<PAGE> 1
SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
<TABLE>
<S> <C>
[] Preliminary Information Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
[X] Definitive Information Statement
</TABLE>
Team Rental Group, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[LETTERHEAD OF TEAM RENTAL GROUP, INC.]
March 25, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Team Rental Group, Inc. (the "Company"), which will be held at the Company's
offices at 125 Basin Street, Daytona Beach, Florida on Tuesday, April 22, 1997.
The meeting will begin at 9:00 a.m. (local time).
The attached Notice of Annual Meeting and Proxy Statement fully describe
the formal business to be transacted at the Annual Meeting, which includes the
election of nine directors of the Company, approval of an amendment to the
Company's Amended and Restated Certificate of Incorporation to increase the
number of shares of common stock which the Company is authorized to issue, and
approval of increases in the number of shares available for grant under the
Company's 1994 Incentive Stock Option Plan and the 1994 Directors' Stock Option
Plan and certain other amendments to such plans. The Board of Directors asks
that you vote FOR the election of the directors and each of the other proposals
described in the enclosed Notice of Annual Meeting and Proxy Statement.
It is important that your shares be represented at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please complete, sign and
date the enclosed proxy card and return it in the enclosed postage prepaid
envelope. If you attend the Annual Meeting and vote in person, your proxy will
not be used. The prompt return of your proxy will save the expense involved in
further communication.
Your Board of Directors and I look forward to seeing you at the Annual
Meeting on April 22, 1997.
Very truly yours,
Sanford Miller
Chairman of the Board and Chief
Executive Officer
<PAGE> 3
TEAM RENTAL GROUP, INC.
125 BASIN STREET
DAYTONA BEACH, FLORIDA 32114
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 1997
---------------------
NOTICE OF THE TAKING
OF STOCKHOLDER ACTION
BY WRITTEN CONSENT
---------------------
TO THE STOCKHOLDERS OF TEAM RENTAL GROUP, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Team
Rental Group, Inc., a Delaware corporation (the "Company"), will be held at the
Company's offices at 125 Basin Street, Daytona Beach, Florida on Tuesday, April
22, 1997 at 9:00 a.m. (local time), for the following purposes:
1. To elect nine directors to the Board of Directors to serve for the
ensuing year or until their successors have been duly elected and
qualified.
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation (i) to increase the authorized number of
shares of Class A Common Stock from 17,500,000 to 35,000,000 and (ii) to
change the name of the Company to Budget Group, Inc.
3. To approve an amendment to the Company's 1994 Incentive Stock
Option Plan (i) to increase by 990,000 the number of shares of Common Stock
available for grant under such plan such that the total number of shares of
Common Stock available for grant under such plan is 1,750,000 and (ii) to
approve certain other amendments to such plan as described in the Proxy
Statement.
4. To approve an amendment to the Company's 1994 Directors' Stock
Option Plan (i) to increase by 125,000 the number of shares of Common Stock
available for grant under such plan such that the total number of shares of
Common Stock available for grant under such plan is 150,000 and (ii) to
approve certain other amendments to such plan as described in the Proxy
Statement.
5. To transact any other business which may properly be brought before
the meeting.
Stockholders of record at the close of business on February 27, 1997 (the
"Stockholders") are entitled to notice of and to vote at the meeting. During the
period from April 12, 1997 until the meeting, a list of Stockholders will be
open for the examination by any Stockholder during ordinary business hours, at
the location of the Annual Meeting.
The accompanying Proxy Statement also constitutes the Company's Annual
Report to Stockholders for the year ended December 31, 1996 (the "Annual
Report").
FURTHERMORE, NOTICE IS HEREBY GIVEN in accordance with Section 228(d) of
the Delaware General Corporation Law that, on January 13, 1997, stockholders of
the Company owning over 67% of the outstanding voting power of the Company
executed a written consent in lieu of a stockholder meeting (the "Written
Consent") approving the issuance by the Company of shares of Class A Common
Stock, par value $.01, of the Company to be issued upon conversion of the
Company's newly created Series A Convertible Preferred Stock, par value $.01 per
share (the "Series A Convertible Preferred Stock"). The Series A Convertible
Preferred Stock will be issued by the Company in connection with the Company's
acquisition (the "Budget Acquisition") of the capital stock of Budget Rent a Car
Corporation ("BRACC"). The terms of the Series A Preferred Stock and the Budget
Acquisition are described in the accompanying Proxy Statement.
<PAGE> 4
THE COMPANY IS NOT ASKING YOU FOR A PROXY OR CONSENT WITH RESPECT TO THE
ISSUANCE OF THE SERIES A CONVERTIBLE PREFERRED STOCK IN THE BUDGET ACQUISITION.
By Order of the Board of Directors,
Sanford Miller
Chairman of the Board and Chief
Executive Officer
Dated: March 25, 1997.
EACH STOCKHOLDER IS URGED TO COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED
PROXY PROMPTLY. IF YOU ATTEND THE MEETING AND VOTE IN PERSON, THE PROXY WILL NOT
BE USED. IF THE PROXY IS MAILED IN THE UNITED STATES IN THE ENCLOSED ENVELOPE,
NO POSTAGE IS REQUIRED. THE PROMPT RETURN OF YOUR PROXY WILL SAVE THE EXPENSE
INVOLVED IN FURTHER COMMUNICATION.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GENERAL INFORMATION......................................... 1
Solicitation and Revocability of Proxy.................... 1
Record Date; Quorum and Voting Requirements............... 2
Information Regarding Action Taken By Written Consent of
Stockholders........................................... 2
ELECTION OF DIRECTORS....................................... 3
Information on Nominees................................... 3
Meetings of the Board of Directors........................ 5
Committees of the Board of Directors...................... 5
Compensation of Directors................................. 5
EXECUTIVE OFFICERS.......................................... 6
COMMON STOCK OWNERSHIP BY MANAGEMENT AND PRINCIPAL
STOCKHOLDERS.............................................. 7
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 9
EXECUTIVE COMPENSATION...................................... 9
Summary Compensation Table................................ 9
Option Grants During 1996 and Year End Option Values...... 10
Compensation Committee Interlocks and Insider
Participation.......................................... 10
Compensation Committee Report on Executive Compensation... 10
Performance Graph......................................... 12
CERTAIN TRANSACTIONS AND RELATIONSHIPS...................... 13
AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION............................................. 14
Description of Amendment to the Amended and Restated
Certificate of Incorporation........................... 14
Reasons for the Amendment to the Amended and Restated
Certificate of Incorporation........................... 15
Effect of Amendment or Existing Stockholders.............. 15
Vote Required............................................. 15
PROPOSED AMENDMENT TO THE COMPANY'S 1994 INCENTIVE STOCK
OPTION PLAN............................................... 16
Description of the Plan................................... 16
Estimate of Benefits...................................... 18
Certain Federal Income Tax Consequences................... 19
PROPOSED AMENDMENT TO THE COMPANY'S 1994 DIRECTORS' STOCK
OPTION PLAN............................................... 20
Description of the Directors' Plan........................ 20
Estimate of Benefits...................................... 22
Certain Federal Income Tax Consequences................... 22
ACTION TAKEN BY WRITTEN CONSENT OF STOCKHOLDERS............. 23
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE BUDGET ACQUISITION...................................... 23
Background of the Budget Acquisition...................... 23
Reasons for the Budget Acquisition........................ 25
Terms of the Stock Purchase Agreements.................... 25
Executive Officers and Significant Employees to be Added
in Connection with the Budget Acquisition.............. 27
Interests of Certain Persons in the Budget Acquisition.... 27
Related Agreements........................................ 28
Financing Plan for the Budget Acquisition................. 29
Opinion of TEAM's Financial Advisor....................... 30
Certain Federal Income Tax Consequences................... 31
Regulatory Approvals Required............................. 31
Foreign Filings and Regulatory Approvals.................. 32
Accounting Treatment...................................... 32
Appraisal Rights.......................................... 32
Resales of TEAM Stock..................................... 32
MARKETS AND MARKET PRICES................................... 33
RECENT SALES OF UNREGISTERED EQUITY SECURITIES OF TEAM...... 33
OWNERSHIP OF BRACC STOCK.................................... 34
COMPARATIVE PER SHARE INFORMATION........................... 35
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF BUDGET
GROUP..................................................... 36
SELECTED FINANCIAL DATA OF TEAM............................. 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF TEAM......................... 46
General................................................ 46
Results of Operations.................................. 47
Liquidity and Capital Resources........................ 49
Inflation.............................................. 51
Seasonality............................................ 51
SELECTED FINANCIAL DATA OF BRACC............................ 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF BRACC........................ 54
General................................................ 54
Results of Operations.................................. 54
Liquidity and Capital Resources of BRACC............... 57
BUSINESS OF BUDGET GROUP.................................... 58
General................................................... 58
Background................................................ 58
Strategy.................................................. 59
The Budget System......................................... 62
Management Structure...................................... 62
Rental Operations......................................... 63
Rental Vehicle Purchasing................................. 64
Fleet Utilization and Seasonability....................... 64
Rental Related Products................................... 65
Marketing................................................. 65
Customer Service.......................................... 65
Information Technology.................................... 65
Vehicle Rental Facilities................................. 66
Franchising............................................... 66
Rental Vehicle Disposition................................ 67
</TABLE>
ii
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Retail Car Sales Operations............................... 67
Competition............................................... 68
Insurance................................................. 68
Regulatory and Environmental Matters...................... 69
Legal Matters............................................. 70
Employees................................................. 70
Headquarters.............................................. 71
MANAGEMENT OF BUDGET GROUP.................................. 71
DESCRIPTION OF CAPITAL STOCK................................ 73
Class A Common Stock and Class B Common Stock............. 73
Preferred Stock........................................... 74
Convertible Subordinated Notes............................ 75
Warrants.................................................. 75
Bylaw Provisions.......................................... 75
Registration Rights....................................... 75
Indemnification Matters................................... 77
Section 203............................................... 77
Transfer Agent............................................ 77
DESCRIPTION OF CERTAIN INDEBTEDNESS......................... 78
The New Working Capital Facility.......................... 78
Convertible Subordinated Notes............................ 79
Guaranteed Senior Notes................................... 79
Fleet Financing Facilities................................ 80
INDEPENDENT AUDITORS........................................ 81
ANNUAL REPORT TO STOCKHOLDERS............................... 81
ANNUAL REPORT ON FORM 10-K.................................. 81
OTHER MATTERS............................................... 82
PROPOSALS OF STOCKHOLDERS................................... 82
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
ANNEX A -- TEXT OF PROPOSED CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TEAM
RENTAL GROUP, INC......................................... A-1
ANNEX B -- 1994 INCENTIVE STOCK OPTION PLAN WITH PROPOSED
AMENDMENTS................................................ B-1
ANNEX C -- 1994 DIRECTORS' STOCK OPTION PLAN WITH PROPOSED
AMENDMENTS................................................ C-1
ANNEX D -- OPINION OF CREDIT SUISSE FIRST BOSTON
CORPORATION............................................... D-1
</TABLE>
iii
<PAGE> 8
TEAM RENTAL GROUP, INC.
125 BASIN STREET
DAYTONA BEACH, FLORIDA 32114
---------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 22, 1997
---------------------
INFORMATION STATEMENT
WITH RESPECT TO TAKING OF
STOCKHOLDER ACTION BY WRITTEN CONSENT
---------------------
ANNUAL REPORT TO STOCKHOLDERS FOR
YEAR ENDED DECEMBER 31, 1996
---------------------
GENERAL INFORMATION
MARCH 25, 1997
SOLICITATION AND REVOCABILITY OF PROXY
This Proxy Statement is furnished to each Stockholder (as defined below) in
connection with the solicitation by the Board of Directors of Team Rental Group,
Inc. (the "Company" or "TEAM") of Proxies in the accompanying form to be used at
the Annual Meeting of Stockholders to be held at the Company's offices at 125
Basin Street, Daytona Beach, Florida on Tuesday, April 22, 1997 at 9:00 a.m.
(local time) and at any subsequent time that may be necessary by the adjournment
thereof.
The mailing address of the principal executive office of the Company is 125
Basin Street, Daytona Beach, Florida 32114. This Proxy Statement and the
enclosed Proxy are first being mailed to the Stockholders of the Company on or
about March 25, 1997. This Proxy Statement also constitutes the Company's Annual
Report to Stockholders for the year ended December 31, 1996 (the "Annual
Report"). See "Annual Report to Stockholders."
All holders of record (the "Stockholders") of the Company's Class A common
stock, par value $.01 per share (the "Class A Common Stock"), and Class B common
stock, par value $.01 per share (the "Class B Common Stock") (collectively, the
"Common Stock"), at the close of business on February 27, 1997 (the "Record
Date") are entitled to vote at the Annual Meeting. If, however, a Stockholder
cannot be present in person, a Proxy is enclosed that the Board of Directors of
the Company requests such Stockholder execute and return as soon as possible.
