AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1996
REGISTRATION NO. 333-4507
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
TEAM RENTAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------
<TABLE>
<CAPTION>
DELAWARE 7514 59-3227576
<S> <C>
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
125 BASIN STREET
SUITE 210
DAYTONA BEACH, FLORIDA 32114
(904) 238-7035
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
SANFORD MILLER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
TEAM RENTAL GROUP, INC.
125 BASIN STREET
SUITE 210
DAYTONA BEACH, FLORIDA 32114
(904) 238-7035
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------
COPIES TO:
<TABLE>
<CAPTION>
<S> <C>
Jeffrey M. Stein B. Lynn Walsh
King & Spalding J. Stephen Hufford
191 Peachtree Street Hunton & Williams
Atlanta, Georgia 30303-1763 NationsBank Plaza -- Suite 4100
(404) 572-4600 600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
(404) 888-4000
</TABLE>
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
TEAM RENTAL GROUP, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ------------------------------------------------- -----------------------------------------------
<S> <C>
1.Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus ............ Facing Page; Outside Front Cover Page
2.Inside Front and Outside Back Cover Pages of
Prospectus ........................................ Inside Front Cover Page; Outside Back
Cover Page
3.Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges ................ Prospectus Summary; Risk Factors; The Company;
Not Applicable
4.Use of Proceeds ................................... Prospectus Summary; Use of Proceeds
5.Determination of Offering Price ................... Outside Front Cover Page; Underwriting
6.Dilution .......................................... Not Applicable
7.Selling Security Holders .......................... Principal and Selling Stockholders
8.Plan of Distribution .............................. Underwriting
9.Description of Securities to Be Registered ....... Description of Capital Stock
10.Interests of Named Experts and Counsel .......... Not Applicable
11.Information with Respect to the Registrant ....... Outside Front Cover Page; Prospectus Summary; Risk
Factors; The Company; Use of Proceeds; Price Range
of Common Stock; Dividend Policy; Capitalization;
Pro Forma Consolidated Financial Statements;
Selected Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling Stockholders;
Description of Capital Stock; Shares Eligible for
Future Sale
12.Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ... Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
SUBJECT TO COMPLETION, DATED JUNE 28, 1996
4,000,000 Shares
[TEAM RENTAL LOGO]
Team Rental Group, Inc.
Class A Common Stock
($.01 par value)
----------------
Of the shares of Class A Common Stock of Team Rental Group, Inc. (the
"Company" or "TEAM") offered hereby (the "Offering"), 3,221,007 shares are
being sold by the Company and 778,993 shares are being sold by the Selling
Stockholders named herein under "Principal and Selling Stockholders" (the
"Selling Stockholders"). The Company will not receive any proceeds from the
sale of shares by the Selling Stockholders. The Class A Common Stock is
listed on The Nasdaq Stock Market's National Market under the symbol "TBUD."
On June 25, 1996, the last reported sale price of the Class A Common Stock on
the Nasdaq National Market was $15.50 per share.
The Company has two classes of Common Stock, the Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), and the Class B Common
Stock, par value $.01 per share (the "Class B Common Stock"). Holders of the
Class A Common Stock are entitled to one vote per share and holders of the
Class B Common Stock are entitled to ten votes per share.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE CLASS A COMMON STOCK, SEE "RISK FACTORS" BEGINNING
ON PAGE 9 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
------------ ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Per Share ..... $ $ $ $
Total(2) ...... $ $ $ $
</TABLE>
- ------------
(1) Before deduction of expenses payable by the Company estimated at
$635,000.
(2) The Company has granted the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase a maximum of 600,000
additional shares of Class A Common Stock to cover over-allotments of
shares. If the option is exercised in full, the total Price to Public
will be $ , Underwriting Discounts and Commissions will be $ and
Proceeds to Company will be $ . See "Underwriting."
----------------
The shares are offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the Class A Common
Stock will be ready for delivery on or about , 1996, against payment in
immediately available funds.
CS First Boston
The Chicago Corporation
McDonald & Company
Securities, Inc.
The date of this Prospectus is , 1996.
<PAGE>
[MAP AND PHOTOS TO BE ADDED]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS AND THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE CLASS A COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
DURING THE OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN
THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE CLASS A COMMON STOCK PURSUANT TO EXEMPTIONS FROM
RULES 10b-6, 10b-7 AND 10b-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial
statements and notes thereto appearing elsewhere in this Prospectus. Unless
the context otherwise requires, references to the "Company" or "TEAM" in this
Prospectus include Team Rental Group, Inc. and its operating subsidiaries and
predecessors. The information set forth herein assumes no exercise of the
Underwriters' over-allotment option. "Common Stock," as used herein, refers
collectively and without distinction to the Class A Common Stock and the
Class B Common Stock.
THE COMPANY
Team Rental Group, Inc. is the largest Budget Rent a Car ("Budget")
franchisee worldwide and is one of the largest independent retailers of late
model automobiles in the United States. In 1994, TEAM embarked on a strategy
to significantly expand its Budget franchise base and to develop a branded
retail car sales operation within its Budget franchise territories. This
strategy both leverages management's experience and creates certain operating
efficiencies between these complementary businesses. Through its 159 vehicle
rental locations, TEAM had pro forma 1995 revenue of $202.9 million, and the
Company operates nine retail car sales facilities with monthly sales revenue
of $10.7 million for May 1996. The Company estimates it will purchase
approximately 40,000 vehicles over the next twelve months, consisting of new
automobiles and trucks for its Budget rental operations, late model
automobiles for its retail car sales operations and new passenger vans for
its van pooling operations.
STRATEGY
Since its initial public offering in August 1994, the Company has pursued
an aggressive growth strategy in both its vehicle rental and retail car sales
operations. TEAM has added nine Budget franchise territories with 136 current
locations to the four territories that it operated at the time of its initial
public offering, thereby enhancing the economies of scale in its operations,
balancing its geographic scope and reducing seasonal fluctuations.
Concurrently, the Company has developed or acquired its first nine retail car
sales facilities--all within its Budget territories.
The Company's strategy is to increase its revenues and improve its
profitability by:
o Significantly expanding its retail car sales operations;
o Acquiring additional Budget franchises; and
o Enhancing the scale and performance of its Budget Franchise Group.
Significantly Expand Retail Car Sales Operations. In recent years, there
has been increasing demand for low mileage, late model cars and several
companies have begun retailing such cars on a national or regional basis
under a single trade name. The Company's senior executive officers have
significant experience in acquiring and selling low mileage, late model cars
and the Company believes it will be able to obtain efficiencies by operating
retail car sales facilities in conjunction with certain of its Budget rental
facilities. The Company will seek to significantly expand its retail car
sales operations by adding facilities in (i) its seven existing car sales
markets, (ii) the Budget territories where it does not currently have retail
car sales operations and (iii) markets beyond its franchise territories.
Acquire Additional Budget Franchises. TEAM will seek to increase its
revenues and profitability through additional opportunistic acquisitions of
Budget franchise territories, and believes that desirable acquisition
candidates will continue to exist within the Budget System. While the Company
would consider the acquisition of franchise territories in most regions of
the United States, there may be greater opportunities to achieve additional
operating efficiencies by acquiring franchise territories contiguous to its
existing territories. The Company believes that both TEAM and Budget have
benefited from the improved results achieved by the franchises acquired by
the Company.
Enhance the Scale and Performance of its Budget Franchise Group. The
Company believes it will be able to enhance the profitability of its existing
Budget franchises and any additional Budget franchises
3
<PAGE>
that it may acquire by reducing the cost of operating those franchises and
increasing the rental revenues realized. The Company believes it will be able
to reduce costs through achieving further economies of scale, optimizing
fleet mix and utilization, and implementing standard cost management
practices in its newly acquired territories. The most significant elements of
achieving revenue growth include utilizing yield management models to
optimize pricing, adding additional locations in its existing and newly
acquired franchise territories (particularly by adding non-airport locations)
and placing an increased emphasis on the sale of ancillary products and
services.
GROWTH HISTORY
The following tables chronologically detail TEAM's acquisitions of Budget
franchises and the openings of its retail car sales facilities:
VEHICLE RENTAL--BUDGET FRANCHISE ACQUISITIONS
<TABLE>
<CAPTION>
1995
LOCATIONS AT FLEET SIZE AT REVENUES
FRANCHISE TERRITORY DATE ACQUIRED MAY 31, 1996 MAY 31, 1996 (MILLIONS)
- -------------------------- --------------- -------------- --------------- ----------
<S> <C> <C> <C> <C>
Owned prior to August 1994
San Diego ................. April 1987 12 1,610 $ 18.6
Albany .................... August 1991 3 237 2.5
Rochester ................. November 1991 3 217 2.5
Richmond .................. December 1991 5 415 3.6
-------------- --------------- ----------
Total for franchises owned prior to initial
public offering ........................... 23 2,479 27.2
-------------- --------------- ----------
Acquired since August 1994
Philadelphia .............. August 1994 22 2,019 21.0
Pittsburgh ................ August 1994 14 1,070 13.0
Cincinnati ................ August 1994 8 880 8.0
Fort Wayne ................ November 1994 3 187 1.7
Charlotte ................. January 1995 6 565 6.5
Dayton .................... January 1995 6 452 5.2
Hartford .................. March 1995 13 928 9.6
Los Angeles(1) ............ October 1995 41 5,355 63.4(2)
Phoenix ................... February 1996 23 2,953 47.3(2)
-------------- --------------- ----------
Total for franchises acquired since initial
public offering ........................... 136 14,409 175.7
-------------- --------------- ----------
Total ............. 159 16,888 $202.9
============== =============== ==========
</TABLE>
- ------------
(1) Excludes the vehicle rental operations at Los Angeles International
Airport.
(2) Includes operations prior to their date of acquisition by the Company.
See the Unaudited Pro Forma Consolidated Statement of Operations for
the year ended December 31, 1995 included under "Pro Forma Consolidated
Financial Statements."
RETAIL CAR SALES--FACILITIES OPENED
<TABLE>
<CAPTION>
MAY 1996 SALES
DATE MAY 1996 REVENUE
METROPOLITAN AREA ACQUIRED/OPENED VEHICLES SOLD (THOUSANDS)
- ----------------- --------------- --------------- ---------------
NOVEMBER
<S> <C> <C> <C>
San Diego--East . 1994 61 $ 982
Dayton--North ... January 1995 34 518
San Diego--West . April 1995 100 1,843
Philadelphia ..... May 1995 91 1,712
Charlotte ........ September 1995 90 1,468
Richmond ......... October 1995 92 1,497
Ontario .......... October 1995 35 688
Cincinnati ....... April 1996 47 726
Dayton--South ... April 1996 80 1,305
--------------- ---------------
Total .... 630 $10,739
=============== ===============
</TABLE>
In February 1996, the Company also acquired VPSI, Inc. ("Van Pool"), which
operates commuter van pooling services in 21 markets. Van Pool had a fleet of
approximately 3,250 vehicles at May 31, 1996.
4
<PAGE>
-------------------
Sanford Miller (Chairman and Chief Executive Officer), John P. Kennedy
(President and Chief Operating Officer) and Jeffrey D. Congdon (Chief
Financial Officer and Secretary) (collectively, the "Principal Executive
Officers") have a combined 74 years of experience in the vehicle rental
business and have acquired and operated 54 Budget franchises over the past 15
years. In addition, Messrs. Miller and Congdon have a combined 25 years of
experience operating retail car sales facilities. These individuals will
remain the controlling stockholders of the Company after consummation of the
Offering.
The principal executive offices of the Company are located at 125 Basin
Street, Suite 210, Daytona Beach, Florida 32114, and its telephone number at
that location is (904) 238-7035.
THE OFFERING
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<CAPTION>
<S> <C>
Class A Common Stock offered by:
The Company ........................................... 3,221,007 shares
Selling Stockholders .................................. 778,993 shares
4,000,000 shares
Common Stock to be outstanding after the Offering(1) .. 8,714,183 shares of Class A Common Stock
1,936,600 shares of Class B Common Stock
10,650,783 shares of Common Stock
Use of Proceeds to the Company ......................... The proceeds to the Company from the Offering will
be used to reduce outstanding indebtedness and for
general corporate purposes. The Company will not
receive any proceeds from the sale of shares by the
Selling Stockholders.
Nasdaq National Market symbol .......................... TBUD
</TABLE>
- ------------
(1) Does not include 785,000 shares of the Class A Common Stock reserved
for issuance under the Company's stock option plans, of which options
to purchase 467,600 shares have been granted, and 362,500 shares of the
Class A Common Stock reserved for issuance upon exercise of outstanding
stock purchase warrants. See "Management--Benefit Plans" and
"Description of Capital Stock-- Warrants."
5
<PAGE>
SUMMARY FINANCIAL DATA
Historical Data. The 1994 data include results of operations for the
Company's Philadelphia and Pittsburgh, Pennsylvania, Cincinnati, Ohio and Ft.
Wayne, Indiana operations from their respective acquisition dates. The 1995
data include results of operations for the Company's Hartford, Connecticut
and Los Angeles, California operations from their respective acquisition
dates. The data for the three months ended March 31, 1995 include results of
operations for the Company's Hartford, Connecticut operation from its
acquisition date. The data for the three months ended March 31, 1996 include
results of operations for the Company's Phoenix, Arizona operation and for
Van Pool from their respective acquisition dates. Each of the foregoing
acquisitions was accounted for using the purchase method of accounting. The
data for 1993 include the separate capital structures of corporations that
were acquired in August 1994 and are presented on a combined basis as
companies under common control and, therefore, do not provide a meaningful
basis for presentation of earnings per share data.
Pro Forma Data. The following tables also set forth certain unaudited pro
forma consolidated financial and operating data for the Company (i) for the
year ended December 31, 1995, giving effect to the following transactions as
if they had occurred on January 1, 1995: (a) the acquisition of the Los
Angeles, California Budget franchise (the "Los Angeles Acquisition"), which
was effective on October 1, 1995 and (b) the acquisition of the Phoenix,
Arizona Budget franchise (the "Phoenix Acquisition"), which was completed on
February 27, 1996 (the Los Angeles Acquisition and the Phoenix Acquisition
are referred to collectively as the "Acquisitions"), and (ii) for the three
months ended March 31, 1996, giving effect to the Phoenix Acquisition as if
it had occurred on January 1, 1995.
Pro Forma, As Adjusted Data. The unaudited pro forma consolidated
statements of operations, as adjusted, include adjustments for the
Acquisitions, as described above, and adjustments for the sale of 3,221,007
shares of the Class A Common Stock offered by the Company hereby with
estimated net proceeds of $46.5 million, as described under "Use of
Proceeds," and the repayment of certain of the Company's outstanding
indebtedness from the proceeds of the Offering. The unaudited pro forma
consolidated statement of operations data, as adjusted, for the year ended
December 31, 1995 and the three months ended March 31, 1996, give effect to
such transactions as if they had occurred on January 1, 1995.
6
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
PRO PRO FORMA,
FORMA AS ADJUSTED
HISTORICAL (UNAUDITED) (UNAUDITED)
-------------------------------- ----------- -------------
1993 1994 1995 1995 1995
--------- --------- ---------- ----------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND BUDGET RENTAL
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Vehicle rental revenues ..... $22,321 $38,642 $107,067 $203,525 $203,525
Retail car sales revenues ... -- -- 42,662 42,662 42,662
--------- --------- ---------- ----------- -------------
Total operating revenues ... 22,321 38,642 149,729 246,187 246,187
Vehicle depreciation expense 4,358 7,382 27,476 59,392 59,392
Operating income ............. 2,450 4,196 14,180 19,328 19,328
Vehicle interest expense . . 2,462 3,909 13,874 26,842 25,944
Non-vehicle interest
expense ..................... 401 531 632 3,502 913
Income (loss) from continuing
operations before income
taxes ....................... 610 426 1,022 (9,641) (6,154)
Net income (loss) ............ 428 250 337 (5,784) (3,692)
Weighted average common
shares outstanding (000s) -- 3,704 6,369 7,430 10,651
Earnings (loss) per common
share ....................... -- $0.07 $0.05 $(0.78) $(0.35)
OPERATING DATA:
Adjusted EBITDA(1) ........... $1,392 $1,632 $3,854 $(1,227) $4,595
BUDGET RENTAL DATA:
Locations in operation at
period end ................. 19 63 133 157 --
Number of useable vehicles
at period end(2) ........... 2,006 5,044 11,144 14,956 --
Rental transactions(3) ..... 163,000 276,000 689,000 1,276,000 --
Daily dollar average(4) .... $34.01 $37.32 $41.26 $38.75 --
Vehicle utilization(5) ..... 77.2% 80.6% 80.0% 81.4% --
Average monthly revenue per
unit(6) ..................... $791 $909 $1,007 $946 --
RETAIL CAR SALES DATA:
Locations in operation at
period end ................. -- -- 7 7 --
Average monthly vehicles
sold ....................... -- -- 351 351 --
Average monthly sales --
revenue .................... -- -- $4,883 $4,883
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
-----------------------------------------------
PRO FORMA,
PRO AS
HISTORICAL FORMA ADJUSTED
---------------------- --------- ------------
1995 1996 1996 1996
----------- --------- --------- ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Vehicle rental revenues ..... $17,354 $44,697 $52,911 $52,911
Retail car sales revenues ... 4,916 21,097 21,097 21,097
----------- --------- --------- ------------
Total operating revenues ... 22,270 65,794 74,008 74,008
Vehicle depreciation expense 5,126 11,804 13,983 13,983
Operating income ............. 372 7,254 7,749 7,749
Vehicle interest expense . . 2,616 5,621 6,612 6,399
Non-vehicle interest
expense ..................... 67 254 473 --
Income (loss) from continuing
operations before income
taxes ....................... (1,911) 2,128 1,413 2,099
Net income (loss) ............ (1,146) 1,277 848 1,260
Weighted average common
shares outstanding (000s) 6,037 7,256 7,430 10,651
Earnings (loss) per common
share ....................... $(0.19) $0.18 $0.11 $0.12
OPERATING DATA:
Adjusted EBITDA(1) ........... $(1,447) $3,432 $3,233 $3,446
BUDGET RENTAL DATA:
Locations in operation at
period end ................. 94 159 159 --
Number of useable vehicles
at period end(2) ........... 7,076 17,265 17,265 --
Rental transactions(3) ..... 120,700 237,700 279,000 --
Daily dollar average(4) .... $39.67 $40.87 $41.13 --
Vehicle utilization(5) ..... 77.8% 84.2% 83.0% --
Average monthly revenue per
unit(6) ..................... $926 $1,030 $1,022 --
RETAIL CAR SALES DATA:
Locations in operation at
period end ................. 2 7 7 --
Average monthly vehicles
sold ....................... 99 411 411 --
Average monthly sales
revenue .................... $1,632 $6,476 $6,476 --
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
(UNAUDITED)
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net $314,591 $314,591
Retail car sales inventory .. 13,832 13,832
Total assets ................. 478,677 478,677
Fleet financing facilities .. 145,682 145,682
Other vehicle obligations ... 207,039 197,039
Notes payable ................ 47,508 14,508
Total debt ................... 400,968 357,968
Common stock warrant ......... 2,000 2,000
Stockholders' equity ......... 43,596 92,347
</TABLE>
7
<PAGE>
- ------------
(1) Adjusted EBITDA consists of income before income taxes plus (a)
non-vehicle depreciation and amortization expenses and (b) non-vehicle
interest expense. Adjusted EBITDA is not presented as an alternative
measure of operating results or cash flows from operations (as
determined in accordance with generally accepted accounting
principles), but is presented because it is a widely accepted financial
indicator of a company's ability to service unsecured debt.
(2) Vehicles available for rental.
(3) Rounded to the nearest thousand.
(4) Rental revenue divided by number of days that vehicles were actually
rented.
(5) Number of days vehicles were actually rented divided by number of days
vehicles were available for rent.
(6) Average monthly revenue divided by average monthly fleet.
8
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors in
addition to other information included in this Prospectus before purchasing
any of the shares of Class A Common Stock.
RISKS INHERENT IN GROWTH STRATEGY
The Company's growth strategy has placed and will continue to place
significant demands on the Company's resources. Since completing its initial
public offering in August 1994, the Company has increased its rental
operations from four Budget franchise territories with 19 locations to
thirteen territories with 159 locations, and increased the size of its fleet
from 2,715 vehicles to 16,888 vehicles. Certain of the franchises acquired by
the Company had either been unprofitable or had inconsistent profitability
prior to their acquisition by the Company, and the Company may acquire
under-performing franchises in the future. The inability of the Company to
improve the profitability of such acquired franchises or to successfully
integrate acquired franchises into its operations could have an adverse
effect on the Company's results of operations.
Since November 1994, the Company has developed or acquired its first nine
retail car sales facilities, which constitutes a new line of business for the
Company, and the Company plans to expand this line of business significantly.
The Company's retail car sales facilities have a limited operating history.
The successful growth of the Company's retail car sales operation will depend
on a number of factors, including the identification of suitable locations,
the negotiation of leases for those locations on acceptable terms, the
hiring, training and retention of skilled managers for each facility,
implementation of standard operating practices, site construction or
refurbishment and development of additional sources of cars for resale. A
number of these factors will be beyond the Company's control. As a result,
there can be no assurance that the Company will be able to continue to
develop or acquire new retail car sales facilities.
COMPETITION
The vehicle rental industry is characterized by intense competition,
particularly with respect to price and service. In any geographic market, the
Company may encounter competition from national, regional and local vehicle
rental companies. The Company's main competitors are The Hertz Corporation
("Hertz"), Avis, Inc. ("Avis"), Alamo Rent a Car Inc. ("Alamo"), National Car
Rental System, Inc. ("National"), Dollar Rent a Car Systems, Inc. ("Dollar")
and Enterprise Rent a Car ("Enterprise"). There have been occasions when the
major vehicle rental companies have been adversely affected by industry-wide
price cutting, and the Company has on such occasions lowered its prices in
response. The Company is generally not able to unilaterally raise its prices
or to maintain its prices in times of industry price cutting. See
"Business--Competition."
The retail car sales industry is characterized by intense competition,
consisting primarily of local new car dealerships selling new and late-model
cars. The Company believes that competition for the customer seeking to
purchase a late model car is based primarily on price and selection, while a
customer originally intending to purchase a new car may select a late-model
car based on perceived value. In addition to local dealerships, the Company
may face competition from retailers that compete on the basis of large
inventory size, no-haggle pricing and after-sale service.
REQUIREMENTS FOR CAPITAL; EFFECT OF CHANGES IN INTEREST RATES
The vehicle rental business is capital intensive and the Company has
sought to reduce the cost of financing its fleet of vehicles by arranging
more advantageous asset-backed note financings. Since its initial public
offering in August 1994, the Company has financed its rental vehicles
primarily through asset-backed note facilities and traditional bank credit
facilities. The Company currently has two asset-backed note facilities in
place to provide financing for rental vehicles eligible for repurchase by
specified automobile manufacturers at fixed prices on designated dates
pursuant to such manufacturers' vehicle repurchase programs ("Program
Vehicles"). Subsequent to the completion of the Offering, the Company intends
to enter into an additional asset-backed note facility (the "Third Fleet
Financing Facility" and together with the Company's two existing asset-backed
facilities, the "Fleet Financing
9
<PAGE>
Facilities") in order to provide financing for additional vehicles, which may
include rental vehicles that are not subject to manufacturers' repurchase
program. In May 1996, the Company entered into a Revolving Credit Facility in
order to provide additional financing for approximately 5,600 Program
Vehicles (the "Revolving Credit Facility"). In aggregate, the Fleet Financing
Facilities are expected to provide financing for approximately 19,000
vehicles, which the Company believes is sufficient, together with vehicles
financed under other vehicle obligations, to meet its base fleet requirements
as of May 31, 1996.
The Company anticipates that amounts available under the Fleet Financing
Facilities and the Revolving Credit Facility and under working capital lines
and lines of credit being paid down from the net proceeds of the Offering,
together with amounts provided by its traditional financing sources, will be
sufficient to meet its financing needs for the foreseeable future. Certain
events, such as a material increase in damage to vehicles, could reduce the
value of the collateral securing the Fleet Financing Facilities and cause the
acceleration of the repayment of a portion of the principal of the Fleet
Financing Facilities. The Company has financed its retail car sales inventory
with $25.7 million of short term secured lines of credit. The failure to
obtain sufficient fleet financing or car sales inventory financing on
satisfactory terms would materially adversely affect the Company's
operations.
The Company had $401.0 million of indebtedness outstanding at March 31,
1996, substantially all of which bears interest at a floating rate based on
either 30-day LIBOR or the prime rate of interest. Accordingly, any increase
in prevailing interest rates would result in an increase in interest expense
incurred by the Company, which could have an adverse effect on the Company's
results of operations. Certain of the agreements under which the Company has
borrowings outstanding include significant covenants that, among other
things, restrict the ability of the Company to incur additional indebtedness,
repay or refinance other indebtedness or amend other debt instruments, pay
dividends, create liens on assets, engage in mergers or consolidations or
acquire other businesses and otherwise restrict corporate activities. In
addition, the Company is required to comply with specified financial tests
and ratios. The Company is currently in compliance with the restrictions and
covenants contained in its debt agreements, however, its ability to continue
to comply could be affected by events beyond its control, including
prevailing economic and industry conditions.
There can be no assurance that the sources of financing utilized by the
Company or alternative financing will remain or become available to the
Company or on terms acceptable to the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
POTENTIAL CHANGES IN MANUFACTURERS' REPURCHASE PROGRAMS
At March 31, 1996, approximately 85% of the vehicles in the Company's
rental car fleet were Program Vehicles. The availability of Program Vehicles
limits the Company's risk of a decline in residual value at the time of
disposition and enables the Company to fix its depreciation expense in
advance. Vehicle depreciation is the largest cost factor in the Company's
vehicle rental operations. The Company believes that manufacturers'
repurchase programs enable the manufacturers to stimulate fleet sales in
times of weak consumer demand for new automobiles. In response to strong U.S.
consumer demand for passenger vehicles in 1993 and 1994, the major U.S.
automobile manufacturers reduced the number of vehicles subject to repurchase
programs and the financial incentives associated with these programs. U.S.
consumer demand for passenger vehicles began to weaken during the second
quarter of 1995, and this weakness has continued to date in 1996. In response
to these market conditions, there was an increase in the availability of
repurchase programs with respect to 1996 model year vehicles, particularly
repurchase programs for imported vehicles and these programs are expected to
continue for 1997 model year vehicles. However, the Company could be adversly
effected if automobile manufacturers reduce the availability of Program
Vehicles or related incentives.
The Company could be at a competitive disadvantage if U.S. automobile
manufacturers selectively restrict eligibility to participate in their
repurchase programs. Over the past decade, U.S. automobile manufacturers have
acquired direct or indirect equity stakes in most of the major car rental
systems. General Motors Corporation ("GM") has an equity interest in Avis;
Ford Motor Company ("Ford") owns Hertz and has an equity interest in Budget
Rent a Car Corporation ("BRAC"); and Chrysler Corporation
10
<PAGE>
("Chrysler") has equity interests in Dollar and Thrifty Rent-A-Car Systems,
Inc. ("Thrifty"). For the 1996 model year, the Company purchased
substantially all of its vehicles pursuant to programs sponsored by Ford
(including its affiliate Mazda Motor of America, Inc. ("Mazda")) and
Chrysler. Any effort by GM or Chrysler to restrict eligibility to participate
in repurchase programs to rental systems within their corporate families
could adversely affect the Company's ability to compete with those of its
competitors that have continued access to such programs. Similarly, any
effort by Ford or Mazda to restrict the eligibility of Budget franchise
operations (as opposed to Budget operations owned by BRAC) to participate in
their repurchase programs could have a material adverse effect on the
Company's competitive position. The Company is not aware of any plans by the
manufacturers to selectively restrict its eligibility to participate in their
repurchase programs.
FRANCHISEE STATUS; DEPENDENCE ON BUDGET SYSTEM
The Company's subsidiaries that operate its vehicle rental business are
franchisees of BRAC or, in the case of (i) its Los Angeles and San Diego
operations, sub-franchisees of Budget Rent a Car of Southern California
("SoCal"), and (ii) its Los Angeles truck rental operations, the
sub-franchisee of an unaffiliated third party. Significant matters relating
to the Company's growth and operational strategies must be coordinated with,
and approved by, the Company's franchisors. Each of the Company's franchise
agreements provides that the franchisor has the right to terminate the
franchise granted thereunder if the Company is in violation of the terms of
such franchise agreement or the Budget operating manual. Any such termination
could have a material adverse effect on the Company. Pursuant to each
franchise agreement, the Company must meet certain guidelines relating to the
number of rental offices in a franchised territory, the number of vehicles
maintained for rental and the amount of advertising and promotion
expenditures. See "Business--Franchise Agreements" and "Certain
Transactions."
Due to the nature of franchising and the Company's franchise agreements,
the success of the Company is, to a large extent, dependent upon the overall
success of Budget's worldwide system (the "Budget System"), including the
performance of other Budget franchisees. In particular, the Company relies on
BRAC for national promotion, advertising and marketing programs and the BRAC
computerized reservation system. The Company believes that BRAC has depended
in the past on the financial support of Ford and may in the future continue
to rely on such support. Thus, any material adverse change in the financial
condition, management or marketing efforts of BRAC or the Budget System,
including any material reduction of Ford's financial support of BRAC, could
have an adverse effect on the Company's results of operations and financial
condition. In addition, as a sub-franchisee in Los Angeles and San Diego, the
Company is dependent, in part, on the financial condition and performance of
the primary licensees under the underlying Budget franchise agreements with
BRAC. See "Business-- Vehicle Rental Operations--The Budget System."
Pursuant to its standard franchise agreements, BRAC generally has a right
of first refusal with respect to the sale or transfer of Budget franchises
and, even if it does not exercise such right, must consent to the transfer of
a Budget franchise. The consent of BRAC is generally required for the sale,
assignment or transfer of 33.3% or more of the equity ownership or voting
control of a Budget franchisee, and BRAC has the right to approve any
transfer of shares by Messrs. Miller, Kennedy and Congdon that would reduce
the combined voting power of the shares of Common Stock which they own to
less than 50.1%. See "Principal and Selling Stockholders." Messrs. Miller and
Congdon, the Company's Chief Executive Officer and Chief Financial Officer,
respectively, are currently bound by an agreement with BRAC that limits their
ability to acquire additional Budget franchises outside of Southern
California prior to May 14, 1999 without the consent of BRAC. Although BRAC
has consented to the Company's previous acquisitions, there can be no
assurance that BRAC will decline to exercise its right of first refusal or
will consent to additional acquisitions by the Company in the future.
SEASONALITY
The Company's third quarter, during the peak summer travel months, has
historically been the strongest quarter of the year. As a result, any
occurrence that disrupts travel patterns during the summer period could have
a material adverse effect on the Company's annual performance. The Company
has
11
<PAGE>
sought to reduce this seasonal effect by acquiring franchise territories that
are winter travel destinations, and the Company believes that its recent
acquisitions of the Los Angeles and the Phoenix operations have reduced and
will continue to reduce these seasonal effects. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Seasonality."
REGULATION OF LOSS DAMAGE WAIVERS
A traditional revenue source for the vehicle rental industry has been the
sale of loss damage waivers, by which rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage incurred
during the rental period. Approximately 6% of the Company's rental revenue
during 1995 was generated by the sale of loss damage waivers. The U.S. House
of Representatives has from time to time considered legislation that would
regulate the conditions under which loss damage waivers may be sold by
vehicle rental companies. House Bill H.R. 175, introduced in January 1995,
seeks to prohibit the imposition of liability on renters for loss of, or
damage to, rented vehicles, except in certain circumstances, and would
prohibit the sale of loss damage waivers. In addition, New York State has
enacted legislation which eliminated the right of vehicle rental companies to
offer for sale loss damage waivers, and California has capped the rates which
can be charged for this protection at $9.00 per day. To date, 21 states have
enacted legislation which requires disclosure to each customer at the time of
rental that damage to the rented vehicle may be covered by the customer's
personal automobile insurance. Adoption of national or additional state
legislation affecting or limiting the sale of loss damage waivers could
result in the loss of this revenue source.
ENVIRONMENTAL RISKS INHERENT IN ON-SITE PETROLEUM STORAGE
Twenty-nine of the Company's facilities contain tanks for the storage of
petroleum products, such as gasoline, diesel fuel and waste oils. At 27 of
the Company's locations, one or more of these tanks are located underground.
The Company maintains an environmental compliance program that includes the
implementation of required technical and operational procedures designed to
minimize the potential for leaks and spills, maintenance of records and the
regular testing of tank systems for tightness. However, there can be no
assurance that these tank systems will at all times remain free from leaks or
that the use of these tanks will not result in spills. Any leak or spill,
depending on such factors as the material involved, quantity and
environmental setting, could result in interruptions to the Company's
operations and expenditures that could have a material adverse effect on the
Company's results of operations and financial condition.
There can be no assurance that future environmental legislation and
regulations will not require material expenditures by the Company or
otherwise have a material adverse effect on the Company's operations. See
"Business--Regulation and Environmental Matters."
RISK OF NON-RENEWAL OF AIRPORT CONCESSIONS
The Company conducts rental operations at 29 airports, with each of these
operations conducted pursuant to a concession agreement granted by the local
airport authority. In general, these concession agreements are subject to
competitive bidding at the time of renewal. The terms of the Company's
airport concession agreements are varied and include month-to-month terms at
certain locations and fixed terms of various durations at other locations.
The Company is at risk of losing its ability to operate at an airport if it
is not a successful bidder at the time its concession agreement is subject to
renewal.
DEPENDENCE ON PRINCIPAL EXECUTIVE OFFICERS
The Company's existing operations and continued future development are
dependent in part on the active participation of the Company's Principal
Executive Officers. The loss of the services of one or more of these
individuals could have a material adverse effect on the Company. See
"Management."
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of shares of Class A Common Stock currently outstanding,
or issuable upon exercise of stock options and stock purchase warrants or upon
conversion of convertible securities, are or will
12
<PAGE>
become eligible for future sale in the public market at prescribed times
pursuant to applicable regulations and registration rights of certain
security holders. The Company's executive officers and directors and the
Selling Stockholders have agreed that for a period of 90 days after the date
of this Prospectus, and the Company has agreed that for a period of 180 days
after the date of this Prospectus, they will not sell or otherwise dispose of
any shares of Common Stock without the prior written consent of CS First
Boston Corporation. Significant sales of the Class A Common Stock in the
public market following the Offering could adversely affect prevailing market
prices. See "Shares Eligible for Future Sale."
VOTING CONTROL BY PRINCIPAL EXECUTIVE OFFICERS
The Company has two classes of Common Stock: Class A Common Stock, which
is entitled to one vote per share, and Class B Common Stock, which is
entitled to ten votes per share. The Principal Executive Officers own all of
the outstanding shares of Class B Common Stock, which, following the
Offering, will represent approximately 69.1% of the combined voting power of
both classes of Common Stock. As a result, the Principal Executive Officers
will continue to be able to elect all of the Company's Board of Directors,
thereby ensuring that members elected by them will continue to direct the
business, policies and management of the Company. See "Principal and Selling
Stockholders."
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER AND BYLAW PROVISIONS; POSSIBLE
ISSUANCES OF PREFERRED STOCK
Certain provisions of Delaware law, the Company's Amended and Restated
Certificate of Incorporation (in particular, the voting rights of the Class B
Common Stock) and the Company's Bylaws could delay or impede the removal of
incumbent directors and could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire,
control of the Company. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Class A
Common Stock. In addition, shares of preferred stock may be issued by the
Board of Directors without stockholder approval on such terms and conditions,
and having such rights, privileges and preferences, as the Board of Directors
may determine. The rights of the holders of the Class A Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The Company has no
current plans to issue any shares of preferred stock. See "Description of
Capital Stock--Preferred Stock" and "Description of Capital Stock--Section
203."
13
<PAGE>
THE COMPANY
Team Rental Group, Inc. is the largest Budget franchisee worldwide and is
one of the largest independent retailers of late model automobiles in the
United States. In 1994, TEAM embarked on a strategy to significantly expand
its Budget franchise base and to develop a branded retail car sales operation
within its Budget franchise territories. This strategy both leverages
management's experience and creates certain operating efficiencies between
these complementary businesses. Through its 159 vehicle rental locations,
TEAM had pro forma 1995 revenue of $202.9 million, and the Company operates
nine retail car sales facilities with monthly sales revenue of $10.7 million
for May 1996. The Company estimates it will purchase approximately 40,000
vehicles over the next twelve months, consisting of new automobiles and
trucks for its Budget rental operations, late model automobiles for its
retail car sales operations and new passenger vans for its van pooling
operations.
The following chart illustrates the functional organization of the Company
and the operating territories of each business.
[TEAM RENTAL LOGO]
VEHICLE RENTAL DIVISION RETAIL CAR SALES DIVISION
BUDGET FRANCHISE GROUP VAN POOL GROUP RETAIL CAR SALES
(159 LOCATIONS) (21 MARKETS) GROUP
Albany (3) Atlanta (9 FACILITIES)
Charlotte (6) Austin Charlotte
Cincinnati (8) Boston Cincinnati
Dayton (6) Chicago Dayton--North
Fort Wayne (3) Cincinnati Dayton--South
Hartford (13) Dallas/Ft. Worth Ontario
Los Angeles (41) Danbury Philadelphia
Philadelphia (22) Detroit Richmond
Phoenix (23) Honolulu San Diego--East
Pittsburgh (14) Houston San Diego--West
Richmond (5) Los Angeles
Rochester (3) Melbourne
San Diego (12) Newark
New Orleans
Orlando
Pittsburgh
Richmond
San Francisco
St. Paul
Tampa
Washington, DC
14
APITAL PRINTING SYSTEMS]
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $46.5 million (approximately $55.3 million if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders.
The Company intends to use the net proceeds from the Offering to repay
outstanding indebtedness as follows: (i) approximately $17.0 million will be
used to repay amounts under a note payable to NationsBank, National
Association (South), $7.0 million of which was incurred to finance the
Phoenix Acquisition and $10.0 million of which was incurred to repay
borrowings incurred in connection with the Los Angeles Acquisition, which
indebtedness matures June 28, 1996 and bears interest at a rate of prime plus
3.0% (currently 11.25%), (ii) approximately $13.0 million will be used to
repay amounts outstanding under a working capital line with NBD Bank, N.A.,
which is due November 1996 and bears interest at a rate of LIBOR plus 1.85%
(currently approximately 7.7%), (iii) approximately $3.0 million will be used
to repay amounts due under a note payable to Spectrum Investment that was
assumed in connection with the Los Angeles Acquisition, which matures in
August 1999 and bears interest at 8.0%, and (iv) approximately $10.0 million
will be used to repay amounts outstanding under a line of credit with World
Omni Financial Corp. which are due during the period from June 1996 to
October 1996 and bear interest at prime plus 0.25% (currently 8.50%). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions." The
remaining balance of the net proceeds, and any net proceeds from the exercise
of the Underwriters' over-allotment option, will be used for general
corporate purposes.
PRICE RANGE OF COMMON STOCK
The Class A Common Stock is listed on the Nasdaq National Market under the
symbol "TBUD." The following table sets forth the high and low sale prices
per share for the Class A Common Stock as reported to the Company by the
Nasdaq National Market for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1994
Third Quarter (commencing August 18, 1994) $12.50 $9.31
Fourth Quarter ............................. 11.50 9.00
1995
First Quarter .............................. 9.75 8.00
Second Quarter ............................. 9.00 7.25
Third Quarter .............................. 11.38 6.50
Fourth Quarter ............................. 10.75 8.13
1996
First Quarter .............................. 10.50 8.25
Second Quarter (through June 25, 1996) .... 17.50 9.25
</TABLE>
On June 25, 1996, the last sale price of the Class A Common Stock as reported
on the Nasdaq National Market was $15.50 per share. As of June 25, 1996, there
were approximately 76 holders of record of the Class A Common Stock.
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock, and
anticipates that all earnings will be retained for use in its business. The
declaration and payment of any future dividends is at the discretion of the
Board of Directors of the Company. However, the Company is party to a number
of loan agreements which restrict its ability to pay cash dividends.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 (i) on an actual basis and (ii) as adjusted to give effect to
sale of the shares of the Class A Common Stock offered by the Company hereby
(at an assumed offering price of $15.50 per share) and the application of the
estimated net proceeds therefrom. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
(UNAUDITED)
-------------------------
ACTUAL AS ADJUSTED
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Fleet Financing Facilities:
First Fleet Financing Facility .................................... $105,682 $105,682
Second Fleet Financing Facility ................................... 40,000 40,000
Other vehicle obligations .......................................... 207,039 197,039
Notes payable ...................................................... 47,508 14,508
Capital lease obligations .......................................... 739 739
---------- -------------
Total debt ........................................................ 400,968 357,968
---------- -------------
Common stock warrant ................................................ 2,000 2,000
---------- -------------
Stockholders' equity:
Class A Common Stock, $.01 par value, one vote per share,
17,500,000 shares authorized; 5,529,843 shares issued and
5,493,176 shares outstanding; 8,750,850 shares issued and
8,714,183 shares outstanding
(pro forma, as adjusted)(1) ....................................... 54 86
Class B Common Stock, $.01 par value, ten votes per share,
2,500,000 shares authorized, 1,936,600 shares issued and
outstanding ........................................................ 20 20
Additional paid-in capital .......................................... 44,709 91,221
Accumulated deficit ................................................. (857) (857)
Treasury stock (at cost) ............................................ (330) (330)
---------- -------------
Total stockholders' equity ....................................... 43,596 90,140
---------- -------------
Total capitalization ............................................. $446,564 $450,108
========== =============
</TABLE>
- ------------
(1) Does not include 785,000 shares of the Class A Common Stock reserved
for issuance under the Company's stock option plans (of which options
to purchase 467,600 shares have been granted) and 362,500 shares of the
Class A Common Stock reserved for issuance under outstanding warrants.
See "Management--Benefit Plans" and "Description of Capital
Stock--Warrants."
16
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated statements of operations
for the year ended December 31, 1995 give effect to the following
transactions as if they had occurred on January 1, 1995: (i) the Los Angeles
Acquisition, which was effective on October 1, 1995, and the Phoenix
Acquisition, which was completed on February 27, 1996 and, (ii) the Offering
and the repayment of certain of the Company's outstanding indebtedness from
the proceeds thereof. The following unaudited pro forma consolidated
statements of operations for the three months ended March 31, 1996 give
effect to the following transactions as if they occurred on January 1, 1995:
(i) the Phoenix Acquisition and (ii) the Offering and the repayment of
certain of the Company's outstanding indebtedness from the proceeds thereof.
The Acquisitions have been accounted for using the purchase method of
accounting.
These unaudited pro forma consolidated financial statements may not be
indicative of the results that actually would have occurred if the
transactions referred to above had been in effect on the dates indicated or
the results that may be obtained in the future. These statements are
qualified in their entirety by, and should be read in conjunction with, the
audited financial statements of the Company, BRAC-OPCO, Inc. (Los Angeles),
and Arizona Rent-A-Car Systems, Inc. (Phoenix) and the notes thereto included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Unaudited pro forma earnings (loss) per common share data, as adjusted,
are calculated using 10,650,783 shares of Common Stock outstanding subsequent
to the sale of the Class A Common Stock offered hereby.
17
<PAGE>
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL(A) LOS ANGELES(B) PHOENIX(C) ACQUISITIONS
------------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Operating revenues ............. $149,729 $49,121 $47,337 --
Operating expenses:
Cost of retail car sales ..... 38,021 -- -- --
Direct vehicle and operating . 13,704 4,949 10,770 $2,084 (1)
Depreciation-vehicles ......... 27,476 18,123 13,888 (95)(2)
Depreciation-non-vehicle ..... 1,341 545 1,362
Advertising, promotion and
selling ...................... 11,826 3,988 4,189 (165)(3)
Facilities .................... 11,121 4,885 4,257 (326)(4)
Personnel ..................... 24,515 10,209 9,486 (1,927)(5)
General and administrative ... 6,686 1,539 2,744 --
Amortization .................. 859 251 11 543 (6)
------------- -------------- ---------- --------------
Total operating expenses .... 135,549 44,489 46,707 114
------------- -------------- ---------- --------------
Operating income ............... 14,180 4,632 630 (114)
Other (income) and expense:
Vehicle interest .............. 13,874 7,587 5,381 --
Other interest ................ 632 640 138 2,092 (7)
Interest income ............... (1,348) (27) -- --
------------- -------------- ---------- --------------
Total other expense, net .... 13,158 8,200 5,519 2,092
------------- -------------- ---------- --------------
Income (loss) before income
taxes, cumulative effect of
accounting change and loss
from discontinued operations . 1,022 (3,568) (4,889) (2,206)
Provision (benefit) for income
taxes ......................... 685 -- (1,880) (2,662)(10)
------------- -------------- ---------- --------------
Income (loss) before
cumulative effect of
accounting change and loss
from discontinued operations
(d) ........................... $337 $(3,568) $(3,009) $456
============= ============== ========== ==============
Weighted average common shares
outstanding ................... 6,369 -- -- 1,061
============= ============== ========== ==============
Earnings (loss) per common
share ......................... $0.05 -- -- --
============= ============== ========== ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA FOR
THE
PRO FORMA FOR ACQUISITIONS
THE ADJUSTMENTS FOR AND THE
ACQUISITIONS THE OFFERING OFFERING
-------------- ---------------- --------------
<S> <C> <C> <C>
Operating revenues ............. $ 246,187 -- $ 246,187
Operating expenses:
Cost of retail car sales ..... 38,021 -- 38,021
Direct vehicle and operating . 31,507 -- 31,507
Depreciation-vehicles ......... 59,392 -- 59,392
Depreciation-non-vehicle ..... 3,248 -- 3,248
Advertising, promotion and
selling ...................... 19,838 -- 19,838
Facilities .................... 19,937 -- 19,937
Personnel ..................... 42,283 -- 42,283
General and administrative ... 10,969 -- 10,969
Amortization .................. 1,664 -- 1,664
-------------- ---------------- --------------
Total operating expenses .... 226,859 -- 226,859
-------------- ---------------- --------------
Operating income ............... 19,328 -- 19,328
Other (income) and expense:
Vehicle interest .............. 26,842 $(898)(8) 25,944
Other interest ................ 3,502 (2,589)(9) 913
Interest income ............... (1,375) -- (1,375)
-------------- ---------------- --------------
Total other expense, net .... 28,969 (3,487) 25,482
-------------- ---------------- --------------
Income (loss) before income
taxes, cumulative effect of
accounting change and loss
from discontinued operations . (9,641) 3,487 (6,154)
Provision (benefit) for income
taxes ......................... (3,857) 1,395(10) (2,462)
-------------- ---------------- --------------
Income (loss) before
cumulative effect of
accounting change and loss
from discontinued operations
(d) ........................... $(5,784) $2,092 $(3,692)
============== ================ ==============
Weighted average common shares
outstanding ................... 7,430 3,221 10,651
============== ================ ==============
Earnings (loss) per common
share ......................... $(0.78) -- $(0.35)
============== ================ ==============
</TABLE>
- ------------
(a) Includes results of operation of the Los Angeles Budget franchise from
October 1, 1995.
(b) Reflects operations of the Los Angeles Budget franchise for the period
from January 1, 1995 through September 30, 1995.
(c) Reflects operations of the Phoenix Budget franchise for the period from
March 1, 1995 through February 29, 1996. Prior to the Phoenix
Acquisition, the fiscal year of the Phoenix Budget franchise ended on
the last day of February.
(d) Accounting change and loss from discontinued operations were incurred
by the Phoenix Budget franchise prior to its acquisition by the
Company.
See Notes to Unaudited Pro Forma Consolidated Statements of Operations.
18
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
(1) To reflect the addition of royalty payments to SoCal, the former
owner of the Los Angeles Budget franchise (representing 5% of
concessionable revenues), which was a condition of the purchase.
(2) To reflect a reduction in the fleet depreciation expense for cars
allocated to the managers of the Los Angeles Budget franchise.
(3) To reflect a reduction in credit card merchant processing fees based
on the utilization of the Company's current credit card rate.
(4) To reflect the elimination of a write-off on assets not acquired by
the Company.
(5) To reflect (a) a $865,045 reduction in wages, bonuses and benefits
resulting from a reduction in the number of employees for the
acquired operations, (b) a $742,000 reduction relating to salaries
previously paid to officers of the acquired operations terminated
concurrent with the acquisitions, (c) a $267,000 reduction relating
to termination charges relating to medical benefits and (d) a $53,000
reduction resulting from the elimination of retirement plans.
(6) To reflect (a) a $187,000 increase in franchise rights amortization
expense related to the Los Angeles Acquisition and (b) a $356,000
increase in franchise rights amortization expense relating to the
Phoenix Acquisition, in each case based on a full year amortization
period.
(7) To reflect additional interest expense that would have been incurred
on borrowings of $20.2 million to effect the Acquisitions.
(8) To reflect the elimination of interest expense on vehicle debt to be
paid with proceeds of the Offering.
(9) To reflect the elimination of interest expense on non-vehicle debt to
be paid with the proceeds of the Offering.
(10)To adjust income taxes for an effective tax rate of 40%.
19
<PAGE>
UNAUDITED PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS FOR
THE PHOENIX
HISTORICAL(A) PHOENIX(B) ACQUISITION
------------- ---------- ---------------
<S> <C> <C> <C>
Operating revenues ............. $65,794 $8,214 --
Operating expenses:
Cost of retail car sales ..... 17,840 -- --
Direct vehicle and operating . 5,959 1,479 --
Depreciation-vehicles ......... 11,804 2,179 --
Depreciation-non-vehicle ..... 536 229 --
Advertising, promotion and
selling ...................... 4,600 915 --
Facilities .................... 4,328 838 --
Personnel ..................... 10,689 1,912 $(337)(1)
General and administrative ... 2,270 436 --
Amortization .................. 514 8 60 (2)
------------- ---------- ---------------
Total operating expenses .... 58,540 7,996 (277)
------------- ---------- ---------------
Operating income ............... 7,254 218 277
Other (income) and expense:
Vehicle interest .............. 5,621 991 --
Other interest ................ 254 2 217 (3)
Interest income ............... (749) -- --
------------- ---------- ---------------
Total other expense, net .... 5,126 993 217
------------- ---------- ---------------
Income (loss) before income
taxes, cumulative effect of
accounting change and loss
from discontinued operations . 2,128 (775) 60
Provision (benefit) for income
taxes ......................... 851 (310) 24
------------- ---------- ---------------
Income (loss) before cumulative
effect of accounting change
and loss from discontinued
operations .................... $1,277 $ (465) $36
============= ========== ===============
Weighted average common shares
outstanding ................... 7,256 -- 174
============= ========== ===============
Earnings per common share ..... $0.18 -- --
============= ========== ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR THE
FOR THE PHOENIX ACQUISITION
PHOENIX ADJUSTMENTS FOR AND THE
ACQUISITION THE OFFERING OFFERING
------------- ---------------- ---------------
<S> <C> <C> <C>
Operating revenues ............. $74,008 -- $74,008
Operating expenses:
Cost of retail car sales ..... 17,840 -- 17,840
Direct vehicle and operating . 7,438 -- 7,438
Depreciation-vehicles ......... 13,983 -- 13,983
Depreciation-non-vehicle ..... 765 -- 765
Advertising, promotion and
selling ...................... 5,515 -- 5,515
Facilities .................... 5,166 -- 5,166
Personnel ..................... 12,264 -- 12,264
General and administrative ... 2,706 -- 2,706
Amortization .................. 582 -- 582
------------- ---------------- ---------------
Total operating expenses .... 66,259 -- 66,259
------------- ---------------- ---------------
Operating income ............... 7,749 -- 7,749
Other (income) and expense:
Vehicle interest .............. 6,612 $(213)(4) 6,399
Other interest ................ 473 (473)(5) --
Interest income ............... (749) (749)
------------- ---------------- ---------------
Total other expense, net .... 6,336 (686) 5,650
------------- ---------------- ---------------
Income (loss) before income
taxes, cumulative effect of
accounting change and loss
from discontinued operations . 1,413 686 2,099
Provision (benefit) for income
taxes ......................... 565 274 839
------------- ---------------- ---------------
Income (loss) before cumulative
effect of accounting change
and loss from discontinued
operations .................... $848 $412 $1,260
============= ================ ===============
Weighted average common shares
outstanding ................... 7,430 3,221 10,651
============= ================ ===============
Earnings per common share ..... $0.11 -- $0.12
============= ================ ===============
</TABLE>
- ------------
(a) Includes results of operations of the Phoenix Budget franchise from
March 1, 1996.
(b) Reflects operations of the Phoenix Budget franchise for the period from
January 1, 1996 through February 29, 1996.
See Notes to Unaudited Pro Forma Consolidated Statements of Operations.
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
(1) To reflect (a) a $312,000 reduction relating to salaries and bonuses
previously paid to officers of the Phoenix Budget franchise and (b) a
$25,000 reduction resulting from the elimination of a retirement
plan.
(2) To reflect an increase in franchise rights amortization expense.
(3) To reflect additional interest expense that would have been incurred
on borrowings of $15.0 million to effect the Phoenix Acquisition.
(4) To reflect the elimination of interest expense on vehicle debt to be
paid with the proceeds of the Offering.
(5) To reflect the elimination of interest expense on non-vehicle debt to
be paid with the proceeds of the Offering.
