<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1997
REGISTRATION NO. 333-21691
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
TEAM RENTAL GROUP, INC.
(Exact Name of Registrant as Specified in 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, FLORIDA 32114
(904) 238-7035
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
SANFORD MILLER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
TEAM RENTAL GROUP, INC.
125 BASIN STREET
SUITE 210
DAYTONA BEACH, FLORIDA 32114
(904) 238-7035
(Name, address, including zip code, and telephone number, including area code of
agent for service)
COPIES TO:
<TABLE>
<C> <C>
JEFFREY M. STEIN KRIS F. HEINZELMAN
KING & SPALDING CRAVATH, SWAINE & MOORE
191 PEACHTREE STREET 825 EIGHTH AVENUE
ATLANTA, GEORGIA 30303 NEW YORK, NEW YORK 10019
(404) 572-4600 (212) 474-1000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of the Registration Statement.
---------------------
If any of the 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, check the following box. [ ]
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
<TABLE>
<CAPTION>
=======================================================================================================================
PROPOSED
TITLE OF CLASS AMOUNT MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value $.01
per share............................ 7,475,000 shares $23.00 $171,925,000 $52,099(3)
=======================================================================================================================
</TABLE>
(1) Includes 975,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a).
(3) A filing fee of $52,273 has previously been paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
TEAM RENTAL GROUP, INC.
---------------------
CROSS-REFERENCE SHEET SHOWING THE LOCATION IN THE
PROSPECTUS OF CERTAIN ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NO. LOCATION IN PROSPECTUS
-------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front Cover Page; Outside
Back Cover Page; Available
Information
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges...................................... Prospectus Summary; Risk Factors
4. Use of Proceeds......................................... Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price......................... Outside Front Cover Page;
Underwriting
6. Dilution................................................ *
7. Selling Security Holders................................ *
8. Plan of Distribution.................................... Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered.............. Outside Front Cover Page; Dividend
Policy; Capitalization;
Prospectus Summary; Description
of Capital Stock; Shares
Eligible for Future Sale
10. Interests of Named Experts and Counsel.................. Legal Matters; Experts
11. Information with Respect to the Registrant.............. Outside Front Cover Page;
Prospectus Summary; Risk Factors;
Use of Proceeds; Dividend
Policy; Capitalization; Pro
Forma Consolidated Financial
Statements of Budget Group;
Selected Financial Data of TEAM;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations of
TEAM; Selected Financial Data of
BRACC; Management's Discussion
and Analysis of Financial
Condition and Results of
Operations of BRACC; Business of
Budget Group; The Budget
Acquisition; Management;
Principal Stockholders; Certain
Transactions; Description of
Capital Stock; Description of
Certain Indebtedness; Shares
Eligible for Future Sale;
Financial Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................ *
</TABLE>
- ---------------
* Item is omitted because response is negative or item is inapplicable.
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains a prospectus relating to a public
offering in the United States and Canada (the "U.S. Offering") of an aggregate
of 5,200,000 shares of Class A Common Stock, par value $.01 per share ("Class A
Common Stock"), of Team Rental Group, Inc., together with separate prospectus
pages relating to a concurrent offering outside the United States and Canada
(the "International Offering") of an aggregate of 1,300,000 shares of Class A
Common Stock. The complete prospectus for the U.S. Offering follows immediately
after this Explanatory Note. After such prospectus are the following alternate
pages for the International Offering: the alternate front cover page for the
International Offering, a front inside cover page and the pages containing the
captions "Risk Factors -- Shares Eligible for Future Sale," "Shares Eligible for
Future Sale" and "Subscription and Sale." All other pages of the prospectus for
the U.S. Offering are to be used for both the U.S. Offering and the
International Offering, except the outside back cover page, which will be blank
in the prospectus for the International Offering, and information appearing
under "Notice to Canadian Residents," which will not be included in the
prospectus for the International Offering.
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 18, 1997
6,500,000 Shares
(TEAM RENTAL GROUP LOGO)
TEAM RENTAL GROUP, INC.
Class A Common Stock
($.01 par value)
---------------------
The 6,500,000 shares of Class A Common Stock of Team Rental Group, Inc. ("TEAM")
offered hereby are being sold by TEAM in connection with the acquisition by TEAM
of all the outstanding capital stock of Budget Rent a Car Corporation (the
"Budget Acquisition"). The net proceeds of the Offering, together with a portion
of the net proceeds of concurrent financing transactions, will be used to
finance the Budget Acquisition.
Of the 6,500,000 shares of Class A Common Stock being offered, 5,200,000 shares
(the "U.S. Shares") are initially being offered in the United States and Canada
by the U.S. Underwriters (the "U.S. Offering") and 1,300,000 shares (the
"International Shares") are initially being concurrently offered outside the
United States and Canada by the Managers (the "International Offering" and,
together with the U.S. Offering, the "Offering"). The offering price and
underwriting discounts and commissions of the U.S. Offering and the
International Offering will be identical.
The Class A Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "BD." On March 21, 1997, the last reported sale price of the Class A
Common Stock on The Nasdaq National Market was $22.375 per share. See "Price
Range of Common Stock."
TEAM has two classes of Common Stock, the Class A Common Stock, par value $.01
per share (the "Class A Common Stock"), and the Class B Common Stock, par value
$.01 per share (the "Class B Common Stock"). Holders of the Class A Common Stock
are entitled to one vote per share and holders of the Class B Common Stock are
entitled to ten votes per share. Upon completion of the Offering, the principal
executive officers of TEAM will retain 55.4% of the combined voting power of
both classes of Common Stock. See "Principal Stockholders."
TEAM has arranged to place, concurrently with the consummation of the Offering,
(i) $45,000,000 aggregate principal amount of 6.85% Convertible Subordinated
Notes, Series B, due 2007 and (ii) $165,000,000 aggregate principal amount of
9.57% Guaranteed Senior Notes due 2007 (collectively, the "Debt Placements").
The Debt Placements are private offerings and will not be registered with the
Securities and Exchange Commission. TEAM is also concurrently entering into new
credit facilities for fleet financings (the "New Fleet Financings") with an
aggregate commitment of $1.3 billion. Consummation of the Offering will occur
concurrently with, and is conditioned upon, consummation of the Budget
Acquisition, the Debt Placements and the New Fleet Financings.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE CLASS A COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE
14. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS TEAM(1)
----------- ------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total(2)............................................. $ $ $
</TABLE>
(1) Before deduction of expenses payable by TEAM estimated at $800,000.
(2) TEAM has granted the U.S. Underwriters and the Managers an option,
exercisable by Credit Suisse First Boston Corporation for 30 days from the
date of this Prospectus, to purchase a maximum of 975,000 additional shares
of Class A Common Stock solely to cover over-allotments of shares, if any.
If the option is exercised in full, the total Price to Public will be
$ , Underwriting Discounts and Commissions will be $
and Proceeds to TEAM will be $ .
The U.S. Shares are offered by the several U.S. Underwriters when, as and
if issued by TEAM, delivered to and accepted by the U.S. Underwriters and
subject to their right to reject orders in whole or in part. It is expected that
the U.S. Shares will be ready for delivery on or about , 1997,
against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON
ABN AMRO CHICAGO CORPORATION
ALEX. BROWN & SONS
INCORPORATED
MCDONALD & COMPANY
SECURITIES, INC.
Prospectus dated , 1997.
<PAGE> 5
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the financial statements
and notes thereto appearing elsewhere in this Prospectus. As used in this
Prospectus, unless the context otherwise requires, (i) "TEAM" refers to Team
Rental Group, Inc. and its subsidiaries prior to the Budget Acquisition; (ii)
"BRACC" refers to Budget Rent a Car Corporation and its subsidiaries prior to
the Budget Acquisition; (iii) "Budget Group" refers to TEAM (including BRACC)
after giving effect to the Budget Acquisition; and (iv) the "Budget System" or
"Budget" refers to the business of renting cars and trucks and retailing late
model vehicles conducted by BRACC and its franchisees (including TEAM). For
organizational charts depicting the Budget System before and after the Budget
Acquisition, see "The Budget Acquisition -- Organizational Charts." Upon
completion of the Budget Acquisition, Team Rental Group, Inc. will change its
name to "Budget Group, Inc." Consummation of the Offering will occur
concurrently with, and is conditioned upon, consummation of the Budget
Acquisition, the Debt Placements and the New Fleet Financings. The information
set forth herein assumes no exercise of the Underwriters' over-allotment option.
"Common Stock," as used herein, refers collectively and without distinction to
the Class A Common Stock and the Class B Common Stock of TEAM.
BUDGET GROUP
Budget Group 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 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 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.
Budget Group is also one of the largest independent retailers of late model
vehicles in the United States, operating 22 retail car sales facilities with pro
forma revenues of $246.9 million for 1996. Upon consummation of the Budget
Acquisition, Budget Group will continue to operate its retail car sales
facilities under the name "Budget Car Sales."
BACKGROUND
On January 13, 1997, TEAM (the largest Budget franchisee in the United
States) entered into stock purchase agreements (the "Stock Purchase Agreements")
with Ford Motor Company ("Ford"), BRACC and the common stockholder of BRACC,
pursuant to which TEAM agreed to acquire the capital stock of BRACC. The total
amount of funds required by TEAM to consummate the Budget Acquisition is
expected to be approximately $275.0 million, which will be financed in part
through the sale of the Class A Common Stock offered hereby. TEAM will also
issue to Ford approximately 4,500 shares of a new series of non-voting preferred
stock (the "Series A Convertible Preferred Stock"), which does not carry a
dividend and which will be convertible into 4,500,000 shares of Class A Common
Stock (subject to adjustment in certain cases), representing upon conversion
approximately 22.1% of the outstanding Class A Common Stock after giving effect
to the Offering. Each share of Series A Convertible Preferred Stock will
automatically be converted into 1,000 shares of Class A Common Stock at such
time as the record ownership of such share of Series A Convertible Preferred
Stock is transferred to or held by any person or any entity other than Ford or
any affiliate of Ford. TEAM is also obligated under the Stock Purchase
Agreements to refinance approximately $856.2 million of indebtedness outstanding
under BRACC's existing fleet financing facilities. See "The Budget Acquisition"
and "Use of Proceeds." For information with respect to the operations of TEAM
and BRACC prior to the Budget Acquisition, see "Business of Budget Group."
3
<PAGE> 7
STRATEGY
Management's long-term strategy is to create an automotive services company
which leverages the asset base and expertise of Budget Group. Budget Group's
assets include a trade name that is recognized around the world; locations for
the rental, sale and maintenance of vehicles; a workforce that is proficient in
acquiring, financing, monitoring, maintaining and selling cars and trucks; and
advanced information systems to support these operations. Increasing the
utilization of these assets by acquiring automobile-related businesses would
reduce Budget Group's unit costs and increase profitability. In the near term,
management has developed a business strategy designed to increase the revenues
and improve the profitability of Budget Group. Key elements of this strategy are
as follows:
Enhance the Budget Brand. Following the Budget Acquisition, the
Budget System will be approximately 76% company-owned in the United States,
giving Budget Group a percentage of company-owned locations that management
believes to be higher than many of its principal competitors. Management
believes this high level of corporate ownership is a competitive advantage
in the marketplace. It facilitates more consistent delivery of high quality
services and improved operations and communications, thereby strengthening
the Budget brand name among customers. In addition, Budget Group's
structure will facilitate national advertising and marketing programs
designed to increase the public's awareness of the Budget brand. Management
believes that there will be continuing opportunities to further consolidate
the Budget System by acquiring additional franchise operations, and that
such consolidation will further strengthen the Budget brand.
Improve the Performance of Car Rental Operations. Historically, TEAM
has enhanced the profitability of its acquired franchise territories by
reducing operating costs and increasing rental revenue. Similarly, in 1996,
BRACC began initiatives that are already significantly improving the
performance of its company-owned operations. Upon completion of the Budget
Acquisition, management believes Budget Group will be able to combine key
elements of the TEAM and BRACC strategies to achieve even greater operating
efficiencies. Budget Group expects to undertake significant initiatives to
(i) enhance the performance of its U.S. car rental operations, (ii)
capitalize on the increased level of company-owned locations, (iii)
increase its marketing to corporate accounts, (iv) place increased emphasis
on the leisure and local rental markets, and (v) expand and improve
Budget's international operations.
Continue to Expand Retail Car Sales Operations. The increased cost of
new cars and the improved reliability of low-mileage, late model cars have
contributed to greater market demand for late model cars in recent years.
Budget Group, with 22 retail car sales facilities and pro forma car sales
revenues of $246.9 million for 1996, will be one of the largest independent
retailers of late model vehicles in the United States. Budget Group plans
to establish a nationally recognized retail car sales operation which will
provide low-mileage, late model vehicles to consumers in a new car sales
environment under the Budget Car Sales brand.
Expand Truck Rental Operations. The Budget System is unique among
major car rental systems in that it rents trucks to consumers and
commercial users in most major markets worldwide, with the fourth largest
consumer truck rental fleet in the United States. Management expects Budget
Group to add truck rental locations in various markets, particularly in
conjunction with the addition of new local market locations. Management
believes that adding truck rental locations will leverage certain fixed
costs and increase consumer awareness of the Budget brand, while favorable
pricing trends in the truck rental market are expected to provide
attractive returns on invested capital.
---------------------
Sanford Miller (Chairman and Chief Executive Officer), John P. Kennedy
(President and Chief Operating Officer) and Jeffrey D. Congdon (Chief Financial
Officer and Secretary) (collectively, the "Principal Executive Officers")
together have over 75 years of experience in the vehicle rental business and
have acquired and operated 54 Budget franchises over the past 15 years. In
addition, Messrs. Miller and Congdon together have over 25 years of experience
operating retail car sales facilities.
The principal executive offices of TEAM are located at 125 Basin Street,
Suite 210, Daytona Beach, Florida 32114, and its telephone number at that
location is (904) 238-7035.
4
<PAGE> 8
THE BUDGET ACQUISITION
On January 13, 1997, TEAM entered into the Stock Purchase Agreements,
pursuant to which TEAM agreed to acquire the capital stock of BRACC. The
consideration to be paid by TEAM pursuant to the Stock Purchase Agreements
consists of (i) approximately $275.0 million in cash (the "Cash Consideration")
and (ii) the issuance to Ford of 4,500 shares of TEAM's newly created Series A
Convertible Preferred Stock (the "Equity Consideration"), each subject to
adjustment as described herein. See "The Budget Acquisition." Each share of
Series A Convertible Preferred Stock will be non-voting, will not carry a
dividend and will automatically be converted into 1,000 shares of Class A Common
Stock at such time as the record ownership of such share of Series A Convertible
Preferred Stock is transferred to or held by any person or any entity other than
Ford or any affiliate of Ford. The average closing price for the three-day
period surrounding January 13, 1997 of TEAM's Class A Common Stock on The Nasdaq
National Market was $23.50, resulting in the value of 4,500,000 shares of Class
A Common Stock of approximately $105.8 million. Under the Stock Purchase
Agreements, BRACC will be obligated to repay a portion of its outstanding
indebtedness to Ford (as described in note (d) below), and Ford will cancel a
portion of the remaining outstanding BRACC indebtedness (as described in note
(c) below). The obligations of TEAM, Ford, BRACC and the other parties to the
Stock Purchase Agreements to consummate the Budget Acquisition are subject to
the satisfaction (or waiver) of certain conditions. The consummation of the
Offering will occur concurrently with, and is conditioned upon, consummation of
the Budget Acquisition, the Debt Placements and the New Fleet Financings, and
will provide a portion of the financing for the Budget Acquisition.
The estimated sources and uses of consideration required to complete the
Budget Acquisition are presented in the following table (assuming consummation
of the Transactions (as defined in "Pro Forma Consolidated Financial Statements
of Budget Group") on March 21, 1997):
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES:
Class A Common Stock offered hereby(a).................... $145.4
Series A Convertible Preferred Stock(b)................... 100.7
6.85% Convertible Subordinated Notes, Series B, due
2007................................................... 45.0
9.57% Guaranteed Senior Notes due 2007.................... 165.0
New Fleet Financings(c)................................... 800.8
---------
Total sources..................................... $1,256.9
=========
USES:
Budget Acquisition(d)..................................... $375.7
Repayment of BRACC Fleet Financing Facilities(e).......... 856.2
Fees and expenses(f)...................................... 25.0
---------
Total uses........................................ $1,256.9
=========
</TABLE>
- ---------------
(a) Assumes a public offering price of $22.375 per share (based on the closing
price of the Class A Common Stock on March 21, 1997).
(b) Represents the value of the 4,500 shares of Series A Convertible Preferred
Stock based on the closing price of the Class A Common Stock on March 21,
1997. See "The Budget Acquisition -- Terms of the Stock Purchase
Agreement -- Consideration."
(c) Represents the amount drawn at closing under the New Fleet Financings
assuming a fleet size for Budget Group equivalent to the combined fleet size
of TEAM and BRACC at March 21, 1997.
(d) Represents (i) $275.0 million to purchase common stock of BRACC (of which
$274.0 million will be paid to BRACC for newly issued shares of BRACC common
stock and $1.0 million will be paid to the common stockholder of BRACC) and
(ii) $100.7 million of Series A Convertible Preferred Stock to be issued to
Ford (based on the value of 4,500,000 shares of Class A Common Stock as of
March 21, 1997). BRACC will use the $274.0 million in cash that it receives
as follows: (i) $269.0 million to repay outstanding indebtedness of BRACC to
Ford and (ii) $5.0 million to redeem outstanding Series X Preferred Stock
(the "Series X Preferred Stock"). In addition, concurrently with the Budget
Acquisition, Ford will cancel $128.3 million of additional outstanding BRACC
indebtedness.
(e) Represents (i) $370.7 million outstanding under a commercial paper facility,
(ii) $366.2 million of the vehicle facility provided by Ford to finance
non-Ford vehicles and (iii) $198.3 million of the vehicle facility provided
by Ford to finance Ford vehicles, net of $79.0 million of fleet indebtedness
to be forgiven by Ford, which represents the remaining portion of the $128.3
million of outstanding BRACC indebtedness to be cancelled by Ford which was
first applied to extinguish the existing working capital facility balance of
$419.0 million. See "Capitalization."
5
<PAGE> 9
(f) Includes underwriting discounts and commissions in connection with the
Offering, the Debt Placements and the New Fleet Financings.
THE OFFERING
<TABLE>
<S> <C> <C>
Class A Common Stock offered:
U.S. Offering.............................. 5,200,000 shares
International Offering..................... 1,300,000 shares
----------
Total(a)........................... 6,500,000 shares
==========
Shares to be outstanding after the Offering:
Class A Common Stock....................... 15,820,383 shares
Class B Common Stock....................... 1,936,600 shares
----------
Total(a)(b)........................ 17,756,983 shares
==========
Voting rights................................ 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.
Concurrent financings........................ TEAM has arranged to place, concurrently with the
Offering, (i) $45,000,000 aggregate principal amount
of 6.85% Convertible Subordinated Notes, Series B, due
2007 (the "Series B Convertible Notes") and (ii)
$165,000,000 aggregate principal amount of 9.57%
Guaranteed Senior Notes due 2007 (the "Guaranteed
Senior Notes"). The Debt Placements are private
offerings and will not be registered with the
Securities and Exchange Commission. TEAM is also
concurrently entering into new credit facilities for
fleet financings with an aggregate commitment of $1.3
billion. Consummation of the Offering will occur
concurrently with, and is conditioned upon,
consummation of the Budget Acquisition, the Debt
Placements and the New Fleet Financings. See
"Management's Discussion and Analysis of Financial
Condition and Results of Operations of TEAM --
Liquidity and Capital Resources -- Pro Forma Liquidity
and Capital Resources for Budget Group."
Use of proceeds.............................. The proceeds from the Offering will be used to provide
a portion of the financing for the Budget Acquisition.
See "Use of Proceeds" and "The Budget Acquisition."
NYSE symbol.................................. BD
</TABLE>
- ---------------
(a) In the event the over-allotment option is exercised in full, the total
number of shares of Class A Common Stock to be offered and the total number
of shares of Class A Common Stock to be outstanding after the Offering
would be 7,475,000 and 16,795,383, respectively.
(b) Does not include (i) 3,986,049 shares of Class A Common Stock issuable upon
conversion of TEAM's outstanding 7.0% Convertible Subordinated Notes,
Series A, due 2007 (the "Series A Convertible Notes"; together with the
Series B Convertible Notes, the "Convertible Subordinated Notes"); (ii)
1,609,442 shares of Class A Common Stock issuable upon conversion of the
Series B Convertible Notes; (iii) 4,500,000 shares of Class A Common Stock
issuable upon conversion of the Series A Convertible Preferred Stock to be
issued to Ford in the Budget Acquisition; (iv) 1,893,800 shares of Common
Stock reserved for issuance under TEAM's stock option plans (subject to
stockholder approval as described under "Description of Capital Stock"), of
which options to purchase 635,850 shares of Class A Common Stock and
164,000 shares of Class B Common Stock are outstanding; (v) 362,500 shares
of the Class A Common Stock reserved for issuance upon exercise of
outstanding warrants; and (vi) 36,667 shares of Class A Common Stock held
as treasury shares. See "Management -- Benefit Plans" and "Description of
Capital Stock -- Warrants."
6
<PAGE> 10
SUMMARY PRO FORMA FINANCIAL DATA OF BUDGET GROUP
The following tables set forth summary unaudited pro forma financial data
of Budget Group, which data were derived from the Pro Forma Consolidated
Statement of Operations for the year ended December 31, 1996 and the Pro Forma
Consolidated Balance Sheet as of December 31, 1996 included elsewhere in this
Prospectus. The pro forma statement of operations data and other data give
effect to the 1996 TEAM Transactions and the Budget Acquisition Transactions
(each as defined under "Pro Forma Consolidated Financial Statements of Budget
Group") as if they each had occurred at January 1, 1996 and the pro forma
balance sheet data give effect to the Budget Acquisition Transactions as if they
each had occurred on December 31, 1996. The information below should be read in
conjunction with the Pro Forma Consolidated Financial Statements and the notes
thereto included elsewhere in this Prospectus. The summary unaudited pro forma
financial data set forth below are presented for information purposes only and
do not purport to represent what Budget Group's results of operations or
financial condition would have been had the Transactions actually occurred on
the dates indicated or to predict Budget Group's results of operations or
financial condition in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Vehicle rental revenue.................................... $1,197,888
Royalty fees.............................................. 52,711
Retail car sales revenue.................................. 246,936
Other..................................................... 14,693
------------
Total operating revenues........................... 1,512,228
------------
Operating costs and expenses:
Direct vehicle and operating.............................. 152,039
Depreciation -- vehicle................................... 327,436
Depreciation -- non-vehicle............................... 29,577
Cost of car sales......................................... 212,330
Sales, general and administrative......................... 613,769
Amortization.............................................. 8,826
------------
Total operating costs and expenses................. 1,343,977
------------
Operating income............................................ 168,251
------------
Other (income) expense:
Vehicle interest expense.................................. 104,294
Non-vehicle interest expense.............................. 25,849
Interest income -- restricted cash........................ (1,818)
------------
Total other (income) expense....................... 128,325
------------
Income before income taxes.................................. 39,926
Provision for income taxes................................ 16,769
------------
Net income......................................... $ 23,157
============
Weighted average common and common equivalent shares
outstanding:
Primary................................................... 22,454
Fully diluted............................................. 26,493
Earnings per common and common equivalent share:
Primary................................................... $ 1.03
Fully diluted............................................. 1.00
============
OTHER DATA:
EBITDA(a)................................................... 535,908
Adjusted EBITDA(a).......................................... 104,178
Ratio of Adjusted EBITDA to non-vehicle interest expense.... 5.0x
</TABLE>
7
<PAGE> 11
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1996
------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net............................. $1,623,232
Vehicle inventory......................................... 30,712
Total assets.............................................. 2,648,619
Fleet financing facilities................................ 1,586,519
Notes payable............................................. 354,538
Total debt................................................ 1,941,637
Stockholders' equity...................................... 328,889
</TABLE>
- ---------------
(a) EBITDA consists of income before income taxes plus (i) vehicle interest
expense, (ii) non-vehicle interest expense, (iii) vehicle depreciation
expense and (iv) non-vehicle depreciation and amortization expenses.
Adjusted EBITDA consists of income before income taxes plus (i) non-vehicle
depreciation and amortization expenses and (ii) non-vehicle interest
expense. EBITDA and Adjusted EBITDA are not presented as, and should not be
considered, alternative measures of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but are presented because they are widely accepted financial
indicators of a company's ability to incur and service debt.
RECENT HISTORICAL FINANCIAL DATA
On April 17, 1997, TEAM announced its financial results for the quarter
ended March 31, 1997. Total operating revenues increased 55.7% to $102.4 million
for the quarter ended March 31, 1997 from $65.8 million for the quarter ended
March 31, 1996. Operating income increased 12.5% to $8.2 million for the quarter
ended March 31, 1997 from $7.3 million for the quarter ended March 31, 1996. Net
income increased to $848,000 for the quarter ended March 31, 1997 from $154,000
for the quarter ended March 31, 1996 (after adjusting to exclude the effect of
non-recurring automobile incentives recognized in 1996). Net income per common
share increased from $0.02 per share for the quarter ended March 31, 1996 to
$0.08 for the quarter ended March 31, 1997 (after such adjustment). The
recognition of these incentives in the quarter ended March 31, 1996 increased
net income from $0.02 per share to $0.18 per share. This information should be
read in conjunction with the Consolidated Financial Statements of TEAM and the
notes thereto included elsewhere in this Prospectus. This financial data is not
audited and is not necessarily indicative of the results that may be expected
for future periods.
8
<PAGE> 12
SUMMARY OPERATING DATA FOR THE BUDGET SYSTEM
The following tables set forth summary operating data of the Budget System
for the year ended, and as of, December 31, 1996. References to revenues of the
Budget System include revenues received by BRACC and its franchisees for the
rental of cars and trucks. The respective revenue contributions of locations
owned by Budget Group or BRACC (referred to as "company-owned" locations) have
been determined by reference to the size of the vehicle fleet operated from
those locations, in that fleet size generally corresponds to revenue
contribution for any particular period. Company-owned and franchised Budget
locations operate within the integrated Budget System and management believes
that system-wide data are useful in analyzing the operations and market position
of the overall Budget System, as well as the relative contributions of
company-owned and franchised locations. Operations and operating data for
franchisees set forth or reflected in system-wide data are based on reports
provided to BRACC by franchisees in accordance with their franchise agreements
and are not based on audited historical financial statements of those
franchisees.
<TABLE>
<CAPTION>
YEAR ENDED PERCENT OF
DECEMBER 31, 1996 BUDGET SYSTEM
----------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
SYSTEM-WIDE DATA:
Vehicle rental revenues:
United States:
BRACC-owned......................................... $ 871,841 61.0%
TEAM-owned.......................................... 234,124(a) 16.4
Other franchisees................................... 323,818 22.6
---------- ------
Total United States ............................. 1,429,783 100.0%
---------- ======
International:
BRACC-owned......................................... 91,923 8.5%
Franchisees......................................... 984,368 91.5
---------- ------
Total International.............................. 1,076,291 100.0%
---------- ======
Total Budget System............................ $2,506,074
==========
Car sales revenues:
BRACC................................................. $ 91,503
TEAM.................................................. 155,433(b)
----------
Total Budget Group............................... $ 246,936
==========
</TABLE>
<TABLE>
<CAPTION>
AS OF PERCENT OF
DECEMBER 31, 1996 BUDGET SYSTEM
----------------- ----------------
<S> <C> <C>
RENTAL LOCATIONS IN OPERATION:
United States:
BRACC-owned........................................... 304 31.8%
TEAM-owned............................................ 152 15.9
Other franchisees..................................... 500 52.3
------- ------
Total United States ............................. 956 100.0%
======= ======
International:
BRACC-owned........................................... 70 3.1%
Franchisees........................................... 2,182 96.9
------- ------
Total International.............................. 2,252 100.0%
======= ======
</TABLE>
- ---------------
(a) Pro forma to give effect to the acquisition of VPSI, Inc. ("Van Pool") and
the Phoenix Acquisition (as hereinafter defined) as if such acquisitions had
been consummated on January 1, 1996.
(b) Pro forma to give effect to the ValCar Acquisition (as hereinafter defined)
as if such acquisition had been consummated on January 1, 1996.
9
<PAGE> 13
SUMMARY FINANCIAL DATA OF TEAM
The following tables set forth summary historical consolidated financial
data for TEAM, which data were derived from the audited Consolidated Financial
Statements of TEAM, except for the Rental Data and Retail Car Sales Data. The
information below should be read in conjunction with the Consolidated Financial
Statements of TEAM and the notes thereto included elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of TEAM."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
-------- -------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER
SHARE AND RENTAL AND RETAIL CAR
SALES DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Vehicle rental revenue(a)....................... $ 38,642 $107,067 $ 223,250
Retail car sales revenue........................ -- 42,662 134,120
-------- -------- ----------
Total operating revenue.................... 38,642 149,729 357,370
Depreciation -- vehicle............................ 7,382 27,476 60,735
Operating income................................... 4,196 14,180 35,267
Vehicle interest expense........................... 3,909 13,874 25,336
Non-vehicle interest expense (income), net......... (139) (716) 838
Income before income taxes......................... 426 1,022 7,818
Net income......................................... 250 337 4,497
Weighted average common and common equivalent
shares outstanding (000s)....................... 3,704 6,369 9,488
Earnings per common and common equivalent share.... $ 0.07 $ 0.05 $ 0.47
OPERATING DATA:
EBITDA(b).......................................... $ 12,923 $ 45,204 $ 101,215
Adjusted EBITDA(b)................................. 1,632 3,854 15,144
Net cash provided by operating activities.......... 3,660 16,148 54,379
Net cash used in investing activities.............. (122,291) (46,298) (62,806)
Net cash provided by financing activities.......... 119,006 29,629 58,560
RENTAL DATA:(c)
Locations in operation at period end............... 63 133 152
Number of usable vehicles at period end(d)......... 5,044 11,143 14,761
Rental transactions(e)............................. 276,000 689,000 1,166,000
Daily dollar average(f)............................ $ 37.32 $ 40.75 $ 41.19
Vehicle utilization(g)............................. 80.6% 80.0% 80.9%
Average monthly revenue per unit(h)................ $ 909 $ 992 $ 1,017
RETAIL CAR SALES DATA:
Locations in operation at period end............... -- 7 11
Average monthly vehicles sold...................... -- 351 752
Average monthly sales revenue(e)................... $ -- $ 5,177 $ 12,757
</TABLE>
10
<PAGE> 14
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net............................. $319,257
Vehicle inventory......................................... 16,413
Total assets.............................................. 587,223
Fleet financing facilities................................ 360,120
Other notes payable....................................... 93,989
Total debt................................................ 454,689
Common stock warrant...................................... 2,000
Stockholders' equity...................................... 92,001
</TABLE>
- ---------------
(a) Includes revenue from vehicle rentals and related products (such as
insurance and loss damage waivers).
(b) EBITDA consists of income before income taxes plus (i) vehicle interest
expense, (ii) non-vehicle interest expense, (iii) vehicle depreciation
expense and (iv) non-vehicle depreciation and amortization expenses.
Adjusted EBITDA consists of income before income taxes plus (i) non-vehicle
depreciation and amortization expenses and (ii) non-vehicle interest
expense. EBITDA and Adjusted EBITDA are not presented as, and should not be
considered, alternative measures of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but are presented because they are widely accepted financial
indicators of a company's ability to incur and service debt.
(c) Does not include data from Van Pool, TEAM's van pooling operation.
(d) Represents vehicles available for rent.
(e) Rounded to the nearest thousand.
(f) Represents rental revenue divided by the number of days that vehicles were
actually rented.
(g) Represents the number of days vehicles were actually rented divided by the
number of days vehicles were available for rent.
(h) Represents average monthly revenue divided by average monthly fleet.
11
<PAGE> 15
SUMMARY FINANCIAL DATA OF BRACC
The following tables set forth summary historical consolidated financial
data for BRACC, which data were derived from the audited Consolidated Financial
Statements of BRACC. The financial data for all periods presented have been
reclassified to conform to the financial statement presentation of TEAM. The
information below should be read in conjunction with the Consolidated Financial
Statements of BRACC and the notes thereto included elsewhere in this Prospectus
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of BRACC."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT RENTAL
AND RETAIL CAR SALES DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Vehicle rental revenue(a)....................... $1,011,203 $1,034,873 $ 963,764
Retail car sales revenue........................ 77,999 83,795 91,503
Other revenue................................... 66,564 74,802 77,554
---------- ---------- ----------
Total operating revenue.................... 1,155,766 1,193,470 1,132,821
Vehicle depreciation expense....................... 257,356 323,619 263,846
Operating income................................... 110,075 18,583 124,651
Vehicle interest expense........................... 86,127 124,758 92,738
Non-vehicle interest expense....................... 18,823 25,151 31,444
Income (loss) from continuing operations
before income taxes............................. 5,125 (131,326) 469
Net income (loss).................................. 1,125 (132,640) (2,531)
OPERATING DATA:
EBITDA(b).......................................... $ 405,715 $ 378,728 $ 432,111
Adjusted EBITDA(b)................................. 62,232 (69,649) 75,527
Net cash provided by operating activities.......... 280,793 173,944 256,290
Net cash used in investing activities.............. (411,810) (180,938) (205,054)
Net cash provided by (used in) financing
activities...................................... 173,789 35,661 (87,561)
RENTAL DATA (U.S. UNLESS NOTED):
Locations in operation at period end (worldwide)... 447 390 374
Number of usable vehicles at period end(c)......... 75,467 68,148 67,137
Rental transactions(d)............................. 6,030,000 5,909,000 5,346,000
Daily dollar average(e)............................ $ 38.43 $ 39.58 $ 41.26
Vehicle utilization(f)............................. 77.4% 75.1% 76.7%
Average monthly revenue per unit(g)................ $ 904 $ 904 $ 966
RETAIL CAR SALES DATA:
Locations in operation at period end............... 8 9 11
Average monthly vehicles sold...................... 462 449 491
Average monthly sales revenue(d)................... $ 6,500 $ 6,983 $ 7,625
</TABLE>
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1996
------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net............................. $1,303,975
Vehicle inventory......................................... 14,299
Total assets.............................................. 2,328,115
Fleet financing facilities................................ 1,361,619
Other notes payable....................................... 468,767
Total debt................................................ 1,830,386
Mandatory redeemable preferred stock...................... 5,178
Stockholders' equity...................................... 143,965
</TABLE>
12
<PAGE> 16
- ---------------
(a) Includes revenue from vehicle rentals and related products (such as
insurance and loss damage waivers).
(b) EBITDA consists of income before income taxes plus (i) vehicle interest
expense, (ii) non-vehicle interest expense, (iii) vehicle depreciation
expense and (iv) non-vehicle depreciation and amortization expenses.
Adjusted EBITDA consists of income before income taxes plus (i) non-vehicle
depreciation and amortization expenses and (ii) non-vehicle interest
expense. EBITDA and Adjusted EBITDA are not presented as, and should not be
considered, alternative measures of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but are presented because they are widely accepted financial
indicators of a company's ability to incur and service debt.
(c) Represents vehicles available for rent.
(d) Rounded to the nearest thousand.
(e) Represents rental revenue divided by the number of days that vehicles were
actually rented.
(f) Represents the number of days vehicles were actually rented divided by the
number of days vehicles were available for rent.
(g) Represents average monthly revenue divided by average monthly fleet.
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 TEAM and BRACC,
including statements under the captions "Pro Forma Consolidated Financial
Statements of Budget Group," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of TEAM" and "Business of Budget Group."
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) Budget
Group'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
Budget Group 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 TEAM and such forward-looking statements,
see "Risk Factors."
13
<PAGE> 17
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.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
Following consummation of the Budget Acquisition Transactions (as defined
in "Pro Forma Consolidated Financial Statements of Budget Group"), Budget Group
will have substantial indebtedness and will have significant debt service
requirements. As of December 31, 1996, pro forma for the Budget Acquisition
Transactions, Budget Group's total indebtedness would have been approximately
$1,941.6 million (representing 85.5% of its total capitalization), of which
$1,621.5 million represented senior secured indebtedness for the purchase of
vehicles and $320.1 million represented unsecured non-vehicle indebtedness
(representing 14.1% of its total capitalization). As of December 31, 1996, on a
pro forma basis, Budget Group had $849.2 million of incremental availability
under its vehicle financing facilities to finance the purchase of fleet
vehicles. The degree to which Budget Group is leveraged will have important
consequences for holders of the Class A Common Stock, including the following:
(i) the ability of Budget Group 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 Budget Group's cash flow from
operations will be required to be dedicated to the payment of principal and
interest on its indebtedness, thereby reducing funds available to Budget Group
for other purposes; (iii) Budget Group's flexibility in planning for or reacting
to changes in market conditions may be limited; (iv) Budget Group may be more
vulnerable in the event of a downturn in its business; and (v) because a
substantial portion of its indebtedness will bear interest at floating rates,
any increase in prevailing interest rates would result in an increase in
interest expense incurred by Budget Group, which could have an adverse effect on
its results of operations. See "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations of TEAM -- Liquidity
and Capital Resources -- Pro Forma Liquidity and Capital Resources for Budget
Group" and "Description of Certain Indebtedness."
The ability of Budget Group 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 Budget Group. Although
management believes that Budget Group's cash flow will be adequate to meet its
interest and principal payments, there can be no assurance that Budget Group
will continue to generate earnings in the future sufficient to cover its fixed
charges. If Budget Group 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
Budget Group could realize therefrom. In addition, the terms of certain
indebtedness of Budget Group restrict the ability of Budget Group to sell assets
and the use of the proceeds therefrom. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of TEAM -- Liquidity and
Capital Resources -- Pro Forma Liquidity and Capital Resources for Budget
Group."
If for any reason, including a shortfall in anticipated operating results
or proceeds from asset sales, Budget Group 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 of 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 of Budget Group's fleet. Any default
with respect to any of Budget Group's indebtedness could result in a default
under other indebtedness or result in a bankruptcy of Budget Group.
AVAILABILITY OF FINANCING
TEAM and BRACC depend upon third-party financing to purchase their fleet
vehicles. Continued availability of such financing on favorable terms will be
critical to Budget Group's operations. As of December 31, 1996, on a pro forma
basis, 66.0% of Budget Group's indebtedness was incurred in connection with
major vehicle manufacturers' vehicle repurchase programs. As a result, a
significant change in the credit
14
<PAGE> 18
quality of the vehicle manufacturers, particularly Ford, would significantly
affect Budget Group'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 Budget Group's fleet financing
facilities and cause the acceleration of the repayment of such facilities. An
inability of Budget Group to obtain vehicle financing on favorable terms would
have a material adverse effect on Budget Group's financial condition and results
of operations. There can be no assurance that the sources of financing utilized
by TEAM and BRACC or alternative financing will remain or become available to
Budget Group or that such financing will be available on terms acceptable to
Budget Group. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations of TEAM -- Liquidity and Capital Resources -- Pro
Forma Liquidity and Capital Resources for Budget Group."
MANAGEMENT OF BUDGET GROUP
The Budget Acquisition is significantly larger than any of TEAM's previous
acquisitions and the combination and integration of the respective operations of
TEAM and BRACC will be of a substantially greater scale than previously
undertaken by either company. The difficulties of managing such combination and
integration may be 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 Budget
Group following the Budget Acquisition will depend on the ability of Budget
Group's management team to: (a) manage a significantly larger organization than
TEAM's existing business, (b) maintain and further develop relationships with
Budget franchisees and (c) conduct operations on a worldwide basis. There can be
no assurance that Budget Group's management team will be able to successfully
manage the combined operations of TEAM and BRACC. An inability to successfully
manage the integration of TEAM and BRACC would have a material adverse effect on
Budget Group's results of operations and financial condition.
GROWTH STRATEGY
Following the Budget Acquisition, management expects Budget Group to
undertake initiatives to increase its revenues and improve its profitability.
Management expects to increase the size of Budget Group's operations by
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 Budget Group to realize
certain cost savings and other operating efficiencies as a result of the
implementation of its business strategy. Increasing the revenues of Budget
Group, and realizing cost savings and other operating efficiencies, could be
affected by a number of factors beyond Budget Group's control, such as general
economic conditions, increased operating costs, competitive conditions in the
vehicle rental industry and regulatory developments. See "Business of Budget
Group -- Strategy." Each of these initiatives will involve risks to Budget
Group, and there can be no assurance that Budget Group will be successful in
growing its business after completion of the Budget Acquisition or that Budget
Group will achieve the expected cost savings and other operating efficiencies.
In addition, Budget Group'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, Budget
Group 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 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 TEAM
and BRACC have on such occasions lowered their prices in response.
15
<PAGE> 19
Budget Group will not generally be able to unilaterally raise its prices or to
maintain its prices in times of industry-wide price cutting. See "Business of
Budget Group -- Competition."
The retail car sales industry also is characterized by intense competition,
consisting primarily of local new car dealerships selling new and late model
cars. Budget Group believes that competition for the customer seeking to
purchase a late model car is based primarily on price and selection, while a
customer originally intending to purchase a new car may select a late model car
based on perceived value. In addition to local dealerships, Budget Group may
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 Budget Group's indebtedness include a number of significant
covenants that, among other things, will restrict the ability of Budget Group 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 Budget Group's ability to finance its future operations or capital needs
or to engage in other business activities that may be in the interest of Budget
Group. In addition, the terms of certain of such indebtedness will also require
Budget Group to comply with certain financial tests. The ability of Budget Group
to comply with such covenants may be affected by events beyond Budget Group's
control. A breach of any of these covenants or the inability of Budget Group 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 Budget Group to apply all of its available cash to repay
such borrowings or to prevent Budget Group from making scheduled debt service
payments. If Budget Group were unable to repay any such borrowings when due, the
lenders could proceed against their collateral. If the indebtedness of Budget
Group under such collateralized indebtedness or other indebtedness were to be
accelerated, there can be no assurance that the assets of Budget Group would be
sufficient to repay such indebtedness in full. In certain previous instances,
TEAM has failed to comply with certain covenants under its working capital
facility and has obtained waivers from the lenders thereunder. See Note 6 of
Notes to the Consolidated Financial Statements of TEAM. There can be no
assurance that Budget Group will be able to comply with these covenants in the
future or that it will continue to be able to obtain any necessary waivers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of TEAM -- Liquidity and Capital Resources -- Pro Forma Liquidity and
Capital Resources for Budget Group" and "Description of Certain Indebtedness."
POTENTIAL CHANGES IN MANUFACTURERS' REPURCHASE PROGRAMS
Approximately 85% of the vehicles purchased by TEAM and approximately 88%
of the vehicles purchased by BRACC in model year 1996 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 vehicle rental operations of TEAM and BRACC. 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, Budget Group could be adversely affected if automobile
manufacturers reduce the availability of Program Vehicles or related incentives.
See "The Budget Acquisition -- Related Agreements -- Supply Agreement."
16
<PAGE> 20
SEASONALITY
The third quarter, during the peak summer travel months, has historically
been the strongest quarter of the year for both TEAM and BRACC. As a result, any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect on Budget Group's annual performance. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
TEAM -- Seasonality."
REGULATORY AND ENVIRONMENTAL MATTERS
TEAM and BRACC are subject to various foreign, federal, state and local
laws and regulations that affect the conduct of their 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
protection and clean-up. 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 Budget Group or otherwise
have a material adverse effect on its results of operations or financial
condition. See "Business of Budget Group -- Regulatory and Environmental
Matters."
DEPENDENCE ON PRINCIPAL SUPPLIER
For many years, Ford has been BRACC's principal supplier of vehicles. The
number of vehicles purchased from Ford varies from year to year. In model year
1996, approximately 79% of BRACC's U.S. vehicle purchases were comprised of Ford
vehicles. Under the terms of a supply agreement to be entered into concurrently
with the Budget Acquisition, BRACC and its affiliates (including TEAM) will
agree to purchase or lease Ford vehicles in such quantity that the percentage of
new Ford vehicles purchased or leased by Budget Group in the United States,
Canada, and other countries outside the European Union represents at least 70%
of the total new vehicle purchases by Budget Group, with a minimum quantity of
at least 80,000 vehicles in the United States in each model year. See "The
Budget Acquisition -- Related Agreements -- Supply Agreement." Given the volume
of vehicles purchased from Ford by BRACC, shifting significant portions of the
fleet purchases to other manufacturers would require lead time and certain
operational changes. As a result, if Ford were unable to supply Budget Group
with the planned number and types of vehicles, or if the quality and customer
satisfaction with respect to Ford vehicles declines significantly, it could have
a material adverse effect on Budget Group's financial condition and results of
operations.
INTERNATIONAL OPERATIONS
For 1996, on a pro forma basis, 8.9% of Budget Group's revenues were
derived from its international operations. Budget Group's international vehicle
rental operations will be 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 Budget Group's results of operations or financial
condition.
DEPENDENCE ON PRINCIPAL EXECUTIVE OFFICERS
Budget Group's existing operations and continued future development are
dependent in part on the active participation of Messrs. Miller, Kennedy and
Congdon. The loss of the services of one or more of these individuals could have
a material adverse effect on Budget Group. Budget Group has no employment
agreements or covenants not to compete with any of its executive officers or
significant employees. See "Management."
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of shares of Class A Common Stock currently
outstanding, or issuable upon conversion of TEAM's outstanding convertible notes
or convertible preferred stock, or upon exercise of stock options and stock
purchase warrants, are or will become eligible for future sale in the public
market at prescribed times pursuant to registration rights of certain security
holders or applicable regulations. In connection with the Budget Acquisition,
the Company will issue to Ford the greater of (i) 4,500 shares of Series A
Convertible
17
<PAGE> 21
Preferred Stock or (ii) the number of shares of Series A Convertible Preferred
Stock equal to the product of (x) 0.001 multiplied by (y) the quotient obtained
by dividing (A) $75,000,000 by (B) the average of the closing prices of the
Class A Common Stock for each of the ten consecutive trading days immediately
preceding the second trading day prior to the closing of the Budget Acquisition.
Unless the closing price of the Class A Common Stock averages $16.67 or less
over a period of ten consecutive trading days immediately preceding the second
trading day prior to the closing of the Budget Acquisition, the Company will
issue to Ford 4,500 shares of Series A Convertible Preferred Stock and this
number of shares will not be subject to any adjustment. Among other agreements,
TEAM has granted Ford certain demand and "piggyback" registration rights for the
4,500,000 shares of Class A Common Stock (subject to adjustment) issuable upon
conversion of the Series A Convertible Preferred Stock. See "The Budget
Acquisition -- Terms of the Stock Purchase Agreements -- Consideration." TEAM
has also agreed to file a shelf registration statement relating to the 3,986,049
shares of Class A Common Stock issuable upon conversion of the outstanding
Series A Convertible Notes, and TEAM will enter into a similar agreement with
respect to the 1,609,442 shares of Class A Common Stock that will be issuable
upon conversion of the Series B Convertible Notes. TEAM's directors and
executive officers, who in the aggregate beneficially own 2,824,305 shares of
Common Stock, have agreed that for a period of 90 days after the date of this
Prospectus, and TEAM has agreed that for a period of 180 days after the date of
this Prospectus, they will not sell or otherwise dispose of any shares of Common
Stock without the prior written consent of Credit Suisse First Boston
Corporation. See "Underwriting." Significant sales of the Class A Common Stock
in the public market following the Offering could adversely affect prevailing
market prices. See "Shares Eligible for Future Sale."
VOTING CONTROL BY PRINCIPAL EXECUTIVE OFFICERS
TEAM has two classes of Common Stock: Class A Common Stock, which is
entitled to one vote per share, and Class B Common Stock, which is entitled to
ten votes per share. Messrs. Miller, Kennedy and Congdon own all of the
outstanding shares of Class B Common Stock, which, following the Offering, will
represent approximately 55.4% of the combined voting power of both classes of
Common Stock. As a result, following the Budget Acquisition and prior to the
conversion of the Convertible Subordinated Notes or the Series A Convertible
Preferred Stock such officers will continue to be able to elect all of Budget
Group's Board of Directors, thereby ensuring that members elected by them will
continue to direct the business, policies and management of Budget Group. See
"Principal Stockholders."
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER AND BYLAW PROVISIONS; POSSIBLE
ISSUANCES OF PREFERRED STOCK
Certain provisions of Delaware law, TEAM's Amended and Restated Certificate
of Incorporation (in particular, the voting rights of the Class B Common Stock)
and TEAM'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 Budget Group. Such provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Class A Common Stock. In addition, shares of preferred
stock may be issued by the Board of Directors without stockholder approval on
such terms and conditions, and having such rights, privileges and preferences,
as the Board of Directors may determine. The rights of the holders of the Class
A Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued in the future. Budget
Group has no current plans to issue any shares of preferred stock, other than
the shares of Series A Convertible Preferred Stock to be issued to Ford in
connection with the Budget Acquisition. See "Description of Capital
Stock -- Preferred Stock" and "Description of Capital Stock -- Section 203."
18
<PAGE> 22
USE OF PROCEEDS
The net proceeds to TEAM from the Offering are estimated to be
approximately $136.6 million (approximately $157.3 million if the over-allotment
option is exercised in full), based on an assumed offering price of $22.375 per
share, after deducting underwriting discounts and commissions and estimated
offering expenses.
TEAM intends to use these net proceeds, together with the net proceeds of
the Debt Placements and the New Fleet Financings, to finance the Budget
Acquisition. See "The Budget Acquisition." The following table sets forth the
estimated sources and uses of consideration required to complete the Budget
Acquisition (assuming consummation of the Transactions on March 21, 1997):
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES:
Class A Common Stock offered hereby(a).................... $ 145.4
Series A Convertible Preferred Stock(b)................... 100.7
6.85% Convertible Subordinated Notes, Series B, due
2007................................................... 45.0
9.57% Guaranteed Senior Notes due 2007.................... 165.0
New Fleet Financings(c)................................... 800.8
---------
Total sources..................................... $ 1,256.9
=========
USES:
Budget Acquisition(d)..................................... $ 375.7
Repayment of BRACC Fleet Financing Facilities(e).......... 856.2
Fees and expenses(f)...................................... 25.0
---------
Total uses........................................ $ 1,256.9
=========
</TABLE>
- ---------------
(a) Assumes a public offering price of $22.375 per share (based on the closing
price of the Class A Common Stock on March 21, 1997).
(b) Represents the value of the 4,500 shares of Series A Convertible Preferred
Stock based on the closing price of the Class A Common Stock on March 21,
1997. See "The Budget Acquisition -- Terms of the Stock Purchase
Agreement -- Consideration."
(c) Represents the amount drawn at closing under the New Fleet Financings
assuming a fleet size for Budget Group equivalent to the combined fleet
size of TEAM and BRACC at March 21, 1997.
(d) Represents (i) $275.0 million to purchase common stock of BRACC (of which
$274.0 million will be paid to BRACC for newly issued shares of BRACC
common stock and $1.0 million will be paid to the common stockholder of
BRACC) and (ii) $100.7 million of Series A Convertible Preferred Stock to
be issued to Ford (based on the value of 4,500,000 shares of Class A Common
Stock as of March 21, 1997). BRACC will use the $274.0 million in cash that
it receives as follows: (i) $269.0 million to repay outstanding
indebtedness of BRACC to Ford and (ii) $5.0 million to redeem outstanding
Series X Preferred Stock. In addition, concurrently with the Budget
Acquisition, Ford will cancel $128.3 million of additional outstanding
BRACC indebtedness.
(e) Represents (i) $370.7 million outstanding under a commercial paper
facility, (ii) $366.2 million of the vehicle facility provided by Ford to
finance non-Ford vehicles and (iii) $198.3 million of the vehicle facility
provided by Ford to finance Ford vehicles, net of $79.0 million of fleet
indebtedness to be forgiven by Ford, which represents the remaining portion
of the $128.3 million of outstanding BRACC indebtedness to be cancelled by
Ford which was first applied to extinguish the existing working capital
facility balance of $419.0 million. See "Capitalization."
(f) Includes underwriting discounts and commissions in connection with the
Offering, the Debt Placements and the New Fleet Financings.
19
<PAGE> 23
PRICE RANGE OF COMMON STOCK
The Class A Common Stock is listed on the NYSE under the symbol "BD." From
the time of TEAM's initial public offering on August 25, 1994 through April 16,
1997, the Class A Common Stock was traded on The Nasdaq National Market. The
following table sets forth the high and low sale prices per share for the Class
A Common Stock as reported to TEAM by The Nasdaq National Market for the periods
indicated:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First Quarter............................................. $ 9.75 $ 8.00
Second Quarter............................................ 9.00 7.25
Third Quarter............................................. 11.375 6.50
Fourth Quarter............................................ 10.75 8.125
1996
First Quarter............................................. 10.50 8.25
Second Quarter............................................ 17.50 9.25
Third Quarter............................................. 20.25 12.375
Fourth Quarter............................................ 20.25 15.25
1997
First Quarter............................................. 29.50 16.00
Second Quarter (through April 16, 1997)................... 23.50 19.00
</TABLE>
On April 16, 1997, the last sale price of the Class A Common Stock as
reported on The Nasdaq National Market was $20.875 per share. As of April 16,
1997, there were approximately 69 holders of record of the Class A Common Stock.
DIVIDEND POLICY
Although TEAM is currently able to pay dividends, subject to limitations
under the terms of its indebtedness, TEAM has never declared or paid dividends
on its Common Stock, and it is the current policy of the Board of Directors of
TEAM to retain earnings for use in the business and not to pay any cash
dividends on the Common Stock. Any declaration and payment of cash dividends on
the Common Stock will be subject to the discretion of TEAM's Board of Directors
and will be dependent upon TEAM's financial condition, results of operations,
cash requirements and future prospects, the limitations under the terms of its
indebtedness and other factors deemed relevant by TEAM's Board of Directors.
There can be no assurance that any such dividends will be declared or paid.
20
<PAGE> 24
CAPITALIZATION
The following table sets forth (i) the actual capitalization of TEAM as of
December 31, 1996; (ii) the actual capitalization of BRACC as of December 31,
1996; (iii) adjustments to the capitalization of TEAM and BRACC to give pro
forma effect to the Budget Acquisition Transactions (as defined in "Pro Forma
Consolidated Statements of Budget Group"); and (iv) the resulting pro forma
capitalization of Budget Group. See "Use of Proceeds," "Pro Forma Consolidated
Financial Statements of Budget Group," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of TEAM -- Liquidity and Capital
Resources" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of BRACC -- Liquidity and Capital Resources."
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-------------------------------------------------------
ADJUSTMENTS
FOR BUDGET PRO FORMA
HISTORICAL HISTORICAL ACQUISITION BUDGET
TEAM BRACC TRANSACTIONS GROUP
---------- ---------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Vehicle debt:
TEAM fleet financing facilities:
Asset-backed notes(a).............................. $321,682 -- -- $ 321,682
New Fleet Financings(b)............................ -- -- $ 658,666 658,666
Other TEAM fleet obligations....................... 38,438 -- -- 38,438
BRACC fleet financing facilities:
Commercial paper facility.......................... -- $ 367,516 (367,516) --
BFF term facility.................................. -- 500,000 -- 500,000
Other BRACC fleet obligations...................... -- 494,103 (426,370) 67,733
-------- ---------- --------- -----------
Total vehicle debt............................ 360,120 1,361,619 (135,220) 1,586,519
Non-vehicle debt:
9.57% Guaranteed Senior Notes due 2007............... -- -- 165,000 165,000
Convertible Subordinated Notes....................... 80,000 -- 45,000 125,000
Other notes payable.................................. 13,989 468,767 (418,218) 64,538
Capital lease obligations............................ 580 -- -- 580
-------- ---------- --------- -----------
Total non-vehicle debt........................ 94,569 468,767 (208,218) 355,118
-------- ---------- --------- -----------
Total debt.................................. 454,689 1,830,386 (343,438) 1,941,637
Common Stock Warrant................................... 2,000 -- (2,000) --
Mandatory Redeemable Series X Preferred Stock.......... -- 5,178 (5,178) --
-------- ---------- --------- -----------
Stockholders' equity:
Series A Convertible Preferred Stock, $.01 par value,
10,000 shares authorized, no shares issued and
outstanding; 4,500 shares issued and outstanding
pro forma.......................................... -- -- 105,750 105,750
Class A Common Stock, $.01 par value, one vote per
share, 17,500,000 shares authorized(c); 9,357,050
shares issued and 9,320,383 shares outstanding;
15,857,050 shares issued and 15,820,383 shares
outstanding pro forma(d)........................... 93 -- 65 158
Class B Common Stock, $.01 par value, ten votes per
share, 2,500,000 shares authorized; 1,936,600
shares issued and outstanding...................... 19 -- -- 19
Additional paid-in capital............................. 89,856 555,439 (424,366) 220,929
Pension liability adjustment........................... -- (12,409) 12,409 --
Foreign currency translation adjustment................ -- (7,497) 7,497 --
Retained earnings (deficit)............................ 2,363 (391,568) 391,568 2,363
Treasury stock (at cost)............................... (330) -- -- (330)
-------- ---------- --------- -----------
Total stockholders' equity.................... 92,001 143,965 92,923 328,889
-------- ---------- --------- -----------
Total capitalization........................ $548,690 $1,979,529 $(257,693) $ 2,270,526
======== ========== ========= ===========
</TABLE>
(footnotes on following page)
21
<PAGE> 25
- ---------------
(a) Consists of the "First Fleet Financing Facility," the "Second Fleet
Financing Facility" and the "Third Fleet Financing Facility," as described
and defined under "Management's Discussion and Analysis of Financial
Conditions and Results of Operations of TEAM -- Liquidity and Capital
Resources -- Historic for TEAM."
(b) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations of TEAM -- Liquidity and Capital Resources -- Pro Forma
Liquidity and Capital Resources for Budget Group" for a description of the
New Fleet Financings.
(c) At the 1997 Annual Meeting of Stockholders, TEAM will seek stockholder
approval to increase its authorized shares of Class A Common Stock to
35,000,000 shares.
(d) Does not include (i) 3,986,049 shares of Class A Common Stock issuable upon
conversion of the Series A Convertible Notes; (ii) 1,609,442 shares of Class
A Common Stock issuable upon conversion of the Series B Convertible Notes;
(iii) 4,500,000 shares of Class A Common Stock issuable upon conversion of
the Series A Convertible Preferred Stock to be issued to Ford in the Budget
Acquisition; (iv) 1,893,800 shares of Common Stock reserved for issuance
under TEAM's stock option plans (subject to stockholder approval as
described under "Description of Capital Stock"), of which options to
purchase 585,850 shares of Class A Common Stock and 164,000 shares of Class
B Common Stock were outstanding at December 31, 1996; (v) 362,500 shares of
the Class A Common Stock reserved for issuance upon exercise of outstanding
warrants; and (vi) 36,667 shares of Class A Common Stock held as treasury
shares. See "Management -- Benefit Plans" and "Description of Capital
Stock -- Warrants."
22
<PAGE> 26
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF BUDGET GROUP
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
[DRAFT]
To Team Rental Group, Inc.:
We have examined the pro forma adjustments reflecting the transactions
described in the notes to the pro forma consolidated financial statements and
the application of those adjustments to the historical amounts in the
accompanying pro forma consolidated balance sheet of Budget Group as of December
31, 1996, and the pro forma consolidated statement of operations for the year
then ended. The historical amounts reflect the historical consolidated balance
sheets and statements of operations of Team Rental Group, Inc. and subsidiaries,
which were audited by us, and of Budget Rent a Car Corporation and subsidiaries,
which were audited by other accountants, all of which are included in Team
Rental Group, Inc.'s Registration Statement File No. 333-21691 on Form S-1. Such
pro forma adjustments are based upon management's assumptions as described in
the notes to the pro forma consolidated financial statements. Our examination
was made in accordance with standards established by the American Institute of
Certified Public Accountants and, accordingly, included such procedures as we
considered necessary in the circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been had
the transactions described in the notes to the pro forma consolidated financial
statements occurred at an earlier date. However, the pro forma consolidated
financial statements are not necessarily indicative of the results of operations
or related effects on financial position that would have been attained had the
above-mentioned transactions actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transactions as described in the notes to the pro forma consolidated financial
statements, the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns reflect the proper application of those
adjustments to the historical financial statement amounts in the pro forma
consolidated balance sheet as of December 31, 1996, and the pro forma
consolidated statement of operations for the year then ended.
Orlando, Florida,
April , 1997
23
<PAGE> 27
INTRODUCTION
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Consolidated Financial Statements") are based on the historical
financial statements of TEAM and BRACC as of and for the year ended December 31,
1996, adjusted to give effect to the transactions described below. The Pro Forma
Consolidated Statement of Operations gives effect to the following transactions
as if they had occurred on January 1, 1996: (i) certain transactions effected by
TEAM during 1996 that are more fully described below (the "1996 TEAM
Transactions") and (ii) the Budget Acquisition and certain related transactions
that are more fully described below (the "Budget Acquisition Transactions" and,
together with the 1996 TEAM Transactions, the "Transactions"). The Pro Forma
Consolidated Balance Sheet gives effect to the Budget Acquisition Transactions
as if they had occurred on December 31, 1996.
The 1996 TEAM Transactions consist of the following: (i) TEAM's acquisition
of Van Pool, which was effective on February 1, 1996, TEAM's acquisition of the
Phoenix Budget franchise (the "Phoenix Acquisition"), which was effective on
March 1, 1996, and TEAM's acquisition of ValCar Rental Car Sales, Inc.
("ValCar"), which was effective on August 1, 1996 (the "ValCar Acquisition");
(ii) the sale of 3,821,007 shares of Class A Common Stock by TEAM in a public
offering in July 1996 (the "July 1996 Public Offering"); (iii) the partial
refinancing of TEAM's vehicle rental fleet in December 1996 through the $176.0
million aggregate principal amount Third Fleet Financing Facility; (iv) the
private placement of $80.0 million aggregate principal amount of Series A
Convertible Notes in December 1996; and (v) the repayment of certain of TEAM's
outstanding indebtedness from the proceeds of (ii), (iii) and (iv) above. The
Budget Acquisition Transactions consist of the following: (i) the Budget
Acquisition, including the repayment, purchase and forgiveness of certain
indebtedness and the necessary purchase accounting and elimination entries; (ii)
the Offering and the application of the net proceeds thereof; (iii) the Debt
Placements and the application of the net proceeds thereof; and (iv) the New
Fleet Financings and the application of the net proceeds thereof and the
repayment of certain of BRACC's outstanding indebtedness to Ford from the net
proceeds thereof. All acquisitions, including the Budget Acquisition, have been
accounted for using the purchase method of accounting.
The Pro Forma Consolidated Financial Statements do not purport to represent
what Budget Group's results of operations or financial condition would have been
had the Transactions actually occurred on the dates indicated or to predict
Budget Group's results of operations or financial condition in the future. These
statements are qualified in their entirety by, and should be read in conjunction
with, the historical financial statements of TEAM and BRACC and the notes
thereto included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of TEAM" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of BRACC."
The Pro Forma Consolidated Financial Statements have been prepared using
the purchase method of accounting, whereby the total cost of the Budget
Acquisition will be allocated to the tangible and intangible assets acquired and
liabilities assumed based upon their respective fair values at the effective
date of the Budget Acquisition. Such allocations will be based on studies and
valuations which have not yet been completed. Accordingly, the allocations
reflected in the Pro Forma Consolidated Financial Statements are preliminary and
subject to revision. However, Budget Group does not expect material changes to
the allocation of the purchase price.
The Pro Forma Consolidated Financial Statements give effect only to the
adjustments set forth in the accompanying notes and do not reflect any other
benefits anticipated by management as a result of the Budget Acquisition
Transactions and the implementation of its business strategy or the possible
effects of the Supply Agreement and Advertising Agreement.
24
<PAGE> 28
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS
FOR 1996 PRO FORMA FOR BUDGET PRO FORMA
HISTORICAL TEAM HISTORICAL HISTORICAL ACQUISITION BUDGET
TEAM TRANSACTIONS(A) TEAM BRACC TRANSACTIONS GROUP
---------- --------------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue:
Vehicle rental revenue....... $223,250 $10,874 $234,124 $ 963,764 $ -- $1,197,888
Royalty fees................. -- -- -- 60,352 (7,641)(k) 52,711
Retail car sales revenue..... 134,120 21,313 155,433 91,503 -- 246,936
Other........................ -- -- -- 17,202 (2,509)(k) 14,693
-------- ------- -------- ---------- -------- ----------
Total operating
revenue............. 357,370 32,187 389,557 1,132,821 (10,150) 1,512,228
Operating costs and expenses:
Direct vehicle and
operating.................. 35,098 2,372 37,470 121,288 (6,719)(k) 152,039
Depreciation -- vehicle...... 60,735 2,855 63,590 263,846 -- 327,436
Depreciation -- non-vehicle.. 2,589 343 2,932 26,645 -- 29,577
Cost of car sales............ 113,747 19,639 133,386 78,944 -- 212,330
Advertising, promotion and
selling.................... 22,983 915 23,898 83,304 (2,509)(k) 104,693
Facilities................... 20,406 871 21,277 114,325 -- 135,602
Personnel.................... 53,097 1,955(b) 55,052 248,655 -- 303,707
General and administrative... 11,605 3,968(c) 15,573 54,194 -- 69,767
Amortization................. 1,843 90(d) 1,933 16,969 (10,076)(1) 8,826
-------- ------- -------- ---------- -------- ----------
Total operating costs
and expenses........ 322,103 33,008 355,111 1,008,170 (19,304) 1,343,977
-------- ------- -------- ---------- -------- ----------
Operating income (loss)........ 35,267 (821) 34,446 124,651 9,154 168,251
-------- ------- -------- ---------- -------- ----------
Other (income) expense:
Vehicle interest expense..... 25,336 (4,419)(e) 20,917 92,738 (9,361)(m)(n)(o) 104,294
Non-vehicle interest
expense.................... 1,501 4,292(f) 5,793 31,444 (11,388)(o)(p)(q) 25,849
Interest income -- restricted
cash....................... (781) (929)(g) (1,710) -- (108)(r) (1,818)
Non-recurring bank fees...... 1,275 (1,275)(h) -- -- -- --
Related party interest....... 118 (118)(i) -- -- -- --
-------- ------- -------- ---------- -------- ----------
Total other (income)
expense............. 27,449 (2,449) 25,000 124,182 (20,857) 128,325
Income before income taxes..... 7,818 1,628 9,446 469 30,011 39,926
Provision for income taxes... 3,321 651(j) 3,972 3,000 9,797(s) 16,769
-------- ------- -------- ---------- -------- ----------
Net income (loss)..... $ 4,497 $ 977 $ 5,474 $ (2,531) $ 20,214 $ 23,157
======== ======= ======== ========== ======== ==========
Weighted average common and
common equivalent shares
outstanding:
Primary...................... 9,488 11,515 22,454
==========
Fully diluted................ 9,552 11,578 26,493
==========
Earnings per common and common
equivalent share:
Primary...................... $ 0.47 $ 0.48 $ 1.03(t)
==========
Fully diluted................ $ 0.47 $ 0.47 $ 1.00
==========
</TABLE>
25
<PAGE> 29
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
Adjustments for 1996 TEAM Transactions:
(a) Reflects the inclusion of the operations of Van Pool, the Phoenix Budget
franchise, and ValCar from January 1, 1996, to their respective dates of
acquisition by TEAM of February 1, March 1, and August 1, 1996,
respectively, as reflected in the table below.
<TABLE>
<CAPTION>
VAN POOL PHOENIX VALCAR TOTAL
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenue:
Vehicle rental revenue.............................. $2,660 $8,214 -- $10,874
Retail car sales revenue............................ -- -- $21,313 21,313
------ ------ ------- -------
Total operating revenues....................... 2,660 8,214 21,313 32,187
------ ------ ------- -------
Operating costs and expenses:
Direct vehicle and operating........................ 893 1,479 -- 2,372
Depreciation -- vehicle............................. 676 2,179 -- 2,855
Depreciation -- non-vehicle......................... 8 229 106 343
Cost of car sales................................... -- -- 19,639 19,639
Advertising, promotion and selling.................. -- 915 -- 915
Facilities.......................................... 33 838 -- 871
Personnel........................................... 379 1,913 -- 2,292
General and administrative.......................... 148 436 3,421 4,005
Amortization of franchise rights.................... -- 8 -- 8
------ ------ ------- -------
Total operating costs and expenses............. 2,137 7,997 23,166 33,300
------ ------ ------- -------
Operating income (loss)............................... 523 217 (1,853) (1,113)
Other (income) expense:
Vehicle interest expense............................ 232 991 318 1,541
Non-vehicle interest expense (income), net.......... (21) 2 -- (19)
------ ------ ------- -------
Total other expense............................ 211 993 318 1,522
Income (loss) before taxes............................ 312 (776) (2,171) (2,635)
Provision (benefit) for income taxes................ 125 (310) (869) (1,054)
------ ------ ------- -------
Net income (loss)..................................... $ 187 $ (466) $(1,302) $(1,581)
====== ====== ======= =======
</TABLE>
(b) Reflects the net increase in personnel expense of $1,955 attributable to:
<TABLE>
<S> <C>
Operations of purchased businesses as reflected in note
(a).................................................... $2,292
Reduction relating to salaries and bonuses previously
paid to officers of the Phoenix Budget franchise....... (312)
Reduction resulting from the elimination of a retirement
plan................................................... (25)
------
Net increase in personnel expense.................. $1,955
======
</TABLE>
(c) Reflects the net increase in general and administrative expense of $3,968
attributable to:
<TABLE>
<S> <C>
Operations of purchased businesses as reflected in note
(a).................................................... $ 4,005
Elimination of management fees paid to former
shareholders of ValCar................................. (108)
Royalty payments made by ValCar to BRACC for the right
to use the "Budget" trade name for its retail car sales
facilities during the preacquisition period............ 71
-------
Net increase in general and administrative
expense........................................... $ 3,968
=======
</TABLE>
(d) Reflects the net increase in amortization expense of $90 attributable to:
<TABLE>
<S> <C>
Operations of purchased businesses as reflected in note
(a).................................................... $ 8
Amortization of franchise rights resulting from the
Phoenix Acquisition.................................... 60
Amortization of franchise rights resulting from the
ValCar Acquisition..................................... 22
-------
Net increase in amortization expense............... $ 90
=======
</TABLE>
26
<PAGE> 30
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(AMOUNTS IN THOUSANDS)
(e) Reflects the net decrease in vehicle interest expense of $4,419 attributable
to:
<TABLE>
<S> <C>
Operations of purchased businesses as reflected in note
(a).................................................... $ 1,541
Amortization of costs incurred in connection with the
Third Fleet Financing Facility......................... 260
Interest savings due to the refinancing of debt at
reduced interest rates under the Third Fleet Financing
Facility............................................... (6,220)
-------
Net decrease in vehicle interest expense........... $(4,419)
=======
</TABLE>
(f) Reflects the net increase in non-vehicle interest expense of $4,292
attributable to:
<TABLE>
<S> <C>
Operations of purchased businesses as reflected in note
(a).................................................... $ (19)
Interest expense that would have been incurred on
borrowings of $15.0 million to effect the Phoenix
Acquisition............................................ 217
Interest expense incurred on the Series A Convertible
Notes.................................................. 3,901
Amortization of costs incurred in connection with the
issuance of Series A Convertible Notes................. 193
-------
Net increase in non-vehicle interest expense....... $ 4,292
=======
Because the Series A Convertible Notes are unsecured indebtedness,
the entire interest expense is included in non-vehicle interest
expense, even though a portion of the proceeds have been used to fund
the fleet. Based on the average fleet debt outstanding during the
period that could have been funded by the Series A Convertible Notes,
approximately $3,000 of the interest cost incurred is attributable to
funding the fleet.
</TABLE>
(g) Reflects the $929 increase in interest income -- restricted cash earned on
restricted cash balances remaining in TEAM's restricted cash account after
application of the proceeds received from the Third Fleet Financing
Facility, the Series A Convertible Notes and the July 1996 Public Offering
to TEAM's outstanding indebtedness. Under the terms of the Third Fleet
Financing Facility, specified amounts of cash are required to be maintained
in a restricted cash account, with such amounts earning interest at a rate
of 4.5% per annum.
(h) Reflects the elimination of $1,275 in non-recurring financing fees related
to bridge loans that were repaid with the proceeds of the July 1996 Public
Offering and that would not have been incurred on a pro forma basis.
(i) Reflects the elimination of $118 of related party interest due to repayment
of the related party debt.
(j) Reflects the tax effect of the pro forma adjustments, based on an effective
tax rate of approximately 40%.
Adjustments for Budget Acquisition Transactions:
(k) Reflects the elimination of the following transactions between TEAM and
BRACC:
<TABLE>
<S> <C>
Advertising fees paid by TEAM which were recognized as
other revenue by BRACC................................. $2,509
Royalty expenses paid by TEAM which were recognized as
royalty fees by BRACC.................................. 6,241
</TABLE>
Also reflects the elimination of the current year effect of $1,400 royalty
fees recognized by BRACC and $478 royalty expense recognized by TEAM related
to the warrant to purchase shares of Class A Common Stock of TEAM held by
BRACC (the "BRACC Warrant"). See "Description of Capital Stock -- Warrants."
(l) Reflects the elimination of $16,969 of amortization of BRACC's existing
goodwill and records an increase of $6,893 amortization on the net goodwill
established through purchase accounting adjustments.