You may withhold your vote from any nominee for director by striking through
such nominee's name on the appropriate space on the accompanying Proxy. A
Stockholder can revoke its Proxy at any time before it is voted if so desired,
either in person at the Annual Meeting or by delivery of a duly executed
subsequent Proxy or written notice of revocation to the Secretary of the
Company. All properly executed Proxies delivered pursuant to this solicitation,
unless previously revoked, will be voted in accordance with directions given, if
delivered in time to be voted at the Annual Meeting. If you return a signed
Proxy that does not indicate your voting preferences, the persons named on the
Proxy will vote your shares in favor of all of the proposals set forth in the
attached notice.
The Company is paying all costs of the solicitation of Proxies, including
the expenses of printing and mailing to its Stockholders this Proxy Statement,
the accompanying Notice of Annual Meeting of Stockholders, Proxy and Annual
Report.
The Company has retained MacKenzie Partners, Inc. to aid in the
solicitation of proxies. It is estimated that the cost of these services will be
approximately $6,000 plus expenses. The cost of soliciting proxies will be borne
by the Company. Proxies may be solicited personally or by telephone or facsimile
transmission. In addition, the Company will reimburse brokerage firms and other
custodians, nominees and fiduciaries representing beneficial owners of shares of
Common Stock for their expenses in forwarding solicitation
<PAGE> 9
materials to beneficial owners. Proxies may also be solicited by certain of the
Company's executive officers, directors and regular employees, without
additional compensation, personally or by telephone or facsimile transmission.
RECORD DATE; QUORUM AND VOTING REQUIREMENTS
All holders of record of the Common Stock at the close of business on the
Record Date are entitled to vote at the Annual Meeting. At the close of business
on the Record Date, 9,320,383 shares of Class A Common Stock and 1,936,600
shares of Class B Common Stock were outstanding and are entitled to vote at the
Annual Meeting. The holders of shares of Class A Common Stock generally vote
together with the holders of shares of Class B Common Stock as a single class on
all matters, but the holders of Class A Common Stock are entitled to one vote
per share and the holders of Class B Common Stock are entitled to ten votes per
share. The holders of Class A Common Stock will also vote as a separate class
with respect to the amendment to the Company's Amended and Restated Certificate
of Incorporation. No cumulative voting rights are authorized and appraisal
rights for stockholders are not applicable to the matters being proposed.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspector of elections appointed for the meeting who will also determine
whether a quorum is present for the transaction of business. The Company's
Bylaws provide that the presence in person or by proxy of the holders of a
majority of the combined voting power of the Common Stock issued and outstanding
and entitled to vote at the Annual Meeting shall constitute a quorum for the
transaction of business at the Annual Meeting. For purposes of the separate vote
of the holders of Class A Common Stock required to approve the amendment to the
Company's Amended and Restated Certificate of Incorporation, the presence in
person or by proxy of the holders of a majority of the Class A Common Stock
issued and outstanding and entitled to vote at the Annual Meeting shall
constitute a quorum of the Class A Common Stock. In accordance with applicable
state law and the Company's Amended and Restated Certificate of Incorporation
and Bylaws, abstentions will be treated as shares that are present and entitled
to vote for purposes of determining whether a quorum is present but will not
count as either a vote for or against nominees for purposes of determining the
outcome of voting for directors. Shares held by nominees for beneficial owners
will be counted for purposes of determining whether a quorum is present if the
nominee has the discretion to vote on at least one of the matters presented even
if the nominee may not exercise discretionary voting power with respect to other
matters and voting instructions have not been received from the beneficial owner
(a "Broker Non-vote"). With respect to any matter (other than the election of
directors and the amendment to the Company's Amended and Restated Certificate of
Incorporation) that may properly come before the meeting for stockholder
consideration, abstentions will be counted in determining the minimum number of
affirmative votes required for approval of any matter presented for stockholder
consideration and, accordingly, will have the effect of a vote against any such
matter. Broker Non-votes will not be counted as votes for or against matters
presented for stockholder consideration.
If a quorum is present, (i) those nine nominees who receive the greatest
number of votes cast for the election of directors at the Annual Meeting shall
become directors of the Company at the conclusion of the tabulation of the
votes; (ii) the affirmative vote of the holders of a majority of the shares of
Common Stock outstanding on the Record Date as well as the affirmative vote of
the holders of a majority of the Class A Common Stock outstanding on the Record
Date, voting as a separate class, will be required to approve the proposed
amendment to the Company's Amended and Restated Certificate of Incorporation;
and (iii) the affirmative vote of the holders of a majority of the shares of
Common Stock present in person or by proxy at the Annual Meeting will be
required to approve the proposed amendments to the 1994 Incentive Stock Option
Plan and the 1994 Directors' Stock Option Plan.
INFORMATION REGARDING ACTION TAKEN BY WRITTEN CONSENT OF STOCKHOLDERS
On January 13, 1997, pursuant to the terms of a Consent Agreement dated as
of January 13, 1997 among Ford Motor Company ("Ford") and the three individuals
named therein, the three holders of all of the outstanding Class B Common Stock
of the Company (representing, in the aggregate, over 67% of the total
outstanding voting power of the Common Stock) executed a written consent in lieu
of a stockholder meeting pursuant to Section 228 of the Delaware General
Corporation Law (the "Written Consent") approving the
2
<PAGE> 10
issuance of shares of Class A Common Stock to be issued upon conversion of
shares of the Company's Series A Convertible Preferred Stock (as defined herein)
to be issued to Ford pursuant to the Stock Purchase Agreements (as defined
herein). The holders of the Class B Common Stock together also own an aggregate
of 44,750 shares of Class A Common Stock. Pursuant to Regulation 14C
("Regulation 14C") under the Securities Exchange Act of 1934 (the "Exchange
Act"), the Company is required to provide to all holders of Common Stock certain
information in connection with the taking of stockholder action by the Written
Consent. This Proxy Statement contains all of the information required to be
delivered to stockholders pursuant to Regulation 14C. NO PROXY OR CONSENT IS
BEING SOLICITED BY THE BOARD OF DIRECTORS WITH RESPECT TO THE WRITTEN CONSENT.
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of nine members, all of whom
have been nominated for election at the meeting. If elected, such directors will
hold office until the next Annual Meeting of Stockholders and until their
respective successors shall have been elected and qualified, or, until
resignation, removal or death as provided in the Bylaws of the Company. Messrs.
Mirkin and Liker have been nominated to serve as directors under the terms of an
agreement entered into by the Company in connection with its acquisition of the
Budget franchise for Los Angeles, California (the "Los Angeles Acquisition"),
pursuant to which the Company agreed to nominate and use its best efforts to
elect to the Board of Directors two persons designated by the seller of that
franchise for so long as that seller owns more than 500,000 shares of Class A
Common Stock.
All of the nominees listed below have indicated a willingness to serve on
the Board of Directors of the Company. If any of the nominees shall become
unable to serve, or for good cause will not serve, the persons named on the
enclosed proxy card will vote as the Board recommends for substitute nominees,
vote to allow the vacancy created thereby to remain open until filled by the
Board of Directors, or vote to reduce the number of directors for the ensuing
year. In no event, however, can the proxy be voted to elect more than nine
directors.
The nine nominees who receive the greatest number of votes cast for the
election of directors at the Annual Meeting shall become directors at the
conclusion of the tabulation of votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
NAMED BELOW.
INFORMATION ON NOMINEES
The names of the nine nominees for director, together with certain
information furnished to the Company by each individual, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE
- ---- --- --------
<S> <C> <C>
Sanford Miller............................... 44 1994
John P. Kennedy.............................. 52 1994
Jeffrey D. Congdon........................... 54 1994
Ronald D. Agronin............................ 59 1994
James F. Calvano............................. 60 1994
Martin P. Gregor............................. 33 1996
Alan D. Liker................................ 59 1995
Jeffrey R. Mirkin............................ 44 1995
Dr. Stephen L. Weber......................... 55 1994
</TABLE>
Sanford Miller has been the Chairman of the Board of Directors and Chief
Executive Officer of the Company since April 1994. From August 1991 to August
1994, he was Vice President of Tranex Rentals 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
3
<PAGE> 11
Marketing, Special Accounts, for BRACC. From 1987 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 Operation Manager for BRACC. Mr. Miller
served as President of the American Car Rental Association, a nation-wide
industry trade association, in 1993 and 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 the Company since April 1994. From November 1991 to August 1994, he was
President of Metro West, Inc., whose wholly owned subsidiary previously owned
the Company'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, Inc. ("Avis"), including as Vice President of Operations.
Jeffrey D. Congdon has been Chief Financial Officer, Secretary and a
director of the Company since April 1994. Since December 1990, he has been
Secretary and Treasurer of Tranex Credit Corporation, which provides financing
for purchases of previously owned vehicles. From 1980 to 1989, he was an
executive officer and principal stockholder of corporations that owned and
operated 30 Budget franchises that were sold to BRACC in 1989. From 1982 to
1996, Mr. Congdon owned and operated retail new and/or used vehicle sales
operations in Indianapolis, Indiana.
Ronald D. Agronin was elected as a director in April 1994. Since 1993, Mr.
Agronin has served as Vice Chairman of Black Clawson Company ("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 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 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 the 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 Operation Officer and Group Vice President, Western Hemisphere.
Martin P. Gregor was elected as a director 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 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
4
<PAGE> 12
International. Mr. Liker was a director of Shaklee Corporation and its Japanese
affiliate, Shaklee KK, until their sale in 1989. From 1976 to 1980, he was a
principal of Xerox Development Corporation, a strategic planning unit of Xerox
Corporation. Mr. Liker was previously a law professor at the Harvard University,
University of California (Los Angeles) and University of Southern California law
schools. Previously, he was a director of First Charter Bank and Shop Television
Network. See "Certain Transactions and Relationships."
Jeffrey R. Mirkin was elected as a director 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 and Relationships."
Dr. Stephen L. Weber was elected as a director in April 1994. Since June
1996, Dr. Weber has been the President of San Diego State University. From
August 1995 to June 1996, he was the Interim Provost at the State University of
New York System Office. From 1988 until June 1996, he was President of State
University of New York at Oswego.
MEETINGS OF THE BOARD OF DIRECTORS
During 1996, the Board of Directors of the Company held three meetings.
Except for Mr. Gregor, who was elected to the Board of Directors in December
1996, and Messrs. Congdon and Weber, who attended 67% of the meetings of the
Board and each of the committees on which such director served, each director
attended at least 75% of the meetings of the Board and the committees on which
such director served in 1996.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a compensation committee and an
audit/finance committee. The Board of Directors does not have a nominating
committee.
Compensation Committee. The Compensation Committee is composed of Mr.
Agronin and Dr. Weber. The Compensation Committee met two times in 1996. The
primary function of the Compensation Committee is to establish salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company, to administer various incentive compensation and
benefit plans and to recommend policies relating to such plans.
Audit/Finance Committee. The Audit/Finance Committee is composed of
Messrs. Agronin and Calvano. The Audit/Finance Committee met three times in
1996. The primary function of the Audit/Finance Committee is to review the
Company's accounting practices, internal accounting controls and financial
results and to oversee the engagement of the Company's independent auditors.
COMPENSATION OF DIRECTORS
Non-employee directors receive an annual retainer of $12,000 and are
eligible to participate in the Company's 1994 Directors' Stock Option Plan. See
"Proposed Amendment to the Company's 1994 Directors' Stock Option Plan."
5
<PAGE> 13
EXECUTIVE OFFICERS
The following table sets forth information with respect to each person who
is an executive officer or a significant employee of the Company. For
information with respect to persons who are expected to serve as executive
officers and significant employees of Budget Group and its subsidiaries upon
completion of the Budget Acquisition, see "Management of Budget Group."
<TABLE>
<CAPTION>
NAME AGE POSITION(S) 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
Donald J. Norwalk......................... 32 Vice President and Treasurer
L. Scott Tiemann.......................... 38 Vice President and Corporate Controller
</TABLE>
For descriptions of the business experience of Messrs. Miller, Congdon and
Kennedy, see "Election of Directors."
Scott R. White has been Executive Vice President, Corporate Development of
the Company since February 1997. From August 1992 to February 1997, he worked in
the Investment Banking Department of Credit Suisse First Boston Corporation,
mostly 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.
Donald J. Norwalk has been Vice President and Treasurer of the Company
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.
L. Scott Tiemann has been Vice President and Corporate Controller of the
Company 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.
Officers are elected annually and hold office until their successors are
elected and qualified.
