Lender Notice........................................................15
24.6 No Offer.............................................................16
24.7 Successors...........................................................16
24.8 Integration..........................................................16
24.9 Governing Law........................................................16
24.10 Deadlines Enforceable...............................................16
24.11 Counterparts........................................................16
24.12 Arbitration.........................................................16
3
<PAGE>
NET LEASE
STRATFORD AMERICAN CAR RENTAL SYSTEMS, INC., ("Landlord"), hereby leases the
Premises described below, on the terms and conditions set forth in this Lease,
to DOLLAR RENT A CAR SYSTEMS, INC., an Oklahoma corporation ("Tenant").
ARTICLE 1 SUMMARY OF BASIC TERMS
1.1 The Premises: The real property described on the attached Exhibit A,
together with all the buildings and improvements now existing or hereafter
located thereon, with Landlord representing that it is, as of the
Commencement Date, the owner of fee title to the Premises.
1.2 The Building: The buildings located on the Premises.
1.3 The Term: Ten (10) years and nine (9) months, beginning on the Commencement
Date and ending on the Expiration Date.
1.4 Commencement Date: October 1, 1998
1.5 Expiration Date: June 30, 2009.
1.6 Lease Year: Each twelve month period beginning on October 1, 1998 and
ending on September 30 of each year; provided that the last Lease Year
shall be for a 21 month period beginning on October 1, 2008 and concluding
on the Expiration Date (June 30, 2009).
1.7 Base Rent: $125,000 for the First Lease Year payable in equal monthly
installments, in advance, commencing on the Commencement Date, with the
Base Rent to increase by 2.5% on the first day of each Lease Year and such
increased Base Rent shall continue to be paid in such monthly installments.
1.8 Description of Tenant's Use of the Premises: Car rental office and
business, automobile storage, washing and cleaning, with automobile
maintenance limited to light maintenance. No automobile refueling nor
storage of automobile fuels.
1.9 Tenant's Address for Notices:
Dollar Rent A Car Systems, Inc.
5330 E. 31st Street
Tulsa, Oklahoma 74135
Attention: Director of Properties & Concessions
1.10 Landlord's Notice Address:
Stratford American Car Rental Systems
2400 East Arizona Biltmore Circle
Suite 1270, Bldg. 2
Phoenix, AZ 85016
<PAGE>
ARTICLE 2 DELIVERY AND TERM
2.1 TERM. The Base Term of this Lease and the dates of Commencement and
Expiration of the Term are set forth in Sections 1.3, 1.4 and 1.5.
2.2 CONDITION. Landlord represents and warrants to Tenant that as of the
Commencement of this Lease, the Premises (including the Building) are, in all
material respects, in compliance with the applicable requirements of all laws,
rules and regulations, ordinances, permits, use permits, and orders, including,
but not limited to, any requirements of the Americans with Disabilities Act then
applicable to the Premises (including the Building). Excepting only those
conditions relating to the Premises (including the Building) and existing as of
the Commencement Date which are in violation of this Section 2.2 and/or Section
3.7 below (correction of which conditions shall be the responsibility of
Landlord), Landlord shall have no obligation to make any improvements or
alterations to the Premises (including the Building) whatsoever and Tenant
accepts the Premises (including the Building) in as AS IS condition, with all
faults.
ARTICLE 3 USE OF PREMISES
3.1 PERMITTED USES. Tenant shall continuously use and occupy the Premises for
the purposes set forth in Section 1.8 and subject to the limitations thereof and
for no other purpose whatsoever without Landlord's prior written consent.
3.2 INSURANCE RESTRICTIONS. Tenant shall not perform any act which would cause
the cancellation of any insurance policies related to the Premises.
3.3 IMPROVEMENTS. If due to the nature of Tenant's use of the Premises,
improvements or alterations are necessary to comply with any requirements
imposed by law (excluding any non-compliance with any applicable requirements of
law and governmental orders, rules, regulations and the like existing as of the
Commencement Date but including any requirements of the Americans with
Disabilities Act and the rules and regulations thereunder made applicable by any
alterations to the Premises by Tenant), Tenant shall pay the entire cost of the
improvements or alterations.
3.4 PROHIBITIONS. Tenant shall not cause or maintain any nuisance in or about
the Premises and shall keep the Premises free of debris, rodents, vermin and
anything of a dangerous, noxious or offensive nature or which would create a
fire hazard (through undue load on electrical circuits or otherwise) or undue
vibration, noise or heat. Tenant shall not cause the safe floor loading capacity
to be exceeded. Tenant shall not disturb or interfere with the quiet enjoyment
of neighboring properties.
3.5 COMPLIANCE WITH LAW. Except as expressly provided in Sections 2.2, 3.3 and
3.7, Tenant agrees that in the operation, use and occupancy of the Premises
during the Term of this Lease and any extension or renewal thereof, Tenant will,
and will cause all persons claiming by, through or under Tenant, to strictly
comply with all laws, ordinances, and certificates of occupancy issued pursuant
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to any law or by any public officer and the orders, rules, regulations and
requirements of all federal, state and municipal governments and appropriate
departments, commissions, boards, and officers thereof which may be applicable
to the Premises or to the use or manner of use of the Premises. Tenant shall
defend, indemnify and hold Landlord harmless from all loss, damage, expense, and
liability arising from any failure by Tenant to comply with the foregoing.