(m) Reflects the increase in vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest expense related to the New Fleet Financings.... $32,084
Amortization of costs incurred in connection with the
New Fleet Financings................................... 1,436
-------
Increase in vehicle interest expense............... $33,520
=======
</TABLE>
27
<PAGE> 31
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
(AMOUNTS IN THOUSANDS)
(n) Reflects the decrease in vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest savings on vehicle debt refinanced through the
New Fleet Financings................................... $34,869
Interest savings on vehicle debt to Ford paid down by
BRACC in connection with the Budget Acquisition........ 8,012
-------
Decrease in vehicle interest expense............... $42,881
=======
</TABLE>
(o) In calculating the interest expense adjustments arising from the Budget
Acquisition Transactions, the assumed rates of interest for the new debt
facilities are as follows:
<TABLE>
<CAPTION>
HISTORICAL
WEIGHTED ASSUMED
AVERAGE INTEREST
RATE RATE
---------- --------
<S> <C> <C>
New Fleet Financings --
Asset-Backed Notes.................................... 7.48 6.68
Commercial Paper Facility............................. 5.43 5.43
Working Capital Facility.............................. 7.84 6.68
</TABLE>
An increase or decrease in the interest rate of one-quarter of one percent
(0.25%) with respect to the pro forma balances on the above debt facilities
would increase or decrease interest expense and income before income taxes
by $2,068 based on the average outstanding balance of the debt to be
refinanced. The actual rates of interest used to calculate interest expense
for the Guaranteed Senior Notes due 2007 and the Series B Convertible Notes
are 9.57% and 6.85%, respectively.
(p) Reflects the increase in non-vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest expense related to the Debt Placements......... $18,873
Amortization of costs incurred in connection with the
Debt Placements........................................ 401
-------
Increase in non-vehicle interest expense........... $19,274
=======
</TABLE>
(q) Reflects the decrease in non-vehicle interest expense attributable to:
<TABLE>
<S> <C>
Elimination of interest on BRACC indebtedness to Ford
purchased by TEAM through the issuance of Series A
Convertible Preferred Stock............................... $ 7,898
Elimination of interest on working capital debt of $128,317
forgiven by Ford.......................................... 10,066
Elimination of interest on BRACC indebtedness to Ford paid
down by BRACC using the proceeds from BRACC's sale of
newly issued common stock to TEAM......................... 12,698
-------
Decrease in non-vehicle interest expense................ $30,662
=======
</TABLE>
(r) Reflects $108 of interest income -- restricted cash on the $2,400 increase
in restricted cash resulting from the receipt of Ford's funding of the
employee bonus pool to be created in connection with the Budget Acquisition.
See "The Budget Acquisition -- Terms of the Stock Purchase
Agreements -- Special Bonus Program."
(s) Reflects a tax provision resulting in an overall effective rate of
approximately 42% for Budget Group due to the nondeductibility of goodwill
for tax reporting purposes.
(t) Unaudited pro forma earnings per common and common equivalent share data for
Budget Group are calculated using 22,453,786 shares of Common Stock, which
includes the following: (i) 6,500,000 shares of Class A Common Stock offered
hereby and (ii) 4,500,000 shares of Class A Common Stock into which Ford's
Series A Convertible Preferred Stock is convertible. The grant of stock
options in connection with the Budget Acquisition to fund the BRACC employee
bonus pool to be created pursuant to the Stock Purchase Agreements, with an
exercise price equal to the fair market value of TEAM's Class A Common Stock
on the date of grant, will have no dilutive effect on the pro forma earnings
per common and common equivalent share data for Budget Group.
28
<PAGE> 32
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR BUDGET PRO FORMA
HISTORICAL HISTORICAL ACQUISITION BUDGET
TEAM BRACC TRANSACTIONS GROUP
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and short-term investments................. $ 50,490 $ 59,547 $ 2,526(a) $ 112,563
Restricted cash................................. 66,336 -- -- 66,336
Trade and vehicle receivables, net.............. 31,302 202,563 (3,520)(b)(c) 230,345
Accounts receivable, related parties............ 58 -- -- 58
Vehicle inventory............................... 16,413 14,299 -- 30,712
Revenue earning vehicles, net................... 319,257 1,303,975 -- 1,623,232
Property and equipment, net..................... 18,502 114,537 -- 133,039
Franchise rights, net........................... 68,469 -- -- 68,469
Deferred financing fees, net.................... 3,950 1,626 10,900(a) 16,476
Other assets.................................... 10,022 101,622 (739)(b) 110,905
Investment in BRACC............................. -- -- --(a)(d) --
Deferred income taxes........................... -- -- -- --
Intangibles -- net.............................. 2,424 529,946 (275,886)(d)(e) 256,484
-------- ---------- ---------- ----------
Total assets............................. $587,223 $2,328,115 $ (266,719) $2,648,619
======== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Fleet financing facilities...................... $360,120 $1,361,619 $ (135,220)(a) $1,586,519
9.57% Guaranteed Senior Notes due 2007.......... -- -- 165,000(a) 165,000
Convertible Subordinated Notes.................. 80,000 -- 45,000(a) 125,000
Other notes payable............................. 13,989 468,767 (418,218)(a)(e)(f) 64,538
Capital lease obligations....................... 580 -- -- 580
Accounts payable................................ 14,601 61,896 (1,520)(c) 74,977
Deferred income taxes........................... 7,406 -- (7,406)(d) --
Accrued and other liabilities................... 16,526 286,690 (100)(b)(d)(g) 303,116
-------- ---------- ---------- ----------
Total liabilities........................ 493,222 2,178,972 (352,464) 2,319,730
-------- ---------- ---------- ----------
Common stock warrant.............................. 2,000 -- (2,000)(b) --
-------- ---------- ---------- ----------
Mandatory redeemable series X preferred stock..... -- 5,178 (5,178)(a)(d) --
-------- ---------- ---------- ----------
Stockholders' equity
Common stock.................................... 112 -- 65(a)(d) 177
Preferred stock................................. -- -- 105,750(e) 105,750
Additional paid-in capital...................... 89,856 555,439 (424,366)(a)(d)(g) 220,929
Pension liability adjustment.................... -- (12,409) 12,409(d) --
Foreign currency translation adjustment......... -- (7,497) 7,497(d) --
Retained earnings (deficit)..................... 2,363 (391,568) 391,568(d)(f) 2,363
Treasury stock.................................. (330) -- -- (330)
-------- ---------- ---------- ----------
Total stockholders' equity............... 92,001 143,965 92,923 328,889
-------- ---------- ---------- ----------
Total liabilities and stockholders'
equity............................. $587,223 $2,328,115 $ (266,719) $2,648,619
======== ========== ========== ==========
</TABLE>
29
<PAGE> 33
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Adjustments for Budget Acquisition Transactions:
(a)Reflects the cash effects of certain Budget Acquisition Transactions:
<TABLE>
<CAPTION>
CASH
---------
<S> <C>
Investment in BRACC--
Purchase by TEAM of 2,740,000 newly issued shares of BRACC
common stock............................................ $(274,000)
Purchase by TEAM of 2.31 shares of BRACC Series X
Cumulative Preferred Stock from Ford.................... (2)
Receipt of funding from Ford for the employee bonus
pool.................................................... 2,400
Purchase by TEAM of 10,000 outstanding shares of BRACC
common stock............................................ (1,000)
---------
(272,602)
---------
Deferred financing fees--
Reduction in proceeds from Debt Placements for expenses of
issuance proceeds....................................... (3,000)
Payment of costs incurred in connection with the New Fleet
Financings.............................................. (7,900)
---------
(10,900)
---------
Fleet financing facilities--
Repayment of certain BRACC indebtedness to Ford from
proceeds received by BRACC from issuance of common stock
to TEAM................................................. (79,782)
Receipt of proceeds from the New Fleet Financings......... 658,666
Repayment of Ford indebtedness by BRACC from proceeds
received from New Fleet Financings...................... (714,104)
---------
(135,220)
---------
Receipt of gross proceeds from Debt Placements --
9.57% Guaranteed Senior Notes due 2007.................... 165,000
6.85% Convertible Subordinated Notes, Series B, due
2007.................................................... 45,000
Other notes payable--
Repayment of certain BRACC indebtedness to Ford from
proceeds received by BRACC from issuance of common stock
to TEAM................................................. (189,214)
---------
Stockholders' equity--
Sale of 2,740,000 newly issued shares of BRACC common
stock to TEAM........................................... 274,000
Public offering of 6,500,000 shares of TEAM Class A Common
Stock, net of $7,999 of underwriting discounts and
commissions (estimated at 5.5% of gross proceeds) and
offering expenses estimated at $800..................... 136,638
Redemption of 5,004.15 shares of Series X Cumulative
Preferred Stock of BRACC plus cumulative dividends...... (5,176)
Acquisition advisory fee.................................. (5,000)
---------
400,462
---------
$ 2,526
=========
</TABLE>
(b)Reflects the elimination of the $2,000 BRACC Warrant, including the related
prepaid royalty and unearned revenue balances of $739.
(c)Reflects the elimination of the $1,520 payable and receivable arising from
the royalty fees charged by BRACC to TEAM and amounts arising from fee
sharing arrangements that were unpaid at December 31, 1996.
(d)Reflects the elimination of TEAM's investment in BRACC of $272,602 against
BRACC's fully adjusted stockholders' equity as of December 31, 1996, which
was applied as follows:
<TABLE>
<S> <C>
Preferred stock............................................. $ (2)
Common stock................................................ (27)
Paid-in capital............................................. (829,412)
Accumulated deficit......................................... 283,158
</TABLE>
Additionally, to record the $273,543 reduction in BRACC's intangibles as a
result of certain purchase accounting adjustments, the reduction in the
deferred tax valuation allowance recorded by BRACC of $7,406 due to TEAM's
deferred tax position, and the elimination of $139 of unearned revenue
related to the BRACC Warrant.
(e)Reflects the reduction in BRACC's indebtedness to Ford attributable to the
issuance of 4,500 shares of Series A Convertible Preferred Stock of TEAM. The
fair market value of the debt purchased of $100,687 was determined in
accordance with the terms of the Stock Purchase Agreements and is based on
the underlying value of the 4,500,000 shares of Class A Common Stock into
which the Series A
30
<PAGE> 34
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET -- (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Convertible Preferred Stock is convertible. Under the Stock Purchase
Agreements, the underlying value of the shares of Class A Common Stock is
determined based on the preceding ten-day average stock price as of the
closing date (assumed to be March 21, 1997 for computational purposes).
However, generally accepted accounting principles that address the
determination of the market value of securities issued in a purchase business
combination require that the value assigned to such securities be determined
using the market price for a reasonable period before and after the date the
terms of the acquisition are agreed to and publicly announced. Accordingly,
the market value of the underlying 4,500,000 shares of Class A Common Stock
for the three-day period surrounding January 13, 1997 (the date the Budget
Acquisition was publicly announced) was used to determine the value of
$105,750 to be assigned to the Series A Convertible Preferred Stock. The
difference between the value assigned to the debt purchased and the value
assigned to the Series A Convertible Preferred Stock will be treated as an
adjustment to goodwill.
(f)Reflects the forgiveness by Ford of $128,317 of indebtedness due from BRACC.
(g)Reflects an accrual of $500 for the estimated costs to register the shares of
Class A Common Stock into which the Series A Convertible Preferred Stock is
convertible.
31
<PAGE> 35
SELECTED FINANCIAL DATA OF TEAM
The following table sets forth selected consolidated statement of
operations data and selected consolidated balance sheet data of TEAM for the
five years ended December 31, 1996. Such data were derived from the audited
Consolidated Financial Statements of TEAM. The Consolidated Financial Statements
of TEAM and the notes thereto for each of the three years in the period ended
December 31, 1996 are included elsewhere in this Prospectus. The selected
consolidated financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of TEAM" and the Consolidated Financial Statements of TEAM and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Vehicle rental revenue(a).......................... $21,968 $22,321 $38,642 $107,067 $223,250
Retail car sales revenue........................... -- -- -- 42,662 134,120
------- ------- ------- -------- --------
Total operating revenue..................... 21,968 22,321 38,642 149,729 357,370
------- ------- ------- -------- --------
Operating costs and expenses:
Direct vehicle and operating....................... 5,989 5,452 9,439 13,704 35,098
Depreciation -- vehicle............................ 2,832 4,358 7,382 27,476 60,735
Depreciation -- non-vehicle........................ 212 229 446 1,341 2,589
Cost of car sales.................................. -- -- -- 38,021 113,747
Advertising, promotion and selling................. 1,477 1,658 3,090 11,826 22,983
Facilities......................................... 2,662 2,695 4,398 11,121 20,406
Personnel.......................................... 4,292 4,537 7,947 24,515 53,097
General and administrative......................... 736 790 1,515 6,686 11,605
Amortization....................................... 151 152 229 859 1,843
------- ------- ------- -------- --------
Total operating costs and expenses.......... 18,351 19,871 34,446 135,549 322,103
------- ------- ------- -------- --------
Operating income..................................... 3,617 2,450 4,196 14,180 35,267
------- ------- ------- -------- --------
Other (income) expense:
Vehicle interest expense........................... 2,440 2,462 3,909 13,874 25,336
Non-vehicle interest expense (income), net......... 619 401 (139) (716) 838
Non-recurring expense (income)..................... -- (1,023) -- -- 1,275
------- ------- ------- -------- --------
Total other expense......................... 3,059 1,840 3,770 13,158 27,449
------- ------- ------- -------- --------
Income before income taxes........................... 558 610 426 1,022 7,818
Provision for income taxes........................... -- 182 176 685 3,321
------- ------- ------- -------- --------
Net income........................................... $ 558 $ 428 $ 250 $ 337 $ 4,497
======= ======= ======= ======== ========
Weighted average common and common equivalent shares
outstanding........................................ -- -- 3,704 6,369 9,488
Earnings per common and common equivalent share...... -- -- $ 0.07 $ 0.05 $ 0.47
</TABLE>
32
<PAGE> 36
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- ----------
(DOLLARS IN THOUSANDS EXCEPT
RENTAL AND RETAIL CAR SALES DATA)
<S> <C> <C> <C>
OPERATING DATA:
EBITDA(b)................................................. $ 12,923 $ 45,204 $ 101,215
Adjusted EBITDA(b)........................................ 1,632 3,854 15,144
Net cash provided by operating activities................. 3,660 16,148 54,379
Net cash used in investing activities..................... (122,291) (46,298) (62,806)
Net cash provided by financing activities................. 119,006 29,629 58,560
RENTAL DATA:(C)
Locations in operation at period end...................... 63 133 152
Number of usable vehicles at period end(d)................ 5,044 11,143 14,761
Rental transactions(e).................................... 276,000 689,000 1,166,000
Daily dollar average(f)................................... $ 37.32 $ 40.75 $ 41.19
Vehicle utilization(g).................................... 80.6% 80.0% 80.9%
Average monthly revenue per unit(h)....................... $ 909 $ 992 $ 1,017
RETAIL CAR SALES DATA:
Locations in operation at period end...................... -- 7 11
Average monthly vehicles sold............................. -- 351 752
Average monthly sales revenue(e).......................... $ -- $ 5,177 $ 12,757
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net......................... $23,343 $23,577 $ 97,127 $219,927 $319,257
Vehicle inventory..................................... -- -- 943 8,938 16,413
Total assets.......................................... 32,027 33,325 162,991 386,323 587,223
Fleet financing facilities............................ 23,890 23,857 123,779 295,647 360,120
Other notes payable................................... 3,795 3,632 2,785 22,586 93,989
Total debt............................................ 27,880 28,533 127,187 319,017 454,689
Redeemable preferred stock............................ 2,747 2,747 -- -- --
Common stock warrant.................................. -- -- 2,000 2,000 2,000
Stockholders' equity (deficit)........................ (1,344) (1,251) 26,748 39,592 92,001
</TABLE>
- ---------------
(a) Includes revenue from vehicle rentals and related products (such as
insurance and loss damage waivers).
(b) EBITDA consists of income before income taxes plus (i) vehicle interest
expense, (ii) non-vehicle interest expense, (iii) vehicle depreciation
expense and (iv) non-vehicle depreciation and amortization expenses.
Adjusted EBITDA consists of income before income taxes plus (i) non-vehicle
depreciation and amortization expenses and (ii) non-vehicle interest
expense. EBITDA and Adjusted EBITDA are not presented as, and should not be
considered, alternative measures of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but are presented because they are widely accepted financial
indicators of a company's ability to incur and service debt.
(c) Does not include data from Van Pool.
(d) Represents vehicles available for rent.
(e) Rounded to the nearest thousand.
(f) Represents rental revenue divided by the number of days that vehicles were
actually rented.
(g) Represents number of days vehicles were actually rented divided by the
number of days vehicles were available for rent.
(h) Represents the average monthly revenue divided by average monthly fleet.
33
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF TEAM
GENERAL
Team Rental Group, Inc. is the largest Budget franchisee in the United
States and is one of the largest independent retailers of late model automobiles
in the United States. In 1994, TEAM embarked on a strategy to significantly
expand its Budget franchise base and to develop a branded retail car sales
operation within its Budget franchise territories. This strategy both leverages
management's experience and creates certain operating efficiencies between these
complementary businesses. Through its 152 vehicle rental locations, TEAM had pro
forma 1996 vehicle rental revenues of $234.1 million and, through its 11 retail
car sales facilities, TEAM had pro forma 1996 sales revenue of $155.4 million.
TEAM's retail car sales business has represented an increasing portion of
TEAM's revenues since the opening of TEAM's first retail car sales facility in
November 1994. TEAM added six retail car sales facilities during 1995, with the
retail car sales business producing $42.6 million of revenue for 1995
(representing 28.5% of TEAM's total historical revenue for the year), and added
four facilities during 1996, with the retail car sales business producing $134.1
million of revenue for 1996 (representing 37.5% of TEAM's total historical
revenue for the year and 34.4% of TEAM's total pro forma revenue for the year).
TEAM's retail car sales business produced $1,254 of operating income in 1995
(representing 8.8% of TEAM's total operating income) and $1,857 of operating
income in 1996 (representing 5.3% of TEAM's total operating income). At December
31, 1995 and 1996, the retail car sales business represented 7.8% and 8.3% of
TEAM's total identifiable assets, respectively. See Note 15 of the Notes to the
Consolidated Financial Statements of TEAM.
The 1994 results of operations reported herein include the consolidated
accounts of the San Diego, California, Richmond, Virginia and Albany and
Rochester, New York Budget franchises and the acquired operations of the
Pittsburgh and Philadelphia, Pennsylvania, Cincinnati, Ohio and Fort Wayne,
Indiana Budget franchises from their respective acquisition dates through
December 31, 1994. The 1995 results of operations reported herein include the
consolidated operations of the entities comprising TEAM at December 31, 1994 and
the acquired operations of the Dayton, Ohio, Charlotte, North Carolina,
Hartford, Connecticut, and Los Angeles, California Budget franchises from their
respective acquisition dates through December 31, 1995. The 1996 results of
operations reported herein include the acquired operations of the Phoenix Budget
franchise, Van Pool and ValCar from their respective acquisition dates through
December 31, 1996.
On January 13, 1997, TEAM entered into the Stock Purchase Agreements,
pursuant to which TEAM agreed to acquire the stock of BRACC. The consideration
to be paid by TEAM pursuant to the Stock Purchase Agreements consists of (i)
approximately $275.0 million in cash and (ii) the issuance to Ford of 4,500
shares of TEAM's newly created Series A Convertible Preferred Stock (subject to
adjustment), which does not carry a dividend and which will be convertible into
4,500,000 shares of Class A Common Stock.
34
<PAGE> 38
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of operating revenues represented by certain items in TEAM's consolidated
statements of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Vehicle rental revenue...................................... 100.0% 71.5% 62.5%
Retail car sales revenue.................................... -- 28.5 37.5
----- ----- -----
Total operating revenue................................... 100.0 100.0 100.0
Direct vehicle and operating expenses....................... 24.4 9.2 9.8
Cost of car sales........................................... -- 25.4 31.9
Vehicle depreciation expense................................ 19.1 18.4 17.0
Non-vehicle depreciation expense............................ 1.2 0.9 0.7
Advertising, promotion and selling.......................... 8.0 7.9 6.4
Facilities.................................................. 11.4 7.4 5.7
Personnel................................................... 20.6 16.3 14.9
General and administrative expenses......................... 3.9 4.5 3.2
Amortization of franchise rights............................ 0.6 0.5 0.5
----- ----- -----
Operating income............................................ 10.8 9.5 9.9
Vehicle interest expense.................................... 10.1 9.3 7.1
Non-vehicle interest expense (income), net.................. (0.4) (0.5) 0.2
Nonrecurring expense (income)............................... -- -- 0.4
----- ----- -----
Income before income taxes.................................. 1.1 0.7 2.2
Provision for income taxes.................................. 0.5 0.5 0.9
----- ----- -----
Net income.................................................. 0.6% 0.2% 1.3%
===== ===== =====
</TABLE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995.
General Operating Results. Net income for 1996 increased $4.2 million, or
1,234.4%, to $4.5 million from $337,000 for 1995. Income before provision for
income taxes increased over seven times from $1.0 million in 1995 to $7.8
million for 1996. This increase was due to TEAM's acquisition activity and the
growth of TEAM's car sales operations from seven locations at December 31, 1995
to 11 locations at December 31, 1996. Operating income for 1996 increased $21.1
million, or 148.7%, from $14.2 million for 1995 to $35.3 million for 1996, due
primarily to an increase in the vehicle fleet resulting from the acquisitions of
the Budget franchises in Arizona and Southern California and Van Pool. The daily
average rental rate increased slightly to $41.19 in 1996 from $40.75 in 1995.
Operating Revenues. Vehicle rental revenues for 1996 increased $116.2
million from $107.1 million in 1995 to $223.3 million in 1996. The increase in
rental revenues was due primarily to the increase in the size of TEAM from
operating 133 rental locations in 12 franchise areas at December 31, 1995 to
operating 152 locations in 13 franchise territories at December 31, 1996, and to
the acquisition of Van Pool in February 1996. Revenues from TEAM's retail car
sales operations increased $91.5 million from $42.7 million in 1995 to $134.1
million in 1996 due to the expansion of TEAM's car sales facilities from seven
locations at December 31, 1995 to 11 locations at December 31, 1996.
Operating Expenses. Operating expenses increased approximately $186.6
million, or 137.6%, to $322.1 million for 1996 as compared to $135.5 million for
1995. The growth of TEAM's vehicle rental operations through the acquisitions
discussed above was the principal cause of all the increases in TEAM's operating
expenses. Vehicle depreciation increased approximately $33.3 million, or 121.0%,
in 1996 due to an increase in fleet of 7,800 vehicles. Advertising expenses
increased from $11.8 million in 1995 to $23.0 million for 1996 due to the
increase in the size of the rental operations and due to the growth of the
retail car sales operations from five markets at December 31, 1995 to 11 markets
at December 31, 1996. The retail car sales business typically incurs greater
advertising expense than the car rental business. Facilities' expense increased
$9.3 million, or 83.5%, in 1996 as compared to 1995 due to the addition of 19
locations since December 31, 1995. Personnel costs increased approximately
116.6% in 1996 as compared to 1995 due to an increase of approximately 800
35
<PAGE> 39
employees since December 31, 1995. Other operating expense increased due to a
greater volume of rental business resulting from the 1995 and 1996 acquisitions.
Other (Income) Expense, Net. Interest expense, net of interest income,
increased from $13.2 million for 1995 to $27.4 million for 1996. Vehicle
interest expense increased approximately $11.5 million in 1996 due to the
increase in the size of TEAM's rental fleet from approximately 7,800 vehicles at
December 31, 1995 to approximately 15,600 vehicles at December 31, 1996.
Non-vehicle interest (income) expense changed from income of $716,000 in 1995 to
$838,000 of expense in 1996. This increase was primarily due to non-vehicle
interest paid on financing for the acquisition of the Phoenix Budget franchise.
Provision for Income Taxes. The provision for income taxes increased $2.6
million from $685,000 for 1995 to $3.3 million for 1996. The tax provision is
calculated at a rate of approximately 42.5%. The increase in provision is due to
the enhanced profitability of TEAM in 1996 as compared to 1995.
Year Ended December 31, 1995 Compared to the Year Ended December 31, 1994.
General Operating Results. Net income for 1995 increased $87,000, or
34.8%, to $337,000 from $250,000 in 1994. Income before income taxes more than
doubled to $1.0 million in 1995 from $426,000 in 1994. The increase in pre-tax
income was due to an increase in operating income of $10.0 million resulting
from the growth of TEAM's retail car sales operations from one facility at
December 31, 1994 to seven facilities at December 31, 1995 and the acquisition
of four additional Budget vehicle rental operations, which was offset by
increases in interest expense of $9.4 million, due primarily to the increased
size of the fleet throughout 1995 as a result of the acquisitions occurring
between August 1994 and October 1995, described above. The provision for income
taxes increased from $176,000 in 1994 to $685,000 in 1995 due to the enhanced
profitability of TEAM, nondeductible amortization expense, and state income
taxes. The daily average rental rate increased to $40.75 in 1995 from $37.32 in
1994, an increase of 10.6%, due to rental rate increases.
Operating Revenues. Operating revenues increased 287.8% in 1995 to $149.7
million from $38.6 million in 1994. This increase was primarily due to the
acquisitions discussed above and to an increased volume of vehicle rental
business in 1995, resulting in an increase in the number of rental revenue days
to 2,590,000 days in 1995 from 1,027,000 days in 1994. The daily average rental
rate increased 11% from $37.32 in 1994 to $40.75 in 1995; the average rental
term experienced a slight decrease from 3.82 days in 1994 to 3.76 days in 1995.
Operating Expenses. Operating expenses increased approximately $101.1
million, or 293.5%, to $135.5 million for 1995 from $34.4 million in 1994. This
increase was due in large measure to the growth of TEAM's retail car sales
operations, which included $38.0 million of cost of sales for which there was no
significant comparable expense in 1994, as well as to increases resulting from
the increase in fleet and personnel due to the four acquisitions occurring
during 1995. Direct vehicle and operating expense increased $4.3 million or
45.2% to $13.7 million from $9.4 million, due to the increase in the size of the
fleet from 5,044 vehicles at December 31, 1994 to 11,144 vehicles at December
31, 1995. The increased costs for vehicle maintenance recorded to direct vehicle
and operating expenses were partially offset by a decrease in the number of
leased vehicles during the period, as expenses for owned vehicles are charged to
both vehicle depreciation and interest expense, whereas leased vehicles are
charged to direct vehicle and operating expense. Vehicle depreciation expense
increased $20.1 million, or 272.2%, to $27.5 million due to an increase in fleet
size of 121% to 11,144 vehicles at December 31, 1995. Personnel expenses
increased 208.5% to $24.5 million due to the 226% increase in the employee base
from 525 employees at December 31, 1994 to 1,709 employees at December 31, 1995.
The number of locations from which TEAM rented vehicles increased from 63
locations at December 31, 1994 to 133 locations at December 31, 1995.
Other Income and Expense. Other expense-net increased approximately $9.4
million, or 249.0%, in 1995 due primarily to interest expense on the increased
vehicle fleet operated by TEAM in 1995. Vehicle interest increased $10.0 million
due to the increased size of the vehicle fleet throughout 1995. This increase
was offset by an increase in interest income of $0.7 million earned on cash
restricted for acquiring vehicles under TEAM's existing fleet financing
facilities.
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<PAGE> 40
Provision for Income Taxes. The provision for income taxes increased
289.2% to $685,000 in 1995 from $176,000 in 1994. TEAM's effective tax rate
increased from 41.3% in 1994 to 67.0% in 1995. The increase in the tax provision
was due to the enhanced profitability of TEAM in 1995, certain amortization
expense that was not deductible for income taxes purposes, and state income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
Historic for TEAM
Historically, TEAM's operations have been funded by cash provided from
operating activities and by financing provided under asset-backed notes issued
under the First, Second and Third Fleet Financing Facilities (collectively, the
"Fleet Financing Facilities") and by banks, automobile manufacturers' captive
finance companies and leasing companies. TEAM intends to continue to fund its
operations through these sources and other similar sources.
Net cash provided by operating activities for 1996 increased 237.9% to
$54.4 million from $16.1 million in 1995. Net cash provided by operating
activities for 1995 increased 341.2% to $16.1 million from $3.7 million in 1994.
In each period, TEAM experienced increases in cash received from rentals which
were offset to some extent by increases in cash paid to vendors and employees
and in interest expenses.
Net cash used in investing activities is primarily attributable to cash
paid to suppliers of revenue vehicles and, to a lesser extent, capital
expenditures. This cash use is mainly offset by cash received from the sale of
vehicles (most of which sales were pursuant to manufacturers' vehicle repurchase
programs). Cash received from the sale of vehicles was $460.6 million, $293.9
million and $73.7 million for 1996, 1995 and 1994, respectively. Cash paid to
suppliers of revenue vehicles was $517.1 million, $315.9 million and $155.2
million for 1996, 1995 and 1994, respectively. The increase in cash paid to
suppliers of revenue vehicles during 1996 was a result of the increased number
of operating locations throughout 1996. Payment for acquisitions, net of assets
acquired, amounted to $5.1 million, $6.5 million and $5.7 million for 1996, 1995
and 1994, respectively.
Net cash provided by financing activities for 1996 increased 98.0% to $58.6
million from $29.6 million in 1995, due primarily to proceeds received from the
issuance of Common Stock and convertible subordinated debentures, which was
partially offset by the utilization of a portion of these proceeds to repay
existing vehicle and non-vehicle debt. Net cash provided by financing activities
for 1995 decreased 75.1% to $29.6 million from $119.0 million in 1994, due
primarily to the receipt of proceeds from a public offering and a vehicle
financing facility in 1994 for which there were no corresponding receipts in
1995.
Fleet Financing Facilities. At December 31, 1996, amounts outstanding
under the Fleet Financing Facilities were comprised of $105.7 million of
asset-backed notes issued by TEAM's special purpose finance subsidiary, Team
Fleet Financing Corporation ("TFFC"), in August 1994 (the "First Fleet Financing
Facility"), $40.0 million of asset-backed notes assumed by TEAM in connection
with the acquisition of the Los Angeles, California Budget franchise in October
1995 (the "Second Fleet Financing Facility") and $176.0 million of asset-backed
notes issued by TFFC in December 1996 (the "Third Fleet Financing Facility").
These facilities have been utilized to finance Program Vehicles. Proceeds from
these facilities that are temporarily unutilized for vehicle financing are
maintained in restricted cash accounts with the trustee and are not available
for other purposes. The notes issued under these facilities are collateralized
by the financed vehicles and the restricted cash accounts, with the vehicles
being leased to TEAM's operating subsidiaries.
The First Fleet Financing Facility is comprised of senior and subordinated
notes. The senior notes require monthly interest payments at an annual rate of
average LIBOR, as defined, plus 0.75% (6.4% at December 31, 1996). Monthly
principal payments of $16,667,000 commence in June 1999 with the last payment
due in November 1999. The subordinated notes included in the First Fleet
Financing Facility require monthly interest payments at an annual rate of
average LIBOR, as defined, plus 1.30% (6.9% at December 31, 1996) and are
payable in full in December 1999.
The Second Fleet Financing Facility is comprised of senior and subordinated
notes. The senior notes require monthly interest payments at an annual rate of
average LIBOR, as defined, plus 0.60% (6.2% at December 31, 1996). Monthly
principal payments of $4,812,000 commence in November 1997 with the last payment
due in
37
<PAGE> 41
June 1998. The subordinated notes included in the Second Fleet Financing
Facility require monthly interest payments at an annual rate of average LIBOR,
as defined, plus 1.0% (6.6% at December 31, 1996) and are payable in full in
July 1998.
The Third Fleet Financing Facility is comprised of senior and subordinated
notes. The senior notes require monthly interest payments at an annual rate of
6.65%. Monthly principal payments of $13,833,334 commence in 2001 with the last
payment due in 2002. The subordinated notes included in the Third Fleet
Financing Facility require monthly interest payments at an annual rate of 7.10%
and are payable in full in June 2002. Up to $100 million of the Third Fleet
Financing may be used to finance vehicles that are not Program Vehicles.
Convertible Subordinated Notes. In December 1996, TEAM issued $80.0
million aggregate principal amount of Series A Convertible Notes. At a
conversion price of $20.07, the Series A Convertible Notes are convertible into
3,986,049 shares of Class A Common Stock. For a description of the Series B
Convertible Notes to be issued in connection with the Budget Acquisition, see
"Description of Certain Indebtedness -- Convertible Subordinated Notes." In
connection with the issuance of the Series B Convertible Notes, the maturity of
the Series A Convertible Notes will be extended to April 2007.
Vehicle Obligations. Vehicle obligations consist of outstanding lines of
credit to purchase rental vehicles and retail car sales inventory.
Collateralized lines of credit at December 31, 1996 consisted of $203 million
for rental vehicles and $26 million for retail car sales inventory with maturity
dates ranging from April 1997 to May 1998. Vehicle obligations are
collateralized by revenue earning vehicles financed under these credit
facilities and proceeds from the sale, lease or rental of rental vehicles and
retail car sales inventory.
Vehicle obligations relating to the rental fleet are generally amortized
over 5 to 15 months with monthly principal payments ranging from 2% to 3% of the
capitalized vehicle cost. When rental vehicles are sold, the related unpaid
obligation is due. Interest payments for rental fleet facilities are due monthly
at annual interest rates ranging from 7.0% to 8.75% at December 31, 1996.
Management expects vehicle obligations will generally be repaid within one year
with proceeds received from either the repurchase of the vehicles by the
manufacturers in accordance with the terms of the manufacturers' rental fleet
programs or from the sale of the vehicles.
In November 1996, Team Fleet Services Corporation ("TFSC") and VPSI, wholly
owned subsidiaries of TEAM, entered into Revolving Credit Agreements with
NationsBank, National Association (South), as Agent (the "Agent") for the
lenders party thereto, providing for up to $100.0 million and $50.0 million,
respectively, of financing for the acquisition of vehicles (the "Revolving
Credit Facilities"). The interest rates of loans under the Revolving Credit
Facilities are, at the option of TFSC and VPSI and up to certain amounts, based
on the Agent's prime rate, LIBOR or CD rates.
Monthly payments of interest only on obligations relating to retail car
sales inventory are required at the prime rate plus .25% (8.5% at December 31,
1996). Retail car sales inventory obligations are paid when the inventory is
sold but in no event later than 120 days after the date of purchase.
Working Capital Facilities. At December 31, 1996, TEAM had an unutilized
working capital facility of $10.0 million, which requires monthly interest
payments on the outstanding balance at LIBOR plus 2.50% (8.125% at December 31,
1996). This facility, which expires in April 1997, is collateralized by accounts
receivable, vehicle inventory, equipment, certain intangibles, investments and
all other personal property of TEAM and guarantees of certain TEAM subsidiaries.
The working capital facility contains a number of customary affirmative
covenants, including covenants which require TEAM to deliver financial
statements and other reports; maintain properties; maintain its corporate
existence; comply with regulations and taxes; maintain insurance; maintain its
books and records; pay obligations; grant the lenders certain inspection rights;
observe law; provide notices of defaults, litigation and material events; and
comply with environmental matters. The working capital facility also contains a
number of customary negative covenants, including limitations on indebtedness
(including preferred stock), transfer of assets, acquisitions, liens,
investments, merger or consolidation, restricted payments, sales and leasebacks,
change in control and transactions with affiliates; ERISA matters; fiscal year;
dissolution; and rate hedging obligations.
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<PAGE> 42
TEAM is required to meet certain financial covenants, consisting of (a) a
minimum consolidated net worth (as defined) equal to $35,632,800, as increased
at the end of each fiscal quarter beginning with the fiscal quarter ended March
31, 1996 by (i) 75% of consolidated net income (as defined) greater than zero
for such fiscal quarter and (ii) 75% of the net proceeds (as defined) of any
equity offering by TEAM or any of its subsidiaries greater than zero during such
fiscal quarter; (b) a minimum fixed charge ratio (as defined) of 1.05 to 1.00
for any four quarter period ended after June 30, 1996; (c) a maximum
consolidated non-vehicle leverage ratio (as defined) of 1.25 to 1.00; (d) a
minimum consolidated EBIT (as defined) to consolidated interest expense (as
defined) of 1.35 to 1.00 for any four quarter period ended after September 30,
1996; (e) a maximum consolidated non-vehicle indebtedness (as defined) to
consolidated EBITDA (as defined) of 1.25 to 1.00 for any four quarter period
ended after the sale of securities pursuant to the registration statement dated
May 24, 1996; and (f) an average daily vehicle utilization (as defined) of at
least 75% in any calendar month. All of the material terms of the working
capital facility are described in this Prospectus.
Pro Forma Liquidity and Capital Resources for Budget Group
Budget Group's operations will be funded by cash provided from operating
activities and by financing provided under (a) existing TEAM credit facilities,
(b) existing BRACC credit facilities assumed by TEAM, (c) new Budget Group fleet
financing facilities, (d) the Series B Convertible Notes and Guaranteed Senior
Notes to be issued in the Debt Placements, and (e) a new working capital
facility to be entered into by BRACC. For a description of material terms of
Budget Group's financing facilities, see "Description of Certain Indebtedness."
Existing TEAM Facilities
Asset-backed notes issued under the Fleet Financing Facilities, as well as
the Series A Convertible Notes, will remain outstanding following the
consummation of the Budget Acquisition. See "-- Liquidity and Capital
Resources -- Historic for TEAM."
BRACC Facilities Assumed by TEAM
Budget Fleet Finance Corporation Notes -- The Budget Fleet Finance
Corporation Notes are comprised of $500.0 million of senior notes requiring
monthly interest payments at LIBOR plus 0.50% (6.125% at December 31,
1996). Six monthly principal payments of $83.3 million commence in April
1999 with the last payment due in September 1999.
The WizCom Note -- Budget Group will assume a $35.9 million note
payable to WizCom International, Ltd. ("WizCom"), a wholly owned subsidiary
of HFS Incorporated, which finances BRACC's acquisition of a limited
license to use the WizCom reservations system. Interest is payable monthly
at an annual rate of 6.20% through December 1998.
New Budget Group Fleet Financing Facilities
In addition to TEAM's existing fleet financing facilities and BRACC's fleet
financing facilities to be assumed by Budget Group upon consummation of the
Budget Acquisition, TEAM is conducting discussions with a limited number of
major commercial and investment banks with regard to the New Fleet Financing
Facilities. It is anticipated that the New Fleet Financing Facilities will
provide financing for $1.3 billion of vehicles. The New Fleet Financing
Facilities will consist of an $800.0 million commercial paper facility and an
additional $500.0 million financing facility that will be a structured finance
facility. The structured finance facility will be comprised of senior and
subordinated notes. The senior notes will require monthly interest payments at
an annual rate of . Monthly principal payments of $ commence
November 2001 with the last payment due in October 2002. The subordinated notes
will require monthly interest payments at an annual rate of and will
be payable in full in November 2002.
39
<PAGE> 43
The Debt Placements
Concurrently with the consummation of the Offering, Budget Group will issue
$45.0 million aggregate principal amount of Series B Convertible Notes, and
BRACC will issue $165.0 million aggregate principal amount of Guaranteed Senior
Notes, which will be guaranteed by Budget Group and certain subsidiaries of
Budget Group. In addition, the note purchase agreements relating to the Series A
Convertible Notes will be amended to extend the maturity of the Series A
Convertible Notes to April 2007 and conform other terms to the terms of the
Series B Convertible Notes. See "Description of Certain Indebtedness."
New Working Capital Facility
BRACC will enter into a $300.0 million five-year secured credit facility,
which will be guaranteed by Budget Group. For a description of the material
terms of such facility, see "Description of Certain Indebtedness -- The New
Working Capital Facility."
INFLATION
The increased acquisition cost of vehicles is the primary inflationary
factor affecting TEAM's operations. Many of TEAM's other operating expenses are
inflation sensitive, with increases in inflation generally resulting in
increased costs of operations. The effect of inflation-driven cost increases on
TEAM's overall operating costs is not expected to be greater for TEAM than for
its competitors.
SEASONALITY
Generally, in the vehicle rental industry, revenues increase in the spring
and summer months (with the exception of resort destinations) due to the overall
increase in business and leisure travel during this season. TEAM increases the
size of its fleet and work force in the spring and summer to accommodate
increased rental activity during these periods and decreases its fleet and work
force in the fall and winter. However, many of TEAM's operating expenses (such
as rent, insurance and administrative personnel) are fixed and cannot be reduced
during the fall and winter. The retail car sales business is subject to seasonal
effects, with lower sales during the winter months. See "Risk
Factors -- Seasonality."
40
<PAGE> 44
SELECTED FINANCIAL DATA OF BRACC
The following table sets forth selected consolidated statement of
operations data and selected consolidated balance sheet data of BRACC for the
five years ended December 31, 1996. Such data were derived from the audited
Consolidated Financial Statements of BRACC. The financial data for all periods
presented have been adjusted to conform to the financial statement presentation
of TEAM. The Consolidated Financial Statements of BRACC and the notes thereto
for each of the three years in the period ended December 31, 1996 are included
elsewhere in this Prospectus. The selected consolidated financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations of BRACC" and the Consolidated
Financial Statements of BRACC and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue:
Vehicle rental revenue(a).................... $1,080,700 $ 954,188 $1,011,203 $1,034,873 $ 963,764
Retail car sales revenue..................... 72,253 63,596 77,999 83,795 91,503
Other revenue................................ 61,435 61,903 66,564 74,802 77,554
---------- ---------- ---------- ---------- ----------
Total operating revenue............... 1,214,388 1,079,687 1,155,766 1,193,470 1,132,821
Operating costs and expenses:
Direct vehicle and operating................. 221,239 176,252 134,126 153,081 121,288
Depreciation -- vehicle...................... 278,344 206,271 257,356 323,619 263,846
Depreciation -- non-vehicle.................. 25,297 20,431 21,410 19,520 26,645
Cost of car sales............................ 64,639 54,969 67,314 72,416 78,944
Advertising, promotion and selling........... 108,978 99,879 99,738 106,446 83,304
Facilities................................... 115,155 108,741 110,386 113,286 114,325
Personnel.................................... 274,081 248,947 269,370 280,901 248,655
General and administrative................... 85,625 82,731 69,117 88,612 54,194
Intangible amortization...................... 17,223 17,852 16,874 17,006 16,969
---------- ---------- ---------- ---------- ----------
Total operating costs and expenses.... 1,190,581 1,016,073 1,045,691 1,174,887 1,008,170
Operating income............................... 23,807 63,614 110,075 18,583 124,651
Other expense:
Vehicle interest expense..................... 101,032 78,205 86,127 124,758 92,738
Non-vehicle interest expense................. 18,923 16,283 18,823 25,151 31,444
---------- ---------- ---------- ---------- ----------
Income (loss) before provision for income
taxes........................................ (96,148) (30,874) 5,125 (131,326) 469
Provision for income taxes..................... (4,900) -- 4,000 1,314 3,000
---------- ---------- ---------- ---------- ----------
Net income (loss).............................. $ (91,248) $ (30,874) $ 1,125 $ (132,640) $ (2,531)
========== ========== ========== ========== ==========
</TABLE>
41
<PAGE> 45
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT RENTAL
AND RETAIL CAR SALES DATA)
<S> <C> <C> <C>
OPERATING DATA:
EBITDA(b)................................................ $ 405,715 $ 378,728 $ 432,111
Adjusted EBITDA(b)....................................... 62,232 (69,649) 75,527
Net cash provided by operating activities................ 280,793 173,944 256,290
Net cash used in investing activities.................... (411,810) (180,938) (205,054)
Net cash provided by (used in) financing activities...... 173,789 35,661 (87,561)
RENTAL DATA (U.S. UNLESS NOTED):
Locations in operation at period end (worldwide)......... 447 390 374
Number of usable vehicles at period end(c)............... 75,467 68,148 67,137
Rental transactions(d)................................... 6,030,000 5,909,000 5,346,000
Daily dollar average(e).................................. $ 38.43 $ 39.58 $ 41.26
Vehicle utilization(f)................................... 77.4% 75.1% 76.7%
Average monthly revenue per unit(g)...................... $ 904 $ 904 $ 966
RETAIL CAR SALES DATA:
Locations in operation at period end..................... 8 9 11
Average monthly vehicles sold............................ 462 449 491
Average monthly sales revenue(d)......................... $ 6,500 $ 6,983 $ 7,625
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Revenue earning vehicles, net...... $1,362,548 $1,339,000 $1,543,661 $1,353,989 $1,303,975
Vehicle inventory.................. 5,753 7,396 9,674 11,756 14,299
Total assets....................... 2,590,002 2,405,204 2,602,374 2,488,115 2,328,115
Fleet financing facilities......... 1,628,190 1,462,783 1,614,247 1,465,472 1,361,619
Other notes payable................ 216,326 245,714 268,039 452,475 468,767
Total debt......................... 1,844,516 1,708,497 1,882,286 1,917,947 1,830,386
Mandatory redeemable preferred
stock........................... 206,250 221,250 236,250 251,250 5,178
Stockholders' equity............... 111,934 59,558 49,909 (106,102) 143,965
</TABLE>
- ---------------
(a) Includes revenue from vehicle rentals and related products (such as
insurance and loss damage waivers).
(b) EBITDA consists of income before income taxes plus (i) vehicle interest
expense, (ii) non-vehicle interest expense, (iii) vehicle depreciation
expense and (iv) non-vehicle depreciation and amortization expenses.
Adjusted EBITDA consists of income before income taxes plus (i) non-vehicle
depreciation and amortization expenses and (ii) non-vehicle interest
expense. EBITDA and Adjusted EBITDA are not presented as, and should not be
considered, alternative measures of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but are presented because they are widely accepted financial
indicators of a company's ability to incur and service debt.
(c) Represents vehicles available for rent.
(d) Rounded to the nearest thousand.
(e) Represents rental revenue divided by the number of days that vehicles were
actually rented.
(f) Represents the number of days vehicles were actually rented divided by the
number of days vehicles were available for rent.
(g) Represents average monthly revenue divided by average monthly fleet.
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<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BRACC
GENERAL
Budget Rent a Car Corporation is the owner of the "Budget" trademark on a
worldwide basis and is the international franchisor of the Budget System, which
is the third largest worldwide general use car and truck rental system with
approximately 3,000 locations.
BRACC was established in 1958 as a vehicle rental company serving the
downtown and suburban markets of cities in the United States and Canada. In
1960, BRACC began its franchising activities and positioned itself as the value
leader among the competing car rental companies. BRACC remained primarily a
franchise system until the 1980s when it undertook a strategic shift to acquire
franchisees with a view to becoming an operating company. Management believes
that company-owned locations provide enhanced customer service and earnings on a
long-term basis. Additionally, BRACC believes that its identification as a lower
cost provider of rental vehicles may protect its competitive position in the
event of negative economic developments.
For the year ended December 31, 1996, BRACC had 304 company-owned locations
which accounted for more than 60% of the Budget System's U.S. fleet.
Additionally, BRACC has expanded its operating strategy to international markets
and has company-owned locations in the United Kingdom, France, Switzerland,
Australia and New Zealand which account for more than 8% of the Budget System's
international rental revenue.
BRACC's international operations have historically been largely franchised.
For 1994, 1995 and 1996 royalty fees from international franchisees were 21.2%,
21.9% and 22.6% of BRACC's total international revenue and represented 45.9%,
49.0% and 50.4% of BRACC's total royalty fees, respectively. During 1994, 1995
and 1996, total operating expenses have remained stable at 88.8%, 87.4% and
87.8% of BRACC's total international revenue, respectively. As a result, BRACC
had consistent, positive earnings from its international operations of $8.3
million, $9.6 million and $11.4 million for 1994, 1995 and 1996, respectively.
The franchised nature of BRACC's operations also lowers its funding and overall
capital requirements. At December 31, 1994, 1995 and 1996, BRACC's international
operations accounted for 6.2%, 6.8% and 8.0% of BRACC's total assets,
respectively, while the percent of BRACC's total debt represented by these
operations was 3.1%, 3.1% and 3.9%, respectively. See Note 16 of the Notes to
the Consolidated Financial Statements of BRACC.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
operating revenues represented by certain items in BRACC's combined statements
of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Vehicle rental revenue...................................... 87.5% 86.7% 85.1%
Royalty fee revenue......................................... 4.6 4.9 5.3
Retail car sales revenue.................................... 6.7 7.0 8.1
Other revenue............................................... 1.2 1.4 1.5
----- ----- -----
Total operating revenue........................... 100.0 100.0 100.0
Direct vehicle and operating expenses....................... 11.6 12.8 10.7
Depreciation -- vehicles.................................... 22.3 27.1 23.3
Depreciation -- non-vehicle................................. 1.9 1.6 2.4
Cost of vehicles sold at retail............................. 5.8 6.1 7.0
Advertising, promotion and selling expenses................. 8.6 8.9 7.3
Facilities.................................................. 9.5 9.5 10.1
Personnel................................................... 23.3 23.5 21.9
General and administrative expenses......................... 6.0 7.5 4.8
Intangible amortization..................................... 1.5 1.4 1.5
----- ----- -----
Earnings before interest and income taxes................... 9.5 1.6 11.0
Interest expense............................................ 9.1 12.6 11.0
----- ----- -----
Income (loss) before income taxes........................... 0.4 (11.0) 0.0
Provision for income taxes.................................. 0.3 0.1 0.2
----- ----- -----
Net income (loss)........................................... 0.1% (11.1)% (0.2)%
===== ===== =====
</TABLE>
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<PAGE> 47
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
General Operating Results. BRACC had a net loss of $2.5 million for 1996
compared to a net loss of $132.6 million for 1995. Income before income taxes
increased to $469,000 for 1996 from a loss of $131.3 million for 1995. This
improvement reflects the changes BRACC implemented during 1996 by placing a
greater focus on cost reductions, location and segment profitability, customer
service and operational consistency.
Operating Revenues. Operating revenues decreased $60.7 million, or 5.1%,
to $1,132.8 million for 1996 from $1,193.4 million for 1995. Vehicle rental
revenues decreased $71.1 million, or 6.9%, to $963.8 million for 1996 from
$1,034.9 million for 1995, primarily due to a change in fleet mix, which reduced
the number of higher priced luxury and specialty vehicles, and the elimination
of unprofitable segments of the business, including selected low margin
government and tour businesses. The daily average rental rate increased to
$41.26 in 1996 from $39.58 in 1995, an increase of 4.2%, partly reflective of
the reduction in low margin business and an upward movement in the daily rental
prices. Royalty fees increased $2.5 million, or 4.3%, to $60.4 million in 1996
from $57.9 million in 1995 due to growth in international markets. Retail car
sales revenue increased $7.7 million, or 9.2%, to $91.5 million for 1996 from
$83.8 million for 1995 largely due to a 9.4% increase in the number of units
sold.
Operating Expenses. Operating expenses decreased $166.7 million, or 14.2%,
to $1,008.2 million for 1996 from $1,174.9 million for 1995. Vehicle
depreciation expense decreased $59.8 million, or 18.5%, to $263.8 million for
1996 from $323.6 million for 1995, as a result of more closely aligning fleet
mix with customer demand, a lower depreciation rate on purchased risk vehicles
for depreciated values to reflect the fair market wholesale values for vehicles
to be sold (due to a strong used car and truck wholesale environment), and a
13.7% reduction in average fleet size resulting from an 11.6% reduction in
rental volume. The smaller fleet size reduced vehicle depreciation by
approximately $44.2 million while the risk vehicle depreciation change, the
change in fleet mix and all other changes provided the remaining $15.6 million
decrease from 1995. Direct vehicle and operating expenses decreased $31.8
million, or 20.8%, to $121.3 million in 1996 from $153.1 million in 1995,
largely due to the reduction in average fleet size. The change in fleet mix,
which reduced the number of higher priced luxury and specialty vehicles, and
continued improvement in risk management expenses, reflecting ongoing efforts to
minimize the exposure to higher risk renters, together contributed to an $11.7
million reduction in vehicle damage expenses and a $14.2 million reduction in
vehicle insurance expenses. Non-vehicle depreciation expense increased $7.1
million, or 36.5% to $26.6 million for 1996 from $19.5 million for 1995, largely
due to amortization of a new reservation system installed in the fourth quarter
of 1995. Cost of vehicles sold at retail increased $6.5 million, or 9.0% to
$78.9 million for 1996 from $72.4 million for 1995 largely due to the higher
number of units sold. Advertising, promotion and selling expenses decreased
$23.1 million, or 21.7%, to $83.3 million in 1996 from $106.4 million in 1995,
primarily due to the improvement in marketing focus to fewer programs with
stronger impact resulting in a $7.4 million decrease in advertising spending and
$14.9 million in lower selling costs associated with lower revenues. Facilities
expenses remained relatively constant for 1996 and 1995. Personnel expenses
decreased $32.2 million, or 11.5%, to $248.7 million in 1996 from $280.9 million
in 1995, $12.6 million of which was due to a substantial salary reduction
resulting from a decrease in the U.S. salaried workforce initiated in late 1995,
$9.3 million of which was due to a 1995 charge against earnings for the
reduction of U.S. salaried workforce and centralization of accounting functions,
and approximately $8.3 million of which was due to a reduction in rental volume
and corresponding variable labor costs. General and administrative expenses
decreased $34.4 million, or 38.8%, to $54.2 million in 1996 from $88.6 million
in 1995, due to the reduction in salaried headcount, a continued emphasis on
controlling discretionary expenses and the impact of centralization charges
recorded in 1995. Specifically, travel related expenses decreased $5.8 million,
outside professional services decreased $3.5 million, bad debt expense decreased
$5.6 million, and the year to year impact of centralization charges decreased by
$7.5 million. Intangible amortization expense remained relatively constant for
1996 and 1995.
Interest Expense. Interest expense decreased $25.7 million, or 17.2%, to
$124.2 million for 1996 from $149.9 million in 1995. A reduction in the average
borrowing rate resulted in a $7.6 million decrease while all other changes,
largely lower borrowing levels, reflective of the reduction in average fleet
size and mix changes, resulted in a reduction of $18.1 million.
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<PAGE> 48
Provision for Income Taxes. The provision for income taxes increased to
$3.0 million for 1996 from $1.3 million in 1995 due to higher foreign income
taxes, primarily in the United Kingdom.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
General Operating Results. BRACC had a net loss of $132.6 million for 1995
compared to net income of $1.1 million for 1994. Loss before income taxes was
$131.3 million for 1995 compared to income before income taxes of $5.1 million
for 1994. These losses were due to substantially higher operating costs and
greater interest expense which were not fully offset through higher revenue.
Operating Revenues. Operating revenues increased by $37.7 million, or
3.3%, to $1,193.5 million in 1995 from $1,155.8 million in 1994. Vehicle rental
revenues increased $23.7 million, or 2.3% to $1,034.9 million in 1995 from
$1,011.2 million in 1994. This increase was due to a 3.0% increase in the daily
average rental rate, partially offset by a 1.1% reduction in vehicle rental
days. Retail car sales revenue increased $5.8 million, or 7.4%, to $83.8 million
for 1995 from $78.0 million for 1994, primarily due to a change to higher priced
units in the mix of vehicles sold. Royalty fees increased $4.7 million, or 8.9%,
to $57.9 million in 1995 from $53.2 million in 1994, primarily due to growth in
international markets. Other revenues increased $3.5 million, or 26.3%, to $16.9
million in 1995 from $13.4 million in 1994 largely due to improvements in credit
card processing income. The daily average rental rate increased to $39.58 in
1995 from $38.43 in 1994, an increase of 3.0%.
Operating Expenses. Operating expenses increased $129.2 million, or 12.4%
to $1,174.9 million in 1995 from $1,045.7 million in 1994. Vehicle depreciation
expense increased $66.3 million, or 25.8%, to $323.6 million in 1995 from $257.3
million in 1994, due to higher manufacturer depreciation rates for Program
Vehicles, a change in fleet mix to include more specialty vehicles and a 1.8%
increase in average fleet size. The higher manufacturer program rates resulted
in increased depreciation expense of approximately $59.9 million and the
remaining $6.4 million increase was primarily due to larger fleet size. Direct
vehicle and operating expenses increased $19.0 million, or 14.1%, to $153.1
million in 1995 from $134.1 million in 1994, primarily due to higher
salvage/wreck and theft expense, the change in fleet mix to include more luxury
and specialty vehicles and a higher average fleet size. Non-vehicle depreciation
expense decreased $1.9 million, or 8.8%, to $19.5 million in 1995 from $21.4
million in 1994. Cost of vehicles sold at retail increased $5.1 million, or
7.6%, to $72.4 million in 1995 from $67.3 million in 1994 reflecting a more
costly mix of vehicles. Advertising, promotion and selling expenses increased
$6.7 million, or 6.7%, to $106.4 million in 1995 from $99.7 million in 1994,
primarily due to $2.2 million of higher selling costs associated with higher
revenues, $3.5 million of marketing costs for credential reissuance in
conjunction with the new corporate logo and the remainder due to other net
marketing expenditures, largely frequent flyer programs. Facilities expenses
increased $2.9 million, or 2.6%, to $113.3 million in 1995 from $110.4 million
in 1994, due to minor increases in several areas, such as $2.5 million in lease
expense for rental and administrative facilities and $.5 million for repairs and
maintenance. Personnel expenses increased $11.5 million, or 4.3%, to $280.9
million in 1995 from $269.4 million in 1994, largely due to a $9.3 million one-
time charge taken in 1995 in conjunction with the reduction in the U.S. salaried
workforce and the centralization of accounting functions. General and
administrative expenses increased $19.5 million, or 28.2%, to $88.6 million in
1995 from $69.1 million in 1994, due to a $5.3 million one-time restructuring
charge related to a reduction in BRACC's workforce in 1995 and centralization of
accounting functions, $3.0 million due to the non-recurrence of a legal
settlement in 1994 related to a contract dispute regarding the failed attempt to
design and build a multi-user reservation processing system, and increases in
other general expenses, including travel related costs of $2.0 million and bad
debt of $1.4 million. Intangible amortization expenses remained relatively
constant for 1995 and 1994.
Interest Expense. Interest expense increased $44.9 million, or 42.8%, to
$149.9 million for 1995 from $105.0 million in 1994. An increase in the average
borrowing rate resulted in a $30.8 million increase while the remaining increase
of $14.1 million was largely due to higher borrowing levels reflective of the
increase in average fleet size and mix changes.
Provision for Income Taxes. The provision for income taxes decreased to
$1.3 million for 1995 from $4.0 million in 1994 primarily due to lower deferred
federal and foreign income taxes.
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<PAGE> 49
LIQUIDITY AND CAPITAL RESOURCES OF BRACC
Historically, BRACC's operations have been funded by cash provided from
operating activities and by financing provided by banks, automobile
manufacturers' captive finance companies and leasing companies. BRACC's existing
indebtedness at December 31, 1996 was $1,830.4 million and had interest rates
ranging from 4.06% to 12.00%. Below is a general description of the debt
facilities which BRACC currently utilizes.
Vehicle Asset Backed Facilities
Medium Term Notes. The medium term notes include notes issued by Budget
Fleet Finance Corporation ("BFFC") in June 1994. BFFC is a special purpose
bankruptcy remote corporation. The BFFC notes are comprised of medium term notes
requiring monthly interest payments at a floating rate of LIBOR, as defined,
plus 0.50%. The BFFC notes total $500 million and have a maturity of five years
from the inception of the facility. Monthly principal payments of $83.3 million
commence in April 1999 with the last payment due in September 1999.
Commercial Paper. The commercial paper program, which was established in
July 1993, is an $845 million program with a 90-day maximum maturity on all
commercial paper issued. The commercial paper is sold through Budget Funding
Corporation ("BFC"), which is a special purpose bankruptcy remote corporation.
Interest is payable monthly at the market rate when the commercial paper is
issued. The average interest rate for 1996 was 5.43%.
Other Vehicle Debt
Ford Vehicle Facility. This facility was established with Ford Motor
Credit Company ("FMCC") to finance program and risk vehicles and light and
medium duty trucks which are all manufactured by Ford. There is $500 million
available under this facility and interest is paid monthly at the one-month
commercial paper rate plus 2.00%. The collateral for this facility is all
vehicles financed plus all revenue streams and proceeds from sales.
Non-Ford Vehicle Facility. This facility was established with FMCC to
finance program and risk vehicles and light and medium duty trucks which are not
manufactured by Ford. There is $500 million available under this facility and
interest is paid quarterly at the one-month commercial paper rate plus 2.25%.
The collateral for this facility is all vehicles financed plus all revenue
streams and proceeds from sales.
The amount outstanding under these facilities cannot exceed $800 million.
Other Debt
Working Capital Facility. The working capital facility of $525 million is
funded by FMCC. This facility is primarily used to provide cash for daily
operating activities. Interest is paid quarterly to FMCC based upon a monthly
commercial paper interest rate plus 2.50%.
Other Notes Payable. Other notes payable consist primarily of the WizCom
note, which had a balance of $35.9 million and an interest rate of 6.20% at
December 31, 1996. The entire note will be paid in full by December 1998.
In addition, BRACC's international operations have debt facilities with
certain financial institutions and vehicle manufacturers. The majority of these
debt facilities are fleet related where the vehicles are used as collateral. As
of December 31, 1996, fleet obligations were $67.7 million.
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<PAGE> 50
BUSINESS OF BUDGET GROUP
GENERAL
Budget Group 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 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 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.
Budget Group is also one of the largest independent retailers of late model
vehicles in the United States, operating 22 retail car sales facilities with pro
forma revenues of $246.9 million for 1996. Upon consummation of the Budget
Acquisition, Budget Group will continue to operate its retail car sales
facilities under the name "Budget Car Sales."
BACKGROUND
BRACC. In 1960, BRACC began franchising car and truck rental operations
serving the downtown and suburban areas of cities in the United States and
Canada. Budget established its first major airport location in 1967, but
maintained a marketing strategy of offering good value to price-sensitive
personal renters. Historically, BRACC has operated the broadest distribution
system in the industry, with more full-service local market locations in the
United States and worldwide than its major competitors and the largest
integrated system offering both cars and trucks in most markets worldwide.
During the 1980's, BRACC undertook a strategic shift from being structured as a
franchising company to functioning as an operating company.
For the year ended December 31, 1996, BRACC's 304 company-owned locations
in the United States accounted for approximately 61.4% of the Budget System's
vehicle rental U.S. revenues, while its 70 company-owned locations outside the
United States accounted for approximately 8.3% of the Budget System's
international vehicle rental revenues. For the year ended December 31, 1996,
BRACC's company-owned locations accounted for approximately 38.0% of total
worldwide Budget System revenues. At December 31, 1996, Budget franchisees
(including TEAM) maintained 651 locations in the United States and 2,182
locations internationally.
TEAM. TEAM is the largest U.S. Budget franchisee and is one of the largest
independent retailers of late model automobiles in the United States. TEAM
became a publicly held corporation in August 1994, with 23 locations in four
franchise territories, and embarked on a strategy to significantly expand its
Budget franchise base by further consolidating Budget franchise operations and
to develop a branded retail car sales operation within its Budget franchise
territories. Since that time, TEAM has pursued an aggressive growth strategy in
both its vehicle rental and retail car sales operations. Since its initial
public offering, TEAM has added an additional nine Budget franchise territories.
With 152 locations as of December 31, 1996, TEAM accounted for approximately
14.8% of the Budget System's 1996 U.S. revenues. Concurrently with the
development of its Budget franchise business, TEAM has developed or acquired 11
retail car sales facilities.
Sanford Miller (Chairman and Chief Executive Officer), John P. Kennedy
(President and Chief Operating Officer) and Jeffrey D. Congdon (Chief Financial
Officer and Secretary) together have over 75 years of experience in the vehicle
rental business and have acquired and operated 54 Budget franchises over the
past 15 years. In addition, Messrs. Miller and Congdon together have over 25
years of experience operating retail car sales facilities.
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<PAGE> 51
Budget Group. Upon completion of the Budget Acquisition, Budget Group will
consist of 455 company-owned locations in the United States, including 21 of the
25 largest airport rental markets in the United States. In addition, Budget
Group will account for approximately 76% of the Budget System's 1996 U.S.
system-wide revenues. Accordingly, the Budget Acquisition will mark a
significant furtherance of the initiative undertaken by BRACC approximately 10
years ago to make the transition from being a franchising company to being an
operating company as well as furtherance of TEAM's strategy of consolidating the
Budget System. Budget Group believes that its increased level of company-owned
operations will enable it to improve the performance of the Budget System and to
compete more effectively in both the corporate and consumer segments of the
vehicle rental industry. Budget Group will be managed by officers having
significant experience with BRACC and TEAM, who will utilize operating
strategies and systems that have proven most effective for BRACC and TEAM.
STRATEGY
Management's long-term strategy is to create an automotive services company
which leverages the asset base and expertise of Budget Group. Budget Group's
assets include a trade name that is recognized around the world; locations for
the rental, sale and maintenance of vehicles; a workforce that is proficient in
acquiring, financing, monitoring, maintaining and selling cars and trucks; and
advanced information systems to support these operations. Increasing the
utilization of these assets by acquiring automobile-related businesses would
reduce Budget Group's unit costs and increase profitability. In the near term,
management has developed a business strategy designed to increase the revenues
and improve the profitability of Budget Group. Key elements of this strategy are
as follows:
- Enhance the Budget brand
- Improve the performance of car rental operations
- Continue to expand retail car sales operations
- Expand truck rental operations
Enhance the Budget Brand
Following the Budget Acquisition, the Budget System will be approximately
76% company-owned in the United States, giving Budget Group a percentage of
company-owned locations that management believes to be higher than many of its
principal competitors. Management believes this high level of corporate
ownership is a competitive advantage in the marketplace. It facilitates more
consistent delivery of high quality services and improved operations and
communications, thereby strengthening the Budget brand name among customers.
Improved "front counter" systems will be designed to present a more consistent
image to Budget customers, both corporate and individual, with an increased
emphasis on quality of service and customer satisfaction. Budget Group's
structure will facilitate national advertising and marketing programs designed
to increase the public's awareness of the Budget brand. In addition, management
believes that there will be continuing opportunities to further consolidate the
Budget System by acquiring additional franchise operations, and that such
consolidation will further strengthen the Budget brand.
Improve the Performance of Car Rental Operations
Historically, TEAM has enhanced the profitability of its acquired franchise
territories by reducing operating costs and increasing rental revenue.
Similarly, in 1996, BRACC began initiatives that are already significantly
improving the performance of its company-owned operations. Upon completion of
the Budget Acquisition, management believes Budget Group will be able to combine
key elements of the TEAM and BRACC strategies to achieve even greater operating
efficiencies. Budget Group expects to undertake significant initiatives to (i)
enhance the performance of its U.S. car rental operations, (ii) capitalize on
the increased level of company-owned locations, (iii) increase its marketing to
corporate accounts, (iv) place increased emphasis on the leisure and local
rental markets, and (v) expand and improve Budget's international operations.
Enhance the Performance of U.S. Car Rental Operations. TEAM and BRACC have
each successfully enhanced the profitability of their operations by implementing
cost reduction strategies. These strategies have
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<PAGE> 52
included centralizing certain corporate functions (such as credit card and
warranty processing), extending their fleet management practices in order to
improve fleet utilization and per unit cost versus yield, improving the timing
and processing of fleet deliveries and dispositions, reducing fleet downtime,
and improving fleet make/model composition to better match customer demand. TEAM
and BRACC have each also implemented cost management practices to reduce overall
personnel costs, lower vehicle maintenance expense and damage repair costs and
increase the effectiveness of their servicing procedures. In order to increase
revenues of its acquired operations, TEAM and BRACC have utilized various yield
management models to optimize pricing and fleet utilization (for example, by
tracking demand patterns and allowing local managers to shift fleet inventory
between locations). The Budget Group believes that it will be able to utilize
various elements of these operating strategies to enhance the performance of the
combined TEAM/BRACC operations.
Capitalize on the Increased Level of Company-Owned Locations. Management
believes that the addition of the 151 locations that TEAM operates in its 13
franchise territories to the 304 locations operated by BRACC in the United
States will significantly improve the car rental operations of Budget Group in
the United States. Specifically, the increased level of company-owned operations
will facilitate a more consistent delivery of services, uniform prices and
communications to customers and allow Budget Group to improve its yields and
fleet utilization in many of its locations. Management believes that the
combination of TEAM and BRACC operations in contiguous markets will
significantly improve the marketing programs and operating efficiency of the
combined company. For example, Budget Group will be able to achieve increased
efficiencies by integrating BRACC's operations at Los Angeles International
Airport with TEAM's operations throughout Southern California, BRACC's
operations in the New York City area with TEAM's operation in Philadelphia, and
BRACC's operation in Boston with TEAM's operation in Hartford. Combining the
operations of TEAM and BRACC, Budget Group will operate in 21 of the 25 largest
airport rental markets in the United States. Budget Group will seek to manage
the combined companies more efficiently by integrating critical management
information systems, developing more comprehensive customer data and combining
the two companies' regional management organizations.
Increase Marketing to Corporate Accounts. For the year ended December 31,
1996, approximately one-half of Budget Group's car rental revenue was derived
from corporate accounts, with this customer base accounting for approximately
one-half of Budget Group's rentals from airport locations. Management believes
that it will be able to increase the contribution from corporate accounts, both
in absolute dollars and as a percentage of its car rental revenues, by
significantly increasing its marketing efforts to corporate accounts.
Specifically, management believes that middle market companies (companies that
would have accounts in the $500,000 to $1.0 million annual revenue range)
provide usage and yield characteristics that are favorable for Budget Group.
Management expects to broaden Budget Group's marketing effort to this targeted
customer base by adding additional marketing personnel and believes that the
improved consistency of service and pricing throughout the Budget System, driven
in significant part by the higher proportion of company-owned locations, will be
particularly important in marketing to this customer base.
Place Increased Emphasis on the Leisure and Local Markets. Budget Group
intends to place an increased emphasis on the leisure and local markets upon
completion of the Budget Acquisition. Budget's success in the leisure market has
been driven by its reputation for offering vacation travelers favorable rates on
high quality cars and the strength of its operations at airports in travel
destinations. Management believes that corporate ownership of Budget's
operations in Florida, Hawaii, Southern California and Phoenix will improve
Budget Group's ability to market Budget's services to tour operators, travel
agents, travel wholesalers and cruise lines.
The local segment of the car rental industry consists of facilities located
near downtown or suburban areas and is directed toward individuals renting cars
while their automobiles are being repaired, for out of town travel or for
special occasions, and toward businesses seeking automobiles or vans for
occasional local use. Budget was founded in 1958 in order to serve this segment,
and enhanced its position through an affiliation with Sears, Roebuck & Co.
("Sears") in 1970 (which allows Budget to rent cars and trucks under the Sears
name ("Sears Car and Truck Rental") at over 900 locations throughout the United
States). BRACC currently maintains more full-service local market locations
worldwide than its major competitors. Maintaining a strong position in the local
market significantly improves Budget's fleet utilization, as cars may be
shuttled from airports to downtown and suburban locations for weekend use.
Management believes that it will be able to improve its performance in
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<PAGE> 53
the local market segment by adding locations in certain existing local markets,
which should allow Budget Group to generate additional revenues with relatively
small increases in administrative overhead. Additionally, such locations
typically have less intense rate competition and fewer corporate customers
utilizing negotiated rate structures.
Expand and Improve International Operations. Budget is one of only three
systems that offers rental vehicles throughout the world under a single brand
name and Budget is recognized as a market leader in several key foreign markets,
including Canada, Germany and many Latin American and Caribbean countries.
Management believes that the strength of the Budget System in foreign markets
has important value in name recognition and serving the needs of local customers
and international travelers. For 1996, approximately 44.1% of the Budget
System's worldwide revenues were derived from its 2,252 locations in more than
110 countries. Company-owned operations at international locations in the United
Kingdom, France, Switzerland, Australia and New Zealand accounted for
approximately 8.3% of the Budget System's 1996 international revenues, with the
remainder attributable to the operations of approximately 2,182 franchised
locations. Management believes that it will be able to improve Budget Group's
international operations by implementing programs through which underperforming
franchisees will be able to improve their operating results. Management also
believes that certain emerging markets, such as the Pacific Rim and Southeast
Asia, provide growth opportunities for the Budget System, and that it will be
able to add locations in these markets, either directly or through franchisees.
Continue to Expand Retail Car Sales Operations
The increased cost of new cars and the improved reliability of low-mileage,
late model cars have contributed to greater market demand for late model cars in
recent years. Notwithstanding this growth, the retail car sales market remains
highly fragmented, with most late model cars being sold through the used car
operations of local or regional new car dealerships. Management believes that
the market for late model cars is currently undergoing significant changes, with
the emergence of companies retailing late model cars on a national or regional
basis.
TEAM's Principal Executive Officers have more than 25 years of experience
in acquiring and selling low-mileage, late model cars. Budget Group, with 22
retail car sales facilities and pro forma car sales revenues of $246.9 million
for 1996, will be one of the largest independent retailers of late model cars in
the United States. Management believes that it will be able to improve the
performance of the acquired BRACC retail sales facilities by incorporating
certain systems that TEAM has utilized in its retail car sales operations and
that it will be able to achieve efficiencies by combining and centralizing
certain functions.
Budget Group plans to establish a nationally recognized and branded retail
car sales operation which will provide low mileage, late model cars to consumers
in a new car sales environment under the Budget Car Sales brand. Management
expects Budget Group to establish multiple sales facilities in many of its
markets, which will allow Budget Group to benefit from shared administration and
marketing programs with its vehicle rental business.
