SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File No. 1-11402
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HFS Incorporated
(Exact name of Registrant as specified in its charter)
Delaware 22-3059335
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6 Sylvan Way
Parsippany, New Jersey 07054
(Address of principal executive office) (Zip Code)
(201) 428-9700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if applicable)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the Registrant's classes of
common stock was 158,752,592 shares of Common Stock outstanding as of July 31,
1997.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HFS Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................ $ 58,511 $ 69,541
Restricted cash ...................................... 23,742 89,849
Accounts and notes receivable,
net of allowance for doubtful accounts .......... 840,941 687,907
Other current assets ................................. 159,506 117,320
Deferred income taxes ................................ 92,825 93,798
----------- -----------
TOTAL CURRENT ASSETS ................................. 1,175,525 1,058,415
Property and equipment - net ......................... 331,844 328,528
Franchise agreements - net of accumulated amortization 948,753 995,947
Excess of cost over fair value of net assets acquired
net of accumulated amortization ................ 1,868,438 1,783,409
Other intangibles - net of accumulated amortization .. 588,710 604,535
Investment in Avis Rent A Car, Inc. .................. 87,086 76,540
Other assets ......................................... 429,427 289,392
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Total assets exclusive of assets under programs ...... 5,429,783 5,136,766
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Assets under management and mortgage programs:
Net investment in leases and leased vehicles .... 3,643,601 3,418,666
Relocation receivables .......................... 579,575 773,326
Mortgage loans held for sale .................... 820,615 1,248,299
Mortgage servicing rights and fees .............. 272,042 288,943
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5,315,833 5,729,234
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TOTAL ASSETS ......................................... $10,745,616 $10,866,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, December 31,
1997 1996
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<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and other accrued expenses .............. $ 1,112,557 $ 855,770
Short-term debt .......................................... 150,000 150,000
Due to car rental operations of Avis Rent A Car, Inc., net 14,522 61,807
Current portion of long-term debt ........................ 1,959 2,995
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TOTAL CURRENT LIABILITIES ................................ 1,279,038 1,070,572
Long-term debt ........................................... 1,173,967 748,421
Deferred revenue ......................................... 250,525 397,034
Other liabilities ........................................ 120,165 131,021
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Total liabilities exclusive of liabilities under programs 2,823,695 2,347,048
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Liabilities under management and mortgage programs:
Debt ................................................ 4,776,153 5,089,943
Deferred income taxes ............................... 301,200 281,948
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5,077,353 5,371,891
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Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value
- authorized 10,000,000 shares;
none issued and outstanding ......................... -- --
Common stock, $.01 par value
- authorized 600,000,000 shares;
issued 161,393,645 and
158,728,807 shares, respectively .................... 1,614 1,588
Additional paid-in capital ............................... 2,234,646 2,337,297
Retained earnings ........................................ 808,982 830,970
Net unrealized gain on investment ........................ -- 4,366
Currency translation adjustment .......................... (10,204) (8,008)
Treasury stock, at cost (3,087,400
and 322,500 shares, respectively) ..................... (190,470) (19,152)
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TOTAL SHAREHOLDERS' EQUITY ............................... 2,844,568 3,147,061
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............... $ 10,745,616 $ 10,866,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------- ------------
1997 1996 1997 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Service fees, net ........................ $ 443,428 $ 243,230 $ 830,346 $ 423,022
Fleet leasing (net of depreciation and
interest costs of $298,200, $272,871,
$584,275 and $555,994, respectively) . 65,786 62,822 146,581 133,770
Other, net ............................... 70,406 39,265 122,670 66,252
----------- ----------- ----------- -----------
Net revenues ......................... 579,620 345,317 1,099,597 623,044
----------- ----------- ----------- -----------
EXPENSES:
Operating ................................ 219,173 155,286 435,062 295,383
Marketing and reservation ................ 69,683 38,716 130,481 65,950
General and administrative ............... 25,206 24,379 57,112 39,189
Merger and restructuring charge associated
with business combination .............. 303,000 -- 303,000 --
Depreciation and amortization ............ 43,418 20,846 86,534 36,982
Interest, net ............................ 17,070 5,141 30,747 10,766
----------- ----------- ----------- -----------
Total expenses ....................... 677,550 244,368 1,042,936 448,270
----------- ----------- ----------- -----------
Income (loss) before income taxes ........... (97,930) 100,949 56,661 174,774
Provision for income taxes .................. 8,519 41,010 72,005 71,157
----------- ----------- ----------- -----------
Net income (loss) ........................... $ (106,449) $ 59,939 $ (15,344) $ 103,617
=========== =========== =========== ===========
SHARE INFORMATION:
Net income (loss) per share
Primary .................................. $ (.67) $ .38 $ (.10) $ .69
=========== =========== =========== ===========
Fully diluted ............................ $ (.67) $ .38 $ (.10) $ .68
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding
Primary .............................. 158,355 158,798 158,342 154,232
=========== =========== =========== ===========
Fully diluted ........................ 158,355 159,405 158,342 155,398
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HFS Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
1997 1996
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<S> <C> <C>
Net cash provided by operating activities ...................... $ 1,083,599 $ 368,129
Investing Activities:
Property and equipment additions ............................ (32,520) (25,717)
Loans and investments ....................................... (16,325) (10,000)
Proceeds from sale of assets ................................ 21,750 33,618
Due to Avis Rent A Car, Inc. ................................ (47,285) --
Investment in leases and leased vehicles .................... (1,179,905) (936,225)
Repayment of investment in leases and leased vehicles ....... 437,239 339,680
Proceeds from sales of mortgage servicing rights ............ 29,134 7,113
Net assets acquired, exclusive of cash acquired ............. (298,524) (992,163)
All other investing activities .............................. 18,449 1,481
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Net cash used in investing activities ................... (1,067,987) (1,582,213)
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Financing Activities:
Issuance of common stock, net ............................... 13,785 1,163,872
Proceeds from borrowings .................................... 1,284,196 1,073,675
Redemption of Series A Preferred Stock ...................... -- (80,000)
Net change in borrowings with terms of less than 90 days .... (54,948) 78,958
Principal payments on borrowings ............................ (1,133,432) (603,061)
Purchases of treasury stock ................................. (171,318) --
Stock option plan transactions .............................. 22,014 7,074
Payment of dividends ........................................ (6,644) (11,758)
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Net cash provided by (used in) financing activities ..... (46,347) 1,628,760
----------- -----------
Effect of changes in exchange rates on cash and cash equivalents 19,705 (3,003)
Net increase (decrease) in cash and cash equivalents ........... (11,030) 411,673
Cash and cash equivalents, beginning of period ................. 69,541 22,923
----------- -----------
Cash and cash equivalents, end of period ....................... $ 58,511 $ 434,596
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HFS Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated balance sheet of HFS Incorporated and subsidiaries
(the "Company") as of June 30, 1997, the consolidated statements of
operations for the three and six months ended June 30, 1997 and 1996, and
the consolidated statements of cash flows for the six months ended June 30,
1997 and 1996 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of such financial statements are
included. There were no adjustments of an unusual nature recorded during
the three and six months ended June 30, 1997 and 1996 except for a one-time
charge of $303 million ($227 million after tax), recorded in the second
quarter of 1997 representing transaction and restructuring costs incurred
in connection with the merger of the Company with PHH Corporation ("PHH")
(See Note 4) and a $7.0 million restructuring charge ($4.3 million after
tax) recorded in June 1996, related primarily to the contribution of owned
Coldwell Banker brokerage offices to an independent trust. The Company is a
global provider of fee-based consumer services primarily to the travel and
real estate industries. The Company therefore experiences seasonal revenue
patterns similar to those of the travel and real estate industries wherein
the summer months produce higher revenue than other periods of the year.
Accordingly, the first and fourth quarters are traditionally weaker than
the second and third quarters and interim results are not necessarily
indicative of results for a full year.
The consolidated financial statements include the accounts and
transactions of all wholly-owned and majority owned subsidiaries, except
for the Company's ownership of Avis Rent A Car, Inc. ("ARAC"), which is
accounted for under the equity method (See Note 7). All material
intercompany balances and transactions have been eliminated in
consolidation. On April 30, 1997, the Company acquired PHH by merger, which
has been accounted for as a pooling of interests. Accordingly, the
accompanying consolidated financial statements have been restated as if the
Company and PHH had operated as one entity since inception (See Note 3).
The consolidated financial statements of the Company include the assets and
liabilities of Ramada Franchise Systems, Inc., an entity controlled by the
Company by virtue of its ownership of 100% of the common stock of such
entity. The assets of Ramada Franchise Systems, Inc. are not available to
satisfy the claims of any creditors of the Company or any of its other
affiliates, except as otherwise specifically agreed by Ramada Franchise
Systems, Inc.
The consolidated financial statements and notes are presented as
required by Form 10-Q and do not contain certain information included in
the Company's annual consolidated financial statements. The December 31,
1996 consolidated balance sheet was derived from the Company's audited
financial statements. This Form 10-Q should be read in conjunction with the
Company's consolidated financial statements and notes thereto, included in
the Form 8-K filed on July 16, 1997.
Certain reclassifications have been made to the 1996 consolidated
financial statements to conform with classifications used in 1997.
2. Pending Merger with CUC International, Inc.
On May 27, 1997, the Company entered into a definitive merger agreement
(the "CUC Merger") with CUC International, Inc. ("CUC") pursuant to which
each share of the Company's common stock shall be converted into the right
to receive 2.4031 shares of CUC common stock. CUC is a leading technology-
driven, membership-based consumer services company, providing its members
with access to a variety of goods and services worldwide, including such
services as shopping, travel, auto, dining, home improvement, lifestyle,
vacation exchange, credit card and checking account enhancement packages,
financial products and discount programs. CUC recorded total revenues and
net income of $2.3 billion and $164.1 million, respectively, for the year
ended January 31, 1997. Consummation of the transaction is subject to
approval of the shareholders of each company at special meetings of such
shareholders to be held in the second half of 1997. The CUC Merger, if
consummated, will be accounted for as a pooling of interests.
3. Merger with PHH Corporation
On April 30, 1997, the Company acquired PHH by merger (the "PHH
Merger"), issuing 30.3 million shares of Company common stock in exchange
for all of the outstanding common stock of PHH. Pursuant to the merger
agreement, PHH stockholders received .825 shares of Company common stock
for each share of PHH common stock. The PHH Merger has been accounted for
as a pooling of interests. Accordingly, the accompanying consolidated
financial statements have been prepared as if PHH and the Company had
operated as one entity since inception. PHH is the world's largest provider
of corporate relocation services and also provides mortgage services and
vehicle management services.
The following table shows the historical operating results of the
Company and PHH for the periods prior to the PHH merger ($000's):
For the four months For the six months
ended April 30, 1997 ended June 30, 1996
-------------------- -------------------
Net revenues
HFS ........................... $473,969 $300,403
PHH ........................... 237,838 322,641
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Total ..................... $711,807 $623,044
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Net income
HFS ........................... $ 83,667 $ 61,619
PHH ........................... 41,747 41,998
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Total ..................... $125,414 $103,617
======== ========
4. Merger and Restructuring Charge
The Company recorded a one-time pre-tax merger and restructuring charge
of $303 million ($227 million, after tax) during the second quarter of 1997
in connection with the PHH Merger for merger-related costs, including
severance, facility and system consolidations and terminations, costs
associated with exiting certain activities and merger-related professional
fees. Excluding the charge, net income was $120.6 million or $0.69 per
share for the three months ended June 30, 1997, and $211.7 million or $1.21
per share for the six months ended June 30, 1997, respectively.
5. Pro forma Information
The following table reflects the unaudited operating results of the
Company for the six months ended June 30, 1996 on a pro forma basis, which
gives effect to the following 1996 acquisitions, accounted for under the
<PAGE>
purchase method of accounting, and the related financing of such
acquisitions as if they had occurred on January 1, 1996: (i) the Travelodge
franchise system; (ii) the Electronic Realty Associates franchise system;
(iii) the six CENTURY 21 non-owned regions; (iv) Coldwell Banker
Corporation; (v) Avis, Inc.; and (vi) Resort Condominiums International,
Inc. ($000's, except per share data):
For the six months
ended June 30, 1996
-------------------
Net revenues $ 963,942
Net income 141,212
Net income per share (fully diluted) 0.80
6. Shareholders' Equity
In January 1997, in connection with the Company's acquisition of Avis,
Inc., (n/k/a HFS Car Rental, Inc.) the Company made a $17.6 million payment
to General Motors Corporation representing a contingent payment determined
by the price of the Company's common stock that was issued as consideration
for such acquisition. Such payment is reflected as a reduction of
shareholders' equity.
7. Investment in ARAC
The Company's investment in ARAC is accounted for using the equity
method of accounting. ARAC is not consolidated because of the Company's
plan to undertake an initial public offering of ARAC (the "IPO"), which
will dilute its interest in ARAC from 100% to approximately 25%. If the IPO
is not consummated within one year of the Company's acquisition of Avis,
Inc. on October 16, 1996, the Company will consolidate ARAC. Summarized
financial information of ARAC is as follows ($000's):
Avis Rent A Car, Inc.
June 30, 1997
Balance sheet data June 30, 1997 December 31, 1996
------------- -----------------
Vehicles ............ $2,312,109 $2,243,492
All other assets .... 716,964 887,865
Debt ................ 2,183,769 2,295,474
All other liabilities 758,218 759,343
Shareholders' equity 87,086 76,540
Three Month Six Months
Ended Ended
June 30, 1997 June 30, 1997
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Statement of income data
Revenues ................ $489,633 $945,647
Income before provision
for income taxes ....... 17,374 24,360
Net income ............. 9,733 13,106
<PAGE>
ARAC Subsequent Events
On August 8, 1997, ARAC signed a purchase agreement for the acquisition
of The First Gray Line Corporation and its subsidiaries for approximately
$195 million in cash plus expenses. The fair value of unaudited assets and
liabilities, exclusive of cost in excess of the fair value of net assets
acquired, at June 30, 1997 are $332.3 million and $296.3 million,
respectively. The transaction is subject to customary closing conditions
and regulatory approval.
On July 31, 1997, ARAC refinanced all of its domestic debt. This debt
was refinanced by utilizing a $3.65 billion asset-backed structure, which
consisted of (i) a $2.0 billion commercial paper program and (ii) a $1.65
billion medium term note issuance with maturities of 3 and 5 years.
ARAC is party to a $470.0 million secured credit agreement that
provides for (i) a revolving credit facility in the amount of up to $125.0
million which is available on a revolving basis until December 31, 2000
(the "Final Maturity Date") in order to finance the general corporate needs
of ARAC in the ordinary course of business (with up to $75.0 million of
such amount available for the issuance of standby letters of credit to
support worker's compensation and other insurance and bonding requirements
of ARAC, in the ordinary course of business), (ii) a term loan facility in
the amount of $120.0 million to finance general corporate needs in the
ordinary course of business, which will be repayable in four installments,
the first three of which shall be in the amount of $1.0 million payable on
June 30, 1998, June 30, 1999 and June 30, 2000 and the remainder of which
will be due on the Final Maturity Date, and (iii) a standby letter of
credit facility of up to $225.0 million available on a revolving basis to
fund (a) any shortfall in certain payments owing pursuant to fleet lease
agreements and (b) maturing commercial paper notes if such commercial paper
notes cannot be repaid through the issuance of additional commercial paper
notes or draws under the liquidity facility.
8. Subsequent Event
On August 12, 1997 the Company agreed to make an investment in NRT
Incorporated ("NRT"), a newly formed corporation created to acquire residential
real estate brokerage firms. The Company has agreed to invest $157 million and,
under certain conditions, to invest up to approximately an additional $100
million, in senior and convertible preferred stock of NRT and may also purchase
approximately $400 million of certain assets of real estate brokerage firms
acquired by NRT. NRT has agreed to acquire the assets of National Realty Trust,
("Trust") an independent trust to which the Company contributed the owned
brokerage business of Coldwell Banker Corporation in connection with the
Company's acquisition of Coldwell Banker Corporation on May 31, 1996. The
Company's investment in NRT is subject to the Trust acquisition. The acquisition
of the Trust is subject to customary conditions, including anti-trust
clearnances. There can be no assurances that any such transaction will be
consummated.
******
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
HFS Incorporated (together with its subsidiaries) is a leading global
provider of consumer services. The Company provides fee-based services that
primarily fall within the Travel and Real Estate industries, in which the
Company generally does not own the assets or share the risks associated with the
underlying businesses of its customers. The businesses acquired by the merger
with PHH Corporation ("PHH") on April 30, 1997 are consistent with this profile
and provide the Company with various cross-marketing opportunities within its
business segments.
On May 27, 1997, the Company entered into a definitive merger agreement
with CUC International, Inc. ("CUC"), pursuant to which each share of the
Company's common stock shall be converted into the right to receive 2.4031
shares of CUC common stock. CUC, a leading technology-driven membership-based
consumer services company with shares traded on the New York Stock Exchange,
reported $2.5 billion of total assets at January 31, 1997 and $2.3 billion and
$164.1 million of revenue and net income, respectively, for the fiscal year
ended January 31, 1997. CUC's business profile is consistent with the Company's
in that CUC's primary revenue source consists of recurring membership revenue
rather than revenue from the sale of goods and services to club members.
Membership is generated through CUC's technology-driven direct marketing
efforts. The combination of CUC and HFS is intended to provide CUC's membership
businesses access to the Company's more than 100 million consumer contacts,
while providing Company businesses with the technology-driven, direct marketing
expertise necessary to successfully cross-market within its existing business
units.
In the travel industry, the Company is the world's largest franchisor of
lodging facilities ("Lodging"), the leading provider of vacation timeshare
exchange services ("Timeshare") and a leading provider of international fleet
management services ("Fleet Management"). The Company also owns HFS Car Rental,
Inc. (formerly Avis, Inc.) which operates, through an indirect subsidiary
("ARAC") or through licensees, the second largest general use car rental system
in the world. The Company expects to complete an initial public offering (the
"IPO") of ARAC in September 1997. The IPO is expected to dilute the Company's
interest in ARAC to approximately 25% and replace car rental ownership earnings
with revenue from franchise and related agreements ("Car Rental").
In the real estate industry, the Company is the world's largest franchisor
of real estate brokerage offices ("Real Estate Franchise"), the world's largest
provider of corporate relocation services ("Relocation") and operates the
thirteenth largest mortgage service business in the United States ("Mortgage
Services").
The merger with PHH was accounted for as a pooling of interests and
accordingly the financial results discussed herein have been restated to include
PHH for all periods presented. All comparisons in the following discussion are
to the same period of the previous year, unless otherwise stated.
Certain statements in this Quarterly Report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. These forward-looking statements were based on
various factors and were derived utilizing numerous important assumptions and
other important factors that could cause actual results to differ materially
from those in the forward-looking statements.
<PAGE>
Important assumptions and other important factors that could cause actual
results to differ materially from those in the forward-looking statements,
include, but are not limited to: uncertainty as to the Company's future
profitability; the Company's ability to develop and implement operational and
financial systems to manage rapidly growing operations; competition in the
Company's existing and potential future lines of business; the Company's ability
to integrate and operate successfully acquired businesses and the risks
associated with such businesses; the Company's ability to obtain financing on
acceptable terms to finance the Company's growth strategy and for the company to
operate within the limitations imposed by financing arrangements; uncertainty as
to the future profitability of acquired businesses, and other factors. Other
factors and assumptions not identified above were also involved in the
derivation of these forward-looking statements, and the failure of such other
assumptions to be realized as well as other factors may also cause actual
results to differ materially from those projected. The Company assumes no
obligation to update these forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking statements.
RESULTS OF OPERATIONS
The Company incurred an anticipated $303 million one-time merger and
restructuring charge ($227 million, after tax) (the "PHH Restructuring Charge")
during the second quarter of 1997 in connection with the merger with PHH on
April 30, 1997. As a result, the Company reported a net loss of $106.5 million
or $.67 per share and $15.3 million or $.10 per share for the second quarter and
six months ended June 30, 1997, respectively. For comparative purposes, the
following financial information and discussions under the heading "RESULTS OF
OPERATIONS" exclude the PHH Restructuring Charge.
2Q 1997 vs 2Q 1996
Consolidated net income increased 101% ($60.6 million) to $120.6 million in
1997 while earnings per share ("EPS") increased 82% ($.31) to $.69. Operating
income (revenue less expenses excluding interest and income taxes) increased
109% ($116.1 million) to $222.1 million. Consolidated net revenue increased 68%
($234.3 million) to $579.6 million.
Interest expense increased $11.9 million primarily resulting from
borrowings under revolving credit arrangements which financed 1997 treasury
stock purchases, restructuring expenditures, the acquisition of Resort
Condominiums International, Inc. and other acquisition related expenditures. The
weighted average effective interest rate increased from 5.56% to 5.73% as a
result of a greater percentage of total debt comprised of borrowings under the
revolving credit facilities partially offset by fixed rate securities with lower
interest rates.
The Company collects certain service fees from lodging and real estate
franchisees, which it disburses completely for marketing and reservation
activities on behalf of franchisees. Since the Company administers such funds on
a pass through basis, management analyzes business results from the Lodging and
Real Estate franchise segments in terms of revenue (net of marketing and
reservation expenses) ("adjusted net revenue") and operating expenses. Adjusted
net revenue consists of gross revenue of $579.6 million and $345.3 million for
1997 and 1996, respectively, less $47.8 million and $43.9 million of marketing
and reservation expenses, for the same respective periods. Operating expenses
include depreciation and amortization but excludes interest expense and income
taxes. Results for the Company's segments are as follows:
<PAGE>
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- ---------
Adjusted net revenue $ 531,832 $ 301,444 76%
Operating expenses 309,692 195,354 59%
----------- -----------
Operating income $ 222,140 $ 106,090 109%
=========== ===========
TRAVEL INDUSTRY
Lodging
The Company operates eight nationally recognized brands with approximately
5,600 lodging properties under franchise contracts of up to 20 years in
duration. The Company provides central reservation system services and national
marketing programs, which are completely funded by its franchisees based on a
designated portion of the franchise fees. The Company charges royalty fees based
on a percentage of franchisee gross room sales to fund all expenses not covered
by marketing and reservation fees, such as quality assurance inspections and
franchise sales and service functions. Accordingly, the significant revenue
drivers of the lodging segment are the number of royalty-paying franchise units
and the average royalty rate which they pay. Relevant but less significant are
the average daily rates and occupancy percentage of the underlying lodging
properties.
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 63,438 $ 58,397 9%
Operating expenses 19,237 21,147 (9%)
----------- -----------
Operating income $ 44,201 $ 37,250 19%
=========== ===========
Operating income increased 19% as a result of a 9% increase in adjusted net
revenue and a 9% reduction in operating expenses. The adjusted net revenue
increase resulted from a 6% increase in royalty fees and a 55% increase in
revenue from preferred alliances seeking access to the Company's franchisees and
their underlying consumer base. Total royalty paying rooms grew 5% from the same
period in 1996 and total system revenue per available room ("REVPAR") increased
2% primarily due to a 2% increase in the average daily rates charged at
franchised lodging facilities ("ADR"). The 9% ($1.9 million) decrease in
operating expenses resulted from the absorption of corporate overhead expenses
by the Company's other operating segments, substantially all of which were
acquired in 1996.
Car Rental
The Company acquired Avis, Inc. on October 17, 1996 for $806.5 million in
cash and Company common stock. Prior to the acquisition date, the Company
announced its plan to undertake an initial public offering ("IPO") of ARAC
within one year of the acquisition date and dilute its interest in ARAC to
approximately 25%. The Company will retain assets that are consistent with the
Company's service provider business profile, including the trademark, franchise
agreements, reservation system and information technology system assets. The
Company currently receives fees based on franchise agreements from ARAC and
third party licensees that are typical of a traditional franchise relationship.
The Company's equity in the earnings of ARAC after royalty and reservation fees
are recorded in the Company's other segment as revenue.
Operating income ($000's)
Adjusted net revenue $ 60,036
Operating expenses 37,669
-----------
Operating income $ 22,367
===========
<PAGE>
The car rental segment generated $22.4 million of operating income in the
second quarter of 1997. Adjusted net revenue consisted primarily of $46.9
million of franchise fees and $11.6 million of information technology fees from
third party clients. Operating expenses consisted primarily of $11.5 million and
$15.1 million of reservation and information technology expenses as well as $9.2
million of depreciation and amortization expenses associated with the Avis
trademark and goodwill.
Timeshare
The Company acquired Resort Condominiums International, Inc. ("RCI") on
November 12, 1996 for $487 million plus up to $200 million of contingent
consideration. RCI sells subscription memberships to owners of vacation
timeshare resorts which allows the members to exchange their timeshare
accommodations for timeshare accommodations owned by other members at
participating affiliated resorts worldwide. In addition to membership fees, RCI
earns fees for exchanges processed by its call center. The key timeshare revenue
drivers include the number of fee paying members and exchanges as well as each
corresponding average fee. The operating income summary for 1997 is as follows:
Operating income ($000's)
Adjusted net revenue $ 89,261
Operating expenses 70,416
-----------
Operating income $ 18,845
===========
Adjusted net revenue primarily consists of $30.8 million of membership fees and
$43.0 million of exchange fees. Assuming Company ownership of timeshare
operations since January 1, 1996, pro forma membership and exchange fee revenue
increased 20% and 16%, respectively. Total members and exchanges increased 8% to
2.0 million and 11% to 405,100 compared to 1996, respectively. Operating
expenses consist primarily of $39.3 million and $5.6 million of staff and
communication costs, respectively, associated with member service (call centers)
and other timeshare functions.
Fleet Management
Fleet management services are offered to corporate clients and government
agencies to assist them in effectively managing their vehicle fleet costs,
reducing in-house administrative costs and enhancing driver productivity.