3.6 AUDIT. At any time and from time to time, Landlord may retain an
environmental consultant or engineer to conduct an audit or environmental
assessment of the Premises and Tenant's compliance with applicable laws, rules
and regulations. Tenant shall extend its full cooperation with the audit or
investigation. If Tenant is found not to be substantially in compliance with
applicable law, all reasonable costs associated with the audit or assessment
shall be paid by Tenant to Landlord upon demand; otherwise all costs shall be
borne by Landlord. In addition, Tenant, at Landlord's request from time to time,
shall complete such questionnaires and provide such information with respect to
Tenant's activities and operations on the Premises as Landlord shall reasonably
require.
3.7 UNDERGROUND TANKS AND/OR HAZARDOUS SUBSTANCES. Landlord represents and
warrants to Tenant that as of the Commencement Date, and except as disclosed in
the Phase I and Phase II Environmental Report, and other reports delivered to
Tenant prior to the Commencement Date (i) there are no storage tanks above or
below the Premises (ii) neither the Premises nor the Building forming a part
thereof contain any "Hazardous Substances" (as herein defined) other than those
that are reasonably necessary for use of the Premises immediately prior to the
Commencement Date which use is in compliance with applicable laws, rules and
regulations; and (iii) Landlord has not caused or permitted to occur, and shall
not permit to exist, any condition which may cause a discharge of any Hazardous
Substances at, upon or under the Premises, or any contiguous real estate in
violation of any applicable law, rule or regulation. Hazardous Substances, for
purposes of this Section, shall mean any asbestos, PCB transformers, leaking
under ground storage tanks or any hazardous wastes or substances (all of which
are hereinafter referred to as "Hazardous Substances") in violation of any
applicable law, rule or resolution as those terms are used in (A) the Resources
Conservation Recovery Act as amended by the Hazardous and Solid Waste Amendments
of 1984, 42 U.S.C. ss. 6901 eT Seq. (B) the Comprehensive Environmental
Response, Compensation anD Liability Act as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. ss.9601 eT Seq. (C) the Clean Water
Act, 33 U.S.C. ss.1251 eT Seq.; (D) the Toxic Substances and Control Act, 15
U.S.C. ss.2601 ET sEQ. (E) the Clean Air Act, 42 U.S.C. ss.7401 eT Seq.; or (F)
in any other federal, state or local law governinG Hazardous Substances or any
other environmental condition, as such laws may be amended form time to time.
The parties further agree:
(a) Notwithstanding anything contained in this Lease to the contrary,
Tenant shall not be responsible or liable for any Hazardous Substances,
pollutant, contaminant or petroleum products existing in, on or under the
Premises prior to Tenant's occupancy of same, and Landlord shall indemnity,
defend and save Tenant harmless from and against any and all liabilities, fines,
damages, suits, penalties, judgments and environmental cleanup, removal,
response, assessment, or remediation costs arising from contamination of the
Premises or the release of any Hazardous Substances, pollutant, contaminant or
petroleum products in, on, or under the Premises prior to Tenant's occupancy of
same. Landlord shall have the burden of proof, as between Tenant and Landlord,
as to whether any contamination of the Premises or any release of any Hazardous
Substances, pollutant, contaminant or petroleum products in, on or under the
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Premises arose during the Term, extension or renewal thereof and was caused by
Tenant.
(b) Tenant shall indemnify, defend and save Landlord harmless from and
against any and all liabilities, fines, damages, suits, penalties, judgments,
and environmental cleanup, removal, response, assessment, or remediation costs
arising from Tenant's contamination of the Premises or the release of any
Hazardous Substances, pollutant, contaminant or petroleum products in, on, or
under the Premises caused by Tenant or its representatives, employees, agents or
invitees during the Term, extension or renewal thereof and any during any
continued occupancy of the Premises by Tenant after the expiration or
termination of the Term.
(c) Notwithstanding any other provision of this Lease to the contrary,
it is agreed that Tenant shall not construct or use any aboveground or
underground fuel storage tanks on the Premises nor engage in any refueling of
automobiles on the Premises. Tenant shall not keep, store, or use with the
Premises any Hazardous substances except for those types, and in quantities that
are reasonably necessary for Tenant's business and customarily associated with
such usage which shall be kept in compliance with all laws rules and
regulations.
The indemnifications and hold harmless provisions contained in this Subsections
3.7 (a) and (b) above shall specifically survive the termination or expiration
of this Lease whether according to its terms or due to a default by the parties
hereunder.
ARTICLE 4 RENT
4.1 BASE RENT. Tenant shall pay to Landlord, in advance, on the first day of
each calendar month, beginning on the Commencement Date, Base Rent in the amount
set forth in Section 1.7.
4.2 LATE CHARGES AND INTEREST. Tenant shall pay to Landlord a late charge equal
to $100 for each day that Base Rent or any other amount payable under this Lease
is due and unpaid as liquidated damages to compensate Landlord for costs and
inconveniences of special handling and disruption of cash flow. The assessment
or collection of a late charge shall not constitute the waiver of a default and
shall not bar the exercise of other remedies for nonpayment. In addition to the
late charge, all amounts not paid within ten days after the date due shall bear
interest from the date due at the rate of 18% per annum.