21
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated statement of
operations data and selected consolidated balance sheet data of the Company
for the five years ended December 31, 1995. Such data were derived from the
audited consolidated financial statements of the Company. The audited
consolidated financial statements and notes thereto of the Company for each
of the three years in the period ended December 31, 1995 are included
elsewhere in this Prospectus. The following table also sets forth selected
consolidated statement of operations data of the Company for the three months
ended March 31, 1995 and March 31, 1996 and selected consolidated balance
sheet data of the Company as of March 31, 1996. Such data were derived from
the unaudited consolidated financial statements of the Company included
elsewhere in this Prospectus, which unaudited consolidated financial
statements, in the opinion of the Company's management, include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the financial position and results of operations for
such periods. The results of operations for the three months ended March 31,
1996 are not necessarily indicative of results that may be expected for the
entire year. The selected consolidated financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1991 1992 1993 1994 1995
---------- --------- --------- --------- ----------
(STATEMENT OF OPERATIONS DATA IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Vehicle rental revenues .................... $15,105 $21,968 $22,321 $38,642 $107,067
Retail car sales revenues .................. -- -- -- -- 42,662
---------- --------- --------- --------- ----------
Total operating revenues ................. 15,105 21,968 22,321 38,642 149,729
Operating costs and expenses:
Direct vehicle and operating ............... 3,903 5,989 5,452 9,439 13,704
Depreciation--vehicles ..................... 1,939 2,832 4,358 7,382 27,476
Depreciation--non-vehicles ................. 227 212 229 446 1,341
Cost of car sales .......................... -- -- -- -- 38,021
Advertising, promotion and selling ........ 1,066 1,477 1,658 3,090 11,826
Facilities ................................. 2,020 2,662 2,695 4,398 11,121
Personnel .................................. 3,741 4,292 4,537 7,947 24,515
General and administrative expenses ....... 935 736 790 1,515 6,686
Amortization of franchise rights ........... 170 151 152 229 859
---------- --------- --------- --------- ----------
Total operating costs and expenses ...... 14,001 18,351 19,871 34,446 135,549
Operating income ........................... 1,104 3,617 2,450 4,196 14,180
Other (income) expense:
Vehicle interest expense .................. 1,867 2,440 2,462 3,909 13,874
Non-vehicle interest expense (income), net 503 619 401 (139) (716)
Nonrecurring income ....................... -- -- (1,023) -- --
---------- --------- --------- --------- ----------
Income (loss) before provision for income
taxes ..................................... (1,266) 558 610 426 1,022
Net income (loss) .......................... $(1,266) $ 558 $ 428 $ 250 $ 337
========== ========= ========= ========= ==========
Weighted average common shares outstanding -- -- -- 3,704 6,369
Earnings (loss) per common share ........... -- -- -- $ 0.07 $ 0.05
========== ========= ========= ========= ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
---------------------
1995 1996
---------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues:
Vehicle rental revenues .................... $17,354 $44,697
Retail car sales revenues .................. 4,916 21,097
---------- ---------
Total operating revenues ................. 22,270 65,794
Operating costs and expenses:
Direct vehicle and operating ............... 2,625 5,959
Depreciation--vehicles ..................... 5,126 11,804
Depreciation--non-vehicles ................. 285 536
Cost of car sales .......................... 4,258 17,840
Advertising, promotion and selling ........ 2,036 4,600
Facilities ................................. 2,076 4,328
Personnel .................................. 4,494 10,689
General and administrative expenses ....... 886 2,270
Amortization of franchise rights ........... 112 514
---------- ---------
Total operating costs and expenses ...... 21,898 58,540
Operating income ........................... 372 7,254
Other (income) expense:
Vehicle interest expense .................. 2,616 5,621
Non-vehicle interest expense (income), net (333) (495)
Nonrecurring income ....................... -- --
---------- ---------
Income (loss) before provision for income
taxes ..................................... (1,911) 2,128
Net income (loss) .......................... $(1,146) $ 1,277
========== =========
Weighted average common shares outstanding 6,037 7,256
Earnings (loss) per common share ........... $ (0.19) $ 0.18
========== =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Adjusted EBITDA(1) (in thousands) ............. $1,392 $1,632 $3,854 $(1,447) $3,432
VEHICLE RENTAL DATA:
Locations in operation at period end ........ 19 63 133 94 159
Number of useable vehicles at period end(2) . 2,006 5,044 11,144 7,076 17,265
Rental transactions(3) ....................... 163,000 276,000 689,000 120,700 237,700
Daily dollar average(4) ...................... $34.01 $37.32 $41.26 $39.67 $40.89
Vehicle utilization(5) ....................... 77.2% 80.6% 80.0% 77.8% 84.2%
Average monthly revenue per unit(6) ......... $791 $909 1,007 $926 $1,030
RETAIL CAR SALES DATA:
Locations in operation at period end ........ -- -- 7 2 7
Average monthly vehicles sold ................ -- -- 351 99 411
Average monthly sales revenue (in thousands) -- -- $4,883 $1,632 $6,476
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net $26,870 $23,343 $23,577 $ 97,127 $219,927
Retail car sales inventory ... -- -- -- 943 8,938
Total assets .................. 36,800 32,027 33,325 162,991 386,323
Fleet financing facilities ... -- -- -- 105,682 145,682
Other vehicle obligations .... 28,380 23,890 23,857 18,097 149,965
Notes payable ................. 5,924 3,795 1,824 2,785 22,586
Total debt .................... 34,531 27,880 28,533 127,187 319,017
Redeemable preferred stock ... -- 2,747 2,747 -- --
Common stock warrant .......... -- -- -- 2,000 2,000
Stockholders' equity (deficit) (1,737) (1,344) (1,251) 26,748 39,592
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
--------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net $314,591
Retail car sales inventory ... 13,832
Total assets .................. 478,677
Fleet financing facilities ... 145,682
Other vehicle obligations .... 207,039
Notes payable ................. 47,508
Total debt .................... 400,968
Redeemable preferred stock ... --
Common stock warrant .......... 2,000
Stockholders' equity (deficit) 43,596
</TABLE>
- ------------
(1) Adjusted EBITDA consists of income before provision for income taxes
plus (a) non-vehicle depreciation and amortization expenses and (b)
non-vehicle interest expense. Adjusted EBITDA is not presented as an
alternative measure of operating results or cash flows from operations
(as determined in accordance with generally accepted accounting
principles), but is presented because it is a widely accepted financial
indicator of a company's ability to service unsecured debt.
(2) Vehicles available for rental.
(3) Rounded to the nearest thousand.
(4) Rental revenue divided by number of days that vehicles were actually
rented.
(5) Number of days vehicles were actually rented divided by number of days
vehicles were available for rent.
(6) Average monthly revenue divided by average monthly fleet.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Team Rental Group, Inc. is the largest Budget Rent a Car franchisee
worldwide and is one of the largest independent retailers of late model
automobiles in the United States. In 1994, TEAM embarked on a strategy to
significantly expand its Budget franchise base and to develop a branded
retail car sales operation within its Budget franchise territories. This
strategy both leverages management's experience and creates certain operating
efficiencies between these complementary businesses. Through its 159 vehicle
rental locations, TEAM had pro forma 1995 revenues of $202.9 million, and the
Company operates nine retail car sales facilities with monthly sales revenue
of $10.7 million for May 1996. The Company estimates it will purchase
approximately 40,000 vehicles over the next twelve months, consisting of new
automobiles and trucks for its Budget rental operations, late model
automobiles for its retail car sales operations and new passenger vans for
its van pooling operations.
The results of operations for 1993 reported herein reflect the
consolidated accounts of the San Diego, California, Richmond, Virginia and
Albany and Rochester, New York Budget franchises (collectively, the "1993
Operations"), which had been operated as separate businesses, but were
affiliated through common ownership and control. The 1994 results of
operations reported herein include the 1993 Operations and the acquired
operations of the Pittsburgh and Philadelphia, Pennsylvania, Cincinnati, Ohio
and Fort Wayne, Indiana Budget franchises from their respective acquisition
dates through December 31, 1994. The 1995 results of operations reported
herein include the consolidated operations of the entities comprising the
Company at December 31, 1994 and the acquired operations of the Dayton, Ohio,
Charlotte, North Carolina, Hartford, Connecticut, and Los Angeles, California
Budget franchises from their respective acquisition dates through December
31, 1995. Results of operations for the three months ended March 31, 1995
reported herein include the acquired operations of the Budget franchises for
Dayton, Ohio, Charlotte, North Carolina and Hartford, Connecticut from their
respective acquisition dates through March 31, 1995. Results of operations
for the three months ended March 31, 1996 reported herein include the
acquired operations of the Budget franchise for Phoenix, Arizona and of Van
Pool from their respective acquisition dates through March 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
operating revenues represented by certain items in the Company's consolidated
statements of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Vehicle rental revenues .................... 100% 100% 71.5%
Retail car sales revenues .................. -- -- 28.5
------- ------- -------
Total operating revenues ................. 100 100 100
Direct vehicle and operating expenses ..... 24.5 24.4 9.2
Cost of car sales .......................... -- -- 25.4
Vehicle depreciation expense ............... 19.5 19.1 18.4
Non-vehicle depreciation expense ........... 1.0 1.2 0.9
Advertising, promotion and selling ........ 7.4 8.0 7.9
Facilities ................................. 12.1 11.4 7.4
Personnel .................................. 20.3 20.6 16.3
General and administrative expenses ....... 3.6 3.9 4.5
Amortization of franchise rights ........... 0.7 0.6 0.5
------- ------- -------
Operating income ........................... 10.9 10.8 9.5
Vehicle interest expense ................... 11.0 10.1 9.3
Non-vehicle interest expense (income), net 1.8 (0.4) (0.5)
Nonrecurring income ........................ (4.6) -- --
------- ------- -------
Income (loss) before income taxes .......... 2.7 1.1 0.7
Provision (benefit) for income taxes ...... 0.8 0.5 0.5
------- ------- -------
Net income (loss) .......................... 1.9% 0.6% 0.2%
======= ======= =======
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1995 1996
-------- -------
<S> <C> <C>
Vehicle rental revenues .................... 78.0% 67.9%
Retail car sales revenues .................. 22.0 32.1
-------- -------
Total operating revenues ................. 100 100
Direct vehicle and operating expenses ..... 11.8 9.1
Cost of car sales .......................... 19.1 27.1
Vehicle depreciation expense ............... 23.0 17.9
Non-vehicle depreciation expense ........... 1.3 0.8
Advertising, promotion and selling ........ 9.1 7.0
Facilities ................................. 9.3 6.6
Personnel .................................. 20.2 16.3
General and administrative expenses ....... 4.0 3.4
Amortization of franchise rights ........... 0.5 0.8
-------- -------
Operating income ........................... 1.7 11.0
Vehicle interest expense ................... 11.7 8.5
Non-vehicle interest expense (income), net 1.5 (0.7)
Nonrecurring income ........................ -- --
-------- -------
Income (loss) before income taxes .......... (8.5) 3.2
Provision (benefit) for income taxes ...... (3.4) 1.3
-------- -------
Net income (loss) .......................... (5.1)% 1.9%
======== =======
</TABLE>
24
CAPITAL PRINTING SYSTEMS]
<PAGE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995.
General Operating Results. Net income of $0.18 per share for the first
quarter of 1996 represented a $0.37 per share increase from the net loss of
$0.19 per share experienced in the first quarter of 1995. Income before
income taxes increased $4.0 million from a $1.9 million loss in the first
quarter of 1995 to $2.1 million of income in the first quarter of 1996. This
increase was due to the Company's February 1996 acquisitions of the Budget
franchise for Phoenix and of Van Pool and the October 1995 acquisition of the
Budget franchise for Los Angeles, which contributed combined pre-tax income
of $2.8 million, and decreased vehicle depreciation of $1.2 million resulting
from incentives received from car manufacturers. Operating income increased
to $7.3 million in the first three months of 1996 as compared to $0.4 million
in the corresponding period of 1995. The increase in operating income was
somewhat offset by an increase in interest expense of $2.8 million, or 125%,
due primarily to an increase in the vehicle fleet resulting from the
acquisitions of the Phoenix and Los Angeles Budget franchises and Van Pool,
and an increase in the provision for income taxes of $1.6 million due to the
enhanced profitability of the Company in 1996.
Operating Revenues. Vehicle rental revenues increased $27.3 million, or
158%, to $44.7 million in the first three months of 1996 as compared to $17.4
million in the corresponding period of 1995. The increase in rental revenues
is due primarily to the increase in the size of the Company from operating 85
rental locations in eight franchise areas at March 31, 1995 to operating 157
locations in 13 franchise territories at March 31, 1996 and to the
acquisition of Van Pool in February 1996. This increased size resulted in an
increase in the number of rental revenue days from approximately 438,000 in
the first quarter of 1995 to approximately 955,000 in the first quarter of
1996. The daily average rental rate increased 3.1% from $39.67 in the first
quarter of 1995 to $40.89 for the first quarter of 1996. The average rental
term increased from 3.63 days in the first three months of 1995 to 4.02 days
in the comparable period of 1996. Vehicle rental revenues also increased in
the first quarter of 1996 due to the inclusion of $5.7 million of revenues
earned by Van Pool since its acquisition. Revenues from the Company's retail
car sales operations increased $16.2 million from $4.9 million in 1995 to
$21.1 million in 1996, due to the expansion of the Company's retail car sales
facilities from two locations at March 31, 1995 to seven locations at March
31, 1996.
Operating Expenses. Operating expenses increased approximately $36.6
million, or 167%, to $58.5 million for the three months ended March 31, 1996
as compared to $21.9 million for the same period in 1995. The growth of the
Company's vehicle rental operations through the acquisitions discussed above
and the addition of six additional retail car sales facilities were the
principal causes of all of the increases to the Company's operating expenses.
Vehicle depreciation increased approximately $6.7 million, or 130%, due to an
increase in fleet of 6,300 vehicles which increased vehicle depreciation by
approximately $7.9 million, net of a reduction in vehicle depreciation of
approximately $1.2 million resulting from incentives received from car
manufacturers. Personnel costs increased approximately 138% in the first
quarter of 1996 as compared to the corresponding period of 1995 due to an
increase of approximately 900 employees since March 31, 1995. Advertising
expenses increased from $2.0 million to $4.3 million due to the increase in
the size of the vehicle rental operations and due to the growth of the retail
car sales operations from two markets at March 31, 1995 to six markets at
March 31, 1996. The retail car sales business typically incurs greater
advertising expense than the car rental business. Facilities expense
increased $2.3 million, or 108%, due to the addition of 72 locations since
March 31, 1995. Other operating expense increases were due to the increased
volume of vehicle rental business resulting from the 1995 and 1996
acquisitions. Cost of car sales increased $13.6 million from $4.2 million at
March 31, 1995 to $17.8 million at March 31, 1996 due to an increase in the
number of car sales facilities from two to seven during that period.
Other Income and Expense. Vehicle interest expense, net, increased
approximately $3.0 million in the first quarter of 1996 due to the increase
in the average size of the Company's rental fleet in the first quarter of
1996 compared to the same period in 1995. The Company's cost of funds
decreased approximately 0.6% per annum in the first quarter of 1996 as
compared to the first quarter of 1995, due primarily to the decrease in
LIBOR, upon which most of the Company's debt is based. Other interest income,
net of interest expense, increased from approximately $333,000 in the first
quarter of 1995 to $495,000 in 1996 due primarily to increased interest
income earned on restricted cash
25
<PAGE>
during the first quarter of 1996. This was partially offset by an increase in
interest expense due to an increase in the Company's borrowings under its
working capital facilities from $7.0 million at March 31, 1995 to $20.0
million at March 31, 1996, due primarily to borrowings to fund the Los
Angeles Acquisition and the Phoenix Acquisition.
Provision for Income Taxes. The provision for income taxes increased $1.6
million from a $765,000 benefit for the first quarter of 1995 to a provision
of $851,000 for the first quarter of 1995. The $1.6 million change represents
a 40% tax provision resulting from the enhanced profitability of the Company.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994.
General Operating Results. Net income for 1995 increased $87,000, or
34.8%, to $337,000 from $250,000 in 1994. Income before income taxes more
than doubled to $1.0 million in 1995 from $426,000 in 1994. The increase in
pre-tax income was due to an increase in operating income of $10.0 million
resulting from the growth of the Company's retail car sales operations from
one facility at December 31, 1994 to seven facilities at December 31, 1995
and the acquisition of four additional Budget vehicle rental operations,
which was offset by increases in interest expense of $9.4 million, due
primarily to the increased size of the fleet throughout 1995 as a result of
the acquisitions occurring between August 1994 and October 1995 described
above. The provision for income taxes increased from $176,000 in 1994 to
$685,000 in 1995 due to the enhanced profitability of the Company,
nondeductible amortization expense, and state income taxes.
Operating Revenues. Operating revenues increased 287% for the year ended
December 31, 1995 to $149.7 million from $38.6 million in the prior year.
This increase was primarily due to the acquisitions discussed above and to an
increased volume of vehicle rental business in 1995, resulting in an increase
in the number of rental revenue days to 2,590,000 in 1995 from 1,027,000 in
1994. The daily average rental rate increased 11% from $37.32 in 1994 to
$41.26 in 1995; the average rental term experienced a slight decrease from
3.82 days in 1994 to 3.76 days in 1995.
Operating Expenses. Operating expenses increased approximately $101.1
million, or 294%, for the year ended December 31, 1995 as compared to 1994.
This increase was due in large measure to the growth of the Company's retail
car sales operations, which included $38.0 million of cost of sales for which
there was no significant comparable expense in 1994, as well as to increases
resulting from the increase in fleet and personnel due to the four
acquisitions occurring during 1995. Direct vehicle and operating expense
increased $4.3 million or 45.2% to $13.7 million from $9.4 million, due to
the increase in the size of the fleet from 5,044 vehicles at December 31,
1994 to 11,144 vehicles at December 31, 1995. The increased costs for vehicle
maintenance recorded to direct vehicle and operating expenses were partially
offset by a decrease in the number of leased vehicles during the period, as
expenses for owned vehicles are charged to both vehicle depreciation and
interest expense, whereas leased vehicles are charged to direct vehicle and
operating expense. Vehicle depreciation expense increased $20.1 million or
272% to $27.5 million due to an increase in fleet size of 121% to 11,144
vehicles at December 31, 1995. Personnel expenses increased 208% to $24.5
million due to the 226% increase in the employee base from 525 employees at
December 31, 1994 to 1,709 employees at December 31, 1995. The number of
locations from which the Company rented vehicles increased from 63 locations
at December 31, 1994 to 133 locations at December 31, 1995.
Other Income and Expense. Other expense-net increased approximately $9.4
million, or 249%, in 1995 due primarily to interest expense on the increased
vehicle fleet operated by the Company in 1995. Vehicle interest increased
$10.0 million due to the increased size of the vehicle fleet throughout 1995.
This increase was offset by an increase in interest income earned on cash
restricted for acquiring vehicles under the Fleet Financing Facilities of
$0.7 million.
Provision for Income Taxes. The provision for income taxes increased 289%
to $685,000 in 1995 from $176,000 in 1994. The Company's effective tax rate
increased from 41.3% in 1994 to 67.0% in 1995. The increase in the tax
provision was due to the enhanced profitability of the Company in 1995,
certain amortization expense that was not deductible for income taxes
purposes, and state income taxes.
26
<PAGE>
Year Ended December 31, 1994 Compared to the Year Ended December 31, 1993.
General Operating Results. Income before income taxes increased to
$426,000 in 1994 from a loss of $413,000, exclusive of the $1.0 million in
nonrecurring income from a vehicle manufacturer in 1993. The 1994
acquisitions and the Company's strategy to reduce financing costs through the
First Fleet Financing Facility had a favorable impact on income before income
taxes for the year ended December 31, 1994. Operating income for 1994
increased $1.7 million due to the 1994 acquisitions. Interest expense, net of
interest income, increased in 1994 by $907,000 due to the larger fleet
relative to 1993. This increase was offset in part by lower effective
interest rates from the First Fleet Financing Facility.
Operating Revenues. Operating revenues increased 73.1% for the year ended
December 31, 1994 to $38.6 million from $22.3 million in the prior year.
These increases were primarily due to the acquisitions in August and November
1994 discussed above and an increased volume of rental business in 1994,
resulting in an increase in the number of rental revenue days to 1,027,000 in
1994 from 656,000 in 1993. The daily average rental rate increased from
$34.02 in 1993 to $35.01 in 1994, which was partially offset by a decrease in
the average rental term from 4.02 days in 1993 to 3.82 days in 1994.
Operating Expenses. Operating expenses increased approximately $14.6
million, or 73.3%, for the year ended December 31, 1994 as compared to 1993.
This increase was primarily due to the 1994 acquisitions. Direct vehicle and
operating expense increased $4.0 million or 73.1% to $9.4 million from $5.5
million due to an increase in the volume of business from the 1994
acquisitions and an increase in the number of leased vehicles during the
year. Expenses for owned vehicles are charged to both vehicle depreciation
and interest expense, whereas leased vehicles are charged to direct vehicle
and operating expense. Vehicle depreciation expense increased $3.0 million or
69.4% to $7.4 million due to an increase in fleet size of 151.4% from 2,006
vehicles at December 31, 1993 to 5,044 vehicles at December 31, 1994.
Personnel expenses increased 75.2% to $7.9 million due to the 232% increase
in rental car locations from 19 locations at December 31, 1993 to 63
locations at December 31, 1994.
Other Income and Expense. Other expense-net increased approximately $1.9
million for the year ended December 31, 1994 due to the absence of $1.0
million of nonrecurring income in 1994 as discussed above and the additional
fleet financing costs from the increased number of vehicles in the fleet. The
increases were offset in part by the decreased interest costs under the First
Fleet Financing Facility and the repayment in August 1994 of all notes
outstanding to certain related parties. The interest savings under the First
Fleet Financing Facility resulted in increased vehicle interest costs, net of
interest income on restricted cash, of only 31.6% in 1994 as compared to
1993, significantly less than the 69.4% increase in vehicle depreciation
expense that resulted from the same fleet acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's operations have been funded by cash provided
from operating activities and by financing provided under asset-backed notes
issued under the First and Second Fleet Financing Facilities and by banks,
automobile manufacturers' captive finance companies and leasing companies.
The Company intends to continue to fund its operations through these sources
and other similar sources and from the proceeds of the Offering.
Fleet Financing Facilities. At March 31, 1996, amounts outstanding under
the Fleet Financing Facilities were comprised of $105.7 million of
asset-backed notes issued by the Company's special purpose finance
subsidiary, TFFC, in August 1994 (the "First Fleet Financing Facility") and
$40.0 million of asset-backed notes assumed by the Company in connection with
the Los Angeles Acquisition in October 1995 (the "Second Fleet Financing
Facility"). These facilities have been utilized to finance Program Vehicles.
Proceeds from these facilities that are temporarily unutilized for vehicle
financing are maintained in restricted cash accounts with the trustee and are
not available for other purposes. The notes issued under these facilities are
collateralized by the financed vehicles and the restricted cash accounts,
with the vehicles being leased to the Company's operating subsidiaries.
The First Fleet Financing Facility is comprised of senior notes requiring
monthly interest payments at average LIBOR, as defined, plus 0.75% (6.2% at
March 31, 1996). Monthly principal payments of $16,667,000 commence in June
1999 with the last payment due in November 1999. The subordinated notes
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<PAGE>
require monthly interest payments at average LIBOR, as defined, plus 1.30%
per annum (6.7% at March 31, 1996) and are payable in full in December 1999.
The Second Fleet Financing Facility is comprised of senior notes requiring
monthly interest payments at an average LIBOR, as defined, plus 0.60% (6.0%
at March 31, 1996). Monthly principal payments of $4,812,000 commence in
November 1997 with the last payment due in June 1998. The subordinated notes
require monthly interest payments at average LIBOR, as defined, plus 1.0% per
annum (6.4% at March 31, 1996) and are payable in full in July 1998.
Subsequent to the completion of the Offering, TFFC expects to enter into
the Third Fleet Financing Facility. The Third Fleet Financing Facility is
expected to consist of up to approximately $160 million of asset-backed
notes. The net proceeds of the Third Fleet Financing Facility would be used
to repay outstanding vehicle obligations and to fund future fleet purchases.
Vehicle Obligations. Vehicle obligations consist of outstanding lines of
credit to purchase rental vehicles and retail car sales inventory. At March
31, 1996, amounts outstanding under these lines of credit consisted of $193.4
million for rental vehicles and $13.6 million for retail car sales inventory,
with maturity dates ranging from June 1996 to June 1997. Vehicle obligations
are collateralized by rental vehicles financed under these credit facilities
and proceeds from the sale, lease or rental of vehicles and retail car sales
inventory.
Vehicle obligations relating to the rental fleet are generally amortized
over 5 to 15 months with monthly principal payments ranging from 2% to 3% of
the capitalized vehicle cost. When rental vehicles are sold, the related
unpaid obligation is due. Interest payments for rental fleet facilities are
due monthly at annual interest rates ranging from 6.80% to 15.25% at March
31, 1996. Management expects vehicle obligations will generally be repaid
within one year with proceeds received from either the repurchase of the
vehicles by the manufacturers in accordance with the terms of the
manufacturers' rental fleet programs or from the sale of the vehicles.
In May 1996, Team Fleet Services Corporation ("TFSC"), a wholly owned
subsidiary of the Company, entered into a Revolving Credit Agreement with
NationsBank, National Association (South), as Agent (the "Agent") for the
lenders party thereto, providing for up to $100.0 million financing for the
acquisition of Program Vehicles (the "Revolving Credit Facility"). The
Revolving Credit Facility provides for funding in two tranches. The first
tranche, in the amount of $15.0 million, was funded on June 5, 1996 and the
remaining $85.0 million became available June 21, 1996. The Revolving Credit
Facility is guaranteed by the Company and certain of its subsidiaries and
secured by the Program Vehicles acquired with the proceeds of loans under the
facility. The interest rates of loans under the Revolving Credit Facility
are, at the option of TFSC and up to certain amounts, based on the Agent's
prime rate, LIBOR or the negotiable certificates of deposit rate.
Monthly payments of interest only on obligations relating to retail car
sales inventory are required at the prime rate (8.25% at March 31, 1996).
Retail car sales inventory obligations are paid when the inventory is sold
but in no event later than 120 days after the date of purchase.
Working Capital Facilities. At March 31, 1996, the Company utilized
working capital facilities of $20.0 million for the purchase of retail car
sales inventory and other working capital requirements, which require monthly
interest payments on the outstanding balance at LIBOR plus 1.85% (7.2% at
March 31, 1996). The amount utilized under these facilities had increased to
$30.0 million at April 30, 1996, with the additional $10.0 million utilized
to repay other outstanding notes (as described below). An outstanding
facility of $17.0 million is due on June 28, 1996; the remaining balance
expires November 1996. The facilities are collateralized by accounts
receivable, inventory, equipment, general intangibles, investments and all
other personal property of the Company and guarantees of certain of the
Company's subsidiaries. Under the terms of one of the agreements, the Company
is required to pay commitment fees quarterly equal to 0.125% per annum on the
maximum amount of credit available under the credit facility and an annual
agent fee of $50,000 as long as the facility has an outstanding balance. The
agreements are subject to certain covenants, the most restrictive of which
requires the Company to maintain certain financial
28
<PAGE>
ratios and minimum tangible net worth and prohibits the payment of cash
dividends. At March 31, 1996, the Company was not in compliance with certain
covenants under these facilities. In April 1996, certain covenants were
amended and the Company is in compliance with the amended terms of the
agreements.
Other Notes Payable. Other notes payable at March 31, 1996 consisted
primarily of a $3.0 million secured promissory note that bears interest at 8%
per annum payable in annual installments of $750,000, due August 1999,
collateralized by personal guarantees from the previous owners of the Los
Angeles operations; a $0.6 million business credit note due November 1996
bearing interest at prime (8.25% at March 31, 1996) collateralized by real
property and secured by personal guarantees of certain stockholders of the
Company; a $0.7 million collateralized promissory note that bears interest at
8% per annum, payable in monthly installments of $7,000 plus interest, due
September 2010, collateralized by real property and personal guarantees of
certain stockholders of the Company; a $2.0 million mortgage note bearing
interest at 9.10% per annum, payable in monthly installments ranging from
$5,400 to $7,800 plus interest, due September 2000 with an option to extend
to September 2005, collateralized by real property; and a $0.6 million
mortgage note bearing interest at 7.5% per annum, payable in monthly
installments of $8,300 plus interest, due June 1998, collateralized by real
property.
INFLATION
The increased acquisition cost of vehicles is the primary inflationary
factor affecting the Company's operations. Many of the Company's other
operating expenses are inflation sensitive, with increases in inflation
generally resulting in increased costs of operations. The effect of
inflation-driven cost increases on the Company's overall operating costs is
not expected to be greater for the Company than for its competitors.
SEASONALITY
Generally, in the vehicle rental industry, revenues decrease in the winter
months (with the exception of resort destinations) due to the overall
decrease in business and leisure travel during this season. The Company
increases the size of its fleet and work force in the spring and summer to
accommodate increased rental activity during these periods and decreases its
fleet and work force in the fall and winter. However, many of the Company's
operating expenses such as rent, insurance and administrative personnel are
fixed and cannot be reduced during the fall and winter. The Company has
sought to reduce this seasonal effect by acquiring franchise territories that
are winter travel destinations, and the Company believes that its
acquisitions of the Los Angeles operation in October 1995 and the Phoenix
operation in February 1996 have reduced and will continue to reduce these
seasonal characteristics. The retail car sales business is subject to
seasonal effects, with lower sales during the winter months.
QUARTERLY RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Vehicle rental revenue ............ $5,525 $5,854 $11,634 $15,457
Vehicle sales revenue ............. -- -- -- 172
Operating income .................. 268 599 1,341 1,988
Income (loss) before income taxes (282) 55 268 385
Net income (loss) ................. (282) 55 268 209
Earnings (loss) per common share . (0.11) 0.02 0.06 0.04
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
THREE
------------------------------------------ MONTHS
FIRST SECOND THIRD FOURTH ENDED
QUARTER QUARTER QUARTER QUARTER MARCH 31, 1996
--------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Vehicle rental revenue ............ $17,354 $23,788 $29,677 $36,248 $44,697
Vehicle sales revenue ............. 4,916 8,534 12,706 16,506 21,097
Operating income .................. 372 4,034 8,402 1,372 7,254
Income (loss) before income taxes (1,911) 1,241 4,788 (3,096) 2,128
Net income (loss) ................. (1,146) 743 3,981 (3,241) 1,277
Earnings (loss) per common share . (0.19) 0.12 0.65 (0.42) 0.18
</TABLE>
29
<PAGE>
BUSINESS
Team Rental Group, Inc. is the largest Budget franchisee worldwide and is
one of the largest independent retailers of late model automobiles in the
United States. In 1994, TEAM embarked on a strategy to significantly expand
its Budget franchise base and to develop a branded retail car sales operation
within its Budget franchise territories. This strategy both leverages
management's experience and creates certain operating efficiencies between
these complementary businesses. Through its 159 vehicle rental locations,
TEAM had pro forma 1995 revenues of $202.9 million, and the Company operates
nine retail car sales facilities with monthly sales revenue of $10.7 million
for May 1996. The Company estimates it will purchase approximately 40,000
vehicles over the next twelve months, consisting of new automobiles and
trucks for its Budget rental operations, late model automobiles for its
retail car sales operations and new passenger vans for its van pooling
operations.
Since its initial public offering in August 1994, the Company has pursued
an aggressive growth strategy in both its vehicle rental and retail car sales
operations. TEAM has added nine Budget franchise territories with 136 current
locations to the four territories that it operated at the time of its initial
public offering, thereby enhancing the economies of scale in its operations,
balancing its geographic scope and reducing seasonal fluctuations. Concurrently,
the Company has developed or acquired its first nine retail car sales
facilities--all within its Budget territories.
The following tables chronologically detail TEAM's acquisitions of Budget
franchises and the openings of its retail car sales facilities:
VEHICLE RENTAL -- BUDGET FRANCHISE ACQUISITIONS
<TABLE>
<CAPTION>
1995
LOCATIONS AT FLEET SIZE AT REVENUES
FRANCHISE TERRITORY DATE ACQUIRED MAY 31, 1996 MAY 31, 1996 (MILLIONS)
- -------------------------- --------------- -------------- --------------- ----------
<S> <C> <C> <C> <C>
Owned prior to August 1994
San Diego ................. April 1987 12 1,610 $ 18.6
Albany .................... August 1991 3 237 2.5
Rochester ................. November 1991 3 217 2.5
Richmond .................. December 1991 5 415 3.6
-------------- --------------- ----------
Total for franchises owned prior to
initial public offering .................. 23 2,479 27.2
-------------- --------------- ----------
Acquired since August 1994
Philadelphia .............. August 1994 22 2,019 21.0
Pittsburgh ................ August 1994 14 1,070 13.0
Cincinnati ................ August 1994 8 880 8.0
Fort Wayne ................ November 1994 3 187 1.7
Charlotte ................. January 1995 6 565 6.5
Dayton .................... January 1995 6 452 5.2
Hartford .................. March 1995 13 928 9.6
Los Angeles(1) ............ October 1995 41 5,355 63.4(2)
Phoenix ................... February 1996 23 2,953 47.3(2)
-------------- --------------- ----------
Total for franchises acquired since
initial public offering .................. 136 14,409 175.7
-------------- --------------- ----------
Total ...................................... 159 16,888 $202.9
============== =============== ==========
</TABLE>
- ------------
(1) Excludes the vehicle rental operations at Los Angeles International
Airport.
(2) Includes operations prior to their date of acquisition by the Company.
See the Unaudited Pro Forma Consolidated Statement of Operations for
the year ended December 31, 1995 included under "Pro Forma Consolidated
Financial Statements."
30
<PAGE>
RETAIL CAR SALES -- FACILITIES OPENED
<TABLE>
<CAPTION>
MAY 1996 SALES
DATE MAY 1996 REVENUE
METROPOLITAN AREA ACQUIRED/OPENED VEHICLES SOLD (THOUSANDS)
- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C>
San Diego--East . November 1994 61 $ 982
Dayton--North ... January 1995 34 518
San Diego--West . April 1995 100 1,843
Philadelphia ..... May 1995 91 1,712
Charlotte ........ September 1995 90 1,468
Richmond ......... October 1995 92 1,497
Ontario .......... October 1995 35 688
Cincinnati ....... April 1996 47 726
Dayton--South ... April 1996 80 1,305
--------------- ---------------
Total .... 630 $10,739
=============== ===============
</TABLE>
STRATEGY
The Company's strategy is to increase its revenues and improve its
profitability by:
o Significantly expanding its retail car sales operations;
o Acquiring additional Budget franchises; and
o Enhancing the scale and performance of its Budget Franchise Group.
Significantly Expand Retail Car Sales Operations
The increased cost of new cars and the improved reliability of
low-mileage, late model cars have contributed to greater market demand for
late model cars in recent years. Notwithstanding this growth, the retail car
sales market remains highly fragmented, with most late model cars being sold
through the used car operations of local or regional new car dealerships. The
Company believes that the market for late model cars is currently undergoing
significant changes, with the emergence of companies retailing late model
cars on a national or regional basis and utilizing nationally or regionally
recognized tradenames. Such entities source cars on a nationwide basis and
provide customers with a large selection of attractively priced, late model
cars.
The Company believes that operating retail car sales facilities in its
Budget franchise territories and using the Budget tradename presents it with
a significant growth opportunity. The Company's senior executive officers
have significant experience in acquiring and selling low-mileage, late model
cars, and the Company believes that the Budget tradename is of significant
value in its targeted consumer market. The Company believes that it will be
able to obtain efficiencies by operating retail car sales facilities in
conjunction with certain of its Budget rental facilities, including the
sharing of service facilities and administrative offices. The Company also
believes that operating retail car sales facilities complements certain
aspects of its vehicle rental business, particularly by providing a channel
through which it will be able to sell its vehicles not subject to
manufacturers' repurchase programs directly into the retail market at the end
of the rental cycle. By developing this channel, the Company believes that it
will be less dependent on the availability of Program Vehicles.
Since November 1994, the Company has developed or acquired its first nine
retail car sales facilities, and the Company will seek to continue to improve
the operating performance of each of those facilities. Rather than pursuing a
"superstore" strategy, the Company expects to have multiple sales facilities
in each of its markets and to add facilities within its franchise
territories. This approach will provide more convenient locations for
customers, while allowing the Company to achieve certain operating
efficiencies and to benefit from marketing and advertising programs conducted
for its vehicle rental business. The Company also expects to add facilities
in markets where it does not currently have vehicle rental operations.
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<PAGE>
Acquire Additional Budget Franchises
Since the formation of the Company, the acquisition of Budget franchises
has been an important component of the Company's growth strategy. The Company
believes that through the franchise acquisitions completed since its initial
public offering, it has achieved a sufficient critical mass to realize
operating efficiencies, provided better geographic balance and reduced
seasonal fluctuations in its operating performance. The Company will seek to
increase its revenues and profitability through additional opportunistic
acquisitions and believes that desirable acquisition candidates will continue
to exist within the Budget System. Individual franchise owners may seek to
diversify their financial investment or to retire from active management,
particularly as they encounter greater cost pressures as well as other
competitive pressures in their operations. While the Company would consider
the acquisition of franchise territories in most regions of the United
States, there may be greater opportunities to achieve additional operating
efficiencies by acquiring franchise territories adjacent to or near its
existing territories. For example, the Company may be able to achieve better
fleet utilization in the operation of contiguous franchise territories.
Prior to being acquired by TEAM, a number of the Company's franchises had
either been unprofitable or experienced inconsistent profitability. It is in
the best interests of BRAC for its franchises to be operated profitably and
in a manner that will result in increased franchise fees to BRAC. The
transfer of any Budget franchise requires the prior approval of BRAC, and
BRAC may itself acquire franchise operations and convert them to wholly-owned
operations. See "Risk Factors--Risks Inherent in Growth Strategy." The
Company believes that it has been successful in acquiring and operating these
"turn around" franchises and that both the Company and BRAC have benefited
from the improved results achieved by the franchises acquired by the Company.
Enhance the Scale and Performance of its Budget Franchise Group
The Company believes that it will be able to enhance the profitability of
its current Budget franchises and any additional Budget franchises that it
may acquire by reducing the costs of operating those franchises and
increasing the rental revenues realized in those operations.
Cost Reduction Strategies
o Achieve Economies of Scale. The Company believes that by increasing the
scope of its vehicle rental operations, it has significantly improved its
fleet purchasing flexibility and lowered the cost of financing and insuring
its fleet. Through centralizing certain corporate functions, such as credit
card and warranty processing, the Company is also able to reduce the costs of
operating its Budget franchises. The Company believes that the benefits of
such measures are particularly significant following the acquisition of
franchises that have been underperforming prior to their acquisition by the
Company, although certain economies of scale may be extended to any operation
that the Company acquires.
o Optimize Fleet Mix and Utilization. The Company believes that it has
been able to reduce the cost of its rental operations by extending its fleet
management practices to newly-acquired franchise territories. The Company
believes that it will continue to improve its fleet utilization and per unit
cost versus yield. In addition, the Company believes it has improved the
timing and processing of its fleet deliveries and dispositions, reduced fleet
downtime and improved fleet make/model composition to better match customer
demand.
o Implement Cost Management Practices. The Company seeks to implement
standard cost management practices in each of its franchised territories.
Historically, following the acquisition of a territory, the Company has
successfully reduced overall personnel cost, lowered vehicle maintenance and
damage repair costs and increased the effectiveness of its servicing
procedures.
Revenue Growth Strategies
o Optimize Yield Management. TEAM utilizes various yield management models
designed to optimize pricing based upon such factors as office location,
fleet availability by car category and forecast demand patterns. These models
also enable TEAM to better optimize fleet utilization by tracking demand
patterns and allowing local managers to shift fleet inventory accordingly.
32
<PAGE>
o Add New Locations. In 1995, on a pro forma basis, approximately half of
the Company's vehicle rental revenues were generated at airport locations and
approximately half at non-airport locations. The Company believes that it
will be able to improve its performance by adding additional locations in its
existing and newly-acquired franchise territories (particularly by adding
non-airport locations), and that additional revenues may be generated with
relatively small increases in administrative overhead. Non-airport locations
are particularly attractive to the Company, as such locations typically have
less intense rate competition and fewer corporate customers utilizing
negotiated rate structures and are typically less affected by economic
downturns.
o Increase the Sale of Ancillary Products/Truck Revenues. The Company
seeks to increase vehicle rental revenues in its Budget franchise territories
through the sale of ancillary products and services, including loss damage
waivers, other insurance products and gasoline purchase options. The Company
intends to continue to market more diverse car products at additional
locations. The Company believes that it can also increase its revenues in
local markets by placing an increased emphasis on truck rentals, which also
include rentals of miscellaneous moving equipment and sales of moving
supplies.
VEHICLE RENTAL OPERATIONS
The Budget System
General. The Budget System consists of over 3,200 BRAC-owned and
franchised locations in approximately 115 countries and territories.
Approximately one-third of the Budget System's United States fleet is
operated by franchisees. BRAC was established in 1960 as a franchisor of
vehicle rental operations serving the downtown and suburban areas of cities
in the United States and Canada. The first major airport location of the
Budget System was established in 1967. Since 1989, Ford has held a preferred
stock interest in the holding company that owns BRAC and has provided
significant financial support to BRAC. In 1995, the Budget System's combined
revenue for both BRAC-owned and franchised locations in the United States was
approximately $2.0 billion. An industry source has indicated that Budget was
the fourth largest United States vehicle rental system in 1995 based on
revenue and the fifth largest based on fleet size.
System-Wide Services. BRAC provides the Budget System with: (i) national
promotion, advertising and public relations; (ii) reservations and
information systems; (iii) data processing support; (iv) marketing programs
with hotels and airlines; (v) Sears Car and Truck rental concessions; (vi) a
sales staff for marketing to corporate customers and the travel community;
(vii) credit card services for commercial customers; (viii) training in local
marketing techniques; and (ix) operation and training support. In general,
pursuant to its agreements with its franchisees, BRAC is required to expend a
certain percentage of franchise royalties that it receives on national
advertising and promotion. In addition, BRAC negotiates with automobile
manufacturers to develop vehicle acquisition and disposition programs that
are available to franchisees as well as to BRAC-owned locations.
BRAC facilitates one-way car rentals between approximately 735 selected
BRAC-owned and franchised locations in the United States. This one-way
program is also in place for truck rentals at approximately 325 locations. A
limited fleet of vehicles owned by BRAC is dedicated to supplement the
one-way vehicle rental capacity of the participating locations, including the
Company's franchise operations. This program enables the Budget System to
operate more fully as an integrated network of locations.
Reservations. BRAC, in conjunction with its 50%-owned subsidiary, Compass
Computer Services, Inc. ("Compass"), operates a computerized reservation
system. Budget's main reservation facility is located in the Dallas
metropolitan area and has over 400 employees. Auxiliary centers are located
in Toronto, Canada, the United Kingdom, Australia and New Zealand. These
centers are linked with the major airline and travel industry reservation
systems through the worldwide Budget reservation network. The main
reservation facility accepts inquiries and reservations for Budget System
locations worldwide on a 24-hour basis, 365 days a year. The reservation
centers utilize an extensive database maintained by Compass on rates and
vehicles available for nearly all Budget System locations, a special file of
pertinent information on frequent renters and other information that
facilitates the Budget System's business.
33
<PAGE>
Sears Car and Truck Rental. In 1970, BRAC established a contractual
relationship with Sears, Roebuck and Co. which allows Budget operating
locations to provide car and truck rental under the Sears name for a
concession fee based on rental revenue. Sears Car and Truck Rental customers
may use their Sears charge card for payment of rental charges. Sears Car and
Truck Rental is available at Budget locations in the United States and
Canada.
TEAM's Vehicle Rental Operations
Management Structure. The Company maintains decentralized management of
day-to-day rental operations. Many costs incurred by the Company are
dependent on local market conditions, including real property rents,
collision and damage repair costs and labor costs. The Company believes that
decentralized management can manage these costs better than corporate
headquarter staff. Decentralization also allows local managers to continue to
identify potential customer bases in their territories, to respond to
competitive situations within their territories in a flexible way and to
adjust fleet size as appropriate to local market conditions. Consequently,
the Company relies substantially on the quality and initiative of its local
management. Each of the Company's territories is under the direction of a
general manager, who is an owner of shares of Class A Common Stock and/or a
participant in the Company's 1994 Incentive Stock Option Plan (the "1994
Option Plan"). See "Management--Benefit Plans--1994 Option Plan." The general
managers employed by the Company typically have significant experience in the
vehicle rental business.
The Company coordinates vehicle purchases among its franchised territories
to enable it to benefit from volume purchases of vehicles. The Company
handles billing and collection on a decentralized basis, but employs
centralized cash management to permit optimal use of its financial resources.
The Company's corporate staff manages the acquisition and financing of new
franchises and general managers develop local vehicle rental markets.
Rental Vehicle Purchasing. The Company participates in a variety of
vehicle purchase programs with major domestic and foreign manufacturers,
although actual purchases are made directly through local dealers. The
average price for automobiles purchased by the Company in 1995 for its rental
fleet was approximately $17,700. On average during 1995, 42% of the purchases
were comprised of Ford vehicles, 15% of Chrysler vehicles and 21% of Mazda
vehicles. These percentages vary among the Company's operations and will most
likely change from year to year. The vehicle purchase programs sponsored by
manufacturers sometimes provide the Company with sales incentives for the
purchase of certain models, and most of these programs allow the Company to
serve as a drop-ship location for vehicles, thus enabling the Company to
receive a fee from the manufacturers for preparing newly purchased vehicles
for use. There can be no assurance that the Company will continue to be able
to benefit from sales incentives in the future.
The Company financed its rental vehicle purchases in 1995 primarily
through the First Fleet Facility, manufacturers' finance subsidiaries and,
during the peak rental season, bank lines of credit. Approximately 31% of the
Company's fleet cost was financed through the First Fleet Facility at
December 31, 1995. The Company expects to continue to take advantage of
asset-backed note facilities, which have more attractive interest rates than
traditional financing sources, to finance future fleet purchases. The Los
Angeles franchise financed fleet purchases through the Second Fleet Facility,
which was acquired by TEAM together with the franchise. In addition, the
Company will seek to continue its arrangements with the finance subsidiaries
of major vehicle manufacturers and other traditional sources of credit. See
"Risk Factors--Potential Changes in Manufacturers' Repurchase Programs" and
"Risk Factors--Requirements for Capital; Effect of Changes in Interest
Rates."
Fleet Utilization and Seasonality. The Company's business is subject to
seasonal variations in customer demand, with the summer vacation period
representing the peak season for vehicle rentals. This general seasonal
variation in demand, along with more localized changes in demand at each of
the Company's operations, causes the Company to vary its fleet size over the
course of the year. In 1995, on a pro forma basis (excluding the Phoenix
Budget franchise and Van Pool), the Company's average monthly fleet size
ranged from a low of 11,468 vehicles in November to a high of 16,450 vehicles
in July. Fleet utilization, which is based on the average number of days
vehicles are rented compared to the total
34
<PAGE>
number of days vehicles are available for rental, ranged from 70% in December
to 89% in August and averaged 80% for all of 1995. The Company has sought to
reduce this seasonal effect by acquiring franchise territories that are
winter travel destinations, and the Company believes that acquisitions of the
Los Angeles operation in October 1995 and the Phoenix operation in February
1996 have reduced and will continue to reduce the effect of these seasonal
characteristics.
Rental Vehicle Disposition. The Company's current operating strategy is to
maintain its fleet at an average age of 12 months or less. Approximately 85%
of the vehicles purchased by the Company in 1995 were eligible for
participation in manufacturers' repurchase programs. These programs currently
require that the Company maintain Program Vehicles in its fleet for a minimum
of six months and impose numerous return conditions, including those related
to mileage and repair condition. Less than 3% of the Program Vehicles
purchased by the Company and scheduled to be returned in 1995 were ineligible
for return. At the time of return to the manufacturer, the Company receives
the price guaranteed at the time of purchase and is thus protected from
fluctuations in the prices of previously-owned vehicles in the wholesale
market at the time of disposition. The future percentage of Program Vehicles
in the Company's fleet will be dependent on the availability and
attractiveness of the manufacturers' repurchase programs, over which the
Company has no control. See "Risk Factors--Potential Changes in
Manufacturers' Repurchase Programs." In addition to disposal of its vehicle
rental fleet through the manufacturers' repurchase programs, the Company also
disposes of its rental fleet through automobile auctions, sales to
wholesalers and the Company's retail car sales operations. While the disposal
of rental vehicles through the Company's retail car sales operation has been
minimal to date, the Company believes that such dispositions may increase as
its retail car sales operation continues to grow and as the Company evaluates
the mix of its Program Vehicles and vehicles not subject to manufacturers'
repurchase programs.
Vehicle Rental Facilities. The Company leases all of its airport and
non-airport vehicle rental facilities and currently operates from 159 rental
locations. The airport facilities are located on airport property owned by
airport authorities or located near the airport in locations convenient for
bus transport of customers to the airport. One of the Company's airport
facilities in each Budget franchise territory serves as the administrative
headquarters for the franchise territory and, as a general rule, each airport
facility includes vehicle storage areas, a vehicle maintenance facility, a
car wash, a refueling station and rental and return facilities. In all
airport locations, the facility leases are not co-terminus with the local
airport concession agreement. See "Risk Factors--Risk of Non-Renewal of
Airport Concessions." The Company's non-airport facilities generally consist
of a limited parking facility and a rental and return desk and are generally
subject to long-term leases with renewal options. Certain of these leases
also have purchase options at the end of their terms.
Van Pooling Operations. Van Pool, the Company's commuter van pooling
subsidiary, was acquired by the Company in February 1996 and maintains
offices in 21 cities located in 15 states and the District of Columbia.
Founded in 1977, Van Pool provides van pooling services to individuals,
corporations and municipalities. Pursuant to van pool agreements between the
Company and either the volunteer driver, corporation or municipality (the
"contracting party"), the contracting party agrees to drive or arrange a van
pool which travels a fixed route set by the Company. The Company sets the
fees, which are collected by the driver and remitted to the Company. Van Pool
employs approximately 40 individuals at its home office in Troy, Michigan and
approximately 40 individuals in its local markets, and currently operates a
fleet of approximately 3,250 passenger vans.
RETAIL CAR SALES OPERATIONS
Since November 1994, TEAM has developed or acquired nine retail car sales
facilities, establishing TEAM as one of the largest independent retailers of
late model cars in the United States, with monthly revenue of $10.7 million
in May 1996.
Retail Car Sales Inventory. The Company has historically acquired most of
its retail car sales inventory at auctions, although it has acquired some
cars directly upon their disposition by other car rental companies and from
the TEAM rental fleet. In the future, the Company expects to increase its
acquisitions of cars from the disposition of cars used by other car rental
companies and to purchase a smaller portion from auctions. The Company
coordinates car purchases among its retail car sales locations
35
<PAGE>
to enable it to benefit from volume purchases of cars. The average price of
automobiles purchased by the Company in 1995 for its retail car sales
facilities was approximately $11,750. The Company financed its retail sale
car purchases in 1995 primarily through a third party finance company.
Management and Personnel. The Company maintains decentralized management
of the day-to-day functions of its sales operations. The Company's retail car
sales operations are managed by two regional vice presidents, both of whom
own shares of Class A Common Stock and/or participate in the 1994 Option
Plan. See "Management--Benefit Plans--1994 Option Plan." In addition, each
retail car sales location is operated by a general manager, one or two sales
managers and one or two individuals responsible for financing and insurance.
Trademarks. Within its franchise territories, the Company operates its
retail car sales operations under the name "Budget Car Sales." However, BRAC
has indicated that the use of the Budget name in connection with retail
vehicle sales operations is not a contractual right granted under its
standard franchise agreements. The Company's management does not believe that
the success of these operations is dependent on the use of the Budget name
and currently plans to operate under a different name in its franchise
territories, if necessary. The Company also plans to operate under a
different name in those locations in which it is not a Budget franchisee.
Ultimately, the Company will seek to establish retail car sales operations at
multiple sites in larger metropolitan areas and advertise those operations
under one name.
Vehicle Pricing and Financing. While many cars display stickers
indicating their "blue book" value, customers are permitted to negotiate
pricing terms with the sales managers. Various local enterprises provide
financing to customers of the Company on a non-exclusive basis. In 1995, the
vehicles sold at its retail car sales facilities consisted primarily of 1995
model automobiles and passenger vans, with some 1994 models and very few 1993
models. To supplement its sale of vehicles, the Company sells extended
service contracts and related consumer insurance products to its customers.
Retail Car Sales/Service Facilities. Each of the Company's retail car
sales facilities consists of a showroom and an outdoor display area, which
together accommodate the on-site display of at least 100 cars, and a service
area. Although certain of the Company's retail car sales facilities have been
converted from facilities that were used in other businesses, the Company
prefers to build its own retail car sales facilities and believes that such
facilities can be built at an average cost of approximately $1.2 million. The
service departments operated at each retail car sales facility are
responsible for inspecting a car's condition and for providing necessary
reconditioning and maintenance services before sale. These services are
provided uniformly for its retail car sales facilities in accordance with an
inspection checklist developed by the Company. Service departments also
provide after-sale service for the Company's customers.
COMPETITION
The vehicle rental industry is characterized by intense price and service
competition. In any given location, the Company may encounter competition
from national, regional and local companies, many of which, particularly
those owned by the major automobile manufacturers, have greater financial
resources than the Company. The Company's main competitors for vehicle
rentals are Hertz, Avis, Alamo, National and Dollar, which serve primarily
airport and near-airport locations, and Enterprise, which primarily serves
non-airport locations. The Company's operations are generally the third or
fourth largest at the airports in which it operates, although its extensive
non-airport operations may give it a larger presence in the metropolitan
regions in which such airports are located. The key competitive factors in
the industry are pricing, quality of service, name identification, vehicle
availability and location. There have been many occasions during the history
of the vehicle rental industry in which all of the major vehicle rental
companies have been adversely affected by severe industry-wide price cutting,
and the Company has, on such occasions, lowered its prices in response to
such price cutting. However, during the past two years, industry-wide rates
have increased, reflecting, in part, both increased costs of owning and
maintaining vehicles and the need to generate returns on invested capital.
The retail car sales business is also characterized by intense competition
from a range of regional and local car dealerships and other retailers of
previously-owned vehicles. The Company believes that it
36
<PAGE>
competes primarily against new car dealers retailing previously-owned cars.
The Company's retail car sales facilities are located among similar
facilities and, in some instances, together with the Company's rental
operations. The entry of large, well-capitalized retailers of late model
previously-owned cars may provide the Company with significant additional
competition.
FRANCHISE AGREEMENTS
The Company's status as a Budget franchisee is governed by franchise
agreements (the "Franchise Agreements"), which grant to the Company's
subsidiaries certain exclusive territories in which to operate the Budget
vehicle rental business. All of these agreements are direct, "prime"
franchise agreements with BRAC, except those relating to the Company's Los
Angeles and San Diego operations, which operates as a sub-franchisee of
SoCal, and the Company's Los Angeles truck rental operation, which operates
as a sub-franchisee of an unaffiliated third party. The Franchise Agreements
provide the franchisor with significant rights regarding the business and
operations of the Company and impose restrictions on the transfer of
ownership of the capital stock of the Company and its subsidiaries without
the consent of the franchisor. These provisions could affect the Company's
ability to sell a car rental operating subsidiary or acquire other franchises
or expand within its existing franchise territories.
The Company is required to operate each of its franchises in accordance
with certain standards contained in the Budget operating manual (the
"Operating Manual"). The franchisor has the right to monitor the operations
of the Company's franchises and any default by the Company under a Franchise
Agreement or the Operating Manual may give the franchisor the right to
terminate the underlying franchise. The loss of certain franchise rights
could have a material adverse effect on the Company.