Services consist of leasing (which generally requires an investment by the
Company in the vehicles and includes new vehicle purchasing, open and closed-end
operating leasing, direct finance leasing and used vehicle marketing) as well as
a variety of fee-based services including fuel purchasing, maintenance
management programs, expense reporting, fuel management programs, accident and
safety programs and other driver services for managing clients' vehicle fleets.
The Company has experienced minimal losses associated with its investment in
vehicles due to the overall creditworthiness of its corporate clients.
Operating income ($000's) 1997 1996 Variance
------------------------- ---------- ----------- --------
Adjusted net revenue $ 65,786 $ 62,822 5%
Operating expenses 40,756 46,150 (12%)
---------- -----------
Operating income $ 25,030 $ 16,672 50%
========== ===========
Operating income increased $8.4 million (50%) to $25.0 million, primarily
as a result of a $6.4 million (23%) increase in fee-based services. The $5.4
million (12%) decrease in operating expenses was primarily attributable to
expenses associated with a truck fuel management business which was sold in
January 1996 and operational efficiencies realized as part of the second quarter
1997 restructuring of certain fleet management operations.
<PAGE>
REAL ESTATE INDUSTRY
Real Estate Franchise
The Company licenses brand names to independently owned brokerage offices
associated with three of the four largest real estate brokerage franchise
systems in the world. The Company acquired the world's largest franchise system,
the CENTURY 21 franchise system in, August 1995, the ERA franchise system in
February 1996 and the Coldwell Banker franchise system in May 1996. The most
significant revenue driver for the real estate franchise business is the number
of home sales transactions for which the broker receives commission revenue.
Royalties are calculated based on a percentage of franchisee commission revenue
and fund franchise sales, service and training expenses. Marketing fee
collections fund national advertising expenditures and other marketing
activities.
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- ---------
Adjusted net revenue $ 80,556 $ 53,238 51%
Operating expenses 33,075 29,787 11%
----------- -----------
Operating income $ 47,481 $ 23,451 102%
=========== ===========
Operating income increased 102% as a result of a $27.3 million (51%)
increase in adjusted net revenue and only a $3.3 million (11%) increase in
operating expenses. The royalty portion of revenue increased $23.9 million (47%)
to $74.6 million, primarily attributable to acquired Coldwell Banker franchise
system operations. Pro forma royalty revenue, which gives effect to the
acquisitions of the Coldwell Banker and ERA franchise systems as if these
acquisitions were consummated on January 1, 1996, would have increased $4.4
million (6%) on the strength of a 10% increase in the average price of homes
sold. Operating expenses increased 11% as a result of incremental expenses
associated with acquired franchise systems net of a $5.0 million charge
associated with the second quarter 1996 contribution of Coldwell Banker's former
owned brokerage business to National Realty Trust ("Trust"), an independent
entity governed by independent trustees.
Mortgage Services
Mortgage services primarily consist of the origination, sale and servicing
of residential first mortgage loans. The Company packages such mortgage loans
for sale in secondary markets generally within 90 days of origination and
retains servicing rights. The Company markets a variety of first mortgage
products to consumers through relationships with corporations, affinity groups,
government agencies, financial institutions, real estate brokerage firms and
mortgage banks by a combination of retail teleservices delivery and wholesale
correspondent lending arrangements.
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 42,497 $ 35,269 20%
Operating expenses 23,829 21,631 10%
----------- -----------
Operating income $ 18,668 $ 13,638 37%
=========== ===========
Operating income increased 37% as a result of a 20% increase in adjusted
net revenue, net of a 10% increase in operating expenses. The increase in
adjusted net revenue resulted from a 44% increase in loan origination revenue
offset by a 16% decrease in loan servicing fees. The volume of loan closings
increased 6% from $2.3 billion to $2.5 billion and the average origination fee
increased from 91 to 124 basis points. The increase in the average fee was due
to an increase in profitability achieved in the sale of loans in the secondary
market and an increase in volume from retail teleservices delivery. The
portfolio of loans serviced increased 17% from $22.0 billion to $25.6 billion,
the average servicing fee decreased 28% from 6.4 to 4.6 basis points. The
<PAGE>
decrease in the average fee earned is due to the impact of SFAS 122 which became
effective in 1995. Operating expenses increased as a result of the larger
servicing portfolio and increased recruiting and staff training expenses.
Relocation
Relocation segment services primarily consist of the purchase, management
and resale of homes and fee based home related services for transferred
employees of corporate clients, members of affinity group clients and government
agencies. Although the Company acquires the home of client employees, the client
corporation reimburses the Company for carrying costs until the home is sold and
for home sale losses. Accordingly, the Company earns a fee for services with
minimal real estate risk. Operating expenses primarily consist of sales and
service staffing and related costs. Operating results include contributions from
PHH Real Estate Services, Inc. for both periods shown and Coldwell Banker
Relocation Services, Inc. ("CBRS") since May 31, 1996.
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 103,448 $ 83,741 24%
Operating expenses 78,158 72,871 7%
----------- -----------
Operating income $ 25,290 $ 10,870 133%
=========== ===========
The $14.4 million (133%) increase in operating income is attributable to a
$19.7 million (24%) increase in revenue adjusted net of a $5.3 million (7%)
increase in expenses. The increase in adjusted net revenue was primarily
attributable to $8.3 million of incremental revenue generated by acquired CBRS
operations. Pro forma revenue increased $6.1 million (6%) from 1996 primarily as
a result of an increase in referral fees. The $5.3 million increase in operating
expenses included expenses associated with the acquired operations net of $2.4
million of restructuring related savings in 1997.
Other Segment
Other segment business operations primarily consist of casino credit
information and marketing services ("Casino Services"), the equity in earnings
from the Company's investment in ARAC after charging ARAC franchise,
reservation, and information technology fees and other operations or
transactions which are not included in the Company's primary business segments.
Operating expenses also include corporate overhead expenses which could not be
allocated to other operating business segments. Operating income is summarized
as follows:
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 26,810 $ 7,977 236%
Operating expenses 6,552 3,768 74%
----------- -----------
Operating income $ 20,258 $ 4,209 381%
=========== ===========
Operating income increased $16.0 million (381%) primarily as a result of
$20.8 million of equity in earnings of ARAC, which was acquired in October 1996.
Such gains were offset by the absence of $4.1 million in fees associated with
the license of the CENTURY 21 trademark to Amre, Inc. which filed for bankruptcy
protection in February 1997.
<PAGE>
Year-To-Date 1997 vs 1996
Consolidated net income increased 104% ($108.0 million) to $211.7 million
in 1997 while earnings per share ("EPS") increased 78% ($.53) to $1.21.
Operating income increased 110% ($204.8 million) to $390.4 million. Consolidated
net revenue increased 76% ($476.6 million) to $1.1 billion.
Interest expense increased 186% ($20.0 million) primarily resulting from
borrowings under revolving credit arrangements which financed 1997 treasury
stock purchases, restructuring expenditures, the RCI acquisition and other
acquisition related expenditures, while the weighted average effective interest
rate increased from 5.61% to 5.72% as a result of a greater percentage of total
debt comprised of borrowings under the revolving credit facilities partially
offset by fixed rate securities with lower interest rates.
Adjusted net revenue consists of gross revenue of $1.1 billion and $623.0
million for 1997 and 1996, respectively, less $85.8 million and $75.5 million of
marketing and reservation revenue, for the same respective periods. Operating
expenses include depreciation and amortization but exclude interest expense and
income taxes. Results for the Company's segments are as follows:
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 1,013,789 $ 547,553 85%
Operating expenses 623,381 362,013 72%
----------- -----------
Operating income $ 390,408 $ 185,540 110%
=========== ===========
TRAVEL INDUSTRY
Lodging
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 117,480 $ 109,657 7%
Operating expenses 37,279 44,458 (16%)
----------- -----------
Operating income $ 80,201 $ 65,199 23%
=========== ===========
Operating income increased 23% as a result of a 7% increase in adjusted net
revenue and a 16% reduction in operating expenses. The adjusted net revenue
increase resulted from a 6% increase in royalty fees and a 70% increase in
revenue from preferred alliances seeking access to the Company's franchisees and
their underlying consumer base. Total royalty paying rooms grew 3% from the same
period in 1996 and total REVPAR increased 2% primarily due to a 3% increase in
ADR charged at franchised lodging facilities. The 16% ($7.2 million) decrease in
operating expenses resulted from the absorption of corporate overhead expenses
by the Company's other operating segments, substantially all of which were
acquired in 1996.
Car Rental
Operating income ($000's) 1997
------------------------- -----------
Adjusted net revenue $ 118,870
Operating expenses 76,293
-----------
Operating income $ 42,577
===========
The car rental segment generated $42.6 million of operating income in the
six months ended June 30, 1997. Adjusted net revenue consisted primarily of
$86.9 million of franchise fees and $21.6 million of information technology fees
from third party clients. Operating expenses consisted primarily of $22.4
million and $30.3
<PAGE>
million of reservation and information technology expenses as well as $18.5
million of depreciation and amortization expenses associated with the Avis
trademark and goodwill.
Timeshare
Operating income ($000's) 1997
------------------------- -----------
Adjusted net revenue $ 187,710
Operating expenses 148,139
-----------
Operating income $ 39,571
===========
Adjusted net revenue primarily consists of $61.6 million of membership fees
and $92.8 million of exchange fees. Assuming Company ownership of timeshare
operations since January 1, 1996, pro forma first quarter membership revenue and
exchange fee revenue would have increased 23% and 10% respectively. Total
members and exchanges increased 8% to 2.0 million and 6% to 880,000 compared to
1996, respectively. Operating expenses consist primarily of $94.9 million and
$25.1 million of staff and communication costs, respectively, associated with
member service (call centers) and other timeshare functions.
Fleet Management Services
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 146,581 $ 133,770 10%
Operating expenses 89,387 90,899 (2%)
----------- -----------
Operating income $ 57,194 $ 42,871 33%
=========== ===========
Operating income increased $14.3 million (33%) to $57.2 million, primarily
as a result of a $9.4 million (14%) increase in fee-based services. The $1.5
million (2%) decrease in operating expenses was primarily associated with
expenses associated with a truck fuel management business which was sold in
January 1996 and operational efficiencies realized as part of the second quarter
1997 restructuring of certain fleet management operations.
REAL ESTATE INDUSTRY
Real Estate Franchise
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 133,734 $ 75,600 77%
Operating expenses 66,557 43,785 52%
----------- -----------
Operating income $ 67,177 $ 31,815 111%
=========== ===========
Operating income increased 111% as a result of a $58.1 million (77%)
increased in adjusted net revenue and only a $22.8 million (52%) increase in
operating expenses. The royalty portion of revenue increased $52.4 million (74%)
to $123.0 million primarily attributable to acquired Coldwell Banker franchise
system operations. Pro forma royalty revenue, which gives effect to the
acquisitions of Coldwell Banker and ERA as if these acquisitions were
consummated on January 1, 1996, would have increased $6.8 million (6%) on the
strength of an 8% increase in the average price of homes sold. Operating
expenses increased as a result of incremental expenses associated with acquired
franchise systems.
<PAGE>
Relocation
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 188,693 $ 151,115 25%
Operating expenses 149,441 132,885 12%
----------- -----------
Operating income $ 39,252 $ 18,230 115%
=========== ===========
The $21.0 million (115%) increase in operating income is attributable to
approximately $14.3 million of operating income from relocation businesses owned
for the entire six month periods of 1997 and 1996 and the balance was generated
from acquired CBRS operations.
Mortgage Services
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 76,129 $ 55,154 38%
Operating expenses 44,669 39,087 14%
----------- -----------
Operating income $ 31,460 $ 16,067 96%
=========== ===========
Operating income increased 96% as a result of a 38% increase in adjusted
net revenue, net of a 14% increase in operating expenses. The increase in
adjusted net revenue resulted from a 63% increase in revenue from new production
and a 7% increase in revenue from the servicing portfolio. The volume of new
loan production decreased 6% from $4.5 billion to $4.3 billion as a result of a
37% decrease in refinancing volume which was offset by a 21% increase in
purchase mortgage volume. The average fee earned in new production increased
from 68 basis points to 117 basis points as a result of improved profitability
achieved in the sale of loans in the secondary market. Operating expenses
increased 14% due to the larger servicing portfolio as well as increased
recruiting, training and systems development costs.
Other Segment
Operating income ($000's) 1997 1996 Variance
------------------------- ----------- ----------- --------
Adjusted net revenue $ 44,592 $ 22,257 100%
Operating expenses 11,616 10,898 7%
----------- -----------
Operating income $ 32,976 $ 11,359 190%
=========== ===========
Operating income increased 190% ($21.6 million) primarily as a result of
$24.3 million of equity in earnings of ARAC, which was acquired in October 1996.
LIQUIDITY AND CAPITAL RESOURCES
Acquisitions Overview
The Company continues to seek to expand and strengthen the leadership
position in its travel and real estate industry segments. Following the April
30, 1997 merger with PHH, the Company believes it has achieved annual points of
contact with over 100 million consumers involved in significant dollar volumes
of annual transactions in the travel and real estate industries. The Company's
desire to cross-market within its businesses and expand the revenue streams of
each business as well as market to its millions of consumer
<PAGE>
contacts was the primary motivation for the proposed merger with CUC, which the
Company believes currently possesses the expertise in direct marketing necessary
to accomplish the Company's objectives.
The Company's businesses acquired by purchase share similar
characteristics, foremost of which is that each was immediately accretive to
Company earnings. Revenue is substantially generated from service fees and not
dependent on tangible assets or the need for capital expenditures other than
technology investments which support and historically have been substantially
funded by the Company's customers. These service businesses each generate
significant cash flow which is enhanced by the Company's operating leverage that
provides acquired revenue streams without corresponding increases in operating
infrastructure expenses. The Company is currently positioned to cross market
within its existing business segments and continues to pursue acquisitions
and/or investments in service businesses that fit the profile described above.
Assuming the successful completion of the proposed CUC merger, the Company
expects to significantly enhance its opportunities to cross-market within its
existing business segments. The Company continues to pursue acquisitions and/or
investments in service businesses that fit the profile described above.
Acquisitions
C21 HOLDING CORP - On May 15, 1997, the Company acquired the 12.5% minority
ownership interest in C21 Holding Corp., the parent company of Century 21 Real
Estate Corporation from a company comprised primarily of former management
employees for $52.8 million. Such purchase resulted in an increase in goodwill
associated with the August 1995 acquisition of the CENTURY 21 franchise system.
PHH - On April 30, 1997, the Company acquired PHH by merger for 30.3 million
shares of Company common stock, exchanged for all of the outstanding common
stock of PHH. PHH operates the world's largest provider of corporate relocation
services and also provides mortgage services and fleet management services.
This transaction was accounted for as a pooling of interests.
The Company incurred a $303 million merger and restructuring charge upon the
close of the PHH Merger in the second quarter of 1997. The charge includes
severance, facility consolidation and other transaction related costs associated
with the restructuring of Company and PHH businesses. The restructuring charge
was paid with borrowings under the Company's revolving credit facility. The
Company estimates the charge will result in annual pre-tax savings of
approximately $100 million with the full benefit of cost reductions beginning in
1998.
Sheraton - On January 27, 1997, Hilton Hotels Corporation ("Hilton") announced
that it had reached a preliminary understanding to license certain assets to the
Company in connection with its pending tender offer for the outstanding common
stock of ITT Corporation ("ITT"). Pursuant to the preliminary understanding,
subject to Hilton's successful acquisition of ITT, the Company would license the
Sheraton trademark, franchise system and management agreements worldwide under a
long-term contract. The transaction is subject to Hilton's acquisition of ITT as
well as negotiation of definitive agreements relating to the proposed license
agreement. There can be no assurance that Hilton's attempt to acquire ITT will
be successful or that the Company and Hilton will consummate the proposed
licensing transaction.
Equity Transactions
Treasury Purchases - On January 7, 1997, the Board of Directors authorized the
purchase of up to 2.6 million shares of Company common stock to satisfy stock
option exercises and conversions of convertible debt securities and for future
acquisitions. The Company acquired approximately 2.6 million treasury shares in
<PAGE>
the first quarter of 1997 for $171.3 million. Such purchases were funded by
operating cash flow and with proceeds received from borrowings under the
Company's revolving credit facilities.
Financing
Management believes that the Company has excellent liquidity and has
expanded its access to liquidity following both the completed merger with PHH
and the proposed merger with CUC. Most significant, the Company has generated
significant positive cash flow from operations in every quarter since its
initial public offering in December 1992, excluding the second quarter of 1997
when it incurred a pre-tax $303 million merger and restructuring charge in
connection with the PHH merger. The Company has also demonstrated its ability to
access equity and public debt markets and financial institutions to generate
capital for strategic transactions. Indicative of the Company's
creditworthiness, Standard & Poors Corporation ("S&P") affirmed its A credit
rating of the Company's publicly issued debt following the announcement of both
the PHH and CUC mergers and Moody's Investors Service, Inc. ("Moody's") upgraded
the Company's debt rating to A3 following the PHH merger. Please note that a
rating is not a recommendation to buy, sell or hold securities and is subject to
revision or withdrawal at any time by the rating agency. Each rating should be
evaluated independently of any other rating.
Liquidity is available to the Company through revolving credit facilities
which may provide up to $1.5 billion of unsecured borrowings at interest rates
generally approximating LIBOR plus a margin of 22.5 basis points. The proposed
combined company expects to amend or replace either the CUC or HFS revolving
credit facility with a syndicated facility or facilities aggregating
approximately $2 billion with tranches of various tenor. At June 30, 1997, the
Company had $605 million of outstanding borrowings under its revolving credit
facilities.
The Company filed a shelf registration statement with the Securities and
Exchange Commission effective August 29, 1996, for the aggregate issuance of up
to $1 billion of debt and equity securities. These securities may be offered
from time to time, together or separately, based on terms to be determined at
the time of sale. The proceeds may be used for general corporate purposes, which
may include future acquisitions. The Company expects to replace this shelf
registration statement after the merger with CUC.
Long-term debt increased $425 million to $1.2 billion at June 30, 1997,
when compared to amounts outstanding at December 31, 1996 primarily as a result
of $171.3 million of treasury share purchases and approximately $115 million of
acquisition liability payments. Long-term debt primarily consists of $536
million of fixed rate publicly issued debt and $615 million of borrowings under
the Company's revolving credit facilities.
PHH will continue to operate its mortgage services, fleet management and
relocation businesses as a separate public reporting entity and support
purchases of leased vehicles and originated mortgages primarily by issuing
commercial paper and medium term notes. Although PHH's debt to equity ratio
approximates 8 to 1, such debt corresponds directly with net investments in high
quality related assets. Accordingly, following the announcement of the PHH
merger, S&P and Moody's affirmed investment grade ratings of A+ and A2,
respectively, to PHH debt and A1 and P1, respectively, to PHH commercial paper.
PHH debt is issued without recourse to the Company. The Company expects to
continue to have broad access to global capital markets by maintaining the
quality of its assets under management. This is achieved by establishing credit
standards to minimize credit risk and the potential for losses. Depending upon
asset growth and financial market conditions, PHH utilizes the United States,
European and Canadian commercial paper markets, as well as other cost-effective
short-term instruments. In addition, PHH will
<PAGE>
continue to utilize the public and private debt markets to issue unsecured
senior corporate debt. Augmenting these sources, PHH will continue to reduce
outstanding debt by the sale or transfer of managed assets to third parties
while retaining fee-related servicing responsibility. At June 30, 1997, PHH's
aggregate outstanding borrowings approximated $3.1 billion in outstanding
commercial paper, $1.5billion in medium-term notes and $292 million in other
debt securities.
To provide additional financial flexibility, PHH's current policy is to
ensure that minimum committed facilities aggregate 80 percent of the average
amount of outstanding commercial paper. PHH maintains a $2.5 billion syndicated
unsecured credit facility which is backed by domestic and foreign banks and is
comprised of $1.25 billion of lines of credit maturing in 364 days and $1.25
billion of lines of credit maturing in five years. In addition, PHH has
approximately $300 million of uncommitted lines of credit with various financial
institutions. Management closely evaluates not only the credit quality of the
banks but the terms of the various agreements to ensure ongoing availability.
The full amount of PHH's committed facilities at June 30, 1997 was undrawn and
available. Management believes that its current policy provides adequate
protection should volatility in the financial markets limit PHH's access to
commercial paper or medium-term note funding.
The Company and PHH currently operate under policies limiting (a) the
payment of dividends on PHH's capital stock to 40% of net income of PHH on an
annual basis, less the outstanding principal balance of loans from PHH to HFS as
of the date of any proposed dividend payment, and (b) the outstanding principal
balance of loans from PHH to HFS to 40% of net income of PHH on an annual basis,
less payment of dividends on PHH's capital stock during such year.
PHH minimizes its exposure to interest rate and liquidity risk by
effectively matching floating and fixed interest rate and maturity
characteristics of funding to related assets, varying short and long-term
domestic and international funding sources, and securing available credit under
committed banking facilities.
The Company generated $1.1 billion of cash flow from operations,
representing a $358 million (202%) increase from the same period of 1996. The
comparative increase in cash flow from operations primarily resulted from a $779
million increase in mortgage loans held for sale Net cash used in investing
activities decreased $514.2 million to $1.1 billion, reflecting a decrease in
acquisition related payments. Cash provided by financing activities decreased
$1.7 billion as a result of $1.1 billion of proceeds received in a June 1996
equity offering of 1997 treasury stock purchases and $240 million of proceeds
received from the issuance of the 4-1/2% Notes in February 1996.
The Company believes that based upon its analysis of its financial
position, its cash flow during the past twelve months and the expected results
of operations in the future, operating cash flow, available funding under the
revolving credit facility and issuance of securities in the capital markets, if
appropriate, will be adequate to fund operations, strategic investments and
acquisitions of other service related businesses.
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." the statement
provides accounting and reportin standards for transfers and servicing of
financial assets and, among other things, SFAS No. 125 also requires that
previously recognized servicing receivables that exceed contractually specified
servicing fees shall be reclassified as interest-0only strips receivable, and
subsequently measured under the provisions of SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." The Company will adopt the
provisions of SFAS No. 125 on January 1, 1997 and will reclassify a portion of
its exces servicing fees to interest-only strips. The effect of adopting SFAS
No. 125 is not expected to be material to the Company's operations or financial
condition.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share",
which requires a change to the presentation of EPS to include the presentation
of basic and diluted EPS in place of primary and fully diluted EPS,
respectively. SFAS 128 is effective for interim periods and fiscal years ending
after December 15, 1997. Earlier adoption of the pronouncement is not permitted.
Management of the Company believes that there will not be a material difference
in fully diluted earnings per share under the existing pronouncement when
compared to the new diluted presentation.
Assuming SFAS 128 was applicable for the second quarter 1997, the Company
would have reported a loss per share of $.67 million including the $303 million
one-time PHH restructuring charge and the following earnings per share,
excluding such charge:
Pro Forma SFAS 128:
Basic EPS $ .75
Diluted EPS $ .69
As Reported:
Primary EPS $ .69
Fully Diluted EPS $ .69
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income", which requires preparation of a new basic financial statement which
considers the impact of certain economic events that have heretofore been
reflected as adjustments to stockholders' equity but have not impacted reported
earnings on the consolidated statements of operations. Comprehensive income per
share is not required to be shown on the new statement. SFAS 130 is effective
for fiscal years beginning after December 15, 1997. The Company plans to adopt
the provision of SFAS 130 on January 1, 1998.
Upon adoption of SFAS 130, the Company will classify other comprehensive
income separately into foreign currency translation adjustments, unrealized
gains and losses on securities and minimum pension liability adjustments.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments
of an Enterprise and Related Information", which requires companies to report
information about the operating segments in interim reports issued to
shareholders. SFAS 131 also established standards for related disclosures about
products and services, geographic areas, and major customers. SFAS 131 is
effective for fiscal years beginning after December 15, 1997. The Company plans
to adopt the disclosure requirements of SFAS 131 on December 31, 1998.
*****
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the shareholders of the Company was held on April 30,
1997 to consider the following matters:
(i) To consider and vote upon a proposal (the "Share Issuance") to approve the
issuance of up to 31.4 million shares of HFS common stock, par value $.01
per share ("HFS common stock"), pursuant to the Agreement and Plan of
Merger dated as of November 10, 1996 (the "Merger Agreement"), by and
among the Company, Mercury Acq. Corp., a wholly owned subsidiary of the
Company ("Merger Sub"), and PHH Corporation ("PHH") pursuant to which
Merger Sub will be merged with and into PHH and PHH will become a wholly
owned subsidiary of the Company.
(ii) To consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to increase the maximum number of authorized directors of
the Company from twelve (12) to twenty (20) (the "Directors Amendment").
(iii) To consider and vote upon a proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of HFS common
stock from 300,000,000 shares to 600,000,000 shares (the "Shares
Amendment").
(iv) To consider and vote upon a proposal to amend the Company's Amended and
Restated 1993 Stock Option Plan (the "1993 Plan") to provide for an
increase of 10,000,000 shares in the total number of shares of HFS common
stock currently authorized for issuance under the 1993 Plan (which would
increase the total number of shares authorized for issuance pursuant to
the 1993 Plan from 24,541,600, to 34,541,660) (the "1993 Plan Amendment").
As of the close of business on March 3, 1997, there were issued and
outstanding 127,529,530 shares of HFS common stock. Of such shares, 112,120,601
were duly represented at the meeting, constituting a quorum. The following
represents the results of such meeting:
For approval of the Share Issuance:
FOR: 104,205,182
AGAINST: 83,442
ABSTAINED: 106,261
For approval of the Directors Amendment:
FOR: 111,835,808
AGAINST: 144,452
ABSTAINED: 140,341
For approval of the Shares Amendment:
FOR: 104,984,113
AGAINST: 7,025,778
ABSTAINED: 110,710
For approval of the 1993 Plan Amendment:
FOR: 74,355,897
AGAINST: 29,888,331
ABSTAINED: 160,657
Accordingly, all such proposals were duly approved
*****
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
3.1 Certificates of Amendment to the Restated Certificate of Incorporation
of the Company, dated April 30, 1997.