4.3 EXCISE TAXES. Tenant shall pay to Landlord all sales, use, transaction
privilege, or other excise tax levied or imposed upon, or measured by, any
amount payable by Tenant under this Lease.
4.4 OBLIGATIONS ARE RENT. All amounts payable to Landlord under this Lease
constitute rent and shall be payable without notice, demand, deduction or offset
to such person and at such place as Landlord may from time to time designate by
written notice to Tenant.
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ARTICLE 5 OPERATING COSTS
5.1 OPERATING COSTS. Tenant shall pay all operating costs with respect to the
Premises.
5.2 INTENT. This Lease constitutes a "Triple Net Lease" and it is the intent of
the parties that, except as expressly provided elsewhere in this Lease, Tenant
pay all operating costs, taxes, insurance and the cost of all maintenance and
repairs to the Premises.
ARTICLE 6 TAXES
6.1 Tenant shall pay, at least 10 days before delinquent all general and special
real property taxes and assessments and all personal property assessed or levied
on the Premises.
6.2 Tenant shall pay before delinquent all taxes levied or assessed upon,
measured by, or arising from (a) the conduct of Tenant's business; (b) Tenant's
leasehold estate; or (c) Tenant's property.
ARTICLE 7 INSURANCE AND INDEMNITY
7.1 INSURANCE POLICIES. Tenant shall, at its expense, take out and keep in full
force and effect and provide Landlord with copies of the following insurance:
(a) All-risk property insurance, in an amount equal to the full
replacement cost of the Premises and, all equipment, fixtures and all property
owned by Tenant located on the Premises.
(b) Plate glass insurance coverage.
(c) Comprehensive liability insurance applying to the use and occupancy of
the Premises and the business operated by Tenant, including coverage for
"premises/operations", "products and completed operations", and "blanket
contractual" liabilities, written on an occurrence basis with limits not less
than $3,000,000 for bodily injury and property damage, naming Landlord, its
agents, affiliates and contract property manager as additional insureds.
(d) Workers' compensation insurance as required by applicable law or
regulation.
(e) 12 months rent loss insurance in favor of Landlord (which shall be
obtained by Landlord with all costs with respect thereto to be paid by Tenant).
7.2 POLICY REQUIREMENTS. Tenant's insurance policies shall:
(a) where applicable, contain the mortgagee's standard mortgage clause
and, in any event, a waiver of any subrogation rights which Tenant's insurers
may have against Landlord and against those for whom the Landlord is in law
responsible;
(b) be taken out with insurers licensed to do business in the State of
Arizona with a rating not less than B+ in Best's Insurance Reports.
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(c) be non-contributing and apply as primary and not as excess to, any
other insurance available to the Landlord;
(d) not be invalidated with respect to the interests of the Landlord and
the holder of any encumbrance on the Premises by reason of any breach or
violation by Tenant of any warranties, representations, declarations or
conditions contained in the policies;
(e) name Landlord as an additional insured; and
(f) contain an undertaking by the insurers to notify the Landlord, and the
holder of any encumbrance on the Premises designated by Landlord, in writing not
less than thirty days prior to any material change, cancellation or termination.
7.3 EVIDENCE OF COVERAGE. Tenant shall deliver to Landlord certificates of
insurance or, if required by Landlord, certified copies of each such insurance
policy: (a) as soon as practicable after the placing of the required insurance
and (b) periodically thereafter before expiration, renewal or replacement of the
policies then in force. No review or approval of any such insurance certificate
by Landlord shall derogate or diminish Landlord's rights or Tenant's
obligations. Tenant shall not take possession of the Premises without having
complied with the requirements of this Section.
7.4 INDEMNITY AND EXCULPATION. Tenant shall defend, indemnify and hold Landlord
harmless, regardless of any negligence imputed to Landlord as owner of the real
property involved in an injury, from and against any and all loss, claims,
actions, damages, liability and expense in connection with loss of life,
personal injury, damage to property or any other loss or injury whatsoever
arising directly or indirectly from or out of this Lease, or any occurrence in,
upon or at the Premises, or the occupancy or use by the Tenant of the Premises,
or any act or omission of Tenant, its agents, servants, employees or invitees.
Tenant shall not be required, however, to indemnify Landlord against a claim
arising from Landlord's gross negligence or willful misconduct. Landlord shall
not be liable and Tenant hereby waives all claims for any damage to any property
in or about the Premises or the Premises or injury or inconvenience to Tenant's
business, by or from any cause whatsoever (including without limiting the
foregoing, rain or water leakage of any character from the roof, windows, walls,
basement, pipes, plumbing works or appliances). Tenant acknowledges that it is
protecting itself against loss by maintaining appropriate insurance coverage.
7.5 LANDLORD'S POLICIES. No insurable interest is conferred upon Tenant under
any policies of insurance carried by Landlord, and Tenant shall not be entitled
to share or receive proceeds of any insurance policy carried by Landlord.
ARTICLE 8 DAMAGE OR DESTRUCTION
(a) If the Premises or any part thereof are damaged or destroyed to
such an extent that the same cannot be restored within twelve (12) months using
standard working measures and procedures, Tenant shall have the option to
terminate this Lease upon written notice to Landlord within thirty (30) days
from the date of such damage or destruction and all rental and other obligations
due and owing by Tenant to Landlord hereunder shall be prorated and adjusted to
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the date of such damage or destruction. If Tenant does not elect to terminate
this Lease, then Tenant shall, within sixty (60) days from the date of such
damage or destruction, proceed in good faith and with reasonable diligence to
repair and/or rebuild any and all such improvements to substantially the same
condition existing prior to such damage. During the restoration of the Premises,
if Tenant is unable to reasonably conduct its business in its customary manner,
then the rents provided herein shall abate and the term hereof shall be tolled
during he period of such restoration.
