<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BUDGET GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7514 59-3227576
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
125 BASIN STREET,
SUITE 210
DAYTONA BEACH, FL 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
BUDGET GROUP, INC.
125 BASIN STREET,
SUITE 210
DAYTONA BEACH, FL 32114
(904) 238-7035
(Name, address, including zip code, and telephone number, including area code of
agent for service)
COPIES TO:
JEFFREY M. STEIN
KING & SPALDING
191 PEACHTREE STREET
ATLANTA, GEORGIA 30303
(404) 572-4600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
TITLE OF CLASS AMOUNT MAXIMUM AGGREGATE
OF SECURITIES TO BE AGGREGATE PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value $.01
per share............................ 5,841,649 shares(2) $34.75 $8,554,303
7.0% Convertible Subordinated Notes,
Series A, due 2007................... $80,000,000 N/A $80,000,000
6.85% Convertible Subordinated Notes,
Series B, due 2007................... $45,000,000 N/A $45,000,000
------------ ---- ------------
Total......................... N/A N/A $133,554,303 $40,471
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a).
(2) Includes up to 5,595,482 shares of Class A Common Stock of the Registrant
that may be issued upon conversion of the Convertible Subordinated Notes
being registered hereunder. Such shares of Class A Common Stock will, if
issued, be issued for no additional consideration and therefore no
registration fee is required as to such shares.
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.
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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, PRELIMINARY PROSPECTUS DATED NOVEMBER 26, 1997.
BUDGET GROUP, INC.
5,841,649 SHARES
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
$80,000,000 AGGREGATE PRINCIPAL AMOUNT
7.0% CONVERTIBLE SUBORDINATED NOTES, SERIES A, DUE 2007
------------------------
$45,000,000 AGGREGATE PRINCIPAL AMOUNT
6.85% CONVERTIBLE SUBORDINATED NOTES, SERIES B, DUE 2007
This Prospectus relates to an aggregate of (i) up to 5,841,649 shares (the
"Shares") of Class A Common Stock, par value $.01 per share ("Class A Common
Stock"), of Budget Group, Inc. (the "Company"); (ii) up to $80,000,000 aggregate
principal amount of 7.0% Convertible Subordinated Notes, Series A, due 2007
("Series A Convertible Notes"); and (iii) up to $45,000,000 aggregate principal
amount of 6.85% Convertible Subordinated Notes, Series B, due 2007 (the "Series
B Convertible Notes" and, together with the Series A Convertible Notes, the
"Convertible Notes") which may be offered for sale by persons (the "Selling
Securityholders") who have acquired such securities from the Company in the
acquisition of a business by the Company not involving a public offering and in
certain private placement transactions. See "Selling Securityholders". The
Company will not receive any of the proceeds from the sale of the Shares or the
Convertible Notes. The Company is registering the Shares and the Convertible
Notes for sale to provide the holders thereof with freely tradeable securities,
but the registration of such Shares and Convertible Notes does not necessarily
mean that any of such Shares or Convertible Notes will be offered or sold by the
holders thereof.
The Company has two classes of Common Stock, the Class A Common Stock, par
value $.01 per share, and the Class B Common Stock, par value $.01 per share.
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. The
Class A Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol "BD".
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK AND THE CONVERTIBLE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Selling Securityholders from time to time may offer and sell the Shares
or the Convertible Notes directly or through agents or broker-dealers on terms
to be determined at the time of sale. To the extent required, the names of any
agent or broker-dealer and applicable commissions or discounts and any other
required information with respect to any particular offer will be set forth in
an accompanying Prospectus Supplement. See "Plan of Distribution". Each of the
Selling Securityholders reserves the sole right to accept or reject, in whole or
in part, any proposed purchase of the Shares or the Convertible Notes to be made
directly or through agents.
The Selling Securityholders and any agents or broker-dealers that
participate with the Selling Securityholders in the distribution of Shares or
Convertible Notes may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 (the "Securities Act"), and any commissions received by
them and any profit on the resale of the Shares or Convertible Notes may be
deemed to be underwriting commissions or discounts under the Securities Act.
The date of this Prospectus is , 1997.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (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
Commission maintains a World Wide Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants such as the Company which file electronically with the Commission.
In addition, the Company's Class A Common Stock currently is traded on the New
York Stock Exchange ("NYSE") and such reports, proxy and information statements
and other information concerning the Company can be inspected and copied at the
offices of the NYSE located at 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the Class A Common Stock and
Convertible Notes 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, the
Class A Common Stock and the Convertible Notes, reference is made to the
Registration Statement and the exhibits and schedules filed as a part thereof.
The Company believes that all statements made herein that summarize the
provisions of any documents accurately describe the material provisions of all
such referenced documents. 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 addresses indicated above.
Copies of the Registration Statement can be obtained from the public reference
section of the Commission upon payment of prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
(File No. 0-23962) are incorporated herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997;
(c) The Company's Current Report on Form 8-K dated April 29, 1997;
(d) the description of the Common Stock of the Company included in the
Company's Registration Statement on Form 8-A, dated April 15, 1997; and
(e) the Consolidated Financial Statements of the Company together with
the reports of the independent certified public accountants contained on
pages F-10 through F-33 of the Company's Registration Statement on Form S-1
(File No. 333-34799) dated October 1, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the securities made hereby shall be deemed to
be incorporated by reference in this Prospectus and made a part hereof from the
date of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other document subsequently filed with the
Commission which also is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
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The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to: Budget Group, Inc., 4225 Naperville Road, Lisle, Illinois 60532,
Attention: Executive Vice President and General Counsel, telephone (630)
955-7571.
THE COMPANY
The Company and its franchisees operate the third largest worldwide general
use car and truck rental system, with approximately 3,200 locations and a peak
fleet size during 1996 of 266,000 cars and 18,000 trucks. The Budget System
includes locations in both the airport and local (downtown and suburban) markets
in all major metropolitan areas in the United States, in many other small and
mid-size U.S. markets and in more than 110 countries worldwide. Pro forma for
the acquisition of Budget Rent a Car Corporation ("BRACC") on April 29, 1997
(the "Budget Acquisition"), the Budget System included approximately 455
company-owned locations in the United States at December 31, 1996, accounting
for approximately 76% of 1996 U.S. system-wide revenues. In addition, Budget
franchisees operated approximately 500 royalty-paying franchise locations in the
United States at December 31, 1996. Budget is one of only three vehicle rental
systems that offer rental vehicles throughout the world under a single brand
name, with locations in Europe, Canada, Latin America, the Middle East,
Asia/Pacific and Africa. The Budget System currently maintains more local market
rental locations throughout the world than most of its major competitors. The
Budget System is also unique among major car rental systems in that it rents
trucks in most major markets worldwide. The Budget System's consumer truck
rental fleet is the fourth largest in the United States. The Budget System had
vehicle rental revenues of $2.5 billion for 1996.
The Company is also one of the largest independent retailers of late model
vehicles in the United States, with 26 retail car sales facilities and pro forma
revenues of $246.9 million for 1996. The Company operates its retail car sales
facilities under the name "Budget Car Sales".
Sanford Miller (Chairman of the Board and Chief Executive Officer), Jeffrey
D. Congdon (Vice Chairman of the Board and President of Budget Car Sales) and
John P. Kennedy (Vice Chairman of the Board) (collectively, the "Principal
Executive Officers") together have over 75 years of experience in the vehicle
rental business and had acquired and operated 54 Budget franchises prior to the
Budget Acquisition. In addition, Messrs. Miller and Congdon together have over
25 years of experience operating retail car sales facilities.
The principal executive offices of the Company are located at 125 Basin
Street, Suite 210, Daytona Beach, Florida 32114 (telephone number: (904)
238-7035).
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THE OFFERING
This Prospectus relates to the sale by certain securityholders (the
"Selling Securityholders") of the Company of (i) up to 246,167 shares of Class A
Common Stock (the "Secondary Shares") acquired by certain Selling
Securityholders in a private placement in connection with the Company's
acquisition of the St. Louis Budget franchise (the "St. Louis Acquisition"),
which was consummated in November 1997, (ii) up to 5,595,482 shares of Class A
Common Stock (the "Conversion Shares" and, together with the Secondary Shares,
the "Shares") issuable upon conversion of the Convertible Notes (which were
exchanged for the Old Convertible Notes (as defined herein) which were issued in
a private placement exempt from the registration requirements of the Securities
Act), (iii) up to $80,000,000 aggregate principal amount of Series A Convertible
Notes (which were exchanged for the Old Convertible Notes (as defined herein)
which were issued in a private placement exempt from the registration
requirements of the Securities Act) and (iv) up to $45,000,000 aggregate
principal amount of Series B Convertible Notes (which were exchanged for the Old
Convertible Notes (as defined herein) which were issued in a private placement
exempt from the registration requirements of the Securities Act).
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares or the Convertible Notes by the Selling Securityholders but has agreed to
bear certain expenses of registration of the Shares and the Convertible Notes
under Federal and state securities laws. The Company is registering the Shares
and the Convertible Notes for sale to provide the holders thereof with freely
tradeable securities, but the registration of such Shares and Convertible Notes
does not necessarily mean that any of such Shares or Convertible Notes will be
offered or sold by the holders thereof.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the nine months ended
September 30, 1997 was 1.56, and for the years ended December 31, 1996, 1995,
1994, 1993 and 1992 was 1.24, 1.07, 1.08, 1.18, and 1.14 respectively. The ratio
for the nine months ended September 30, 1997 includes earnings and fixed charges
from BRACC.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges, excluding capitalized interest, to pre-tax income from
continuing operations. Fixed charges consist of interest costs, whether expensed
or capitalized, and amortization of debt issuance costs.
SUPPLEMENTAL EARNINGS PER SHARE DATA
The following table sets forth the pro forma earnings per common and common
equivalent share of the Company for the years ended December 31, 1994, 1995 and
1996, to give effect to the issuance of the Conversion Shares as if the
conversion of the Convertible Notes had occurred at the beginning of each period
presented.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
--------------------------
1994 1995 1996
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<S> <C> <C> <C>
Net income(a)............................................... $ 250 $ 337 $ 4,497
Pro forma weighted average common and common equivalent
shares outstanding(a)..................................... 9,299 11,964 15,083
Pro forma earnings per common and common equivalent
share(b).................................................. $ 0.03 $ 0.03 $ 0.30
====== ======= =======
</TABLE>
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(a) Amounts in thousands.
(b) Pro forma weighted average common and common equivalent shares outstanding
and pro forma earnings per common and common equivalent share give effect to
the issuance of the 5,595,482 shares of Class A common stock issuable upon
conversion of the Convertible Notes as of the beginning of each period
presented.
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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 or Convertible Notes.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company has substantial indebtedness and significant debt service
requirements. As of September 30, 1997, the Company's total indebtedness was
$2.6 billion (representing 74.2% of its total capitalization), of which $2.3
billion represented senior secured indebtedness for the purchase of vehicles and
$299 million represented non-vehicle indebtedness (representing 8.6% of its
total capitalization, excluding fleet debt). As of September 30, 1997, the
Company had $367.4 million of incremental availability under its vehicle
financing facilities to finance the purchase of fleet vehicles. The degree to
which the Company is leveraged has important consequences for holders of the
Class A Common Stock, including the following: (i) the ability of the Company to
obtain additional financing in the future, whether for working capital, fleet
purchases, acquisitions or other purposes, may be impaired; (ii) a substantial
portion of the Company's cash flow from operations is required to be dedicated
to the payment of principal and interest on its indebtedness, thereby reducing
funds available to the Company for other purposes; (iii) the Company's
flexibility in planning for or reacting to changes in market conditions may be
limited; (iv) the Company may be more vulnerable in the event of a downturn in
its business; and (v) because a substantial portion of its indebtedness bears
interest at floating rates, any increase in prevailing interest rates will
result in an increase in interest expense incurred by the Company, which could
have an adverse effect on its results of operations.
The ability of the Company to meet its debt service obligations will depend
on its future operating performance and financial results, which will be subject
in part to factors beyond the control of the Company. Although management
believes that the Company's cash flow will be adequate to meet its interest and
principal payments, there can be no assurance that the Company will continue to
generate earnings in the future sufficient to cover its fixed charges. If the
Company is unable to generate earnings in the future sufficient to cover its
fixed charges and is unable to borrow sufficient funds under its existing credit
lines or from other sources, it may be required to refinance all or a portion of
its existing indebtedness or to sell all or a portion of its assets. There can
be no assurance that a refinancing would be possible, nor can there be any
assurance as to the timing of any asset sales or the proceeds which the Company
could realize therefrom. In addition, the terms of certain indebtedness of the
Company restrict the ability of the Company to sell assets and the use of the
proceeds therefrom.
If for any reason, including a shortfall in anticipated operating results
or proceeds from asset sales, the Company were unable to meet its debt service
obligations, it would be in default under the terms of its indebtedness. In the
event of such a default, the holders of such indebtedness could elect to declare
all such indebtedness immediately due and payable, including accrued and unpaid
interest, and to terminate their commitments (if any) with respect to funding
obligations under such indebtedness. In addition, such holders could proceed
against their collateral, which, in the case of the fleet financing facilities,
consists of substantially all the Company's fleet. Any default with respect to
any of the Company's indebtedness could result in a default under other
indebtedness or result in a bankruptcy of the Company.
AVAILABILITY OF FINANCING
The Company depends upon third-party financing to purchase its fleet
vehicles. Continued availability of such financing on favorable terms will be
critical to the Company's operations. As of September 30, 1997, 68.6% of the
Company's indebtedness was incurred in connection with major vehicle
manufacturers' vehicle repurchase programs. As a result, a significant change in
the credit quality of the vehicle manufacturers, particularly Ford Motor Company
("Ford"), would significantly affect the Company's ability to obtain such
financing on favorable terms. In addition, certain events, such as a material
increase in damage to vehicles, could reduce the value of the collateral
securing the Company's fleet financing
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facilities and cause the acceleration of the repayment of such facilities. An
inability of the Company to obtain vehicle financing on favorable terms would
have a material adverse effect on the Company's financial condition and results
of operations. 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 that such financing will be available on terms acceptable to the
Company.
INTEGRATION OF BUDGET ACQUISITION
The Budget Acquisition was significantly larger than any of the Company's
previous acquisitions and the combination and integration of the respective
operations of the Company and BRACC are of a substantially greater scale than
previously undertaken by either company. The difficulties of managing such
combination and integration are increased by the necessity of coordinating the
operations of geographically diverse organizations, of integrating different
strategies and operating systems, of integrating management and operating
personnel from both companies and of managing a worldwide franchise system. The
success of the Company following the Budget Acquisition depends on the ability
of the Company's management team to: (a) manage a significantly larger
organization, (b) maintain and further develop relationships with Budget
franchisees and (c) conduct operations on a worldwide basis. There can be no
assurance that the Company's management team will be able to successfully manage
the combined operations of the Company and BRACC. An inability to successfully
manage the integration of the Company and BRACC would have a material adverse
effect on the Company's results of operations and financial condition.
ABILITY TO IMPLEMENT GROWTH STRATEGY
Management is undertaking initiatives to increase the Company's revenues
and improve its profitability by, among other things, acquiring the operations
of certain franchisees, enhancing its operations outside the United States,
expanding its retail car sales operations, adding car rental locations in its
existing markets, adding truck rental locations and expanding its truck rental
fleet, and increasing its marketing efforts to corporate accounts. In addition,
management expects the Company to realize certain cost savings and other
operating efficiencies as a result of the implementation of its business
strategy. Increasing the revenues of the Company, and realizing cost savings and
other operating efficiencies, could be affected by a number of factors beyond
the Company's control, such as general economic conditions, increased operating
costs, competitive conditions in the vehicle rental industry, levels of air
travel, fuel shortages, increased costs of vehicles and regulatory developments.
Each of these initiatives will involve risks to the Company, and there can be no
assurance that the Company will be successful in growing its business or that
the Company will achieve the expected cost savings and other operating
efficiencies. In addition, the Company's substantial leverage could affect its
success in growing its business. See "-- Substantial Leverage; Ability to
Service Debt".