6
<PAGE> 14
COMMON STOCK OWNERSHIP
BY MANAGEMENT AND 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 the Company to be the beneficial owner of more than 5% of either
class of Common Stock of the Company and (ii) each of the directors and Named
Executive Officers (as defined herein) of the Company and all directors and
executive officers as a group. As of that date, the Company had outstanding
9,320,383 shares of Class A Common Stock and 1,936,600 shares of Class B Common
Stock. 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
------------------------------------------ ---------------------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF
CLASS A SHARES CLASS A SHARES CLASS B SHARES CLASS B SHARES
DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWNED(A) BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
- -------------------------------- --------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Sanford Miller...................... 952,500(b) 9.3% 905,800 46.8%
Jeffrey D. Congdon.................. 560,350(c) 5.7 515,400 26.6
John P. Kennedy..................... 548,500(d) 5.5 515,400 26.6
Ronald D. Agronin................... 14,500(e) * -- --
James F. Calvano.................... 12,500(e) * -- --
Martin P. Gregor.................... 8,305 * -- --
Alan D. Liker....................... 71,003(f) * -- --
Jeffrey R. Mirkin................... 662,500(g) 7.1 -- --
Dr. Stephen L. Weber................ 15,600(e) * -- --
All directors and executive officers
as a group
(12 persons)...................... 2,824,305(h) 24.7 1,936,600 100.0%
OTHER FIVE PERCENT STOCKHOLDERS
Ford Motor Company.................. -- (i) -- -- --
Metropolitan Life Insurance
Company........................... 1,937,640(j) 18.3 -- --
The Equitable Companies
Incorporated...................... 1,522,500(k) 16.3 -- --
John Hancock Mutual Life Insurance
Company........................... 1,245,640(l) 11.8 -- --
New York Life Insurance Company..... 996,512(m) 9.7 -- --
State Street Research & Management
Company........................... 692,000(n) 7.4 -- --
U.S. Bancorp........................ 577,700(o) 6.2 -- --
The Kaufmann Fund, Inc.............. 539,500(p) 5.8 -- --
Putnam Investments, Inc............. 981,400(q) 10.5 -- --
<CAPTION>
PERCENT OF TOTAL
VOTING
POWER OF COMMON
STOCK
DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWNED
- -------------------------------- ------------------
<S> <C>
Sanford Miller...................... 31.7%
Jeffrey D. Congdon.................. 18.1
John P. Kennedy..................... 18.1
Ronald D. Agronin................... --
James F. Calvano.................... *
Martin P. Gregor.................... *
Alan D. Liker....................... *
Jeffrey R. Mirkin................... 2.3
Dr. Stephen L. Weber................ *
All directors and executive officers
as a group
(12 persons)...................... 70.2
OTHER FIVE PERCENT STOCKHOLDERS
Ford Motor Company.................. --
Metropolitan Life Insurance
Company........................... 6.8
The Equitable Companies
Incorporated...................... 5.3
John Hancock Mutual Life Insurance
Company........................... 4.3
New York Life Insurance Company..... 3.5
State Street Research & Management
Company........................... 2.4
U.S. Bancorp........................ 2.0
The Kaufmann Fund, Inc.............. 1.9
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 the Company'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, Daytona 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.
7
<PAGE> 15
(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.
(e) Includes 12,500 shares of Class A Common Stock issuable upon exercise of
options granted under the 1994 Directors' Plan.
(f) Includes (i) 46,003 shares of Class A Common Stock that may be acquired by
Mr. Liker from SoCal pursuant to an option granted by SoCal to Mr. Liker in
October 1995 and (ii) 12,500 shares of Class A Common Stock issuable upon
exercise of options granted under the 1994 Directors' Plan.
(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
granted under the 1994 Directors' Plan. 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
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 other than Ford or any affiliate of Ford.
(j) Includes 1,245,640 shares of Class A Common Stock issuable upon conversion
of 7.0% Convertible Subordinated Notes due 2003 (the "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. TEAM expects this
holder to purchase Series B Convertible Notes, which will be convertible
into Class A Common Stock, in the Debt Placements (as described herein).
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 13D filed by The
Equitable with the Commission on February 14, 1997. The Equitable's address
is 787 Seventh Avenue, New York 10019.
(l) Represents shares of Class A Common Stock issuable upon conversion of
Series A Convertible Notes. TEAM expects this holder to purchase Series B
Convertible Notes, which will be convertible into 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. TEAM expects this holder to purchase Series B
Convertible Notes, which will be convertible into 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.
8
<PAGE> 16
(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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than ten percent of a registered
class of the Company's equity securities to file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Based solely upon a review of the copies
of such reports furnished to the Company and certain representations of such
persons, all such persons complied with the applicable reporting requirements
except that the initial statement of beneficial ownership on Form 3 required to
be filed by Martin P. Gregor upon his becoming a director of the Company was
inadvertently filed approximately two months late.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation paid by the
Company during the last three fiscal years to the Chief Executive Officer and
the other executive officers of the Company 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.
9
<PAGE> 17
OPTION GRANTS DURING 1996 AND YEAR END OPTION VALUES
The following table describes the stock options granted to the Named
Executive Officers of the Company in 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(1) 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>
- ---------------
(1) Represents options to purchase shares of Class B Common Stock.
The following table describes the value of unexercised options that were
held by the Named Executive Officers of the Company 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(1)
--------------------------------- ---------------------------------
NAME EXERCISABLE(2) UNEXERCISABLE(3) EXERCISABLE(2) UNEXERCISABLE(3)
---- -------------- ---------------- -------------- ----------------
<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>
- ---------------
(1) Based upon the closing price of Class A Common Stock on December 31, 1996 of
$16.125.
(2) Represents options to purchase shares of Class A Common Stock.
(3) 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 the Company or any of
its subsidiaries or entered into a related party transaction with the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee endeavors to ensure that the compensation
program for executive officers of the Company is effective in attracting and
retaining key executives responsible for the success of the Company and is
tailored to promote the long-term interests of the Company and its stockholders.
The Company's executive officer compensation program for 1996 was principally
comprised of base salary and stock options. The Compensation Committee believes
that the base salaries of its executive officers are somewhat below average and
that its executive officers are primarily incentivized by their equity stakes in
the Company. With this in mind, the Company's 1994 Incentive Stock Option Plan
(the " Plan") was put in place in 1994 to provide additional long-term
compensation to the Company's executive officers. The Board of Directors has,
subject to receipt of stockholder approval, proposed certain amendments to the
Plan to, among other things, increase the number of shares of Common Stock
available for grant under such plan to 1,750,000. See "Proposed Amendment to the
Company's 1994 Incentive Stock Option Plan." The Compensation Committee believes
that the mutuality of interests between the executive officers and the Company's
10
<PAGE> 18
stockholders is strengthened by increasing the executive officers' ownership of
Common Stock through the Plan. The Compensation Committee granted 502,650
options to employees under the Plan in 1996.
The Compensation Committee takes into account various qualitative and
quantitative indicators of corporate and individual performance in determining
the level and composition of compensation for the Company's Chief Executive
Officer and his recommendations regarding the other executive officers. In
particular, the Compensation Committee considers several financial performance
measures, including revenue growth and net income. However, the Compensation
Committee does not apply any specific quantitative formula in making
compensation decisions. The Committee also considers achievements that, while
difficult to quantify, are important to the Company's long-term success.
The compensation of the Chief Executive Officer, Mr. Miller, is established
annually by the Compensation Committee. Mr. Miller's compensation is principally
comprised of a base salary and stock option awards which are primarily tied to
the Company's revenue growth, net income per share in the prior year and stock
price appreciation. Mr. Miller's total compensation is evaluated in comparison
to the compensation of the chief executives of a peer group of companies of
similar size, complexity and performance, including certain of those companies
included in the peer group selected for the Stock Price Performance Graph
included in this Proxy Statement (the "Peer Group"). The Peer Group consists of
selected companies which operate in similar lines of business and pursue goals
similar to those of the Company, including vehicle finance and leasing. The Peer
Group selection is limited for practical purposes; however, executive talent can
be recruited from numerous other companies that also possess features similar to
the Company's. Therefore, the companies surveyed for purposes of determining the
compensation of the Chief Executive Officer and the other executive officers are
more numerous than the companies in the Peer Group.
In 1996, Mr. Miller's base salary was increased 13.4% over his 1995 base
salary. In addition, Mr. Miller was granted 60,000 options to purchase Class B
Common Stock under the Plan. In determining the reasonableness of the
compensation awarded to Mr. Miller in 1996, the Compensation Committee
considered Mr. Miller's overall performance, his current levels of ownership of
options to purchase Class A and Class B Common Stock and the Compensation
Committee's desire to augment Mr. Miller's long-term incentive for continued
employment with the Company.
Notwithstanding the foregoing, given the Company's growth plans, salary
levels for the Company's executive officers will no doubt be significantly
influenced by the need to attract and retain additional management employees
with high levels of expertise. In each case, consideration will be given both to
personal factors, such as the individual's experience, responsibilities and work
performance, and to external factors, such as salaries paid to similarly
situated executive officers by comparable companies in the industries in which
the Company operates, including the companies in the Peer Group. Therefore, in
the future it will be critical that the Company provide base salaries that are
competitive in the vehicle rental and retail car sales industries. With respect
to personal factors, the Compensation Committee makes salary decisions in an
annual review based on the recommendations of the Chief Executive Officer. This
annual review considers the decision-making responsibilities of each position as
well as the experience and work performance of each executive. The Chief
Executive Officer views work performance as the single most important
measurement factor.
THE COMPENSATION COMMITTEE
Ronald D. Agronin
Dr. Stephen L. Weber
11
<PAGE> 19
PERFORMANCE GRAPH
Set forth below is a line graph comparing the percentage change in the
cumulative total stockholder return on the Company's Class A Common Stock
against the cumulative total return of the Nasdaq Composite Index and a peer
group index consisting of seven public companies whose principal business
consists of vehicle finance and leasing. The performance graph assumes $100 was
invested on August 18, 1994 (the date that the Class A Common Stock was first
publicly traded) and measures the return thereon through December 31, 1996.
<TABLE>
<CAPTION>
Measurement Period Nasdaq
(Fiscal Year Covered) Team Rental Peer Group* Composite
<S> <C> <C> <C>
8/18/94 100.000 100.000 100.000
9/30/94 123.684 97.735 102.980
12/31/94 100.000 88.202 101.319
3/31/95 86.842 95.672 110.111
6/30/95 76.316 97.603 125.773
9/29/95 105.263 104.382 140.607
12/29/95 89.474 103.852 141.764
3/29/96 105.263 113.552 148.403
6/28/96 147.369 115.371 159.670
9/30/96 200.000 125.715 165.315
12/31/96 169.737 134.827 173.953
</TABLE>
* The peer group includes the following companies: Amerco, National Auto Credit,
Inc., Oxford Resources Corp., Pacific International Services Corp., PHH
Corporation, Rollins Truck Leasing and Ryder System, Inc. The Company is not
included in the peer group because management believes that by excluding the
Company, investors will have a more accurate view of the Company's performance
relative to its peers.
12
<PAGE> 20
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Messrs. Miller, Kennedy and Congdon have guaranteed the performance of the
obligations of some or all of the Company's subsidiaries under their respective
franchise agreements. In connection with the Company's initial public offering
in August 1994, the Company's franchisors agreed to release these individuals
from their guarantees under the Company's franchise agreements and substitute
the Company's guarantee therefor, provided that the Company maintains tangible
net worth of $15.0 million. In the event that the Company's net worth falls
below this level, the Company has the option to provide the franchisors with a
$5 million letter of credit that could be drawn on in the event of a monetary
default under the Company's 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.
The Company's Richmond, Virginia airport facility is leased from a
partnership formed by Mr. Miller and an employee of the Company (the "Richmond
Partnership"). This lease terminates in 1998, subject to renewal. Rental
payments under the lease agreement amounted to approximately $100,000 in 1996.
The monthly base rent under this lease (approximately $8,300 in 1996) escalates
by approximately 3% per annum. The Company has entered into another lease for a
non-airport facility located in Chesterfield County, Virginia that is owned by
the Richmond Partnership. This lease commenced in June 1994 and terminates in
May 1999, subject to renewal. Rental payments under this lease amounted to
approximately $43,000 in 1996. The monthly base rent under this lease
(approximately $3,600 in 1996) escalates by approximately 3% per annum. The
Company's Rochester, New York airport facility is leased from a partnership
formed by Mr. Miller and a former employee of the Company. This lease terminates
in 2003, subject to renewal. The monthly based rent under this lease
(approximately $7,000 in 1996) escalate 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 approximately $84,000 in 1996. All of these leases are on a triple net basis
(i.e., the Company 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 leases provide for an initial term
of ten years and two five year renewal terms. The Company believes that these
leases are on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
The Company's Philadelphia, Pennsylvania retail vehicle sales facility,
regional administrative headquarters and vehicle maintenance facility are leased
from MCK Real Estate Corporation ("MCK"), which is owned by Messrs. Miller,
Congdon and Kennedy. This lease terminates in September 2002, subject to
renewal. Rental payments under the lease were approximately $316,000 for 1996.
The monthly base rent (approximately $26,000 per month in 1996) escalates by 3%
per annum. The Company's Richmond, Virginia retail vehicle sales facility is
leased from MCK. This lease terminates in October 2000, subject to renewal.
Rental payments under the lease agreement were approximately $10,300 in 1996.