3.2 Amended and Restated By-Laws of the Company.
10.1 Master License Agreement, dated July 30, 1997, among HFS Car Rental,
Inc., Avis Rent A Car System, Inc. and Wizard Co., Inc.
11 Statement of Computation of Earnings Per share.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated May 14, 1997, reporting
in Item 2 the consummation of the Company's acquisition by merger of
PHH Corporation ("PHH"). The Company also reported in Item 7 the
following financial statements:
Financial statements of business acquired:
1. The audited consolidated balance sheets of PHH and
subsidiaries as of April 30, 1996 and 1995 and the related
consolidated statements of income, stockholders' equity and
cash flows for each of the years in the three year period
ended April 30, 1996.
2. The unaudited interim consolidated financial statements of PHH
as of January 31, 1997 and for the nine months ended January
31, 1997 and 1996.
The Company filed a report on Form 8-K dated May 28, 1997 reporting in
Item 5 the signing of a definitive merger agreement with CUC
International, Inc. ("CUC") which provides the Company to be merged
with and into CUC, with CUC continuing as the surviving corporation.
The Company filed a report on Form 8-K dated July 15, 1997 reporting
in Item 5 the combined results of operations for the month ended May
31, 1997 of the Company and PHH.
The Company filed a report on Form 8-K dated July 16, 1997 reporting
under Items 5 and 7 the financial statements and management's
discussion and analysis of financial condition and results of
operations of the Company and gives retroactive effect to the
acquisition of PHH with and into the Company which has been accounted
for as a pooling of interests The Form 8-K included the audited
consolidated balance sheets of the Company as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the years in the period ended
December 31, 1996.
*****
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HFS Incorporated
By: /s/ Scott E. Forbes
Scott E. Forbes
Senior Vice President
Date: August 14, 1996 and Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
3.1 Certificates of Amendment to the Restated Certificate of
Incorporation of the Company, dated April 30, 1997.
3.2 Amended and Restated By-Laws of the Company
10.1 Master License Agreement, dated July 30, 1997, among HFS Car
Rental, Inc., Avis Rent A Car System, Inc. and Wizard Co.,
Inc.
11 Statement of Computation of Earnings Per share
27 Financial Data Schedule
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
HFS INCORPORATED
----------------------------------------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
----------------------------------------------------------------------------
HFS Incorporated, a Delaware corporation (hereinafter called the
"Corporation"), does hereby certify as follows:
FIRST: Paragraph A of Article FOURTH of the Corporation's Restated
Certificate of Incorporation is hereby amended to read in its entirety as set
forth below:
"FOURTH: A. The authorized capital stock of the Corporation shall consist of Six
Hundred Ten Million (610,000,000) shares, consisting of Six Hundred Million
(600,000,000) shares of Common Stock, each having a par value of $.01 (the
"Common Stock"), and Ten Million (10,000,000) shares of Preferred Stock, each
having a par value of $1.00 (the "Preferred Stock")."
SECOND: The foregoing amendments were duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, HFS Incorporated has caused this Certificate to be duly
executed in its corporate name this 30th day of April, 1997.
HFS INCORPORATED
By: /s/ James E. Buckman
Name James E. Buckman
Title: Senior Executive Vice President
and General Counsel
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
HFS INCORPORATED
----------------------------------------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
----------------------------------------------------------------------------
HFS Incorporated, a Delaware corporation (hereinafter called the
"Corporation"), does hereby certify as follows:
FIRST: Paragraph A of Article FIFTH of the Corporation's Restated
Certificate of Incorporation is hereby amended to read in its entirety as set
forth below:
"FIFTH: A. Except as may be otherwise provided pursuant to Article FOURTH with
respect to any rights of holders of Preferred Stock to elect directors, the
number of directors of the Corporation shall be not less than one (1) nor more
than twenty (20), with the then authorized number of directors being fixed from
time to time by or pursuant to a resolution passed by the Board of Directors of
the Corporation."
SECOND: The foregoing amendments were duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, HFS Incorporated has caused this Certificate to be duly
executed in its corporate name this 30th day of April, 1997.
HFS INCORPORATED
By: /s/ James E. Buckman
Name James E. Buckman
Title: Senior Executive Vice President
and General Counsel
B Y - L A W S
OF
HFS INCORPORATED
(hereinafter called the "Corporation")
As amended and restated December 9, 1992
and as further amended June 14, 1994
and as further amended October 24, 1996
and as further amended as of April 30, 1997
ARTICLE I
OFFICES
SECTION 1. OFFICES. The Corporation shall maintain its registered office in
the State of Delaware at 32 Loockerman Square, Suite L-100, Dover, 19901 and its
resident agent at such address is The Prentice-Hall Corporation System, Inc. The
Corporation may also have offices in such other places in the United States or
elsewhere as the Board of Directors may, from time to time, appoint or as the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may properly be conducted
at such meeting shall be held at such place, either within or
<PAGE>
without the State of Delaware, and at such time and date as the Board of
Directors shall determine by resolution and set forth in the notice of the
meeting. Notice of each annual meeting shall be given in accordance with Section
3 of this Article II.
SECTION 2. SPECIAL MEETINGS. Unless otherwise prescribed by statute,
special meetings of the stockhold- ers of the Corporation for any purpose or
purposes may be called by the Board of Directors or the Executive Commit- tee
thereof, and shall be called by the President or Secretary upon the written
request of stockholders hold- ing not less than 20% of the outstanding shares of
capi- tal stock of the Corporation entitled to vote thereat. Unless otherwise
permitted by law, business transacted at any special meeting of stockholders
shall be limited to the purpose stated in the notice. Notice of each special
meeting shall be given in accordance with Section 3 of
this Article II.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided by law,
whenever stockholders are required or permitted to take any action at a meeting,
a written notice of the meeting, which shall state the place, date and time of
the meeting, and, in the case of a special meeting, the purposes for which the
meeting is
<PAGE>
called, shall be mailed to or delivered to each stock-
holder of record entitled to vote thereat not less than
ten (10) days nor more than sixty (60) days before the
date of any such meeting.
SECTION 4. QUORUM. Unless otherwise required
by law or the Certificate of Incorporation, the holders
of a majority of the issued and outstanding stock enti-
tled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of
business at all meetings of stockholders.
SECTION 5. VOTING. Unless otherwise provided
in the Certificate of Incorporation, each stockholder
shall be entitled to one vote for each share of capital
stock held by such stockholder. The Board of Directors,
in its discretion, or the officer of the Corporation
presiding at a meeting of stockholders, in his discre-
tion, may require that any votes cast at such meeting
shall be cast by written ballot. Unless otherwise pro-
vided by the Certificate of Incorporation or these By-
- -Laws, all elections of directors shall be decided by
plurality vote. Unless otherwise required by law, these
By-Laws or the Certificate of Incorporation, all other
corporate action shall be decided by majority vote.
<PAGE>
SECTION 6. INSPECTORS. The Board of Directors
may, in advance of any meeting of stockholders, appoint
one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so ap-
pointed shall fail to appear or act, the chairman of the
meeting may, or if inspectors shall not have been ap-
pointed, the chairman of the meeting shall, appoint one
or more inspectors. Each inspector, before entering upon
the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector at such
meeting with strict impartiality and according to the
best of his ability. The inspectors shall determine the
number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of
shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine
all challenges and questions arising in connection with
the right to vote, count and tabulate all votes, ballots
or consents, determine the results, and do such acts as
are proper to conduct the election or vote with fairness
to all stockholders. On request of the chairman of the
meeting, the inspectors shall make a report in writing of
any challenge, request or matter determined by them and
<PAGE>
shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall
act as an inspector of an election of directors.
SECTION 7. CHAIRMAN OF MEETINGS. The Chairman
of the Board of Directors of the Corporation, if one is
elected, or, in his absence or disability, the President
of the Corporation, shall preside at all meetings of the
stockholders.
SECTION 8. SECRETARY OF MEETING. The Secre-
tary of the Corporation shall act as Secretary at all
meetings of the stockholders. In the absence or disabil-
ity of the Secretary, the Chairman of the Board of Direc-
tors or the President shall appoint a person to act as
Secretary at such meetings.
SECTION 9. LISTS OF STOCKHOLDERS. The officer
who has charge of the stock ledger of the Corporation
shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stock-
holders entitled to vote at the meeting, arranged in
alphabetical order, showing the address of each stock-
holder and the number and class of shares held by each.
Such list shall be open to the examination of any stock-
holder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten
<PAGE>
days prior to the meeting, either at a place within the
city where the meeting is to be held, which shall be
specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the meeting
and may be inspected by any stockholder who is present.
SECTION 10. ADJOURNMENT. At any meeting of
stockholders of the Corporation, if less than a quorum be
present, any officer entitled to preside at or to act as
Secretary of the meeting shall have the power to adjourn
the meeting from time to time without notice other than
announcement at the meeting until a quorum shall be
present. Any business may be transacted at the adjourned
meeting which might have been transacted at the meeting
originally noticed. If the adjournment is for more than
thirty days, or if after the adjournment a new record
date, as provided for in Section 5 of Article V of these
By-Laws, is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. POWERS. The property, business and
affairs of the Corporation shall be managed and con-
trolled by its Board of Directors. There shall at all
times be an Executive Committee of the Board of Direc-
tors, which will consist of one or more of the directors
of the Corporation. The Board shall exercise all of the
powers and duties conferred by law except as provided by
the Certificate of Incorporation or these By-Laws. The
Executive Committee of the Board of Directors shall have
and may exercise all the powers and authority of the
Board of Directors in the management of the business and
affairs of the Corporation except as set forth in Sec-
tion-9 of this ARTICLE III.
SECTION 2. NUMBER AND TERM. The number of
directors shall be fixed at no less than one nor more
than twenty. Within the limits specified above, the
number of directors shall be fixed from time to time by
or pursuant to a resolution passed by the Board of Direc-
tors. The Board of Directors shall be elected by the
stockholders at their annual meeting, and each director
shall be elected to serve for the term set forth in the
Certificate of Incorporation. Directors need not be
stockholders.
SECTION 3. RESIGNATIONS. Any director may
resign at any time. Such resignation shall be made in
writing, and shall take effect at the time specified
<PAGE>
therein, and if no time is specified, at the time of its
receipt by the President or Secretary. The acceptance of
a resignation shall not be necessary to make it effec-
tive.
SECTION 4. REMOVAL. Any director or the
entire Board of Directors may be removed only for cause
at any time by the affirmative vote of the holders of a
majority of the shares entitled to vote for the election
of directors at any annual or special meeting of stock-
holders called for that purpose.
SECTION 5. VACANCIES AND NEWLY CREATED DIREC-
TORSHIPS. Vacancies occurring in any directorship and
newly created directorships shall be filled by a majority
vote of the remaining directors, even though less than a
quorum of the Board of Directors or by its sole director.
Any director so chosen shall hold office for the unex-
pired term of his predecessor (as long as such director
remains qualified) and until his successor shall be
elected and qualified or until his earlier death, resig-
nation or removal. The Board of Directors may not fill
the vacancy created by removal of a director by electing
the director so removed.
SECTION 6. MEETINGS. The newly elected direc-
tors shall hold their first meeting to organize the
<PAGE>
Corporation, elect officers and transact any other busi-
ness which may properly come before the meeting. An
annual organizational meeting of the Board of Directors
shall be held immediately after each annual meeting of
stockholders, or at such time and place as may be noticed
for the meeting.
Regular meetings of the Board of Directors may
be held without notice at such places and times as shall
be determined from time to time by resolution of the
directors.
Special meetings of the Board of Directors
shall be called by the President or by the Secretary on
the written request of any director with at least two
days' notice to each director and shall be held at such
place as may be determined by the directors or as shall
be stated in the notice of the meeting.
SECTION 7. QUORUM, VOTING AND ADJOURNMENT.
Except as may be otherwise specifically required by law,
the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the
total number of directors or any committee thereof shall
constitute a quorum for the transaction of business. The
vote of the majority of the total number of directors
shall be the act of the Board of Directors. In the
<PAGE>
absence of a quorum, a majority of the directors present
thereat may adjourn such meeting to another time and
place. Notice of such adjourned meeting need not be
given if the time and place of such adjourned meeting are
announced at the meeting so adjourned.
SECTION 8. COMMITTEES. There shall at all
times be an Audit Committee of the Board of Directors,
which will consist of one or more of the directors of the
Corporation. The Board of Directors may, by resolution
passed by a majority of the total number of directors,
designate one or more additional committees, each such
committee to consist of one or more of the directors of
the Corporation. The action of a majority of the total
number of members of any committee shall be the act of
such committee. The Board may designate one or more
directors as alternate members of any committee to re-
place any absent or disqualified member at any meeting of
the committee. Any such committee, to the extent provid-
ed in the resolution of the Board, shall have and may
exercise all the powers and authority of the Board of
Directors in the management of the business and affairs
of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require
it; but no such committee shall have the power or author-
<PAGE>
ity to amend the Certificate of Incorporation, adopt an
agreement of merger or consolidation, recommend to the
stockholders the sale, lease, or exchange of all or
substantially all of the Corporation's properties and
assets, recommend to the stockholders a dissolution of
the Corporation or a revocation of a dissolution or to
amend these By-Laws. Unless a resolution of the Board
expressly provides, no such committee (other than the
Executive Committee) shall have the power or authority to
declare a dividend, to authorize the issuance of stock of
the Corporation or to adopt a certificate of ownership
and merger pursuant to Section 253 of the General Corpo-
ration Law of the State of Delaware. The Executive
Committee shall have the power and authority to declare a
dividend, to authorize the issuance of stock of the
Corporation and to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation
Law of the State of Delaware. All committees of the
Board shall report their proceedings to the Board when
required.
SECTION 9. ACTION WITHOUT A MEETING. Unless
otherwise restricted by the Certificate of Incorporation
or these By-Laws, any action required or permitted to be
taken at any meeting of the Board of Directors or of any
<PAGE>
committee thereof may be taken without a meeting if all
members of the Board or any committee thereof consent
thereto in writing.
SECTION 10. COMPENSATION. The Board of Direc-
tors shall have the authority to fix the compensation of
directors for their services. A director may also serve
the Corporation in other capacities and receive compensa-
tion therefor.
SECTION 11. TELEPHONIC MEETING. Unless other-
wise restricted by the Certificate of Incorporation,
members of the Board, or any committee designated by the
Board, may participate in a meeting by means of confer-
ence telephone or similar communications equipment in
which all persons participating in the meeting can hear
each other. Participation in such telephonic meeting
shall constitute the presence in person at such meeting.
ARTICLE IV
OFFICERS
SECTION 1. The officers of the Corporation
shall include a President, a Secretary and one or more
subordinate officers, all of whom shall be elected by the
Board of Directors and who shall hold office for a term
of one year and until their successors are elected and
<PAGE>
qualified or until their earlier resignation or removal.
In addition, the Board of Directors may elect a Chairman
of the Board, one or more Vice Chairmen, one or more Vice
Presidents, including one or more Executive Vice Presi-
dents and Senior Vice Presidents, a Treasurer and one or
more Assistant Treasurers, and a Secretary and one or
more Assistant Secretaries, who shall hold their office
for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by
the Board of Directors. The initial officers shall be
elected at the first meeting of the Board of Directors
and, thereafter, at the annual organizational meeting of
the Board held after each annual meeting of the stock-
holders. Any number of offices may be held by the same
person.
SECTION 2. OTHER OFFICERS AND AGENTS. The
Board of Directors may appoint such other officers and
agents as it deems advisable, who shall hold their office
for such terms and shall exercise and perform such powers
and duties as shall be determined from time to time by
the Board of Directors.
SECTION 3. CHAIRMAN. The Chairman of the
Board of Directors shall be a member of the Board and
shall preside at all meetings of the Board of Directors
<PAGE>
and of the stockholders. He shall be the Chief Executive
Officer of the Corporation, and except where by law the
signature of the President is required, the Chairman of
the Board of Directors shall possess the same power as
the President to sign all contracts, certificates and
other instruments of the Corporation which may be autho-
rized by the Board of Directors. During the absence or
disability of the President, the Chairman of the Board of
Directors shall exercise all powers and discharge all
duties of the President.
In addition, the Chairman of the Board shall
have such powers and perform such other duties as from
time to time may be assigned to him by the Board of
Directors.
SECTION 4. PRESIDENT. The President shall,
subject to the control of the Board of Directors, have
general supervision of the business of the Corporation
and shall see that all orders and resolutions of the
Board of Directors are carried into effect. The Presi-
dent shall exercise such duties as customarily pertain to
the Office of President, and shall have general and
active management of the property, business and affairs
of the Corporation, subject to the supervision and con-
trol of the Board of Directors. Except as the Board of
<PAGE>
Directors shall otherwise authorize, the President shall
execute all bonds, mortgages, contracts and other instru-
ments of the Corporation requiring a seal, under the seal
of the Corporation, except where required or permitted by
law to be otherwise signed and executed and except that
the other officers of the Corporation may sign and exe-
cute documents when so authorized by these By-Laws, the
Board of Directors or the President.
In the absence, disability or refusal of the
Chairman of the Board to act, or the vacancy of such
office, the President shall preside at all meetings of
the stockholders and of the Board of Directors. The
President shall perform such other duties as prescribed
from time to time by the Board of Directors or these
By-Laws.
SECTION 5. VICE PRESIDENTS. Each Vice Presi-
dent, if any are elected, of whom one or more may be
designated an Executive Vice President or Senior Vice
President, shall have such powers and shall perform such
duties as shall be assigned to him by the Chairman of the
Board, the President or the Board of Directors.
SECTION 6. TREASURER. The Treasurer shall
have custody of the corporate funds, securities, evidenc-
es of indebtedness and other valuables of the Corporation
<PAGE>
and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation. He
shall deposit all moneys and other valuables in the name
and to the credit of the Corporation in such depositories
as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the
Corporation, taking proper vouchers therefor. He shall
render to the Chairman of the Board, the President and
the Board of Directors, upon their request, a report of
the financial condition of the Corporation. If required
by the Board of Directors, he shall give the Corporation
a bond for the faithful discharge of his duties in such
amount and with such surety as the Board of Directors
shall prescribe.
The Treasurer shall have such further powers
and perform such other duties incident to the office of
Treasurer as from time to time are assigned to him by the
Board of Directors.
SECTION 7. SECRETARY. The Secretary shall:
(a) cause minutes of all meetings of the stockholders and
directors to be recorded and kept; (b) cause all notices
required by these By-Laws or otherwise to be given prop-
erly; (c) see that the minute books, stock books, and
other nonfinancial books, records and papers of the
<PAGE>
Corporation are kept properly; and (d) cause all reports,
statements, returns, certificates and other documents to
be prepared and filed when and as required. The Secre-
tary shall also perform like duties for the standing
committees when required. The Secretary shall have such
further powers and perform such other duties as pre-
scribed from time to time by the Board of Directors.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT
SECRETARIES. Each Assistant Treasurer and each Assistant
Secretary, if any are elected, shall be vested with all
the powers and shall perform all the duties of the Trea-
surer and Secretary, respectively, in the absence or
disability of such officer, unless or until the Board of
Directors shall otherwise determine. In addition, Assis-
tant Treasurers and Assistant Secretaries shall have such
powers and shall perform such duties as shall be assigned
to them by the Board of Directors.
SECTION 9. CORPORATE FUNDS AND CHECKS. The
funds of the Corporation shall be kept in such deposito-
ries as shall from time to time be prescribed by the
Board of Directors. All checks or other orders for the
payment of money shall be signed by the Chairman of the
Board, the President or the Treasurer or such other
person or agent as may from time to time be authorized
<PAGE>
and with such countersignature, if any, as may be re-
quired by the Board of Directors.
SECTION 10. CONTRACTS AND OTHER DOCUMENTS.
The Chairman of the Board, the President (or, in his
absence, a Vice President) or Treasurer, or such other
officer or officers as may from time to time be autho-
rized by the Board of Directors, shall have power to sign
and execute on behalf of the Corporation deeds, convey-
ances and contracts, and any and all other documents
requiring execution by the Corporation.
SECTION 11. OWNERSHIP OF STOCK OF ANOTHER
CORPORATION. The Chairman of the Board, the President or
the Treasurer, or such other officer or agent as shall be
authorized by the Board of Directors, shall have the
power and authority, on behalf of the Corporation, to
attend and to vote at any meeting of stockholders of any
corporation in which the Corporation holds stock and may
exercise, on behalf of the Corporation, any and all of
the rights and powers incident to the ownership of such
stock at any such meeting, including the authority to
execute and deliver proxies and consents on behalf of the
Corporation.
SECTION 12. DELEGATION OF DUTIES. In the
absence, disability or refusal of any officer to exercise
<PAGE>
and perform his duties, the Board of Directors may dele-
gate to another officer such powers or duties.
SECTION 13. RESIGNATION AND REMOVAL. Any
officer of the Corporation may be removed from office for
or without cause at any time by the Board of Directors.
Any officer may resign at any time in the same manner
prescribed under Section 3 of Article III of these By--
Laws.
SECTION 14. VACANCIES. The Board of Directors
shall have power to fill vacancies occurring in any
office.
ARTICLE V
STOCK
SECTION 1. CERTIFICATES OF STOCK. Every
holder of stock in the Corporation shall be entitled to
have a certificate signed by, or in the name of the
Corporation by, the Chairman of the Board or the Presi-
dent or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant
Secretary, certifying the number and class of shares of
stock in the Corporation owned by him. Any or all of the
signatures on the certificate may be a facsimile. The
Board of Directors shall have the power to appoint one or
more transfer agents and/or registrars for the transfer
<PAGE>
or registration of certificates of stock of any class,
and may require stock certificates to be countersigned or
registered by one or more of such transfer agents and/or
registrars.
SECTION 2. TRANSFER OF SHARES. Shares of
stock of the Corporation shall be transferable upon its
books by the holders thereof, in person or by their duly
authorized attorneys or legal representatives, upon
surrender to the Corporation by delivery thereof to the
person in charge of the stock and transfer books and
ledgers. Such certificates shall be cancelled and new
certificates shall thereupon be issued. A record shall
be made of each transfer. Whenever any transfer of
shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the
transfer if, when the certificates are presented, both
the transferor and transferee request the Corporation to
do so. The Board of Directors shall have power and
authority to make such rules and regulations as it may
deem necessary or proper concerning the issue, transfer
and registration of certificates for shares of stock of
the Corporation.
SECTION 3. LOST CERTIFICATES. A new certifi-
cate of stock may be issued in the place of any certifi-
<PAGE>
cate previously issued by the Corporation, alleged to
have been lost, stolen, destroyed or mutilated, and the
Board of Directors may, in their discretion, require the
owner of such lost, stolen, destroyed or mutilated cer-
tificate, or his legal representative, to give the Corpo-
ration a bond, in such sum as the Board of Directors may
direct, not exceeding double the value of the stock, in
order to indemnify the Corporation against any claims
that may be made against it in connection therewith.
SECTION 4. STOCKHOLDERS OF RECORD. The Corpo-
ration shall be entitled to treat the holder of record of
any share or shares of stock as the holder thereof, in
fact, and shall not be bound to recognize any equitable
or other claim to or interest in such shares on the part
of any other person, whether or not it shall have express
or other notice thereof, except as otherwise expressly
provided by law.
SECTION 5. STOCKHOLDERS RECORD DATE. In order
that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stock-
holders or any adjournment thereof, or to express consent
to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to
<PAGE>
exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix a record
date, which shall not be more than sixty days nor less
than ten days before the date of such meeting. A deter-
mination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting, provided, however, that
the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provi-
sions of the Certificate of Incorporation, the Board of
Directors may at any regular or special meeting, out of
funds legally available therefor, declare dividends upon
the stock of the Corporation. Before the declaration of
any dividend, the Board of Directors may set apart, out
of any funds of the Corporation available for dividends,
such sum or sums as from time to time in their discretion
may be deemed proper for working capital or as a reserve
fund to meet contingencies or for such other purposes as
shall be deemed conducive to the interests of the Corpo-
ration.
ARTICLE VI
<PAGE>
NOTICE AND WAIVER OF NOTICE
SECTION 1. NOTICE. Whenever any written
notice is required to be given by law, the Certificate of
Incorporation or these By-Laws, such notice, if mailed,
shall be deemed to be given when deposited in the United
States mail, postage prepaid, addressed to the person
entitled to such notice at his address as it appears on
the books and records of the Corporation. Such notice
may also be sent by telegram.
SECTION 2. WAIVER OF NOTICE. Whenever notice
is required to be given by law, the Certificate of Incor-
poration or these By-Laws, a written waiver thereof
signed by the person entitled to notice, whether before
or after the time stated therein, shall be deemed equiva-
lent to notice. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any meeting of the
stockholders, directors, or members of a committee of the
Board of Directors need be specified in any written
waiver of notice.
<PAGE>
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. AMENDMENTS. These By-Laws may be
amended or repealed or new By-Laws may be adopted by the
affirmative vote of a majority of the total number of
directors at any regular or Special Meeting of the Board
of Directors; provided however, that the Board of Direc-
tors may not amend or repeal the provisions of the first
three sentences of ARTICLE III, Section 9 of the By-Laws
or this proviso. If any By-Law regulating an impending
election of directors is adopted, amended or repealed by
the Board of Directors, there shall be set forth in the
notice of the next meeting of stockholders for the elec-
tion of directors the By-Law(s) so adopted, amended, or
repealed, together with a precise statement of the chang-
es made. By-Laws adopted by the Board of Directors may
be amended or repealed by stockholders.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS,
SUITS OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT
OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any
<PAGE>
threatened, pending or completed action, suit or proceed-
ing, whether civil, criminal, administrative or investi-
gative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a
director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the
request of the Corporation as a director or officer,
employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not op-
posed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act
in good faith and in a manner which he reasonably be-
lieved to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action
<PAGE>
or proceeding, had reasonable cause to believe that his
conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS,
SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORA-
TION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threat-
ened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was a director
or officer of the Corporation, or is or was a director or
officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against expens-
es (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settle-
ment of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not op-
posed to the best interests of the Corporation; except
that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and
only to the extent that the Court of Chancery or the
<PAGE>
court in which such action or suit was brought shall
determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION.