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. Budget's main competitors in the car rental market are The
Hertz Corporation ("Hertz"), Avis, Inc. ("Avis"), Alamo Rent-A-Car, Inc.
("Alamo"), National Car Rental System, Inc. ("National") and Enterprise
Rent-A-Car Company ("Enterprise"). In consumer truck rentals, Budget faces
competition primarily from U-Haul International, Inc. ("U-Haul"), Ryder TRS,
Inc. ("Ryder") and Penske Truck Rental ("Penske"). 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 will not generally be able to unilaterally raise
its prices or to maintain its prices in times of industry-wide price cutting.
The retail car sales industry also is characterized by intense competition,
consisting primarily of local new car dealerships selling new and late model
cars. In addition to local dealerships, the Company may
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face competition from retailers such as CarMax and AutoNation that compete on
the basis of large inventory size, no-haggle pricing and after-sale service.
RESTRICTIONS IMPOSED BY INDEBTEDNESS
The terms of the Company's indebtedness include a number of significant
covenants that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, create liens, repay other
indebtedness, pay dividends, make certain investments or acquisitions,
repurchase or redeem capital stock, engage in mergers or consolidations, or
engage in certain transactions with affiliates, and otherwise restrict corporate
activities. There can be no assurance that such restrictions will not adversely
affect the Company's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interest of the
Company. In addition, the terms of certain of such indebtedness also require the
Company to comply with certain financial tests. The ability of the Company to
comply with such covenants may be affected by events beyond the Company's
control. A breach of any of these covenants or the inability of the Company to
comply with the required financial ratios could result in a default under such
indebtedness. In the event of any such default, the lenders under such
indebtedness could elect to declare all borrowings outstanding under such
indebtedness, together with accrued interest and other fees, to be due and
payable, to require the Company to apply all of its available cash to repay such
borrowings or to prevent the Company from making scheduled debt service
payments. If the Company were unable to repay any such borrowings when due, the
lenders could proceed against their collateral. If the indebtedness of the
Company under such collateralized indebtedness or other indebtedness were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay such indebtedness in full. There can be no assurance that
the Company will be able to comply with the covenants included in its debt
agreements in the future or that it would be able to obtain any necessary
waivers of those covenants.
SUBORDINATION OF CONVERTIBLE NOTES
The Convertible Notes are unsecured and subordinated in right of payment in
full to all existing and future senior indebtedness of the Company. As a result
of such subordination, in the event of the Company's liquidation or insolvency,
payment default with respect to senior indebtedness, a covenant default with
respect to senior indebtedness, or upon acceleration of the Convertible Notes
due to an event of default, the assets of the Company will be available to pay
obligations on the Convertible Notes only after all senior indebtedness has been
paid in full, and there may not be sufficient assets remaining to pay amounts
due on any or all of the Convertible Notes then outstanding. The Company may
from time to time incur indebtedness constituting senior indebtedness. The
Convertible Notes are also effectively subordinated in right of payment to all
indebtedness and other liabilities, including trade payables, of the Company's
subsidiaries. The Indenture (as defined herein) does not prohibit or limit the
incurrence of senior indebtedness or other indebtedness and other liabilities by
the Company or its subsidiaries. The incurrence of additional indebtedness and
other liabilities by the Company or its subsidiaries could adversely affect the
Company's ability to pay its obligations on the Convertible Notes. In addition,
the cash flow and ability of the Company to service debt, including the
Convertible Notes, may in the future become dependent in part upon the earnings
from the business conducted by the Company through subsidiaries and distribution
of those earnings, or upon loans or other payments of funds by those
subsidiaries to the Company. See "Description of Convertible
Notes -- Subordination."
LIMITATIONS ON REPURCHASE OF CONVERTIBLE NOTES
Upon a Change of Control (as defined herein), the Company is obligated to
offer to repurchase all Convertible Notes whereupon each holder of Convertible
Notes will have the right, at the holder's option, to accept such offer with
respect to all or a portion of such holder's Convertible Notes. If a Change of
Control were to occur, there can be no assurance that the Company would have
sufficient funds to repurchase all Convertible Notes tendered by the holders
thereof. In addition, the Company's repurchase of Convertible Notes as a result
of the occurrence of a Change of Control may be prohibited or limited by,
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<PAGE> 9
or create an event of default under, the terms of agreements related to
borrowings which the Company may enter into from time to time, including
agreements relating to senior indebtedness.
ABSENCE OF PUBLIC MARKET FOR THE CONVERTIBLE NOTES
There is currently no public market for the Convertible Notes, and there
can be no assurance as to the liquidity of the Convertible Notes, the ability of
any holders of Convertible Notes to sell their Convertible Notes or the prices
at which holders of the Convertible Notes would be able to sell their
Convertible Notes. The Company does not intend to list the Convertible Notes on
any securities exchange or to seek the admission thereof to trading on the New
York Stock Exchange or any other exchange or automated securities quotation
system. The Convertible Notes will be tradable in the over-the-counter market,
but any such trading may be limited and sporadic. If a market for the
Convertible Notes does develop, the Convertible Notes may trade at a discount
from their initial trading price depending on prevailing interest rates, the
market for similar securities, performance of the Company, performance of the
vehicle rental and sale industry and other factors. There can be no assurance
that there will be a liquid trading market for the Convertible Notes or that any
trading market that does develop will continue.
POTENTIAL CHANGES IN MANUFACTURERS' REPURCHASE PROGRAMS
Approximately 89% of the vehicles purchased by Team Rental Group, Inc.
("TEAM"), the predecessor to the Company, and approximately 85% of the vehicles
purchased by BRACC in model year 1997 were eligible for repurchase by specified
automobile manufacturers at fixed prices on designated dates pursuant to such
manufacturers' vehicle repurchase programs ("Program Vehicles"). The
availability of Program Vehicles limits a car rental company's risk of a decline
in residual value at the time of disposition and enables it to fix its
depreciation expense in advance. Vehicle depreciation is the largest cost factor
in the Company's vehicle rental operations. Management 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 continued through 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 have continued for 1997 model
year vehicles. However, the Company could be adversely affected if automobile
manufacturers reduce the availability of Program Vehicles, related incentives or
increase the guaranteed depreciation.
SEASONALITY
The third quarter, during the peak summer travel months, has historically
been the strongest quarter of the year for the Company. 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.
COSTS OF REGULATORY AND ENVIRONMENTAL COMPLIANCE
The Company is subject to various foreign, federal, state and local laws
and regulations that affect the conduct of its operations, including those
relating to the sale of loss damage waivers, vicarious liability of vehicle
owners, consumer protection, advertising, used vehicle sales, the taxing and
licensing of vehicles, franchising operations and sales, and environmental
compliance and remediation. There can be no assurance that compliance with these
laws and regulations or the adoption of modified or additional laws and
regulations will not require material expenditures by the Company or otherwise
have a material adverse effect on its results of operations or financial
condition.
8
<PAGE> 10
DEPENDENCE ON PRINCIPAL SUPPLIER
Ford is the Company's principal supplier of vehicles. The number of
vehicles purchased from Ford has varied from year to year. In model year 1997,
approximately 73% of BRACC's U.S. vehicle purchases were comprised of Ford
vehicles. The Company has agreed to purchase or lease Ford vehicles in such
quantity that the percentage of new Ford vehicles purchased or leased by the
Company in the United States, Canada, and other countries outside the European
Union represents at least 70% of the total new vehicle acquisitions by the
Company, with a minimum quantity of at least 80,000 vehicles in the United
States in each model year. Given the volume of vehicles purchased from Ford by
the Company, shifting significant portions of the fleet purchases to other
manufacturers would require lead time and certain operational changes. As a
result, any inability of Ford to supply the Company with the planned number and
types of vehicles, any significant decline in the quality and customer
satisfaction with respect to Ford vehicles or any failure of the parties to
reach an agreement on the terms of any purchases, could have a material adverse
effect on the Company's financial condition and results of operations.
RISKS OF INTERNATIONAL OPERATIONS
For 1996, on a pro forma basis, 8.9% of the Company's revenues were derived
from its international operations. The Company's international vehicle rental
operations are subject to certain risks, including adverse developments in the
foreign political and economic environment, varying governmental regulations,
foreign currency fluctuations, potential difficulties in staffing and managing
foreign operations and potential adverse tax consequences. There can be no
assurance that any of these factors will not have a material adverse effect on
the Company's results of operations or financial condition.
DEPENDENCE ON PRINCIPAL EXECUTIVE OFFICERS
The Company's existing operations and continued future development are
dependent in part on the active participation of Messrs. Miller, Kennedy and
Congdon, 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. The Company has no employment agreements or covenants not to compete
with any of its executive officers or significant employees.
SUBSTANTIAL VOTING POWER BY PRINCIPAL EXECUTIVE OFFICERS
The Company has two classes of Common Stock: Class A Common Stock, holders
of which are entitled to one vote per share, and Class B Common Stock, holders
of which are entitled to ten votes per share. Messrs. Miller, Kennedy and
Congdon own all outstanding shares of Class B Common Stock, which, together with
the Class A Common Stock owned by such individuals, represent approximately
48.1% of the combined voting power of both classes of Common Stock. As a result,
such officers will be able to exert substantial influence over the election of
the Company's Board of Directors, thereby increasing the probability that
members elected by them will continue to direct the business, policies and
management of the Company.
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
9
<PAGE> 11
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".
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, with respect to
the financial condition, results of operations and business of the Company.
These forward-looking statements involve certain risks and uncertainties. No
assurance can be given that any of such matters will be realized. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following: (a) the
Company's ability to service its debt or to obtain financing for its fleet
vehicles; (b) management and integration of the operations of TEAM and BRACC
following the Budget Acquisition and the success of initiatives undertaken by
the Company to increase its revenues and improve its profitability; (c)
competitive pressure in the vehicle rental and retail car sales industries; and
(d) general economic conditions. For further information on other factors which
could affect the financial results of the Company and such forward-looking
statements, see "Risk Factors".
10
<PAGE> 12
SELLING SECURITYHOLDERS
As described herein, the Selling Securityholders are those persons who (i)
acquired shares of Class A Common Stock in the St. Louis Acquisition or (ii)
purchased Convertible Notes from the Company. The following table provides the
names of and the number of shares of Common Stock beneficially owned by each
Selling Securityholder (presented on an as-converted basis in the case of
holders of the Convertible Notes). Since the Selling Securityholders may sell
all, some or none of their Shares and Convertible Notes or, in the case of
holders of Convertible Notes, convert the same in whole or in part into Shares,
no estimate can be made of the aggregate number of Shares and Convertible Notes
that are to be offered hereby or that will be owned by each Selling
Securityholder upon completion of the offering to which this Prospectus relates.
None of the Selling Securityholders has any material relationship with the
Company.
The Shares and Convertible Notes offered by this Prospectus may be offered
from time to time by the Selling Securityholders named below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF
SERIES A SERIES B
NUMBER OF CONVERTIBLE CONVERTIBLE
NUMBER OF SHARES NOTES NOTES
SHARES WHICH MAY BE WHICH MAY BE WHICH MAY BE
BENEFICIALLY OFFERED OFFERED OFFERED
NAME OWNED HEREBY HEREBY HEREBY
- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ST. LOUIS STOCKHOLDERS:
David K. Adam(1)................. 11,406 11,406 0 0
James L. Cowhey(1)(2)............ 16,423 16,423 0 0
Jill Cowhey(1)................... 1,242 1,242 0 0
Kathleen P. Cowhey(1)............ 4,597 4,597 0 0
Kevin P. Cowhey(1)(3)............ 11,247 11,247 0 0
Michael J. Cowhey(1)............. 13,104 13,104 0 0
Sandra Cowhey(1)................. 2,737 2,737 0 0
Sheila Cowhey(1)................. 2,258 2,258 0 0
Terry J. Cowhey(1)(4)............ 68,530 68,530 0 0
Peter K. Cowhey(1)(5)............ 41,605 41,605 0 0
Mary Ann Morgan(1)(6)............ 15,882 15,882 0 0
Michael P. Morgan(1)(7).......... 31,234 31,234 0 0
Louis Waltke(1).................. 2,258 2,258 0 0
Susan C. Waltke(1)(8)............ 23,644 23,644 0 0
--------- --------- ----------- -----------
Subtotal............... 246,167 246,167 0 0
--------- --------- ----------- -----------
CONVERTIBLE NOTEHOLDERS:
John Hancock Mutual Life
Insurance Company.............. 1,082,717 1,082,717 $18,500,000 $ 4,500,000
John Hancock Variable Life
Insurance Company.............. 117,533 117,533 2,000,000 500,000
New York Life Insurance
Company........................ 1,354,165 1,354,165 20,000,000 10,000,000
Massachusetts Mutual Life
Insurance Company.............. 293,834 293,834 5,000,000 1,250,000
Massmutual Corporate Investors... 99,651 99,651 2,000,000 0
Massmutual Corporate Value
Partners Limited............... 99,651 99,651 2,000,000 0
Massmutual Participation
Investors...................... 49,825 49,825 1,000,000 0
Metropolitan Life Insurance
Company........................ 2,027,053 1,335,053 25,000,000 2,500,000
The Northwestern Mutual Life
Insurance Company.............. 268,240 268,240 0 7,500,000
Signature 1A (Cayman), Ltd....... 224,215 224,215 4,500,000 0
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF
SERIES A SERIES B
NUMBER OF CONVERTIBLE CONVERTIBLE
NUMBER OF SHARES NOTES NOTES
SHARES WHICH MAY BE WHICH MAY BE WHICH MAY BE
BENEFICIALLY OFFERED OFFERED OFFERED
NAME OWNED HEREBY HEREBY HEREBY
- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Teachers Insurance and Annuity
Association of America......... 357,653 357,653 0 10,000,000
The Travelers Insurance
Company........................ 55,883 55,883 0 1,562,500
The Travelers Indemnity
Company........................ 78,236 78,236 0 2,187,500
The Variable Annuity Life
Insurance Company.............. 178,826 178,826 0 5,000,000
--------- --------- ----------- -----------
Subtotal.................... 6,287,482 5,595,482 $80,000,000 $45,000,000
--------- --------- ----------- -----------
Total.................. 6,533,659 5,841,649 $80,000,000 $45,000,000
========= ========= =========== ===========
</TABLE>
- ---------------
(1) Includes certain shares of Class A Common Stock that were placed in escrow.
(2) Includes 4,043 shares held in trust for Lauren S. Cowhey and 1,167 shares
held in trust for Leah C. Cowhey, with respect to which Mr. Cowhey and his
wife are co-trustees.
(3) Includes 4,043 shares held in trust for Brooke E. Cowhey, with respect to
which Mr. Cowhey is co-trustee with his former wife, and 1,000 shares held
in trust for Brett Cowhey.
(4) Includes 6,383 shares held in trust for Sarah P. Cowhey and 3,507 shares
held in trust for Ian P. Cowhey.
(5) Includes 5,002 shares held in trust for Matthew K. Cowhey, 2,018 shares held
in trust for Timothy J. Cowhey, and 3,488 shares held in trust for Casey M.
Cowhey.
(6) Includes 7,102 shares held in trust for Neil A. Cowhey, with respect to
which Ms. Morgan and her sister, Susan C. Waltke, are co-trustees.
(7) Includes 3,740 shares held in trust for Christian P. Morgan and 4,043 shares
held in trust for Michaela Morgan with respect to which Mr. Morgan and his
wife are co-trustees.
(8) Includes 4,043 shares held in trust for Andrew J. Waltke and 2,529 shares
held in trust for Scott A. Waltke with respect to which Ms. Waltke and her
husband are co-trustees.
12
<PAGE> 14
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000 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"). As of November 21, 1997, there were 23,866,404 shares of the Class A
Common Stock and 1,936,600 shares of the Class B Common Stock outstanding. All
of the outstanding shares of Class B Common Stock are held by the principal
executive officers of the Company (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 and as provided under the
Delaware General Corporation Law. The holders of the Class B Common Stock will
have, together with the Class A Common Stock owned by such individuals,
approximately 48.1% of the combined voting power of the outstanding Class A and
Class B Common Stock. As a result, the Principal Executive Officers will be able
to exert substantial influence over the election 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.