In general, the Franchise Agreements grant the Company the exclusive right
to operate a Budget Rent a Car and/or Budget Rent a Truck franchise in a
particular geographic area for a period of five years. The Franchise
Agreements for the San Diego, California, Albany and Rochester, New York,
Richmond, Virginia, Philadelphia and Pittsburgh, Pennsylvania, Cincinnati,
Ohio, Ft. Wayne, Indiana, Charlotte, North Carolina, Dayton, Ohio and
Hartford, Connecticut territories generally provide for an unlimited number
of five year renewal terms. Upon renewal, these Franchise Agreements (except
for the San Diego, California automobile rental franchise) may contain terms
and conditions (other than with respect to royalty fees) different from those
contained in the existing Franchise Agreements. The Franchise Agreement for
the Los Angeles, California territory with respect to automobile rentals
automatically renews for an unlimited number of five year terms. The
Franchise Agreement for the Phoenix, Arizona territory automatically renews
for an unlimited number of five year renewal terms as long as the franchisee
meets certain targets regarding the size of its rental fleet.
The standard terms of the fees payable to the franchisors under the
Company's Franchise Agreements are 7.5% of monthly gross rental revenue plus
a $1.25 per month credit card fee per average number of fleet vehicles, but
the Company has negotiated certain franchise agreements with more favorable
terms.
Pursuant to each Franchise Agreement, the Company must meet certain
guidelines relating to the number of rental offices in a franchised
territory, the number of vehicles maintained for rental and the amount of
advertising and promotion expenditures. The Franchise Agreements relating to
the Pittsburgh and Philadelphia operations grant the Company rights of first
refusal with respect to the franchise agreements relating to certain
additional territories in Delaware, New Jersey and Pennsylvania. In general,
each Franchise Agreement provides that the Company shall not (i) engage in
any other vehicle rental business within the franchise territory or within a
two mile radius of any other existing Budget rental location during the term
of such agreement and for 12 months thereafter; or (ii) disclose the terms of
the Operating Manual or any other confidential information relating to the
Budget System to any third party. In addition, each franchisee agrees not to
use the word "Budget" or any other Budget trademark other than in its vehicle
rental business without BRAC's consent, except with respect to the Los
Angeles territory. Further, the Company has agreed with BRAC in the Franchise
Agreements for the San Diego, California automobile rental operations that it
will not conduct any business other than its automobile rental operations at
any location at which it conducts Budget Rent a Car operations and not to
conduct a car sales business under the "Budget" name or on any Budget car
rental premises unless authorized to do so under a separate agreement.
37
<PAGE>
INSURANCE
The Company currently has insurance coverage in an amount of up to $1.0
million, with a $500,000 retention per occurrence, with respect to personal
injury and damage claims arising from the use of its vehicles, except with
respect to vehicles rented through its Los Angeles, San Diego and Phoenix
operations. The Company has entered into a contract with a third party
administrator, AIG Claim Service, Inc., to handle all claims outside of the
state of California involving injuries and property damage in excess of
$10,000. Crawford & Company adjusts property damage claims with values less
than $10,000. Under California law, vehicle rental customers are primarily
liable for damages arising from the use of rental vehicles. Vehicle rental
companies are secondarily liable for such damages up to an amount limited by
California law to $35,000 per occurrence (exclusive of legal fees and
conditioned upon the posting of a $35,000 bond), unless the vehicle rental
company has negligently maintained the vehicle or has "negligently entrusted"
the vehicle to a rental customer (e.g., the vehicle rental company rented to
a customer that did not have a valid driver's license). In addition, a
vehicle rental company can be held liable for damages arising from use of its
vehicles by its employees. A recent California Court of Appeals decision,
although not ruling on the issue, has suggested that rental car companies
generally may be subject to primary liability in connection with damages
arising from customers' operation of rental vehicles. If changes in
California law were ever effected to render permissively uninsured rental car
companies primarily liable for such damages, the Company would at such time
review its claims handling practices. The Company's Phoenix operations are
self-insured, with a $300,000 retention. There is a $700,000 excess coverage
policy with Firemans Fund Insurance and a $10 million excess policy through
National Union Fire Insurance Company. VPSI, Inc. is covered under the
National Union Fire Insurance Company policy up to $1.0 million, subject to a
$500,000 retention per occurrence. There is also a $4.0 million excess policy
through National Union.
The Company's workers compensation insurance coverage has been placed with
ITT Hartford, subject to a $500,000 retention. All claims will be
administered by ITT Hartford's claims operation. The Company's general
liability coverage has been placed with ITT Hartford. There is $1.0 million
per occurrence, $2 million aggregate coverage with no retention. The
Company's property coverage has been placed with Northbrook Insurance
Company. The retail vehicle sales operations are insured through Travelers
Insurance Company with $1.0 million aggregate coverage per location. There is
a $50,000 retention for automobile accidents, $15,000 retention for
garagekeepers legal liability claims and $10,000 retention for garage
operation losses. All claims will be handled by a third party administrator,
Frontier Adjusters. Finally, the Company has a total of $5.0 million in
directors and officers liability coverage through Steadfast and RLI Insurance
Companies. This coverage is subject to a $1.0 million retention for claims
relating to violations under federal securities laws and $100,000 retention
for any other claim. The Company has secured employment related practice
coverage with a $1.0 million aggregate limit, subject to a $25,000 per
occurrence deductible.
REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws and regulations
including those relating to taxing and licensing of vehicles, franchising,
consumer credit, environmental protection, retail vehicle sales and labor
matters. The principal environmental regulatory requirements applicable to
the Company's operations relate to the ownership or use of tanks for the
storage of petroleum products, such as gasoline, diesel fuel and waste oils;
the treatment or discharge of waste waters; and the generation, storage,
transportation and off-site treatment or disposal of solid or liquid wastes.
The Company operates 29 locations at which petroleum products are stored in
underground or aboveground tanks. The Company has instituted an environmental
compliance program designed to ensure that these tanks are in compliance with
applicable technical and operational requirements, including periodic
integrity testing of underground storage tanks. The Company believes that the
locations where it currently operates are in compliance, in all material
respects, with such regulatory requirements.
The Company may also be subject to requirements related to the remediation
of, or the liability for remediation of, substances that have been released
to the environment at properties owned or operated
38
<PAGE>
by the Company or at properties to which the Company sends substances for
treatment or disposal. Such remediation requirements may be imposed without
regard to fault and liability for environmental remediation can be
substantial. Certain of the locations in the Philadelphia, Pittsburgh and
Cincinnati franchise territories have been the subject of environmental
remediation as a consequence of leaks or spills and continue to have some
level of environmental impairment that may require further remediation. In
connection with the acquisition of those franchise territories, the Seller,
Chrysler Credit Corporation, Inc. ("CCC"), agreed to provide up to $873,750
for a period of three years for remediation activities at sites shown to be
impaired by assessments performed under the supervision of the Company.
Although the ultimate cost of these remediation activities is currently
unknown, the Company believes that the amount of funding to be provided by
CCC will be sufficient to cover the cost of these remediation activities. See
"Risk Factors--Environmental Risks Inherent in On-Site Petroleum Storage."
The Company may be eligible for reimbursement or payment of remediation
costs associated with future releases from its regulated underground storage
tanks. Certain of the states in which the Company maintains underground storage
tanks have established funds to assist in the payment of remediation costs for
releases from certain registered underground tanks. Subject to certain
deductibles, the availability of funds, compliance status of the tanks and the
nature of the release, these tank funds may be available to the Company for use
in remediating future releases from its tank systems.
LEGAL MATTERS
From time to time, the Company is subject to routine litigation incidental
to its business. The Company maintains insurance policies that cover most of
the actions brought against the Company. See "Business--Insurance." The
Company is currently not involved in any legal proceeding which it believes
would have a material adverse effect upon its financial condition or
operations.
EMPLOYEES
The Company had approximately 2,000 employees at April 30, 1996, including
part-time and "on call" employees who shuttle vehicles between locations. At
April 30, 1996, 64 employees in San Diego, 53 employees in Pittsburgh and 69
employees in Philadelphia were subject to collective bargaining agreements.
The collective bargaining agreement covering the San Diego employees expires
in October 1997, the collective bargaining agreement covering the Pittsburgh
employees expires in November 1998 and the collective bargaining agreement
covering the Philadelphia employees expires in October 1998. The Company
believes that its employee relations are good.
HEADQUARTERS
The Company's headquarters facility consists of 2,500 square feet of
leased space in Daytona Beach, Florida. The Company believes that this
facility is sufficient for its needs because of the decentralized nature of
the Company's management.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and significant employees of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- --------------------- ----- -----------------------------------------------
CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF
<S> <C> <C>
Sanford Miller ....... 43 Executive Officer and Director
President, Chief Operating Officer and
John P. Kennedy ...... 51 Director
Jeffrey D. Congdon .. 53 Chief Financial Officer, Secretary and Director
Ronald D. Agronin ... 58 Director
Dr. Stephen L. Weber 54 Director
James F. Calvano .... 59 Director
Jeffrey R. Mirkin ... 43 Director
Alan D. Liker ........ 58 Director
Donald J. Norwalk ... 31 Vice President and Treasurer
Scott Tiemann ........ 37 Vice President and Corporate Controller
Jeffrey D. Widholm .. 32 Vice President--Corporate Development
</TABLE>
Directors are elected annually to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers
are elected by and serve at the discretion of the Board of Directors.
Sanford Miller has been the Chairman of the Board of Directors and Chief
Executive Officer of the Company since April 1994. From August 1991 until
August 1994, he was Vice President of Tranex Rental of New York, Inc.
("Tranex"), which operated the Albany and Rochester Budget franchises, and
from December 1991 until August 1994, was Vice President of Capital City
Leasing, Inc. ("Capital City"), which operated the Richmond, Virginia Budget
franchise. Between 1989 and 1991, Mr. Miller served as Director of Marketing,
Special Accounts for BRAC. From 1981 to 1989, Mr. Miller was an executive
officer and principal stockholder of corporations that owned and operated 30
Budget franchises that were sold to BRAC in 1989. From 1979 to 1981, he was a
North East Regional Field Operations Manager for BRAC. Mr. Miller served as
President of the American Car Rental Association, a nation-wide industry
trade association, in 1993 and as Chairman of the Licensee Local Market
Advisory Board of the Budget System in 1989 and 1990. Mr. Miller is also a
director of MoneyGram Payment Systems, Inc. and Tomoka State Bank.
John P. Kennedy has been President, Chief Operating Officer and a director
of the Company since April 1994. From November 1991 until August 1994, he was
President of Metro West, Inc., whose wholly-owned subsidiary owns the
Company's San Diego airport operations. From September 1989 until October
1991, he was an independent consultant to the vehicle rental industry. From
July 1985 to August 1989, he served as President of NYRAC, Inc. d/b/a Budget
Rent a Car of Kennedy and La Guardia Airports. From 1968 to 1984, he served
in various capacities with Avis, including the position of Vice President of
Operations.
Jeffrey D. Congdon has been the Chief Financial Officer, Secretary and a
director of the Company since April 1994. Since December 1990, he has been
Secretary and Treasurer of Tranex Credit Corporation, which provides
financing for purchases of previously-owned vehicles. From 1980 to 1989, he
was an executive officer and principal stockholder of corporations that owned
and operated 30 Budget franchises that were sold to BRAC in 1989. From 1982
to the present, Mr. Congdon has owned and operated retail new and/or
previously-owned car sales operations in Indianapolis, Indiana.
Ronald D. Agronin was elected as a director in April 1994. Since 1993, Mr.
Agronin has served as Vice Chairman of Black Clawson Company, a manufacturer
of paper making machinery, and as President and Chief Executive Officer of
United Container Machinery, Inc., a container manufacturer. He served as
Executive Vice President and Chief Operating Officer of Black Clawson from
1987 until 1993. He serves as a director of both of these companies. Mr.
Agronin is the first cousin of Mr. Miller.
40
<PAGE>
Dr. Stephen L. Weber was elected as a director in April 1994. Since June
1996, Dr. Weber has been the President of San Diego State University. From
August 1995 to June 1996, he was the Interim Provost at the State University
of New York System Office. From 1988 until June 1996, he was President of
State University of New York at Oswego. In July 1996, Dr. Weber will become
President of San Diego State University.
James F. Calvano was elected as a director of the Company in August 1994.
Since February 1996, Mr. Calvano has been the President and Chief Executive
Officer of MoneyGram Payment Systems, Inc., a provider of electronic money
transfer services. From February 1995 until February 1996, Mr. Calvano was
Executive Vice President of Marketing for Travelers Group, a subsidiary of
Travelers, Inc. From November 1993 until February 1996, he was Chief
Administrative Officer of Travelers Insurance Companies. From June 1991 until
May 1993, Mr. Calvano was President and Chief Operating Officer of New Valley
Corp. Two months before he assumed this position, New Valley Corp. suspended
payments on its publicly held debt. An involuntary bankruptcy petition under
Title 11 of the U.S. Code was filed against New Valley Corp. in November 1991
and a voluntary bankruptcy petition under Title 11 was filed by New Valley
Corp. in March 1993. From January 1989 until December 1990, Mr. Calvano was
President and Chief Executive Officer of Carlson Travel Group and Executive
Vice President of Carlson Companies Inc. From November 1986 until December
1988, he served as President of Commercial Credit Corp. and Executive Vice
President of Primerica Corp. Mr. Calvano served American Express Travel
Related Services Co., Inc. as its Vice Chairman, President of Payment Systems
Division, USA and President of Consumer Financial Services Division, USA
between October 1981 and November 1986. From 1972 to 1981, Mr. Calvano was
employed by Avis and served in various capacities, including President and
Chief Executive Officer, Executive Vice President and Chief Operating Officer
and Group Vice President, Western Hemisphere.
Jeffrey R. Mirkin was elected as a director of the Company in October
1995. Since 1985, Mr. Mirkin has been the Chief Executive Officer of SoCal, a
licensee of BRAC and through its wholly owned subsidiary, an operator of
Budget locations in Southern California. See "Certain Transactions."
Alan D. Liker has been a director since October 1995. He has served as a
business advisor to a number of individuals and companies during the past
five years, including as Vice President of SoCal since February 1992. Mr.
Liker is also a director of Herbalife International. Mr. Liker was a director
of Shaklee Corporation and its Japanese affiliate, Shaklee KK until their
sale in 1989. From 1976 to 1980, he was a principal of Xerox Development
Corporation, a strategic planning unit of Xerox Corporation. Mr. Liker was
previously a law professor at the Harvard University, University of
California (Los Angeles) and University of Southern California law schools.
Previously he was a director of First Charter Bank and Shop Television
Network. See "Certain Transactions."
Donald J. Norwalk has been Vice President and Treasurer of the Company
since July 1994. From January 1994 until July 1994, he was the SEC Reporting
and Compliance Officer for FFLC Bancorp, Inc., a bank holding company. From
January 1989 to January 1994, he was an auditor for Deloitte & Touche,
serving clients primarily in the financial, manufacturing and real estate
industries.
Scott Tiemann has been Vice President and Controller of the Company since
July 1994. From March 1992 until July 1994, he was employed by BRAC as the
Business Manager for Freedom River. From November 1989 until March 1992, he
was a city controller for BRAC.
Jeffrey D. Widholm has been Vice President of Corporate Development of the
Company since August 1995. From January 1987 until August 1995, he was a
corporate banking officer for BankOne, Indianapolis, N.A., where he was
responsible for a loan portfolio of middle market and large corporate
clients.
The Company's Board of Directors has a Compensation Committee and an
Audit/Finance Committee. The Compensation Committee, composed of Mr. Agronin
and Dr. Weber, establishes salaries, incentives and other forms of
compensation for directors, officers and other employees of the Company,
administers various incentive compensation and benefit plans and recommends
policies relating to such plans. The Audit/Finance Committee, composed of
Messrs. Agronin and Calvano,
41
<PAGE>
reviews the Company's accounting practices, internal accounting controls and
financial results and oversees the engagement of the Company's independent
auditors. Nonemployee directors receive an annual retainer of $12,000 and
participate in the 1994 Directors' Stock Option Plan. The Company also pays
the reasonable out-of-pocket expenses of each director in connection with his
attendance at each Board or committee meeting.
In connection with the Los Angeles Acquisition, the Company and the
Principal Executive Officers agreed that for so long as SoCal and its general
partners own 500,000 or more shares of the Class A Common Stock received in
the Los Angeles Acquisition, the Company and the Principal Executive Officers
will nominate and use their best efforts to elect to the Company's Board of
Directors two persons designated by SoCal and further, for so long as SoCal
and its general partners own less than 500,000 but more than 250,000 shares
of Class A Common Stock, the Company and the Principal Executive Officers
agreed to nominate to the Company's Board of Directors one person designated
by SoCal. Following the Los Angeles Acquisition, Messrs. Mirkin and Liker
were selected by SoCal and thereafter elected to the Board of Directors of
the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation paid by the
Company during the last three fiscal years to the Chief Executive Officer and
certain other executive officers of the Company.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ---------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS
- --------------------------- ------ ------------- -------------- ---------------------
<S> <C> <C> <C> <C>
Sanford Miller ............. 1995 $183,667 $ -- 30,000
Chairman of the Board and 1994 $ 91,108(1) $ 14,067(2) --
Chief Executive Officer 1993 $ 30,000(1) $ 17,918(2) --
John P. Kennedy ............ 1995 $173,333 $ -- 25,000
President and Chief 1994 $ 94,558 $ -- --
Operating Officer 1993 $111,900 $ -- --
Jeffrey D. Congdon ......... 1995 $173,333 $ -- 25,000
Chief Financial Officer 1994 $ 26,250(3) $ -- --
and Secretary 1993 $ -- $ -- --
</TABLE>
- ------------
(1) Does not include $6,924 and $27,696 of cash dividends paid by Tranex
and Capital City to Mr. Miller in 1994 and 1993, respectively.
(2) Other annual compensation consists of $12,476 and $15,192 of payments
made by the Company with respect to vehicles used by Mr. Miller in 1994
and 1993, respectively, and $1,591 and $2,726 of gasoline expenses in
connection with the use of these vehicles in 1994 and 1993,
respectively.
(3) Represents salary for the period from August 24, 1994 through December
31, 1994.
42
<PAGE>
OPTION GRANTS DURING FISCAL 1995
The following tables describe the stock options granted to the Chief
Executive Officer and certain other executive officers of the Company in the
last fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE
NAME GRANTED FISCAL YEAR PER SHARE
- ------------- ------------ ---------------- -------------
<S> <C> <C> <C>
Mr. Miller .. 30,000 15.6% $9.50
Mr. Kennedy . 25,000 13.0% $9.50
Mr. Congdon . 25,000 13.0% $9.50
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
----------------------
NAME EXPIRATION DATE 5% 10%
- ------------- --------------- ---------- ----------
<S> <C> <C> <C>
Mr. Miller .. March 1, 2005 $179,235 $454,217
Mr. Kennedy . March 1, 2005 $149,362 $378,514
Mr. Congdon . March 1, 2005 $149,362 $378,514
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS AT DECEMBER 31, 1995
------------------------------
NAME EXERCISEABLE UNEXERCISEABLE
- -------------- -------------- --------------
<S> <C> <C>
Mr. Miller .... -- 30,000
Mr. Kennedy .. -- 25,000
Mr. Congdon .. -- 25,000
</TABLE>
No options were exercised in 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The Compensation Committee is composed of Mr. Agronin and Dr. Weber,
neither of whom has ever (i) been an officer or employee of the Company or
any of its subsidiaries or (ii) entered into a related-party transaction with
the Company.
BENEFIT PLANS
1994 Option Plan. The 1994 Option Plan provides for the grant to selected
key employees of the Company and its subsidiaries of either incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of
1986 (the "Code") or nonqualified options (intended not to qualify as
incentive stock options) to purchase Common Stock. The 1994 Option Plan is
administered by the Compensation Committee of the Board of Directors. The
maximum number of shares of Common Stock that may be made subject to options
granted pursuant to the 1994 Option Plan is 760,000, and the maximum number
of shares for which an employee may be granted options in any three-year
period is 75,000, subject, in each case, to adjustments for certain changes
in the Company's capitalization. The price per share of a stock option must
be at least the fair market value per share as of the date of grant. In the
case of an employee who owns more than 10% of the voting power of the
Company, the price per share under an incentive stock option must be at least
110% of the fair market value per share as of the date of grant. No option
may be exercised within six months from the date of grant, except that an
option will be immediately exercisable upon the occurrence of certain events,
including a "change in control" of the Company as defined in the 1994 Option
Plan. Except in the event of the death or disability of a holder of
nonqualified stock options, no option may be exercised more than 10 years
after its date of grant (and, in the case of an employee who owns more than
10% of the voting power of the Company, an incentive stock option held by
such employee may not be exercised more than five years after its date of
grant). Unless sooner terminated, the 1994 Option Plan terminates on April
24, 2004. As of the date of this Prospectus, 442,600 options have been
granted under the 1994 Option Plan.
1994 Directors' Stock Option Plan. The Company's 1994 Directors' Stock
Option Plan (the "1994 Directors' Plan") provides for the grant to directors
of the Company who are not employees of the Company ("outside directors") of
options to purchase Class A Common Stock. Because the 1994 Directors' Plan by
its terms specifies the class of directors eligible to receive options, the
timing of the
43
<PAGE>
grant of options, the number of shares underlying options to be granted and
the exercise price of such options, there is no discretionary administration
with regard to these matters. The Board of Directors may appoint a committee
to perform ministerial duties in connection with the 1994 Directors' Plan.
The maximum number of shares of the Class A Common Stock subject to options
granted pursuant to the 1994 Directors' Plan is 25,000. Each outside director
was granted an option for 5,000 shares of Class A Common Stock on the date on
which the director was elected to office or, if later, the effective date of
the 1994 Directors' Plan. The exercise price per share under an option was
the fair market value per share as of the date of grant. The options are
exercisable in full beginning six months after the date of grant, except that
an option will be immediately exercisable upon the occurrence of certain
events, including a change in the control of the Company. Except in the event
of a holder's death or disability, no option may be exercised more than 10
years after its date of grant. Unless sooner terminated, the 1994 Directors'
Plan will terminate on April 24, 2004. As of the date of this Prospectus,
5,000 options have been granted to each of Messrs. Agronin, Calvano, Weber,
Mirkin and Liker under the 1994 Directors' Plan. There are no additional
options available for grant under the 1994 Directors' Plan.
CERTAIN TRANSACTIONS
Concurrently with the completion of the initial public offering in August
1994, Messrs. Miller, Kennedy, Congdon and certain current and former
employees of the Company (the "Exchange Stockholders"), who were the
stockholders of certain of the corporations that owned the Albany and
Rochester, New York, Richmond, Virginia and San Diego, California Budget
franchises, exchanged all of their shares of these corporate entities for an
aggregate of 563,400 shares of the Class A Common Stock and 1,936,450 shares
of the Class B Common Stock (the "Share Exchange"). The Principal Executive
Officers thereby acquired 100% of the shares of the Class B Common Stock that
have been issued by the Company. Upon consummation of the Share Exchange and
the redemption of the preferred stock of the Company's subsidiary that
operates the San Diego airport franchise, all of the Albany, Rochester,
Richmond and San Diego operating companies became wholly-owned subsidiaries
of the Company. See "Shares Eligible for Future Sale."
Pursuant to an agreement dated as of November 1, 1994, Team Rental of Ft.
Wayne, Inc. ("TRFW") a wholly-owned subsidiary of the Company, purchased all
of the shares of capital stock of Ft. Wayne Rental Group, Inc. ("Ft. Wayne").
Ft. Wayne, which was owned by Sanford Miller and others, including a former
employee of the Company, acquired the assets constituting the Ft. Wayne
business in June 1993 for approximately $26,000, plus the assumption of
approximately $66,000 of liabilities. The total purchase price for the stock
of Ft. Wayne was 18,500 shares of the Class A Common Stock of the Company
valued at approximately $200,000 (plus a de minimis amount of cash to prevent
the issuance of fractional shares of stock). Mr. Miller received 7,400 shares
of Class A Common Stock in exchange for his shares of Ft. Wayne stock. Prior
to the acquisition of Ft. Wayne, Tranex Rentals of New York, Inc. d/b/a
Budget Rent a Car of Albany and Rochester, which became a subsidiary of the
Company in the Share Exchange, leased vehicles to Ft. Wayne. The aggregate
payments under this lease amounted to approximately $366,000 in 1994.
Messrs. Miller, Kennedy and Congdon have guaranteed the performance of the
obligations of some or all of the Company's subsidiaries under their
respective Franchise Agreements. In connection with the initial public
offering, the Company's franchisors agreed to release these individuals from
their guarantees under the Franchise Agreements and substitute the Company's
guarantee therefor, provided that the Company maintains net worth of at least
$15 million. In the event that the Company's net worth falls below this
level, the Company has the option to provide the franchisors with a
$5 million letter of credit that could be drawn on in the event of a monetary
default under the Franchise Agreements or, in the alternative, to allow the
personal guarantees to be reinstated.
The Company's Richmond, Virginia airport facility is leased from a
partnership formed by Mr. Miller and an employee of the Company (the
"Richmond Partnership"). This lease terminates in 1998, subject to renewal.
Rental payments under the lease agreement amounted to approximately $31,200,
$95,000 and $97,000 in 1993, 1994 and 1995, respectively. The monthly base
rent under this lease (approximately $7,800, $7,900 and $8,100 in 1993, 1994
and 1995, respectively) escalates by approximately 3% per annum.
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<PAGE>
The Company has entered into another lease for a non-airport facility located
in Chesterfield County, Virginia that is owned by the Richmond Partnership.
This lease commenced in June 1994 and terminates in May 1999, subject to
renewal. Rental payments under the lease agreement amounted to approximately
$24,000 and $33,000 in 1994 and 1995, respectively. The monthly base rent
under this lease was approximately $3,400 and $3,500 in 1994 and 1995,
respectively and escalates by approximately 3% per annum. The Company's
Rochester, New York airport facility is leased from a partnership formed by
Mr. Miller and a former employee of the Company. This lease terminates in
2003, subject to renewal. The monthly base rent under this lease
(approximately $6,350, $6,700 and $6,800 in 1993, 1994 and 1995,
respectively) escalates by 5% per annum until August 30, 1996, and thereafter
annual increases will be the higher of 5% or the amount of the increase in
the consumer price index. Rental payments under the lease amounted to
$25,400, $75,000 and $81,000 in 1993, 1994 and 1995, respectively. All of
these leases are on a triple net basis (i.e., the Company is responsible for
the payment of taxes and insurance, utilities and for the general maintenance
of these facilities in addition to its obligations to pay base rent). All of
these leases provide for an initial term of ten years and two five-year
renewal terms. The Company believes that these leases are on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
The Company's Philadelphia, Pennsylvania retail vehicle sales facility,
regional administrative headquarters and vehicle maintenance facility are
leased from MCK Real Estate Corporation ("MCK"), which is owned by Messrs.
Miller, Congdon and Kennedy. This lease terminates in September 2002, subject
to renewal. Rental payments under the lease were approximately $168,000 for
1995. The monthly base rent (approximately $26,000 per month in 1995)
escalates by 3% per annum. The Company's Richmond, Virginia retail car sales
facility is leased from MCK. This lease terminates in October 2000, subject
to renewal. Rental payments under this lease were approximately $10,000 for
1995. The monthly base rent under this lease (approximately $10,000 per month
in 1995) escalates by 3% per annum. The Company's second Dayton, Ohio retail
car sales facility, which opened in April 1996, is leased from MCK. This
lease terminates in March 2001, subject to renewal. The monthly base rent
under this lease (approximately $10,000 per month in 1996) escalates by 3%
per annum. All of these leases are on a triple net basis. The Company
believes that these leases are on terms no less favorable than could be
obtained from unaffiliated third parties.
Prior to the Company's initial public offering, the Company's subsidiaries
funded their operations in part through loans from the Company's executive
officers. The following table sets forth certain information with respect to
loans provided by the Principal Executive Officers. All such loans, together
with accrued interest, were repaid upon the completion of the initial public
offering.
<TABLE>
<CAPTION>
ORIGINAL OUTSTANDING
NAME OF EXECUTIVE PRINCIPAL INTEREST RATE
OFFICER PROVIDING LOAN DATE OF LOAN AMOUNT PER ANNUM
- ---------------------- -------------- ----------- ----------------
<S> <C> <C> <C>
Sanford Miller ........ January 1992 $ 40,000 10%
September 1992 $310,000 15%
December 1992 $ 56,000 10%
January 1993 $130,000 12%
June 1994 $516,257 12%
Jeff Congdon .......... December 1989 $200,000 prime plus 1.75%
September 1992 $310,000 15%
January 1993 $130,000 12%
June 1994 $516,257 12%
John Kennedy .......... September 1992 $310,000 15%
January 1993 $130,000 12%
June 1994 $250,000 12%
</TABLE>
In addition, in order to finance the organizational expenses incurred by
the Company prior to the initial public offering, Messrs. Miller, Congdon and
Kennedy advanced the following amounts: Mr. Miller--$41,289 at prime plus
1.5%; $3,300, non-interest bearing; Mr. Congdon--$14,266 at prime plus
45
<PAGE>
1.5%; $1,800, non-interest bearing; and Mr. Kennedy--$14,266 at prime plus
1.5%; $1,800, non-interest bearing. All of these advances, together with
accrued interest, were repaid upon completion of the initial public offering.
In connection with the Los Angeles Acquisition, the Company entered into a
Franchise Agreement with SoCal, under which the Company agreed to pay to the
seller, SoCal, a royalty of 5% of the monthly gross rental revenues derived
from those operations, subject to a minimum amount. In addition, the Company
issued a note to SoCal in the principal amount of approximately $4,750,000
(the "SoCal Note"), assumed the obligations of SoCal under a note in the
principal amount of approximately $4,700,000 which was secured by the
personal guaranty of Jeffrey R. Mirkin (the "SoCal Bank Note") and assumed
certain other indebtedness that was personally guaranteed by Mr. Mirkin. Mr.
Mirkin is the Chief Executive Officer and a general partner of SoCal and upon
consummation of the Los Angeles Acquisition became a director of the Company.
The Company operates as a sub-franchisee of SoCal in the San Diego territory
and pays royalty fees to SoCal based on rental revenues for vehicles other
than trucks. In 1993, 1994 and 1995, the Company paid SoCal approximately
$1,100,000, $1,000,000 and $1,200,000 in royalty fees, respectively. Except
as described above, prior to the Los Angeles Acquisition, there was no
material relationship between the Company and SoCal. The SoCal Note together
with accrued interest of $103,906, and the SoCal Bank Note were repaid in
April 1996. There is approximately $700,000 of other indebtedness currently
payable by the Company to SoCal.
Sanford Miller is a member of the board of directors of Tomoka State Bank
in Ormond Beach, Florida. The Company maintains a checking account at that
bank with an average balance of $100,000.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table below sets forth, as of June 10, 1996 certain information with
respect to the beneficial ownership of Common Stock by (i) each person who is
known by the Company to be the beneficial owner of more than 5% of the Common
Stock of the Company, (ii) each of the executive officers and directors of
the Company and all directors and executive officers as a group and (iii)
each of the Selling Stockholders, in each case both before and after giving
effect to this Offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE NUMBER OF OWNED AFTER THE PERCENT OF TOTAL
OFFERING (1) SHARES TO BE OFFERING (1) VOTING POWER OF
---------------------- SOLD IN THE ----------------------- COMMON STOCK AFTER
NUMBER PERCENT OFFERING NUMBER PERCENT THE OFFERING
------ ------- -------------- ------ ------- --------------------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
Sanford Miller(2) .............. 926,500 12.4% -- 926,500 8.7% 32.3%
Jeffrey D. Congdon(3) .......... 533,350 7.2 -- 533,350 5.0 18.4
John P. Kennedy(4) ............. 523,500 7.0 -- 523,500 4.9 18.4
Ronald D. Agronin (5) .......... 7,000 * -- 7,000 * *
Dr. Stephen L. Weber(5) ........ 8,100 * -- 8,100 * *
James Calvano(5) ............... 5,000 * -- 5,000 * *
Jeffrey R. Mirkin(6) ........... 1,023,019 13.8 368,019 655,000 6.1 2.3
Alan D. Liker(7) ............... 82,984 1.1 31,981 51,003 * *
All directors and officers as a
group (8 persons)(8) .......... 3,063,450 41.0 400,000 2,663,450 25.0 71.6
OTHER SELLING STOCKHOLDERS
Katzin Investments L.C.(9) .... 272,727 3.7 272,727 -- -- --
Richard Sapia(10) .............. 204,875 2.8 100,000 104,875 * *
James Salatto .................. 117,733 1.6 6,266 111,467 1.0 *
OTHER FIVE PERCENT STOCKHOLDERS
Ronald Baron(11) ............... 454,000 6.1 -- 454,000 4.3 1.6
</TABLE>
- ------------
* Less than 1%.
(1) In determining the number and percent of shares beneficially owned by
each person, shares that may be acquired by such person pursuant to
options exercisable within 60 days of the date hereof are deemed
outstanding for purposes of determining the total number of
outstanding shares for such person and are not deemed outstanding for
such purpose for all other stockholders. To the best of the Company's
knowledge, except as otherwise indicated, beneficial ownership
includes sole voting and dispositive power with respect to all
shares.
(2) Of the 926,500 shares of Common Stock owned, 905,800 are shares of
Class B Common Stock and 20,700 are shares of Class A Common Stock,
4,000 of which shares are owned by Mr. Miller's children. Mr.
Miller's address is 125 Basin Street, Daytona Beach, Florida 32114.
(3) Of the 533,350 shares of Common Stock, 515,400 are shares of Class B
Common Stock and 17,950 are shares of Class A Common Stock. Mr.
Congdon's address is 7050 West Washington Street, Indianapolis,
Indiana 46241.
(4) Of the 523,500 shares of Common Stock, 515,400 are shares of Class B
Common Stock and 8,100 are shares of Class A Common Stock. Mr.
Kennedy's address is 45 Riverside Avenue, Westport, Connecticut
06880.
(5) Includes 5,000 shares of Class A Common Stock issuable upon exercise
of options granted under the 1994 Directors' Plan.
(6) Consists of 1,018,019 shares of Class A Common Stock beneficially
owned by SoCal, a general partnership, of which Mr. Mirkin is a
general partner and the trustee of certain trusts which are general
partners of SoCal, and 5,000 shares of Class A Common Stock issuable
upon exercise of options granted under the 1994 Directors' Plan. Mr.
Mirkin's address is 150 South Doheny Drive, Beverly Hills, California
90211.
(7) Shares beneficially owned prior to the Offering include 46,003 shares
of Class A Common Stock that may be acquired by Mr. Liker from SoCal
pursuant to an option granted by SoCal to Mr. Liker in October 1995,
and 5,000 shares of Class A Common Stock issuable upon exercise of
options granted under the 1994 Directors' Plan.
(8) Includes 25,000 shares issuable upon the exercise of options granted
under the 1994 Directors' Plan.
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<PAGE>
(9) Katzin Investments L.C. is controlled by the former stockholders of
Arizona Rent A Car Systems, Inc. ("ARAC"). The Company acquired the
Phoenix Budget franchise through the acquisition of ARAC in February
1996.
(10) Mr. Sapia is a former employee of the Company and was a stockholder
of certain companies from which the Company acquired Budget rental
franchises.
(11) Includes 240,000 shares owned by BAMCO, Inc., a registered investment
advisor controlled by Mr. Baron, in its capacity as an advisor to
clients, which may include registered investment companies; 114,000
shares owned by Baron Capital Management, Inc., a registered
investment company controlled by Mr. Baron; and 100,000 shares owned
by Baron Capital Partners, L.P., an investment partnership of which
Mr. Baron is a general partner. Mr. Baron shares voting and
dispositive power as to 354,000 shares, as to which he disclaims
beneficial ownership. This information is included in reliance upon a
Schedule 13D filed by Mr. Baron with the Securities and Exchange
Commission on or about April 24, 1996. Mr. Baron's address is c/o
BAMCO, Inc., 450 Park Avenue, New York, New York 10022.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 17,500,000 shares
of the Class A Common Stock, 2,500,000 shares of the Class B Common Stock and
250,000 shares of the preferred stock, $.01 par value per share (the
"Preferred Stock"). Immediately prior to the date of this Prospectus, there
were 5,493,176 shares of the Class A Common Stock, 1,936,600 shares of the
Class B Common Stock and no shares of the Preferred Stock outstanding. All of
the outstanding shares of Class B Common Stock are held by the Principal
Executive Officers.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Voting Rights. Each share of the Class A Common Stock is entitled to one
vote and each share of the Class B Common Stock is entitled to ten votes on
all matters submitted to a vote of the stockholders. The Class A Common Stock
and the Class B Common Stock vote together as a single class on all matters
presented for a vote of the stockholders, except as noted below. Immediately
following the Offering, the holders of the Class B Common Stock will have
approximately 69.5% of the combined voting power of the outstanding Class A
and Class B Common Stock and therefore will retain effective control of the
Company, continue to direct the business, management and policies of the
Company and continue to have the ability to elect all of the members of the
Board of Directors.
The Company's Amended and Restated Certificate of Incorporation requires a
vote of 60% of the number of shares of the Class B Common Stock outstanding,
voting separately as a class, and a majority of the shares of the Class A
Common Stock, voting separately as a class, to approve any modification to
the rights and privileges of the Class A Common Stock or the Class B Common
Stock or any reclassification or recapitalization of the Company's
outstanding capital stock.
Dividends. Each share of the Class A Common Stock is entitled to receive
dividends if, as and when declared by the Board of Directors of the Company
out of funds legally available therefore. Identical dividends, if any, must
be paid on both the Class A Common Stock and the Class B Common Stock at any
time that dividends are paid on either, except that stock dividends payable
on shares of the Class B Common Stock are payable only in shares of the Class
B Common Stock and stock dividends payable on shares of the Class A Common
Stock are payable only in shares of the Class A Common Stock. If a dividend
or distribution payable in the Class A Common Stock is made on the Class A
Common Stock, the Company must also make a pro rata and simultaneous dividend
or distribution of shares of Class B Common Stock on the Class B Common
Stock. If a dividend or distribution payable in Class B Common Stock is made
on the Class B Common Stock, the Company must also make a pro rata and
simultaneous dividend or distribution of shares of Class A Common Stock on
the Class A Common Stock.
Convertibility. Each share of the Class B Common Stock is convertible at
any time at the option of the holder into the Class A Common Stock on a
share-for-share basis. Shares of the Class B Common Stock will be
automatically converted into shares of the Class A Common Stock on a
share-for-share basis in the event that the record or beneficial ownership of
such shares of the Class B Common Stock shall be transferred (including,
without limitation, by way of gift, settlement, will or intestacy) to any
person or entity that was not a holder of Class B Common Stock at the time of
transfer. Therefore, the shares of Class B Common Stock will only exist so
long as they are held by one or more of the Principal Executive Officers.
Shares of the Class A Common Stock are not convertible.
Liquidation Rights. In the event of the dissolution of the Company, after
satisfaction of amounts payable to creditors and distribution to the holders
of outstanding Preferred Stock, if any, of amounts to which they may be
preferentially entitled, holders of the Class A Common Stock and the Class B
Common Stock are entitled to share ratably in the assets available for
distribution to the stockholders.
Other Provisions. There are no preemptive rights to subscribe to any
additional securities which the Company may issue and there are no redemption
provisions or sinking fund provisions applicable to the Class A Common Stock
or the Class B Common Stock, nor is either class subject to calls or
assessments by the Company. All outstanding shares of Common Stock are, and
all shares to be outstanding upon completion of this Offering will be,
legally issued, fully paid and nonassessable.
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<PAGE>
PREFERRED STOCK
The Board of Directors of the Company has the authority, without further
action by the stockholders, to cause the Company to issue up to 250,000
shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any
unissued shares of Preferred Stock and to fix the number of shares
constituting any series and the designations of such series. The issuance of
Preferred Stock, while providing flexibility in connection with possible
financings, acquisitions and other corporate transactions, could, among other
things, adversely affect the voting power of the holders of Common Stock and,
under certain circumstances, make it more difficult for a third party to gain
control of the Company, deny stockholders the receipt of a premium on their
Common Stock and have a depressive effect on market price of the Common
Stock. The Company has no present plan to issue any shares of Preferred
Stock.
WARRANTS
In connection with the Company's initial public offering and acquisition
of the Budget operations in Philadelphia, Pittsburgh and Cincinnati, the
Company issued to BRAC a warrant (the "BRAC Warrant") to purchase 175,000
shares of the Class A Common Stock at the price of the shares in the initial
public offering ($9.50 per share). The BRAC Warrant is exercisable commencing
August 1996 and expires in August 1999. After August 24, 1998 and prior to
August 24, 1999, the holder of the BRAC Warrant will have the right to cause
the Company to repurchase the BRAC Warrant for $2.0 million. In connection
with financing provided to the Company in April 1996, the Company issued to
NationsBank, National Association (South) a warrant (the "NationsBank
Warrant") to purchase 187,500 shares of Class A Common Stock at the then
current market price ($10.87 per share). The NationsBank Warrant is
exercisable from the date of its issuance and expires April 2001.
BYLAW PROVISIONS
The Company's Bylaws provide that special meetings of the stockholders may
be called only by the Board of Directors, the Chairman of the Board, the
Chief Executive Officer, the President or Secretary of the Company, or by one
or more stockholders holding shares entitled to cast not less than a majority
of the aggregate votes entitled to be cast at such meeting. The Bylaws also
provide that any action which may be taken at any meeting of stockholders may
be taken without a meeting and without prior notice if written consents
approving the action are signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to take
such action at a meeting of stockholders. Accordingly, the holders of the
Class A Common Stock will have insufficient voting power, in the aggregate,
to call special meetings of stockholders and the holders of the Class B
Common Stock may take certain actions by written consent without formally
convening a meeting of stockholders. These provisions will also make it more
difficult for a third party to gain control of the Company.
REGISTRATION RIGHTS
Concurrently with completion of the initial public offering, the Company
and the Exchange Stockholders entered into the registration rights agreement
(the "Registration Rights Agreement") granting such holders registration
rights with respect to the shares of Common Stock received by them as a
result of the Share Exchange. The Registration Rights Agreement provided that
the holders of at least 33% of the outstanding shares received in the Share
Exchange may require the Company to register such shares under the Securities
Act of 1933, as amended (the "Securities Act") on two occasions; provided
that the aggregate offering price of the shares so registered is not less
than $1 million on each occasion. The Registration Rights Agreement also
provided that at any time Class A Common Stock is to be registered by the
Company under the Securities Act, the Company must notify the Exchange
Shareholders to allow their participation in the registration, subject to
certain conditions. The Company has agreed to refrain from selling its
securities during the ten-day period prior to, and the 180-day period
following, the consummation of each underwritten offering made pursuant to
the Registration Rights Agreement. The Company has also agreed to pay the
costs and expenses of each registration effected under the Registration
Rights Agreement, other than underwriting discounts and commissions. The
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<PAGE>
Registration Rights Agreement was amended in November 1, 1994 to include the
signatories to the Ft. Wayne Stock Purchase Agreement. The shares issuable
upon the exercise of the BRAC Warrant are also entitled to two demands and
unlimited "piggyback" registration rights with respect to the shares issuable
upon its exercise, while the shares issuable upon the NationsBank Warrant are
entitled to one demand and unlimited "piggyback" registration rights. The
Company will bear the expenses of registering such shares, other than
underwriting discounts and commissions. In connection with the Los Angeles
Acquisition, the Company and SoCal entered into a registration rights
agreement granting SoCal and its affiliated entities an unlimited number of
"piggyback" registrations subject to certain conditions. The Company will
bear the expenses of registering such shares, other than underwriting
discounts and commissions. In connection with the Phoenix Acquisition, the
Company granted to Katzin Investments L.C. three demand and an unlimited
number of "piggyback" registration rights for a period of two years for the
shares of Class A Common Stock issued in the Phoenix Acquisition. Katzin
Investments, L.C. is selling all of its shares of Class A Common Stock in the
Offering pursuant to its Registration Rights. See "Principal and Selling
Stockholders." In connection with the Offering, the Company has agreed to pay
the Selling Stockholders' costs and expenses, other than underwriting
discounts and commissions.
INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company's
Restated Certificate of Incorporation provides that directors of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
international misconduct or a knowing violation of law, (iii) under Section
174 of the Delaware General Corporation Law, relating to prohibited
dividends, distributions and repurchases or redemptions of stock, or (iv) for
any transaction from which the director derives an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify its directors,
officers, employees and other agents, to the fullest extent provided by
Delaware law. The Company has also entered into indemnification agreements
with certain of its executive officers and directors. The indemnification
agreements require the Company, among other things, to indemnify such
directors and officers against certain liabilities that may arise by reason
of their status or service as directors or officers (other than liabilities
arising from willful misconduct of a culpable nature), and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. The Company maintains directors' and officers'
insurance against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Company pursuant to the arrangements described above, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
At present, there is no pending material litigation or proceeding
involving any director, officer, employee or agent of the Company where
indemnification will be required or permitted.
SECTION 203
The Company is subject to Section 203 of the Delaware General Corporation
Law, which prohibits a publicly held Delaware corporation from consummating a
"business combination," except under certain circumstances, with an
"interested stockholder" for a period of three years after the date such
person became an "interested stockholder" unless the business combination is
approved in a prescribed manner. An "interested stockholder" generally is
defined as a person who, together with affiliates and associates, owns (or,
within the prior three years, owned) 15% or more of a corporation's
outstanding voting stock. A "business combination" includes mergers, asset
sales and certain other transactions resulting in a financial benefit to an
interested stockholder.
TRANSFER AGENT
The transfer agent and registrar for the Class A Common Stock is
ChaseMellon Shareholder Services.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
8,714,183 shares of the Class A Common Stock and 1,936,600 shares of the
Class B Common Stock (assuming the Underwriters' over-allotment option is not
exercised). The Class B Common Stock is convertible on a share-for-share
basis into Class A Common Stock and must be converted to effect any public
sale of such stock. Of these shares, 7,454,400 shares, including the
4,000,000 shares of Class A Common Stock sold in the Offering, will be freely
tradeable without restriction under the Securities Act, except for any shares
purchased by an "affiliate" of the Company (as that term is defined in the
Securities Act), which will be subject to the resale limitations of Rule 144
under the Securities Act.
The remaining 1,259,283 shares of the Class A Common Stock and all shares
of the Class B Common Stock are "restricted" securities within the meaning of
Rule 144 and may not be resold in a public distribution, except in compliance
with the registration requirements of the Securities Act or pursuant to Rule
144. Of these shares, 563,400 of such shares of Class A Common Stock and all of
the Class B Common Stock will become eligible for sale under Rule 144 in
August 1996. The Company's executive officers and directors, who in the
aggregate will hold beneficially 705,850 shares of Class A Common Stock and all
of the Class B Common Stock after the Offering, have agreed that they will not
sell, contract or offer to sell or otherwise dispose of, directly or indirectly,
any shares of capital stock of the Company for a period of 90 days from the
date of this Prospectus without the prior written consent of CS First Boston
on behalf of the Underwriters. After such date, certain of these stockholders
have the right to demand that the Company register their shares under the
Securities Act in accordance with agreements between such holders and the
Company and may be able to dispose of their shares in a registered public
offering effected thereunder. In addition, certain stockholders and holders
of the stock purchase warrants possess certain demand and/or "piggyback"
registration rights. See "Description of Capital Stock--Registration Rights"
and "Management--Benefit Plans."
The Company has reserved 760,000 shares of Class A Common Stock for
issuance under the 1994 Option Plan and 25,000 shares of Class A Common Stock
for issuance under the 1994 Directors' Plan. 442,600 stock options are
currently issued or outstanding under the 1994 Option Plan and 25,000 stock
options are issued and outstanding under the 1994 Directors' Plan. The
Company filed a Form S-8 registration statement under the Securities Act to
register 260,000 shares of the Class A Common Stock issuable under the 1994
Option Plan and all 25,000 shares of Class A Common Stock issuable under the
1994 Directors' Plan. The registration statement became effective immediately
upon filing. Shares issued upon the exercise of stock options after the
effective date of the Form S-8 registration statement will be eligible for
resale in the public market without restriction, subject to Rule 144
limitations applicable to affiliates and the lock-up agreements applicable to
certain shares subject to options as described in the preceding paragraph.
The Company expects to file a Form S-8 Registration Statement with respect to
the remaining 500,000 shares of Class A Common Stock issuable under the 1994
Option Plan. The Company has reserved 362,500 shares of the Class A Common
Stock for issuance upon the exercise of stock purchase warrants.
52
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1996 (the "Underwriting Agreement") among TEAM,
the Selling Stockholders and the underwriters named below (the "Underwriters"),
the Underwriters have severally but not jointly agreed to purchase from the
Company and the Selling Stockholders the following respective numbers of
shares of Class A Common Stock, as set forth opposite their names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------ -----------
<S> <C>
CS First Boston Corporation .........
The Chicago Corporation .............
McDonald & Company Securities, Inc.
-----------
Total ............................. 4,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the shares of Class A
Common Stock offered hereby (other than those shares covered by the
over-allotment option described below) if any are purchased. The Underwriting
Agreement provides that, in the event of a default by an underwriter, in
certain circumstances the purchase commitments of non-defaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option exercisable by CS
First Boston Corporation on behalf of the Underwriters, expiring at the close
of business on the 30th day after the date of this Prospectus, to purchase up
to 600,000 additional shares of the Class A Common Stock at the public
offering price less underwriting discounts and commissions, all as set forth
on the cover page of this Prospectus. The Underwriters may exercise such
option only to cover over-allotments, if any, in the sale of the shares of
Class A Common Stock. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Class A Common
Stock as it was obligated to purchase pursuant to the Underwriting Agreement.
The Company and the Selling Stockholders have been advised by the
Underwriters that the Underwriters propose to offer the shares of the Class A
Common Stock to the public initially at the public offering price set forth
on the cover page of this Prospectus and, through the Underwriters, to
certain dealers at such price less a concession of $ per share, and the
Underwriters and such dealers may allow a discount of $ per share on
sales to certain other dealers. After the public offering, the public
offering price and concession and discount to dealers may be changed by the
Underwriters.
In connection with this offering, the Underwriters and their respective
affiliates may engage in passive market making transactions in the Class A
Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A
under the Securities Exchange Act of 1934 (the "Exchange Act"), during a
period before commencement of offers or sales of the shares offered hereby.
The passive market making transactions must comply with applicable volume and
price limits and be identified as such.
The Company, its officers and directors and the Selling Stockholders have
agreed that they will not offer, sell, contract to sell, announce their
intention to sell, pledge or otherwise dispose of, directly or indirectly,
or, in the case of the Company, file with the Securities and Exchange
Commission (the "Commission") a registration statement under the Securities
Act relating to any additional shares of the Company's Common Stock or
securities convertible into or exchangeable or exercisable for any shares of
the Company's Common Stock without the prior written consent of CS First
Boston Corporation, in the case of the Company's officers and directors and
the Selling Stockholders, for a period of 90 days and, in the case of the
Company, for a period of 180 days, after the date of this Prospectus, except
issuances pursuant to the exercise of stock options granted under the 1994
Option Plan.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or to contribute to payments which the Underwriters may
be required to make in respect thereof.
53
<PAGE>
CS First Boston Corporation acted as placement agent in connection with
the First Fleet Financing Facility and Second Fleet Financing Facility and is
expected to serve as the placement agent for the Third Fleet Financing
Facility. The Chicago Corporation and McDonald & Company Securities, Inc.
currently provide financial advisory services to the Company.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A Common Stock in Canada is being made only
on a private placement basis exempt from the requirement that the Company
prepare and file a prospectus with the securities regulatory authorities in
each province where trades of Class A Common Stock are effected. Accordingly,
any resale of the Class A Common Stock in Canada must be made in accordance
with applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Class
A Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Class A Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company, the Selling
Stockholder and the dealer from whom such purchase confirmation is received
that (i) such purchaser is entitled under applicable provincial securities
laws to purchase such Class A Common Stock without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets
of the issuer and such persons and the Selling Stockholders may be located
outside of Canada and, as a result, it may not be possible to satisfy a
judgment against the issuer or such persons and the Selling Stockholders in
Canada or to enforce a judgment obtained in Canadian courts against the
issuer or such persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale
of any Class A Common Stock acquired by such purchaser pursuant to this
Offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be
obtained from the Company. Only one such report must be filed in respect of
Class A Common Stock acquired on the same date and under the same prospectus
exemption.
54
<PAGE>
LEGAL MATTERS
The validity of the shares of the Class A Common Stock offered hereby will
be passed upon for the Company by King & Spalding, Atlanta, Georgia. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Hunton & Williams, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of Team Rental Group, Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 included in this Prospectus and the related financial
statement schedules included elsewhere in the registration statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The following financial statements included in this Prospectus have been
audited by other independent auditors as stated in their reports appearing
herein and elsewhere in the Registration Statement and are included in
reliance upon the reports of such firms given upon their authority as experts
in accounting and auditing:
(1) The financial statements as of December 31, 1994 and for each of
the three years in the period ended December 31, 1994 of BRAC-OPCO,
Inc.--Coopers & Lybrand L.L.P.; and
(2) The consolidated financial statements as of February 29, 1996 and
for each of the three years in the period ended February 29, 1996 of
Arizona Rent-A-Car Systems, Inc.--Michael Silver & Company.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, or at its Regional Offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of
such materials can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Class A Common Stock offered
hereby. This Prospectus, which is a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement.
For further information with respect to the Company and the Class A Common
Stock, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements made herein concerning the
provisions of any documents are not necessarily complete, and in each
instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto may be inspected, without charge, at the public reference
section or regional offices of the Commission at the address indicated above.
Copies of the Registration Statement can be obtained from the public
reference section of the Commission upon payment of prescribed fees.
-------------------
55
<PAGE>
BUDGET RENT A CAR CORPORATION IS NOT SELLING, OFFERING FOR SALE OR
UNDERWRITING ALL OR ANY PART OF THE CLASS A COMMON STOCK. BUDGET RENT A CAR
CORPORATION DOES NOT ENDORSE OR MAKE ANY RECOMMENDATIONS WITH RESPECT TO THIS
OFFERING.
NEITHER THE OFFERING NOR THE CONTENTS OF THIS PROSPECTUS (AND
SPECIFICALLY, ANY FINANCIAL DATA CONTAINED HEREIN) HAVE BEEN PREPARED,
APPROVED OR ENDORSED BY BUDGET RENT A CAR CORPORATION, AND BUDGET RENT A CAR
CORPORATION ASSUMES NO OBLIGATION TO ANY INVESTOR IN CONNECTION WITH THIS
OFFERING OR THE ACCURACY OR ADEQUACY OF ANY PORTION OF THIS PROSPECTUS.
BUDGET RENT A CAR CORPORATION FURTHER DISCLAIMS ANY LIABILITY UNDER STATE
OR FEDERAL SECURITIES LAWS ARISING OUT OF OR IN CONNECTION WITH THIS
OFFERING, INCLUDING WITHOUT LIMITATION ANY LIABILITY AS A SELLER, AFFILIATE
OR CONTROLLING PERSON OF A SELLER OR AFFILIATE.