(b) In the event Tenant is obligated or elects to repair or restore the
Premises as provided herein, all insurance proceeds from policies maintained by
Tenant shall be paid to Tenant for the sole purpose and as the sole source of
funds for rebuilding and repairing such Premises upon satisfaction of the terms,
conditions and provisions of Article 14 below and upon such reasonable
conditions as to disbursement as may be imposed by Landlord or any mortgagee. In
the event Tenant elects to terminate this Lease as provided above, then, all
proceeds (other than proceeds of insurance on the property of Tenant) shall be
payable to Landlord.
Except as specifically provided in this Article, there shall be no reduction of
rent and Landlord shall have no liability to Tenant by reason of any injury to
or interference with Tenant's business or property arising from fire or other
casualty, howsoever caused, or from the making of any repairs resulting
therefrom in or to any portion of the Premises. Tenant waives any statutory or
other rights of termination by reason of fire or other casualty, it being the
intention of the parties to provide specifically and exclusively in this Article
for the rights of the parties with respect to termination of this Lease as a
result of a casualty.
ARTICLE 9 CONDEMNATION
9.1 AUTOMATIC TERMINATION. If during the Term all of the Premises is permanently
taken for any public or quasi-public use under any statute or by right of
eminent domain, or purchased under threat of such taking, this Lease shall
automatically terminate on the date on which the condemning authority takes
possession of the Premises.
9.2 OPTIONAL TERMINATION. If during the term any material portion of the
Premises is purchased by right of eminent domain or in lieu of condemnation, and
if substantial alteration or reconstruction of the Premises is reasonably
required as a result thereof which could not be completed within 12 months, or
if the business of Tenant could not be reasonably continued on the remaining
portion of the Premises after any such restoration, then Tenant shall have the
right to terminate this Lease by giving Landlord at least thirty days written
notice of such termination. If the Lease is not terminated by Tenant pursuant to
the foregoing, Landlord shall expend (out of the condemnation award or
otherwise) such funds as are required to alter or reconstruct the Premises for
Tenant's use; provided that if the amount of the condemnation award is not
sufficient to do so, Landlord, at its option, may terminate the Lease.
9.3 AWARD. Landlord shall be entitled to receive and retain the entire award or
consideration for the affected lands and improvements (except as provided below)
and Tenant shall not have or advance any claims against Landlord for the value
of its property or its leasehold estate or the unexpired term of this Lease or
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for costs of removal or relocation or business interruption expense or any other
damages arising out of the taking or purchase. Nothing herein shall give
Landlord any interest in or preclude Tenant from seeking and recovering on its
own account from the condemning authority any award of compensation attributable
to the taking or purchase of Tenant's chattels or trade fixtures or attributable
to Tenant's relocation expenses. If any such award made or compensation paid to
Tenant specifically includes an award or amount for Landlord, Tenant shall
promptly account therefor to Landlord.
ARTICLE 10 MAINTENANCE.
10.1 BY TENANT. Except as provided to the contrary in Sections 2.2, 2.3 or 3.7
above and in the last sentence of this Section, Tenant shall, at its own cost
and expense, maintain the Premises and the improvements thereon, including all
doors, exterior walls, roofs, interior walls, structural and non-structural
elements of exterior walls, floors and roofs, ceiling tiles, sprinkler heads and
pipes, electrical wiring and fire control, lighting, and heating, air
conditioning, ventilation, electrical and plumbing systems serving the Premises,
in good condition and repair. Without limiting the foregoing, Tenant shall
perform all cleaning and janitorial services and all window cleaning, exterior
and interior painting, pest control, plate glass repair and replacement, and
bulb and ballast replacement. Tenant shall repair and maintain in good condition
any exterior signs of Tenant permitted by this Lease. All repairs and
replacements of heating, air conditioning, ventilation and water heating
equipment shall be performed by a qualified contractor approved by Landlord. If
Tenant does not comply with its obligations under this Article, Landlord may,
but need not, make such repairs and replacements or obtain such service
contracts, and Tenant shall pay Landlord the cost thereof upon demand. Except as
provided to the contrary in Section 2.2, 2.3 or 3.7 above, Tenant also shall
make such repairs to the Premises as are necessary to comply with the
requirements of any governmental or quasi-governmental authority having
jurisdiction. As of the Commencement Date, air conditioning, heating,
ventilating, plumbing and electrical equipment in the Premises shall, at
Landlord's cost, be in good working condition.
ARTICLE 11 UTILITIES
Tenant shall, at its cost, provide for its refuse removal services and Tenant
shall cause all refuse to be removed from the Premises and deposited into the
receptacles with sufficient frequency to prevent odors or undue accumulation.
All other utilities provided to the Premises shall be separately metered, shall
be arranged directly by Tenant with the utility supplier, including the posting
of any required deposits, and shall be paid directly to the utility supplier
when due.