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 therefor. 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 on 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 is
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.
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<PAGE> 15
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 for 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 the Offering will be, legally issued, fully paid and
nonassessable.
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 (the "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 comprising
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 an adverse effect on market price of the Common Stock.
In January 1997, the Board of Directors authorized the issuance of 10,000
shares of Preferred Stock, par value $0.01 per share, designated as the "Series
A Convertible Preferred Stock". All of such shares have been converted into
Class A Common Stock.
CONVERTIBLE NOTES
In December 1996, the Company issued $80.0 million aggregate principal
amount of 7.0% Convertible Subordinated Notes, Series A, due 2003 which were
extended to 2007 and amended in connection with the Budget Acquisition (as
extended and amended, the "Old Series A Convertible Notes") and subsequently
exchanged for the Series A Convertible Notes. The Series A Convertible Notes are
convertible, at the option of the holders, into Class A Common Stock at a
conversion price of $20.07 per share. The outstanding Series A Convertible Notes
are convertible into an aggregate of 3,986,046 shares of Class A Common Stock.
In connection with the Budget Acquisition, the Company issued $45.0 million
aggregate principal amount of 6.85% Convertible Subordinated Notes, Series B,
due 2007 (the "Old Series B Convertible Notes" and, together with the Old Series
A Convertible Notes, the "Old Convertible Notes") which were exchanged for the
Series B Convertible Notes. The Series B Convertible Notes are convertible, at
the option of the holders, into Class A Common Stock at a conversion price of
$27.96 per share. The outstanding Series B Convertible Notes are convertible
into an aggregate of 1,609,436 shares of Class A Common Stock.
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 the 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
14
<PAGE> 16
than the minimum number of votes that would be necessary to take such action at
a meeting of stockholders. These provisions will make it more difficult for a
third party to gain control of the Company.
REGISTRATION RIGHTS
In connection with the St. Louis Acquisition in November 1997, the Company
entered into a registration rights agreement granting holders registration
rights with respect to the shares of Class A Common Stock acquired thereby (the
"St. Louis Registration Rights Agreement"). The St. Louis Registration Rights
Agreement provides that the Company will file a shelf registration statement
relating to the shares of Class A Common Stock issued in the acquisition on or
before December 1, 1997. The registration statement of which this Prospectus is
a part is being filed pursuant to the St. Louis Registration Rights Agreement.
In connection with the sale of the Old Series A Convertible Notes in
December 1996, the Company entered into a registration rights agreement granting
holders registration rights with respect to the shares of Class A Common Stock
into which such notes were convertible. In connection with the sale of the Old
Series B Convertible Notes, the Company amended and restated the registration
rights agreement (the "Notes Registration Rights Agreement") to which the
holders of the Old Series A Convertible Notes were parties, and the holders of
the Old Series B Convertible Notes became parties thereto. The Notes
Registration Rights Agreement provides that the Company will file a shelf
registration statement relating to the Series B Convertible Notes and the shares
of Class A Common Stock issuable upon conversion of the Convertible Notes at the
earlier of one year from the date of issuance of the Series B Convertible Notes
or promptly after the disposition by Ford of at least 2.25 million shares of
Class A Common Stock. The registration statement of which this Prospectus is a
part is being filed pursuant to the Notes Registration Rights Agreement. The
holders may require the Company to effect an underwritten public offering
pursuant to the shelf registration statement. The Company may prohibit offers
and sales of securities pursuant to the registration statements under certain
circumstances. The Company has also agreed to pay the costs and expenses of each
registration effected under the Notes Registration Rights Agreement, other than
underwriting discounts and commissions.
Concurrently with completion of its initial public offering in August 1994,
the Company entered into the registration rights agreement (the "Registration
Rights Agreement") granting holders registration, rights with respect to the
shares of Common Stock received by them as a result of the Share Exchange (as
defined in the Registration Rights Agreement). The Registration Rights Agreement
provides 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 (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 Company has agreed to refrain from selling its
securities during the 10-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 Registration Rights Agreement was
amended in November 1994 to include persons who received 18,500 shares of Class
A Common Stock in the Company's acquisition of a Budget franchise territory.
In connection with the Los Angeles Acquisition, the Company and SoCal
entered into a registration rights agreement granting SoCal and its affiliated
entities unlimited "piggyback" registration rights, subject to certain
conditions. The Company will bear the expenses of registering such shares, other
than underwriting discounts and commissions. SoCal and its affiliated entities
exercised certain of these rights in the October 1997 Public Offering.
INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company's Amended
and Restated Certificate of Incorporation provides that directors of the Company
will not be personally liable to the
15
<PAGE> 17
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 intentional 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 (i) before such person became an interested
stockholder, the board of directors of the corporation approved the transaction
in which the interested stockholder became an interested stockholder or approved
the business combination; (ii) upon consummation of the transaction that
resulted in the interested stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares held by
directors who are also officers of the corporation and certain shares held by
employee stock plans); or (iii) following the transaction in which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. 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> 18
DESCRIPTION OF CONVERTIBLE NOTES
The Convertible Notes registered hereby are to be issued under an
Indenture, to be dated as of December , 1997 (the "Indenture"), between the
Company and The Chase Manhattan Bank, as Trustee (the "Trustee"), a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Old Series A Convertible Notes and the Old Series B
Convertible Notes will be exchanged by the respective holders thereof for a like
principal amount of the Series A Convertible Notes and the Series B Convertible
Notes, respectively. The terms of the Old Convertible Notes and the terms of the
Convertible Notes for each respective series are identical. Accordingly, the
Convertible Notes are convertible at the same respective conversion prices and
into the same respective number of shares of Class A Common Stock as the
corresponding series of Old Convertible Notes. Any capitalized terms used herein
and not defined shall have the meaning set forth in the Indenture. References in
this section to the "Company" are solely to Budget Group, Inc. and not to its
subsidiaries. The following summaries of certain provisions of the Indenture are
subject to, and are qualified in their entirety by reference to, the detailed
provisions of the Convertible Notes and the Indenture, including the definitions
therein of certain terms. Section references below are references to Sections of
the Indenture.
GENERAL
The Convertible Notes are unsecured subordinated obligations of the
Company. The aggregate principal amount of Series A Convertible Notes is limited
to $80 million aggregate principal amount, and the aggregate principal amount of
Series B Convertible Notes is limited to $45 million aggregate principal amount.
The Convertible Notes mature on April 29, 2007. The Series A Convertible Notes
bear interest at a rate per annum of 7.0%, payable semiannually on June 18 and
December 18 of each year. The Series B Convertible Notes bear interest at the
rate of 6.85% per annum, payable semiannually on April 29 and October 29 of each
year, commencing on April 29, 1998. (sec.sec. 301 and 307)
The Convertible Notes are convertible into Class A Common Stock initially
at the respective conversion rates stated herein, subject to adjustment upon the
occurrence of certain events described under "-- Conversion Rights," at any time
prior to the close of business on the maturity date, unless previously redeemed
or repurchased. (sec. 1301)
The Convertible Notes are redeemable under the circumstances and at the
redemption prices set forth below under "-- Optional Redemption," plus accrued
interest to the redemption date. (sec. 203)
The Convertible Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof.
(sec. 302) No service charge will be made for any registration of transfer or
exchange of Convertible Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. (sec. 305)
CONVERSION RIGHTS
The holder of any Convertible Note has the right, at the holder's option,
to convert any portion of the principal amount of a Convertible Note into shares
of Class A Common Stock at any time prior to the close of business of the
maturity date, unless previously redeemed or repurchased, at the applicable
Conversion Rate (subject to adjustment as described below). Each Series A
Convertible Note is convertible into such number of whole shares of Class A
Common Stock as is equal to the unpaid principal amount being converted of
Series A Convertible Notes divided by the conversion price of $20.07 per share
(the "Series A Conversion Rate"). Each Series B Convertible Note is convertible
into such number of whole shares of Class A Common Stock as is equal to the
unpaid principal amount being converted of Series B Convertible Notes divided by
the conversion price of $27.96 per share (the "Series B Conversion Rate") (the
Series A Conversion Rate and the Series B Conversion Rate each being sometimes
referred to herein as the "applicable Conversion Rate"). The right to convert a
Convertible Note called for redemption will terminate at the close of business
on the business day prior to the Redemption Date for such Convertible Note, and
the right to convert a Convertible Note tendered for repurchase will terminate
at the close of business on the Repurchase Date for such Convertible Note
17
<PAGE> 19
unless the Company defaults in payment of the amount due upon such redemption or
repurchase. (sec. 1301)
The right of conversion attaching to any Convertible Note may be exercised
by the holder by delivering the Convertible Note at the specified office of the
Conversion Agent, accompanied by a duly signed and completed notice of
conversion, a copy of which may be obtained from the Trustee. The conversion
date will be the date on which the Convertible Note and the duly signed and
completed notice of conversion are so delivered. As promptly as practicable on
or after the conversion date, the Company will issue and deliver to the Trustee
a certificate or certificates for the number of full shares of Class A Common
Stock issuable upon conversion, together with payment in lieu of any fraction of
a share; such certificate will be sent by the Trustee to the Conversion Agent
(if other than the Trustee) for delivery to the holder within five business days
after the conversion date. Such shares of Class A Common Stock issuable upon
conversion of the Convertible Notes, in accordance with the provisions of the
Indenture, will be fully paid and nonassessable. Any Convertible Note
surrendered for conversion during the period from the close of business on any
Regular Record Date next preceding any Interest Payment Date to the opening of
business on such Interest Payment Date (except Convertible Notes (or portions
thereof) called for redemption on a Redemption Date or which are redeemable on a
Repurchase Date occurring, in either case, within such period (including any
Convertible Notes or portions thereof) called for redemption on a Redemption
Date that is a Record Date or Interest Payment Date, as the case may be)) must
be accompanied by payment of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of Convertible Notes being
surrendered for conversion. The interest so payable on such Interest Payment
Date with respect to any Convertible Note (or portion thereof, if applicable)
which has been called for redemption on a Redemption Date, or which may be
repurchased on a Repurchase Date, occurring, in either case, during the period
from the close of business on any Record Date next preceding any Interest
Payment Date to the opening of business on such Interest Payment Date (including
any Convertible Notes (or portions thereof) called for redemption on a
Redemption Date that is a Record Date or Interest Payment Date, as the case may
be), which Convertible Note (or portion thereof, if applicable) is surrendered
for conversion during such period (or on the last Business Day prior to the
Record Date or Interest Payment Date in the case of a Convertible Note (or
portions thereof) called for redemption on a Record Date or Interest Payment
Date, as the case may be), shall be paid to the Holder of such Convertible Note
being converted in an amount equal to the interest that would have been payable
on such Convertible Note if such Convertible Note had been converted as of the
close of business on such Interest Payment Date. The interest so payable on such
Interest Payment Date in respect of any Convertible Note (or portion thereof, as
the case may be) which has not been called for redemption on a Redemption Date,
or is not eligible for repurchase on a Repurchase Date, occurring, in either
case, during the period from the close of business on any Record Date next
preceding any Interest Payment Date to the opening of business of such Interest
Payment Date, which Convertible Note (or portion thereof, as the case may be) is
surrendered for conversion during such period, shall be paid to the Holder of
such Convertible Note as of such Regular Record Date. Interest payable in
respect of any Convertible Note surrendered for conversion or repurchase on or
after an Interest Payment Date shall be paid to the Holder of such Convertible
Note as of the next preceding Regular Record Date, notwithstanding the exercise
of the right of conversion or repurchase. As a result of the foregoing
provisions, except as provided above, Holders that surrender Convertible Notes
for conversion on a date that is not an Interest Payment Date will not receive
any interest for the period from the Interest Payment Date next preceding the
date of conversion to the date of conversion or for any later period, even if
the Convertible Notes are surrendered after a notice of redemption (except for
the payment of interest on Convertible Notes called for redemption on a
Redemption Date or to be repurchased on a Repurchase Date between a Regular
Record Date and the Interest Payment Date to which it relates (including any
Convertible Notes (or portion thereof) called for redemption on a Redemption
Date that is a Record Date or Interest Payment Date, as the case may be), as
provided above). No other payment or adjustment for interest, or for any
dividends in respect of Class A Common Stock, will be made upon conversion.
Holders of Class A Common Stock issued upon conversion will not be entitled to
receive any dividends payable to holders of Class A Common Stock as of any
record time or
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<PAGE> 20
date before the close of business on the conversion date. No fractional shares
will be issued upon conversion but, in lieu thereof, the Company will pay an
appropriate amount in cash based on the market price of Class A Common Stock at
the close of business on the date of conversion. (sec.sec. 101, 203, 307, 1302
and 1303)
A Holder delivering a Convertible Note for conversion will not be required
to pay any taxes or duties in respect of the issue or delivery of Class A Common
Stock up on conversion but will be required to pay any tax or duty which may be
payable in respect of any transfer involved in the issue or delivery of the
Class A Common Stock in a name other than that of the holder of the Convertible
Note. Certificates representing shares of Class A Common Stock will not be
issued or delivered unless all taxes and duties, if any, payable by the Holder
have been paid. (sec.sec. 1302 and 1308)
The applicable Conversion Rate is subject to adjustment in certain events,
including, without duplication: (a) subdivisions, combinations and
reclassifications of Class A Common Stock, (b) dividends (and other
distributions) payable in Class A Common Stock on shares of Class A Common
Stock, (c) the issuance to all holders of Class A Common Stock of rights,
options or warrants entitling them to subscribe for or purchase Class A Common
Stock at less than the then Current Market Price of such Class A Common Stock
(determined as provided in the Indenture) as of the record date for stockholders
entitled to receive such rights, options or warrants, (d) the issuance to an
Affiliate (as defined in the Indenture) of shares of Class A Common Stock or
Class B Common Stock at a net price per share less than the then Current Market
Price per share of such Class A Common Stock or Class B Common Stock (determined
as provided in the Indenture) and (e) distributions to all holders of Class A
Common Stock of evidences of indebtedness of the Company, equity securities or
assets other than shares of Class A Common Stock, or other assets (other than
ordinary cash dividends out of earnings), or distributions to all or
substantially all holders of Class A Common Stock rights, warrants or options to
subscribe to securities (other than those referred to in clause (c)above. No
adjustment in the applicable Conversion Rate shall be required in respect of any
dividend or distribution if holders of the Convertible Notes may participate
therein (on a basis and with notice that the Board of Directors determines in
good faith to be fair and appropriate) and receive the same consideration they
would have received if they had converted the Convertible Notes immediately
prior to the record date with respect to such dividend or distribution. In
addition, no adjustment in the applicable Conversion Rate shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the applicable Conversion Rate. Except as expressly set forth in the Indenture,
no adjustment in the applicable Conversion Rate shall be made because the
Company issues, in exchange for cash, property or services, shares of Class A
Common Stock, or any securities convertible into or exchangeable for shares of
Class A Common Stock, or securities (including warrants, rights and options)
carrying the right to subscribe for or purchase shares of Class A Common Stock
or such convertible or exchangeable securities (including shares of Class B
Common Stock), provided that in the case of any such issuance to an Affiliate
written evidence of the action of the Board of Directors authorizing such
issuance shall be filed with the secretary of the Company (which evidence shall
include a determination by the Board of Directors that the terms of such
issuance are not less favorable to the Company and would have been obtainable in
a comparable arms'-length transaction with a person not an Affiliate) a notice
thereon shall have been given to each holder of the Convertible Notes.