BUDGET RENT A CAR CORPORATION IS THE EXCLUSIVE OWNER OF THE BUDGET NAME
AND LOGO, A FEDERALLY REGISTERED TRADEMARK. NO INVESTOR SHOULD INTERPRET THE
USE AND DISPLAY OF SUCH NAME HEREIN AS APPROVAL, ENDORSEMENT, ACCEPTANCE OR
ADOPTION OF ANY REPRESENTATION OR STATEMENT CONTAINED HEREIN.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
TEAM RENTAL GROUP, INC.
Independent Auditors' Report ......................................................... F-2
Consolidated Balance Sheets--December 31, 1994 and 1995 and (unaudited) March 31,
1996 ................................................................................ F-3
Consolidated Statements of Operations for Each of the Three Years in the Period Ended
December 31, 1995 and the (unaudited) Three Months Ended March 31, 1995 and 1996 ... F-4
Consolidated Statements of Stockholders' Equity for Each of the Three Years in the
Period Ended December 31, 1995 and the (unaudited) Three Months Ended March 31, 1996 F-5
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended
December 31, 1995 and the (unaudited) Three Months Ended March 31, 1995 and 1996 ... F-6
Notes to Consolidated Financial Statements ........................................... F-7
BRAC-OPCO, INC.
Report of Independent Accountants .................................................... F-21
Balance Sheets--December 31, 1993 and 1994 ........................................... F-22
Statements of Income for Each of the Three Years in the Period Ended
December 31, 1994 ................................................................... F-24
Statements of Stockholder's Equity for Each of the Three Years in the Period Ended
December 31, 1994 ................................................................... F-25
Statements of Cash Flows for Each of the Three Years in the Period Ended
December 31, 1994 ................................................................... F-26
Notes to Financial Statements ........................................................ F-28
Consolidated Balance Sheet--September 30, 1995 (unaudited) ........................... F-37
Consolidated Statements of Operations for the Nine Months Ended September 30, 1994
and 1995 (unaudited) ................................................................ F-38
Consolidated Statement of Changes in Stockholders' Equity for the Nine Months Ended
September 30, 1995 (unaudited) ...................................................... F-39
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1994
and 1995 (unaudited) ................................................................ F-40
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
Independent Auditor's Report ......................................................... F-41
Consolidated Balance Sheets--February 28, 1994 and 1995, and February 29, 1996 ...... F-42
Consolidated Statements of Income (Loss) and Retained Earnings for Each of the Three
Years in the Period Ended February 29, 1996 ......................................... F-44
Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended
February 29, 1996 ................................................................... F-45
Notes to Consolidated Financial Statements ........................................... F-47
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Team Rental Group, Inc.:
We have audited the consolidated balance sheets of Team Rental Group, Inc.
as of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Team Rental Group, Inc. as
of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 12, 1996
F-2
<PAGE>
TEAM RENTAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ........................... $ 878 $ 357 $ 4,674
Restricted cash and cash equivalents ................ 32,691 67,731 24,197
Trade and vehicle receivables, net of allowance for
doubtful accounts of $501 and $2,297 ............... 5,501 20,928 29,317
Accounts receivable, related parties ................ 59 61 61
Vehicle inventory ................................... 943 8,938 13,832
Revenue earning vehicles, net ....................... 97,127 219,927 314,591
Other property and equipment, net ................... 5,243 12,503 18,888
Deferred financing fees, net of accumulated
amortization of $102 and $425 ...................... 1,512 2,266 2,092
Franchise rights, net of accumulated amortization of
$641 and $1,500 .................................... 13,953 46,670 60,554
Other assets ........................................ 5,084 6,942 10,471
---------- ---------- -----------
Total ............................................. $162,991 $386,323 $478,677
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable (including amounts to related parties
of $5,792 in 1995) ................................ $126,564 $318,233 $400,229
Capital lease obligations .......................... 623 784 739
Accounts payable ................................... 1,366 14,698 11,870
Accrued and other liabilities ...................... 4,529 9,315 18,684
Deferred income taxes .............................. 1,161 1,701 1,559
---------- ---------- -----------
Total liabilities ................................. 134,243 344,731 433,081
---------- ---------- -----------
COMMITMENTS (NOTE 12)
COMMON STOCK WARRANT ................................ 2,000 2,000 2,000
---------- ---------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 250,000 shares
authorized, no shares issued ......................
Class A common stock, $.01 par value, one vote per
share, 17,500,000 shares authorized, 4,036,300,
5,257,116 and 5,529,843 shares issued .............. 40 52 54
Class B common stock, $.01 par value, ten votes
per share, 2,500,000 shares authorized, 1,936,600
shares issued and outstanding ..................... 20 20 20
Additional paid-in capital ......................... 29,159 41,984 44,709
Accumulated deficit ................................ (2,471) (2,134) (857)
Treasury stock at cost (36,667 shares of Class A
common stock) ..................................... (330) (330)
---------- ---------- -----------
Total stockholders' equity ........................ 26,748 39,592 43,596
---------- ---------- -----------
Total ............................................. $162,991 $386,323 $478,677
========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TEAM RENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
--------- --------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUE:
Vehicle rental revenue ............ $22,321 $38,642 $107,067 $17,354 $44,697
Retail car sales revenue .......... 42,662 4,916 21,097
--------- --------- ---------- ---------- ---------
Total operating revenue .......... 22,321 38,642 149,729 22,270 65,794
--------- --------- ---------- ---------- ---------
OPERATING COSTS AND EXPENSES:
Direct vehicle and operating ...... 5,452 9,439 13,704 2,625 5,959
Depreciation--vehicles ............ 4,358 7,382 27,476 5,126 11,804
Depreciation--nonvehicle .......... 229 446 1,341 285 536
Cost of vehicle sales ............. 38,021 4,258 17,840
Advertising, promotion
and selling ..................... 1,658 3,090 11,826 2,036 4,600
Facilities ........................ 2,695 4,398 11,121 2,076 4,328
Personnel ......................... 4,537 7,947 24,515 4,494 10,689
General and administrative ........ 790 1,515 6,686 886 2,270
Amortization of franchise rights .. 152 229 859 112 514
--------- --------- ---------- ---------- ---------
Total operating costs and
expenses ....................... 19,871 34,446 135,549 21,898 58,540
--------- --------- ---------- ---------- ---------
Operating income .................... 2,450 4,196 14,180 372 7,254
--------- --------- ---------- ---------- ---------
OTHER (INCOME) EXPENSE:
Interest expense--vehicles ........ 2,462 3,909 13,874 2,616 5,621
Interest expense--other ........... 181 341 473 67 136
Interest income--restricted cash .. (670) (1,348) (400) (749)
Interest expense--related party ... 220 190 159 118
Nonrecurring income ............... (1,023)
--------- --------- ---------- ---------- ---------
Other expense--net ............... 1,840 3,770 13,158 2,283 5,126
--------- --------- ---------- ---------- ---------
Income (loss) before income taxes .. 610 426 1,022 (1,911) 2,128
Provision (credit) for income taxes 182 176 685 (765) 851
--------- --------- ---------- ---------- ---------
Net income (loss) ................... $ 428 $ 250 $ 337 $(1,146) $ 1,277
========= ========= ========== ========== =========
Weighted average common shares
outstanding ....................... 3,704 6,369 6,037 7,256
========= ========== ========== =========
Earnings (loss) per common share ... $ 0.07 $ 0.05 $ (0.19) $ 0.18
========= ========== ========== =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TEAM RENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL STOCKHOLDERS'
COMMON PAID-IN ACCUMULATED TREASURY EQUITY
STOCK CAPITAL DEFICIT STOCK (DEFICIENCY)
-------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1993 ..... $15 $ 514 $(1,873) $(1,344)
Net income ....................... 428 428
Distributions on redeemable
preferred stock ................. (275) (275)
Dividends to common stockholders (60) (60)
-------- ------------ ------------- ---------- ---------------
Balances at December 31, 1993 ... 15 239 (1,505) (1,251)
Net income ....................... 250 250
Distributions on redeemable
preferred stock ................. (183) (183)
Dividends to common stockholders (47) (47)
Net proceeds from initial public
offering ........................ 45 28,903 28,948
Deferred taxes due to a change in
tax status ...................... (1,169) (1,169)
Shares issued in business
combinations .................... 200 200
-------- ------------ ------------- ---------- ---------------
Balances at December 31, 1994 ... 60 29,159 (2,471) 26,748
Net income ....................... 337 337
Shares issued in business
combinations .................... 12 12,825 12,837
Class A common stock acquired for
treasury ........................ $(330) (330)
-------- ------------ ------------- ---------- ---------------
Balances at December 31, 1995 ... 72 41,984 (2,134) (330) 39,592
Net income (unaudited) ........... 1,277 1,277
Shares issued in business
combination (unaudited) ......... 2 2,725 2,727
-------- ------------ ------------- ---------- ---------------
Balances at March 31, 1996
(unaudited) ..................... $74 $44,709 $ (857) $(330) $43,596
======== ============ ============= ========== ===============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TEAM RENTAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ 428 $ 250 $ 337
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation .............................................. 4,587 7,828 28,817
Amortization .............................................. 152 534 1,761
Deferred income tax provision ............................. (8) 540
Provision for doubtful accounts ........................... (112) (282) 1,796
Discount on acquisition note .............................. 58
Changes in certain assets and liabilities, net of effects
of acquisitions:
Receivables ............................................... (297) (871) (11,189)
Other assets .............................................. (323) (1,788) 387
Car sales inventory ....................................... (7,995)
Accounts payable .......................................... 247 (2,259) 9,484
Accrued and other liabilities ............................. 305 256 (7,790)
---------- ----------- -----------
Net cash provided by operating activities ................ 5,045 3,660 16,148
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash ............................................ (32,691) (13,271)
Proceeds from sale of revenue earning vehicles ............ 48,516 73,728 293,905
Proceeds from sale of other property and equipment ........ 51
Purchases of revenue earning vehicles ...................... (52,767) (155,176) (315,863)
Purchases of other property and equipment .................. (229) (637) (4,562)
Purchase of franchise rights ............................... (1,839)
Payment for acquisitions, net of cash acquired ............ (5,727) (6,507)
---------- ----------- -----------
Net cash used in investing activities .................... (4,480) (122,291) (46,298)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net ................. 28,948
Net increase (decrease) in vehicle obligations ............ (33) (5,760) 20,947
Proceeds from notes payable:
Medium term notes ......................................... 105,682
Working capital facilities ................................ 6,890
Related party ............................................. 559 1,392
Other ..................................................... 2,610 3,399
Principal payments:
Related party ............................................. (33) (3,200) (276)
Capital leases ............................................ (66) (410) (666)
Other ..................................................... (747) (5,665) (259)
Deferred financing fees .................................... (1,614) (76)
Distributions on redeemable preferred stock ................ (275) (183)
Repayment of redeemable preferred stock .................... (2,747)
Dividends to common stockholders ........................... (60) (47)
Purchase of treasury stock ................................. (330)
---------- ----------- -----------
Net cash provided by (used in) financing activities .... (655) 119,006 29,629
---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ....... (90) 375 (521)
Cash and cash equivalents, beginning of period .............. 593 503 878
---------- ----------- -----------
Cash and cash equivalents, end of period .................... $ 503 $ 878 $ 357
========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ (1,146) $ 1,277
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation .............................................. 5,411 12,340
Amortization .............................................. 296 514
Deferred income tax provision ............................. (520) (142)
Provision for doubtful accounts ...........................
Discount on acquisition note ..............................
Changes in certain assets and liabilities, net of effects
of acquisitions:
Receivables ............................................... (2,790) (8,389)
Other assets .............................................. (3,650) (3,529)
Car sales inventory ....................................... (4,894)
Accounts payable .......................................... 3,679 (2,828)
Accrued and other liabilities ............................. 7,172 9,369
----------- -----------
Net cash provided by operating activities ................ 8,452 3,718
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash ............................................ 14,925 43,534
Proceeds from sale of revenue earning vehicles ............ 60,831 43,878
Proceeds from sale of other property and equipment ........
Purchases of revenue earning vehicles ...................... (109,091) (106,812)
Purchases of other property and equipment .................. (2,176) (6,921)
Purchase of franchise rights ............................... (11,497)
Payment for acquisitions, net of cash acquired ............ (7,103)
----------- -----------
Net cash used in investing activities .................... (42,614) (37,818)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net .................
Net increase (decrease) in vehicle obligations ............ 29,112 13,540
Proceeds from notes payable:
Medium term notes .........................................
Working capital facilities ................................ 6,950 24,922
Related party .............................................
Other .....................................................
Principal payments:
Related party .............................................
Capital leases ............................................ (177) (45)
Other ..................................................... (58)
Deferred financing fees ....................................
Distributions on redeemable preferred stock ................
Repayment of redeemable preferred stock ....................
Dividends to common stockholders ...........................
Purchase of treasury stock .................................
----------- -----------
Net cash provided by (used in) financing activities .... 35,827 38,417
----------- -----------
Net increase (decrease) in cash and cash equivalents ....... 1,665 4,317
Cash and cash equivalents, beginning of period .............. 878 357
----------- -----------
Cash and cash equivalents, end of period .................... $ 2,543 $ 4,674
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(INTERIM FINANCIAL INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED. THE UNAUDITED INTERIM
FINANCIAL STATEMENTS REFLECT ALL ADJUSTMENTS, CONSISTING OF NORMAL RECURRING
ADJUSTMENTS WHICH ARE, IN THE OPINION OF MANAGEMENT, NECESSARY TO A FAIR
STATEMENT OF THE RESULTS FOR THE INTERIM PERIODS. INFORMATION FOR THE INTERIM
PERIODS IS NOT NECESSARILY INDICATIVE OF RESULTS TO BE ACHIEVED FOR THE FULL
YEAR.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Team Rental Group, Inc. (the "Company") is
engaged in the business of the daily rental of vehicles, including cars,
trucks and passenger vans, and the retail sale of used vehicles. The Company
operates Budget Rent a Car ("Budget") franchises granted by Budget Rent a Car
Corporation ("BRAC") through its operating subsidiaries serving twelve
metropolitan regions in the U.S. including Philadelphia and Pittsburgh,
Pennsylvania; San Diego, California; Southern California (excluding San
Diego); Cincinnati and Dayton, Ohio; Albany and Rochester, New York;
Charlotte, North Carolina; Richmond, Virginia; Hartford, Connecticut and Fort
Wayne, Indiana. MCK Realty, Inc. ("MCK") is owned by the Company's principal
stockholders. Because MCK is controlled by the Company's principal
stockholders and the Company has guaranteed the lease payments assigned to a
bank, MCK is included in the consolidated financial statements.
BASIS OF PRESENTATION--The 1993 financial statements consist of companies
affiliated through common ownership and control and reflect the consolidated
accounts of each company. Concurrent with the initial public offering (Note
2), the Company exchanged 563,400 shares of Class A common stock and
1,936,450 shares of Class B common stock for all of the outstanding common
stock of the combined companies, which accordingly, became wholly owned
subsidiaries (the "Share Exchange"). The 1994 and 1995 consolidated financial
statements include the accounts of Team Rental Group, Inc. and its wholly
owned subsidiaries. All significant intercompany accounts have been
eliminated.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management of the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments including money market funds, commercial paper and time deposits
purchased with an original maturity of three months or less to be cash
equivalents.
RESTRICTED CASH AND CASH EQUIVALENTS--Restricted cash and cash equivalents
consists of Medium Term Notes (Note 2) proceeds not currently invested in
eligible revenue earning vehicles. Under the terms of the Medium Term Notes
Indentures, the Company is required to invest the proceeds in either
restricted cash investments as defined by the indenture or revenue earning
vehicles.
REVENUE EARNING VEHICLES--Revenue earning vehicles are stated at cost,
after deducting related discounts and manufacturers' incentives, and are
depreciated over their estimated economic lives or at rates corresponding to
manufacturers' repurchase program guidelines, where applicable. Depreciation
rates range from .5% to 3% per month. Management periodically reviews
depreciable lives and rates based on a variety of factors including general
economic conditions and estimated holding periods of the vehicles. Gains and
losses upon the sale of revenue earning vehicles are recorded as an
adjustment to depreciation expense.
ADVERTISING, PROMOTION AND SELLING--Advertising, promotion and selling
expense are charged to expense as incurred. The Company incurred advertising
expense of $275, $412 and $2,347 in 1993, 1994 and 1995, respectively.
F-7
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RETAIL CAR SALES INVENTORY--Retail car sales inventory is stated at the
lower of cost (first-in, first-out method) or market.
OTHER PROPERTY AND EQUIPMENT--Other property and equipment is recorded at
cost. Depreciation is being provided on the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings .....................................10 - 23 years
Equipment, furniture and fixtures ............. 3 - 10 years
Capital leases and leasehold improvements .... Lesser of estimated useful lives
or terms of related leases
</TABLE>
DEFERRED FINANCING FEES--Direct costs incurred in connection with the
Company's borrowings have been deferred and are being amortized over the
terms of the related loan agreements on the straight-line basis.
PREPAID ROYALTY FEES--Prepaid royalty fees of $1,797 and $1,217 (net of
accumulated amortization of $203 and $783) at December 31, 1994 and 1995,
respectively, are related to the abatement of fees at the Company's
Philadelphia operations through June 15, 1999 and are recorded in other
assets. The prepaid fees are being amortized using an accelerated method over
the royalty abatement period of five years.
FRANCHISE RIGHTS--Franchise agreements are renewable for an unlimited
number of one- and five-year periods, subject to certain terms and
conditions. Franchise rights are amortized using the straight-line method
over forty years. The Company believes that the vehicle rental industry and,
therefore, vehicle rental franchises have an expected life in excess of forty
years and the industry will continue as long as the automobile is an accepted
method of transportation. The specific markets the Company serves are
considered to be stable and are locations which are major national or
regional commercial centers that attract business and leisure travelers who
need rental vehicles. Circumstances that would indicate possible impairment
to franchise rights include the failure of Budget Rent a Car to maintain its
international network of rental car franchisers, the termination of the
Company's presence in one or more major airport markets, or a significant
permanent decline in cash flows from rental operations. The impairment would
be measured as the amount by which the carrying value of the related asset
exceeds the present value of estimated annual discounted cash flows generated
by the franchise operations utilizing an appropriate discount rate. Effective
January 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, which requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of these assets may not be recoverable. There was no
material effect on the Company's consolidated financial statements upon
adoption of SFAS No. 121 in 1995.
INCOME TAXES--Deferred tax assets and liabilities are computed based on
differences between the financial statement and income tax bases of assets
and liabilities using enacted tax rates. Deferred income tax expense or
benefit is based on the change in deferred tax assets and liabilities from
period to period, subject to an ongoing assessment of realization.
EARNINGS PER COMMON SHARE--Earnings per common share for the year ended
December 31, 1994 was computed assuming all of the outstanding common stock
of the combined companies (which totaled 2,500,000 shares) was outstanding
the entire year and the shares issued in connection with the initial public
offering and the Fort Wayne acquisition were outstanding from the dates
issued. Earnings per common share for the year ended December 31, 1995 was
based on the weighted average number of common shares outstanding during the
year considering the 1995 and 1996 acquisitions and the purchase of treasury
stock. The assumed issuance of the shares for the common stock warrant to
BRAC and the exercise of stock options does not have a materially dilutive
effect.
F-8
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RETENTION OF SELF INSURED RISKS--At December 31, 1995, the Company has
automobile liability insurance coverage of up to $1,000, with a $500
retention per occurrence with respect to personal injury and damage claims
arising from the use of its vehicles. The Company provides reserves on
reported claims and claims incurred but not reported at each balance sheet
date based on actuarial estimates. The actuarially determined reserves are
necessarily based on estimates, and while management believes that the
amounts are adequate, the ultimate liability may be in excess of, or less
than, the amounts provided. Such estimates are reviewed and evaluated in
light of emerging claim experience and existing circumstances. Any changes in
estimates from this review process are reflected in operations currently.
STOCK OPTIONS--In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, Accounting for Stock-Based Compensation, which
encourages, but does not require, companies to adopt the fair value based
method of accounting for stock-based employee compensation plans. Under the
fair value method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the service period, which
is usually the vesting period. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion No.
25, but would be required to disclose on a pro forma basis, net income and,
if presented, earnings per share, as if the fair value based method of
accounting had been applied.
The accounting requirements of the new method are effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
has not yet determined if it will elect to change to the fair value based
method, nor has it determined the effect the new standard will have on net
income and earning per share should it elect to make such a change. Adoption
of the new standard will not have an effect on the Company's cash flows.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1993
and 1994 consolidated statements to conform with the 1995 presentation.
2. INITIAL PUBLIC OFFERING AND MEDIUM TERM NOTES
The Company sold 3,300,000 shares of Class A common stock on August 25,
1994 and 154,400 shares of Class A common stock on September 19, 1994 at
$9.50 per share to investors in an initial public offering resulting in gross
proceeds of $32,800 to the Company. Net proceeds to the Company after
offering expenses were $28,948. The net proceeds were used to acquire certain
assets (certain liabilities were also assumed) of Freedom River, Inc.
("Freedom River"), capitalize Team Fleet Finance Corporation ("TFFC") a
wholly owned subsidiary, acquire vehicles under operating leases, redeem the
outstanding redeemable preferred stock, acquire the Budget Rent a Truck
franchise rights for San Diego, California, repay loans and accrued interest
to related and non-related third parties, and purchase equipment leased from
related parties.
Concurrent with the initial public offering, TFFC issued senior and
subordinated asset-backed notes ("Medium Term Notes") of $100,000 and $5,682,
respectively, in a private placement pursuant to an Indenture between TFFC
and Bankers Trust Company, as Trustee. The proceeds of the Medium Term Notes
are available to finance the purchase of rental fleet vehicles subject to
manufacturers' repurchase programs sponsored by Chrysler, General Motors and
Ford.
F-9
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
3. ACQUISITIONS
During 1994, 1995 and the three months ended March 31, 1996, the Company
acquired certain Budget franchise operations. The acquisitions have been
accounted for under the purchase method of accounting and, accordingly, the
Company has allocated the cost of the acquisitions on the basis of the
estimated fair value of the assets acquired and liabilities assumed. The 1995
and 1996 allocations are based on preliminary estimates and may be revised at
a later date. The accompanying consolidated statements of operations and cash
flows reflect the operations of the acquired companies from their respective
acquisition dates through the years ended December 31, 1994 and 1995, and the
three months ended March 31, 1995 and 1996.
1994 ACQUISITIONS
FREEDOM RIVER--Concurrent with the initial public offering, the Company
acquired certain assets and assumed certain operating liabilities of Freedom
River from Chrysler Credit Corporation ("CCC"), a secured creditor of Freedom
River, pursuant to a private foreclosure sale conducted by CCC. The assets
acquired consisted of the Budget vehicle rental operations in the
Philadelphia and Pittsburgh, Pennsylvania and Cincinnati, Ohio metropolitan
areas. Substantially all of Freedom River's assets, other than its fleet,
were purchased for approximately $10,600.
FORT WAYNE FRANCHISE--In November 1994, the Company exchanged 18,500
shares of Class A common stock with a value of $200 for all of the
outstanding common stock of Fort Wayne Rental Group, Inc. located in Fort
Wayne, Indiana. A principal stockholder and director of the Company, who was
a stockholder of Fort Wayne Rental Group, Inc., received 7,400 shares of
Class A common stock with a value of $80 in this transaction.
1995 ACQUISITIONS
DAYTON FRANCHISE--In January 1995, the Company purchased all of the
outstanding stock of Don Kremer, Inc., located in Dayton, Ohio, for $1,300.
The acquisition funding consisted of $650 cash and two notes totaling $650.
CHARLOTTE FRANCHISE--In January 1995, the Company purchased all of the
outstanding stock of MacKay Car & Truck Rentals, Inc., located in Charlotte,
North Carolina, for approximately $8,405 consisting of cash of $8,277 and
13,483 shares of Class A common stock.
HARTFORD FRANCHISE--In March 1995, the Company purchased all of the
outstanding stock of Rental Car Resources, Inc., located in Hartford,
Connecticut, for approximately $1,475 by issuing 157,333 shares of Class A
common stock.
OPCO FRANCHISE--In October 1995, the Company purchased all of the
outstanding stock of BRAC-OPCO, Inc., which operates Budget franchises in the
greater Los Angeles area, excluding the vehicle rental operations at Los
Angeles International Airport of Southern California and certain other
territories as set forth in the franchise agreement, for approximately
$11,234 by issuing 1,050,000 shares of Class A common stock.
The Company's results of operations as shown in the following table are
presented as if the acquisitions had occurred at the beginning of 1994. The
unaudited pro forma results are not necessarily indicative of the actual
results of operations that would have occurred had the acquisitions actually
been made at the beginning of 1994.
F-10
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
3. ACQUISITIONS (Continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Operating revenue ............................... $155,343 $199,743
Income (loss) before provision for income taxes 3,634 (271)
Net income (loss) ............................... 1,781 (516)
Earnings (loss) per common share ................ 0.25 (0.07)
</TABLE>
Subsequent to December 31, 1995, the Company made two acquisitions as
listed below. The acquisitions will be accounted for under the purchase
method of accounting and, accordingly, the Company will allocate the cost of
the acquisitions on the basis of the estimated fair value of assets acquired
and liabilities assumed. Franchise rights acquired will be amortized over
forty years. The Company's consolidated statement of operations will not
include the revenues and expenses of the acquired businesses until 1996.
1996 ACQUISITIONS
VAN POOL OPERATIONS--In February 1996, the Company purchased for a nominal
amount all of the outstanding stock of VPSI, Inc. ("VPSI") located in
Detroit, Michigan. The Company borrowed $36,700 under a new financing
facility to finance the van fleet. VPSI provides commuter van pooling
services to business commuters in 22 states.
PHOENIX FRANCHISE--In February 1996, the Company purchased all of the
outstanding stock of Arizona Rent-A-Car Systems, Inc. located in Phoenix,
Arizona for approximately $18,000 consisting of cash of approximately $5,000,
a promissory note of $10,000 and 272,727 shares of Class A common stock.
The Company's results of operations as shown in the following table are as
if the 1995 and 1996 acquisitions had occurred at the beginning of 1995.
These unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions
actually been made at the beginning of 1995.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Operating revenue ............................... $63,019 $76,831
Income (loss) before provision for income taxes 764 (921)
Net income (loss) ............................... 458 (553)
Earnings (loss) per common share ................ 0.06 (0.07)
</TABLE>
4. REVENUE EARNING VEHICLES
Revenue earning vehicles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Revenue earning vehicles ....................... $102,014 $245,849
Less accumulated depreciation and amortization (4,887) (25,922)
---------- ----------
$ 97,127 $219,927
========== ==========
</TABLE>
Depreciation expense was adjusted for losses of $111, $24 and $90 upon the
sale of revenue earning vehicles during the years ended December 31, 1993,
1994 and 1995, respectively.
F-11
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
5. OTHER PROPERTY AND EQUIPMENT
Other property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Buildings ...................................... $ 4,632 $10,160
Leasehold improvements ......................... 1,055 3,994
Furniture, fixtures and office equipment ...... 2,913 7,069
--------- ---------
8,600 21,223
Less accumulated depreciation and amortization (3,357) (8,720)
--------- ---------
$ 5,243 $12,503
========= =========
</TABLE>
Included in other property and equipment at December 31, 1994 and 1995 are
$256 and $827, respectively, of assets held under capital leases.
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Medium Term Notes:
Senior .................... $100,000 $138,500
Subordinated .............. 5,682 7,182
Vehicle obligations ........ 18,097 149,965
Working capital facilities 2,610 9,500
Related party obligations . 5,792
Other notes payable ........ 175 7,294
---------- ----------
$126,564 $318,233
========== ==========
</TABLE>
MEDIUM TERM NOTES--Medium term notes are comprised of Notes issued by TFFC
in August 1994 ("TFFC notes") and notes assumed in the acquisition of
BRAC-OPCO, Inc. in October 1995 ("OPCO notes").
The TFFC notes are comprised of senior notes requiring monthly interest
payments at average LIBOR, as defined, plus 0.75% (6.75% at December 31,
1995). Monthly principal payments of $16,667 commence in June 1999 with the
last payment due in November 1999. The subordinated notes require monthly
interest payments at average LIBOR, as defined, plus 1.30% per annum (7.3% at
December 31, 1995) and are payable in full in December 1999.
The OPCO notes are comprised of senior notes requiring monthly interest
payments at average LIBOR, as defined, plus 0.60% (6.60% at December 31,
1995). Monthly principal payments of $4,812 commence in November 1997 with
the last payment due in June 1998. The subordinated notes require monthly
interest payments at average LIBOR, as defined, plus 1.0% per annum (7.0% at
December 31, 1995) and are payable in full in December 1998.
The Company has two consolidated subsidiaries that have net assets
totaling $10.3 million which are restricted from transfer or distribution to
the parent company. These net assets are restricted in accordance with terms
of the Medium Term Notes.
F-12
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
6. NOTES PAYABLE (Continued)
VEHICLE OBLIGATIONS--Vehicle obligations consist of outstanding lines of
credit to purchase rental fleet and used vehicle inventory. Available
collateralized lines of credit at December 31, 1995 consist of $150,000 for
rental vehicles and $25,700 for used vehicle inventory with maturity dates
ranging from February 1996 to April 1997. Vehicle obligations are
collateralized by revenue earning vehicles financed under these credit
facilities and proceeds from the sale, lease or rental of vehicles and used
vehicle inventory.
Rental vehicle obligations are generally amortized over 5 to 15 months
resulting in monthly principal payments ranging from 2% to 3% of the
capitalized vehicle cost. When rental vehicles are sold, the related unpaid
obligation is due. Interest payments for rental fleet facilities are due
monthly at annual interest rates ranging from 8.0% to 9.75% at December 31,
1995. Management expects vehicle obligations will generally be repaid within
one year from the balance sheet date with proceeds received from either the
repurchase of the vehicles by the manufacturers in accordance with the terms
of the manufacturers' rental fleet programs or from the sale of the vehicles.
Monthly payments of interest only for used vehicle inventory obligations
are required at annual interest rates ranging from 8.25% to 9.75% at December
31, 1995. Used vehicle inventory obligations are paid when the inventory is
sold but in no event later than 120 days after the date of purchase.
WORKING CAPITAL FACILITIES--Working capital facilities of up to $13,000
are for the purchase of used vehicle inventory and working capital, require
monthly interest payments on the outstanding balance at LIBOR plus 1.85%
(7.53% at December 31, 1995) and expire November 1996. The facilities are
collateralized by accounts receivable, inventory, equipment, general
intangibles, investments and all other personal property of the Company and
guarantees of the respective subsidiaries. Under the terms of one of the
agreements, the Company is required to pay commitment fees quarterly equal to
0.125% per annum on the maximum amount of credit available under the credit
facility and an annual agent fee of $50 as long as the facility has an
outstanding balance. This agreement is subject to certain covenants, the most
restrictive of which requires the Company to maintain certain financial
ratios and minimum tangible net worth and prohibits the payment of cash
dividends. At December 31, 1995, the Company was not in compliance with
certain debt requirements and obtained waivers of such covenants. In February
1996, certain covenants were amended and the Company is in compliance with
the amended terms of the agreement.
RELATED PARTY OBLIGATIONS--At December 31, 1995, related party obligations
due to stockholders related primarily to the acquisition of certain franchise
territories and consist of an unsecured promissory note bearing interest at
8.75% per annum due January 1996; an unsecured promissory note bearing
interest at 9% per annum, payable in monthly installments of $4.3 plus
interest due March 2000; and two unsecured promissory notes bearing interest
at 8% per annum, payable in quarterly installments of $6.5 and $32.5 plus
interest and due October 1999 and October 1997, respectively.
OTHER NOTES PAYABLE--Other notes payable consist primarily of a secured
promissory note that bears interest at 8% per annum payable in annual
installments of $750, due August 1999, collateralized by personal guarantees
from the previous owners of Southern California operations; a business credit
note due November 1996 bearing interest at prime (8.75% December 31, 1995)
collateralized by real estate property and secured by personal guarantees of
certain stockholders of the Company; a collateralized promissory note bearing
interest at 8% per annum, payable in monthly installments of $7 plus
interest, due September 2010, collateralized by real estate property and
personal guarantees of certain stockholders of the Company; a mortgage note
bearing interest at 9.10% per annum, payable in monthly installments ranging
from $5.4 to $7.8 plus interest, due September 2000 with an option to extend
to September 2005, collateralized by real estate property; and a mortgage
note bearing interest at 7.5% per annum, payable in monthly installments of
$8.3 plus interest, due June 1998, collateralized by real estate property.
F-13
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
6. NOTES PAYABLE (Continued)
Future principal payments at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- -------------- ----------
<S> <C>
1996 .......... $165,147
1997 .......... 1,304
1998 .......... 41,183
1999 .......... 106,796
2000 .......... 3,086
Thereafter .... 717
----------
$318,233
==========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company leases facilities from certain stockholders. Operating lease
payments for the years ended December 31, 1993, 1994 and 1995 were $33, $196
and $220, respectively. Capital lease payments for the year ended December
31, 1993 were $31. There were no capital lease payments to the stockholders
during 1994 or 1995. MCK has assigned lease payments from the Company to a
bank.
At December 31, 1995, the Company was leasing approximately $2,001 of
revenue earning vehicles to Arizona Rent-A-Car Systems, a franchise the
Company acquired in 1996 (see Note 3).
Prior to the acquisition of the Fort Wayne operations (see Note 3), the
Company leased fleet vehicles to Fort Wayne Rental Group, Inc. for
approximately $60 and $366 for the years ended December 31, 1993 and 1994,
respectively.
At December 31, 1994, the Company was leasing approximately $1,200 of
revenue earning vehicles to the Dayton Budget franchise which the Company
acquired in 1995 (see Note 3) and had trade vehicle receivables of $43 at
that date from the Dayton franchise.
At December 31, 1994 and 1995, the Company has non-interest bearing notes
receivable totaling $59, $61, respectively, due from a stockholder and
director which are payable on demand.
Approximately $635, $564 of cash and cash equivalents are on deposit with
or are being held as agent for the Company with a bank at December 31, 1994
and 1995, respectively. A stockholder and director of the Company serves on
the bank's board of directors.
8. LEASES
The Company leases revenue earning vehicles and facilities under leases
that expire at various dates through August 2013. Generally, the facility
leases are subject to payment increases based on cost of living indices and
require the Company to pay taxes, maintenance, insurance and certain other
operating expenses. Certain facility leases require the Company to pay fixed
amounts plus contingent rentals based on gross rental revenues, as defined,
and gasoline sales.
F-14
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
8. LEASES (Continued)
Future minimum payments under noncancellable leases at December 31, 1995
are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
------------------------
YEAR ENDING CAPITAL RELATED NON-RELATED
DECEMBER 31, LEASES PARTIES PARTIES
- ----------------------------------- --------- --------- -------------
<S> <C> <C> <C>
1996 ............................... $280 $ 186 $ 6,743
1997 ............................... 214 193 5,427
1998 ............................... 170 164 3,191
1999 ............................... 166 99 2,234
2000 ............................... 125 102 2,283
Thereafter ......................... 1,247 4,928
--------- --------- -------------
955 $1,991 $24,806
========= =============
Less amounts representing interest 171
---------
$ 784
=========
</TABLE>
Rent expense consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
-------- -------- ---------
<S> <C> <C> <C>
Revenue earning vehicles $ 905 $3,121 $ 1,518
Facilities:
Minimum rentals ........ 878 1,990 5,914
Contingent rentals .... 1,649 1,923 3,502
-------- -------- ---------
Total ................... $3,432 $7,034 $10,934
======== ======== =========
</TABLE>
9. INCOME TAXES
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
-----------------------
1993 1994 1995
------ ------ -------
<S> <C> <C> <C>
Current:
Federal .. $ 21 $184
State ..... 161 $145
Deferred:
Federal .. (23) 470
State ..... 15 70
------ ------ -------
Total ...... $182 $176 $685
====== ====== =======
</TABLE>
F-15
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
9. INCOME TAXES (Continued)
The provision (credit) for income taxes differs from the amount computed
using the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1993 1994 1995
------- ------- ------
<S> <C> <C> <C>
Income tax provision at federal statutory rate .......... $ 208 $ 130 $348
Effect of (earnings) losses of nontaxable (subchapter S)
companies ............................................... (199) 645
Deductible preferred stock dividends ..................... (110)
Nondeductible portion of amortization of franchise rights 40 12 94
State tax provision, net of federal benefit .............. 161 30 215
Benefit of net operating loss carryforwards .............. (645)
Tax loss carryforwards not recognized .................... 57
Other .................................................... 25 4 28
------- ------- ------
$ 182 $ 176 $685
======= ======= ======
</TABLE>
The tax effects of temporary differences that give rise to the Company's
deferred tax assets and liabilities are as follows at December 31:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1994 1995
-------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ...................... $1,048 $13,195
Non-deductible reserves ............................... 292 2,267
Alternative minimum tax carryforward .................. 197 197
Valuation allowance ................................... (7,378)
-------- ---------
1,537 8,281
-------- ---------
Deferred tax liabilities:
Difference between book and tax bases of revenue
earning vehicles and other property and equipment ... 2,613 8,690
Franchise rights ...................................... 85 1,292
-------- ---------
2,698 9,982
-------- ---------
Net deferred tax liability ............................ $1,161 $ 1,701
======== =========
</TABLE>
Concurrent with the Share Exchange, the nontaxable status of the commonly
owned companies was terminated and a deferred tax liability of approximately
$1,169 was recorded with a corresponding charge to the accumulated deficit.
The change in the deferred tax liability after the Share Exchange has been
reflected as a deferred income tax provision for the years ended December 31,
1994 and 1995, respectively.
At December 31, 1995, the Company and its subsidiaries have federal tax
loss carryforwards of approximately $36,942 expiring between December 2005
and December 2010. The Company has recorded a valuation allowance for a
portion of the acquired net operating loss carryforwards due to the
uncertainty of their ultimate realization. Any subsequently recognized tax
benefits attributed to the change in the valuation allowance will reduce
franchise rights.
The Internal Revenue Code places limitations on the utilization of net
operating losses and similar tax attributes by a corporation in the event of
a stock ownership change aggregating more than 50% over
F-16
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
9. INCOME TAXES (Continued)
a specified time period. Net operating loss carryforwards in existence when
ownership changes occur are subject to an annual utilization limitation that
may restrict the future utilization of the net operating losses. Similarly,
utilization of losses generated during years when separate returns have been
filed may be limited in the future. Such limitations have been considered in
the determination of deferred income taxes.
10. BENEFIT PLANS
STOCK OPTIONS--On April 25, 1994, the Company adopted the 1994 Incentive
Stock Option Plan (the "ISO Plan") and the 1994 Directors' Stock Option Plan
(the "Directors' Plan").
The ISO Plan provides for the issuance of up to 260,000 shares of Class A
common stock to key employees. The ISO Plan stock options may be either
incentive stock options or nonqualified options and expire ten years after
the date of grant. The exercise price of incentive stock options may not be
less than the fair market value of the underlying shares at the date of
grant. The exercise price for nonqualified options may not be less than 85%
of the fair market value of the underlying shares or, if greater, the book
value of the underlying shares at the date of grant.
The Directors' Plan provides for the issuance of 25,000 shares of Class A
common stock to selected directors of the Company. The Directors' Plan stock
options are nonqualified and expire ten years after the date of grant. The
exercise price of the nonqualified options under the Directors' Plan is the
fair market value of the underlying shares at the date of grant.
The Company has reserved 285,000 shares of Class A common stock for the
stock option plans. The following is an analysis of stock option activity for
each of the three years in the period ended December 31, 1995 and the stock
options outstanding at December 31, 1995:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS SHARES PRICE
- -------------------------------------------------- --------- ----------
<S> <C> <C>
Outstanding, January 1, 1993 to December 31, 1994 15,000 $9.50
Granted during 1995 ............................... 202,600 9.50
---------
Outstanding, December 31, 1995 .................... 217,600 9.50
=========
</TABLE>
At December 31, 1995, none of the outstanding stock options were
exercisable prior to September 1, 1996 and expire March 1, 2005. The options
are nontransferable and will be forfeited upon termination of employment, as
defined.
PROFIT SHARING PLAN--The Company adopted a Profit Sharing Plan with a
401(k) arrangement under the Internal Revenue Code effective January 1, 1996.
Employees are eligible to participate after completing one year of service
and attaining age 21. Participants may contribute 1% - 15% of their gross
compensation. The Company may make discretionary contributions not to exceed
15% of the total plan compensation. There were no contributions made during
1995 or the first quarter of 1996.
F-17
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
11. COMMON STOCK WARRANT
Concurrently with the Freedom River acquisition and in consideration of
the abatement of certain future royalty fees to BRAC with respect to Freedom
River's Philadelphia vehicle rental operation and other consideration
received from BRAC, the Company issued a warrant to BRAC (the "BRAC Warrant")
to purchase 175,000 shares of Class A common stock at the initial public
offering price. The warrant cannot be exercised prior to August 24, 1996 and
expires on August 24, 1999. Subsequent to August 24, 1998 and prior to August
24, 1999, BRAC will have the right to cause the Company to repurchase the
BRAC Warrant for $2,000. The Company has reserved Class A common stock for
the BRAC Warrant.
12. COMMITMENTS
FRANCHISE AGREEMENTS--The Company has various franchise agreements with
BRAC which require the payment of monthly royalty fees. These fees vary from
a flat fee of $13.25 per car per month to 7.5% of gross rental revenues, as
defined in the franchise agreements. The above franchise agreements are
generally renewable for an unlimited number of five-year periods, subject to
certain terms and conditions.
Concurrent with the initial public offering, the Company purchased for
$1,750 the direct franchise rights for Budget Rent a Truck facilities to
operate in certain geographic locations in San Diego County and Imperial
County, California. This reduced substantially all truck rental royalty fees
to 5% of gross rental revenues, as defined. Prior to the purchase of the
direct franchise rights, the Company paid royalty fees of 12% of gross rental
revenue.
The Company also participates in a "One-Way" truck rental program in San
Diego County and Imperial County, California sponsored by Budget whereby
trucks owned by Budget are stationed at the Company's facilities for one-way
rental by outside parties. The Company retains fees for Budget "One- Way"
truck rental revenue of 20%. Revenues from the "One-Way" truck rental program
for the years ended December 31, 1993, 1994 and 1995 were $301, $558 and
$1,027, respectively.
SUBLICENSE AGREEMENTS--The Company has sublicense agreements with Budget
of Southern California which entitle the Company to operate Budget Car Rental
facilities in Southern California. Sublicense fees to Budget of Southern
California range from 5% to 6.5% of gross revenues as defined in the
sublicense agreements.
The Company also has a sublicense agreement with Transportation Storage
Associates ("TSA") for the right to rent trucks in and around Los Angeles
County. Fees to TSA are 12% of gross revenues as defined in the sublicense
agreement.
Royalty and sublicense fees expensed by the Company for the years ended
December 31, 1993, 1994 and 1995 were $1,498, $2,348 and $5,715,
respectively. Budget reservation fees expensed by the Company for the years
ended December 31, 1993, 1994 and 1995 were $1,023, $1,574 and $3,904,
respectively.
13. FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosure About Fair Value of Financial Instruments. The estimated fair
value amounts are determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amount.
F-18
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
13. FINANCIAL INSTRUMENTS (Continued)
CASH AND CASH EQUIVALENTS, RECEIVABLES, ACCOUNTS PAYABLE AND NOTES
PAYABLE--The carrying amounts of these items are reasonable estimates of
their fair value.
BRAC STOCK WARRANT--The estimated fair value is based on a pricing model
which considers stock volatilities and the put feature of the BRAC Stock
Warrant. The estimated fair value was $2,000 and, $1,900 at December 31, 1994
and 1995, respectively.
14. NONRECURRING INCOME
In 1993, the Company ordered revenue earning vehicles from a vehicle
manufacturer pursuant to the manufacturer's repurchase program. Such vehicles
were not delivered by the manufacturer. The Company recognized as
nonrecurring income cash received of $1,023 for the non-delivery of the
vehicles.
15. SUPPLEMENTAL CASH FLOW DISCLOSURE
In 1995, the Company issued approximately $12,837 of Class A common stock
and notes payable of $650 for the 1995 acquisitions. Equipment financed
through capital leases in 1995 totaled approximately $827.
In 1994, $525 of revenue earning vehicles and property and equipment were
financed through capital leases. The terms of a capital lease with certain
stockholders and a director were modified and, therefore, the capital lease
asset and obligation of $536 were eliminated. The net book value of the
facility lease and capital lease obligation of $536 was deducted from
proceeds from the sale of property and equipment and principal payments of
capital lease obligations, respectively. The Company also issued $200 of
Class A common stock to acquire the Fort Wayne franchise. In addition,
property and equipment of $4,441 were acquired and notes payable of $4,016
were assumed in connection with the Freedom River acquisition.
In 1994, the Company recorded prepaid royalty fees and the BRAC Stock
Warrant of $2,000 for the abatement of certain fees and other consideration
received from BRAC (see Note 11).
In 1993, a $92 note was issued to the lessor of the Albany, New York
facility in satisfaction of an agreement to share leasehold improvement costs
and a corresponding asset was recorded. Facilities and equipment financed
through capital leases in 1993 totaled $916.
The Company paid interest of $2,756, $4,091 and $13,764 in 1993, 1994 and
1995, respectively.
Income taxes of $182 and $346 were paid in 1994 and 1995, respectively.
F-19
<PAGE>
TEAM RENTAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
16. SEGMENT INFORMATION
The Company is engaged in the business of the daily rental of vehicles,
principally cars, trucks, and passenger vans, and the retail sale of used
cars. Segment information for the year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
RETAIL CAR VEHICLE
SALES RENTAL ELIMINATIONS CONSOLIDATED
------------ ---------- -------------- --------------
<S> <C> <C> <C> <C>
Sales to Unaffiliated Customers ........ $42,662 $107,067 $149,729
Intersegment Sales ...................... 4,655 $(4,655)
Operating Revenue ....................... 42,662 111,722 (4,655) 149,729
Depreciation and Amortization ........... 193 29,483 29,676
Income Before Provision for Income Taxes 1,869 (847) 1,022
Identifiable Assets ..................... 30,195 356,127 386,322
</TABLE>
The Company operated in only the rental segment for the years ended
December 31, 1993 and 1994. No one customer represented more than 10% of the
Company's consolidated net sales for the years ended December 31, 1993, 1994
and 1995.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
BRAC-OPCO, Inc.
Santa Ana, California
We have audited the accompanying balance sheets of BRAC-OPCO, Inc. (a
wholly owned corporation of Budget Rent A Car of Southern California) as of
December 31, 1993 and 1994, and the related statements of income,
stockholder's equity, and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BRAC-OPCO, Inc. as of
December 31, 1993 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Sherman Oaks, California
March 23, 1995
F-21
<PAGE>
BRAC-OPCO, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
---------------------
1993 1994
---------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash ....................................................... $ 1,442 $ 1,159
Receivables--
Trade accounts (net of allowance for doubtful accounts of
$207 in 1993; $234 in 1994) .............................. 2,870 3,295
Vehicle sales ............................................. 13,404 9,691
Other ..................................................... 919 1,120
Prepaid vehicle licenses ................................... 1,216 1,345
Other prepaid expenses and current assets .................. 879 1,161
Rental vehicles (net of accumulated depreciation of
$9,769 in 1993; $11,319 in 1994) .......................... 99,799 108,622
---------- ---------
TOTAL CURRENT ASSETS .................................... 120,529 126,393
Property and equipment, net of accumulated depreciation .... 2,040 1,761
OTHER ASSETS:
Franchise rights at cost (net of accumulated amortization
of $1,114 in 1993; $1,449 in 1994) ......................... 12,307 11,971
Deposits and other assets .................................. 420 314
---------- ---------
TOTAL ASSETS ............................................ $135,296 $140,439
========== =========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
BRAC-OPCO, INC.
BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
DECEMBER 31,
----------------------
1993 1994
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Vehicle contracts payable ................... $114,852 $120,110
Notes payable
So Cal ..................................... 949 1,453
Robert Steven Investments .................. 133 33
Other ...................................... 58 46
Accounts payable and accrued expenses ...... 4,685 4,796
Obligations under capital leases ............ 267 25
Other current liabilities ................... 763 1,288
---------- ----------
TOTAL CURRENT LIABILITIES ................ 121,707 127,751
LONG-TERM LIABILITIES:
Notes payable
So Cal ..................................... 7,083 5,801
Spectrum ................................... 3,558 3,000
Other ...................................... 29
Obligations under capital leases ............ 171 46
---------- ----------
TOTAL LIABILITIES ........................ 132,548 136,598
Contingencies and commitments (Notes 7 and 8)
STOCKHOLDER'S EQUITY:
Common stock, no par value--
Authorized--100,000 shares .................
Issued and outstanding--3,300 shares ...... 2,783 2,783
Additional paid-in capital .................. 3,635 3,635
Deficit ..................................... (3,670) (2,577)
---------- ----------
2,748 3,841
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY ........................... $135,296 $140,439
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
BRAC-OPCO, INC.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Auto rentals ............................... $44,391 $56,956 $56,640
Truck rentals .............................. 4,196 6,886 7,715
Other ...................................... 425 594 700
--------- --------- ---------
TOTAL REVENUES .......................... 49,012 64,436 65,055
--------- --------- ---------
OPERATING EXPENSES:
Direct vehicle expenses--
Lease expenses ............................ 877 1,576 3,140
Depreciation .............................. 10,786 16,578 19,044
Interest on vehicle contracts ............. 7,731 8,352 8,315
Other ..................................... 7,602 10,205 9,474
Auto lease income ......................... (1,858) (2,740) (4,654)
--------- --------- ---------
TOTAL DIRECT VEHICLE EXPENSES ........... 25,138 33,971 35,319
Salaries and related overhead .............. 11,241 14,842 14,168
Occupancy .................................. 5,421 6,785 6,652
Selling, advertising and promotion ........ 3,602 4,745 4,764
General and administrative ................. 1,528 1,688 1,652
Bad debts .................................. 78 145 145
Amortization of franchise rights ........... 255 336 336
Other interest ............................. 304 464 345
--------- --------- ---------
TOTAL OPERATING EXPENSES ................ 47,567 62,976 63,381
--------- --------- ---------
INCOME FROM OPERATIONS ...................... 1,445 1,460 1,674
Other income (expenses):
Investment income .......................... 24 23 25
Interest expense--So Cal ................... (863) (629) (606)
--------- --------- ---------
Income before provision for income
taxes,
and before extraordinary item .......... 606 854 1,093
Provision for income taxes .................. 264
--------- --------- ---------
Income before extraordinary item ....... 342 854 1,093
Extraordinary item--tax benefit resulting
from utilization of operating loss
carryforward ............................... 264
--------- --------- ---------
NET INCOME .............................. $ 606 $ 854 $ 1,093
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
BRAC-OPCO, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
------------------ CAPITAL
SHARES AMOUNT DEFICIT Deficit TOTAL
-------- -------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1992 ..................... 1,200 $1,677 $3,435 $(5,130) $ (18)
Capital contributions from So Cal .............. 131 131
Issuance of stock to So Cal in consideration of
assignment of receivables ..................... 2,100 1,106 69 1,175
Net income ..................................... 606 606
-------- -------- ------------ ---------- --------
BALANCE AT DECEMBER 31, 1992 ................... 3,300 2,783 3,635 (4,524) 1,894
Net income ..................................... 854 854
-------- -------- ------------ ---------- --------
BALANCE AT DECEMBER 31, 1993 ................... 3,300 2,783 3,635 (3,670) 2,748
Net income ..................................... 1,093 1,093
-------- -------- ------------ ---------- --------
BALANCE AT DECEMBER 31, 1994 ................... 3,300 $2,783 $3,635 $(2,577) $3,841
======== ======== ============ ========== ========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
BRAC-OPCO, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net income ..................................... $ 606 $ 854 $ 1,093
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization ................ 17,917 22,182 22,073
Bad debts .................................... 78 145 145
(Gain) loss on disposition of assets ......... 171 (530) (796)
(Increase) in trade receivables .............. (349) (28) (570)
(Increase) decrease in vehicle
rebates receivable ......................... (150) 320
(Increase) decrease in other receivables ..... (311) (62) (197)
(Increase) in prepaid vehicle licenses ....... (132) (129)
(Increase) in prepaid expenses and other
current assets ............................. (610) 19 (272)
(Increase) decrease in deposits .............. (168) 87 (46)
Increase (decrease) in accounts payable and
accrued expenses ........................... 994 461 107
(Decrease) in deferred vehicle rebate income . (826) (445) (51)
Increase (decrease) in other current
liabilities ................................ 340 (1) 549
----------- ----------- -----------
Net cash provided by operating activities .. 17,692 22,870 21,906
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of rental vehicles .......... 139,525 159,096 140,822
Repayments of vehicle contracts payable ........ (156,770) (179,380) (161,373)
Payments for purchase of property and equipment (589) (480) (412)
Proceeds from note receivable .................. 100 148
Acquisition of franchise rights ................ (263)
Proceeds from sale of property and equipment ... 71
----------- ----------- -----------
Net cash used in investing activities ....... (18,026) (20,664) (20,815)
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
BRAC-OPCO, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from So Cal ................................ 314 729
Increase (decrease) in interest payable So Cal .. 225 $ (905) (243)
Loan from Robert Steven Investments ............. 400
Repayments of principal to--
So Cal ......................................... (130) (256) (793)
Robert Steven Investments ...................... (50) (200) (117)
Others ......................................... (561) (271) (582)
Payment of obligations under capital leases ..... (197) (255) (368)
Capital contributions from So Cal ............... 131
---------- ---------- ----------
Net cash used in financing activities ........ (132) (1,887) (1,374)
---------- ---------- ----------
Net increase (decrease) in cash ................... (202) 319 (283)
Cash, beginning of year ........................... 1,325 1,123 1,442
---------- ---------- ----------
Cash, end of year ................................. $ 1,123 $ 1,442 $ 1,159
========== ========== ==========
SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:
Cash paid for interest ........................... $ 8,673 $ 10,351 $ 9,509
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of rental vehicles by incurring debt $192,185 $182,104 $166,165
Acquisition of franchise rights by incurring debt 3,750
Acquisition of other assets by incurring debt ... 396
Acquisition of franchise rights by reducing note
receivable .................................... 740
Acquisition of property and equipment by reducing
note receivable ............................... 10
Issuance of stock to So Cal in consideration of
assignment of receivables ..................... 1,175
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
BRAC-OPCO, Inc. (Opco or the Company), a wholly owned subsidiary
corporation of Budget Rent A Car of Southern California (So Cal), a
California general partnership, was formed on May 23, 1989 to acquire and
operate vehicle rental businesses in the name and style of "Budget Rent A
Car" as a franchisee of So Cal, and "Budget Rent A Truck" as a franchisee of
Transportation and Storage Associates, Inc., an unrelated franchisor.