ARTICLE 12 LANDLORD RIGHT OF ENTRY
Upon reasonable prior written notice to Tenant, Landlord shall have access to
the Premises for purposes of showing the Premises to current or prospective
lenders, to prospective purchasers of the Premises, and, during the twelve-month
period preceding the expiration of the Base Term, to prospective tenants.
Landlord shall at all times have access to the Premises for purposes of
inspection and performing Landlord's obligations and exercising its rights under
this Lease.
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ARTICLE 13 SIGNS
Tenant shall not place or permit to be placed any sign, picture, advertisement,
notice, lettering or decoration on any part of the outside of the Premises or
anywhere in the interior of the Premises which is visible from the outside of
the Premises except those in compliance with all applicable laws.
ARTICLE 14 TENANT ALTERATIONS
14.1 TENANT ALTERATIONS. Tenant may from time to time at its own expense make
changes, additions and improvements in the Premises, provided that any such
change, addition or improvement shall:
(a) comply with the requirements of any governmental or
quasi-governmental authority having jurisdiction (including, without limitation,
the Americans with Disabilities Act);
(b) not be commenced until Landlord has received satisfactory evidence
that all required permits have been obtained;
(c) be made only with the prior written consent of Landlord if the cost
of the same exceeds $5,000, which consent shall not be unreasonably withheld;
(d) be constructed in good workmanlike manner and conform to complete
working drawings prepared by a licensed architect and submitted to and approved
by Landlord, which approval shall not be unreasonably withheld;
(e) be of a quality that equals or exceeds the then current standard
for the Premises and comply with all building, fire and safety codes;
(f) be carried out only by licensed contractors selected by Tenant and
approved in writing by Landlord (which approval shall not be unreasonably
withheld), who shall deliver to Landlord before commencement of the work
performance and payment bonds as well as proof of workers' compensation and
general liability insurance coverage, including coverage for completed
operations and contractual liability, with Landlord and its agents and designees
named as additional insureds, in amounts, with companies, and in form reasonably
satisfactory to Landlord, which shall remain in effect during the entire period
in which the work shall be carried out; and
(g) upon completion, be shown on accurate "as built" reproducible
drawings in the form of reverse sepia transparencies or mylars delivered to
Landlord. Tenant also shall provide to Landlord upon completion any certificate
of completion, inspection or approval required by local law.
14.2 TENANT INSTALLATIONS. Tenant may install in the Premises its usual trade
fixtures and personal property in a proper manner, provided that no installation
shall interfere with or damage the mechanical or electrical systems or the
structure of the Building. Landlord may require that any work that may affect
structural elements or mechanical, electrical, heating, air conditioning,
plumbing or other systems be approved by Landlord (which approval shall not be
unreasonably withheld) and Tenant shall comply with the provisions of Section
14.1.
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14.3 MECHANICS LIENS. Tenant shall pay before delinquency all costs for work
done or caused to be done by Tenant in the Premises which could result in any
lien or encumbrance on Landlord's interest in the Premises or any part thereof,
shall keep the title to the Premises and every part thereof free and clear of
any lien or encumbrance in respect of such work, and shall indemnify and hold
harmless Landlord and Landlord's agents and employees against any claim, loss,
cost, demand or legal or other expense, whether in respect of any lien or
otherwise, arising out of the supply of material, services or labor for such
work. Tenant shall immediately notify Landlord of any such lien, claim of lien
or other action of which it has or reasonably should have knowledge and that
affects the title to the Premises or any part thereof, and shall cause the same
to be removed by bonding or otherwise within five days, failing which Landlord
may take such action as Landlord deems necessary to remove same and the entire
cost thereof shall be immediately due and payable by Tenant to Landlord. If
provided by applicable law, Tenant shall cause such postings to be made and
notices given as shall prevent any mechanics' lien for work done for Tenant from
attaching to the Premises.
ARTICLE 15 ASSIGNMENT AND SUBLETTING
15.1 CONSENT REQUIRED. Tenant shall not assign its interest under this Lease or
sublet all or any part of the Premises without Landlord's prior written consent,
which shall not be unreasonably withheld. Tenant shall not at any time pledge,
hypothecate, mortgage or otherwise encumber its interest under this Lease as
security for the payment of a debt or the performance of a contract. Tenant
shall not permit its interest under this Lease to be transferred by operation of
law. Any purported assignment or sublease made without Landlord's consent shall
be void.
15.2 REQUESTS FOR APPROVAL. Landlord shall be under no obligation to decide
whether consent will be given or withheld unless Tenant has first provided to
Landlord: (a) the name and legal composition of the proposed assignee or
subtenant and the nature of its business; (b) the use to which the proposed
assignee or subtenant intends to put the Premises; (c) the terms and conditions
of the proposed assignment or sublease and of any related transaction between
Tenant and the proposed assignee or subtenant; (d) information related to the
experience, integrity and financial resources of the proposed assignee or
subtenant; (e) such information as Landlord may reasonably request to
supplement, explain or provide details of the matters submitted by Tenant
pursuant to subparagraphs (a) through (d); and (f) reimbursement for all
reasonable costs incurred by Landlord, including attorneys' fees, in connection
with evaluating the request and preparing any related documentation.
15.3 CONTINUED RESPONSIBILITY. Tenant shall remain fully liable for performance
of this Lease, notwithstanding any assignment or sublease, notwithstanding
Landlord's consent to any assignment or subleasing, for the entire Lease Term.