Expand Truck Rental Operations
The Budget System is unique among major car rental systems in that it rents
trucks to consumers and commercial users in most major markets worldwide, with
the fourth largest consumer truck rental fleet in the United States. Budget has
long been considered an innovator in the truck rental market, having introduced
the first all-diesel-equipped and all-automatic-transmission fleets for consumer
use, as well as four-door versions of moving trucks that provide seating for a
family or moving crew. TEAM has implemented a strategy of expanding its truck
rental operations in its franchised territories, and management believes Budget
Group will be able to significantly expand Budget's truck rental business
following the Budget Acquisition. Management expects Budget Group to add truck
rental locations in various markets, particularly in conjunction with the
addition of new local market locations. Management believes that adding truck
rental locations will leverage certain fixed costs and increase consumer
awareness of the Budget brand, while favorable pricing trends in the truck
rental market are expected to provide attractive returns on invested capital.
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THE BUDGET SYSTEM
BRACC provides consistent system-wide services, a state-of-the-art
reservation system and other opportunities to all vehicle rental locations
within the Budget System. For 1996, pro forma for the consummation of the Budget
Acquisition, Budget Group constituted approximately 76% of the U.S. revenues of
the Budget System.
System-Wide Services. BRACC provides the Budget System with: (i) national
promotion, advertising and public relations; (ii) reservations and information
systems; (iii) data processing support; (iv) marketing programs with hotels and
airlines; (v) Sears Car and Truck Rental concessions; (vi) a sales staff for
marketing to corporate customers and the travel community; (vii) credit card
services for commercial customers; (viii) training in local marketing
techniques; (ix) operation, training and support; (x) fleet purchasing programs;
and (xi) a company-owned fleet of cars and trucks for one-way rentals. In
general, pursuant to its agreements with its franchisees, BRACC is required to
expend a certain percentage of franchise royalties that it receives on
advertising and promotion. In addition, BRACC negotiates with automobile
manufacturers to develop vehicle acquisition and disposition programs that are
available to franchisees as well as to company-owned locations.
BRACC facilitates one-way car rentals between approximately 325 selected
company-owned and franchised locations in the United States. This one-way
program is also in place for truck rentals at approximately 325 locations. A
limited fleet of vehicles owned by BRACC is dedicated to supplement the one-way
vehicle rental capacity of the participating locations. This program enables the
Budget System to operate more fully as an integrated network of locations.
Reservations System. BRACC operates a state-of-the-art computerized
reservation system through WizCom. Budget's main reservation facility is located
in the Dallas metropolitan area and has over 400 employees. Auxiliary centers
are located in Toronto, Canada, the United Kingdom, Australia and New Zealand.
These centers are linked with the major airline and travel industry reservation
systems through the worldwide Budget reservation network. The main reservation
facility accepts inquiries and reservations for Budget System locations
worldwide on a 24-hour basis, 365 days a year. The reservation centers utilize
an extensive database maintained on rates and vehicles available for nearly all
Budget System locations, a special file of pertinent information on frequent
renters and other information that facilitates the Budget System's business.
Sears Car and Truck Rental. In 1970, BRACC established a contractual
relationship with Sears which allows Budget operating locations to provide car
and truck rental under the Sears name. Sears Car and Truck Rental customers may
use their Sears charge card for payment of rental charges. Sears Car and Truck
Rental is available at approximately 900 Budget locations in the United States.
MANAGEMENT STRUCTURE
Budget Group will be managed by a combination of managers from TEAM and
BRACC. Sanford Miller, the Chairman and Chief Executive Officer of TEAM, will be
the Chairman and Chief Executive Officer of Budget Group. The existing
managements of TEAM and BRACC will be integrated to create an effective and
experienced management team for Budget Group which draws upon the knowledge and
strengths of the two organizations. TEAM management anticipates that the
majority of BRACC's corporate functions will continue to be managed by existing
BRACC personnel. See "Management." Budget Group's primary corporate functions
will be centralized in its headquarters in Lisle, Illinois, the worldwide
headquarters of BRACC. TEAM previously maintained a decentralized management
structure of its day-to-day rental operations. As part of the Budget
Acquisition, TEAM's rental operations will be merged into BRACC's and
centralized to take advantage of cost benefits associated with centralization.
TEAM coordinates vehicle purchases among its franchised territories to
enable it to benefit from volume purchases of vehicles. TEAM handles billing and
collection on a decentralized basis, but employs centralized cash management to
permit optimal use of its financial resources. TEAM's corporate staff manages
the acquisition and financing of new operating locations and general managers
develop local vehicle rental markets.
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RENTAL OPERATIONS
Budget rents a wide variety of automobiles and trucks, most of which
consist of the current and immediately preceding model years. Vehicle rentals
are generally made on a daily, weekly or monthly basis and generally include
unlimited mileage. Rental charges are computed on the basis of the length of the
rental or, in some cases, on the length of the rental plus a mileage charge.
Rates vary at different locations depending on the type of vehicle rented, the
local market and competitive and cost factors. Most rentals are made utilizing
rate plans under which the customer is responsible for gasoline used during the
rental. Budget also generally offers its customers the convenience of leaving a
rented vehicle at a Budget location in a city other than the one in which it was
rented, although, consistent with industry practices, a drop-off charge or
special intercity rate may be imposed.
The following table sets forth for the periods indicated the number of
owned and franchised locations of Budget in North America and at international
locations and certain other data of Budget Group:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Locations in operation at end of period:
United States:
BRACC-owned............................................ 311 304
TEAM-owned............................................. 133 152
Other franchisees...................................... 560 500
------- -------
Total U.S......................................... 1,004 956
International:
BRACC-owned............................................ 79 70
Franchisees............................................ 2,027 2,182
------- -------
Total International............................... 2,106 2,252
------- -------
Budget System................................ 3,110 3,208
Average fleet size(a)....................................... 233,081 235,874
</TABLE>
- ---------------
(a) Average fleet size is the number of vehicles (both cars and trucks) owned or
leased by Budget each day of the period divided by the number of days in the
period.
North American Operations
At December 31, 1996, BRACC owned and operated 304 Budget locations in the
United States, and franchisees (including TEAM) owned and operated 651 Budget
locations in the United States and 390 Budget locations in Canada. Of the U.S.
facilities, nearly 300 primarily serve airport business and more than 650 serve
local market (downtown and suburban) locations. Budget's mix of business
consists of approximately 65% in the airport segment and 35% in the local
segment. In addition, BRACC rents trucks at 137 of its company-owned locations.
Budget is in many cases one of five to seven vehicle concessionaires at the
airports in which it operates. In general, concession fees for airport locations
are based on a percentage of total commissionable revenues (as determined by
each airport authority), subject to minimum annual guaranteed amounts.
Concessions are typically awarded by airport authorities every three to five
years based upon competitive bids. Budget's concession arrangements with the
various airport authorities generally impose certain minimum operating
requirements, provide for relocation in the event of future construction and
provide for abatement of the minimum annual guarantee in the event of extended
low passenger volume.
International Operations
At December 31, 1996, BRACC owned and operated 70 international Budget
locations, consisting of 36 European locations (including the Middle East and
Africa) and 34 locations in the Asia/Pacific region, and franchisees owned and
operated 2,182 international Budget locations, consisting of 1,140 European
locations, (including the Middle East and Africa), 263 Latin American locations
and 389 locations in the Asia/Pacific
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region. Budget locations can be found in more than 110 countries outside the
United States. Budget is recognized as a market leader in Canada, Germany and
many Latin American and Caribbean countries.
Van Pooling Operations
Van Pool, TEAM's commuter van pooling subsidiary, was acquired by TEAM in
February 1996 and maintains offices in 21 cities located in 15 states and the
District of Columbia. Founded in 1977, Van Pool provides van pooling services to
individuals, corporations and municipalities. Pursuant to van pool agreements
between TEAM and either the volunteer driver, corporation or municipality (the
"contracting party"), the contracting party agrees to drive or arrange a van
pool which travels a fixed route set by TEAM. TEAM sets the fees, which are
collected by the driver and remitted to TEAM. Van Pool employs approximately 40
individuals at its home office in Troy, Michigan and approximately 40
individuals in its local markets, and at December 31, 1996 operated a fleet of
approximately 3,250 passenger vans.
RENTAL VEHICLE PURCHASING
Budget participates in a variety of vehicle purchase programs with major
domestic and foreign vehicle manufacturers. On average during model year 1996,
79% of BRACC's vehicle purchases consisted of Ford vehicles, 5% of Toyota
vehicles, and the remaining 16% of General Motors, Mazda and Chrysler vehicles.
These percentages vary among BRACC's operations and will most likely change from
year to year. The average price for automobiles purchased by BRACC in 1996 for
its rental fleet was approximately $18,300. TEAM also participates in a variety
of vehicle purchase programs with major domestic and foreign manufacturers. On
average during 1996, 42% of the automobile purchases consisted of Chrysler
vehicles, 15% of Ford vehicles and 21% of Nissan vehicles. The average price for
automobiles purchased by TEAM in 1996 for its rental fleet was approximately
$18,100.
Budget's principal relationship has historically been with Ford, with an
emphasis on products from the Lincoln-Mercury Division of Ford. In 1988, Budget
entered into a ten-year supply agreement with Ford, which committed Budget to
acquire 70% of its vehicle requirements for company-owned rental locations from
Ford. Under this agreement, Ford agreed to remain competitive in products and
vehicle programs offered to Budget. Concurrently with the Budget Acquisition,
BRACC will enter into a new ten-year Supply Agreement with Ford. Under the new
Supply Agreement, BRACC and its affiliates (including TEAM) will agree (i) to
purchase or lease at least 70% of the total number of vehicles leased or
purchased by it in each model year from Ford and (ii) to purchase or lease at
least 80,000 new Ford vehicles in each model year in the United States. See "The
Budget Acquisition -- Related Agreements -- Supply Agreement."
FLEET UTILIZATION AND SEASONALITY
Budget's business is subject to seasonal variations in customer demand,
with the summer vacation period representing the peak season for vehicle
rentals. The general seasonal variation in demand, along with more localized
changes in demand at each of BRACC's locations, causes BRACC to vary its fleet
size over the course of the year. For the year ended December 31, 1996, BRACC's
average monthly fleet size ranged from a low of 64,400 vehicles in January to a
high of 88,600 vehicles in August. Fleet utilization, which is based on the
average number of days vehicles are rented compared to the total number of days
vehicles are available for rental, ranged from 73% in January to 83% in August
and averaged 77% for the year ended December 31, 1996.
In 1996, TEAM's average monthly fleet size (excluding Van Pool) ranged from
a low of 10,694 vehicles in January to a high of 18,870 vehicles in July. Fleet
utilization ranged from 79% in June to 85% in August and averaged 81% for the
year ended December 31, 1996.
RENTAL RELATED PRODUCTS
Although the dominant source of Budget Group's total revenue is time and
mileage charges from the rental of vehicles and franchise payments from its
franchisees, Budget Group also generates revenue from rental related products
such as loss damage waivers, personal accident insurance, personal effects
protection, additional liability insurance, other travel related insurance
coverages and travel related products. The travel related products from
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which Budget Group generates revenue include vehicle upgrades, gasoline sales,
intercity drop-off charges and miscellaneous items such as baby seats, ski
racks, cellular phones and additional driver fees.
MARKETING
BRACC's promotional and marketing activities are designed to promote Budget
as a value service provider and to promote brand loyalty. BRACC has a sales
force of approximately 200 employees worldwide. Budget's national advertising
program is implemented through a variety of media, including national and local
television, radio, newspapers, magazines, airline ticket jackets, airline
in-flight magazines and strategically located billboards, an Internet site,
counter and store collateral materials and merchandise. BRACC also has
cooperative advertising arrangements with airlines, hotels, travel agency
consortia and others in the travel industry. Budget participates in a number of
airline frequent flyer programs (including United Airlines, Southwest Airlines,
Alaska Airlines, Aeromexico and Lufthansa), as well as certain hotel programs,
theme park programs and credit card affinity programs. Budget also has a
frequent renter program, Awards Plus, which gives renters a strong incentive to
bring all of their car rental business to Budget. In addition, BRACC has
contracts with a number of airlines, hotels and other organizations pursuant to
which such organizations agree to recommend Budget's services during their
reservation calls and to transfer interested customers to a Budget reservation
agent. In addition, in connection with the Budget Acquisition BRACC will
undertake to carry out promotional programs that feature and promote the rental
of Ford vehicles. See "The Budget Acquisition -- Related
Agreements -- Advertising Agreement."
CUSTOMER SERVICE
Budget's commitment to delivering a consistently high level of customer
service is a critical element of its success strategy. Each month, over 3,000
Budget customers are randomly surveyed to measure service levels by location.
Budget identifies specific areas of achievement and opportunity from these
surveys. Areas of improvement are addressed on a system-wide level and standard
methods and measures are developed. To drive improvement, the service standards
are audited routinely by management and service delivery standards accessors.
The major areas of these assessments include: (i) speed of rental/return process
including busing where applicable, (ii) vehicle condition and availability,
(iii) customer interaction including helpfulness and courtesy and (iv) location
image. In addition, Budget utilizes a toll-free "800" number that allows
customers to report problems directly to the Customer Relations department.
Monthly reports of the types and number of complaints received are used in
conjunction with the customer satisfaction reports by location management as
feedback of customer service delivery. Furthermore, Budget participates in the
annual J.D. Power and Associates survey process to ensure that competitive
levels of performance are achieved.
INFORMATION TECHNOLOGY
BRACC's information technology is designed to provide Budget worldwide with
high quality, cost effective systems and services on a timely basis. In late
1995, BRACC implemented its state-of-the-art reservation system, which consists
of a highly integrated mainframe system with an intelligent workstation
component for reservation agents, allowing them to access pertinent information
in a fast and user-friendly manner. The reservation system has direct interfaces
to the airline system and captures key corporate and customer information.
BRACC's rental counter and back-office system, BEST I, supports both
company-owned and franchisee operations. BRACC's fleet system supports fleet
finance, dealership accounting and ordering for all brands of vehicles including
direct ordering lines to Ford, Toyota, Nissan and Mazda. BRACC's human
resources, benefits and payroll interface is supported by a client server system
that automatically feeds to an outsourced payroll system. In 1997 and 1998,
Budget Group intends to continue to enhance and consolidate its information
technology systems allowing Budget to deliver consistent customer service at all
of its locations.
VEHICLE RENTAL FACILITIES
TEAM and BRACC lease substantially all of their U.S. airport and local
market rental facilities and operated from 455 rental locations at December 31,
1996. The airport facilities are located on airport property owned by
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airport authorities or located near the airport in locations convenient for bus
transport of customers to the airport. Each airport facility includes vehicle
storage areas, a vehicle maintenance facility, a car wash, a refueling station
and rental and return facilities. Local market rental facilities generally
consist of a limited parking facility and a rental and return desk and are
generally subject to fixed-term leases with renewal options. Certain of these
leases also have purchase options at the end of their terms.
FRANCHISING
Of Budget's 3,208 locations at December 31, 1996, 2,833 are owned and
operated by franchisees with franchisees representing 62% of 1996 system-wide
revenues. As of December 31, 1996, BRACC maintained over 800 separate franchise
agreements with almost 600 franchisees (including TEAM). BRACC has franchise
locations in more than 110 countries worldwide. Franchised locations range from
large operations in major airport markets with fleet sizes in excess of 4,000
vehicles and franchise territories within an entire country to operations in
small markets with fleets of fewer than 50 vehicles.
BRACC considers its relationships with its franchisees to be excellent. It
works closely with franchise advisory councils (which have historically included
TEAM management) in formulating and implementing sales, advertising and
promotion, and operating strategies and meets regularly with these advisors and
other franchisees at regional, national and international meetings. BRACC has an
ongoing growth strategy of adding new franchises worldwide when opportunities
arise. Incremental franchises provide BRACC with a source of high margin revenue
as there are relatively few additional fixed costs associated with fees paid by
new franchisees to BRACC.
BRACC's relationship with each Budget franchisee is governed by franchise
agreements (the "Franchise Agreements"), which grant to the franchisees certain
exclusive territories in which to operate the Budget vehicle rental business.
The Franchise Agreements provide BRACC with significant rights regarding the
business and operations of each franchise and impose restrictions on the
transfer of the franchise and on the transfer of the franchisee's capital stock
without the consent of BRACC. Each franchisee is required to operate each of its
franchises in accordance with certain standards contained in the Budget
operating manual (the "Operating Manual"). BRACC has the right to monitor the
operations of franchisees and any default by a franchisee under a Franchise
Agreement or the Operating Manual may give BRACC the right to terminate the
underlying franchise.
In general, the Franchise Agreements grant the franchisees the exclusive
right to operate a Budget Rent a Car and/or Budget Rent a Truck business in a
particular geographic area for a stated period. Franchise Agreements generally
provide for an unlimited number of renewal terms. Upon renewal, the terms and
conditions of Franchise Agreements (other than with respect to royalty fees) may
be amended from those contained in the existing Franchise Agreements. The
standard royalty fee payable to BRACC under Franchise Agreements is 7.5% of
gross rental revenues in the United States and 5% of gross rental revenues in
international markets, but certain of the BRACC franchisees have franchise
agreements with different royalty fee structures.
Pursuant to each Franchise Agreement, the franchisee must meet certain
guidelines relating to the number of rental offices in the franchised territory,
the number of vehicles maintained for rental and the amount of advertising and
promotion expenditures. In general, each Franchise Agreement provides that the
franchisee shall not engage in any other vehicle rental business within the
franchise territory during the term of such agreement and for 12 months
thereafter. In addition, franchisees agree not to use the word "Budget" or any
other Budget trademark other than in their vehicle rental business.
RENTAL VEHICLE DISPOSITION
BRACC's operating strategy is to maintain its fleet at an average age of
four months or less, and TEAM's operating strategy has been to maintain its
fleet at an average age of six months or less. Approximately 88% of the vehicles
purchased by BRACC and approximately 85% of the vehicles purchased by TEAM in
model year 1996 were Program Vehicles. These programs currently require that
TEAM and BRACC maintain Program Vehicles in their fleets for a minimum number of
months and impose numerous return conditions, including those related to mileage
and repair condition. More than 97% of the Program Vehicles purchased by Budget
Group and scheduled to be returned in 1996 were eligible for return. At the time
of return to the manufacturer, BRACC and
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TEAM receive the price guaranteed at the time of purchase and are thus protected
from fluctuations in the prices of previously-owned vehicles in the wholesale
market at the time of disposition. The future percentages of Program Vehicles in
Budget Group's fleet will be dependent on the availability and attractiveness of
manufacturers' repurchase programs, over which Budget Group has no control. See
"Risk Factors -- Potential Changes in Manufacturers' Repurchase Programs."
In addition to manufacturers' repurchase programs, BRACC and TEAM dispose
of their rental fleet through automobile auctions, sales to wholesalers and
internal retail car sales operations. While the disposal of rental vehicles
through internal retail car sales operations has been limited to date,
management believes that such dispositions may increase as Budget retail car
sales operations continue to grow and as management evaluates the mix of Budget
Group's Program Vehicles and vehicles not subject to manufacturers' repurchase
programs.
RETAIL CAR SALES OPERATIONS
As of December 31, 1996, TEAM operated 11 retail car sales facilities,
establishing TEAM as one of the largest independent retailers of late model cars
in the United States, with 1996 revenues of approximately $134.1 million. As of
December 31, 1996, BRACC operated 11 retail car sales facilities, with 1996
revenues of approximately $91.5 million. TEAM and BRACC sell cars, sport utility
vehicles and trucks through their retail car sales facilities.
Retail Car Sales Inventory. In 1996, the vehicles sold at Budget retail
car sales facilities consisted primarily of 1996 model year automobiles and
passenger vans, with some 1995 model year vehicles and very few 1994 model year
vehicles. TEAM and BRACC have historically acquired most of their retail car
sales inventory at auctions, although they have acquired some cars from their
rental fleets. In the future, Budget Group expects to increase its acquisitions
of cars from the disposition of cars used in its rental fleet and to purchase a
smaller portion from auctions. TEAM and BRACC coordinate car purchases among
their retail car sales locations to enable them to benefit from volume purchases
of cars.
Trademarks. TEAM and BRACC operate their retail car sales operations under
the name "Budget Car Sales," and Budget Group intends to continue to operate its
retail car sales facilities under that name after the Budget Acquisition.
Vehicle Pricing and Financing. While many cars display stickers indicating
their "blue book" value, customers are permitted to negotiate pricing terms with
the sales managers. Various local enterprises provide financing to customers of
TEAM and BRACC on a non-exclusive basis. To supplement its sale of vehicles,
TEAM and BRACC sell extended service contracts and related consumer products to
their customers.
Retail Car Sales/Service Facilities. Each of TEAM's retail car sales
facilities consists of a showroom and an outdoor display area, which together
accommodate the on-site display of at least 100 cars, and a service area.
Although certain of TEAM's retail car sales facilities have been converted from
facilities that were used in other businesses, TEAM prefers to build its own
retail car sales facilities and believes that such facilities can be built at an
average cost of approximately $1.2 million. The service departments operated at
each retail car sales facility are responsible for inspecting a car's condition
and for providing necessary reconditioning and maintenance services before sale.
These services are provided uniformly for its retail car sales facilities in
accordance with an inspection checklist developed by TEAM. Service departments
also provide after-sale service for TEAM's customers. BRACC's retail car sales
facilities are typically smaller than TEAM's car sales facilities and do not
include service departments.
COMPETITION
The vehicle rental industry is characterized by intense competition,
particularly with respect to price and service. In any geographic market, Budget
Group may encounter competition from national, regional and local vehicle rental
companies. Budget's main competitors in the rental market are Hertz, Avis,
Alamo, National and Enterprise. In consumer truck rentals, Budget faces
competition from U-Haul, Ryder and Penske. There have been occasions when the
major vehicle rental companies have been adversely affected by industry-wide
price
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cutting, and TEAM and BRACC have on such occasions lowered their prices in
response. Budget Group will not generally be able to unilaterally raise its
prices or to maintain its prices in times of industry price cutting.
The retail car sales business is also characterized by intense competition
from a range of regional and local car dealerships and other retailers of
previously-owned vehicles. Management believes that Budget Group competes
primarily against new car dealers retailing previously-owned cars. Budget
Group's retail car sales facilities are located among similar facilities and, in
some instances, together with Budget Group's rental operations. The entry of
large, well-capitalized retailers of late model previously-owned cars may
provide Budget Group with significant additional competition. See "Risk
Factors -- Competition."
INSURANCE
TEAM currently has insurance coverage in an amount of up to $6.0 million,
with a $500,000 retention per occurrence, with respect to personal injury and
damage claims arising from the use of its vehicles, except with respect to
vehicles rented through its Los Angeles, San Diego, Albany and Rochester
operations. Under California law, vehicle rental customers are primarily liable
for damages arising from the use of rental vehicles. Vehicle rental companies
are secondarily liable for such damages up to an amount limited by California
law to $35,000 per occurrence, unless the vehicle rental company has negligently
maintained the vehicle or has "negligently entrusted" the vehicle to a rental
customer. Accordingly, TEAM does not maintain third party insurance coverage in
California. In New York, TEAM maintains insurance coverage with a third party
insurer, with no applicable deductible. TEAM's workers compensation insurance
coverage is subject to a $500,000 self-insurance retention. TEAM's general
liability coverage is $1.0 million per occurrence, $2.0 million aggregate
coverage with no retention.
BRACC currently has excess liability insurance coverage in an amount of up
to $3.0 million in excess of a $2.0 million self-insured retention on a per
occurrence basis in the United States and a $1.0 million self-insured retention
in the United Kingdom with respect to general liability claims and with respect
to personal injury and property damage claims arising from the use of vehicles
rented from company-owned locations. There is no self-insured retention for the
BRACC operation in France and only a $1,000 and $5,000 self-insured retention
for Australia and New Zealand operations, respectively. Claims resulting from
accidents occurring in the United States are administered by BRACC employees,
while claims resulting from accidents occurring at any international BRACC
locations are administered by third-party claim handling services. BRACC has
worker's compensation insurance with a $500,000 self-insurance retention, as
well as $100 million property insurance coverage subject to a $1.0 million
aggregate deductible with $250,000 per occurrence maintenance deductibles.
REGULATORY AND ENVIRONMENTAL MATTERS
TEAM and BRACC are subject to federal, state and local laws and
regulations, including those relating to taxing and licensing of vehicles,
franchising, consumer credit, environmental protection, retail vehicle sales and
labor matters.
Matters Affecting the Vehicle Rental Industry
Approximately 7.0% and 6.4% of the 1996 car rental revenues of TEAM and
BRACC, respectively, were generated from the sale of loss damage waivers. The
United States House of Representatives has from time to time contemplated
legislation that would regulate the conditions under which loss damage waivers
may be sold by car rental companies. For example, in January 1995, a bill was
introduced in the United States House of Representatives which seeks to prohibit
the imposition of liability on renters for loss of, or damage to, rented
vehicles, except in certain circumstances, and, if passed, would prohibit the
sale of loss damage waivers. To date, no action has been taken on this bill. In
addition, approximately 40 states have considered legislation affecting the sale
of loss damage waivers. To date, 18 of those states have enacted legislation
requiring disclosure to each customer at the time of rental that a loss damage
waiver may not be necessary; certain states have enacted legislation limiting
rental car companies' right to offer loss damage waivers for sale and limiting
potential customer liability to specified amounts; and other states have capped
the rates that may be charged for loss damage waivers to stated amounts per day.
Adoption of national or additional state legislation limiting the sale, or
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capping the rates, of loss damage waivers could further restrict sales of this
product, and additional limitations on potential customer liability could
increase costs to Budget Group. Certain states currently make vehicle owners
(including vehicle rental companies) vicariously liable for the actions of any
person lawfully driving an owned vehicle, regardless of fault. Vehicle rental
companies are also subject to various federal, state and local consumer
protection laws and regulations including those relating to advertising and
disclosure of charges to customers. The National Association of Attorneys
General has promulgated suggested guidelines for car rental advertisements.
Environmental Matters
The principal environmental regulatory requirements applicable to TEAM and
BRACC operations relate to the ownership or use of tanks for the storage of
petroleum products, such as gasoline, diesel fuel and waste oils; the treatment
or discharge of waste waters; and the generation, storage, transportation and
off-site treatment or disposal of waste materials. TEAM and BRACC operate at
approximately 170 locations where petroleum products are stored in underground
or aboveground tanks. TEAM and BRACC each maintain environmental compliance
programs designed to maintain compliance with applicable technical and
operational requirements, including periodic integrity testing of underground
storage tanks and providing financial assurance for remediation of spills or
releases. TEAM and BRACC believe that their respective operations currently are
in compliance, in all material respects, with such regulatory requirements.
However, TEAM and BRACC, as well as those competing entities which own or
operate underground storage tanks, must achieve compliance with certain Federal
underground storage tank requirements by 1998. Although the costs of complying
with these requirements have not been estimated and may, in the aggregate, be
substantial, Management believes that such costs are not likely to have a
material adverse effect on Budget Group's results of operations, financial
condition, or competitive position.
The historical and current uses of the TEAM and BRACC facilities may have
resulted in spills or releases of various hazardous materials or wastes or
petroleum products ("Hazardous Substances") which now, or in the future, could
require remediation. TEAM and BRACC also may be subject to requirements related
to remediation of Hazardous Substances that have been released to the
environment at properties they own or operate, or owned or operated in the past,
or at properties to which they send, or have sent, Hazardous Substances for
treatment or disposal. Such remediation requirements generally are imposed
without regard to fault, and liability for any required environmental
remediation can be substantial. TEAM and BRACC may be eligible for reimbursement
or payment of remediation costs associated with releases from registered
underground storage tanks in states that have established funds to assist in the
payment of such remediation costs. Subject to certain deductibles, the
availability of funds, the compliance status of the tanks and the nature of the
release, these tank funds may be available to TEAM and BRACC for use in
remediating releases from their tank systems.
TEAM Locations. Certain of the TEAM locations have been the subject of
environmental remediation as a consequence of leaks or spills and continue to
have some level of environmental impairment that may require further
remediation. In connection with the acquisition of franchise territories in
Philadelphia, Pittsburgh and Cincinnati, the seller, Chrysler Credit
Corporation, Inc. ("CCC"), agreed to provide up to $873,750 through 1997 for
remediation activities at sites in those areas shown to be impaired by
assessments performed under the supervision of TEAM. Although the ultimate cost
of these remediation activities is currently unknown, Management believes that
the amount of funding to be provided by CCC will be sufficient to cover the cost
of these remediation activities.
BRACC Locations. Approximately 140 BRACC-owned rental facilities contain
underground storage tanks. In connection with the Budget Acquisition, Ford has
agreed subject to certain limitations to indemnify TEAM against losses incurred
by TEAM arising out of or resulting from breaches by BRACC of BRACC
representations and warranties in its Stock Purchase Agreement (including those
relating to environmental matters), to the extent such losses are not covered by
an insurance policy or a reserve established by BRACC, relating to any action by
a third party in connection with environmental matters. Ford's indemnity
obligation for environmental and certain other matters is capped $40 million.
However, Ford is not required to indemnify TEAM unless such loss individually
exceeds $15,000 and the breach of all representations and warranties (including
those relating to environmental matters) has resulted in aggregate losses in
excess of $2.0 million, nor is Ford required to pay the
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first $2.0 million of such aggregate losses (including those relating to
environmental matters). Although the potential cost of any necessary remediation
at BRACC's facilities is not precisely known, it is not expected to exceed $10
million over the next three to five years.
See "Risk Factors -- Regulatory and Environmental Matters."
Franchise Matters
As a franchisor, BRACC is subject to federal, state and foreign laws
regulating various aspects of franchise operations and sales. These laws impose
registration and disclosure requirements on franchisors in the offer and sale of
franchises and, in certain states, also apply substantive standards to the
relationship between the franchisor and the franchisee, including those
pertaining to default, termination and nonrenewal of franchises.
Other Matters
Regulations enacted by various federal and state authorities affect Budget
Group's businesses. The financing activities of Budget Group's retail car sales
operations are subject to federal truth in lending, consumer leasing and equal
credit opportunity regulations, as well as state and local motor vehicle finance
laws, installment finance laws, insurance laws, usury laws, installment sales
laws and other consumer protection regulations.
LEGAL MATTERS
From time to time, TEAM and BRACC are subject to routine litigation
incidental to their businesses. Neither TEAM nor BRACC is currently involved in
any legal proceeding which it believes would have a material adverse effect upon
its financial condition or operations.
EMPLOYEES
TEAM had approximately 2,000 employees at December 31, 1996, including
part-time and "on call" employees who shuttle vehicles between locations. At
December 31, 1996, 50 employees in San Diego, 50 employees in Pittsburgh and 46
employees in Philadelphia were subject to collective bargaining agreements. The
collective bargaining agreement covering the San Diego employees expires in
October 1997, the collective bargaining agreement covering the Pittsburgh
employees expires in November 1998 and the collective bargaining agreement
covering the Philadelphia employees expires in October 1998. TEAM believes that
its employee relations are good.
BRACC had approximately 9,800 employees at December 31, 1996, including
part-time and "on call" employees who shuttle vehicles between locations. At
December 31, 1996, 1,021 employees in various locations throughout the United
States were subject to collective bargaining agreements. These collective
bargaining agreements expire between 1997 and 1999. BRACC believes that its
employee relations are good.
HEADQUARTERS
TEAM's headquarters facility consists of 2,500 square feet of leased space
in Daytona Beach, Florida. BRACC's headquarters facility consists of 149,088
square feet of leased office space plus 11,400 square feet of space for a data
center in Lisle, Illinois, a suburb of Chicago. Other significant BRACC
properties include a 69,300 square foot reservations center in Carrollton,
Texas, which is owned by BRACC, a 61,168 square foot leased administrative
center in Orlando, Florida, and a 21,600 square foot leased international
headquarters facility in Hemel Hempstead, England, a suburb of London.
Management believes that these facilities are sufficient for the needs of Budget
Group.
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<PAGE> 63
THE BUDGET ACQUISITION
GENERAL
On January 13, 1997, TEAM entered into the Stock Purchase Agreements with
Ford, BRACC and John J. Nevin (the common stockholder of BRACC), pursuant to
which, upon the terms and subject to the conditions thereof, TEAM will acquire
the capital stock of BRACC. Consummation of the Offering will occur concurrently
with, and is conditioned upon, consummation of the Budget Acquisition, the Debt
Placements and the New Fleet Financings, and will provide a portion of the
financing for the Budget Acquisition.
TERMS OF THE STOCK PURCHASE AGREEMENT
Consideration. The consideration to be paid by TEAM pursuant to the Stock
Purchase Agreements consists of (i) approximately $275.0 million of Cash
Consideration (subject to adjustment under circumstances) and (ii) the issuance
to Ford of the Equity Consideration. The Equity Consideration will be the
greater of (i) 4,500 shares of the newly created Series A Convertible Preferred
Stock and (ii) a number of shares of Series A Convertible Preferred Stock equal
to the product of (x) .001 and (y) the quotient obtained by dividing 75,000,000
by the average of the closing prices of the Class A Common Stock for the ten
consecutive trading days immediately preceding the second trading day prior to
the closing date of the Budget Acquisition. Each share of Series A Convertible
Preferred Stock will be non-voting, will not carry a dividend and will
automatically convert into 1,000 shares of Class A Common Stock at such time as
the record ownership of such share of Series A Convertible Preferred Stock is
transferred to or held by any person or any entity other than Ford or any
affiliate of Ford. In addition, based upon the closing price of the Class A
Common Stock on The Nasdaq National Market on March 21, 1997, TEAM is obligated
under the Stock Purchase Agreements to purchase approximately $100.7 million of
the currently outstanding indebtedness of BRACC to Ford and Ford is obligated to
cancel an additional $128.3 million of outstanding BRACC indebtedness. Based
upon the closing price of the Class A Common Stock on The Nasdaq National Market
on January 13, 1997, the date of execution of the Stock Purchase Agreements, the
amount of BRACC indebtedness that TEAM agreed to purchase would have been $105.8
million and the amount of BRACC indebtedness that Ford agreed to cancel would
have been $123.3 million. TEAM is also obligated under the Stock Purchase
Agreements to refinance approximately $856.2 million of indebtedness outstanding
under BRACC's existing fleet financing facilities. See "Use of Proceeds."
Special Bonus Program. Pursuant to the Stock Purchase Agreements,
concurrently with the consummation of the Budget Acquisition, Ford is required
to contribute $2.4 million in cash to BRACC or TEAM in connection with the
establishment of a special bonus program (the "Special Bonus Program") providing
for bonus payments to BRACC employees with an aggregate value equal to $4.8
million. The Special Bonus Program will be on such terms as Ford and TEAM agree
after good faith negotiations and, in any event, will provide for broad
participation by employees of BRACC. TEAM may, at its option, fund one-half of
the Special Bonus Program in options to purchase Common Stock of TEAM. TEAM
currently plans to satisfy a portion of its obligations with respect to the
Special Bonus Program by issuing options under TEAM's 1994 Option Plan.
Conditions to the Closing. The obligations of TEAM, Ford, BRACC and the
other parties to the Stock Purchase Agreements to consummate the Budget
Acquisition are subject to the satisfaction or, where legally permitted, waiver
of certain conditions, including among others (i) the absence of any temporary
restraining order, preliminary or permanent injunction or other order or other
legal restraint or prohibition preventing the consummation of the transactions
contemplated by the Stock Purchase Agreements, (ii) the expiration or
termination of the waiting period applicable to the consummation of the Budget
Acquisition under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended, (iii) redemption by BRACC of its outstanding Series X Preferred Stock
and (iv) termination of the existing stockholders' agreement between Ford and
the common stockholder of BRACC. The closing of each of the transactions
contemplated by the Stock Purchase Agreements is conditioned upon the concurrent
consummation of all of the transactions contemplated by the Stock Purchase
Agreements.
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<PAGE> 64
Stockholder Approval. Simultaneously with the execution of the Stock
Purchase Agreements, the holders of all of the outstanding Class B Common Stock
of TEAM executed a written consent action approving the issuance of the Equity
Consideration. No other approval of the stockholders of TEAM is required in
connection with the Budget Acquisition.
Termination. The Stock Purchase Agreements may be terminated under certain
circumstances, including, among others, if the closing of the transactions
contemplated by the Stock Purchase Agreements shall not have occurred on or
prior to October 15, 1997 or by mutual written agreement of the parties to the
Stock Purchase Agreements.
Indemnification. Under the terms of the Stock Purchase Agreements, subject
to certain limitations described below, Ford has agreed to indemnify TEAM
against losses arising out of or resulting from (a) any breach by Ford of a
representation or warranty contained in the Stock Purchase Agreements, (b) any
breach by BRACC of any BRACC representation or warranty (without giving effect
(other than with respect to representations on environmental liabilities) to any
exception contained therein for matters that would or would not, as the case may
be, have a material adverse effect on BRACC), (c) any breach by the common
stockholder of BRACC of a representation, warranty or covenant contained in its
Stock Purchase Agreement or (d) any failure by Ford to perform any agreement or
covenant contained in the Stock Purchase Agreements. Ford will not be required
to indemnify TEAM for any losses except to the extent that (i) the breach of the
particular representations and warranties as to which indemnification is sought
has resulted in losses, individually, in excess of $15,000 and (ii) the breach
of all such representations and warranties as to which indemnification is sought
has resulted in aggregate losses in excess of $2.0 million (subject to limited
exceptions with respect to tax and environmental matters). Ford will not, in any
event, be required to pay (x) the first $2.0 million of losses incurred by TEAM
or (y) any losses of TEAM under the Stock Purchase Agreements or otherwise to
the extent that the aggregate amount of losses incurred by TEAM theretofore paid
by Ford exceeds $40.0 million. The $40.0 million limitation will not apply with
respect to any claim for indemnification in respect of a breach by BRACC of its
representations and warranties with respect to employee programs and taxes.
Claims for breaches of representations and warranties must be brought prior to
the first anniversary of the closing date of the Budget Acquisition (subject to
certain limited exceptions, including representations with respect to tax,
environmental and employee benefit matters).
TEAM has agreed to indemnify Ford against, and agreed to protect, save and
keep harmless Ford from payment of, and assumed liability for the payment of,
all losses arising out of or resulting from (i) any breach by TEAM of a
representation or warranty contained in the Stock Purchase Agreements or (ii)
any failure by TEAM to perform any agreement or covenant contained in the Stock
Purchase Agreements.
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES TO BE ADDED IN CONNECTION WITH THE
BUDGET ACQUISITION
In connection with the Budget Acquisition, certain executive officers and
significant employees of BRACC are expected to join the management team of
Budget Group. See "Management."
INTEREST OF CERTAIN PERSONS IN THE BUDGET ACQUISITION
Series A Convertible Preferred Stock. Upon consummation of the Budget
Acquisition and the Offering, Ford will beneficially own an aggregate of
approximately 22.1% of the total outstanding shares of the Company's Class A
Common Stock (assuming conversion of all of the shares of Series A Convertible
Preferred Stock into shares of Class A Common Stock, but assuming no conversion
of any outstanding stock options, warrants, convertible notes or shares of Class
B Common Stock into Class A Common Stock). The Series A Convertible Preferred
Stock to be issued to Ford as the Equity Consideration will be automatically
converted into 4,500,000 shares of Class A Common Stock in the event that the
beneficial or record ownership of such shares of Series A Convertible Preferred
Stock is transferred to or held by any person or entity that is not Ford or an
affiliate of Ford. Ford may elect to transfer the Series A Convertible Preferred
Stock and thereby effect a conversion of the Series A Convertible Preferred
Stock into Class A Common Stock at any time. See "Description of Capital Stock."
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<PAGE> 65
Preferred Stockholders Agreement. In connection with the consummation of
the Budget Acquisition, Ford and TEAM will enter into the Preferred Stockholders
Agreement (the "Preferred Stockholders Agreement"). Pursuant to the terms of the
Preferred Stockholders Agreement, Ford will agree that, during the period
commencing on the closing date of the Budget Acquisition and terminating on the
first anniversary of such closing date, Ford and its affiliates will not,
directly or indirectly, (i) purchase or otherwise acquire, or propose or offer
to purchase or otherwise acquire, any equity securities of TEAM if, immediately
after such purchase or acquisition, Ford's equity interest in TEAM would equal
or exceed the equity interest of Ford in TEAM as of the closing date of the
Budget Acquisition, or (ii) propose or offer to enter into certain Business
Combinations (the "Standstill Agreement"). "Business Combination" means any one
of the following transactions: (i) any merger or consolidation of BRACC or any
subsidiary of BRACC with Ford or any affiliate of Ford; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition by BRACC in one or a
series of transactions to or with Ford or any affiliate of Ford of all or a
substantial part of the consolidated assets of BRACC; (iii) the adoption of any
plan or proposal for the liquidation or dissolution of BRACC proposed by or on
behalf of Ford or any affiliate of Ford; or (iv) any reclassification of
securities, recapitalization of BRACC or any merger or consolidation of BRACC
with any subsidiary of BRACC or any other transaction to which BRACC is a party
which has the effect of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the Company or any
subsidiary of BRACC which is owned by Ford or any affiliate of Ford. The
Standstill Agreement will not apply during any period in which Ford's equity
interest in TEAM is less than ten percent, to any issuance and sale of new
equity securities by TEAM to Ford or any Ford affiliate, or to certain other
permitted acquisition transactions. Additionally, Ford will agree that it will
not, directly or indirectly, sell, transfer or otherwise dispose of any equity
securities of TEAM beneficially owned by Ford except pursuant to a registered
underwritten public offering, pursuant to an applicable exemption from the
registration requirements of the Securities Act, to TEAM or a subsidiary
thereof, or to a Ford affiliate. TEAM will agree that, during the period
beginning on the date of the Preferred Stockholders Agreement and ending on the
earliest of (i) nine months following the date thereof, (ii) the date on which
Ford's equity interest in TEAM is less than 50% of its equity interest as of the
closing date of the Budget Acquisition and (iii) if, on the date eight months
from the date of the Preferred Stockholders Agreement, there is not pending a
request for registration pursuant to Ford's demand registration rights
(including a request in connection with which securities registered pursuant to
a registration statement in connection with a Ford demand registration request
have not all been offered or fully distributed), then, on the eight-month
anniversary of the closing date of the Budget Acquisition, TEAM will not (x)
issue or sell TEAM equity securities (subject to certain exceptions), (y)
acquire control of any person or assets or business for cash consideration in
excess of $20 million or (z) make any acquisition in a transaction involving
TEAM equity securities (subject to certain exceptions) without the written
consent of Ford. Pursuant to the Preferred Stockholders Agreement, TEAM will
grant to Ford certain registration rights with respect to the equity securities
of TEAM held by Ford and its affiliates. See "Description of Capital
Stock -- Registration Rights."
RELATED AGREEMENTS
Supply Agreement. Concurrently with the consummation of the Budget
Acquisition, BRACC will enter into a supply agreement with Ford (the "Supply
Agreement"). Under the terms of the Supply Agreement, BRACC and its affiliates
(which term includes TEAM but does not include other Budget franchisees) will
agree to purchase or lease Ford vehicles in such quantity in the United States,
Canada and other countries outside the European Union so that the percentage of
Ford vehicles purchased or leased in each country will be at least 70% of the
total number of vehicles leased or purchased in each model year by BRACC and its
affiliates. In the United States, BRACC and its affiliates and franchisees will
purchase or lease at least 80,000 Ford vehicles in each model year. Under the
terms of the Supply Agreement, Ford and its affiliates will agree to offer to
BRACC and its affiliates and franchisees, for each model year, vehicles and
fleet programs that are generally competitive with the vehicles and fleet
programs of other automotive manufacturers. Ford also will agree to make
reasonable allocations of Ford vehicles available to BRACC and its affiliates
and franchisees, and such allocation in the United States in any model year must
be at least 80,000 vehicles. The Supply Agreement will be effective from
September 1, 1997 through August 31, 2007, and is subject to exceptions and
revisions upon the occurrence of force majeure events.
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Under the terms of the Supply Agreement, Budget Group has agreed to pay
Ford, on September 1, 1998 and on each anniversary through September 1, 2004, an
annual royalty equal to the greater of (i) one percent of net vehicle revenue of
BRACC for the prior model year, or (ii) a specified minimum amount (equal to
$9.9 million for the September 1, 1998 annual royalty payment and subject to
adjustment for each annual period thereafter, based upon changes in the consumer
price index). The minimum royalty payable with respect to each model year will
be reduced by a stated amount for each Ford vehicle purchased by BRACC and its
affiliates and franchisees in excess of 123,000 Ford vehicles. The aggregate of
all royalties paid to Ford over the term of the Supply Agreement is subject to a
limit of $100 million.
Advertising Agreement. Concurrently with the consummation of the Budget
Acquisition, BRACC will enter into a 10-year advertising agreement with Ford
(the "Advertising Agreement") under which BRACC will undertake to carry out
promotional programs that feature and promote the rental of Ford vehicles. Such
promotional programs include a wide variety of advertising and promotional
activities to promote Ford products. Under the terms of the Advertising
Agreement, Ford will pay to Budget for such advertising and promotional
activities a stated base amount for each model year with an annual consumer
price index adjustment. The base amount is fixed for the first five model years
(beginning with model year 1998) and Ford and Budget agree to negotiate in good
faith to determine the base amount for the last five years of the Advertising
Agreement. Ford will not be required to pay the amount specified under the
Advertising Agreement for any model year if the percentage of Ford vehicles
acquired during the model year falls below 55%, subject to certain exceptions
set forth in the Advertising Agreement, and will be required to pay more than
the base amount if the percentage of Ford vehicles acquired during the model
year exceeds 55%. Payments by Ford under the Advertising Agreement are also
subject to reduction if the total of Ford vehicles acquired in any model year
falls below the total of Ford vehicles acquired in model year 1997.
ORGANIZATIONAL CHARTS
The following organizational charts depict the Budget System before and
after consummation of the Budget Acquisition. "TEAM" refers to Team Rental
Group, Inc. and its subsidiaries prior to the Budget Acquisition; (ii) "BRACC"
refers to Budget Rent a Car Corporation and its subsidiaries prior to the Budget
Acquisition; (iii) "Budget Group" refers to TEAM (including BRACC) after giving
effect to the Budget Acquisition; and (iv) the "Budget System" refers to the
business of renting cars and trucks and retailing late model vehicles conducted
by BRACC and its franchisees (including Team).
[CHART]
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
The following table sets forth certain information with respect to persons
who are expected to serve as executive officers, directors and significant
employees of Budget Group and its subsidiaries upon completion of the Budget
Acquisition:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
Sanford Miller.................................. 44 Chairman of the Board of Directors, Chief
Executive Officer and Director
John P. Kennedy................................. 52 President, Chief Operating Officer and Director
Jeffrey D. Congdon.............................. 54 Chief Financial Officer, Secretary and Director
Scott R. White.................................. 33 Executive Vice President, Corporate Development
Robert L. Aprati................................ 52 Senior Vice President & General Counsel --BRACC
Sandra S. Hughes................................ 48 Vice President, Licensee Integration -- BRACC
Donald J. Norwalk............................... 32 Vice President and Treasurer
Dennis M. O'Gara................................ 45 Vice President, Worldwide Sales -- BRACC
Karl H. Ottolini................................ 40 Vice President, Financial Planning &
Analysis -- BRACC
Mark R. Sotir................................... 32 Vice President, Worldwide Marketing -- BRACC
James J. Sweeney................................ 45 Vice President, Fleet Operations -- BRACC
L. Scott Tiemann................................ 38 Vice President and Corporate Controller
Stephen G. Worthley............................. 53 Vice President and Treasurer -- BRACC
Thomas B. Zorn.................................. 34 Vice President, Truck Operations -- BRACC
Ronald D. Agronin............................... 59 Director
James F. Calvano................................ 60 Director
Martin P. Gregor................................ 33 Director
Alan D. Liker................................... 59 Director
Jeffrey R. Mirkin............................... 44 Director
Dr. Stephen L. Weber............................ 55 Director
</TABLE>
Directors are elected annually to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers are
elected by and serve at the discretion of the Board of Directors.
Sanford Miller has been the Chairman of the Board of Directors and Chief
Executive Officer of TEAM since April 1994. From August 1991 to August 1994, he
was Vice President of Tranex Rental of New York, Inc. ("Tranex"), which operated
the Albany and Rochester Budget franchises, and from December 1991 to August
1994, was Vice President of Capital City Leasing, Inc. ("Capital City"), which
operated the Richmond, Virginia Budget franchise. From 1989 to 1991, Mr. Miller
served as Director of Marketing, Special Accounts for BRACC. From 1981 to 1989,
Mr. Miller was an executive officer and principal stockholder of corporations
that owned and operated 30 Budget franchises that were sold to BRACC in 1989.
From 1979 to 1981, he was a North East Regional Field Operations Manager for
BRACC. Mr. Miller served as President of the American Car Rental Association, a
nation-wide industry trade association, in 1993 and as Chairman of the Licensee
Local Market Advisory Board of the Budget System in 1989 and 1990. Mr. Miller is
also a director of MoneyGram Payment Systems, Inc. ("MoneyGram") and Colonial
Bank of Volusia County. Mr. Miller is the first cousin of Mr. Agronin.
John P. Kennedy has been President, Chief Operating Officer and a director
of TEAM since April 1994. From November 1991 to August 1994, he was President of
Metro West, Inc., whose wholly owned subsidiary previously owned TEAM's San
Diego airport operations. From September 1989 to October 1991, he was an
independent consultant to the vehicle rental industry. From July 1985 to August
1989, he served as President of NYRAC, Inc. d/b/a Budget Rent a Car of Kennedy
and La Guardia Airports. From 1968 to 1984, he served in various capacities with
Avis, including as Vice President of Operations.
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Jeffrey D. Congdon has been the Chief Financial Officer, Secretary and a
director of TEAM since April 1994. Since December 1990, he has been Secretary
and Treasurer of Tranex Credit Corporation, which provides financing for
purchases of previously owned vehicles. From 1980 to 1989, he was an executive
officer and principal stockholder of corporations that owned and operated 30
Budget franchises that were sold to BRACC in 1989. From 1982 to 1996, Mr.
Congdon owned and operated retail new and/or used car sales operations in
Indianapolis, Indiana.
Scott R. White has been Executive Vice President, Corporate Development of
TEAM since February 1997. From August 1992 to February 1997, he worked in the
Investment Banking Department of Credit Suisse First Boston Corporation, most
recently as a Vice President. Mr. White received his J.D. degree from the
University of Texas School of Law in May 1992 and is a member of the State Bar
of Texas. In addition, he was a Financial Analyst at The First Boston
Corporation from July 1986 to July 1989.
Robert L. Aprati has been the Senior Vice President & General Counsel of
BRACC since January 1988. Mr. Aprati is director of the American Car Rental
Association.
Sandra S. Hughes has been Vice President, Licensee Integration of BRACC
since November 1996. From January 1993 to November 1996, she was Vice President,
Market Development, and from March 1988 to January 1993, she was Vice President
of Corporate Field Marketing of BRACC.
Donald J. Norwalk has been Vice President and Treasurer of TEAM since July
1994. From January 1994 to July 1994, he was the SEC Reporting and Compliance
Officer for FFLC Bancorp, Inc., a bank holding company. From January 1989 to
January 1994, he was an auditor for Deloitte & Touche LLP, serving clients
primarily in the financial, manufacturing and real estate industries.
Dennis M. O'Gara has been Vice President, Worldwide Sales of BRACC since
June 1996. From November 1994 to June 1996, he was Vice President of Operations,
with responsibility for all aspects of truck operations. From June 1993 to
November 1994, Mr. O'Gara was Director of Operations -- Florida, and from
November 1991 to June 1993 he was Regional Director of Finance -- Florida. Mr.
O'Gara joined BRACC in 1990 as truck manager for the Florida region.
Karl H. Ottolini has been Vice President, Financial Planning and Analysis
of BRACC since June 1995 and has been a member of BRACC's management committee
since June 1996. From January 1992 to June 1995, he was Director, Financial
Analysis and Reporting of BRACC.
Mark R. Sotir has been Vice President, Worldwide Marketing of BRACC since
June 1996 and from April 1995 to June 1996, he was Vice President, Market
Planning. From 1989 to April 1995, Mr. Sotir was employed by The Coca-Cola
Company, most recently as group marketing manager.
James J. Sweeney has been Vice President, Fleet Operations of BRACC since
February 1989. From May 1987 to February 1989, he was Assistant Vice President
of Fleet Operations.
L. Scott Tiemann has been Vice President and Corporate Controller of TEAM
since July 1994. From March 1992 to July 1994, he was employed by BRACC as the
Business Manager for its Philadelphia, Pittsburgh and Cincinnati operations.
From November 1989 to March 1992, he was a city controller for BRACC.
Stephen G. Worthley has been Vice President and Treasurer of BRACC since
July 1987 and is responsible for arranging financing for the operations of BRACC
and managing BRACC's treasury function.
Thomas B. Zorn has been Vice President, Truck Operations of BRACC since
December 1996. From July 1996 to December 1996, Mr. Zorn was Vice President,
Operations Planning of BRACC. From February 1992 to July 1996, Mr. Zorn was
employed by Ford in various managerial positions, most recently as Special
Studies Manager, Corporate Finance.
Ronald D. Agronin was elected as a director of TEAM in April 1994. Since
1993, Mr. Agronin has served as Vice Chairman of Black Clawson Company ("Black
Clawson"), a manufacturer of paper making machinery, and as President and Chief
Executive Officer of United Container Machinery, Inc. ("United Container
Machinery"), a corrugating machinery manufacturer. He served as Executive Vice
President and Chief Operating
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Officer of Black Clawson from 1987 to 1993. He currently serves as a director of
Black Clawson and United Container Machinery. Mr. Agronin is the first cousin of
Mr. Miller.
James F. Calvano was elected as a director of TEAM in August 1994. Since
October 1996, Mr. Calvano has been the Chairman and Chief Executive Officer of
MoneyGram, a provider of electronic money transfer services, and from February
1996 to October 1996, he was President and Chief Executive Officer of MoneyGram.
From February 1991 to February 1996, he was Executive Vice President of
Marketing for Travelers Group, a subsidiary of Travelers, Inc. From November
1993 to February 1995, he was Chief Administrative Officer of Travelers
Insurance Companies. From June 1991 to May 1993, Mr. Calvano was President and
Chief Operating Officer of New Valley Corp. Two months before he assumed this
position, New Valley Corp. suspended payments on its publicly held debt. An
involuntary bankruptcy petition under Title 11 of the U.S. Code was filed
against New Valley Corp. in November 1991 and a voluntary bankruptcy petition
under Title 11 was filed by New Valley Corp. in March 1993. From January 1989 to
December 1990, Mr. Calvano was President and Chief Executive Officer of Carlson
Travel Group and Executive Vice President of Carlson Companies Inc. From
November 1986 to December 1988, he served as President of Commercial Credit
Corp. and Executive Vice President of Primerica Corp. Mr. Calvano served
American Express Travel Related Services Co., Inc. as its Vice Chairman,
President of Payment Systems Division, USA and President of Consumer Financial
Services Division, USA between October 1981 and November 1986. From 1972 to
1981, Mr. Calvano was employed by Avis and served in various capacities,
including President and Chief Executive Officer, Executive Vice President and
Chief Operating Officer and Group Vice President, Western Hemisphere.
Martin P. Gregor was elected as a director of TEAM in December 1996. Since
December 1989, Mr. Gregor has served as Senior Vice President and Resident
Manager of McDonald & Company Securities, Inc.
Alan D. Liker was elected as a director of TEAM in October 1995. He has
served as a business advisor to a number of individuals and companies during the
past five years, including as Vice President of Budget Rent-A-Car of Southern
California ("SoCal"), a licensee of BRACC and, through its wholly owned
subsidiary, an operator of Budget locations in Southern California since
February 1992. Mr. Liker is also a director of Herbalife International. Mr.
Liker was a director of Shaklee Corporation and its Japanese affiliate, Shaklee
KK until their sale in 1989. From 1976 to 1980, he was a principal of Xerox
Development Corporation, a strategic planning unit of Xerox Corporation. Mr.
Liker was previously a law professor at Harvard University, University of
California (Los Angeles) and University of Southern California law schools.
Previously he was a director of First Charter Bank and Shop Television Network.
See "Certain Transactions."
Jeffrey R. Mirkin was elected as a director of TEAM in October 1995. Since
1985, Mr. Mirkin has been the Chief Executive Officer of SoCal, a licensee of
BRACC and, through its wholly owned subsidiary, an operator of Budget locations
in Southern California. See "Certain Transactions."
Dr. Stephen L. Weber was elected as a director of TEAM in April 1994. Since
June 1996, Dr. Weber has been the President of San Diego State University. From
August 1995 to June 1996, he was the Interim Provost at the State University of
New York System Office. From 1988 to June 1996, he was President of State
University of New York at Oswego.
TEAM's Board of Directors has a Compensation Committee and an Audit/Finance
Committee. The Compensation Committee, composed of Mr. Agronin and Dr. Weber,
establishes salaries, incentives and other forms of compensation for directors,
officers and other employees of TEAM, administers various incentive compensation
and benefit plans and recommends policies relating to such plans. The
Audit/Finance Committee, composed of Messrs. Agronin and Calvano, reviews TEAM's
accounting practices, internal accounting controls and financial results and
oversees the engagement of TEAM's independent auditors. Nonemployee directors
receive an annual retainer of $12,000 and participate in the 1994 Directors'
Stock Option Plan (as hereinafter defined). TEAM also pays the reasonable
out-of-pocket expenses of each director in connection with his attendance at
each Board or committee meeting.
In connection with TEAM's acquisition of the Los Angeles, California Budget
franchise (the "Los Angeles Acquisition"), TEAM and the Principal Executive
Officers agreed that for so long as SoCal and its general partners own 500,000
or more shares of the Class A Common Stock received in the Los Angeles
Acquisition,
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TEAM and the Principal Executive Officers will nominate and use their best
efforts to elect to TEAM's Board of Directors two persons designated by SoCal
and further, for so long as SoCal and its general partners own less than 500,000
but more than 250,000 shares of Class A Common Stock, TEAM and the Principal
Executive Officers agreed to nominate to TEAM's Board of Directors one person
designated by SoCal. Following the Los Angeles Acquisition, Messrs. Mirkin and
Liker were designated by SoCal and thereafter elected to the Board of Directors
of TEAM.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation paid by TEAM
during the last three fiscal years to the Chief Executive Officer and the other
executive officers of TEAM whose salary and bonus exceeded $100,000 for 1996
(the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ---------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS
--------------------------- ---- -------- ------------- ---------------------
<S> <C> <C> <C> <C>
Sanford Miller........................... 1996 $208,250 $ -- 60,000
Chairman of the Board and Chief 1995 $183,667 $ -- 30,000
Executive Officer 1994 $ 91,108(1) $14,067(2) --
John P. Kennedy.......................... 1996 $197,500 $ -- 52,000
President and Chief Operating Officer 1995 $173,333 $ -- 25,000
1994 $ 94,558 $ -- --
Jeffrey D. Congdon....................... 1996 $197,292 $ -- 52,000
Chief Financial Officer and Secretary 1995 $173,333 $ -- 25,000
1994 $ 26,250(3) $ -- --
</TABLE>
- ---------------
(1) Does not include $6,924 of cash dividends paid by Tranex and Capital City to
Mr. Miller in 1994.
(2) Other annual compensation consists of $12,476 of payments made by TEAM with
respect to vehicles used by Mr. Miller in 1994 and $1,591 of gasoline
expenses in connection with the use of these vehicles in 1994.
(3) Represents salary for the period from August 24, 1994 through December 31,
1994.
OPTION GRANTS DURING 1996 AND YEAR END OPTION VALUES
The following table describes the stock options granted to the Named
Executive Officers of TEAM during 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------------------- ------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(A) FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ---------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mr. Miller................. 60,000 13.3% $11.25 04/15/06 $424,504 $1,075,776
Mr. Kennedy................ 52,000 10.4 11.25 04/15/06 367,906 932,314
Mr. Congdon................ 52,000 10.4 11.25 04/15/06 367,906 932,314
</TABLE>
- ---------------
(a) Represents options to purchase shares of Class B Common Stock.
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<PAGE> 71
The following table describes the value of unexercised options that were
held by the Named Executive Officers of TEAM as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1996 AT DECEMBER 31, 1996(A)
--------------------------------- ---------------------------------
NAME EXERCISABLE(B) UNEXERCISABLE(C) EXERCISABLE(B) UNEXERCISABLE(C)
- ---- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Mr. Miller............................... 30,000 60,000 $198,750 $292,500
Mr. Kennedy.............................. 25,000 52,000 165,625 253,500
Mr. Congdon.............................. 25,000 52,000 165,625 253,500
</TABLE>
- ---------------
(a) Based upon the closing price of Class A Common Stock on December 31, 1996 of
$16.125.
(b) Represents options to purchase shares of Class A Common Stock.
(c) Represents options to purchase shares of Class B Common Stock.
No options were exercised by the Named Executive Officers in 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Mr. Agronin and Dr. Weber,
neither of whom has ever been an officer or employee of TEAM or any of its
subsidiaries or entered into a related party transaction with TEAM.
BENEFIT PLANS
1994 Option Plan. The 1994 Option Plan provides for the grant to selected
key employees of TEAM and its subsidiaries of either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986 (the
"Code") or nonqualified options (intended not to qualify as incentive stock
options) to purchase Common Stock. The 1994 Option Plan is administered by the
Compensation Committee of the Board of Directors. The maximum number of shares
of Common Stock that may be made subject to options granted pursuant to the 1994
Option Plan is 1,750,000 (subject to stockholder approval as described under
"Shares Eligible for Future Sale"), subject to adjustments for certain changes
in TEAM's capitalization. The price per share of a stock option must be at least
the fair market value per share as of the date of grant. In the case of an
employee who owns more than 10% of the voting power of TEAM, the price per share
under an incentive stock option must be at least 110% of the fair market value
per share as of the date of grant. No option may be exercised within six months
from the date of grant, except that an option will be immediately exercisable
upon the occurrence of certain events, including a "change in control" of TEAM
as defined in the 1994 Option Plan. The Budget Acquisition will not result in a
change in control under the 1994 Option Plan. Except in the event of the death
or disability of a holder of nonqualified stock options, no option may be
exercised more than 10 years after its date of grant (and, in the case of an
employee who owns more than 10% of the voting power of TEAM, an incentive stock
option held by such employee may not be exercised more than five years after its
date of grant). Unless sooner terminated, the 1994 Option Plan terminates on
April 24, 2004. As of the date of this Prospectus, 729,850 options are
outstanding under the 1994 Option Plan (including 164,000 options to purchase
shares of Class B Common Stock).
1994 Directors' Stock Option Plan. TEAM's 1994 Directors' Stock Option
Plan (the "1994 Directors' Plan") provides for the grant to directors of TEAM
who are not employees of TEAM of options to purchase Class A Common Stock. The
1994 Directors' Plan is administered by the Board of Directors. The maximum
number of shares of the Class A Common Stock subject to options granted pursuant
to the 1994 Directors' Plan is 150,000 (subject to stockholder approval of an
amendment to the plan). The exercise price per share under an option is the fair
market value per share as of the date of grant. The options are exercisable in
full beginning six months after the date of grant, except that an option will be
immediately exercisable upon the occurrence of certain events, including a
"change in control" of TEAM as defined in the 1994 Directors' Plan. Except in
the event of a holder's death or disability, no option may be exercised more
than 10 years after its date of grant. Unless sooner terminated, the 1994
Directors' Plan will terminate on April 24, 2004. As of the date of this
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<PAGE> 72
Prospectus, 70,000 options are outstanding under the 1994 Directors' Plan
(subject to stockholder approval as described under "Shares Eligible for Future
Sale").
CERTAIN TRANSACTIONS
Concurrently with the completion of TEAM's initial public offering in
August 1994, the Principal Executive Officers and certain current and former
employees of TEAM (the "Exchange Stockholders"), who were the stockholders of
certain of the corporations that owned the Albany and Rochester, New York,
Richmond, Virginia and San Diego, California Budget franchises, exchanged all of
their shares of these corporate entities for an aggregate of 563,400 shares of
the Class A Common Stock and 1,936,450 shares of the Class B Common Stock (the
"Share Exchange"). The Principal Executive Officers thereby acquired 100% of the
shares of the Class B Common Stock that have been issued by TEAM. Upon
consummation of the Share Exchange and the redemption of the preferred stock of
TEAM's subsidiary that operates the San Diego airport franchise, all of the
Albany, Rochester, Richmond and San Diego operating companies became wholly
owned subsidiaries of TEAM. See "Shares Eligible for Future Sale."
Pursuant to an agreement dated as of November 1, 1994, Team Rental of Ft.
Wayne, Inc. a wholly owned subsidiary of TEAM, purchased all of the shares of
capital stock of Ft. Wayne Rental Group, Inc. ("Ft. Wayne"). Ft. Wayne, which
was owned by Mr. Miller and others, including a former TEAM employee, acquired
the assets comprising the Ft. Wayne business in June 1993 for approximately
$26,000, plus the assumption of approximately $66,000 of liabilities. The total
purchase price for the stock of Ft. Wayne was 18,500 shares of the Class A
Common Stock valued at approximately $200,000 (plus a de minimis amount of cash
to prevent the issuance of fractional shares of stock). Mr. Miller received
7,400 shares of Class A Common Stock in exchange for his shares of Ft. Wayne
stock. Prior to the acquisition of Ft. Wayne, Tranex, which became a subsidiary
of TEAM in the Share Exchange, leased vehicles to Ft. Wayne. The aggregate
payments under this lease amounted to approximately $366,000 in 1994.
The Principal Executive Officers have guaranteed the performance of the
obligations of some or all of TEAM's subsidiaries under their respective
Franchise Agreements. In connection with TEAM's initial public offering in
August 1994, TEAM's franchisors agreed to release these individuals from their
guarantees under the Franchise Agreements and substitute TEAM's guarantee
therefor, provided that TEAM maintains tangible net worth of $15.0 million. In
the event that TEAM's net worth falls below this level, TEAM has the option to
provide the franchisors with a $5 million letter of credit that could be drawn
on in the event of a monetary default under the Franchise Agreements or, in the
alternative, to allow the personal guarantees to be reinstated. In connection
with the Budget Acquisition, these franchise agreements with BRACC will be
eliminated.
TEAM's Richmond, Virginia airport facility is leased from a partnership
formed by Mr. Miller and an employee of TEAM (the "Richmond Partnership"). This
lease terminates in 1998, subject to renewal. Rental payments under the lease
agreement amounted to approximately $95,000, $97,000 and $100,000 in 1994, 1995
and 1996, respectively. The monthly base rent under this lease (approximately
$7,900, $8,100 and $8,300 in 1994, 1995 and 1996, respectively) escalates by
approximately 3% per annum. TEAM has entered into another lease for a
non-airport facility located in Chesterfield County, Virginia that is owned by
the Richmond Partnership. This lease commenced in June 1994 and terminates in
May 1999, subject to renewal. Rental payments under the lease agreement amounted
to approximately $24,000, $33,000 and $43,000 in 1994, 1995 and 1996,
respectively. The monthly base rent under this lease was approximately $3,400,
$3,500 and $3,600 in 1994, 1995 and 1996, respectively and escalates by
approximately 3% per annum. TEAM's Rochester, New York airport facility is
leased from a partnership formed by Mr. Miller and a former employee of TEAM.
This lease terminates in 2003, subject to renewal. The monthly base rent under
this lease (approximately $6,700, $6,800 and $7,000 in 1994, 1995 and 1996,
respectively) escalated by 5% per annum until August 30, 1996, and thereafter
annual increases will be the higher of 5% or the amount of the increase in the
consumer price index. Rental payments under the lease amounted to $75,000,
$81,000 and $84,000 in 1994, 1995 and 1996, respectively. All of these leases
are on a triple net basis (i.e., TEAM is responsible for the payment of taxes,
insurance and utilities and for the general maintenance of these facilities in
addition to its obligations to pay base rent). All of these
69
<PAGE> 73
leases provide for an initial term of ten years and two five-year renewal terms.
TEAM believes that these leases are on terms no less favorable to TEAM than
could be obtained from unaffiliated third parties.
TEAM's Philadelphia, Pennsylvania retail vehicle sales facility, regional
administrative headquarters and vehicle maintenance facility are leased from MCK
Real Estate Corporation ("MCK"), which is owned by the Principal Executive
Officers. This lease terminates in September 2002, subject to renewal. Rental
payments under the lease were approximately $168,000 and $316,000 for 1995 and
1996, respectively. The monthly base rent (approximately $26,000 per month in
1995) escalates by 3% per annum. TEAM's Richmond, Virginia retail car sales
facility is leased from MCK. This lease terminates in October 2000, subject to
renewal. Rental payments under the lease were approximately $10,000 and $121,000
for 1995 (one month) and 1996, respectively. The monthly base rent under this
lease (approximately $10,000 per month in 1996) escalates by 3% per annum.
TEAM's Dayton, Ohio retail car sales facility, which opened in April 1996, is
leased from MCK. This lease terminates in March 2001, subject to renewal. The
monthly base rent under this lease (approximately $10,000 per month in 1996)
escalates by 3% per annum. All of these leases are on a triple net basis. TEAM
believes that these leases are on terms no less favorable to TEAM than could be
obtained from unaffiliated third parties.
Prior to TEAM's initial public offering, TEAM's subsidiaries funded their
operations in part through loans from TEAM's executive officers. From December
1989 to June 1994, TEAM was provided loans by the Principal Executive Officers,
all of which, together with accrued interest, were repaid upon the completion of
TEAM's initial public offering. At that time, TEAM repaid loans previously made
by Mr. Miller in the aggregate principal amount of $1,052,257 with a weighted
average interest rate of 12.7%, loans previously made by Mr. Congdon in the
aggregate principal amount of $1,156,257 with a weighted average interest rate
of 12.4%, and loans previously made by Mr. Kennedy in the aggregate principal
amount of $690,000 with a weighted average interest rate of 13.3%.
In addition, in order to finance the organizational expenses incurred by
TEAM prior to its initial public offering, Messrs. Miller, Congdon and Kennedy
advanced the following amounts: Mr. Miller -- $41,289 at prime plus 1.5%;
$3,300, non-interest bearing; Mr. Congdon -- $14,266 at prime plus 1.5%; $1,800,
non-interest bearing; and Mr. Kennedy -- $14,266 at prime plus 1.5%; $1,800,
non-interest bearing. All of these advances, together with accrued interest,
were repaid upon completion of the initial public offering.
In connection with the Los Angeles Acquisition, TEAM entered into a
franchise agreement with SoCal, under which TEAM agreed to pay to the seller,
SoCal, a royalty equal to 5% of the monthly gross revenues derived from those
operations, subject to a minimum amount. In addition, TEAM issued a note to
SoCal in the principal amount of approximately $4,750,000 (the "SoCal Note"),
assumed the obligations of SoCal under a note in the principal amount of
approximately $4,700,000 which was secured by the personal guaranty of Jeffrey
R. Mirkin (the "SoCal Bank Note") and assumed certain other indebtedness that
was personally guaranteed by Mr. Mirkin. Mr. Mirkin is the Chief Executive
Officer and a general partner of SoCal and, upon consummation of the Los Angeles
Acquisition, became a director of TEAM. TEAM operates as a sub-franchisee of
SoCal in the San Diego territory and pays royalty fees to SoCal based on rental
revenues for vehicles other than trucks. In 1994, 1995 and 1996, TEAM paid SoCal
approximately $1,000,000, $1,200,000 and $3,700,000 in royalty fees,
respectively. Except as described above, prior to the Los Angeles Acquisition,
there was no material relationship between TEAM and SoCal. The SoCal Note,
together with accrued interest of $103,906, and the SoCal Bank Note were repaid
in April 1996. There was approximately $700,000 of other indebtedness payable by
TEAM to SoCal at December 31, 1996.
In connection with the acquisition of ValCar in August 1996, TEAM assumed
an unsecured note payable to Jeffrey D. Congdon in the amount of $1.5 million.
The note is due on demand and bears interest at the prime rate plus 2%. Pursuant
to this note, TEAM made payments to Mr. Congdon in the amount of $64,449 in
1996.
Sanford Miller is a member of the board of directors of Colonial Bank of
Volusia County in Ormond Beach, Florida. TEAM maintains a checking account at
that bank with an average balance of $100,000.
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<PAGE> 74
PRINCIPAL STOCKHOLDERS
The table below sets forth, as of February 27, 1997, certain information
with respect to the beneficial ownership of Common Stock by (i) each person who
is known by TEAM to be the beneficial owner of more than 5% of either class of
Common Stock of TEAM and (ii) each of the directors and Named Executive Officers
of TEAM and all directors and executive officers as a group. As of that date,
TEAM had outstanding 9,320,383 shares of Class A Common Stock and 1,936,600
shares of Class B Common Stock. The Class B Common Stock is convertible into
Class A Common Stock on a share-for-share basis at the option of the holder.