The monthly base rent under this lease (approximately $10,000 per month in 1996)
escalates by 3% per annum. The Company's second Dayton, Ohio retail car sales
facility, which opened in April 1996, is leased from MCK. This lease terminates
in March 2001, subject to renewal. The monthly base rent under this lease
(approximately $10,000 per month in 1996) escalates by 3% per annum. All of
these leases are on a triple net basis. The Company believes that these leases
are on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
In connection with the Los Angeles Acquisition, the Company entered into a
franchise agreement with SoCal, under which the Company agreed to pay to the
seller, SoCal, a royalty equal to 5% of the monthly gross revenues derived from
those operations, subject to a minimum amount. In addition, the Company issued a
note to SoCal in the principal amount of approximately $4,750,000 (the "SoCal
Note"), assumed the obligations of SoCal under a note in the principal amount of
approximately $4,700,000 which was secured by the personal guaranty of Jeffrey
R. Mirkin (the "SoCal Bank Note") and assumed certain other indebtedness that
was personally guaranteed by Mr. Mirkin. Mr. Mirkin is the Chief Executive
Officer and general partner of SoCal and, upon consummation of the Los Angeles
Acquisition, became a director of the Company. The Company operates as a
sub-franchisee of SoCal in the San Diego territory and pays royalty fees to
SoCal based on rental revenues for vehicles other than trucks. In 1996, the
Company paid SoCal approximately
13
<PAGE> 21
$3,700,000 in royalty fees. Except as described above, prior to the Los Angeles
Acquisition, there was no material relationship between the Company and SoCal.
The SoCal Note together with accrued interest of $103,906, and the SoCal Bank
Note were repaid in April 1996. There was approximately $700,000 of other
indebtedness payable by the Company to SoCal at December 31, 1996.
In connection with the acquisition of ValCar Rental Sales, Inc. ("ValCar")
in August 1996, the Company assumed an unsecured revolving credit 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, the Company
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. The Company maintains a checking
account at that bank with an average balance of $100,000.
AMENDMENT TO THE AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION
The Board has approved, subject to stockholder approval, an amendment (the
"Amendment") to the Amended and Restated Certificate of Incorporation (i) to
increase to 35,000,000 the number of authorized shares of Class A Common Stock
and (ii) to change the name of the Company to Budget Group, Inc. The Company's
Amended and Restated Certificate of Incorporation currently authorizes the
issuance of 20,250,000 shares, of which 17,500,000 shares are designated Class A
Common Stock, 2,500,000 shares are designated Class B Common Stock, and 250,000
shares are designated preferred stock, par value $.01 per share ("Preferred
Stock"). The Class A Common Stock and the Class B Common Stock are referred to
collectively as the "Common Stock." As of the Record Date, there were 9,320,383
shares of Class A Common Stock outstanding, 1,936,600 shares of Class B Common
Stock outstanding and no shares of Preferred Stock outstanding. As of the Record
Date, 3,986,049 shares of Class A Common Stock were reserved for issuance upon
conversion of the Company's outstanding Series A Convertible Notes; 4,500,000
shares of Class A Common Stock were reserved for issuance upon conversion of the
Series A Convertible Preferred Stock of the Company to be issued in the Budget
Acquisition; 614,800 shares of Class A Common Stock and 164,000 shares of Class
B Common Stock were reserved for issuance under the 1994 Incentive Stock Option
Plan and the 1994 Directors' Stock Option Plan; and 362,500 shares of Class A
Common Stock were reserved for issuance upon exercise of outstanding warrants.
DESCRIPTION OF AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
The Amendment provides that 35,000,000 shares will be designated Class A
Common Stock, 2,500,000 shares will be designated as Class B Common Stock and
250,000 shares will be designated as Preferred Stock. The text of the Amendment
is set forth in Annex A to this Proxy Statement. The rights, voting powers,
designations and preferences of the Class A Common Stock and the Class B Common
Stock will remain unchanged as a result of the Amendment. On January 13, 1997,
in connection with the Budget Acquisition as hereinafter defined, the Board
authorized the creation of a class of Preferred Stock designated as Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Convertible
Preferred Stock"). The terms of the Common Stock, the Preferred Stock and the
Series A Convertible Preferred Stock are described herein under the caption
"Description of Capital Stock."
The Amendment further provides that the name of the Company shall be
changed to Budget Group, Inc., effective as of the closing date of the Budget
Acquisition. The Board believes that, in view of the Budget Acquisition, it is
advisable and in the best interests of the Company to effect the change of the
Company's name. The name "Budget Group" will better enable the Company to pursue
its strategies of (i) enhancing the consistency and quality of the Budget brand;
(ii) improving the performance of its car rental operations; (iii) continuing to
expand its retail car sales operations; and (iv) expanding its truck rental
operations. See "Business of Budget Group -- Strategy."
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<PAGE> 22
REASONS FOR THE AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
The Board has authorized the Amendment and recommends that the Stockholders
approve the Amendment. The Amendment will permit a public offering of up to
approximately 6,500,000 shares of Class A Common Stock prior to the exercise of
any underwriters' over-allotment option (the "Offering"), or such additional
number of shares as the Board of Directors of the Company may determine, to
provide a portion of the financing for the Budget Acquisition. In the opinion of
the Board, the Offering is advisable and in the best interests of the Company,
and the Board has authorized the Offering subject to stockholder approval of the
Amendment. If the Amendment is not approved and the Company is unable to
consummate the Offering, the closing of the Budget Acquisition will be postponed
and the Company will consider alternative sources for the financing of the
Budget Acquisition, including public offerings or private placements of debt and
equity securities, bank financings and borrowings under the Bridge Loan (as
described under "The Budget Acquisition -- Financing Plan for the Budget
Acquisition"). Management believes that any delay in the consummation of the
Budget Acquisition would be disadvantageous to the Company because the Company
would not own BRACC during the spring and summer months, which are traditionally
the strongest months of revenues and net income for vehicle rental companies.
Under the terms of the Stock Purchase Agreements, the Company must consummate
the Budget Acquisition by October 15, 1997. See "The Budget Acquisition -- Terms
of the Stock Purchase Agreements."
The Amendment is also necessary to permit the proposed amendments to
increase the number of shares of Common Stock available for issuance under the
1994 Incentive Stock Option Plan and the 1994 Directors' Stock Option Plan,
which amendments are described elsewhere in this Proxy Statement.
In the opinion of the Board, approval of the Amendment will enhance the
Company's flexibility by increasing the number of shares of Class A Common Stock
that can be issued without requiring further stockholder approval. The Board
believes that the increased flexibility provided by the Amendment will enable
the Company to respond promptly and appropriately to acquisitions (including the
Budget Acquisition), possible financing needs, possible stock dividends or stock
splits or business opportunities. Although approval of the Amendment is
necessary to permit the Offering, the Offering is not a condition to the
consummation of the Budget Acquisition and, accordingly, the approval of the
Amendment is not a condition to the consummation of the Budget Acquisition. The
full terms of the Budget Acquisition, the Offering and certain related matters
are described elsewhere in this Proxy Statement.
EFFECT OF AMENDMENT ON EXISTING STOCKHOLDERS
Authorized but unissued shares may be issued at such time or times, to such
person or persons and for such consideration as the Board of Directors
determines to be in the best interests of the Company, without further
authorization from the Company except as may be required by the rules of The
Nasdaq National Market or any stock exchange on which the Class A Common Stock
is listed. The authorization of additional shares of Common Stock will not, by
itself, have any effect on the rights of holders of existing shares. Depending
on the circumstances, issuance of additional shares of Common Stock could result
in substantial dilution of the existing stockholders' ownership interests in the
Company. The stockholders do not have pre-emptive rights to purchase additional
shares of Common Stock nor will they have any such rights as a result of this
proposal.
VOTE REQUIRED
The proposed Amendment must be approved by (i) the affirmative vote of a
majority of the combined voting power of the shares of Common Stock that are
outstanding on the Record Date and (ii) the affirmative vote of a majority of
the Class A Common Stock outstanding on the Record Date, voting separately as a
class. Proxies will be voted in accordance with the specifications marked
thereon, and if no specification is made on a signed proxy, will be voted "FOR"
the adoption of the proposed Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
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<PAGE> 23
PROPOSED AMENDMENT TO THE COMPANY'S
1994 INCENTIVE STOCK OPTION PLAN
The Board has approved and recommends to the Stockholders that they approve
a proposal to amend the Company's 1994 Incentive Stock Option Plan (the "Plan")
(i) to increase by 990,000 the number of shares of Common Stock available for
grant under such plan such that the total number of shares of Common Stock
available for grant under such plan is 1,750,000, (ii) to delete the definition
of "Disinterested Person" in Section 2(7) of the Plan and (iii) to delete the
proviso in clause (i) of Section 5 of the Plan, which currently provides that
the maximum number of shares for which any employee may be granted an option in
any three year period is 75,000. In the event that the proposed amendment is
approved, 1,020,150 options would remain available for grant under the Plan. The
full text of the Plan with the proposed amendments is set forth in Annex B to
this Proxy Statement.
The Board has determined that the amendment to the Plan is in the best
interests of the Company and its stockholders. The proposed amendment would
provide additional shares for grant to employees of the Company. The Board
believes that grants of stock options are an effective method to attract and
retain employees and that the availability of shares for future grants under the
Plan is important to the Company's business prospects and operations. The Board
intends to use up to 1,000,000 of the additional shares to grant options to the
Company's employees as annual option grants under the Plan and to make option
grants to employees of BRACC who become employees of the Company. See "The
Budget Acquisition -- Special Bonus Program." Except for such amendment, if
approved by the affirmative vote of the holders of a majority of the shares of
Common Stock present in person or by proxy at the Annual Meeting, the Plan will
remain unchanged.
DESCRIPTION OF THE PLAN
The following description of the Plan, giving effect to the proposed
amendment, is a summary and is qualified in its entirety by reference to the
text of the Plan.
Stock Subject to the Plan. The Plan provides for the issuance of either
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") (the "Incentive Options") or
nonqualified stock options (intended not to qualify as incentive stock options)
(the "Nonqualified Options" and, collectively with the Incentive Options, the
"Options") to key employees of the Company. Upon amendment of the Plan, the
maximum number of shares of Common Stock that may be made subject to options
granted pursuant to the Plan is 1,750,000. Prior to amendment, the maximum
number of shares of Common Stock that may be made subject to options granted
pursuant to the Plan is 760,000. Options granted under the Plan may relate to
either Class A Common Stock or Class B Common Stock.
Administration. The Plan is administered by a committee appointed by the
Board of Directors consisting of not fewer than two individuals who are
"non-employee" directors under Rule 16b-3 promulgated under Section 16 of the
Exchange Act (the "Committee"). The Committee has the authority to grant Options
under the Plan and to determine the number, terms and conditions of all Options
so granted. The Board of Directors has the right to amend or terminate the Plan
in certain circumstances, provided that any amendment or modification must
comply with applicable law, the requirements of Section 16 of the Exchange Act,
the applicable National Association of Securities Dealers, Inc. (the "NASD") or
stock exchange listing requirements and the requirements under the Code.
The Committee determines the key employees to whom Options are to be
granted, the times at which Options are granted, the number of shares of Common
Stock subject to each Option, whether each Option is an Incentive Option or a
Nonqualified Option, whether the option is exercisable for shares of Class A
Common Stock or Class B Common Stock, the exercise price per share, and the
maximum term of each Option. The Committee shall also have the power to
interpret and construe the Plan and to determine the terms and provisions of
each agreement evidencing an Option (an "Agreement") and to make all other
determinations the Committee deems necessary or advisable in administering the
Plan.
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<PAGE> 24
Eligibility. Awards can be made to key employees (as determined by the
Committee) of the Company or its subsidiaries. In making determinations under
the Plan, the Committee may take into account the nature of the services
rendered by the respective employees, their present and potential contributions
to the success of the Company and its subsidiaries, and such other factors as
the Committee deems relevant.
Options. The purchase price per share of Common Stock under each Option is
determined by the Committee and set forth in the applicable Agreement, but may
not be less than the fair market value of the Common Stock on the day the Option
is granted. In the case of a Nonqualified Option, the purchase price per share
of Common Stock may not be less than 85% of the fair market value of the Common
Stock on the day the Nonqualified Option is granted or, if greater, the book
value of the Common Stock on that date. Fair market value is calculated as the
last sales price reported for the Common Stock on the trading day immediately
preceding the date of grant as reported by The Nasdaq National Market System or
the national securities exchange on which the Common Stock is listed. The term
of each Option may be for such period as the Committee determines, but not more
than 10 years from the date on which the Option is granted. No Incentive Option
can be granted to an employee who, at the time the Incentive Option is granted,
owns, or is considered as owning within the meaning of Section 424(d) of the
Code, stock possessing more than 10% of the total combined voting power of all
classes of equity securities of the Company or of a subsidiary, unless at the
time the Incentive Option is granted, the option price is at least 110% of such
fair market value of the Common Stock subject to the Incentive Option and the
Incentive Option by its terms is not exercisable after the expiration of 5 years
from the date it is granted. Subsequent to the grant of an Option but before its
expiration, the Committee may accelerate the exercise period in whole or in part
(without reducing the term of such Option). No Option is exercisable before six
months after it is granted or may be exercised as to fewer than 100 shares of
Common Stock or, if less, the total number of shares of Common Stock remaining
unexercised under the Option.