(sec. 1304) The Company shall compute any adjustments to the Conversion Rate
pursuant to this paragraph and will give notice to the Holders of the
Convertible Notes of any adjustments. (sec. 1305)
If any transaction shall occur, including without limitation, (1) any
recapitalization or reclassification of shares of Common Stock (other than a
change in par value, or from no par value to par value, or as a result of a
subdivision or combination of Common Stock), (2) any consolidation, merger or
amalgamation of the Company with or into another person or any merger of another
person into the Company (other than a merger that does not result in the
reclassification, conversion, exchange or cancellation of Common Stock), (3) any
sale or transfer of all or substantially all of the assets of the Company, or
(4) any compulsory share exchange, pursuant to any of which holders of shares of
Class A Common Stock or Class B Common Stock shall be entitled to receive other
securities, cash or other property, each
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<PAGE> 21
Convertible Note then outstanding will, with appropriate provisions satisfactory
to the Majority Holders of the Convertible Notes, become convertible only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Class A Common Stock into which such Convertible Note was convertible
immediately prior thereto (assuming such holder of Class A Common Stock failed
to exercise any rights of election and that such Convertible Note was then
convertible). (sec. 1311)
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (e.g., distributions of evidence of
indebtedness or assets of the Company, but generally not stock dividends on
Common Stock or rights to subscribe for Common Stock) and, pursuant to the
anti-dilution provisions of the Indenture, the number of shares into which
Convertible Notes are convertible is increased, such increase may be deemed for
federal income tax purposes to be the payment of a taxable dividend to Holders
of Convertible Notes. See "Certain Federal Income Tax Considerations."
SUBORDINATION
The payment of the principal of, premium, if any, and interest on
(including any amounts payable upon the redemption or repurchase of the
Convertible Notes permitted by the Indenture) the Convertible Notes is
subordinated in right of payment, to the extent set forth in the Indenture, to
the prior payment in full of the principal of, premium, if any, interest and
other amounts in respect of all Senior Indebtedness of the Company. The
Convertible Notes also are effectively subordinated in right of payment to all
indebtedness and other liabilities of the Company's subsidiaries. As of
September 30, 1997, the Company had $2.5 billion of Senior Indebtedness
outstanding, and the aggregate amount of indebtedness and other liabilities of
the Company's subsidiaries was $2.9 billion.
Senior Indebtedness, as defined in the Indenture, means the principal of
(and premium, if any) and interest (including all interest accruing subsequent
to the commencement of any bankruptcy or similar proceeding, whether or not a
claim for post-petition interest is allowable as a claim in any such proceeding)
on, and all fees and other amounts payable in connection with, the following,
whether absolute or contingent, secured or unsecured, due or to become due,
outstanding on the date of the Indenture or thereafter created, incurred or
assumed: (A) all indebtedness of the Company (including obligations of the
Company arising from its guarantee of the indebtedness of others) to banks,
insurance companies and other financial institutions evidenced by credit or loan
agreements, notes or other written obligations; (B) all other indebtedness of
the Company (including obligations of the Company arising from its guarantee of
the indebtedness of others) other than the Convertible Notes; (C) all
Capitalized Lease Obligations (as defined in the Indenture) of the Company or in
respect of any lease or related document (including a purchase agreement) which
provides that the Company is contractually obligated to purchase or cause a
third party to purchase the leased property and thereby effectively guarantees a
minimum residual value of the leased property to the lessor and the obligations
of the Company under such lease or related document to purchase or cause a third
party to purchase such leased property; (D) all obligations of the Company
issued or assumed as the deferred purchase price of property (but excluding any
portion thereof constituting trade accounts payable arising in the ordinary
course); and (E) all obligations of the Company for the reimbursement of any
letter of credit or any amendments, renewals, extensions, modifications and
refundings; provided that Senior Indebtedness shall not include (i) any such
indebtedness or obligation if the terms of such indebtedness or obligation (or
the terms of the instrument under which or pursuant to which, it is issued)
expressly provide that such indebtedness or obligation shall not be senior in
right of payment to the Convertible Notes, or expressly provide that such
indebtedness or obligation is pari passu with or junior to the Convertible Notes
of either or both series and (ii) accounts payable of the Company to trade
creditors. (sec.sec. 101, 1201 and 1202)
Upon any acceleration of the principal due on the Convertible Notes or
payment or distribution of assets of the Company to creditors upon any
dissolution, winding up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other similar
proceedings of the Company, all principal, premium, if any, and interest or
other amounts due on all Senior Indebtedness
20
<PAGE> 22
must be paid in full before the Holders of the Convertible Notes are entitled to
receive any payment. (sec. 1202) The Indenture further requires that the Company
promptly notify holders of Senior Indebtedness if payment of the Convertible
Notes is accelerated because of an Event of Default. The Company also may not
make any payment upon or in respect of the Convertible Notes if (i) a default in
the payment of the principal of, premium, if any, interest or other amounts due
on any Senior Indebtedness occurs and is continuing beyond any applicable period
of grace or (ii) any other default occurs and is continuing with respect to
Senior Indebtedness that permits holders of the Senior Indebtedness as to which
such default relates to accelerate the maturity thereof and the Trustee receives
a notice of such default (a "Payment Blockage Notice") from the Company, any
lender of Designated Senior Indebtedness (or agent bank on behalf of such
lender) or other person permitted to give such notice under the Indenture.
Payments on the Convertible Notes may and shall be resumed (a) in the case of a
payment default, upon the date on which such default is cured or waived in
accordance with the agreements evidencing such Senior Indebtedness and (b) in
case of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or shall have ceased to exist in accordance with the
agreements evidencing such Senior Indebtedness or any acceleration of the Senior
Indebtedness shall have been rescinded or annulled or such Senior Indebtedness
shall have been discharged or 180 days after the date on which the applicable
Payment Blockage Notice is received. During any 360-day period the aggregate of
all periods of payment blockage shall not exceed 180 days and there shall be a
period of at least 180 consecutive days in each 360-day period when no period of
payment blockage is in effect. No default that existed or was continuing on the
date of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been cured for a period of not less than 60 consecutive days.
By reason of the foregoing subordination, in the event of insolvency,
creditors of the Company who are holders of Senior Indebtedness are likely to
recover more, ratably, than the Holders of the Convertible Notes, and such
subordination may result in a reduction or elimination of payments to the
Holders of the Convertible Notes.
The Indenture does not limit the Company's ability to incur Senior
Indebtedness or any other indebtedness or the ability of any subsidiary of the
Company to incur any indebtedness or other liabilities.
OPTIONAL REDEMPTION
The Convertible Notes may not be redeemed prior to April 29, 2000.
Thereafter, the Convertible Notes may be redeemed, in whole or in part, at the
option of the Company in a minimum amount of $1,000,000 and in integral
multiples of $100,000, upon not less than 30 nor more than 60 days' prior notice
as provided under "-- Notices" below, at a price equal to the unpaid principal
amount of such Convertible Notes, together with interest accrued thereon to the
date fixed for redemption, plus the applicable redemption premium for such
Convertible Notes (expressed as a percentage of the principal amount so to be
prepaid) indicated below (such amount being referred to as the "applicable
Redemption Price").
The Redemption Prices for the Series A Convertible Notes are set forth
below:
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PREMIUM
- --------------- ------------------
<S> <C>
April 29, 2000 to April 28, 2001............................ 4.667%
April 29, 2001 to April 28, 2002............................ 3.889%
April 29, 2002 to April 28, 2003............................ 3.111%
April 29, 2003 to April 28, 2004............................ 2.333%
April 29, 2004 to April 28, 2005............................ 1.556%
April 29, 2005 to April 28, 2006............................ 0.778%
after April 28, 2006........................................ none
</TABLE>
provided that prior to April 29, 2002, Series A Convertible Notes may not be
redeemed unless the closing price per share of Class A Common Stock for a period
of 10 consecutive trading days commencing
21
<PAGE> 23
20 trading days before the date of the Company's notice of redemption in respect
of such redemption is at least 150% of the Series A Conversion Price then in
effect.
The Redemption Prices for the Series B Convertible Notes are set forth
below:
<TABLE>
<CAPTION>
REDEMPTION DATE REDEMPTION PREMIUM
- --------------- ------------------
<S> <C>
April 29, 2000 to April 28, 2001............................ 4.567%
April 29, 2001 to April 28, 2002............................ 3.806%
April 29, 2002 to April 28, 2003............................ 3.044%
April 29, 2003 to April 28, 2004............................ 2.283%
April 29, 2004 to April 28, 2005............................ 1.522%
April 29, 2005 to April 28, 2006............................ 0.761%
after April 28, 2006........................................ none
</TABLE>
provided that prior to April 29, 2002, Series B Convertible Notes may not be
redeemed unless the closing price per share of Class A Common Stock for a period
of 10 consecutive trading days commencing 20 trading days before the date of the
Company's notice of redemption in respect of such redemption is at least 150% of
the Series B Conversion Price then in effect.
The Company will not redeem any series of Convertible Notes unless the
Company shall concurrently redeem ratable portions of outstanding Convertible
Notes of any other series issued pursuant to the Indenture, provided, however,
that prior to April 29, 2002 concurrent redemption of any other series of
Convertible Notes shall not be required if the condition to such redemption with
respect to the Closing Price for the 20 trading days before the date of the
Company's notice for such redemption is not met.
Any Convertible Note that is converted in whole or in part into shares of
Class A Common Stock after such notice of such redemption and prior to such
specified redemption date shall be deemed to have been redeemed on the date of
such redemption to the extent of the lesser of (i) the principal amount of such
Convertible Note so converted and (ii) the principal amount of such Convertible
Note called for redemption on the date of such redemption; and, accordingly, the
principal amount of such Convertible Notes actually to be redeemed on such
redemption date shall be reduced by an amount equal to the amount that is deemed
to have been redeemed by reason of conversion as aforesaid and the aggregate
principal amount of the Convertible Notes to be redeemed on such redemption date
shall be reduced by an amount equal to the aggregate principal amount of all
Convertible Notes deemed to have been redeemed by reason of conversion as
aforesaid.
No sinking fund, financial covenants or ratios are provided for the
Convertible Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL
Promptly and in any event within 20 days after the occurrence of a Change
in Control (as defined herein), the Company shall deliver to the holders of the
Convertible Notes notice, as provided in the Indenture (the "Company Notice"),
of the occurrence of such Change of Control and an offer to repurchase all
Convertible Notes outstanding on the date therein specified (the "Repurchase
Date"), which shall be not less than 30 nor more than 60 days after the date of
such notice, at a price equal to 101% of the principal amount of the Convertible
Notes to be repurchased plus interest accrued to the Repurchase Date (the
"Repurchase Price").
At the request and expense of the Company on or before the 10th day after
such occurrence, the Trustee shall give the Company Notice on behalf of the
Company. The Company must also deliver a copy of the Company Notice to the
Trustee and to the office of each Paying Agent. To exercise the repurchase
right, a Holder of Convertible Notes must deliver, on or before the fifth
Business Day after the Repurchase Date irrevocable written notice to the Trustee
or Paying Agent of the Holder's exercise of such right, together with the
Convertible Notes with respect to which the right is being exercised.
(sec. 1403)
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<PAGE> 24
A Change of Control shall be deemed to have occurred at such time after the
original issuance of the Convertible Notes as:
(i) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), excluding any "person" or "group" of which
Sanford Miller, John D. Kennedy or Jeffrey D. Congdon, or their controlled
Affiliates (as defined in the Indenture), are a substantial part (and for
such purpose Messrs. Miller, Kennedy and Congdon, and their controlled
Affiliates, shall not be deemed to be a substantial part of such person or
group unless in the aggregate they own beneficially at least 15% of the
total then outstanding voting power of the Voting Stock (as defined herein)
of the Company), (A) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than 50% of the total then
outstanding voting power of the Voting Stock of the Company or (B) has the
right or the ability by voting right, contract or otherwise to elect or
designate for election a majority of the entire Board of Directors;
(ii) (A) the Company consolidates with or merges into any other Person
(as defined in the Indenture) or conveys, transfers, sells or leases all or
substantially all of its assets as an entirety to any Person or (B) any
Person merges into the Company, in either event pursuant to a transaction
in which Voting Stock of the Company representing more than 50% of the
total voting power of the Company outstanding immediately prior to the
effectiveness thereof is reclassified or changed into or exchanged for
cash, securities or other property; provided that any consolidation,
merger, conveyance, transfer, sale or lease between the Company and any of
its Subsidiaries (including without limitation the reincorporation of the
Company in another jurisdiction) shall be excluded from the operation of
this clause (ii); or
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors, or whose
nomination for election by the shareholders of the Company, as the case may
be, was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease for any reason
to constitute a majority of the Board of Directors then in office.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have
occurred by virtue of the Company's or any of its employee benefit or stock
plan's filing (or being required to file after the lapse of time) a Schedule 13D
or 14D-1 (or any successor or similar schedule, form or report under the
Exchange Act) as a result of the Company or any such plan becoming the
beneficial owner of shares of capital stock of the Company entitling such person
to exercise a majority of the total voting power of the Voting Stock of the
Company. "Voting Stock" means, with respect to any person, any shares of stock
or other equity interests of any class or classes of such person whose holders
are entitled under ordinary circumstances (irrespective of whether at the time
stock or other equity interests or any other class or classes shall have or
might have voting power by reason of the happening of any contingency) to vote
for the election of a majority of the directors, managers, trustees or other
governing body of such person. "Beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act,
as in effect on the date of original execution of the Indenture. (sec.sec. 101
and 1404)
The Company's ability to repurchase Convertible Notes upon the occurrence
of a Change of Control is subject to limitations. There can be no assurance that
the Company would have the financial resources or be able to arrange financing
on acceptable terms to pay the Repurchase Price for all the Convertible Notes as
to which the purchase right is exercised. Further, any offer to repurchase or
repurchase in connection with a Change of Control could, depending on the
circumstances and absent a waiver from the holders of Senior Indebtedness, be
blocked by the subordination provisions of the Convertible Notes. See
"-- Subordination." The agreement relating to the Company's current Senior
Indebtedness would limit the Company's ability to repurchase the Convertible
Notes. Failure by the Company to offer to repurchase or repurchase the
Convertible Notes when required may result in an Event of Default with respect
to the Convertible Notes (and with respect to Senior Indebtedness) whether or
not such
23
<PAGE> 25
repurchase is permitted by the subordination provisions. See "-- Events of
Default" and "Risk Factors -- Limitations on Repurchase of Convertible Notes."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to Holders of
the Convertible Notes. The Company will comply with this rule to the extent
applicable at that time.
The foregoing provisions would not necessarily afford Holders of the
Convertible Notes protection in the event of highly leveraged or other
transactions involving the Company that may adversely affect Holders.
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not, directly or indirectly, merge, consolidate or
amalgamate with any other Person or sell, lease, transfer or otherwise dispose
of all or substantially all of its assets (as an entirety) to any person,
unless: (a) the Company shall be the continuing or surviving corporation, or the
continuing, surviving or acquiring person shall be a solvent corporation
organized in the United States of America and shall expressly assume the due and
punctual payment of the principal, premium (if any) and interest on the
Convertible Notes and all of the other obligations of the Company under the
Indenture, and; (b) immediately after any such merger, consolidation,
amalgamation, sale, lease or other disposition and giving effect to any
concurrent transactions, no default or Event of Default under the Indenture
shall have occurred and be continuing and the Company shall have complied with
its obligations with respect to the adjustment of the applicable Conversion
Rates of the Convertible Securities and with respect to a Change of Control
resulting from such transaction. (sec. 801)
EVENTS OF DEFAULT
The following are Events of Default under the Indenture: (a) failure to pay
principal of or premium, if any, on any Convertible Note when due; (b) failure
to pay any interest on any Convertible Note when due, continuing for 30 days;
(c) failure to perform any other term, covenant or agreement with respect to a
repurchase upon a Change of Control; (d) default beyond any applicable grace
period in any payment of principal of or premium or interest on any indebtedness
in excess of $10,000,000, or in the performance of any provision of the
agreement relating to such indebtedness which causes the indebtedness to become
due and payable prior to its stated maturity or requires the repayment or
repurchase of such indebtedness prior to its stated maturity which default is
not remedied or cured by the Company or waived by the holders of such
indebtedness prior to an acceleration of such indebtedness under the Indenture;
(e) default or breach in the performance of any covenant or warranty made by the
Company in the Indenture or in any certificate or other writing furnished
pursuant to the Indenture and such default or breach shall have continued for a
period of 60 days after the Company becomes aware of such default or breach; or
(f) certain events of bankruptcy, insolvency or reorganization relating to the
Company or any "Significant Subsidiary" as determined in accordance with Rule
1-02(w) of Regulation S-X promulgated by the Commission under the Exchange Act.