Each share of Class A Common Stock is entitled to one vote and each share of
Class B Common Stock is entitled to ten votes. This table also gives effect to
shares that may be acquired pursuant to options, convertible notes and
convertible preferred stock, as described in the footnotes below.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
---------------------------------------------------- -----------------------------------------
PERCENT OF
CLASS A SHARES
NUMBER OF BENEFICIALLY OWNED NUMBER OF PERCENT OF
CLASS A ---------------------------- CLASS B CLASS B
DIRECTORS AND EXECUTIVE SHARES BENEFICIALLY PRIOR TO AFTER SHARES BENEFICIALLY SHARES BENEFICIALLY
OFFICERS OWNED(A) THE OFFERING THE OFFERING OWNED OWNED
- ----------------------- ------------------- ------------ ------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Sanford Miller.......... 952,500(b) 9.3% 5.7% 905,800 46.8%
Jeffrey D. Congdon...... 560,350(c) 5.7 3.4 515,400 26.6
John P. Kennedy......... 548,500(d) 5.6 3.3 515,400 26.6
Ronald D. Agronin....... 14,500(e) * * -- --
James Calvano........... 12,500(e) * * -- --
Martin P. Gregor........ 8,305 * * -- --
Alan D. Liker........... 71,003(f) * * -- --
Jeffrey R. Mirkin....... 662,500(g) 7.1 4.2 -- --
Dr. Stephen L. Weber.... 15,600(e) * * -- --
All directors and
executive officers as
a group (12
persons).............. 2,824,305(h) 24.7 15.8 1,936,600 100.0
OTHER FIVE PERCENT
STOCKHOLDERS
- ------------------------
Ford Motor Company...... --(i) -- 22.1 -- --
Metropolitan Life
Insurance Company..... 1,937,640(j) 18.3 11.4 -- --
The Equitable Companies
Incorporated.......... 1,522,500(k) 16.3 9.6 -- --
John Hancock Mutual Life
Insurance Company..... 1,245,640(l) 11.8 7.3 -- --
New York Life Insurance
Company............... 996,512(m) 9.7 5.9 -- --
State Street Research &
Management Company.... 692,000(n) 7.4 4.4 -- --
U.S. Bancorp............ 577,700(o) 6.2 3.6 -- --
The Kaufmann Fund,
Inc................... 539,500(p) 5.8 3.4 -- --
Putnam Investments,
Inc................... 981,400(q) 10.5 6.2 -- --
<CAPTION>
PERCENT OF TOTAL
VOTING POWER OF
DIRECTORS AND EXECUTIVE COMMON STOCK
OFFICERS AFTER THE OFFERING
- ----------------------- ------------------
<S> <C>
Sanford Miller.......... 25.9%
Jeffrey D. Congdon...... 14.8
John P. Kennedy......... 14.7
Ronald D. Agronin....... *
James Calvano........... *
Martin P. Gregor........ *
Alan D. Liker........... *
Jeffrey R. Mirkin....... 1.9
Dr. Stephen L. Weber.... *
All directors and
executive officers as
a group (12
persons).............. 57.3
OTHER FIVE PERCENT
STOCKHOLDERS
- ------------------------
Ford Motor Company...... 11.3
Metropolitan Life
Insurance Company..... 5.3
The Equitable Companies
Incorporated.......... 4.3
John Hancock Mutual Life
Insurance Company..... 3.4
New York Life Insurance
Company............... 2.8
State Street Research &
Management Company.... 2.0
U.S. Bancorp............ 1.6
The Kaufmann Fund,
Inc................... 1.5
Putnam Investments,
Inc................... 2.8
</TABLE>
- ---------------
* Less than 1%.
(a) In determining the number and percent of shares beneficially owned by each
person, shares that may be acquired by such person pursuant to options,
convertible notes or convertible preferred stock exercisable or convertible
within 60 days of the date hereof are deemed outstanding for purposes of
determining the total number of outstanding shares for such person and are
not deemed outstanding for such purpose for all other stockholders. To the
best of TEAM's knowledge, except as otherwise indicated, beneficial
ownership includes sole voting and dispositive power with respect to all
shares.
(b) Includes (i) 905,800 shares of Class A Common Stock issuable upon conversion
of Class B Common Stock, (ii) 30,000 shares of Class A Common Stock issuable
upon exercise of options and (iii) 4,000 shares of Class A Common Stock
owned by Mr. Miller's children. Mr. Miller's address is 125 Basin Street,
Dayton Beach, Florida 32114.
(c) Includes (i) 515,400 shares of Class A Common Stock issuable upon conversion
of Class B Common Stock and (ii) 25,000 shares of Class A Common Stock
issuable upon exercise of options. Mr. Congdon's address is 2445 Directors
Row, Suite K, Indianapolis, Indiana 46241.
(d) Includes (i) 515,400 shares of Class A Common Stock issuable upon conversion
of Class B Common Stock and (ii) 25,000 shares of Class A Common Stock
issuable upon exercise of options. Mr. Kennedy's address is 18 King's
Highway, Westport, Connecticut 06880.
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<PAGE> 75
(e) Includes 12,500 shares of Class A Common Stock issuable upon exercise of
options.
(f) Includes (i) 46,003 shares of Class A Common Stock that may be acquired by
Mr. Liker pursuant to an option granted by SoCal to Mr. Liker and (ii)
12,500 shares of Class A Common Stock issuable upon exercise of options.
(g) Represents (i) 650,000 shares of Class A Common Stock beneficially owned by
SoCal, a general partnership, of which Mr. Mirkin is a general partner and
the trustee of certain trusts which are general partners of SoCal and (ii)
12,500 shares of Class A Common Stock issuable upon exercise of options.
Mr. Mirkin's address is 150 South Doheny Drive, Beverly Hills, California
90211.
(h) Includes (i) 1,936,600 shares of Class A Common Stock issuable upon
conversion of Class B Common Stock and (ii) 166,500 shares issuable upon
the exercise of options.
(i) In connection with the Budget Acquisition, Ford will acquire 4,500 shares
of Series A Convertible Preferred Stock (subject to adjustment), which
automatically will be converted into an aggregate of 4,500,000 shares of
Class A Common Stock at such time as the record ownership of such shares of
Series A Convertible Preferred Stock is transferred to or held by any
person or any entity other than Ford or any affiliate of Ford.
(j) Includes 1,245,640 shares of Class A Common Stock issuable upon conversion
of Series A Convertible Notes as described under "Description of Certain
Indebtedness -- Convertible Subordinated Notes." This information is
included in reliance upon a Schedule 13G filed by Metropolitan Life
Insurance Company ("Metropolitan") with the Securities and Exchange
Commission (the "Commission") on February 11, 1997. Upon consummation of
the Offering, TEAM expects this holder to purchase Series B Convertible
Notes, which will be convertible into shares of Class A Common Stock, in
the Debt Placements. Metropolitan's address is 334 Madison Avenue, Convent
Station, New Jersey 07961.
(k) Represents shares of Class A Common Stock owned by subsidiaries of The
Equitable Companies Incorporated ("The Equitable") as follows: (i) 9,500
shares of Class A Common Stock held by The Equitable Life Assurance Society
of the United States, (ii) 1,483,000 shares of Class A Common Stock held by
Alliance Capital Management L.P. and (iii) 30,000 shares of Class A Common
Stock held by Donaldson Lufkin & Jenrette Securities Corporation. This
information is included in reliance upon a Schedule 13G filed by The
Equitable with the Commission on February 14, 1997. The Equitable's address
is 787 Seventh Avenue, New York, New York 10019.
(l) Represents shares of Class A Common Stock issuable upon conversion of
Series A Convertible Notes. Upon consummation of the Offering, TEAM expects
this holder to purchase Series B Convertible Notes, which will be
convertible into shares of Class A Common Stock, in the Debt Placements.
John Hancock Mutual Life Insurance Company's address is John Hancock Place,
200 Clarendon Street, Boston, Massachusetts 02117.
(m) Represents shares of Class A Common Stock issuable upon conversion of
Series A Convertible Notes. Upon consummation of the Offering,
TEAM expects this holder to purchase Series B Convertible Notes, which
will be convertible into shares of Class A Common Stock, in the Debt
Placements. New York Life Insurance Company's address is 51 Madison
Avenue, New York, New York 10010.
(n) This information is included in reliance upon a Schedule 13G filed by State
Street Research & Management Company ("State Street") with the Commission
on February 14, 1997. State Street's address is One Financial Center, 30th
Floor, Boston, Massachusetts 02111-2690.
(o) This information is included in reliance upon a Schedule 13G filed by U.S.
Bancorp with the Commission on February 13, 1997. U.S. Bancorp's address is
111 S.W. Fifth Avenue, Portland, Oregon 97204.
(p) This information is included in reliance upon a Schedule 13G filed by The
Kaufmann Fund with the Commission on February 19, 1997. The Kaufmann Fund's
address is 140 E. 45th Street, 43rd Floor, New York, New York 10017.
(q) Represents shares of Class A Common Stock owned by subsidiaries of Putnam
Investments, Inc. ("Putnam"), which is a subsidiary of Marsh & McLennan
Companies, Inc. ("Marsh & McLennan"), as follows: (i) 597,680 shares of
Class A Common Stock held by Putnam Investment Management, Inc. ("PIM"), as
to which PIM has shared dispositive power, and (ii) 383,800 shares of Class
A Common Stock held by The Putnam Advisory Company, Inc. ("PAC"); PAC
shares voting power with respect to 332,500 of such shares and shares
dispositive power with respect to all of such shares. This information is
included in reliance upon a Schedule 13G filed by Marsh & McLennan, Putnam,
PIM and PAC with the Commission on March 7, 1997. The address of Marsh &
McLennan is 1166 Avenue of the Americas, New York, New York 10036. The
address of Putnam, PIM and PAC is One Post Office Square, Boston,
Massachusetts 02109.
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<PAGE> 76
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of TEAM consists of 17,500,000 shares of the
Class A Common Stock, 2,500,000 shares of the Class B Common Stock and 250,000
shares of the preferred stock, $.01 par value per share (the "Preferred Stock").
At the 1997 Annual Meeting of Stockholders to be held on April 22, 1997, the
stockholders will vote upon a proposal to amend TEAM's Amended and Restated
Certificate of Incorporation to, among other things, increase the number of
shares of Class A Common Stock TEAM is authorized to issue to 35,000,000 shares.
Immediately prior to the date of this Prospectus, there were 9,320,383 shares of
the Class A Common Stock, 1,936,600 shares of the Class B Common Stock and no
shares of the Preferred Stock outstanding. All of the outstanding shares of
Class B Common Stock are held by the Principal Executive Officers.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Voting Rights. Each share of the Class A Common Stock is entitled to one
vote and each share of the Class B Common Stock is entitled to ten votes on all
matters submitted to a vote of the stockholders. The Class A Common Stock and
the Class B Common Stock vote together as a single class on all matters
presented for a vote of the stockholders, except as noted below and as provided
under the Delaware General Corporation Law. Immediately following the Offering,
the holders of the Class B Common Stock will have approximately 55.4% of the
combined voting power of the outstanding Class A and Class B Common Stock. As a
result, following the Budget Acquisition and prior to the conversion of the
Convertible Subordinated Notes or the Series A Convertible Preferred Stock, the
Principal Executive Officers will continue to be able to elect all of Budget
Group's Board of Directors, thereby ensuring that members elected by them will
continue to direct the business, policies and management of Budget Group.
TEAM'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 TEAM'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 TEAM 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 in the Class A Common Stock is made on the Class A Common Stock, TEAM
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, TEAM must
also make a pro rata and simultaneous dividend or distribution of shares of
Class A Common Stock on the Class A Common Stock.
Convertibility. Each share of the Class B Common Stock is convertible at
any time at the option of the holder into the Class A Common Stock on a
share-for-share basis. Shares of the Class B Common Stock will be automatically
converted into shares of the Class A Common Stock on a share-for-share basis in
the event that the record or beneficial ownership of such shares of the Class B
Common Stock shall be transferred (including, without limitation, by way of
gift, settlement, will or intestacy) to any person or entity that was not a
holder of Class B Common Stock at the time of transfer. Therefore, the shares of
Class B Common Stock will only exist so long as they are held by one or more of
the Principal Executive Officers. Shares of the Class A Common Stock are not
convertible.
Liquidation Rights. In the event of the dissolution of TEAM, 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.
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Other Provisions. There are no preemptive rights to subscribe for any
additional securities which TEAM 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
TEAM. 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
General
The Board of Directors of TEAM has the authority, without further action by
the stockholders, to cause TEAM 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 TEAM, deny
stockholders the receipt of a premium on their Common Stock and have an adverse
effect on market price of the Common Stock.
Series A Convertible Preferred 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." In connection with the Budget Acquisition, 4,500
shares of Series A Convertible Preferred Stock will be issued to Ford as the
Equity Consideration (subject to adjustment, as described under "The Budget
Acquisition -- Terms of the Stock Purchase Agreements").
Rank. The Series A Convertible Preferred Stock ranks, with respect to
dividend rights and rights on liquidation, senior to the Common Stock.
Voting Rights. The holders of the Series A Convertible Preferred Stock
will not be entitled to any voting rights, except as otherwise provided by law
or as noted below. The affirmative vote of a majority of the shares of Series A
Convertible Preferred Stock, voting as a separate class, will be required to
amend the Amended and Restated Certificate of Incorporation if such amendment
affects materially and adversely the specified rights, preferences, privileges
or voting rights of the Series A Convertible Preferred Stock.
Dividends. Each share of the Series A Convertible Preferred Stock is
entitled to receive dividends if, as and when declared by the Board of Directors
of TEAM out of funds legally available therefor. Each share of Series A
Convertible Preferred Stock is also entitled to receive cumulative cash
dividends in respect of each share of Series A Convertible Preferred Stock in
such amount as the holder thereof would receive if such share were converted
into a share of Class A Common Stock immediately prior to the record date for
payment of any cash dividend on the Class A Common Stock. No dividends may be
declared by the Board of Directors on the Common Stock or any other class of
stock ranking junior to the Series A Convertible Preferred Stock unless full
cumulative dividends have been or contemporaneously are declared and paid with
respect to the Series A Convertible Preferred Stock.
Convertibility. Each share of Series A Convertible Preferred Stock will
automatically be converted into 1,000 shares of Class A Common Stock (subject to
adjustment in the case of stock dividends, subdivisions, reverse stock splits or
reclassifications of outstanding Class A Common Stock) in the event that the
record ownership of such Series A Convertible Preferred Stock is transferred to
any person other than Ford or an affiliate of Ford.
Liquidation Rights. In the event of the dissolution, liquidation or
winding up of the affairs of TEAM, after satisfaction of amounts payable to
creditors, holders of shares of Series A Convertible Preferred Stock are
entitled to receive distributions in the same amount that such holders would
receive if such shares were converted into shares of Class A Common Stock
immediately prior to the dissolution, liquidation or winding up of the affairs
of
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TEAM, in preference to any payment to holders of Common Stock or any other
securities ranking junior to the Series A Convertible Preferred Stock.
Other Provisions. There are no preemptive rights to subscribe for any
additional securities which TEAM may issue and there are no redemption
provisions or sinking fund provisions applicable to the Series A Convertible
Preferred Stock, nor is the Series A Convertible Preferred Stock subject to
calls or assessments by TEAM.
CONVERTIBLE SUBORDINATED NOTES
In December 1996, TEAM issued $80.0 million aggregate principal amount of
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 3,986,049 shares of Class A Common Stock. For a description
of the Series B Convertible Notes to be issued in connection with the Budget
Acquisition, see "Description of Certain Indebtedness -- Convertible
Subordinated Notes -- Series B Notes."
WARRANTS
In connection with TEAM's initial public offering and acquisition of the
Budget operations in Philadelphia, Pittsburgh and Cincinnati, TEAM issued to
BRACC a warrant (the "BRACC Warrant") to purchase 175,000 shares of the Class A
Common Stock at the price of the shares in the initial public offering ($9.50
per share). The BRACC Warrant is exercisable commencing August 1996 and expires
in August 1999. After August 24, 1998 and prior to August 24, 1999, the holder
of the BRACC Warrant will have the right to cause TEAM to repurchase the BRACC
Warrant for $2.0 million. In connection with financing provided to TEAM in April
1996, TEAM issued to NationsBank, National Association (South) a warrant (the
"NationsBank Warrant") to purchase 187,500 shares of Class A Common Stock at the
then current market price ($10.87 per share). The NationsBank Warrant is
exercisable from the date of its issuance and expires in April 2001.
BYLAW PROVISIONS
TEAM'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 TEAM, or by one or more
stockholders holding shares entitled to cast not less than a majority of the
aggregate votes entitled to be cast at such meeting. The Bylaws also provide
that any action which may be taken at any meeting of stockholders may be taken
without a meeting and without prior notice if written consents approving the
action are signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to take such action at a meeting
of stockholders. These provisions will make it more difficult for a third party
to gain control of TEAM.
REGISTRATION RIGHTS
Concurrently with the consummation of the Budget Acquisition, TEAM and Ford
will enter into the Preferred Stockholders Agreement, pursuant to which
registration rights will be granted to Ford with respect to any Series A
Convertible Preferred Stock or Class A Common Stock issued to Ford as part of
the Equity Consideration (the "Ford Registrable Securities"). The Preferred
Stockholders Agreement will provide that the holders of Ford Registrable
Securities may, at any time after the date of the Preferred Stockholders
Agreement, require TEAM to register such shares under the Securities Act,
provided that such requesting holders have a good faith intention to offer and
sell at least 33% of the Ford Registrable Securities held by such holders
(subject to certain limited exceptions). The holders of Ford Registrable
Securities may also, at any time that TEAM is eligible to file a registration
statement on Form S-3, request TEAM to file a shelf registration statement to
effect the registration and offering of the Ford Registrable Securities. The
Preferred Stockholders Agreement also provides that at any time Common Stock is
to be registered by TEAM under the Securities Act, TEAM must notify the holders
of Ford Registrable Securities to allow their participation in the registration,
unless the lead managing underwriter of the offering determines that the total
number of such securities to be registered, along
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with the securities to be sold by TEAM, will exceed the maximum number of TEAM's
securities that can reasonably be sold. In such case, the securities proposed to
be included by the holders of Ford Registrable Securities will be reduced on a
pro rata basis. TEAM may defer the registration of the Ford Registrable
Securities pursuant to a request for registration under certain circumstances.
Notwithstanding the foregoing, TEAM will not be required (i) to cause to be
declared effective any registration of Ford Registrable Securities prior to the
date three months after the date of the Preferred Stockholders Agreement and
(ii) unless waived by the managing underwriter of such offering, to effect any
registration of Ford Registrable Securities during the period starting with the
date of filing by TEAM of, and ending on a date 90 days following the effective
date of, any other registration statement filed to effect a demand registration
or shelf registration of Ford Registrable Securities or any other registration
statement in which holders of Ford Registrable Securities were entitled to
participate pursuant to their incidental registration rights, provided that TEAM
must actively employ in good faith all reasonable efforts to cause any such
registration statement to become effective as soon as possible. TEAM will not be
required to file more than four demand registration statements for the
registration of Ford Registrable Securities. TEAM has agreed to pay the costs
and expenses incurred in connection with each incidental registration and the
first three demand registrations, other than underwriting discounts and
commissions.
In connection with the sale of the Series A Convertible Notes in December
1996, TEAM entered into a registration rights agreement granting holders
registration rights with respect to the shares of Class A Common Stock into
which the notes are convertible. In connection with the sale of Series B
Convertible Notes, TEAM will amend and restate the registration rights agreement
(the "Notes Registration Rights Agreement") to which the holders of Series A
Convertible Notes are parties, and the holders of Series B Convertible Notes
will become parties thereto. The Notes Registration Rights Agreement provides
that TEAM 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 Subordinated 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
"probation period"). The holders may require TEAM to effect an underwritten
public offering pursuant to the shelf registration statement. In addition, the
holders of all outstanding Series B Convertible Notes may require TEAM to
register such notes at any time during the probation period. TEAM may prohibit
offers and sales of securities pursuant to the registration statements under
certain circumstances. TEAM 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,
TEAM and the Exchange Stockholders entered into the registration rights
agreement (the "Registration Rights Agreement") granting such holders
registration rights with respect to the shares of Common Stock received by them
as a result of the Share Exchange. The Registration Rights Agreement provides
that the holders of at least 33% of the outstanding shares received in the Share
Exchange may require TEAM 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 Registration Rights Agreement also provided that at any time Class
A Common Stock is to be registered by TEAM under the Securities Act, TEAM must
notify the Exchange Stockholders to allow their participation in the
registration, unless the managing underwriters of the offering determine in good
faith that the total number of such securities to be registered, along with any
securities to be sold by TEAM or any other persons having rights to participate
in the offering, is such as to materially and adversely affect the success of
the offering. In such case, the securities proposed to be included by the
Exchange Stockholders will be reduced on a pro rata basis. TEAM 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. TEAM 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 1, 1994 to include the signatories to
the Ft. Wayne stock purchase agreement.
The holders of shares issuable upon the exercise of the BRACC Warrant are
also entitled to two demand and unlimited "piggyback" registration rights with
respect to the shares issuable upon its exercise, and the holders of shares
issuable upon exercise of the NationsBank Warrant are entitled to one demand and
unlimited "piggyback"
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registration rights. TEAM will bear the expenses of registering such shares,
other than underwriting discounts and commissions. In connection with the Los
Angeles Acquisition, TEAM and SoCal entered into a registration rights agreement
granting SoCal and its affiliated entities unlimited "piggyback" registration
rights subject to certain conditions. TEAM will bear the expenses of registering
such shares, other than underwriting discounts and commissions.
INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, TEAM's Amended and
Restated Certificate of Incorporation provides that directors of TEAM will not
be personally liable to TEAM 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 TEAM 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. TEAM's Bylaws provide that TEAM shall
indemnify its directors, officers, employees and other agents, to the fullest
extent provided by Delaware law. TEAM has also entered into indemnification
agreements with certain of its executive officers and directors. The
indemnification agreements require TEAM, 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. TEAM 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 TEAM pursuant to
the arrangements described above, TEAM 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 TEAM where indemnification will be
required or permitted.
SECTION 203
TEAM 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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DESCRIPTION OF CERTAIN INDEBTEDNESS
THE NEW WORKING CAPITAL FACILITY
Concurrently with consummation of the Offering, BRACC will enter into a new
working capital facility (the "New Working Capital Facility"), for which Credit
Suisse First Boston is acting as agent, to replace TEAM's $10.0 million working
capital facility. TEAM and each of the direct and indirect subsidiaries of BRACC
will guarantee the New Working Capital Facility, subject to certain exceptions
to be mutually agreed upon. The following is a summary of the material terms and
conditions of the New Working Capital Facility.
The New Working Capital Facility will consist of a five-year senior,
secured revolving credit facility in the amount of $300 million or the
equivalent thereof in foreign currencies under a multi-currency subfacility. The
New Working Capital Facility will provide that (i) up to $100 million will be
available for loans, (ii) up to $40 million will be available under the
multi-currency subfacility, (iii) up to $225 million will be available for
letters of credit for credit enhancement of commercial paper or similar fleet
financing programs and (iv) $300 million will be available for letters of
credit. In addition, aggregate borrowings outstanding under the New Working
Capital Facility will be subject to a borrowing base limitation and may not at
any time exceed the sum of 85% of eligible receivables, 100% of eligible
repurchase vehicles (as defined), 85% of eligible risk vehicles, and 100% of
eligible cash and cash equivalents (as defined). All borrowings outstanding
under the New Working Capital Facility will mature on the fifth anniversary of
the date of the loan agreement.
Interest will accrue on borrowings outstanding under the New Working
Capital Facility, at TEAM's option, at a rate equal to (i) either the higher of
(A) the interest rate established by Credit Suisse as its base or prime rate in
effect at its principal office in New York City and (B) the federal funds
effective rate from time to time plus 0.5% (the higher of these being known as
the "ABR") plus the applicable margin for ABR loans (which margin shall range
from approximately 0.25% to 1.25%) or (ii) the rate at which Eurocurrency
deposits in the relevant denomination currency for one, two, three or six months
(as selected by TEAM) are offered by Credit Suisse in the relevant interbank
Eurocurrency market plus the applicable margin for the Eurocurrency rate (which
margin shall range from 1.25% to 2.25%). The New Working Capital Facility will
require TEAM to pay the following fees: (i) a commitment fee based on the
adjusted EBITDA of TEAM and ranging from 0.25% to 0.375% per annum; (ii) a
letter of credit fee on the aggregate amount available under outstanding letters
of credit equal to a rate per annum which is the same as the applicable margin
for Eurocurrency loans from time to time in effect; and (iii) a letter of credit
fronting fee equal to a rate per annum of 1/8% of the aggregate amount available
under each letter of credit issued.
The New Working Capital Facility will be secured by (a) a first-priority
lien on (i) the capital stock of BRACC and each direct and indirect subsidiary
of BRACC (with respect to the international subsidiaries, no more than 65% of
the stock of each subsidiary will be required to be pledged in the event that a
pledge of a greater percentage would result in material increased tax or similar
liabilities for BRACC and its subsidiaries on a consolidated basis; (ii) all
property and assets of BRACC and its subsidiaries (other than (A) assets pledged
as security in respect of a vehicle financing program, (B) real property assets,
(C) equipment and (D) assets which do not comprise working capital or
intellectual property); and (iii) all assets included in the borrowing base and
(b) as to letters of credit issued as credit and/or liquidity enhancement for
TEAM's commercial paper program, a subordinated perfected lien on the assets
surrounding the commercial paper issued pursuant to the commercial paper
program.
The New Working Capital Facility will contain a number of customary
affirmative covenants, including covenants which require BRACC to deliver
financial statements and other reports; pay other obligations; maintain its
corporate existence; comply with laws and contracts; maintain properties and
insurance; maintain books and records; grant the lenders certain inspection
rights; provide notices of defaults, litigation and material events; and comply
with environmental matters. The New Working Capital Facility will also contain a
number of customary negative covenants, including limitations on indebtedness
(including preferred stock), liens, guarantee obligations, mergers,
consolidations, liquidations and dissolutions, sales of assets, leases,
dividends and other payments in respect of capital stock, capital expenditures,
investments, loans and advances; payments and modifications of
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subordinated and other debt instruments, transactions with affiliates, sale and
leasebacks, changes in fiscal year; negative pledge clauses; and changes in
lines of business.
BRACC will be required to meet certain financial covenants, consisting of
(a) a minimum net worth (as defined) of TEAM equal to the sum of (i) $263,375
plus 50% of the net income of TEAM for each fiscal quarter commencing with the
second fiscal quarter of 1997 as shall have been completed on or prior to such
time plus 50% of the net equity proceeds (as defined); (b) a maximum leverage
ratio (as defined) of 5.00 to 1.00 for the quarter ending September 30, 1997,
declining to 3.00 to 1.00 for the quarter ending December 31, 1999 and each
fiscal quarter thereafter; and (c) a minimum interest coverage ratio (as
defined) of 3.00 to 1.00 for the quarter ending September 30, 1997, declining to
3.50 to 1.00 for the quarter ending December 31, 1999 and each fiscal quarter
thereafter.
CONVERTIBLE SUBORDINATED NOTES
Series A Convertible Notes. In December 1996, TEAM issued $80.0 million
aggregate principal amount of 7.0% Convertible Subordinated Notes, Series A, due
2003 (the "Series A Convertible Notes"). At a conversion price of $20.07 per
share, the Series A Convertible Notes are convertible into an aggregate of
3,986,049 shares of Class A Common Stock. Concurrently with the consummation of
the Offering, the note purchase agreements relating to the Series A Convertible
Notes will be amended to extend the maturity of the notes to 2007 and to conform
certain terms of the notes to the terms of the Series B Convertible Notes.
Series B Convertible Notes. Concurrently with the consummation of the
Offering, Budget Group will issue $45.0 million aggregate principal amount of
6.85% Convertible Subordinated Notes, Series B, due 2007 (the "Series B
Convertible Notes"). The Series A Convertible Notes and the Series B Convertible
Notes will be treated as a single class of notes for all purposes. The Series B
Convertible Notes will be convertible, at the option of the holders, into an
aggregate of 1,609,442 shares of Class A Common Stock after the earlier of the
first anniversary of the date of issuance or the disposition by Ford of at least
2.25 million shares of Class A Common Stock, at a conversion price of $27.96 per
share.
Redemption. The Convertible Subordinated Notes will be redeemable, in
whole or in part, at the option of Budget Group, at a premium equal to 4.567%
declining in equal amounts to par in April 2006, plus accrued and unpaid
interest to the redemption date, provided that prior to April 2002, no such
redemption of the Convertible Subordinated Notes will be permitted unless the
closing price of the Class A Common Stock for at least ten consecutive trading
days (commencing 20 trading days before Budget Group's notice of redemption) was
at least 150% of the conversion price for the notes of such series.
Registration Rights. TEAM has granted registration rights to the holders
of the Series A Convertible Notes and will grant registration rights to the
holders of the Series B Convertible Notes. For a description of such
registration rights, see "Description of Capital Stock -- Registration Rights."
Covenants. The Series A Convertible Notes contain, and the Series B
Convertible Notes will contain, a number of customary affirmative covenants,
including covenants which will require Budget Group to pay principal and
interest on the Convertible Subordinate Notes, maintain properties; pay taxes
and claims; maintain its corporate existence; and continue in its lines of
business. Furthermore, the Series A Convertible Notes contain, and the Series B
Convertible Notes will contain, covenants limiting consolidation or merger and
limiting the sale, lease or conveyance of all or substantially all of Budget
Group's assets. In addition, upon a change of control (as defined in the note
purchase agreements), each noteholder may require Budget Group to repurchase the
Convertible Subordinated Notes held by such holder at 101% of the principal
amount thereof plus accrued interest to the date of repurchase. The Series A
Convertible Notes do not contain, and the Series B Convertible Notes will not
contain, any financial covenants.
GUARANTEED SENIOR NOTES
Concurrently with the consummation of the Offering, BRACC will issue $165.0
million aggregate principal amount of 9.57% Guaranteed Senior Notes due 2007
(the "Guaranteed Senior Notes"). The Guaranteed Senior Notes will be guaranteed
by Budget Group and certain subsidiaries of BRACC.
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Mandatory Redemption. The Guaranteed Senior Notes will require annual
principal payments equal to $21,450,000, approximately 14.3% of the aggregate
principal amount of the notes, commencing on the fourth anniversary of the date
of issuance.
Optional Redemption. The Guaranteed Senior Notes will be redeemable at any
time at the option of BRACC, in whole or in part, at a price equal to the
greater of par or the present value of the future debt service on such notes,
discounted at 75 basis points above the then current yield to maturity of a U.S.
Treasury security with a maturity comparable to the remaining weighted average
life of the notes. In addition, as long as any Convertible Subordinated Notes
are outstanding, there must be outstanding at least $23.0 million aggregate
principal amount of Guaranteed Senior Notes.
Repurchase. BRACC or Budget Group may repurchase all or a portion of the
Guaranteed Senior Notes at any time provided that (i) the offer to repurchase is
made pro rata to all holders of the notes so repurchased and (ii) any notes so
repurchased are thereafter canceled.
Covenants. The Guaranteed Senior Notes will contain a number of customary
affirmative covenants, including covenants which will require BRACC to comply
with law; maintain insurance; maintain its properties; pay taxes and claims;
maintain its corporate existence; and continue in its lines of business.
Furthermore, the Guaranteed Senior Notes will contain covenants limiting liens,
sale and leaseback transactions, restricted subsidiary debt, consolidated funded
debt, maintenance of consolidated stockholders' equity, sale of assets, mergers
or consolidations, restricted payments and transactions with affiliates. Budget
Group will be required to meet certain financial covenants, consisting of (a) a
minimum pro forma non-vehicle interest coverage ratio of 2.0 to 1 prior to
January 1, 2000 and 3.0 to 1 thereafter; (b) minimum non-vehicle leverage ratio
(as defined) of 6.3 to 1 prior to January 1, 1999, 5.0 to 1 thereafter and prior
to January 1, 2000, 4.0 to 1 thereafter and prior to January 1, 2001, 3.5 to 1
thereafter and prior to January 1, 2002 and 3.0 to 1 thereafter; and (c) a
minimum consolidated shareholder's equity (as defined) equal to the sum of
$260,000,000 plus 50% of consolidated net income (as defined) for each fiscal
quarter beginning with the quarter ending June 30, 1997 for which consolidated
net income is positive. In addition, upon a change of control (as defined in the
note purchase agreement), each noteholder may require Budget Group to repurchase
the notes held by such holder at 101% of the principal amount thereof plus
accrued interest to the date of repurchase.
FLEET FINANCING FACILITIES
For a description of Budget Group's Fleet Financing Facilities, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of TEAM -- Liquidity and Capital Resources -- Pro Forma Liquidity and
Capital Resources for Budget Group."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, TEAM will have outstanding 15,820,383
shares of the Class A Common Stock and 1,936,600 shares of the Class B Common
Stock (assuming the over-allotment option described below is not exercised). The
Class B Common Stock is convertible into Class A Common Stock on a
share-for-share basis and must be converted to effect any public sale of such
stock. Of these shares, 14,523,933 shares, including the 6,500,000 shares of
Class A Common Stock sold in the Offering, will be freely tradeable without
restriction under the Securities Act, except for any shares purchased by an
"affiliate" of TEAM (as that term is defined in the Securities Act), which will
be subject to the resale limitations of Rule 144 (as amended effective April 30,
1997) under the Securities Act.
The remaining 1,296,450 shares of the Class A Common Stock, all shares of
the Class B Common Stock and all shares of the Series A Convertible Preferred
Stock are "restricted" securities within the meaning of Rule 144 and may not be
resold in a public distribution, except in compliance with the registration
requirements of the Securities Act or pursuant to Rule 144. All these shares of
Class A Common Stock and all outstanding shares of Class B Common Stock are
eligible for sale under Rule 144 (as amended effective April 30, 1997). All the
shares of Series A Convertible Preferred Stock will become eligible for sale
under Rule 144 (as amended effective April 30, 1997) one year after the issuance
of those shares in the Budget Acquisition. TEAM's directors
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and executive officers, who in the aggregate beneficially own 2,824,305 shares
of Common Stock, have agreed that they will not sell, contract or offer to sell
or otherwise dispose of, directly or indirectly, any shares of capital stock of
TEAM for a period of 90 days from the date of this Prospectus without the prior
written consent of Credit Suisse First Boston Corporation, on behalf of the
Underwriters. See "Underwriting." After such date, certain of these stockholders
have the right to demand that TEAM register their shares under the Securities
Act in accordance with agreements between such holders and TEAM and may be able
to dispose of their shares in a registered public offering effected thereunder.
In addition, certain stockholders and, the holders of the Convertible
Subordinated Notes and holders of stock purchase warrants possess certain demand
and/or "piggyback" registration rights. See "Description of Capital
Stock -- Registration Rights" and "Management -- Benefit Plans."
Subject to stockholder approval of amendments to TEAM's option plans at the
1997 Annual Meeting of Stockholders (to be held April 22, 1997), TEAM has
reserved 1,750,000 shares of Common Stock for issuance under the 1994 Option
Plan (which may be either Class A Common Stock or Class B Common Stock) and
150,000 shares of Class A Common Stock for issuance under the 1994 Directors'
Plan. There are 729,850 stock options currently issued and outstanding under the
1994 Option Plan (of which 164,000 are options to purchase Class B Common Stock)
and 70,000 stock options issued and outstanding under the 1994 Directors' Plan.
TEAM filed a Form S-8 Registration Statement under the Securities Act to
register 760,000 shares of the Common Stock issuable under the 1994 Option Plan
and 25,000 shares of Class A Common Stock issuable under the 1994 Directors'
Plan. Shares issued upon the exercise of stock options after the effective date
of the Form S-8 registration statement became eligible for resale in the public
market without restriction, subject to Rule 144 limitations applicable to
affiliates and the lock-up agreements applicable to certain shares and options.
TEAM expects to file a Form S-8 Registration Statement with respect to the
remaining 990,000 shares of Common Stock issuable under the 1994 Option Plan and
125,000 shares of Class A Common Stock issuable under the 1994 Directors' Plan.
TEAM has further reserved 362,500 shares of Class A Common Stock for issuance
upon the exercise of stock purchase warrants.
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<PAGE> 85
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S.
HOLDERS OF CLASS A COMMON STOCK
GENERAL
The following is a general discussion of U.S. Federal income and estate tax
consequences of the ownership and disposition of Class A Common Stock by a
Non-U.S. Holder (as defined below). This discussion does not address all aspects
of U.S. Federal income and estate taxes and does not address any foreign, state
or local tax consequences. Furthermore, this discussion is based on provisions
of the Code, existing, temporary and proposed regulations promulgated thereunder
and administrative and judicial interpretations thereof, all as in effect or
proposed on the date hereof and all of which are subject to change, possibly
with retroactive effect, or different interpretations. Each prospective
purchaser of Class A Common Stock is advised to consult a tax advisor with
respect to current and possible future U.S. Federal income and estate tax
consequences of holding and disposing of Class A Common Stock as well as any tax
consequences that may arise under the laws of any state, local, foreign or other
taxing jurisdiction. For purposes of this summary, a "U.S. Holder" with respect
to Class A Common Stock is (i) an individual who is a citizen or resident of the
United States, (ii) a corporation or other entity taxable as a corporation
created or organized in the United States or under the laws of the United States
or of any state thereof (including the District of Columbia), (iii) an estate or
trust the income of which is includable in gross income for U.S. Federal income
tax purposes regardless of its source or (iv) a person otherwise subject to U.S.
Federal income taxation on a net income basis with respect to worldwide income;
and a "Non-U.S. Holder" is any person other than a U.S. Holder.
DISTRIBUTIONS
Distributions on the shares of Class A Common Stock (other than
distributions in redemption of the shares of Class A Common Stock subject to
Section 302(b) of the Code) will constitute dividends for U.S. Federal income
tax purposes to the extent paid from current or accumulated earnings and profits
of TEAM (as determined under U.S. Federal income tax principles). Dividends paid
to a Non-U.S. Holder of Class A Common Stock that are not effectively connected
with a U.S. trade or business of the Non-U.S. Holder will be subject to U.S.
withholding tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Under the terms of the tax treaty between Canada
and the United States (the "Treaty"), dividends paid to a Non-U.S. Holder owning
less than 10% of TEAM's Class A Common Stock are subject to withholding tax at
the reduced rate of 15%, provided that such Non-U.S. Holder is entitled to the
benefits of the Treaty. Moreover, under United States Treasury regulations which
are currently in effect, withholding is generally imposed on the gross amount of
the distribution, without regard to whether the corporation has sufficient
earnings and profits to cause the distribution to be a dividend for U.S. Federal
income tax purposes. Dividends that are effectively connected with the conduct
of a trade or business within the United States or, if a tax treaty applies, are
attributable to a U.S. permanent establishment of a Non-U.S. Holder, are exempt
from U.S. Federal withholding tax but are subject to U.S. Federal income tax on
a net income basis at applicable graduated individual or corporate rates. Any
such dividends effectively connected with the conduct of a trade or business
within the United States or attributable to a U.S. permanent establishment
received by a foreign corporation may, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. Certain certification and
disclosure requirements must be complied with in order to be exempt from
withholding under the effectively connected income or permanent establishment
exemptions.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above, and, under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed United States
Treasury regulations (the "Proposed Regulations") not currently in effect,
however, a Non-U.S. Holder of Class A Common Stock would be required to satisfy
applicable certification and other requirements to qualify for withholding at an
applicable treaty rate. The Proposed Regulations would require a Non-U.S. Holder
to file a beneficial owner withholding certification, e.g., a Form W-8, to
obtain the lower treaty rate. The Proposed Regulations would apply to dividends
paid after December 31, 1997, subject to certain transitional rules.
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<PAGE> 86
A Non-U.S. Holder of Class A Common Stock may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with the Internal
Revenue Service (the "IRS").
GAIN ON DISPOSITION OF CLASS A COMMON STOCK
A Non-U.S. Holder will generally not be subject to U.S. Federal income tax
with respect to gain recognized on a sale or other disposition of Class A Common
Stock unless (i) the gain is effectively connected with a trade or business of
the Non-U.S. Holder in the United States, (ii) in the case of a Non-U.S. Holder
who is an individual and holds Class A Common Stock as a capital asset, such
holder is present in the United States for 183 or more days in the taxable year
of the sale or other disposition and certain other conditions are met, or (iii)
TEAM is or has been a "U.S. real property holding corporation" for U.S. Federal
income tax purposes at any time during the five-year period ending on the date
of the disposition, or, if shorter, the period during which the Non-U.S. Holder
held the Class A Common Stock (the "applicable period"), and the Non-U.S. Holder
owns, actually or constructively, at any time during the applicable period more
than five percent of the Class A Common Stock. Management believes that it is
not currently a "U.S. real property holding corporation" for U.S. Federal income
tax purposes.
FEDERAL ESTATE TAX
Class A Common Stock held by an individual Non-U.S. Holder at the time of
death will be included in such holder's gross estate for U.S. Federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under Treasury regulations, TEAM must report annually to the IRS and to
each Non-U.S. Holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected with a U.S. trade or business in the United States of
the Non-U.S. Holder or withholding was reduced or eliminated by an applicable
income tax treaty. Copies of the information returns reporting such dividends
and withholding may also be made available to the tax authorities in the country
in which the Non-U.S. Holder resides under the provisions of an applicable
income tax treaty.
Backup withholding (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons who fail to furnish certain
information under the U.S. information reporting requirements) will generally
not apply to dividends paid to Non-U.S. Holders that either are subject to the
U.S. withholding tax, whether at 30% or a reduced treaty rate, or that are
exempt from such withholding of effectively connected income. As a general
matter, information reporting and backup withholding will not apply to a payment
by or through a foreign office of a foreign broker of the proceeds of a sale of
Class A Common Stock effected outside the United States. However, information
reporting requirements (but not backup withholding) will apply to a payment by
or through a foreign office of a broker of the proceeds of a sale of Class A
Common Stock effected outside the United States where that broker (i) is a U.S.
person, (ii) is a foreign person that 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 defined in the Code
(generally, a foreign corporation controlled by certain U.S. shareholders),
unless the broker has documentary evidence in its records that the holder is a
Non-U.S. Holder and certain conditions are met or the holder otherwise
establishes an exemption. Payment by a U.S. office of a broker of the proceeds
of a sale of Class A Common Stock is subject to both backup withholding and
information reporting unless the holder certifies to the payor in the manner
required as to its non-U.S. status under penalties of perjury or otherwise
establishes an exemption.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. Federal income tax. Rather, any amounts withheld under the backup
withholding rules will be refunded or allowed as a credit against the holder's
U.S. Federal income tax liability, if any, provided the required information or
appropriate claim for refund is filed with the IRS.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL U.S. FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION OF THE CLASS
A COMMON STOCK BY NON-U.S. HOLDERS. ACCORDINGLY, INVESTORS ARE URGED TO CON-
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<PAGE> 87
SULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF CLASS A COMMON STOCK INCLUDING
THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAXING JURISDICTION.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1997 among TEAM and the U.S. Underwriters (the
"Underwriting Agreement"), the underwriters named below (the "U.S.
Underwriters") have severally but not jointly agreed to purchase from TEAM the
following respective numbers of U.S. Shares:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
ABN AMRO Chicago Corporation................................
Alex. Brown & Sons Incorporated.............................
McDonald & Company Securities, Inc..........................
---------
Total............................................. 5,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters will be obligated to purchase all the U.S. Shares (other than those
U.S. Shares covered by the over-allotment option described below) if any are
purchased. The Underwriting Agreement provides that, in the event of a default
by a U.S. Underwriter, in certain circumstances, the purchase commitments of
nondefaulting U.S. Underwriters may be increased or the Underwriting Agreement
may be terminated. Credit Suisse First Boston Corporation, ABN AMRO Chicago
Corporation, Alex. Brown & Sons Incorporated and McDonald & Company Securities,
Inc. are acting as representatives (the "Representatives") of the U.S.
Underwriters.
TEAM has entered into a Subscription Agreement (the "Subscription
Agreement") with the Managers of the International Offering (the "Managers")
providing for the concurrent offer and sale of the International Shares outside
the United States and Canada. The closing of the U.S. Offering is a condition to
the closing of the International Offering and vice versa.
TEAM has granted to the U.S. Underwriters and the Managers an option
exercisable by Credit Suisse First Boston Corporation, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
975,000 additional shares of Class A Common Stock at the public offering price
less underwriting discounts and commissions, all as set forth on the cover page
of this Prospectus. Such option may be exercised only to cover over-allotments,
if any, in the sale of the shares of Class A Common Stock. To the extent such
option is exercised, each U.S. Underwriter and each Manager will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of additional shares being sold to the U.S. Underwriters and the
Managers as the number of U.S. Shares set forth next to such U.S. Underwriter's
name in the preceding table and as the number set forth next to such Manager's
name in the corresponding table in the Prospectus relating to the International
Offering bears to the total number of shares of Class A Common Stock in such
tables.
At the request of TEAM, the U.S. Underwriters are reserving up to 200,000
shares of Class A Common Stock (3.1% of the shares to be offered) for sale to
employees, directors, franchisees and friends of Budget Group. The number of
shares available for sale to the general public in the U.S. Offering will be
reduced to the extent such persons purchase such reserved shares. Shares
purchased by employees, directors, franchisees and
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<PAGE> 88
friends of Budget Group will be at the public offering price set forth on the
cover page of this Prospectus. Any reserved shares not so purchased will be
offered by the U.S. Underwriters to the general public in the U.S. Offering.
TEAM has been advised by the U.S. Underwriters that the U.S. Underwriters
propose to offer the U.S. Shares in the United States and Canada to the public
initially at the public offering price set forth on the cover page of this
Prospectus and, through the U.S. Underwriters, to certain dealers at such price
less a concession of $ per share, and the U.S. Underwriters and such dealers
may allow a discount of $ per share on sales to certain other dealers. After
the public offering, the public offering price, concession and discount to
dealers may be changed by the U.S. Underwriters.
The public offering price, the aggregate underwriting discounts and
commissions per share and the per share concession and discount to dealers for
the U.S. Offering and the concurrent International Offering will be identical.
Pursuant to an Agreement between the U.S. Underwriters and the Managers (the
"Intersyndicate Agreement") relating to the Offering, changes in the public
offering price, the aggregate underwriting discounts and commissions per share
and the per share concession and discount to dealers will be made only upon the
mutual agreement of Credit Suisse First Boston Corporation, on behalf of the
U.S. Underwriters, and Credit Suisse First Boston (Europe) Limited, on behalf of
the Managers.
Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Class A Common Stock or distribute any
prospectus relating to the Class A Common Stock to any person outside the United
States or Canada or to any other dealer who does not so agree. Each of the
Managers has agreed or will agree that, as part of the distribution of the
International Shares and subject to certain exceptions, it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Class A
Common Stock or distribute any prospectus relating to the Class A Common Stock
in the United States or Canada or to any other dealer who does not so agree. The
foregoing limitations do not apply to stabilization transactions or to
transactions between the U.S. Underwriters and the Managers pursuant to the
Intersyndicate Agreement. As used herein, "United States" means the United
States of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction. "Canada"
means Canada, its provinces, territories, possessions and other areas subject to
its jurisdiction, and an offer or sale shall be in the United States or Canada
if it is made to (i) an individual resident in the United States or Canada or
(ii) a corporation, partnership, pension, profit-sharing or other trust or other
entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of shares of Class A Common
Stock as may be mutually agreed. The price of any shares so sold shall be the
public offering price, less such amount as may be mutually agreed upon by Credit
Suisse First Boston Corporation, on behalf of the U.S. Underwriters, and Credit
Suisse First Boston (Europe) Limited, on behalf of the Managers, but not
exceeding the selling concession applicable to such shares. To the extent there
are sales between the U.S. Underwriters and the Managers pursuant to the
Intersyndicate Agreement, the number of shares of Class A Common Stock initially
available for sale by the U.S. Underwriters or by the Managers may be more or
less than the amount appearing on the cover page of this Prospectus. Neither the
U.S. Underwriters nor the Managers are obligated to purchase from the other any
unsold shares of Class A Common Stock.
This Prospectus may be used by underwriters and dealers in connection with
sales of International Shares to persons located in the United States, to the
extent such sales are permitted by the contractual limitations on sales
described above.
TEAM and its officers and directors and certain other holders of Class A
Common Stock have agreed that they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or, in the case of TEAM,
file with the Commission a registration statement under the Securities Act
relating to any additional shares of TEAM's Common Stock or securities
convertible into or exchangeable or exercisable for any shares of TEAM's Common
Stock, or disclose the intention to make any such offer, sale, pledge, disposal
or filing, without
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<PAGE> 89
the prior written consent of Credit Suisse First Boston Corporation, in the case
of TEAM's officers and directors and such other holders, for a period of 90 days
and, in the case of TEAM, for a period of 180 days, after the date of this
Prospectus, except issuances pursuant to the exercise of stock options granted
under the 1994 Option Plan.
TEAM has agreed to indemnify the U.S. Underwriters and the Managers against
certain liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the U.S. Underwriters and the Managers may be
required to make in respect thereof.
Credit Suisse First Boston Corporation has acted as placement agent in
connection with each of the Fleet Financing Facilities, the offering of the
Series A Convertible Notes and the Debt Placements, and as underwriter for
TEAM's initial public offering and its public offering in July 1996. In
addition, Credit Suisse First Boston Corporation acted as placement agent for a
fleet financing by SoCal shortly before it was acquired by TEAM. Credit Suisse
First Boston Corporation is acting as financial advisor to TEAM in connection
with the Budget Acquisition. Credit Suisse First Boston, a Swiss bank and an
affiliate of Credit Suisse First Boston Corporation, is the agent for the New
Working Capital Facility.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. Over
- -allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Class A Common Stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In "passive" market
making, market makers in the Class A Common Stock who are Underwriters or
prospective underwriters may, subject to certain limitations, make bids for or
purchases of the Class A Common Stock until the time, if any, at which a
stabilizing bid is made. Penalty bids permit the Representatives to reclaim a
selling concession from a syndicate member when the shares of Class A Common
Stock originally sold by such syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions. Such stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the Class A Common Stock to be higher than it would otherwise be in the
absence of such transactions. These transactions may be effected on the NYSE or
otherwise and, if commenced, may be discontinued at any time.
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<PAGE> 90
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A Common Stock in Canada is being made only
on a private placement basis exempt from the requirement that TEAM prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of Class A Common Stock are effected. Accordingly, any resale of
the Class A Common Stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Class A Common Stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Class A Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to TEAM and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Class A Common Stock
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. Federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of TEAM's directors and officers as well as the experts named herein
may be located outside of Canada and, as a result, it may not be possible for
Canadian purchasers to effect service of process within Canada upon the issuer
or such persons. All or a substantial portion of the assets of TEAM and such
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against TEAM or such persons in Canada or to
enforce a judgment obtained in Canadian courts against TEAM or such persons
outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A Common Stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A Common Stock acquired by such purchaser pursuant to the Offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from TEAM.
Only one such report must be filed in respect of Class A Common Stock acquired
on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Class A Common Stock should consult their own legal
and tax advisers with respect to the tax consequences of an investment in the
Class A Common Stock in their particular circumstances and with respect to the
eligibility of the Class A Common Stock for investment by the purchaser under
relevant Canadian legislation.
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<PAGE> 91
LEGAL MATTERS
The validity of the shares of the Class A Common Stock offered hereby will
be passed upon for TEAM by King & Spalding, Atlanta, Georgia. The U.S.
Underwriters and the Managers have been represented by Cravath, Swaine & Moore,
New York, New York.
EXPERTS
The consolidated financial statements of Team Rental Group, Inc. as of and
for the year ended December 31, 1996, included 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 included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.
The consolidated financial statements of Team Rental Group, Inc. as of
December 31, 1995 and for each of the two years in the period ended December 31,
1995 included in this Prospectus and the related financial statement schedules
included elsewhere in the Registration Statement have been audited by Deloitte &
Touche LLP ("D&T"), independent auditors, as stated in their reports appearing
herein and elsewhere in the Registration Statement and are included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of BRACC as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996 have
been included in the Registration Statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein and upon the authority of said firm as experts in accounting and
auditing.
On November 26, 1996, TEAM appointed Arthur Andersen LLP as its independent
accounting firm for the remainder of 1996. TEAM's Audit Committee recommended
the appointment, which was approved by the Board of Directors. Concurrently, the
Board of Directors elected to dismiss D&T, TEAM's former independent accounting
firm. The report of D&T on TEAM's financial statements for the two years ended
December 31, 1995 contained no adverse opinion or disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope or accounting
principles. Since TEAM's inception, D&T's reports on TEAM's financial statements
have not contained an adverse opinion or a disclaimer of opinion, nor were the
opinions qualified or modified as to uncertainty, audit scope or accounting
principles, nor were there any events of the type requiring disclosure under
Item 304(a)(1)(v) of Regulation S-K under the Securities Act.
With regard to Item 304(a)(1)(iv) of Regulation S-K, TEAM has previously
reported the following: (i) On February 2, 1996, TEAM announced that it would
restate its financial statements for all periods since its initial public
offering in 1994. This restatement resulted from a change in the accounting
treatment of the BRACC Warrant issued to BRACC concurrently with TEAM's initial
public offering in August 1994. This change in accounting treatment was the
subject of numerous discussions between officers of TEAM and representatives of
D&T (including discussions between D&T and the Audit Committee of the Company's
Board of Directors, which occurred in January 1996), and was approved by the
Audit Committee and announced to the public on February 2, 1996. TEAM believes
this matter was resolved to the satisfaction of D&T; (ii) in late 1995, TEAM
received funds from a vehicle manufacturer that it accounted for in a manner
similar to funds it had received from a vehicle manufacturer in 1993. In March
1996, D&T advised TEAM that it did not deem the 1995 transaction analogous to
the 1993 transaction. D&T discussed this matter with officers of TEAM, and TEAM
issued its financial statements in accordance with the recommendation of D&T. In
connection with the resolution this matter, neither the Board of Directors nor
any committee thereof formally discussed this matter with D&T. TEAM believes
that this matter was resolved to the satisfaction of D&T.
TEAM has provided D&T with a copy of the disclosures contained herein and
D&T has indicated in a letter to the Commission that it agrees with these
disclosures. A copy of such letter is filed as an exhibit to the Registration
Statement. Neither TEAM nor anyone acting on its behalf consulted with Arthur
Andersen LLP regarding any of the matters referred to in Item 304(a)(2) of
Regulation S-K prior to its appointment.
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ADDITIONAL INFORMATION
TEAM is subject to the informational requirements of the Exchange Act and,
in accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information filed
by TEAM 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 TEAM which file electronically
with the Commission.
TEAM has filed with the Commission a Registration Statement on Form S-1
under the Securities Act with respect to the Class A Common Stock offered
hereby. This Prospectus, which is a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement. For
further information with respect to TEAM and the Class A Common Stock, 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.
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<PAGE> 93
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TEAM RENTAL GROUP, INC.
- ---------------------------
Report of Independent Certified Public Accountants.......... F-2
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets As of December 31, 1995 and
1996...................................................... F-4
Consolidated Statements of Income For Each of the Three
Years in the Period Ended December 31, 1996............... F-5
Consolidated Statements of Stockholders' Equity (Deficit)
For Each of the Three Years in the Period Ended December
31, 1996.................................................. F-6
Consolidated Statements of Cash Flows For Each of the Three
Years in the Period Ended December 31, 1996............... F-7
Notes to Consolidated Financial Statements.................. F-8
BUDGET RENT A CAR CORPORATION
- -----------------------------------
Independent Auditors' Report................................ F-24
Consolidated Balance Sheets -- December 31, 1995 and 1996... F-25
Consolidated Statements of Operations -- December 31, 1994,
1995 and 1996............................................. F-26
Consolidated Statements of Stockholders' Equity -- Years
ended December 31, 1994, 1995 and 1996.................... F-27
Consolidated Statements of Cash Flows -- December 31, 1994,
1995 and 1996............................................. F-28
Notes to Consolidated Financial Statements.................. F-29
</TABLE>
F-1
<PAGE> 94
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Team Rental Group, Inc.:
We have audited the accompanying consolidated balance sheet of Team Rental
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996,
and the related consolidated statements of income, stockholders' equity
(deficit) and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of Team Rental Group, Inc. as of December 31, 1995, and for each of
the two years in the period then ended were audited by other auditors whose
report dated April 12, 1996, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Team Rental
Group, Inc. and subsidiaries as of December 31, 1996, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Orlando, Florida,
March 14, 1997
F-2
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Team Rental Group, Inc.:
We have audited the consolidated balance sheet of Team Rental Group, Inc.
as of December 31, 1995, and the related consolidated statements of income,
stockholders' equity (deficit) and cash flows for each of the two years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Team Rental Group, Inc. as of
December 31, 1995, and the results of their operations and their cash flows for
each of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 12, 1996
F-3
<PAGE> 96
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 357 $ 50,490
Restricted cash............................................. 67,731 66,336
Trade and vehicle receivables, net of allowance for doubtful
accounts of $2,297 and $4,008............................. 20,928 31,302
Accounts receivable, related parties........................ 61 58
Vehicle inventory........................................... 8,938 16,413
Revenue earning vehicles, net............................... 219,927 319,257
Property and equipment, net................................. 12,503 18,502
Deferred financing fees, net of accumulated amortization of
$425 and $791............................................. 2,266 3,950
Franchise rights, net of accumulated amortization of $1,500
and $3,250................................................ 46,670 68,469
Other assets................................................ 6,942 10,022
Other intangible assets, net of accumulated amortization of
$35 in 1996............................................... -- 2,424
-------- --------
Total assets...................................... $386,323 $587,223
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes payable............................................... $318,233 $454,109
Capital lease obligations................................... 784 580
Accounts payable............................................ 14,698 14,601
Accrued and other liabilities............................... 9,315 16,526
Deferred income taxes....................................... 1,701 7,406
-------- --------
Total liabilities................................. 344,731 493,222
-------- --------
COMMITMENTS AND CONTINGENCIES
COMMON STOCK WARRANT........................................ 2,000 2,000
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 250,000 shares authorized,
no shares issued or outstanding........................... -- --
Class A common stock, $.01 par value, one vote per share,
17,500,000 shares authorized, 5,257,116 and 9,357,050
shares issued............................................. 53 93
Class B common stock, $.01 par value, 10 votes per share,
2,500,000 shares authorized, 1,936,600 shares issued...... 19 19
Additional paid-in capital.................................. 41,984 89,856
Retained earnings (deficit)................................. (2,134) 2,363
Treasury stock, at cost (36,667 shares of Class A common
stock).................................................... (330) (330)
-------- --------
Total stockholders' equity........................ 39,592 92,001
-------- --------
Total liabilities and stockholders' equity........ $386,323 $587,223
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 97
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Operating revenue:
Vehicle rental revenue.................................... $38,642 $107,067 $223,250
Retail car sales revenue.................................. -- 42,662 134,120
------- -------- --------
Total operating revenue........................... 38,642 149,729 357,370
------- -------- --------
Operating costs and expenses:
Direct vehicle and operating.............................. 9,439 13,704 35,098
Depreciation -- vehicles.................................. 7,382 27,476 60,735
Depreciation -- non-vehicle............................... 446 1,341 2,589
Cost of vehicle sales..................................... -- 38,021 113,747
Advertising, promotion and selling........................ 3,090 11,826 22,983
Facilities................................................ 4,398 11,121 20,406
Personnel................................................. 7,947 24,515 53,097
General and administrative................................ 1,515 6,686 11,605
Amortization.............................................. 229 859 1,843
------- -------- --------
Total operating costs and expenses................ 34,446 135,549 322,103
------- -------- --------
Operating income............................................ 4,196 14,180 35,267
------- -------- --------
Other (income) expense:
Vehicle interest expense.................................. 3,909 13,874 25,336
Non-vehicle interest expense.............................. 341 473 1,501
Interest income -- restricted cash........................ (670) (1,348) (781)
Non-recurring bank fees................................... -- -- 1,275
Related party interest expense............................ 190 159 118
------- -------- --------
Total other expense............................... 3,770 13,158 27,449
------- -------- --------
Income before income taxes.................................. 426 1,022 7,818
Provision for income taxes.................................. 176 685 3,321
------- -------- --------
Net income.................................................. $ 250 $ 337 $ 4,497
======= ======== ========
Weighted average common and common equivalent shares
outstanding............................................... 3,704 6,369 9,488
======= ======== ========
Earnings per common and common equivalent share............. $ 0.07 $ 0.05 $ 0.47
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 98
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED STOCKHOLDERS'
COMMON PAID-IN EARNINGS TREASURY EQUITY
STOCK CAPITAL (DEFICIT) STOCK (DEFICIT)
------ ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994...................... $ 15 $ 239 $(1,505) $ -- $(1,251)
Net income.................................. -- -- 250 -- 250
Distributions on redeemable preferred
stock.................................... -- (183) -- -- (183)
Dividends to common stockholders............ -- -- (47) -- (47)
Net proceeds from initial public offering... 45 28,903 -- -- 28,948
Deferred taxes due to a change in tax status
from nontaxable to taxable............... -- -- (1,169) -- (1,169)
Shares issued in business combination....... -- 200 -- -- 200
---- ------- ------- ----- -------
Balance, December 31, 1994.................... 60 29,159 (2,471) -- 26,748
Net income.................................. -- -- 337 -- 337
Shares issued in business combinations...... 12 12,825 -- -- 12,837
Class A common stock acquired for
treasury................................. -- -- -- (330) (330)
---- ------- ------- ----- -------
Balance, December 31, 1995.................... 72 41,984 (2,134) (330) 39,592
Net income.................................. -- -- 4,497 -- 4,497
Shares issued in business combination....... 2 2,725 -- -- 2,727
Warrants issued in conjunction with
financing................................ -- 686 -- -- 686
Net proceeds from stock offering............ 38 44,402 -- -- 44,440
Proceeds from exercise of stock options..... -- 59 -- -- 59
---- ------- ------- ----- -------
Balance, December 31, 1996.................... $112 $89,856 $ 2,363 $(330) $92,001
==== ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 99
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 250 $ 337 $ 4,497
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation............................................ 7,828 28,817 63,324
Amortization............................................ 534 1,761 2,396
Deferred income tax provision........................... (8) 540 2,479
Warrants issued in connection with financing............ -- -- 686
Provision for doubtful accounts......................... (282) 1,796 320
Changes in certain assets and liabilities, net of effects
of 1994, 1995 and 1996 acquisitions --
Receivables............................................. (871) (11,189) (6,230)
Vehicle inventory....................................... -- (7,995) (3,463)
Other assets............................................ (1,788) 387 (1,350)
Accounts payable........................................ (2,259) 9,484 (9,469)
Accrued and other liabilities........................... 256 (7,790) 1,189
--------- --------- ---------
Net cash provided by operating activities........... 3,660 16,148 54,379
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash balance......................... (32,691) (13,271) 1,395
Proceeds from sale of revenue earning vehicles............ 73,728 293,905 460,550
Proceeds from sale of property and equipment.............. 51 -- --
Purchases of revenue earning vehicles..................... (155,176) (315,863) (517,079)
Purchases of property and equipment....................... (637) (4,562) (2,608)
Purchases of franchise rights............................. (1,839) -- --
Payment for acquisitions, net of cash acquired............ (5,727) (6,507) (5,064)
--------- --------- ---------
Net cash used in investing activities............... (122,291) (46,298) (62,806)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of stock, net......................... 28,948 -- 44,499
Net increase (decrease) in vehicle obligations............ (5,760) 20,947 (220,901)
Net increase (decrease) in working capital facilities..... -- 6,890 (9,500)
Proceeds from notes payable --
Medium term notes....................................... 105,682 -- 176,000
Convertible subordinated notes.......................... -- -- 80,000
Related party........................................... 1,392 -- --
Other................................................... 2,610 3,399 --
Principal payments --
Related party........................................... (3,200) (276) (4,900)
Other................................................... (5,665) (259) (4,197)
Capital leases.......................................... (410) (666) (204)
Payment of financing fees................................. (1,614) (76) (2,237)
Distributions on redeemable preferred stock............... (183) -- --
Repayment of redeemable preferred stock................... (2,747) -- --
Dividends to common stockholders.......................... (47) -- --
Purchase of treasury stock................................ -- (330) --
--------- --------- ---------
Net cash provided by financing activities........... 119,006 29,629 58,560
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 375 (521) 50,133
Cash and cash equivalents, beginning of year................ 503 878 357
--------- --------- ---------
Cash and cash equivalents, end of year...................... $ 878 $ 357 $ 50,490
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 100
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Team Rental Group, Inc. (the "Company") engages in the business of the
daily rental of vehicles, including cars, trucks and passenger vans and the sale
of late-model used vehicles. The Company is the largest United States franchisee
of Budget Rent a Car ("Budget"), operating franchises granted by Budget Rent a
Car Corporation ("BRACC") through its operating subsidiaries serving thirteen
metropolitan regions in the United States. These franchises include Philadelphia
and Pittsburgh, Pennsylvania; San Diego, California; Southern California
(excluding San Diego); Phoenix, Arizona; Cincinnati and Dayton, Ohio; Albany and
Rochester, New York; Charlotte, North Carolina; Richmond, Virginia; Hartford,
Connecticut and Fort Wayne, Indiana. The Company engages in the sale of
late-model used vehicles in San Diego and Los Angeles, California; Dayton and
Cincinnati, Ohio; Philadelphia, Pennsylvania; Charlotte, North Carolina;
Richmond, Virginia and Indianapolis, Indiana. MCK Realty, Inc. ("MCK") leases
certain facilities to the Company and is owned by the Company's principal
stockholders. Because MCK is controlled by the Company and the Company has
guaranteed the lease payments assigned to a bank, MCK is included in the
consolidated financial statements of the Company.
Basis of Presentation
Concurrent with the Company's 1994 initial public offering (Note 2), the
Company exchanged 563,400 shares of Class A common stock and 1,936,450 shares of
Class B common stock for all of the outstanding common stock of its San Diego,
Albany, Richmond and Rochester franchises ("the combined companies") which,
accordingly, became wholly owned subsidiaries (the "Share Exchange"). The 1994,
1995 and 1996 consolidated financial statements include the accounts of Team
Rental Group, Inc., its wholly owned subsidiaries and MCK. All significant
intercompany accounts have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments including money market
funds, commercial paper and time deposits purchased with an original maturity of
three months or less to be cash equivalents.
Restricted Cash
Restricted cash consists of Medium Term Notes proceeds not currently
invested in eligible revenue earning vehicles. Under the terms of the Medium
Term Notes Indentures, the Company is required to purchase revenue earning
vehicles with the proceeds or maintain the excess as restricted cash.
Vehicle Inventory
Vehicle inventory is stated at the lower of cost (determined based on
specific identification) or market.
F-8
<PAGE> 101
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Revenue Earning Vehicles
Revenue earning vehicles are stated at cost less related discounts and
manufacturers' incentives and are depreciated over their estimated economic
lives or at rates corresponding to manufacturers' repurchase program guidelines,
where applicable. Depreciation rates generally range from 1.0% to 2.5% per
month. Management periodically reviews depreciable lives and rates based on a
variety of factors including general economic conditions and estimated holding
periods of the vehicles. Gains and losses upon the sale of revenue earning
vehicles are recorded as an adjustment to depreciation expense.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is being provided
on the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings................................ 10-23 years
Equipment, furniture and fixtures........ 3-10 years
Capital leases and leasehold
improvements........................... Lesser of estimated useful lives or terms
of related leases
</TABLE>
Deferred Financing Fees
Direct costs incurred in connection with the Company's borrowings have been
deferred and are being amortized over the terms of the related loan agreements
on the straight-line method.
On July 9, 1996, the Company utilized proceeds from its public offering of
Class A common stock to repay a $10,000 bridge financing facility it had
obtained from a bank in the second quarter of 1996. In conjunction with this
bank financing, the Company issued warrants valued at $700, which are included
in additional paid-in capital, and paid additional fees of approximately $1,000.
As a result of this repayment, the Company wrote off all unamortized fees
related to this financing, totaling $1,275.
Prepaid Royalty Fees
Prepaid royalty fees of $1,217 and $739 (net of accumulated amortization of
$783 and $1,261) at December 31, 1995 and 1996, respectively, are related to the
abatement of fees at the Company's Philadelphia operations through June 15, 1999
and are recorded in other assets. The prepaid fees are being amortized using an
accelerated method over the royalty abatement period of five years. Amortization
of the prepaid royalty fees of $203, $580 and $478 is reflected in direct
vehicle and operating expenses in the accompanying consolidated statements of
income for the years ended December 31, 1994, 1995 and 1996, respectively.
Franchise Rights
Franchise agreements are renewable for an unlimited number of one- and
five-year periods, subject to certain terms and conditions. Fees paid for
franchise rights are capitalized and amortized using the straight-line method
over forty years. The Company believes that the vehicle rental industry and,
therefore, vehicle rental franchises have an expected life in excess of forty
years and the industry will continue as long as the automobile is an accepted
method of transportation. The specific markets the Company serves are considered
to be stable and are locations which are major national or regional commercial
centers that attract business and leisure travelers who need rental vehicles.
Circumstances that would indicate possible impairment to franchise rights
include the failure of BRACC to maintain its international network of rental car
franchises, the termination of the Company's presence in one or more major
airport markets, or a significant permanent decline in cash flows from rental
F-9
<PAGE> 102
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
operations. The impairment would be measured as the amount by which the carrying
value of the related asset exceeds the present value of estimated future annual
cash flows generated by the franchise operations utilizing an appropriate
discount rate. Management has determined that no material impairment of
franchise rights existed at December 31, 1995 or 1996.
Other Intangible Assets
Other intangible assets consists of the goodwill recorded related to the
ValCar acquisition (see Note 3). Goodwill is amortized using the straight-line
method over forty years. Amortization expense of $35 is reflected in the
accompanying consolidated statement of income for the year ended December 31,
1996. The Company evaluates the realizability of its goodwill based upon the
nondiscounted cash flows and operating income expected to be generated by the
assets purchased in the acquisition giving rise to the goodwill. Any impairment
would be measured as the amount by which the carrying value of the goodwill
exceeds the present value of estimated future annual cash flows generated by the
assets purchased utilizing an appropriate discount rate. Management has
determined that no material impairment of goodwill existed at December 31, 1996.
Advertising, Promotion and Selling
Advertising, promotion and selling expense are charged to expense as
incurred. The Company incurred advertising expense of $412, $2,347 and $6,912 in
1994, 1995 and 1996, respectively.
Income Taxes
The Company accounts for income taxes using an asset and liability approach
that requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactments of changes in the tax law or rates. Changes in tax laws or rates
will be recognized in the future years in which they occur.
Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share for the year ended December
31, 1994, was computed assuming all of the outstanding common stock of the
combined companies (which totaled 2,500,000 shares) was outstanding the entire
year and the shares issued in connection with the initial public offering and
the Fort Wayne acquisition were outstanding from the dates issued. Earnings per
common and common equivalent share for the years ended December 31, 1995 and
1996, were based on the weighted average number of common shares outstanding
during the year considering the acquisitions in each respective year and the
purchase of treasury stock.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 establishes new standards for computing and presenting
earnings per share ("EPS"). Specifically, SFAS No. 128 replaces the presentation
of primary EPS with a presentation of basic EPS, requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997; earlier application is not
permitted. Management has determined that the adoption of SFAS No. 128 will not
have a material effect on the accompanying consolidated financial statements.
F-10
<PAGE> 103
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Retention of Self Insured Risks
At December 31, 1996, the Company has automobile liability insurance
coverage of up to $6,000, with a $500 retention per occurrence with respect to
personal injury and damage claims arising from the use of its vehicles, except
with respect to vehicles rented through its Los Angeles, San Diego and Phoenix
operations. Under California law, vehicle rental customers are primarily liable
for damages arising from the use of rental vehicles. Vehicle rental companies
are secondarily liable for such damages up to an amount limited by California
law to $35 per occurrence, unless the vehicle rental company has negligently
maintained the vehicle or has "negligently entrusted" the vehicle to a rental
customer. In addition, a vehicle rental company can be held liable for damages
arising from use of its vehicles by its employees. The Company's Phoenix
operations are self-insured, with a $500 retention. The Company's workers
compensation coverage is subject to a $500 retention. The Company's general
liability coverage is $1,000 per occurrence, $2,000 aggregate coverage with no
retention.
The Company provides reserves on reported claims and claims incurred but
not reported at each balance sheet date based on actuarial estimates. The
actuarially determined reserves are necessarily based on estimates, and while
management believes that the amounts are adequate, the ultimate liability may be
in excess of, or less than, the amounts provided. Such estimates are reviewed
and evaluated in light of claim experience and existing circumstances. Any
changes in estimates from this review process are reflected in operations
currently.
Environmental Costs
The Company's operations include the storage and dispensing of gasoline.
Expenses in connection with the remediation of accidental fuel discharges at
various locations are provided for when it is probable that obligations have
been incurred and amounts can be reasonably estimated. The Company has made no
material payments for environmental remediation that have not been reimbursed by
responsible parties.
Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123"), which encourages,
but does not require, companies to adopt the fair value based method of
accounting for stock-based employee compensation plans. Under the fair value
method, compensation cost is measured at the grant date based on the fair value
of the award and is recognized over the service period, which is usually the
vesting period. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board ("APB") Opinion No. 25, but are
required to disclose on a pro forma basis, net income and, if presented,
earnings per share, as if the fair value based method of accounting had been
applied.
Effective January 1, 1996, the Company elected to adopt only the disclosure
requirements of SFAS No. 123. Accordingly, the Company will continue to account
for stock based employee compensation under APB Opinion No. 25.
