Franchise Services/Hertz -- summary under Continuance and Merger

Overview

In order to merge the car rental business of Adreca, a private Delaware corporation, with the car rental business of FSNA, a TSXV-listed CBCA corporation, Adreca will be merged into a subsidiary of FSNA with Adreca as the survivor, and FSNA, following its continuance from Canada to Delaware ("New FSNA"), will then be merged with Adreca, with New FSNA as the survivor.

FSNA

FSNA and its subsidiaries carry on one of North America's largest franchise car rental operations through over 1,100 U.S. locations. It has 62.8M shares outstanding, of which 26.57% are owned by Sanford Miller (a former co-CEO) and 35.87% by Thomas McDonnell (the current CEO). FSNA had a net loss of $2.1M for its year ending September 30, 2012, and as at that date had issued share capital of $15M and an accumulated deficit of $12.6M.

Adreca/Boketo

Hertz wished to quickly dispose of the "Advantage" car rental business, which it acquired as a result of completing a tender offer for Dollar Thrifty Automotive Group, Inc. Rather than disposing of the business directly, a wholly-owned indirect subsidiary of Macquarie Holdings (USA) Inc. ("Boketo") formed Adreca on June 14, 2012 (in order for the Macquarie group to provide equity financing for the subsequent FSNA acquisition.) Adreca then acquired the Advantage business from Hertz in December 2012 (for a relative modest purchase price, as Hertz leased the automobiles to Adreca, and provided partial fleet financing). FSNA was fully involved with Boketo in this acquisition process.

Reorganization

To effect the merger, the following steps will occur:

• under a CBCA Plan of Arrangement, FSNA will be continued (as New FSNA) from Canada to Delaware, and the common shares of FSNA will be "converted" on a one-for-one basis into common shares of New FSNA
• dissenters will be entitled to be paid the fair value of their shares
• a wholly-owned Delaware subsidiary of FSNA ("Advantage Holdings") will merge into Adreca, with Adreca as the survivor, so that Adreca will be a wholly-owned subsidiary of New FSNA, and with all Adreca shares being converted into preferred shares of New FSNA
• Adreca will be merged into New FSNA, with New FSNA as the survivor

The issued share capital of New FSNA is expected to consist of 62.8M common shares (held by the former FSNA shareholders, so that they hold 50.2% of the FSNA shares) and 62.2M convertible voting preferred shares (held by Boketo, for 49.8%).

U.S. securities laws

To the extent that the issuance of the common shares of New FSNA otherwise would require registration, reliance will be placed on the s. 3(a)(10) exemption. New FSNA will not qualify as a foreign private issuer and will be a domestic issuer.

Canadian tax consequences

Continuance. Upon the continuance, FSNA will be deemed (by s. 128.1(4)(b)) to have disposed of each of its properties for their fair market value, which "may" cause FSNA to incur a Canadian income tax liability. Furthermore, an emigration tax will be imposed (under s. 219.1) on the amount by which the fair market value of all of the properties of FSNA exceeds the aggregate of the paid-up capital of its shares and the amount of most debts owing by it. "The emigration tax will be imposed at a rate of 5%, unless it can reasonably be concluded that one of the main reasons that FSNA became resident in the U.S. was to reduce the emigration tax or Canadian withholding tax payable by FSNA, in which case the rate of emigration tax would be 25%" (s. 219.3).

Shareholders

A Canadian resident holder should not be deemed to have disposed of its FSNA shares as a result of the continuance. Cautionary disclosure re offshore investment fund property rules. Standard taxable Canadian property rule disclosure for non-residents.

U.S. tax consequences

The continuance and Merger (defined as the two mergers together) is each expected to be treated for Code purposes as a reorganization under Code s. 368. On this basis, no gain or loss will be recognized by FSNA, New FSNA or Adreca. In addition, holders of FSNA shares generally will not recognize any gain or loss for Code purposes upon the conversion of their shares into shares of New FSNA pursuant to the continuance.