Any indemnification under this Article VIII (unless
ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination
that indemnification of the director or officer is
proper in the circumstances because he has met the appli-
cable standard of conduct set forth in Section 1 or
Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by the Board of Directors
by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so di-
rects, by independent legal counsel in a written opinion,
or (iii) by the stockholders. To the extent, however,
that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense
<PAGE>
of any claim, issue or matter therein, he shall be indem-
nified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection
therewith, without the necessity of authorization in the
specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes
of any determination under Section 3 of this Article
VIII, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, or,
with respect to any criminal action or proceeding, to
have had no reasonable cause to believe his conduct was
unlawful, if his action is based on the records or books
of account of the Corporation or another enterprise, or
on information supplied to him by the officers of the
Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corpo-
ration or another enterprise or on information or records
given or reports made to the Corporation or another
enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reason-
able care by the Corporation or another enterprise. The
term "another enterprise" as used in this Section 4 shall
mean any other corporation or any partnership, joint
<PAGE>
venture, trust, employee benefit plan or other enterprise
of which such person is or was serving at the request of
the Corporation as a director, officer, employee or
agent. The provisions of this Section 4 shall not be
deemed to be exclusive or to limit in any way the circum-
stances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or
2 of this Article VIII, as the case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Not-
withstanding any contrary determination in the specific
case under Section 3 of this Article VIII, and notwith-
standing the absence of any determination thereunder, any
director or officer may apply to any court of competent
jurisdiction in the State of Delaware for indemnification
to the extent otherwise permissible under Sections 1 and
2 of this Article VIII. The basis of such indemnifica-
tion by a court shall be a determination by such court
that indemnification of the director or officer is proper
in the circumstances because he has met the applicable
standards of conduct set forth in Sections 1 or 2 of this
Article VIII, as the case may be. Neither a contrary
determination in the specific case under Section 3 of
this Article VIII nor the absence of any determination
thereunder shall be a defense to such application or
<PAGE>
create a presumption that the director or officer seeking
indemnification has not met any applicable standard of
conduct. Notice of any application for indemnification
pursuant to this Section 5 shall be given to the Corpora-
tion promptly upon the filing of such application. If
successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid
the expense of prosecuting such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE.
Expenses incurred by a director or officer in defending
or investigating a threatened or pending action, suit or
proceeding shall be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this
Article VIII.
SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION
AND ADVANCEMENT OF EXPENSES. The indemnification and
advancement of expenses provided by or granted pursuant
to this Article VIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-Law,
<PAGE>
agreement, contract, vote of stockholders or disinterest-
ed directors or pursuant to the direction (howsoever
embodied) of any court of competent jurisdiction or
otherwise, both as to action in his official capacity and
as to action in another capacity while holding such
office, it being the policy of the Corporation that
indemnification of the persons specified in Sections 1
and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article
VIII shall not be deemed to preclude the indemnification
of any person who is not specified in Sections 1 or 2 of
this Article VIII but whom the Corporation has the power
or obligation to indemnify under the provisions of the
General Corporation Law of the State of Delaware, or
otherwise.
SECTION 8. INSURANCE. The Corporation may
purchase and maintain insurance on behalf of any person
who is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, part-
nership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising
<PAGE>
out of his status as such, whether or not the Corporation
would have the power or the obligation to indemnify him
against such liability under the provisions of this
Article VIII.
SECTION 9. CERTAIN DEFINITIONS. For purposes
of this Article VIII, references to "the Corporation"
shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would
have had power and authority to indemnify its directors
or officers, so that any person who is or was a director
or officer of such constituent corporation, or is or was
a director or officer of such constituent corporation
serving at the request of such constituent corporation as
a director, officer, employee or agent of another corpo-
ration, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall stand in the same
position under the provisions of this Article VIII with
respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation
if its separate existence had continued. For purposes of
this Article VIII, references to "fines" shall include
any excise taxes assessed on a person with respect to an
<PAGE>
employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as
a director, officer, employee or agent of the Corporation
which imposes duties on, or involves services by, such
director or officer with respect to an employee benefit
plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably be-
lieved to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best inter-
ests of the Corporation" as referred to in this Article
VIII.
SECTION 10. SURVIVAL OF INDEMNIFICATION AND
ADVANCEMENT OF EXPENSES. The indemnification and ad-
vancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided
when authorized or ratified, continue as to a person who
has ceased to be a director or officer and shall inure to
the benefit of the heirs, executors and administrators of
such a person.
SECTION 11. LIMITATION ON INDEMNIFICATION.
Notwithstanding anything contained in this Article VIII
to the contrary, except for proceedings to enforce rights
to indemnification (which shall be governed by Section 5
<PAGE>
hereof), the Corporation shall not be obligated to indem-
nify any director or officer in connection with a pro-
ceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or
consented to by the Board of Directors of the Corpora-
tion.
SECTION 12. INDEMNIFICATION OF EMPLOYEES AND
AGENTS. The Corporation may, to the extent authorized
from time to time by the Board of Directors, provide
rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation
similar to those conferred in this Article VIII to direc-
tors and officers of the Corporation.
ARTICLE IX
SECTION 1. SEAL. The seal of the Corporation
shall be circular in form and shall have the name of the
Corporation on the circumference and the jurisdiction and
year of incorporation in the center.
SECTION 2. FISCAL YEAR. The fiscal year of
the Corporation shall end on December 31 of each year, or
such other twelve consecutive months as the Board of
Directors may designate.
<PAGE>
RESOLVED, that Article IV, Section 1 of the Bylaws
of the Corporation is hereby amended in its entirety
to read as follows:
SECTION 1. The officers of the Cor-
poration shall include a President, a Secretary
and one or more subordinate officers, all of
whom shall be elected by the Board of Directors
and who shall hold office for a term of one
year and until their successors are elected and
qualified or until their earlier resignation or
removal. In addition, the Board of Directors
may elect a Chairman of the Board, one or more
Vice Chairmen, one or more Vice Presidents,
including one or more Executive Vice Presidents
and Senior Vice Presidents, a Treasurer and one
or more Assistant Treasurers, and a Secretary
and one or more Assistant Secretaries, who
shall hold their office for such terms and
shall exercise such powers and perform such
duties as shall be determined from time to time
by the Board of Directors. The initial offi-
cers shall be elected at the first meeting of
the Board of Directors and, thereafter, at the
annual organizational meeting of the Board held
after each annual meeting of the stockholders.
Any number of offices may be held by the same
person.
<PAGE>
MASTER LICENSE AGREEMENT
<PAGE>
MASTER LICENSE AGREEMENT
TABLE OF CONTENTS
SECTION PAGE
Recitals.......................................................... 1
1. DEFINITIONS.............................................. 2
2. GRANT.................................................... 9
3. TERM AND RENEWAL......................................... 12
4. FEES..................................................... 13
5. GENERAL UNDERTAKINGS OF LICENSOR......................... 14
6. GENERAL UNDERTAKINGS OF LICENSEE......................... 15
7. ESTABLISHMENT, USE, AND MAINTENANCE OF LICENSEE'S
FACILITIES............................................... 19
8. LICENSEE TRAINING........................................ 21
9. VEHICLE FLEET AND RENTAL................................. 22
10. PROVISION OF SERVICES BY LICENSEE ON BEHALF OF
LICENSOR................................................. 23
11. AIRPORT LOCATIONS........................................ 24
12. SYSTEM CHANGES AND OPERATIONAL DEVELOPMENTS.............. 24
13. ADVERTISING.............................................. 25
14. COVENANTS................................................ 27
15. TRANSFER OF INTEREST..................................... 29
16. OTHER REQUIREMENTS....................................... 32
17. DEFAULT AND TERMINATION.................................. 32
18. OBLIGATIONS UPON TERMINATION............................. 35
19. CONFIDENTIAL OPERATING MANUAL............................ 39
20. CONFIDENTIAL INFORMATION................................. 40
21. ACCOUNTING AND RECORDS................................... 41
22. INSURANCE................................................ 42
<PAGE>
23. PROPRIETARY MARKS........................................ 45
24. TAXES, PERMITS AND INDEBTEDNESS.......................... 47
25. INDEPENDENT CONTRACTOR AND INDEMNIFICATION............... 48
26. APPROVALS AND WAIVERS.................................... 50
27. NOTICES.................................................. 50
28. ENTIRE AGREEMENT......................................... 51
29. MODIFICATIONS OF AGREEMENT............................... 52
30. SEVERABILITY AND CONSTRUCTION............................ 52
31. APPLICABLE LAW; DISPUTE RESOLUTION....................... 53
32. ACKNOWLEDGMENTS.......................................... 55
SCHEDULE 1 - Exclusive Territories
SCHEDULE 1(a) - Acquired Exclusive Territories
SCHEDULE 2 - Services
SCHEDULE 3 - Proprietary Marks and Marks
SCHEDULE 4 - Territories of Other System Licensees
<PAGE>
MASTER LICENSE AGREEMENT
This Agreement is made this 30th day of July, 1997, among HFS
Car Rental, Inc., a Delaware corporation, with its principal place of business
at 6 Sylvan Way, Parsippany, New Jersey 07054 ("Licensor"), Avis Rent A Car
System, Inc., a Delaware corporation, with its principal place of business at
900 Old Country Road, Garden City, New York 11530 ("Licensee") and, for
purposes expressly stated in Sections 2, 3, 15, 17, 23 and 31 hereof only,
Wizard Co., Inc., a Delaware corporation, with its principal place of business
at 6 Sylvan Way, Parsippany, New Jersey 07054 ("Wizard Co.").
WITNESSETH:
WHEREAS, Licensee and certain of its subsidiaries currently
conduct the business of owning and managing car rental operations (the "Car
Rental Business") that engage in the business of renting passenger motor
vehicles under the service mark and trade name "Avis" (the "Licensed
Business");
WHEREAS, Licensee owns substantially all of the assets used
in, and business and operations currently conducted by, the Licensed Business,
other than the System (as defined herein) and the business of granting
franchise rights or licenses with respect to the operation of car rental
locations under the System and the Proprietary Marks (as defined herein);
WHEREAS, the franchise and ownership rights of the System
have been transferred (the "Transfer") to Licensor and the Proprietary Marks
are owned by Wizard Co.;
WHEREAS, the distinguishing characteristics of the System
include, without limitation, Licensor's standards and specifications for the
goods and services offered under the System; advertising and promotional
programs and services; specialized methods and techniques for accounting,
record keeping, reporting, and data transfers through written and electronic
means; a reservation referral system; a computerized information and data
processing system; distinctive exterior and
<PAGE>
interior design, decor, color schemes, and furnishings; standards,
specifications, and procedures for operations; Licensor's confidential
operating manual; and other programs and procedures designed to promote to the
public, and further the goal of fast, easy, and dependable vehicle rental
services; all of which may be changed, improved, and further developed by
Licensor from time to time;
WHEREAS, Licensor identifies the Licensed Business using the
System by means of the Proprietary Marks and unless specifically designated by
Wizard Co., any additional or other marks shall not be deemed as part of or
included in the System;
WHEREAS, Licensor and certain of its affiliates continue to
develop, use, and control the use of such Proprietary Marks in order to
identify for the public the source of products and services marketed
thereunder, and to represent the System's high standards of quality,
appearance, and service; and
WHEREAS, Licensee desires to be licensed hereunder to operate
its Car Rental Business under the System and Licensee understands and
acknowledges the necessity of operating the Licensed Business under the System
in strict conformity with the standards and specifications established by
Licensor from time to time.
NOW, THEREFORE, in consideration of the premises, and the
commitments of each party to the other as set forth herein, the parties hereto
agree as follows:
1. DEFINITIONS
As used in this Agreement, the terms listed below shall have
the meanings indicated:
1.1 Adjusted EBITDA -- Adjusted EBITDA shall have the meaning
set forth in the Credit Agreement dated as of the date hereof, among Licensee,
Avis Rent A Car, Inc., the lenders party thereto, The Chase Manhattan Bank, as
administrative agent and Lehman Commercial Paper Inc., as syndication agent.
Adjusted EBITDA shall be calculated based on the most recently completed four
full fiscal quarters; provided, however, that for the first three quarters
after the Commencement Date the
2
<PAGE>
calculation shall be made from the Commencement Date through the end of the
most recently completed fiscal quarter.
1.2 Airport Concession Agreement -- An agreement between an
agency or entity with authority and control over operations at an airport and
an operator of a vehicle rental business, whereby the airport authority grants
the operator the right to conduct its vehicle rental business at the airport,
utilizing space in the airport terminal, and in some cases, on additional
airport property leased from the airport authority.
1.3 Acquired Exclusive Territory -- Any one of the standard
metropolitan statistical areas set forth on Schedule 1(a) when such area
becomes an Acquired Territory.
1.4 Acquired Territory -- Acquired Territory shall have the
meaning set forth in Section 2.2 hereof.
1.5 Agency Arrangement -- An Agency Arrangement shall mean an
arrangement between the Licensee and another party acting as an agent for the
Licensee in the operation of a vehicle rental location. To qualify for an
Agency Arrangement, such Agent must act on behalf of and be subject to the
control of the Licensee and have no rights under this License Agreement.
1.6 Agency Operators -- An Agency Operator shall be an agent
acting on behalf of the Licensee pursuant to an Agency Arrangement.
1.7 Avis Europe -- Avis Europe shall mean Avis Europe plc.
1.8 Avis Intercity Rules -- Rules and regulations governing
relations between and among Rental Locations operated by Licensee and other
System Licensees with respect to customer rentals at one Rental Location and
returns at another, and other operations under the System, which include,
without limitation, procedures for allocating revenues and expenses in
connection with the maintenance and rental of such vehicles, and procedures for
administering the program referred to as the "Rent It Here Leave It There"
program or other similar programs,
3
<PAGE>
which program permits customers to rent a vehicle from one Rental Location and
return the vehicle to another Rental Location regardless of whether the Rental
Locations are located in different territories, or whether the Rental Locations
are operated by, or the vehicle is owned by Licensee, or other System
Licensees.
1.9 Change of Control Event -- A transaction or series of
related transactions by which (a) any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act) other than HFS or an
affiliate or successor to HFS, is or becomes after the date hereof the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act
as in effect on the date hereof), of more than 25% of the total voting power of
all voting stock of the Licensee then outstanding when HFS controls 25% or more
of such voting power and otherwise 20% of the total voting power of all voting
stock of the Licensee then outstanding (the "Relevant Percentage"); (b)(1)
another corporation merges into the Licensee or the Licensee consolidates with
or merges into any other corporation or (2) the Licensee conveys, transfers or
leases all or substantially all its assets to any person or group, in one
transaction or a series of related transactions other than a conveyance,
transfer or lease between the Licensee and a wholly owned subsidiary of the
Licensee, with the effect that a person or group, other than a person or group
which is the beneficial owner of more than the Relevant Percentage of the total
voting power of all voting stock of the Licensee immediately prior to such
transaction, becomes the beneficial owner of more than the Relevant Percentage
of the total voting power of all voting stock of the surviving or transferee
corporation of such transaction or series; or (c) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Licensee's Board of Directors (together with any new directors whose
election by the Licensee's Board of Directors, or whose nomination for election
by the Licensee's shareholders, was approved by a vote of a majority of the
Directors then still in office who were either Directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Directors then
in office.
4
<PAGE>
1.10 Composite Statement -- With respect to any period,
periodic bookkeeping and accounting statement compiled by Licensee reflecting
all monies and payments owed to Licensee by other System Licensees for the
preceding period, any adjustments to amounts shown on prior Composite
Statements, all monies and payments owed by Licensee to other System Licensees
for the preceding period, and any other charges to or set-offs against monies
owed between Licensee and other System Licensees.
1.11 Computer Services Agreement -- The Computer Services
Agreement dated as of the date hereof between WizCom and Licensee pursuant to
which WizCom is to provide certain computer services to Licensee, as such
agreement may be amended from time to time by the parties in accordance with
the terms thereof.
1.12 Cost Sharing Agreement -- The Cost Sharing Agreement
dated as of the date hereof between WizCom and Avis Rent A Car System, Inc.,
providing for certain matters relating to the sharing of space and support
services, as amended from time to time.
1.13 Exchange Act -- The Securities Exchange Act of 1934, as
amended.
1.14 Exclusive Territory -- Any one of the standard
metropolitan statistical areas set forth on Schedule 1 hereto, the Non-U.S.
Territory and any Acquired Territory.
1.15 Facility -- Any one of a variety of locations from which
the Licensed Business is operated, including, without limitation, those
facilities known as Rental Locations, and such service and repair facilities as
Licensor may specify.
1.16 Fleet -- All of Licensee's Vehicles.
1.17 HFS -- HFS Incorporated, or any successor thereto.
1.18 Gross Revenue -- All income recorded as revenue in the
ordinary course of business consistent with past practice by the Licensed
Business related to the rental of Vehicles, whether for cash or credit, and
regardless of collection in the case of credit, and
5
<PAGE>
whether received directly from Licensee's operations or an Agency Operator's or
Sublicensee's operations, including, but not limited to, (a) charges assessed
to rental customers (such as time and mileage, intercity fees, loss damage
waiver ("LDW"), personal accident insurance ("PAI"), additional liability
insurance ("ALI"), personal effects protection ("PEP"), prepaid rental fees and
additional mileage charges), and (b) all other charges assessed by Licensee and
recorded on the Standard Rental Agreement or other rental or sales documents
utilized by Licensee, including, without limitation, charges for rentals of
cellular telephones, child car seats, ski racks, or other equipment; provided,
however, that "Gross Revenue" shall not include, (i) refueling charges or fuel
purchase charges collected by Licensee from customers for refueling services
actually performed; (ii) any taxes, surcharges, fees or other funds collected
by Licensee, which are transmitted to a third party for which the Licensee acts
solely as a conduit of such funds on behalf of such third party; or (iii) any
other sums of money or payments received from Licensee's customers which are
forwarded directly to Licensor, including, without limitation, "customer cash
qualification charges" and such other charges as Licensor may specify in
writing.
1.19 Lease Agreements -- The Lease Agreements and Sublease
Agreements, as the case may be, between WizCom and Licensee providing for the
lease or sublease of space for the executive and other offices of Avis Rent A
Car, Inc. from WizCom, as amended from time to time.
1.20 Legal Requirements -- All laws, ordinances, regulations,
rules, administrative orders, decrees and policies of any territory,
government, governmental agency or department.
1.21 Manual -- Licensor's confidential operating manual or
manuals, as amended, modified or supplemented from time to time, which includes
guidelines, policies, procedures, and standards pertaining to, among other
things, System identity, operation, administration, rental procedures, and the
Avis Intercity Rules and the requirements, standards, specifications and
recommendations of the Licensor relating to the conduct of the Licensed
Business. Licensor may amend, modify, update or supplement the
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Manual at any time in its sole discretion.
1.22 Non-U.S. Territory -- Non-U.S. Territory shall have the
meaning set forth in Section 2.2 hereof.
1.23 Off-Airport Location -- A Rental Location situated not
on the property of an airport, but sufficiently close to such airport to, in
the reasonable judgment of Licensor, (i) provide reasonably quick shuttle bus
service between the airport terminal and the Rental Location, (ii) provide
adequate service to such airport and (iii) be actively marketed as an airport
location.
1.24 On-Airport Location -- A Rental Location situated on the
property of an airport.
1.25 Prime Rate -- Prime Rate means the rate of interest per
annum publicly announced from time to time by The Chase Manhattan Bank as its
prime rate in effect at its principal office in New York City; each change in
the Prime Rate shall be effective from and including the date such change is
publicly announced as being effective.
1.26 Promotional Programs -- programs developed, established
and marketed by Licensor or Licensee from time to time and intended to induce
the use of the System and awareness of the Proprietary Marks.
1.27 Proprietary Marks -- Certain trade names, service marks,
trademarks, logos, emblems, trade dress, distinctive color combinations and
other distinctive non- functional elements of design and decor, and other
indicia of origin, including, but not limited to, the marks "AVIS" and "AVIS
RENT A CAR" and such other trade names, trademarks, and service marks as are
now designated (and may hereafter be designated) by Licensor and Wizard Co. for
use by authorized licensees including the Licensee in connection with the
System.
1.28 Rental Location -- The site at which a member of the
public may rent a Vehicle, execute a Standard Rental Agreement, and/or pick up
and drop off the rental Vehicle.
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1.29 Reservation Agreement -- The Reservation Services
Agreement dated as of the date hereof between HFS and Licensee pursuant to
which HFS is to provide certain reservation services for Licensee, as such
agreement may be amended from time to time by the parties thereto in accordance
with the terms thereof.
1.30 Standard Rental Agreement -- A uniform rental agreement,
in a form presented from time to time by Licensor, between the customer of the
Licensed Business and Licensee.
1.31 Sublicensees -- Sublicensees shall have the meaning set
forth in Section 2.6 hereof.
1.32 System -- The comprehensive system for providing vehicle
rental services to customers for transient rentals and operating a vehicle
rental business serving transient rental customers under the Proprietary Marks
as Licensor specifies which at present includes only the following: (a) the
Proprietary Marks; (b) other intellectual property, including confidential
information, the Manual and know-how, including methods for accounting, record
keeping, reporting and data transfers using written and electronic means; (c)
marketing, advertising, publicity and other promotional materials and programs;
(d) System standards; (e) training programs and materials; (f) quality
assurance inspection and scoring programs; (g) access to the Wizard System; (h)
a credit card program for customers using the Proprietary Marks and third party
marks; (i) an information and data processing system; and (j) distinctive
design, decor, uniform and color schemes. The System shall not include existing
or subsequently developed software or systems which are owned by, or
exclusively licensed to, Licensee by WizCom pursuant to the Computer Services
Agreement or which are developed by Licensee or a third party on behalf of
Licensee and are not integrated with the Wizard System.
1.33 System Licensees -- Licensee and all other parties
authorized by Licensor to operate the Licensed Business.
1.34 Target EBITDA -- The amount of Adjusted EBITDA required
so that the Target EBITDA Ratio is not less than 1.05 to 1.00 at the time of
calculation.
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1.35 Target EBITDA Ratio -- The ratio of Adjusted EBITDA to
the sum of consolidated non-fleet interest expense, consolidated taxes,
dividends and consolidated capital expenditures equal to the lesser of actual
expenditures or $35 million, adjusted upward per annum by the Consumer Price
Index (as determined by the U.S. Bureau of Labor Statistics) for the most
recently completed four full fiscal quarters for which financial statements are
available; provided, however, for the first three quarters after the
Commencement Date, the calculation shall be made from the Commencement Date
through the end of the most recently completed fiscal quarter.
1.36 Territory -- Territory has the meaning set forth in
Section 2.2 hereof.
1.37 Term -- The Term of this Agreement shall be the term set
forth in Section 3.1 hereof.
1.38 U.S. Territory -- U.S. Territory shall have the meaning
set forth in Section 2.2 hereof.
1.39 Vehicle -- An automobile, passenger van, or 4-wheel
drive vehicle, and any other motor vehicle specified by Licensor, which is
owned, used, leased, under repair, or otherwise kept by Licensee for rental to
customers of the Licensed Business.
1.40 Wizard System -- The on-line, real time vehicle rental
and reservations system owned by WizCom and, utilized in the conduct of the
Licensed Business, permitting the use of equipment located at rental counters
and offices and data displays for reservation and rental transaction processing
purposes, all of which communicate through a communications network with
central site computers.
1.41 WizCom -- WizCom International, Ltd., or any successor
thereto.
2. GRANT
2.1 Licensor hereby grants to Licensee, upon the terms and
subject to conditions herein contained, the non-exclusive right and license,
and Licensee undertakes the obligation, to operate the Licensed Business within
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the Territory, and Wizard Co. hereby grants to Licensee, upon the terms and
subject to conditions herein contained, the non-exclusive right to use the
Proprietary Marks in the Territory solely in connection therewith. Wizard Co.
hereby grants Avis Rent A Car, Inc. and its wholly owned subsidiaries the right
to use the "Avis" Proprietary Mark in its corporate name.
2.2 The Territory shall include (i) those areas or regions in
the fifty (50) United States, the District of Columbia and the territories and
possessions of the United States that are not the subject, as of the date of
this Agreement, of exclusive Licenses granted to third parties as set forth on
Schedule 4 hereto (the "U.S. Territory"), (ii) those areas of the world other
than the U.S. Territory which are not the subject of the license agreements by
and among Wizard Co., Licensee and Avis Europe to Licensor (the "Non-U.S.
Territory") and (iii) any territories operated under the System that are
acquired, leased or managed by Licensee from, or on behalf of, other System
Licensees, including any territories set forth on Schedule 4 hereto (the
"Acquired Territories"). Subject to Section 7.2, Licensor shall have the right
to grant additional Licenses for locations located in the Territory, provided,
however, that Licensor shall not establish, nor license another to establish, a
vehicle rental business using the Proprietary Marks in the Exclusive
Territories. Other System Licensees may advertise and promote their car rental
business within the Territory, provided that Licensor shall not permit Avis
Europe to advertise in the Territory without the consent of Licensee.