2. PUBLIC STOCK OFFERINGS
The Company sold 3,300,000 shares of Class A common stock on August 25,
1994 and 154,400 shares of Class A common stock on September 19, 1994 at $9.50
per share to investors in an initial public offering resulting in gross proceeds
of $32,800 to the Company. Net proceeds to the Company after offering expenses
were $28,948. The net proceeds were used to acquire certain assets (certain
liabilities were also assumed) of Freedom River, Inc. ("Freedom River"),
capitalize Team Fleet Finance Corporation ("TFFC"), a wholly owned subsidiary,
acquire vehicles under operating leases, redeem the outstanding redeemable
preferred stock, acquire
F-11
<PAGE> 104
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
the Budget Rent a Truck franchise rights for San Diego, California, repay loans
and accrued interest to related and non-related third parties, and purchase
equipment leased from related parties.
The Company sold an additional 3,821,007 shares of Class A common stock on
July 2, 1996 at $13.00 per share to investors in a public offering resulting in
gross proceeds of $49,673 to the Company. Net proceeds to the Company after
offering expenses were $44,440. The net proceeds were used to repay certain
outstanding indebtedness and for general corporate purposes.
3. ACQUISITIONS
During 1994, 1995 and 1996, the Company acquired certain Budget franchise
operations, a retail vehicle sales operation and a commuter van pooling
operation. The acquisitions have been accounted for under the purchase method of
accounting and, accordingly, the Company has allocated the cost of the
acquisitions on the basis of the estimated fair value of the assets acquired and
liabilities assumed. The 1996 allocation for the ValCar Acquisition, as further
discussed below, is based on a preliminary estimate related to litigation claims
and may be revised at a later date. The accompanying consolidated statements of
income and cash flows reflect the operations of the acquired companies from
their respective acquisition dates.
1994 ACQUISITIONS
Freedom River
Concurrent with the initial public offering, the Company acquired certain
assets and assumed certain operating liabilities of Freedom River from Chrysler
Credit Corporation ("CCC"), a secured creditor of Freedom River, pursuant to a
private foreclosure sale conducted by CCC. The assets acquired consisted of the
Budget vehicle rental operations in the Philadelphia and Pittsburgh,
Pennsylvania and Cincinnati, Ohio metropolitan areas. Substantially all of
Freedom River's assets, other than its fleet, were purchased for approximately
$10,600.
Fort Wayne Franchise
In November 1994, the Company exchanged 18,500 shares of Class A common
stock for all of the outstanding common stock of Fort Wayne Rental Group, Inc.
located in Fort Wayne, Indiana. A principal stockholder and director of the
Company, who was a stockholder of Fort Wayne Rental Group, Inc., received 7,400
shares of Class A common stock in this transaction.
1995 ACQUISITIONS
Dayton Franchise
In January 1995, the Company purchased all of the outstanding stock of Don
Kremer, Inc. located in Dayton, Ohio, for $1,300. The acquisition funding
consisted of $650 cash and two notes totaling $650.
Charlotte Franchise
In January 1995, the Company purchased all of the outstanding stock of
MacKay Car & Truck Rentals, Inc., located in Charlotte, North Carolina, for
approximately $8,405, consisting of cash of $8,277 and 13,483 shares of Class A
common stock.
Hartford Franchise
In March 1995, the Company purchased all of the outstanding stock of Rental
Car Resources, Inc., located in Hartford, Connecticut, for approximately $1,475
by issuing 157,333 shares of Class A common stock.
F-12
<PAGE> 105
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
BRAC-OPCO Franchise
In October 1995, the Company purchased all of the outstanding stock of
BRAC-OPCO, Inc., which operates Budget franchises in the greater Los Angeles
area, excluding the vehicle rental operations at Los Angeles International
Airport, for approximately $11,234 by issuing 1,050,000 shares of Class A common
stock.
1996 ACQUISITIONS
Van Pool Operations
In February 1996, the Company purchased for a nominal amount all of the
outstanding stock of VPSI, Inc. ("VPSI"), located in Detroit, Michigan. VPSI
provides commuter van pooling services to business commuters in 22 states, and
operated a rental fleet of approximately 3,400 vans as of December 31, 1996.
Phoenix Franchise
In March 1996, the Company purchased all of the outstanding stock of
Arizona Rent-A-Car Systems, Inc., located in Phoenix, Arizona, for approximately
$18,000, consisting of cash of $5,000, promissory notes of $10,000 and 272,727
shares of Class A common stock.
ValCar Rental Car Sales, Inc.
On August 1, 1996, the Company acquired all of the outstanding stock of
ValCar Rental Car Sales, Inc. for $400 cash. ValCar owns and operates four
retail vehicle sales facilities in Indianapolis, Indiana, and was formerly owned
by a director and officer of the Company.
If the 1995 and 1996 acquisitions had occurred at the beginning of 1995,
the Company's results of operations would have been as shown in the following
table. The unaudited pro forma results are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions
actually been made at the beginning of 1995.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1995 1996
--------- ---------
(UNAUDITED)
<S> <C> <C>
Operating revenue........................................... $ 337,926 $ 389,557
Net income.................................................. $ 3,512 $ 2,961
Earnings per common share................................... $ 0.46 $ 0.31
</TABLE>
4. REVENUE EARNING VEHICLES
Revenue earning vehicles consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Revenue earning vehicles.................................... $245,849 $335,461
Less -- accumulated depreciation and amortization........... (25,922) (16,204)
-------- --------
$219,927 $319,257
======== ========
</TABLE>
F-13
<PAGE> 106
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Land and buildings.......................................... $10,160 $ 13,729
Leasehold improvements...................................... 3,994 7,379
Furniture, fixtures and office equipment.................... 7,069 13,167
------- --------
21,223 34,275
Less -- accumulated depreciation and amortization........... (8,720) (15,773)
------- --------
$12,503 $ 18,502
======= ========
</TABLE>
Included in property and equipment at December 31, 1995 and 1996, are $827
and $580, respectively, of assets held under capital leases.
6. NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Medium term notes:
Senior.................................................... $138,500 $304,500
Subordinated.............................................. 7,182 17,182
Convertible subordinated notes.............................. -- 80,000
Vehicle obligations......................................... 149,965 38,438
Working capital facilities.................................. 9,500 --
Related party obligations................................... 5,792 892
Other notes payable......................................... 7,294 13,097
-------- --------
$318,233 $454,109
======== ========
</TABLE>
Medium Term Notes
Medium term notes are comprised of notes issued by TFFC in August 1994
("TFFC-94 notes"), notes assumed in the acquisition of BRAC-OPCO, Inc. in
October 1995 ("OPCO notes") and notes issued by TFFC in December 1996 ("TFFC-96
notes")(collectively, "MTN notes"). MTN notes are secured by the underlying
vehicles and restricted cash of $66,336 at December 31, 1996.
The TFFC-94 notes consist of senior notes and subordinated notes. The
senior notes, with an aggregate principal balance of $100,000 at December 31,
1995 and 1996, bear interest at an average LIBOR rate, as defined, plus 0.75%
(6.38% per annum at December 31, 1996). Monthly principal payments of $16,667
commence in June 1999 with the last payment due in November 1999. The
subordinated notes, with an aggregate principal balance of $5,682 at December
31, 1995 and 1996, bear interest at an average LIBOR rate, as defined, plus
1.30% (6.93% per annum at December 31, 1996) and are payable in full in December
1999. Interest on the TFFC-94 notes is payable monthly.
The OPCO notes consist of senior notes and subordinated notes. The senior
notes, with an aggregate principal balance of $38,500 at December 31, 1995 and
1996, bear interest at an average LIBOR rate, as defined, plus 0.60% (6.23% per
annum at December 31, 1996). Monthly principal payments of $4,812 commence in
November 1997 with the last payment due in June 1998. The subordinated notes,
with an aggregate principal
F-14
<PAGE> 107
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
balance of $1,500 at December 31, 1995 and 1996, bear interest at an average
LIBOR rate, as defined, plus 1.0% (6.63% per annum at December 31, 1996) and are
payable in full in December 1998. Interest on the OPCO notes is payable monthly.
The TFFC-96 notes consist of senior notes and subordinated notes. The
senior notes, with an aggregate principal balance of $166,000 at December 31,
1996, bear interest at 6.65% per annum. Monthly principal payments of $13,833
commence in 2001 with the last payment due in 2002. The subordinated notes, with
an aggregate principal balance of $10,000 at December 31, 1996, bear interest at
7.10% per annum and are payable in full in 2002. Interest on the TFFC-96 notes
is payable monthly.
Convertible Subordinated Notes
In December 1996, the Company issued convertible subordinated notes with an
aggregate principal amount of $80,000 bearing interest at 7% per annum due 2003.
At a conversion price of $20.07, the convertible subordinated notes are
convertible into 3,986,049 shares of Class A Common Stock. See Note 16.
Vehicle Obligations
Vehicle obligations consist of outstanding lines of credit to purchase
rental vehicles and retail car sales inventory. Collateralized lines of credit
at December 31, 1996, consist of $203,000 for rental vehicles and $26,000 for
retail car sales inventory with maturity dates ranging from April 1997 to May
1998. Vehicle obligations are collateralized by revenue earning vehicles
financed under these credit facilities and proceeds from the sale, lease or
rental of rental vehicles and retail car sales inventory.
Vehicle obligations relating to the rental fleet are generally amortized
over 5 to 15 months with monthly principal payments ranging from 2% to 3% of the
capitalized vehicle cost. When rental vehicles are sold, the related unpaid
obligation is due. Interest payments for rental fleet facilities are due monthly
at annual interest rates ranging from 7.0% to 8.75% at December 31, 1996.
Management expects vehicle obligations will generally be repaid within one year
with proceeds received from either the repurchase of the vehicles by the
manufacturers in accordance with the terms of the manufacturers' rental fleet
programs or from the sale of the vehicles.
In November 1996, Team Fleet Services Corporation ("TFSC") and VPSI, wholly
owned subsidiaries of the Company, entered into Revolving Credit Agreements with
NationsBank, National Association (South), as Agent (the "Agent") for the
lenders party thereto, providing for up to $100,000 and $50,000, respectively,
of financing for the acquisition of program vehicles (the "Revolving Credit
Facilities"). The interest rates of loans under the Revolving Credit Facilities
are, at the option of TFSC and VPSI and up to certain amounts, based on the
Agent's prime rate, LIBOR or CD rates. The weighted average interest rate of
loans outstanding under the Revolving Credit Facilities at December 31, 1996,
was 7.125%.
Monthly payments of interest are required on obligations relating to
vehicle inventory at prime plus .25% (8.50% per annum at December 31, 1996).
Vehicle inventory obligations are paid when the inventory is sold but in no
event later than 120 days after the date of purchase.
Working Capital Facilities
At December 31, 1996, the Company had an unutilized working capital
facility of $10,000, which requires monthly interest payments on the outstanding
balance at LIBOR plus 2.50% (8.125% at December 31, 1996). This facility, which
expires in April 1997, is collateralized by accounts receivable, vehicle
inventory, property and equipment, certain intangibles, investments and all
other personal property of the Company and guarantees of certain subsidiaries.
This agreement is subject to certain covenants, the most restrictive of which
requires the
F-15
<PAGE> 108
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Company to maintain certain financial ratios and minimum tangible net worth and
prohibits the payment of cash dividends. At December 31, 1996, the Company was
in compliance with all covenants.
Future principal payments of notes payable at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
- ------------ --------
<S> <C>
1997........................................................ $ 61,906
1998........................................................ 30,376
1999........................................................ 105,682
2000........................................................ 145
2001........................................................ 110,667
Thereafter.................................................. 145,333
--------
$454,109
========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company leases facilities from entities owned by certain stockholders.
Operating lease payments for the years ended December 31, 1994, 1995 and 1996,
were $196, $220 and $227, respectively. MCK has assigned lease payments from the
Company to a bank.
Prior to the acquisition of the Fort Wayne operations (see Note 3), the
Company leased fleet vehicles to Fort Wayne Rental Group, Inc. for approximately
$366 for the year ended December 31, 1994.
At December 31, 1995 and 1996, the Company had non-interest bearing notes
receivable totaling $61 and $58 due from a stockholder and director which are
payable on demand. Additionally, at December 31, 1996, the Company had a payable
to a stockholder and director in the amount of $1,500 which is included in
accrued and other liabilities on the accompanying consolidated balance sheet.
The outstanding balance bears interest at prime plus 2.0% (10.25% per annum at
December 31, 1996), is unsecured and is payable on demand.
Approximately $564 and $4,013 of cash and cash equivalents are on deposit
with or are being held as agent for the Company by a bank at December 31, 1995
and 1996, respectively. A stockholder and director of the Company serves on the
bank's board of directors.
In connection with the Los Angeles acquisition, the Company entered into a
franchise agreement with the seller to pay a royalty of 5% of the monthly gross
revenues derived from those operations, as well as the Company's San Diego
operations. A director of the Company is the Chief Executive Officer and a
general partner of the seller. In 1996, the Company paid the seller
approximately $3,700 in royalty fees in accordance with this agreement.
8. LEASES
The Company leases certain revenue earning vehicles and facilities under
leases that expire at various dates through May 2014. Generally, the facility
leases are subject to payment increases based on cost of living indices and
require the Company to pay taxes, maintenance, insurance and certain other
operating expenses. Certain facility leases require the Company to pay fixed
amounts plus contingent rentals based on gross rental revenues, as defined, and
gasoline sales.
F-16
<PAGE> 109
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Future minimum payments under noncancellable leases at December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1997...................................................... $ 210 $10,935
1998...................................................... 172 8,654
1999...................................................... 167 7,704
2000...................................................... 137 5,934
2001...................................................... 3 2,549
Thereafter................................................ -- 9,208
----- -------
$ 689 $44,984
=======
Less -- amounts representing interest..................... (109)
-----
$ 580
=====
</TABLE>
Rent expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------ ------- --------
<S> <C> <C> <C>
Revenue earning vehicles................................... $3,121 $ 1,518 $ 1,555
Facilities:
Minimum rentals.......................................... 1,990 5,914 14,422
Contingent rentals....................................... 1,923 3,502 3,353
------ ------- --------
Total............................................ $7,034 $10,934 $ 19,330
====== ======= ========
</TABLE>
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -------
<S> <C> <C> <C>
Current:
Federal................................................... $184 $ -- $ 92
State..................................................... -- 145 750
Deferred:
Federal................................................... (23) 470 2,161
State..................................................... 15 70 318
---- ---- ------
$176 $685 $3,321
==== ==== ======
</TABLE>
F-17
<PAGE> 110
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The provision for income taxes differs from the amount computed using the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -------
<S> <C> <C> <C>
Income tax provision at federal statutory rate.............. $130 $348 $2,658
Effect of (earnings) losses of nontaxable (subchapter S)
companies................................................. 645 -- (87)
Nondeductible portion of amortization of franchise rights
and goodwill.............................................. 12 94 306
State tax provision, net of federal benefit................. 30 215 391
Benefit of net operating loss carryforwards................. (645) -- --
Other....................................................... 4 28 53
---- ---- ------
$176 $685 $3,321
==== ==== ======
</TABLE>
The tax effects of temporary differences that give rise to the Company's
deferred tax assets and liabilities are as follows at December 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $13,195 $16,846
Non-deductible reserves................................... 2,267 5,459
Alternative minimum tax carryforward...................... 197 966
Valuation allowance....................................... (7,378) (9,515)
------- -------
8,281 13,756
------- -------
Deferred tax liabilities:
Difference between book and tax bases of revenue earning
vehicles and property and equipment.................... 8,690 19,327
Franchise rights.......................................... 1,292 1,835
------- -------
9,982 21,162
------- -------
Net deferred tax liability................................ $ 1,701 $ 7,406
======= =======
</TABLE>
Concurrent with the Share Exchange in 1994, the nontaxable status of the
commonly owned companies was terminated and a deferred tax liability of
approximately $1,169 was recorded with a corresponding charge to the accumulated
deficit.
At December 31, 1996, the Company and its subsidiaries have federal tax
loss carryforwards of approximately $43,360 expiring between December 2005 and
December 2011. The Company has recorded a valuation allowance for a portion of
the acquired net operating loss carryforwards due to the uncertainty of their
ultimate realization. Any subsequently recognized tax benefits attributed to the
change in the valuation allowance will reduce franchise rights. The increase in
the valuation allowance during 1996 resulted from an increase related to net
operating loss carryforwards and uncertainty regarding their ultimate
realization.
The Internal Revenue Code places limitations on the utilization of net
operating losses and similar tax attributes by a corporation in the event of a
stock ownership change aggregating more than 50% over a specified time period.
Net operating loss carryforwards in existence when ownership changes occur are
subject to an annual utilization limitation that may restrict the future
utilization of the net operating losses. Similarly, utilization of losses
generated during years when separate returns have been filed may be limited in
the future. Such limitations have been considered in the determination of
deferred income taxes.
F-18
<PAGE> 111
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
10. BENEFIT PLANS
Stock Options
On April 25, 1994, the Company adopted the 1994 Incentive Stock Option Plan
(the "ISO Plan") and the 1994 Directors' Stock Option Plan (the "Directors'
Plan"). The Company accounts for these plans under APB Opinion No. 25 under
which no compensation cost has been recognized. Had compensation cost been
determined consistent with SFAS No. 123, the Company's net income and EPS would
have been reduced to the following unaudited pro forma amounts:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C> <C>
Net Income........................ As Reported....................... $ 377 $4,497
Pro Forma......................... (36) 3,375
Primary Earnings Per
Common and Common
Equivalent Share................ As Reported....................... 0.05 0.47
Pro Forma......................... (0.01) 0.36
</TABLE>
Because the SFAS No. 123 method of accounting has only been applied to
options granted in 1995 and 1996, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The ISO Plan provides for the issuance of up to 760,000 shares of Class A
or Class B common stock to key employees. The ISO Plan stock options may be
either incentive stock options or nonqualified options and expire ten years
after the date of grant. The exercise price of incentive stock options may not
be less than the fair market value of the underlying shares at the date of
grant. The exercise price for nonqualified options may not be less than 85% of
the fair market value of the underlying shares or, if greater, the book value of
the underlying shares at the date of grant.
The Directors' Plan provides for the issuance of shares of Class A common
stock to directors of the Company who are not employees of the Company. The
Directors' Plan stock options are nonqualified, vest six months following the
date of grant and expire ten years after the date of grant. The exercise price
of the nonqualified options under the Directors' Plan is the fair market value
of the underlying shares at the date of grant.
A summary of the status of the Company's two stock option plans at December
31, 1995 and 1996, and activity during the years then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding -- December 31, 1994............................ 15,000 $ 9.50
Granted................................................... 202,000 9.50
-------
Outstanding -- December 31, 1995............................ 217,000 9.50
Granted................................................... 547,650 11.70
Exercised................................................. (6,200) 9.50
Forfeited................................................. (8,600) 11.13
-------
Outstanding -- December 31, 1996............................ 749,850 11.09
=======
</TABLE>
As of December 31, 1996, options for 585,850 shares and 164,000 shares of
Class A and Class B common stock, respectively, remained outstanding under the
Company's stock option plans.
F-19
<PAGE> 112
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Exercisable at end of year --
Shares.................................................... 15,000 247,700
Weighted average exercise price........................... $9.50 $9.76
Weighted average fair value of options granted during the
year...................................................... $4.52 $5.48
</TABLE>
At December 31, 1996, 62,500 of the 749,850 options outstanding have
exercise prices between $9.50 and $11.25 with a weighted average exercise price
of $10.55 and a weighted average remaining contractual life of 8.8 years. All of
these options are exercisable. The remaining 687,350 options have exercise
prices between $9.50 and $17.50, with a weighted average exercise price of
$11.14 and a weighted average remaining contractual life of 9.0 years. Of these
options, 185,200 are exercisable; their weighted average exercise price is
$9.50.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model. For options granted under the ISO Plan,
a risk-free rate of return of 6.21% and an expected life of three years were
assumed. For options granted under the Directors' Plan, a risk free rate of
return of 6.49% and an expected life of seven years were assumed. Additionally,
for each option plan there was no expected dividend yield and an expected
volatility of 60%.
Profit Sharing Plan
The Company adopted a Profit Sharing Plan with a 401(k) arrangement under
the Internal Revenue Code effective January 1, 1996. Employees are eligible to
participate after completing one year of service and attaining age 21.
Participants may contribute 1%-15% of their gross compensation. The Company may
make discretionary contributions not to exceed 15% of the total plan
compensation. During 1996, the Company made discretionary contributions of
approximately $146.5 to the Profit Sharing Plan.
11. COMMON STOCK WARRANT
Concurrently with the Freedom River acquisition and in consideration of the
abatement of certain future royalty fees to BRACC with respect to Freedom
River's Philadelphia vehicle rental operation and other consideration received
from BRACC, the Company issued a warrant to BRACC (the "Common Stock Warrant")
to purchase 175,000 shares of Class A common stock at the initial public
offering price. The warrant became exercisable on August 24, 1996, and expires
on August 24, 1999. Subsequent to August 24, 1998, and prior to August 24, 1999,
BRACC will have the right to cause the Company to repurchase the Common Stock
Warrant for $2,000. The Company has reserved Class A common stock for the Common
Stock Warrant.
12. COMMITMENTS AND CONTINGENCIES
Franchise Agreements
The Company has various franchise agreements with BRACC which require the
payment of monthly royalty fees. These fees vary from a flat fee of $13.25 per
car to 7.5% of gross rental revenues, as defined in the franchise agreements.
The above franchise agreements are renewable for an unlimited number of
five-year periods, subject to certain terms and conditions.
Concurrent with the initial public offering, the Company purchased for
$1,750 the direct franchise rights for Budget Rent a Truck facilities to operate
in certain geographic locations in San Diego County and Imperial County,
California. This reduced substantially all truck rental royalty fees to 5% of
gross rental revenues, as defined. Prior to the purchase of the direct franchise
rights, the Company paid royalty fees of 12% of gross rental revenue.
F-20
<PAGE> 113
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
The Company also participates in a "One-Way" truck rental program in San
Diego County and Imperial County, California sponsored by BRACC whereby trucks
owned by BRACC are stationed at the Company's facilities for one-way rental by
outside parties. The Company retains fees for Budget "One Way" truck rental
revenue of 20%. Revenues from the "One-Way" truck rental program for the years
ended December 31, 1994, 1995 and 1996 were $558, $1,027, and $1,451,
respectively.
Sublicense Agreements
The Company has sublicense agreements with Budget of Southern California
which entitles the Company to operate Budget Car Rental facilities in Southern
California. Sublicense fees to Budget of Southern California range from 5% to
6.5% of gross revenues as defined in the sublicense agreements.
The Company also has a sublicense agreement with Transportation Storage
Associates ("TSA") for the right to rent trucks in and around Los Angeles
County. Fees to TSA are 12% of gross revenues as defined in the sublicense
agreement.
Royalty and sublicense fees expensed by the Company for the years ended
December 31, 1994, 1995 and 1996 were $2,348, $5,715 and $9,598, respectively.
Budget reservation fees expensed by the Company for the years ended December 31,
1994, 1995 and 1996 were $1,574, $3,904 and $6,375, respectively.
Regulatory and Environmental Matters
The Company is subject to various federal, state and local laws and
regulations that affect 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 protection and clean-up.
The Company maintains an environmental compliance program designed to
maintain compliance with applicable technical and operational requirements,
including periodic integrity testing of underground storage tanks and providing
financial assurance for remediation of spills or releases. The Company believes
that its operations currently are in compliance, in all material respects, with
such regulatory requirements. However, there are several technical
specifications regarding underground storage tanks applicable to the Company's
facilities, many of which will become effective in 1998. Although the exact cost
of complying with those requirements has not been estimated, such expenditures
could, in the aggregate, be significant.
Litigation
The Company has contingencies with respect to litigation arising in the
ordinary course of business. In the opinion of management, such litigation will
not result in any loss which would materially affect the financial position or
results of operations of the Company.
13. FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosure about Fair Value of Financial Instruments. The estimated fair value
amounts are determined by the Company, using available market information and
appropriate valuation methodologies. However, considerable judgment is required
in interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amount.
F-21
<PAGE> 114
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Cash and Cash Equivalents, Restricted Cash, Receivables and Accounts Payable
The carrying amounts of these financial assets and liabilities at December
31, 1995 and 1996, approximate fair value because of the short maturity of these
instruments.
Notes Payable
The carrying amount of a portion of the Company's notes payable
approximates fair value at December 31, 1995 and 1996, since the debt is at
floating interest rates. The carrying amount of the Company's fixed-rate notes
payable approximates fair value at December 31, 1996, due to the recent issuance
of such debt.
Common Stock Warrant
The estimated fair value is based on a pricing model which considers stock
volatility and the put feature of the Common Stock Warrant. The estimated fair
value was $1,750 at December 31, 1996.
14. SUPPLEMENTAL CASH FLOW DISCLOSURES
In 1996, the Company issued approximately 272,727 shares of Class A common
stock with a value of $2,727 and notes payable of $10,000 for the 1996
acquisitions. The Company issued approximately 1,220,816 shares of Class A
common stock with a value of $12,837 and notes payable of $650 for the 1995
acquisitions.
In 1994, $525 of revenue earning vehicles and property and equipment were
financed through capital leases. The terms of a capital lease with certain
stockholders and a director were modified and, therefore, the capital lease
asset and obligation of $536 were eliminated. The net book value of the facility
lease and capital lease obligation of $536 was deducted from proceeds from the
sale of property and equipment and principal payments of capital lease
obligations, respectively. The Company also issued $200 of Class A common stock
to acquire the Fort Wayne franchise. In addition, property and equipment of
$4,441 were acquired and notes payable of $4,016 were assumed in connection with
the Freedom River acquisition.
In 1994, the Company recorded prepaid royalty fees and the Common Stock
Warrant of $2,000 for the abatement of certain fees (see Note 11).
The Company paid interest of $4,091, $13,764 and $26,955 in 1994, 1995 and
1996, respectively.
Income taxes of $182, $346 and $1,017 were paid in 1994, 1995 and 1996,
respectively.
15. SEGMENT INFORMATION
The Company is engaged in the business of the daily rental of vehicles,
principally cars, trucks, and passenger vans, and the retail sale of used
vehicles. Segment information for the year ended December 31, 1996, is as
follows:
<TABLE>
<CAPTION>
RETAIL VEHICLE VEHICLE
SALES RENTAL CONSOLIDATED
-------------- -------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers..................... $134,120 $223,250 $357,370
Depreciation and amortization....................... 1,482 63,685 65,167
Operating income.................................... 1,857 33,410 35,267
Income before provision for income taxes............ 409 7,409 7,818
Identifiable assets................................. 48,885 538,338 587,223
Capital expenditures -- revenue earning vehicles.... -- 517,079 517,079
</TABLE>
F-22
<PAGE> 115
TEAM RENTAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Segment information for the year ended December 31, 1995, is as follows:
<TABLE>
<CAPTION>
RETAIL VEHICLE VEHICLE
SALES RENTAL CONSOLIDATED
-------------- -------- ------------
<S> <C> <C> <C>
Sales to unaffiliated customers..................... $42,662 $107,067 $149,729
Depreciation and amortization....................... 193 29,483 29,676
Operating income.................................... 1,254 12,926 14,180
Income (loss) before provision for income taxes..... 1,869 (847) 1,022
Identifiable assets................................. 30,195 356,128 386,323
Capital expenditures -- revenue earning vehicles.... -- 315,863 315,863
</TABLE>
The Company operated in only the rental segment for the year ended December
31, 1994.
16. SUBSEQUENT EVENT
On January 13, 1997, the Company entered into stock purchase agreements
(the "Stock Purchase Agreements") with Ford Motor Company ("Ford"), BRACC and
the other stockholder of BRACC, pursuant to which the Company agreed to acquire
the capital stock of BRACC. The total amount of funds required by the Company to
consummate this acquisition (the "Budget Acquisition") is expected to be
approximately $275,000, which the Company intends to finance through the sale of
additional shares of Class A common stock and the issuance of senior and
convertible debt. The Company will also issue to Ford 4,500 shares of a new
series of non-voting preferred stock, which does not carry a dividend and will
be convertible into 4,500,000 shares of Class A common stock, subject to
adjustment in certain cases. Concurrent with the Budget Acquisition, the Company
will be required to refinance certain outstanding indebtedness of BRACC under
its existing fleet financing facilities with an aggregate principal balance of
$714,104 at December 31, 1996.
In connection with the financing of the Budget Acquisition, the Company may
extend the maturity of the Convertible Subordinated Notes (see Note 6) to 2007.
F-23
<PAGE> 116
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of
Budget Rent a Car Corporation:
We have audited the accompanying consolidated balance sheets of Budget Rent
a Car Corporation and subsidiaries as of December 31, 1995 and 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Budget Rent
a Car Corporation and subsidiaries as of December 31, 1995 and 1996 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 18, 1997
F-24
<PAGE> 117
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 95,872 $ 59,547
Receivables:
Vehicle rental and sales, less allowance of $29,133 in
1995 and $36,271 in 1996................................ 90,707 79,296
Royalty fees and other amounts due from franchisees, less
allowance of $9,000 in 1995 and $5,458 in 1996.......... 38,186 31,656
Installment notes, $617 in 1995 and $835 in 1996, due
within one year......................................... 6,758 8,071
Vehicle related programs -- Ford.......................... 89,283 67,192
Vehicle related programs -- other......................... 5,292 2,155
Other..................................................... 10,806 14,193
---------- ----------
241,032 202,563
Prepaid expenses and taxes, inventories and deposits........ 53,452 50,146
Vehicles held for sale...................................... 11,756 14,299
Vehicles, at cost........................................... 1,498,060 1,449,476
Less accumulated depreciation............................. (144,071) (145,501)
---------- ----------
1,353,989 1,303,975
Property and equipment, at cost:
Land...................................................... 31,990 32,652
Buildings and leasehold improvements...................... 113,863 120,900
Furniture and equipment................................... 102,991 107,275
Construction in progress.................................. 3,068 5,525
---------- ----------
251,912 266,352
Less accumulated depreciation and amortization.......... (140,030) (151,815)
---------- ----------
111,882 114,537
Other assets................................................ 75,920 53,102
Intangibles, including goodwill, less accumulated
amortization of $109,746 in 1995 and $126,715 in 1996..... 544,212 529,946
---------- ----------
$2,488,115 $2,328,115
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses, including outstanding
checks of $31,840 in 1995 and $27,410 in 1996............. $ 246,694 $ 207,531
Accounts payable -- Ford.................................... 22,909 2,994
Current income taxes payable................................ 93 812
Self-insurance liability.................................... 155,324 137,249
Notes payable -- Ford....................................... 989,646 846,708
Notes payable -- other...................................... 928,301 983,678
Mandatory Redeemable Preferred Stock:
Series A, 10% cumulative, redeemable, par value $.01,
stated value $1,000; 150,000 shares authorized; 150,000
shares issued and outstanding, including $101,250 ($675
per share) in 1995 of dividends in arrears.............. 251,250 --
Series X, 7.5% cumulative, redeemable, par value $.01,
stated value $1,000; 291,000 shares authorized, 5,006.46
shares issued and outstanding, including $172 ($34 per
share) in 1996 of dividends in arrears.................. -- 5,178
Stockholders' equity:
Preferred stock:
Series B, cumulative, participating, par value $.01,
stated value $1,000; 309,000 shares authorized; 309,000
shares issued and outstanding in 1995.................. 309,000 --
Common stock, par value $.01; 10,000 shares authorized,
issued and outstanding.................................. -- --
Additional paid-in capital................................ 1,000 564,994
Costs incurred for raising equity capital................. (9,555) (9,555)
Pension liability adjustment.............................. (15,110) (12,409)
Foreign currency translation adjustment................... (11,322) (7,497)
Accumulated deficit....................................... (380,115) (391,568)
---------- ----------
(106,102) 143,965
---------- ----------
$2,488,115 $2,328,115
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 118
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Vehicle rental........................................... $1,011,203 1,034,873 963,764
Retail car sales......................................... 77,999 83,795 91,503
Royalty fees............................................. 53,147 57,861 60,352
Other.................................................... 13,417 16,941 17,202
---------- ---------- ----------
1,155,766 1,193,470 1,132,821
---------- ---------- ----------
Expenses:
Direct vehicle and operating............................. 134,126 153,081 121,288
Depreciation -- vehicles................................. 257,356 323,619 263,846
Depreciation and amortization -- nonvehicle.............. 21,410 19,520 26,645
Cost of vehicles sold at retail.......................... 67,314 72,416 78,944
Advertising, promotion and selling....................... 99,738 106,446 83,304
Occupancy................................................ 110,386 113,286 114,325
Personnel................................................ 269,370 280,901 248,655
General and administrative............................... 69,117 88,612 54,194
Intangible amortization.................................. 16,874 17,006 16,969
---------- ---------- ----------
1,045,691 1,174,887 1,008,170
---------- ---------- ----------
Earnings before interest and income taxes.................. 110,075 18,583 124,651
Interest expense........................................... 104,950 149,909 124,182
---------- ---------- ----------
Income (loss) before income taxes.......................... 5,125 (131,326) 469
Provision for income taxes................................. 4,000 1,314 3,000
---------- ---------- ----------
Net income (loss).......................................... $ 1,125 (132,640) (2,531)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 119
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COSTS
INCURRED FOREIGN
ADDITIONAL FOR RAISING PENSION CURRENCY
PREFERRED COMMON PAID-IN EQUITY LIABILITY TRANSLATION ACCUMULATED
STOCK STOCK CAPITAL CAPITAL ADJUSTMENT ADJUSTMENT DEFICIT
--------- -------- ---------- ----------- ---------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1993............ $309,000 $ -- $ 1,000 $(9,555) $ (6,388) $(15,899) $(218,600)
Dividends in
arrears.......... -- -- -- -- -- -- (15,000)
Net income.......... -- -- -- -- -- -- 1,125
Pension liability
adjustment....... -- -- -- -- 144 -- --
Foreign currency
translation...... -- -- -- -- -- 4,082 --
-------- -------- -------- ------- -------- -------- ---------
Balance at December
31, 1994............ 309,000 -- 1,000 (9,555) (6,244) (11,817) (232,475)
Dividends in
arrears.......... -- -- -- -- -- -- (15,000)
Net loss............ -- -- -- -- -- -- (132,640)
Pension liability
adjustment....... -- -- -- -- (8,866) -- --
Foreign currency
translation...... -- -- -- -- -- 495 --
-------- -------- -------- ------- -------- -------- ---------
Balance at December
31, 1995............ 309,000 -- 1,000 (9,555) (15,110) (11,322) (380,115)
Dividends in
arrears:......... -- -- -- -- -- -- --
Series A......... -- -- -- -- -- -- (8,750)
Series X......... -- -- -- -- -- -- (172)
Net loss............ -- -- -- -- -- -- (2,531)
Exchange of
preferred
stock............ (309,000) -- 563,994 -- -- -- --
Pension liability
adjustment....... -- -- -- -- 2,701 -- --
Foreign currency
translation...... -- -- -- -- -- 3,825 --
-------- -------- -------- ------- -------- -------- ---------
Balance at December
31, 1996............ $ -- $ -- $564,994 $(9,555) $(12,409) $ (7,497) $(391,568)
======== ======== ======== ======= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 120
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Operating activities:
Net income (loss).................................... $ 1,125 $ (132,640) $ (2,531)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 278,766 343,140 290,491
Intangible amortization........................... 16,874 17,006 16,969
Gain on sale of vehicles and equipment............ (25,389) (20,333) (14,137)
Provision for losses on accounts receivable....... 9,205 9,581 6,350
Equity in (earnings) loss of equity investees..... 61 (1,665) --
Changes in operating assets and liabilities, net
of effects from franchise acquisitions:
Receivables..................................... (12,537) (23,998) 32,118
Prepaid expenses and taxes, inventories and
deposits..................................... (3,065) 2,710 3,306
Vehicles held for sale.......................... (2,278) (2,082) (2,543)
Accounts payable and accrued expenses........... 34,458 (2,674) (56,377)
Current income taxes payable.................... 434 (341) 719
Estimated self-insurance liability.............. (16,861) (14,760) (18,075)
------------ ----------- ------------
Net cash provided by operating activities.............. 280,793 173,944 256,290
------------ ----------- ------------
Investing activities:
Purchase of vehicles................................. (2,841,717) (2,783,295) (2,196,399)
Proceeds from sale of vehicles....................... 2,402,724 2,666,523 2,000,129
Purchase of property and equipment................... (14,692) (19,144) (25,265)
Proceeds from the sale of property and equipment..... 8,846 8,940 7,180
Changes in other assets.............................. 33,029 (53,962) 9,301
------------ ----------- ------------
Net cash used in investing activities.................. (411,810) (180,938) (205,054)
------------ ----------- ------------
Financing activities:
Proceeds from revolving credit facility and other
notes payable..................................... 2,130,732 2,101,462 839,349
Principal payments on revolving credit facility and
other notes payable............................... (2,108,407) (1,917,026) (823,057)
Proceeds from fleet lender notes..................... 2,021,290 1,739,199 2,194,033
Principal payments on fleet lender notes............. (2,114,124) (1,833,544) (2,353,082)
Proceeds from commercial paper....................... 10,098,459 7,777,064 10,878,540
Principal payments on commercial paper............... (10,354,161) (7,831,494) (10,823,344)
Proceeds from notes payable to other vehicle
lenders........................................... 500,000 -- --
------------ ----------- ------------
Net cash provided by (used in) financing activities.... 173,789 35,661 (87,561)
------------ ----------- ------------
Increase (decrease) in cash and cash equivalents....... 42,772 28,667 (36,325)
Cash and cash equivalents at beginning of year......... 24,433 67,205 95,872
------------ ----------- ------------
Cash and cash equivalents at end of year............... $ 67,205 $ 95,872 $ 59,547
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 121
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
(1) SIGNIFICANT ACCOUNTING POLICIES
General
On March 30, 1989, pursuant to an agreement and plan of merger, as amended,
Budget Rent a Car Corporation (the Company) became a wholly owned subsidiary of
Beech Holdings Corp. (Holdings). Effective December 31, 1995, Holdings was
merged with and into the Company (the Merger). All shares of Holdings stock
outstanding prior to the Merger were retired and new shares of Company stock,
with rights and preferences similar to the retired Holdings shares, were issued
to the stockholders of Holdings. The accompanying financial statements are
presented as if the Merger had taken place on January 1, 1994. The most
significant impact of the Merger on the consolidated financial statements of the
Company was to increase intangible assets (and amortization expense) and to
increase stockholders' equity.
On July 16, 1996, pursuant to a Recapitalization Plan approved by the
Company's Board of Directors and stockholders, the Company exchanged all
previously issued and outstanding shares of Preferred A and Preferred B stock
for 5,006.46 shares of a new series (Series X) of mandatory redeemable preferred
stock. As a result of the exchange, additional paid-in capital increased
$563,994, while Series B preferred stock, at stated value, decreased $309,000
and mandatory redeemable preferred stock (Series A) was reduced by $260,000. See
note 11 to the consolidated financial statements.
Description of Business
The Company is engaged in the business of vehicle rental through both owned
and franchised operations. Company owned vehicle rental operations are located
primarily throughout the United States and Western Europe. The largest
concentration (approximately 25%) of vehicle rental assets is located in the
highly competitive Florida market. Franchised vehicle operations are located
worldwide. Customers are mainly business and leisure travelers. No customer
accounts for more than 10% of the Company's revenues.
Principles of Consolidation
The consolidated financial statements include the accounts and operations
of the Company and its majority-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation. Investments in
less than majority-owned entities are accounted for using the equity method,
under which the Company's share of operating results are reflected in income as
earned and dividends are credited against the investment when received.
Cash and Cash Equivalents
Cash equivalents include all highly liquid investments with an original
maturity of three months or less.
Computer Software Systems
License fees related to the Company's purchased reservation system and
associated applications and databases are capitalized and amortized over ten
years. Costs associated with the internal development of other computer software
systems and system enhancements are capitalized and amortized over three years.
Intangibles, Including Goodwill
Costs in excess of the fair value of net assets acquired as a result of the
acquisition of the Company and in conjunction with acquisitions of franchise
vehicle rental operations are capitalized and amortized over 40 years on the
straight-line method.
F-29
<PAGE> 122
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying value of goodwill is reviewed whenever events or changes in
circumstances indicate that the carrying value may not be recoverable through
projected undiscounted future operating cash flows. Although no impairment is
indicated at December 31, 1996, the assessment of recoverability will be
impacted if estimated projected undiscounted operating cash flows are not
achieved.
Other Revenues
Other revenues largely consist of income before interest and taxes for
insurance and credit card processing operations, the Company's share of
operating results of equity investees and revenues generated from miscellaneous
services provided to the Company's franchisees.
Vehicle Dispositions
Repurchase programs with vehicle manufacturers require the manufacturers to
repurchase the vehicles after varying time frames at agreed upon prices (subject
to defined condition and mileage standards). Vehicles subject to these programs
are capitalized and depreciated such that no gain or loss is realized upon
disposition.
Gains or losses realized on vehicles sold through the wholesale market are
recorded as adjustments to depreciation expense.
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Estimated useful lives range from 25 years
for buildings to three to seven years for furniture and equipment. Costs of
leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or the estimated useful life of the related assets.
Vehicles are depreciated at rates ranging from 1.0% to 2.5% per month, depending
on vehicle type.
Advertising, Promotion and Selling
Advertising, promotion and selling costs are expensed as incurred. The
Company incurred advertising expenses of $33,326, $38,552 and $31,201 in 1994,
1995 and 1996, respectively.
Environmental Costs
Environmental remediation costs are recorded in accrued expenses based on
estimates of known environmental remediation exposures when it becomes probable
that a liability has been incurred. Environmental exposures are largely related
to underground storage tanks.
Expenditures are expected to be made over the next three years. A
receivable is recorded for amounts recoverable from third-parties when
collection becomes probable.
Self-insurance Liability
The Company is self-insured with respect to personal and property liability
claims up to specified limits. Third-party insurance is maintained for claims in
excess of the limits. A liability is recorded for known claims and for incurred
but not reported incidents based on actuarially computed estimates of expected
loss. The liability recorded as a result of these actuarially computed estimates
may experience material changes from year to year as incurred but not reported
incidents become known and known claims are settled.
The Company maintains unused letters of credit amounting to $122,324 and
$89,272 at December 31, 1995 and 1996, respectively, largely in support of its
insurance liability in certain states and supporting the reimbursement of claims
paid by third-party claims administrators.
F-30
<PAGE> 123
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred taxes are recognized to the extent they are expected to be payable
upon distribution of earnings of foreign and unconsolidated subsidiaries. The
Company uses a September 30 fiscal year for U.S. Federal income tax purposes.
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities, as measured by the enacted tax rates which will be in effect
when those temporary differences are expected to be recovered or settled.
Deferred tax expense is the result of changes in the net deferred tax assets and
liabilities. The effect of a change in tax rates is recognized in the period
that includes the enactment date.
Translation of Foreign Financial Statements
The financial statements of the Company's foreign affiliates have been
translated into U.S. dollars in accordance with SFAS No. 52. Accordingly, assets
and liabilities of foreign operations are translated at period-end rates of
exchange, with any resultant translation adjustments reported as a separate
component of stockholders' equity. Income statement accounts are translated at
average exchange rates for the period and gains and losses from foreign currency
transactions are included in net income.
Derivatives
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the terms of the cap. Unamortized premiums are included in
prepaid expenses in the balance sheet. Accounts receivable under cap agreements
are accrued with a corresponding reduction of interest expense.
Gains and losses on foreign exchange contracts and futures related to
qualifying hedges of firm commitments or anticipated transactions are deferred
and are recognized in income when the hedged transaction occurs. The Company
does not engage in speculative derivatives.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Changes in Accounting Estimates
During 1994, 1995 and 1996 the Company recorded adjustments related to
prior year actuarial estimates of its self-insurance liability. The effect of
these adjustments was to increase income before taxes by approximately $8,000 in
1994, to decrease income before taxes by approximately $15,000 in 1995 and to
increase income before taxes by approximately $19,000 in 1996.
Reclassifications
Certain amounts in the 1994 and 1995 consolidated financial statements have
been reclassified to conform with the current year presentation.
(2) VEHICLES, AT COST
Vehicles, at cost largely represent revenue earning cars and trucks. At
December 31, 1995 and 1996 the net book value of vehicles subject to repurchase
programs was approximately $1,077,000 and $940,047, respectively.
F-31
<PAGE> 124
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) REORGANIZATION AND CENTRALIZATION
The accompanying financial statements for 1995 include charges and accruals
of approximately $14,600 ($9,300 in personnel expense and $5,300 in general and
administrative expense) related to a reorganization and centralization primarily
of the finance and administrative functions of the Company (the
"Reorganization"). In conjunction with the Reorganization, approximately 450
employees were identified for termination, primarily in finance and operations
management. As of December 31, 1996, all affected employees have been terminated
or accepted other open positions.
At December 31, 1996, the remaining accruals relating to the Reorganization
totaled approximately $2,300. During 1996, amounts paid and non-cash accrual
reductions totaled approximately $11,000 and $1,300, respectively.
(4) OTHER ASSETS
Other assets include purchased software and capitalized software systems
development costs, net of accumulated amortization, which amount to
approximately $65,351 and $53,101 at December 31, 1995 and 1996, respectively.
In addition, other assets includes the Company's 50% investment in Compass
Computer Services, Inc. (Compass) and a 20% investment in a foreign rental
operation. Compass provides, among other services, reservation data processing.
The Company received dividends from Compass of $850, $150 and $8,088 during
1994, 1995 and 1996, respectively. In 1996, $5,000 of the dividends represents
the fair value of property and equipment received. The combined revenues of the
Company's investees during 1994, 1995 and 1996 amount to less than 10% of
consolidated revenues. At December 31, 1996, the amount of undistributed
earnings of Compass included in consolidated accumulated deficit is not
significant.
(5) NOTES PAYABLE
Notes payable at December 31 consist of the following:
<TABLE>
<CAPTION>
FINAL
INTEREST RATE MATURITY 1995 1996
---------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Fleet lender revolving
notes...................... 7.23% to 8.40% 1997 $598,710 $426,370
Commercial paper payable..... 5.20% to 6.35% 1997 312,320 367,516
Vehicle lender term notes.... 6.02% 1999 500,000 500,000
Revolving credit facility.... 7.73% 1997 392,718 418,218
Foreign notes................ 4.06% to 11.55% 1997 to 2012 58,893 71,676
Note payable to vendor....... 6.20% 1998 39,975 35,875
Notes payable to former
owners of franchises
purchased by the Company... 10.00% to 12.00% 1997 to 1999 2,038 1,562
Other........................ 5.48% to 9.00% 1997 to 2007 13,293 9,169
---------------- -------------- ---------- ----------
$1,917,947 $1,830,386
========== ==========
</TABLE>
Fleet lender revolving notes: The fleet lender revolving notes are secured
by the applicable vehicles and vehicle program receivables. The notes bear
interest at rates that vary with commercial paper rates or the prime rate. The
Company makes monthly principal payments based on depreciation of the related
vehicles adjusted for net additions or disposals. It is the Company's intention
and ability to renew the fleet lender revolving notes or to obtain financing
under similar terms when the present agreements expire. At December 31, 1995 and
1996, $593,937 and $426,370, respectively, are due to Ford.
F-32
<PAGE> 125
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commercial paper payable: The commercial paper payable (the "paper") is
secured by the applicable vehicles and vehicle program receivables. Under
limited circumstances the paper may be repaid by draws under a related, bank
provided liquidity facility ($725,000) or a related letter of credit ($120,000).
The paper is issued periodically with maturities up to 90 days. It is the
Company's intention and ability to renew the liquidity facility and letter of
credit or to obtain financing under similar terms when the present agreements
expire in July 1997 and July 1998, respectively.
Vehicle lender term notes: The vehicle lender term notes (the "notes") are
secured by the applicable vehicles and vehicle program receivables. Under
limited circumstances the notes may be repaid by draws under a related letter of
credit ($25,000).
Revolving credit facility: The revolving credit facility, which provides
funding of working capital, bears interest at rates that vary with commercial
paper rates and is due to Ford. The unused and available commitment of the
credit facility was $57,282 and $106,782 at December 31, 1995 and 1996,
respectively.
Foreign notes: The foreign notes primarily provide financing for vehicle
purchases and the funding of working capital. At December 31, 1995 and 1996,
approximately $53,917 and $67,733, respectively, relate to vehicle debt while
$4,976 and $3,943, respectively, relate to the funding of working capital and
various other debt. At December 31, 1995 and 1996, $2,991 and $2,120,
respectively, are due to Ford.
Notes payable to vendor: The note payable to vendor relates to the
Company's license agreement for the reservation system and associated
applications and databases.
Substantially all of the Company's assets serve as collateral under the
various credit agreements. Cash deposits restricted as to use amounted to
$52,471 and $28,359 at December 31, 1995 and 1996, respectively. The fleet
lender revolving notes, liquidity facility, vehicle lender term notes and
revolving credit facility each contain restrictive covenants relating to, among
other things, incurring liens, paying dividends or selling certain assets.
Additionally, the revolving credit facility has specific covenants relating to
net worth, leverage and capital expenditures. Compliance with these covenants
has been waived.
Maturities: Scheduled aggregate maturities of notes payable at December 31
are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
1996........................................................ $1,375,455 $ --
1997........................................................ 4,629 1,308,854
1998........................................................ 7,977 18,976
1999........................................................ 505,159 501,207
2000........................................................ 4,567 496
2001........................................................ 4,596 368
Thereafter.................................................. 15,564 485
---------- ----------
$1,917,947 $1,830,386
========== ==========
</TABLE>
Interest payments amounted to $105,214, ($63,038 to Ford) $149,219 ($83,627
to Ford) and $124,483 ($74,815 to Ford) in the years ended December 31, 1994,
1995 and 1996, respectively. In 1995 the Company capitalized $1,233 of interest
costs incurred.
(6) FINANCIAL INSTRUMENTS
Interest Rate Caps: The Company enters into interest rate cap agreements
to limit its exposure to increases in interest rates. Under these agreements,
the Company will receive payment in the event that 30 day commercial paper rates
exceed levels varying from 5.00% to 5.75%.
F-33
<PAGE> 126
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had interest rate cap agreements outstanding in the notional
amount of $500,000 at December 31, 1995 and 1996, respectively. In 1996, fees of
approximately $3,600 have been paid to the counterparties (major banks) and are
amortized on the straight-line method to interest expense over the protection
period (through December 1997). At December 31, 1995 and 1996, the unamortized
fees amounted to approximately $3,390 and $3,600, respectively.
The Company is exposed to credit-related loss, to the extent of the fair
value of the contracts, in the event of nonperformance by the counterparties to
the agreements, but believes this risk to be minimal given the high credit
ratings of the counterparties.
Foreign exchange contracts: The Company employs forward foreign exchange
contracts to limit its exposure to currency fluctuations on certain intercompany
loans between foreign operations. Under these agreements, the Company is
obligated to sell foreign currencies (primarily European) in exchange for
British Sterling or U.S. dollars at dates several months into the future. These
contracts are subject to the creditworthiness of the counterparties (large
banks), but the Company believes this risk to be minimal given the high credit
ratings of the counterparties. At December 31, 1995, no foreign exchange
contracts were outstanding. At December 31, 1996, the Company had approximately
$7,254 in forward foreign exchange contracts outstanding and had deferred
expenses of approximately $77.
(7) PENSION AND OTHER BENEFIT PLANS
Substantially all employees of the United Kingdom and certain employees in
the U.S. are covered under noncontributory pension plans. Plan benefits are
based on final average compensation. The Company's funding policy for the
domestic pension plan is to contribute the minimum ERISA contribution required
under the projected unit credit actuarial cost method. Effective December 31,
1991, the Company suspended its domestic defined benefit pension plan. As a
result of this suspension, employees will earn no additional benefits under the
plan. The domestic plan is supplemented by an unfunded, nonqualified plan
providing benefits (as computed under the benefit formula) in excess of limits
imposed by Federal tax law. The cost of the supplemental plan was approximately
$1,009, $1,053 and $1,005 in 1994, 1995 and 1996, respectively.
Effective August 1996 the Company established an unfunded, nonqualified
plan providing benefits to its officers, (the Executive Protection Plan) based
on a percentage of final compensation. The cost of the Executive Protection Plan
was approximately $87 in 1996.
The Company also maintains a Savings Plus Plan. Under this plan, an
eligible employee of the Company, or its participating subsidiaries, who has
completed one year of continuous service and enrolls in the plan may elect to
defer from 1% to 15% of specified compensation under a "cash or deferred
arrangement" under Section 401(k) of the Internal Revenue Code, subject to
certain limitations. The Company contributes varying amounts (25% to 75%) on the
first 6% of each participating employees eligible salary deferrals to various
funds established by the plan. The cost of the plan was approximately $2,436,
$2,657 and $2,332 in 1994, 1995 and 1996, respectively.
The Company maintains a defined contribution benefit plan covering all
employees eligible under the Savings Plus Plan. The amount of funds contributed
to the plan each year, if any, is at the discretion of the Board of Directors,
based on a percentage of an employee's total cash compensation. The cost of the
plan was approximately $5,368, $3,096 and $2,761 in 1994, 1995 and 1996,
respectively.
F-34
<PAGE> 127
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Each of the Company's defined benefit plan's accumulated benefits exceed
the plan's assets at December 31, 1996 and 1995. The following table sets forth
the domestic and foreign pension plans' funded status and amounts recognized in
the Company's consolidated financial statements at December 31:
<TABLE>
<CAPTION>
1995 1996
------------------ ------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
PLANS PLAN PLANS PLAN
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.............................. $(27,328) $(3,123) $(27,615) $(4,685)
Nonvested benefits........................... (1,033) (52) (1,103) (69)
-------- ------- -------- -------
Accumulated benefit obligation................. $(28,361) $(3,175) $(28,718) (4,754)
======== ======= ======== =======
Projected benefit obligation for service
rendered to date............................. (28,361) (3,920) (28,767) (5,768)
Plan assets at fair value, primarily
participation in common trust funds.......... 14,650 6,185 16,183 7,936
-------- ------- -------- -------
Excess (deficiency) of plan assets over
projected benefit obligation................. (13,711) 2,265 (12,584) 2,168
Unrecognized net asset at transition........... -- (3) 1,217 (3)
Unrecognized net loss (gain)................... 15,110 (200) 12,458 398
Adjustment required to recognize minimum
liability.................................... (15,110) -- (13,626) --
-------- ------- -------- -------
Prepaid (accrued) pension cost................. $(13,711) $ 2,062 $(12,535) 2,563
======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
------------------ ------------------ ------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN
PLANS PLAN PLANS PLAN PLANS PLAN
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost for benefits earned
during the period................ $ -- $ 149 $ -- $ 158 $ 24 $ 447
Interest cost on projected benefit
obligation....................... 1,639 224 1,809 253 1,916 344
Return on plan assets.............. 334 (520) (2,728) (526) (1,904) (666)
Net amortization and deferral...... (1,141) (43) 1,996 (3) 1,335 --
------- ----- ------- ----- ------- -----
Pension expense (income)........... $ 832 $(190) $ 1,077 $(118) $ 1,371 $ 125
======= ===== ======= ===== ======= =====
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation for 1995 and 1996 was 6.8% and
7.1%, respectively. No compensation increase has been assumed as no additional
benefits will be earned under the domestic plans. The assumed compensation
increase under the Executive Protection Plan and foreign plan was 5% and 4%,
respectively. The expected long-term rate of return on plan assets for 1995 and
1996 was 10% and 9.5%, respectively.
The Company has recognized additional liabilities related to each of its
domestic plans as the unfunded liability recognized as accrued pension cost is
less than the actuarially determined accumulated benefit obligation. The
additional liability is reflected in the accompanying balance sheets as follow
at December 31:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Unrecognized prior service cost (increase intangible
assets)................................................... $ -- $ 1,217
Additional liability in excess of unrecognized prior service
cost (decrease stockholders' equity)...................... 15,110 12,409
------- -------
Additional liability (increase accounts payable and accrued
expenses)................................................. $15,110 $13,626
======= =======
</TABLE>
F-35
<PAGE> 128
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
The provision for income taxes for the years ended December 31 consists of
the following:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current:
State..................................................... $ 823 $ 448 $1,148
Foreign 1,676 866 1,852
------ ------ ------
2,499 1,314 3,000
Deferred.................................................... 1,501 -- --
------ ------ ------
$4,000 $1,314 $3,000
====== ====== ======
</TABLE>
Net income tax payments amounted to $102, $1,640 and $2,196 in the years
ended December 31, 1994, 1995 and 1996, respectively.
Reconciliations of income taxes at the statutory U.S. Federal income tax
rate and the effective tax rate for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -------
<S> <C> <C> <C>
Federal income tax provision at statutory rate............ $ 1,794 $(45,964) $ 164
Intangible amortization and adjustments................... 3,856 6,070 5,884
Provision for state taxes net of federal benefit.......... 535 -- 746
Change in the beginning of the year valuation allowance
for deferred tax assets allocated to income tax
expense................................................. (1,345) 44,383 (684)
Effect of foreign operations.............................. (1,170) (2,625) (3,199)
Other..................................................... 330 (550) 89
------- -------- -------
$ 4,000 $ 1,314 $ 3,000
======= ======== =======
</TABLE>
Income (loss) before income tax expense from foreign sources was $5,216,
$7,049 and $8,436 for the years ended December 31, 1994, 1995 and 1996,
respectively.
The significant components of deferred income tax expense for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- -----
<S> <C> <C> <C>
Deferred tax expense (benefit) (arising from changes in
deferred tax assets and liabilities)...................... $ 2,845 $(47,010) $ 684
Increase (decrease) in beginning-of-the-year balance of the
valuation allowance for deferred tax assets............... (1,344) 47,010 (684)
------- -------- -----
$ 1,501 $ -- $ --
======= ======== =====
</TABLE>
F-36
<PAGE> 129
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred liabilities at December 31
relate to the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Estimated self-insurance liability........................ $ 59,859 $ 54,060
Accrued expenses-pension.................................. (217) 800
Accounts receivable, principally due to allowance for
doubtful accounts...................................... 5,600 6,391
Accrued salaries and bonuses.............................. 4,225 2,103
Accrued expenses -- other................................. 881 (1,315)
Net operating loss carryforwards.......................... 87,952 76,672
Business tax credit carryforwards......................... 5,881 5,881
Alternative minimum tax credit carryforwards.............. 2,811 2,811
Foreign tax credit carryforwards.......................... 3,035 4,319
Foreign tax assets and net operating loss carryforwards... 245 1,308
Other..................................................... 479 479
--------- ---------
Total gross deferred tax assets........................ 170,751 153,509
Less valuation allowance............................... (112,697) (112,013)
--------- ---------
Net deferred tax assets................................ 58,054 41,496
Deferred tax liabilities:
Vehicles, principally due to differences in
depreciation........................................... (19,515) (2,986)
Other assets, principally due to research and
development............................................ (23,196) (22,714)
Intangibles, principally due to amortization of
identifiable items..................................... (12,483) (13,387)
Other..................................................... (2,860) (2,409)
--------- ---------
Total gross deferred tax liabilities...................... (58,054) (41,496)
--------- ---------
Net deferred tax asset...................................... $ -- $ --
========= =========
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of $207,222 which are available to offset future
federal taxable income through 2011. The Company's business tax credit
carryforwards for federal income tax purposes are available to reduce future
federal income taxes through 2011 and the Company's alternative minimum tax
credit carryforwards are available to reduce future federal regular income
taxes, if any, over an indefinite period. The foreign tax credits, available to
reduce future federal income taxes, if any, expire from 1997 through 2001.
During the year, as a result of the Recapitalization Plan, the Company
experienced a change of ownership for income tax purposes which may limit the
availability of the above carryover in future years.
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1996 will be allocated as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Income tax benefit that would be reported in the
consolidated statements of operations..................... $ 95,764
Reduction of intangibles, including goodwill................ 16,249
--------
$112,013
========
</TABLE>
(9) LITIGATION
The Company was a defendant in a lawsuit (in which it filed counter claims)
that sought unspecified damages for alleged breach of contract related to its
interest in the INTRICO Partnership (a joint venture partnership, which was
created to develop a new state of the art hotel and vehicle rental reservation
system). In January 1994 the Company reached a settlement in this matter.
Amounts received in the settlement were sufficient to reimburse the Company for
its investment in the partnership, capitalized expenditures and capitalized
interest and had no other material impact on the Company's consolidated
financial condition.
F-37
<PAGE> 130
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other litigation arising in the normal course of business is pending
against the Company. Management believes that the Company has meritorious
defenses to all significant litigation and that the ultimate outcome of the
litigation will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
(10) LEASES AND AIRPORT CONCESSION FEES
Expenses for operating leases and airport concession fees for the years
ended December 31 amount to:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Minimum fees.......................................... $73,401 $66,439 $71,540
Contingent fees....................................... 24,855 32,113 28,340
------- ------- -------
$98,256 $98,552 $99,880
======= ======= =======
</TABLE>
Vehicle leasing expenses of $20,154, $20,937 and $24,713 for the years
ended December 31, 1994, 1995 and 1996, respectively, are not included in the
table above.
Contingent fees are largely based on a percentage of revenues at certain
locations. The Company is required by most of the leases for its operating
facilities to pay real estate taxes, insurance and other occupancy expenses. In
addition, the Company guarantees airport concession fees on behalf of certain
franchisees.
Future minimum commitments as of December 31, 1996 for noncancelable leases
and concession agreements are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
1997........................................................ $ 58,146
1998........................................................ 35,767
1999........................................................ 23,092
2000........................................................ 16,923
2001........................................................ 12,977
Thereafter.................................................. 61,640
--------
$208,545
========
</TABLE>
Several of the Company's leases include renewal options for varying
periods.
(11) MANDATORY REDEEMABLE PREFERRED STOCK
Series X preferred stock (Series X): The Series X is entitled to cumulative
dividends, payable quarterly, when and if declared by the Board of Directors, at
an annual rate of 7.5% of its stated value. The Series X is subject to mandatory
redemption in March 2004 at its then liquidation value (stated value plus any
unpaid accumulated dividends). The Series X ranks prior to all other equity
securities of the Company with respect to dividends rights and rights upon
liquidation.
The Series X stockholders may vote only with respect to matters which would
alter or change the powers, preferences or special rights of the shares
including authorization to issue any stock ranking equal or prior to the Series
X. A majority of Series X shares are required to approve any matters brought to
a vote.
Series A preferred stock (Series A): The Series A is entitled to cumulative
dividends, payable quarterly, when and if declared by the Board of Directors, at
an annual rate of 10% of its stated value. The Series A is subject to mandatory
redemption in March 2004 at its then liquidation value (stated value plus any
unpaid accumulated dividends). The Series A ranks prior to all other equity
securities of the Company other than Series X with respect to dividend rights
and rights upon liquidation.
F-38
<PAGE> 131
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Series A stockholders may vote only with respect to matters which would
alter or change the powers, preferences or special rights of the shares
including authorization to issue any stock ranking equal or prior to the Series
A. A majority of Series A shares are required to approve any matters brought to
a vote. The affirmative vote of the original purchaser is required to approve
these matters as long as the original purchaser owns shares of Series A and
Series B preferred stock which collectively have an aggregate stated value of at
least $1,000.
(12) STOCKHOLDERS' EQUITY
Series B preferred stock (Series B): The Series B is entitled to cumulative
dividends, payable quarterly, when and if declared by the Board of Directors,
equal to 100% of earnings, after deduction of dividends on the Series A, up to a
maximum annual dividend of $25,000. The Series B ranks prior to the common stock
with respect to rights upon liquidation.
The Series B stockholders may vote only with respect to matters which would
alter or change the powers, preferences or special rights of the shares
including authorization to issue any stock ranking equal or prior to the Series
B. A majority of Series B shares is required to approve any matters brought to a
vote.
(13) ENVIRONMENTAL MATTERS
The Company has recorded amounts which, in management's best estimate, will
be sufficient to satisfy anticipated costs of known remediation requirements. At
December 31, 1996 the Company has accrued $3,400 for estimated environmental
remediation costs and expects to expend approximately $1,900 during 1997.
Amounts receivable from third parties for reimbursement of remediation
expenditures is not significant.
Due to factors such as continuing changes in environmental laws and
regulatory requirements, the availability and application of technology, the
identification of presently unknown remediation sites and changes in the extent
of expected remediation efforts, estimated costs for future environmental
compliance and remediation are subject to uncertainty and it is difficult to
predict the amount or timing of future remediation requirements. The Company
does not expect such future costs to have a material adverse effect on the
Company's consolidated financial position or results of operations.
(14) RELATED-PARTY TRANSACTIONS
Prior to the Recapitalization Plan, Ford Motor Company (Ford) and its
affiliates held all of the outstanding preferred stock of the Company and hold a
minimal amount of Series X at December 31, 1996. Ford and the Company are
parties to a vehicle supply agreement, effective through August 1998, pursuant
to which owned locations are to acquire at least 70% of their annual vehicle
purchases from Ford. The agreement provides that Ford vehicles will be
competitive with vehicles of other manufacturers in terms of price and other
factors. A related agreement between Ford and the Company, effective through
August 2007, provides for certain incentives to be paid by Ford to the Company
dependent on the attainment of certain volume purchase requirements. Ford
represents the Company's largest debtor and creditor at December 31, 1995 and
1996.
(15) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, receivables and accounts payable and accrued
expenses: The carrying amounts approximate fair value due to the short maturity
of these instruments.
Notes payable: The carrying amounts approximate fair value as a majority
of the obligations incur interest at a floating, market rate that is reset
monthly. In addition, the significant terms of fixed rate obligations do not
differ materially from those currently available to the Company.
Interest rate cap agreements: As described in note 6 to the consolidated
financial statements, the Company has recorded $3,600 in capitalized fees
related to various interest rate cap agreements. The fair value of these
F-39
<PAGE> 132
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreements at December 31, 1996, based on a sampling of financial institutions'
and brokers' quotes is approximately $2,020.
(16) GEOGRAPHICAL SEGMENT INFORMATION
The Company operates in two major geographical areas; North America and
International.
Information by area for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
North America.................................... $1,040,847 $1,064,182 $ 997,907
International.................................... 114,919 129,288 134,914
---------- ---------- ----------
Total.................................... $1,155,766 $1,193,470 $1,132,821
========== ========== ==========
Income Before Taxes:
North America.................................... $ (3,209) $ (140,921) $ (10,882)
International.................................... 8,334 9,595 11,351
---------- ---------- ----------
Total.................................... $ 5,125 $ (131,326) $ 469
========== ========== ==========
Identifiable Assets:
North America.................................... $2,440,040 $2,318,120 $2,142,798
International.................................... 162,334 169,995 185,317
---------- ---------- ----------
Total.................................... $2,602,374 $2,488,115 $2,328,115
========== ========== ==========
</TABLE>
(17) SUBSEQUENT EVENT -- SALE OF THE COMPANY
On January 13, 1997, Team Rental Group, Inc. and its subsidiaries (TEAM)
entered into stock purchase agreements (the Agreements) with Ford, the common
stockholder of the Company and the Company, pursuant to which TEAM agreed to
acquire the capital stock of the Company. Under the Agreements, all outstanding
fleet lender revolving notes and commercial paper payable will be refinanced. In
addition, the Company will be obligated to repay a portion of its outstanding
indebtedness under the revolving credit facility and Ford will cancel a portion
of the indebtedness.
F-40
<PAGE> 133
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY TEAM OR ANY U.S. UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TEAM SINCE
SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 14
Use of Proceeds....................... 19
Price Range of Common Stock........... 20
Dividend Policy....................... 20
Capitalization........................ 21
Pro Forma Consolidated Financial
Statements of Budget Group.......... 23
Selected Financial Data of TEAM....... 32
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of TEAM............... 34
Selected Financial Data of BRACC...... 41
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of BRACC.............. 43
Business of Budget Group.............. 47
The Budget Acquisition................ 60
Management............................ 64
Certain Transactions.................. 69
Principal Stockholders................ 71
Description of Capital Stock.......... 73
Description of Certain Indebtedness... 78
Shares Eligible for Future Sale....... 80
Certain U.S. Tax Consequences to Non-
U.S. Holders of Class A Common
Stock............................... 82
Underwriting.......................... 84
Notice to Canadian Residents.......... 87
Legal Matters......................... 88
Experts............................... 88
Additional Information................ 89
Index to Financial Statements......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
[Budget Logo]
TEAM RENTAL GROUP, INC.
6,500,000 Shares
Class A Common Stock
($.01 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
ABN AMRO CHICAGO
CORPORATION
ALEX. BROWN & SONS
INCORPORATED
MCDONALD & COMPANY
SECURITIES, INC.
------------------------------------------------------
<PAGE> 134
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.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED APRIL 18, 1997
6,500,000 Shares
[Team Rental Group Logo]
TEAM RENTAL GROUP, INC.
Class A Common Stock
($.01 par value)
---------------------
The 6,500,000 shares of Class A Common Stock of Team Rental Group, Inc. ("TEAM")
offered hereby are being sold by TEAM in connection with the acquisition by
TEAM of all the outstanding capital stock of Budget Rent a Car Corporation
(the "Budget Acquisition"). The net proceeds of the Offering,
together with a portion of the net proceeds of concurrent financing
transactions, will be used to finance the Budget Acquisition.
Of the 6,500,000 shares of Class A Common Stock being offered, 1,300,000 shares
(the "International Shares") are initially being offered outside the United
States and Canada by the Managers (the "International Offering") and 5,200,000
shares (the "U.S. Shares") are initially being concurrently offered in the
United States and Canada by the U.S. Underwriters (the "U.S. Offering" and,
together with the International Offering, the "Offering"). The offering price
and underwriting discounts and commissions of the International Offering and the
U.S. Offering will be identical.
The Class A Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "BD." On March 21, 1997, the last reported sale price of the Class A
Common Stock on The Nasdaq National Market was $22.375 per share. See "Price
Range of Common Stock."
TEAM has two classes of Common Stock, the Class A Common Stock, par value $.01
per share (the "Class A Common Stock"), and the Class B Common Stock, par value
$.01 per share (the "Class B Common Stock"). Holders of the Class A Common Stock
are entitled to one vote per share and holders of the Class B Common Stock are
entitled to ten votes per share. Upon completion of the Offering, the principal
executive officers of TEAM will retain 55.4% of the combined voting power of
both classes of Common Stock. See "Principal Stockholders."
TEAM has arranged to place, concurrently with the consummation of the Offering,
(i) $45,000,000 aggregate principal amount of 6.85% Convertible Subordinated
Notes, Series B, due 2007 and (ii) $165,000,000 aggregate principal amount of
9.57% Guaranteed Senior Notes due 2007 (collectively, the "Debt Placements").
The Debt Placements are private offerings and will not be registered with the
Securities and Exchange Commission. TEAM is also concurrently entering into new
credit facilities for fleet financings (the "New Fleet Financings") with an
aggregate commitment of $1.3 billion. Consummation of the Offering will occur
concurrently with, and is conditioned upon, consummation of the Budget
Acquisition, the Debt Placements and the New Fleet Financings.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE CLASS A COMMON STOCK, SEE "RISK FACTORS" BEGINNING ON PAGE
14 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS TEAM(1)
----------- ------------- -----------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total(2)............................................. $ $ $
</TABLE>
(1) Before deduction of expenses payable by TEAM estimated at $800,000.
(2) TEAM has granted the Managers and the U.S. Underwriters an option,
exercisable by Credit Suisse First Boston Corporation for 30 days from the
date of this Prospectus, to purchase a maximum of 975,000 additional shares
of Class A Common Stock solely to cover over-allotments of shares, if any.
If the option is exercised in full, the total Price to Public will be
$ , Underwriting Discounts and Commissions will be $ and
Proceeds TEAM will be $ .
The International Shares are offered by the several Managers when, as and if
issued by TEAM, delivered to and accepted by the Managers and subject to their
right to reject orders in whole or in part. It is expected that the
International Shares will be ready for delivery on or about
, 1997, against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON ABN AMRO ROTHSCHILD
ALEX. BROWN & SONS MCDONALD & COMPANY
INTERNATIONAL SECURITIES, INC.
Prospectus dated , 1997.
<PAGE> 135
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY TEAM OR ANY MANAGER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TEAM SINCE
SUCH DATE.
In this Prospectus, references to "dollars" and "$" are to United States
dollars.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS, PENALTY BIDS AND PASSIVE MARKET MAKING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "SUBSCRIPTION AND SALE."
TEAM intends to furnish its shareholders with annual reports containing
consolidated financial statements audited by an independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 14
Use of Proceeds............................... 19
Price Range of Common Stock................... 20
Dividend Policy............................... 20
Capitalization................................ 21
Pro Forma Consolidated Financial Statements of
Budget Group................................ 23
Selected Financial Data of TEAM............... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of TEAM.......................... 34
Selected Financial Data of BRACC.............. 41
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of BRACC......................... 43
Business of Budget Group...................... 47
The Budget Acquisition........................ 60
Management.................................... 64
Certain Transactions.......................... 69
Principal Stockholders........................ 71
Description of Capital Stock.................. 73
Description of Certain Indebtedness........... 78
Shares Eligible for Future Sale............... 80
Certain U.S. Tax Consequences to Non-U.S.
Holders of Class A Common Stock............. 82
Subscription and Sale......................... 84
Notice to Canadian Residents.................. 87
Legal Matters................................. 88
Experts....................................... 88
Additional Information........................ 89
Index to Financial Statements................. F-1
</TABLE>
2
<PAGE> 136
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
Preferred Stock or (ii) the number of shares of Series A Convertible Preferred
Stock equal to the product of (x) 0.001 multiplied by (y) the quotient obtained
by dividing (A) $75,000,000 by (B) the average of the closing prices of the
Class A Common Stock for each of the ten consecutive trading days immediately
preceding the second trading day prior to the closing of the Budget Acquisition.