(sec. 501) Subject to the provisions of the Indenture relating to the duties of
the Trustee in case an Event of Default shall occur and be continuing, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request or direction of any of the Holders, unless
such Holders shall have offered to the Trustee indemnity satisfactory to the
Trustee. (sec. 603) Subject to such provisions for the indemnification of the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Convertible Notes will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. (sec. 512)
If an Event of Default (other than an Event of Default specified in
subsection (f) above) occurs and is continuing, either the Trustee or the
Holders of not less than 25% in aggregate principal amount of the unpaid
principal amount of Convertible Notes outstanding at the time, by notice in
writing to the Company, declare the principal of all the Convertible Notes to be
due and payable immediately, and upon
24
<PAGE> 26
any such declaration such principal and any accrued interest thereon will become
immediately due and payable. If an Event of Default specified in subsection (f)
occurs and is continuing, the principal and any accrued interest on all of the
then outstanding Convertible Notes shall ipso facto become due and payable
immediately without any declaration or other Act on the part of the Trustee or
any Holder. (sec. 502)
At any time after a declaration of acceleration has been made but before a
judgment or decree based on acceleration, the Holders of a majority in aggregate
principal amount of outstanding Convertible Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal and interest, have been cured
or waived as provided in the Indenture. (sec. 502)
No Holder of any Convertible Note will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such Holder shall have previously given to the Trustee written notice of a
continuing Event of Default and unless also the Holders of at least 25% in
aggregate principal amount of the outstanding Convertible Notes shall have made
written request, and offered indemnity satisfactory to the Trustee, to the
Trustee to institute such proceeding as trustee, and the Trustee shall not have
received from the Holders of a majority in aggregate principal amount of the
outstanding Convertible Notes a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days. (sec. 507)
However, such limitations do not apply to a suit instituted by a Holder of a
Convertible Note for the enforcement of payment of the principal of, premium, if
any, or interest on such Convertible Note on or after the respective due dates
expressed in such Convertible Note or of the right to convert such Convertible
Note in accordance with the Indenture. (sec. 508)
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (sec. 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made, and certain past
defaults by the Company may be waived, with the written consent of the Holders
of not less than 66 2/3% of the aggregate principal amount of the Convertible
Notes at the time outstanding. However, no such modification or amendment may,
without the consent of the Holder of each outstanding Convertible Note affected
thereby, (a) change the Stated Maturity (as defined in the Indenture) of the
principal of, or any installment of interest on, any Convertible Note, (b)
reduce the principal amount of, or the premium, if any, or rate of interest on,
any Convertible Note, (c) modify the number or the method of calculating the
rates at which the Convertible Notes are convertible into Class A Common Stock,
(d) reduce the amount payable upon redemption or repurchase, (e) modify the
provisions with respect to the repurchase right of the Holders in a manner
adverse to the Holder, (f) change the place or currency of payment of principal
of, premium, if any, or interest on, any Convertible Note, (g) impair the right
to institute suit for the enforcement of any payment on or with respect to any
Convertible Note (including any payment of the Repurchase Price in respect of
such Convertible Note), (h) modify the obligation of the company to maintain an
office or agency in New York City, (i) except as otherwise permitted by the
Indenture or contemplated by provisions concerning consolidation, merger,
conveyance, transfer, sale or lease of all or substantially all of the property
and assets of the Company, adversely affect the right of holders to convert any
of the Convertible Notes or to require the Company to repurchase any Convertible
Note other than as provided in the Indenture, (j) modify the subordination
provisions in a manner adverse to the holders of the Convertible Notes, (k)
reduce the above-stated percentage of outstanding Convertible Notes necessary to
modify or amend the Indenture, or (l) reduce the percentage of aggregate
principal amount of outstanding Convertible Notes necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults. (sec.sec. 902 and 513)
The holders of 66 2/3% of the aggregate principal amount of the outstanding
Convertible Notes may waive compliance by the Company with certain restrictive
provisions of the Indenture. (sec. 1009) The
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Holders of 66 2/3% of the aggregate principal amount of the outstanding
Convertible Notes also may waive any past default under the Indenture, except a
default in the payment of principal, premium, if any, or interest on Convertible
Notes due and payable solely by virtue of acceleration. (sec. 513)
TRANSFER AND EXCHANGE
The Company has initially appointed the Trustee as security registrar and
transfer agent, acting through its Corporate Trust Office. The Company reserves
the right to vary or terminate the appointment of the security registrar or of
any transfer agent or to appoint additional or other transfer agents or to
approve any change in the office through which any security registrar or any
transfer agent acts. (sec.sec. 305 and 1002)
PURCHASE AND CANCELLATION
All Convertible Notes surrendered for payment, redemption, repurchase,
registration of transfer or exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All Convertible
Notes so delivered to the Trustee shall be canceled promptly by the Trustee. No
Convertible Notes shall be authenticated in lieu of or in exchange for any
Convertible Notes canceled as provided in the Indenture. The Trustee shall, from
time to time but not less than once annually, destroy all canceled Convertible
Notes and deliver to the Company a certificate of destruction, which certificate
shall specify the number, principal amount and, in the case of Convertible Notes
the form of each canceled Convertible Note so destroyed. (sec. 309)
TITLE
The Company and the Trustee may treat the registered owner (as reflected in
the Security Register) of any Convertible Note as the absolute owner thereof
(whether or not such Convertible Note shall be overdue) for the purpose of
making payment and for all other purposes.
NOTICES
Notice to Holders of the Convertible Notes will be given by mail to the
addresses of such Holders as they appear in the Security Registrar. Such notices
will be deemed to have been given on the date of such mailing. (sec. 106)
Notice of a redemption of Convertible Notes will be given not less than 20
nor more than 60 days prior to the redemption date (which notice shall be
irrevocable) and will specify the redemption date.
REPLACEMENT OF CONVERTIBLE NOTES
Convertible Notes that become mutilated, destroyed, stolen or lost will be
replaced by the Company at the expense of the Holder upon delivery of the
Trustee of the mutilated Convertible Notes or evidence of the loss, theft or
destruction thereof satisfactory to the Company and the Trustee. In the case of
a lost, stolen or destroyed Convertible Note indemnity satisfactory to the
Trustee and the Company may be required at the expense of the Holder of such
Convertible Note before a replacement Convertible Note will be issued.
(sec. 306)
SATISFACTION AND DISCHARGE
The Company may discharge its payment obligations under the Indenture while
Convertible Notes remain outstanding if (a) all outstanding Convertible Notes
have become due and payable or will become due and payable at their scheduled
maturity within one year, (b) all outstanding Convertible Notes are scheduled
for redemption within one year or (c) all outstanding Convertible Notes are
delivered to the Trustee for conversion in accordance with the Indenture and in
the case of (a) or (b) above, the Company has deposited with the Trustee an
amount sufficient to pay and discharge the
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entire indebtedness on all outstanding Convertible Notes on the date of their
scheduled maturity or the scheduled date of redemption. (sec. 401)
GOVERNING LAW
The Indenture and the Convertible Notes will be governed by and construed
in accordance with the laws of the State of New York. (sec. 112)
THE TRUSTEE
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Convertible Notes, unless they shall have offered to the Trustee security or
indemnity satisfactory to the Trustee. (sec.sec. 601 and 603)
BOOK-ENTRY
Each series of Convertible Notes will be issued in the form of a global
note (the "Global Note") deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of Cede & Co. as DTC's nominee or if
the holders elect to receive Certificated Notes, in the form of Certificated
Notes, which may bear a legend restricting transfer of such Certificated Notes.
Owners of beneficial interests in the Convertible Notes represented by the
Global Note will hold such interests pursuant to the procedures and practices of
DTC and must exercise any rights in respect of their interests (including any
right to convert or require repurchase of their interests) in accordance with
those procedures and practices. Such beneficial owners will not be Holders, and
will not be entitled to any rights under the Global Note or the Indenture, with
respect to the Global Note, and the Company and the Trustee, and any of their
respective agents, may treat DTC as the sole Holder and owner of the Global
Note.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
deposit with DTC. DTC also facilitates the settlement among participants of
securities transactions, such as transfer and pledges, in deposited securities
through electronic computerized book-entry changes in participants' accounts,
thereby eliminating the need for physical movement of securities certificates.
Direct participants include securities brokers and dealers, banks, trust
companies, clearing corporation, and certain other organizations. DTC is owned
by a number of its direct participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either directly or
indirectly. The rules applicable to DTC and its participants are on file with
the Securities and Exchange Commission.
Unless and until they are exchanged in whole or in part for certificated
Convertible Notes in definitive form as set forth below, the Global Notes may
not be transferred except as a whole by DTC to a nominee of DTC, or by a nominee
of DTC to DTC or another nominee of DTC.
The Convertible Notes represented by the Global Notes will not be
exchangeable for certificated Convertible Notes, provided that if (a) DTC is at
any time unwilling, unable or ineligible to continue as depositary and a
successor depositary is not appointed by the Company within 90 days or (b) there
shall have occurred and be continuing an Event of Default with respect to the
Convertible Notes, the Company will issue individual Convertible Notes in
definitive form in exchange for the Global Notes. In addition, the Company may
at any time and in its sole discretion determine not to have Global Notes, and,
in such event, will issue individual Convertible Notes in definitive form in
exchange for the Global Notes previously
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representing all such Convertible Notes. In either instance, an owner of a
beneficial interest in a Global Note will be entitled to physical delivery of
Convertible Notes in definitive form equal in principal about to such beneficial
interest and to have such Convertible Notes registered in its name. Individual
Convertible Notes so issued in definitive form will be issued in denominations
of $1,000 and any larger amount that is an integral multiple of $1,000 and will
be issued in registered form only, without coupons.
Payments of principal of and interest on the Convertible Notes will be made
by the Company through the Trustee to DTC or its nominee, as the case may be, as
the registered owner of the Global Note. Neither the Company nor the Trustee
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests of the Global
Note or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. The Company expects that DTC, upon receipt of
any payment of principal or interest in respect of the Global Note, will credit
the accounts of the related participants with payment in amounts proportionate
to their respective holdings in principal amount of beneficial interest in the
Global Note as shown on the records of DTC. The Company also expects that
payments by participants to owners of beneficial interests in the Global Note
will be governed by standing customer instructions and customary practices, as
is now the case with securities held for the accounts of customers in bearer
form or registered in "street name," and will be the responsibility of such
participants.
So long as the Convertible Notes are represented by a Global Note, DTC or
its nominee will be the only entity that can exercise a right to repayment
pursuant to the Holder's option to elect repayment of its Convertible Notes or
the right of conversion of the Convertible Notes. Notice by participants or by
owners of beneficial interests in a Global Note held through such participants
of the exercise of the option to elect repayment, or the right of conversion, of
beneficial interests in Convertible Notes represented by the Global Note must be
transmitted to DTC in accordance with its procedures on a form required by DTC
and provided to participants. In order to ensure that DTC's nominee will timely
exercise a right to repayment, or the right of conversion, with respect to a
particular Convertible Note, the beneficial owner of such Convertible Notes must
instruct the broker or other participant through which it holds an interest in
such Convertible Notes to notify DTC of its desire to exercise a right to
repayment, or the right of conversion. Different firms have different cut-off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other participant through which it
holds an interest in a Convertible Note in order to ascertain the cut-off time
by which such an instruction must be given in order for timely notice to be
delivered to DTC. The Company will not be liable for any delay in delivery of
such notice to DTC.
CERTIFICATED NOTES
At the option of the Selling Securityholders, the Convertible Notes may be
issued in registered, certificated form. Until the Convertible Notes are sold as
provided herein, they will be subject to certain restrictions on transfer and
will bear a restrictive legend. Initially, the Trustee will act as paying agent
and registrar for the Convertible Notes. The Convertible Notes may be presented
for registration of transfer and exchange at the offices of the registrar.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of certain United States federal income and
estate tax considerations relating to the purchase, ownership and disposition of
the Convertible Notes and of Class A Common Stock into which the Convertible
Notes may be converted, but does not purport to be a complete analysis of all
the potential tax considerations relating thereto. This summary is based on
laws, regulations, rulings and decisions now in effect (or, in the case of
certain United States Treasury Regulations ("Treasury Regulations"), now in
proposed form), all of which are subject to change, possibly on a retroactive
basis. This summary deals only with holders that will hold Convertible Notes and
Class A Common Stock into which Convertible Notes may be converted as "capital
assets" (within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended (the "Code")) and does not address tax considera-
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tions applicable to investors that may be subject to special tax rules, such as
banks, tax-exempt organizations, insurance companies, dealers in securities or
currencies, persons that will hold Convertible Notes as a position in a hedging
transaction, "straddle" or "conversion transaction" for tax purposes, or persons
that have a "functional currency" other than the U.S. dollar. The Company has
not sought any ruling from the Internal Revenue Service ("IRS") with respect to
the statements made and the conclusions reached in the following summary, and
there can be no assurance that the IRS will agree with such statements and
conclusions. INVESTORS CONSIDERING THE PURCHASE OF CONVERTIBLE NOTES OR CLASS A
COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
APPLICATION OF THE UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF
ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX
TREATY.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means the beneficial owner
of a Convertible Note or of Class A Common Stock that for United States federal
income tax purposes is (i) a citizen or resident of the United States, (ii)
treated as a domestic corporation or domestic partnership, or (iii) an estate or
trust other than a "foreign estate" or "foreign trust" as defined in Section
7701(a)(31) of the Code.
PAYMENT OF INTEREST
Interest on a Convertible Note generally will be included in the income of
a United States Holder as ordinary income at the time such interest is received
or accrued, in accordance with such Holder's method of accounting for United
States federal income tax purposes.
MARKET DISCOUNT
If a United States Holder purchases a Convertible Note for an amount that
is less than its stated redemption price at maturity, such United States Holder
will be treated as having purchased such Convertible Note at a "market discount"
unless such market discount is less than one-fourth of one percent of the stated
redemption price of the Convertible Note at maturity, multiplied by the number
of complete years to maturity (after the United States Holder acquired the
Convertible Note).
Under the market discount rules, a United States Holder will be required to
treat any partial principal payment on a Convertible Note, or any gain realized
on the sale, exchange, retirement or other disposition of a Convertible Note, as
ordinary income to the extent of the lesser of (i) the amount of such payment or
realized gain or (ii) the market discount which has not previously been included
in income and is treated as having accrued on such Convertible Note at the time
of such payment or disposition. Market discount will be considered to accrue
ratably during the period from the date of acquisition to the maturity date of
the Convertible Note, unless the United States Holder elects to accrue market
discount on a constant yield basis. Once made, such an election is irrevocable.
A United States Holder may be required to defer the deduction of all or a
portion of the interest paid or accrued on any indebtedness incurred or
maintained to purchase or carry a Convertible Note with market discount until
the maturity of the Convertible Note or certain earlier dispositions, because a
current deduction is only allowed to the extent the interest expense exceeds the
portion of market discount allocable to the days during the taxable year in
which the Convertible Note was held by the taxpayer. A United States Holder may
elect to include market discount in income currently as it accrues (on either a
ratable or constant yield basis), in which case the rules described above
regarding the treatment as ordinary income of gain upon the disposition of the
Convertible Note and upon the receipt of certain cash payments and regarding the
deferral of interest deductions will not apply. Generally, such currently
included market discount is treated as ordinary interest for United States
federal income tax purposes. Such an election will apply to all debt instruments
with market discount acquired by the United
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States Holder on or after the first day of the taxable year to which such
election applies and may be revoked only with the consent of the IRS.
BOND PREMIUM
If a United States Holder purchases a debt instrument for an amount in
excess of its stated redemption price at maturity, such United States Holder
will be considered to have purchased the debt instrument with "amortizable bond
premium," generally equal in amount to such excess, but reduced by the value of
any conversion features attached to the debt instrument. A United States Holder
may elect to amortize bond premium using a constant yield method over the
remaining term of the debt instrument and may offset interest (including
original issue discount) otherwise required to be included in respect of the
debt instrument during any taxable year by the amortized amount for the taxable
year. Any election to amortize bond premium applies to all taxable debt
obligations then owned and thereafter acquired by the United States Holder on or
after the first day of the taxable year to which such election applies, and may
be revoked only with the consent of the IRS.