2.3 Except as specifically provided in Section 2.2, this
license is non-exclusive. Licensor and Wizard Co., as the case may be, shall
retain the right, among others:
2.3.1 To use, and to license others to use, the System and
the Proprietary Marks at or from any location other than a location
in an Exclusive Territory;
2.3.2 To operate, and to license others to operate,
businesses specializing in the sale of new or used vehicles,
utilizing the Proprietary Marks, or other proprietary marks, in the
Territory;
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2.3.3 To solicit business from any potential customer
wherever located, including customers located within the Territory
and to engage in advertising and promotional activity on behalf of
other System Licensees in the Territory;
2.3.4 To develop, use, and license the use, at any
location, of proprietary marks, other than the Proprietary Marks, and
methods of operation the same as or substantially similar to the
System, using the know how and other components of the System in
connection with the operation of a business or system which offers
vehicle rental services which are the same as or similar to those
offered under the System, on any terms and conditions Licensor deems
advisable, and without granting Licensee any rights therein;
2.3.5 To develop, franchise, license, manage, operate,
finance, or lease businesses and/or systems using the Proprietary
Marks, for the provision of goods and services other than those
covered by this Agreement; and
2.3.6 To use, and to license others to use, the Avis Data
(as defined in the Computer Services Agreement), including, without
limitation, all customer lists and potential customer lists relating
to the Licensed Business, subject to all restrictions on the
disclosure and use of customer information expressly required by
corporate accounts, consortiums or tour operators provided Licensee
notifies the Licensor of the information to be restricted and the
nature of such restrictions, provided, however, that Wizard Co. and
Licensor shall not use or license others to use the Avis Data in
connection with a Car Rental Business other than the Licensed
Business.
2.4 The license granted in Section 2.1 hereof pertains only
to the Licensed Business, and except as provided below, Licensee shall not use
the Proprietary Marks or other names or marks using the word "Avis" in
connection with car leasing or truck rental or leasing or any other business
other than the Licensed Business. Notwithstanding the foregoing, Licensee shall
have the right under this Agreement to lease or rent noncommercial light duty
trucks with a GVWR of up to 18,000 pounds.
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2.5 Licensee shall not operate a business selling new or used
vehicles, at wholesale, or at retail, except for any such operation that sells
vehicles used in the Licensed Business as part of the disposition of the
Licensee's fleet in the ordinary course of business.
2.6 Licensee shall have no right or power to sublicense the
System or the Proprietary Marks under this Agreement, and shall not engage in
the offer or sale of franchises, licenses or contractual arrangements that are
the functional equivalent of a franchise. Notwithstanding the foregoing,
Licensee may, with Licensor's prior approval, enter into sublicense
arrangements with sublicensees acceptable to Licensor ("Sublicensees") provided
such sublicense arrangements license Sublicensees to operate the Licensed
Business only in Non-U.S. Territories; Licensee may also enter into Agency
Arrangements in the Territory.
3. TERM AND RENEWAL
3.1 The term of this Agreement and the license granted herein
shall commence upon the date of execution of this Agreement (the "Commencement
Date"), and, unless earlier terminated pursuant to Section 17 or renewed
pursuant to Section 3.3, shall terminate fifty (50) years after the
Commencement Date.
3.2 Licensee acknowledges and agrees that all rights granted
to Licensee under this Agreement shall terminate on the fiftieth anniversary of
the Commencement Date, unless sooner terminated pursuant to Section 17 herein
or renewed pursuant to Section 3.3.
3.3 Licensee shall have the right to renew this Agreement for
an unlimited number of five (5) year renewal terms, subject to the following
conditions:
(i) Licensee has conducted the Licensed Business in
accordance with the provisions of this Agreement, any amendments hereto, and
the Manual, and is not in material default under this Agreement;
(ii) For each five (5) year renewal term, Licensee executes
and agrees to be bound by Licensor's then current standard license agreement,
including but not limited to Licensee's payment for any additional
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products and/or services (including new advertising services) provided by
Licensor thereunder which Licensor is not obligated to provide pursuant to this
Agreement; and
(iii) At least 180 days prior to expiration of the term of
this Agreement then in effect, Licensee provides Licensor with written notice
of its intention to exercise its rights to continue the operation of the
Licensed Business in accordance with the above, and certifies that Licensee is
not in material default under this Agreement.
4. FEES
4.1 Licensee shall pay to Licensor a monthly royalty fee of
(a) three percent (3%) of Gross Revenue plus (b) 100% of any reveneue relating
to any royalty or other fees earned by Licensee from each Sublicensee up to,
but not exceeding, three percent (3%) plus the applicable percentage used to
calculate the Supplemental Fee for the applicable period of such Sublicensee's
Gross Revenue (the "Base Fee").
4.2 Licensee shall pay Licensor an additional royalty fee of
one percent (1.0%) of Gross Revenue payable quarterly in arrears which shall be
increased by one-tenth of one percent (0.1%) of Gross Revenue commencing on the
anniversary of the Commencement Date beginning in 1999 and in each of the next
four years thereafter to a maximum of one and one-half percent (1.5%) (the
"Supplemental Fee"). Until the fifth anniversary of the Commencement Date, the
Supplemental Fee or a portion thereof may be deferred to the extent that the
payment of such Fee will result in the Target EBITDA Ratio for the year in
which such Supplemental Fee accrues being less than 1.05 to 1.00. The amount of
any Supplemental Fees deferred pursuant to the previous sentence and any
interest thereon will be paid, in whole or in part, on the date on which such
payment would not result in the Target EBITDA Ratio being less than 1.05 to
1.00. Any amounts of the Supplemental Fee deferred pursuant hereto shall accrue
interest at the Prime Rate plus three percent (3%) per annum from the date such
Supplemental Fee was due, notwithstanding the deferral, until paid.
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4.3 Unless otherwise specified in writing by Licensor, all
monthly and quarterly payments required by this Section 4 shall be submitted to
Licensor by the twentieth (20th) day of each month or the twentieth (20th) day
following each quarter, as the case may be, together with any reports or
statements required under Section 21. Monthly and quarterly payments required
of Licensee hereunder which are based on Gross Revenue shall be based on Gross
Revenue for the most recently completed calendar month or quarter, as the case
may be. If any payment is overdue, Licensee shall pay to Licensor immediately
upon demand the overdue amount, together with interest thereon from the date it
was due until paid at the rate of the Prime Rate plus 3.5% per annum, or the
maximum rate permitted by law, whichever is less. The foregoing shall be in
addition to any other remedies Licensor may have.
5. GENERAL UNDERTAKINGS OF LICENSOR
In addition to any other functions specified elsewhere in this
Agreement:
5.1 Licensor may take such actions as it deems appropriate to
enhance, improve, update, refine, maintain, and develop the System, including
undertaking sales, promotional, and advertising campaigns, if any, in its
discretion.
5.2 Licensor may establish policies, procedures and standards
for the System, including those pertaining to operations, reservations, service
and product quality, service training and System identity or, in its
discretion, may adopt those which are currently in effect for the System,
subject to such changes from time to time as it may make thereto in its
discretion.
5.3 Licensor shall make vehicle rental reservation referral
services available to Licensee through a service or system administered,
operated, and managed by Licensor, its designee or affiliates. This obligation
shall be fully satisfied by the performance of HFS in accordance with the terms
set forth in the Reservation Agreement.
5.4 Licensor shall make available or shall cause its affiliate
or designee to make available to
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Licensee the Wizard System, as amended, modified, or altered from time to
time, or any successor system that provides the same functions of managing
vehicle rental transactions and reservations. This obligation shall be fully
satisfied by the performance of WizCom in accordance with the terms set forth
in the Computer Services Agreement.
5.5 Licensor shall provide Licensee, on loan, one copy on
disk of the Manual, and all updates to the Manual issued from time to time.
5.6 Licensor shall provide from time to time such advisory
assistance concerning the Car Rental Business as Licensor deems advisable.
5.7 Licensor reserves the right to assess Licensee a
reasonable fee for any training programs Licensor may, in its sole discretion,
provide to Licensee, as set forth in Section 8.2 hereof.
5.8 Licensor or its affiliates may, from time to time and in
its sole discretion, offer additional products and services to Licensee for
purchase at Licensee's option, including uniforms, equipment, furnishings,
stationery, standard "Avis Rent A Car" signs, advertising materials,
promotional materials, decals, and training programs upon such price, terms,
and conditions as Licensor may determine, in its sole discretion.
5.9 Any express or implied duty or obligation imposed on
Licensor by this Agreement or any other agreement referenced herein may be
performed by any designee, employee, or agent of Licensor or third party
contractor, including Licensee, as Licensor may direct; provided, however, that
Licensor shall remain responsible to perform such duties and obligations other
than the obligations of the Licensee to conduct certain functions of the System
pursuant to Section 10 hereto. Licensee shall conduct certain functions of the
System pursuant to the terms set forth in Section 10 hereof.
6. GENERAL UNDERTAKINGS OF LICENSEE
In addition to any other obligations specified elsewhere in this
Agreement:
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6.1 Licensee understands and acknowledges that every detail
of the System and the Licensed Business is important to Licensor and the other
System Licensees in order to develop and maintain high operating standards, to
maintain and increase the demand for the services and products offered by all
System Licensees, and to protect Licensor's reputation and goodwill, and the
goodwill of the Proprietary Marks. Licensee shall maintain and operate the
Licensed Business in general and at each Rental Location in strict conformity
with such methods, standards, and specifications as Licensor and, with respect
to the Proprietary Marks, Wizard Co. may from time to time prescribe including,
among other things, System identity requirements and quality assurance
standards which are, to the extent Licensor has the legal authority to do so,
uniformly imposed on all System Licensees.
6.2 Licensee shall maintain compliance with all provisions of
the Manual, as amended, modified, updated or supplemented from time to time.
Failure by Licensee to comply with all material provisions of the Manual shall
constitute a default under this Agreement.
6.3 Licensee shall fully comply with Licensor's Avis
Intercity Rules, including, without limitation, maintaining, servicing,
refueling, and washing vehicles rented to customers by other System Licensees
under the System which may be presented to Licensee, providing vehicle
exchanges, and the re-renting of such vehicles to customers of the Licensed
Business.
6.4 Licensee shall use the Facilities solely for the
operation of the Licensed Business; shall keep the Facilities open and in
normal operation for such minimum hours and days, and shall maintain an
adequate staff of trained rental agents at each Facility as may be necessary to
service the business generated at such Facilities to maintain the reputation
and goodwill associated with the System; and shall refrain from using or
permitting the use of the Facilities for any other purpose or activity at any
time without first obtaining the written consent of Licensor.
6.5 Licensee shall obtain, operate in a safe and efficient
manner, and maintain in good working order
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and condition and first class appearance, service vehicles, courtesy vehicles,
shuttle buses, and other equipment for use in connection with the Licensed
Business, identified with the Proprietary Marks in such manner as may be
prescribed by Licensor and Wizard Co., of sufficient number and type to provide
the manner and frequency of service to customers required to service the
business generated at each Facility and to maintain the reputation and goodwill
associated with the System.
6.6 Licensee shall maintain in sufficient supply at all
Facilities, and use at all times, only such supplies, forms, products,
advertising, promotional, sales and marketing materials as conform to
Licensor's standards and specifications and as Licensor may approve from time
to time; and shall refrain from using or selling non-conforming items without
Licensor's prior written consent.
6.7 Licensee shall purchase and/or lease all products,
supplies, forms, and other materials bearing the Proprietary Marks or unique to
the System and required for the operation of the Licensed Business and for the
maintenance of Vehicles, solely from suppliers (including manufacturers,
wholesalers, and distributors) who demonstrate to the reasonable satisfaction
of Licensor, the ability to meet Licensor's standards and specifications for
such items; and who possess adequate quality controls and capacity to supply
Licensee's needs promptly and reliably.
6.8 Licensee shall grant Licensor and its agents the right to
enter upon the premises of any Facility at any reasonable time, with or without
advance notice, for the purpose of conducting inspections of each Licensed
Business, including, but not limited to, inspections of the Facilities,
Vehicles, Vehicle service records, other records of the Licensed Business, and
to monitor Licensee's personnel in the performance of their duties; shall
cooperate with Licensor's representatives in such inspections by rendering such
assistance as they may reasonably request; and, upon notice from Licensor or
its agents, and without limiting Licensor's other rights under this Agreement,
shall take such steps as may be necessary to correct promptly the deficiencies
detected during any such inspection. Licensee acknowledges that such
inspections are solely for the purpose of assuring
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compliance with System standards and procedures, and are not intended to
supplant or replace Licensee's safety inspections of Vehicles and Facilities or
any other inspection relating to compliance with applicable law or insurance
requirements for which Licensee shall be solely responsible.
6.9 Licensee shall have sole discretion in determining any
rates for the Licensed Business and Licensor assumes no liability for any
failure by Licensee or Licensor's other System Licensees to honor any published
rates. Licensee agrees to adhere to and honor any rates it causes to be
published and to adhere to and honor any rates as quoted by Licensee for the
time period for which that quote is applicable. Licensee agrees to adhere to
and honor all rates at the prices quoted in the Wizard System and third-party
computerized reservation systems at the time the customer's reservation is
placed, and agrees not to impose any restrictions on rentals or rates which
Licensee did not disclose to Licensor when the rate(s) were transmitted to
Licensor. Licensee further agrees to comply with such other requirements with
respect to published rates as may be specified from time to time by Licensor.
6.10 Licensee shall comply strictly with all laws and
regulations pertaining to the operation and conduct of the Licensed Business
and shall refrain from engaging in any practice which tends to mislead or
deceive the public in any way, or which a reasonable person may characterize as
unconscionable or which a governmental body claims is an unfair or deceptive
business practice and Licensee shall not discriminate on the basis of race,
religion, citizenship or any other illegal basis in the operation of the
Licensed Business.
6.11 Licensee shall promptly pay to other System Licensees,
to third parties, or to Licensor for reimbursement to other System Licensees
and third parties to the extent paid by Licensor, all sums owing to such
entities, including, without limitation, travel agent commissions, telephone
bills, lease payments, airport concession fees, and frequent traveler fees.
6.12 Licensee shall comply with all other requirements set
forth in this Agreement, in the Manual, and as may be issued by Licensor in its
discretion
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through written or electronic bulletins.
6.13 Licensee shall disclose to Licensor all ideas, methods,
improvements, services, techniques and products relating to the operation of
the System conceived by Licensee during the Term and grants to Licensor a
perpetual, royalty-free, non-exclusive and world-wide right and license to
incorporate the same in the System for use with all System Licensees and
businesses world-wide and to license the same to Wizard Co. and System
Licensees, to the extent permitted by applicable Legal Requirements.
7. ESTABLISHMENT, USE, AND MAINTENANCE OF LICENSEE'S
FACILITIES
7.1 Licensee may establish additional Facilities or close
existing Facilities within the Territory, provided that the Licensee shall
provide Licensor with at least thirty (30) days written notice prior to any
such action and in the case of the closing of a Facility, specifying the reason
for closing such Facility.
7.2 Licensor may, in its sole discretion, determine that
additional Facilities are required in the Territory, but outside the Exclusive
Territories, to adequately service customers and to promote the benefits of and
services provided under the System. Licensor shall notify Licensee of the
requirement for an additional Facility or Facilities at the location or
locations specified in such notice (the "Right of First Refusal Offer"). Upon
receipt of the Right of First Refusal Offer, the Licensee shall have the right
and the option, within 30 days of receipt of such Offer, to irrevocably accept
such Offer. In the event Licensee accepts such Right of First Refusal Offer,
the Licensee shall commence actions to acquire and construct the necessary
Facilities within 30 days after acceptance of such Offer as may be specified by
Licensor. In the event Licensee does not accept such Right of First Refusal
Offer, or accepts such Right of First Refusal Offer but fails to commence
actions to acquire and construct the Facility(ies) within such 30 day period,
or fails to commence operations at the Facility(ies) within such reasonable
period thereafter as may be specified by Licensor, Licensor may itself, in its
sole discretion and
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notwithstanding the provisions of Section 2.2 hereof, establish, or license
others to establish, the required Facility(ies) at such location or locations.
Notwithstanding the foregoing, if Licensor does not accept the Right of First
Refusal Offer or otherwise fails to comply with the terms of this Section 7.2,
Licensee shall have the opportunity to present Licensor with its good faith
business reasons why the establishment of such Facility would be detrimental to
the System, and Licensor shall take such reasons into account in making its
decision whether or not to proceed with establishing such Facility.
7.3 In the event HFS or any of its affiliates, including
Licensor, acquires a Car Rental Business that is not related to the Licensed
Business (the "New Business"), Licensor shall notify Licensee of the Rental
Locations of the New Business that are within the Territories (the "New
Business Territories") which notice shall include an offer to Licensee to
operate such New Business Territories and the terms thereof (the "New Business
Offer"). Upon receipt of the New Business Offer, the Licensee shall have the
right and the option, within sixty (60) days of receipt of such New Business
Offer, to irrevocably accept such Offer. In the event Licensee accepts such New
Business Offer, the Licensee shall commence operating such Facilities within
sixty (60) days after acceptance of such Offer. In the event Licensee does not
accept such Offer or fails to commence operating such New Business in the New
Business Territories as specified above, Licensor may itself, in its sole
discretion, operate, or license others to operate, the New Business in the New
Business Territories. Notwithstanding the foregoing, in the event the consent
of a third party is required for Licensee to commence operating a Facility in a
New Business Territory, and Licensee is unable to obtain such consent within
the sixty (60) day period referred to above, the sixty (60) day period shall be
extended for a reasonable period, not to exceed an additional sixty (60) days,
provided Licensee diligently pursues obtaining such consent during such period.
7.4 Licensee shall maintain the Facilities (including
adjacent public areas) in a clean, orderly condition, and in good repair and in
compliance with the requirements set by Licensor hereunder as well as the
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Legal Requirements of any government authority having jurisdiction over the
Facilities or the Licensed Business; and, in connection therewith, Licensee
shall make such additions, alterations, repairs, and replacements thereto as
may be required for that purpose, including, without limitation, such periodic
repainting, repairing, and replacing of obsolete signs, fixtures, furnishings,
and equipment as Licensor may reasonably direct.
7.5 At Licensor's reasonable request, Licensee shall
refurbish the Facilities from time to time at Licensee's expense, to conform to
the trade dress, color schemes, and presentation of trademarks and service
marks consistent with the then-current public image of the System, including,
without limitation, structural changes, replacement or renovation of equipment,
remodeling, redecoration, and modifications to existing improvements.
7.6 Licensee hereby agrees that any Acquired Territories
shall be subject to the terms of this Agreement.
8. LICENSEE TRAINING
8.1 Licensee shall at all times maintain at each Facility a
competent, conscientious, fully-trained staff, and shall ensure that its
employees preserve good customer relations and goodwill of the System and
comply with such dress and grooming codes as Licensor may prescribe in the
Manual or otherwise in writing. Licensee's employees shall present a neat and
clean appearance at all times and render courteous service to all customers of
the Licensed Business and of the System.
8.2 Licensee and Licensee's rental agents, management
personnel, sales force, and other personnel shall attend additional training
programs as are conducted by Licensee with Licensor's approval from time to
time. Licensee or its employees shall be responsible for any and all expenses
incurred by them in connection with any training programs, including without
limitation, tuition fees, the cost of transportation, lodging, meals, and
wages.
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9. VEHICLE FLEET AND RENTAL
9.1 Licensee shall maintain only Vehicles in its Fleet which
satisfy such age, mileage, safety, operating, appearance, equipment, and
condition standards and specifications as may be specified by Licensor from
time to time for the System; shall maintain all Vehicles in excellent
mechanical and running order, and in a safe, efficient, clean, and presentable
condition; and shall discontinue using any Vehicle which fails to satisfy
Licensor's specifications. Licensee shall comply with all vehicle
manufacturers' specifications and procedures with respect to safety recalls
issued by the manufacturer, including the withdrawal of Vehicles from service
until all necessary repairs are completed.
9.2 Licensee shall comply with all government recall notices
promptly and shall keep maintenance records for each Vehicle for such period as
may be reasonably specified by Licensor and shall make such records available
for inspection by Licensor.
9.3 In renting Vehicles, Licensee shall use only Licensor's
sequentially-numbered Standard Rental Agreement forms and Standard Rental
Agreement jackets, purchased by Licensee from a source approved by Licensor,
and such other documents as may be specified by Licensor, in the form
prescribed by Licensor. Licensee may alter the Standard Rental Agreement, the
information contained in the Standard Rental Agreement or on the jacket, or the
format or presentation of data on the Standard Rental Agreement, or in any
other document or agreement, only with the prior written consent of Licensor,
which consent shall not be unreasonably withheld. Further, and without limiting
the foregoing, Licensee shall, in assessing and collecting legitimate and
legally permissible taxes and surcharges from customers for remittance to the
appropriate government agencies, identify such taxes and surcharges in the
appropriate places on the Standard Rental Agreement, and shall not impose
additional charges, surcharges, or taxes (which will not be remitted to the
appropriate government agencies) as part of the taxes identified in the
Standard Rental Agreement, or in a manner designed to, or which results in,
confusion or deception of the customer as to the appropriate federal, state, or
local tax imposed with respect to the transaction. Licensee shall maintain
copies of each
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executed Standard Rental Agreement in accordance with standards specified by
Licensor.
9.4 Licensee shall not rent, or allow customers or other
persons to use a Vehicle for a period in excess of eleven (11) consecutive
months. If a customer desires to rent a Vehicle for a period longer than
thirty (30) consecutive days and less than eleven (11) consecutive
months, Licensee and such customer shall, no later than at the conclusion of
the first thirty (30) day period, execute a "mini-lease" agreement and a
Standard Rental Agreement for the Vehicle for each thirty (30) day period
thereafter during the rental.
9.5 Licensee shall also comply with any requirements of
certain automobile dealers or manufacturers supplying vehicles to Licensee
which may impose more stringent restrictions regarding maximum rental periods
for such Vehicles.
10. PROVISION OF SERVICES BY LICENSEE ON BEHALF OF
LICENSOR
10.1 It is the intention of the parties hereto that Licensee
will undertake to provide certain services to other System Licensees on behalf
of Licensor. Such services include generally, but are not limited to, marketing
and advertising services, training, preparation of Composite Statements and
other accounting and management services, communications to System Licensees
and franchise relations and other services as more specifically set forth in
Schedule 2 attached hereto. Therefore, Licensee hereby agrees to provide, or
shall cause one of its wholly owned subsidiaries to provide, the services set
forth on Schedule 2 attached hereto for the benefit of the System Licensees on
behalf of the Licensor.
Licensee also expressly undertakes to collect all license fees and
other amounts due to Licensor from other System Licensees and remit such fees
in full to Licensor as collected. Licensee shall continue to follow its
established collection procedures in effect as of the Commencement Date.
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11. AIRPORT LOCATIONS
11.1 Licensee understands and acknowledges that a significant
aspect of the System involves fast, easy, and dependable vehicle rental
services, including providing such services at or from Rental Locations
situated at airports. To that end, Licensee shall utilize its best efforts to
maintain at all times an On- Airport Location at each airport located within
the Territory or an Off-Airport Location if an On-Airport Location is either
not available or not economically feasible.
11.1.1 In the event Licensee fails to
secure an On-Airport Location at an airport or Licensee determines that an
Off-Airport Location would provide substantially the same level of service and
revenue as an On-Airport Location, Licensor may, in its sole discretion,
require Licensee to use its best efforts to establish an Off-Airport Location.
11.2 In the event Licensee fails to secure an On-Airport
Location at a particular airport during the course of two consecutive airport
concession offerings by such airport or an Off-Airport Location with respect to
such airport has not been established pursuant to Section 11.1.1, Licensor may
terminate this Agreement with respect to that airport.
12. SYSTEM CHANGES AND OPERATIONAL DEVELOPMENTS
12.1 Services and products required or suggested to be
offered to customers under the System may be supplemented, improved, and
otherwise modified from time to time by Licensor in response to competition,
technical developments, consumer demands, opportunities, changing vehicle
styles, changing patterns in business, recreational, and personal travel,
governmental regulations, and other factors. Such changes may necessitate
replacement or renovation by Licensee of capital equipment and/or Vehicles,
remodeling, redecorating, and modifications to existing improvements. For
purposes of illustration only, such changes may include, without limitation,
new equipment required on all vehicles, such as passive restraint air bags,
alternative fuel equipment, cellular telephones, or computerized and electronic
location tracking and mapping
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devices; equipment to accommodate customers with disabilities; computer systems
and other facilities designed for customer rentals through personal computers
and other electronic or telecommunications devices; and the use of "master"
rental agreements to supplement the individualized Standard Rental Agreements.
Licensor shall consult with Licensee before making any such changes; but may
make such changes in its sole discretion.
12.2 Licensor shall notify Licensee, in the Manual or
otherwise in writing, of System changes and/or new or different products and
services which shall be offered to customers under the System. Licensee shall
comply with all requirements concerning implementation of such changes and/or
introduction of such new or different products and services for its customers,
including, without limitation, purchasing, leasing, or renovating capital
equipment and/or Vehicles, and undertaking and completing such changes within
the time periods specified by Licensor. Failure to comply with Licensor's
requirements concerning System changes and operational developments shall be a
default under this Agreement.
13. ADVERTISING
13.1 Licensee shall spend not less than one and two-tenths
percent (1.2%) of its Gross Revenue per year on advertising and promotional
activities to promote the System and the Licensed Business and to maintain the
standards prescribed by Licensor. Subject to Licensor's prior approval pursuant
to Section 13.2, all advertising and promotion by Licensee in any medium shall
be conducted in a dignified manner and shall conform to the standards and
requirements as may be specified by Licensor. Licensee shall promptly
discontinue use of any advertising or promotional plans or materials upon
notice of disapproval from Licensor.
13.2 Not less often than once per year, Licensee shall submit
to Licensor a plan of marketing and promotion, detailing Licensee's programs to
market and promote the System in the succeeding year. Such plan shall include
proposed advertising campaigns (including, by way of example and not of
limitation, storyboards for commercials and prepared print ads), promotional
offers, budgets (including specific information on media spending
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and production and other promotional expense) and other relevant information
regarding implementation of the marketing and promotional programs. Licensor
shall review such plan and meet with Licensee to discuss the plan and its
elements. Within a reasonable period of time after such meeting, Licensor shall
notify Licensee of its approval or disapproval of such plan, and if such plan
is disapproved, provide Licensee with details of what aspects of such plan are
disapproved. Licensee shall modify such plan to take into account Licensor's
objections. Licensor's review of such plan and approval or disapproval shall
not be unreasonably withheld or delayed, provided that Licensor reserves all
rights to determine, in its sole discretion, if any aspect of such plan would
adversely affect the System or the Proprietary Marks or Licensor's reputation
and goodwill.