Unless the closing price of the Class A Common Stock averages $16.67 or less
over a period of ten consecutive trading days immediately preceding the second
trading day prior to the closing of the Budget Acquisition, the Company will
issue to Ford 4,500 shares of Series A Convertible Preferred Stock and this
number of shares will not be subject to any adjustment. Among other agreements,
TEAM has granted Ford certain demand and "piggyback" registration rights for the
4,500,000 shares of Class A Common Stock (subject to adjustment) issuable upon
conversion of the Series A Convertible Preferred Stock. See "The Budget
Acquisition -- Terms of the Stock Purchase Agreements -- Consideration." TEAM
has also agreed to file a shelf registration statement relating to the 3,986,049
shares of Class A Common Stock issuable upon conversion of the outstanding
Series A Convertible Notes, and TEAM will enter into a similar agreement with
respect to the 1,609,442 shares of Class A Common Stock that will be issuable
upon conversion of the Series B Convertible Notes. TEAM's directors and
executive officers, who in the aggregate beneficially own 2,824,305 shares of
Common Stock, have agreed that for a period of 90 days after the date of this
Prospectus, and TEAM has agreed that for a period of 180 days after the date of
this Prospectus, they will not sell or otherwise dispose of any shares of Common
Stock without the prior written consent of Credit Suisse First Boston
Corporation. See "Subscription and Sale." Significant sales of the Class A
Common Stock in the public market following the Offering could adversely affect
prevailing market prices. See "Shares Eligible for Future Sale."
VOTING CONTROL BY PRINCIPAL EXECUTIVE OFFICERS
TEAM has two classes of Common Stock: Class A Common Stock, which is
entitled to one vote per share, and Class B Common Stock, which is entitled to
ten votes per share. Messrs. Miller, Kennedy and Congdon own all of the
outstanding shares of Class B Common Stock, which, following the Offering, will
represent approximately 55.4% of the combined voting power of both classes of
Common Stock. As a result, following the Budget Acquisition and prior to the
conversion of the Convertible Subordinated Notes or the Series A Convertible
Preferred Stock such officers will continue to be able to elect all of Budget
Group's Board of Directors, thereby ensuring that members elected by them will
continue to direct the business, policies and management of Budget Group. See
"Principal Stockholders."
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER AND BYLAW PROVISIONS; POSSIBLE
ISSUANCES OF PREFERRED STOCK
Certain provisions of Delaware law, TEAM's Amended and Restated Certificate
of Incorporation (in particular, the voting rights of the Class B Common Stock)
and TEAM'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 Budget Group. Such provisions
could limit the price that certain investors might be willing to pay in the
future for shares of the Class A Common Stock. In addition, shares of preferred
stock may be issued by the Board of Directors without stockholder approval on
such terms and conditions, and having such rights, privileges and preferences,
as the Board of Directors may determine. The rights of the holders of the Class
A Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any preferred stock that may be issued in the future. Budget
Group has no current plans to issue any shares of preferred stock, other than
the shares of Series A Convertible Preferred Stock to be issued to Ford in
connection with the Budget Acquisition. See "Description of Capital
Stock -- Preferred Stock" and "Description of Capital Stock -- Section 203."
18
<PAGE> 137
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
and executive officers, who in the aggregate beneficially own 2,824,305 shares
of Common Stock, have agreed that they will not sell, contract or offer to sell
or otherwise dispose of, directly or indirectly, any shares of capital stock of
TEAM for a period of 90 days from the date of this Prospectus without the prior
written consent of Credit Suisse First Boston Corporation, on behalf of the
Underwriters. See "Subscription and Sale." After such date, certain of these
stockholders have the right to demand that TEAM register their shares under the
Securities Act in accordance with agreements between such holders and TEAM and
may be able to dispose of their shares in a registered public offering effected
thereunder. In addition, certain stockholders and, the holders of the
Convertible Subordinated Notes and holders of stock purchase warrants possess
certain demand and/or "piggyback" registration rights. See "Description of
Capital Stock -- Registration Rights" and "Management -- Benefit Plans."
Subject to stockholder approval of amendments to TEAM's option plans at the
1997 Annual Meeting of Stockholders (to be held April 22, 1997), TEAM has
reserved 1,750,000 shares of Common Stock for issuance under the 1994 Option
Plan (which may be either Class A Common Stock or Class B Common Stock) and
150,000 shares of Class A Common Stock for issuance under the 1994 Directors'
Plan. There are 729,850 stock options currently issued and outstanding under the
1994 Option Plan (of which 164,000 are options to purchase Class B Common Stock)
and 70,000 stock options issued and outstanding under the 1994 Directors' Plan.
TEAM filed a Form S-8 Registration Statement under the Securities Act to
register 760,000 shares of the Common Stock issuable under the 1994 Option Plan
and 25,000 shares of Class A Common Stock issuable under the 1994 Directors'
Plan. Shares issued upon the exercise of stock options after the effective date
of the Form S-8 registration statement became eligible for resale in the public
market without restriction, subject to Rule 144 limitations applicable to
affiliates and the lock-up agreements applicable to certain shares and options.
TEAM expects to file a Form S-8 Registration Statement with respect to the
remaining 990,000 shares of Common Stock issuable under the 1994 Option Plan and
125,000 shares of Class A Common Stock issuable under the 1994 Directors' Plan.
TEAM has further reserved 362,500 shares of Class A Common Stock for issuance
upon the exercise of stock purchase warrants.
81
<PAGE> 138
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SULT WITH THEIR TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF CLASS A COMMON STOCK INCLUDING
THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAXING JURISDICTION.
SUBSCRIPTION AND SALE
The institutions named below (the "Managers") have, pursuant to a
Subscription Agreement dated , 1997 (the "Subscription Agreement"),
severally and not jointly, agreed with TEAM to subscribe and pay for the
following respective numbers of International Shares as set forth opposite their
names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston (Europe) Limited.................
ABN AMRO Rothschild.........................................
Alex. Brown & Sons International............................
McDonald & Company Securities, Inc..........................
---------
Total............................................. 1,300,000
=========
</TABLE>
The Subscription Agreement provides that the obligations of the Managers
are subject to certain conditions precedent and that the Managers will be
obligated to purchase all the International Shares (other than those
International Shares covered by the over-allotment option described below) if
any are purchased. The Subscription Agreement provides that, in the event of a
default by a Manager, in certain circumstances, the purchase commitments of
non-defaulting Managers may be increased or the Subscription Agreement may be
terminated.
TEAM has entered into an Underwriting Agreement (the "Underwriting
Agreement") with the U.S. Underwriters of the U.S. Offering (the "U.S.
Underwriters") providing for the concurrent offer and sale of the U.S. Shares in
the United States and Canada. The closing of the International Offering is a
condition to the closing of the U.S. Offering and vice versa.
TEAM has granted to the Managers and the U.S. Underwriters an option
exercisable by Credit Suisse First Boston Corporation, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
975,000 additional shares of Class A Common Stock at the public offering price
less underwriting discounts and commissions, all as set forth on the cover page
of this Prospectus. Such option may be exercised only to cover over-allotments,
if any, in the sale of the shares of Class A Common Stock. To the extent such
option is exercised, each Manager and each U.S. Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of additional shares being sold to the Managers and the U.S.
Underwriters as the number of International Shares set forth next to such
Manager's name in the preceding table and as the number set forth next to such
U.S. Underwriters's name in the corresponding table in the Prospectus relating
to the U.S. Offering bears to the total number of shares of Class A Common Stock
in such tables.
TEAM has been advised by Credit Suisse First Boston (Europe) Limited, on
behalf of the Managers, that the Managers propose to offer the International
Shares outside the United States and Canada to the public initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Managers, to certain dealers at such price less a commission of
$ per share and that the Managers may reallow a commission of
$ per share on sales to certain other dealers. After the public
offering, the public offering price, commission and reallowance may be changed.
84
<PAGE> 139
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
The public offering price, the aggregate underwriting discounts and
commissions per share and the per share commission and re-allowance to dealers
for the International Offering and the concurrent U.S. Offering will be
identical. Pursuant to an Agreement between the U.S. Underwriters and the
Managers (the "Intersyndicate Agreement") relating to the Offering, changes in
the public offering price, the aggregate underwriting discounts and commissions
per share and the per share concession and re-allowance to dealers will be made
only upon the mutual agreement of Credit Suisse First Boston (Europe) Limited,
on behalf of the Managers, and Credit Suisse First Boston Corporation, on behalf
of the U.S. Underwriters.
Pursuant to the Intersyndicate Agreement, each of the Managers has agreed
that, as part of the distribution of the International Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Class A Common Stock or distribute any
prospectus relating to the Class A Common Stock in the United States or Canada
or to any other dealer who does not so agree. Each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Class A Common Stock or distribute any
prospectus relating to the Class A Common Stock to any person outside the United
States or Canada or to any other dealer who does not so agree. The foregoing
limitations do not apply to stabilization transactions or to transactions
between the Managers and the U.S. Underwriters pursuant to the Intersyndicate
Agreement. As used herein, "United States" means the United States of America
(including the States and the District of Columbia), its territories,
possessions and other areas subject to its jurisdiction. "Canada" means Canada,
its provinces, territories, possessions and other areas subject to its
jurisdiction, and an offer or sale shall be in the United States or Canada if it
is made to (i) an individual resident in the United States or Canada or (ii) a
corporation, partnership, pension, profit-sharing or other trust or other entity
(including any such entity acting as an investment adviser with discretionary
authority) whose office most directly involved with the purchase is located in
the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of shares of Class A Common
Stock as may be mutually agreed. The price of any shares so sold shall be the
public offering price, less such amount as may be mutually agreed upon by Credit
Suisse First Boston (Europe) Limited, on behalf of the Managers, and Credit
Suisse First Boston Corporation, on behalf of the U.S. Underwriters, but not
exceeding the selling concession applicable to such shares. To the extent there
are sales between the Managers and the U.S. Underwriters pursuant to the
Intersyndicate Agreement, the number of shares of Class A Common Stock initially
available for sale by the Managers or by the U.S. Underwriters may be more or
less than the amount appearing on the cover page of this Prospectus. Neither the
Managers nor the U.S. Underwriters are obligated to purchase from the other any
unsold shares of Class A Common Stock.
Each of the Managers and the U.S. Underwriters severally represents and
agrees that (i) it has not offered or sold, and prior to the date six months
after the date of issuance of the Class A Common Stock offered hereby will not
offer or sell, any shares of Class A Common Stock to persons in the United
Kingdom, except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995; (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act of 1986 with respect to anything done by it in relation to the
Class A Common Stock in, from or otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issuance of
the Class A Common Stock to a person who is of a kind described in Article 11(3)
of the Financial Services Act of 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom such document may otherwise lawfully be issued
or passed on.
Purchasers of shares of Class A Common Stock outside the United States may
be required to pay stamp taxes and other charges in accordance with the laws and
practices of the country of purchase in addition to the public offering price
set forth on the cover page of this Prospectus.
85
<PAGE> 140
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
TEAM and its officers and directors and certain other holders of Class A
Common Stock have agreed that they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or, in the case of TEAM,
file with the Commission a registration statement under the Securities Act
relating to any additional shares of TEAM's Common Stock or securities
convertible into or exchangeable or exercisable for any shares of TEAM's Common
Stock, or disclose the intention to make any such offer, sale, pledge, disposal
or filing, without the prior written consent of Credit Suisse First Boston
Corporation, in the case of the Company's officers and directors and such other
holders, for a period of 90 days and, in the case of TEAM, for a period of 180
days, after the date of this Prospectus, except issuances pursuant to the
exercise of stock options granted under the 1994 Option Plan.
TEAM has agreed to indemnify the Managers and the U.S. Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Managers and the U.S. Underwriters may be
required to make in respect thereof.
Credit Suisse First Boston Corporation has acted as placement agent in
connection with each of the Fleet Financing Facilities, the offering of the
Series A Convertible Notes and the Debt Placements, and as underwriter for
TEAM's initial public offering and its public offering in July 1996. In
addition, Credit Suisse First Boston Corporation acted as placement agent for a
fleet financing by SoCal shortly before it was acquired by TEAM. Credit Suisse
First Boston Corporation is acting as financial advisor to TEAM in connection
with the Budget Acquisition. Credit Suisse First Boston, a Swiss Bank and an
affiliate of Credit Suisse First Boston Corporation, is the agent for the New
Working Capital Facility.
The Representatives, on behalf of the Managers and the U.S. Underwriters,
may engage in over-allotment, stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Regulation M under the
Securities Exchange Act of 1934 (the "Exchange Act"). Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the Class A Common Stock in
the open market after the distribution has been completed in order to cover
syndicate short positions. In "passive" market making, market makers in the
Class A Common Stock who are Managers or U.S. Underwriters or prospective
underwriters may, subject to certain limitations, make bids for or purchases of
the Class A Common Stock until the time, if any, at which a stabilizing bid is
made. Penalty bids permit the Representatives to reclaim a selling concession
from a syndicate member when the shares of Class A Common Stock originally sold
by such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Class A Common
Stock to be higher than it would otherwise be in the absence of such
transactions. These transactions may be effected on the NYSE or otherwise and,
if commenced, may be discontinued at any time.
86
<PAGE> 141
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. 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. Except
for the SEC registration fee and NASD filing fee, all amounts are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 52,273
NYSE filing fee and expenses................................ 17,750
Nasdaq National Market listing fee.......................... 127,000
Blue Sky qualification fees and expenses.................... 5,000
Transfer agents' fees....................................... 10,000
Printing and engraving expenses............................. 140,000
Legal fees and expenses..................................... 200,000
Accounting fees and expenses................................ 190,000
Miscellaneous............................................... 57,977
--------
Total............................................. $800,000
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides that a corporation has the power to indemnify any director or
officer, or former director or officer, who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) against the expenses,
(including 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
II-1
<PAGE> 142
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.
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.
The Underwriting Agreement filed herewith as Exhibit 1.1 provides for the
indemnification by the Underwriters of directors and certain officers of the
Company against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On April 21, 1994, Messrs. Miller, Kennedy and Congdon each subscribed for
50 shares of the Class B Common Stock, at a price per share of $2.00 per share
(the "Initial Share Subscription").
The Initial Share Subscription has been effected pursuant to the exemption
from registration under Section 4(2) of the Securities Act in reliance, in part,
on each of the subscribers' representations and warranties set forth in their
respective subscription agreements and based on their status as the Principal
Executive Officers of the Company.
The Company and the Exchange Stockholders entered into the Exchange
Agreement providing for the exchange of all of the shares of common stock of the
corporations that owned the Albany and Rochester, New York, Richmond, Virginia
and San Diego, California Budget franchise operations for shares of Common
Stock. Pursuant to the Exchange Agreement, the Exchange Stockholders received
the following shares of Common Stock:
<TABLE>
<CAPTION>
STOCKHOLDER SHARES
- ----------- ------
<S> <C>
Sanford Miller........................................ 905,750 Class B Common Stock
Jeffrey Congdon....................................... 515,350 Class B Common Stock
John Kennedy.......................................... 515,350 Class B Common Stock
Brian Britton......................................... 215,000 Class A Common Stock
Richard Hinkle........................................ 150,000 Class A Common Stock
Richard Sapia......................................... 198,400 Class A Common Stock
</TABLE>
The Share Exchange was effected pursuant to the exemption from registration
under Section 4(2) of the Securities Act in reliance, in part, on each of the
Exchange Stockholders' representations and warranties set forth in the Exchange
Agreement and based on their status as executive managers of the Company.
In November 1994, the Company issued an aggregate of 18,500 shares of Class
A Common Stock to the stockholders of Fort Wayne Rental Group, Inc. ("Fort
Wayne") in exchange for all of the outstanding shares of capital stock of Fort
Wayne (the "Fort Wayne Acquisition"). The Class A Common Stock issued in the
Fort Wayne Acquisition were issued to the following persons: Sanford
Miller -- 7,400 shares, Richard Sapia -- 6,475 shares, and Andrew Klein -- 4,625
shares. Such shares of Class A Common Stock were issued pursuant to the
exemption from registration under Section 4(2) of the Securities Act in
reliance, in part, on the representations and warranties set forth in the Fort
Wayne Acquisition agreement.
In January 1995, the Company issued 13,483 shares of Class A Common Stock
to MacKay Car & Truck Rentals, Inc. in partial consideration for all of the
outstanding shares of capital stock of McKay Car & Truck Rentals, Inc. (the
"Charlotte Acquisition"). The shares of Class A Common Stock issued in the
Charlotte Acquisition were issued pursuant to the exemption registration under
Section 4(2) of the Securities Act in reliance, in part, upon the
representations and warranties set forth in the Charlotte Acquisition agreement.
In March 1995, the Company issued 157,333 shares of Class A Common Stock to
the shareholders of Rental Car Resources, Inc. ("Resources") in exchange for all
of the outstanding shares of Rental Car Resources, Inc. (the "Hartford
Acquisition"). The shares of Class A Common Stock issued in the Hartford
Acquisition were
II-2
<PAGE> 143
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act in reliance, in part, on the representations and warranties set
forth in the Hartford Acquisition agreement.
In October 1995, the Company issued 1,050,000 shares of Class A Common
Stock to Budget Rent a Car of Southern California ("SoCal") in exchange for all
of the outstanding shares of BRAC-OPCO, Inc. (the "Los Angeles Acquisition").
The shares of Class A Common Stock issued in the Los Angeles Acquisition were
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act in reliance, in part, on SoCal's representations and warranties
set forth in the Los Angeles Acquisition agreement.
In February 1996, the Company issued 272,727 shares of Class A Common Stock
to Katzin Investments L.C. in partial consideration for all of the outstanding
shares of capital stock of Arizona Rent-A-Car Systems, Inc. (the "Phoenix
Acquisition"). The shares of Class A Common Stock issued in the Phoenix
Acquisition were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act in reliance, in part, upon the
representations and warranties set forth in the Phoenix Acquisition agreement.
In December 1996, the Company issued $80,000,000 of 7.0% Convertible
Subordinated Notes due 2003 (the "Convertible Subordinated Notes") in a private
transaction to certain insurance companies. The Convertible Subordinated Notes
are convertible into 3,986,049 shares of Class A Common Stock of the Company.
The Convertible Subordinated Notes were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act in reliance, in part, upon
the representations and warranties set forth in the Note Purchase Agreement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
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>
**1.1 -- Form of U.S. Underwriting Agreement.
**1.2 -- Form of Subscription Agreement.
2.1 -- Share Exchange Agreement dated April 25, 1994 among Team
Rental Group, Inc., Sanford Miller, Jeffrey Congdon, John
Kennedy, Brian Britton, Richard Hinkle and Richard Sapia
(incorporated by reference to Exhibit 10.24 to the Company's
Registration Statement on Form S-1, File No. 33-78274, dated
April 28, 1994).
2.2 -- First Amendment to Share Exchange Agreement dated June 13,
1994 among Team Rental Group, Inc., Sanford Miller, Jeffrey
Congdon, John Kennedy, Brian Britton, Richard Hinkle and
Richard Sapia (incorporated by reference to Exhibit 10.36 to
Amendment No. 1 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated June 17, 1994).
2.3 -- Second Amendment to Share Exchange Agreement dated July 5,
1994 among Team Rental Group, Inc., Sanford Miller, Jeffrey
Congdon, John Kennedy, Brian Britton, Richard Hinkle and
Richard Sapia (incorporated by reference to Exhibit 10.38 to
Amendment No. 2 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated July 7, 1994).
2.4 -- Agreement, dated October 20, 1995, among Team Rental Group,
Inc., Team Rental of Southern California, Inc., BRAC-OPCO,
Inc., and Budget Rent-A-Car of Southern California
(incorporated by reference to Exhibit 2.5 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995).
2.5 -- Stock Purchase Agreement, dated as of December 21, 1995, by
and among the Company, Arizona Rent-A-Car Systems, Inc.,
David Katzin, Michael Katzin, Jon David Katzin, Gabrielle De
Lavigne, the David Katzin Irrevocable Trust (dated November
17, 1989) and Katzin Investments L.C. (incorporated by
reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K dated December 21, 1995).
</TABLE>
II-3
<PAGE> 144
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<C> <C> <S>
2.6 -- Stock Purchase Agreement, dated as of November 1, 1994, by
and between Team Rental of Ft. Wayne, Inc., Sanford Miller,
Richard Sapia and Andrew Klein (incorporated by reference to
Exhibit 10.38 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
2.7 -- Common Stock Purchase Agreement, dated as of January 13,
1997, between John J. Nevin and Team Rental Group, Inc.
2.8 -- Budget Stock Purchase Agreement, dated as of January 13,
1997, between Budget Rent A Car Corporation and Team Rental
Group, Inc.
2.9 -- Preferred Stock Purchase Agreement, dated as of January 13,
1997, between Ford Motor Company and Team Rental Group, Inc.
2.10 -- Form of Preferred Stockholders Agreement between Ford Motor
Company and Team Rental Group, Inc.
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 -- Form of Amendment to Amended and Restated Certificate of
Incorporation of the Company.
3.4 -- Form of Team Rental Group, Inc. Series A Preferred Stock
Certificate of Designations.
3.5 -- By-Laws of the Company (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1,
File No. 33-78274, dated April 28, 1994).
4.1 -- Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
4.2 -- Base Indenture between Team Fleet Financing Corporation, as
Issuer, Team Rental Group, Inc., as Servicer and Team
Interestholder, and Bankers Trust Company, as Trustee,
relating to Rental Car Asset Backed Notes (incorporated by
reference to Exhibit 4.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
4.3 -- Supplemental Indenture relating to Rental Car Asset Backed
Notes (incorporated by reference to Exhibit 4.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
4.4 -- Base Indenture among BRAC SOCAL Funding Corporation, as
Issuer, BRAC-OPCO, Inc., as Servicer and Retained
Interestholder, and Bankers Trust Company, as Trustee
(incorporated by reference to Exhibit 4.5 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995)
4.5 -- Series 1995-1 Supplement to Base Indenture among BRAC SOCAL
Funding Corporation, as Issuer, BRAC-OPCO, Inc., as Servicer
and Retained Interestholder, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
4.6 -- Supplement No. 1 to Indenture, dated as of October 20, 1995,
among BRAC SOCAL Funding Corporation, BRAC-OPCO, Inc., Team
Rental of Southern California, Inc. and Bankers Trust
Company, as Trustee (incorporated by reference to Exhibit
4.7 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
4.8 -- 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).
4.9 -- First Amendment to Registration Rights Agreement, dated as
of November 1, 1994, among the Company, Brian Britton,
Jeffrey Congdon, Richard Hinkle, John Kennedy, Sanford
Miller and Richard Sapia (incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
</TABLE>
II-4
<PAGE> 145
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<C> <C> <S>
4.10 -- Letter Agreement, dated as of November 1, 1994, between
Andrew Klein and the Company acknowledging that Andrew Klein
is a party to the Registration Rights Agreement, dated as of
August 25, 1994, as amended (incorporated by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
4.11 -- Registration Rights Agreement, dated as of October 20, 1995,
between Team Rental Group, Inc. 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).
4.12 -- Registration Rights Agreement, dated as of December 1, 1996,
between Team Rental Group, Inc. and the holders of the
Convertible Subordinated Notes
4.13 -- Warrant No. 1-1994, dated as of August 24, 1994, to purchase
175,000 shares of Class A Common Stock, par value $.01 per
share, of the Company, issued to Budget Rent-A-Car
Corporation (incorporated by reference to Exhibit 10.26 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
4.14 -- NationsBank Warrant dated as of April 26, 1996.
4.15 -- Amended and Restated Base Indenture dated as of December 1,
1996 among Team Fleet Financing Corporation, as Issuer, Team
Rental Group, Inc., as Servicer and Team Interestholder, and
Bankers Trust Company, as Trustee.
4.16 -- Series 1996-1 Supplement to the Amended and Restated Base
Indenture dated as of December 1, 1996 among Team Fleet
Financing Corporation, as Issuer, Team Rental Group, Inc.,
as Servicer and Team Interestholder, and Bankers Trust
Company, as Trustee.
4.17 -- Amended and Restated Master Motor Vehicle Lease Agreement
dated as of December 1, 1996 among Team Fleet Financing
Corporation, as Lessor, Team Rental Group, Inc., as
Guarantor, and certain subsidiaries of Team Rental Group,
Inc., as lessees.
4.18 -- Motor Vehicle Lease Agreement Series 1996-1 dated as of
December 1, 1996 among Team Fleet Financing Corporation, as
Lessor, Team Rental Group, Inc., as Guarantor, and certain
subsidiaries of Team Rental Group, Inc., as lessees.
5.1 -- Opinion of King & Spalding.
10.1 -- Amended and Restated Sublicense Agreement, dated as of
October 20, 1995, between Budget Rent-A-Car of Southern
California and Team Rental of Southern California, Inc.,
along with Corporate Guaranty of Team Rental Group, dated as
of October 20, 1995 (incorporated by reference to Exhibit
10.11 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.2 -- Lease Agreement dated September 1, 1993 between Miller and
Hinkle, a Florida general partnership, and Capital City
Leasing, Inc., as amended by First Amendment dated as of
July 1, 1994 (Henrico County, Virginia) (incorporated by
reference to Exhibit 10.41 to Amendment No. 3 to the
Company's Registration Statement on Form S-1, File No.
33-78274, dated August 12, 1994).
10.3 -- Lease Agreement dated June 1, 1994 between Miller and
Hinkle, a Florida general partnership, and Capital City
Leasing, Inc. (Chesterfield County, Virginia) (incorporated
by reference to Exhibit 10.25 to Amendment No. 1 to the
Company's Registration Statement on Form S-1, File No.
333-4507, dated June 13, 1996).
10.4 -- Lease Agreement dated as of September 12, 1995 between MCK
Real Estate Corporation, Team Car Sales of Richmond, Inc.
and Team Rental Group, Inc. (incorporated by reference to
Exhibit 10.24 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.5 -- Agreement of Lease dated as of August 31, 1995 between MCK
Real Estate Corporation and Team Rental of Philadelphia,
Inc. (incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
+**10.6 -- Form of Supply Agreement among Ford Motor Company, Team
Rental Group, Inc. and Budget Rent A Car Corporation.
+**10.7 -- Form of Advertising Agreement between Ford Motor Company and
Budget Rent A Car Corporation.
</TABLE>
II-5
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<C> <C> <S>
10.8 -- Credit Agreement dated May 16, 1995 by and among Team Rental
Group, Inc., Team Fleet Services Corporation and BankOne
Indianapolis, N.A. (incorporated by reference to Exhibit
10.42 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.9 -- First Amendment to BankOne Credit Agreement dated November
1, 1995 (incorporated by reference to Exhibit 10.43 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.10 -- Second Amendment to BankOne Credit Agreement dated February
2, 1996 (incorporated by reference to Exhibit 10.44 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.11 -- Form of World Omni, Inc. Term Note (incorporated by
reference to Exhibit 10.45 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.12 -- Promissory Note, dated October 20, 1995, from Team Rental of
Southern California, Inc. to Budget Rent-A-Car of Southern
California in the principal amount of approximately
$4,775,000 (incorporated by reference to exhibit 10.46 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.13 -- Promissory Note, dated February 27, 1996, from the Company
to Katzin Investments L.C. in the aggregate principal amount
of $10,000,000 (incorporated by reference to Exhibit 10.47
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.14 -- Term Note dated February 27, 1996 from NationsBank, N.A.
(South) to the Company (incorporated by reference to exhibit
10.48 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.15 -- Amendment No. 1 to Term Note dated April 2, 1996 from
NationsBank, N.A. (South) to the Company (incorporated by
reference to exhibit 10.2 to Form 10-Q for the quarter ended
March 31, 1996).
10.16 -- Amendment No. 2 to Term Note dated May 27, 1996 from
NationsBank, N.A. (South to the Company (incorporated by
reference to Exhibit 10.47 to Amendment No. 1 to the
Company's Registration Statement on Form S-1, File No.
333-4507, dated June 13, 1996).
10.17 -- Revolving Credit Agreement by and between VPSI, Inc. and
NationsBank, N.A. (South) dated February 6, 1996
(incorporated by reference to exhibit 10.4 to the Company's
Form 10-Q for the quarter ended March 31, 1996).
10.18 -- Amendment and Waiver No. 1 to the Revolving Credit Agreement
and Security Agreement by and between VPSI, Inc. and
NationsBank, N.A. (South) dated March 28, 1996 (incorporated
by reference to Exhibit 10.5 to the Company's Form 10-Q for
the quarter ended March 31, 1996).
10.19 -- Revolving Credit Agreement dated as of May 31, 1996 among
Team Fleet Services Corporation, NationsBank, N.A. (South
and certain Lenders (incorporated by reference to Exhibit
10.50 to Amendment No. 1 to the Company's Registration
Statement on Form S-1, File No. 333-4507, dated June 13,
1996).
10.20 -- Subordinated Notes Purchase Agreement, dated as of December
1, 1996, by and between the Company and the investors listed
therein.
10.21 -- Subordination Agreement, dated as of October 20, 1995, among
Budget Rent-A-Car of Southern California, BRAC-OPCO, Inc.,
Team Rental Group, Inc. and Team Rental of Southern
California (incorporated by reference to Exhibit 10.49 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.22 -- Shareholders' Agreement, dated as of October 20, 1995, by
and among Team Rental Group , Inc., the holders of the
Company's Class B Common Stock, and Budget Rent-A-Car of
Southern California (incorporated by reference to Exhibit
10.50 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995)
10.23 -- 1994 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.27 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
</TABLE>
II-6
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<C> <C> <S>
10.24 -- Amendment No. 1 to 1994 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.54 to Amendment No.
2 to the Company's Registration Statement on Form S-1, File
No. 333-4507, dated June 28, 1996).
10.25 -- 1994 Director's Plan (incorporated by reference to Exhibit
10.28 to the Company's Registration Statement on Form S-1,
File No. 33-78274, dated April 28, 1994).
10.26 -- Indemnification Agreement dated April 25, 1994 between the
Company and Sanford Miller (incorporated by reference to
Exhibit 10.29 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.27 -- Indemnification Agreement dated April 25, 1994 between the
Company and John Kennedy (incorporated by reference to
Exhibit 10.30 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.28 -- Indemnification Agreement dated April 25, 1994 between the
Company and Jeffrey Congdon (incorporated by reference to
Exhibit 10.31 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.29 -- Indemnification Agreement dated April 25, 1994 between the
Company and Ronald Agronin (incorporated by reference to
Exhibit 10.32 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.30 -- Indemnification Agreement dated April 25, 1994 between the
Company and Stephen Weber (incorporated by reference to
Exhibit 10.33 to the Company's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
16.1 -- Letter re: Change in Certifying Accountant (incorporated by
reference to Exhibit 16 to the Company's Current Report on
Form 8-K dated November 26, 1996, as amended).
21.1 -- Subsidiaries of the Company.
**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).
27.1 -- Financial data schedule (for SEC reporting purposes only)
</TABLE>
- ---------------
** Filed herewith.
+ The Company has applied for confidential treatment of portions of this
Exhibit. Accordingly, portions thereof have been omitted and filed separately
with the Commission.
(b) Financial Statement Schedules of TEAM Rental Group, Inc. and
Subsidiaries:
All schedules are omitted because the information is not required or
because the information is included in the combined financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Act and will be governed by the final adjudication of
such issue.
II-7
<PAGE> 148
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Atlanta, State of Georgia
on April 17, 1997.
TEAM RENTAL GROUP, INC.
By: /s/ SANFORD MILLER
------------------------------------
Sanford Miller
Chairman of the Board and
Chief Executive Officer
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 17th day of April, 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
* President, Chief Operating Officer and
- ----------------------------------------------------- Director
John Kennedy
* Chief Financial Officer (Principal Financial
- ----------------------------------------------------- and Accounting Officer) and Director
Jeffrey Congdon
* Director
- -----------------------------------------------------
Ronald D. Agronin
* Director
- -----------------------------------------------------
Stephen L. Weber
* Director
- -----------------------------------------------------
Jeffrey Mirkin
* Director
- -----------------------------------------------------
Alan Liker
* Director
- -----------------------------------------------------
James F. Calvano
* Director
- -----------------------------------------------------
Martin P. Gregor
*By: /s/ SANFORD MILLER
-----------------------------------------------
Sanford Miller
Attorney-in-fact
</TABLE>
II-9
<PAGE> 1
EXHIBIT 1.1
5,200,000 SHARES
TEAM RENTAL GROUP, INC.
CLASS A COMMON STOCK
UNDERWRITING AGREEMENT
April [ ], 1997
CREDIT SUISSE FIRST BOSTON CORPORATION
ABN AMRO CHICAGO CORPORATION
ALEX. BROWN & SONS INCORPORATED
McDONALD & COMPANY SECURITIES, INC.,
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010.
Dear Sirs:
1. Introductory. Team Rental Group, Inc., a Delaware corporation
("Company"), proposes to issue and sell ("U.S. Offering") to the several
Underwriters named in Schedule A hereto ("Underwriters") 5,200,000 shares ("U.S.
Firm Securities") of its Class A Common Stock, par value $.01 per share ("Class
A Common Stock" or "Securities"). Credit Suisse First Boston Corporation
("CSFBC"), ABN AMRO Chicago Corporation, Alex. Brown & Sons Incorporated and
McDonald & Company Securities, Inc. will act as representatives
("Representatives") of the Underwriters.
The Company is concurrently entering into a Subscription Agreement,
dated the date hereof ("Subscription Agreement"), with Credit Suisse First
Boston (Europe) Limited ("CSFBEL"), ABN AMRO Rothschild, Alex. Brown & Sons
International, McDonald & Company Securities, Inc. and the other managers named
therein ("Managers") relating to the concurrent issuance and sale of 1,300,000
shares of Securities ("International Firm Securities") outside the United States
and Canada ("International Offering" and, together with the U.S. Offering, the
"Offerings").
In addition, as set forth below, the Company proposes to issue and sell
(i) to the Underwriters, at the option of the Underwriters, an aggregate of not
more than 780,000 additional shares of Securities ("U.S. Optional Securities")
and (ii) to the Managers, at the option of the Managers, an aggregate of not
more than 195,000 additional shares of Securities ("International
<PAGE> 2
Optional Securities"). The U.S. Firm Securities and the U.S. Optional Securities
are hereinafter called the "U.S. Securities"; the International Firm Securities
and the International Optional Securities are hereinafter called the
"International Securities"; the U.S. Firm Securities and the International Firm
Securities are hereinafter called the "Firm Securities"; the U.S. Optional
Securities and the International Optional Securities are hereinafter called the
"Optional Securities". The U.S. Securities and the Inter national Securities are
collectively referred to as the "Offered Securities". To provide for the
coordination of their activities, the Underwriters and the Managers have entered
into an Agreement Between U.S. Underwriters and Managers which permits them,
among other things, to sell the Offered Securities to each other for purposes of
resale.
The Offered Securities are being issued and sold in connection with the
consummation of the transactions contemplated by stock purchase agreements, each
dated as of January 13, 1997 (the "Stock Purchase Agreements"), by and among the
Company, Ford Motor Company ("Ford"), Budget Rent a Car Corporation ("BRACC")
and the other stockholders of BRACC, pursuant to which the Company has agreed,
subject to certain conditions, to acquire all the capital stock of BRACC (the
"Acquisition"). In connection with the Acquisition and concurrently with the
consummation of the Offerings: (i) BRACC proposes to privately place $125.0
million aggregate principal amount of its __% Guaranteed Senior Notes due 2007
(the "Senior Notes"), (ii) the Company proposes to enter into new credit
facilities for fleet financings (the "New Fleet Financing Credit Agreements")
with an aggregate commitment of $1.3 billion, (iii) the Company proposes to
privately place $50.0 million aggregate principal amount of its __% Convertible
Subordinated Notes, Series B, due 2007 (the "Series B Notes") and (iv) the
Company will issue 4,500 shares of Series A Convertible Preferred Stock (the
"Series A Preferred Stock") to Ford as part of the consideration for the
Acquisition.
As used in Section 2 and Section 6(e) only of this Agreement,
references to (i) the term "Budget Group" mean Team Rental Group, Inc.,
including its subsidiaries after giving effect to the Acquisition (as defined
below); (ii) the term "Company" mean Team Rental Group, Inc. prior to the
Acquisition, on a stand-alone basis and excluding any subsidiaries; (iii) the
term "BRACC" mean Budget Rent a Car Corporation, prior to the Acquisition, on a
stand-alone basis and excluding any subsidiaries; (iv) the term "Resulting
Company" mean Team Rental Group, Inc. after giving effect to the Acquisition, on
a stand-alone basis and excluding any subsidiaries; and (v) the term
"Subsidiaries" mean all significant subsidiaries of the Resulting Company, as
defined in Rule 1-02(w) of Regulation S-X promulgated under the Securities Act
of 1933 (each of the Subsidiaries referred to in this clause (v), a
"Subsidiary").
The Company hereby agrees with the several Underwriters as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-21691) relating to the
Offered Securities, including a form of prospectus relating to the U.S.
Securities and a form of prospectus relating to the International
Securities, has been filed with the Securities and Exchange Commission
("Commission") and either (i) has been declared effective under the
Securities Act of 1933 ("Act") and is not proposed to be amended or
(ii) is proposed to be amended
2
<PAGE> 3
by amendment or post-effective amendment. If such registration
statement (the "initial registration statement") has been declared
effective, either (A) an additional registration statement (the
"additional registration statement") relating to the Offered Securities
may have been filed with the Commission pursuant to Rule 462(b) ("Rule
462(b)") under the Act and, if so filed, has become effective upon
filing pursuant to such Rule and the Offered Securities all have been
duly registered under the Act pursuant to the initial registration
statement and, if applicable, the additional registration statement or
(B) such an additional registration statement is proposed to be filed
with the Commission pursuant to Rule 462(b) and will become effective
upon filing pursuant to such Rule and upon such filing the Offered
Securities will all have been duly registered under the Act pursuant to
the initial registration statement and such additional registration
statement. If the Company does not propose to amend the initial
registration statement or if an additional registration statement has
been filed and the Company does not propose to amend it, and if any
post-effective amendment to either such registration statement has been
filed with the Commission prior to the execution and delivery of this
Agreement, the most recent amendment (if any) to each such registration
statement has been declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the
Act or, in the case of the additional registration statement, Rule
462(b). For purposes of this Agreement, "Effective Time" with respect
to the initial registration statement or, if filed prior to the
execution and delivery of this Agreement, the additional registration
statement means (i) if the Company has advised the Representatives that
it does not propose to amend such registration statement, the date and
time as of which such registration statement, or the most recent
post-effective amendment thereto (if any) filed prior to the execution
and delivery of this Agreement, was declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c),
or (ii) if the Company has advised the Representatives that it proposes
to file an amendment or post-effective amendment to such registration
statement, the date and time as of which such registration statement,
as amended by such amendment or post-effective amendment, as the case
may be, is declared effective by the Commission. If an additional
registration statement has not been filed prior to the execution and
delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "Effective Time" with
respect to such additional registration statement means the date and
time as of which such registration statement is filed and becomes
effective pursuant to Rule 462(b). "Effective Date" with respect to the
initial registration statement or the additional registration statement
(if any) means the date of the Effective Time thereof. The initial
registration statement, as amended at its Effective Time, including all
information contained in the additional registration statement (if any)
and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the
General Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement (if
any), as amended at its Effective Time, including the contents of the
initial registration statement incorporated by reference therein and
including all information (if any) deemed to be a part of the
additional registration statement as of its Effective Time pursuant to
Rule 430A(b), is hereinafter referred to as the "Additional
Registration Statement". The Initial Registration Statement and the
Additional Registration Statement are hereinafter referred
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<PAGE> 4
to collectively as the "Registration Statements" and individually as a
"Registration Statement". The form of prospectus relating to the U.S.
Securities and the form of prospectus relating to the International
Securities, each as first filed with the Commission pursuant to and in
accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no
such filing is required) as included in the Registration Statement, are
hereinafter referred to as the "U.S. Prospectus" and the "International
Prospectus", respectively, and collectively as the "Prospectuses". No
document has been or will be prepared or distributed in reliance on
Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (i)
on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all material respects to
the requirements of the Act and the rules and regulations of the
Commission ("Rules and Regulations") and did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, (ii) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed,
or will conform, in all material respects to the requirements of the
Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (iii)
on the date of this Agreement, the Initial Registration Statement and,
if the Effective Time of the Additional Registration Statement is prior
to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of each
of the Prospectuses pursuant to Rule 424(b) or (if no such filing is
required) at the Effective Date of the Additional Registration
Statement in which the Prospectuses are included, each Registration
Statement and each of the Prospectuses will conform, in all material
respects to the requirements of the Act and the Rules and Regulations,
and none of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and each of the
Prospectuses will conform in all material respects to the requirements
of the Act and the Rules and Regulations, none of such documents will
include any untrue statement of a material fact or will omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or
either of the Prospectuses based upon written information furnished to
the Company by any Underwriter through the Representatives or by any
Manager through CSFBEL specifically for use therein, it being
understood and agreed that the only such information is that described
as such in Section 7(b).
(c) Each of the Company, BRACC and each Subsidiary has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own its properties and conduct
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<PAGE> 5
its business as described in the Registration Statement and the
Prospectuses, and is duly qualified to do business as a foreign
corporation in good standing (to the extent such concepts are
recognized in such jurisdictions) in all other jurisdictions in which
it owns or leases substantial properties or in which the conduct of its
business requires such qualification, except where the failure to so
qualify would not have a material adverse effect upon the condition
(financial or other), results of operations, business affairs or
business prospects of the Budget Group (a "Material Adverse Effect").
The Subsidiaries are listed on Schedule B hereto.
(d) All of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued and is fully
paid and nonassessable; and the capital stock of each Subsidiary owned
by the Company or BRACC, directly or through subsidiaries, is owned
free from liens, encumbrances and defects.
(e) The Company's authorized capitalization is as set forth in
the Registration Statement and the Prospectuses; the Offered
Securities, the Series A Preferred Stock, and all the outstanding
shares of Class A Common Stock and Class B Common Stock of the Company,
par value $.01 per share ("Class B Common Stock") , have been duly
authorized; all outstanding shares of such capital stock of the Company
are, and, when the Offered Securities have been delivered and paid for
in accordance with this Agreement and the Subscription Agreement on
each Closing Date (as defined below), such Offered Securities will have
been, validly issued, fully paid and nonassessable and will conform to
the description thereof contained in the Prospectuses; and the Offered
Securities have been approved for listing on the New York Stock
Exchange subject to notice of issuance.
(f) Except for (i) the 4,500 shares of Series A Preferred
Stock, which are convertible into 4,500,000 shares of Class A Common
Stock, (ii) the 1,936,600 shares of Class B Common Stock, which are
convertible into 1,936,600 shares of Class A Common Stock, (iii) the
warrant held by BRACC to purchase 175,000 shares of Class A Common
Stock (the "BRACC Warrant"), (iv) the warrant held by NationsBank,
National Association (South) to purchase 187,500 shares of Class A
Common Stock (the "NationsBank Warrant"), (v) the options to purchase
729,850 shares of Class A Common Stock and Class B Common Stock issued
under the Company's 1994 Incentive Stock Option Plan (the "1994 Option
Plan"), (vi) the options to purchase 70,000 shares of Class A Common
Stock issued under the Company's 1994 Directors' Stock Option Plan (the
"1994 Directors' Plan"), (vii) the $80.0 million aggregate principal
amount of Series A Convertible Subordinated Notes of the Company (the
"Series A Notes"), which are convertible into 3,986,049 shares of Class
A Common Stock and (viii) the $50.0 million aggregate principal amount
of Series B Notes, which are convertible into 1,428,571 shares of Class
A Common Stock, each as described in the Registration Statement and the
Prospectuses, and except for the conditional rights to acquire
additional shares of Class A Common Stock contained in the agreement
dated October 20, 1995 among the Company, Team Rental of Southern
California, Inc., BRAC-OPCO, Inc., and Budget Rent a Car of Southern
California (the "OPCO Agreement"), there are no, and as of each Closing
Date (as defined in Section 3) there will be no, outstanding securities
or obligations (together, "Convertible Securities") of the Company, the
Resulting Company or any Subsidiary convertible into or exchangeable
for any capital stock of the
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<PAGE> 6
Company, the Resulting Company or any Subsidiary, respectively, rights,
warrants or options (together, "Rights") to subscribe for or purchase
from the Company, the Resulting Company or any Subsidiary any such
capital stock or any such Convertible Securities or obligations, or
obligations of the Company, the Resulting Company or any Subsidiary to
issue Convertible Securities or Rights.
(g) Except for (i) the rights of first refusal set forth in
the Share Exchange Agreement dated April 25, 1994, as amended on June
13, 1994 and July 5, 1994, among the Company, Brian Britton, Jeffrey
Congdon, Richard Hinkle, John Kennedy, Sanford Miller and Richard
Sapia, (ii) the rights of James Salatto and Joseph Salatto to receive
additional shares of Class A Common Stock, as set forth in the
agreement, dated March 8, 1995, among the Company, Team Rental of
Connecticut, Inc., Rental Car Resources, Inc., James Salatto and Joseph
Salatto, (iii) the put right set forth in the BRACC Warrant, (iv) the
rights of first refusal held by BRACC pursuant to certain of its
franchise agreements with the Company, (v) the rights of the parties to
the OPCO Agreement and (vi) the rights of Ford under the Stock Purchase
Agreements, there are no preemptive or other rights to subscribe for or
purchase any shares of capital stock issued by the Company, the
Resulting Company or any Subsidiary. Except for the transfer
restrictions set forth in the Registration Rights Agreements (as
defined below), Section 5(i) of this Agreement, BRACC's right to
approve certain transfers of capital stock held by Messrs. Miller,
Kennedy, Congdon, Britton, Hinkle and Sapia pursuant to the letter
agreement dated May 5, 1994 among such officers and BRACC and the
voting restrictions set forth in the Shareholders' Agreement dated
October 20, 1995 among the Company, the holders of Class B Common Stock
and Budget Rent a Car of Southern California ("SOCAL"), there are, and
after giving effect to the Acquisition there will be, no restrictions
to which the Company or the Resulting Company is a party upon the
voting or transfer of, and no restrictions on the declaration or
payment of any dividend or distribution on, any shares of capital stock
of the Company, the Resulting Company, BRACC or any Subsidiary.
(h) No broker, finder, consultant or other person or entity is
entitled to any brokerage, finder's or other fee or commission in
connection with the issuance and sale of the Offered Securities, except
such fee or commission as may be provided to the Underwriters or the
Managers by the express terms of this Agreement.
(i) Except for certain agreements regarding registration
rights described in each of the Prospectuses and filed as exhibits to
the Registration Statement (collectively, the "Registration Rights
Agreements"), there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company or the Resulting Company to file a registration
statement under the Act with respect to any securities of the Company
or the Resulting Company owned or to be owned by such person or to
require the Company or the Resulting Company to include such securities
in the securities registered pursuant to a registration statement or in
any securities being registered pursuant to any other registration
statement filed by the Company or the Resulting Company under the Act;
and the Company has given proper notice to, or received written waivers
or demand notices from, each person holding such registration rights
pursuant to the Registration Rights Agreements.
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<PAGE> 7
(j) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required
for the consummation of the transactions contemplated by this Agreement
or the Subscription Agreement in connection with the issuance and sale
of the Offered Securities by the Company, except such as have been
obtained and made under the Act and the Rules and Regulations and such
as may be required under state securities laws.
(k) The execution, delivery and performance of this Agreement
and the Subscription Agreement, and the issuance and sale of the
Offered Securities will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under (i) any
statute, rule, regulation or order of any governmental agency or body
or any court, domestic or foreign, having jurisdiction over the
Company, the Resulting Company or any Subsidiary or any of their
properties, (ii) any agreement or instrument to which the Company, the
Resulting Company or any such Subsidiary is a party or by which the
Company, the Resulting Company or any such Subsidiary is bound or to
which any of the properties of the Company, the Resulting Company or
any such Subsidiary is subject, or (iii) the charter or by-laws of the
Company or any such Subsidiary, except in the case of clause (i) or
(ii), such breaches, violations or defaults that, individually or in
the aggregate, would not have a Material Adverse Effect. The Company
has full power and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement and the Subscription
Agreement, respectively.
(l) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by the Company.
(m) The execution, delivery and performance by the Company,
the Resulting Company, BRACC and their respective subsidiaries of the
Stock Purchase Agreements, the New Fleet Financing Credit Agreements,
the purchase agreement and indenture for the Senior Notes (the "Senior
Notes Agreements") and the purchase agreement and indenture for the
Series B Notes (the "Series B Agreements") (to the extent a party
thereto) and the issuance and sale of the Senior Notes and the Series B
Notes will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any statute, rule,
regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company, the
Resulting Company, BRACC or any Subsidiary or any of their respective
properties, (ii) any agreement or instrument to which the Company, the
Resulting Company, BRACC or any such Subsidiary is a party or by which
the Company, the Resulting Company, BRACC or any such Subsidiary is
bound or to which any of the respective properties of the Company, the
Resulting Company, BRACC or any such Subsidiary is subject, or (iii)
the charter or by-laws of the Company, BRACC or any such Subsidiary,
except in the case of clause (i) or (ii), such breaches, violations or
defaults that, individually or in the aggregate, would not have a
Material Adverse Effect. BRACC has the power and authority to
authorize, issue and sell the Senior Notes pursuant to the Senior Notes
Agreements. The Company has the power and authority to authorize, issue
and sell the Series B Notes pursuant to the Series B Agreements.
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<PAGE> 8
(n) The Stock Purchase Agreements have been duly authorized,
executed and delivered by each of the Company and BRACC and conform in
all material respects to the descriptions thereof in the Prospectuses.
The Senior Notes Agreements and the Series B Agreements have been duly
authorized, executed and delivered by BRACC and the Company,
respectively, and the parties thereto and conform in all material
respects to the descriptions thereof in the Prospectuses. The Stock
Purchase Agreements, the Senior Notes Agreements and the Series B
Agreements, assuming due execution and delivery by the other parties
thereto, constitute valid and legally binding obligations of the
Company and BRACC (as the case may be) and are enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, except that the remedy of
specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and the discretion of courts in
granting equitable remedies and except that the enforceability of any
rights to indemnity or contribution may be limited by federal or state
securities laws or by public policy.
(o) The Company has delivered to CSFBC true and correct copies
of the Stock Purchase Agreements, in each case, in the form as
originally executed, and there have been no amendments or waivers
thereto or in the exhibits or schedules thereto other than those as to
which CSFBC shall have been advised.
(p) The Company, BRACC and the Subsidiaries have (i) such
ownership and possession rights with respect to their respective assets
and properties as are necessary for the continuing conduct of their
respective businesses, as described in the Registration Statement and
the Prospectuses, except where the failure to possess any such rights
would not, individually or in the aggregate, have a Material Adverse
Effect, and (ii) peaceful and undisturbed possession under all material
leases to which the Company, BRACC or any such Subsidiary is a party as
lessee; and all material leases to which the Company, BRACC or any such
Subsidiary is a party are in full force and effect; none of the
Company, BRACC or any Subsidiary has been notified that a lease is
invalid or unenforceable, and no default by the Company, BRACC or such
Subsidiary has occurred and is continuing thereunder, except for any
defaults that would not, individually or in the aggregate, have a
Material Adverse Effect.
(q) The Company, BRACC and the Subsidiaries hold such
licenses, certificates and permits from governmental entities and
authorities as are necessary to the conduct of the business of the
Company, the Resulting Company, BRACC and the Subsidiaries as described
in the Registration Statement and the Prospectuses, the failure of
which to obtain would have a Material Adverse Effect; the Company,
BRACC and the Subsidiaries have fulfilled and performed all of the
material obligations necessary to maintain such licenses, certificates
and permits, except where the failure to perform such obligations would
not have a Material Adverse Effect; the Company, BRACC and the
Subsidiaries conduct their business in compliance with all applicable
federal, state and local laws and regulations, except where the failure
to perform such obligations would not have a Material Adverse Effect;
and there is no pending or, to the knowledge of the Company, threatened
action, suit,
8
<PAGE> 9
proceeding or investigation that could lead to the revocation,
termination or suspension of any such license, certificate or permit.
(r) To the knowledge of the Company, none of the Company,
BRACC or any Subsidiary is engaged in any unfair labor practice that
would have a Material Adverse Effect. There is no unfair labor practice
complaint pending or, to the best knowledge of the Company, threatened
against the Company, BRACC or any Subsidiary before the National Labor
Relations Board, and no grievance or arbitration proceeding arising out
of or under collective bargaining agreements is pending or, to the
knowledge of the Company, threatened except such complaints or
proceedings as would not have a Material Adverse Effect. No strike,
labor dispute, slowdown or stoppage is pending or, to the knowledge of
the Company after due inquiry, threatened against the Company, BRACC or
any Subsidiary.
(s) The Company, the Resulting Company, BRACC and the
Subsidiaries own, possess or can acquire on reasonable terms, adequate
trademarks and trade names necessary to conduct the business now
operated by them, or presently employed by them, and have not received
any notice of infringement of or conflict with asserted rights of
others with respect to such rights that, if determined adversely to the
Company, the Resulting Company, BRACC or any such Subsidiary, would,
individually or in the aggregate, have a Material Adverse Effect.
(t) To the knowledge of the Company, each of the Company,
BRACC and the Subsidiaries has obtained all permits, licenses and other
authorizations and has made all registrations and other submissions
that are required under all applicable federal, state and local laws
relating to the protection of health, safety or the environment
including but not limited to the Federal Water Pollution Control Act
(33 U.S.C. ss. 1251 et seq.), Resource Conservation and Recovery Act
(42 U.S.C. ss.6901 et seq.), Safe Drinking Water Act (21 U.S.C. ss.349,
42 U.S.C. ss.ss. 300f - 300j), Toxic Substances Control Act (15 U.S.C.
ss.2601 et seq.), Clean Air Act (42 U.S.C. ss.7401 et seq.),
Comprehensive Environmental Response, Compensation and Liability Act
(42 U.S.C. ss.9601 et seq.), any laws relating to emissions,
discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes into the environment (including but not limited to ambient air,
surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, and any
regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder
(collectively, the "Environmental Laws"), except to the extent that
failure to have any such permit, license or authorization, or to have
made such registration or submission, individually or in the aggregate,
does not have a Material Adverse Effect.
(u) Except as described in the Registration Statement and the
Prospectuses, each of the Company, BRACC and the Subsidiaries has been
and is in compliance with all terms and conditions of any required
permits, licenses and authorization, and has been and is in compliance
with all other limitations, restrictions, conditions, standards,
prohibitions,
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<PAGE> 10
requirements, obligations, schedules and timetables contained in the
Environmental Laws, except to the extent failure to comply would not
have a Material Adverse Effect.
(v) To the best knowledge of the Company, (i) there are no
past or present events, conditions, circumstances, activities,
practices, incidents or actions, or plans relating to the business as
presently being conducted by the Company, BRACC or the Subsidiaries,
that interfere with or prevent compliance or continued compliance with
the Environmental Laws, or that would be reasonably likely to give rise
to any legal liability (whether statutory or at common law) or
otherwise would be reasonably likely to form the basis of any claim,
action, demand, suit, proceeding, hearing, lien, notice of violation,
study, investigation, remediation or cleanup (collectively, "Claims")
based on or related to any Environmental Law or the generation,
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release
into the workplace, the community or the environment of any pollutant,
contaminant, chemical or industrial, toxic or hazardous substance or
waste, except for any liabilities or any Claims that will not,
individually or in the aggregate, have a Material Adverse Effect, and
(ii) except as disclosed in the Registration Statement and the
Prospectuses, no underground or aboveground storage tanks are located
on property owned or leased by the Company, BRACC or the Subsidiaries.
(w) There are no Claims pending or, to the best knowledge of
the Company, threatened against the Company, BRACC or any Subsidiary
based on or related to any Environmental Law or the generation,
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release
into the workplace, the community or the environment of any pollutant,
contaminant, chemical or industrial, toxic, or hazardous substance or
waste, and none of the Company, BRACC or any Subsidiary has received
any notice of violation or potential liability based on or related to
any Environmental Law or the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling,
or the emission, discharge, release into the workplace, the community
or the environment of any pollutant, contaminant, chemical or
industrial, toxic, or hazardous substance or waste, except for any
Claim or notice that will not, individually or in the aggregate, have a
Material Adverse Effect.
(x) Except as disclosed in the Registration Statement and the
Prospectuses, there are no pending actions, suits or proceedings
against or affecting the Company, BRACC, any Subsidiary or any of their
respective properties that, if determined adversely to the Company, the
Resulting Company, BRACC or such Subsidiary, would have a Material
Adverse Effect, or would materially and adversely affect the ability of
the Company or the Resulting Company to perform its obligations under
this Agreement or the Subscription Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no
such actions, suits or proceedings are threatened or, to the Company's
knowledge, contemplated. All pending legal or governmental proceedings
to which the Company, BRACC or any Subsidiary is a party or of which
any of their property or assets is the subject, including ordinary
routine litigation incidental to the business of the Company or BRACC,
are, considered in the aggregate, not material.
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<PAGE> 11
(y) The financial statements of the Company included in the
Registration Statement and the Prospectuses comply in all material
respects with the requirements of the Act and the Rules and Regulations
applicable to a registration statement on Form S-1 and have been
prepared, and fairly present the financial position, results of
operations and cash flows of the Company and its subsidiaries
consolidated at the respective dates and for the respective periods
indicated, in accordance with generally accepted accounting principles
consistently applied throughout such period. The financial information
and financial data set forth in the Registration Statements and the
Prospectuses under the captions "Prospectus Summary-Summary Operating
Data for the Budget System," "Prospectus Summary--Summary Financial
Data of TEAM," "Capitalization" (exclusive of pro forma data contained
therein), "Pro Forma Consolidated Financial Statements of Budget
Group," "Selected Financial Data of TEAM" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of TEAM"
are derived from the accounting records of the Company and its
subsidiaries, and are a fair presentation of the data purported to be
shown.
(z) The financial statements of BRACC included in the
Registration Statement and the Prospectuses comply in all material
respects with the requirements of the Act and the Rules and Regulations
applicable to a registration statement on Form S-1 and have been
prepared, and fairly present the financial position, results of
operations and cash flows of BRACC and its subsidiaries consolidated at
the respective dates and for the respective periods indicated, in
accordance with generally accepted accounting principles consistently
applied throughout such period. The financial information and financial
data set forth in the Registration Statements and the Prospectuses
under the captions "Prospectus Summary-Summary Operating Data for the
Budget System," "Prospectus Summary--Summary Financial Data of BRACC,"
"Capitalization" (exclusive of pro forma data contained therein), "Pro
Forma Consolidated Financial Statements of Budget Group," "Selected
Financial Data of BRACC" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of BRACC" are derived
from the accounting records of BRACC and its subsidiaries, and are a
fair presentation of the data purported to be shown.
(aa) The pro forma financial data of the Resulting Company and
its subsidiaries contained in the Registration Statement have been and
the Prospectuses have been prepared in accordance with Article XI of
Regulation S-X under the Act; the assumptions used in the preparation
thereof (taken as a whole) are reasonable, and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(bb) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectuses, (i) there has been no material adverse change, nor any
development involving a prospective material adverse change, in the
condition (financial or other), results of operations, business affairs
or business prospects of the Company and its subsidiaries, or BRACC and
its subsidiaries, each taken as a whole, whether or not arising in the
ordinary course of business, and (ii) there have been no transactions
entered into by the Company or BRACC or any of their respective
subsidiaries, other than those in the ordinary course of business,
which are material with respect to the Company and its subsidiaries, or
BRACC and its subsidiaries, each taken as a whole.
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<PAGE> 12
(cc) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectuses, the Resulting
Company will not be an "investment company" as defined in the
Investment Company Act of 1940.
(dd) There is no document or contract of a character required
to be described in the Registration Statement or the Prospectuses, or
to be filed as an exhibit to the Registration Statement, that is not
described or filed as required.
Any certificate signed by any officer of the Company and delivered to
the Underwriters or to counsel for the Underwriters pursuant to this Agreement
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of U.S.$ per share, the respective numbers
of shares of U.S. Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the U.S. Firm Securities to the
Representatives for the accounts of the Underwriters, at such office in New
York, New York as the Representatives may designate, against payment of the
purchase price by wire transfer of immediately available Federal (same day)
funds payable to the Company, such payment to be made to an account designated
by the Company at a bank acceptable to CSFBC, and confirmed at the office of
King & Spalding, 191 Peachtree St., N.E., Atlanta, Georgia 30303, at 10:00 A.M.,
Atlanta time, on [ ], or at such other time not later than seven full business
days thereafter as CSFBC and the Company determine, such time being herein
referred to as the "First Closing Date". For purposes of Rule 15c6-1 under the
Securities Exchange Act of 1934, the First Closing Date (if later than the
otherwise applicable settlement date) shall be the settlement date for payment
of funds and delivery of securities for all the Offered Securities sold pursuant
to the U.S. Offering and the International Offering. The certificates for the
U.S. Firm Securities so to be delivered will be in definitive form, in such
denominations and registered in such names as CSFBC requests and will be made
available for checking and packaging at least 24 hours prior to the First
Closing Date at such office in New York, New York as you may designate.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectuses,
the Underwriters may purchase, from time to time, all or less than all of the
U.S. Optional Securities at the purchase price per Security to be paid for the
U.S. Firm Securities. The Company agrees to sell to the Underwriters such number
of shares of U.S. Optional Securities specified in any such notice and the
Underwriters agree, severally and not jointly, to purchase such U.S. Optional
Securities. Such U.S. Optional Securities shall be purchased for the account of
each Underwriter in the same proportion as the number of shares of U.S. Firm
Securities set forth opposite such Underwriter's name bears to the total number
of shares of U.S. Firm Securities (subject to adjustment by CSFBC to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over-allotments made in
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<PAGE> 13
connection with the sale of the U.S. Firm Securities. No Optional Securities
shall be sold or delivered unless the U.S. Firm Securities and the International
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC on behalf of
Underwriters and the Managers to the Company. It is understood that CSFBC is
authorized to make payment for and accept delivery of such Optional Securities
on behalf of the Underwriters and Managers pursuant to the terms of CSFBC's
instructions to the Company.
Each time for the delivery of and payment for the U.S. Optional
Securities, being herein referred to as an "Optional Closing Date", which may be
the First Closing Date (the First Closing Date and each Optional Closing Date,
if any, being sometimes referred to as a "Closing Date"), shall be determined by
CSFBC but shall be not later than three full business days after written notice
of election to purchase Optional Securities is given. The Company will deliver
the U.S. Optional Securities being purchased on each Optional Closing Date to
the Representatives for the accounts of the several Underwriters, at such office
in New York, New York as the Representatives may designate, against payment of
the purchase price therefor by wire transfer of immediately available Federal
(same day) funds payable to the Company, such payment to be made to an account
designated by the Company at a bank acceptable to CSFBC, and confirmed at the
office of King & Spalding, 191 Peachtree St., N.E., Atlanta, Georgia 30303. The
certificates for the U.S. Optional Securities will be in definitive form, in
such denominations and registered in such names as CSFBC requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at a reasonable time in advance of such Optional
Closing Date at such office in New York, New York as you may designate.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the U.S. Securities for sale to the public as set
forth in the U.S. Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Company will file each of the Prospectuses with the Commission pursuant
to and in accordance with subparagraph (1) (or, if applicable and if
consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than
the earlier of (A) the second business day following the execution and
delivery of this Agreement or (B) the fifteenth business day after the
Effective Date of the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and
an additional registration statement is necessary to register a portion
of the Offered Securities under the Act but the Effective Time thereof
has not occurred as of such execution and delivery, the Company will
file the additional registration statement or, if filed, will file a
post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time,
on the date of this Agreement or, if earlier, on or prior to the time
either Prospectus is printed and
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<PAGE> 14
distributed to any Underwriter or Manager, or will make such filing at
such later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or either of the related prospectuses or the Initial
Registration Statement, the Additional Registration Statement (if any)
or either of the Prospectuses and will not effect such amendment or
supplementation without CSFBC's prior written consent; and the Company
will also advise CSFBC promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or either of the
Prospectuses and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its
best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter, Manager or dealer, any event occurs as a
result of which either or both of the Prospectuses as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it is necessary at any time to amend either or
both of the Prospectuses to comply with the Act, the Company will
promptly notify CSFBC of such event and will promptly prepare and file
with the Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery
of, any such amendment or supplement shall constitute a waiver of any
of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of the
Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of
each Registration Statement (five of which will include all exhibits),
each preliminary prospectus relating to the U.S. Securities, and, so
long as delivery of a prospectus relating to the Offered Securities is
required to be delivered under the Act in connection with sales by any
Underwriter or dealer, the U.S. Prospectus and all amendments and
supplements to such documents, in each case as soon as available and in
such quantities as CSFBC requests. The U.S. Prospectus shall be so
furnished on or prior to 3:00 P.M., New York time, on the business day
following the later of the execution and delivery of this Agreement or
the Effective Time
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<PAGE> 15
of the Initial Registration Statement. All other documents shall be so
furnished as soon as available. The Company will pay the expenses of
printing and distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the
Offered Securities for sale under the laws of such jurisdictions in the
United States as CSFBC designates and will continue such qualifications
in effect so long as required for the distribution of the Offered
Securities; provided, however, that in connection therewith, the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction.
(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request, to each of the
other Underwriters, as soon as practicable after the end of each fiscal
year, a copy of its annual report to stockholders for such year; and
the Company will furnish to the Representatives (i) as soon as
available, a copy of each report and any definitive proxy statement of
the Company filed with the Commission under the Securities Exchange Act
of 1934 or mailed to stockholders, and (ii) from time to time, such
other information concerning the Company as CSFBC may reasonably
request.
(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement and will reimburse
the Underwriters (if and to the extent incurred by them) for any filing
fees and other expenses (including fees and disbursements of counsel)
incurred by them in connection with qualification of the Offered
Securities for sale under the laws of such jurisdictions in the United
States as CSFBC designates and the printing of memoranda relating
thereto, the filing relating to the review of documents by the National
Association of Securities Dealers, Inc. ("NASD") pursuant to the
Corporate Financing Rule of the NASD's Conduct Rules and for expenses
incurred in distributing preliminary prospectuses and the Prospectuses
(including any amendments and supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make
any such offer, sale, pledge, disposal or filing, without the prior
written consent of CSFBC, except registrations required pursuant to the
Stock Purchase Agreements, the Series A Notes and the Series B Notes,
and grants of employee stock options pursuant to the terms of the 1994
Option Plan or the 1994 Directors' Plan in effect on the date hereof
that may not be exercised until 180 days after the public offering of
the Offered Securities, issuances of Securities pursuant to the
exercise of such options or the exercise of any other employee stock
options outstanding on the date hereof.
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the U.S. Firm Securities on
the First Closing Date and the U.S. Optional Securities to be purchased on each
Optional Closing Date will be subject to the accuracy
15
<PAGE> 16
of the representations and warranties on the part of the Company herein, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions precedent:
(a) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the
Initial Registration Statement is prior to the execution and delivery
of this Agreement, shall be on or prior to the date of this Agreement
or, if the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement, shall be
prior to the filing of the amendment or post-effective amendment to the
registration statement to be filed shortly prior to such Effective
Time), of Arthur Andersen LLP confirming that they are independent
public accountants to the Company within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to
the effect that:
(i) in their opinion the financial statements and
schedules examined by them and included or incorporated by
reference in the Registration Statement and the Prospectuses
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
Rules and Regulations;
(ii) on the basis of the review referred to in clause
(i) above, a reading of the latest available unaudited
consolidated financial statements of the Company, inquiries of
officials of the Company who have responsibility for financial
and accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that:
(A) any material modifications should be
made to the unaudited pro forma consolidated
financial statements included in the Registration
Statement and the Prospectuses for them to be in
conformity with generally accepted accounting
principles or that such unaudited pro forma
consolidated financial statements do not comply as to
form in all material respects with the applicable
accounting requirements of the Act and the related
published Rules and Regulations;
(B) at the date of the latest available
unaudited consolidated balance sheet read by such
accountants, or at a subsequent specified date not
more than five days prior to the date of this
Agreement, there was any change in the capital stock
or any increase in short-term non-vehicle
indebtedness or long-term debt of the Company and its
subsidiaries or any decrease in consolidated
stockholders' equity, as compared with amounts shown
on the latest balance sheet included in the
Prospectuses; or
(C) for the period from the closing date of
the latest unaudited consolidated income statement
included in the Prospectuses to the closing date of
the latest available unaudited consolidated income
statement read by such accountants, or to the
subsequent specified date set forth in clause
16
<PAGE> 17
(B) above, there were any decreases, as compared with
the corresponding period of the previous year, in
consolidated operating revenue, operating income or
net income of the Company,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectuses
disclose have occurred or may occur or which are described in
such letter;
(iii) on the basis of specified procedures, including
(A) a reading of the unaudited pro forma consolidated
financial statements of the Company after giving effect to the
Acquisition at December 31, 1996 included in the Registration
Statement and the Prospectuses; (B) inquiries of certain
officials of the Company who have responsibility for financial
and accounting matters about the basis for the determination
of the pro forma adjustments and whether the unaudited pro
forma financial statements referred to in clause (A) comply as
to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X; and
(C) proving the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in the
unaudited pro forma financial statements referred to in clause
(A), nothing came to their attention that caused them to
believe that the unaudited pro forma consolidated financial
statements referred to in clause (A) included in the
Registration Statements and the Prospectuses do not comply as
to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X or
that the pro forma adjustments have not been properly applied
to the historical amounts in the compilation of those
statements; and
(iv) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statement
and the Prospectuses (in each case to the extent that such
dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company
and its subsidiaries subject to the internal controls of the
Company's accounting system or are derived directly from such
records by analysis or computation) with the results obtained
from inquiries, a reading of such general accounting records
and other procedures specified in such letter and have found
such dollar amounts, percentages and other financial
information to be in agreement with such results, except as
otherwise specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statement" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration is subsequent to such
execution and delivery, "Registration Statement" shall mean the Initial
Registration Statement and the additional registration statement as
proposed to be filed or as proposed
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<PAGE> 18
to be amended by the post-effective amendment to be filed shortly prior
to its Effective Time, and (iii) "Prospectuses" shall mean the
prospectuses included in the Registration Statements.
(b) The Representatives shall have received a letter, dated
the date of delivery thereof (which, if the Effective Time of the
Initial Registration Statement is prior to the execution and delivery
of this Agreement, shall be on or prior to the date of this Agreement
or, if the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement, shall be
prior to the filing of the amendment or post-effective amendment to the
registration statement to be filed shortly prior to such Effective
Time), of KPMG Peat Marwick LLP confirming that they are independent
public accountants to BRACC within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to
the effect that:
(i) in their opinion the financial statements and
schedules examined by them and included or incorporated by
reference in the Registration Statement and the Prospectuses
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
Rules and Regulations;
(ii) on the basis of the review referred to in clause
(i) above, a reading of the latest available unaudited
consolidated financial statements of BRACC, inquiries of
officials of BRACC who have responsibility for financial and
accounting matters and other specified procedures, nothing
came to their attention that caused them to believe that:
(A) at the date of the latest available
unaudited consolidated balance sheet read by such
accountants, or at a subsequent specified date not
more than five days prior to the date of this
Agreement, there was any change in the capital stock
or any increase in short-term non-vehicle
indebtedness or long-term debt of BRACC and its
subsidiaries or any decrease in consolidated
stockholders' equity, as compared with amounts shown
on the latest balance sheet included in the
Prospectuses; or
(B) for the period from the closing date of
the latest unaudited consolidated income statement
included in the Prospectuses to the closing date of
the latest available unaudited consolidated income
statement read by such accountants, or to the
subsequent specified date set forth in clause (B)
above, there were any decreases, as compared with the
corresponding period of the previous year, in
consolidated operating revenue, operating income or
net income of BRACC,
except in all cases set forth in clauses (A) and (B) above for
changes, increases or decreases which the Prospectuses
disclose have occurred or may occur or which are described in
such letter; and
18
<PAGE> 19
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other
financial information contained in the Registration Statement
and the Prospectuses (in each case to the extent that such
dollar amounts, percentages and other financial information
are derived from the general accounting records of BRACC and
its subsidiaries subject to the internal controls of BRACC's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and
other procedures specified in such letter and have found such
dollar amounts, percentages and other financial information to
be in agreement with such results, except as otherwise
specified in such letter.
For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "Registration Statement" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration is subsequent to such
execution and delivery, "Registration Statement" shall mean the Initial
Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"Prospectuses" shall mean the prospectuses included in the Registration
Statements.
(c) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or such later date as shall
have been consented to by CSFBC. If the Effective Time of the
Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time either Prospectus is printed
and distributed to any Underwriter or Manager, or shall have occurred
at such later date as shall have been consented to by CSFBC. If the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement, each of the Prospectuses
shall have been filed with the Commission in accordance with the Rules
and Regulations and Section 5(a) of this Agreement. Prior to such
Closing Date, no stop order suspending the effectiveness of a
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or, to the knowledge of the
Company or the Representatives, shall be contemplated by the
Commission.