So Cal holds the prime franchise rights to operate or sub-franchise auto
rental operations in Southern California and certain Nevada territories in
the name and style of "Budget Rent A Car". So Cal is owned 75% by The Mirkin
Partnership and Mirkin & Family, Inc., and 25% by Rubin Bird and R. & G.
Bird, Inc.
NOTE 2--ACQUISITIONS
The Company has acquired various assets and assumed certain liabilities of
several of So Cal's franchisees. Each acquisition was accounted for by the
purchase method of accounting. The results of operations of the acquired
franchises are included in the Company's statements of income for the periods
in which they were owned by the Company.
Effective August 11, 1992, the Company acquired certain assets, including
franchise rights, and assumed certain liabilities of Spectrum Investment
Corporation ("Spectrum") for $5,162,000. Spectrum previously operated several
franchises in territories covering the San Fernando Valley (including Burbank
Airport) and Orange County (other than Orange County Airport) under a
franchise agreement with So Cal. The purchase price consisted of $115,000 in
cash, $1,297,000 in assumed vehicle contracts payable, and a $3,750,000 note
(see Note 6B).
Effective January 6, 1993, the Company acquired certain assets, including
franchise rights, of an existing franchisee of So Cal in territories covering
Ventura and Santa Barbara counties for approximately $750,000. The purchase
price was paid through the reduction of $750,000 of an existing note
receivable which was due from the franchisee.
In each of the acquisitions, the full purchase price was allocated to
tangible assets and franchise rights which are being amortized using the
straight line method over 40 years.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. REVENUE RECOGNITION
Revenue from vehicle rental operations is recognized as earned under the
terms of rental contracts and excludes sales tax. Revenue on open contracts
is accrued to the balance sheet date based on the contract rental rates.
B. DEPRECIATION
Rental vehicles are stated at cost and are classified on the balance
sheets as a current asset because, in the ordinary course of business, they
are expected to be held for less than one year. Most vehicles are purchased
pursuant to guaranteed buy-back agreements with manufacturers, and are
depreciated by reference to such buy-back provisions at rates ranging from
.8% to 2.25% per month in 1992, .85% to 2.5% per month in 1993, and .875% to
2.25% per month in 1994 with the rate most prevalent being approximately
1.5%, 1.6% and 1.8%, in 1992, 1993 and 1994, respectively. Other rental
vehicles are depreciated at 2.5% in 1992, and rates ranging from 2.5% to 3%
in 1993 and 1994.
Vehicle rebates from manufacturers are recorded as deferred income on the
balance sheet and are amortized as a reduction of depreciation expense over
the anticipated holding period of the vehicles which range principally from 6
to 9 months. Depreciation expense is further adjusted by gains or losses on
sales of rental vehicles.
F-28
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Depreciation under "direct vehicle expenses" on the statements of income
is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Depreciation on rental vehicles ... $15,512 $19,142 $19,891
Amortization of rebates ............ (4,877) (2,034) (51)
Net loss (gain) on sale of vehicles 151 (530) (796)
--------- --------- ---------
$10,786 $16,578 $19,044
========= ========= =========
</TABLE>
The cost of other property and equipment is depreciated using
straight-line and accelerated methods over estimated useful lives ranging
from three to 32 years.
C. FRANCHISE RIGHTS
The Company assesses whether there has been a permanent impairment in the
value of franchise rights by considering factors such as expected future
operating income and trends, as well as the effects of demand, competition
and other economic factors. Management believes no permanent impairment has
occurred.
D. VEHICLE LICENSES
Vehicle license costs are capitalized and are amortized over the expected
holding period of the vehicles. The amortization expense is included in
"direct vehicle expenses - other" on the statements of income.
E. INCOME TAXES
Certain items of income and expense are recognized in different periods
for income tax and financial reporting purposes. Deferred taxes are provided
on such temporary differences. The principal temporary differences relate to
depreciation on rental vehicles, vehicle accident claims expenses, bad debts,
and amortization of franchise rights.
F. CASH AND CASH EQUIVALENTS
Cash equivalents are all highly liquid investments with a maturity of
three months or less from the date of acquisition.
The Company maintains its cash in bank accounts which, at times, exceeds
federally insured limits. The Company has not experienced any losses in such
accounts.
G. AUTO LEASE INCOME
Opco acts as a conduit in the acquisition of rental vehicles and the
leasing of said vehicles to other franchisees of So Cal, to assist such
franchisees in the acquisition of fleet. The lease income is reported as a
reduction of the related direct vehicle expenses and the net results of this
activity is not material to the statements of income.
H. ADVERTISING AND PROMOTION
Advertising and promotion expenses are reported net of reimbursements from
General Motors Corporation under a co-op advertising agreement which expired
August 31, 1992 and was not renewed. For the year ended December 31, 1992,
the reimbursement totalled $334,000.
F-29
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment, other than rental vehicles, is summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
-------- --------
<S> <C> <C>
Building improvements ............................ $1,924 $2,157
Furniture, fixtures and equipment ................ 2,212 2,484
Vehicles ......................................... 52 46
-------- --------
Total property and equipment (including property
under capital leases of and $454 in 1993 and
$165 in 1994) ................................... 4,188 4,687
Less accumulated depreciation and amortization .. 2,148 2,926
-------- --------
$2,040 $1,761
======== ========
</TABLE>
NOTE 5--VEHICLE CONTRACTS PAYABLE
The Company purchases and leases its rental vehicles primarily from
manufacturers. Financing for the acquisition of the rental vehicles is
generally provided by affiliated finance companies of automobile
manufacturers. The lenders hold legal title to the vehicles as security for
the financing, and have a security interest in all revenue and receivables
resulting from vehicle rentals or sales
F-30
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--VEHICLE CONTRACTS PAYABLE (Continued)
The terms of the major vehicle financing contracts are summarized as
follows:
<TABLE>
<CAPTION>
BALANCE AS OF DECEMBER 31,
--------------------------
1993 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
GMAC--prime plus .75%, with monthly principal payments of
approximately $1,193,000 and $871,000, respectively. The maximum
allowable borrowings under this line are $100 million and $75
million in 1993 and 1994, respectively. .......................... $ 75,126 $ 59,823
Volvo Car Finance, Inc.--prime plus .75% for program vehicles, and
1% above prime for non-program vehicles, with monthly principal
payments of approximately $440,000 and $680,000, respectively.
The maximum allowable borrowings under this line are $60 million. 23,686 35,241
Ford Motor Credit Corp.--prime plus 1%, with monthly principal
payments of approximately $139,000 and $173,000, respectively.
The maximum allowable borrowings under this line are $26.5
million, including other franchisees' borrowings. There were no
other franchisees' borrowings outstanding at December 31, 1993
and 1994. ........................................................ 3,346 8,294
1st Source Bank--Trucker's Bank Plan - prime plus .75% to 1%, with
monthly principal payments of approximately $92,000 and $88,000,
respectively. The maximum allowable borrowings under this line
are $7 million. .................................................. 5,613 4,192
First Los Angeles Bank--prime plus 1%, with monthly principal
payments of approximately $29,000 and $193,000, respectively. The
maximum allowable borrowings under this line are $2 million and
$9 million in 1993 and 1994, respectively. ....................... 1,480 5,623
Associates Commercial Corporation--at rates of 8.5% to 8.75%, with
monthly principal payments of approximately $35,000 and $68,000,
respectively. .................................................... 1,820 2,701
So Cal--prime less .25%, with monthly principal payments of
approximately $16,000. ........................................... -- 466
Robert Steven Investments--greater of 12.5% or Union Bank's
reference rate plus 2.5%, with monthly principal payments of
approximately $39,000. (See Note 6A for description of
relationship.) ................................................... 307 --
Navistar Financial Corp.--at a rate of 7.75% with principal
payments of approximately $85,000 and $105,000, respectively. ... 3,474 3,770
---------- ----------
$114,852 $120,110
========== ==========
</TABLE>
Interest is paid monthly on all of the vehicle financing contracts.
Certain loan agreements contain provisions limiting the amount that can be
used to finance "risk vehicles" (other than manufacturer's buy-back program
eligible vehicles), and the GMAC agreement contains a provision which could
limit the amount of distributions to the partners of So Cal and provides,
under certain circumstances, for a prepayment premium of 3% of any principal
paid in advance.
Included above is approximately $13.4 and $9.7 million of debt related to
vehicles which had been sold as of December 31, 1993 and 1994, respectively.
This debt is repaid from the collections of the vehicle sales receivables,
which are included in current assets. Approximately $1.2 million and $957,000
of the
F-31
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--VEHICLE CONTRACTS PAYABLE (Continued)
outstanding debt as of December 31, 1993 and 1994 respectively, was for the
financing of vehicle licenses, which is related to prepaid vehicle licenses,
included in current assets, at December 31, 1993 and 1994.
The entire balance of the vehicle financing obligations is classified as a
current liability on the balance sheets because, in the ordinary course of
business, the obligations are expected to be repaid within one year. However,
contractually vehicle finance obligations are repayable at varying monthly
rates of up to 2.25% of the loan.
So Cal guarantees the majority of the above loans.
NOTE 6--NOTES PAYABLE
A. ROBERT STEVEN INVESTMENTS (RSI)
As of December 31, 1993 and 1994, Opco was indebted to RSI, a partnership
of Rubin Bird (a partner of So Cal) and his children, in the amount of
$150,000 and $33,333, respectively under a note bearing interest at the rate
of 12.5% or 2.5% over prime, whichever is greater. The December 31, 1994
balance is payable in monthly installments of $16,667 plus interest at a rate
of 9% per annum. This promissory note is guaranteed by So Cal and
collateralized by certain equipment.
B. SPECTRUM
In connection with the acquisition of assets from Spectrum and Cal Fleet,
Opco is indebted to Spectrum in the original amount of $3,750,000 evidenced
by a promissory note bearing interest, payable quarterly, at 8% per annum.
Principal is payable in five equal annual installments of $750,000 commencing
August 11, 1995; however, the Company has prepaid $704,000 of principal as of
December 31, 1994, which reduces the principal payment otherwise due August
11, 1995. This note is guaranteed by So Cal and collateralized by the
franchise right to the territories purchased. The balance as of December 31,
1993 and 1994 was $3,558,000 and $3,046,000, respectively.
C. SUMMARY OF DEBT MATURITIES
Notes payable are scheduled to mature as of December 31, 1994 as follows
(dollars in thousands):
<TABLE>
<CAPTION>
RSI SPECTRUM TOTAL
----- ---------- -------
<S> <C> <C> <C>
Current portion ........................ $ 33 $ 46 $ 79
----- ---------- -------
Long-term portion, maturing as follows:
1996 .................................. -- 750 750
1997 .................................. -- 750 750
1998 .................................. -- 750 750
1999 .................................. -- 750 750
2000 and after ........................ -- -- --
----- ---------- -------
-- 3,000 3,000
----- ---------- -------
Total .............................. $ 33 $3,046 $3,079
===== ========== =======
</TABLE>
For current and long-term portion of notes payable to So Cal (see Note
11).
NOTE 7--CONTINGENCIES
A. VEHICLE ACCIDENT CLAIMS
Under California law, Opco is permissively uninsured with respect to
bodily injury and property damage claims arising from accidents involving its
vehicles. Except as further provided below, the
F-32
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--CONTINGENCIES (Continued)
Company's liability generally will not exceed $35,000 per incident when the
accident is solely the responsibility of the renter or an unrelated third
party. The Company's special legal counsel, engaged specifically to deal with
these matters, advises that when such renter has insurance - which is the
case in approximately 85% of incidents - the Company has little, if any,
potential liability. However, in at least the following three circumstances
the Company could have unlimited liability mitigated by insurance coverage as
indicated:
1) Product liability - e.g., if a rented vehicle had not been properly
maintained.
2) Employee negligence - e.g., an accident caused by an employee of the
Company.
3) Negligent entrustment - e.g., renting a vehicle to a customer who, at
the time of the rental, is under the influence of alcohol or other controlled
substances.
With respect to either product liability or employee negligence, the
Company carries $1,000,000 of primary insurance coverage and an additional
$2,000,000 of excess liability coverage.
Based on the advice of special legal counsel, as well as the Company's
recent experience, management has established what it believes to be an
adequate provision for estimated losses on known and unreported claims at
December 31, 1993 and 1994 totaling $875,000 and $850,000, respectively,
which are included in "accounts payable and accrued expenses" on the balance
sheets.
B. LEGAL ACTIONS
The Company is party to a number of legal actions arising in the ordinary
course of its business. In management's opinion, based on advice of outside
legal counsel, the Company has adequate legal defenses and/or insurance
coverage respecting each of these actions and they will not have a material
adverse effect on the Company's operations or financial condition.
C. GROUP MEDICAL PLAN
The Company maintains a group medical insurance plan which, if terminated,
would have resulted in a liability as of December 31, 1994 in the amount of
approximately $266,000 in the form of a supplemental premium.
NOTE 8--LEASE COMMITMENTS
Opco leases numerous branch offices and other facilities under operating
leases, and various equipment and building improvements under capital leases.
The operating leases expire from 1995 to 2004, without regard to renewal
options extending beyond such dates. Various leases require payments in
excess of minimum base rent for property taxes, insurance, maintenance, and
cost of living escalations; or for overages based on percentage of sales.
Total rent expense for the years ended December 31, 1992, 1993, and 1994 was
approximately $3,900,000, $4,900,000, and $4,900,000, respectively.
So Cal operates certain of its properties under noncancelable operating
leases that, in addition to fixed rental payments, contain escalation clauses
that require the tenants to pay for real estate taxes and operating costs.
F-33
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--LEASE COMMITMENTS (Continued)
Future minimum annual payments under capital and operating leases as of
December 31, 1994 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ------------------------------------------------------ --------- -----------
<S> <C> <C>
1995 .................................................. $ 33 $3,274
1996 .................................................. 32 1,717
1997 .................................................. 19 1,149
1998 .................................................. -- 435
1999 .................................................. -- 317
Subsequent years ...................................... -- 1,159
--------- -----------
Total minimum lease payments ........................ 84 $8,051
===========
Less amount representing interest (rate equals 12.66%) 13
---------
Total obligations under capital leases .............. 71
Less current portion ................................ 25
---------
Long-term obligations under capital leases ......... $ 46
=========
</TABLE>
Opco leases five if its branch office and facilities from So Cal under
operating leases which expire from 1995 to 2004, without regard to renewal
options extending beyond such dates. Opco paid $243,000, $195,000 and
$185,000 in rent to So Cal for the years ended December 31, 1992, 1993 and
1994, respectively.
NOTE 9--RETIREMENT PLAN
Opco maintains a noncontributory qualified deferred compensation ("401K")
plan which enables eligible employees to set aside a portion of their
salaries as a contribution to the plan.
NOTE 10--INCOME TAXES
No net provision for federal or state income taxes has been made due to
the utilization of net operating loss carryforwards.
As of December 31, 1994, for income tax purposes, Opco's federal and state
net operating loss carryforwards were approximately $19.4 million and $3.5
million, respectively, which will expire during the years 1995 - 2009. U.S.
tax rules impose limitations on the use of net operating losses following
certain changes in ownership (see Note 13).
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standard No. 109, "Accounting of Income
Taxes" (SFAS 109). As permitted under the new rules, the prior period's
financial statements have not been restated.
Under SFAS 109, the liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. Prior to the
adoption of SFAS 109, income tax expense was determined using the deferred
method. Deferred tax expense was based on items of income and expense that
were reported in different years in the financial statements and tax returns
and were measured at the tax rate in effect in the year the difference
originated.
F-34
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (Continued)
There was no cumulative or current effect of initial adoption of SFAS
109, on the net income or income tax expense for the year ended December 31,
1993.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The Company's deferred tax assets and liabilities at December 31, 1993 and
1994 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Vehicle related accruals ......... $ 771 $ 579
Other items ...................... 566 557
Net operating loss carryforwards 8,118 7,177
Valuation allowance .............. (3,539) (3,508)
--------- ---------
5,916 4,805
Deferred tax liabilities:
Depreciation of fleet ............ (4,759) (3,298)
Amortization of franchise rights (1,157) (1,507)
--------- ---------
Net ........................... $ 0 $ 0
========= =========
</TABLE>
A full valuation allowance has been established as the potential deferred
tax asset above may not be realized.
A reconciliation between the Company's effective tax rate and the federal
income tax rate is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Federal income tax rate ............................ 34.0% 35.0% 35.0%
State taxes, net of federal effect ................. 6.3 6.6 6.0
Notes receivable and other assets with no tax basis -- 4.8 8.9
Net operating loss carryforwards ...................(41.0) (47.8) (52.7)
Other, net ......................................... .7 1.4 2.8
-------- -------- --------
Total .............................................. 0% 0% 0%
======== ======== ========
</TABLE>
NOTE 11--OTHER RELATED PARTY TRANSACTIONS
As of December 31, 1993 and 1994, Opco's total indebtedness to So Cal was
$8,032,000 and $7,254,000, respectively. The outstanding balance is comprised
of various loans in connection with the financing of one of Opco's initial
acquisitions as well as Opco's working capital needs.
F-35
<PAGE>
BRAC-OPCO, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--OTHER RELATED PARTY TRANSACTIONS (Continued)
The notes and loans payable to So Cal are summarized as follows (dollars
in thousands):
<TABLE>
<CAPTION>
MONTHLY
PAYMENT 1993 1994
(INCLUDING ----------------------- -------------------------
INTEREST PRINCIPAL AND CURRENT LONG-TERM CURRENT LONG-TERM
RATE TERM INTEREST) PORTION PORTION PORTION PORTION
- -------- ------ --------------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
8.0% Demand $130 $662 $6,993 $1,185 $5,755
11.5% Due 10/96 4 40 90 44 46
- -- -- -- 247 -- 224 --
---------- ----------- ------------- ---------
$949 $7,083 $1,453 $5,801
========== =========== ============= =========
</TABLE>
Both interest and principal on the 8% promissory notes are payable on
demand, or if no demand is made, then the entire balance of unpaid principal
and interest is due upon either the sale of more than 49% of the stock of
Opco, or substantially all of its assets. No demand has been made and,
accordingly, management has classified this liability between current and
long-term based on the principal that was anticipated, to be paid within one
year (See Note 13). Interest expense to So Cal for the years ended December
31, 1992, 1993, and 1994, was approximately $863,000, $629,000, and $606,000,
respectively.
So Cal has waived its rights to receive franchise fees from Opco until all
of the above debt has been repaid.
In addition, Opco was contingently liable to So Cal, which in turn was
contingently liable with respect to certain bank letters of credit issued in
the approximate amount of $672,000 as of December 31, 1994 relating to Opco's
operations.
Opco has not been charged for any of So Cal's salaries or other
administrative expenses.
NOTE 12--SUBSEQUENT EVENT
BRAC SOCAL Funding Corporation (Funding Corp.) was formed in December 1994
as a wholly-owned subsidiary of Opco for the purpose of purchasing vehicles
and leasing them to Opco and certain other franchisees of So Cal. In March
1995, Funding Corp. issued $40 million of floating rate rental car asset
backed notes under a private placement memorandum. In conjunction with this
financing, Opco also borrowed $4.5 million from First Los Angeles Bank which
was used in part, together with the $40 million, to pay down approximately
$42.9 million of the GMAC outstanding vehicle debt (see Note 5).
Concurrent with the GMAC Corporation prepayment described above, the
Company entered into an agreement with GMAC to modify the prepayment clause
of the vehicle financing agreement. Under the original agreement the Company
would have been subject to a premium of approximately $1.3 millon resulting
from the prepayment (see Note 5).
Under the new agreement, this premium is allocated over the next six
years, approximately $215,000 each year. However, the annual premium is
waived entirely if the Company maintains an average debt balance of $25
million during that year. If the average debt balance during any given year
falls between $20 million and $25 million, a prorated amount of the premium
is due GMAC for that year. The full annual premium is due for any year during
which the average debt balance falls below $20 million.
NOTE 13--TEAM ACQUISITION (UNAUDITED)
On April 10, 1995, an agreement in principle between So Cal and Team
Rental Group, Inc. (Team) was announced regarding the acquisition by Team or
its affiliate of all of Opco's outstanding stock for shares of Team stock to
be issued.
F-36
<PAGE>
BRAC-OPCO, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS (UNAUDITED)
<S> <C>
Cash and cash equivalents ...................... $ 421
Restricted cash ................................ 21,769
Trade receivables, net ......................... 3,063
Vehicle receivables, net ....................... 1,011
Notes receivable ............................... 81
Revenue earning vehicles, net .................. 95,390
Property and equipment, net .................... 1,175
Franchise rights, net .......................... 11,719
Other assets ................................... 3,549
-----------
Total assets .................................. $138,178
===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES:
Vehicle obligations--banks, finance companies . $ 79,073
Vehicle obligations--fleet financing facilities 40,000
Accounts payable ............................... 1,766
Accrued and other liabilities .................. 2,873
Auto liability ................................. 1,858
Notes due to sellers of acquired businesses ... 9,500
-----------
Total liabilities ............................. 135,070
STOCKHOLDERS' EQUITY:
Common stock ................................... 2,783
Additional paid-in-capital ..................... 6,470
Accumulated deficit ............................ (6,145)
-----------
Total stockholders' equity .................... 3,108
-----------
Total liabilities and stockholders' equity $138,178
===========
</TABLE>
37
<PAGE>
BRAC-OPCO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
(UNAUDITED)
1995 1994
-------- --------
<S> <C> <C>
Operating Revenues .............................. $49,121 $52,698
Operating Expenses:
Direct vehicle and operating ................... 4,949 7,479
Depreciation/Lease--vehicles ................... 18,123 16,019
Depreciation--nonvehicle ....................... 545 310
Advertising, promotion and selling ............. 3,988 3,573
Facilities ..................................... 4,885 5,133
Personnel ...................................... 10,209 10,715
General and administrative ..................... 1,539 1,383
Amortization ................................... 251 252
---------- ---------
Total operating expenses ...................... 44,489 44,864
---------- ---------
Operating income ................................ 4,632 7,834
Other (income) expense:
Vehicle interest .............................. 7,587 6,058
Other interest ................................ 640 731
Interest income ............................... (27) (18)
---------- ---------
Total other expenses ......................... 8,200 6,771
Income (loss) before provision for income taxes (3,568) 1,063
Provision (benefit) for income taxes ............
---------- ---------
Net income (loss) ............................... $(3,568) $ 1,063
========== =========
</TABLE>
F-38
<PAGE>
BRAC-OPCO, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the nine-month period ended September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT) EQUITY
-------- ------------ ------------- ---------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $2,783 $3,635 $(2,577) $ 3,841
Net income ................... (3,568) (3,568)
Capital contribution ......... 2,835 2,835
-------- ------------ ------------- ---------------
Balance at September 30, 1995 $2,783 $6,470 $(6,145) $ 3,108
======== ============ ============= ===============
</TABLE>
F-39
<PAGE>
BRAC-OPCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE-MONTHS
PERIODS ENDED SEPTEMBER
30,
1995 1994
----------- -----------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................... $ (3,568) $ 1,063
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation & amortization ........................... 20,600 15,770
Changes in operating assets and liabilities:
Accounts receivable .................................. 8,912 (176)
Other receivable ..................................... 1,039 (274)
Other assets ......................................... (729) 215
Accounts payable ..................................... (3,030) (658)
Auto liability ....................................... 1,858
Other liabilities .................................... 1,514 (165)
----------- -----------
Total adjustments ................................... 30,164 14,712
----------- -----------
Net cash provided by operating activities ............ 26,596 15,775
CASH FLOWS FROM OPERATING ACTIVITIES:
Restricted cash ....................................... (21,769)
Proceeds from sale of revenue-earning vehicles ....... 96,450 106,079
Purchases of revenue-earning vehicles ................. (102,736) (120,518)
Purchases of equipment and improvements ............... (244) (346)
----------- -----------
Net cash used in investing activities ................ (28,299) (14,785)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under notes payable ......... 40,750 200
Principal payments:
Vehicle obligations .................................. (38,202) (1,067)
Borrowings ........................................... (1,583)
Capital leases ....................................... (346)
----------- -----------
Net cash provided by (used in) financing activities .. 965 (1,213)
Net decrease in cash and cash equivalents ............. (738) (223)
Cash and cash equivalents, beginning of period ....... 1,159 1,372
----------- -----------
Cash and cash equivalents, end of period .............. $ 421 $ 1,149
=========== ===========
</TABLE>
F-40
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Arizona Rent-A-Car Systems, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Arizona
Rent-A-Car Systems, Inc. and Subsidiary as of February 28, 1994 and 1995, and
February 29, 1996, and the related consolidated statements of income (loss)
and retained earnings, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Arizona
Rent-A-Car Systems, Inc. and Subsidiary as of February 28, 1994 and 1995, and
February 29, 1996, and the results of their operations and their cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of computing depreciation for rental vehicles in
1996.
Michael Silver & Company
Certified Public Accountants
Skokie, Illinois
May 3, 1996
F-41
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
ASSETS 1994 1995 1996
-------------- -------------- --------------
(IN 000'S)
<S> <C> <C> <C>
Cash ............................................... $ 947 $ 775 $ 571
Trade and vehicle receivables (net of allowance for
doubtful accounts of $60, $83 and $316,
respectively) ..................................... 5,437 5,340 3,066
Used vehicle inventory ............................. 1,756 1,392 --
Prepaid expenses ................................... 1,451 2,043 1,308
Other assets ....................................... 223 277 83
Goodwill, net of amortization ...................... 468 448 429
Cash surrender value of officer's life insurance .. -- 182 --
Refundable income taxes ............................ -- 998 --
Deferred income taxes .............................. -- -- 245
Other intangibles, net of amortization ............. 57 40 28
-------------- -------------- --------------
10,339 11,495 5,730
-------------- -------------- --------------
Rental vehicles .................................... 82,384 80,731 73,181
Less: accumulated depreciation ..................... 6,147 5,012 6,245
-------------- -------------- --------------
76,237 75,719 66,936
-------------- -------------- --------------
Net property and equipment ......................... 7,017 7,025 5,406
-------------- -------------- --------------
TOTAL ASSETS ..................................... $93,593 $94,239 $78,072
============== ============== ==============
</TABLE>
F-42
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1995 1996
-------------- -------------- --------------
(IN 000'S)
<S> <C> <C> <C>
LIABILITIES
Cash overdraft ................................ $ -- $ 952 $ --
Notes payable -- rental vehicles .............. 76,816 76,695 68,007
Notes payable -- floor plan ................... 1,062 1,027 --
Notes payable -- other ........................ 1,682 1,488 --
Accounts payable and accrued expenses ........ 2,845 2,710 2,305
Vehicle self-insurance reserve ................ 1,373 1,331 2,298
Other liabilities ............................. 611 642 1,991
Income taxes payable .......................... 350 -- 50
Deferred income taxes ......................... 1,495 2,175 --
-------------- -------------- --------------
TOTAL LIABILITIES 86,234 87,020 74,651
-------------- -------------- --------------
STOCKHOLDERS' EQUITY
Common stock -- no par value; 2,000 shares
authorized; 667 shares issued and outstanding 67 67 67
Additional paid-in capital .................... 493 493 493
Retained earnings ............................. 6,799 6,659 2,861
-------------- -------------- --------------
TOTAL STOCKHOLDERS' EQUITY ................... 7,359 7,219 3,421
-------------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $93,593 $94,239 $78,072
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
FOR THE YEARS ENDED,
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
(IN 000'S)
<S> <C> <C> <C>
Revenue ............................................ $49,934 $51,427 $47,337
Direct expenses .................................... 25,203 28,417 30,039
-------------- -------------- --------------
Gross profit ....................................... 24,731 23,010 17,298
Operating expenses ................................. 22,907 22,632 22,187
-------------- -------------- --------------
Income (loss) from continuing operations before
provision (benefit) for income taxes and
cumulative effect of a change in accounting
principle ......................................... 1,824 378 (4,889)
Provision (benefit) for income taxes ............... 1,037 97 (1,880)
-------------- -------------- --------------
Income (loss) from continuing operations before
cumulative effect of a change in accounting
principle ......................................... 787 281 (3,009)
Cumulative effect on prior years of changing to
different depreciation method (less applicable
income taxes of $215--see note 2) ................. -- -- (335)
-------------- -------------- --------------
Income (loss) from continuing operations .......... 787 281 (3,344)
Loss from discontinued operations (less applicable
income taxes of $272, $146 and $179, respectively) (202) (421) (284)
-------------- -------------- --------------
Net income (loss) .................................. 585 (140) (3,628)
Retained earnings--beginning of year ............... 6,214 6,799 6,659
Divident paid to stockholder ....................... -- -- (170)
-------------- -------------- --------------
Retained earnings--end of year ..................... $ 6,799 $ 6,659 $ 2,861
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED,
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
(IN 000'S)
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income (loss) .............................. $ 585 $ (140) $(3,628)
-------------- -------------- --------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization ................. 16,998 14,102 15,492
(Gain) loss on sale of rental vehicles and
property and equipment ...................... (7,723) (2,570) 137
Deferred income taxes ......................... 80 680 (2,420)
Changes in operating assets and liabilities:
(Increase)/decrease in:
Trade and vehicle receivables ............... (645) 98 2,274
Used vehicle inventory ...................... (1,755) 363 1,392
Prepaid expenses ............................ (543) (592) 735
Other assets ................................ 6 (69) 14
Cash surrender value of officer's life
insurance ................................. -- (182) --
Refundable income taxes ..................... -- (998) 998
Increase/(decrease) in:
Cash overdraft .............................. (2,062) 952 (953)
Accounts payable, accrued expenses and
other liabilities ......................... 1,022 (145) 1,911
Income taxes payable ........................ 335 (350) 50
-------------- -------------- --------------
TOTAL ADJUSTMENTS .......................... 5,713 11,289 19,630
-------------- -------------- --------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES .................................... 6,298 11,149 16,002
-------------- -------------- --------------
</TABLE>
F-45
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from investing activities:
Proceeds from sale of rental vehicles .......... 95,772 82,437 75,477
Purchases of rental vehicles .................... (83,614) (104,331) (58,352)
Purchases of property and equipment ............. (1,290) (676) (114)
-------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES ....................................... 10,868 (22,570) 17,011
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from issuance of debt .................. 91,765 107,867 74,548
Payment of debt ................................. (109,162) (96,583) (106,738)
Net payments of notes payable -- floor plan .... 1,062 (35) (1,027)
-------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES ....................................... (16,335) 11,249 (33,217)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH ................... 831 (172) (204)
CASH--BEGINNING OF YEAR ........................... 116 947 775
-------------- -------------- --------------
CASH--END OF YEAR ................................. $ 947 $ 775 $ 571
============== ============== ==============
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest ........................................ $ 4,138 $ 5,140 $ 5,455
============== ============== ==============
Income taxes .................................... $ 350 $ 619 $ (902)
============== ============== ==============
</TABLE>
Non-cash investing and financing activities:
The Company acquired vehicles under capital lease agreements totaling
$22,658, $7,842 and $30,398 in the years ended 1994, 1995 and 1996,
respectively. The Company also disposed of vehicles, with a net book value of
approximately $19,400 and $7,000, under capital lease agreements during the
years ended 1995 and 1996, respectively.
The Company distributed a non-cash dividend to its former stockholder
totaling $170 during the year ended 1996. This dividend consisted of assets
in excess of liabilities owed to the former stockholder.
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--Arizona Rent-A-Car Systems, Inc. (the Company) is
engaged in the business of the daily rental of vehicles, including cars,
trucks and passenger vans. The Company operates as the exclusive licensee of
Budget Rent-A-Car Corporation (BRAC) for the state of Arizona. The Company is
obligated to pay certain monthly fees and meet certain other requirements
defined in the license agreement.
On February 27, 1996, Team Rental Group, Inc. (TEAM) purchased all of the
outstanding stock of the Company. TEAM owns and operates Budget vehicle
rental franchises granted by BRAC.
BASIS OF PRESENTATION--The consolidated financial statements include the
accounts of the Company and BRAC Car Sales, Inc., a wholly-owned subsidiary
of the Company. BRAC Car Sales, Inc. ceased operations in May 1995 and their
financial results have been reflected in the financial statements as
discontinued operations for 1994, 1995 and 1996. All significant
inter-company accounts and transactions have been eliminated.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires Company management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RENTAL VEHICLES--Rental vehicles are stated at cost less related discounts
and are depreciated over their estimated economic lives or at rates
corresponding to the manufacturers' repurchase program guidelines, where
applicable. Depreciation rates range from 1% to 3% per month. Management
periodically reviews depreciable lives and rates based on a variety of
factors including general economic conditions and estimated holding periods
of the vehicles. Gains and losses upon the sale of rental vehicles are
recorded as an adjustment to depreciation expense.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Depreciation is being provided on the straight-line and accelerated methods
over the following estimated useful lives:
Buildings 31 years
Equipment, furniture and fixtures 3 - 10 years
Capital leases and leasehold improvements lesser of estimated useful
lives or terms of related leases
GOODWILL AND OTHER INTANGIBLES--Goodwill represents the excess of purchase
price over the fair value of identifiable net assets acquired and is being
amortized using the straight-line method over forty years. Other intangibles
represent acquisition costs of sub-franchisees allocated to franchise
agreements, customer lists and other items, and are being amortized on the
straight-line method over their estimated lives, ranging from five to ten
years.
VEHICLE SELF-INSURANCE RESERVE--At February 29, 1996, the Company has
automobile liability insurance coverage of up to $1,000 with a $300 retention
per occurrence with respect to personal injury and damage claims arising from
the use of its vehicles . The Company estimates and records reserves on all
reported claims. The Company provides reserves on claims incurred but not
reported based on actuarial estimates. The actuarially determined reserves
are necessarily based on estimates, and while management believes that the
amounts are adequate, the ultimate liability may be in excess of, or less
than, the amounts provided. Such estimates are reviewed and evaluated in
light of emerging claim experience and existing circumstances. Any changes in
estimates from this review process are reflected in operations currently.
F-47
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ADVERTISING, PROMOTION AND SELLING--Advertising, promotion and selling
expenses are charged to expense as incurred. The Company incurred advertising
expense of $1,055, $521 and $335 in 1994, 1995 and 1996, respectively.
INCOME TAXES--Deferred income taxes are provided in amounts sufficient to
give effect to timing differences between financial and tax reporting,
principally related to depreciation of rental vehicles and property and
equipment, self-insurance reserves and income tax credit carryforwards.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1994
and 1995 consolidated statements to conform to the 1996 presentation.
NOTE 2--CHANGE IN DEPRECIATION METHOD OF RENTAL VEHICLES
Depreciation of rental vehicles has been computed using the number of days
method for the year ended February 29, 1996. Depreciation in prior years was
computed using the number of months method. The new method of depreciation
was adopted to more accurately reflect the holding cost of rental vehicles.
Pro-forma amounts have not been included due to immateriality.
NOTE 3--CHANGE IN ACCOUNTING ESTIMATE
During the year ended February 28, 1995, the Company revised the estimated
rate of depreciation of capital assets. If the Company would have continued
to use the prior depreciation rates the Company's net loss before income
taxes for the year ended February 28, 1995 would have been increased by
approximately $750. The effect for the year ended February 29, 1996 of the
revised estimated rate of depreciation of capital leases cannot be accurately
determined.
NOTE 4--OTHER PROPERTY AND EQUIPMENT
Other property and equipment consisted of the following as of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Land ........................................... $1,303 $ 1,303 $1,303
Buildings ...................................... 3,327 1,679 1,680
Leasehold improvements ......................... 1,443 3,419 3,102
Furniture and fixtures ......................... 415 434 881
Signs .......................................... 174 202 174
Equipment ...................................... 2,413 2,683 2,112
Computer software .............................. 627 658 651
-------------- -------------- --------------
9,702 10,378 9,903
Less accumulated depreciation and amortization 2,685 3,353 4,497
-------------- -------------- --------------
OTHER PROPERTY AND EQUIPMENT--NET ............ $7,017 $ 7,025 $5,406
============== ============== ==============
</TABLE>
Effective March 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
that long-lived assets and certain identifiable assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of these assets may not be recoverable. Upon adoption of
this standard, the Company reduced the useful lives for certain
F-48
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 4--OTHER PROPERTY AND EQUIPMENT (Continued)
leasehold improvements due to changes in the business climate. This change
resulted in an increase in amortization expense of approximately $720 for the
year ended February 29, 1996. This is included in Operating Expenses in the
1996 Statement of Income and Retained Earnings. Depreciation and amortization
expense on property and equipment was $618, $641 and $1,428 for the years
ended 1994, 1995 and 1996, respectively.
NOTE 5--NOTES PAYABLE--RENTAL VEHICLES
The following is a summary of notes payable--rental vehicles as of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Notes payable .................. $54,525 $68,830 $37,478
Capital lease obligation--TEAM -- -- 30,472
Capital lease obligation--Other 22,291 7,865 57
-------------- -------------- --------------
Total ........................ $76,816 $76,695 $68,007
============== ============== ==============
</TABLE>
Notes payable are short-term borrowings with various lenders. The note
agreements provide for principal payments ranging from 1 1/2 % to 3% of the
original note balance per month, but may be accelerated upon the occurrence
of certain events including the sale of vehicles. The notes bear interest on
formulas based on prime or the federal reserve 30-day direct commercial paper
rate. The rates ranged from 6.00% to 6.75%, 8.55% to 10.75% and 8.85% to
10.75% at the end of fiscal 1994, 1995 and 1996, respectively. The notes are
secured by rental vehicles and all inventories and receivables. The Company
is responsible for maintaining certain financial ratios under the terms of
their loan agreements, of which certain of these ratios have not been
satisfied at February 29, 1996. Waivers have been granted or the obligations
subsequently satisfied for those ratios not satisfied.
In December 1995, the Company entered into an arrangement to lease
vehicles from TEAM under a capital lease. Lease payments are calculated based
on TEAM's borrowing interest rate and depreciation equal to the
manufacturers' depreciation rates. The Company entered into another capital
lease agreement in December 1994 to acquire rental vehicles with no
additional vehicle leases allowed after February 28, 1995. The Company is
obligated to make monthly rental payments which are computed in a manner
similar to that used in determining the principal and interest payments due
under the Company's lending agreement with this lessor. The Company is
accounting for both of these lease arrangements as capital leases whereby
upon lease inception it records the cost of the related rental vehicles and
the entire lease obligation, including the residual guarantee.
The following is a summary of vehicles under these capital leases as of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Vehicle cost ................... $22,064 $7,976 $30,435
Less: accumulated depreciation 533 214 672
-------------- -------------- --------------
Net .......................... $21,531 $7,762 $29,763
============== ============== ==============
</TABLE>
Interest expense on the vehicle notes payable and capital lease
obligations was $3,894, $5,082 and $5,361 for the years ended 1994, 1995 and
1996, respectively.
F-49
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 5--NOTES PAYABLE--RENTAL VEHICLES (Continued)
Depreciation expense for rental vehicles was approximately $16,326,
$13,382 and $13,770 for the years ended 1994, 1995 and 1996, respectively,
including amortization for vehicles under capital leases.
NOTE 6--NOTES PAYABLE--OTHER
Notes payable--other consisted of the following as of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Mortgages on real estate properties requiring monthly
principal payments of $29 plus interest at rates
ranging from 6.25% to 8.75% in 1994 and 9.25% to
11.75% in 1995. This debt was paid by TEAM in 1996
(See Note 11) ....................................... $1,497 $1,166 $--
Loan from former stockholder requiring interest
payments of prime plus .50%. This loan was repaid
concurrent with the sale of the Company to TEAM .... 100 322 --
Notes payable on insurance premiums, was secured by
unearned premiums and unpaid claims, and beared
interest at 6.61% as of February 28, 1994 ........... 85 -- --
-------------- -------------- --------------
TOTAL NOTES PAYABLE--OTHER ......................... $1,682 $1,488 $--
============== ============== ==============
</TABLE>
Interest expense on the above debt was $166, $146 and $136 for the years
ended 1994, 1995 and 1996, respectively; of which $13, $17 and $31 was
related to the loan from the stockholder for the years ended 1994, 1995 and
1996, respectively.
NOTE 7--INCOME TAXES
The components of the provision (benefit) for income taxes are as follows
for the years ended:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Current ................................ $685 $(730) $ 146
Deferred ............................... 80 681 (2,420)
-------------- -------------- --------------
PROVISION (BENEFIT) FOR INCOME TAXES $765 $ (49) $(2,274)
============== ============== ==============
</TABLE>
F-50
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 7--INCOME TAXES (Continued)
The deferred tax asset (liability) consisted of the following as of:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net deferred tax liabilities resulting primarily from
tax and financial reporting differences in recording
depreciation on rental vehicles and property and
equipment ........................................... $(3,145) $(4,345) $(1,645)
Net deferred tax asset resulting primarily from
nondeductible self-insurance reserves, bad debt
allowances and deferred compensation ................ 700 695 1,210
Net deferred tax asset resulting from net operating
loss and credit carryforwards ....................... 950 1,475 680
-------------- -------------- --------------
NET DEFERRED TAX ASSET (LIABILITY) ................. $(1,495) $(2,175) $ 245
============== ============== ==============
</TABLE>
As of February 29, 1996, the Company had an alternative minimum tax credit
carryforward for income tax purposes of approximately $400, which has an
indefinite carryforward period, and general business tax credit carryovers of
approximately $225, which expire through 2001.
The income tax provisions for the years ended 1994, 1995 and 1996 do not
bear the customary relationship to the federal statutory rate due to state
taxes, permanent nondeductible expenses and adjustments to the estimates used
in computing the income tax provision for the previous year.
NOTE 8--FACILITY LEASE COMMITMENTS
The Company leases the land for its major airport facility from the city
of Phoenix under a noncancellable lease expiring in the year 2004. The base
annual rental is $161 with annual increases based on changes in the Consumer
Price Index.
The Company has a license to operate as an auto rental agency in the
Phoenix Sky Harbor International Airport which expires on October 31, 2000.
Rents due under this agreement are the greater of 10% of gross receipts, or
annual minimum rentals of $2,612. In addition, the Company is leasing parking
space and other related facilities for $325 per year.
The Company also leases facilities from former stockholders (see Note 11).
The Company leases additional rental locations on a month-to-month basis
which call for payment of fixed amounts and contingent percentage rentals.
Future minimum lease payments under all operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING FEBRUARY 28:
- -------------------------
<S> <C>
1997 ..................... $ 2,876
1998 ..................... 2,911
1999 ..................... 2,937
2000 ..................... 2,937
2001 ..................... 2,030
Thereafter ............... 565
--------
$14,256
========
</TABLE>
F-51
<PAGE>
ARIZONA RENT-A-CAR SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1994 AND 1995, AND FEBRUARY 29, 1996
(IN 000S)
NOTE 8--FACILITY LEASE COMMITMENTS (Continued)
Total rent expense on all operating leases for rental locations was
$3,821, $3,910 and $3,819 for the years ended 1994, 1995 and 1996,
respectively.
NOTE 9--RETIREMENT PLANS
The Company has a defined contribution employee profit sharing plan. All
employees of the Company are eligible upon satisfying entrance requirements.
Contributions, not to exceed 15% of qualified compensation, are at the
discretion of management. The Company's contribution to the Plan was $100 for
the year ended 1994. The Company did not make contributions in 1995 and 1996.
The Company has also instituted a 401(k) retirement plan whereby all
eligible employees may make contributions to the Plan. The Plan also provides
for discretionary Company contributions. The Company made plan contributions
of $29, $29 and $18 during the years ended 1994, 1995 and 1996, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
As of February 29, 1996, cash deposits in certain banks exceeded the
Federal Deposit Insurance Corporation insured limits by approximately $535.
At February 28, 1995 and February 29, 1996, the Company has recorded
approximately $450 and $650, respectively, for the potential settlement costs
of various claims. It is reasonably possible that there may be a change in
this estimate in the near term.
NOTE 11--TRANSACTIONS WITH RELATED PARTIES
Under the terms of sale of the Company's stock to TEAM, the former
stockholders accepted promissory notes which are collateralized by the stock
of the Company.
The Company leases a facility from these former stockholders. This lease
expires in September 2000, and requires base monthly rentals of $6. The
Company is responsible for additional rents based on a percentage of monthly
revenues in excess of those defined in the leases, as well as real estate
taxes. Rent expense on this location was $217, $310 and $303 for the years
ended 1994, 1995 and 1996, respectively.
The Company also leased facilities associated with BRAC Car Sales, Inc.
from the former principal stockholder. This lease was canceled in 1995 (see
Note 12). Rent expense on these locations was $315, $279 and $136 for the
years ended 1994, 1995 and 1996, respectively.
Upon acquiring the Company, TEAM satisfied the outstanding real estate
notes. This payable to TEAM of $852 at February 29, 1996 is included in Other
Liabilities on the Balance Sheet.
NOTE 12--DISCONTINUED OPERATIONS
On May 1, 1995, BRAC Car Sales Inc. ceased operations. The Company had
leased facilities associated with this operation from the former principal
stockholder. These lease obligations were canceled by this stockholder in
1995. In addition, this stockholder purchased the leasehold improvements and
certain other assets of BRAC Car Sales, Inc. at their net book values. The
used vehicle inventories were sold and the related flooring notes were
satisfied with the lenders. All other assets and liabilities of BRAC Car
Sales, Inc. were assumed by the Company. Any losses incurred after the
disposal date are considered to be losses from operations of the discontinued
segment, and are included in the accompanying financial statements.
F-52
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 9
The Company ................................ 14
Use of Proceeds ............................ 15
Price Range of Common Stock ................ 15
Dividend Policy ............................ 15
Capitalization ............................. 16
Pro Forma Consolidated Financial
Statements ................................ 17
Selected Financial Data .................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................ 24
Business ................................... 30
Management ................................. 40
Certain Transactions ....................... 44
Principal and Selling Stockholders ........ 47
Description of Capital Stock ............... 49
Shares Eligible for Future Sale ............ 52
Underwriting ............................... 53
Notice to Canadian Residents ............... 54
Legal Matters .............................. 55
Experts .................................... 55
Additional Information ..................... 55
Index to Financial Statements .............. F-1
</TABLE>
[TEAM RENTAL LOGO]
4,000,000 Shares
Class A Common Stock
PROSPECTUS
CS First Boston
The Chicago Corporation
McDonald & Company
Securities, Inc.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the issuance
and distribution of the securities being registered, all of which will be
paid by the Company:
<TABLE>
<CAPTION>
<S> <C>
* Securities and Exchange Commission registration fee $ 23,164
* NASD filing fee and expenses ........................ 7,217
* Nasdaq Stock Market listing fee ..................... 17,500
Blue Sky qualification fees and expenses ............ 1,500
Transfer agents' fees ............................... 10,000
Printing and engraving expenses ..................... 200,000
Legal fees and expenses ............................. 165,000
Accounting fees and expenses ........................ 175,000
Miscellaneous ....................................... 35,619
---------
Total ............................................. $635,000
=========
</TABLE>
- ------------
* Actual.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides that a corporation has the power to indemnify any director
or officer, or former director or officer, who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) against the
expenses, (including attorney's fees), judgments, fines or amounts paid in
settlement actually and reasonably incurred by them in connection with the
defense of any action by reason of being or having been directors or
officers, if such person shall have acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
that such person had no reasonable cause to believe his conduct was unlawful,
except that, if such action shall be in the right of the corporation, no such
indemnification shall be provided as to any claim, issue or matter as to
which such person shall have been judged to have been liable to the
corporation unless and to the extent that the Court of Chancery of the State
of Delaware, or any court in which such suit or action was brought, shall
determine upon application that, in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper.
As permitted by Section 102(b)(7) of the DGCL, the Amended and Restated
Certificate of Incorporation of the Company (filed herewith as Exhibit 3.1)
(the "Restated Certificate of Incorporation") provides that no director shall
be liable to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director other than (i) for breaches of the director's
duty of loyalty to the Company and its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for the unlawful payment of dividends or
unlawful stock purchases or redemptions under Section 174 of the DGCL, and
(iv) for any transaction from which the director derived an improper personal
benefit.
The Company's Bylaws provide indemnification of the Company's directors
and officers, both past and present, to the fullest extent permitted by the
DGCL, and allow the Company to advance or reimburse litigation expenses upon
submission by the director or officer of an undertaking to repay such
advances or reimbursements if it is ultimately determined that
indemnification is not available to such director or officer pursuant to the
Bylaws. The Company's Bylaws also authorize the Company to
II-1
<PAGE>
purchase and maintain insurance on behalf of an officer or director, past or
present, against any liability asserted against him in any such capacity
whether or not the Company would have the power to indemnify him against such
liability under Section 145 of the DGCL.
The Company has entered into indemnification agreements with certain of
its directors and executive officers. The indemnification agreements require
the Company, among other things, to indemnify such directors and officers
against certain liabilities that may arise by reason of their status or
service as directors or officers (other than liabilities arising from willful
misconduct of a culpable nature), and to advance their expenses incurred as a
result of any preceding against them as to which they could be indemnified.
The Underwriting Agreement filed herewith as Exhibit 1.1 provides for the
indemnification by the Underwriters of directors and certain officers of the
Company against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On April 21, 1994, Messrs. Miller, Kennedy and Congdon each subscribed for
50 shares of the Class B Common Stock, at a price per share of $2.00 per
share (the "Initial Share Subscription"). The Initial Share Subscription was
effected pursuant to an exemption from registration under Section 4(2) of the
Securities Act in reliance, in part, on each of the subscribers'
representations and warranties set forth in their respective subscription
agreements and based on their status as the Principal Executive Officers of
the Company.
Concurrent with the initial public offering by the Company, the Company
and Messrs. Miller, Congdon, Kennedy, Britton, Hinkle and Sapia (the
"Exchange Stockholders") entered into a Share Exchange Agreement (the
"Exchange Agreement") providing for the exchange of all of the shares of
common stock of the corporations that owned the Albany and Rochester, New
York, Richmond, Virginia and San Diego, California Budget franchise
operations for shares of Common Stock. Pursuant to the Exchange Agreement,
the Exchange Stockholders received the following shares of Common Stock:
<TABLE>
<CAPTION>
STOCKHOLDER SHARES
- -------------------- --------------------------------
<S> <C>
Sanford Miller ...... 905,750 Class B Common Stock
Jeffrey Congdon .... 515,350 Class B Common Stock
John Kennedy ........ 515,350 Class B Common Stock
Brian Britton ....... 215,000 Class A Common Stock
Richard Hinkle ...... 150,000 Class A Common Stock
Richard Sapia ....... 198,400 Class A Common Stock
</TABLE>
The Share Exchange was effected pursuant to the exemption from
registration under Section 4(2) of the Securities Act in reliance, in part,
on each of the Exchange Stockholders' representations and warranties set
forth in the Exchange Agreement and based on their status as executive
managers of the Company.
In November 1994, the Company issued an aggregate of 18,500 shares of
Class A Common Stock to the stockholders of Fort Wayne Rental Group, Inc.
("Fort Wayne") in exchange for all of the outstanding shares of capital stock
of Fort Wayne (the "Fort Wayne Acquisition"). The Class A Common Stock issued
in the Fort Wayne Acquisition were issued to the following persons: Sanford
Miller--7,400 shares, Richard Sapia--6,475 shares, and Andrew Klein--4,625
shares. Such shares of Class A Common Stock were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act in
reliance, in part, on the representations and warranties set forth in the
Fort Wayne Acquisition agreement.
In January 1995, the Company issued 13,483 shares of Class A Common Stock
to MacKay Car & Truck Rentals, Inc. in partial consideration for all of the
outstanding shares of capital stock of McKay Car & Truck Rentals, Inc. (the
"Charlotte Acquisition"). The shares of Class A Common Stock issued in the
Charlotte Acquisition were issued pursuant to an exemption registration under
Section 4(2) of the Securities Act in reliance, in part, upon the
representations and warranties set forth in the Charlotte Acquisition
agreement.
II-2
<PAGE>
In March 1995, the Company issued 157,333 shares of Class A Common Stock
to the shareholders of Rental Car Resources, Inc. ("Resources") in exchange
for all of the outstanding shares of Rental Car Resources, Inc. (the
"Hartford Acquisition"). The shares of Class A Common Stock issued in the
Hartford Acquisition were so issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act in reliance, in part,
on the representations and warranties set forth in the Hartford Acquisition
agreement.
In October 1995, the Company issued 1,050,000 shares of Class A Common
Stock to Budget Rent a Car of Southern California ("SoCal") in exchange for
all of the outstanding shares of BRAC-OPCO, Inc. (the "Los Angeles
Acquisition"). The shares of Class A Common Stock issued in the Los Angeles
Acquisition were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act in reliance, in part, on SoCal's
representations and warranties set forth in the Los Angeles Acquisition
agreement.
In February 1996, the Company issued 272,727 shares of Class A Common
Stock to Katzin Investments L.C. in partial consideration for all of the
outstanding shares of capital stock of Arizona Rent-A-Car Systems, Inc. (the
"Phoenix Acquisition"). The shares of Class A Common Stock issued in the
Phoenix Acquisition were issued pursuant to an exemption from registration
under Section 4(2) of the Securities Act in reliance, in part, upon the
representations and warranties set forth in the Phoenix Acquisition
agreement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
<S> <C>
*1.1 Form of Underwriting Agreement.
2.1 Share Exchange Agreement dated April 25, 1994 among Team Rental Group, Inc., Sanford
Miller, Jeffrey Congdon, John Kennedy, Brian Britton, Richard Hinkle and Richard Sapia
(incorporated by reference to Exhibit 10.24 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
2.2 First Amendment to Share Exchange Agreement dated June 13, 1994 among Team Rental Group,
Inc., Sanford Miller, Jeffrey Congdon, John Kennedy, Brian Britton, Richard Hinkle and
Richard Sapia (incorporated by reference to Exhibit 10.36 to Amendment No. 1 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated June 17, 1994).
2.3 Second Amendment to Share Exchange Agreement dated July 5, 1994 among Team Rental Group,
Inc., Sanford Miller, Jeffrey Congdon, John Kennedy, Brian Britton, Richard Hinkle and
Richard Sapia (incorporated by reference to Exhibit 10.38 to Amendment No. 2 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated July 7, 1994).