13.3 Licensee shall participate in any and all programs,
campaigns or activities, regular or special, relating to advertising, sales
promotion, marketing, reservations, charge or credit cards, travel industry
commissions, or tour arrangements, or any other program, campaign, or activity
which Licensor may from time to time engage in, conduct, or prescribe, as
reasonably determined by Licensor, for the benefit of System Licensees, and
Licensee shall pay assessments and advances therefor on the same basis as other
System Licensees. The amount of said assessment(s) will be determined
periodically by Licensor, in its sole discretion, and will not exceed two
tenths of one percent (0.2%) of Licensee's Gross Revenue per year. In the event
Licensor imposes any assessment(s), Licensor's expenditure advertising
requirement in Section 13.1 hereof will be reduced by the amount of such
assessment(s). Such assessments may be used by Licensor to defray any of
Licensor's operating expenses and overhead directly related to the
administration, direction or operation of such programs, campaigns, or
activities.
13.4 Licensor may conduct advertising, at its own expense,
and in such manner and to such extent, as Licensor sees fit in its sole
discretion. Licensor does not guarantee the distribution of advertising in any
quantity or format, to or for any particular licensee or licensees, or in any
area which includes a particular licensee's licensed territory. The parties
hereto agree
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that Licensor shall have sole discretion over the placement and format of any
such advertising.
14. COVENANTS
14.1 Licensee covenants that during the term of this
Agreement, except as otherwise approved in writing by Licensor, Licensee shall
devote best efforts to the management and operation of the Licensed Business.
14.2 Licensee covenants that during the term of this
Agreement, except as otherwise approved in writing by Licensor, Licensee shall
not, either directly or indirectly, for itself, or through, on behalf of, or in
conjunction with any person, persons, partnership, corporation or limited
liability company:
14.2.1 Divert or attempt to divert any
business or customer of the Licensed Business or of Licensor or other System
Licensees under the System to any competitor, by direct or indirect inducement
or otherwise, or do or perform, directly or indirectly, any other act injurious
or prejudicial to the goodwill associated with the Proprietary Marks and the
System; and
14.2.2 Own, maintain, advise, help,
manage, invest in, make loans to, be employed by, engage in, or have any
interest in or relationship or association with any business engaged in the
rental of motor vehicles in the United States other than (i) the Licensed
Business, (ii) as is expressly contemplated pursuant to Section 10 hereof, with
respect to other System Licensees or (iii) which is acquired by Licensee and is
immediately converted to operate as part of the Licensed Business, without the
express written consent of Licensor.
14.3 Licensee covenants that, except as otherwise approved in
writing by Licensor, for a continuous, uninterrupted period commencing upon a
transfer permitted under Section 15.2 or 15.3 hereof, or upon the termination
of this Agreement, regardless of the cause for termination, and continuing for
one (1) year thereafter in the event Licensor exercises its rights under
Section 18.9, neither Licensee nor any affiliate of Licensee shall, either
directly or indirectly, for itself, or through, on behalf of, or in conjunction
with
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any person, persons, partnership, or corporation, own, maintain, advise, help,
manage, invest in, make loans to, be employed by, engage in, or have any
interest in any business engaged in the rental of motor vehicles, if such
business is located at or within five (5) miles of any of the Facilities in
operation at the time of such termination without the express written consent
of Licensor. This Section 14.3 shall not be applicable upon the expiration of
the initial term of this Agreement (specified in Section 3.1) if this Agreement
is not renewed pursuant to Section 3.3, or upon the expiration of any renewal
term if this Agreement is renewed pursuant to Section 3.3.
14.4 Licensee covenants that until all Base Fees and
Supplemental Fees and any deferrals thereof have been paid in full, Licensee
shall not pay any dividends to its parent, other than those dividends which are
necessary to cover the customary expenses of a public holding company.
14.5 Sections 14.2 and 14.3 shall not apply to ownership by
Licensee or an affiliate of Licensee of less than five percent (5%) beneficial
interest in the outstanding equity securities of any corporation registered
with the Securities and Exchange Commission pursuant to the Exchange Act and
traded on a national securities exchange or on a national automated quotation
system (a "Publicly-Held Corporation").
14.6 Licensee understands and acknowledges that Licensor
shall have the right, in its sole discretion, to reduce the scope of any
covenant set forth in Sections 14.2 and 14.3 of this Agreement, or any portion
thereof, without Licensee's consent, to be effective immediately upon receipt
by Licensee of Licensor's written notice thereof, and Licensee agrees that it
shall comply forthwith with any covenant as so modified, which shall be fully
enforceable notwithstanding the provisions of Section 29 hereof.
14.7 Licensee expressly agrees that the existence of any
alleged claims it may have against Licensor, whether or not arising from this
Agreement, shall not constitute an affirmative or equitable defense to the
enforcement by Licensor of the terms in this Section 14.
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14.8 Licensee acknowledges that Licensee's violation of the
terms of this Section 14 would result in irreparable injury to Licensor for
which no adequate remedy at law may be available, and Licensee accordingly
consents to the issuance of, and agrees to pay all court costs and reasonable
attorneys' fees incurred by Licensor in obtaining, a temporary restraining
order and/or an injunction prohibiting any conduct by Licensee in violation of
the terms of this Section 14. Licensor will not be required to post any bond to
obtain such injunction.
14.9 All covenants, obligations, and agreements of Licensee
which by their terms or by reasonable implication are to be performed, in whole
or in part, after the termination of this Agreement, shall survive such
termination.
15. TRANSFER OF INTEREST
15.1 Transfer by Licensor and Wizard Co.:
Licensor and Wizard Co. shall have the right to transfer or assign
all, but not part, of this Agreement and Licensor's and Wizard Co.'s rights or
obligations herein to any person or legal entity, and such transfer or
assignment shall constitute a novation of this Agreement whereby any designated
assignee of Licensor and Wizard Co. shall be substituted in place of Licensor
and Wizard Co. and shall become solely responsible for all obligations of
Licensor and Wizard Co. under this Agreement from the date of assignment,
provided, however, that no assignment shall be made by Licensor and Wizard Co.
except to an assignee who, in Licensor's and Wizard Co.'s good faith judgment,
is willing and able to assume the obligations of Licensor and Wizard Co. under
this Agreement.
15.2 Transfer by Licensee when Licensee is not
a Publicly-Held Corporation
15.2.1 Licensee understands and
acknowledges that the rights and duties set forth in this Agreement are
personal to Licensee, and that Licensor has granted this license in reliance on
the representations of Licensee concerning the business skill and financial
capacity of Licensee. Accordingly, when Licensee is not
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a Publicly-Held Corporation, neither Licensee nor any immediate or remote
successor to any part of Licensee's interest in this license nor any
individual(s), partnership, corporation, or other legal entity which directly
or indirectly controls Licensee (for the purpose of this Section 15, the
"transferor"), shall sell, assign, transfer, convey, or give away, in one
transaction or a series of transactions, any interest in this Agreement, in the
rights granted in this Agreement, in Licensee, or in substantially all of the
assets of the Licensed Business, without the prior written consent of Licensor;
provided, however, that the transfer of less than a ten percent (10%) equity
interest in Licensee in a single transaction, which does not have the affect of
transferring control (as "control" is defined in Section 15.2.2 hereof), shall
not require the prior approval of Licensor, provided that Licensee notifies
Licensor in writing of such transfer within thirty (30) days following such
transfer. Any such purported assignment or transfer, by operation of law or
otherwise, not having the written consent of Licensor shall be null and void
and shall constitute a material breach of this Agreement, for which Licensor
may then terminate without opportunity to cure pursuant to Section 17.2 of this
Agreement.
15.2.2 For the purposes of this
Agreement, "control" shall mean the possession, direct or indirect,
individually or with other stockholders, of the power to direct or cause the
direction of the management and policies of a person, corporation, or other
business entity, whether through the ownership of voting securities, by
contract, or otherwise.
15.3 Transfer by Licensee when Licensee is a Publicly-Held
Corporation.
15.3.1 At any time when Licensee is a
Publicly-Held Corporation, Licensee may not sell, assign, transfer, convey, or
give away, in one transaction or a series of transactions, any interest in this
Agreement, in the rights granted in this Agreement, in Licensee, or in
substantially all of the assets of the Licensed Business, without the prior
written consent of Licensor; provided, however, that any transfer that does not
constitute a Change of Control Event, shall not require the prior approval of
Licensor. Any such purported assignment or transfer, by operation of law or
otherwise,
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without the written consent of Licensor shall be null and void and shall
constitute a material breach of this Agreement, for which Licensor may then
terminate without opportunity to cure pursuant to Section 17.2 of this
Agreement.
15.4 Licensor's Purchase Right:
15.4.1 If any party (the "Seller") who
holds any interest in this Agreement, in Licensee (the transfer of which
interest would have the effect of causing a change of control in the ownership
of the Licensed Business), or in substantially all of the assets of the
Licensed Business, desires to accept any bona fide offer from a third party to
purchase such interest or assets, the Seller shall notify Licensor in writing
of the terms of each such offer, and Licensor shall have the right and option,
exercisable within thirty (30) days after receipt of such written notification,
to send written notice to the Seller that Licensor intends to purchase the
Seller's interest or assets on the same terms and conditions offered by the
third party. In the event that Licensor elects to purchase the Seller's
interest or assets, the closing on such purchase must occur within one hundred
and eighty (180) days from the date of notice to the seller of the election to
purchase by Licensor or such later date as may have been provided in the offer.
If Licensor does not exercise its right to purchase, any material change in the
terms of the third party's offer prior to closing shall constitute a new offer
subject to the same rights of first refusal by Licensor as in the case of the
initial offer. Failure of Licensor to exercise the option afforded by this
Section 15.4 shall not constitute a waiver of any other provision of this
Agreement, including all of the requirements of this Section 15, with respect
to a proposed transfer.
15.4.2 In the event the consideration,
terms, or conditions offered by the Seller are such that Licensor may not
reasonably be required to furnish the same consideration, terms, or conditions,
then Licensor may purchase the interest or assets proposed to be sold for the
reasonable equivalent in cash. If the parties cannot agree within a reasonable
time on the reasonable cash equivalent of the consideration, and upon the terms
or conditions offered by the third party, each of the parties shall designate
an independent appraiser and
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their determination shall be binding upon the parties. If the appraisers cannot
agree within a reasonable time upon the reasonable cash equivalent of the
consideration, they shall designate a third appraiser whose determination shall
be binding upon the parties. Each party shall bear the costs of its designated
appraiser, and the parties shall share equally the costs of the third
appraiser.
15.5 Non-Waiver of Claims:
Licensor's consent to a transfer of any interest in Licensee, the
Licensed Business, this Agreement, or in the license granted hereby shall not
constitute a waiver of any claims Licensor may have against the transferor, nor
shall it be deemed a waiver of Licensor's right to demand exact compliance with
any of the terms of this Agreement by the transferee.
16. OTHER REQUIREMENTS
16.1 Licensee shall comply with the following
requirements:
16.1.1 Copies of Licensee's Articles of
Incorporation or charter, its Bylaws and other governing documents shall be
furnished to Licensor prior to execution of this Agreement, and any amendments
thereto shall be furnished within ten (10) days of effecting such amendment;
and
16.1.2 Licensee shall not permit its
corporate charter to be revoked or suspended in the state in which Licensee is
organized, or the state or states in which Licensee is qualified to be
business.
17. DEFAULT AND TERMINATION
17.1 Automatic Default and Termination:
17.1.1 Licensee shall be in default under
this Agreement and all rights granted herein shall automatically terminate
without notice to Licensee if Licensee shall become insolvent or if a voluntary
bankruptcy case or proceeding is filed by Licensee or a proceeding is commenced
by Licensee under any provision of Title 11 of the United States Code or under
any other
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bankruptcy or insolvency law, including, but not limited to, assignments for
the benefit of creditors, moratoria (formal or informal), compositions, or
proceedings seeking reorganization, arrangements, or other similar relief or
the Licensee consents to the entry of an order for relief against it in an
involuntary case or an involuntary bankruptcy case is filed with respect to
Licensee and such involuntary case is not dismissed within 60 days of such
filing; or if a receiver or other custodian (permanent or temporary) of
Licensee's assets or property, or any part thereof, is appointed by any court
of competent jurisdiction; or if execution is levied against Licensee's
business or property; or if suit to foreclose any lien or mortgage against the
premises or equipment of the Licensed Business is instituted against Licensee
and not dismissed within sixty (60) days; or if the real or personal property
of the Licensed Business shall be sold after levy thereupon by any sheriff,
marshal, or constable; provided, that, this provision shall not apply to
proceedings related to any immaterial assets or property of the Licensee.
17.2 Non-Curable Defaults/Termination Upon
Notice:
17.2.1 Licensee shall be in default hereunder, and
Licensor and, with respect to the Proprietary Marks, Wizard Co. may, at their
option, terminate this Agreement and all rights granted hereunder, without
affording Licensee any opportunity to cure the default, upon not less than
thirty (30) days prior written notice, upon the occurrence of any of the
following events:
17.2.2 If Licensee purports to transfer
any rights or obligations under this Agreement, the license granted hereby, or
any interest in Licensee to any third party without compliance with the terms
of Section 15 of this Agreement;
17.2.3 If Licensee fails to comply with
the covenants in Section 14.2 hereof;
17.2.4 If, contrary to Sections 19 or 20
hereof, Licensee discloses or divulges the contents of the Manual or other
trade secret or confidential information provided to Licensee by Licensor or
obtained by Licensee in its operation of the Licensed Business prior to the
Transfer;
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17.2.5 If Licensee challenges Licensor's
right to license or the ownership of the Proprietary Marks; or
17.2.6 If Licensee has received three or
more prior Notices of Termination (as defined) pursuant to Section 17.3 hereof
for the same, similar, or different defaults in any twelve-month period,
whether or not such defaults have been cured after notice.
17.3 Curable Defaults/Termination Upon Notice:
17.3.1 Except as provided in Sections
17.1 and 17.2 of this Agreement, Licensee shall have thirty (30) days (ten (10)
days in the case of a payment default described in Section 17.3.1.1) after its
receipt from Licensor of a written notice of termination ("Notice of
Termination") within which to remedy any default hereunder and to provide
evidence thereof to Licensor. Other than with respect to payment defaults, in
the event such default is not cured within 30 days but the Licensee is
diligently making efforts to cure such default, the Licensee shall have an
additional 60 days to cure such default. If any such default is not cured
within that time, or such longer period as applicable law may require, this
Agreement shall terminate without further notice to Licensee effective
immediately upon the expiration of the period specified above or such longer
period as applicable law may require. Licensee shall be in default hereunder
for any failure to comply substantially with any of the requirements imposed by
this Agreement, as it may from time to time reasonably be supplemented by the
Manual or otherwise in writing, or for any failure to carry out the terms of
this Agreement in good faith. Such defaults shall include, without limitation,
the occurrence of any of the following events:
17.3.1.2 If Licensee fails, refuses, or neglects
to promptly pay when due any monies owing to Licensor or its affiliates under
this Agreement, the Computer Services Agreement, the Reservation Agreement, the
Lease Agreements or the Cost Sharing Agreement, or to submit, when due, the
financial information or any reports required by
Licensor under this Agreement;
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17.3.1.3 If Licensee misuses or makes any
unauthorized use of the Proprietary Marks or otherwise
materially impairs the goodwill associated therewith or
Licensor's rights therein;
17.3.1.4 If Licensee engages in any business or
markets any service or product under a name or mark or uses trade dress or
styles which, in Licensor's opinion, is confusingly similar to the Proprietary
Marks; or
17.3.1.5 If Licensee fails to maintain material
compliance with the standards or procedures prescribed by Licensor in this
Agreement, the Manual, or otherwise in writing.
17.3.1.6 With respect to any Facility, if the
Licensee fails to maintain compliance with the standards or procedures
prescribed by Licensor in this Agreement, the Manual, or otherwise in writing
at such Facility.
17.4 Licensee may only terminate this Agreement, with cause,
after giving Licensor written notice of default, specifying the basis therefore
and Licensor fails to cure such default within ninety (90) days after notice is
given, and by providing written notice to Licensor at least one hundred and
eighty (180) days prior to the date Licensee intends to terminate this
Agreement.
18. OBLIGATIONS UPON TERMINATION
Upon termination or expiration of this Agreement, all rights granted
hereunder to Licensee shall forthwith terminate, and:
18.1 Licensee shall immediately cease to operate the Licensed
Business and shall not thereafter, directly or indirectly, represent itself to
the public or hold itself out as a present or former licensee of Licensor.
18.2 Licensee shall immediately and permanently cease to use,
by advertising or in any other manner whatsoever, any confidential methods,
procedures, or techniques associated with the System, and all
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Proprietary Marks, including any such Proprietary Marks used in the Licensee's
or any of its subsidiaries' corporate names, and distinctive forms, slogans,
signs, symbols, or devices associated with the System. In particular, without
limitation, Licensee shall cease to use all signs, equipment, advertising
materials, stationery, forms, and any other articles which display the
Proprietary Marks; provided, however, that this Section 18.2 shall not apply to
the operation by Licensee of another Avis vehicle rental business pursuant to
another agreement between Licensor and Licensee which is then in effect.
18.3 Licensee shall take such action as may be necessary to
cancel any assumed name or equivalent registration which contains the names
"Avis," "Avis Rent A Car," or any other service mark or trademark of Licensor;
and Licensee shall furnish Licensor with evidence satisfactory to Licensor of
compliance with this obligation within fifteen (15) days after termination or
expiration of this Agreement.
18.4 Licensee agrees, in the event it continues to operate or
subsequently begins to operate any other business, not to use any reproduction,
counterfeit, phonetic equivalent copy, or colorable imitation of the
Proprietary Marks either in connection with such other business or the
promotion thereof, which is likely to cause confusion, mistake, or deception,
or which is likely to dilute Licensor's rights in and to the Proprietary Marks;
and further agrees not to utilize any designation of origin or description or
representation which falsely suggests or represents an association or
connection with Licensor or the Proprietary Marks which constitutes dilution or
unfair competition.
18.5 Licensee shall promptly pay all sums owing to Licensor
and its subsidiaries and affiliates. In the event of termination due to any
default of Licensee or Licensee's termination of this Agreement without legal
cause, such sums shall include all damages, costs, and expenses, including
reasonable attorneys' fees, incurred by Licensor as a result of the default,
which obligation shall give rise to and remain a lien in favor of Licensor
against any and all of the personal property, equipment, inventory, and
fixtures owned by Licensee and on all facilities operated hereunder at the
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time of default, until paid in full.
18.6 Licensee shall promptly pay to Licensor all sums owing
to other System Licensees and to third parties, if such sums are typically paid
to Licensor, or if nonpayment will affect the on-going operations of Licensee's
terminated business. Such sums owing to third parties shall include, but not be
limited to, travel agent commissions, telephone bills, rent, airport concession
fees, and frequent flier fees.
18.7 Licensee shall immediately turn over to Licensor the
Manual, any and all other confidential and proprietary manuals, records, files,
instructions, bulletins and other materials relating to the operation of the
Licensed Business which are in Licensee's possession, and all copies thereof
(all of which are acknowledged to be Licensor's property).
18.8 Licensee shall notify the telephone companies serving
the Facilities and all listing agencies of the termination of Licensee's right
to use any telephone number and any regular, classified, or other telephone
directory listings associated with the Proprietary Marks and shall authorize
transfer of same to or at the direction of Licensor. Licensee acknowledges that
as between Licensor and Licensee, Licensor has the sole rights to and interest
in all telephone numbers and directory listings associated with the Proprietary
Marks. Licensee authorizes Licensor, and hereby appoints Licensor and any
officer of Licensor as Licensee's attorney-in-fact, which power shall be
coupled with an interest, to direct the telephone company and all listing
agencies to transfer such telephone numbers and directory listings to Licensor,
or at Licensor's direction, should Licensee fail or refuse to do so, the
telephone company and all listing agencies may accept such direction of this
Agreement as conclusive of the exclusive rights of Licensor in and to such
telephone numbers and directory listings and Licensor's authority to direct
their transfer. Licensee shall furnish to Licensor within ten days after the
effective date of termination of this Agreement evidence satisfactory to
Licensor of Licensee's compliance with the obligations contained in this
Section 18.8. Licensor may provide a copy of this Section to any telephone
service provider as proof of its authority.
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18.9 Licensee shall, at Licensor's option which shall be
exercised within 30 days from termination, sell all of the Licensee's interest
in its assets, including, without limitation, the Licensee's fleet, equipment
and real estate, used in connection with the Licensed Business at a value
agreed upon by Licensee and Licensor within thirty (30) days of the exercise of
such option. To the extent that Licensee and Licensor are unable to agree on
the value of such assets within such thirty (30) day period, then a nationally
recognized investment banking firm selected by Licensee and a nationally
recognized investment banking firm selected by Licensor shall attempt to agree
on the value of such assets. If such investment banking firms are unable to
agree on the value of such assets within thirty (30) days of such matter being
referred to them, then the matter shall be referred to a third nationally
recognized investment banking firm which shall be independent of Licensee and
its affiliates and Licensor and its affiliates and mutually acceptable to
Licensee and Licensor, and which shall determine the value of such assets
within 30 days of the matter being referred to it, which shall be final,
binding and conclusive on the parties hereto. The fees and disbursements of the
investment banking firms initially selected by Licensee and Licensor to
determine the value of the assets shall be borne by the party selecting such
investment banking firm and the fees and disbursements of independent
investment banking firms selected to resolve the dispute of the initial two
investment banking firms shall be borne equally by Licensee and Licensor. In
acting under this Section 18.9, the investment banking firms referred to herein
shall be entitled to the privileges and immunities of arbitrators. In the event
Licensor elects to purchase the Licensee's assets, the Licensee shall:
18.9.1 Assign to Licensor, or Licensor's
designee, Licensee's Airport Concession Agreement(s). Licensee shall execute
all documents reasonably necessary to do such other acts and steps necessary to
transfer the rights under each Airport Concession Agreement, subject to
approval by the airport authority party to such agreement.
18.9.2 Assign to Licensor any interest which
Licensee has in any lease or sublease for any of the premises or Facilities of
the Licensed Business.
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18.10 In the event Licensor does not elect to exercise its
option to acquire the assets of the Licensee pursuant to this Section 18.9,
Licensee, within the later of thirty (30) days after termination of this
Agreement or thirty (30) days after receipt of notice that Licensor will not
exercise its option pursuant to Section 18.9 hereof but in no event later than
sixty (60) days after termination, shall make such modifications or alterations
to the facilities operated hereunder (including, without limitation, assigning
the telephone number to Licensor, and changing the color scheme, and other
distinctive design features) as may be necessary to prevent the operation of
any business thereon by itself or others in derogation of this Section 18.10,
and shall make such specific additional changes thereto as Licensor may
reasonably request for that purpose.
18.11 Licensee shall transfer immediately to Licensor all
unused current versions of Avis Standard Rental Agreements and forms, signage,
uniforms, and any other equipment or supplies bearing the Proprietary Marks.
Licensor shall purchase any supplies useable by Licensor at Licensee's cost,
based on the most recent invoices received by Licensee.
18.12 Licensee acknowledges that any failure to comply with
the requirements of this Section 18 will cause Licensor irreparable injury, and
Licensee shall pay to Licensor all damages, costs, and expenses, including,
reasonable attorneys' fees, incurred by Licensor subsequent to the termination
of the license herein granted in obtaining injunctive or other relief for the
enforcement of any provisions of this Section 18 without bond.
19. CONFIDENTIAL OPERATING MANUAL
19.1 In order to protect the reputation and goodwill of
Licensor and to maintain uniform standards of operation under the Proprietary
Marks, Licensee shall conduct its business in accordance with the Manual, which
may consist of books, manuals, bulletins, compilations and other materials
relating to operations under the System, including additions and updates
thereto, as published, or disseminated through any means including electronic
or computer systems, by Licensor to Licensee from time to time. Without
limiting the foregoing, the
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Manual shall consist of, among other things, manuals, bulletins, notices,
letters, information, and other material pertaining to (a) the operation of the
Wizard System, and (b) the Avis Intercity Rules and the Rent It Here Leave It
There program. One copy of the Manual shall be furnished to Licensee on loan
for the term of this Agreement for each Facility or Rental Location.
19.2 Licensee shall at all times treat the Manual and the
information contained therein as confidential, and shall use all reasonable
efforts to maintain such information as secret and confidential. Licensee shall
not at any time copy, duplicate, record, or otherwise reproduce the Manual in
whole or in part, other than for use at the Licensee's Facilities, and shall
not otherwise make the Manual available to any unauthorized person.
19.3 The Manual shall at all time remain the sole property of
Licensor and shall at all times be kept in a secure place at Licensee's primary
office or facility.
19.4 Licensor may from time to time revise the Manual to
reflect changes in System standards, and Licensee expressly agrees to comply
with each new or changed standard. Licensor agrees that any such changes in the
Manual or changes issued through written or electronic bulletins shall be
applied equally to Licensee and to other System Licensees, to the extent
Licensor has the legal authority to impose such requirements on other System
Licensees.
19.5 Licensee shall at all times insure that its copy of the
Manual is kept current and up to date, and in the event of any dispute as to
the contents of the Manual, the terms of the master copy of the Manual
maintained by Licensor at Licensor's home office shall be controlling.