The conversion features of the Convertible Notes and the Company's option
to redeem the Convertible Notes at the applicable Redemption Price prior to
maturity will affect a United States Holder's calculation of amortizable bond
premium. As noted in the preceding paragraph, the amount of amortizable bond
premium generally equals the excess of the United States Holder's tax basis in
the debt instrument over the debt instrument's stated redemption price at
maturity, but reduced by the value of the conversion features of the debt
instrument. Accordingly, the value of the conversion features of the Convertible
Notes must be excluded from the calculation of amortizable bond premium.
Treasury Regulations provide that the value of the conversion features of a
particular debt instrument is determined as of the time of acquisition by
subtracting from the cost of the debt instrument the assumed price at which the
debt instrument would be purchased on the open market if it did not have the
conversion features. This assumed price of the debt instrument without
conversion features is determined by comparing the yields on which debt
instruments of a similar character, but not having conversion features, are sold
on the open market and adjusting the price of the debt instrument in question to
this yield. In addition, in view of the Company's option to redeem the
Convertible Notes prior to maturity, the amount of amortizable bond premium on
the Convertible Notes will be determined by subtracting from the United States
Holder's tax basis in the Convertible Notes the applicable Redemption Price
payable on the first date on which the Convertible Notes could be redeemed
(rather than the stated redemption price at maturity). If the Company does not
in fact exercise its right to redeem the Convertible Notes on this date, the
Convertible Notes will be treated (for purposes of the bond premium rules) as
having matured and then as having been reissued for the Redemption Price at
which the Convertible Notes could have been redeemed on such date. The
Convertible Notes deemed to have been reissued will again be subject to the
amortizable bond premium rules with respect to the remaining dates on which the
Convertible Notes are redeemable.
Proposed Treasury regulations issued on June 27, 1996 would clarify the
treatment of bond premium. The proposed regulations describe the constant yield
method under which such premium is amortized and provide that the resulting
offset to interest income can be taken into account only as a United States
Holder takes the corresponding interest income into account under such United
States Holder's regular accounting method. In the case of instruments that may
be redeemed prior to maturity, the proposed regulations provide that the premium
is calculated by assuming that the issuer or holder will exercise or not
exercise its redemption rights in the manner that maximizes the holder's yield.
The regulations are proposed to be effective for debt instruments acquired on or
after the date 60 days after the date final regulations are published in the
Federal Register. However, if a United States Holder elects to amortize bond
premium for the taxable year containing such effective date, the regulations
would apply to all the United States Holder's debt instruments held on or after
the first day of that taxable year. It cannot be predicted at this time whether
these regulations will become effective or what, if any, modifications may be
made to them prior to their becoming effective.
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SALE, EXCHANGE OR REDEMPTION OF THE CONVERTIBLE NOTES
Upon the sale, exchange or redemption of a Convertible Note, a United
States Holder generally will recognize capital gain or loss equal to the
difference between (i) the amount of cash proceeds and the fair market value of
any property received on the sale, exchange or redemption (except to the extent
such amount is attributable to accrued interest income, which is taxable as
ordinary income) and (ii) such Holder's adjusted tax basis in the Convertible
Note. For purposes of determining gain or loss, a United States Holder's
adjusted tax basis in a Convertible Note generally will equal the cost of the
Convertible Note to such Holder, increased by accrued market discount, if any,
if the United States Holder has included such market discount in income, reduced
by any principal payments received by such Holder, and reduced by amortizable
bond premium, if any, taken with respect to such Convertible Note. The tax rate
applicable to such a capital gain will depend, among other things, upon the
United States Holder's holding period for the Convertible Notes that are sold,
exchanged or redeemed.
CONVERSION OF THE CONVERTIBLE NOTES
A United States Holder generally will not recognize any income, gain or
loss upon conversion of a Convertible Note into Class A Common Stock except to
the extent of ordinary income recognized with respect to accrued and unpaid
interest on the Convertible Note at that time. A United States Holder also will
recognize capital gain or loss upon the receipt of cash in lieu of a fractional
share of Class A Common Stock equal to the amount of cash received less the
Holder's tax basis in such fractional share. Such Holder's tax basis in the
Class A Common Stock received on conversion of a Convertible Note will be the
same as such Holder's adjusted tax basis in the Convertible Note at the time of
conversion (reduced by any basis allocable to a fractional share interest), and
the holding period for the Class A Common Stock received on conversion will
generally include the holding period of the Convertible Note converted.
DIVIDENDS
Dividends paid on the Class A Common Stock generally will be included in
the income of a United States Holder as ordinary income to the extent of the
Company's current or accumulated earnings and profits, then as a tax-free return
of capital to the extent of a United States Holder's tax basis in the Class A
Common Stock and thereafter as gain from the sale or exchange of such stock.
In general, a dividend distribution to a corporate United States Holder
will qualify for the 70% dividends received deduction if the Holder owns less
than 20% of the voting power and value of the Company's stock (other than
certain non-voting, non-convertible, non-participating preferred stock). A
corporate United States Holder that owns 20% or more of the voting power and
value of the Company's stock (other than certain non-voting, non-convertible,
non-participating preferred stock) generally will qualify for an 80% dividends
received deduction. The dividends received deduction is subject, however, to
certain holding period, taxable income and other limitations.
SALE OF CLASS A COMMON STOCK
Upon the sale or exchange of Class A Common Stock, a United States Holder
generally will recognize capital gain or loss equal to the difference between
(i) the amount of cash and the fair market value of any property received upon
the sale or exchange and (ii) such Holder's adjusted tax basis in the Class A
Common Stock. The tax rate applicable to such capital gain will depend, among
other things, upon the Holder's holding period for the Shares of Class A Common
Stock that are sold or exchanged. A United States Holder's basis and holding
period in Class A Common Stock received upon conversion of a Convertible Note
are determined as discussed above under "-- Conversion of the Convertible
Notes."
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of the Convertible Notes as having received a constructive distribution
from the Company in the event that the conversion ratio of the Convertible Notes
were adjusted if (i) as a result of such adjustment, the
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proportionate interest (measured by the quantum of Class A Common Stock into or
for which the Convertible Notes are convertible or exchangeable) of the holders
of the Convertible Notes in the assets or earnings and profits of the Company
were increased, and (ii) the adjustment was not made pursuant to a bona fide,
reasonable anti-dilution formula. An adjustment in the conversion ratio would
not be considered made pursuant to such formula if the adjustment was made to
compensate for certain taxable distributions with respect to the Class A Common
Stock. Thus, under certain circumstances, a reduction in the conversion price
for the holders my result in deemed dividend income to holders to the extent of
the Company's current or accumulated earnings and profits.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Convertible Note, payments of
dividends on Class A Common Stock, payments of the proceeds of the sale of a
Convertible Note and payments of the proceeds of the sale of Class A Common
Stock, and a 31% backup withholding tax may apply to such payments if the United
States Holder (i) fails to furnish or certify his correct taxpayer
identification number to the payor in the manner required, (ii) is notified by
the IRS that he has failed to report payments of interest and dividends
properly, or (iii) under certain circumstances, fails to certify that he has not
been notified by the IRS that he is subject to backup withholding for failure to
report interest and dividend payments. Any amounts withheld under the backup
withholding rules from a payment to a United States Holder will be allowed as a
credit against such Holder's United States federal income tax and may entitle
the Holder to a refund, provided that the required information is furnished to
the IRS.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any beneficial
owner of a Convertible Note or Class A Common Stock that is not a United States
Holder. The rules governing the United States federal income and estate taxation
of a Non-United States Holder are complex and no attempt will be made herein to
provide more than a summary of such rules. NON-UNITED STATES HOLDERS SHOULD
CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF FEDERAL, STATE,
LOCAL AND FOREIGN TAX LAWS WITH REGARD TO AN INVESTMENT IN THE CONVERTIBLE NOTES
AND CLASS A COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
PAYMENT OF INTEREST
Generally, payment of interest on a Convertible Note by the Company or any
Paying Agent to a Non-United States Holder will qualify for the "portfolio
interest exemption" and therefore will not be subject to United States federal
income tax or withholding tax, provided that such interest income is not
effectively connected with a United States trade or business of the Non-United
States Holder and provided that the Non-United States Holder (i) does not
actually or constructively own 10% or more of the combined voting power of all
classes of stock of the Company entitled to vote, (ii) is not a controlled
foreign corporation related to the Company actually or constructively through
stock ownership, (iii) is not a bank receiving interest on a loan entered into
in the ordinary course of business and (iv) either (a) provides a Form W-8 (or a
suitable substitute form) signed under penalties of perjury that includes its
name and address and certifies as to its non-United States status in compliance
with applicable law and regulations, or (b) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business holds the Convertible Note and provides
a statement to the Company or its agent under penalties of perjury in which it
certifies that such a Form W-8 (or a suitable substitute) has been received by
it from the Non-United States Holder or qualifying intermediary and furnishes
the Company or its agent with a copy thereof.
Recently released Treasury Regulations provide alternative methods for
satisfying the certification requirements described in clause (iv) above. The
Treasury Regulations generally are effective for payments made after December
31, 1998, subject to certain transition rules. Non-United States Holders are
urged to consult their own tax advisors regarding the new Treasury Regulations.
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Except to the extent that an applicable treaty otherwise provides, a
Non-United States Holder generally will be taxed in the same manner as a United
States Holder with respect to interest if the interest income is effectively
connected with a United States trade or business of the Non-United States
Holder. Effectively connected interest received by a corporate Non-United States
Holder may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate (or, if applicable, a lower treaty rate).
Even though such effectively connected interest is subject to income tax, and
may be subject to the branch profits tax, it is not subject to withholding tax
if the Holder delivers IRS Form 4224 to the payor.
Interest income of a Non-United States Holder that is not effectively
connected with a United States trade or business and that does not qualify for
the portfolio interest exemption described above will generally be subject to a
withholding tax at a 30% rate (or, if applicable, a lower treaty rate).
SALE, EXCHANGE OR REDEMPTION OF THE CONVERTIBLE NOTES
A Non-United States Holder of a Convertible Note will generally not be
subject to United States federal income tax or withholding tax on any gain
realized on the sale, exchange or redemption of a Convertible Note (including
the receipt of cash in lieu of fractional shares upon conversion of a
Convertible Note into Class A Common Stock) unless (1) the gain is effectively
connected with a United States trade or business of the Non-United States
Holder, (2) in the case of a Non-United States Holder who is an individual, such
Holder is present in the United States for a period or periods aggregating 183
days or more during the taxable year of the disposition, and either such Holder
has a "tax home" in the United States or the disposition is attributable to an
office or other fixed place of business maintained by such Holder in the United
States, (3) the Holder is subject to tax pursuant to the provisions of the Code
applicable to certain United States expatriates, or (4) the Company is a United
States real property holding corporation (see discussion under "United States
Foreign Investment in Real Property Tax Act" below).
CONVERSION OF THE CONVERTIBLE NOTES
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of a Convertible Note into Class A Common Stock by a
Non-United States Holder except with respect to the receipt of cash in lieu of
fractional shares by Non-United States Holders upon conversion of a Convertible
Note where any of the conditions described above under "Non-United States
Holders -- Sale, Exchange or Redemption of the Convertible Notes" is satisfied.
SALE OR EXCHANGE OF CLASS A COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income tax or withholding tax on the sale or exchange of Class A Common
Stock unless any of the conditions described above under "Non-United States
Holders -- Sale, Exchange or Redemption of the Convertible Notes" is satisfied.
DIVIDENDS
Dividends paid (or deemed paid, as described above under "United States
Holders -- Dividends") on Class A Common Stock to a Non-United States Holder
(excluding dividends that are effectively connected with the conduct of a trade
or business in the United States by such Holder and are taxable as described
below) will be subject to United States federal withholding tax at a 30% rate
(or lower rate provided under any applicable income tax treaty). Except to the
extent that an applicable tax treaty otherwise provides, a Non-United States
Holder will be taxed in the same manner as a United States Holder on dividends
paid (or deemed paid) that are effectively connected with the conduct of a trade
or business in the United States by the Non-United States Holder. If such
Non-United States Holder is a foreign corporation, it may also be subject to a
United States branch profits tax on such effectively connected income at a 30%
rate or such lower rate as may be specified by an applicable income tax
33
<PAGE> 35
treaty. Even though such effectively connected dividends are subject to income
tax, and may be subject to the branch profits tax, they will not be subject to
U.S. withholding tax if the Holder delivers IRS Form 4224 to the payor.
Under currently applicable Treasury Regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and for purposes of determining the applicability of
a tax treaty rate. Under recently issued Treasury Regulations, however,
Non-United States Holders of Class A Common Stock who wish to claim the benefit
of an applicable treaty rate would be required to satisfy certain certification
requirements. The new Treasury Regulations are generally effective for payments
made after December 31, 1998. Non-United States Holders are urged to consult
their own tax advisors regarding the new Treasury Regulations.
CERTAIN UNITED STATES FEDERAL ESTATE TAX CONSIDERATIONS
A Convertible Note beneficially owned by an individual who is not a citizen
or resident of the United States at the time of death will not be included in
the decedent's gross estate for United States federal estate tax purposes,
provided that such non-United States Holder did not at the time of death
actually or constructively own 10% or more of the combined voting power of all
classes of stock of the Company entitled to vote, and provided that, at the time
of death, payments with respect to such Convertible Note would not have been
effectively connected with the conduct by such Non-United States Holder of a
trade or business within the United States.
Class A Common Stock actually or beneficially held (other than through a
foreign corporation) by a Non-United States Holder at the time of his or her
death (or previously transferred subject to certain retained rights or powers)
will be subject to United States federal estate tax unless otherwise provided by
an applicable estate tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
United States information reporting requirements and backup withholding tax
will not apply to payments on a Convertible Note to a Non-United States Holder
if the statement described in "Non-United States Holders -- Payment of Interest"
is duly provided by such Holder, provided that the payor does not have actual
knowledge that the Holder is a United States person.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of a Convertible Note or any
payment of the proceeds of the sale of Class A Common Stock effected outside the
United States by a foreign office of a "broker" (as defined in applicable
Treasury Regulations), unless such broker (i) is a United States person, (ii)
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States or (iii) is a controlled foreign
corporation as to the United States. Payment of the proceeds of any such sale
effected outside the United States by a foreign office of any broker that is
described in (i), (ii) or (iii) of the preceding sentence will not be subject to
backup withholding tax, but will be subject to information reporting
requirements unless such broker has documentary evidence in its records that the
beneficial owner is a Non-United States Holder and certain other conditions are
met, or the beneficial owner otherwise establishes an exemption. Payment of the
proceeds of any such sale to or through the United States office of a broker is
subject to information reporting and backup withholding requirements, unless the
beneficial owner of the Convertible Note provides the statement described in
"Non-United States Holders -- Payment of Interest" or otherwise establishes an
exemption.
Recently released Treasury Regulations make certain modifications to the
withholding, backup withholding and information reporting rules described above.
The new Treasury Regulations will generally be effective for payments made after
December 31, 1998, subject to certain transition rules. Prospective investors
are urged to consult their own tax advisors regarding the new Treasury
Regulations.
34
<PAGE> 36
UNITED STATES FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"), any
person who acquires a "United States real property interest" (as described
below) from a foreign person must deduct and withhold a tax equal to 10% of the
amount realized by the foreign transferor. In addition, a foreign person who
disposes of a United States real property interest generally is required to
recognize gain or loss that is subject to United States federal income tax. A
"United States real property interest" generally includes any interest (other
than an interest solely as a creditor) in a United States corporation unless it
is established under specific procedures that the corporation is not (and was
not for the prior five-year period) a "United States real property holding
corporation". The Company does not believe that it is a United States real
property holding corporation as of the date hereof, although it has not
conducted or obtained an appraisal of its assets to determine whether it is now
or will be a United States real property holding corporation. If it is not
established that the Company is not a United States real property holding
corporation, then, unless an exemption applies, both the Class A Common Stock
and the Convertible Notes would be treated as United States real property
interests. As discussed below, however, an exemption should apply to the Class A
Common Stock and the Convertible Notes except with respect to a Non-United
States Holder whose beneficial ownership of Class A Common Stock or Convertible
Notes exceeds 5% of the total fair market value of the Class A Common Stock.