15.4 EXCESS PROCEEDS. If consent to an assignment or sublease is given, Tenant
shall pay to Landlord, as additional rent, one half of all amounts received from
the assignee or subtenant in excess of the amounts otherwise payable by Tenant
to Landlord with respect to the space involved, measured on a per square foot
basis.
15.5 NO WAIVER No consent shall constitute consent to any further assignment or
subletting.
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15.6 TRANSFER BY LANDLORD. Upon a sale or other transfer of the Premises (or a
portion thereof containing the Premises) by Landlord, Landlord's interest in
this Lease shall automatically be transferred to the transferee, the transferee
shall automatically assume all of Landlord's obligations under this Lease
accruing from and after the date of transfer, and the transferor shall be
released of all obligations under this Lease arising after the transfer, other
than liabilities under the indemnification and hold harmless of Landlord under
Section 3.7 (a) hereof. Tenant shall upon request attorn in writing to the
transferee.
ARTICLE 16 SUBORDINATION AND ATTORNMENT
16.1 SUBORDINATION. As a condition to the effectiveness of this Lease, Landlord,
Tenant and the holder of the mortgage lien on the Premises shall enter into a
subordination, nondisturbance and attornment agreement in a form reasonably
acceptable to such parties providing that this Lease shall be subject and
subordinate to such lien and that Tenant shall attorn to the transferee in any
foreclosure, sale, trustee sale or other similar proceeding provided that the
lienholder shall agree to honor the terms of this Lease and the Tenant's right
to possession hereunder so long as Tenant is not in default hereunder. Upon any
refinancing, or other lien or encumbrance being in place on the Property, the
Tenant, Landlord and the provider of such financing shall also enter into such a
subordination, nondisturbance and attornment agreement.
16.2 LENDER PROTECTION. Upon a transfer in connection with foreclosure or
trustee's sale proceedings or in connection with a default under an encumbrance,
whether by deed to the holder of the encumbrance in lieu of foreclosure or
otherwise, Tenant, if requested, shall in writing attorn to the transferee, but
the transferee shall not be:
(a) subject to any offsets or defenses which Tenant might have against
Landlord; or
(b) bound by any prepayment by Tenant of more than one month's installment
of rent; or
(c) subject to any liability or obligation of Landlord except those
arising after the transfer.
ARTICLE 17 ESTOPPEL CERTIFICATES
Tenant shall at any time within ten days after written request from Landlord
execute, acknowledge and deliver to Landlord a statement in writing: (a)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any; (b) confirming the
commencement and expiration dates of the term; (c) confirming the amount of the
security deposit held by Landlord; (d) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults if any are claimed; and (e) confirming such other
matters as to which Landlord may reasonably request confirmation. Any such
statement may be conclusively relied upon by a prospective purchaser or
encumbrancer of the Premises.
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ARTICLE 18 QUIET ENJOYMENT
If Tenant pays the rent and observes and performs the terms, covenants and
conditions contained in this Lease, Tenant shall peaceably and quietly hold and
enjoy the Premises for the Term without hinderance or interruption by Landlord,
or any other person lawfully claiming by, through or under Landlord unless
otherwise permitted by the terms of this Lease.
ARTICLE 19 SURRENDER AND HOLDOVER
19.1 SURRENDER. Upon the expiration or termination of this Lease or of Tenant's
right to possession, Tenant shall surrender the Premises in a clean undamaged
condition, ordinary wear and tear (subject to Tenant's repair maintenance
obligations hereunder) excepted, and Tenant shall remove all of Tenant's
equipment, fixtures and property and repair all damage caused by the removal.
Tenant shall not remove permanent improvements that were provided by Landlord at
the commencement of this Lease and shall not remove permanent improvements later
installed by Tenant unless directed to do so by Landlord.
19.2 HOLDOVER. If Tenant holds over without Landlord's consent, Tenant shall, at
Landlord's election, be a tenant at will or a tenant from month-to-month. In
either case rent shall be payable monthly in advance at a rate equal to twice
the rate in effect immediately before the holdover began. A holdover
month-to-month tenancy may be terminated by either party as of the first day of
a calendar month upon at least ten days' prior notice. A holdover tenancy at
will is terminable at any time by either party without notice, regardless of
whether rent has been paid in advance. Upon a termination under this Section,
unearned rent shall be refunded following the surrender of possession provided
Tenant is not otherwise in breach of this Lease.
ARTICLE 20 BREACH, DEFAULT, AND REMEDIES
20.1 DEFAULT. The following shall constitute "Events of Default":
(a) Tenant's failure to pay rent or any other amount due under this
Lease within five days after notice of nonpayment; or
(b) Tenant's failure to execute, acknowledge and return a subordination
agreement under Article 16.1 or an estoppel certificate under Article 17 within
ten days after written request; or
(c) Tenant's failure to perform any other obligation under this Lease
within thirty days after notice of nonperformance; provided, however, that if
the breach is of such a nature that it cannot be cured within thirty days, no
Event of Default shall be deemed to have occurred by reason of the breach if
cure is commenced promptly and diligently pursued to completion within a period
not longer than ninety days; and provided further, that in the event of a breach
involving an imminent threat to health or safety, Landlord may in its notice of
breach reduce the period for cure to such shorter period as may be reasonable
under the circumstances.