(d) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development involving a prospective change, in the condition (financial
or other), results of operations, business affairs or business
prospects of the Company and its subsidiaries or BRACC and its
subsidiaries which, in the judgment of a majority in interest of the
Underwriters including the Representatives, is material and adverse and
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the U.S. Securities;
(ii) any downgrading in the
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<PAGE> 20
rating of any debt securities or preferred stock of the Company or
BRACC or any of their respective subsidiaries by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt
securities or preferred stock of the Company, BRACC or any of their
respective subsidiaries (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of
trading in securities generally on the New York Stock Exchange or The
Nasdaq National Market, or any setting of minimum prices for trading on
such exchange or market, or any suspension of trading of any securities
of the Company on any exchange or in the over-the-counter market; (iv)
any banking moratorium declared by U.S. Federal or New York
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by Congress
or any other substantial national or international calamity or
emergency if, in the judgment of a majority in interest of the
Underwriters including the Representatives, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the public
offering or the sale of and payment for the U.S. Securities.
(e) The Representatives shall have received an opinion, dated
such Closing Date, of King & Spalding, counsel for the Company, to the
effect that:
(i) the Company has been duly incorporated and
validly exists as a corporation in good standing under the
laws of the State of Delaware, with corporate power and
authority to own its properties and conduct its business as
described in the Prospectuses;
(ii) the Company's authorized capital stock is as set
forth in the Registration Statement and the Prospectuses under
the caption "Description of Capital Stock"; the Offered
Securities delivered on such Closing Date and all other
outstanding shares of the Class A Common Stock, Class B Common
Stock and Series A Preferred Stock of the Company have been
duly authorized and validly issued, are fully paid and
nonassessable and conform to the description thereof contained
in the Prospectuses under the caption "Description of Capital
Stock"; and the Offered Securities have been listed on the New
York Stock Exchange;
(iii) to the knowledge of such counsel, the Company
is the sole ultimate beneficial owner of all outstanding
capital stock of each Subsidiary, free and clear of all
security interests, claims, liens or encumbrances;
(iv) except as described in the Prospectuses and
filed as exhibits to the Registration Statement, there are no
contracts, agreements or understandings known to such counsel
between the Company and any person granting such person the
right to require the Company or the Resulting Company to file
a registration statement under the Act with respect to any
securities of the Company or the Resulting Company owned or to
be owned by such person or to require the Company or the
Resulting Company to include such securities in the securities
20
<PAGE> 21
registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company or the Resulting Company under
the Act;
(v) no consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court
is required for the consummation of the transactions
contemplated by this Agreement or the Subscription Agreement
in connection with the issuance or sale of the Offered
Securities by the Company, except such as have been obtained
and made under the Act and such as may be required under state
securities laws, as to which laws such counsel may express no
opinion;
(vi) the execution, delivery and performance (A) by
the Company of this Agreement and the Subscription Agreement
and (B) by the Company and the Resulting Company and their
subsidiaries of the Stock Purchase Agreements, the New Fleet
Financing Credit Agreements, the Senior Notes Agreements and
the Series B Agreements, and the issuance and sale of the
Offered Securities, the Senior Notes and the Series B Notes,
will not result in a breach or violation of any of the terms
and provisions of, or constitute a default under, (1) any
statute, rule, regulation or order of any governmental agency
or body or any court having jurisdiction over the Company, the
Resulting Company or any Subsidiary or any of their
properties, (2) any agreement or instrument filed as an
exhibit to the Registration Statement to which the Company,
the Resulting Company or any such Subsidiary is a party or by
which the Company, the Resulting Company or any such
Subsidiary is bound or to which any of the properties of the
Company, the Resulting Company or any such Subsidiary is
subject, or (3) the charter or by-laws of the Company or any
such Subsidiary, except, in the case of clause (1) or (2),
such breaches, violations or defaults that, individually or in
the aggregate, would not have a Material Adverse Effect; the
Company has full power and authority to authorize, issue and
sell the Offered Securities as contemplated by this Agreement
and the Subscription Agreement, respectively, and has full
power and authority to authorize, issue and sell the Series B
Notes as contemplated by the Series B Agreements;
(vii) the Initial Registration Statement was declared
effective under the Act as of the date and time specified in
such opinion, the Additional Registration Statement (if any)
was filed and became effective under the Act as of the date
and time (if determinable) specified in such opinion, each of
the Prospectuses either were filed with the Commission
pursuant to the subparagraph of Rule 424(b) specified in such
opinion on the date specified therein or were included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be), and, to the best knowledge of
such counsel, no stop order suspending the effectiveness of a
Registration Statement or any part thereof has been issued and
no proceedings for that purpose have been instituted or are
pending or contemplated under the Act, and each Registration
Statement and each of the Prospectuses, and each amendment or
supplement thereto, as of their respective effective or issue
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<PAGE> 22
dates, complied as to form in all material respects with the
requirements of the Act and the Rules and Regulations; the
descriptions under the captions "The Budget Acquisition,"
"Business--Regulatory and Environmental Matters," "Description
of Capital Stock," "Description of Certain Indebtedness" and
Part II, Item 14 "Indemnification of Directors and Officers"
in the Registration Statement and the Prospectuses of matters
of law (including, without limitation, matters relating to
Environmental Laws), statutes and contracts and other
documents are accurate in all material respects and fairly
present the information required to be shown in a registration
statement on Form S-1; and such counsel do not know of any
legal or governmental proceedings to which the Company or any
Subsidiary of the Company is a party required to be described
in the Registration Statement or the Prospectuses which are
not described as required or of any contracts or documents of
a character required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits to
the Registration Statement which are not described or filed as
required (it being understood that such counsel need express
no opinion as to the financial statements and schedule or
other financial and statistical data contained in the
Registration Statement or the Prospectuses);
(viii) this Agreement and the Subscription Agreement
have been duly authorized, executed and delivered by the
Company, and represent valid and binding obligations of the
Company enforceable against the Company in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency,
reorganization and other laws of general applicability
relating to or affecting creditors' rights, and to general
principles of equity, whether applied by a court of law or
equity, and except that the enforceability of the rights to
indemnity and contribution pursuant to Section 7 hereunder may
be limited by federal or state securities laws or by public
policy;
(ix) the Stock Purchase Agreements, the New Fleet
Financing Credit Agreements, the Senior Notes Agreements and
the Series B Agreements have been duly authorized, executed
and delivered by the Company and BRACC (to the extent a party
thereto), and represent valid and binding obligations of the
Company and BRACC, enforceable against the Company, the
Resulting Company or BRACC in accordance with their terms,
subject as to enforcement to bankruptcy, insolvency,
reorganization and other laws of general applicability
relating to or affecting creditors' rights, and to general
principles of equity, whether applied by a court of law or
equity, and except that the enforceability of any rights to
indemnity or contribution may be limited by federal or state
securities laws or by public policy;
(x) to the knowledge of such counsel, except for (A)
the 4,500 shares of Series A Preferred Stock, which are
convertible into 4,500,000 shares of Class A Common Stock, (B)
the 1,936,600 shares of Class B Common Stock, which are
convertible into 1,936,600 shares of Class A Common Stock, (C)
the BRACC Warrant, (D) the NationsBank Warrant, (E) the
options to purchase 729,850 shares of Class A Common Stock and
Class B Common Stock issued under the 1994 Option Plan, (F)
the options to purchase 70,000 shares of Class A Common Stock
22
<PAGE> 23
under the 1994 Directors' Plan, (G) the $80.0 million
aggregate principal amount of Series A Notes which are
convertible into 3,986,049 shares of Class A Common Stock and
(H) the $50.0 million aggregate principal amount of Series B
Notes, which are convertible into 1,428,571 shares of Class A
Common Stock, each as described in the Registration Statement
and the Prospectuses, and except for the rights of the
respective parties to the OPCO Agreement, there are no, and
following consummation of the Acquisition there will be no,
outstanding securities of the Company that are convertible
into Class A Common Stock; and
(xi) to the knowledge of such counsel, except for (A)
the rights of first refusal set forth in the Share Exchange
Agreement dated April 25, 1994, as amended on June 13, 1994
and July 5, 1994, among the Company, Brian Britton, Jeffrey
Congdon, Richard Hinkle, John Kennedy, Sanford Miller and
Richard Sapia, (B) the rights of James Salatto and Joseph
Salatto to receive additional shares of Class A Common Stock,
as set forth in the Agreement, dated March 8, 1995, among the
Company, Team Rental of Connecticut, Inc., Rental Car
Resources, Inc., James Salatto and Joseph Salatto, (C) the put
right set forth in the BRACC Warrant, (D) the rights of first
refusal held by BRACC pursuant to certain of its franchise
agreements with the Company, (E) the rights of the parties to
the OPCO Agreement and (F) the rights of Ford under the Stock
Purchase Agreements, there are no, and following the
consummation of the Acquisition there will be no, preemptive
or other rights to subscribe for or purchase any shares of
capital stock issued by the Company, the Resulting Company or
any subsidiary of the Resulting Company. Except for the
transfer restrictions set forth in the Registration Rights
Agreements, Section 5(i) of this Agreement, BRACC's right to
approve certain transfers of capital stock held by Messrs.
Miller, Kennedy, Congdon, Britton, Hinkle and Sapia pursuant
to the letter agreement dated May 5, 1994 among such officers
and BRACC, and the voting restrictions set forth in the
Shareholders' Agreement dated October 20, 1995 among the
Company, the holders of Class B Common Stock and SOCAL, there
are no, and following consummation of the Acquisition there
will be no, restrictions to which the Company or the Resulting
Company is a party upon the voting or transfer of, and no
restrictions on the declaration or payment of any dividend or
distribution on, any shares of capital stock of the Company,
the Resulting Company or any Subsidiary.
In addition, such counsel shall state that such
counsel have no reason to believe that any part of a
Registration Statement or any amendment thereto, as of its
effective date or as of such Closing Date, contained any
untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading or that either of
the Prospectuses or any amendment or supplement thereto, as of
its issue date or as of such Closing Date, contained any
untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
23
<PAGE> 24
(f) The Representatives shall have received an opinion, dated
such Closing Date, of Robert L. Aprati, Senior Vice President, General
Counsel and Secretary of BRACC, to the effect that:
(i) BRACC has been duly incorporated and validly
exists as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectuses; and
(ii) the consummation of the Offerings, the
execution, delivery and performance of the Stock Purchase
Agreements and the New Fleet Financing Credit Agreements and
the issuance and sale of the Senior Notes and the Series B
Notes will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, (A)
any statute, rule, regulation or order of any governmental
agency or body or any court having jurisdiction over BRACC or
any Subsidiary of BRACC or any of their properties, (B) any
debt instrument or other agreement to which BRACC or any such
Subsidiary is a party or by which BRACC or any such Subsidiary
is bound or to which any of the properties of BRACC or any
such Subsidiary is subject, or (C) the charter or by-laws of
BRACC or any such Subsidiary, except in the case of clause (A)
or (B), such breaches, violations or defaults that,
individually or in the aggregate, would not have a Material
Adverse Effect.
(g) The Representatives shall have received from Cravath,
Swaine & Moore, counsel for the Underwriters, such opinion or opinions,
dated such Closing Date, with respect to the incorporation of the
Company, the validity of the Offered Securities delivered on such
Closing Date, the Registration Statement, the Prospectuses and other
related matters as the Representatives may require, and the Company
shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(h) The Representatives shall have received a certificate,
dated such Closing Date, of the President and the principal financial
officer of the Company in which such officers, to the best of their
knowledge after reasonable investigation, shall state that: the
representations and warranties of the Company in this Agreement are
true and correct on and as of such Closing Date to the same effect as
if made on such Closing Date; the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order
suspending the effectiveness of any Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement
(if any) satisfying the requirements of subparagraphs (1) and (3) of
Rule 462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the
Act, prior to the time either Prospectus was printed and distributed to
any Underwriter or Manager; and, subsequent to the date of the most
recent financial statements in the Prospectuses, there has been no
material adverse change in the condition (financial or other), results
of operations, business affairs or
24
<PAGE> 25
business prospects of the Company, BRACC and any Subsidiary except as
set forth in or contemplated by the Prospectuses or as described in
such certificate.
(i) The Representatives shall have received letters, dated
such Closing Date, of Arthur Andersen LLP and KPMG Peat Marwick LLP,
which meet the requirements of subsections (a) and (b) of this Section,
respectively, except that the specified date referred to in such
subsection will be a date not more than five days prior to such Closing
Date for the purposes of this subsection.
(j) On such Closing Date, the Managers shall have purchased
the International Firm Securities or the International Optional
Securities, as the case may be, pursuant to the Subscription Agreement.
(k) Concurrently with or prior to the issuance and sale of the
Offered Securities by the Company, the Acquisition shall be consummated
on terms that conform in all material respects to the description
thereof in the Registration Statement and Prospectuses and the
Representatives shall have received true and correct copies of all
documents pertaining thereto and evidence reasonably satisfactory to
the Representatives of the consummation thereof.
(l) Concurrently with or prior to the issuance and sale of the
Offered Securities by the Company, the Company shall have entered into
the New Fleet Financing Credit Agreements and shall have made the
initial borrowings thereunder. The Representatives shall have received
conformed counterparts thereof and all other documents and agreements
entered into and received thereunder in connection with the closing of
the New Fleet Financing Credit Agreements. There shall exist at and as
of the Closing Date (after giving effect to the transactions
contemplated by this Agreement and the Acquisition) no condition that
would constitute a default (or an event that with notice or lapse of
time, or both, would constitute a default) under the New Fleet
Financing Credit Agreements.
(m) Concurrently with or prior to the issuance and sale of the
Offered Securities by the Company, the offering of the Senior Notes by
BRACC and the Series B Notes by the Company shall be consummated on
terms that conform in all material respects to the descriptions thereof
in the Registration Statement and Prospectuses and the Representatives
shall have received true and correct copies of all documents pertaining
thereto and evidence reasonably satisfactory to the Representatives of
the consummation thereof.
(n) On any Optional Closing Date for the purchase of
Optional Shares, the Representatives shall receive a certificate, dated
such Closing Date, from the Company which shall state that the
representations and warranties by the Company in this Agreement and in
the Subscription Agreement are true and correct on and as of such
Optional Closing Date to the same effect as if made on such Optional
Closing Date and that the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to such Optional Closing Date.
25
<PAGE> 26
(o) The Representatives shall have received executed
agreements in the form annexed hereto as Exhibit A from each officer
and director of the Company.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, either of the Prospectuses, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other expenses
reasonably incurred by such Underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being understood
and agreed that the only information furnished by any Underwriter consists of
the information described as such in subsection (b) below; provided further,
that such indemnity with respect to any untrue statement or omission of a
material fact contained in any preliminary prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased the shares that are the subject thereof
if such person did not receive a copy of the Prospectus (or the Prospectus as
supplemented) at or prior to the confirmation of the sale of such shares to such
person in any case where such delivery is required under the Act and such untrue
statement or omission of a material fact contained in any preliminary prospectus
was corrected in the Prospectus (or the Prospectus as supplemented).
Insofar as the foregoing indemnity agreement, or the
representations and warranties contained in Section 2(b), may permit
indemnification for liabilities under the Act of any person who is an
Underwriter or a partner or controlling person of an Underwriter within the
meaning of Section 15 of the Act and who, at the date of this Agreement, is a
director, officer or controlling person of the Company, the Company has been
advised that in the opinion of the Commission such provisions may contravene
Federal public policy as expressed in the Act and may therefore be
unenforceable. In the event that a claim for indemnification under such
agreement or such representations and warranties for any such liabilities
(except insofar as such agreement provides for the payment by the Company
of expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such a
person, the Company will submit to a court of appropriate jurisdiction (unless
in the opinion of counsel for the Company the matter has already been settled by
controlling precedent) the question of whether or
26
<PAGE> 27
not indemnification by it for such liabilities is against public policy as
expressed in the Act and therefore unenforceable, and the Company will be
governed by the final adjudication of such issue.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company against any losses, claims, damages or liabilities to which
the Company may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, either of the
Prospectuses, or any amendment or supplement thereto, or any related preliminary
prospectus, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives specifically for use therein, and will reimburse any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of (i) the following
information in the U.S. Prospectus furnished on behalf of each Underwriter: the
last paragraph at the bottom of the cover page concerning the terms of the
offering by the Underwriters, the legend concerning over-allotments, stabilizing
and passive market making on the inside front cover page and the thirteenth
paragraph under the caption "Underwriting," the concession and reallowance
figures appearing in the fifth paragraph under the caption "Underwriting" and
the information contained in the tenth paragraph under the caption
"Underwriting" and (ii) the information in the twelfth paragraph under the
caption "Underwriting" in the U.S. Prospectus furnished on behalf of CSFBC
concerning material relationship disclosure.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
27
<PAGE> 28
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the U.S.
Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering of the U.S. Securities (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the U.S. Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase U.S. Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of U.S.
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of U.S. Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such U.S.
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date the
28
<PAGE> 29
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the U.S. Securities that such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriter or Underwriters so default and the aggregate number of shares of
U.S. Securities with respect to which such default or defaults occur exceeds 10%
of the total number of shares of U.S. Securities that the Underwriters are
obligated to purchase on such Closing Date and arrangements satisfactory to
CSFBC and the Company for the purchase of such U.S. Securities by other persons
are not made within 36 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter or the Company,
except as provided in Section 9 (provided that if such default occurs with
respect to U.S. Optional Securities after the First Closing Date, this Agreement
will not terminate as to the U.S. Firm Securities or any U.S. Optional
Securities purchased prior to such termination). As used in this Agreement, the
term "Underwriter" includes any person substituted for an Underwriter under this
Section. Nothing herein will relieve a defaulting Underwriter from liability for
its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the U.S. Securities. If this Agreement is terminated pursuant to
Section 8 or if for any reason the purchase of the U.S. Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect and if any U.S. Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect. If the purchase of the U.S. Securities by the
Underwriters is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in clause (iii), (iv), or (v) of Section 6(d), the Company will
reimburse the Underwriters for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the U.S. Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed or delivered to the Representatives,
c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, New
York 10010, Attention: Investment Banking Department -- Transactions Advisory
Group, or, if sent to the Company, will be mailed or delivered to it at Team
Rental Group, Inc., 125 Basin Street, Daytona Beach, Florida 32114, Attention:
Mr. Sanford Miller; provided, however, that any notice to an Underwriter
pursuant to Section 7 will be mailed or delivered to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
29
<PAGE> 30
12. Representation of Underwriters. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
30
<PAGE> 31
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
TEAM RENTAL GROUP, INC.
By
--------------------------
Sanford Miller
Chairman and Chief
Executive Officer
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
ABN AMRO CHICAGO CORPORATION
ALEX. BROWN & SONS INCORPORATED
MCDONALD & COMPANY SECURITIES, INC.,
Acting on behalf of themselves and as the Representatives of the
several Underwriters.
By CREDIT SUISSE FIRST BOSTON CORPORATION
By
-----------------------------------
F. Perkins Hixon, Jr.
Managing Director
31
<PAGE> 32
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter U.S. Firm Securities
----------- --------------------
<S> <C>
Credit Suisse First Boston Corporation.............
ABN AMRO Chicago Corporation.......................
Alex. Brown & Sons Incorporated....................
McDonald & Company Securities, Inc.................
---------
Total........................ 5,200,000
=========
</TABLE>
32
<PAGE> 33
EXHIBIT A
April __, 1997
Team Rental Group, Inc.
125 Basin Street
Daytona Beach, Florida 32114
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010
ABN AMRO Chicago Corporation
208 South LaSalle Street
Chicago, Illinois 60604
Alex. Brown & Sons Incorporated
1 South Street
Baltimore, Maryland 21202
McDonald & Company Securities, Inc.
One American Square
Indianapolis, Indiana 46282
Dear Sirs:
As an inducement to the Underwriters to execute the Underwriting
Agreement, pursuant to which an offering will be made of Class A Common Stock,
par value $.01 per share (the "Securities"), of Team Rental Group, Inc. (the
"Company"), the undersigned hereby agrees that, for a period of 90 days after
the public offering (the "Commencement Date") of the Securities pursuant to the
Underwriting Agreement to which you are or expect to become party, the
undersigned will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of Securities or securities convertible
into or exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposal, without
the prior written consent of Credit Suisse First Boston Corporation.
In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Securities if such transfer would constitute a violation or breach of this
Agreement.
This Agreement shall be binding on the undersigned and the respective
successors, heirs, personal representatives and assigns of the undersigned. This
agreement shall lapse and become null and void if the Commencement Date shall
not have occurred on or before ____________, 1997.
Very truly yours,
------------------------------
Name:
34
<PAGE> 1
EXHIBIT 1.2
1,300,000 SHARES
TEAM RENTAL GROUP, INC.
CLASS A COMMON STOCK
SUBSCRIPTION AGREEMENT
London, England
April [ ], 1997
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
ABN AMRO ROTHSCHILD
ALEX. BROWN & SONS INTERNATIONAL
MCDONALD & COMPANY SECURITIES, INC.,
c/o Credit Suisse First Boston (Europe) Limited ("CSFBEL")
One Cabot Square
London, England E14 4QJ
Dear Sirs:
1. Introductory. Team Rental Group, Inc., a Delaware corporation
("Company"), proposes to issue and sell ("International Offering") to the
several Managers named in Schedule A hereto ("Managers") 1,300,000 shares
("International Firm Securities") of its Class A Common Stock ("Securities").
It is understood that the Company is concurrently entering into an
Underwriting Agreement, dated the date hereof ("Underwriting Agreement"), with
certain United States underwriters listed in Schedule A thereto (the "U.S.
Underwriters"), for whom Credit Suisse First Boston Corporation ("CSFBC"), ABN
AMRO Chicago Corporation, Alex. Brown & Sons Incorporated and McDonald & Company
Securities, Inc. are acting as representatives (the "U.S. Representatives"),
relating to the concurrent offering and sale of 5,200,000 shares of Securities
(" U.S. Firm Securities") in the United States and Canada ("U.S. Offering" and,
together with the International Offering, the "Offerings").
In addition, the Company proposes to issue and sell (i) to the U.S.
Underwriters, at the option of the U.S. Underwriters, an aggregate of not more
than 780,000 additional shares of Securities ("U.S. Optional Securities") and
(ii) to the Managers, at the option of the Managers, an aggregate of not more
than 195,000 additional shares of Securities ("International Optional
Securities"). The U.S. Firm Securities and the U.S. Optional Securities are
hereinafter called the "U.S. Securities"; the International Firm Securities and
the International Optional Securities are hereinafter called the "International
<PAGE> 2
Securities"; the U.S. Firm Securities and the International Firm Securities are
hereinafter called the "Firm Securities"; the U.S. Optional Securities and the
International Optional Securities are hereinafter called the "Optional
Securities". The U.S. Securities and the International Securities are
collectively referred to as the "Offered Securities". To provide for the
coordination of their activities, the U.S. Underwriters and the Managers have
entered into an Agreement Between U.S. Underwriters and Managers which permits
them, among other things, to sell the Offered Securities to each other for
purposes of resale.
The Offered Securities are being issued and sold in connection with the
consummation of the transactions contemplated by stock purchase agreements, each
dated as of January 13, 1997 (the "Stock Purchase Agreements"), by and among the
Company, Ford Motor Company ("Ford"), Budget Rent a Car Corporation ("BRACC")
and the other stockholders of BRACC, pursuant to which the Company has
agreed, subject to certain conditions, to acquire all the capital stock of BRACC
(the "Acquisition"). In connection with the Acquisition and concurrently with
the consummation of the Offerings: (i) BRACC proposes to privately place $125.0
million aggregate principal amount of its __% Guaranteed Senior Notes due 2007
(the "Senior Notes"), (ii) the Company proposes to enter into new credit
facilities for fleet financings (the "New Fleet Financing Credit Agreements")
with an aggregate commitment of $1.3 billion, (iii) the Company proposes to
privately place $50.0 million aggregate principal amount of its __% Convertible
Subordinated Notes, Series B, due 2007 (the "Series B Notes") and (iv) the
Company will issue 4,500 shares of Series A Convertible Preferred Stock (the
"Series A Preferred Stock") to Ford as part of the consideration for the
Acquisition.
As used in Section 2 and Section 6(e) only of this Agreement,
references to (i) the term "Budget Group" mean Team Rental Group, Inc.,
including its subsidiaries after giving effect to the Acquisition (as defined
below); (ii) the term "Company" mean Team Rental Group, Inc. prior to the
Acquisition, on a stand-alone basis and excluding any subsidiaries; (iii) the
term "BRACC" mean Budget Rent a Car Corporation, prior to the Acquisition, on a
stand-alone basis and excluding any subsidiaries; (iv) the term "Resulting
Company" mean Team Rental Group, Inc. after giving effect to the Acquisition, on
a stand-alone basis and excluding any subsidiaries; and (v) the term
"Subsidiaries" mean all significant subsidiaries of the Resulting Company, as
defined in Rule 1-02(w) of Regulation S-X promulgated under the Securities Act
of 1933 (each of the Subsidiaries referred to in this clause (v), a
"Subsidiary").
The Company hereby agrees with the several Managers as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Managers that:
(a) A registration statement (No. 333-21691) relating to the
Offered Securities, including a form of prospectus relating to the U.S.
Securities and a form of prospectus relating to the International
Securities, has been filed with the Securities and Exchange Commission
("Commission") and either (i) has been declared effective under the
Securities Act of 1933 ("Act") and is not proposed to be amended or
(ii) is proposed to be amended by amendment or post-effective
amendment. If such registration statement (the "initial registration
statement") has been declared effective, either (A) an additional
registration statement (the "additional registration statement")
relating to the Offered Securities may have been filed with the
Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and,
if so filed, has become
2
<PAGE> 3
effective upon filing pursuant to such Rule and the Offered Securities
all have been duly registered under the Act pursuant to the initial
registration statement and, if applicable, the additional registration
statement or (B) such an additional registration statement is proposed
to be filed with the Commission pursuant to Rule 462(b) and will become
effective upon filing pursuant to such Rule and upon such filing the
Offered Securities will all have been duly registered under the Act
pursuant to the initial registration statement and such additional
registration statement. If the Company does not propose to amend the
initial registration statement or if an additional registration
statement has been filed and the Company does not propose to amend it,
and if any post-effective amendment to either such registration
statement has been filed with the Commission prior to the execution and
delivery of this Agreement, the most recent amendment (if any) to each
such registration statement has been declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c)
("Rule 462(c)") under the Act or, in the case of the additional
registration statement, Rule 462(b). For purposes of this Agreement,
"Effective Time" with respect to the initial registration statement or,
if filed prior to the execution and delivery of this Agreement, the
additional registration statement means (i) if the Company has advised
CSFBEL that it does not propose to amend such registration statement,
the date and time as of which such registration statement, or the most
recent post-effective amendment thereto (if any) filed prior to the
execution and delivery of this Agreement, was declared effective by the
Commission or has become effective upon filing pursuant to Rule 462(c),
or (ii) if the Company has advised CSFBEL that it proposes to file an
amendment or post-effective amendment to such registration statement,
the date and time as of which such registration statement, as amended
by such amendment or post-effective amendment, as the case may be, is
declared effective by the Commission. If an additional registration
statement has not been filed prior to the execution and delivery of
this Agreement but the Company has advised CSFBEL that it proposes to
file one, "Effective Time" with respect to such additional registration
statement means the date and time as of which such registration
statement is filed and becomes effective pursuant to Rule 462(b).
"Effective Date" with respect to the initial registration statement or
the additional registration statement (if any) means the date of the
Effective Time thereof. The initial registration statement, as amended
at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of
the initial registration statement as of the Effective Time of the
additional registration statement pursuant to the General Instructions
of the Form on which it is filed and including all information (if any)
deemed to be a part of the initial registration statement as of its
Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act,
is hereinafter referred to as the "Initial Registration Statement". The
additional registration statement (if any), as amended at its Effective
Time, including the contents of the initial registration statement
incorporated by reference therein and including all information (if
any) deemed to be a part of the additional registration statement as of
its Effective Time pursuant to Rule 430A(b), is hereinafter referred to
as the "Additional Registration Statement". The Initial Registration
Statement and the Additional Registration Statement are hereinafter
referred to collectively as the "Registration Statements" and
individually as a "Registration Statement". The form of prospectus
relating to the U.S. Securities and the form of prospectus relating to
the International Securities, each as first filed with the Commission
pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under
the Act or (if no such filing is required) as included in the
Registration Statement, are hereinafter referred to as the "U.S.
Prospectus" and the "International
3
<PAGE> 4
Prospectus", respectively, and collectively as the "Prospectuses". No
document has been or will be prepared or distributed in reliance on
Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement: (i)
on the Effective Date of the Initial Registration Statement, the
Initial Registration Statement conformed in all material respects to
the requirements of the Act and the rules and regulations of the
Commission ("Rules and Regulations") and did not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, (ii) on the Effective Date of the Additional
Registration Statement (if any), each Registration Statement conformed,
or will conform, in all material respects to the requirements of the
Act and the Rules and Regulations and did not include, or will not
include, any untrue statement of a material fact and did not omit, or
will not omit, to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (iii)
on the date of this Agreement, the Initial Registration Statement and,
if the Effective Time of the Additional Registration Statement is prior
to the execution and delivery of this Agreement, the Additional
Registration Statement each conforms, and at the time of filing of each
of the Prospectuses pursuant to Rule 424(b) or (if no such filing is
required) at the Effective Date of the Additional Registration
Statement in which the Prospectuses are included, each Registration
Statement and each of the Prospectuses will conform, in all material
respects to the requirements of the Act and the Rules and Regulations,
and none of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and each of the
Prospectuses will conform in all material respects to the requirements
of the Act and the Rules and Regulations, none of such documents will
include any untrue statement of a material fact or will omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading, and no Additional Registration
Statement has been or will be filed. The two preceding sentences do not
apply to statements in or omissions from a Registration Statement or
either of the Prospectuses based upon written information furnished to
the Company by any Manager through CSFBEL or by any U.S. Underwriter
through the U.S. Representatives specifically for use therein, it being
understood and agreed that the only such information is that described
as such in Section 7(b).
(c) Each of the Company, BRACC and each Subsidiary has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own its properties and conduct its
business as described in the Registration Statement and the
Prospectuses, and is duly qualified to do business as a foreign
corporation in good standing (to the extent such concepts are
recognized in such jurisdictions) in all other jurisdictions in which
it owns or leases substantial properties or in which the conduct of its
business requires such qualification, except where the failure to so
qualify would not have a material adverse effect upon the condition
(financial or other), results of operations, business affairs or
business prospects of the Budget Group (a "Material Adverse Effect").
The Subsidiaries are listed on Schedule B hereto.
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<PAGE> 5
(d) All of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued and is fully
paid and nonassessable; and the capital stock of each Subsidiary owned
by the Company or BRACC, directly or through subsidiaries, is owned
free from liens, encumbrances and defects.
(e) The Company's authorized capitalization is as set forth in
the Registration Statement and the Prospectuses; the Offered
Securities, the Series A Preferred Stock, and all the outstanding
shares of Class A Common Stock and Class B Common Stock of the Company,
par value $.01 per share ("Class B Common Stock") , have been duly
authorized; all outstanding shares of such capital stock of the Company
are, and, when the Offered Securities have been delivered and paid for
in accordance with this Agreement and the Subscription Agreement on
each Closing Date (as defined below), such Offered Securities will have
been, validly issued, fully paid and nonassessable and will conform to
the description thereof contained in the Prospectuses; and the Offered
Securities have been approved for listing on the New York Stock
Exchange subject to notice of issuance.
(f) Except for (i) the 4,500 shares of Series A Preferred
Stock, which are convertible into 4,500,000 shares of Class A Common
Stock, (ii) the 1,936,600 shares of Class B Common Stock, which are
convertible into 1,936,600 shares of Class A Common Stock, (iii) the
warrant held by BRACC to purchase 175,000 shares of Class A Common
Stock (the "BRACC Warrant"), (iv) the warrant held by NationsBank,
National Association (South) to purchase 187,500 shares of Class A
Common Stock (the "NationsBank Warrant"), (v) the options to purchase
729,850 shares of Class A Common Stock and Class B Common Stock issued
under the Company's 1994 Incentive Stock Option Plan (the "1994 Option
Plan"), (vi) the options to purchase 70,000 shares of Class A Common
Stock issued under the Company's 1994 Directors' Stock Option Plan (the
"1994 Directors' Plan"), (vii) the $80.0 million aggregate principal
amount of Series A Convertible Subordinated Notes of the Company (the
"Series A Notes"), which are convertible into 3,986,049 shares of Class
A Common Stock and (viii) the $50.0 million aggregate principal amount
of Series B Notes, which are convertible into 1,428,571 shares of Class
A Common Stock, each as described in the Registration Statement and the
Prospectuses, and except for the conditional rights to acquire
additional shares of Class A Common Stock contained in the agreement
dated October 20, 1995 among the Company, Team Rental of Southern
California, Inc., BRAC-OPCO, Inc., and Budget Rent a Car of Southern
California (the "OPCO Agreement"), there are no, and as of each Closing
Date (as defined in Section 3) there will be no, outstanding securities
or obligations (together, "Convertible Securities") of the Company, the
Resulting Company or any Subsidiary convertible into or exchangeable
for any capital stock of the Company, the Resulting Company or any
Subsidiary, respectively, rights, warrants or options (together,
"Rights") to subscribe for or purchase from the Company, the Resulting
Company or any Subsidiary any such capital stock or any such
Convertible Securities or obligations, or obligations of the Company,
the Resulting Company or any Subsidiary to issue Convertible Securities
or Rights.
(g) Except for (i) the rights of first refusal set forth in
the Share Exchange Agreement dated April 25, 1994, as amended on June
13, 1994 and July 5, 1994, among the Company, Brian Britton, Jeffrey
Congdon, Richard Hinkle, John Kennedy, Sanford Miller and Richard
Sapia, (ii) the rights of James Salatto and Joseph Salatto to receive
additional shares of Class A
5
<PAGE> 6
Common Stock, as set forth in the agreement, dated March 8, 1995, among
the Company, Team Rental of Connecticut, Inc., Rental Car Resources,
Inc., James Salatto and Joseph Salatto, (iii) the put right set forth
in the BRACC Warrant, (iv) the rights of first refusal held by BRACC
pursuant to certain of its franchise agreements with the Company, (v)
the rights of the parties to the OPCO Agreement and (vi) the rights of
Ford under the Stock Purchase Agreements, there are no preemptive or
other rights to subscribe for or purchase any shares of capital stock
issued by the Company, the Resulting Company or any Subsidiary. Except
for the transfer restrictions set forth in the Registration Rights
Agreements (as defined below), Section 5(i) of this Agreement, BRACC's
right to approve certain transfers of capital stock held by Messrs.
Miller, Kennedy, Congdon, Britton, Hinkle and Sapia pursuant to the
letter agreement dated May 5, 1994 among such officers and BRACC and
the voting restrictions set forth in the Shareholders' Agreement dated
October 20, 1995 among the Company, the holders of Class B Common Stock
and Budget Rent a Car of Southern California ("SOCAL"), there are, and
after giving effect to the Acquisition there will be, no restrictions
to which the Company or the Resulting Company is a party upon the
voting or transfer of, and no restrictions on the declaration or
payment of any dividend or distribution on, any shares of capital stock
of the Company, the Resulting Company, BRACC or any Subsidiary.
(h) No broker, finder, consultant or other person or entity is
entitled to any brokerage, finder's or other fee or commission in
connection with the issuance and sale of the Offered Securities, except
such fee or commission as may be provided to the Underwriters or the
Managers by the express terms of this Agreement.
(i) Except for certain agreements regarding registration
rights described in each of the Prospectuses and filed as exhibits to
the Registration Statement (collectively, the "Registration Rights
Agreements"), there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company or the Resulting Company to file a registration
statement under the Act with respect to any securities of the Company
or the Resulting Company owned or to be owned by such person or to
require the Company or the Resulting Company to include such securities
in the securities registered pursuant to a registration statement or in
any securities being registered pursuant to any other registration
statement filed by the Company or the Resulting Company under the Act;
and the Company has given proper notice to, or received written waivers
or demand notices from, each person holding such registration rights
pursuant to the Registration Rights Agreements.
(j) No consent, approval, authorization, or order of, or
filing with, any governmental agency or body or any court is required
for the consummation of the transactions contemplated by this Agreement
or the Subscription Agreement in connection with the issuance and sale
of the Offered Securities by the Company, except such as have been
obtained and made under the Act and the Rules and Regulations and such
as may be required under state securities laws.
(k) The execution, delivery and performance of this Agreement
and the Subscription Agreement, and the issuance and sale of the
Offered Securities will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under (i) any
statute, rule, regulation or order of any governmental agency or body
or any court, domestic or foreign, having jurisdiction over the
Company, the Resulting Company or any Subsidiary or any of their
6
<PAGE> 7
properties, (ii) any agreement or instrument to which the Company, the
Resulting Company or any such Subsidiary is a party or by which the
Company, the Resulting Company or any such Subsidiary is bound or to
which any of the properties of the Company, the Resulting Company or
any such Subsidiary is subject, or (iii) the charter or by-laws of the
Company or any such Subsidiary, except in the case of clause (i) or
(ii), such breaches, violations or defaults that, individually or in
the aggregate, would not have a Material Adverse Effect. The Company
has full power and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement and the Subscription
Agreement, respectively.
(l) This Agreement and the Subscription Agreement have been
duly authorized, executed and delivered by the Company.
(m) The execution, delivery and performance by the Company,
the Resulting Company, BRACC and their respective subsidiaries of the
Stock Purchase Agreements, the New Fleet Financing Credit Agreements,
the purchase agreement and indenture for the Senior Notes (the "Senior
Notes Agreements") and the purchase agreement and indenture for the
Series B Notes (the "Series B Agreements") (to the extent a party
thereto) and the issuance and sale of the Senior Notes and the Series B
Notes will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, (i) any statute, rule,
regulation or order of any governmental agency or body or any court,
domestic or foreign, having jurisdiction over the Company, the
Resulting Company, BRACC or any Subsidiary or any of their respective
properties, (ii) any agreement or instrument to which the Company, the
Resulting Company, BRACC or any such Subsidiary is a party or by which
the Company, the Resulting Company, BRACC or any such Subsidiary is
bound or to which any of the respective properties of the Company, the
Resulting Company, BRACC or any such Subsidiary is subject, or (iii)
the charter or by-laws of the Company, BRACC or any such Subsidiary,
except in the case of clause (i) or (ii), such breaches, violations or
defaults that, individually or in the aggregate, would not have a
Material Adverse Effect. BRACC has the power and authority to
authorize, issue and sell the Senior Notes pursuant to the Senior Notes
Agreements. The Company has the power and authority to authorize, issue
and sell the Series B Notes pursuant to the Series B Agreements.
(n) The Stock Purchase Agreements have been duly authorized,
executed and delivered by each of the Company and BRACC and conform in
all material respects to the descriptions thereof in the Prospectuses.
The Senior Notes Agreements and the Series B Agreements have been duly
authorized, executed and delivered by BRACC and the Company,
respectively, and the parties thereto and conform in all material
respects to the descriptions thereof in the Prospectuses. The Stock
Purchase Agreements, the Senior Notes Agreements and the Series B
Agreements, assuming due execution and delivery by the other parties
thereto, constitute valid and legally binding obligations of the
Company and BRACC (as the case may be) and are enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, except that the remedy of
specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and the discretion of courts in
granting equitable remedies and except that the enforceability of any
rights to indemnity or contribution may be limited by federal or state
securities laws or by public policy.
7
<PAGE> 8
(o) The Company has delivered to CSFBC true and correct copies
of the Stock Purchase Agreements, in each case, in the form as
originally executed, and there have been no amendments or waivers
thereto or in the exhibits or schedules thereto other than those as to
which CSFBC shall have been advised.
(p) The Company, BRACC and the Subsidiaries have (i) such
ownership and possession rights with respect to their respective assets
and properties as are necessary for the continuing conduct of their
respective businesses, as described in the Registration Statement and
the Prospectuses, except where the failure to possess any such rights
would not, individually or in the aggregate, have a Material Adverse
Effect, and (ii) peaceful and undisturbed possession under all material
leases to which the Company, BRACC or any such Subsidiary is a party as
lessee; and all material leases to which the Company, BRACC or any such
Subsidiary is a party are in full force and effect; none of the
Company, BRACC or any Subsidiary has been notified that a lease is
invalid or unenforceable, and no default by the Company, BRACC or such
Subsidiary has occurred and is continuing thereunder, except for any
defaults that would not, individually or in the aggregate, have a
Material Adverse Effect.
(q) The Company, BRACC and the Subsidiaries hold such
licenses, certificates and permits from governmental entities and
authorities as are necessary to the conduct of the business
of the Company, the Resulting Company, BRACC and the Subsidiaries as
described in the Registration Statement and the Prospectuses, the
failure of which to obtain would have a Material Adverse Effect; the
Company, BRACC and the Subsidiaries have fulfilled and performed all of
the material obligations necessary to maintain such licenses,
certificates and permits, except where the failure to perform such
obligations would not have a Material Adverse Effect; the Company,
BRACC and the Subsidiaries conduct their business in compliance with
all applicable federal, state and local laws and regulations, except
where the failure to perform such obligations would not have a Material
Adverse Effect; and there is no pending or, to the knowledge of the
Company, threatened action, suit, proceeding or investigation that
could lead to the revocation, termination or suspension of any such
license, certificate or permit.
(r) To the knowledge of the Company, none of the Company,
BRACC or any Subsidiary is engaged in any unfair labor practice that
would have a Material Adverse Effect. There is no unfair labor practice
complaint pending or, to the best knowledge of the Company, threatened
against the Company, BRACC or any Subsidiary before the National Labor
Relations Board, and no grievance or arbitration proceeding arising out
of or under collective bargaining agreements is pending or, to the
knowledge of the Company, threatened except such complaints or
proceedings as would not have a Material Adverse Effect. No strike,
labor dispute, slowdown or stoppage is pending or, to the knowledge of
the Company after due inquiry, threatened against the Company, BRACC or
any Subsidiary.
(s) The Company, the Resulting Company, BRACC and the
Subsidiaries own, possess or can acquire on reasonable terms, adequate
trademarks and trade names necessary to conduct the business now
operated by them, or presently employed by them, and have not received
any notice of infringement of or conflict with asserted rights of
others with respect to such rights that, if determined adversely to the
Company, the Resulting Company, BRACC or any such Subsidiary, would,
individually or in the aggregate, have a Material Adverse Effect.
8
<PAGE> 9
(t) To the knowledge of the Company, each of the Company,
BRACC and the Subsidiaries has obtained all permits, licenses and other
authorizations and has made all registrations and other submissions
that are required under all applicable federal, state and local laws
relating to the protection of health, safety or the environment
including but not limited to the Federal Water Pollution Control Act
(33 U.S.C. ss. 1251 et seq.), Resource Conservation and Recovery Act
(42 U.S.C. ss.6901 et seq.), Safe Drinking Water Act (21 U.S.C. ss.349,
42 U.S.C. ss.ss. 300f - 300j), Toxic Substances Control Act (15 U.S.C.
ss.2601 et seq.), Clean Air Act (42 U.S.C. ss.7401 et seq.),
Comprehensive Environmental Response, Compensation and Liability Act
(42 U.S.C. ss.9601 et seq.), any laws relating to emissions,
discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes into the environment (including but not limited to ambient air,
surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes, and any
regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder
(collectively, the "Environmental Laws"), except to the extent that
failure to have any such permit, license or authorization, or to have
made such registration or submission, individually or in the aggregate,
does not have a Material Adverse Effect.
(u) Except as described in the Registration Statement and the
Prospectuses, each of the Company, BRACC and the Subsidiaries has been
and is in compliance with all terms and conditions of any required
permits, licenses and authorization, and has been and is in compliance
with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws, except to the extent failure to
comply would not have a Material Adverse Effect.
(v) To the best knowledge of the Company, (i) there are no
past or present events, conditions, circumstances, activities,
practices, incidents or actions, or plans relating to the
business as presently being conducted by the Company, BRACC or the
Subsidiaries, that interfere with or prevent compliance or continued
compliance with the Environmental Laws, or that would be reasonably
likely to give rise to any legal liability (whether statutory or at
common law) or otherwise would be reasonably likely to form the basis
of any claim, action, demand, suit, proceeding, hearing, lien, notice
of violation, study, investigation, remediation or cleanup
(collectively, "Claims") based on or related to any Environmental Law
or the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission,
discharge, release into the workplace, the community or the environment
of any pollutant, contaminant, chemical or industrial, toxic or
hazardous substance or waste, except for any liabilities or any Claims
that will not, individually or in the aggregate, have a Material
Adverse Effect, and (ii) except as disclosed in the Registration
Statement and the Prospectuses, no underground or aboveground storage
tanks are located on property owned or leased by the Company, BRACC or
the Subsidiaries.
(w) There are no Claims pending or, to the best knowledge of
the Company, threatened against the Company, BRACC or any Subsidiary
based on or related to any Environmental Law or the generation,
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling, or the emission, discharge, release
into the workplace, the community or
9
<PAGE> 10
the environment of any pollutant, contaminant, chemical or industrial,
toxic, or hazardous substance or waste, and none of the Company, BRACC
or any Subsidiary has received any notice of violation or potential
liability based on or related to any Environmental Law or the
generation, manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge,
release into the workplace, the community or the environment of any
pollutant, contaminant, chemical or industrial, toxic, or hazardous
substance or waste, except for any Claim or notice that will not,
individually or in the aggregate, have a Material Adverse Effect.
(x) Except as disclosed in the Registration Statement and the
Prospectuses, there are no pending actions, suits or proceedings
against or affecting the Company, BRACC, any Subsidiary or any of their
respective properties that, if determined adversely to the Company, the
Resulting Company, BRACC or such Subsidiary, would have a Material
Adverse Effect, or would materially and adversely affect the ability of
the Company or the Resulting Company to perform its obligations under
this Agreement or the Subscription Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no
such actions, suits or proceedings are threatened or, to the Company's
knowledge, contemplated. All pending legal or governmental proceedings
to which the Company, BRACC or any Subsidiary is a party or of which
any of their property or assets is the subject, including ordinary
routine litigation incidental to the business of the Company or BRACC,
are, considered in the aggregate, not material.
(y) The financial statements of the Company included in the
Registration Statement and the Prospectuses comply in all material
respects with the requirements of the Act and the Rules and Regulations
applicable to a registration statement on Form S-1 and have been
prepared, and fairly present the financial position, results of
operations and cash flows of the Company and its subsidiaries
consolidated at the respective dates and for the respective periods
indicated, in accordance with generally accepted accounting principles
consistently applied throughout such period. The financial information
and financial data set forth in the Registration Statements and the
Prospectuses under the captions "Prospectus Summary--Summary Operating
Data for the Budget System," "Prospectus Summary--Summary Financial
Data of TEAM," "Capitalization" (exclusive of pro forma data contained
therein), "Pro Forma Consolidated Financial Statements of Budget
Group," "Selected Financial Data of TEAM" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of TEAM"
are derived from the accounting records of the Company and its
subsidiaries, and are a fair presentation of the data purported to be
shown.
(z) The financial statements of BRACC included in the
Registration Statement and the Prospectuses comply in all material
respects with the requirements of the Act and the Rules and Regulations
applicable to a registration statement on Form S-1 and have been
prepared, and fairly present the financial position, results of
operations and cash flows of BRACC and its subsidiaries consolidated at
the respective dates and for the respective periods indicated, in
accordance with generally accepted accounting principles consistently
applied throughout such period. The financial information and financial
data set forth in the Registration Statements and the Prospectuses
under the captions "Prospectus Summary--Summary Operating Data for the
Budget System," "Prospectus Summary--Summary Financial Data of BRACC,"
"Capitalization"
10
<PAGE> 11
(exclusive of pro forma data contained therein), "Pro Forma
Consolidated Financial Statements of Budget Group," "Selected Financial
Data of BRACC" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of BRACC" are derived from the
accounting records of BRACC and its subsidiaries, and are a fair
presentation of the data purported to be shown.
(aa) The pro forma financial data of the Resulting Company and
its subsidiaries contained in the Registration Statement have been and
the Prospectuses have been prepared in accordance with Article XI of
Regulation S-X under the Act; the assumptions used in the preparation
thereof (taken as a whole) are reasonable, and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(bb) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectuses, (i) there has been no material adverse change, nor any
development involving a prospective material adverse change, in the
condition (financial or other), results of operations, business affairs
or business prospects of the Company and its subsidiaries, or BRACC and
its subsidiaries, each taken as a whole, whether or not arising in the
ordinary course of business, and (ii) there have been no transactions
entered into by the Company or BRACC or any of their respective
subsidiaries, other than those in the ordinary course of business,
which are material with respect to the Company and its subsidiaries, or
BRACC and its subsidiaries, each taken as a whole.
(cc) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application of the
proceeds thereof as described in the Prospectuses, the Resulting
Company will not be an "investment company" as defined in the
Investment Company Act of 1940.
(dd) There is no document or contract of a character required
to be described in the Registration Statement or the Prospectuses, or
to be filed as an exhibit to the Registration Statement, that is not
described or filed as required.
Any certificate signed by any officer of the Company and delivered to
the Underwriters or to counsel for the Underwriters pursuant to this Agreement
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Managers, and the Managers agree, severally and not jointly, to purchase from
the Company, at a purchase price of U.S.$ per share, the respective numbers
of shares of International Firm Securities set forth opposite the names of the
Managers in Schedule A hereto.
The Company will deliver the International Firm Securities to CSFBEL
for the accounts of the Managers, at such office in New York, New York as the
Managers may designate, against payment of the purchase price by wire transfer
of immediately available Federal (same day) funds payable to the Company, such
payment to be made to an account designated by the Company at a bank acceptable
to CSFBC, and confirmed at the office of King & Spalding, 191 Peachtree St.,
N.E., Atlanta, Georgia
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<PAGE> 12
30303, at 10:00 A.M., Atlanta time, on [ ], or at such other time not later than
seven full business days thereafter as CSFBC and the Company determine, such
time being herein referred to as the "First Closing Date". For purposes of Rule
15c6-1 under the Securities Exchange Act of 1934, the First Closing Date (if
later than the otherwise applicable settlement date) shall be the settlement
date for payment of funds and delivery of securities for all the Offered
Securities sold pursuant to the U.S. Offering and the International Offering.
The certificates for the U.S. Firm Securities so to be delivered will be in
definitive form, in such denominations and registered in such names as CSFBC
requests and will be made available for checking and packaging at least 24 hours
prior to the First Closing Date at such office in New York, New York as you may
designate.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectuses,
the Managers may purchase all or less than all of the International Optional
Securities at the purchase price per Security to be paid for the International
Firm Securities. The International Optional Securities to be purchased by the
Managers on any Optional Closing Date shall be in the same proportion to all the
Optional Securities to be purchased by the Managers and U.S. Underwriters on
such Optional Closing Date as the International Firm Securities bear to all the
Firm Securities. The Company agrees to sell to the Managers such International
Optional Securities and the Managers agree, severally and not jointly, to
purchase such International Optional Securities. Such International Optional
Securities shall be purchased for the account of each Manager in the same propor
tion as the number of shares of International Firm Securities set forth opposite
such Manager's name bears to the total number of shares of International Firm
Securities (subject to adjustment by CSFBC to eliminate fractions) and may be
purchased by the Managers only for the purpose of covering over-allotments made
in connection with the sale of the International Firm Securities. No Optional
Securities shall be sold or delivered unless the International Firm Securities
and the U.S. Firm Securities previously have been, or simultaneously are, sold
and delivered. The right to purchase the Optional Securities or any portion
thereof may be exercised from time to time and to the extent not previously
exercised may be surrendered and terminated at any time upon notice by CSFBC on
behalf of the Managers and the U.S. Underwriters to the Company. It is
understood that CSFBC is authorized to make payment for and accept delivery of
such Optional Securities on behalf of the U.S. Underwriters and Managers
pursuant to the terms of CSFBC's instructions to the Company.
Each time for the delivery of and payment for the International
Optional Securities, being herein referred to as an "Optional Closing Date",
which may be the First Closing Date (the First Closing Date and each Optional
Closing Date, if any, being sometimes referred to as a "Closing Date"), shall be
determined by CSFBC but shall be not later than three full business days after
written notice of election to purchase Optional Securities is given. The Company
will deliver the International Optional Securities being purchased on each
Optional Closing Date to CSFBEL for the accounts of the several Managers, at
such office in New York, New York as the Managers may designate, against payment
of the purchase price therefor by wire transfer of immediately available Federal
(same day) funds payable to the Company, such payment to be made to an account
designated by the Company at a bank acceptable to CSFBC, and confirmed at the
office of King & Spalding, 191 Peachtree St., N.E., Atlanta, Georgia 30303. The
certificates for the U.S. Optional Securities will be in definitive form, in
such denominations and registered in such names as CSFBC requests upon
reasonable notice prior to such Optional Closing Date and will be made available
for checking and packaging at a reasonable time in advance of such Optional
Closing Date at such office in New York, New York as you may designate.
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The Company will pay to the Managers as aggregate compensation for
their commitments hereunder and for their services in connection with the
purchase of the International Securities and the management of the offering
thereof, if the sale and delivery of the International Securities to the
Managers provided herein is consummated, an amount equal to U.S. $ per
International Security purchased, which may be divided among the Managers in
such proportions as they may determine. Such payment will be made on the First
Closing Date in the case of the International Firm Securities and on each
Optional Closing Date in the case of the International Optional Securities sold
to the Manager on such Closing Date, in each case by way of deduction by the
Managers of said amount from the purchase price for the International Securities
referred to above.
4. Offering by Managers. It is understood that the several Managers
propose to offer the International Securities for sale to the public as set
forth in the International Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
several Managers that:
(a) If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement, the
Company will file each of the Prospectuses with the Commission pursuant
to and in accordance with subparagraph (1) (or, if applicable and if
consented to by CSFBEL, subparagraph (4)) of Rule 424(b) not later than
the earlier of (A) the second business day following the execution and
delivery of this Agreement or (B) the fifteenth business day after the
Effective Date of the Initial Registration Statement.
The Company will advise CSFBEL promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and
an additional registration statement is necessary to register a portion
of the Offered Securities under the Act but the Effective Time thereof
has not occurred as of such execution and delivery, the Company will
file the additional registration statement or, if filed, will file a
post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time,
on the date of this Agreement or, if earlier, on or prior to the time
either Prospectus is printed and distributed to any Manager or U.S.
Underwriter, or will make such filing at such later date as shall have
been consented to by CSFBEL.
(b) The Company will advise CSFBEL promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or either of the related prospectuses or the Initial
Registration Statement, the Additional Registration Statement (if any)
or either of the Prospectuses and will not effect such amendment or
supplementation without CSFBEL's prior written consent; and the Company
will also advise CSFBEL promptly of the effectiveness of each
Registration Statement (if its Effective Time is subsequent to the
execution and delivery of this Agreement) and of any amendment or
supplementation of a Registration Statement or either of the
Prospectuses and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its
best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any U.S. Underwriter, Manager or dealer,
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<PAGE> 14
any event occurs as a result of which either or both of the
Prospectuses as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend either or both of the Prospectuses to
comply with the Act, the Company will promptly notify CSFBEL of such
event and will promptly prepare and file with the Commission an
amendment or supplement which will correct such statement or omission
or an amendment which will effect such compliance. Neither CSFBEL's
consent to, nor the Managers' delivery of, any such amendment or
supplement shall constitute a waiver of any of the conditions set forth
in Section 6.
(d) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its securityholders an earnings statement covering a
period of at least 12 months beginning after the Effective Date of the
Initial Registration Statement (or, if later, the Effective Date of the
Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Managers copies of each
Registration Statement (five of which will include all exhibits), each
preliminary prospectus relating to the International Securities, and,
until completion of the distribution of the International Securities as
determined by CSFBEL, the International Prospectus and all amendments
and supplements to such documents, in each case in such quantities as
CSFBEL requests. The International Prospectus shall be so furnished on
or prior to 3:00 P.M., New York time, on the business day following the
later of the execution and delivery of this Agreement or the Effective
Time of the Initial Registration Statement. All other such documents
shall be so furnished as soon as available. The Company will pay the
expenses of printing and distributing to the Managers all such
documents.
(f) No action has been or, prior to the completion of the
distribution of the Offered Securities, will be taken by the Company in
any jurisdiction outside the United States and Canada that would permit
a public offering of the Offered Securities, or possession or
distribution of the International Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus issued in
connection with the offering of the Offered Securities, or any other
offering material, in any country or jurisdiction where action for that
purpose is required.
(g) During the period of five years hereafter, the Company
will furnish to CSFBEL and, upon request, to each of the other
Managers, as soon as practicable after the end of each fiscal year, a
copy of its annual report to stockholders for such year; and the
Company will furnish to CSFBEL (i) as soon as available, a copy of each
report and any definitive proxy statement of the Company filed with the
Commission under the Securities Exchange Act of 1934 or mailed to
stockholders, and (ii) from time to time, such other information
concerning the Company as CSFBEL may reasonably request.
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<PAGE> 15
(h) The Company will pay all expenses incident to the
performance of its obligations under this Agreement and will reimburse
the Managers (if and to the extent incurred by them) for any filing
fees and other expenses (including fees and disbursements of counsel)
incurred by them in connection with the filing relating to the review
of documents by the National Association of Securities Dealers, Inc.
("NASD") pursuant to the Corporate Financing Rule of the NASD's Conduct
Rules and for expenses incurred in distributing preliminary
prospectuses and the Prospectuses (including any amendments and
supplements thereto) to the Managers.
(i) For a period of 180 days after the date of the initial
public offering of the Offered Securities, the Company will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make
any such offer, sale, pledge, disposal or filing, without the prior
written consent of CSFBC, except registrations required pursuant to the
Stock Purchase Agreements, the Series A Notes and the Series B Notes,
and grants of employee stock options pursuant to the terms of the 1994
Option Plan or the 1994 Directors' Plan in effect on the date hereof
that may not be exercised until 180 days after the public offering of
the Offered Securities, issuances of Securities pursuant to the
exercise of such options or the exercise of any other employee stock
options outstanding on the date hereof.
6. Conditions of the Obligations of the Managers. The obligations of
the several Managers to purchase and pay for the International Firm Securities
on the First Closing Date and the International Optional Securities to be
purchased on each Optional Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company herein, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions precedent:
(a) The Managers shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if
the Effective Time of the Initial Registration Statement is subsequent
to the execution and delivery of this Agreement, shall be prior to the
filing of the amendment or post-effective amendment to the registration
statement to be filed shortly prior to such Effective Time), of Arthur
Andersen LLP in the agreed form.
(b) The Managers shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of
this Agreement, shall be on or prior to the date of this Agreement or,
if the Effective Time of the Initial Registration Statement is
subsequent to the execution and delivery of this Agreement, shall be
prior to the filing of the amendment or post-effective amendment to the
registration statement to be filed shortly prior to such Effective
Time), of KPMG Peat Marwick LLP in the agreed form.
(c) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than
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<PAGE> 16
10:00 P.M., New York time, on the date of this Agreement or such later
date as shall have been consented to by CSFBEL. If the Effective Time
of the Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time either Prospectus is printed
and distributed to any Manager or U.S. Underwriter, or shall have
occurred at such later date as shall have been consented to by CSFBEL.
If the Effective Time of the Initial Registration Statement is prior to
the execution and delivery of this Agreement, each of the Prospectuses
shall have been filed with the Commission in accordance with the Rules
and Regulations and Section 5(a) of this Agreement. Prior to such
Closing Date, no stop order suspending the effectiveness of a
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or, to the knowledge of the
Company or the Managers, shall be contemplated by the Commission.
(d) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (A) a change in U.S. or
international financial, political or economic conditions or currency
exchange rates or exchange controls as would, in the judgment of
CSFBEL, be likely to prejudice materially the success of the proposed
issue, sale or distribution of the International Securities, whether in
the primary market or in respect of dealings in the secondary market,
or (B)(i) any change, or any development involving a prospective
change, in the condition (financial or other), results of operations,
business affairs or business prospects of the Company and its
subsidiaries or BRACC and its subsidiaries which, in the judgment of
CSFBEL, is material and adverse and makes it impractical or inadvisable
to proceed with completion of the public offering or the sale of and
payment for the International Securities; (ii) any downgrading in the
rating of any debt securities or preferred stock of the Company or
BRACC or any of their respective subsidiaries by any "nationally
recognized statistical rating organization" (as defined for purposes of
Rule 436(g) under the Act), or any public announcement that any such
organization has under surveillance or review its rating of any debt
securities or preferred stock of the Company, BRACC or any of their
respective subsidiaries (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of
trading in securities generally on the New York Stock Exchange or The
Nasdaq National Market, or any setting of minimum prices for trading on
such exchange or market, or any suspension of trading of any securities
of the Company on any exchange or in the over-the-counter market; (iv)
any banking moratorium declared by U.S. Federal or New York
authorities; or (v) any outbreak or escalation of major hostilities in
which the United States is involved, any declaration of war by the
United States Congress or any other substantial national or
international calamity or emergency if, in the judgment of CSFBEL, the
effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
International Securities.
(e) The Managers shall have received an opinion, dated such
Closing Date, of King & Spalding, counsel for the Company, in the
agreed form.
(f) The Managers shall have received an opinion, dated such
Closing Date, of Robert L. Aprati, Senior Vice President, General
Counsel and Secretary of BRACC, in the agreed form.
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<PAGE> 17
(g) The Managers shall have received from Cravath, Swaine &
Moore, counsel for the Managers, such opinion or opinions, dated such
Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statement, the Prospectuses and other related matters as
the Managers may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them
to pass upon such matters.
(h) The Managers shall have received a certificate, dated such
Closing Date, of the President and the principal financial officer of
the Company in which such officers, to the best of their knowledge
after reasonable investigation, shall state that: the representations
and warranties of the Company in this Agreement are true and correct on
and as of such Closing Date to the same effect as if made on such
Closing Date; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to such Closing Date; no stop order suspending
the effectiveness of any Registration Statement has been issued and no
proceedings for that purpose have been instituted or are contemplated
by the Commission; the Additional Registration Statement (if any)
satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b)
was filed pursuant to Rule 462(b), including payment of the applicable
filing fee in accordance with Rule 111(a) or (b) under the Act, prior
to the time either Prospectus was printed and distributed to any
Manager or U.S. Underwriter; and, subsequent to the date of the most
recent financial statements in the Prospectuses, there has been no
material adverse change in the condition (financial or other), results
of operations, business affairs or business prospects of the Company,
BRACC and any Subsidiary except as set forth in or contemplated by the
Prospectuses or as described in such certificate.
(i) The Managers shall have received letters, dated such
Closing Date, of Arthur Andersen LLP and KPMG Peat Marwick LLP, which
meet the requirements of subsections (a) and (b) of this Section,
respectively, except that the specified date referred to in such
subsection will be a date not more than five days prior to such Closing
Date for the purposes of this subsection.
(j) On such Closing Date, the U.S. Underwriters shall have
purchased the U.S. Firm Securities or the U.S. Optional Securities, as
the case may be, pursuant to the Underwriting Agreement.
(k) Concurrently with or prior to the issuance and sale of the
Offered Securities by the Company, the Acquisition shall be consummated
on terms that conform in all material respects to the description
thereof in the Registration Statement and Prospectuses and CSFBC shall
have received true and correct copies of all documents pertaining
thereto and evidence reasonably satisfactory to CSFBC of the
consummation thereof.
(l) Concurrently with or prior to the issuance and sale of the
Offered Securities by the Company, the Company shall have entered into
the New Fleet Financing Credit Agreements and shall have made the
initial borrowings thereunder. CSFBC shall have received conformed
counterparts thereof and all other documents and agreements entered
into and received thereunder in connection with the closing of the New
Fleet Financing Credit Agreements. There shall exist at and as of the
Closing Date (after giving effect to the transactions contemplated by
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<PAGE> 18
this Agreement and the Acquisition) no condition that would constitute
a default (or an event that with notice or lapse of time, or both,
would constitute a default) under the New Fleet Financing Credit
Agreements.
(m) Concurrently with or prior to the issuance and sale of the
Offered Securities by the Company, the offering of the Senior Notes by
BRACC and the Series B Notes by the Company shall be consummated on
terms that conform in all material respects to the descriptions thereof
in the Registration Statement and Prospectuses and CSFBC shall have
received true and correct copies of all documents pertaining thereto
and evidence reasonably satisfactory to CSFBC of the consummation
thereof.
(n) On any Optional Closing Date for the purchase of Optional
Shares, CSFBC shall receive a certificate, dated such Closing Date,
from the Company which shall state that the representations and
warranties by the Company in this Agreement and in the Underwriting
Agreement are true and correct on and as of such Optional Closing Date
to the same effect as if made on such Optional Closing Date and that
the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or
prior to such Optional Closing Date.
(o) The Representatives shall have received executed
agreements in the form annexed hereto as Exhibit A from each officer
and director of the Company.
Documents described as being "in the agreed form" are documents which are in the
forms which have been initialed for the purpose of identification by Cravath,
Swaine & Moore, copies of which are held by the Company and CSFBEL with such
changes as CSFBEL may approve. The Company will furnish the Managers with such
conformed copies of such opinions, certificates, letters and documents as the
Managers reasonably request. CSFBEL may in its sole discretion waive on behalf
of the Managers compli ance with any conditions to the obligations of the
Managers hereunder, whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Manager against any losses, claims, damages or liabilities,
joint or several, to which such Manager may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
either of the Prospectuses, or any amendment or supplement thereto, or any
related preliminary prospectus, or arise out of or are based upon the omis sion
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse each Manager for any legal or other expenses reasonably incurred by
such Manager in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Manager through CSFBEL specifically
for use therein, it being understood and agreed that the only information
furnished by any Manager consists of the information described as such in
subsection (b) below; provided further, that such indemnity with respect
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to any untrue statement or omission of a material fact contained in any
preliminary prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages or liabilities
purchased the shares that are the subject thereof if such person did not receive
a copy of the Prospectus (or the Prospectus as supplemented) at or prior to the
confirmation of the sale of such shares to such person in any case where such
delivery is required under the Act and such untrue statement or omission of a
material fact contained in any preliminary prospectus was corrected in the
Prospectus (or the Prospectus as supplemented).
Insofar as the foregoing indemnity agreement, or the representations
and warranties contained in Section 2(b), may permit indemnification for
liabilities under the Act of any person who is a Manager or a partner or
controlling person of a Manager within the meaning of Section 15 of the Act and
who, at the date of this Agreement, is a director, officer or controlling person
of the Company, the Company has been advised that in the opinion of the
Commission such provisions may contravene Federal public policy as expressed in
the Act and may therefore be unenforceable. In the event that a claim for
indemnification under such agreement or such representations and warranties for
any such liabilities (except insofar as such agreement provides for the payment
by the Company of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such a person, the Company will submit to a court of appropriate
jurisdiction (unless in the opinion of counsel for the Company the matter has
already been settled by controlling precedent) the question of whether or not
indemnification by it for such liabilities is against public policy as expressed
in the Act and therefore unenforceable, and the Company will be governed by the
final adjudication of such issue.
(b) Each Manager will severally and not jointly indemnify and hold
harmless the Company against any losses, claims, damages or liabilities to which
the Company may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, either of the
Prospectuses, or any amendment or supplement thereto, or any related preliminary
prospectus, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Manager
through CSFBEL specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Manager consists of (i) the following information
in the International Prospectus furnished on behalf of each Manager: the last
paragraph at the bottom of the cover page concerning the terms of the offering
by the Managers, the legend concerning over-allotments, stabilizing and passive
market making on the inside front cover page and the fourteenth paragraph under
the caption "Subscription and Sale", the concession and reallowance figures
appearing in the fifth paragraph under the caption "Subscription and Sale" and
the information contained in the eleventh paragraph under the caption
"Subscription and Sale" and (ii) the information in the thirteenth paragraph
under the caption "Subscription and Sale" in the International Prospectus
furnished on behalf of CSFBC concerning material relationship disclosure.
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(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Managers on the other from the offering of the International
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Managers on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Managers on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering of the International Securities (before deducting expenses)
received by the Company bear to the total underwriting discounts and commissions
received by the Managers. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Managers and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, claims, damages or liabilities referred to
in the first sentence of this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any action or claim which is the
subject of this subsection (d). Notwithstanding the provisions of this
subsection (d), no Manager shall be required to contribute any amount in excess
of the amount by which the total price at which the International Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Manager has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who
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was not guilty of such fraudulent misrepresentation. The Managers' obligations
in this subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Manager within the meaning of the Act; and the obligations of the Managers under
this Section shall be in addition to any liability which the respective Managers
may otherwise have and shall extend, upon the same terms and conditions, to each
director of the Company, to each officer of the Company who has signed a
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
8. Default of Managers. If any Manager or Managers default in their
obligations to purchase International Securities hereunder on either the First
or any Optional Closing Date and the aggregate number of shares of International
Securities that such defaulting Manager or Managers agreed but failed to
purchase does not exceed 10% of the total number of shares of International
Securities that the Managers are obligated to purchase on such Closing Date,
CSFBEL may make arrangements satisfactory to the Company for the purchase of
such International Securities by other persons, including any of the Managers,
but if no such arrangements are made by such Closing Date the non-defaulting
Managers shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the International Securities that such
defaulting Managers agreed but failed to purchase on such Closing Date. If any
Manager or Managers so default and the aggregate number of shares of
International Securities with respect to which such default or defaults occur
exceeds 10% of the total number of shares of International Securities that the
Managers are obligated to purchase on such Closing Date and arrangements
satisfactory to CSFBEL and the Company for the purchase of such International
Securities by other persons are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Manager or the Company, except as provided in Section 9 (provided
that if such default occurs with respect to International Optional Securities
after the First Closing Date, this Agreement will not terminate as to the
International Firm Securities or any International Optional Securities purchased
prior to such termination). As used in this Agreement, the term "Manager"
includes any person substituted for a Manager under this Section. Nothing herein
will relieve a defaulting Manager from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Managers set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Manager, the Company or any of their respective representatives, officers
or directors or any controlling person, and will survive delivery of and payment
for the International Securities. If this Agreement is terminated pursuant to
Section 8 or if for any reason the purchase of the International Securities by
the Managers is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Managers pursuant to Section 7 shall remain
in effect and if any International Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect. If the purchase of the International Securities by
the Managers is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in Section 6(d)(A) or clause (iii), (iv), or (v) of Section
6(d)(B), the
21
<PAGE> 22
Company will reimburse the Managers for all out-of-pocket expenses (including
fees and disbursements of counsel) reasonably incurred by them in connection
with the offering of the International Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Managers, will be mailed, delivered or telexed and confirmed to
CSFBEL at One Cabot Square, London E14 4QJ England, Attention: Company
Secretary, or, if sent to the Company, will be mailed, delivered or telegraphed
and confirmed to it at Team Rental Group, Inc., 125 Basin Street, Daytona Beach,
Florida 32114, Attention: Mr. Sanford Miller; provided, however, that any notice
to a Manager pursuant to Section 7 will be mailed, delivered or telexed and
confirmed to such Manager.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
12. Representation of Managers. CSFBEL will act for the several
Managers in connection with this financing, and any action under this Agreement
taken by CSFBEL will be binding upon all the Managers.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
If the foregoing is in accordance with the Managers' understanding of
our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
several Managers in accordance with its terms.
Very truly yours,
By
--------------------------------
Sanford Miller
Chairman and Chief
Executive Officer
22
<PAGE> 23
The foregoing Subscription Agreement is hereby
confirmed and accepted as of
the date first above written.
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
By:
-----------------------------------------
[Insert title]
ABN AMRO ROTHSCHILD
ALEX. BROWN & SONS INTERNATIONAL
MCDONALD & COMPANY SECURITIES, INC.
Each by its duly authorized attorney-in-fact:
- ----------------------------------------------
[Insert name]
23
<PAGE> 24
SCHEDULE A
<TABLE>
<CAPTION>
Number of
International
Manager Firm Securities
------- ---------------
<S> <C>
Credit Suisse First Boston Limited.................
ABN AMRO Rothschild................................
Alex. Brown & Sons International...................
McDonald & Company Securities, Inc.................
---------
Total........................ 1,300,000
=========
</TABLE>
24
<PAGE> 25
EXHIBIT A
April __, 1997
Team Rental Group, Inc.
125 Basin Street
Daytona Beach, Florida 32114
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, New York 10010
ABN AMRO Chicago Corporation
208 South LaSalle Street
Chicago, Illinois 60604
Alex. Brown & Sons Incorporated
1 South Street
Baltimore, Maryland 21202
McDonald & Company Securities, Inc.
One American Square
Indianapolis, Indiana 46282
Dear Sirs:
As an inducement to the Underwriters to execute the Underwriting
Agreement, pursuant to which an offering will be made of Class A Common Stock,
par value $.01 per share (the "Securities"), of Team Rental Group, Inc. (the
"Company"), the undersigned hereby agrees that, for a period of 90 days after
the public offering (the "Commencement Date") of the Securities pursuant to the
Underwriting Agreement to which you are or expect to become party, the
undersigned will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of Securities or securities convertible
into or exchangeable or exercisable for any shares of Securities, or publicly
disclose the intention to make any such offer, sale, pledge or disposal, without
the prior written consent of Credit Suisse First Boston Corporation.
In furtherance of the foregoing, the Company and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Securities if such transfer would constitute a violation or breach of this
Agreement.
This Agreement shall be binding on the undersigned and the respective
successors, heirs, personal representatives and assigns of the undersigned. This
agreement shall lapse and become null and void if the Commencement Date shall
not have occurred on or before ____________, 1997.