Payment of the Option purchase price may be made (i) in cash; (ii) in whole
shares of Common Stock currently owned by the holder; (iii) in a combination of
cash and Common Stock; or (iv) upon delivery of a written exercise notice,
including irrevocable instructions to the Company to deliver the stock
certificates issuable upon exercise of the Option directly to a broker named in
the notice that has agreed to participate in a "cashless" exercise on behalf of
the optionee.
Termination of Employment. If the optionee ceases to be an employee of the
Company in certain circumstances, the optionee may, at any time within a period
of 90 days following the date of such termination, exercise such Option to the
extent that the Option was exercisable on the date the optionee ceased to be an
employee. If the optionee ceases to be an employee by reason of retirement under
the Company's retirement plan then the optionee may, at any time within a period
of 90 days following the date of such termination, exercise each Option held by
the optionee on such date to the full extent of the Option.
If the optionee's employment terminates by reason of death or permanent and
total disability, each outstanding Option granted to such employee under the
Plan will become immediately exercisable in full in respect of the aggregate
number of shares covered thereby for a period of one year following the date of
the optionee's death or disability.
If the optionee ceases to be an employee for any reason other than
termination with consent, retirement, death or disability, each Option
immediately terminates and may not be exercised thereafter.
Additional Provisions. In the event of a stock split, stock dividend,
stock combination, recapitalization, merger, consolidation or other similar
transaction which affects the character or amount of the outstanding Common
Stock, the purchase price of each Option will be equitably adjusted. The number
of shares subject to such Option, and the number of shares for which Options may
be granted under the Plan, also shall be appropriately adjusted.
The aggregate fair market value, determined as of the date an Incentive
Option is granted, of the shares with respect to which Incentive Options are
exercisable for the first time by an employee during any calendar year shall not
exceed $100,000. If an Incentive Option is granted pursuant to which the
aggregate fair market value of shares with respect to which it first becomes
exercisable in any calendar year by an employee exceeds
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<PAGE> 25
the aforementioned $100,000 limitation, the portion of such Option which is in
excess of the $100,000 limitation shall be treated as a Nonqualified Option
pursuant to Section 422(d)(1) of the Code. In the event that an employee is
eligible to participate in any other stock option plan of the Company or a
subsidiary which is also intended to comply with the provisions of Section 422
of the Code, the $100,000 limitation shall apply to the aggregate number of
shares for which Incentive Options may be granted under all such plans.
Change in Control. All outstanding Incentive Options and Nonqualified
Options held by all optionees pursuant to the Plan become immediately
exercisable in full upon the occurrence of (i) the sale by the Company of all or
substantially all its assets, or all or substantially all the assets of its
subsidiaries, taken as a whole; (ii) an election of new directors if immediately
following such election a majority of the Board of Directors consists of persons
who were not nominated by the Board or nominating committee thereof to stand for
election as directors in such election; or (iii) any of the following events,
if, immediately following such event, a majority of the Board of Directors
consists of persons who were not directors immediately prior to the date of such
event: (a) the sale of 50% or more of the outstanding shares of Common Stock of
the Company in a single transaction or related series of transactions; (b) the
consummation of a tender offer (by a party other than the Company) for more than
50% of the outstanding shares of Common Stock of the Company; or (c) subject to
the provision described below, the consummation of a merger or consolidation
involving the Company. In the event of a merger or consolidation to which the
Company is a party but is not the surviving company, the Committee, in its
discretion, may vote to negate and give no effect to the acceleration of the
Options, provided that the executed agreement of merger or consolidation
provides that the optionee will receive the same merger consideration as the
optionee would have received had the Options been accelerated and exercised in
full prior to the merger or consolidation. Consummation of the Budget
Acquisition will not result in a change in control under the Plan.
ESTIMATE OF BENEFITS
The Plan is not subject to any of the requirements of ERISA. The Plan is
not, nor is it intended to be, "qualified" under Section 401(a) of the Code.
The number of options that will be awarded under the Plan to the Chief
Executive Officer and the other executive officers of the Company at future
dates is not currently determinable.
The following table sets forth the awards granted under the Plan to the
Named Executive Officers and to the executive officers and other employees,
respectively, as a group during the year ended December 31, 1996.
1996 GRANTS UNDER
1994 INCENTIVE STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
NAME AND POSITION GRANTED IN 1996 DOLLAR VALUE(1)
----------------- ----------------- ------------------
<S> <C> <C>
Sanford Miller.............................................. 60,000(2) $ 305,000
Chairman of the Board
and Chief Executive Officer
John P. Kennedy............................................. 52,000(2) 264,300
President and Chief Operating Officer
Jeffrey D. Congdon.......................................... 52,000(2) 264,300
Chief Financial Officer and Secretary
Executive officers as a group (five persons)................ 194,000(3) 986,100
Other employees as a group (153 persons).................... 308,650(4) 1,658,000
</TABLE>
- ---------------
(1) Based upon a Black-Scholes option pricing model. See Note 10 to the
Company's Consolidated Financial Statements.
(2) Options to purchase shares of Class B Common Stock at $11.25 per share.
(3) Includes 164,000 options to purchase shares of Class B Common Stock at
$11.25 per share and 30,000 options to purchase shares of Class A Common
Stock at $11.25 per share.
(4) Includes 308,650 options under the Plan with exercise prices ranging from
$11.25 to $17.50 that were granted to 153 employees, including all current
officers who are not executive officers.
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<PAGE> 26
After giving effect to the proposed amendment to the Plan, an additional
1,020,150 options to purchase shares of Common Stock will be available for grant
to employees of the Company. The Board intends to use up to 1,000,000 of the
additional shares to grant options to the Company's employees as annual option
grants under the Plan and to make option grants to employees of BRACC who become
employees of the Company.
As of December 31, 1996, options to purchase a total of 515,850 shares of
Class A Common Stock and 164,000 shares of Class B Common Stock with exercise
prices ranging from $9.50 to $17.50 per share were outstanding under the Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The rules concerning the federal income tax consequences with respect to
Options granted and to be granted pursuant to the Plan are technical. Moreover,
the applicable statutory provisions are subject to change, as are their
interpretations and applications, which may vary in individual circumstances.
Therefore, the following discussion is designed to provide a general description
of certain of the federal income tax consequences associated with the Options.
The following discussion does not set forth (i) any federal tax consequences
other than income tax consequences or (ii) any state, local or foreign tax
consequences that may apply.
Incentive Options. In general an employee will not recognize taxable
income upon either the grant or the exercise of an Incentive Option, and the
Company will not be entitled to take an income tax deduction at either such
time. For purposes of the alternative minimum tax, however, the employee will be
required to treat an amount equal to the difference between the fair market
value of the Common Stock on the date of exercise over the option price as an
item of adjustment in computing the employee's alternative minimum taxable
income. If the employee does not dispose of the Common Stock received pursuant
to the exercise of the Incentive Option within either (i) two years after the
date of the grant of the Incentive Option or (ii) one year after the date on
which such Common Stock is transferred to the employee, a subsequent disposition
of the Common Stock will result in long-term capital gain or loss to the
employee.
If the employee disposes of the Common Stock acquired upon exercise of the
Incentive Option within either of the above-mentioned time periods, then in the
year of such disposition, the employee generally will recognize ordinary income,
and the Company will be entitled to an income tax deduction, in an amount equal
to the lesser of (i) the excess of the fair market value of the Common Stock on
the date of exercise over the option price, or (ii) the amount realized upon
disposition over the adjusted basis of the Common Stock. Any gain in excess of
such amount recognized by the employee as ordinary income would be taxed to the
employee as short-term or long-term capital gain (depending on the applicable
holding period). If the employee disposes of Common Stock which was acquired
through the exercise of the Incentive Option in the same year as such exercise,
no adjustment to the employee's alternative minimum taxable income is required.
In addition, (i) in the event that the exercisability or vesting of any
Option is accelerated because of a change in control under the Plan, a portion
of the compensation relating to the Option may constitute a parachute payment
under Section 280G of the Code, pursuant to which the Company is disallowed any
income tax deduction for "excess" parachute payments, and in connection with
which an employee receiving excess parachute payments may be subject to an
excise tax under Section 4999 of the Code, and (ii) special rules apply to an
employee who exercises an Incentive Option by paying the option price, in whole
or in part, with shares of Common Stock.
Nonqualified Options. An employee will not recognize any taxable income
upon the grant of a Nonqualified Option, and the Company will not be entitled to
take an income tax deduction at the time of such grant. Upon the exercise of a
Nonqualified Option, the employee generally will recognize ordinary income, and
the Company will be entitled to take an income tax deduction, in an amount equal
to the excess of the fair market value of the Common Stock on the date of
exercise over the option price. Upon a subsequent sale of the Common Stock by
the employee, the employee will recognize short-term or long-term capital gain
or loss.
In addition, (i) in the event that the exercisability or vesting of any
Option is accelerated because of a change in control under the Plan, a portion
of the compensation relating to the Option may constitute a parachute payment
under Section 280G of the Code, pursuant to which the Company is disallowed any
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<PAGE> 27
income tax deduction for excess parachute payment, and in connection with which
an employee receiving excess parachute payments may be subject to an excise tax
under Section 4999 of the Code, and (ii) special rules apply to an employee who
exercises a Nonqualified Option by paying the option price, in whole or in part,
with shares of Common Stock.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or by proxy at the Annual Meeting will be required to
approve the proposed amendments to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO THE
PLAN.
PROPOSED AMENDMENT TO THE COMPANY'S
1994 DIRECTORS' STOCK OPTION PLAN
The Board has approved and recommends to the Stockholders that they approve
a proposal to amend the Company's 1994 Directors' Stock Option Plan (the
"Directors' Plan") to (i) increase by 125,000 the number of shares of Class A
Common Stock available for grant under such plan such that the total number of
shares of Class A Common Stock available for grant under such plan is 150,000,
(ii) amend Section 5 of the Directors' Plan to provide that the Directors' Plan
shall be administered by the Board of Directors and (iii) eliminate Section 7 of
the Directors' Plan (which currently provides that each non-employee director of
the Company shall be granted an option to purchase 5,000 shares of Class A
Common Stock upon election as a director). In the event that the proposed
amendment is approved, 80,000 options would remain available for grant under the
Directors' Plan. The full text of the proposed amendment to the Directors' Plan
is set forth in Annex C to this Proxy Statement.
The Board has determined that the amendment to the Directors' Plan is the
best interests of the Company and its stockholders. The proposed amendment would
provide additional shares for grant to non-employee directors ("outside
directors") of the Company. The Board believes that grants of stock options are
an effective method to attract and retain qualified directors to the Company's
Board of Directors and that the availability of shares for future grants under
the Directors' Plan is important to the Company's business prospects and
operations. Except for such amendment, if approved by holders of a majority of
the shares present in person or represented by proxy at the Annual Meeting, the
Directors' Plan will remain unchanged. The Board has previously granted all of
the 25,000 options currently available for grant under the Directors' Plan. In
April 1996 and December 1996, the Board granted an additional 37,500 options and
7,500 options, respectively, to outside directors of the Company. Stockholder
approval of the amendment to the Directors' Plan is required to ratify the grant
of these options under the Directors' Plan. If the amendment to the Directors'
Plan is not approved, the April 1996 and December 1996 grants of options under
the Directors' Plan will be rescinded.
DESCRIPTION OF THE DIRECTORS' PLAN
The following description of the Directors' Plan, giving effect to the
proposed amendment, is a summary and is qualified in its entirety by reference
to the text of the Directors' Plan.
Stock Subject to the Directors' Plan. The Directors' Plan provides for the
issuance of Nonqualified Options to outside directors of the Company. Upon
amendment of the Directors' Plan, the maximum number of shares of Class A Common
Stock that may be made subject to options granted pursuant to the Directors'
Plan is 150,000. Prior to amendment, the maximum number of shares of Class A
Common Stock that may be made subject to options granted pursuant to the
Directors' Plan is 25,000.
Administration. The Directors' Plan currently specifies the class of
directors eligible to receive options, the timing of the grant of options, the
number of shares underlying options to be granted and the exercise price of such
options, with no discretionary authority with regard to such matters. Upon
amendment of the Directors' Plan, the Directors' Plan will be administered by
the Board of Directors, which will have the authority to grant Options under the
Directors' Plan to outside directors and to determine the number, terms and
conditions of all Options so granted. The Board of Directors has the right to
amend or terminate the Directors' Plan in certain circumstances, provided that
any amendment or modification must comply with
20
<PAGE> 28
applicable law, the requirements of Rule 16b-3 under the Exchange Act, the
applicable NASD or stock exchange listing requirements and the requirements
under the Code.