20. CONFIDENTIAL INFORMATION
20.1 Licensee shall not, during the term of this Agreement or
at any time after termination, communicate, divulge, or use for the benefit of
any other person, persons, partnership, association, or corporation any
confidential information, knowledge, or know-how
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concerning the methods of operation of the Licensed Business which may be
communicated to Licensee, or of which Licensee may be apprised, by virtue of
Licensee's operation under this Agreement or as a result of Licensor's
operation of the System prior to the Transfer. Licensee shall divulge such
confidential information only as required by law or to those of its employees
who must have access to such confidential information on a need-to-know basis
in order to operate the Licensed Business. Any and all information, knowledge,
know-how, and techniques which Licensor designates as confidential shall be
deemed confidential for purposes of this Agreement.
20.2 Licensee acknowledges that any failure to comply with
the requirements of Section 20.1 will cause Licensor irreparable injury, and
Licensee agrees to pay all court costs and reasonable attorneys' fees incurred
by Licensor in obtaining specific performance of, or an injunction against
violation of, the requirements of Section 20.1.
21. ACCOUNTING AND RECORDS
21.1 Licensee shall maintain, and shall preserve for at least
five (5) years from the dates of their preparation, full, complete, and
accurate books, records, and accounts in accordance with generally accepted
accounting principles and in the form and manner as may be prescribed by
Licensor from time to time in the Manual or otherwise in writing, including,
but not limited to, requirements that Licensor may reasonably prescribe with
regard to computer hardware and software, and input of and access to such
information in the Wizard System.
21.2 Licensee shall submit to Licensor within twenty (20)
days following the end of each month, a monthly business and transactions
report setting forth such data for such month then ended as Licensor may
reasonably require along with Licensee's payment of all monthly fees and other
payments required under Section 4 hereof.
21.3 Within forty-five (45) days following each calendar
quarter, Licensee shall, at Licensee's expense, submit to Licensor an unaudited
quarterly profit
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and loss statement and balance sheet in a form prescribed by and satisfactory
to Licensor, signed by Licensee attesting that it is true and correct.
21.4 Licensee shall, at its expense, provide to Licensor
within ninety (90) days after the end of each fiscal year of the Licensed
Business, audited financial statements, including a profit and loss statement,
a statement of cash flows, and balance sheet, certified by an independent
certified public accountant satisfactory to Licensor, showing the results of
operations of the Licensed Business during said fiscal year, and the comparable
prior year period.
21.5 Licensee shall also submit to Licensor, for review or
audit, such other forms, reports, records, information, and data as Licensor
may reasonably designate, in the form, and at the times and places, including,
if applicable, by telecommunications data transmission methods, as are
reasonably required by Licensor, upon request and as specified from time to
time in the Manual or otherwise in writing.
21.6 Licensor or its designated agents shall have the right
at all reasonable times to examine and copy, at Licensor's expense, the books,
records, microfiche, computer files, other computerized or electronically
sorted data, and business tax returns of Licensee. Licensor shall also have the
right, at any time, to have an independent audit made of the books of Licensee.
If an inspection by Licensor should reveal that any Gross Revenue has been
understated in any report to Licensor, then Licensee shall immediately upon
demand, reimburse Licensor for the costs incurred in such inspection, and pay
to Licensor all royalties and other required payments due on the amount
understated, in addition to interest from the date such royalties and other
payments were due until paid, at the rate of the Prime Rate plus three and
one-half percent (3.5%) per annum or the maximum rate permitted by law,
whichever is less. The foregoing remedies shall be in addition to any other
remedies Licensor may have.
22. INSURANCE
22.1 Licensee shall maintain in full force and effect, at
Licensee's expense, an insurance policy or
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policies protecting Licensee and Licensor (including its affiliates), and their
officers, directors, partners, and employees (Licensee, Licensor, Wizard Co.
and HFS shall be named insureds), against any claims for loss, liability,
personal injury, death, property damage, breach of contract, or any expense
whatsoever arising out of or in connection with the Licensed Business or
occurring upon the premises where the Facilities are located.
22.2 Such policy or policies shall be written by an insurance
company satisfactory to Licensor or through self insurance by Licensee, which
self insurance retention shall not exceed Five Million Dollars ($5,000,000), in
accordance with standards and specifications set forth in the Manual or
otherwise in writing, and shall include, at a minimum, the following:
22.2.1 Commercial general liability
insurance covering the premises, Facilities and operations of the Car Rental
Business, including coverage for public liability, garage liability, and
extended liability endorsements (including contractual liability, property
damage, products liability, completed operations, and fire legal liability
coverage), with combined single limits per occurrence, primary and excess
combined, of not less than Fifty Million Dollars ($50,000,000). Any pollution
exclusion must include an exception for hostile fire perils.
22.2.2 Comprehensive motor vehicle
liability coverage for both owned and non-owned vehicles, with primary and
excess limits of not less than Fifty Million Dollars ($50,000,000) combined
single limit.
22.2.3 Employer's liability, workers'
compensation, and such other insurance as may be required by statute or rule of
the state or localities in which any Licensed Business is located and operated.
22.2.4 Property and business interruption
insurance, or similar insurance coverage, including coverage for fire,
lightning, the extended coverages, vandalism, malicious mischief, and payments
to Licensor for loss of royalties and other monthly payments specified in
Section 4 hereof, as a result of any interruption in Licensee's business
operations at any
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Facility.
22.3 Licensee's obligation to obtain and maintain the
foregoing policy or policies in the amounts specified shall not be limited in
any way by reason of any insurance which may be maintained by Licensor, nor
shall Licensee's performance of that obligation relieve Licensee of liability
under the indemnity provisions set forth in Section 25 of this Agreement.
22.4 Upon obtaining the insurance required by this Agreement
and on each policy renewal date thereafter, Licensee shall promptly submit
evidence of satisfactory insurance to Licensor, together with, upon request,
copies of all policies and policy amendments. The evidence of insurance shall
include a statement by the insurer that the policy or policies will not be
cancelled or materially altered without at least thirty (30) days' prior
written notice to Licensor, or such other period of time as required by
applicable state law.
22.5 Should Licensee, for any reason, fail to procure or
maintain the insurance required by this Agreement, as such requirements may be
revised from time to time by Licensor in the Manual or otherwise in writing,
Licensor shall have the right and authority (without, however, any obligation
to do so), immediately to procure such insurance and to charge same to
Licensee, which charges, together with a fee for Licensor's reasonable costs
and expenses in so acquiring the policy or policies, shall be payable by
Licensee immediately upon demand.
22.6 Licensor shall have the right, in its sole discretion,
to require Licensee to maintain additional or different types of insurance, or
to increase the minimum limits of liability in response to identification of
new, changed, or increased risks, upon written notice to Licensee not less than
thirty days prior to such new, changed, or amended requirement.
22.7 All excess and umbrella policies shall be "follow form."
No "cut through" endorsements are acceptable. All insurance carriers must be
rated "A" or better by A.M. Best and be approved by Licensor.
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23. PROPRIETARY MARKS
23.1 Wizard Co. represents with respect to the Proprietary
Marks that:
23.1.1 Wizard Co., an affiliate of Licensor, is
the owner of all right, title, and interest in and to the Proprietary Marks
with respect to operations under the System and Licensor has been granted
the right to use and to grant others the right to use the Proprietary Marks;
and
23.1.2 Wizard Co. has taken and will take
all steps reasonably necessary to preserve and to protect its right and
interest in and to the Proprietary Marks and preserve the goodwill of the
Proprietary Marks.
23.2 With respect to Licensee's authorized use of the
Proprietary Marks pursuant to this Agreement, Licensee agrees that:
23.2.1 Licensee shall use only the Proprietary
Marks designated by Licensor in Schedule 3 hereto, as amended from time to
time, and shall use them only in the manner authorized and permitted by
Licensor or Wizard Co.;
23.2.2 Licensee shall use the Proprietary Marks
only for the operation of the Licensed Business at the Licensed Locations
specified in this Agreement;
23.2.3 Unless otherwise authorized or required
by Licensor, Licensee shall operate and advertise the Licensed Business only
under the names "AVIS" and "AVIS RENT A CAR," without prefix or suffix;
23.2.4 Licensee shall identify itself as the owner
of the Licensed Business in conjunction with any use of the Proprietary Marks,
including, but not limited to, such use in or on the Standard Rental
Agreements, automobile registrations and permits, stationery, invoices, order
forms, receipts, all contracts, in all dealings and transactions with third
parties, and in any public appearances, as well as at such conspicuous
locations at the Facilities or in Vehicles as Licensor shall designate in
writing. The form and content of such identification shall comply with
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standards set forth in the Manual;
23.2.5 Licensee's right to use the Proprietary
Marks is limited to such uses as are authorized under this Agreement, and any
unauthorized use thereof shall constitute a willful infringement of Licensor's
rights;
23.2.6 Licensee shall not use the Proprietary
Marks to incur any obligation or indebtedness on behalf of Licensor;
23.2.7 Licensee shall comply with Licensor's
instructions in filing and maintaining the requisite trade name or fictitious
name registrations, and shall execute any documents deemed necessary by
Licensor to obtain protection for the Proprietary Marks or to maintain their
continued validity and enforceability.
23.3 With respect to actual or potential litigation concerning
the Proprietary Marks:
23.3.1 Licensee shall promptly notify
Licensor and Wizard Co. of any unauthorized use of the Proprietary Marks or
marks confusingly similar thereto as well as any challenge to the Proprietary
Marks of which it becomes aware. Licensee acknowledges that Licensor and Wizard
Co. have the sole right to direct and control any administrative proceeding or
litigation involving the ownership or validity of the Proprietary Marks,
including any settlement thereof. Licensor has the right, but not the
obligation, to take action against uses by others that may constitute
infringement of the Proprietary Marks.
23.3.2 In the event Licensor undertakes
any litigation relating to the Proprietary Marks, Licensee agrees to execute
any and all documents and to do such acts and things as may, in the opinion of
Licensor, be necessary to carry out such litigation, including but not limited
to becoming a nominal party to any such litigation.
23.4 Licensee expressly understands and acknowledges that:
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23.4.1 Wizard Co. is the owner of all right,
title, and interest in and to the Proprietary Marks and the goodwill associated
with and symbolized by them, and Licensor has the right to use and license
others to use the Proprietary Marks;
23.4.2 The Proprietary Marks are valid and serve
to identify the System and those who are licensed to operate a Licensed
Business as part of the System;
23.4.3 Licensee shall not directly or indirectly
contest the validity of, or Wizard Co.'s ownership of, the Proprietary Marks,
or Wizard Co.'s right to use and license others to use the Proprietary Marks;
23.4.4 Licensee's use of the Proprietary
Marks pursuant to this Agreement does not give Licensee any ownership interest
or any security, equitable, beneficial or other interest in or to Proprietary
Marks;
23.4.5 Any and all goodwill arising from
Licensee's use of the Proprietary Marks in the Licensed Business under the
System shall inure solely and exclusively to Wizard Co.'s benefit, and upon
termination or expiration of this Agreement and the license granted hereby, no
monetary amount shall be assigned as attributable to any goodwill associated
with Licensee's use of the system or of the Proprietary Marks;
23.4.6 The license of the Proprietary Marks
granted hereby to Licensee is non-exclusive except as specifically set forth in
Section 2.2; and
23.4.7 Wizard Co. reserves the right to
substitute different Proprietary Marks for use in identifying the System and
the businesses operating thereunder if Wizard Co.'s currently owned Proprietary
Marks no longer can be used, or if Licensor, in its sole discretion, determines
that substitution of different Proprietary Marks could be beneficial to the
System.
24. TAXES, PERMITS AND INDEBTEDNESS
24.1 Licensee shall promptly pay when due all taxes levied
or assessed, including, without limitation,
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unemployment and sales taxes, and all accounts and other indebtedness of every
kind incurred by Licensee in the conduct of the Licensed Business. Licensee
shall pay to Licensor an amount equal to any sales tax, gross receipts tax, or
similar tax imposed on Licensor with respect to any payments to Licensor
required under this Agreement, except to the extent such tax is credited
against income tax otherwise payable by Licensor.
24.2 In the event of any bona fide dispute as to liability
for taxes assessed or other indebtedness, Licensee may contest the validity or
the amount of the tax or indebtedness in accordance with procedures of the
taxing authority or applicable law; provided, however, in no event shall
Licensee permit a tax sale or seizure by levy of execution or similar writ or
warrant, or attachment by a creditor, to occur against any of the Facilities or
premises, or any improvements thereon.
24.3 Licensee shall comply with all federal, state, and local
laws, rules, and regulations, and shall timely obtain any and all permits,
certificates, or licenses necessary for the full and proper conduct of the
Licensed Business generally and at each Facility, including without limitation,
licenses to do business, fictitious name registrations, sales tax permits, fire
clearances, and Vehicle registrations.
24.4 Licensee shall notify Licensor in writing within five(5)
days of the commencement and resolution of any action, suit, or proceeding, and
of the issuance of any order writ, injunction, award, or decree of any court,
agency, or other governmental instrumentality, which may adversely affect the
operation or financial condition of the Licensed Business.
25. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
25.1 It is understood and agreed by the parties hereto that
this Agreement does not create a fiduciary relationship between them; that
Licensee shall be an independent contractor; and that nothing in this Agreement
is intended to constitute either party an agent, legal representative,
subsidiary, joint venturer, partner, employee, or servant of the other for any
purpose whatsoever.
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25.2 During the term of this Agreement and any renewal
hereof, Licensee shall hold itself out to the public as an independent
contractor operating the Licensed Business and each Licensed Location pursuant
to a license from Licensor. Licensee agrees to take such affirmative action as
may be necessary to do so, including, without limitation, exhibiting a notice
of that fact in a conspicuous place at each Rental Location or other Facility
as may be specified by Licensor, the content of which Licensor reserves the
right to specify.
25.3 It is understood and agreed that nothing in this
Agreement authorizes Licensee to make any contract, agreement, warranty, or
representation on Licensor's behalf, or to incur any debt or other obligation
on Licensor's name; and, that Licensor shall in no event assume liability for,
or be deemed liable as a result of, any such action, or by reason of any act or
omission of Licensee in its conduct of the Licensed Business or for any claim
or judgment arising therefrom against anyone. Licensee shall indemnify and hold
harmless Licensor and Licensor's officers, directors, employees, affiliates,
agents, successors and assigns against any and all liabilities, claims,
demands, causes of action, damages, costs, expenses and amounts of any type
whatsoever, including, but not limited to environmental claims, whether
expended in settlement, in attorneys' fees' or however expended or disbursed,
which arise directly or indirectly from, as a result of, or in connection with
Licensee's operation of the Licensed Business and each Facility, or in
Licensee's dealings with third parties concerning said Business, this
Agreement, the System, or the Proprietary Marks, including claims in which
Licensor's negligence is alleged. In addition, Licensee shall, at Licensor's
request, defend, at Licensee's expense, Licensor, and Licensor's officers,
directors, employees, affiliates, agents, successors and assigns against such
claims, demands and causes of action; provided, however, that Licensee shall
relinquish such defense to Licensor immediately upon Licensor's request,
although Licensee shall remain obligated to pay Licensor's defense costs. In no
event may Licensee enter into any settlement of any such claim on behalf of
Licensor without Licensor's approval. Any and all claims for which
indemnification is sought hereunder shall be commenced within one (1) year from
the occurrence of the facts giving rise to such
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claim or action, or such claim or action shall be barred.
25.4 It is understood and agreed that Licensor shall
indemnify and hold harmless Licensee and Licensee's officers, directors,
employees, affiliates, agents, successors and assigns against any and all
liabilities, claims, demands, causes of action, damages, costs, expenses and
amounts of any type whatsoever, which arise from any action against such
parties for infringement relating to the use of the Proprietary Marks in
compliance with System Standards.
26. APPROVALS AND WAIVERS
26.1 Whenever this Agreement requires the prior approval or
consent of Licensor, Licensee shall make a timely written request to Licensor
therefor; and such approval or consent shall be obtained in writing.
26.2 Licensor makes no warranties or guarantees upon which
Licensee may rely, and assumes no liability or obligation to Licensee, by
providing any waiver, approval, consent, or suggestion to Licensee in
connection with this Agreement, or by reason of any neglect, delay, or denial
of any request therefor.
26.3 No delay, waiver, omission, or forbearance on the part
of Licensor to exercise any right, option, duty, or power arising out of any
breach of default by Licensee, or by any other licensee, of any of the terms,
provisions, or covenants hereof, shall constitute a waiver by Licensor to
enforce any such right, option, or power as against Licensee, or as to
subsequent breach or default by Licensee. Subsequent acceptance by Licensor of
any payments due to it hereunder shall not be deemed to be a waiver by Licensor
of any preceding breach by Licensee of any terms, covenants, or conditions of
this Agreement.
27. NOTICES
27.1 Any and all notices required or permitted under this
Agreement shall be in writing and shall be delivered personally, by a
recognized overnight delivery service, or mailed by certified or registered
mail, return receipt requested, to the respective parties at the following
addresses unless and until a different
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address has been designated by written notice to the other party:
Notices to Licensor: HFS Car Rental, Inc.
c/o HFS Incorporated
6 Sylvan Way
Parsippany, New Jersey 07054
Attention: General Counsel
Notices to Licensee: Avis Rent A Car System, Inc.
900 Old County Road
Garden City, New York 11530
Attention: General Counsel
Notices to Wizard Co.: Wizard Co., Inc.
c/o HFS Incorporated
6 Sylvan Way
Parsippany, NJ 07054
Attention: General Counsel
Any notice by certified or registered mail or by an overnight delivery service
shall be deemed to have been given at the date and time of mailing. Notice
personally delivered or delivered by an overnight delivery service shall be
deemed to have been given at the date and time when received by Licensee or
Licensor.
27.2 Any and all notices required or permitted under this
Agreement as provided for in this Section are designed to serve as a notice
only to the party to whom sent. If a copy of a notice is to be sent to a third
party, this requirement is not a condition precedent but only informational.
28. ENTIRE AGREEMENT
This Agreement, the documents referred to herein, and the Attachments
hereto, constitute the entire, full, and complete Agreement between the parties
concerning the subject matter hereof, and supersede any and all prior
agreements, representations, and arrangements between the parties whether oral
or written, and no other representation has induced Licensee to execute this
Agreement.
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29. MODIFICATIONS OF AGREEMENT
Except for those permitted to be made unilaterally by Licensor
hereunder, no amendment, change, or variance from this Agreement shall be
binding on the parties unless mutually agreed to by the parties and executed by
themselves or their authorized officers or agents in writing.
30. SEVERABILITY AND CONSTRUCTION
30.1 Except as expressly provided to the contrary herein,
each section, part, term, and provision of this Agreement shall be considered
severable; and if, for any reason, any section, part, term, or provision herein
is determined to be invalid and contrary to, or in conflict with, any existing
or future law or regulation by a court or agency having valid jurisdiction,
such shall not impair the operation of, or have any other effect upon, such
other sections, parts, terms, and provisions of this Agreement as may remain
otherwise intelligible; and, the latter shall continue to be given full force
and effect and bind the parties hereto; and said invalid sections, parts,
terms, or provisions shall be deemed not to be a part of this Agreement.
30.2 Notwithstanding anything to the contrary herein, nothing
in this Agreement is intended, nor shall be deemed, to confer upon any person
or legal entity other than Licensor, Licensee, their officers, directors,
partners, and such of their respective successors and assigns as may be
contemplated by Section 15 hereof, any rights or remedies under or by reason of
this Agreement.
30.3 The parties agree that each of the foregoing provisions
of this Agreement, including, but not limited to, the covenants set forth in
Section 14 hereof, shall be construed as independent of any other covenant or
provision of this Agreement. If all or any portion of this Agreement is held
unreasonable or unenforceable by a court or agency having valid jurisdiction in
an unappealed final decision to which Licensor is a party, Licensee expressly
agrees to be bound by any lesser provision subsumed within the terms of such
Agreement, including, but not limited to, the covenants set forth in Section 14
hereof, that imposes the maximum duty permitted by law, as if the resulting
provision were separately
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stated in and made a part of this Agreement.
30.4 All captions in this Agreement are intended solely for
the convenience of the parties, and none shall be deemed to affect the meaning
or construction of any provision hereof.
30.5 All references herein to the masculine, neuter, or
singular shall be construed to include the masculine, feminine, neuter, or
plural, where applicable, and all acknowledgments, promises, covenants,
agreements, and obligations herein made or undertaken by Licensee shall be
deemed jointly and severally undertaken by all the parties hereto on behalf of
Licensee.
31. APPLICABLE LAW; DISPUTE RESOLUTION
31.1 This Agreement takes effect upon its acceptance and
execution by the parties hereto in New York, and shall be interpreted and
construed under the laws of the State of New York. In the event of any conflict
of law, the laws of New York shall prevail, without regard to, and without
giving effect to, the application of New York conflict of law rules. If,
however, any provision of this Agreement would not be enforceable under the
laws of New York, and if the Licensed Business is located outside of New York
and such provision would be enforceable under the laws of the state in which
the Licensed Business is located, then such provision shall be interpreted and
construed under the laws of that state. Nothing in this Section 31.1 is
intended by the parties to subject this Agreement to any franchise law or
similar law, rule, or regulation of the State of New York or any other state to
which it would not otherwise be subject. The parties acknowledge that no waiver
by Licensee of Sections 687.4, 687.5 and Article 33 of the New York General
Business Law is contemplated by this Agreement.
31.2 The parties expressly submit and consent in advance to
the non-exclusive jurisdiction of the State and Federal courts sitting in the
City of New York, Borough of Manhattan, State of New York, in any action to
enforce an arbitration agreement or award, or action seeking a pre-arbitral
injunction, pre-arbitral attachment or other order in aid of arbitration. The
parties waive any claim that any such state or federal
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court is an inconvenient or improper forum.
31.3 Subject to Section 31.7, no right or remedy conferred
upon or reserved to Licensor or Licensee by this Agreement is intended to be,
nor shall be deemed, exclusive of any other right or remedy herein or by law or
equity provided or permitted, but each shall be cumulative of every other right
or remedy.
31.4 Nothing herein contained shall bar Licensor's right to
obtain injunctive relief or other equitable or other judicial relief in aid of
arbitration from a court of competent jurisdiction against threatened conduct
that will cause Licensor loss or damages, under the usual equity rules,
including the applicable rules for obtaining restraining orders and preliminary
injunctions.
31.5 Subject to Section 31.4, resolution of any and all
disputes (except for the dispute referenced in Section 18.9) arising from or in
connection with this Agreement, whether based on contract, tort, statute or
otherwise, including, but not limited to, disputes over arbitrability
(collectively, "Disputes") shall be exclusively governed by and settled in
accordance with the provisions of this Section 31.5.
31.5.1 Licensor, Wizard Co. or Licensee may
commence proceedings hereunder by delivering a written notice to the other
parties providing a reasonable description of the Dispute to the other parties
(the "Demand").
31.5.2 Within 10 days following receipt by a party
hereto of a Demand, the Dispute shall be referred to representatives of the
parties for resolution, each party being represented by a senior executive
officer who has no direct operational responsibility for the matters
contemplated by this Agreement (the "Representatives"). The Representatives
shall promptly meet in a good faith effort to resolve Dispute. If the
Representatives do not agree upon a resolution within thirty (30) calendar days
after receipt by a Party of a Demand, each of Licensor, Wizard Co. and Licensee
shall be free to exercise the remedies available to them under Section 31.5.3.
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31.5.3 The Parties hereby agree to submit
all Disputes not resolved by negotiation pursuant to Section 31.5.2 for
resolution by arbitration under the terms hereof, which arbitration shall be
final, conclusive and binding upon the parties, their successors and assigns.
The arbitration shall be conducted in New York, New York by three arbitrators
(the "Panel") in accordance with the JAMS/Endispute Comprehensive Arbitration
Rules and Procedures then in effect, as amended herein. The arbitration shall
be governed by the United States Arbitration Act, 9 U.S.C. ss. 1, et seq.
Notwithstanding the foregoing (a) each party to the Dispute shall have the
right to examine the books and records of the other party to the Dispute that
are reasonably related to the Dispute; (b) each party to the Dispute shall
provide to the other, reasonably in advance of any hearing, copies of all
documents which such party intends to present in such hearing; (c) each party
shall be allowed to conduct reasonable discovery through written requests for
information, document requests, requests for stipulation of fact and
depositions, the nature and extent of which discovery shall be determined by
the Panel, taking into account the needs of the parties and the desirability of
making discovery expeditious and cost effective. All hearings shall be
conducted on an expedited schedule, and all proceedings shall be confidential,
except to the extent disclosure is required by applicable securities or
franchise laws, and the rules of any stock exchange on which the securities of
Licensee, Licensor or the parent company of either are listed for trading. The
Panel shall complete all hearings not later than ninety (90) days after its
appointment. The award shall be in writing and shall specify the facts and law
upon which it is based. Judgment upon any award may be entered in any court
having jurisdiction thereof.
32. ACKNOWLEDGMENTS
32.1 Licensee acknowledges that it has conducted an
independent investigation of the Licensed Business, recognizes that the
business venture contemplated by this Agreement involves business risks, and
that its success will be largely dependent upon the ability of Licensee.
Licensor expressly disclaims the making of, and Licensee acknowledges that it
has not received, any warranty or guarantee, express or implied,
55
<PAGE>
as to the potential volume, profits, or success of the business venture
contemplated by this Agreement.
32.2 Licensee acknowledges that Licensor has informed
Licensee of the existence of other licensees operating under the System
pursuant to license agreements with Licensor which contain terms, conditions,
and obligations which differ from the terms, conditions, and obligations
contained in this Agreement.
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed,
and delivered this Agreement on the day and year first above written.
HFS CAR RENTAL, INC.
Licensor
By: /s/ James E. Buckman
Name: James E. Buckman
Title: Vice President
AVIS RENT A CAR SYSTEM, INC.
Licensee
By: /s/ Kevin Sheehan
Name: Kevin Sheehan
Title: Executive Vice President
WIZARD CO., INC.