Very truly yours,
------------------------------
Name:
26
<PAGE> 1
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
EXHIBIT 10.6
SUPPLY AGREEMENT
This Agreement is made on this _____ day of ____, 1997, by and among
Ford Motor Company, a Delaware corporation ("Ford"), and Team Rental Group,
Inc., a Delaware Corporation ("Team"), and Budget Rent A Car Corporation, A
Delaware corporation ("Budget").
WHEREAS the parties hereto desire to set forth the terms and conditions
where under Budget and its affiliates will acquire Ford vehicles for use in or
in support of businesses conducted by Budget and its affiliates at various
locations in the United States and outside of the United States.
Ford and Budget agree as follows:
1. Term of Agreement. This agreement shall be effective for the period
beginning as of September 1, 1997, and ending August 31, 2007.
2. Definitions. The terms set forth below shall have the following
meanings:
Acquire -- to obtain, by purchase or lease, Vehicles for use in or in
support of operations at Budget Locations.
Acquisition -- the act of Acquiring Vehicles.
Acquisition Year -- each period of 12 months from and including
September 1 to and including the next following August 31 during the term of
this Agreement (or such other customary period in countries outside the United
States). Each such Acquisition Year shall be referred to by the calendar year
next following the commencement of the Acquisition Year. For example, the 1998
Acquisition Year shall commence on September 1, 1997, and end on August 31,
1998.
Annual Acquisition Plan -- defined in Paragraph 5.1 of this Agreement.
Budget Affiliate -- with respect to Budget, any other corporation or
legal entity directly or indirectly controlling, controlled by, or under common
control with Budget, including, without limitation, Team and its subsidiaries,
but specifically excluding any Budget Licensee. For purposes of this definition
and Paragraphs 4.6 and 4.7, "control" (including "controlling," "controlled
by," and "under common control with") shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a corporation or other legal entity, whether through the ownership
of voting securities, by contract, or otherwise.
<PAGE> 2
2
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
Budget Corporate Location -- a Budget Location that is owned and
operated by Budget or a Budget Affiliate.
Budget Licensee -- any legal entity not controlled by Budget or a
Budget Affiliate that is authorized by Budget, a Budget Affiliate or another
Budget Licensee to conduct a business under any trademark of Budget.
Budget Location -- a place or geographic area except in the European
Union ("EU") where Budget, a Budget Affiliate, or a Budget Licensee now or
hereafter conducts a business under any trademark of Budget.
Canadian Ford Vehicles -- defined in Paragraph 4.4.
Confidential Material -- defined in Paragraph 19.
Ford Affiliate -- with respect to Ford, any other corporation or legal
entity directly or indirectly controlling, controlled by, or under common
control with Ford. For purposes of this definition "control" (including
"controlling," "controlled by," and "under common control with") shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a corporation or other legal entity,
whether through the ownership of voting securities, by contract, or otherwise.
Ford Dealer -- a legal entity authorized by Ford or a Ford Affiliate to
sell Ford Vehicles under one or more sales and service or dealer agreements.
Ford Fleet Programs -- price discount, guaranteed resale or repurchase
incentives or similar programs offered by Ford and Ford Affiliates whose primary
business is the sale or manufacture and sale of Vehicles.
Ford Vehicles -- any new and unused Vehicles as from time to time are
offered for sale by Ford or any Ford Affiliate to its Ford Dealers for resale,
but specifically Vehicles excluding sold under the "Mazda" or "Jaguar" name.
Ford Vehicle Share -- the percentage that Ford Vehicle Acquisitions
represents of total Vehicle Acquisitions by Budget and Budget Affiliates within
each of the following considered separately: the United States, Canada, the EU
and all other locations.
Licensee Ford Vehicle Share -- defined in Paragraph 11.
Vehicle -- any new and unused passenger car, van or truck.
3. Ford's Fleet Programs. In accordance with past practices, Ford and
Ford Affiliates will offer to Budget, Budget
<PAGE> 3
3
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
Affiliates and Budget Licensees, as soon as practicable prior to the
commencement of the Acquisition Year, the Ford Fleet Programs then being
offered to daily rental companies for the upcoming Acquisition Year. Such Ford
Fleet Programs may be amended, supplemented, or modified by Ford or Ford
Affiliates, from time to time, prior to or after commencement of such
Acquisition Year.
4. Ford Vehicle Share of Acquisitions.
4.1. In years prior to the effective date of this Agreement, Budget,
Budget Affiliates and Budget Licensees have purchased, in the aggregate, Ford
Vehicles in substantial quantities in the United States, Canada, Australia and
EU. In that connection, Budget acknowledges that Ford Vehicles and Ford Fleet
Programs made available to Budget, Budget Affiliates and Budget Licensees in
such years have been competitive, considered in the aggregate, when compared
with the Vehicles and fleet programs offered by other automobile manufacturers
as to price, delivery dates, quality, durability, design, reputation,
suitability for the Budget business, model availability, guaranteed
depreciation, resale value, turn back costs and other repurchase terms. In
accordance with past practices, Ford agrees that Ford Vehicles and Ford Fleet
Programs to be offered to Budget, Budget Affiliates and Budget Licensees
generally shall be competitive with the Vehicles and fleet programs of other
automotive manufacturers to an extent similar to that of past years. Further,
Budget acknowledges that from time to time in such past years the demand for
Ford Vehicles for retail and fleet sales in the United States, Canada, Australia
and the EU has been at levels that require Ford and Ford Affiliates to limit the
allocation of such Vehicles available to fleet buyers such as Budget, Budget
Affiliates and Budget Licensees. Accordingly, Budget agrees that it is in the
long-term interest of Budget and Budget Affiliates for Budget to make the
undertakings set forth in this Paragraph 4.
4.2. In each Acquisition Year, Budget shall Acquire or cause the
Acquisition by Budget Affiliates of Ford Vehicles in such quantity (a) in the
United States, (b) Canada and (c) all other locations outside the EU that the
Ford Vehicle Share in each country shall be at least 70 percent; provided,
however, that in no event shall the total of Acquisitions of Ford Vehicles by
Budget, Budget Affiliates and Budget Licensees in the United States be less than
80,000 Ford Vehicles ("Base U.S. Volume") in each Acquisition Year, subject to
the qualifications of Paragraphs 6.1 and 6.4 hereof.
4.3. To attain the respective Ford Vehicle Shares in each country and
the Base U.S. Volume required by Paragraph 4.2 in each Acquisition Year, Ford
and Budget agree to cooperate in developing Ford Vehicle delivery schedules by
Ford Vehicle line.
4.4. Ford Vehicles which have been sold by Ford Motor Company of Canada
Limited to its Ford Dealers ("Canadian Ford
<PAGE> 4
4
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
Vehicles") and Acquired by Budget and Budget Affiliates in Canada shall be
counted toward achievement of the Ford Vehicle Share (or the Licensee Ford
Vehicle Share) in Canada, but no Canadian Ford Vehicles, no matter how Acquired
by Budget, Budget Affiliates or Budget Licensees for use in the United States,
shall be counted toward achievement of the Ford Vehicle Share (or the Licensee
Ford Vehicle Share) in the United States or the Base U.S. Volume.
4.5. Any failure to achieve the respective Ford Vehicle Share in any
country or the Base U.S. Volume required by Paragraph 4.2 by the end of any
Acquisition Year shall be presumed to be a default by Budget under this
Agreement, subject to challenge by Budget.
4.6. If Budget or any Budget Affiliate should, directly or indirectly,
convey, sell, assign, franchise, license, transfer or otherwise dispose of
(collectively "Transfer") all or any portion of any Budget Corporate Location,
that had an average fleet size of 150 vehicles or more for the twelve-month
period prior to the Transfer, or any fixed assets, real properties, or other
property or assets a reasonably necessary for the conduct of the Budget Rent A
Car or Budget Rent A Truck business at such Budget Corporate Location
(collectively "Assets") to any party ("Transferee"), Budget or such Budget
Affiliate shall use reasonable best efforts to ensure that the Transferee (i) in
each Acquisition Year will Acquire Ford Vehicles in such quantity that the Ford
Vehicle Share of Acquisitions for such Budget Location shall remain at least 70
percent for the remainder of the term of this Agreement; and (ii) will require
any subsequent Transferee of such Assets or a substantial portion thereof to
agree to terms identical to those in this clause.
4.7. If, despite the reasonable best efforts of Budget or a Budget
Affiliate, as applicable, as required under Paragraph 4.6 above, the Transferee
does not Acquire Ford Vehicles in such quantity that the Ford Vehicle Share of
Acquisition for such Budget Location shall remain at least 70 percent for the
remainder of the term of this Agreement, then, during the term of this
Agreement, the total number of Vehicles Acquired and the number of Ford Vehicles
Acquired by Transferee for use at such Budget Location shall continue to be
included in the calculation of the Ford Vehicle Share required under Paragraph
4.2. Accordingly, Budget shall increase the number of Ford Vehicles Acquired by
Budget to the extent necessary to cover any shortfall below a Ford Vehicle
Share, as calculated hereunder, of 70 percent caused by Transferee's failure to
Acquire Ford Vehicles. Within a reasonable period of time before any proposed
Transfer of a Budget Corporate Location (but no later than 10 business days
prior thereto), Budget shall notify Ford in writing of such proposed Transfer.
Budget shall, from time to time, provide Ford with such information regarding
any Transfer of a Budget Corporate Location as Ford may reasonably request to
facilitate calculation of the Ford Vehicle Share hereunder.
<PAGE> 5
5
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
4.8. Except as otherwise provided in Paragraphs 4.6 and 4.7, and
subject to the provisions thereof, if a change of control occurs with respect to
Budget or any Budget Affiliate and such change of control would affect the
applicability of this Agreement to any then existing Budget Location, then
Budget shall require the person or entity acquiring control of Budget or such
Budget Affiliate to enter into an agreement with Ford containing substantially
the same terms and conditions as are contained in this Agreement with respect to
all Budget Locations affected by such change of control.
5. Annual Acquisition Plan, etc.
5.1. On or before July 1 of each Acquisition Year, Budget shall prepare
and submit to Ford a plan for Acquisitions by Budget and Budget Affiliates in
the United States, including Ford Vehicles, for the following Acquisition Year
(the "Annual Acquisition Plan"). Such Plan shall specify, in reasonable
detail, the volume, models, and delivery dates of Ford Vehicles, and shall show
how the Ford Vehicle Share and Base U.S. Volume shall be achieved as required by
Paragraph 4.2. In addition, such Plan shall include a good faith estimate of the
volume, models and delivery dates of Ford Vehicles to be Acquired by Budget
Licensees.
5.2. Monthly, Budget shall prepare and submit to Ford a revision of the
Annual Acquisition Plan showing total Acquisitions (including Ford Vehicles) in
the United States for the Acquisition Year to date as of 30 or fewer days prior
to the due date of such revised Annual Acquisition Plan, and proposed Vehicle
Acquisition in the United States (including Ford Vehicles) for the remainder of
the Acquisition Year.
5.3. Budget shall also prepare or cause to be prepared and submit to
Ford, or the appropriate Ford Affiliate, Annual Acquisition Plans for Canada and
all other countries outside the EU in the manner set forth above for
Acquisitions within the United States.
6. Ford Vehicle Acquisitions.
6.1. In consideration of the obligations undertaken by Budget, Ford
shall, and shall cause Ford Affiliates to, cooperate with Ford Dealers with
which Budget or Budget Affiliates or Budget Licensees negotiate the Acquisition
of Ford Vehicles, consistent with the sales and service or dealer agreements
between Ford or Ford Affiliates, on the one hand, and its or their respective
Ford Dealers, on the other hand, to make reasonable allocations of Ford Vehicles
for resale to Budget or Budget Affiliates or Budget Licensees and to process
Ford Vehicle orders and to arrange delivery of Ford Vehicles as agreed by Budget
or Budget Affiliates or Budget Licensees and such Dealers. Subject to any
production disruption described in Paragraph 6.4(a)-(d) below, such reasonable
allocation of Ford Vehicles
<PAGE> 6
6
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
made available by Ford for Acquisition under the Ford Fleet Programs by Budget,
Budget Affiliates and Budget Licensees (in the aggregate) in the United States
in any Acquisition Year shall not be fewer than 80,000 Ford Vehicles in such
allocations by vehicle class and Fleet Program as Ford may, in consultation with
Budget, establish; provided, however, that Ford may allocate fewer than 80,000
Ford Vehicles in an Acquisition Year if Ford and Budget reasonably agree that
the terms of the applicable Fleet Programs are such that the lower allocation
provides the equivalent rental usage of 80,000 Ford Vehicles under prior year
Fleet Programs.
6.2. In countries other than the U.S. to which this Agreement applies,
Ford shall make reasonable efforts to encourage Ford Affiliates to make Ford
Vehicles available to Budget and Budget Affiliates in sufficient quantities to
permit Budget and Budget Affiliates to achieve the Ford Vehicle Share by country
specified herein.
6.3. The following provisions shall apply with respect to any
allocation above the Base U.S. Volume of 80,000 Ford Vehicles: (a) Ford and Ford
Affiliates shall make reasonable efforts to fill orders for Ford Vehicles to be
Acquired by Budget or Budget Affiliates or Budget Licensees, it being understood
that Ford and Ford Affiliates also are subject to concurrent commitments to
provide Ford Vehicles to Ford Dealers for other purposes. In the event such
commitments cannot be satisfied from existing Ford Vehicle production capacity,
Ford and Ford Affiliates shall have the right to allocate available Ford Vehicle
production to balance these commitments in the manner they deem most appropriate
in their reasonable business judgment.
(b) Ford and Ford Affiliates similarly may allocate production between
retail and fleet sales for any reason including, without limitation, demand for
Ford Vehicles for retail sales.
6.4. If, because of (a) shortage or curtailment of material, labor,
transportation, or utility service; (b) any labor or production difficulty; (c)
any governmental action; or (d) any cause beyond the reasonable control of Ford
or Ford Affiliates, Ford Vehicle production is disrupted and material deliveries
of Ford Vehicles to be Acquired by Budget, Budget Affiliates or Budget Licensees
are delayed as a result, then Budget and/or appropriate Budget Affiliates and
Ford and/or appropriate Ford Affiliates shall make good faith, reasonable
efforts to revise the affected Annual Acquisition Plan or Plans, as modified
under Paragraph 5.2, so that the respective Ford Vehicle Share and Base U.S.
Volume shall be attained as required by Paragraph 4.2; provided, however, that
Budget shall not be required to increase its Ford vehicle Share in the U.S. in
excess of 80% with respect to any Vehicle Acquisitions to be made for the
remainder of any Acquisition Year to which this Paragraph 6.4 applies in order
to achieve the Ford Vehicle Share or the Base
<PAGE> 7
7
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
U.S. Volume. If the respective Ford Vehicle Share or Base U.S. Volume is not
attained despite the good faith, reasonable efforts of Budget and/or the
appropriate Budget Affiliates to revise the Annual Acquisition Plan, then the
liquidated damages of Paragraph 9 shall not apply to the extent that Budget's
failure to attain the Ford Vehicle Share or Base U.S. Volume is solely
attributable to a production disruption described in this Paragraph.
7. Royalty. Team will pay, or cause Budget to pay, Ford a Royalty in
accordance with the provisions of Exhibit A attached hereto.
8. Budget Certificates on Acquisitions. As soon as practicable after
each Acquisition Year, but not later than four months after such Acquisition
Year, Budget shall deliver to Ford or the Ford Affiliate designated by Ford a
certificate signed by an executive officer of Budget certifying for such
Acquisition Year total Vehicle Acquisitions and total Ford Vehicle Acquisitions
at Budget Locations and the resulting Ford Vehicle Share and, to the best
knowledge of such officer, the resulting Licensee Ford Vehicle Share.
9. Remedy for Ford Vehicle Share Shortfall.
9.1. Except as otherwise provided in this Agreement, in the event
Budget shall fail to attain in any country the Ford Vehicle Share or Base U.S.
Volume specified in Paragraph 4.2 for any Acquisition Year, Budget and Ford
agree that Ford would be harmed by the consequent loss of profit, production and
exposure of Ford Vehicles to rental customers of Budget and Budget Affiliates
who are potential purchasers of Ford Vehicles, and that the damages to Ford
would be difficult to ascertain. Accordingly, Budget and Ford adopt the
following provision for payment of liquidated damages in lieu of all other
rights and remedies:
For each Acquisition Year in which Budget shall fail to attain in any
country the Ford Vehicle Share or the Base U.S. Volume required by this
Agreement, Budget or a Budget Affiliate shall pay to Ford or the damaged Ford
Affiliate, as applicable, a sum equal to (a) $XXX (or the equivalent in local
currency), multiplied by (b) the number of additional Ford Vehicles that would
be necessary to attain the required Ford Vehicle Share in such country or Base
U.S. Volume for the Acquisition year in question. In calculating the shortfall
of Ford Vehicle Acquisitions for an Acquisition Year in such country for the
purpose of computing the liquidated damages payable by Budget, Ford will give
Budget credit for the additional number of Ford Vehicles Acquired by Budget and
Budget Affiliates in such country in the prior Acquisition Year (over and above
the number of Ford Vehicles necessary to achieve the respective Ford Vehicle
Share of 70 percent in such country in such prior Acquisition Year), except
that no credit shall be given in the U.S. unless the Ford Vehicle Share of 70
percent exceeds 80,000 Ford Vehicles, and
<PAGE> 8
8
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
then the credit shall be only as to the excess over 80,000 Ford Vehicles.
9.2. Such payment shall become due 15 days after the delivery of the
officer's certificate required by paragraph 8 of this Agreement. Upon 30 days'
notice, Ford may offset the amount of any such damages against any payments then
due or thereafter becoming due from Ford to Budget or Budget Affiliates, without
limiting any right or remedy Ford may have to collect such liquidated
damages from Budget.
9.3. The foregoing provisions shall not apply to the extent Budget's
failure to achieve the Ford Vehicle Share in any country as required under
Paragraph 4.2 is solely attributable to Ford's failure to allocate quantities of
Ford Vehicles for Acquisition by Budget sufficient to achieve such Ford Vehicle
Share in such country.
10. Remedy for Base U.S. Volume Shortfall.
10.1. Except as otherwise provided in this Agreement, in the event Ford
shall fail to allocate at least 80,000 Ford Vehicles for Acquisition by Budget,
Budget Affiliates and Budget Licensees (in the aggregate) in the U.S. for any
Acquisition Year for any reason other than a production disruption described in
Paragraph 6.4, and Budget and Budget Affiliates would have Acquired such number
of Ford Vehicles but for Ford's failure to provide them, and the parties have
not otherwise agreed that any lower allocation would provide equivalent rental
usage as provided in Paragraph 6.1, then Budget and Ford agree that Budget would
be harmed by the consequent loss of business and profit attributable to such
reduced allocation and that the damages to Budget would be difficult to
ascertain. Accordingly, Budget and Ford adopt the following provision for
payment of liquidated damages in lieu of all other rights and remedies:
For each Acquisition Year in which the foregoing described failure to
allocate the Base U.S. Volume should occur, Ford or a Ford Affiliate shall pay
to Budget or the damaged Budget Affiliate, as applicable, a sum equal to (a)
$XXX, multiplied by (b) the number of additional Ford Vehicles that would be
necessary to attain the Base U.S. Volume for the Acquisition Year in question.
In calculating the shortfall of the Base U.S. Volume for an Acquisition Year for
the purpose of computing the liquidated damages payable by Ford, Budget will
give Ford credit for the additional number of Ford Vehicles allocated by Ford or
Ford Affiliates to Budget, Budget Affiliates and Budget Licensees in the U.S. in
the prior Acquisition Year (over and above the 80,000 Ford Vehicles necessary to
achieve the respective Base U.S. Volume in such prior Acquisition Year).
10.2. Such Payment shall become due 15 days after the delivery of the
officer's certificate required by Paragraph 8 of this Agreement. Upon 30 days'
notice, Budget may offset the
<PAGE> 9
9
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
amount of any such damages against any payments then due or thereafter becoming
due from Budget or Budget Affiliates, without limiting any right or remedy
Budget may have to collect such liquidated damages from Ford.
11. Licensee Ford Vehicle Share. With respect to Acquisitions by Budget
Licensees, Budget agrees that in each Acquisition Year it will promote the
acquisition and use of Ford Vehicles by Budget Licensees, in substantially the
same manner and to the same extent that Budget has historically promoted the
acquisition and use of Ford Vehicles by Budget Licensees (it being understood
that Budget does not control the type of vehicles Budget Licensees acquire and
use in their rental fleets) with a target of 70% of Ford Vehicles ("Licensee
Ford Vehicle Share"). Budget shall, with input and cooperation from Ford,
develop programs designed to increase the percentage of Ford Vehicles Acquired
by Budget Licensees with the objective of implementing the first of such
programs by the 1998 Acquisition Year.
12. Operations in Other Countries. To the extent that Budget shall
offer franchisee services to Budget Licensees in countries in which Budget
presently does not provide franchisee services, Budget and Ford will negotiate
arrangements similar to those set forth in Paragraph 11, including appropriate
targets.
13. Budget European Operations. With respect to Acquisitions by Budget
Affiliates and Budget Licensees within the EU, Budget shall recommend to such
Budget Affiliates and Budget Licensees that they acquire Ford Vehicles from Ford
Dealers or Ford Affiliates in their respective countries, with a target of
numbers sufficient to attain a Ford Vehicle Share or Licensee Ford Vehicle Share
of 70 percent.
14. Option Allocation Agreements. Budget agrees that so long as it
purchases Vehicles from Ford that are subject to Ford's Daily Rental Repurchase
Program (one of the Fleet Programs referenced in Paragraph 3 of this Agreement),
Budget will enter into an Option Allocation Agreement in substantially
similar form to those appended hereto as Exhibit B, in which the amount
allocated to the repurchase option shall equal the estimate, reasonably
determined by Ford, of any loss on the resale of such Vehicles. Each such
agreement will provide that the parties will reflect the allocations set forth
therein in all federal, state and local income tax returns.
15. Illegality of Agreement. If any provision of this Agreement is
rendered invalid, illegal or unenforceable by enactment of a statute or a final
decision by a court or governmental agency of competent jurisdiction, the
validity, legality and enforceability of the remaining provisions shall in no
way be affected or impaired.
<PAGE> 10
10
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
16. Inspection of Budget Records. Ford and Ford Affiliates engaged in
the manufacture or distribution of Ford Vehicles shall have the right, through
its or their duly authorized agents or representatives, to examine all pertinent
records of Budget or Budget Affiliates at any time and from time to time during
normal business hours and upon two days' prior written notice, to the extent
necessary to determine the accuracy of all statements that may be furnished by
Budget to Ford pursuant to Paragraph 8 hereof. Such records will include all
documents pertaining to the number of Ford Vehicles and other Vehicles included
in Budget's Vehicle Acquisitions.
17. Entire Agreement. This Agreement supersedes any prior agreements
and understandings, written and oral, between Team, Budget and Ford with respect
to the subject matter hereof; provided, however, that the agreement effective as
of November 1, 1988 ( the "1988 Agreement"), shall remain in full force and
effect to and including August 31, 1997, whereupon the 1988 Agreement shall
terminate as though August 31, 1997, were the date for the expiration thereof.
This Agreement may not be changed in any way except by an instrument signed and
delivered by the duly authorized representatives of Ford and Budget.
18. Notices. Any notice, consent, approval or other communication
required or permitted hereunder shall be in writing, shall be given by
registered or certified United States mail and shall be deemed given when
deposited in the mail, postage paid and addressed as follows:
(a) if to Ford:
Ford Motor Company
300 Renaissance Center
P.O. Box 43362
Detroit, Michigan 48243
Attention: Executive Director
Rental, Lease and Remarketing
Operations
with a copy to:
Ford Motor Company
Office of the Secretary
The American Road
Dearborn, Michigan 48121; and
(b) if to Budget:
Budget Rent A Car Corporation
4225 Naperville Road
Lisle, Illinois 60532
Attention: Chief Executive Officer
<PAGE> 11
11
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
(c) if to Team:
Team Rental Group, Inc.
125 Basin Street, Suite 210
Daytona Beach, FL 32114
Such addresses may be changed by notice given in like manner.
19. Confidentiality. This Agreement, or any part of the contents
hereof, and all records, statements and matters relating hereto including
information obtained or provided pursuant to Paragraph 16 (collectively
"Confidential Material") shall be treated as confidential and each of the
parties shall take or cause to be taken the same degree of care in preventing
disclosure of the Confidential Material as it does with its own confidential
trade or business information. Further, except as may otherwise be required by
law or by subpoena or civil investigative demand, neither party shall provide
the Confidential Material, or any part thereof, to any other person or legal
entity, without the prior written consent of the other, which consent shall not
be withheld unreasonably. In disclosing the Confidential Material to any person
or legal entity, the disclosing party will impose on the receiving party the
same degree of confidentially and care that the parties have undertaken in the
first sentence of this paragraph or, in the case of Confidential Material
supplied to any person or governmental agency pursuant to subpoena or civil
investigative demand, requirement of the Securities and Exchange Commission or
similar request, the disclosing party will seek an appropriate protective order
or confidential treatment, and will use its best efforts to assure that the
receiving party or entity returns all copies of all the Confidential Material
that shall have been furnished to it, promptly after the receiving party or
entity shall have completed its required analysis or review of such Confidential
Material.
20. Governing Law. This Agreement shall in all respects be governed by
and be construed in accordance with the laws of the State of Michigan without
giving effect to the principles of conflicts of laws thereof.
21. Dispute Resolution. If a dispute arises between the parties
relating to this Agreement, the following procedure shall be implemented, and
none of the parties shall pursue other available remedies, except that any party
may seek injunctive relief from a court where appropriate in order to maintain
the status quo while this procedure is being followed:
(a) Ford, Team and Budget shall hold a meeting promptly, attended
by persons with decision-making authority regarding the
dispute, to attempt in good faith to negotiate a resolution of
the dispute; provided, however, that no such meeting
<PAGE> 12
12
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
shall be deemed to vitiate or reduce the obligations and
liabilities of the parties hereunder or be deemed a waiver by
a party hereto of any remedies to which such party would
otherwise be entitled hereunder.
(b) If, within 30 days after such meeting, the parties have not
succeeded in negotiating a resolution of the dispute, they
shall submit the dispute to mediation in accordance with the
then-current Model Procedure for Mediation of Business
Disputes of the Center for Public Resources and bear equally
the costs of mediation.
(c) The parties will jointly appoint a mutually acceptable
mediator, seeking assistance in such regard from the Center
for Public Resources if they have been unable to agree upon
such appointment within 20 days from the conclusion of the
negotiation period.
(d) The parties shall participate in good faith in the mediation
and negotiations related thereto for a period of 30 days. If
the parties are not successful in resolving the dispute
through the mediation, then the parties agree to submit the
matter to binding arbitration in accordance with the Center
for Public Resources Rules for Non-Administered Arbitration
of Business Disputes, by a sole arbitrator.
(e) Mediation or arbitration shall take place in Detroit,
Michigan, unless otherwise agreed by the parties. The
substantive and procedural law of the State of Michigan shall
apply to the proceedings. Equitable remedies shall be
available in any arbitration. Punitive damages shall not be
awarded. This Paragraph 21 is subject to the Federal
Arbitration Act, 9 U.S.C.A. Section 1 et. seq. and judgment
upon the award rendered by the arbitrator, if any, may be
entered by any court having jurisdiction thereof.
22. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Team, Budget and Ford and their respective successors
and assigns; provided, however, no assignment of the obligations of Team, Budget
or Ford hereunder shall release Team, Budget or Ford, as assignor, from
the performance of its obligations thereunder for the remainder of the term
hereof after any such assignment.
23. Headings. The paragraph headings herein are included for
convenience of reference only and shall not be deemed a part of this Agreement.
<PAGE> 13
13
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective as of the day and year first above written.
FORD MOTOR COMPANY BUDGET RENT A CAR CORPORATION
By: By:
--------------------------------- -------------------------------------
Its: Its:
-------------------------------- ------------------------------------
TEAM RENTAL GROUP, INC.
By:
---------------------------------
Its:
--------------------------------
<PAGE> 14
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
EXHIBIT A
ROYALTY PAYMENT
1. Royalty. (a) On or before September 1, 1998 and on each anniversary
thereof through September 1, 2004, Team shall pay or shall cause Budget to pay
to Ford an amount (the "Royalty") equal to the greater of (i) one percent of Net
Vehicle Revenue of Budget for the prior Acquisition Year; or (ii) the Minimum
Amount as defined in subparagraph 1(c). The Royalty payable with respect to an
Acquisition Year shall be reduced by $XXX for each Ford Vehicle purchased by
Budget, Budget Affiliates and Budget Licensees in such Acquisition Year in
excess of 123,000 Ford Vehicles. In no event shall the aggregate Royalty paid
hereunder exceed $100,000,000 (the "Cap").
(b) As used herein, the term "Net Vehicle Revenue" for an Acquisition
Year shall mean:
(i) gross revenue from mileage and time, LDW and vehicle class
upsells; less
(ii) revenue discounts, satisfaction guarantee allowance and intercity
rental revenue split.
(c) As used herein, the term "Minimum Amount" for an Acquisition Year
shall mean:
(i) For the 1998 Acquisition Year, payable September 1, 1998,
$9,900,000 (the "1998 Minimum Amount");
(ii) In the 1999 Acquisition Year, payable September 1, 1999, an
amount equal to the 1998 Minimum Amount multiplied by: (A) a fraction, the
numerator of which shall be the CPI for April 1999 and the denominator of
which shall be the CPI for April 1998, or (B) XXX, whichever is smaller
(the "1999 Minimum Amount");
(iii) In the 2000 Acquisition Year, payable September 1, 2000, an
amount equal to the 1999 Minimum Amount multiplied by: (A) a fraction, the
numerator of which shall be the CPI for April 2000 and the denominator of
which shall be the CPI for April 1999, or (B) XXX, whichever is smaller
(the "2000 Minimum Amount");
(iv) For the 2001 Acquisition Year, payable September 1, 2001, an
amount equal to the 2000 Minimum Amount multiplied by: (A) a fraction, the
numerator of which shall be the CPI for April 2001 and the denominator of
which shall be the CPI for April 2000, or (B) XXX, whichever is smaller
(the "2001 Minimum Amount");
(v) For the 2002 Acquisition Year, payable September 1, 2002, an
amount equal to the 2001 Minimum
<PAGE> 15
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
Amount multiplied by: (A) a fraction, the numerator of which shall be the
CPI for April 2002 and the denominator of which shall be the CPI for April
2001, or (B) XXX, whichever is smaller (the "2002 Minimum Amount");
(vi) In the 2003 Acquisition Year, payable September 1, 2003, an
amount equal to the 2002 Minimum Amount multiplied by: (A) a fraction, the
numerator of which shall be the CPI for April 2003 and the denominator of
which shall be the CPI for April 2002, or (B) XXX, whichever is smaller
(the "2003 Minimum Amount"); and
(vii) In the 2004 Acquisition Year, payable September 1, 2004, an
amount equal to the 2003 Minimum Amount multiplied by: (A) a fraction, the
numerator of which shall be the CPI for April 2004 and the denominator of
which shall be the CPI for April 2003, or (B) XXX, whichever is smaller
(the "2004 Minimum Amount").
(d) As used herein, the term "CPI" shall mean the United States
Department of Labor Statistics Revised Consumer Price Index for All Urban
Consumers, or the successor of such Index.
(e) The parties agree that calculation of the Royalty shall be
governed by the following principles:
(i) Net Vehicle Revenue of Budget shall be calculated consistently
with the calculation of Net Vehicle Revenue for Acquisition Year 1996.
(ii) The Royalty is intended to reflect revenue generated from
Budget's corporate vehicle rental business as it existed as of the date of
acquisition by Team. To the extent that Budget's corporate structure changes
or its method of doing business changes so that Net Vehicle Revenue is
reduced, then Team shall prepare, or shall cause Budget to prepare, a
calculation of Net Vehicle Revenue that most accurately reflects the Net
Vehicle Revenue that would have been generated from Budget's vehicle rental
business had such changes not occurred.
2. Audit Rights; Royalty Adjustment. (a) At the time that Team is
obliged to make payment of the Royalty under Section 1, Team shall deliver to
Ford documentation in support of its calculation of Net Vehicle Revenue. Such
documentation shall consist of relevant excerpts from Budget's trial balance or
similar accounting records, and any other accounting material which Ford may
reasonably request to substantiate Team's calculation of Net Vehicle Revenue.
The truth and accuracy of any information provided by Team to Ford pursuant to
this Section shall be certified by the chief financial officer of Team.
(b) Ford and Ford's accountants shall, within 180 days after payment
of the Royalty pursuant to Section 1, complete
A-2
<PAGE> 16
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
their review of the calculation of Net Vehicle Revenue and the Royalty. During
such 180 day period, Team shall furnish, or cause Budget to furnish, to Ford all
information reasonably requested by Ford for its review of such calculation. In
the event that Ford determines that the Royalty or Net Vehicle Revenue has not
been determined in accordance with Section 1, Ford shall notify Team in writing
(the "Ford Objection"), setting forth the basis of the Ford Objection in
reasonable detail and to the extent practicable the adjustments to the Royalty
or Net Vehicle Revenue which Ford believes should be made, on or before the last
day of such 180 day period. Team shall have 30 days after its receipt of the
Ford Objection to review the Ford Objection, and shall notify Ford in writing
immediately upon completion of such review. If Ford and Team are unable to
resolve all of their disagreements with respect to the determination of the
disputed items within 30 days following receipt by Ford of the notice given by
Team in accordance with the preceding sentence, they shall refer their remaining
differences to an internationally recognized firm of independent public
accountants (as to whose identity Ford and Team shall agree after good faith
negotiation (the "CPA Firm")), which shall, acting as experts in accounting and
not as arbitrators, determine on the basis of the standards set forth in Section
1, and only with respect to the specific remaining accounting related
differences so submitted (the "Disputed Items"), whether and to what extent, if
any, the Royalty or Net Vehicle Revenue requires adjustment. Ford and Team shall
direct the CPA Firm to use its best efforts to render its determination within
45 days after its engagement. The CPA Firm's determination concerning the
Disputed Items shall be conclusive and binding upon Ford and Team. The fees and
disbursements of the CPA Firm shall be borne equally by the parties. Ford and
Team shall make readily available to the CPA Firm all relevant books and records
and any work papers (including those of the parties' respective accountants)
relating to resolution of the Disputed Items which are reasonably requested by
the CPA Firm. The "Adjusted Royalty" shall be (i) the Royalty in the event that
(x) no Ford Objection is delivered to Team during the applicable 180 day period,
or (y) Ford and Team agree as to the amount of the Royalty, (ii) the Royalty,
adjusted in accordance with the Ford Objection in the event that Team does not
respond to the Ford Objection within the 30-day period following receipt by Team
of the Ford Objection, or (iii) the Royalty, as adjusted by either (x) the
agreement of Ford and Team, or (y) the CPA Firm.
(c) Within 10 business days following determination of the Adjusted
Royalty, Team shall make, or cause Budget to make, a payment equal to (i) the
difference, if any (the "Adjustment Amount"), between (A) the greater of the
Royalty and the Adjusted Royalty and (B) the Royalty, plus (ii) interest on the
Adjustment Amount, for the period from and including the date payment of the
Royalty is required to be made under Section 1 to but excluding the date on
which payment of the Adjustment Amount is made (calculated on the basis of the
actual number of days elapsed in such period over 360 days), at a per annum rate
equal to the
A-3
<PAGE> 17
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
"base rate" publicly announced by Citibank, N.A. or any successor thereto in New
York, New York on the date payment is required to be made under Section 1. The
Adjustment Amount payable pursuant to this Section shall be paid by wire
transfer of immediately available funds to an account designated in writing by
Ford.
3. Unconditional Obligation. The obligation to pay the Royalty shall be
unconditional. Team shall have no right of set-off or deduction against the
Royalty.
A-4
<PAGE> 18
EXHIBIT B-1
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
Option Allocation Agreement
1995 Model Year
This AGREEMENT is made and entered into as of the 1st day of
September, 1996, by and between Ford Motor Company, a Delaware corporation
("Ford"), and Budget Rent A Car Corporation, a Delaware corporation ("Budget"),
for the purpose of setting forth certain understandings of the parties hereto,
pertaining to Budget's participation in Ford's 1995 Model Daily Rental
Repurchase Program, dated June 30, 1994 (the "1995 Program").
WHEREAS, Budget was a qualified participating daily rental company
when the 1995 Program was launched and thus was eligible to participate in the
1995 Program;
WHEREAS, Budget received from Ford an allocation of 1995 Model Year
vehicles manufactured by Ford or its affiliates, that were subject to the 1995
Program ("Eligible Vehicles");
WHEREAS, for each Eligible Vehicle delivered to Budget subject to the
1995 Program, Ford also granted to Budget the right, but not the obligation, to
tender such Eligible Vehicle to Ford for repurchase at a price determined in
accordance with the 1995 Program, which right (the "Repurchase Right") had
substantial value to Budget;
WHEREAS, the terms and conditions of the Repurchase Right are clearly
spelled out in the written description of the 1995 Program and distributed by
Ford to daily rental operators;
WHEREAS, in participating in the 1995 Program, Budget was able to
purchase Ford vehicles in quantity and at a discount to the prices normally
available in the marketplace, and
WHEREAS, Budget continues to be a qualified participating daily rental
company that is eligible to participate in the 1995 Program.
NOW THEREFORE, Ford and Budget have agreed as follows:
1. Allocation. Of the payments made by Budget
pursuant to the 1995 Program for Eligible Vehicles and the corresponding
Repurchase Rights, the following amounts are attributable to the value of the
Repurchase Rights:
<PAGE> 19
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
<TABLE>
<CAPTION>
Vehicle Line Repurchase Right
------------ ----------------
<S> <C>
Escort XXX
Contour XXX
Aspire XXX
Mustang XXX
Probe XXX
Taurus XXX
Thunderbird XXX
Crown Victoria XXX
Windstar XXX
Bronco XXX
Explorer XXX
Econoline Van XXX
Econoline Wagon XXX
Ranger XXX
Aerostar XXX
Tracer XXX
Mystique XXX
Villager XXX
Sable XXX
Cougar XXX
Grand Marquis XXX
Town Car XXX
Continental XXX
Mark VIII XXX
</TABLE>
<PAGE> 20
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
Nothing in this agreement shall affect the parties' rights and obligations
under Ford's Daily Rental Repurchase Programs.
2. Tax Returns. The parties agree to reflect the allocation to 1995
Model Eligible Vehicles and the corresponding Repurchase Rights set
forth in Paragraph 1 in all federal, state and local income tax returns,
beginning with the taxable year ending December 31, 1995 (in the case of Ford)
and the taxable year ending September 30, 1995 (in the case of Budget). The
parties further agree to file amended tax returns where necessary to comply with
their obligations under this Paragraph 2. Ford agrees to make available to
Budget without charge such assistance in terms of personnel and resources as may
reasonably be required for Budget to prepare amended tax returns for its taxable
year ending September 30, 1995. Ford also agrees to provide Budget with such
information as it may reasonably request to prepare tax returns in accordance
with this Paragraph 2 for subsequent taxable years.
3. No Indemnification. Nothing in this agreement shall be construed to
impose on one party the obligation to indemnify or otherwise compensate
the other party on account of any taxes, it being understood (and hereby
acknowledged by the parties) that the allocations set forth in Paragraph 1
represent the parties' agreement as to the economic substance of their
transactions pursuant to the 1995 Program. Without limiting the generality of
the foregoing, nothing in this agreement shall be construed to require Ford to
compensate Budget for any adverse income tax consequences resulting from lower
depreciation deductions that may arise as a result of the use of the allocations
set forth in Paragraph 1.
4. Counterparts. This Agreement may be executed in counterparts, each
of which will be deemed an original, but all of which taken together
will constitute one and the same instrument.
5. Entire Agreement. This Agreement contains the entire agreement
among the parties with respect to the allocated value of the Repurchase
Rights granted pursuant to the 1995 Program and supersedes all prior oral and
written agreements, memoranda and understandings among the parties with regard
to such subject matter.
6. Governing Law. This Agreement will be governed by, interpreted
under, and construed and enforced in accordance with the internal laws,
and the laws pertaining to conflicts or choice of laws, of the State of Michigan
applicable to agreements made and to be performed within the State of Michigan.
Any litigation arising from this Agreement will be brought in the courts of the
State of Michigan or the U.S. District Court for the Eastern District of
Michigan. The parties hereby irrevocably and unconditionally waive any
objection to the laying of venue of any such litigation in such courts and agree
not to plead or claim in any such court that such litigation has been brought in
an inconvenient forum.
<PAGE> 21
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
7. Modifications and Amendments. No amendment or modification of this
Agreement will be binding unless executed in writing by the parties hereto.
8. Partial Invalidity. Any provision of this Agreement which is found
to be invalid or unenforceable by any court in any jurisdiction will, as
to that jurisdiction, be ineffective to the extent to the extent of such
invalidity or unenforceability, and the invalidity or unenforceability of such
provision will not affect the validity or enforceability of the remaining
provisions hereof.
9. Titles and Headings. Titles and Headings of sections of this
Agreement are for convenience only and will not affect the construction of any
provision of this Agreement.
10. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties.
BUDGET RENT A CAR CORPORATION FORD MOTOR COMPANY
By: By:
------------------------------- -------------------------------
Title: Title:
---------------------------- ----------------------------
<PAGE> 22
EXHIBIT B-2
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
Option Allocation Agreement
1996 Model Year
This AGREEMENT is made and entered into as of the 1st day of
September, 1996, by and between Ford Motor Company, a Delaware corporation
("Ford"), and Budget Rent A Car Corporation, a Delaware corporation ("Budget"),
for the purpose of setting forth certain understandings of the parties hereto,
pertaining to Budget's participation in Ford's 1996 Model Daily Rental
Repurchase Program, dated June 21, 1995 (the "1996 Program").
WHEREAS, Budget was a qualified participating daily rental company
when the 1996 Program was launched and thus was eligible to participate in the
1996 Program;
WHEREAS, Budget received from Ford an allocation of 1996 Model Year
vehicles manufactured by Ford or its affiliates, that were subject to the 1996
Program ("Eligible Vehicles");
WHEREAS, for each Eligible Vehicle delivered to Budget subject to the
1996 Program, Ford also granted to Budget the right, but not the obligation, to
tender such Eligible Vehicle to Ford for repurchase at a price determined in
accordance with the 1996 Program, which right (the "Repurchase Right") had
substantial value to Budget;
WHEREAS, the terms and conditions of the Repurchase Right are clearly
spelled out in the written description of the 1996 Program and distributed by
Ford to daily rental operators;
WHEREAS, in participating in the 1996 Program, Budget was able to
purchase Ford vehicles in quantity and at a discount to the prices normally
available in the marketplace, and
WHEREAS, Budget continues to be a qualified participating daily rental
company that is eligible to participate in the 1996 Program.
NOW THEREFORE, Ford and Budget have agreed as follows:
1. Allocation. Of the payments made by Budget pursuant to the 1996
Program for Eligible Vehicles and the corresponding Repurchase Rights,
the following amounts are attributable to the value of the Repurchase Rights:
<PAGE> 23
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
<TABLE>
<CAPTION>
Vehicle Line Repurchase Right
------------ ----------------
<S> <C>
Escort XXX
Contour XXX
Aspire XXX
Mustang XXX
Probe XXX
Taurus XXX
Thunderbird XXX
Crown Victoria XXX
Windstar XXX
Bronco XXX
Explorer XXX
Econoline Van XXX
Econoline Wagon XXX
Ranger XXX
F-Series XXX
Aerostar XXX
Tracer XXX
Mystique XXX
Villager XXX
Sable XXX
Cougar XXX
Grand Marquis XXX
Town Car XXX
Continental XXX
Mark VIII XXX
</TABLE>
<PAGE> 24
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
Nothing in this agreement shall affect the parties' rights and obligations
under Ford's Daily Rental Repurchase Programs.
2. Tax Returns. The parties agree to reflect the allocation to 1996
Model Eligible Vehicles and the corresponding Repurchase Rights set
forth in Paragraph 1 in all federal, state and local income tax returns,
beginning with the taxable year ending December 31, 1995 (in the case of Ford)
and the taxable year ending September 30, 1995 (in the case of Budget). The
parties further agree to file amended tax returns where necessary to comply with
their obligations under this Paragraph 2. Ford agrees to make available to
Budget without charge such assistance in terms of personnel and resources as may
reasonably be required for Budget to prepare amended tax returns for its taxable
year ending September 30, 1995. Ford also agrees to provide Budget with such
information as it may reasonably request to prepare tax returns in accordance
with this Paragraph 2 for subsequent taxable years.
3. No Indemnification. Nothing in this agreement shall be construed
to impose on one party the obligation to indemnify or otherwise compensate the
other party on account of any taxes, it being understood (and hereby
acknowledged by the parties) that the allocations set forth in Paragraph
1 represent the parties' agreement as to the economic substance of their
transactions pursuant to the 1996 Program. Without limiting the generality of
the foregoing, nothing in this agreement shall be construed to require Ford to
compensate Budget for any adverse income tax consequences resulting from lower
depreciation deductions that may arise as a result of the use of the allocations
set forth in Paragraph 1.
4. Counterparts. This Agreement may be executed in counterparts,
each of which will be deemed an original, but all of which taken together will
constitute one and the same instrument.
5. Entire Agreement. This Agreement contains the entire agreement
among the parties with respect to the allocated value of the Repurchase
Rights granted pursuant to the 1996 Program and supersedes all prior oral and
written agreements, memoranda and understandings among the parties with regard
to such subject matter.
6. Governing Law. This Agreement will be governed by, interpreted
under, and construed and enforced in accordance with the internal laws,
and the laws pertaining to conflicts or choice of laws, of the State of Michigan
applicable to agreements made and to be performed within the State of Michigan.
Any litigation arising from this Agreement will be brought in the courts of the
State of Michigan or the U.S. District Court for the Eastern District of
Michigan. The parties hereby irrevocably and unconditionally waive any
objection to the laying of venue of
<PAGE> 25
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
any such litigation in such courts and agree not to plead or claim in any such
court that such litigation has been brought in an inconvenient forum.
7. Modifications and Amendments. No amendment or modification of
this Agreement will be binding unless executed in writing by the parties hereto.
8. Partial Invalidity. Any provision of this Agreement which is
found to be invalid or unenforceable by any court in any jurisdiction
will, as to that jurisdiction, be ineffective to the extent to the extent of
such invalidity or unenforceability, and the invalidity or unenforceability of
such provision will not affect the validity or enforceability of the remaining
provisions hereof.
9. Titles and Headings. Titles and Headings of sections of this
Agreement are for convenience only and will not affect the construction of
any provision of this Agreement.
10. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties.
BUDGET RENT A CAR CORPORATION FORD MOTOR COMPANY
By: By:
------------------------------- ------------------------------
Title: Title:
---------------------------- ---------------------------
<PAGE> 1
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
EXHIBIT 10.7
ADVERTISING AGREEMENT
This Agreement is made this _____day of _____, 1997 by and between Ford
Motor Company, a Delaware corporation ("Ford"), and Budget Rent A Car
Corporation and its wholly owned subsidiary Budget Rent A Car Systems, Inc.,
each of which is a Delaware corporation (collectively "Budget").
WHEREAS Ford and Budget desire to set forth the terms and conditions
whereby Budget shall carry out Promotional Programs designed to promote the use
and rental of Ford Vehicles at Budget Locations.
Ford and Budget agree as follows:
1. Term of Agreement. The term of this Agreement will commence on
September 1, 1997, and, subject to earlier termination as hereinafter provided,
will continue until August 31, 2007.
2. Definitions. The terms set forth below shall have the following
meanings:
Acquire -- to obtain, by purchase or lease, new and unused Vehicles for
daily rental service, support of daily rental service operations, or Budget
corporate vehicles at Budget Locations.
Acquisition -- the act of acquiring new and unused Vehicles.
Affiliate -- with respect to any corporation, any other corporation,
directly or indirectly, controlling, controlled by, or under common control with
such corporation. With respect to Budget, "Affiliate" includes, without
limitation, Team Rental Group, Inc., and its subsidiaries, but specifically
excludes Budget Licensees. For purposes of this definition and Paragraph 10(b),
"control" (including "controlling," "controlled by," and "under common control
with") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a corporation, whether
through the ownership of voting securities, by contract or otherwise.
Budget Corporate Location -- a Budget Location that is owned,
controlled or operated by Budget or a Budget Affiliate.
Budget Licensee -- any legal entity not controlled by Budget or a
Budget Affiliate that is authorized by Budget or a Budget Affiliate or another
Budget Licensee to conduct a business under any trademark of Budget in the
United States.
Budget Location -- a place or geographic area in the United States
where Budget, a Budget Affiliate or a Budget Licensee now or hereafter conducts
a Vehicle daily rental business under any trademark owned or used by Budget.
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
CPI -- the United States Department of Labor's Bureau of Labor
Statistics Revised Consumer Price Index for All Urban Consumers, or the
successor of such Index.
Ford Vehicles -- in any Model Year, those new and unused current Model
Year Vehicles (e.g., 1998 models placed in daily rental service at Budget
Locations during the 1998 Model Year), prior Model Year Vehicles (e.g., 1997
models placed in daily rental service at Budget Locations during the 1997 Model
Year), and subsequent Model Year Vehicles (e.g., 1999 models placed in daily
rental service at Budget Locations during the 1999 Model Year), sold by Ford to
its franchised dealers or Ford Motor Credit Company and in turn sold or leased
for use at Budge Locations during the Model Year, but specifically excluding
vehicle sold under the "Mazda" name or "Jaguar" name.
Ford Vehicle Share -- the percentage, considered at the end of each
Model Year, that new and unused Ford Vehicles represent of all Vehicle
Acquisitions during such Model Year.
Model Year - - each period of 12 Months from and including September 1
to and including the next following August 31. Each Model Year shall be referred
to by the calendar year next following the commencement of the Model Year. For
example, the 1998 Model Year shall commence on September 1, 1997, and end on
August 31, 1998.
Promotional Programs -- programs carried out by Budget or its
Affiliates, subject to the terms and conditions of this Agreement, that feature
Ford Vehicles and promote the rental thereof at Budget Locations. Such programs
shall include, without limitation, major media or other advertising, direct mail
solicitations, catalogue covers, point of rental materials, recorded telephone
responses to calls from prospective vehicle renters, and such other activities
as Budget may perform to promote Ford products in the Budget system and such
other programs as Ford and Budget shall agree upon from time to time.
Vehicle -- any new an unused passenger car or van or truck.
Vehicle Acquisitions -- in any Model Year, all current Model Year
Vehicles, prior Model Year Vehicles, and subsequent Model Year Vehicles Acquired
by Budget, a Budget Affiliate or a Budget Licensee.
3. Promotional Programs.
(a) Subject to the terms and conditions hereof, Budget shall,
and shall cause its Affiliates, during each Model Year,
(i) to carry out Promotional Programs;
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
(ii) to perform surveys and services as may be
mutually agreed to from time to time by Ford
and Budget;
(iii) Meet with Ford's Budget Account Manager at
least once each quarter, and more often if
deemed mutually desirable, to communicate
Budget's plans for Promotional Programs
for the following quarter; and
(iv) Send to Ford in January and July of each
year beginning in January 1998, a detailed
report of the Promotional Programs
implemented by Budget during the preceding
six month period so that Ford may determine
whether it has received promotional value
commensurate with the consideration payable
hereunder. Such reports shall be signed by a
Senior Vice President or above of Budget and
shall state the amount spent by Budget in
the preceding six month period. If such
Promotional Programs are reasonably deemed
by Ford to be unsatisfactory and Ford so
notifies Budget, Budget shall make such
changes in future Promotional Programs as
are mutually agreeable to both Ford and
Budget.
(b) With respect to Budget Licensees, during each
Model Year Budget shall communicate its promotional activities
pursuant to this Paragraph with such Licensees and shall
distribute information about such activities to them. Budget
shall promote such activities to Budget Licensees in
substantially the same manner and to the same extent that
Budget has historically promoted such promotional activities
with Budget Licensees. The parties understand that Budget
and Budget Affiliates do not control the types of promotional
activities at Budget Locations not owned or operated by Budget
or its Affiliates.
4. Criteria for Promotional Programs. Promotional Programs shall meet
the following the criteria:
(a) they shall be published, placed or controlled by
Budget or a Budget Affiliate; and
(b) they shall use or contain the name of a Ford Vehicle
or refer by name to Ford Motor Company at least once
with an influence value
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
and with a prominence that is reasonably satisfactory to Ford;
and
(c) they shall, where feasible, use or contain a pictorial
representation of a Ford Vehicle (furnished by Ford from time
to time in accordance with Paragraph 9 hereof) with an
influence value and with a prominence reasonably satisfactory
to Ford; and
(d) they shall not, except as Ford may consent in advance, contain
any pictorial representation, trade name or endorsement of, or
testimonial to, any Vehicle other than a Ford Vehicle, or any
reference by name to any Vehicle manufacturer other than Ford
or one of its Affiliates, provided that Vehicles other than
Ford Vehicles may be mentioned or pictured in a Promotional
Program with Ford's consent if the non-Ford Vehicle is of a
kind for which, at the time, there is no comparable Ford
Vehicle.
5. Base Payments for Promotional Programs.
(a) Except as provided in Paragraph 5(c) below, in
consideration of the Promotional Programs and the other services
provided by Budget, Ford will pay to Budget, in equal quarterly
installments on the first day of September, December, March and
June of each Model Year, a "Base Amount" for each of the 1998, 1999,
2000, 2001 and 2002 Model Years as follows: $24,080,000.00 in the
1998 Model Year; and, an amount in subsequent Model Years computed as
follows (and rounded to the nearest $100,000);
(i) for the 1999 Model Year, an amount equal to
$24,080,000 multiplied by: (A) a fraction, the numerator of
which shall be the CPI for April of 1998 and the denominator
of which shall be the CPI for April 1997, or (B) XXX,
whichever is smaller;
(ii) for the 2000 Model Year, an amount equal to the
1999 Model Year Base Amount multiplied by: (A) a fraction, the
numerator of which shall be the CPI for April 1999 and the
denominator of which shall be the CPI for April 1998, or
(B) XXX whichever is smaller;
(iii) for the 2001 Model Year, an amount equal to
2000 Model Year Base Amount multiplied by (A) a fraction, the
numerator
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
or which shall be the CPI for April 2000 and the denominator
of which shall be the CPI for April 1999, or (B) XXX,
whichever is smaller; and
(iv) for the 2002 Model Year, an amount equal to the
2001 Model Year Base Amount multiplied by: (A) a fraction,
the numerator of which shall be the CPI for April 2001 and
the denominator of which shall be the CPI for April 2000, or
(B) XXX, whichever is smaller.
Using the formulas above, Ford shall calculate the amounts of the
quarterly and total annual Base Amounts due under this Paragraph for
the 1998 Model Year and each subsequent Model Year to and including the
2002 Model Year. This calculation shall be communicated to Budget by
June 1 of each applicable Model Year or within 30 days of the
publication of the CPI for April of the appropriate year, whichever is
later.
(b) Before March 1, 2002, Ford and Budget shall negotiate in
good faith to determine the Base Amounts or Base Amount calculations
for the 2003, 2004, 2005, 2006 and 2007 Model Years, including whether
such 2003-2007 Base Amounts should be greater than, less than or equal
to prior Model Year Base amounts taking into account all relevant
factors, including then prevailing economic and competitive conditions,
costs of Promotional Programs, the existence of other promotional
program agreements between Ford and other daily rental companies and
the prior payments made hereunder. If, by June 1, 2002, and after good
faith negotiations, the parties cannot agree upon a mutually acceptable
Base Amount for the subject Model Years, then the Base Amount for the
2003-2007 Model Years shall be the amounts calculated as follows:
(i) for the 2003 Model Year, an amount equal to the
2002 Model Year Base Amount plus XXX of the 2002 Model Year
Base Amount multiplied by: (A) a fraction, the numerator of
which shall be the CPI for April 2002 and the denominator of
which shall be the CPI for April 2001, or (B) XXX, whichever
is smaller;
(ii) for the 2004 Model Year, an amount equal to the
2003 Model Year Base Amount multiplied by: (A) a fraction, the
numerator of which shall be the CPI for April 2003 and
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
the denominator of which shall be the CPI for April 2002, or
(B) XXX, whichever is smaller;
(iii)for the 2005 Model Year, an amount equal to 2004
Model Year Base Amount multiplied by: (A) a fraction, the
numerator of which shall be the CPI for April 2004 and the
denominator of which shall be the CPI for April 2003, or
(B) XXX, whichever is smaller;
(iv) for the 2006 Model Year, an amount equal to the
2005 Model Year Base Amount multiplied by: (A) a fraction, the
numerator of which shall be the CPI for April 2005 and the
denominator of which shall be the CPI for April 2004, or
(B) XXX, whichever is smaller, and
(v) for the 2007 Model Year, an amount equal to the
2006 Model Year Base Amount multiplied by: (A) a fraction, the
numerator of which shall be the CPI for April 2006 and the
denominator of which shall be the CPI for April 2005, or (B)
XXX, whichever is smaller;
(c) As it is the express purpose and intent of this Agreement
to promote the use of Ford Vehicles at Budget Locations and to feature
Ford Vehicles in Budget's U.S. fleet, it is the understanding of the
parties hereto that, during each Model Year, Ford will not be required
to pay Budget the Base Amount described in Paragraph 5(a) above if the
Ford Vehicle Share in such Model year is not at least 55%: provided,
however, that Ford will be required to pay the Base Amount in the event
that the failure to achieve a Ford Vehicle Share of 55% was solely
attributable to Ford's failure to make Ford Vehicles available for
Acquisition in sufficient quantities to achieve a Ford Vehicle Share of
55%. Notwithstanding the preceding sentence, if Ford's failure to
allocate sufficient quantities of Ford Vehicles is caused by a
production disruption of more than one year due to (a) a shortage or
curtailment of material, labor, transportation, or utility service; (b)
any labor or production difficulty; (c) any governmental action; or (d)
any cause beyond the reasonable control of Ford, then the parties will
negotiate in good faith to reduce the Base Amount by amounts reflective
of the nature and extent of the production disruption and the Ford
Vehicle Share actually achieved.
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
6. Increased Payments for Promotional Programs.
(a) In support of Budget's efforts to promote the use of Ford
Vehicles at Budget Locations and in support of the Promotional
Programs to increase rental demand for Ford Vehicles, Ford
will pay Budget the amounts listed in the following schedule,
based upon increases in the Ford Vehicle Share (in addition
to the Base Amount for each Model Year, as specified in
Paragraph 5 hereof):
<TABLE>
<CAPTION>
The Applicable Payment
The Ford Vehicle Increase Over the
Share Should Reach Base Amount Shall Be
------------------ --------------------
(Millions)
<S> <C>
XXX $ XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
XXX XXX
</TABLE>
(b) Additional payments due Budget under the above schedules shall
be paid to Budget as soon as the numbers necessary for the
required calculations are determined by the parties, but in no
event later than December 31 following the conclusion of the
applicable Model Year.
7. Budget Certificates on Acquisition.
(a) As soon as practicable after each Model Year, but not later
than December 31 of the following Model Year, Budget shall
deliver to Ford a certificate by an executive officer of
Budget certifying the following information for the preceding
Model Year: (i) the total number of Vehicles Acquired for use
at all Budget Locations for such Model Year; and (ii) the
total number of Ford Vehicles Acquired for use at all Budget
Locations for such Model Year; and (iii) the Ford Vehicle
Share for such Model Year.
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
(b) To assist reporting pursuant to this Paragraph,
Budget undertakes to establish an Acquisition
reporting system consistent with the Vehicle
reporting requirements of this Agreement for all
Budget Locations for each Model Year. This reporting
system shall specify Ford Vehicles Acquired by model
line and Vehicles Acquired from other manufacturers
or importers. Ford may periodically examine
such reporting data upon reasonable notice to Budget.
(c) No increased payments for Promotional Programs due to
Budget each Model Year from Ford under Paragraph 6
above shall be paid until after Ford shall have had
30 days to examine the reporting data described in
(b) above. If Ford shall request, in writing,
clarification of such data, Budget shall furnish the
requested information to Ford's satisfaction before
any increased payment shall be due.
8. No Use of Ford in Script, Etc. Budget will not use or permit any
Budget Affiliate to use, and will use all reasonable efforts to prevent the use
at any Budget Location not owned by Budget or a Budget Affiliate, any
advertising or promotional materials that contain: the Ford script-in-oval
trademark; the word "Ford" in script; or any statement that is detrimental to
Ford or any of Ford's Affiliates, or to the good name of Ford or any of its
Affiliates, or to any product made or sold by Ford or its Affiliates.
9. Pictures of Ford Vehicles.
(a) Ford will furnish to Budget, from time to time,
pictorial representations of Ford Vehicles for use by
Budget in its advertising and promotion.
(b) Each pictorial representation of a Ford Vehicle used
in a Promotional Program originally released more
than one month after the public introduction of a new
model of such Ford Vehicle will, if practicable, be a
pictorial representation of such new model.
10. Disposition of Budget Corporate Locations.
(a) Budget represents that it can ensure implementation
of the Promotional Programs only at Budget Corporate
Locations. Accordingly, the benefit to Ford of the
Promotional Programs would be substantially reduced
if Budget or Budget Affiliates ceased
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
to exercise operational control over any Budget
Corporate Location that had an average fleet size of
150 vehicles or more during the prior twelve months.
The benefit of such Promotional Programs would be
further reduced if a Budget Corporate Location came
under the control of an unaffiliated Budget Licensee
that declined to participate in the Promotional
Programs.
(b) Therefore, if a change of control or Transfer
affecting a Budget Corporate Location that had an
average fleet size of 150 Vehicles or more during the
prior twelve months should occur during the term of
this Agreement, Budget or the appropriate Budget
Affiliate shall make best efforts to ensure that the
affected former Corporate Location will continue to
participate in the Promotional Programs to the same
extent it participated in such Promotional Programs
while controlled or operated by Budget or a Budget
Affiliate, notwithstanding any change of control or
Transfer affecting such Budget Corporate Location. As
used herein, the term "Transfer" means the sale,
lease, assignment, franchise, license, transfer or
other disposition of all or any portion of any Budget
Corporate Location or any fixed assets, real
properties, or other property or assets reasonably
necessary for the conduct of the Budget Rent A Car or
Budget Rent A Truck business at such Location.
(c) If the total purchases of Ford Vehicles by Budget in
any Model Year shall drop below the total of the
purchases of Ford Vehicles in the Model Year of 1997,
whether as a result of a change of control or
Transfer of one or more Budget Corporate Locations,
as a result of any change in control of Budget or any
Budget Affiliate, or otherwise, then Ford may take
one of the following actions at its sole discretion:
(i) reduce the base payment for promotional
programs set forth in Paragraph 5 for that
Model Year by the percentage by which the
purchases of Ford Vehicles for that Model
Year dropped below the Model Year of 1997;
or
(ii) reduce the increased payments for
promotional programs set forth in
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
Paragraph 6 for that Model Year by the
percentage by which the purchases of Ford
Vehicles for that Model Year dropped below
the Model Year of 1997.
11. Confidentiality.
(a) This Agreement, or any part of the contents hereof,
and all records, statements and matters relating
hereto and all information and data disclosed by the
parties to each other hereunder except information
that is also publicly disclosed or information
obtained from third parties (collectively
"Confidential Material") shall be treated as
confidential and Ford and Budget each shall take or
cause to be taken the same degree of care in
preventing disclosure to third parties of the
Confidential Material as it does with its own
confidential trade or business information. Further,
except as may otherwise be required by law or by
subpoena or civil investigative demand, neither party
shall provide the Confidential Material, or any part
thereto, to any other person or legal entity, without
the prior written consent of the other (which consent
shall not be withheld unreasonably), other than to
the following persons or legal entities having a need
to know: (i) its accountants, attorneys and
investment bankers; or (ii) any financial institution
that it a creditor of or is making or negotiating
loans to, or equity investments in, Budget or Ford,
as the case may be. In disclosing the Confidential
Material to any of the persons or legal entities
referred to in clauses (i) and (ii) above, the
disclosing party will impose on the receiving party
the same degree of confidentiality and care that Ford
and Budget have undertaken in the first sentence of
this Paragraph or, in the case of Confidential
Material supplied to any person or governmental
agency pursuant to subpoena or civil investigative
demand, request of the Securities and Exchange
Commission or similar request, the disclosing party
will seek an appropriate protective order or
confidential treatment, and will use its best efforts
to assure that the receiving persons or entities
return all copies of all the Confidential Material
that shall have been furnished to it, promptly after
the receiving party shall
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
have completed its required analysis or review of
such Material.
(b) Ford and Budget each shall use its best efforts to
keep, and shall cause its respective Affiliates to
keep, confidential the terms and conditions of this
Agreement and, without the express prior written
consent of the other, shall not in any manner or for
any reason disclose any part or the whole of this
Agreement except to its officers, directors, and key
employees on a need-to-know basis.
12. Furnishing Copies of Promotional Programs. Budget will furnish to
Ford, upon request made at any time not more than twice a year, copies or
examples of all Promotional Program materials (including, without limitation,
print advertisements, collateral material, mat services, telecommunication
material and outdoor displays) prepared for Budget or on Budget's behalf and
placed by or through its advertising agencies during the month preceding such
request.
13. Budget to Control Promotional Programs. Budget will have sole
discretion and control over all copy, art work, editorial matter, media and
release dates for all Promotional Programs.
14. No Copyright Violation. Budget warrants that no Promotional Program
or other information or material released by Budget or under its control
that contains any pictorial representation of a Ford Vehicle or any reference to
Ford or its Affiliates will violate the copyright or right of privacy of, or
constitute a libel or slander or actionable derogation of, or violate any legal
or equitable right of, any person or entity; and in all other respects Budget
agrees, in the performance of its services hereunder, to comply with all laws,
rules and regulations and other legal requirements applicable to the performance
of such services.
15. Budget's Indemnity of Ford. Budget will indemnify and hold harmless
Ford, its dealers, its Affiliates and their dealers from and against all claims,
damages, liabilities, losses, costs and expenses (including, without limitation,
reasonable attorneys fees) arising out of or connected with any advertising,
promotion or publicity released by Budget or under Budget's control and with any
failure by Budget to perform its obligations hereunder.
16. Ford's Indemnity of Budget. Ford will indemnify and hold harmless
Budget, its Affiliates and Budget Licensees from and against all claims,
damages, liabilities, losses, costs and expenses (including, without limitation,
reasonable attorneys fees) arising out of or connected with the proper use of
any pictorial representation, information or data furnished by Ford
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
hereunder and with any failure by Ford to perform its obligations hereunder.
17. Agreement Not in Connection with Vehicle Sales. This Agreement is
not made in connection with or as a part of any transaction related to the sale
of any Ford Vehicle or Vehicles, and nothing contained herein will be construed
as imposing, directly or indirectly, any obligation on anyone to purchase or
supply any Ford Vehicles.
18. No Advertising of Competitive Products. Budget shall not, except as
otherwise specifically provided, publish, place or pay for any advertising or
promotion of any make of Vehicle other than a Ford Vehicle which Ford, in its
sole discretion, believes has reduced or may reduce the value to Ford or its
Affiliates of the Promotional Programs or other services to be provided by
Budget. Budget shall, to the extent practicable, prevent Affiliates and any
Budget Licensee from conducting such promotions or publishing any of such
advertising as referred to in this Paragraph.
19. Termination by Either Party. If either Budget or Ford fails to
fulfill its obligations under this Agreement, the other may terminate this
Agreement as of the last day of any succeeding month by giving at least 30
days, prior notice of termination to the party in breach unless such breach be
cured in such notice period, or, if not capable of being cured in such notice
period, the curing thereof is commenced and proceeds with all due diligence
during such notice unless such breach be cured in such notice period, or, if not
capable of being cured in such notice period, the curing thereof is commenced
and proceeds with all due diligence during such notice period and is cured with
60 days; provided, however, in case of such termination, Ford agrees to pay
Budget on a monthly pro rata basis for all commitments for Promotional Programs
discussed at the quarterly meetings described in Paragraph 3, provided that such
commitments shall be carried out in full by Budget.
20. Termination for Illegality. If, in the opinion of Ford's legal
counsel, this Agreement or any substantial part is rendered illegal by enactment
of a statute or a final decision by a court of competent jurisdiction or would
require Ford to make similar payments to or for the benefit of Ford franchised
dealers or others, either party may terminate this Agreement, effective
immediately, by giving notice to the other party, whereupon neither party shall
have further obligation to the other except as to such obligations that are due
and payable as of the date of termination.
21. Examination of Budget Records. Budget agrees that Ford will have
the right, through its duly authorized agents or representatives, to examine all
pertinent records of Budget and its Affiliates, including, without limitation,
records as to any Budget Location, at reasonable times for the purposes of
determining, and to the extent necessary for the determination
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
of, the accuracy of all information that may be furnished by Budget to Ford
hereunder. Such records will include all documents of Budget and its Affiliates
and such Licensee information as Budget may have in their custody and control
pertaining to the Promotional Programs or to Acquisitions or the number of
Vehicles at Budget Locations.
22. Changes. This Agreement may not be changed in any way except by an
instrument in writing signed and delivered by the duly authorized
representatives of Ford and Budget.
23. Notices. Any notice or other communication required or permitted
hereunder shall be in writing, will be given by registered or certified United
States mail, and shall be deemed given when deposited in the mail, postage paid
and addressed as follows:
As to Ford:
Ford Motor Company
300 Renaissance Center
P.O. Box 43362
Detroit, Michigan 48243
Attention: Executive Director,
Rental, Lease and Remarketing Operations
with a copy to:
Ford Motor Company
The American Road
Dearborn, Michigan 48121
Attention: Secretary
As to Budget:
Budget Rent A Car Corporation
4225 Naperville Road
Lisle, Illinois 60532
Attention: Chief Executive Officer
Such addresses and persons may be changed by notice given in like
manner.
24. Michigan Agreement. This Agreement shall be construed in accordance
with and governed by the laws of the State of Michigan without giving effect to
the principles of conflicts of law thereof.
25. Dispute Resolution. If a dispute arises between Ford and Budget
relating to this Agreement, the following procedure shall be implemented, and
neither party shall pursue other available remedies, except that either party
may seek injunctive relief from a court where appropriate in order to maintain
the status quo while this procedure is being followed:
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CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
(a) Ford and Budget shall hold a meeting promptly, attended by
persons with decision-making authority regarding the dispute,
to attempt in good faith to negotiate a resolution of the
dispute; provided, however, that no such meeting shall be
deemed to vitiate or reduce the obligations and liabilities of
the parties hereunder or be deemed a waiver by a party hereto
of any remedies to which such party would otherwise be
entitled hereunder.
(b) If, within 30 days after such meeting, Ford and Budget have
not succeeded in negotiating a resolution of the dispute, they
shall submit the dispute to mediation in accordance with the
then current Model Procedure for Mediation of Business
Disputes of the Center for Public Resources and to bear
equally the costs of mediation.
(c) Ford and Budget will jointly appoint a mutually acceptable
mediator, seeking assistance in such regard from the Center
for Public Resources if they have been unable to agree upon
such appointment within 20 days from the conclusion of the
negotiation period.
(d) Ford and Budget shall participate in good faith in the
mediation and negotiations related thereto for a period of 30
days. If the parties are not successful in resolving the
dispute through mediation, then the parties agree to submit
the matter to binding arbitration in accordance with the
Center for Public Resources Rules for Non-Administered
Arbitration of Business Disputes, by a sole arbitrator.
(e) Mediation or arbitration shall take place in Detroit,
Michigan, unless otherwise agreed by the parties. The
substantive and procedural law of the State of Michigan shall
apply to the proceedings. Equitable remedies shall be
available in any arbitration. Punitive damages shall not be
awarded. This Section 19 is subject to the Federal Arbitration
Act, 9 U.S.C.A. Section 1 et. seq. and judgment upon the award
rendered by the arbitrator, if any, may be entered by any
court having jurisdiction thereof.
26. Entire Agreement. This Agreement supersedes any prior agreements
and understandings, written and oral, between Budget and Ford with respect to
the subject matter hereof; provided, however, the Agreement dated as of July 31,
1990, as amended, shall remain in full force and effect to and including August
31, 1997.
14
<PAGE> 15
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
27. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Budget and Ford and their respective successors and
assigns; provided, however, no assignment of the obligations of Budget or Ford
hereunder shall release Budget or Ford, as assignor, from the performance of its
obligations hereunder.
28. Headings. The paragraph headings herein are included for
convenience of reference only and shall not be deemed a part of this Agreement.
15
<PAGE> 16
CERTAIN PORTIONS OF THIS EXHIBIT, WHICH ARE INDICATED BY "XXX," HAVE
BEEN OMITTED BASED UPON A REQUEST FOR CONFIDENTIAL TREATMENT AND
SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
effective as of the day and year first above written.
FORD MOTOR COMPANY
By:
--------------------------
Its:
--------------------------
BUDGET RENT A CAR CORPORATION
By:
--------------------------
Its:
--------------------------
16
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-21691 of Team Rental Group, Inc. of our report dated April 12, 1996,
appearing in the Prospectus, which is part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 17, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report (and to all references to our Firm) included in or made a part of
Registration Statement File No. 333-21691.
ARTHUR ANDERSEN LLP
Orlando, Florida
April 17, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of
Budget Rent a Car Corporation:
We consent to the inclusion of our report herein and to the reference to our
firm under the heading "Experts" in the prospectus of Team Rental Group, Inc.
dated April 17, 1997.
KPMG Peat Marwick LLP
April 17, 1997
Chicago, Illinois