Options granted under the Directors' Plan shall be evidenced by stock
option agreements. If an outside director to whom an option is granted does not
execute an option agreement evidencing the option in the form prescribed by the
Board of Directors within the later of (i) thirty days from the date of grant of
the option or (ii) ten days after the director's receipt of an option agreement
from the Company, the Option shall be void and of no further force or effect.
Eligibility. Awards under the Directors' Plan can only be made to outside
directors of the Company.
Options. The purchase price per share of Class A Common Stock under each
Option will be the fair market value of the Class A Common Stock on the day the
Option is granted. Fair market value is calculated as the last sales price
reported for the Class A Common Stock on the trading day immediately preceding
the date of grant as reported by The Nasdaq National Market System or the
national securities exchange on which the Class A Common Stock is listed. Each
option shall be exercisable in full on the date which is six months after the
date of the Option grant, and no Option shall be exercisable more than 10 years
from the date of grant. No Option may be exercised as to fewer than 100 shares
of Class A Common Stock or, if less, the total number of shares of Class A
Common Stock remaining unexercised under the Option. No Option shall be
transferable by the optionee other than by will or the laws of descent and
distribution, and each Option shall be exercisable during the optionee's
lifetime only by the optionee (or the optionee's guardian or legal
representative).
Payment of the Option purchase price may be made (i) in cash; (ii) in whole
shares of Class A Common Stock currently owned by the holder; (iii) in a
combination of cash and Class A Common Stock; or (iv) upon delivery of a written
exercise notice, including irrevocable instructions to the Company to deliver
the stock certificates directly to a broker named in the notice, that has agreed
to participate in a "cashless" exercise on behalf of the optionee.
Termination of Options. If the optionee ceases to be a director of the
Company or a subsidiary and at the time of termination the Company consents in
writing to the optionee's exercise of an option following such termination, the
optionee may, at any time within a period of 90 days following the date of such
termination, exercise such Option to the extent that the Option was exercisable
on the date the optionee ceased to be a director. If the optionee ceases to be a
director by reason of retirement at or after age 65, then the optionee may, at
any time within a period of 90 days following the date of such termination,
exercise each Option held by the optionee on such date to the full extent of the
Option. In the event of the optionee's death or permanent and total disability,
each outstanding Option may be exercised in full for a period of one year
following the date of the optionee's death or disability. If the optionee ceases
to be a director for any other reason, each Option immediately terminates and
may not be exercised thereafter.
Additional Provisions. In the event of a stock split, stock dividend,
stock combination, recapitalization, merger, consolidation or other similar
transaction which affects the character or amount of the outstanding Class A
Common Stock, the purchase price of each Option will be equitably adjusted. The
number of shares subject to such Option, and the number of shares for which
Options may be granted under the Directors' Plan, also shall be appropriately
adjusted.
Change in Control. All outstanding Options held by all optionees pursuant
to the Directors' Plan become immediately exercisable in full upon the
occurrence of (i) the sale by the Company of all or substantially all its
assets, or all or substantially all the assets of its subsidiaries, taken as a
whole; (ii) any of the following events if, immediately following such event, a
majority of the directors consists of persons who were not directors immediately
prior to the date of such event: (a) the sale of 50% or more of the outstanding
shares of Common Stock of the Company in a single transaction or related series
of transactions; (b) the consummation of a tender offer (by a party other than
the Company) for more than 50% of the outstanding shares of Common Stock of the
Company; or (c) subject to the provision described below, the consummation of a
merger or consolidation involving the Company; or (iii) an election of new
directors if immediately following such election a majority of the Board of
Directors consists of persons who were not nominated by the
21
<PAGE> 29
Board or nominating committee thereof to stand for election as directors in such
election. In the event of a merger or consolidation to which the Company is a
party but is not the surviving company, the Board, in its discretion, may vote
to negate and give no effect to the acceleration of the Options, provided that
the executed agreement of merger or consolidation provides that the optionee
will receive the same merger consideration as the optionee would have received
had the Options been accelerated and exercised in full prior to the merger or
consolidation. Consummation of the Budget Acquisition will not result in a
change in control under the Directors' Plan.
The Directors' Plan is not subject to any of the requirements of ERISA. The
Directors' Plan is not, nor is it intended to be, "qualified" under Section
401(a) of the Code.
ESTIMATE OF BENEFITS
The number of options that will be awarded to non-employee directors of the
Company at future dates is not currently determinable.
The following table sets forth the awards granted under the Directors' Plan
to the non-employee directors of the Company during the year ended December 31,
1996.
1996 GRANTS UNDER
1994 DIRECTORS' STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF OPTIONS EXERCISE
NAME GRANTED IN 1996 PRICE DOLLAR VALUE(1)
---- ----------------- -------- ---------------
<S> <C> <C> <C>
Ronald D. Agronin...................................... 7,500 $11.25 $56,025
James F. Calvano....................................... 7,500 11.25 56,025
Martin P. Gregor....................................... 7,500 16.00 79,642
Alan D. Liker.......................................... 7,500 11.25 56,025
Jeffrey R. Mirkin...................................... 7,500 11.25 56,025
Dr. Stephen L. Weber................................... 7,500 11.25 56,025
</TABLE>
- ---------------
(1) Based upon a Black-Scholes option pricing model. See Note 10 to the
Company's Consolidated Financial Statements.
As of December 31, 1996, options to purchase a total of 70,000 shares of
Class A Common Stock with exercise prices ranging from $9.50 to $16.00 per share
were outstanding under the Directors' Plan. After giving effect to the proposed
amendment to the Directors' Plan, an additional 80,000 options to purchase
shares of Common Stock will be available for grant to non-employee directors of
the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The rules concerning the federal income tax consequences with respect to
Options granted and to be granted pursuant to the Directors' Plan are technical.
Moreover, the applicable statutory provisions are subject to change, as are
their interpretations and applications, which may vary in individual
circumstances. Therefore, the following is designed to provide a general
description of certain of the federal income tax consequences associated with
the Options. The following discussion does not set forth (i) any federal tax
consequences other than income tax consequences or (ii) any state, local or
foreign tax consequences that may apply.
Nonqualified Options. An outside director will not recognize any taxable
income upon the grant of a Nonqualified Option, and the Company will not receive
an income tax deduction at the time of such grant. Upon the exercise of a
Nonqualified Option, the outside director generally will recognize ordinary
income, and the Company will be entitled to take an income tax deduction, in an
amount equal to the excess of the fair market value of the Class A Common Stock
on the date of exercise over the option price. Upon a subsequent sale of the
Class A Common Stock by the outside director, the outside director will
recognize short-term or long-term capital gain or loss.
22
<PAGE> 30
In addition, (i) in the event that the exercisability or vesting of any
Option is accelerated because of a change in control, a portion of the
compensation relating to the Option may constitute a parachute payment under
Section 280G of the Code, pursuant to which the Company is disallowed any income
tax deduction for such excess parachute payment, and in connection with which an
outside director receiving excess parachute payments may be subject to an excise
tax under Section 4999 of the Code, and (ii) special rules apply to an outside
director who exercises a Nonqualified Option by paying the option price, in
whole or in part, with shares of Class A Common Stock.
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or by proxy at the Annual Meeting will be required to
approve the proposed amendment to the Directors' Plan. Proxies will be voted in
accordance with the specification marked thereon, and if no specification is
made, will be voted "FOR" adoption of the proposed amendment to the Directors'
Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSED AMENDMENT TO THE
DIRECTORS' PLAN.
ACTION TAKEN BY WRITTEN CONSENT OF STOCKHOLDERS
On January 13, 1997, pursuant to the terms of a Consent Agreement dated as
of January 13, 1997 among Ford and Messrs. Miller, Kennedy and Congdon (the
three holders of all of the outstanding Class B Common Stock, representing, in
the aggregate, over 67% of the outstanding voting power of the Common Stock),
Messrs. Miller, Kennedy and Congdon executed the Written Consent approving the
issuance of the shares of Class A Common Stock issuable upon conversion of the
Series A Convertible Preferred Stock to be issued to Ford pursuant to the Stock
Purchase Agreements. The holders of the Class B Common Stock together own an
aggregate of 44,750 shares of Class A Common Stock. Pursuant to Regulation 14C
under the Exchange Act, the Company is required to provide to all holders of
Common Stock certain information in connection with the taking of stockholder
action by the Written Consent. All the information required to be delivered to
stockholders pursuant to Regulation 14C is contained in this Proxy Statement.
In accordance with Regulation 14C, no corporate action shall be taken
pursuant to the Written Consent until at least 20 days after the date on which
this Proxy Statement is first mailed to stockholders. This Proxy Statement is
being mailed on or about March 25, 1997.
NO PROXY OR CONSENT IS BEING SOLICITED BY THE BOARD OF DIRECTORS WITH
RESPECT TO THE WRITTEN CONSENT.
THE BUDGET ACQUISITION
BACKGROUND OF THE BUDGET ACQUISITION
In January and October 1995 and July 1996, management of TEAM and
representatives of Credit Suisse First Boston Corporation ("CSFB"), financial
advisor to TEAM, met with representatives of Ford to discuss the possible
acquisition of BRACC by TEAM. While Ford does not own any common stock of BRACC,
Ford has the right, pursuant to certain contractual arrangements, to designate
the purchaser of the BRACC common stock. Following each of such meetings, Ford
informed TEAM that it was not interested in pursuing discussions regarding the
sale of BRACC at that time.
In October 1996, Ford retained J.P. Morgan Securities Inc. ("J.P. Morgan")
to act as its exclusive financial advisor in connection with the sale of BRACC.
J.P. Morgan prepared an information package for BRACC and conducted an auction
process to effect the sale of BRACC. Thereafter, TEAM and representatives of
CSFB and legal counsel for TEAM conducted a due diligence review of BRACC. Upon
completion of such due diligence investigation, TEAM submitted its bid for the
acquisition of BRACC.
On January 5, 1997, J.P. Morgan informed TEAM that it was the successful
bidder for the acquisition of BRACC. From January 7 through January 13, 1997,
representatives of management of both Ford and TEAM, together with their
respective legal and financial advisors, met to negotiate the specific structure
and terms of the proposed acquisition and the definitive documentation,
including stock purchase agreements (the "Stock
23
<PAGE> 31
Purchase Agreements") between TEAM and each of Ford, BRACC and John J. Nevin,
(the common stockholder of BRACC), pursuant to which, upon the terms and subject
to the conditions thereof, TEAM would acquire the outstanding capital stock of
BRACC.
On January 12, 1997, at a meeting of TEAM's Board of Directors that
included the participation of TEAM's legal and financial advisors, TEAM's Board
of Directors reviewed the structure of the proposed transaction and the terms of
the proposed Stock Purchase Agreements, including the proposed issuance to Ford
of shares of a newly created class of TEAM's preferred stock as part of the
consideration for the transaction (the "Equity Consideration"). At this meeting,
CSFB made a presentation to TEAM's Board of Directors and stated that it was
prepared, subject to review of the final documentation for the transaction, to
deliver to the Board of Directors a fairness opinion in respect of the proposed
transaction, as more fully described below. The Board then discussed a schedule
for the timing of finalizing the terms of the Stock Purchase Agreements.
On January 12, 1997, the BRACC Board of Directors held a meeting. Following
discussion, the BRACC Board of Directors approved the terms of the Stock
Purchase Agreements and the transactions contemplated thereby.
On January 13, 1997, TEAM's Board of Directors held a meeting to approve
the terms of Stock Purchase Agreements. At this meeting, CSFB delivered to the
Board of Directors its oral opinion (which opinion was subsequently confirmed by
delivery of a written opinion dated January 13, 1997) to the effect that, as of
such date and based upon and subject to certain matters stated in such opinion,
the consideration to be paid by TEAM in the Budget Acquisition was fair to TEAM
from a financial point of view, and reviewed with the Board of Directors the
financial analyses performed by CSFB in connection with such opinion. See
"-- Opinion of TEAM's Financial Advisor." TEAM's outside counsel reviewed for
the Board the terms of the Stock Purchase Agreements and related documentation.
The Board of Directors of TEAM then approved the execution of the Stock Purchase
Agreements and the consummation of the Budget Acquisition pursuant to the terms
of the Stock Purchase Agreements.
On January 13, 1997, pursuant to the terms of the Consent Agreement dated
as of January 13, 1997, among Ford and Messrs. Miller, Kennedy and Congdon, (the
three holders of all of the outstanding Class B Common Stock representing, in
the aggregate, over 67% of the outstanding voting power of the Common Stock)
executed the Written Consent action approving the issuance to Ford of shares of
Class A Common Stock issuable to Ford upon conversion of the Equity
Consideration. See "Action Taken By Written Consent of Stockholders" elsewhere
in this Proxy Statement.
On January 13, 1997, TEAM, Ford, BRACC and the other parties to the Stock
Purchase Agreements executed the Stock Purchase Agreements.