2.4 Asset Purchase Agreement, dated April 25, 1994, among Freedom River, Inc., Chrysler
Credit Corporation, Team Rental of Cincinnati, Inc., Team Rental of Philadelphia, Inc.
and Team Rental of Pittsburgh, Inc. (incorporated by reference to Exhibit 10.21 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
2.5 Agreement, dated October 20, 1995, among Team Rental Group, Inc., Team Rental of Southern
California, Inc., BRAC-OPCO, Inc., and Budget Rent a Car of Southern California
(incorporated by reference to Exhibit 2.5 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
II-3
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
2.6 Stock Purchase Agreement, dated as of December 21, 1995, by and among the Company,
Arizona Rent-A-Car Systems, Inc., David Katzin, Michael Katzin, Jon David Katzin,
Gabrielle De Lavigne, the David Katzin Irrevocable Trust (dated November 17, 1989) and
Katzin Investments L.C. (incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated December 21, 1995).
2.7 Stock Purchase Agreement, dated as of November 1, 1994, by and between Team Rental of Ft.
Wayne, Inc., Sanford Miller, Richard Sapia and Andrew Klein (incorporated by reference to
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the year ended December 31,
1994).
2.8 Agreement, dated as of December 20, 1994, among the Company, MacKay Car & Truck Rentals,
Inc. and Kenneth V. MacKay (incorporated by reference to Exhibit 10 to the Company's
Current Report on Form 8-K dated January 13, 1995).
2.9 Agreement, dated December 22, 1994, by and among Don Kremer Lincoln Mercury, Inc.,
Richard E. Hagopian, and Team Rental Group, Inc. (incorporated by reference to Exhibit
10.30 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
2.10 Agreement, dated as of March 8, 1995, among Team Rental of Connecticut, Inc., Team Rental
Group, Inc., Rental Car Resources Inc. and James Salatto and Joseph Salatto (incorporated
by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, File No.
33-78274, dated April 28, 1994).
* 3.2 Amendment to Amended and Restated Certificate of Incorporation of the Company.
3.3 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
4.1 Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
4.2 Base Indenture between Team Fleet Financing Corporation, as Issuer, Team Rental Group,
Inc., as Servicer and Team Interestholder, and Bankers Trust Company, as Trustee,
relating to Rental Car Asset Backed Notes (incorporated by reference to Exhibit 4.1 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1994).
4.3 Supplemental Indenture relating to Rental Car Asset Backed Notes (incorporated by
reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
4.4 Base Indenture among BRAC SOCAL Funding Corporation, as Issuer, BRAC-OPCO, Inc., as
Servicer and Retained Interestholder, and Bankers Trust Company, as Trustee (incorporated
by reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
4.5 Series 1995-1 Supplement to Base Indenture among BRAC SOCAL Funding Corporation, as
Issuer, BRAC-OPCO, Inc., as Servicer and Retained Interestholder, and Bankers Trust
Company, as Trustee (incorporated by reference to Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
II-4
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
4.6 Supplement No. 1 to Indenture, dated as of October 20, 1995, among BRAC SOCAL Funding
Corporation, BRAC-OPCO, Inc., Team Rental of Southern California, Inc., and Bankers Trust
Company (incorporated by reference to Exhibit 4.7 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995).
4.7 Master Motor Vehicle Lease and Servicing Agreement by and among Team Fleet Financing
Corporation, as Lessor, Team Rental Group, Inc., as Guarantor, and Tranex Rentals of New
York, Inc., Capital City Leasing, Inc., Lee-Al, Inc., Westeam Enterprises, Inc., Team
Rental of Philadelphia, Inc., Team Rental of Pittsburgh, Inc. and Team Rental of
Cincinnati, Inc., as Lessees (incorporated by reference to Exhibit 4.3 to the Company's
Annual Report on form 10-K for the year ended December 31, 1994).
**4.8 Master Motor Vehicle Lease and Servicing Agreement, dated February 15, 1995 among BRAC
SOCAL Funding Corporation, as Lessor, BRAC OPCO, Inc. and certain other affiliates, as
Lessees, relating to the Second Fleet Financing Facility.
4.9 First Amendment to Registration Rights Agreement, dated as of November 1, 1994, among the
Company, Brian Britton, Jeffrey Congdon, Richard Hinkle, John Kennedy, Sanford Miller and
Richard Sapia (incorporated by reference to Exhibit 10.24 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
4.10 Letter Agreement, dated as of November 1, 1994, between Andrew Klein and the Company
acknowledging that Andrew Klein is a party to the Registration Rights Agreement, dated as
of August 25, 1994, as amended (incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994).
4.11 Registration Rights Agreement, dated March 8, 1995, by and among Team Rental Group, Inc.
and James Salatto (incorporated by reference to Exhibit 4.12 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
4.12 Registration Rights Agreement, dated as of October 20, 1995, between Team Rental Group,
Inc. and Budget Rent a Car of Southern California (incorporated by reference to Exhibit
4.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
4.13 Registration Rights Agreement, dated as of February 27, 1996, between Team Rental Group,
Inc. and Katzin Investments L.C. (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated February 27, 1996).
4.14 Warrant No. 1-1994, dated as of August 24, 1994, to purchase 175,000 shares of Class A
Common Stock, par value $.01 per share, of the Company, issued to Budget Rent a Car
Corporation (incorporated by reference to Exhibit 10.26 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
* 5.1 Opinion of King & Spalding.
10.1 Sublicense Agreement dated April 1, 1987 between Budget Rent A Car of Southern California
and Westeam Enterprises, Inc. (incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
II-5
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
10.2 Sublicense Agreement dated October 28, 198 between Budget Rent A Car of Southern
California and Lee-Al, Inc. (incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
**10.3 Letter Agreement dated October 23, 1989 between Transportation and Storage Associates
d/b/a Budget Rent a Truck of Southern California and Budget Rent a Car of Southern
California.
10.4 Prime License Agreement dated August 25, 1994 between Budget Rent A Car Corporation and
Team Rental of Pittsburgh, Inc. d/b/a Budget Rent A Car of Pittsburgh, Pennsylvania,
together with Addendum to License Agreement: Right of First Refusal, dated August 25,
1994 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on form
10-K for the year ended December 31, 1994).
10.5 Prime License Agreement dated August 25, 1994 between Budget Rent A Car Corporation and
Team Rental of Cincinnati, Inc. d/b/a Budget Rent A Car of Cincinnati, Ohio (incorporated
by reference to Exhibit 10.6 to the Company's Annual Report on form 10-K for the year
ended December 31, 1994).
10.6 Prime License Agreement dated August 25, 1994 between Budget Rent A Car Corporation and
Team Rental of Philadelphia, Inc. d/b/a Budget Rent A Car of Philadelphia, Pennsylvania,
together with Addendum to License Agreement dated August 25, 1994 and Addendum to License
Agreement: Right of First Refusal, dated August 25, 1994 (incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.7 Prime License Agreement dated July 1, 1985 between Budget Rent a Car Corporation and
Capital City Leasing, Inc. d/b/a Budget Rent a Car of Richmond, Virginia, as amended by
the Letter dated April 26, 1994 from Budget Rent a Car Corporation to Team Rental Group
together with Consent Agreement Assignment of Prime License dated December 5, 1991 among
Budget Rent a Car Corporation, JHF Enterprises, Inc. and Capital City Leasing, Inc. d/b/a
Budget Rent a Car of Richmond, Virginia (incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
10.8 Prime License Agreement dated November 8, 1991 between Budget Rent a Car Corporation and
Tranex Rentals of New York, Inc. d/b/a Budget Rent a Car of Rochester, New York
(incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.9 Prime License Agreement dated August 1, 1991, between Budget Rent A Car Corporation and
Tranex Rentals of New York, Inc. d/b/a Budget Rent A Car of Albany, New York
(incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.10 Budget Rent a Car System Prime License Agreement, dated August 25, 1994, between Budget
Rent a Car Corporation and Westeam Enterprises, Inc. d/b/a Budget Rent a Truck of San
Diego, California (incorporated by reference to Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
II-6
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
10.11 Amended and Restated Sublicense Agreement, dated as of October 20, 1995, between Budget
Rent a Car of Southern California and Team Rental of Southern California, Inc., along
with Corporate Guaranty of Team Rental Group, dated as of October 20, 1995 (incorporated
by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.12 Car Rental Operating License dated October 1, 1982 between the City of Philadelphia,
Automotive Rentals, Inc. d/b/a Budget Rent A Car of Philadelphia and Budget Rent A Car
Corporation (incorporated by reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
10.13 Prime License Agreement dated February 1, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Connecticut, Inc. d/b/a Budget Rent a Car of Hampden,
Massachusetts (incorporated by reference to Exhibit 10.13 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.14 Prime License Agreement dated February 1, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Connecticut, Inc. d/b/a Budget Rent a Car of Hartford and
New Haven, Connecticut (incorporated by reference to Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.15 Prime License Agreement dated December 22, 1994 by and between Budget Rent a Car
Corporation and Team Rental of Dayton, Inc. d/b/a Budget Rent a Car of Dayton and Budget
Car Sales (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.16 Prime License Agreement dated December 22, 1994 by and between Budget Rent a Car
Corporation and Team Rental of Dayton, Inc. d/b/a Budget Rent a Car of Richmond, Indiana
(incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.17 Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of Hickory, North
Carolina (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.18 Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of Charlotte,
North Carolina (incorporated by reference to Exhibit 10.18 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.19 Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of Asheville,
North Carolina (incorporated by reference to Exhibit 10.19 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995).
10.20 Prime License Agreement dated October 1, 1976 by and between Budget Rent a Car
Corporation of America and Don Kremer, Inc. d/b/a Budget Rent a Car of Dayton, as amended
by Amendment to License Agreement dated November 1, 1991 (incorporated by reference to
Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
II-7
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
* 10.21 Agreement dated November 23, 1960 between Rent-A-Car Services Corporation and Frank
Katzin, Ernst Sielaff and Harry Verblen, as co-partners, d/b/a Budget Rent-A-Car of
Arizona, as amended by the Addendum dated November 23, 1960, the Agreement dated October
, 1961, the Release Agreement dated December 30, 1963, the Amendatory Agreement dated
November 1, 1966, the Amendment to Franchise Agreement dated March 18, 1968, the Addendum
to License Agreement dated April 4, 1969, the Amendatory Agreement dated August 31, 1979,
the Second Amendatory Agreement dated August 31, 1979 and the letter agreement dated
January 27, 1981, together with the Consent to and Agreement of Assignment dated December
, 1962 among Budget Rent-A-Car Corporation of America, Frank Katzin, Harry Verblen and
Ernst Sielaff, as co-partners d/b/a Budget Rent-A-Car of Arizona, and David Katzin and
Charles H. Juliusburg, and the Consent to and Agreement of Assignment dated April 3, 1968
among Budget Rent-A-Car Corporation of America, Frank Katzin, Ernst Sielaff, David Katzin
and Charles Juliusburg, as co-partners d/b/a budget Rent-A-Car of Arizona, Margaret F
Katzin.
10.22 Lease Agreement dated September 1, 1993 between Tranex Partners and Tranex Rentals of New
York, Inc., as amended by First Agreement dated as of July 1, 1994 (incorporated by
reference to Exhibit 10.40 to the Company's Registration Statement on Form S-1, File No.
33-78274).
**10.23 Airport Concession Agreement between City of Phoenix (Aviation Department) and Arizona
Rent-a-Car Systems, Inc. dated November 1, 1990.
10.24 Lease Agreement dated September 1, 1993 between Miller and Hinkle, a Florida general
partnership, and Capital City Leasing, Inc., as amended by First Amendment dated as of
July 1, 1994 (Henrico County, Virginia) (incorporated by reference to Exhibit 10.41 to
Amendment No. 3 to the Company's Registration Statement on Form S-1, File No. 33-78274,
dated August 12, 1994).
**10.25 Lease Agreement dated June 1, 1994 between Miller and Hinkle, a Florida general
partnership, and Capital City Leasing, Inc. (Chesterfield County, Virginia).
10.26 Lease Agreement dated as of September 12, 1995 between MCK Real Estate Corporation, Team
Car Sales of Richmond, Inc. and Team Rental Group, Inc. (incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.27 Agreement of Lease dated as of August 31,1995 between MCK Real Estate Corporation and
Team Rental of Philadelphia, Inc. (incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.28 Environmental Remediation Agreement between Chrysler Credit Corporation and Team Rental
Group, Inc. (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.29 Agreement between Team Rental Group, Inc. and Transportation & Storage Associates dated
April 5, 1994 (incorporated by reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
10.30 Share Purchase Agreement dated January 11, 1996 between Chrysler Corporation and the
Company (incorporated by reference to Exhibit 2.2 to the Company's Form 10-Q for the
quarter ended March 31, 1996).
II-8
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
10.31 First Amended and Restated Credit Agreement, dated as of January 12, 1995, among Team
Fleet Services Corporation, the Company and NBD Bank, N.A. (incorporated by reference to
Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.32 First Amendment to Credit Agreement dated May 23, 1995 (incorporated by reference to
Exhibit 10.38 to the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.33 Second Amendment to Credit Agreement dated July 11, 1995 (incorporated by reference to
Exhibit 10.39 to the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.34 Third Amendment to Credit Agreement dated December 29, 1995 (incorporated by reference to
Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.35 Fourth Amendment to Credit Agreement dated February 27, 1996 (incorporated by reference
to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the year ended December
31, 1995).
10.36 Fifth Amendment to Credit Agreement dated March 28, 1996 (incorporated by reference to
Exhibit 10.3 to the Company's Form 10-Q for the quarter ended March 31, 1996)
**10.37 Sixth Amendment to Credit Agreement dated May 1, 1996.
**10.38 Seventh Amendment to Credit Agreement dated May 31, 1994
10.39 Credit Agreement dated May 16, 1995 by and among Team Rental Group, Inc., Team Fleet
Services Corporation and BankOne Indianapolis, N.A. (incorporated by reference to Exhibit
10.42 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.40 First Amendment to BankOne Credit Agreement dated November 1, 1995 (incorporated by
reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.41 Second Amendment to BankOne Credit Agreement dated February 2, 1996 (incorporated by
reference to Exhibit 10.44 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.42 Form of World Omni, Inc. Term Note (incorporated by reference to Exhibit 10.45 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.43 Promissory Note, dated February 27, 1996, from Team Rental of Southern California, Inc.
to Budget Rent a Car of Southern California in the principal amount of approximately
$4,775,000 (incorporated by reference to Exhibit 10.46 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.44 Promissory Note, dated February 27, 1996, from the Company to Katzin Investments L.C. in
the aggregate principal amount of $10,000,000 (incorporated by reference to Exhibit 10.47
to the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.45 Term Note dated February 27, 1996 from NationsBank, N.A. (South) to the Company
(incorporated by reference to Exhibit 10.48 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
II-9
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------
10.46 Amendment No. 1 to Team Note dated April 2, 1996 from NationsBank, N.A. (South) to the
Company (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended
March 31, 1996).
**10.47 Amendment No. 2 to Team Note dated May 27, 1996 from NationsBank, N.A. (South) to the
Company.
10.48 Revolving Credit Agreement by and between VPSI, Inc. and NationsBank, N.A. (South) dated
February 6, 1996 (incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q
for the quarter ended March 31, 1996).
10.49 Amendment and Waiver No. 1 to Revolving Credit Agreement and Security Agreement by and
between VPSI, Inc. and NationsBank, N.A. (South) dated March 28, 1996 (incorporated by
reference to Exhibit 10.5 to the Company's Form 10-Q for the quarter ended March 31,
1996).
**10.50 Revolving Credit Agreement dated as of May 31, 1996 among Team Fleet Services
Corporation, NationsBank, N.A. (South) and certain Lenders.
10.51 Subordination Agreement, dated as of October 20, 1995, among Budget Rent a Car of
Southern California, BRAC-OPCO, Inc., Team Rental Group, Inc. and Team Rental of Southern
California (incorporated by reference to Exhibit 10.49 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.52 Shareholders' Agreement, dated as of October 20, 1995, by and among Team Rental Group,
Inc., the holders of the Company's Class B Common Stock, and Budget Rent a Car of
Southern California (incorporated by reference to Exhibit 10.50 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.53 1994 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.27 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
*10.54 First Amendment to the 1994 Incentive Stock Option Plan.
10.55 1994 Director's Stock Option Plan (incorporated by reference to Exhibit 10.28 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
10.56 Indemnification Agreement dated April 25, 1994 between the Company and Sanford Miller
(incorporated by reference to Exhibit 10.29 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.57 Indemnification Agreement dated April 25, 1994 between the Company and John Kennedy
(incorporated by reference to Exhibit 10.30 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.58 Indemnification Agreement dated April 25, 1994 between the Company and Jeffrey Congdon
(incorporated by reference to Exhibit 10.31 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.59 Indemnification Agreement dated April 25, 1994 between the Company and Ronald Agronin
(incorporated by reference to Exhibit 10.32 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.60 Indemnification Agreement dated April 25, 1994 between the Company and Stephen Weber
(incorporated by reference to Exhibit 10.33 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
II-10
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
**11.1 Statement re computation of per share earnings.
**21.1 Subsidiaries of the Company.
* 23.1 Consent of Deloitte & Touche LLP
* 23.2 Consent of Michael Silver & Company
* 23.3 Consent of Coopers & Lybrand L.L.P.
* 23.4 Consent of King & Spalding (included in Exhibit 5.1).
**27.1 Financial Data Schedule.
</TABLE>
- ------------
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedules of Team Rental Group, Inc. and
subsidiaries:
Independent Auditors' Report.
Schedule I--Condensed Financial Statements of the Company.
Schedule II--Schedule of Valuation and Qualifying Accounts.
II-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Team Rental Group, Inc.:
We have audited the consolidated financial statements of Team Rental
Group, Inc. as of December 31, 1995 and 1994, and for each of the three years
in the period ended December 31, 1995, and have issued our report thereon
dated April 12, 1996 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedules listed in Item 16 of
this Registration Statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 12, 1996
II-12
<PAGE>
SCHEDULE I
TEAM RENTAL GROUP, INC.
CONDENSED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................ $ 635 $ 2,138
Investment in subsidiaries ........................................... 31,152 47,730
Other assets ......................................................... 1,500 2,701
--------- ---------
TOTAL ASSETS ....................................................... $33,287 $52,569
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Notes payable ....................................................... $ 2,610 $ 9,455
Accounts payable and accrued liabilities ............................ 1,929 1,522
--------- ---------
Total liabilities .................................................. 4,539 10,977
--------- ---------
COMMON STOCK WARRANT ................................................. 2,000 2,000
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 250,000 shares authorized, no
shares issued ......................................................
Class A common stock, $.01 par value, one vote per share, 17,500,000
shares authorized, 4,036,300 and 5,257,116 shares issued .......... 40 52
Class B common stock, $.01 par value, ten votes per share, 2,500,000
shares authorized, 1,936,600 shares issued and outstanding ........ 20 20
Additional paid-in capital .......................................... 29,159 41,984
Accumulated deficit ................................................. (2,471) (2,134)
Treasury stock at cost (36,667 shares of Class A common stock) ..... (330)
--------- ---------
Total stockholders' equity ......................................... 26,748 39,592
--------- ---------
Total .............................................................. $33,287 $52,569
========= =========
</TABLE>
See notes to financial statements.
II-13
<PAGE>
SCHEDULE I (CONTINUED)
TEAM RENTAL GROUP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1994 1995
------ ---------
<S> <C> <C>
REVENUE:
Equity in earnings of subsidiaries $749 $ 1,264
------ ---------
EXPENSES:
Personnel .......................... 295 1,301
General and administrative ......... 517 724
------ ---------
812 2,025
------ ---------
Loss from operations ............... (63) (761)
OTHER (INCOME) EXPENSE:
Interest expense ................... 20 852
Interest income .................... (69)
------ ---------
Other expense--net ................. 20 783
------ ---------
Loss before income taxes ............ (83) (1,544)
Benefit for income taxes ............ 333 1,881
------ ---------
Net income .......................... $250 $ 337
====== =========
</TABLE>
See notes to financial statements.
II-14
<PAGE>
SCHEDULE I (CONTINUED)
TEAM RENTAL GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 250 $ 337
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in earnings of subsidiaries ....................... 749 1,264
(Increase) decrease in other assets ...................... (1,436) 1,201
Increase in accounts payable and accrued liabilities .... 1,901 407
--------- ---------
Net cash provided by operations .......................... 1,464 3,209
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Increase in investments in subsidiaries ................... $(56) (3,403) (8,221)
------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable ............................... 39 2,571 6,845
Purchase of treasury stock ................................ (330)
Cash received from stockholder advances, net .............. 20
------- --------- ---------
Net cash provided by financing activities ................ 59 2,571 6,515
------- --------- ---------
Net increase in cash and cash equivalents .................. 3 632 1,503
Cash and cash equivalents, beginning of period ............. 3 635
------- --------- ---------
Cash and cash equivalents, end of period ................... $ 3 $ 635 $ 2,138
======= ========= =========
</TABLE>
See notes to financial statements.
II-15
<PAGE>
SCHEDULE I (CONTINUED)
TEAM RENTAL GROUP, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These condensed financial statements consist of the parent company
financial statements only of Team Rental Group, Inc. (the "Company")
unconsolidated for any subsidiaries or divisions of the consolidated group.
For the purpose of these stand alone parent company financial statements, the
Company accounts for its investments in subsidiaries under the equity method
of accounting. These financial statements should be read in conjunction with
the consolidated financial statements of the Company for each of the three
years in the period ended December 31, 1995. The Company was formed on
December 31, 1992 as a holding company for a number of companies engaged in
the rental of vehicles, including cars, trucks and passenger vans. For the
year ended December 31, 1993 the Company had no operations.
II-16
<PAGE>
SCHEDULE II
TEAM RENTAL GROUP, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C--ADDITIONS
--------------------------
COLUMN B CHARGED TO
BALANCE AT CHARGED TO OTHER COLUMN D-- COLUMN E--
BEGINNING OF COSTS AND ACCOUNTS DEDUCTIONS BALANCE AT END
COLUMN A--DESCRIPTION PERIOD EXPENSES DESCRIBED DESCRIBED OF PERIOD
- ----------------------------------------- -------------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts--trade
and vehicle receivable--1993 activity .. $385 $(112) $ 273
Allowance for doubtful accounts--trade
and vehicle receivable--1994 activity .. $273 $ 228 $ 501
Allowance for doubtful accounts--trade
and vehicle receivable--1995 activity .. $501 $1,796 $2,297
</TABLE>
II-17
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions referred to in Item 14 or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against the public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York on June 27, 1996.
TEAM RENTAL GROUP, INC.
By: /s/ John P. Kennedy
--------------------------------
John P. Kennedy
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in
the capacities indicated on June 27, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board and Chief Executive Officer
- ----------------------
Sanford Miller (Principal Executive Officer) and Director
/s/ John P. Kennedy President, Chief Operating Officer and Director
- ----------------------
John P. Kennedy
* Chief Financial Officer (Principal Financial and
- ----------------------
Jeffrey D. Congdon Accounting Officer), Secretary and Director
*
- ----------------------
Ronald D. Agronin Director
*
- ----------------------
James F. Calvano Director
*
- ----------------------
Stephen L. Weber Director
*
- ----------------------
Jeffrey R. Mirkin Director
*
- ----------------------
Alan D. Liker Director
</TABLE>
* By: /s/ John P. Kennedy
---------------------------
John P. Kennedy
Attorney-in-fact
II-19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
<S> <C> <C>
*1.1 Form of Underwriting Agreement.
2.1 Share Exchange Agreement dated April 25, 1994 among Team Rental Group, Inc.,
Sanford Miller, Jeffrey Congdon, John Kennedy, Brian Britton, Richard Hinkle
and Richard Sapia (incorporated by reference to Exhibit 10.24 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
2.2 First Amendment to Share Exchange Agreement dated June 13, 1994 among Team
Rental Group, Inc., Sanford Miller, Jeffrey Congdon, John Kennedy, Brian
Britton, Richard Hinkle and Richard Sapia (incorporated by reference to
Exhibit 10.36 to Amendment No. 1 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated June 17, 1994).
2.3 Second Amendment to Share Exchange Agreement dated July 5, 1994 among Team
Rental Group, Inc., Sanford Miller, Jeffrey Congdon, John Kennedy, Brian
Britton, Richard Hinkle and Richard Sapia (incorporated by reference to
Exhibit 10.38 to Amendment No. 2 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated July 7, 1994).
2.4 Asset Purchase Agreement, dated April 25, 1994, among Freedom River, Inc.,
Chrysler Credit Corporation, Team Rental of Cincinnati, Inc., Team Rental of
Philadelphia, Inc. and Team Rental of Pittsburgh, Inc. (incorporated by
reference to Exhibit 10.21 to the Company's Registration Statement on Form
S-1, File No. 33-78274, dated April 28, 1994).
2.5 Agreement, dated October 20, 1995, among Team Rental Group, Inc., Team Rental
of Southern California, Inc., BRAC-OPCO, Inc., and Budget Rent a Car of
Southern California (incorporated by reference to Exhibit 2.5 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
2.6 Stock Purchase Agreement, dated as of December 21, 1995, by and among the
Company, Arizona Rent-A-Car Systems, Inc., David Katzin, Michael Katzin, Jon
David Katzin, Gabrielle De Lavigne, the David Katzin Irrevocable Trust (dated
November 17, 1989) and Katzin Investments L.C. (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K dated December 21,
1995).
2.7 Stock Purchase Agreement, dated as of November 1, 1994, by and between Team
Rental of Ft. Wayne, Inc., Sanford Miller, Richard Sapia and Andrew Klein
(incorporated by reference to Exhibit 10.38 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
2.8 Agreement, dated as of December 20, 1994, among the Company, MacKay Car &
Truck Rentals, Inc. and Kenneth V. MacKay (incorporated by reference to
Exhibit 10 to the Company's Current Report on Form 8-K dated January 13,
1995).
2.9 Agreement, dated December 22, 1994, by and among Don Kremer Lincoln Mercury,
Inc., Richard E. Hagopian, and Team Rental Group, Inc. (incorporated by
reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
2.10 Agreement, dated as of March 8, 1995, among Team Rental of Connecticut, Inc.,
Team Rental Group, Inc., Rental Car Resources Inc. and James Salatto and
Joseph Salatto (incorporated by reference to Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to the Company's Registration Statement on Form
S-1, File No. 33-78274, dated April 28, 1994).
* 3.2 Amendment to Amended and Restated Certificate of Incorporation of the Company.
3.3 By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated April
28, 1994).
4.1 Specimen Stock Certificate (incorporated by reference to Exhibit 4.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
4.2 Base Indenture between Team Fleet Financing Corporation, as Issuer, Team
Rental Group, Inc., as Servicer and Team Interestholder, and Bankers Trust
Company, as Trustee, relating to Rental Car Asset Backed Notes (incorporated
by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
4.3 Supplemental Indenture relating to Rental Car Asset Backed Notes (incorporated
by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
4.4 Base Indenture among BRAC SOCAL Funding Corporation, as Issuer, BRAC-OPCO,
Inc., as Servicer and Retained Interestholder, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.5 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
4.5 Series 1995-1 Supplement to Base Indenture among BRAC SOCAL Funding
Corporation, as Issuer, BRAC-OPCO, Inc., as Servicer and Retained
Interestholder, and Bankers Trust Company, as Trustee (incorporated by
reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
4.6 Supplement No. 1 to Indenture, dated as of October 20, 1995, among BRAC SOCAL
Funding Corporation, BRAC-OPCO, Inc., Team Rental of Southern California,
Inc., and Bankers Trust Company (incorporated by reference to Exhibit 4.7 to
the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
4.7 Master Motor Vehicle Lease and Servicing Agreement by and among Team Fleet
Financing Corporation, as Lessor, Team Rental Group, Inc., as Guarantor, and
Tranex Rentals of New York, Inc., Capital City Leasing, Inc., Lee-Al, Inc.,
Westeam Enterprises, Inc., Team Rental of Philadelphia, Inc., Team Rental of
Pittsburgh, Inc. and Team Rental of Cincinnati, Inc., as Lessees (incorporated
by reference to Exhibit 4.3 to the Company's Annual Report on form 10-K for
the year ended December 31, 1994).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
* *4.8 Master Motor Vehicle Lease and Servicing Agreement, dated February 15, 1995
among BRAC SOCAL Funding Corporation, as Lessor, BRAC OPCO, Inc. and certain
other affiliates, as Lessees, relating to the Second Fleet Financing Facility.
4.9 First Amendment to Registration Rights Agreement, dated as of November 1,
1994, among the Company, Brian Britton, Jeffrey Congdon, Richard Hinkle, John
Kennedy, Sanford Miller and Richard Sapia (incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
4.10 Letter Agreement, dated as of November 1, 1994, between Andrew Klein and the
Company acknowledging that Andrew Klein is a party to the Registration Rights
Agreement, dated as of August 25, 1994, as amended (incorporated by reference
to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
4.11 Registration Rights Agreement, dated March 8, 1995, by and among Team Rental
Group, Inc. and James Salatto (incorporated by reference to Exhibit 4.12 to
the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
4.12 Registration Rights Agreement, dated as of October 20, 1995, between Team
Rental Group, Inc. and Budget Rent a Car of Southern California (incorporated
by reference to Exhibit 4.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
4.13 Registration Rights Agreement, dated as of February 27, 1996, between Team
Rental Group, Inc. and Katzin Investments L.C. (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K dated February 27,
1996).
4.14 Warrant No. 1-1994, dated as of August 24, 1994, to purchase 175,000 shares of
Class A Common Stock, par value $.01 per share, of the Company, issued to
Budget Rent a Car Corporation (incorporated by reference to Exhibit 10.26 to
the Company's Annual Report on Form 10-K for the year ended December 31,
1994).
* 5.1 Opinion of King & Spalding.
10.1 Sublicense Agreement dated April 1, 1987 between Budget Rent A Car of Southern
California and Westeam Enterprises, Inc. (incorporated by reference to Exhibit
10.1 to the Company's Registration Statement on Form S-1, File No. 33-78274,
dated April 28, 1994).
10.2 Sublicense Agreement dated October 28, 198 between Budget Rent A Car of
Southern California and Lee-Al, Inc. (incorporated by reference to Exhibit
10.3 to the Company's Registration Statement on Form S-1, File No. 33-78274,
dated April 28, 1994).
**10.3 Letter Agreement dated October 23, 1989 between Transportation and Storage
Associates d/b/a Budget Rent a Truck of Southern California and Budget Rent a
Car of Southern California.
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
10.4 Prime License Agreement dated August 25, 1994 between Budget Rent A Car
Corporation and Team Rental of Pittsburgh, Inc. d/b/a Budget Rent A Car of
Pittsburgh, Pennsylvania, together with Addendum to License Agreement: Right
of First Refusal, dated August 25, 1994 (incorporated by reference to Exhibit
10.5 to the Company's Annual Report on form 10-K for the year ended December
31, 1994).
10.5 Prime License Agreement dated August 25, 1994 between Budget Rent A Car
Corporation and Team Rental of Cincinnati, Inc. d/b/a Budget Rent A Car of
Cincinnati, Ohio (incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on form 10-K for the year ended December 31, 1994).
10.6 Prime License Agreement dated August 25, 1994 between Budget Rent A Car
Corporation and Team Rental of Philadelphia, Inc. d/b/a Budget Rent A Car of
Philadelphia, Pennsylvania, together with Addendum to License Agreement dated
August 25, 1994 and Addendum to License Agreement: Right of First Refusal,
dated August 25, 1994 (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994).
10.7 Prime License Agreement dated July 1, 1985 between Budget Rent a Car
Corporation and Capital City Leasing, Inc. d/b/a Budget Rent a Car of
Richmond, Virginia, as amended by the Letter dated April 26, 1994 from Budget
Rent a Car Corporation to Team Rental Group together with Consent Agreement
Assignment of Prime License dated December 5, 1991 among Budget Rent a Car
Corporation, JHF Enterprises, Inc. and Capital City Leasing, Inc. d/b/a Budget
Rent a Car of Richmond, Virginia (incorporated by reference to Exhibit 10.9 to
the Company's Registration Statement on Form S-1, File No. 33-78274, dated
April 28, 1994).
10.8 Prime License Agreement dated November 8, 1991 between Budget Rent a Car
Corporation and Tranex Rentals of New York, Inc. d/b/a Budget Rent a Car of
Rochester, New York (incorporated by reference to Exhibit 10.10 to the
Company's Registration Statement on Form S-1, File No. 33-78274, dated April
28, 1994).
10.9 Prime License Agreement dated August 1, 1991, between Budget Rent A Car
Corporation and Tranex Rentals of New York, Inc. d/b/a Budget Rent A Car of
Albany, New York (incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
10.10 Budget Rent a Car System Prime License Agreement, dated August 25, 1994,
between Budget Rent a Car Corporation and Westeam Enterprises, Inc. d/b/a
Budget Rent a Truck of San Diego, California (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.11 Amended and Restated Sublicense Agreement, dated as of October 20, 1995,
between Budget Rent a Car of Southern California and Team Rental of Southern
California, Inc., along with Corporate Guaranty of Team Rental Group, dated as
of October 20, 1995 (incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
10.12 Car Rental Operating License dated October 1, 1982 between the City of
Philadelphia, Automotive Rentals, Inc. d/b/a Budget Rent A Car of Philadelphia
and Budget Rent A Car Corporation (incorporated by reference to Exhibit 10.11
to the Company's Registration Statement on Form S-1, File No. 33-78274, dated
April 28, 1994).
10.13 Prime License Agreement dated February 1, 1995 by and between Budget Rent a
Car Corporation and Team Rental of Connecticut, Inc. d/b/a Budget Rent a Car
of Hampden, Massachusetts (incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.14 Prime License Agreement dated February 1, 1995 by and between Budget Rent a
Car Corporation and Team Rental of Connecticut, Inc. d/b/a Budget Rent a Car
of Hartford and New Haven, Connecticut (incorporated by reference to Exhibit
10.14 to the Company's Annual Report on Form 10-K for the year ended December
31, 1995).
10.15 Prime License Agreement dated December 22, 1994 by and between Budget Rent a
Car Corporation and Team Rental of Dayton, Inc. d/b/a Budget Rent a Car of
Dayton and Budget Car Sales (incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.16 Prime License Agreement dated December 22, 1994 by and between Budget Rent a
Car Corporation and Team Rental of Dayton, Inc. d/b/a Budget Rent a Car of
Richmond, Indiana (incorporated by reference to Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.17 Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of
Hickory, North Carolina (incorporated by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.18 Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of
Charlotte, North Carolina (incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.19 Prime License Agreement dated January 4, 1995 by and between Budget Rent a Car
Corporation and Team Rental of Charlotte, Inc. d/b/a Budget Rent a Car of
Asheville, North Carolina (incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.20 Prime License Agreement dated October 1, 1976 by and between Budget Rent a Car
Corporation of America and Don Kremer, Inc. d/b/a Budget Rent a Car of Dayton,
as amended by Amendment to License Agreement dated November 1, 1991
(incorporated by reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
* 10.21 Agreement dated November 23, 1960 between Rent-A-Car Services Corporation and
Frank Katzin, Ernst Sielaff and Harry Verblen, as co-partners, d/b/a Budget
Rent-A-Car of Arizona, as amended by the Addendum dated November 23, 1960, the
Agreement dated October , 1961, the Release Agreement dated December 30, 1963,
the Amendatory Agreement dated November 1, 1966, the Amendment to Franchise
Agreement dated March 18, 1968, the Addendum to License Agreement dated April
4, 1969, the Amendatory Agreement dated August 31, 1979, the Second Amendatory
Agreement dated August 31, 1979 and the letter agreement dated January 27,
1981, together with the Consent to and Agreement of Assignment dated December
, 1962 among Budget Rent-A-Car Corporation of America, Frank Katzin, Harry
Verblen and Ernst Sielaff, as co-partners d/b/a Budget Rent-A-Car of Arizona,
and David Katzin and Charles H. Juliusburg, and the Consent to and Agreement
of Assignment dated April 3, 1968 among Budget Rent-A-Car Corporation of
America, Frank Katzin, Ernst Sielaff, David Katzin and Charles Juliusburg, as
co-partners d/b/a budget Rent-A-Car of Arizona, Margaret F Katzin.
10.22 Lease Agreement dated September 1, 1993 between Tranex Partners and Tranex
Rentals of New York, Inc., as amended by First Agreement dated as of July 1,
1994 (incorporated by reference to Exhibit 10.40 to the Company's Registration
Statement on Form S-1, File No. 33-78274).
**10.23 Airport Concession Agreement between City of Phoenix (Aviation Department) and
Arizona Rent-a-Car Systems, Inc. dated November 1, 1990.
10.24 Lease Agreement dated September 1, 1993 between Miller and Hinkle, a Florida
general partnership, and Capital City Leasing, Inc., as amended by First
Amendment dated as of July 1, 1994 (Henrico County, Virginia) (incorporated by
reference to Exhibit 10.41 to Amendment No. 3 to the Company's Registration
Statement on Form S-1, File No. 33-78274, dated August 12, 1994).
**10.25 Lease Agreement dated June 1, 1994 between Miller and Hinkle, a Florida
general partnership, and Capital City Leasing, Inc. (Chesterfield County,
Virginia).
10.26 Lease Agreement dated as of September 12, 1995 between MCK Real Estate
Corporation, Team Car Sales of Richmond, Inc. and Team Rental Group, Inc.
(incorporated by reference to Exhibit 10.24 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.27 Agreement of Lease dated as of August 31,1995 between MCK Real Estate
Corporation and Team Rental of Philadelphia, Inc. (incorporated by reference
to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.28 Environmental Remediation Agreement between Chrysler Credit Corporation and
Team Rental Group, Inc. (incorporated by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
10.29 Agreement between Team Rental Group, Inc. and Transportation & Storage
Associates dated April 5, 1994 (incorporated by reference to Exhibit 10.5 to
the Company's Registration Statement on Form S-1, File No. 33-78274, dated
April 28, 1994).
10.30 Share Purchase Agreement dated January 11, 1996 between Chrysler Corporation
and the Company (incorporated by reference to Exhibit 2.2 to the Company's
Form 10-Q for the quarter ended March 31, 1996).
10.31 First Amended and Restated Credit Agreement, dated as of January 12, 1995,
among Team Fleet Services Corporation, the Company and NBD Bank, N.A.
(incorporated by reference to Exhibit 10.40 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.32 First Amendment to Credit Agreement dated May 23, 1995 (incorporated by
reference to Exhibit 10.38 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.33 Second Amendment to Credit Agreement dated July 11, 1995 (incorporated by
reference to Exhibit 10.39 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.34 Third Amendment to Credit Agreement dated December 29, 1995 (incorporated by
reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.35 Fourth Amendment to Credit Agreement dated February 27, 1996 (incorporated by
reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.36 Fifth Amendment to Credit Agreement dated March 28, 1996 (incorporated by
reference to Exhibit 10.3 to the Company's Form 10-Q for the quarter ended
March 31, 1996)
**10.37 Sixth Amendment to Credit Agreement dated May 1, 1996.
**10.38 Seventh Amendment to Credit Agreement dated May 31, 1994
10.39 Credit Agreement dated May 16, 1995 by and among Team Rental Group, Inc., Team
Fleet Services Corporation and BankOne Indianapolis, N.A. (incorporated by
reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.40 First Amendment to BankOne Credit Agreement dated November 1, 1995
(incorporated by reference to Exhibit 10.43 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.41 Second Amendment to BankOne Credit Agreement dated February 2, 1996
(incorporated by reference to Exhibit 10.44 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.42 Form of World Omni, Inc. Term Note (incorporated by reference to Exhibit 10.45
to the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.43 Promissory Note, dated February 27, 1996, from Team Rental of Southern
California, Inc. to Budget Rent a Car of Southern California in the principal
amount of approximately $4,775,000 (incorporated by reference to Exhibit 10.46
to the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
10.44 Promissory Note, dated February 27, 1996, from the Company to Katzin
Investments L.C. in the aggregate principal amount of $10,000,000
(incorporated by reference to Exhibit 10.47 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.45 Term Note dated February 27, 1996 from NationsBank, N.A. (South) to the
Company (incorporated by reference to Exhibit 10.48 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995).
10.46 Amendment No. 1 to Team Note dated April 2, 1996 from NationsBank, N.A.
(South) to the Company (incorporated by reference to Exhibit 10.2 to Form 10-Q
for the quarter ended March 31, 1996).
**10.47 Amendment No. 2 to Team Note dated May 27, 1996 from NationsBank, N.A. (South)
to the Company.
10.48 Revolving Credit Agreement by and between VPSI, Inc. and NationsBank, N.A.
(South) dated February 6, 1996 (incorporated by reference to Exhibit 10.4 to
the Company's Form 10-Q for the quarter ended March 31, 1996).
10.49 Amendment and Waiver No. 1 to Revolving Credit Agreement and Security
Agreement by and between VPSI, Inc. and NationsBank, N.A. (South) dated March
28, 1996 (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q
for the quarter ended March 31, 1996).
**10.50 Revolving Credit Agreement dated as of May 31, 1996 among Team Fleet Services
Corporation, NationsBank, N.A. (South) and certain Lenders.
10.51 Subordination Agreement, dated as of October 20, 1995, among Budget Rent a Car
of Southern California, BRAC-OPCO, Inc., Team Rental Group, Inc. and Team
Rental of Southern California (incorporated by reference to Exhibit 10.49 to
the Company's Annual Report on Form 10-K for the year ended December 31,
1995).
10.52 Shareholders' Agreement, dated as of October 20, 1995, by and among Team
Rental Group, Inc., the holders of the Company's Class B Common Stock, and
Budget Rent a Car of Southern California (incorporated by reference to Exhibit
10.50 to the Company's Annual Report on Form 10-K for the year ended December
31, 1995).
10.53 1994 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.27
to the Company's Registration Statement on Form S-1, File No. 33-78274, dated
April 28, 1994).
*10.54 First Amendment to the 1994 Incentive Stock Option Plan.
10.55 1994 Director's Stock Option Plan (incorporated by reference to Exhibit 10.28
to the Company's Registration Statement on Form S-1, File No. 33-78274, dated
April 28, 1994).
10.56 Indemnification Agreement dated April 25, 1994 between the Company and Sanford
Miller (incorporated by reference to Exhibit 10.29 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
10.57 Indemnification Agreement dated April 25, 1994 between the Company and John
Kennedy (incorporated by reference to Exhibit 10.30 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
<PAGE>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------ ------------
10.58 Indemnification Agreement dated April 25, 1994 between the Company and Jeffrey
Congdon (incorporated by reference to Exhibit 10.31 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
10.59 Indemnification Agreement dated April 25, 1994 between the Company and Ronald
Agronin (incorporated by reference to Exhibit 10.32 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
10.60 Indemnification Agreement dated April 25, 1994 between the Company and Stephen
Weber (incorporated by reference to Exhibit 10.33 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated April 28, 1994).
**11.1 Statement re computation of per share earnings.
**21.1 Subsidiaries of the Company.
* 23.1 Consent of Deloitte & Touche LLP
* 23.2 Consent of Michael Silver & Company
* 23.3 Consent of Coopers & Lybrand L.L.P.
* 23.4 Consent of King & Spalding (included in Exhibit 5.1).
**27.1 Financial Data Schedule.
</TABLE>
- ------------
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedules of Team Rental Group, Inc. and
subsidiaries:
Independent Auditors' Report.
Schedule I--Condensed Financial Statements of the Company.
Schedule II--Schedule of Valuation and Qualifying Accounts.
EXHIBIT 1.1
4,000,000 SHARES
TEAM RENTAL GROUP, INC.
CLASS A COMMON STOCK
UNDERWRITING AGREEMENT
July __, 1996
CS FIRST BOSTON CORPORATION
THE CHICAGO CORPORATION
McDONALD & COMPANY SECURITIES, INC.
As Representatives of the Several Underwriters
c/o CS First Boston Corporation
55 East 52nd Street
Park Avenue Plaza
New York, NY 10055
Dear Sirs:
1. Introductory. Team Rental Group, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters named in
Schedule A hereto (the "Underwriters") 3,221,007 shares of its Class A Common
Stock, par value $.01 per share (the "Class A Common Stock") (such shares of
Class A Common Stock being hereinafter referred to as the "Firm Shares") and,
the stockholders listed in Schedule B hereto (the "Selling Stockholders")
propose severally to sell to the Underwriters an aggregate of 778,993
outstanding shares of Class A Common Stock (such 778,993 shares of Class A
Common Stock also being hereinafter referred to as the "Firm Shares"). The
Company also proposes to issue and sell to the Underwriters, at the option of
the Underwriters, not more than 600,000 additional shares of its Class A
Common Stock (such additional shares being hereinafter referred to as the
"Optional Shares"). The Firm Shares and the Optional Shares are hereinafter
collectively referred to as the "Stock". The Company and the Selling
Stockholders hereby agree with the Underwriters as follows:
2. Representations and Warranties of the Company and the Selling
Stockholders.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters that:
(i) A registration statement (No. 333-4507), including a form
of prospectus, relating to the Stock has been filed with the Securities
and Exchange Commission (the "Commission") and either (A) has been
declared effective by the Commission under the Securities Act of 1933
(the "Act") and is not proposed to be amended or (B) is proposed to be
amended by amendment or post-effective amendment. If the Company does
not propose to amend such registration statement and if any
post-effective amendment to such registration statement has been filed
with the Commission prior to the execution and delivery of this
Agreement, the most recent such amendment has been declared effective by
the Commission. For purposes of this Agreement, "Effective Time" means
(1) if the Company has advised you that it does not
<PAGE>
propose to amend such registration statement, the date and time as of
which such registration statement, or the most recent post-effective
amendment thereto (if any) filed prior to the execution and delivery of
this Agreement, was declared effective by the Commission, or (2) if the
Company has advised you that it proposes to file an amendment or
post-effective amendment to such registration statement, the date and
time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. "Effective Date" means the date of the
Effective Time. Such registration statement, as amended at the Effective
Time, including all information (if any) deemed to be a part of such
registration statement as of the Effective Time pursuant to Rule 430A(b)
and/or Rule 434 under the Act, is hereinafter referred to as the
"Registration Statement", and the form of prospectus relating to the
Stock, as first filed with the Commission pursuant to and in accordance
with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in the Registration Statement, is hereinafter
referred to as the "Prospectus".
(ii) If the Effective Time is prior to the execution and
delivery of this Agreement: (A) on the Effective Date, the Registration
Statement conformed in all respects to the requirements of the Act and
the rules and regulations of the Commission thereunder (the "Rules and
Regulations") and did not include any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B) on the
date of this Agreement, the Registration Statement conforms, and at the
time of filing of the Prospectus pursuant to Rule 424(b), the
Registration Statement and the Prospectus will conform, in all material
respects to the requirements of the Act and the Rules and Regulations,
and neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time is subsequent
to the execution and delivery of this Agreement: on the Effective Date,
the Registration Statement and the Prospectus will conform in all
material respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading. The two preceding sentences do not apply to
statements in or omissions from the Registration Statement or the
Prospectus based upon written information furnished to the Company by
any Underwriter through you specifically for use therein.
(iii) Except for certain agreements regarding registration
rights as identified in the Prospectus and filed as exhibits to the
Registration Statement (collectively, the "Registration Rights
Agreements"), there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act; and the Company has given proper
notice to, or received written waivers or demand notices from, each
person holding such registration rights pursuant to the Registration
Rights Agreements.
2
<PAGE>
(iv) Each of the Company and each corporation, partnership or
other business entity listed on Schedule C hereto, a majority of the
equity interests of which are owned, directly or indirectly, by the
Company (each, a "Subsidiary", and collectively, the "Subsidiaries"),
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation,
with corporate power and authority to own its properties and conduct its
business as described in the Registration Statement and the Prospectus,
and is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which it owns or leases
substantial properties or in which the conduct of its business requires
such qualification, except where the failure to so qualify would not
have a material adverse effect upon the condition, financial or
otherwise, results of operations, business affairs or business prospects
of the Company and its subsidiaries, taken as a whole. The Company does
not own, directly or indirectly, any securities of any entity other than
the Subsidiaries.
(v) The Company's authorized capitalization is as set forth in
the Registration Statement and the Prospectus; all outstanding shares of
the Class A Common Stock and the Class B Common Stock, par value $.01
per share (the "Class B Common Stock"), of the Company have been duly
and validly authorized and issued, are fully paid and nonassessable; the
Firm Shares and the Optional Shares to be issued and sold by the Company
have been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein, will be duly and validly
issued, fully paid and nonassessable; the Class A Common Stock, Class B
Common Stock and Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of the Company conform to the descriptions thereof
contained in the Registration Statement and the Prospectus; and the
Stock has been approved for listing on the Nasdaq National Market.
(vi) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required to
be obtained or made by the Company or any Subsidiary in connection with
the sale of the Stock, except such as have been obtained and made under
the Act and the Rules and Regulations and such as may be required under
state securities laws.
(vii) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any statute, rule,
regulation or order of any governmental body or agency or any court
having jurisdiction over, the Company or any Subsidiary or any of their
properties, or any agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound
or to which any of the properties of the Company or any Subsidiary is
subject, or the charter or by-laws of the Company or any Subsidiary.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company.
(ix) Except with respect to the capital stock of Arizona
Rent-A-Car Systems, Inc., of which the Company is sole beneficial owner
subject to a pledge of such capital stock in connection with the Stock
Purchase Agreement, dated as of December 21, 1995, by and among the
Company, Arizona Rent-A-Car Systems, Inc., David Katzin, Michael Katzin,
Jon David Katzin, Gabrielle De Lavigne, the David
3
<PAGE>
Katzin Irrevocable Trust (dated November 17, 1989) and Katzin
Investments L.C. (the "ARAC Agreement"), as of the First Closing Date
(as defined in Section 3), the Company will be the sole beneficial owner
of all of the outstanding capital stock of each direct and indirect
Subsidiary identified as such on Schedule C hereto, free and clear of
all security interests, claims, liens or encumbrances, and all such
capital stock has been duly and validly authorized and issued and is
fully paid and nonassessable.
(x) Except for the 1,936,600 shares of Class B Common Stock,
which are convertible into 1,936,600 shares of Class A Common Stock, the
warrant held by Budget Rent a Car Corporation ("BRAC") to purchase
175,000 shares of Class A Common Stock (the "BRAC Warrant"), the Warrant
held by NationsBank, National Association (South) to purchase 187,500
shares of Class A Common Stock (the "NationsBank Warrant"), the options
to purchase 510,000 shares of Class A Common Stock issued under the
Company's 1994 Incentive Stock Option Plan (the "1994 Option Plan"), and
the options to purchase 25,000 shares of Class A Common Stock issued
under the Company's 1994 Directors' Stock Option Plan (the "1994
Directors' Plan"), each as described in the Registration Statement and
the Prospectus, and except for the conditional rights to acquire
additional shares of Class A Common Stock contained in (i) the Agreement
dated October 20, 1995 among the Company, Team Rental of Southern
California, Inc., BRAC-OPCO, Inc., and Budget Rent a Car of Southern
California (the "OPCO Agreement") and (ii) the ARAC Agreement, there are
no outstanding securities or obligations (together, "Convertible
Securities") of the Company or any Subsidiary convertible into or
exchangeable for any capital stock of the Company or any Subsidiary,
respectively, rights, warrants or options (together, "Rights") to
subscribe for or purchase from the Company or any Subsidiary any such
capital stock or any such Convertible Securities or obligations, or
obligations of the Company or any Subsidiary to issue Convertible
Securities or Rights.
(xi) Except for the rights of first refusal set forth in the
Share Exchange Agreement dated April 25, 1994, as amended on June 13,
1994 and July 5, 1994, among the Company, Brian Britton, Jeffrey
Congdon, Richard Hinkle, John Kennedy, Sanford Miller and Richard Sapia,
the put right set forth in the BRAC Warrant, the rights of first refusal
held by Budget Rent A Car Corporation ("Budget") pursuant to certain of
the Franchise Agreements (defined below) and the rights of the
respective parties to the ARAC Agreement and the OPCO Agreement, there
are no preemptive or other rights to subscribe for or purchase any
shares of capital stock issued by the Company or any Subsidiary. Except
for the transfer restrictions set forth in the Registration Rights
Agreements, Sections 5(h) and 5(i) of this Agreement, Budget's right to
approve certain transfers of capital stock held by Messrs. Miller,
Kennedy, Congdon, Britton, Hinkle and Sapia pursuant to the letter
agreement dated May 5, 1994 among such officers and Budget and in the
letter to be delivered pursuant to Section 6(j) of this Agreement, and
the voting restrictions set forth in the Shareholders' Agreement dated
October 20, 1995 among the Company, the holders of Class B Common Stock
and Budget Rent a Car of Southern California ("SOCAL"), there are no
restrictions to which the Company is a party upon the voting or transfer
of, and no restrictions on the declaration or payment of any dividend or
distribution on, any shares of capital stock of the Company or any
Subsidiary.
(xii) No broker, finder, consultant or other person or entity
is entitled to any brokerage, finder's or other fee or commission in
connection with the sale of the
4
<PAGE>
Stock, except such fee or commission as may be provided to the
Underwriters by the express terms of this Agreement.
(xiii) All Budget vehicle rental operations of the Company and
the Subsidiaries are conducted pursuant to and in accordance with one of
the agreements listed on Schedule D hereto (individually, a "Franchise
Agreement"; collectively, the "Franchise Agreements").
(xiv) Each Franchise Agreement and, with respect to the
Franchise Agreements listed as items 1, 2 and 10 on Schedule D, each
underlying franchise agreement between SOCAL and BRAC, and, with respect
to the Franchise Agreements listed as item 20 on Schedule D, each
underlying franchise agreement between Transportation and Storage
Associates ("TSA") and BRAC, is in full force and effect, and neither
the Company nor any of its Subsidiaries has received a notice that any
Franchise Agreement is invalid or unenforceable or of existing event of
default, nor is the Company or any of its Subsidiaries aware of any
event which, with the giving of notice or the lapsing of time or both,
would constitute an event of default in each case, by the Subsidiary
that is a party thereto, except for any defaults or events of default
that, individually or in the aggregate, would not have a material
adverse effect upon the condition, financial or otherwise, results of
operations, business affairs or business prospects of the Company and
its Subsidiaries, taken as a whole; the operations of each vehicle
rental location of the Company and the Subsidiaries are conducted in
compliance in all respects with the terms of the applicable Franchise
Agreement, except for any such non-compliances that, individually or in
the aggregate, would not have a material adverse effect upon the
condition, financial or otherwise, results of operations, business
affairs or business prospects of the Company and its Subsidiaries, taken
as a whole; and the summary of the Franchise Agreements in the
Registration Statement is accurate and fairly summarizes the terms
thereof.