An interest in a United States corporation generally will not be treated as
a United States real property interest if, at any time during the calendar year,
any class of stock of the corporation is "regularly traded" on an established
securities market (the "regularly-traded exemption"). The Company believes that
the Company's Class A Common Stock is regularly traded on an established
securities market within the meaning of the applicable regulations, although
there can be no assurance that the Class A Common Stock will remain regularly
traded. The remainder of this discussion assumes that the Class A Common Stock
is and will remain regularly traded on an established securities market.
The regularly-traded exemption is not available to a regularly traded
interest (such as the Class A Common Stock) if such interest is owned by a
person who beneficially owns (actually or constructively) more than 5% of the
total fair market value of that class of interests at any time during the
five-year period ending on the date of disposition of such interest or other
applicable determination date. Accordingly, except with respect to a sale or
other disposition of Class A Common Stock by a Non-United States Holder whose
aggregate beneficial ownership has exceeded that 5% threshold, no withholding or
income taxation under the FIRPTA rules should be required with respect to the
sale, exchange or other disposition of Class A Common Stock by a Non-United
States Holder.
The regularly-traded exemption will apply to a "non-regularly traded class
of interests" in a United States corporation that is convertible into a
regularly traded class of interests in the corporation unless, on the date such
non-regularly traded interest was acquired by its present holder, such interest
had a fair market value greater than the fair market value on that date of 5% of
the regularly traded class of the corporation's stock into which it is
convertible. (Interests of a non-regularly traded class acquired over a period
of time will be aggregated and valued as of the date of the subsequent
acquisition for purposes of applying the 5% test described above.) Accordingly,
except with respect to the sale, exchange, conversion or redemption of the
Convertible Notes by a Non-United States Holder whose aggregate actual or
constructive ownership of such Convertible Notes on an applicable determination
date had a fair market value greater than 5% of the Class A Common Stock, no
withholding or income taxation under the FIRPTA rules should be required with
respect to the sale, exchange, conversion or redemption of Convertible Notes by
a Non-United States Holder. The foregoing discussion assumes that the
Convertible Notes constitute interests that are nonregularly traded interests
convertible into a regularly traded class of interests. If the Convertible Notes
were to become regularly traded, the regularly-traded exemption might not apply
to Convertible Notes owned by a person who beneficially owns (actually or
constructively) more than 5% of the total fair market value of the Convertible
Notes at any time during the five year period ending on the date of disposition
of the Convertible Notes or other applicable determination date.
35
<PAGE> 37
Any investor that may approach or exceed any of the 5% ownership thresholds
discussed above, either alone or in conjunction with related persons, should
consult its own tax advisor concerning the United States tax consequences that
may result. A Non-United States Holder who sells or otherwise disposes of
Convertible Notes may be required to inform its transferee whether such
Convertible Notes constitute a United States real property interest.
36
<PAGE> 38
PLAN OF DISTRIBUTION
This Prospectus relates to the sale by the Selling Securityholders of (i)
up to 246,167 shares of Class A Common Stock of the Company acquired by certain
Selling Securityholders in connection with the Company's acquisition of the St.
Louis Budget franchise (the "St. Louis Acquisition"), which was consummated in
November 1997, (ii) up to 5,595,482 shares of Class A Common Stock issuable upon
conversion of the Convertible Notes, (iii) $80,000,000 aggregate principal
amount of Series A Convertible Notes and (iv) $45,000,000 aggregate principal
amount of Series B Convertible Notes. The Company is registering the Shares and
the Convertible Notes for sale to provide the holders thereof with freely
tradeable securities, but the registration of such shares or notes does not
necessarily mean that any of such shares or notes will be issued by the Company
or offered or sold by the holders thereof.
The Shares and Convertible Notes may be sold from time to time to
purchasers directly by any of the Selling Securityholders. Alternatively, the
Selling Securityholders may from time to time offer the Shares and Convertible
Notes through dealers or agents, who may receive compensation in the form of
commissions from the Selling Securityholders and/or the purchasers of Shares and
Convertible Notes for whom they may act as agent. Without limiting the
foregoing, such sales may be in the form of secondary distributions, exchange
distributions, block trades, ordinary brokerage transactions or a combination of
such methods of sale. The Selling Securityholders and any dealers or agents that
participate in the distribution of Shares and Convertible Notes may be deemed to
be "underwriters" within the meaning of the Securities Act and any profit on the
sale of Shares and Convertible Notes by them and any commissions received by any
such dealers or agents might be deemed to be underwriting commissions under the
Securities Act.
At a time a particular offer of Shares or Convertible Notes is made, a
Prospectus Supplement, if required, will be distributed that will set forth the
name and names of any dealers or agents and any commissions and other terms
constituting compensation from the Selling Securityholders and any other
required information. The Shares and Convertible Notes may be sold from time to
time at varying prices determined at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the Shares and Convertible Notes may be sold only through registered
or licensed brokers or dealers. In addition, in certain states, the Shares and
Convertible Notes may not be sold unless they have been registered or qualified
for sale in such state or an exemption from such registration or qualification
requirement is available and is complied with.
LEGAL MATTERS
The validity of the shares of the Class A Common Stock and Convertible
Notes offered hereby has been passed upon for the Company by King & Spalding,
Atlanta, Georgia.
EXPERTS
The consolidated financial statements of Budget Group, Inc. as of and for
the year ended December 31, 1996, incorporated by reference in this Prospectus
and elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent certified public accountants, as indicated in their report with
respect thereto and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
With respect to the unaudited consolidated condensed financial statements
as of and for the six-month period ended June 30, 1997, and the unaudited pro
forma consolidated statement of operations for the six months ended June 30,
1997, incorporated by reference in this prospectus, the independent certified
public accountants have reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate reports included in the Registration Statement No.
333-34799 on Form S-1 dated October 1, 1997, and incorporated by
37
<PAGE> 39
reference herein, state that they did not audit and they do not express an
opinion on such financial information. Accordingly, the degree of reliance on
their reports on such information should be restricted in light of the limited
nature of the review procedures applied. The accountants are not subject to the
liability provisions of section 11 of the Securities Act of 1933 for their
reports on the unaudited financial information because those reports are not
"reports" or "parts" of the registration statement prepared or certified by the
accountants within the meaning of sections 7 and 11 of the Act.
The consolidated financial statements as of December 31, 1995 and for each
of the two years in the period ended December 31, 1995 incorporated in this
prospectus by reference from Budget Group Inc.'s Registration Statement No.
333-34799 on Form S-1 dated October 1, 1997 and appearing in the Annual Report
on Form 10-K for the year ended December 31, 1996 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of BRACC as of December 31, 1995 and
1996 and for each of the years in three-year period ended December 31, 1996 have
been incorporated by reference in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent auditors incorporated by
reference elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
38
<PAGE> 40
==========================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................... 2
Incorporation of Certain Documents by
Reference.............................. 2
The Company.............................. 3
The Offering............................. 4
Use of Proceeds.......................... 4
Ratio of Earnings to Fixed Charges....... 4
Supplemental Earnings per Share Data..... 4
Risk Factors............................. 5
Selling Securityholders.................. 11
Description of Capital Stock............. 13
Description of Convertible Notes......... 17
Certain United States Federal Tax
Considerations......................... 28
Plan of Distribution..................... 37
Legal Matters............................ 37
Experts.................................. 37
</TABLE>
==========================================================
==========================================================
5,841,649 SHARES
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------
$80,000,000
AGGREGATE PRINCIPAL AMOUNT
7.0% CONVERTIBLE
SUBORDINATED NOTES,
SERIES A, DUE 2007
------------------
$45,000,000
AGGREGATE PRINCIPAL AMOUNT
6.85% CONVERTIBLE
SUBORDINATED NOTES,
SERIES B, DUE 2007
BUDGET GROUP, INC.
==========================================================
<PAGE> 41
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder, all of
which are being paid by the Company. Except for the SEC registration fee, all
amounts are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... 40,471
Transfer agents' fees....................................... 10,000
Printing and engraving expenses............................. 30,000
Legal fees and expenses..................................... 30,000
Accounting fees and expenses................................ 30,000
Miscellaneous............................................... 9,529
--------
Total............................................. $150,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 attorneys' 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 3.2) (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 will also authorize the Company to 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 the provisions of the
Restated Certificate of Incorporation or Section 145 of the DGCL.
II-1
<PAGE> 42
The Company has entered into indemnification agreements with each of its
directors and certain of its 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 proceeding against them as to which they could be indemnified.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The Registrant agrees to furnish a copy of all agreements relating to
long-term debt upon request of the Commission.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Common Stock Purchase Agreement, dated as of January 13,
1997, between John J. Nevin and the Company (incorporated by
reference to Exhibit 2.7 to the Company's Registration
Statement on Form S-1, File No. 333-21691, dated February
12, 1997).
2.2 -- Budget Stock Purchase Agreement, dated as of January 13,
1997, between Budget Rent A Car Corporation and Team Rental
Group, Inc. (currently known as Budget Group, Inc.)
(incorporated by reference to Exhibit 2.8 to the Company's
Registration Statement on Form S-1, File No. 333-21691,
dated February 12, 1997).
2.3 -- Preferred Stock Purchase Agreement, dated as of January 13,
1997, between Ford Motor Company and the Company
(incorporated by reference to Exhibit 2.9 to the Company's
Registration Statement on Form S-1, File No. 333-21691,
dated February 12, 1997).
2.4 -- Preferred Stockholders Agreement between Ford Motor Company
and the Company (incorporated by reference to Exhibit 2.10
to the Company's Registration Statement on Form S-1, File
No. 333-34799, dated September 26, 1997).
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 (incorporated by reference to
Exhibit 3.2 to Amendment No. 2 to the Company's Registration
Statement on Form S-1, File No. 333-4507, dated June 28,
1996).
3.3 -- Amendment to Amended and Restated Certificate of
Incorporation of the Company (incorporated by reference to
Exhibit 3.3 to the Company's Registration Statement on Form
S-1, File No. 333-34799, dated September 26, 1997).
3.4 -- 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 Registration Statement on Form
S-1, File No. 333-34799, dated September 26, 1997).
4.2 -- Registration Rights Agreement, dated as of August 25, 1994,
among the Company, Brian Britton, Jeffrey Congdon, Richard
Hinkle, John Kennedy, Sanford Miller and Richard Sapia
(incorporated by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1994).
4.3 -- 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).
4.4 -- 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).
</TABLE>
II-2
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
4.5 -- Registration Rights Agreement, dated as of October 20, 1995,
between the Company and Budget Rent-A-Car of Southern
California (incorporated by reference to Exhibit 4.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
4.6 -- Registration Rights Agreement, dated as of December 1, 1996,
between the Company and the holders of the Convertible
Subordinated Notes (incorporated by reference to Exhibit
4.12 to the Company's Registration Statement on Form S-1,
File No. 333-21691, dated February 12, 1997).
*4.7 -- Registration Rights Agreement, dated as of November 6, 1997,
among the Company and the Stockholders of Budget Rent A Car
of St. Louis, Inc.
**4.8 -- Indenture dated as of December , 1997 between the Company
and the Chase Manhattan Bank, as Trustee.
*5.1 -- Opinion of King & Spalding as to the legality of the
securities being registered.
*12.1 -- Statement regarding computation of ratio of earnings to
fixed charges.
*23.1 -- Consent of Deloitte & Touche LLP.
*23.2 -- Consent of Arthur Andersen LLP.
*23.3 -- Consent of KPMG Peat Marwick LLP.
*23.4 -- Consent of King & Spalding (included in Exhibit 5.1).
*24.1 -- Power of Attorney.
*25.1 -- Statement of Eligibility of the Trustee on Form T-1.
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
+ The Company has been granted confidential treatment of portions of this
Exhibit. Accordingly, portions thereof have been omitted and filed separately
with the Commission.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii)To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
II-3
<PAGE> 44
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant 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 registrant 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.
II-4
<PAGE> 45
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Lisle, State of Illinois on November 26, 1997.
BUDGET GROUP, INC.
By: /s/ ROBERT L. APRATI
------------------------------------
Robert L. Aprati
Executive Vice President and
General Counsel
We, the undersigned directors and officers of Budget Group, Inc., do hereby
constitute and appoint Robert L. Aprati and Scott R. White, and each or any of
them, our true and lawful attorneys-in-fact and agents, to do any and all acts
and things in our names and on our behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our name in the
capacities indicated below, which said attorneys and agents, or any of them, may
deem necessary or advisable to enable said Corporation to comply with the
Securities Act of 1933 and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this registration
statement, or any registration statement for this offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto; and we do hereby ratify
and confirm all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on this 26th day of November, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ SANFORD MILLER Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer (Principal Executive Officer) and
Sanford Miller Director
Vice Chairman and Director
- -----------------------------------------------------
John Kennedy
/s/ JEFFREY CONGDON Vice Chairman and Director
- -----------------------------------------------------
Jeffrey Congdon
Chief Financial Officer
- ----------------------------------------------------- (Principal Financial Officer)
Michael Clauer
Vice President -- Controller
- ----------------------------------------------------- (Principal Accounting Officer)
Thomas Kram
/s/ RONALD D. AGRONIN Director
- -----------------------------------------------------
Ronald D. Agronin
/s/ STEPHEN L. WEBER Director
- -----------------------------------------------------
Stephen L. Weber
</TABLE>
II-5
<PAGE> 46
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JEFFREY MIRKIN Director
- -----------------------------------------------------
Jeffrey Mirkin
/s/ ALAN LIKER Director
- -----------------------------------------------------
Alan Liker
/s/ JAMES F. CALVANO Director
- -----------------------------------------------------
James F. Calvano
/s/ MARTIN P. GREGOR Director
- -----------------------------------------------------
Martin P. Gregor
</TABLE>
II-6
<PAGE> 1
EXHIBIT 4.7
BUDGET GROUP, INC.
4225 NAPERVILLE ROAD
LISLE, ILLINOIS 60532
November 6, 1997
Mr. Terry J. Cowhey
9636 Natural Bridge Road
St. Louis, Missouri 63134
Re: Registration of Shares Acquired in Merger
Dear Terry:
As additional consideration for Budget Rent a Car of St. Louis, Inc., and
the individual stockholders of that corporation executing an Agreement and Plan
of Reorganization and Merger (the "Agreement") with Budget Group, Inc. ("BGI"),
and Budget Acquisition, Inc., a wholly owned subsidiary of BGI, and for
accepting shares of the Class A Common Stock, par value $.01 per share of BGI
("BGI Common Stock") as a portion of the merger consideration, BGI hereby
undertakes as follows:
1. On or before December 1, 1997, BGI will file a shelf registration
statement (the "Registration Statement") pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act") with respect to all of the shares
of BGI Common Stock issued pursuant to the merger transaction contemplated by
the Agreement ("Registrable Shares"). BGI shall use its commercially reasonable
efforts to: (i) have the Registration Statement declared effective as promptly
as possible; and (ii) keep the Registration Statement continuously effective
from the date the Registration Statement is declared effective until the
earliest to occur of the following events: (A) the second anniversary of the
Closing Date (as defined in the Agreement); (B) notification to BGI that all
Registrable Shares have been sold for the accounts of the participating
Stockholders; or (C) a request by all participating Stockholders having unsold
Registrable Shares that the Registration Statement be terminated. The
Stockholders will not have a right to sell the Registrable Shares pursuant to an
underwritten public offering.