On January 13, 1997, TEAM obtained a commitment letter from Credit Suisse
First Boston, the Swiss banking affiliate of CSFB (the "Commitment Letter"),
pursuant to which Credit Suisse First Boston committed to provide a bridge term
loan of up to $225 million (the "Bridge Loan") to TEAM, on the terms and subject
to the conditions specified in such Commitment Letter. Also on January 13, 1997,
at the request of TEAM, CSFB delivered to Ford a letter stating that, based on,
among other things, then current market conditions, and subject to certain
conditions specified in such letter, CSFB was highly confident of CSFB's ability
to privately place a $600 million asset-backed commercial paper program and to
arrange or provide a $25 million replacement letter of credit in connection with
TEAM's obligation to refinance certain indebtedness of BRACC in the Budget
Acquisition. CSFB also stated in this letter that, in its capacity as TEAM's
financial advisor, it was confident that, subject to certain conditions
specified in such letter, the remainder of the Ford Motor Credit Company loan to
BRACC could be refinanced by TEAM. See "-- Financing Plan for the Budget
Acquisition."
TEAM has arranged to place, concurrently with the consummation of the
Offering, (i) $50.0 million aggregate principal amount of Convertible
Subordinated Notes, Series B, due 2007 (the "Series B Convertible Notes") and
(ii) $125.0 million aggregate principal amount of Guaranteed Senior Notes due
2007 (the "Guaranteed Senior Notes") (collectively, the "Debt Placements"). The
Debt Placements are private
24
<PAGE> 32
offerings and will not be registered with the Commission. The Offering, as well
as the Debt Placements and new fleet financing facilities in the aggregate
principal amount of approximately $850 million (the "New Fleet Financings"),
will be consummated concurrently with the Budget Acquisition and will provide a
portion of the financing for the Budget Acquisition. The Budget Acquisition is
not conditioned on consummation of the Offering, the Debt Placements or the New
Fleet Financings. If the Offering and the Debt Placements are not consummated,
TEAM has available alternative sources of financing for the Budget Acquisition.
See "-- Financing Plan for the Budget Acquisition." The consummation of the
Offering is contingent upon approval of the Amendment by the stockholders of
TEAM. See "-- Financing Plan for the Budget Acquisition."
REASONS FOR THE BUDGET ACQUISITION
TEAM is the largest U.S. Budget franchisee and is one of the largest
independent retailers of late model vehicles in the United States. TEAM's
strategy since its inception has been to significantly expand its Budget
franchise base and to develop a branded retail car sales operation within its
Budget franchise territories and since 1995 has been interested in pursuing an
acquisition of BRACC. The Board of Directors of TEAM believes that the Budget
Acquisition will provide a strategic opportunity for TEAM to improve the
performance and profitability of the Budget System. The "Budget System" or
"Budget" refers to the business of renting cars and trucks conducted by BRACC
and its franchisees (including TEAM). Upon completion of the Budget Acquisition,
the operations of TEAM (including BRACC) (the "Budget Group") will consist of
455 company-owned locations in the United States, with these locations
accounting for approximately 76% of 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 a furtherance of
TEAM's strategy of additional consolidation in the Budget System. Management
believes that Budget Group's 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. Management has developed a business
strategy designed to increase the revenues and improve the profitability of
Budget Group by consolidating the Budget System. Key elements of this strategy
are to consolidate and enhance the Budget brand; improve the performance of
Budget Group's car rental operations; continue to expand retail car sales
operations; and expand truck rental operations. See "Business of Budget
Group -- Strategy."
TERMS OF THE STOCK PURCHASE AGREEMENTS
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 certain 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
an 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 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
25
<PAGE> 33
approximately $856.2 million of indebtedness outstanding under BRACC's existing
fleet financing facilities. See "-- Financing Plan for the Budget Acquisition."
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 (the "HSR Act"), (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.
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 the Written Consent approving the issuance of the Equity
Consideration. No other approval of the stockholders of TEAM is required in
connection with the Budget Acquisition. See "Action Taken by Written Consent of
Stockholders."
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 in its Stock Purchase
Agreement (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 its Stock
Purchase Agreement. 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 million. Ford will not, in any
event, be required to pay (x) the first $2 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 million. The $40 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).
26
<PAGE> 34
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 the
Budget Group. See "Management of Budget Group."
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 approximately 4,500,000 shares of Class A Common Stock (subject
to adjustment) 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."
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
transaction 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 of 1933, as amended
(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
27
<PAGE> 35
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 shall 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.
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.
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<PAGE> 36
FINANCING PLAN FOR THE BUDGET ACQUISITION
TEAM intends to use a portion of the net proceeds of the Offering, the Debt
Placements and the New Fleet Financings to finance 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 (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 Offering(a).......................... $ 145.4
Series A Convertible Preferred Stock(b)................... 100.7
Convertible Subordinated Notes, Series B, due 2007........ 50.0
Guaranteed Senior Notes due 2007.......................... 125.0
New Fleet Financings(c)................................... 835.8
--------
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 (as
defined herein) 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.
(f) Includes underwriting discounts and commissions in connection with the
Offering, the Debt Placements and the New Fleet Financings.
In the event that the Offering and the Debt Placements are not consummated,
TEAM will consider alternative sources of financing for the Budget Acquisition.
TEAM has obtained a Commitment Letter from Credit Suisse First Boston, the Swiss
banking affiliate of CSFB, pursuant to which Credit Suisse First Boston
committed to provide a Bridge Loan of up to $225.0 million to TEAM, on the terms
and subject to certain
29
<PAGE> 37
conditions specified in such Commitment Letter. The Bridge Loan, if funded, will
be unsecured senior indebtedness of TEAM and will mature 364 days after the
closing date of the Budget Acquisition.
OPINION OF TEAM'S FINANCIAL ADVISOR
CSFB has acted as financial advisor to TEAM in connection with the Budget
Acquisition. CSFB was selected by TEAM based on CSFB's experience, expertise and
familiarity with TEAM and its business. CSFB is an internationally recognized
investment banking firm and is regularly engaged in the valuation of businesses
and securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
In connection with CSFB's engagement, TEAM requested that CSFB evaluate the
fairness of the consideration to be paid by TEAM in the Budget Acquisition from
a financial point of view. On January 13, 1997, at a meeting of TEAM's Board of
Directors held to approve the Budget Acquisition, CSFB rendered to the Board of
Directors of TEAM its oral opinion (which opinion was subsequently confirmed by
delivery of a written opinion dated January 13, 1997) to the effect that, as of
such date and based upon and subject to certain matters stated in such opinion,
the consideration to be paid by TEAM in the Budget Acquisition was fair to TEAM
from a financial point of view.
THE FULL TEXT OF CSFB'S WRITTEN OPINION TO THE BOARD OF DIRECTORS OF TEAM
DATED JANUARY 13, 1997, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED
AS ANNEX D TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE.
HOLDERS OF COMMON STOCK OF TEAM ARE URGED TO READ THIS OPINION CAREFULLY IN ITS
ENTIRETY. CSFB'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF TEAM AND
RELATES ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE PAID BY TEAM IN THE
BUDGET ACQUISITION FROM A FINANCIAL POINT OF VIEW TO TEAM, DOES NOT ADDRESS ANY
OTHER ASPECT OF THE PROPOSED BUDGET ACQUISITION OR ANY RELATED TRANSACTION AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER. THE SUMMARY OF THE
OPINION OF CSFB SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, CSFB reviewed the Stock Purchase Agreements,
forms of the Supply Agreement and the Advertising Agreement attached as exhibits
to the Stock Purchase Agreements to be entered into at the closing of the Budget
Acquisition, certain publicly available business and financial information
relating to TEAM, and certain business and financial information relating to
BRACC provided by Ford and BRACC. CSFB also reviewed certain other information,
including financial forecasts provided to CSFB by BRACC and TEAM, and met with
the managements of TEAM and BRACC to discuss the businesses and prospects of
TEAM and BRACC. CSFB also considered certain financial data of BRACC and
compared that data with similar data for other publicly held companies in
business similar to those of TEAM and BRACC and considered, to the extent
publicly available, the financial terms of certain other business combinations
and other transactions recently effected. CSFB also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which CSFB deemed relevant.
In connection with its review, CSFB did not assume any responsibility for
independent verification of any of the information provided to or otherwise
reviewed by CSFB and relied on such information being complete and accurate in
all material respects. With respect to the financial forecasts, CSFB assumed
that such forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of TEAM and BRACC
as to the future financial performance of TEAM and BRACC. CSFB also assumed,
with the consent of the Board of Directors of TEAM, that no penalties will be
paid by TEAM to Ford under the Supply Agreement. In addition, CSFB was not
requested to make and did not make an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of BRACC, nor was CSFB furnished
with any such evaluations or appraisals. CSFB's opinion was necessarily based
upon information available to CSFB, and financial, economic, market and other
conditions as they existed and could be evaluated, on the date of its opinion.
CSFB did not express any opinion as to what the value of the Series A
Convertible Preferred Stock actually will be when issued to Ford pursuant to the
Stock Purchase Agreements (or as to the value of the Class A Common Stock
issuable upon the conversion of the Series A Convertible
30
<PAGE> 38
Preferred Stock) or the prices at which such securities will trade or otherwise
be transferable subsequent to the Budget Acquisition. Although CSFB evaluated
the consideration to be paid by TEAM in the Budget Acquisition from a financial
point of view, CSFB was not requested to, and did not, recommend the specific
consideration payable in the Budget Acquisition, which consideration was
determined through negotiation between TEAM and Ford. No other limitations were
imposed by TEAM on CSFB with respect to the investigations made or procedures
followed by CSFB in rendering its opinion.
Pursuant to the terms of CSFB's engagement, TEAM has agreed to pay CSFB for
its services in connection with the Budget Acquisition an aggregate financial
advisory fee of $5 million. TEAM also has agreed to reimburse CSFB for
out-of-pocket expenses incurred by CSFB in performing its services, including
the fees and expenses of legal counsel and any other advisor retained by CSFB,
and to indemnify CSFB and certain related persons and entities against certain
liabilities, including liabilities under the federal securities laws, arising
out of CSFB's engagement.
CSFB has in the past performed certain investment banking services for
TEAM, BRACC and Ford, for which services CSFB has received compensation. Credit
Suisse First Boston, the Swiss banking affiliate of CSFB, is acting as a lender,
and CSFB is acting as lead underwriter and placement agent, in connection with
various components of TEAM's financing for the Budget Acquisition, for which
services such entities will receive compensation. In the ordinary course of its
business, CSFB and its affiliates may actively trade the debt and equity
securities of both TEAM and Ford for their own accounts and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Budget Acquisition will not result in the recognition of any taxable
income to TEAM or the stockholders of TEAM for federal income tax purposes. The
terms of the Budget Acquisition may result in the recognition of income to BRACC
from the cancellation of its indebtedness owed to Ford, to the extent that such
cancellation of indebtedness is not excluded from BRACC's gross income by the
insolvency exception provided in Section 108(a)(l)(B) of the Code. To the extent
that BRACC's cancellation of indebtedness income is excluded from gross income
under the insolvency exception, BRACC will be required under Section 108(b) of
the Code to reduce its net operating loss for the current taxable year and its
net operating loss carryforwards (and the tax basis of its assets, if such net
operating loss and carryforwards are less than the amount of such excluded
income). The reduction of its current year net operating loss and net operating
loss carryforwards should not be material to BRACC, however, since such tax loss
benefits have limited utility to BRACC because of the limitations imposed by
Section 382 of the Code. In addition, under the Stock Purchase Agreements, Ford
has represented and warranted to TEAM that to the extent any discharge of
indebtedness by Ford is not excluded from BRACC's gross income, BRACC will have
available net operating loss carryforwards (taking into account the limitations
under Section 382 of the Code) at least equal to the amount of any such
nonexcluded income. Accordingly, TEAM does not anticipate that the Budget
Acquisition will result in any significant adverse federal income tax
consequences to BRACC.
The foregoing summary considers only the federal income tax consequences of
the Budget Acquisition and does not address any tax consequences of the
transaction under state, local or foreign law.
REGULATORY APPROVALS REQUIRED
Under the Stock Purchase Agreements, the obligations of all the parties to
the Stock Purchase Agreements to consummate the Budget Acquisition are
conditioned upon the expiration or termination of all applicable waiting periods
under the HSR Act, and the receipt of all applicable approvals and clearances
under any other applicable merger control law or regulation, except for those
for which the failure to obtain such approval or clearance would not result in a
material adverse affect on the Company or BRACC, respectively. Other than as
discussed below, the Company does not believe that any regulatory approvals are
required.
Under the HSR Act, the Budget Acquisition may not be consummated unless
notification has been given and certain information has been furnished to the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the waiting period has
expired or been
31
<PAGE> 39
terminated. Pursuant to the HSR Act, on February 7, 1997, TEAM and BRACC each
filed a Notification and Report Form with the FTC and the Antitrust Division in
connection with the Budget Acquisition. The 30-day waiting period under the HSR
Act applicable to the Budget Acquisition expired on March 9, 1997.