(xv) The Company and its Subsidiaries have obtained all
approvals, consents, authorizations and waivers of BRAC and SOCAL that
are required for the Subsidiaries' acquisition, whether through
acquisition of assets or capital stock of the previous Budget franchisee
or sub-franchisee, of the Franchise Agreements, except where the failure
to obtain any such approval, consent, authorization and waivers would
not have a material adverse effect upon the condition, financial or
otherwise, results of operations, business affairs or business prospects
of the Company and Subsidiaries, taken as a whole, and for the
consummation of the transactions contemplated by this Agreement, the
Registration Statement and the Prospectus in connection with the
issuance and sale of the Stock and for the use of proceeds of the
offering as described in the Registration Statement and the Prospectus
under the heading "Use of Proceeds," including, without limitation, (A)
the consent and waiver of any right of first refusal by BRAC, SOCAL or
TSA, as required, with respect to the issuance and sale of the Stock by
the Company, and (B) the consent of BRAC to (1) the use in the
Registration Statement, any preliminary prospectus and the Prospectus of
the "Budget Rent a Car" name.
(xvi) The Company and its Subsidiaries have obtained from each
lessor, governmental authority or other entity with which they or their
predecessors have entered into lease, concession or other agreements,
all approvals, consents, authorizations and waivers that are required
for the Subsidiaries' acquisition, whether through acquisition
5
<PAGE>
of assets or capital stock of previous Budget franchisees or
sub-franchisees of such leases, concession or other agreements,
including, without limitation, such necessary consents, authorizations
and waivers with respect to each property utilized in the conduct of the
business of the Company and its Subsidiaries as described in the
Registration Statement and the Prospectus, except where the failure to
obtain any such approval, consent, authorization and waivers would not
have a material adverse effect upon the condition, financial or
otherwise, results of operations, business affairs or business prospects
of the Company and Subsidiaries, taken as a whole,.
(xvii) The Company and its Subsidiaries hold such licenses,
certificates and permits from governmental entities and authorities as
are necessary to the conduct of the business of the Company and the
Subsidiaries as described in the Registration Statement and the
Prospectus, the failure of which to obtain would have a material adverse
effect upon the condition, financial or otherwise, results of
operations, business affairs or business prospects of the Company and
its Subsidiaries, taken as a whole; the Company and its Subsidiaries
have fulfilled and performed all of the material obligations necessary
to maintain such licenses, certificates and permits, except where the
failure to perform such obligations would not have a material adverse
effect upon the condition, financial or otherwise, results of
operations, business affairs or business prospects of the Company and
its Subsidiaries, taken as a whole; the Company and its Subsidiaries
conduct their business in compliance with all applicable federal, state
and local laws and regulations, except where the failure to be in
compliance would not have a material adverse effect upon the condition,
financial or otherwise, results of operations, business affairs or
business prospects of the Company and its Subsidiaries, taken as a
whole; and there is no pending or threatened action, suit, proceeding or
investigation that could lead to the revocation, termination or
suspension of any such license, certificate or permit.
(xviii) To the best knowledge of the Company, each of the
Company and its Subsidiaries has obtained all permits, licenses and
other authorizations and has made all registrations and other submittals
that are required under all applicable federal, state and local laws
relating to the protection of health, safety or the environment
including but not limited to the Federal Water Pollution Control Act (33
U.S.C. ss. 1251 et seq.), Resource Conservation and Recovery Act (42
U.S.C. ss. 6901 et seq.), Safe Drinking Water Act (21 U.S.C. ss. 349, 42
U.S.C. ss.ss. 300f - 300j), Toxic Substances Control Act (15 U.S.C. ss.
2601 et seq.), Clean Air Act (42 U.S.C. ss. 7401 et seq.), Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. ss.
9601 et seq.), any laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes into the environment
(including but not limited to ambient air surface water, ground water or
land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of pollutants, contaminants, chemicals or industrial toxic or hazardous
substances or wastes, and any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder (collectively, the "Environmental
Laws"), except to the extent that failure to have any such permit,
license or authorization, or to have made such registration or
submission, individually or in the aggregate, does not have a material
adverse effect on the condition (financial or otherwise) or the
earnings, business affairs or business prospects of the Company and its
Subsidiaries, taken as a whole.
6
<PAGE>
(xix) Except as described in the Registration Statement and
the Prospectus, each of the Company and its Subsidiaries has been and is
in compliance with all terms and conditions of any required permits,
licenses and authorizations, and has been and is in compliance with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws, except to the extent failure to comply would not
have a material adverse effect on the condition (financial or otherwise)
or the earnings, business affairs or business prospects of the Company
and its Subsidiaries, taken as a whole.
(xx) To the best knowledge of the Company, (A) there are no
past or present events, conditions, circumstances, activities,
practices, incidents or actions, or plans relating to the business as
presently being conducted by the Company or its Subsidiaries, that
interfere with or prevent compliance or continued compliance with the
Environmental Laws, or that would be reasonably likely to give rise to
any legal liability (whether statutory or common law) or otherwise would
be reasonably likely to form the basis of any claim, action, demand,
suit, proceeding, hearing, lien, notice of violation, study,
investigation, remediation or cleanup (collectively "Claims") based on
or related to any Environmental Law or the generation, manufacture,
processing, distribution, use, treatment storage, disposal, transport or
handling, or the emission, discharge, release into the workplace, the
community or the environment of any pollutant, contaminant, chemical or
industrial toxic or hazardous substance or waste, except for any
liabilities or any Claims that will not individually or in the aggregate
have a material adverse effect on the Company and its Subsidiaries,
taken as a whole, the Registration Statement and the Prospectus, or
otherwise to the Underwriters or their counsel in writing, no
underground or aboveground storage tanks are located on property owned
or leased by the Company, or its Subsidiaries.
(xxi) There are no Claims pending or, to the best knowledge of
each of the Company and its Subsidiaries, threatened against the Company
or any of its Subsidiaries based on or related to any Environmental Law
or the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission,
discharge, release into the workplace, the community or the environment
of any pollutant, contaminant, chemical or industrial toxic, or
hazardous substance or waste, and neither the Company nor any of its
Subsidiaries has received any notice of violation or potential liability
based on or related to any Environmental Law or the generation,
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release
into the workplace, the community or the environment of any pollutant,
contaminant, chemical or industrial toxic or hazardous substance or
waste.
(xxii) The Company and its Subsidiaries have (A) such
ownership and possession rights with respect to its assets and
properties as are necessary for the continuing conduct of its business,
as described in the Registration Statement and the Prospectus and (B)
peaceful and undisturbed possession under all leases to which the
Company or any Subsidiary is a party as lessee (whether as original
lessee or successor-in-interest or assignee of the original lessee); and
all leases to which the Company or any Subsidiary is a party (whether as
original lessee or successor-in-interest or assignee of the original
lessee) are in full force and effect, neither the Company nor any such
Subsidiary has been notified that a lease is invalid or unenforceable,
and no default by the Company or such Subsidiary has occurred and is
continuing thereunder, except for
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any defaults that would not have a material adverse effect upon the
condition, financial or otherwise, results of operations, business
affairs or business prospects of the Company and its Subsidiaries, taken
as a whole.
(xxiii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus
(A) there has not been any material and adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, results of operations, business
affairs or business prospects of the Company and its Subsidiaries, taken
as a whole, whether or not arising in the ordinary course of business,
and (B) there have been no transactions entered into by the Company or
any Subsidiary, other than those in the ordinary course of business,
which are material with respect to the Company and the Subsidiaries,
taken as a whole.
(xxiv) Except as disclosed in the Registration Statement and
the Prospectus, there is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending,
or, to the knowledge of the Company, threatened against or, to the
knowledge of the Company, affecting the Company or any Subsidiary, which
might result in any material adverse change in the condition, financial
or otherwise, results of operations, business affairs or business
prospects of the Company and its Subsidiaries, taken as a whole; and all
pending legal or governmental proceedings to which the Company or any
Subsidiary is a party or of which any of their property or assets is the
subject, including ordinary routine litigation incidental to the
business of the Company, are, considered in the aggregate, not material.
(xxv) To the knowledge of the Company, neither the Company nor
any Subsidiary is engaged in any unfair labor practice that would have a
material adverse effect on the Company and its Subsidiaries taken as a
whole. There is no unfair labor practice complaint pending or, to the
best knowledge of the Company, threatened against the Company or any
Subsidiary before the National Labor Relations Board and no grievance or
arbitration proceeding arising out of or under collective bargaining
agreements is pending or, to the knowledge of the Company, threatened.
No strike, labor dispute, slowdown or stoppage pending or, to the
knowledge of the Company after due inquiry, threatened against the
Company or any Subsidiary.
(xxvi) There is no document or contract of a character
required to be described in the Registration Statement or the
Prospectus, or to be filed as an exhibit to the Registration Statement,
that is not described or filed as required.
(xxvii) Except as disclosed in the Registration Statement, the
Company and its Subsidiaries own, or are licensed (or otherwise have the
full right) to use, all trademarks and tradenames that are used in or
necessary for the conduct of their respective businesses as described in
the Registration Statement and the Prospectus.
(xxviii) Deloitte & Touche are independent certified public
accountants within the meaning of the Act and the applicable published
Rules and Regulations; the financial statements included in the
Registration Statement and the Prospectus comply in all material
respects with the requirements of the Act and the Rules and Regulations
applicable to a Registration Statement on Form S-1 and have been
prepared, and fairly present the financial position, results of
operations and cash flows of the Company and its Subsidiaries
consolidated at the respective dates and for the respective periods
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<PAGE>
indicated, in accordance with generally accepted accounting principals
consistently applied throughout such period; and the related supporting
schedules included in the Registration Statement present fairly the
information required to be stated therein in compliance in all material
respects with the applicable Rules and Regulations. The financial
information and financial data set forth in the Registration Statement
and the Prospectus under the captions "Prospectus Summary -- Summary
Financial Data" (exclusive of pro forma data contained therein),
"Capitalization" (exclusive of pro forma data contained therein), "Pro
Forma Consolidated Financial Statements," "Selected Financial Data"
(exclusive of pro forma data contained therein) and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" are derived from the accounting records of the Company and
its Subsidiaries, and are a fair presentation of the data purported to
be shown.
(xxix) The pro forma financial data contained in the
Registration Statement and the Prospectus have been derived form the
accounting records of the Company and its Subsidiaries or the accounting
records of acquired businesses and are a fair presentation of the data
purported to be shown.
Any certificate signed by any officer of the Company and delivered to
the Underwriters or to counsel for the Underwriters pursuant to this Agreement
shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
(b) Each of the Selling Stockholders, severally and not jointly,
represent and warrant to, and agree with, the several Underwriters that:
(i) Each such Selling Stockholder has and on the Closing Date
for the purchase of Firm Shares will have, valid and marketable title to
the Firm Shares to be sold by such Selling Stockholder, free and clear
of all security interests, claims, liens or encumbrances; each such
Selling Stockholder has full right, power and authority to enter into
this Agreement and to sell, assign, transfer and deliver any Firm Shares
to be sold by such Selling Stockholder hereunder, and upon the delivery
of and payment for any Firm Shares, the several Underwriters will
acquire valid, unencumbered and marketable title to the Firm Shares to
be sold by such Selling Stockholder, free and clear of all security
interests, claims, liens or encumbrances.
(ii) If the Effective Time is prior to the execution and
delivery of this Agreement: (A) on the Effective Date, and, with respect
only to the statements or omissions from the Registration Statement or
Prospectus based on information provided in writing by such Selling
Stockholder, did not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B) on the
date of this Agreement, the Registration Statement conforms, and at the
time of filing of the Prospectus pursuant to Rule 424(b), the
Registration Statement and the Prospectus will conform, in all respects
to the requirements of the Act and the Rules and Regulations, and, with
respect only to the statements or omissions from the Registration
Statement or Prospectus based on information provided in writing by such
Selling Stockholder, neither of such documents includes, or will
include, any untrue statement of a material fact or omits, or will omit,
to state any material fact required to be stated therein or necessary to
make such statements therein not misleading. If the Effective Time is
subsequent to the execution and delivery of this Agreement: on the
Effective Date, with respect only to the statements
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<PAGE>
or omissions from the Registration Statement or Prospectus based on
information provided in writing by such Selling Stockholder, the
Registration Statement and the Prospectus will conform in all respects
to the requirements of the Act and the Rules and Regulations, and
neither of such documents will include any untrue statement of a
material fact or will omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading. The two preceding sentences do not apply to statements in or
omissions from the Registration Statement or Prospectus that are based
upon written information furnished to the Company by any Underwriter
through you specifically for use therein.
(iii) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated
on the part of such Selling Stockholder will not result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any statute, rule, regulation or order of any governmental body
or agency or any court having jurisdiction over such Selling Stockholder
or any of its properties, or any agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder is
bound or to which any of the properties of such Selling Stockholder is
subject.
(iv) Each such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result,
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or otherwise, any stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the
Stock and has not effected any sales of any security of the Company
which, if effected by the Company, would be required to be disclosed in
response to Item 701 of Regulation S-K promulgated under the Act.
(v) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by any Selling Stockholder for the consummation of the
transactions contemplated by this Agreement in connection with the sale
of the Stock by such Selling Stockholder, except such as have been
obtained and made under the Act and the Rules and Regulations and such
as may be required under state securities laws.
(vi) The Power of Attorney and Custody Agreement and Lock-Up
Letter (as defined in Section 3 hereof) delivered by each Selling
Stockholder has been duly executed and delivered by each Selling
Stockholder, constitutes a valid and binding agreement of each Selling
Stockholder and is enforceable against each Selling Stockholder in
accordance with its terms.
(vii) This Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Stockholder, and represents a
valid and binding obligation of each Selling Stockholder enforceable in
accordance with its terms.
(viii) No Selling Stockholder has knowledge of any fact or
condition, financial or otherwise, not set forth in the Registration
Statement or the Prospectus which has materially and adversely affected,
or could materially and adversely affect, the condition, financial or
otherwise, results of operations, business affairs or business prospects
of the Company and its Subsidiaries, taken as a whole.
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<PAGE>
3. Purchase, Sale and Delivery of Stock. On the basis of the
representations, warranties and agreements of the Company and the Selling
Stockholders herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each
Underwriter agrees, severally and not jointly, to purchase from the Company
and the Selling Stockholders, at a purchase price of $_____ per share, the
number of Firm Shares set forth opposite the name of each such Underwriter in
Schedule A hereto.
The Company and the Selling Stockholders will deliver the Firm Shares to
you for the accounts of the Underwriters, at such office in New York, New York
as you may designate, against payment of the purchase price by wire transfer
of immediately available federal reserve funds payable to the Company, such
payment to be made and confirmed at the offices of King & Spalding, 191
Peachtree Street, Atlanta, Georgia 30303-1763, no later than 10:00 A.M. New
York time, on July 8, 1996, or at such other date and time not later than
seven full business days thereafter as you and the Company determine, such
date and time being herein referred to as the "First Closing Date". The
certificates for the Firm Shares to be so delivered by the Company will be in
definitive form, in such denominations and registered in such names as you
request, and will be made available for checking and packaging at least 24
hours prior to the First Closing Date at such office in New York, New York as
you may designate.
In addition, upon written notice from you, given to the Company not more
than 30 days subsequent to the date of the public offering of the Stock, the
Underwriters may purchase, from time to time, all or less than all of the
Optional Shares at the purchase price per share to be paid for the Firm
Shares. Such Optional Shares shall be purchased from the Company for the
account of each Underwriter in the same proportion as the number of Firm
Shares set forth opposite such Underwriter's name in Schedule A hereto bears
to the total number of Firm Shares (subject to adjustment by you to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over-allotments made in connection with the sale of the Firm Shares.
No Optional Shares shall be sold or delivered unless the Firm Shares
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Optional Shares or any portion thereof may be surrendered or
terminated at any time upon notice by you to the Company.
Certificates in negotiable form for the Firm Shares to be sold by the
Selling Stockholders hereunder have been placed in custody, for delivery under
this Agreement, under Power of Attorney and Custody Agreement (the "Power of
Attorney and Custody Agreement") made with John Kennedy, Jeffrey Congdon and
Donald J. Norwalk as custodians (the "Custodian") and John Kennedy, Jeffrey
Congdon and Donald J. Norwalk as attorneys-in-fact (the "Attorneys-in-Fact").
The Selling Stockholders agree that the Firm Shares represented by the
certificates held in custody for the Selling Stockholders under such Power of
Attorney and Custody Agreement are subject to the interests of the
Underwriters hereunder, that the arrangements made by the Selling Stockholders
for such custody are to that extent irrevocable, and that the obligations of
the Selling Stockholders hereunder shall not be terminated by operation of
law, whether by the death or incapacity of any Selling Stockholder, any of his
or its partners or the occurrence of any other event. If any death, incapacity
or other such event shall occur before the delivery of the Firm Shares
hereunder, then certificates representing such Firm Shares shall be delivered
by the Custodian in accordance with the terms and conditions of this Agreement
as if such death, incapacity or other event had not occurred, regardless of
whether or not the Custodian shall have received notice of such death,
incapacity or other event.
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The time for any delivery of and payment for any Optional Shares that
you elect to purchase is hereinafter referred to as the "Second Closing Date"
(which may be the First Closing Date), and the time for any delivery of and
payment for any Optional Shares not purchased on the Second Closing Date
(each, together with the Second Closing Date, a "Subsequent Closing Date"),
shall be determined by you but shall be not later than seven days after you
provide written notice of any election to purchase Optional Shares. The
Company will deliver the Optional Shares to you for the accounts of the
several Underwriters at such office in New York, New York as you may
designate, against payment of the purchase price therefor by wire transfer of
immediately available federal reserve funds payable to the Company and
confirmed at the offices of King & Spalding, 191 Peachtree Street, Atlanta,
Georgia 30303-1763. The certificates for the Optional Shares will be in
definitive form, in such denominations and registered in such names as you
request upon reasonable notice prior to any Subsequent Closing Date, and will
be made available for checking and packaging at such office in New York, New
York as you may designate, at a reasonable time in advance of such Subsequent
Closing Date. If a Subsequent Closing Date occurs after the First Closing
Date, the Company shall deliver to you on each Subsequent Closing Date to
occur after the First Closing Date, and the obligation of the Underwriters to
purchase the Optional Shares shall be conditioned upon the receipt of,
supplemental opinions, certificates and letters confirming as of such date the
opinions, certificates and letters delivered on the First Closing Date
pursuant to Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Stock for sale to the public as set forth in
the Prospectus.
5. Certain Agreements of the Company and the Selling
Stockholders. The Company and, to the extent stated therein, the Selling
Stockholders, agree with the several Underwriters that:
(a) If the Effective Time is prior to the execution and delivery of
this Agreement, the Company will file the Prospectus with the Commission
pursuant to and in accordance with subparagraph (1) (or, if applicable and if
consented to by you, subparagraph (4)) of Rule 424(b) not later than the
earlier of (i) the second business day following the execution and delivery of
this Agreement or (ii) the fifth business day after the Effective Date. The
Company will advise you promptly of any such filing pursuant to Rule 424(b).
(b) The Company will advise you promptly of any proposal to amend
or supplement the registration statement as filed or the related prospectus or
the Registration Statement or the Prospectus and will not effect such
amendment or supplementation without your written consent; the Company will
also advise you promptly of (i) the effectiveness of the Registration
Statement (if the Effective Time is subsequent to the execution and delivery
of this Agreement), (ii) any amendment or supplementation of the Registration
Statement or the Prospectus, and (iii) the institution by the Commission of
any stop order proceedings in respect of the Registration Statement, and will
use its best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Stock is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Act, the Company promptly will prepare and file
with the Commission an
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<PAGE>
amendment or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither your consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined in this subsection), the Company will make generally
available to its securityholders an earnings statement covering a period of at
least 12 months beginning after the Effective Date which will satisfy the
provisions of Section 11(a) of the Act. For the purpose of the preceding
sentence, "Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes the Effective Date,
except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end of
such fourth fiscal quarter.
(e) The Company will furnish to you copies of the Registration
Statement (three of which will be signed and will include all exhibits), each
related preliminary prospectus, the Prospectus and all amendments and
supplements to such documents, in each case as soon as available and in such
quantities as you request.
(f) The Company will arrange for the qualification of the Stock for
sale under the laws of such jurisdictions as you designate and will continue
such qualifications in effect so long as required to complete the distribution
of the Stock.
(g) During the period of five years hereafter, the Company will
furnish to you and, upon request, to each of the other Underwriters, as soon
as practicable after the end of each fiscal year, a copy of its annual report
to stockholders for such year; and the Company will furnish to you (i) as soon
as available, a copy of each report or definitive proxy statement of the
Company filed with the Commission under the Exchange Act, or mailed to
stockholders, and (ii) from time to time, such other information concerning
the Company as you may reasonably request.
(h) The Company will not offer, sell, contract to sell or otherwise
dispose of any additional shares of its Class A Common Stock or any option,
warrant or other security exercisable or exchangeable for, or convertible
into, Class A Common Stock (other than options issued to employees or
directors pursuant to the 1994 Option Plan or the 1994 Directors' Plan that
may not be exercised until 180 days after the public offering of the Firm
Shares) without your prior written consent for a period of 180 days after the
date of the public offering of the Firm Shares.
(i) The Selling Stockholders agree not to offer, sell, contract to
sell, transfer, assign, hypothecate or otherwise dispose of any additional
shares of the Class A Common Stock of the Company without your prior written
consent for a period of 90 days after the date of the public offering of the
Firm Shares.
(j) The Company and the Selling Stockholders agree with the several
Underwriters that the Company will pay all expenses incident to the
performance of the obligations of the Company and such Selling Stockholders,
as the case may be, under this Agreement (except for underwriting discounts
and commissions payable on the Selling Stockholders' shares sold in the
Offering, which each Selling Stockholder will bear in proportion to amounts
sold), and will, jointly and severally, reimburse the Underwriters for any
expenses
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<PAGE>
(including fees and disbursements of counsel) incurred by them in connection
with the qualification of the Stock for sale under the laws of such
jurisdictions as you designate and the printing of memoranda relating thereto,
the filing with the National Association of Securities Dealers, Inc. (the
"NASD") relating to the listing of the Stock on the Nasdaq National Market,
the filing relating to the review of documents by the NASD pursuant to the
Corporate Financing Rule of the NASD's Rules of Fair Practice, and the
distribution of preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.
(k) The Selling Stockholders agree to deliver to you on or prior to
any Subsequent Closing Date a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement specified
by Treasury Department regulations in lieu thereof).
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Shares on the First
Closing Date and any Optional Shares on any Subsequent Closing Date will be
subject to the accuracy of the representations and warranties on the part of
the Company and the Selling Stockholders herein, the accuracy of the
statements of Company officers and the Selling Stockholders made pursuant to
the provisions hereof, the performance by the Company and the Selling
Stockholders of their respective obligations hereunder and the following
additional conditions precedent:
(a) You shall have received a letter, dated the date of delivery
thereof (which, if the Effective Time is prior to the execution and delivery
of this Agreement, shall be on or prior to the date of this Agreement or, if
the Effective Time is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the registration statement to be filed shortly prior to the
Effective Time), of Deloitte & Touche confirming that they are independent
certified public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating in effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statement and the
Prospectus comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
Rules and Regulations;
(ii) on the basis of a reading of the latest available
unaudited consolidated financial statements of the Company and inquiries
of officials of the Company who have responsibility for financial and
accounting matters and other specified procedures, nothing came to their
attention that caused them to believe that:
(A) any material modifications should be made to the
unaudited consolidated financial statements included in the
Registration Statement and the Prospectus for them to be in
conformity with generally accepted accounting principals or that
such unaudited consolidated financial statements do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations;
(B) at the date of the latest available unaudited
consolidated balance sheet read by such accountants, or at a
subsequent specified date not more than five days prior to the date
of this Agreement, there was any change in
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<PAGE>
the capital stock or any increase in short-term non-vehicle
indebtedness or long-term debt of the Company and its Subsidiaries
or any decrease or increase in consolidated stockholders' equity as
compared with amounts shown on the latest balance sheet included in
the Prospectus; or
(C) for the period from the closing date of the latest
unaudited consolidated income statement included in the Prospectus
to the closing date of the latest available unaudited consolidated
income statement read by such accountants, or to the subsequent
specified date set forth in clause (B) above, there were any
decreases, as compared with the corresponding period of the
previous year in consolidated operating revenue, operating income,
or net income of the Company;
except in all cases set forth in clauses (B) and (C) above for changes,
increases or decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter;
(iii) on the basis of specified procedures, including (A) a
reading of the unaudited consolidated balance sheet of the Company at
December 31, 1995 and March 31, 1996 and the unaudited pro forma
consolidated statement of operations for the year ended December 31,
1995 and the three-month period ended March 31, 1996 included in the
Registration Statement and the Prospectus; (B) inquiries of certain
officials of the Company who have responsibility for financial and
accounting matters about the basis for the determination of the pro
forma adjustments and whether the unaudited pro forma financial
statements referred to in clause (A) comply as to form in all material
respects with the applicable accounting requirements of Rule 11-02 of
Regulation S-X; and (C) proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical amounts in
the unaudited pro forma financial statements referred to in clause (A),
nothing came to their attention that caused them to believe that the
unaudited pro forma consolidated financial statements referred to in
clause (A) included in the Registration Statement and the Prospectus do
not comply as to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Registration Statement and the Prospectus
(in each case to the extent that such dollar amounts, percentages and
other financial information are derived from the general accounting
records of the Company and its Subsidiaries subject to the internal
controls of the Company's accounting system or are derived directly from
such records by analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other
procedures specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with such
results, except as otherwise specified in such letter.
For purposes of this subsection, if the Effective Time is subsequent to
the execution and delivery of this Agreement, "Registration Statement" shall
mean the registration statement as proposed to be amended by the amendment or
post-effective amendment to be filed shortly prior
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<PAGE>
to the Effective Time, and "Prospectus" shall mean the prospectus included in
the Registration Statement.
(b) If the Effective Time is not prior to the execution and
delivery of this Agreement, the Effective Time shall have occurred not later
than 10:00 P.M., New York time, on the date of this Agreement or such later
date as shall have been consented to by you. If the Effective Time is prior to
the execution and delivery of this Agreement, the Prospectus shall have been
filed with the Commission in accordance with the Rules and Regulations and
Section 2(a) of this Agreement. Prior to such Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or, to
the knowledge of the Company, any of the Selling Stockholders or you, shall be
contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting particularly the business or properties of
the Company or its Subsidiaries which, in the judgment of a majority in
interest of the Underwriters including you, materially impairs the investment
quality of the Stock; (ii) any downgrading in the rating of any debt
securities or preferred stock of the Company or any of its Subsidiaries by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities or preferred stock of the Company or any of its Subsidiaries (other
than an announcement with positive implications of a possible upgrading, and
no implication of a possible downgrading, of such rating); (iii) any
suspension or limitation of trading in securities generally on the New York
Stock Exchange or the Nasdaq National Market, or any setting of minimum prices
for trading on such exchange or market, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter market;
(iv) any banking moratorium declared by Federal or New York authorities; or
(v) any outbreak or escalation of major hostilities in which the United States
is involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of a
majority in interest of the Underwriters including you, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it impractical
or inadvisable to proceed with completion of the sale of and payment for the
Stock.
(d) You shall have received an opinion dated such Closing Date and,
if there are one or more Subsequent Closing Dates, dated such Subsequent
Closing Date of King & Spalding, counsel for the Company, to the effect that:
(i) the Company has been duly incorporated and validly exists
as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with corporate power and authority to own its
properties and conduct its business as described in the Registration
Statement and the Prospectus;
(ii) the Company's authorized capital stock is as set forth in
the Registration Statement and the Prospectus under the heading
"Description of Capital Stock"; all outstanding shares of the Class A
Common Stock and the Class B Common Stock of the Company, including all
of the shares of Stock delivered on such Closing Date or Subsequent
Closing Date, have been duly and validly authorized and issued and are
fully paid and nonassessable; the Class A Common Stock, the Class B
Common Stock and the Preferred Stock of the Company conform to the
descriptions thereof
16
<PAGE>
contained in the Registration Statement and the Prospectus under the
heading "Description of Capital Stock"; and the Stock has been approved
for listing on the Nasdaq National Market, subject to notice of
issuance;
(iii) to the knowledge of such counsel, the Company is the
sole beneficial owner of all of the outstanding capital stock of each
Subsidiary, free and clear of all security interests, claims, liens or
encumbrances;
(iv) except as described in the Registration Statement and the
Prospectus and filed as exhibits to the Registration Statement, there
are no contracts, agreements or understandings known to such counsel
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement
filed by the Company under the Act;
(v) no consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by the Company or any Subsidiary in connection with the
sale of the Stock, except such as have been obtained and made under the
Act and such as may be required under state securities laws, as to which
laws such counsel may express no opinion;
(vi) the execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated on the part
of the Company will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any statute,
rule, regulation or order of any governmental body or agency or any
court having jurisdiction over the Company or any Subsidiary or any of
their properties, or any agreement or instrument filed as an Exhibit to
the Registration Statement to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary is bound or to which any
of the properties of the Company or any Subsidiary is subject, or the
charter or by-laws of the Company or any Subsidiary;
(vii) the Registration Statement was declared effective under
the Act as of the date and time specified in such opinion, the
Prospectus either was filed with the Commission pursuant to subparagraph
(1) or (4) of Rule 424(b) on the date specified therein or was included
in the Registration Statement (as the case may be), and, to the
knowledge of such counsel, no stop order suspending the effectiveness of
the Registration Statement or any part thereof has been issued and no
proceedings for that purpose have been instituted or are pending under
the Act, and the Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective or
issue dates, complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations; such counsel has
no reason to believe that the Registration Statement, as of the
effective date, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus as of its date, contained any untrue statement of a material
fact or omitted to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; the descriptions under the captions "Business
Regulation and Environmental Matters, Description of Capital Stock" and
Part II,
17
<PAGE>
Item 14 "Indemnification of Officers and Directors" the Registration
Statement and the Prospectus of matters of law (including, without
limitation, matters relating to environmental laws), statutes, legal and
governmental proceedings and contracts and other documents are accurate
in all material respects and fairly present the information required to
be shown in a Registration Statement on Form S-1; and such counsel does
not know of any legal or governmental proceedings to which the Company
or any Subsidiary is a party required to be described in the
Registration Statement or the Prospectus which are not described as
required or of any contracts or documents of a character required to be
described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement which are not described or
filed as required (it being understood that such counsel need express no
opinion as to the financial statements and schedules or other financial
and statistical data contained in the Registration Statement or the
Prospectus);
(viii) this Agreement has been duly authorized, executed and
delivered by the Company, and represents a valid and binding obligation
of the Company enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights, and to
general principles of equity, whether applied by a court of law or
equity, and except that the enforceability of the rights to indemnity
and contribution pursuant to Section 7 hereunder may be limited by
federal or state securities laws or by public policy;
(ix) to the knowledge of such counsel, except for the
1,936,600 shares of Class B Common Stock, which are convertible into
1,936,600 shares of Class A Common Stock, the BRAC Warrant, the
NationsBank Warrant, the options to purchase 442,600 shares of Class A
Common Stock issued under the 1994 Option Plan, and the options to
purchase 25,000 shares of Class A Common Stock issued under the 1994
Directors' Plan, each as described in the Registration Statement and the
Prospectus, there are no outstanding Convertible Securities of the
Company, Rights to subscribe for or purchase from the Company or any
Subsidiary any such Convertible Securities, or obligations of the
Company or any Subsidiary to issue Convertible Securities or Rights;
(x) to the knowledge of such counsel, except for the rights of
first refusal set forth in the Share Exchange Agreement dated April 25,
1994, as amended on June 13, 1994 and July 5, 1994, among the Company,
Brian Britton, Jeffrey Congdon, Richard Hinkle, John Kennedy, Sanford
Miller and Richard Sapia, the put right set forth in the BRAC Warrant,
the rights of first refusal held by Budget pursuant to certain of the
Franchise Agreements and the rights of the respective parties to the
ARAC Agreement and the OPCO Agreement, there are no preemptive or other
rights to subscribe for or purchase any shares of capital stock issued
by the Company or any Subsidiary. Except for the transfer restrictions
set forth in the Registration Rights Agreements, Sections 5(h) and 5(i)
of this Agreement and in the letter to be delivered pursuant to Section
6(j) of this Agreement, and the voting restrictions set forth in the
Shareholders' Agreement dated October 20, 1995 among the Company, the
holders of Class B Common Stock and SOCAL, there are no restrictions to
which the Company is a party upon the voting or transfer of any shares
of capital stock of the Company or any Subsidiary;
18
<PAGE>
(xi) the descriptions of the Franchise Agreements in the
Registration Statement and the Prospectus are accurate in all material
respects and fairly summarize the terms thereof;
(xii) the Company and its Subsidiaries have obtained all
approvals, consents, authorizations and waivers of BRAC, SOCAL, TSA and
any other third parties who are franchisees or sub-franchisees of BRAC,
that are required for the consummation of the transactions contemplated
by this Agreement, the Registration Statement and the Prospectus in
connection with the issuance and sale of the Stock and for the use of
proceeds of the offering as described in the Registration Statement and
the Prospectus under the heading "Use of Proceeds," including, without
limitation, (A) the consent and waiver of any right of first refusal by
BRAC, SOCAL or TSA, as required, with respect to the issuance and sale
of the Stock by the Company, and (B) the consent of BRAC to the use in
the Registration Statement, any preliminary prospectus and the
Prospectus of the "Budget" name.
(e) You shall receive an opinion dated the Closing Date of various
counsel for the Selling Stockholders, to the effect that:
(i) each Selling Stockholder has valid and marketable title to
the Firm Shares to be sold by such Selling Stockholder on such Closing
Date, free and clear of all security interests, claims, liens or
encumbrances, and has full right, power and authority to sell, assign,
transfer and deliver such Firm Shares hereunder, and the Underwriters
will acquire title to any Firm Shares purchased by them from such
Selling Stockholder hereunder, free and clear of all security interests,
adverse claims, liens or encumbrances;
(ii) no consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is required to
be obtained or made by any Selling Stockholder for the consummation of
the transactions contemplated by this Agreement in connection with the
sale of any Firm Shares sold by such Selling Stockholder, except such as
have been obtained and made under the Act and the Rules and Regulations
and such as may be required under state securities laws, as to which
laws such counsel may express no opinion;
(iii) the execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, or any agreement or
instrument to which such Selling Stockholder is a party or by which such
Selling Stockholder is bound or to which any of the properties of such
Selling Stockholder is subject;
(iv) the Power of Attorney and Custody Agreement has been duly
authorized, executed and delivered by each Selling Stockholder, and
represents a valid and binding obligation of such Selling Stockholder
enforceable in accordance with its terms, subject as to enforcement as
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity, whether applied by a court of law or equity; and
19
<PAGE>
(v) this Agreement has been duly authorized, executed and
delivered by or on behalf of each Selling Stockholder, and represents a
valid and binding obligation of each Selling Stockholder enforceable in
accordance with its terms, subject as to enforcement as to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights, and except that the
enforceability of the rights to indemnity and contribution pursuant to
Section 7 hereunder may be limited by federal or state securities laws
or the public policy underlying such laws.
(f) You shall have received from Hunton & Williams, counsel for the
Underwriters, such opinion or opinions dated such Closing Date with respect to
the incorporation of the Company, the validity of the Stock, the Registration
Statement, the Prospectus and other related matters as you may require, and
the Company and the Selling Stockholders shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass upon
such matters.
(g) You shall have received a certificate dated such Closing Date
of the Chairman of the Board, the President and the principal financial
officer of the Company in which such officers, to the best of their knowledge
after reasonable investigation, shall state that the representations and
warranties of the Company in this Agreement are true and correct on and as of
such Closing Date to the same effect as if made on such Closing Date, that the
Company has complied with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder at or prior to such Closing Date,
that no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been instituted or
are contemplated by the Commission and that, subsequent to the date of the
most recent financial statements in the Prospectus, there has been no material
adverse change in the financial position or results of operations of the
Company and its Subsidiaries except as set forth in or contemplated by the
Prospectus or as described in such certificate.
(h) You shall have received a letter from Deloitte & Touche, dated
such Closing Date, that meets the requirements of subsection (a) of this
Section, except that the specified date referred to in such subsection will be
a date not more than five business days prior to such Closing Date for the
purposes of this subsection.
(i) On any Subsequent Closing Date for the purchase of Optional
Shares, you shall receive a certificate, dated such Subsequent Closing Date
from the Company which shall state that the representations and warranties by
the Company in this Agreement are true and correct on and as of such
Subsequent Closing Date to the same effect as if made on such Subsequent
Closing Date and that the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder at
or prior to such Subsequent Closing Date.
(j) The Company shall have furnished to you written agreements,
releases, certificates, acknowledgements, confirmations and other documents in
form and substance reasonably satisfactory to you (A) from BRAC, SOCAL and TSA
providing such parties' consent and, where applicable, waiver of any right of
first refusal by BRAC or SOCAL as required, with respect to the issuance and
sale of the Stock by the Company, and (B) from BRAC, providing its consent to
the use in the Registration Statement, any preliminary prospectus and the
Prospectus of the "Budget" name and logo, and (C) from BRAC, SOCAL and TSA,
certificates stating that each Franchise Agreement is currently in effect and
legal, valid, binding and enforceable, for the benefit of the Company, in
accordance with its terms.
20
<PAGE>
(k) You shall have received executed agreements in the form annexed
hereto as Exhibit A from each officer, director and Selling Stockholder.
(l) The Company and the Selling Stockholders will furnish you with
such conformed copies of such opinions, certificates, letters and documents as
you reasonably request.
7. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, the
Prospectus, or any amendment or supplement thereto, or any related preliminary
prospectus, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through you
specifically for use therein; provided further, that such indemnity with
respect to any untrue statement or omission of a material fact contained in
any preliminary prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages or liabilities
purchased the shares that are the subject thereof if such person did not
receive a copy of the Prospectus (or the Prospectus as supplemented) at or
prior to the confirmation of the sale of such shares to such person in any
case where such delivery is required under the Act and such untrue statement
or omission of a material fact contained in any preliminary prospectus was
corrected in the Prospectus (or the Prospectus as supplemented). The Company
hereby acknowledges and agrees with the several Underwriters that, for all
purposes of this Agreement, including, without limitation, clause (ii) of
Section 2(a), clause (ii) of Section 2(b), this Section 7(a), Section 7(b) and
Section 7(c), the only information furnished to the Company by the
Underwriters specifically for use in the Registration Statement or the
Prospectus is the information in the last paragraph on the cover page of the
Prospectus, the information on the inside front cover of the Prospectus with
respect to stabilization and the information contained in the fourth and fifth
paragraphs under the caption "Underwriting" in the Prospectus.
(b) The Selling Stockholders, severally, and not jointly, will
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon,
with respect only to the statements or omissions from the Registration
Statement or Prospectus, based on information provided in writing by such
Selling Stockholder, any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the Prospectus or any
amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon, with respect only to the statements or
omissions from the Registration Statement or Prospectus, based on information
provided in writing by such Selling Stockholder, the omission or alleged
omission to state therein a material fact required
21
<PAGE>
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action
as such expenses are incurred; provided, however, that each Selling
Stockholder will not be liable in any such case to the extent that any such
loss, claim, damage or liability (i) arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by an Underwriter through you
specifically for use therein, or (ii) in excess of the net proceeds of the
Offering received by each Selling Stockholder.
(c) Each Underwriter will, severally and not jointly, indemnify and
hold harmless the Company and the Selling Stockholders against any losses,
claims, damages or liabilities to which the Company or the Selling
Stockholders may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement, the Prospectus or
any amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through you
specifically for use therein, and will reimburse any legal or other expenses
reasonably incurred by the Company or any Selling Stockholder in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying
party under subsection (a), (b) or (c) above, notify the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under subsection (a), (b) or (c) above. In case any such
action is brought against any indemnified party and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on any claims that are the subject matter of such
action.
(e) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then
22
<PAGE>
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in subsection (a), (b) or (c) above (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other from
the offering of the Stock or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholders on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by
the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, any Selling Stockholders or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which
is the subject of this subsection (e). Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the shares of the Stock
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders
under this Section shall be in addition to any liability which the Company and
the Selling Stockholders may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company
who has signed the Registration Statement and to each person, if any, who
controls the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Stock hereunder on any Closing Date and the
aggregate number of shares of Stock that such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of shares of Stock that the Underwriters are obligated to purchase on
such Closing Date, you may make arrangements satisfactory to the Company and
the Selling Stockholders for the purchase of such Stock by other persons,
including any of the Underwriters, but if no such arrangements are made by
such Closing Date, the non-defaulting Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to
purchase the Stock that such defaulting Underwriters agreed but failed to
purchase
23
<PAGE>
on such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of shares of Stock with respect to which such default or
defaults occur exceeds 10% of the total number of shares of Stock that the
Underwriters are obligated to purchase on such Closing Date and arrangements
satisfactory to you, the Company and the Selling Stockholders for the purchase
of such Stock by other persons are not made within 36 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholders, except as
provided in Section 9 (provided that if such default occurs with respect to
Optional Shares after the First Closing Date, this Agreement will not
terminate as to the Firm Shares or as to any Optional Shares previously
purchased). As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section. Nothing herein will
relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of
the Company or its officers, the Selling Stockholders and the several
Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, any Selling
Stockholders, the Company or any of their respective representatives, officers
or directors or any controlling person, and will survive delivery of and
payment for the Stock. If this Agreement is terminated pursuant to Section 8
or if for any reason the purchase of the Stock by the Underwriters is not
consummated, the Company and the Selling Stockholders shall remain responsible
for the expenses to be paid or reimbursed by them pursuant to Section 5 and
the respective obligations of the Company, the Selling Stockholders and the
Underwriters under Section 7 shall remain in effect, and if any shares of
Stock have been purchased hereunder the representations and warranties in
Section 2 and all obligations under Section 5 shall also remain in effect. If
the purchase of the Stock by the Underwriters is not consummated for any
reason other than solely because of the termination of this Agreement pursuant
to Section 8 or the occurrence of any event specified in clause (iii), (iv) or
(v) of Section 6(c), the Company and the Selling Stockholders will jointly
reimburse the Underwriters for all out of pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the Stock.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed or delivered to you, c/o CS First
Boston Corporation, Park Avenue Plaza, 55 East 52nd Street, New York, New York
10055, Attention: Investment Banking Department -- New Issue Processing Group,
or, if sent to the Company, will be mailed or delivered to it at Team Rental
Group, Inc., 125 Basin Street, Daytona Beach, Florida 32114, Attention: Mr.
Sanford Miller, or, if sent to the Selling Stockholders or any of them, will
be mailed or delivered to the addresses set forth on Schedule B below each
Selling Stockholder's name; provided, however, that any notice to an
Underwriter pursuant to Section 7 will be mailed or delivered to such
Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective personal representatives
and successors and the officers and directors and controlling persons referred
to in Section 7, and no other person will have any right or obligation
hereunder.
12. Representation. You will act for the several Underwriters in
connection with the transactions contemplated by this Agreement, and any action
under this Agreement taken by you will be binding upon all of the Underwriters.
The Attorneys-in-Fact will act for the Selling
24
<PAGE>
Stockholders in connection with such transactions, and any action under or in
respect of this Agreement taken by an Attorney-in-Fact will be binding upon
the Selling Stockholders.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICT OR CHOICE OF LAW PRINCIPLES THEREOF.
[signature pages follow]
25
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us three of the counterparts hereof,
whereupon this Underwriting Agreement will become a binding agreement among
the Company, the Selling Stockholders and the several Underwriters in
accordance with its terms.
Very truly yours,
The Company: TEAM RENTAL GROUP, INC.
By:
------------------------------
Sanford Miller
Chief Executive Officer
The Selling BUDGET RENT A CAR OF
Stockholders: SOUTHERN CALIFORNIA,
a California general partnership
By:
------------------------------
Jeffrey R. Mirkin, partner
--------------------------- (SEAL)
ALAN D. LIKER
KATZIN INVESTMENTS, L.C.,
an Arizona limited liability company
By:
------------------------------
Name:
Title:
--------------------------- (SEAL)
RICHARD SAPIA
--------------------------- (SEAL)
JAMES SALATTO
[signatures continue on following page]
26
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
CS FIRST BOSTON CORPORATION, on behalf of itself, THE CHICAGO CORPORATION and
McCDONALD & COMPANY SECURITIES, INC.
By:-------------------------------
Name: ------------------------
Title:------------------------
27
<PAGE>
SCHEDULE A
Number of
Firm Shares
to be
Purchased
----------
CS First Boston Corporation........................
The Chicago Corporation............................
McDonald & Company Securities, Inc.................
---------
Total.............................................. 4,000,000
============
A-1
<PAGE>
SCHEDULE B
Number of
Selling Stockholders Firm Shares
- -------------------- -----------
Budget Rent a Car of Southern California,
a California general partnership
c/o Mr. Jeffrey R. Mirkin
150 South Doheny Drive
Beverly Hills, California 90211............... 368,019
Alan D. Liker,
an individual resident of California
========
____________, California _____................ 31,981
Katzin Investments, L.C.,
an Arizona limited liability company
c/o David Katzin
6301 N. 44th Street
Paradise Valley, Arizona 85253................ 272,727
Richard Sapia,
an individual resident of California
3 Connecticut Court
Rexford, New York 12148....................... 100,000
James Salatto,
an individual resident of Connecticut
129 Church Street
New Haven, Connecticut 06510.................. 6,266
-------
Total.................................... 778,993
=======
B-1
<PAGE>
SCHEDULE C
<TABLE>
<CAPTION>
STATE OF
SUBSIDIARY INCORPORATION
- ---------- -------------
<S> <C>
Arizona Rent-A-Car Systems, Inc. Delaware
BRAC SOCAL Funding Corporation (1) Delaware
Capital City Leasing, Inc. Florida
Dayton Auto Lease Company, Inc. Ohio
Don Kremer, Inc. (2) Ohio
Fort Wayne Rental Group, Inc. (3) Delaware
Lee-Al, Inc. (4) California
MacKay Car & Truck Rentals, Inc. North Carolina
Metro West, Inc. Delaware
Team Car Sales of Charlotte, Inc. Delaware
Team Car Sales of Dayton, Inc. Delaware
Team Car Sales of Philadelphia, Inc. Delaware
Team Car Sales of Richmond, Inc. Delaware
Team Car Sales of San Diego, Inc. Delaware
Team Car Sales of Southern California, Inc. Delaware
Team Fleet Financing Corporation Delaware
Team Fleet Realty Services, Inc. Delaware
Team Fleet Services Corporation Delaware
Team Rental of Cincinnati, Inc. Delaware
Team Rental of Connecticut, Inc. Delaware
Team Rental of Ft. Wayne, Inc. Delaware
Team Rental of Philadelphia, Inc. Delaware
Team Rental of Pittsburgh, Inc. Delaware
Team Rental of Rochester, Inc. Delaware
Team Rental of Southern California, Inc. Delaware
Tranex Rentals of New York, Inc. New York
VPSI, Inc. Delaware
Westeam Enterprise, Inc. California
</TABLE>
- ------------
(1) A wholly-owned subsidiary of Team Rental of Southern California, Inc.
(2) A wholly-owned subsidiary of Dayton Auto Lease Company, Inc.
(3) A wholly-owned subsidiary of Team Rental of Ft. Wayne, Inc.
(4) A wholly-owned subsidiary of Metro West, Inc.
C-1
<PAGE>
SCHEDULE D
1. Sublicense Agreement dated October 28, 198__ between Budget Rent A Car of
Southern California and Lee-Al, Inc.
2. Sublicense Agreement dated April 1, 1987 between Budget Rent A Car of
Southern California and Westeam Enterprises, Inc.
3. Budget Rent A Car System Prime License Agreement dated August 25, 1994
between Budget Rent A Car Corporation and Westeam Enterprises, Inc. d/b/a
Budget Rent a Truck of San Diego, California.
4. Budget Rent A Car System Prime License Agreement dated August 1, 1991
between Budget Rent A Car Corporation and Tranex Rentals of New York,
Inc. d/b/a Budget Rent A Car of Albany, New York, as amended by the
Addendum to License Agreement dated August 1, 1991.
5. Budget Rent A Car System Prime License Agreement dated November 8, 1991
between Budget Rent a Car Corporation and Tranex Rentals of New York,
Inc. d/b/a Budget Rent A Car of Rochester, New York, as amended by the
Addendum to License Agreement dated November 8, 1991.
6. Budget Rent A Car System Prime License Agreement dated July 1, 1985
between Budget Rent A Car Corporation and Capital City Leasing, Inc.
d/b/a Budget Rent A Car of Richmond, Virginia, as amended by the letter
agreement dated April 26, 1994 from Budget Rent a Car Corporation to
Team Rental Group, together with the Consent Agreement Assignment of
Prime License dated December 5, 1991 among Budget Rent a Car
Corporation, JHF Enterprises, Inc. and Capital City Leasing, Inc. d/b/a
Budget Rent a Car of Richmond, Virginia.
7. Budget Rent A Car System Prime License Agreement dated August 25, 1994
between Budget Rent A Car Corporation and Team Rental of Philadelphia,
Inc. d/b/a Budget Rent A Car of Philadelphia, Pennsylvania, together
with the Addendum to License Agreement dated August 25, 1994 and the
Addendum to License Agreement Right of First Refusal dated August 25,
1994.
8. Budget Rent A Car System Prime License Agreement dated August 25, 1994
between Budget Rent A Car Corporation and Team Rental of Pittsburgh,
Inc. d/b/a Budget Rent A Car of Pittsburgh, Pennsylvania, together with
the Addendum to License Agreement Right of First Refusal dated August
25, 1994.
9. Budget Rent A Car System Prime License Agreement dated August 25, 1994
between Budget Rent A Car Corporation and Team Rental of Cincinnati, Inc.
d/b/a Budget Rent A Car of Cincinnati, Ohio.
10. Budget Rent A Car System Prime License Agreement dated January 28, 1986
between Budget Rent a Car Corporation and Tranex Rentals, Inc. d/b/a
Budget Rent a Car of Ft. Wayne, Indiana, together with the Consent
Agreement dated August 1, 1993 among Budget Rent a Car Corporation,
Tranex Rentals, Inc. and Ft. Wayne Rental Group, Inc.
D-1
<PAGE>
11. Budget Rent A Car System Prime License Agreement dated January 4, 1995
between Budget Rent a Car Corporation and Team Rental of Charlotte, Inc.
d/b/ Budget Rent a Car of Charlotte, North Carolina.
12. Budget Rent A Car System Prime License Agreement dated January 4, 1995
between Budget Rent a Car Corporation and Team Rental of Charlotte, Inc.
d/b/ Budget Rent a Car of Ashville, North Carolina.
13. Budget Rent A Car System Prime License Agreement dated January 4, 1995
between Budget Rent a Car Corporation and Team Rental of Charlotte, Inc.
d/b/ Budget Rent a Car of Hickory, North Carolina.
14. Budget Rent A Car System Prime License Agreement dated December 22, 1994
between Budget Rent a Car Corporation and Team Rental of Dayton, Inc.
d/b/ Budget Rent a Car of Dayton and Budget Car Sales.
15. Budget Rent A Car System Prime License Agreement dated December 22, 1994
between Budget Rent a Car Corporation and Team Rental of Dayton, Inc.
d/b/ Budget Rent a Car of Richmond, Indiana.
16. Budget Rent A Car System Prime License Agreement dated February 1, 1995
Budget Rent a Car Corporation and Team Rental of Connecticut, Inc. d/b/
Budget Rent a Car of Hartford and New Haven, Connecticut.
17. Budget Rent A Car System Prime License Agreement dated September 17,
1974 between Budget Rent a Car Corporation of America and Rental Car
Resources, Inc. d/b/a Budget Rent a Car of Bridgeport, as amended by the
letter agreement dated January 13, 1991.
18. Budget Rent A Car System Prime License Agreement dated February 1, 1995
between Budget Rent a Car Corporation and Team Rental of Connecticut,
Inc. d/b/ Budget Rent a Car of Hampden, Massachusetts.
19. Amended and Restated Sublicense Agreement dated as of October 20, 1995,
between Budget Rent a Car of Southern California and Team Rental of
Southern California, Inc., together with the Corporate Guaranty of Team
Rental Group dated as of October 20, 1995.
20. Letter agreement dated October 23, 1989 among Transportation and Storage
Associates d/b/a Budget Rent A Truck of Southern California, BRAC-OPCO,
Inc., and Budget Rent A Car of Southern California.
21. Agreement dated November 23, 1960 between Rent-A-Car Services
Corporation and Frank Katzen, Ernst Sielaff and Harry Verblen,
as co-partners d/b/a Budget Rent-A-Car of Arizona, as amended by the
Addendum dated November 23, 1960, the Agreement dated October ___, 1961,
the Release Agreement dated December 30, 1963, the Amendatory Agreement
dated November 1, 1966, the Amendment to Franchise Agreement dated
March 18, 1968, the Addendum to License Agreement dated April 4, 1969,
the Amendatory Agreement dated August 31, 1979, the Second Amendatory
Agreement dated August 31, 1979 and the letter agreement dated January 27,
1981, together with the Consent to and Agreement of Assignment dated
December ___, 1962
D-2
<PAGE>
among Budget Rent-A-Car Corporation of America, Frank Katzin, Harry
Verblen and Ernst Sielaff, as co-partners d/b/a Budget Rent-A-Car of
Arizona, and David Katzin and Charles H. Juliusburg, and the Consent to
and Agreement of Assignment dated April 3, 1968 among Budget Rent-A-Car
Corporation of America, Frank Katzin, Ernst Sielaff, David Katzin and
Charles Juliusburg, as co-partners d/b/a Budget Rent-A-Car of Arizona,
and Margaret F. Katzin.
D-3
<PAGE>
EXHIBIT A
July ___, 1996
Team Rental Group, Inc.
125 Basin Street
Daytona Beach, Florida 32114
CS First Boston Corporation
55 E. 52nd Street
New York, New York 10055
The Chicago Corporation
208 South LaSalle Street
Chicago, Illinois 60604
McDonald & Company Securities, Inc.
One American Square
Indianapolis, Indiana 46282
Dear Sirs:
As an inducement to the Underwriters to execute the Underwriting
Agreement, pursuant to which an offering will be made of Class A Common Stock,
par value $.01 per share (the "Securities"), of Team Rental Group, Inc. (the
"Company"), the undersigned hereby agrees that, for a period of 90 days after
the public offering (the "Commencement Date") of the Securities pursuant to
the Underwriting Agreement to which you are or expect to become party, the
undersigned will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of Securities or securities
convertible into or exchangeable or exercisable for any shares of Securities,
or publicly disclose the intention to make any such offer, sale, pledge or
disposal, without the prior written consent of CS First Boston Corporation.
In furtherance of the foregoing, the Company and its transfer agent
and registrar are hereby authorized to decline to make any transfer of shares
of Securities if such transfer would constitute a violation or breach of this
Agreement.
This Agreement shall be binding on the undersigned and the
respective successors, heirs, personal representatives and assigns of the
undersigned. This agreement shall lapse and become null and void if the
Commencement Date shall not have occurred on or before January _____, 1997.