For purposes of Sections 2, 3,
15, 17, 23 and 31 only
By: /s/ David Mc Nicholas
Name: David mc Nicholas
Title: Vice President
57
<PAGE>
Schedule 1
Exclusive Territories
New York, NY PMSA
Chicago, IL PMSA
Boston, MA-NH NECMA
Philadelphia, PA-NJ PMSA
Detroit, MI PMSA
Washington, DC-MD-VA-WV PMSA
Houston, TX PMSA
Atlanta, GA MSA
Nassau-Suffolk, NY PMSA
Riverside-San Benardino, CA PMSA
Minneapolis-St. Paul, MN-WI MSA
St. Louis, MO-IL MSA
Orange County, CA PMSA (other than Disneyland)
Pittsburgh, PA MSA
Baltimore, MD PMSA
Phoenix, Mesa, AZ MSA
Cleveland-Lorain-Elyria, OH PMSA
Oakland, CA PMSA
Tampa-St. Pete-Clearwater, FL MSA
Seattle-Bellevue-Everett, WA PMSA
Miami, FL PMSA
Fort Lauderdale, FL PMSA
West Palm Beach-Boca Raton, FL MSA
Newark, NJ PMSA
San Francisco, CA PMSA
San Jose, CA PMSA
Denver, CO PMSA
Orlando, FL MSA
<PAGE>
Schedule 1(a)
Acquired Exclusive Territories
Los Angeles-Long Bech, CA PMSA
Dallas, TX PMSA
San Diego, CA MSA
Las Vegas, NV-AZ MSA
2
<PAGE>
Schedule 2
SERVICES
DESCRIPTION OF SERVICES AVIS RENT A CAR, INC. OFFERS TO
DOMESTIC & INTERNATIONAL THIRD PARTY LICENSEES
Domestic
o Reservations - ARAC will continue to subsidize
reservation expenses for third-party licensees.
o Other services provided by ARAC:
o Licensee Relations - ARAC support provided to
licensees (currently one VP and one secretary).
o WizCom - ARAC subsidizes excess WizCom costs,
for services provided to licensees:
transaction processing (currently cost is $.632
per transaction; however WizCom only recovers
$.529 per transaction); communications
equipment; Garden City network backbone
allocation, terminal installations/help desk;
systems enhancements & maintenance-dedicated
and non-dedicated work, production jobs; and
sales support personnel. Following services
are provided at cost to licensees:
communications equipment; terminal
installations & help desk; and systems
enhancements.
o Receivable Processing - Central Billing and
Credit Club recoveries netted against the
following costs:
o Charge card/Wizard
o Credit Department
o CB Customer Service
o Collections
o Bad debt
o Corp/Travel CB Vouchers
o Buy/Sell
o Frequent Flyer
o CCS
o Direct Billing
o I/C Accounting & VAB - allocated time on
composite statements (see attachment 1).
o Purchasing & System Supply & Security/Safety -
allocated time on providing services.
o Sales & Marketing - unallocated costs on sales
& marketing.
o Training/QA - quality assurance, training
overhead and customer satisfaction costs less
3
<PAGE>
licensee funding.
o Fleet Warranty.
o Pricing - allocated services for providing
pricing and yield services to licensees.
o Field Operations - overhead associated with
fleet distribution, billing, researching, etc.
o Other - allocate costs for legal, accounting,
insurance, financial planning, audit and fleet.
Note: excludes costs for outside counsel
related to any licensee litigation.
International
o Reservations - ARAC will continue to subsidize
reservation expenses for third-party licensees.
o Services provided by ARAC - International
o Administrative/Financial Operations - Latin America Region (1
director & 2 administrators); Pacific Region (1 director & 1
administrator); WHQ/VAB (accounting, treasury & composite
processing personnel).
o Franchise Sales/Development - coordinate with
HFS prospecting, selection, and negotiation.
o General Consultation & Compliance - policy/procedures, car
rental business methods/strategies, site selection,
intercompany transactions (such as buy/sell), frequent flyer
fees, and network development. Also, periodic visits to
inspect facilities, signage, vehicles, etc.
o Purchasing - assistance in acquisition of uniforms, signage,
rental agreements, rental agreement folders, other
stationary, and printing.
o Training - provide training coordinator, new
hire, & supervisor daily duty programs.
o Liaison Role - between licensees and other
departments/countries to resolve questions/issues on
reservations, customer services, purchasing, etc.
o Preparation and dissemination of system
bulletins and other communications.
o Coordination of tour rates, special accounting pricing, and
retail pricing. Also, provide education on rate structures,
car groups and pricing strategies.
o Advertising & marketing strategies (also assist
in funding certain programs).
o Automation/System advice, including
coordination of installations, and training.
4
<PAGE>
o Coordinate & direct regional meetings, conventions and
periodic management seminars (topics include fleet planning,
managing for profit, etc.).
Other
o Licensee shall issue, not less often than annually, for
distribution among System Licensees, travelers, travel agents, customers, and
others, as determined by Licensor in its sole discretion, a directory which
contains the addresses and telephone numbers of Rental Locations operating
under the System, in such format as currently produced or as Licensor may in
its sole discretion approve, and Licensee shall list such System Licensees
whenever deemed appropriate by Licensor in such other sales promotion material
as may from time to time be developed or issued by Licensee. Licensee may, with
the approval of Licensor disseminate such information as described above in the
form of electronically or computer-generated notices and bulletins, or permit
access to such information via electronic, telecommunications or computer
systems by licensees, travelers, travel agents, customers, and others.
o Licensee shall, from time to time, at the request of the
Licensor, hold meetings, conferences and conventions for System Licensees.
Licensee shall attend such meetings, conferences, and conventions at its
expense.
5
<PAGE>
Schedule 3
PROPRIETARY MARKS
Licensor shall, pursuant to Section 24 of the License Agreement, cause
Wizard Co., Inc. to permit Licensee to use the following Proprietary Marks in
connection with the Licensed Business:
U.S. Trademark
PENDING
PROPRIETARY MARK REGISTRATION NO. APPLICATION NO.
- ----------------- ----------------- ---------------
AUTO CARTE LOGO(DESIGN) 1,364,881
AUTOCARTE 1,348,490
AUTO-MAIL 75/279,364
AVIS 703,700
AVIS 1,071,131
AVIS 1,121,618
AVIS (SPECIAL FORM) 1,353,304
AVIS (UNDERLINED BY RED BAR) 1,660,119
AVIS ALII CLUB & DESIGN 1,683,263
AVIS AND DESIGN 1,353,305
AVIS CARES 1,681,965
AVIS CARES CONCIERGE SERVICE 74/729,085
AVIS CARES LOGO 1,671,740
AVIS CHAIRMAN'S CLUB 1,835,715
AVIS EXPRESS 1,261,964
AVIS INTERNATIONAL 758,577
AVIS LINK 1,399,851
AVIS LUBE S/7358
AVIS LUBE 1,524,787
AVIS LUBE (PLAIN BLOCK) 1,648,339
AVIS LUBE (STYLIZED) 1,649,696
AVIS LUBE (STYLIZED) 1,646,271
AVIS LUBE FAST OIL CHANGE 1,522,866
CENTER
<PAGE>
PENDING
PROPRIETARY MARK REGISTRATION NO. APPLICATION NO.
- ---------------- ---------------- ---------------
AVIS LUBE FAST OIL CHANGE 1,528,583
CENTER
AVIS NEWS 1,011,004
AVIS ON RED RECTANGLE 1,139,027
AVIS PREFERRED 1,885,697
AVIS PREFERRED 1,755,771
AVIS RAPID RETURN 1,629,473
AVIS TRAVELER'S NETWORK 2,018,995
AVISSAVER 1,804,818
AVISSAVER WEEKEND ESCAPES 1,987,590
AVISVISION 180 1,718,922
CITYTRAVELER 1,718,837
CLUB RED 1,979,199
CYBER CITIZEN 75/000,149
CYBER CITIZEN 75/287,985
DRIVEN BY THE CUSTOMER PENDING
DRIVEN FOR DEPENDABILITY 1,531,500
HTV HOME TOWN VIEW 1,899,229
INFORMATION SUPERHIGHWAY 74/667,432
ROAD WARRIOR
PREFERRED EXPRESS 1,733,617
PREFERRED LOGO 1,821,729
PREFERRED RENTER 1,728,190
RENTSAVERS 1,712,287
RES-O-MATIC 75/279,365
RETURN VALET 2,104,729
ROUTE NAVIGATOR 74/688,466
ROVING RAPID RETURN 1,648,373
SATELLITE GUIDANCE 74/646,582
SAVEUS AVIS ONCALL 1,974,634
SUMMER RENT CONTROL 1560/77
<PAGE>
PENDING
PROPRIETARY MARK REGISTRATION NO. APPLICATION NO.
- ---------------- ---------------- ---------------
TRAVEL WIZ 74/686,692
TRYING HARDER TOGETHER 1,567,569
VACATION SUNSATION 1,640,802
WATSON (THE WIZARD) COPY- PENDING
RIGHT OF CHARACTER
WE TRY HARDER 1,718,765
WE TRY HARDER (BLOCK) 1,967,829
WE TRY HARDER (LOWER CASE) 1,681,462
WE'RE TRYING HARDER THAN 1,573,885
EVER
WEATHERFAX 75/084,572
WINTER RENT CONTROL 1,605,970
WIZARD 924,856
WIZARD OF AVIS 1,003,355
WIZARD WIZDOM 1,997,917
YOUR PREFERRED CONNNECTION 74/686,693
ZAP 1,459,480
<PAGE>
Schedule 4
TERRITORIES OF OTHER SYSTEM LICENSEES
AVIS RENT A CAR SYSTEM, INC.
FRANCHISED LICENSEE LOCATIONS
REVISED 7/1/97
"1955" Type Franchise Agreements 292
"1992" Type Franchise Agreements 17
Letter Agreements (1955) Type 3
Agency Agreements (1955) Type 1
"1955" Type Truck Franchise Agreements 134
CITY-STATE DATE TYPE
---------- ---- ----
1 Birmingham, AL Sep-59 B
Anniston, AL Nov-69 C
Tuscaloosa, AL Mar-66 B
Columbus, GA Aug-83 C
2 Dothan, AL May-74 C
3 Huntsville, AL Apr-56 B
Decatur, AL Feb-64 B
Florence, AL Apr-87 C
4 Mobile, AL May-63 C
Point Clear, AL Aug-69 C
5 Montgomery, AL Oct-51 B
Columbia, SC Oct-59 B
Camden, SC Sep-61 B
Sumter/Selma, AL Oct-73 C
Greenville, AL Feb-79 C
Macon, GA May-96 New Agreement
Greenwood, SC May-96 New Agreement
6 Little Rock, AR Sep-52 B
El Dorado, AR May-68 B
Fayetteville, AR Oct-70 C
<PAGE>
CITY-STATE DATE TYPE
---------- ---- ----
Fort Smith, AR Sep-64 B
Harrison, AR Jun-75 C
Hot Springs, AR Jan-62 B
Jonesboro, AR Dec-61 C
Pine Bluff, AR Dec-55 B
Stuttgart, AR Nov-56 C
Texarkana, AR May-72 C
Savannah, GA Jan-87 B
Midland, TX Dec-90 B
Abilene, TX Dec-90 B
San Angelo, TX Dec-90 C
Clovis, NM Dec-90 C
Albany, GA Apr-94 B
7 Los Angeles, CA Jan-53 C
Arcadia, CA Oct-79 C
Alhambra, CA Oct-79 C
Azusa, CA Oct-79 C
Bakersfield, CA Oct-78 B
Beverly Hills, CA May-56 C
Bishop, CA Aug-76 C
Burbank, CA Jan-56 C
Coronado, CA May-56 C
Culver City, CA Jun-61 C
Disneyland, CA Aug-61 C
Glendale, CA May-56 C
Glendora, CA Oct-79 C
Imperial, CA Jul-80 C
Lancaster, CA Jan-56 C
Lennox, CA Dec-77 C
Long Beach, CA Jan-56 C
Marina Del Rey, CA Feb-78 C
<PAGE>
CITY-STATE DATE TYPE
---------- ---- ----
Monrovia, CA Oct-79 C
Montebello, CA Oct-79 C
Monterey Parks, CA Oct-79 C
Oceanside, CA Sep-78 B
Oxnard, CA Jul-60 C
Palm Desert, CA Jul-74 C
Palm Springs, CA May-56 C
Pasedena, CA Jan-56 C
Pico Rivera, CA Oct-79 C
Ridgecrest, CA Sep-72 B%
San Diego, Ca Jan-56 C
Santa Barbara, CA Jan-56 C
Santa Monica, CA Jan-56 C
South Gate, CA Jun-61 C
Thousand Oaks, CA Jan-75 C
Van Nuys, CA Nov-67 C
Ventura, CA Mar-61 C
Vernon, CA Jun-61 C
Victorville, CA Sep-72 B
West Covina, CA Oct-79 C
Whittier, CA Oct-79 C
Yuma, AZ Jul-80 B
Las Vegas, NV Jan-56 B
Barstow, CA Nov-87 B
8 McKinleyville, CA Jul-93 C
9 St. Simons Island, GA May-61 C
Brunswick, GA May-61 C
10 Valdosta, GA Nov-77 C
11 Galesburg, IL Mar-82 C
12 Evansville, IN Sep-54 B
13 Valparaiso, IN Feb-71 B
<PAGE>
CITY-STATE DATE TYPE
---------- ---- ----
14 Burlington, IA Dec-73 C
15 Cedar Rapids, IA Nov-60 C
16 Davenport, IA May-68 C
Dubuque, IA Jan-75 C
Waterloo, IA May-78 C
Peoria, IL Jan-87 B
Bloomington, IL Jan-87 C
Champaign, IL Jan-87 B
Decatur, IL Jan-87 B
Pekin, IL Jan-87 C
Springfield, IL Jan-87 B
Danville, IL Jan-87 B
17 Dex Moines, IA Jan-63 C
18 Sioux City, IA May-90 C
19 North Platte, NE Apr-89 C
20 Salina, KS Dec-94 C
Hays, KS Dec-96 C
Great Bend, KS Feb-96 C
Independence, KS Dec-95 New Agreement
Topeka, KS Dec-95 New Agreement
McPherson, KS Dec-95 New Agreement
21 Garden City, KS Aug-85 C
Liberal, KS Feb-84 C
22 Lexington, KY Sep-56 B
Frankfort, KY Dec-61 B
23 Alexandria, LA Jan-78 C
Gulfport, MS Feb-84 C
24 Shreveport, LA Aug-54 B
Monroe, LA Jun-57 B
25 Presque Isle, ME Jun-73 C
26 Alpena, MI Aug-71 C
<PAGE>
CITY-STATE DATE TYPE
---------- ---- ----
Salt Ste. Marie, MI Jun-74 B
27 Hancock, MI Apr-56 C
28 Iron Mountain, MI Jun-60 C
29 Kalamazoo, MI Feb-72 C
Benton, MI Aug-76 C
Traverse City, MI Jun-73 C
30 Pellston, MI Aug-89 C
Charlevoix, MI Jun-91 C
Gaylord, MI Aug-91 C
31 Duluth, MN Jan-65 B
Rhinelander, WI May-85 C
International Falls, MN Apr-95 New Agreement
Bemidji, MN Apr-95 New Agreement
Hibbing, MN Apr-95 New Agreement
Eveleth, MN Apr-95 New Agreement
Marquette, MI Jun-96 New Agreement
Brainerd, MN Jun-96 New Agreement
32 Rochester, MN Dec-60 B
Stevens Point, WI Aug-81 C
Eau Claire, WI Aug-81 C
Land O'Lakes, WI Aug-81 C
Marshfield, WI Aug-81 C
Wausau, WI Aug-81 C
33 Springfield, MO Mar-70 C
Branson, MO Apr-78 C
Joplin, MO May-84 C
34 Butte, MT Jan-87 C
Helena, MT Jan-90 C
Glacier Park, MT May-94 C
Great Falls, MT May-94 C
35 Glendive, MT Jul-87 C
<PAGE>
CITY-STATE DATE TYPE
---------- ---- ----
Sidney, MT Jul-87 C
36 Missoula, MT Sep-89 C
Kalispell, MT Sep-89 C
Billings, MT Feb-95 C
37 McCook, NE Aug-72 C
38 Manchester, NH Jun-75 C
Hampton, NH Apr-78 C
Nashua, NH Jun-75 C
Salem, NH Jun-76 C
Brattleboro, VT Jul-76 C
Merrimack, NH May-82 Letter Agreement
Laconia, NH Oct-82 Letter Agreement
Keene, NH Dec-89 C
39 Matawan, NJ Nov-64 B
Freehold, NJ Oct-60 B
Lakewood, NJ Oct-60 B
Point Pleasant, NJ Oct-60 B
Port Monmouth, NJ Nov-64 B
Sayreville, NJ Dec-62 B
Toms River, NJ Oct-60 B
Red Bank, NJ Jun-91 B
Eatontown, NJ May-93 New Agreement
Wall, NJ Apr-95 New Agreement
40 Piscataway (Plain), NJ Jun-57 B
Cranford, NJ Feb-58 B
Dover, NJ Dec-61 B
East Orange, NJ Aug-74 T
(Truck)
Flemington, NJ Jun-62 B
Fort Lee, NJ Jun-61 T
Hackettstown, NJ Dec-61 B
Linden, NJ Aug-60 B
<PAGE>
CITY-STATE DATE TYPE
---------- ---- ----
Madison, NJ May-65 B
Millburn, NJ Aug-74 B
Montclair, NJ Jul-61 B
Morristown, NJ Aug-60 B
New Brunswick, NJ Apr-60 B
Oakland, NJ Aug-74 T
(Truck)
Troy Hills, NJ Aug-74 B
Perth Amboy, NJ Aug-60 B
Rahway, NJ Sep-60 B
Ridgefield, NJ Jul-61 B
Ridgewood, NJ Jul-61 B
Saddle Brook, NJ Aug-74 T
(Truck)
Somerville, NJ Mar-58 B
Springfield, NJ Aug-74 B
Roxbury, NJ Aug-74 B
Summit, NJ May-61 B
Union, NJ Jan-60 B
Port Jervis, NJ Dec-61 B
West Orange, NJ Aug-81 C
41 Roswell, NM Feb-84 C
Santa Fe, NM Apr-65 C
Los Alamos, NM Apr-66 C
Alamogordo, NM Apr-95 New Agreement
42 Albany, NY Dec-64 B
Schenectady, NY Dec-64 B
Troy, Watervliet, NY Dec-64 B
Rutland, VT Sep-91 C
Hanover, NH Oct-95 B
Springfield, VT Aug-96
43 Plattsburgh, NY Sep-82 C
<PAGE>
CITY-STATE DATE TYPE
---------- ---- ----
Lake Placid, NY Sep-82 B
44 White Plains, NY Jan-61 B
Larchmont, NY Jan-61 B
Mamaroneck, NY May-76 B
Rye, Tarrytown, NY Jan-61 B
Scarsdale, NY Jan-61 B
45 Wilmington, NC Nov-71 B%
Florence, SC Sep-74 B%
Rocky Mount, NC Sep-86 B
Goldsboro, NC Sep-86 B
Greenville, NC Sep-86 C
Kinston, NC Sep-86 B
Jacksonville, NC Sep-86 C
Morehead City, NC Sep-86 B
New Bern, NC Sep-86 B
46 Bismarck, ND Oct-64 B
47 Fargo, ND Oct-71 C
48 Grand Forks, ND Dec-88 C
49 Jamestown, ND Dec-85 C
50 Minot, ND Jan-81 C
Williston, ND Jun-81 C
Aberdeen, SD Jul-77 C
51 Cambridge, OH Jan-87 C
52 Lima, OH Dec-82 C
53 Enid, OK Jul-63 C
54 Medford, OR Dec-91 C
55 Harrisburg, PA Sep-66 B%
State College, PA Mar-94 New Agreement
Mechanicsburgh, PA Mar-94 New Agreement
Hershey, PA Mar-94 New Agreement
56 Lancaster, PA Mar-57 C
<PAGE>
CITY-STATE DATE TYPE
---------- ---- ----
57 New Kensington, PA Apr-59 B
Monroeville, PA Apr-59 B
Oakmont, PA Feb-61 B
Vandergrift, PA Feb-61 T
Wilkensburg, PA Feb-61 B
58 Greensburg, PA Jul-88 B
Waltz Mills, PA Feb-92 Agency Agreement
59 Pierre, SD Apr-79 C
60 Rapid City, SD Feb-92 C
Sioux Falls, SD Aug-95 C
61 Kingsport, TN Apr-81 B%
Greenville, TN Oct-81 C
62 Nashville, TN Jun-65 C
Chattanooga, TN Jun-65 C
Knoxville, TN Oct-76 C
Memphis, TN Jun-65 C
Olive Branch, MS Jul-76 C
63 Amarillo, TX Jan-78 B
Lubbock, TX Jun-75 B
64 Corpus Christi, TX Jan-56 B
Brownsville, TX Jan-56 B
Harlingen, TX Jan-56 B
McAllen, TX Jan-56 B
Rockport, TX Apr-81 C
S. Padre Island, TX May-79 C
Victoria, TX Feb-56 B
Laredo, TX Dec-92 B
65 Dallas, TX Jan-56 B
Austin, TX Apr-56 B
Fort Worth, TX Mar-56 B
San Antonio, TX Jul-57 B
<PAGE>
CITY-STATE DATE TYPE
---------- ---- ----
66 Ogden, UT Apr-94 B
67 St. George, UT Oct-74 C
Cedar City, UT Sep-77 C
Page, AZ May-75 C
Vernal, UT Feb-82 C
Ely, NV Mar-82 Letter Agreement
Elko, NV Oct-79 C
68 Burlington, VT Feb-63 C
69 Richmond, VA Mar-56 B
Charlottesville, VA Sep-58 B
Harrisonville, VA Jul-65 B
Lynchburg, VA Dec-61 B
Newport, VA May-57 B
Petersburg, VA Jul-65 B
Waynesboro, VA Apr-60 B
Salisbury, MD May-87 B%
Cambridge, Easton, MD May-87 C
Dover, DE May-87 B%
Seaford, DE May-87 C
70 Roanoke, VA Apr-79 B
Bluefield, WV Feb-81 C
W. Sulpher Sprs, WV Dec-81 C
Clarksburg, WV Aug-83 B
Fairmount, WV Aug-83 B
Morgantown, WV Aug-83 B
Columbus, MS Oct-86 C
Paducah, KY Aug-77 C
Greenville, MS Jan-90 C
Longview, TX Feb-90 C
Tyler, TX Feb-90 C
<PAGE>
CITY-STATE DATE TYPE
---------- ---- ----
Killeen, TX Mar-91 C
College Station, TX Jan-91 C
Temple, TX Mar-91 C
Waco, TX Oct-90 C
Meridan, MS Sep-91 B
71 Appleton, WI Oct-58 C
Green Bay, WI Jul-63 C
Madison, WI Jun-72 C
Wisconsin Dells, WI Apr-78 C
Menominee, MI Jan-73 C
Sturgeon Bay, WI Sep-68 C
LaCrosse, WI Mar-85 C
72 Casper, WY Jul-65 C
Laramie, WY Jul-76 C
Riverton, WY Dec-69 B
Cody, WY Mar-89 B
73 Sheridan, WY Jul-78 B
Gillette, WY Jul-78 B%
74 Anchorage, AK Apr-56 B%
Fairbanks, AK Apr-56 B%
Juneau, AK Apr-56 B%
Kodiak, AK Apr-56 B%
75 Craig, CO Sep-68 T
76 Kelso, WA Feb-69 T
HFS Incorporated and Subsidiaries
COMPUTATION OF PER SHARE EARNINGS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
-----------------------------------------
1997 1996
------------- ------------------------
Primary and Fully
Fully Diluted Primary Diluted
------------- --------- ----------
<S> <C> <C> <C>
Net income (loss) ........................ $(106,449) $ 59,939 $ 59,939
Convertible debt interest and amortization
of deferred loan costs, net of tax .... -- 1,122 1,122
--------- --------- ---------
Net income (loss) as adjusted ............ $(106,449) $ 61,061 $ 61,061
========= ========= =========
Weighted average common shares outstanding 158,355 138,594 138,594
Incremental shares for outstanding
stock options and warrants ............ -- 11,947 12,554
Convertible debt ......................... -- 8,257 8,257
--------- --------- ---------
Weighted average common and common
equivalent shares outstanding ......... 158,355 158,798 159,405
========= ========= =========
Net income (loss) per share .............. $ (0.67) $ 0.38 $ 0.38
========= ========= =========
For the Six Months Ended June 30,
---------------------------------------
1997 1996
------------- -----------------------
Primary and Fully
Fully Diluted Primary Diluted
------------- --------- ---------
Net income (loss) ........................ $ (15,344) $ 103,617 $ 103,617
Convertible debt interest and amortization
of deferred loan costs, net of tax .... -- 2,244 2,244
--------- --------- ---------
Net income (loss) as adjusted ............ $ (15,344) $ 105,861 $ 105,861
========= ========= =========
Weighted average common shares outstanding 158,342 134,782 134,781
Incremental shares for outstanding
stock options and warrants ............ -- 11,193 12,360
Convertible debt ......................... -- 8,257 8,257
--------- --------- ---------
Weighted average common and common
equivalent shares outstanding ......... 158,342 154,232 155,398
========= ========= =========
Net income (loss) per share .............. $ (0.10) $ 0.69 $ 0.68
========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 58,511
<SECURITIES> 0
<RECEIVABLES> 840,941
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,714,525
<PP&E> 33,844
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,745,616
<CURRENT-LIABILITIES> 1,279,038
<BONDS> 1,173,967
0
0
<COMMON> 1,614
<OTHER-SE> 2,842,954
<TOTAL-LIABILITY-AND-EQUITY> 10,745,616
<SALES> 0
<TOTAL-REVENUES> 1,099,597
<CGS> 0
<TOTAL-COSTS> 1,012,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,747
<INCOME-PRETAX> 56,661
<INCOME-TAX> 72,005
<INCOME-CONTINUING> (15,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,344)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