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20.2 REMEDIES. Upon the occurrence of an Event of Default, Landlord, at any time
thereafter without further notice or demand may exercise any one or more of the
following remedies concurrently or in succession:
(a) Terminate Tenant's right to possession of the Premises by legal
process or otherwise, with or without terminating this Lease, and retake
exclusive possession of the Premises.
(b) From time to time relet all or portions of the Premises, using
reasonable efforts to mitigate Landlord's damages. In connection with any
reletting, Landlord may relet for a period extending beyond the term of this
Lease and may make alterations or improvements to the Premises without releasing
Tenant of any liability. Upon a reletting of all or substantially all of the
Premises, Landlord shall be entitled to recover all of its then prospective
damages for the balance of the Lease Term measured by the difference between
amounts payable under this Lease and the anticipated net proceeds of reletting.
(c) From time to time recover accrued and unpaid rent and damages
arising from Tenant's breach of the Lease, regardless of whether the Lease has
been terminated, together with applicable late charges and interest at the rate
of 18% per annum or the highest lawful rate, whichever is less.
(d) Enforce the statutory Landlord's lien on Tenant's property.
(e) Recover all costs, expenses and attorneys' fees incurred by
Landlord in connection with enforcing this Lease, recovering possession,
reletting the Premises or collecting amounts owed, including, without
limitation, costs of alterations, brokerage commissions, and other costs
incurred in connection with any reletting.
(f) Perform the obligation on Tenant's behalf and recover from Tenant,
upon demand, the entire amount expended by Landlord plus 20% for special
handling, supervision, and overhead.
(g) Pursue other remedies available at law or in equity.
20.3 SUBTENANCIES. Upon a termination of Tenant's right to possession, whether
or not this Lease is terminated, subtenancies and other rights of persons
claiming under or through Tenant shall (a) be terminated or, at Landlord's
option (b) Tenant's interest in such subleases or other arrangements shall be
assigned to Landlord.
ARTICLE 21 LANDLORD LIABILITY
Notwithstanding anything to the contrary in this Lease, none of Landlord's
directors, officers, shareholders, employees, agents or constituent partners,
(collectively, "Landlord's Affiliates") shall be personally responsible or
liable for any representation, warranty, covenant, undertaking or agreement
contained in the Lease, and the sole right and remedy of the Tenant or any
subsequent sublessee or assignee shall be against the Landlord. Neither Tenant
nor any subsequent sublessor or assignee shall seek to obtain any judgment
imposing personal liability against Landlord's Affiliates.
13
<PAGE>
ARTICLE 22 NOTICES
Any notice from one party to the other shall be in writing and shall be deemed
duly served: (a) if mailed by registered or certified mail addressed to Tenant
at the Premises and the address set forth in Section 1.9 or such other address
as Tenant may designate in a written notice given pursuant to this Section (b)
if mailed by registered or certified mail to Landlord at the address set forth
in Section 1.10 or such other address as Landlord may designate by written
notice given pursuant to this Section. Any notice to Tenant prior to Tenant's
taking possession of the Premises, however, shall instead be sent to the address
set forth in Section 1.9. Any notice shall be deemed to have been given when
mailed, if mailed, and when delivered, if personally delivered.
ARTICLE 23 BROKERAGE
Each of Landlord and Tenant warrants and represents to the other that the
warranting party has not retained a broker or other person is entitled to claim
a commission, broker's fee or other compensation in connection with this Lease.
Each warranting party shall defend, indemnify and hold Landlord harmless from
all claims or liabilities arising from any breach of the foregoing
representation and warranty.
ARTICLE 24 GENERAL
24.1 SEVERABILITY. If any term, covenant or condition of this Lease, or the
application thereof, is to any extent held or rendered invalid, it shall be and
is hereby deemed to be independent of the remainder of the Lease and to be
severable and divisible therefrom, and its invalidity, unenforceability or
illegality shall not affect, impair or invalidate the remainder of the Lease or
any part thereof.
24.2 FINANCIAL STATEMENTS. Tenant hereby agrees to deliver annually to Landlord
and to any lender designated by Landlord financial statements of Tenant prepared
in accordance with generally accepted accounting principles, if the same are not
available through filings made with the Securities Exchange Commission.
24.3 NO WAIVER. The waiver by Landlord of any breach of any term, covenant or
condition contained in this Lease shall not be deemed to be a waiver of such
term, covenant or condition or of any subsequent breach of the same or of any
other term, covenant or condition contained in this Lease. The subsequent
acceptance of rent by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of rent. No term, covenant or condition of this Lease shall be deemed
to have been waived by the parties hereof unless such waiver is in writing by
waiving party.
14
<PAGE>
24.4 EFFECT OF PAYMENT. No payment by Tenant or receipt by the Landlord of a
lesser amount than the monthly payment of rent herein stipulated is deemed to be
other than on account of the earliest stipulated rent, nor is any endorsement or
statement on any check or any letter accompanying any check or payment of rent
deemed an acknowledgment of full payment or accord and satisfaction, and
Landlord may accept and cash any check or payment without prejudice to
Landlord's right to recover the balance of the rent due and pursue any other
remedy provided in this Lease.