Very truly yours,
----------------------------
Name:
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TEAM RENTAL GROUP, INC.
Team Rental Group, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. Pursuant to an action duly and properly taken by the Board of
Directors of the Corporation, resolutions were duly adopted setting forth a
proposed amendment of the Amended and Restated Certificate of Incorporation of
the Corporation, declaring said amendment to be advisable and referring said
amendment to the stockholders of the Corporation for consideration thereof and
approval and adoption by the stockholders at the annual meeting of the
stockholders of the Corporation to be duly called by the Board of Directors of
the Corporation (the "Annual Meeting"). The resolution setting forth the
proposed amendment (the "Amendment") is as follows:
RESOLVED, the Section EIGHTH of the Corporation's
Amended and Restated Certificate of Incorporation is hereby
amended by deleting such Section.
2. That thereafter, pursuant to a resolution of the Board of Directors
calling for the Amendment to be submitted to a vote of the stockholders at the
Annual Meeting, the Amendment was approved and adopted by the stockholders at
the Annual Meeting, at which meeting the necessary number of shares were voted
in favor of the Amendment in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
3. That the Amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
4. The undersigned officers of the Corporation hereby acknowledge that
the foregoing is the act and deed of the Corporation and that the facts stated
herein are true.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed this 18th day of June, 1996.
By: /s/ Sanford Miller
---------------------------------------
Sanford Miller
Chairman and Chief Executive Officer
<PAGE>
June 27, 1996
Team Rental Group, Inc.
125 Basin Street
Suite 210
Daytona Beach, Florida 32114
Re: Registration Statement on Form S-1 (File No. 333-4507)
Gentlemen:
We have acted as counsel for Team Rental Group, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Registration
Statement"), relating to 4,600,000 shares of Class A Common Stock of the
Company, par value $.01 per share ("Common Stock"), to be sold by the Company
and certain of the Company's stockholders to the underwriters named in the
Registration Statement pursuant to an Underwriting Agreement, the form of
which has been filed as an Exhibit to the Registration Statement (the
"Underwriting Agreement").
Such 4,600,000 shares include (i) 3,821,007 shares to be sold by the
Company (including 600,000 shares that may be purchased by the underwriters
upon the exercise of an over-allotment option granted to the underwriters by
the Company), and (ii) 778,993 outstanding shares to be sold by certain
stockholders of the Company, as reflected in the Registration Statement (the
"Selling Stockholders").
As counsel, we have examined and relied upon such records, documents,
certificates and other instruments as in our judgment are necessary or
appropriate to form the basis of the opinions hereinafter set forth. In all
such examinations, we have assumed the genuineness of signatures on original
documents and the conformity to such original documents of all copies
submitted to us as certified, conformed or photographic copies, and as to
certificates of public officials, we have assumed the same to have been
properly given and to be accurate.
Based on the foregoing, we are of the opinion that:
(i) The shares of Common Stock to be issued and sold by the Company
pursuant to the Underwriting Agreement have been duly authorized and, when
issued in accordance with the terms set forth in the Underwriting
Agreement, will be validly issued, fully paid and nonassessable; and
(ii) The outstanding shares of Common Stock to be sold by the Selling
Stockholder have been duly authorized and are validly issued, fully paid
and nonassessable.
We consent of the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to us under the caption "Legal Matters" in the
Prospectus that forms a part of the Registration Statement.
Very truly yours,
KING & SPALDING
<PAGE>
A G R E E M E N T
-----------------
ARTICLES OF AGREEMENT made and entered into the 23rd day of November,
1960, by and between RENT-A-CAR SERVICES CORPORATION, an Illinois corporation,
hereinafter sometimes referred to as SERVICES, and FRANK KATZEN, ERNST SIELAFF
and HARRY VERBLEN, as co-partners, d/b/a BUDGET RENT-A-CAR OF ARIZONA, a
co-partnership, hereinafter sometimes referred to as LICENSEE.
A R T I C L E I
---------------
RENT-A-CAR SERVICES CORPORATION, during the existence of this
contract agrees as follows:
A. To grant to LICENSEE the exclusive use of the name and mark
"BUDGET RENT-A-CAR" in conjunction with the operation of an automobile rental
business in the State of Arizona. LICENSEE shall have the right to enter into
sublicensing agreements within the said geographical territory upon the
approval of SERVICES. SERVICES agrees not to withhold unreasonably such
approval.
B. To furnish a two week training course to LICENSEE or its
representative at the Los Angeles office of BUDGET RENT-A-CAR, or similar
office. LICENSEE is to pay all its own travel and living expenses in
connection with such course.
C. To spend a minimum of FIFTY PERCENT (50%) of the gross franchise
fees paid by all Licensees for advertising, promotion and reservations for the
benefit of Licensees, allocated on a reasonable basis nationally and locally.
D. To maintain reservations offices in New York City, Los Angeles and
Chicago. The cost of maintaining such offices shall be applicable against the
minimum amount specified in Paragraph C necessary to be spent for the benefit
of Licensees.
E. To forward to LICENSEE all applicable reservations made at
SERVICES' reservations offices at no charge to LICENSEE for postage, telephone
or telegraph.
F. To furnish to LICENSEE its professional services and assistance in
the establishment of office and accounting procedures, and to supply the
proper forms, at cost, for use in connection with the same.
G. To advise LICENSEE in connection with the disposition of vehicles
at the end of their useful lives.
<PAGE>
H. To advise LICENSEE in connection with the obtaining of the most
favorable insurance rates available in its local market.
I. To advise LICENSEE in connection with the obtaining of vehicles at
the most favorable prices available to SERVICES.
J. To advise LICENSEE in connection with the obtaining of proper
financing necessary for the purchase of its vehicles.
K. To furnish to LICENSEE, at no cost, leads resulting from SERVICES'
agreements or contacts with national organizations.
ARTICLE II
----------
LICENSEE, during the existence of this contract, agrees as follows:
A. To pay as franchise fees to SERVICES the initial sum of SEVENTEEN
DOLLARS AND FIFTY CENTS ($17.50) per thousand of population in the
geographical territory assigned to it, based upon the latest available Sales
Management's Survey of Buying Power published by Bill Brothers, Inc. of New
York, New York, and a further monthly sum computed on the basis of TEN DOLLARS
($10.00) per car per month for all cars in use during the month for rental
purposes only. All cars owned or purchased and available for use before the
tenth (10th) day of any month shall be considered in use during the month.
LICENSEE is to deposit with SERVICES an amount equal to three (3) times the
monthly fee for the initial number of cars at the time of execution of this
contract, and agrees to pay all monthly fees on the fifteenth (15th) day of
the month following the month of use. The aforedescribed deposit is to be
applicable against payment of the first three (3) months' fees.
B. To maintain rental rates and conditions of rental as specified by
SERVICES. Any deviation from the national rates and conditions set forth by
SERVICES, not agreed to in writing by SERVICES, shall be sufficient cause for
cancellation of this contract by SERVICES.
C. To take and transmit reservations for all other Licensees at no
charge to the recipient except for the costs of transmission by telephone or
telegraph.
D. To maintain adequate and proper records on the forms supplied by
SERVICES and to use the office and accounting procedures specified by
SERVICES; to make available such records for inspection by authorized
representatives of SERVICES; and to submit certified reports on the tenth
(10th) day of each month showing the number of vehicles in use for the
previous month.
E. To carry at least such insurance coverage as is prescribed by the
laws of the State of Arizona, and to purchase the insurance only from
companies licensed to do business in the State of Arizona.
<PAGE>
F. To send it authorized representatives, at its own expense for
travel and living costs, to attend a two week training course at the Los
Angeles Office of BUDGET RENT-A-CAR, or similar office, prior to the beginning
of operation.
G. To refrain from engaging into any other automobile or truck rental
or leasing business in the United States, Mexico, Canada, or any other foreign
country during the term of this Agreement and for a period of five (5) years
after the termination of this Agreement or any renewal thereof without the
written authorization of SERVICES. In the event such business is entered into
by LICENSEE, LICENSEE agrees to pay to SERVICES, as liquidated damages, the
sum of TEN DOLLARS ($10.00) per car per month for all cars in use plus a lump
sum computed on the basis of SEVENTEEN DOLLARS AND FIFTY CENTS ($17.50) per
thousand of population of the territory served.
H. To refrain from the use of the name or word "Budget" in any other
automobile or truck rental or leasing business during the term of this
Agreement or any renewal thereof and to refrain from the use of the name or
word "Budget" in any automobile or truck rental or leasing business forever
thereafter, without the written authorization of SERVICES.
I. To purchase only automobiles manufactured domestically unless
authorized by SERVICES to purchase other automobiles.
J. To make an initial purchase of twenty-five (25) automobiles and
maintain that number as a minimum number of vehicles for rental during the
first (1st) year of this contract.
K. To begin operations on or before January 2, 1961.
L. To submit all choices of locations to SERVICES for approval.
M. To supply complete customer lists to SERVICES monthly.
A R T I C L E III
-----------------
All questions of law arising under this contract shall be resolved in
accordance with the laws of the State of Illinois.
A R T I C L E IV
----------------
This contract is personal to the LICENSEE and may not be sold,
assigned or in any manner transferred by the LICENSEE without the written
authorization of SERVICES.
A R T I C L E V
---------------
<PAGE>
While this contract is in full force and effect, LICENSEE shall have
the right of first refusal on any SERVICES franchise in LICENSEE'S territory
to operate a BUDGET RENT-A-TRUCK business, provided that LICENSEE can offer
proof, acceptable to SERVICES, of its financial ability to operate and expand
the business covered by the franchise. Said right of first refusal shall be
exercisable for a period of sixty (60) days after SERVICES gives LICENSEE
notice of SERVICE'S intent to grant such a franchise.
A R T I C L E VI
----------------
In addition to all other rights of cancellation enumerated, implied
or available, SERVICES shall have the right to cancel this contract under the
following conditions:
A. If LICENSEE is or becomes unable to meet current obligations as
they become due.
B. If LICENSEE fails to increase reasonably the number of cars in
use. The determination of reasonableness is to be made by SERVICES on the
Fifteenth (15th) day of January for the preceding year, taking into account
the factors of population and location of the territory, and the average
expansion per thousand of population of other licensees.
C. If, in addition to the criteria of Paragraph B of this ARTICLE VI,
LICENSEE fails to have a minimum of fifty (50) cars in its rental fleet at the
end of the first (1st) year, seventy-five (75) cars at the end of the second
(2nd) year, one hundred (100) cars at the end of the third (3rd) year, and one
hundred twenty-five (125) cars at the end of the fourth (4th) year.
A R T I C L E VII
-----------------
This contract shall be in full force and effect for a period of five
(5) years from the date of execution, and shall be automatically renewable for
each successive five (5) year period thereafter if LICENSEE shall have in use
in its rental fleet a number of cars per thousand of population in its
territory which is not less than the average number of cars in use by all
Licensees during the forty-seventh (47th) month of this contract per thousand
of population in territories of all Licensees based upon the latest available
issue of said Sales Management's Survey of Buying Power. SERVICES shall notify
LICENSEE in writing in the forty-eighth (48th) month of this contract what the
said average number of cars is. If, by the end of the fifty-sixth (56th) month
of this contract, LICENSEE has in use in its fleet at least the said average
number of cars, the conditions for automatic renewal pursuant to this ARTICLE
VII shall be deemed to have been met.
A R T I C L E VIII
------------------
<PAGE>
LICENSEE may cancel this Agreement upon ninety (90) days written
notice to SERVICES, but in that event LICENSEE shall pay to SERVICES on the
fifteenth (15th) day of each month for a period of one (1) year from the date
of cancellation the total monthly fee paid or payable for the month
immediately preceding the month in which the notice of cancellation is
received by SERVICES. If, after such cancellation, SERVICES operates or
franchises a new Budget Rent-A-Car business in LICENSEE'S territory, LICENSEE
may cease making the payments specified in this ARTICLE VIII forever from the
month immediately following the month said new Budget Rent-A-Car business
rents its first car. SERVICES shall notify LICENSEE immediately when the said
first car is rented.
A R T I C L E IX
----------------
All notices required by this Agreement shall be sent by United States
registered mail. Notices to SERVICES shall be addressed to its offices at 208
South La Salle Street, Chicago, 4, Illinois, or such other place as it may
from time to time designate in writing. Notices to LICENSEE shall be addressed
to its offices at ___________________________________________________________
_________, or such other place as it may designate from time to time in
writing.
A R T I C L E X
---------------
This Agreement shall be obligatory upon and shall extend to the
successors and assigns of SERVICES and to the heirs, executors, administrators
and assigns of the individual co-partners hereto, being identified as the
LICENSEE. This Article in no way changes the provisions of Article IV hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
RENT-A-CAR SERVICES CORPORATION
ATTEST:
By
------------------------------------
President
- ---------------------------
Secretary
BUDGET RENT-A-CAR OF ARIZONA, a
co-partnership
By: s/ Harry Verblen
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
LICENSEE
<PAGE>
ADDENDUM
--------
This Addendum forms a part of and is executed simultaneously with
those certain Articles of Agreement entered into the 23rd day of November,
1960, by and between RENT-A-CAR SERVICES CORPORATION, an Illinois corporation,
hereinafter sometimes referred to as SERVICES, and FRANK KATZEN, ERNST SIELAFF
and HARRY VERBLEN, as co-partners, d/b/a BUDGET RENT-A-CAR OF ARIZONA, a
co-partnership, hereinafter sometimes referred to as LICENSEE.
W I T N E S S E T H:
-------------------
WHEREAS, SERVICES has recognized that LICENSEE is among the first
organizations to be licensed by SERVICES and that LICENSEE has requested and
is entitled to certain concessions which are not part of the standard
licensing agreement which LICENSEE proposes to put in effect, and in further
consideration of the execution by LICENSEE of the aforedescribed Articles of
Agreement executed simultaneously with this Addendum, the parties hereto do
hereby execute this Addendum.
SECTION 1. Paragraphs A and G of ARTICLE II of the said
Articles of Agreement are amended to delete all reference to the franchise fee
of Seventeen Dollars and Fifty Cents ($17.50) per thousand of population.
SECTION 2. Paragraph 1 of ARTICLE II of said Articles of
Agreement is amended to permit LICENSEE to purchase and use such foreign makes
of automobiles as LICENSEE desires without the authorization of SERVICES.
SECTION 3. Notwithstanding any other provision of the said
Articles of Agreement, especially Paragraph G of ARTICLE II thereof, it is
specifically understood that LICENSEE, or any partner or employee thereof may
engage in the annual automobile leasing business without SERVICE'S
authorization and without financial obligation to SERVICES. This Section 3
shall not be construed to authorize LICENSEE to engage in the truck rental or
leasing business unless expressly authorized by SERVICES.
SECTION 4. Paragraph L of ARTICLE II of said Articles of
Agreement is amended to strike therefrom the last word, being "approval" and
substituting in place thereof the words "its advice and recommendations."
SECTION 5. ARTICLE IV of the Articles of Agreement is
amended to add the following: "Notwithstanding the foregoing sentence, it is
agreed that nothing herein contained shall be deemed to preclude the
assignment or transfer by the LICENSEE of this Agreement to a corporation in
which each of the aforedescribed parties, being the Licensees, or any two of
them, shall own more than Fifty Per Cent (50%) of the issued and outstanding
stock."
<PAGE>
SECTION 6. ARTICLE V of said Articles of Agreement is
amended to add the following: "It is agreed that LICENSEE'S proof, acceptable
to SERVICES, of its financial ability to operate and expand the business
covered by the franchise shall be conclusively deemed to have been established
upon satisfaction of the following conditions:
A. LICENSEE has complied with its minimum growth
requirements as described in ARTICLE VI, Sub-paragraph C;
B. LICENSEE is prepared to initiate such BUDGET RENT-A-TRUCK
business with at least six (6) trucks (or such lesser number as SERVICES may
stipulate); and
C. LICENSEE is prepared to execute a standard BUDGET RENT-A-
TRUCK franchise agreement except that the same shall contain no franchise fee
or population charge.
SECTION 7. Paragraph A of ARTICLE VI of said Articles of
Agreement shall be applicable only if LICENSEE is adjudicated a bankrupt or is
in a bankruptcy receivorship, or has made an assignment for the benefit of
creditors.
SECTION 8. Paragraph B of ARTICLE VII of said Articles of
Agreement shall be inapplicable and is deleted.
SECTION 9. Notwithstanding the provisions of ARTICLE VIII of
the said Articles of Agreement, in the event the business conducted pursuant
to the said Articles of Agreement becomes unprofitable and LICENSEE cancels
the said Articles of Agreement, LICENSEE shall be relieved of any liability
with respect to continued payment of franchise fees after the date of
cancellation. In that event, however, the initial partners of LICENSEE,
namely: Harry Verblen, Frank Katzen and Ernst Sielaff agree that they will
refrain from entering into or causing any other person or organization from
entering into, either directly or indirectly, the daily automobile rental
business in Arizona as investors, officers or employees for a period of five
(5) years after the date of cancellation of the said Articles of Agreement.
SECTION 10. With respect to the provisions of ARTICLES VI
and VII of the said Articles of Agreement, regarding the required number of
cars, per thousand of population, which LICENSEE is obligated to maintain, the
population of LICENSEE'S territory shall be deemed to consist only of the
metropolitan areas of Phoenix and Tucson.
SECTION 11. In the event LICENSEE sells, assigns or
transfers its rights under the said Articles of Agreement to any other party
or parties subject to the written authorization and approval of SERVICES, a
population fee shall be fixed as part of the sales price and all sums in
excess of Seventeen Dollars and Fifty Cents ($17.50) per thousand of
population shall be due and payable to SERVICES upon the closing of such sale.
In the event LICENSEE sells, assigns or transfers its rights under the said
Articles of Agreement to SERVICES, no population fee shall be fixed as part of
such sales price.
<PAGE>
SECTION 12. As further consideration and in order to induce
SERVICES to enter into said Articles of Agreement and this Addendum, the said
initial partners of LICENSEE, namely: Harry Verblen, Frank Katzen and Ernst
Sielaff shall be personally bound by the said Articles of Agreement and this
Addendum, and their signatures on this Addendum shall signify that they are
bound by the said Articles of Agreement and this Addendum, despite the
assignment to a corporation as hereinbefore authorized; provided further,
however, that in the event of such assignment, except for the non-competition
provisions described in Section 9 of this Addendum and ARTICLE II, Paragraphs
G and H of the Articles of Agreement, such personal liability on the part of
any or all of said initial partners shall abate upon their disposition of all
of their right, title and interest in the outstanding stock of said
corporation.
SECTION 13. To the extent that any of the terms and
provisions of this Addendum shall be or shall be deemed to be inconsistent
with the terms and provisions of the Articles of Agreement herein referred to,
in such event the terms and provisions of this Addendum shall be controlling.
SECTION 14. This Addendum shall be obligatory upon and shall
extend to the successors and assigns of SERVICES and to the heirs, executors,
administrators and assigns of the individual co-partners hereto, being
identified as the LICENSEE.
IN WITNESS WHEREOF, the parties have executed this Addendum this 23rd
day of November, 1960.
RENT-A-CAR SERVICES CORPORATION
By
------------------------------------
President
ATTEST:
- ------------------------------
Secretary
BUDGET RENT-A-CAR OF ARIZONA,
a co-partnership
By
------------------------------------
------------------------------------
------------------------------------
------------------------------------
<PAGE>
AGREEMENT
---------
ARTICLES OF AGREEMENT made and entered into this 27th day of October,
1961, by and between BUDGET RENT-A-CAR CORPORATION OF AMERICA, an Illinois
corporation, Successor in name to RENT-A-CAR SERVICES CORPORATION, hereinafter
sometimes referred to as BUDGET, and FRANK KATZEN, ERNST SIELAFF and HARRY
VERBLEN, as co-partners, d/b/a BUDGET RENT-A-CAR OF ARIZONA, a co-partnership,
hereinafter sometimes referred to as LICENSEE:
W I T N E S S E T H:
WHEREAS BUDGET and LICENSEE have heretofore executed an agreement
dated November 23, 1960, modified by addendum of even date for the operation
of a BUDGET RENT- A-CAR franchise in the State of Arizona; and
WHEREAS Article I, Paragraph C thereof provides for the expenditure
by BUDGET of Fifty per cent (50%) of the gross franchise fees for advertising,
promotion and reservations; and
WHEREAS it was and is the intention of the parties that such shall
apply only to the monthly per car service charges paid by LICENSEE to BUDGET
and the parties desire to clarify this provision;
NOW THEREFORE in consideration of the mutual execution hereof and
other good and valuable consideration, receipt of which is hereby
acknowledged, it is hereby agreed by and between BUDGET and LICENSEE as
follows:
1. Paragraph C of Article I is hereby stricken and in lieu thereof
the following new Paragraph C is inserted:
<PAGE>
"C. To spend a minimum of Fifty percent (50%)
of the gross monthly per car service charge
paid by all Licensees for advertising,
promotion, and reservations for the benefit
of all Licensees, allocated on a reasonable
basis nationally and locally."
2. Paragraph B of Article II is stricken.
IN WITNESS WHEREOF the parties hereto have executed this agreement
the date and year first above written.
BUDGET RENT-A-CAR
CORPORATION OF AMERICA
By
----------------------------
President
ATTEST:
- -----------------------------
Secretary
FRANK KATZEN, ERNST
SIELAFF and HARRY VERBLEN,
as co-partners, d/b/a BUDGET
RENT-A-CAR OF ARIZONA,
a co-partnership
s/ Frank Katzen
------------------------------
s/ Ernst Sielaff
------------------------------
s/ Harry Verblen
------------------------------
<PAGE>
CONSENT TO AND AGREEMENT OF ASSIGNMENT
--------------------------------------
AGREEMENT made and entered into this _____ day of December, 1962, by
and between BUDGET RENT-A-CAR CORPORATION OF AMERICA, an Illinois corporation,
hereinafter sometimes referred to as BUDGET, FRANK KATZIN, HARRY VERBLEN and
ERNEST SIELAFF, as co-partners d/b/a BUDGET RENT-A-CAR OF ARIZONA, hereinafter
sometimes referred to as LICENSEE, and DAVID KATZIN and CHARLES H. JULIUSBURG,
hereinafter sometimes referred to as ASSIGNEES,
W I T N E S S E T H :
WHEREAS, pursuant to an agreement dated November 23, 1960, and
Addendum of the same date, LICENSEE has operated a Budget Rent-A-Car franchise
in certain areas of the State of Arizona, which said agreement was further
amended October 27, 1961; and
WHEREAS, HARRY VERBLEN, one of the Licensees, proposes to transfer
his interest in the said partnership, including his interest in the said
Franchise Agreement, as modified, to the ASSIGNEES herein; and
WHEREAS, BUDGET has agreed to the said assignment,
NOW, THEREFORE, in consideration of the above which are expressly
incorporated herein, and other good and valuable consideration, receipt of
which is hereby acknowledged, it is hereby agreed by and between the parties
as follows:
1. HARRY VERBLEN does hereby assign such right, title and interest as
he may have in and to the said Franchise Agreement, as so modified, to
ASSIGNEES herein, DAVID KATZIN and CHARLES H. JULIUSBURG.
2. BUDGET does hereby consent to the said assignment.
<PAGE>
3. DAVID KATZIN and CHARLES H. JULIUSBURG, ASSIGNEES herein, do
hereby acknowledge their acceptance of the assignment and do hereby undertake
the responsibilities, duties, and obligations of LICENSEE therein,
specifically including, but not limited to, the restrictions described in
ARTICLE II, [paragraph][paragraph] G and H of the said Franchise Agreement.
BUDGET RENT-A-CAR CORPORATION
OF AMERICA
By
------------------------------------
ATTEST:
- -----------------------------
--------------------------------------
--------------------------------------
--------------------------------------
As co-partners d/b/a BUDGET RENT-A-CAR
OF ARIZONA
--------------------------------------
--------------------------------------
ASSIGNEES
<PAGE>
RELEASE AGREEMENT
-----------------
AGREEMENT made and entered into at Chicago, Illinois, this 30th day
of December, 1963, by and between BUDGET RENT-A-CAR CORPORATION OF AMERICA, an
Illinois corporation, hereinafter referred to as BUDGET, and FRANK KATZIN,
ERNEST SIELAFF, DAVID KATZIN AND CHARLES H. JULIUSBURG d/b/a BUDGET RENT-A-CAR
OF ARIZONA, hereinafter sometimes referred to as LICENSEE,
W I T N E S S E T H :
WHEREAS, LICENSEE owns the exclusive rights to the use of the name
and mark "Budget Rent-A-Car" in conjunction with the operation of an
automobile rental business in the State of Arizona; and
WHEREAS, BUDGET has requested LICENSEE to release its rights to the
City of Parker, Arizona and its immediate environs, LICENSEE having no plans
to establish its Budget Rent-A-Car operations in said area; and
WHEREAS, LICENSEE has agreed to release the said area;
NOW, THEREFORE, in consideration of the above which are expressly
incorporated herein as though set forth here in full, and the payment of FIFTY
DOLLARS ($50.00) by BUDGET to LICENSEE, and other good and valuable
consideration, the receipt of which is expressly acknowledged, it is agreed
that:
/1/ LICENSEE does hereby irrevocably release to BUDGET all of its
right to the exclusive use of the names and marks "Budget Rent-A-Car" and
"Budget Rent-A-Truck" in conjunction with the operation of an automobile or
truck rental business in the City of Parker, Arizona, and its immediate
environs, and does agree that BUDGET may enter into franchise or option
agreements within said area without reservation of any kind or without payment
to LICENSEE of any consideration therefor.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals the day and year first above written.
BUDGET RENT-A-CAR CORPORATION
OF AMERICA
By
------------------------------------
ATTEST:
- -----------------------------
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
d/b/a BUDGET RENT-A-CAR OF ARIZONA
<PAGE>
AMENDATORY AGREEMENT
--------------------
THIS AGREEMENT made and entered into this 1st day of November, 1966,
by and between BUDGET RENT-A-CAR CORPORATION OF AMERICA, hereinafter sometimes
referred to as BUDGET, and Frank Katzin, Ernest Sielaff, David Katzin &
Charles Juliusburg, co-partnership, d/b/a Budget Rent-A-Car of Arizona,
hereinafter sometimes referred to as LICENSEE,
W I T N E S S E T H :
In consideration of the mutual covenants herein contained, it is
agreed by and between the parties hereto that the Franchise Agreement dated
November 23, 1960 (including any and all subsequent amendments thereto) is now
hereby further amended effective January 1, 1967, as follows:
1. ARTICLE II, B, relating to monthly service charges (or such
comparable section in the Franchise Agreement which describes the monthly
service charges required to be paid by LICENSEE to BUDGET) is amended by
increasing the said monthly service charge per vehicle from TEN ($10.00)
DOLLARS per month to THIRTEEN ($13.00) DOLLARS per month. (ARTICLE I, C, or
its comparable section in the Franchise Agreement, provides that fifty percent
of said amount be spent for advertising.)
2. BUDGET agrees that with reference to all Franchise Agreements in
which it receives monthly franchise and service charges per vehicle totaling
TWENTY ($20.00) DOLLARS per month, and wherein it is obliged to spend not to
exceed FIVE ($5.00) DOLLARS per month per vehicle for advertising purposes,
such Agreements are amended to raise the monthly advertising requirement from
FIVE ($5.00) DOLLARS to SIX AND 50/100 ($6.50) DOLLARS per month.
3. Except as herein expressly provided, the above described Franchise
Agreement as in effect prior hereto shall remain in full force and effect
subject to the terms hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereunto have set their hands and
seals on the day and year first above written.
BUDGET RENT-A-CAR CORPORATION
OF AMERICA
By
------------------------------------
Its Vice President
Frank Katzin, Ernest Sielaff, David
Katzin, and Charles Juliusburg, a
co-partnership, d/b/a Budget Rent-A-Car
of Arizona
By
------------------------------------
Name and Title of Officer, Partner
or indicate sole proprietor:
Its Operating Partner
<PAGE>
AMENDMENT TO FRANCHISE AGREEMENT
DATED MARCH 18, 1968
By mutual agreement of the parties hereto, that certain Franchise
Agreement dated November 23, 1960 by and between BUDGET RENT-A-CAR CORPORATION
OF AMERICA, an Illinois corporation and FRANK KATZIN, ERNEST SIELAFF, DAVID
KATZIN and CHARLES H. JULIUSBURG, d/b/a BUDGET RENT-A-CAR OF ARIZONA, a
co-partnership shall be and the same is hereby amended and modified by the
deletion of the words "In the United States, Mexico, Canada or any other
foreign country" from ARTICLE II, Paragraph G, thereof; and by the insertion
of the following words, in lieu thereof:
"The State of Arizona, excluding the city of Parker, Arizona"
In all other respects, said License Agreement shall remain in full
force and effect without modification.
BUDGET RENT-A-CAR CORPORATION
OF AMERICA, an Illinois corporation
By
------------------------------------
Its Vice President
ATTEST:
- -----------------------------
Its Assistant Secretary
Frank Katzin, Ernest Sielaff, David
Katzin, and Charles H. Juliusburg,
d/b/a Budget Rent-A-Car of Arizona, a
co-partnership
<PAGE>
ATTEST:
--------------------------------------
Frank Katzin
--------------------------------------
- ------------------------ Ernest Sielaff
Its Secretary
--------------------------------------
David Katzin
--------------------------------------
Charles H. Juliusburg
<PAGE>
CONSENT TO AND AGREEMENT OF ASSIGNMENT
--------------------------------------
AGREEMENT made and entered into this 3rd day of April, 1968, by and
between BUDGET RENT-A-CAR CORPORATION OF AMERICA, an Illinois corporation,
hereinafter sometimes referred to as "BUDGET", FRANK KATZIN, ERNST SIELAFF,
DAVID KATZIN, and CHARLES JULIUSBURG, individually, and as copartners d/b/a
BUDGET RENT-A-CAR OF ARIZONA, hereinafter sometimes referred to as "LICENSEE",
and MARGARET F. KATZIN, hereinafter sometimes referred to as "ASSIGNEE",
WITNESSETH:
----------
WHEREAS, purusant to an Agreement dated November 23, 1960, and
Addendum of the same date, LICENSEE has operated a Budget Rent-A-Car franchise
in certain areas of the State of Arizona, which said Agreement was further
amended October 27, 1961; and
WHEREAS, CHARLES JULIUSBURG, one of the Licensees, proposes to
transfer his interest in said partnership, including his interest in the said
Franchise Agreement, as modified, to the ASSIGNEE herein; and
WHEREAS, BUDGET has agreed to said assignment; and
NOW, THEREFORE, in consideration of the mutual covenants and
agreements of the parties hereto, and other good and valuable consideration,
receipt of which is hereby acknowledged, it is hereby agreed by and between
the parties as follows:
1. CHARLES JULIUSBURG does hereby assign such right, title
and interest as he may have in and to the said partnership and to said
Franschise Agreement, as so modified, to the ASSIGNEE herein, MARGARET F.
KATZIN.
2. BUDGET does hereby consent to said assignment.
<PAGE>
3. FRANK KATZIN, ERNST SIELAFF AND DAVID KATZIN do hereby
consent to said assignment.
4. MARGARET F. KATZIN, ASSIGNEE herein, does hereby
acknowledge her acceptance of the assignment of the interest of CHARLES
JULIUSBURG in and to said partnership and to said Franchise Agreement, and
does hereby undertake the responsibilities, duties, and obligations of
LICENSEE therein, specifically including, but not limited to the restrictions
described in ARTICLE II, Paragraphs G and H of said Franchise Agreement.
BUDGET RENT-A-CAR CORPORATION
OF AMERICA
ATTEST: By
---------------------------------
- -----------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
As copartners d/b/a BUDGET RENT-A-
CAR OF ARIZONA
-----------------------------------
-----------------------------------
<PAGE>
ADDENDUM TO LICENSE AGREEMENT
-----------------------------
THIS AGREEMENT made and entered into this 4th day of April, 1969 by
and between BUDGET RENT-A-CAR CORPORATION OF AMERICA, an Illinois corporation
(hereinafter sometimes referred to as "BUDGET"); and
Budget Rent-A-Car of Arizona
------------------------------
a Partnership (hereinafter sometimes referred to as "LICENSEE"),
-----------------------
(legal designation)
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, on the 23rd day of November, 1960 the parties hereto entered
into a License Agreement, pursuant to which LICENSEE was granted the right to
conduct a car rental business in certain designated territory under the name
Budget and,
WHEREAS, the parties hereto deem it to their mutual best interest to
amend and modify said License Agreement,
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. LICENSEE agrees that it will, at all times during the term of the
said License Agreement, or any extension or renewal thereof, maintain in full
force and effect a policy or policies of automobile liability insurance having
minimum limits of 100,000/300,000/25,000, insuring LICENSEE and all authorized
rentees, lessees and users of any and all automobiles leased or rented by
LICENSEE. Further, LICENSEE agrees that any such policy or policies of
insurance shall name BUDGET as an additional assured thereunder.
2. LICENSEE agrees to furnish and file with BUDGET, evidence from the
insurance carrier who has issued the policy or policies of insurance described
in Paragraph 1 hereof, of the fact that said policy or policies of insurance
are in full force and effect. Said evidence of insurance shall be filed
annually, on or prior to the date of the issuance of each policy or policies
of insurance.
3. All of the policies of insurance described in paragraph 1 hereof
shall contain a provision that BUDGET RENT-A-CAR CORPORATION OF AMERICA shall
receive at least ten (10) days' prior written notice before the coverage
provided in said policies of insurance shall become ineffective with respect
to any of the insureds thereunder.
<PAGE>
4. Except as expressly modified herein, said License Agreement shall
remain in full force and effect without modification.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to
License Agreement the date first above written.
BUDGET RENT-A-CAR CORPORATION OF
AMERICA, an Illinois corporation
By
------------------------------------
President.
s/ Budget Rent A Car of Arizona
--------------------------------------
(legal designation)
By
------------------------------------
Title: Managing Partner
<PAGE>
AMENDATORY AGREEMENT
--------------------
THIS AGREEMENT made and entered into this 31st day of August, 1979,
by and between BUDGET RENT A CAR CORPORATION, f/k/a RENT-A-CAR SERVICES
CORPORATION and f/k/a BUDGET RENT A CAR CORPORATION OF AMERICA, herein after
referred to as "BUDGET", and ARIZONA RENT-A-CAR SYSTEMS, INC., f/k/a BUDGET
RENT A CAR OF ARIZONA, a co-partnership, herein after referred to as
"LICENSEE".
W I T N E S S E T H:
WHEREAS BUDGET and LICENSEE have heretofore executed Articles of
Agreement dated November 23, 1960, modified by an Addendum of the same date
for the operation of BUDGET RENT A CAR franchise in the State of Arizona,
hereinafter referred to as "License Agreement"; and
WHEREAS Section 11 of said Addendum is unclear as to its meaning; and
WHEREAS it is the intention of the parties to clarify and add to the
language of said Section 11.
NOW THEREFORE, in condsideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is agreed by and between the
parties hereto that the Budget Rent A Car License Agreement for the State of
Arizona dated November 23, 1969 as amended, is further amended as follows:
1. Section 11 of the November 23, 1960 Addendum to the aforesaid License
Agreement is hereby deleted in its entirety and substituted in lieu thereof is
the following provision.
"Section 11. If LICENSEE or its beneficial owners propose to
assign or transfer the License Agreement, the beneficial
ownership of LICENSEE or the Budget Rent a Car business in
accordance with a bona fide, executed written offer to
purchase same, a copy of such offer shall be sumitted to
BUDGET, which shall, for a period of thirty (30) days from
the date on which it receives such offer, have the option to
purchase same for the price and on the terms and conditions
contained in such offer, provided that BUDGET may substitute
cash for any other consideration proposed in such offer, and
further provided that BUDGET may deduct from said purchase
price an amount equal to the then current population fee
being charged by BUDGET to new licensees purchasing Budget
Rent A Car franchises (but in no event less than
$60./thousand of population which is the now current
population fee) times the total population of the State of
Arizona as of the date hereof; to wit, 2,400,000. If BUDGET
does not exercise this option, the offer may be accepted by
LICENSEE and/or its beneficial owners, subject to approval
by BUDGET as provided in Article IV of the forsaid License
Agreement.
<PAGE>
If LICENSEE assigns or transfers the License Agreement, the
beneficial ownership of LICENSEE or the Budget Rent a Car
business to a third party in accordance with the preceding
paragraph, then upon such assignment or transfer LICENSEE
shall pay to BUDGET an amount equal to the then current
population fee being charged by BUDGET to new licensees
purchasing Budget Rent a Car franchises (but in no event
less than $60./thousand of population which is the now
current population fee) times the total population of the
State of Arizona as of the date hereof; to wit, 2,400,000."
2. Except as herein expressly provided, the above described License
Agreement, as amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereunto have set their hands and
seals on the day and year first above written.
ARIZONA RENT-A-CAR SYSTEMS, INC BUDGET RENT A CAR CORPORATION
By By
----------------------------- ---------------------------
<PAGE>
SECOND AMENDATORY AGREEMENT
THIS AGREEMENT, made and entered into this 31st day of August, 1979,
by and between BUDGET RENT A CAR CORPORATION, an Illinois corporation
(hereinafter referred to as "Budget"), BUDGET RENT A CAR SYSTEMS, INC., a
Delaware corporation (hereinafter referred to as "Systems"), ARIZONA
RENT-A-CAR SYSTEMS, INC., a Delaware corporation (hereinafter referred to as
"Licensee"), and DAVID KATZIN, individually.
WITNESSETH:
WHEREAS, Budget and Licensee have heretofore executed Articles of
Agreement dated November 23, 1960, as modified and amended by Addendum of the
same date, by an undated Agreement executed in October, 1961, and by an
Amendatory Agreement of even date herewith, all hereinafter collectively
referred to as the "License Agreement"; and
WHEREAS, pursuant to the License Agreement, Licensee has the right to
operate a Budget Rent A Car business in the State of Arizona, including the
territory of the Phoenix Sky Harbor International Airport; and
WHEREAS, on July 18, 1979, the City of Phoenix accepted proposals for
four (4) nonexclusive licenses to conduct auto rental agencies at Phoenix Sky
Harbor International Airport; and
WHEREAS, Licensee desired to submit a proposal to the City of
Phoenix, but could not satisfy the bid requirements, and requested that Budget
act in its place and stead; and
WHEREAS, with the express approval of Licensee, Budget caused Systems
to submit a qualified proposal to the City of Phoenix, which proposal is about
to be accepted and approved by the City; and
<PAGE>
WHEREAS, Systems submitted said proposal contingent upon Licensee's
agreement to the terms and conditions recited herein.
NOW, THEREFORE, in consideration of the mutual covenants recited
herein and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. AIRPORT CONTRACT. Upon execution of the Airport License
Agreement between Systems and the City of Phoenix, Systems shall assign such
agreement to Licensee, and Licensee shall use its best efforts to obtain the
City's consent to such assignment. It is understood that such assignment shall
not relieve Systems of its liability pursuant to said Agreement. However,
Licensee at all times shall have the right to obtain Systems release from
liability from the City of Phoenix upon which release this Agreement shall
immediately terminate and be of no further force and effect.
2. TERM. The term of this Agreement shall be for the term of the
airport contract unless sooner terminated according to the provisions of this
Agreement.
3. FAITHFUL PERFORMANCE. Licensee agrees to faithfully perform
each and every obligation under and pursuant to: this Agreement; the License
Agreement, as amended, between Budget and Licensee; the Airport License
Agreement to be entered into between Systems and the City of Phoenix (which
agreement, when executed, shall be a part hereof and incorporated herein by
reference); all other agreements which Licensee may be required to enter into
under, pursuant to, or in performance of the terms and conditions of the
aforesaid agreements; and any and all amendments and exhibits to any of said
agreements not herein expressly referred to which may be or may hereafter be
executed. Licensee shall not alter, amend
<PAGE>
or revise any of the aforesaid agreements without prior written consent of
Budget, violation of which shall constitute a breach of this Agreement.
4. DEFAULT AND ASSIGNMENT. In the event Licensee shall materially
breach the terms or conditions of any of the agreements described in Article 2
above, and shall fail to cure such default within one-half of the time
provided in the relevant agreement for cure, or in the event such default is
not subject to or possible of cure, then, in either event, all right, title
and interest of Licensee in the Airport License Agreement shall expire, and
all right, title and interest of Licensee in the Budget Rent-A-Car franchise
for service of the Sky Harbor International Airport, Phoenix, Arizona, shall
be and hereby are assigned to Systems, without further proceedings or the
execution of any other documents; provided, however, that in no event shall
such an assignment occur as a result of a default which is subject to cure
unless Budget shall give to Licensee seven (7) days written notice of said
default. Budget and Licensee acknowledge and agree that the aforesaid
assignment of franchise rights is undertaken as security for Systems'
obligations and responsibilities resulting from its execution of the Airport
License Agreement.
5. ADDITIONAL DEFAULTS. The assignment provided for in Article 3
above shall take effect immediately and without cause or notice, written or
otherwise, in the event of any of the following:
a. The admission by Licensee of its inability to pay its debt or
obligations as they become due.
b. The filing of a voluntary petition in bankruptcy, or the
filing of an involuntary petition in bankruptcy against
Licensee, with the latter not being dismissed within 30
days.
c. Any assignment by Licensee of its property for the benefit of
creditors.
<PAGE>
d. Any purported sale, assignment, pledge or transfer, whether
lifetime or less of Licensee or its Budget Rent-A-Car business.
6. INDEMNIFICATION BY LICENSEE. Licensee agrees to pay to Budget
on demand all amounts, costs, losses and expenses (including reasonable
attorney's fees and court costs) which may be reasonably paid or incurred by
Budget or Systems in accordance with the terms of the Airport License
Agreement. Further, Licensee agrees to indemnify, protect, defend and save
Budget and Systems harmless from and against any and all claims, actions,
liabilities, losses, costs or expenses (including reasonable attorney's fees
and court costs) arising either directly or indirectly out of this Agreement
or Systems' execution of the Airport License Agreement, except as may be
caused by their own fault or negligence. Budget agrees that Licensee may
employ attorneys of its own selection, subject to Budget's reasonable consent
and approval, to appear and defend the claim or act on behalf of Budget at the
expense of Licensee. Budget at its option shall have the sole authority for
the direction of the defense and shall be the sole judge of the acceptability
of any compromise or settlement of any claims or actions brought against
Budget. Licensee agrees to pay Budget interest at the rate of ten percent
(10%) per annum, or the highest lawful rate permitted if less than ten percent
(10%) per annum, from the date of any payment, loss, cost, or expense incurred
by Budget pursuant to this Agreement until paid by Licensee to Budget.
7. NON-COMPETITION. In the event of an assignment of the Budget
franchise for the Sky Harbor International Airport from Licensee to Systems
pursuant to the terms of this Agreement, Licensee covenants and agrees that it
shall not thereafter, in any respect, offer rental vehicle service to, from or
at the Sky Harbor International Airport for so long as Budget or its assignee
may conduct the Budget Rent-A-Car business from said airport under the
aforesaid
<PAGE>
Airport License Agreement for the remaining term thereof, but in no event not
less than six (6) months after date of such assignment.
8. PURCHASE OF ASSETS. In the event that, pursuant to this
Agreement, Systems elects to undertake the operation of the Budget business at
the Sky Harbor International Airport, Licensee shall sell to Systems and
Systems shall purchase from Licensee such of its in-airport capital
improvements and business assets (including, but not limited to, fixtures,
signs, counters, furnishings and equipment but excluding cars in Licensee's
fleet) as Systems in its sole discretion deems appropriate for the conduct of
the rent-a-car business. The price to be paid by (PAGE 5 IS MISSING)
<PAGE>
9. PERSONAL GUARANTEE. David Katzin hereby unconditionally
guarantees each, every and all of the obligations of Licensee undertaken or
assumed by it herein. IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
Attest: BUDGET RENT A CAR CORPORATION:
By:
- ----------------------------- -----------------------------------
Secretary Executive Vice President
Attest: BUDGET RENT A CAR SYSTEMS, INC.
By:
- ----------------------------- -----------------------------------
Secretary Executive Vice President
Attest: ARIZONA RENT-A-CAR SYSTEMS, INC.
By:
- ----------------------------- -----------------------------------
President
Attest: DAVID KATZIN
By:
- ----------------------------- -----------------------------------
Individually
<PAGE>
State of Illinois )
) ss.:
County of Cook )
On the 9th day of November, 1979, before me appeared Clifton E. Haley
to me personally known, who, being by me duly sworn, did say that he is the
Executive Vive President of BUDGET RENT A CAR CORPORATION, the corporation
described in and which executed the above instrument; that the seal affixed to
the foregoing instrument is the corporate seal of said corporation; that said
instrument was executed in behalf of said corporation by authority of its
Board of Directors; and that he acknowledged said instrument to be the free
act and deed of said corporation.
----------------------------------
Notary Public Cook County
My commission expires 2/4/82
State of Illinois )
) ss.:
County of Cook )
On the 9th day of November, 1979, before me appeared Clifton E. Haley
to me personally known, who, being by me duly sworn, did say that he is the
Executive Vice President of BUDGET RENT A CAR SYSTEMS INC., the corporation
described in and which executed the above instrument; that the seal affixed to
the foregoing instrument is the corporate seal of said corporation; that said
instrument was executed in behalf of said corporation by
<PAGE>
authority of its Board of Directors; and that he acknowledged said instrument
to be the free act and deed of said corporation.
----------------------------------
Notary Public Cook County
My commission expires 2/4/82
<PAGE>
State of Arizona )
) ss.:
County of Maricopa )
On the 6th day of November, 1979, before me appeared David Katzin to
me personally known, who, being by me duly sworn, did say that he is the Vice
President of ARIZONA RENT-A-CAR SYSTEMS, INC., the corporation described in
and which executed the above instrument; that the seal affixed to the
foregoing instrument is the corporate seal of said corporation; that said
instrument was executed in behalf of said corporation by authority of its
Board of Directors; and that he acknowledged said instrument to be the free
act and deed of said corporation.
----------------------------------
Notary Public Cook County
My commission expires 10/9/82
State of Arizona )
) ss.:
County of Maricopa )
On this 6th day of November, 1979, before me personally appeared
DAVID KATZIN, to me known, who, being by me duly sworn, did depose and say
that he executed the foregoing instrument as his free act and deed.
----------------------------------
Notary Public Cook County
My commission expires 10/9/82
<PAGE>
[Letterhead of Budget Rent A Car Corporation]
January 27, 1981
Mr. David Katzin
ARIZONA RENT A CAR SYSTEM, INC., d/b/a
Budget Rent a Car of Arizona
P.O. Box 27500
Phoenix, Arizona 85061
Dear Mr. Katzin:
This letter will confirm the understanding by which Budget Rent a Car
Corporation ("Budget") will be allowed to develop portions of Budget Rent a
Car of Arizona's territory, and we feel that the following arrangement will be
mutually agreeable and beneficial to both Budget and Budget Rent a Car of
Arizona ("Arizona").
In accordance with our understanding, Budget shall have the right to develop
the undeveloped portions of the Licensed Territory granted to Arizona by
Budget pursuant to the License Agreement dated November 23, 1960, provided,
however, that excluded from the Licensed Territory are those areas which
Arizona is actively operating on its own behalf and which Arizona has
heretofore developed by the issuance of presently existing sublicense
agreements, all as more fully detailed on the attached schedule. That part of
the Licensed Territory which Budget may develop as per the above shall
hereinafter be referred to as the "Unlicensed Territory".
1. Budget shall, in accordance with the current policies and
procedures of its franchise development program, attempt to
develop the Unlicensed Territory by selling licenses within
said Unlicensed Territory for a minimum license fee of not
less than $7,500.00.
2. Budget will be responsible for opening and providing
continuing services with respect to licenses sold by Budget
and for all other obligations of Budget set forth in the
standard form of License Agreement in effect at the time a
license is granted.
3. Budget will pay to Arizona any license fee (as that term is
defined in the then current License Agreement) received by
Budget on the sale of a license. Such payment shall be made
within thirty (30) days after receipt by Budget.
4. Budget will promptly pay to on a monthly basis one-third
(1/3) of all Franchise Maintenance Fees and Car Service Fees
(as those terms are defined in the then current License
Agreement) received by Budget with respect to each license
sold by Budget within the Unlicensed Territory.
<PAGE>
Budget Rent a Car of Arizona
January 27, 1981
Page 3
5. Arizona is, without cost or expense to Arizona, hereby
substituted in the place of Budget with respect to Budget's
option to purchase as provided in Section 13.03 of the
current form License Agreement; provided, however, that
Arizona's right thereunder shall extend for a period of only
fifteen (15) days and that in the event Arizona does not
exercise the option within the fifteen (15) day period, then
Budget may do so, on its own behalf, if it so desires. It
being understood, however, that under no circumstance is
Budget obligated to exercise their option to purchase from
licensee, and Budget's failure to so purchase will in no way
affect Arizona's rights under the License Agreement between
Budget and Arizona or Budget's rights under this agreement.
6. Budget will advise Arizona of each proposed licensee for
each new License Agreement.
7. This Agreement continues until terminated by either party on
ninety (90) days written notice. Notwithstanding the
termination of this Agreement, any license sold by Budget
pursuant to the terms of this Agreement shall remain in
effect and the rights and obligations of Budget and Arizona
with respect to any such license shall continue in accord
with this Agreement until such license terminates.
8. This Agreement is made part of the License Agreement between
Budget and Arizona referred to above and such License
Agreement may not be sold, assigned or otherwise
transferred, separate or apart from this Agreement. Further,
if the License Agreement shall terminate this Agreement
shall also terminate as to all licenses sold by Budget in
the Unlicensed Territory and Arizona shall have no further
rights under this Agreement with respect to any such license
sold by Budget.
9. In the event any license sold by Budget hereunder
terminates, the Licensed Territory of such license shall
revert back to Arizona subject to Budget's right to resell
the Licensed Territory, or any part thereof, under the terms
of this Agreement. In the event of a termination and resale,
by Budget or Arizona, Budget shall be entitled to so much of
the license fee as is necessary to satisfy:
A.) All amounts actually incurred by Budget on behalf
of the terminated license, including but not
limited to reservations, yellow pages and
operational supplies; then
B.) All amounts due Budget for Car Service, Franchise
Maintenance and Credit Car Fees under the
terminated License Agreement (which shall be
divided with Arizona as per Paragraph 4 of this
Agreement).
<PAGE>
Budget Rent a Car of Arizona
January 27, 1981
Page 3
Any part of the license fee remaining after the amounts owed under A and B
have been satisfied, shall be paid to Arizona as per Paragraph 3 of this
Agreement; provided, however, that if the license fee on resale is
insufficient to satisfy the amounts owed Budget under either A or B above,
then Budget shall bear the loss to the extent of such insufficiency.
If you are in accord with these terms and conditions, please acknowledge your
receipt and acceptance hereof by signing and returning the enclosed copy of
this letter.
Sincerely,
WILLIAM N. PLAMONDON
Director of Franchise Development
Enclosure
WNP/RLA/ean
RECEIVED AND ACCEPTED
SIGN HERE:
- ----------------------------------
DATE: 2/11/81
<PAGE>
FIRST AMENDMENT TO
TEAM RENTAL GROUP, INC.
1994 INCENTIVE STOCK OPTION PLAN
THIS FIRST AMENDMENT is effective the 18th day of June, 1996, and is
made by TEAM RENTAL GROUP, INC. a corporation organized and doing business
under the laws of the State of Delaware (the "Company").
W I T N E S S E T H:
WHEREAS, the Company has previously adopted the Team Rental Group, Inc.
1994 Incentive Stock Option Plan (the "Plan");
WHEREAS, the disinterested members of the Board of Directors of the
Company and the stockholders of the Company have approved an increase in the
number of shares available for grant pursuant to the Plan from 260,000 to
760,000; and
WHEREAS, the disinterested members of the Board of Directors of the
Company and the stockholders of the Company have approved appropriate
amendments to the Plan to qualify the Plan for the qualified performance-based
compensation exception to the remuneration deduction limitation imposed under
Section 162(m) of the Internal Revenue Code.
NOW THEREFORE, the Plan is hereby amended as follows:
1.
Section 2(4) of the Plan is hereby amended by deleting Section 2(4) of
such Plan in its entirety, and replacing it with the following:
"(4) Common Stock means the Class A common stock, par value $.01 per
share, and the Class B common stock, par value $.01 per share, of
the Company."
2.
Section 4 of the Plan is hereby amended by deleting Section 4 of such
Plan in its entirety, and replacing it with the following:
"4. Stock Subject to Plan. The maximum aggregate number of shares of
Common Stock that may be made subject to Options granted hereunder
is 760,000 shares, which number shall be adjusted in accordance
with Section 9 in the event of any change in the Company's capital
structure. Shares of Common Stock issued to the Plan may consist,
in whole or in part, of either authorized and unissued shares or
issued shares held in the Company's treasury. Any shares subject to
an Option that for any reason
<PAGE>
expires or is terminated unexercised as to such shares may again
be the subject of an Option under the Plan."
3.
Section 5 of the Plan is hereby amended by deleting the first sentence
of such section, and replacing it with the following: "The Plan shall be
administered by a Committee appointed by the Board consisting of not fewer
than two individuals who are Directors, who are not Employees and who are
Disinterested Persons and "outside directors" within the meaning of Code
Section 162(m)."
4.
Section 7(1) of the Plan is hereby amended by deleting the first
sentence of such section, and replacing it with the following:
"Subject to the conditions on Incentive Options contained in Section
8(2), if applicable, the purchase price per share of Common Stock
payable upon the exercise of each Option granted hereunder shall be as
determined by the Committee in its discretion but shall not be less than
the fair market value of the Common Stock on the day the Option is
granted."
5.
Except as specifically amended by this First Amendment, the Plan
shall remain in full force and effect as prior to this First Amendment.
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed on the day and year first above written.
TEAM RENTAL GROUP, INC.
By:
------------------------------------
Title:
---------------------------------
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-4507 of Team Rental Group, Inc. of our report dated April 12, 1996,
appearing in the Prospectus, which is a part of such Registration Statement,
and of our report dated April 12, 1996 relating to the financial statement
schedules appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
June 27, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our auditors report dated May 3, 1996
(covering the years ended February 28, 1994 and 1995 and February 29, 1996)
for Arizona Rent-A-Car Systems, Inc. into this Registration Statement on Form
S-1 and to the reference to our firm under the heading "Experts" in such
Registration Statement.
Michael Silver & Company
Certified Public Accountants
Skokie, Illinois
June 26, 1996
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
Amendment No. 2 (Registration No. 333-4507) of our report dated March 23,
1995 on our audits of the financial statements of BRAC-OPCO, Inc. We also
consent to the reference to our firm under the caption "Experts".
Coopers & Lybrand L.L.P.
Sherman Oaks, California
June 26, 1996