2. Notwithstanding anything in this Agreement to the contrary, BGI may
prohibit offers and sales of Registrable Shares pursuant to the Registration
Statement at any time if:
(a) (i) it is in possession of material, non-public information,
(ii) the Board of Directors of BGI determines in good faith that
disclosure of such material non-public information would not be in the
best interests of BGI and its stockholders and (iii) the Board of
Directors of BGI or the Chief Executive Officer or the Chief Financial
Officer of BGI determines (based on advice of counsel) that such
prohibition is necessary in order to avoid a requirement to disclose
such material non-public information; or
<PAGE> 2
Mr. Terry J. Cowhey
November 6, 1997
Page 2
(b) BGI has made a public announcement relating to an acquisition or
business combination transaction including BGI and/or one or more of its
subsidiaries: (i) that is material to BGI and its subsidiaries taken as a
whole (and for such purpose no transaction shall be deemed material unless,
on a pro forma basis and after giving effect thereto, consolidated assets
or consolidated revenues of BGI and its subsidiaries as of the end of or
for the most recently completed fiscal year would be increased by at least
10%); and (ii) the Board of Directors of BGI or the Chief Executive Officer
or the Chief Financial Officer of BGI determines in good faith that offers
and sales of Registrable Shares pursuant to the Registration Statement
prior to the consummation of such transaction (or such earlier date as
the Board of Directors or the Chief Executive Officer or the Chief
Financial Officer of BGI shall determine) is not in the best interests of
BGI and its stockholders.
3. Each period during which any prohibition of offers and sales of
Registrable Shares pursuant to the Registration Statement is in effect pursuant
to Section 2 is referred to herein as a "Suspension Period." A Suspension
Period shall commence on and include the date on which holders of Registrable
Shares covered by the Registration Statement receive written notice from BGI
(in accordance with the notice provisions of the Agreement) that offers and
sales of Registrable Shares cannot be made thereunder in accordance with
Section 2 and shall end on the date on which each holder of Registrable Shares
covered by the Registration Statement either receives copies of a prospectus
supplement or is advised in writing by BGI that offers and sales of Registrable
Shares pursuant to the Registration Statement and use of the prospectus may be
resumed; provided, however, that all Suspension Periods pursuant to clause (a)
of Section 2 in the aggregate shall not exceed 60 days during any period of
twelve consecutive calendar months (nor more than 20 consecutive days for any
one Suspension Period) and each Suspension Period (whether under clause (a) or
clause (b) of Section 2) shall be followed by at least ten Business Days during
which no Suspension Period is in effect.
4. Notwithstanding anything in this Agreement to the contrary, during
any Suspension Period, neither BGI nor any other person to whom BGI shall have
given registration rights with respect to shares of BGI Common Stock shall be
entitled to make offers and sales of BGI Common Stock pursuant to a
registration statement filed under the Securities Act, other than pursuant to
an employee stock purchase plan, stock option or other employee benefit plan or
a dividend reinvestment plan of BGI.
5. All expenses incurred in connection with any registration under this
Agreement (including all registration, filing, qualification, legal, printer
and accounting fees) will be paid by BGI.
<PAGE> 3
Mr. Terry J. Cowhey
November 6, 1997
Page 3
6. To make available the benefits of certain rules and regulations of
the SEC that may permit the sale of BGI Common Stock to the public without
registration by the Stockholders, BGI agrees to use its reasonable efforts to:
(a) make and keep public information regarding BGI available
(as those terms are understood and defined in Rule 144) at all times
during the Registration Period of such longer period ending on the date
upon which the Stockholders no longer need to rely on Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of BGI under the Securities Act of 1933 and the
Securities Exchange Act of 1934; and
(c) so long as a Stockholder owns any restricted shares of BGI
Common Stock, furnish to each Stockholder upon written request a written
statement by BGI that all reports and filings that are necessary to be
filed by BGI for the Stockholder to avail himself or herself of Rule 144
or 145 that have been filed, a copy of the most recent annual or
quarterly report of BGI, and any other reports and documents as a
Stockholder may reasonably request in availing himself or herself of any
rule or regulation of the SEC.
7. BGI will agree to indemnify each Stockholder whose shares of BGI
Common Stock are included in any registration statement as Registrable Shares
against all expenses, claims, losses, damages, or liabilities (collectively a
"liability"), to which the Stockholder may become subject under the Securities
Act or any other statute or at common law, arising out of or based upon; (i) any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto (a "Registration
Document"); or (ii) any omission or alleged omission to state a material fact
required to be stated in any Registration Document or necessary in order to make
any statement in any Registration Document not misleading. Notwithstanding the
foregoing, BGI will not be liable to the Stockholder to the extent that any
liability arises out of or is based upon any untrue statement or omission made
in any Registration Document in reliance upon and in conformity with written
information furnished to BGI by or on behalf of the Stockholder and BGI will not
be required to indemnify any Stockholder against: (A) any liability arising from
any untrue or misleading statement contained in or omission from any preliminary
prospectus if the deficiency is corrected in the final prospectus; or (B) any
liability which arises out of the failure of a Stockholder to deliver a
prospectus when required by the Securities Act. BGI's indemnification
obligation will remain in full force and effect regardless of any investigation
made by or on behalf of a Stockholder and will survive transfer of the
Registrable Shares by the Stockholder.
<PAGE> 4
Mr. Terry J. Cowhey
November 6, 1997
Page 4
8. Each Stockholder whose shares of BGI Common Stock are included in
any registration statement as Registrable Shares will agree to indemnify BGI
against all expenses, claims, losses, damages, or liabilities (collectively a
"liability"), to which BGI may become subject under the Securities Act or any
other statute or at common law, arising out of or based upon: (i) any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Document to the extent that any liability arises out of or is based
upon any untrue statement or omission made in any Registration Document in
reliance upon and in conformity with written information furnished to BGI by or
on behalf of the Stockholder; or (ii) any omission or alleged omission to state
a material fact required to be stated in any Registration Document or necessary
in order to make any statement in any Registration Document not misleading to
the extent that any liability arises out of or is based upon any untrue
statement or omission made in any Registration Document in reliance upon and in
conformity with written information furnished to BGI by or on behalf of the
Stockholder. Notwithstanding the foregoing, the Stockholder will not be required
to indemnify BGI against: (A) any liability arising from any untrue or
misleading statement contained in or omission from any preliminary prospectus if
the deficiency is corrected in the final prospectus; or (B) any liability which
arises out of the failure of BGI to deliver a prospectus when required by the
Securities Act. The Stockholder's indemnification obligation will remain in
full force and effect regardless of any investigation made by or on behalf of
BGI and will survive the transfer of the Registrable Shares.
Please indicate that the provisions of this letter are acceptable to you
on behalf of the Stockholders and each Stockholder's individual agreements to
the provisions contained in this letter that are and will be incumbent upon each
Stockholder to perform by signing and returning a copy of this letter.
Sincerely,
Budget Group, Inc. Agreed to and Accepted this 6th day of
November 19979.
By: /s/ Robert L. Aprati /s/ Terry J. Cowhey
----------------------------- ---------------------------------
Name: Robert L. Aprati Terry J. Cowhey, Stockholder's
------------------------- Representative
Title: Executive Vice President
-------------------------
<PAGE> 1
EXHIBIT 5.1
November 26, 1997
Budget Group, Inc.
125 Basin Street
Suite 210
Daytona Beach, Florida 32114
Re: Budget Group Inc. -- Shelf Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for Budget Group, Inc., a Delaware corporation
(the "Company") in connection with the preparation of a Registration Statement
on Form S-3 (the "Registration Statement") filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
(i) the registration of up to $80,000,000 aggregate principal amount of 7.0%
Convertible Subordinated Notes, Series A, due 2007 and up to $45,000,000
aggregate principal amount of 6.85% Convertible Subordinated Notes, Series B,
due 2007 (together, the "Convertible Notes") to be issued pursuant to an
Indenture to be entered into between the Company and The Chase Manhattan Bank as
Trustee (the "Indenture"), said Convertible Notes being convertible into up to
5,595,482 shares (the "Secondary Shares") of the Company's Class A Common Stock,
par value $.01 per share ("Common Stock"), and (ii) the registration of up to
246,167 additional shares of Common Stock (the "Conversion Shares"; together
with the Secondary Shares, the "Shares"), all of which are to be sold by certain
security-holders of the Company (the "Selling Securityholders").
In connection with this opinion, 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 for 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. As to matters of fact material to this opinion, we
have relied upon statements and representations of representatives of the
Company and of public officials.
This opinion is limited in all respects to the federal laws of the United
States of America, the General Corporation Law of the State of Delaware, and the
laws of the State of New York, and no opinion is expressed with respect to the
laws of any other jurisdiction or any effect which such laws may have on the
opinions expressed herein. This opinion is limited to the matters stated herein,
and no opinion is implied or may be inferred beyond the matters expressly stated
herein.
Based upon the foregoing, and the other limitations and qualifications set
forth herein, we are of the opinion that:
(i) upon the authorization, execution and delivery of the Indenture,
the Indenture will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms;
(ii) the Convertible Notes, when duly authorized by the Company,
executed on behalf of the Company, authenticated by the Trustee under the
Indenture, and delivered in accordance with the Indenture, will be validly
issued, will constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, and will be
entitled to the benefits of the Indenture in accordance with their terms
and the terms of the Indenture; and
(iii) the Conversion Shares, when issued upon conversion of the
Convertible Notes in accordance with the terms of the Indenture, will be
validly issued, fully paid and nonassessable; and
(iv) the Secondary Shares are validly issued, fully paid and
nonassessable.
<PAGE> 2
Budget Group, Inc.
Page (2)
The opinions set forth above are subject, as to enforcement, to (i)
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the enforcement of creditors' rights generally, and
(ii) general equitable principles (regardless of whether enforcement is
considered in a proceeding in equity or law).
This opinion is given as of the date hereof, and we assume no obligation to
advise you after the date hereof of facts or circumstances that come to our
attention or changes in law that occur which could affect the opinions contained
herein. This letter is being rendered solely for the benefit of the Company in
connection with the matters addressed herein. This opinion may not be furnished
to or relied upon by any person or entity for any purpose without our prior
written consent.
We hereby consent to 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 is included in the Registration Statement.
Very truly yours,
KING & SPALDING
<PAGE> 1
EXHIBIT 12.1
Budget Group Inc.
Computation of Ratio of Earnings to Fixed Charges
In Thousands
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Ended ----------------------------------------------------
Sept. 30 1997 1996 1995 1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax income from
continuing operations 55,908 7,818 1,022 426 610 558
Fixed Charges:
Interest incurred, amortization
of debt discount and premium
on all indebtedness, and
reasonable interest on rental
expense 100,029 32,776 15,636 5,474 3,457 3,937
---------------------------------------------------------------------
Earnings before income taxes,
minority interest and fixed
charges 155,937 40,594 16,658 5,900 4,067 4,495
Ratio of earnings to fixed charges 1.56 1.24 1.07 1.08 1.18 1.14
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Budget Group, Inc. on Form S-3 of our reports dated April 12, 1996 appearing in
Registration Statement No. 333-34799 on Form S-1 dated October 1, 1997 and
appearing in the Annual Report on Form 10-K of Budget Group, Inc. for the year
ended December 31, 1996 and to the reference to us under the heading "Experts"
in the Prospectus, which is a part of this Registration Statement.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
November 25, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report on the
consolidated financial statements of Budget Group, Inc. and subsidiaries
(formerly known as Team Rental Group, Inc.) as of and for the year ended
December 31, 1996, dated March 14, 1997, (except with respect to certain
matters discussed in Note 16 as to which the dates are April 22, April 29, July
10 and July 31, 1997), included in Budget Group, Inc.'s Registration Statement
Number 333-34799 on Form S-1 dated October 1, 1997, and to all references to
our firm included in or made a part of this Registration Statement.
Arthur Andersen LLP
November 25, 1997
Orlando, Florida
<PAGE> 1
EXHIBIT 23.3
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors of
Budget Rent a Car Corporation:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus of Budget
Group, Inc. dated November 26, 1997.
KPMG Peat Marwick LLP
November 25, 1997
Chicago, Illinois
<PAGE> 1
EXHIBIT 25.1
-------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
-------------------------------------------------
THE CHASE MANHATTAN BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
---------------------------------------------
BUDGET GROUP, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 59-3227576
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
125 BASIN STREET
SUITE 210
DAYTONA BEACH, FLORIDA 32114
(Address of principal executive offices) (Zip Code)
--------------------------------------------------------
7.0% CONVERTIBLE SUBORDINATED NOTES, SERIES A, DUE 2007
6.85% CONVERTIBLE SUBORDINATED NOTES, SERIES B, DUE 2007
(Title of the indenture securities)
--------------------------------------------------------
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, Suite 2310, 5 Empire State
Plaza, Albany,
New York 12223. Board of Governors of the Federal Reserve System
20th and C
Street NW, Washington, D.C., 20551 Federal Reserve Bank of New
York,
District No. 2, 33 Liberty Street, New York, N.Y. 10045.
Federal Deposit Insurance Corporation, 550 Seventeenth Street NW
Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
- 2 -
<PAGE> 3
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1
filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in
connection with the merger of Chemical Bank and The Chase Manhattan Bank
(National Association), Chemical Bank, the surviving corporation, was renamed
The Chase Manhattan Bank).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 333-06249, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference. On July 14, 1996, in connection
with the merger of Chemical Bank and The Chase Manhattan Bank (National
Association), Chemical Bank, the surviving corporation, was renamed The Chase
Manhattan Bank).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, The Chase Manhattan Bank, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York, on the 21ST day of NOVEMBER, 1997 .
THE CHASE MANHATTAN BANK
By /s/ T.J. Foley
-------------------------------------
T.J. Foley
Vice President
- 3 -
<PAGE> 4
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
The Chase Manhattan Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business September 30, 1997, in accordance
with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN MILLIONS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ................................ $ 11,760
Interest-bearing balances ........................ 4,343
Securities:
Held to maturity
securities ............................................ 2,704
Available for sale securities ......................... 37,885
Federal funds sold and securities purchased under
agreements to resell ............................. 27,358
Loans and lease financing receivables:
Loans and leases, net of unearned income ......... $ 127,370
Less: Allowance for loan and lease losses ........ 2,760
Less: Allocated transfer risk reserve ............ 13
---------
Loans and leases, net of unearned income,
allowance, and reserve ........................... 124,597
Trading Assets ........................................ 64,630
Premises and fixed assets (including capitalized
leases) .......................................... 2,925
Other real estate owned ............................... 286
Investments in unconsolidated subsidiaries and
associated companies ............................. 232
Customers' liability to this bank on acceptances
outstanding ...................................... 2,212
Intangible assets ..................................... 1,480
Other assets .......................................... 11,117
---------
TOTAL ASSETS .......................................... $ 291,529
=========
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Deposits
In domestic offices ..................................................... $ 86,574
Noninterest-bearing ..................................................... $ 31,818
Interest-bearing ........................................................ 54,756
--------
In foreign offices, Edge and Agreement subsidiaries,
and IBF's ............................................................... 69,887
Noninterest-bearing ..................................................... $ 3,777
Interest-bearing ........................................................ 66,110
Federal funds purchased and securities sold under agree-
ments to repurchase .......................................................... 45,307
Demand notes issued to the U.S. Treasury ..................................... 161
Trading liabilities .......................................................... 47,406
Other borrowed money (includes mortgage indebtedness and obligations under
capitalized leases):
With a remaining maturity of one year or less ........................... 4,578
With a remaining maturity of more than one year .........................
through three years ............................................... 261
With a remaining maturity of more than three years ...................... 131
Bank's liability on acceptances executed and outstanding ..................... 2,212
Subordinated notes and debentures ............................................ 5,715
Other liabilities ............................................................ 12,355
TOTAL LIABILITIES ............................................................ 274,587
--------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ................................ 0
Common stock ................................................................. 1,211
Surplus (exclude all surplus related to preferred stock) .................... 10,294
Undivided profits and capital reserves ....................................... 5,414
Net unrealized holding gains (losses)
on available-for-sale securities ............................................. 7
Cumulative foreign currency translation adjustments .......................... 16
TOTAL EQUITY CAPITAL ......................................................... 16,942
--------
TOTAL LIABILITIES AND EQUITY CAPITAL ......................................... $291,529
========
</TABLE>
I, Joseph L. Sclafani, E.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
THOMAS G. LABRECQUE ) DIRECTORS
WILLIAM B. HARRISON, JR.)
- 5 -