24.5 LANDLORD DEFAULT, LENDER NOTICE. In the event of a default by Landlord,
Tenant shall give written notice of the default to Landlord and shall
simultaneously send a copy of the notice to the holder of any encumbrance, the
name and address of whom has previously been furnished in writing to Tenant. If
Landlord fails to cure the default within a reasonable time, Tenant may pursue
its remedies against Landlord, but Tenant may not exercise the remedy of a
termination of this Lease until Tenant shall have sent a second notice to that
effect to the holder of the encumbrance, with a copy to Landlord, and the holder
of the encumbrance then shall have not less than sixty additional days, to cause
the default to be remedied.
24.6 NO OFFER. The submission of this Lease for examination does not constitute
a reservation of an option to lease the Premises, and this Lease becomes
effective as a lease only upon its execution and delivery by Landlord and
Tenant.
24.7 SUCCESSORS. All rights and liabilities under this Lease extend to and bind
the successors and assigns of Landlord and permitted successors and assigns of
Tenant. No rights, however, shall inure to the benefit of any transferee of the
Tenant unless the transfer has been consented to by the Landlord in writing as
provided in Section 15.1. If there is more than one Tenant, they are all bound
jointly and severally by the terms, covenants and conditions of this Lease.
24.8 INTEGRATION. This Lease and the Exhibits hereto attached, set forth all the
covenants, promises, agreements, conditions and understandings between Landlord
and Tenant concerning the Premises and there are no other covenants, promises,
agreements, conditions or understandings, either oral or written, between them.
No alteration, amendment or addition to this Lease shall be binding upon
Landlord or Tenant unless in writing and signed by Tenant and Landlord.
24.9 GOVERNING LAW. This Lease will be construed in accordance with and governed
by the laws of Arizona.
24.10 DEADLINES ENFORCEABLE. Time is of the essence of this Lease and of every
part hereof.
24.11 COUNTERPARTS. This Lease may be executed in counterparts, which together
shall constitute a single instrument.
24.12 ARBITRATION. The parties agree that all claims, disputes and disagreements
arising under this Lease shall be resolved by the arbitration procedures set
forth in this Section except that claims relating to Landlords' exercise of any
unlawful detainer rights pursuant to Arizona law or rights or remedies used by
Landlord to gain possession of the Premises or terminate Tenant's right of
possession to the Premises shall be resolved by suit filed in the Superior Court
of Maricopa County, Arizona. Disputes subject to Arbitration shall be determined
15
<PAGE>
by binding commercial arbitration before an Arbitrator under the rules of the
American Arbitration Association. Such arbitration shall be initiated by the
parties, or either of them, within ten (10) days after either party send a
written notice (the "Arbitration Notice") of the demand to arbitrate to the
other party. The parties may agree on an arbitrator. If they are unable to agree
within twenty (20) days of the arbitration notice the American Arbitration
Association shall provide a list of three available judges and each party may
strike one. The remaining judge (or if there are two, the one selected by the
American Arbitration Association) shall serve as the arbitrator. The arbitration
hearing shall be set within sixty (60) days of the arbitration notice and the
arbitrator shall have a discretion to order pre-hearing exchange of information
by the parties.
TENANT: LANDLORD:
DOLLAR RENT A CAR SYSTEMS, INC. STRATFORD AMERICAN CAR RENTAL
SYSTEMS, INC.
By By
----------------------------- ---------------------------------
Its Its
--------------------------- --------------------------------
Dean W. Strickland, Vice President of
Properties and Concessions
16
<PAGE>
EXHIBIT A
THE PREMISES
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,111,000
<SECURITIES> 0
<RECEIVABLES> 232,000
<ALLOWANCES> 2,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,133,000
<PP&E> 415,000
<DEPRECIATION> 72,000
<TOTAL-ASSETS> 2,915,000
<CURRENT-LIABILITIES> 245,000
<BONDS> 0
59,000
0
<COMMON> 0
<OTHER-SE> 1,840,000
<TOTAL-LIABILITY-AND-EQUITY> 2,915,000
<SALES> 2,000
<TOTAL-REVENUES> 112,000
<CGS> 0
<TOTAL-COSTS> 25,000
<OTHER-EXPENSES> 220,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,000
<INCOME-PRETAX> (183,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (183,000)
<DISCONTINUED> 3,884,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,701,000
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 OF
STRATFORD AMERICAN CORPORATION AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 168,000
<SECURITIES> 0
<RECEIVABLES> 89,000
<ALLOWANCES> 2,000
<INVENTORY> 0
<CURRENT-ASSETS> 195,000
<PP&E> 64,000
<DEPRECIATION> 38,000
<TOTAL-ASSETS> 355,000
<CURRENT-LIABILITIES> 420,000
<BONDS> 0
59,000
0
<COMMON> 0
<OTHER-SE> (1,861,000)
<TOTAL-LIABILITY-AND-EQUITY> 355,000
<SALES> 17,000
<TOTAL-REVENUES> 62,000
<CGS> 3,000
<TOTAL-COSTS> 17,000
<OTHER-EXPENSES> 436,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,000
<INCOME-PRETAX> (433,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (433,000)
<DISCONTINUED> (766,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,199,000)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
<FN>
EPS - Primary and EPS - Diluted have been restated to reflect the fifteen-to-
one reverse stock split effective July 20, 1998. Certain amounts have been
restated to reflect the subsequent sale of the vehicle rental business as a
discontinued operation.
</FN>
</TABLE>