Notwithstanding the termination of the HSR Act waiting period, at any time
before or after consummation of the Budget Acquisition, the FTC or Antitrust
Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking to enjoin the
consummation of the Budget Acquisition or to cause the divestiture of
substantial assets of TEAM. In addition, states and private parties may also
bring legal action under the antitrust laws under certain circumstances. Based
on information available to TEAM, TEAM believes that the Budget Acquisition can
be effected in compliance with federal and state antitrust laws. There can be no
assurance, however, that a challenge to the consummation of the Budget
Acquisition based on an alleged violation of the antitrust laws will not be made
or that, if such a challenge were made, TEAM would prevail or would not be
required to accept certain conditions, possibly including divestitures, in order
to consummate the Budget Acquisition.
FOREIGN FILINGS AND REGULATORY APPROVALS
TEAM and BRACC must also obtain approvals or clearances in several foreign
jurisdictions and await the expiration or termination of applicable waiting
periods in those jurisdictions before consummating the Budget Acquisition. The
parties presently believe that they are required to file pre-merger
notifications with the appropriate regulatory authorities in (i) Ireland
pursuant to the Mergers, Take-Overs and Monopolies (Control) Act of 1978, as
amended by the Competition Act of 1991; (ii) Sweden pursuant to the Competition
Act of 1993; (iii) Austria pursuant to the Cartel Act of 1988, as amended; and
(iv) Portugal pursuant to Decree Law No. 371/93. If the parties identify
additional foreign jurisdictions in which pre-merger notification is required,
they will make applicable filings and await the expiration or termination of all
applicable waiting periods in those jurisdictions before consummating the Budget
Acquisition.
Notwithstanding the submission of the appropriate pre-merger notification
filings, the antitrust and competition regulatory authorities in these and other
foreign jurisdictions remain free to investigate and take legal action against
the parties, including seeking to enjoin the consummation of the Budget
Acquisition or to cause the divestiture of substantial assets of TEAM. In
addition, private parties may also bring legal action under the antitrust and
competition laws of these foreign jurisdictions under certain circumstances.
Based on the information available to TEAM, TEAM believes that the Budget
Acquisition can be effected in compliance with the antitrust and competition
laws of these foreign jurisdictions. However, there can be no assurance that a
challenge to the consummation of the Budget Acquisition based on an alleged
violation of the antitrust and competition laws of foreign jurisdictions will
not be made or that, if such challenge were made, TEAM would prevail or would
not be required to accept certain conditions, possibly including divestitures,
in order to consummate the Budget Acquisition.
ACCOUNTING TREATMENT
The Budget Acquisition will be accounted for under the "purchase method" of
financial accounting. A final determination of required purchase accounting
adjustments and of fair value of the stock, assets and liabilities of BRACC has
not yet been made. Following the Budget Acquisition, TEAM will undertake a study
to determine the fair value of BRACC's specific assets and liabilities and will
make appropriate purchase accounting adjustments.
APPRAISAL RIGHTS
Holders of Common Stock are not entitled to appraisal rights under the
Delaware General Corporation Law in connection with the Amendment.
RESALES OF TEAM STOCK
Neither the shares of Series A Convertible Preferred Stock issued to Ford
in connection with the Budget Acquisition nor the shares of Class A Common Stock
issuable upon conversion of the Series A Convertible Preferred Stock will be
registered under the Securities Act. Such shares may only be resold by Ford in
compliance with the registration requirements under the Securities Act and the
rules and regulations promulgated thereunder or pursuant to exemptions
therefrom. In connection with the Budget Acquisition,
32
<PAGE> 40
TEAM has granted to Ford certain registration rights with respect to the shares
of TEAM capital stock received by Ford pursuant to the Stock Purchase
Agreements. See "Description of Capital Stock -- Registration Rights."
MARKETS AND MARKET PRICES
The Class A Common Stock is listed on The Nasdaq National Market under the
symbol "TBUD." The following table sets forth the high and low sale prices per
share for the Class A Common Stock as reported to 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 (through March 21, 1997).................... 29.50 16.50
</TABLE>
On March 21, 1997, the last sale price of the Class A Common Stock as
reported on The Nasdaq National Market was $22.375 per share. As of the Record
Date, there were approximately 73 holders of record of the Class A Common Stock.
The Company has never declared or paid cash dividends on its Common Stock.
BRACC is privately held and there is no established public market for any
of the capital stock of BRACC. BRACC has never declared or paid any cash
dividends on its capital stock.
RECENT SALES OF UNREGISTERED EQUITY SECURITIES OF TEAM
In February 1996, the Company issued 272,727 shares of Class A Common Stock
to Katzin Investments L.C. in partial consideration for all 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 "Series A Convertible Notes") in a private
placement to certain insurance companies. The Series A Convertible Notes are
convertible into 3,986,049 shares of Class A Common Stock of the Company. The
Series A Convertible 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 related note purchase
agreement.
OWNERSHIP OF BRACC STOCK
As of February 1, 1997, BRACC had 10,000 shares of common stock
outstanding, all of which were owned by John J. Nevin, and 5006.46 shares of
Series X Preferred Stock outstanding, of which 2.31 shares were owned by Ford
and 5004.15 shares were owned by Commerzbank Aktiengesellschaft.
33
<PAGE> 41
COMPARATIVE PER SHARE INFORMATION
The following table sets forth certain per share information for TEAM on
both historical and pro forma bases (giving effect to the Budget Acquisition
using the purchase method of accounting). No per share data is provided for
BRACC because such data is not meaningful.
<TABLE>
<CAPTION>
PER SHARE OF COMMON STOCK
--------------------------------
NET INCOME(1) BOOK VALUE(2)
---------------- -------------
<S> <C> <C>
TEAM -- Historical
Year ended December 31, 1996.............................. $0.49 $ 8.17
TEAM -- Pro forma
Year ended December 31, 1996 -- excluding BRACC........... $0.49 $ 8.17
Budget Group -- Pro forma
Year ended December 31, 1996.............................. $1.18 $20.36
</TABLE>
- ---------------
(1) Pro forma income represents income per share from continuing operations as
if the Budget Acquisition had been consummated as of January 1, 1996.
(2) Historical and pro forma book value per share information for TEAM as of
December 31, 1996 is computed by dividing historical stockholders, equity
for each respective company by the number of shares of TEAM Common Stock
outstanding at the end of each period presented, excluding common stock
equivalents. Budget Group pro forma book value per share information as of
December 31, 1996 is computed by dividing pro forma stockholders' equity by
the number of shares of TEAM Common Stock outstanding on such date and
shares issued in certain of the Budget Acquisition Transactions (as defined
herein) that were not consummated at December 31, 1996.
34
<PAGE> 42
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF BUDGET GROUP
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, 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 Proxy Statement 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 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.
35
<PAGE> 43
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 PRO FORMA FOR BUDGET PRO FORMA
HISTORICAL 1996 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 31,444 (9,361)(m)(n)(o) 104,294
Non-vehicle interest
expense.................. 1,501 4,292(f) 5,793 92,738 (16,283)(o)(p)(q) 20,954
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 (25,752) 123,430
Income before income taxes... 7,818 1,628 9,446 469 34,906 44,821
Provision for income
taxes.................... 3,321 651(j) 3,972 3,000 11,849(s) 18,821
-------- ------- -------- ---------- -------- ----------
Net income (loss)... $ 4,497 $ 977 $ 5,474 $ (2,531) $ 23,057 $ 26,000
======== ======= ======== ========== ======== ==========
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 $ 1.16(t)
==========
Fully diluted.............. $ 0.47 $ 0.47 $ 1.11
==========
</TABLE>
36
<PAGE> 44
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...................... 2,600 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>
37
<PAGE> 45
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
=======
</TABLE>
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.
(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>
38
<PAGE> 46
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>
Guaranteed Senior Notes Due 2007........................ --% 8.55%
Series B Convertible Notes.............................. -- 6.60
New Fleet Financings --
Asset-Backed Notes.................................... 7.48 7.48
Commercial Paper Facility............................. 5.45 5.45
Working Capital Facility.............................. 7.84 6.68
</TABLE>
(p) Reflects the increase in non-vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest expense related to the Debt Placements......... $13,987
Amortization of costs incurred in connection with the
Debt Placements........................................ 392
-------
Increase in non-vehicle interest expense........... $14,379
=======
</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.
An increase or decrease in the interest rate of one-quarter of one percent
(0.25%) with respect to the pro forma balances on all of the above debt
facilities would increase or decrease interest expense and income before
income taxes by $2,505 based on the average outstanding balance of the debt
to be refinanced.
39
<PAGE> 47
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 $ (100,220)(a) $1,621,519
Guaranteed Senior Notes due 2007................. -- -- 125,000(a) 125,000
Convertible Subordinated Notes................... 80,000 -- 50,000(a) 130,000
Other notes payable.............................. 13,989 468,767 (418,218)(a)(e) 64,538
(f)
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 92,923 328,887
-------- ---------- ---------- ----------
Total liabilities and stockholders'
equity.............................. $587,223 $2,328,115 $ (266,719) $2,648,619
======== ========== ========== ==========
</TABLE>
40
<PAGE> 48
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......... 693,666
Repayment of Ford indebtedness by BRACC from proceeds
received from New Fleet Financings...................... (714,104)
---------
(100,220)
---------
Receipt of gross proceeds from Debt Placements --
Guaranteed Senior Notes due 2007.......................... 125,000
Convertible Subordinated Notes, Series B, due 2007........ 50,000
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 $8,799 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 $100,688 was determined in
accordance with the terms of
41
<PAGE> 49
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET -- (CONTINUED)
(AMOUNTS IN THOUSANDS)
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 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.
42
<PAGE> 50
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 audited 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 Proxy Statement.
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 Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- -------- --------
(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 of franchise rights..................... 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:
Primary.............................................. -- -- 3,704 6,369 9,488
Fully diluted........................................ -- -- 3,704 6,369 9,552
Earnings per common and common equivalent share:
Primary.............................................. -- -- $ 0.07 $ 0.05 $ 0.47
Fully diluted........................................ -- -- 0.07 0.05 0.47
======= ======= ======= ======== ========
</TABLE>
43
<PAGE> 51
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
-------- -------- ---------
(DOLLARS IN THOUSANDS EXCEPT
RENTAL 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 (worldwide).......... 63 133 152
Number of usable vehicles at period end(d)................ 5,044 11,143 14,761
Rental transactions(e).................................... 276,000 689,000 1,165,992
Daily dollar average(f)................................... $ 37.32 $ 41.26 $ 41.19
Vehicle utilization(g).................................... 80.6% 80.0% 80.9%
Average monthly revenue per unit(h)....................... $ 909 $ 1,007 $ 1,017
RETAIL CAR SALES DATA:
Locations in operation at period end...................... -- 7 11(i)
Average monthly vehicles sold............................. -- 351 752
Average monthly sales revenue............................. $ -- $ 4,883 $ 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
Retail car sales inventory............................ -- -- 943 8,938 16,413
Total assets.......................................... 32,027 33,325 162,991 386,323 587,223
Secured vehicle debt.................................. 28,390 23,857 123,779 295,647 360,120
Notes payable......................................... 3,795 1,824 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, an alternative measure 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.
44
<PAGE> 52
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.
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.
45
<PAGE> 53
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
Non-recurring 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 three 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 remained relatively constant at $41.19 in 1996 and $41.26 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 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
46
<PAGE> 54
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 $41.26 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 $41.26 in 1995; the average rental
term experienced a slight decrease from 3.82 days in 1994 to 3.76 days in 1995.
Operating Expenses. Operating expenses increased approximately $101.1
million, or 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 earned on cash restricted for
acquiring vehicles under TEAM's existing fleet financing facilities of $0.7
million.
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<PAGE> 55
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
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<PAGE> 56
payment due in 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
"-- Pro Forma Liquidity and Capital Resources for Budget Group." 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 consist 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.
This agreement is subject to certain covenants, the most restrictive of which
requires TEAM to maintain certain financial ratios and minimum tangible net
worth and prohibits the payment of cash dividends.
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) BRACC credit facilities assumed by TEAM, (c) new Budget Group fleet
financing facilities, and (d) new Budget Group term facilities. For a
description of material terms of Budget Group's financing facilities, see
"Description of Certain Indebtedness."
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<PAGE> 57
Existing TEAM Facilities. Asset-backed notes issued under the Fleet
Financing Facilities, as well as the Series A Convertible Notes, will continue
to be in place 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 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 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, and a $300 million bank working capital facility.
The Debt Placements
TEAM will issue $50.0 million aggregate principal amount of Convertible
Subordinated Notes, Series B, due 2007 and BRACC will issue $125.0 million
aggregate principal amount of Guaranteed Senior Notes due 2007, which will be
guaranteed by TEAM and certain subsidiaries of TEAM. In addition, BRACC will
enter into a $250.0 million five-year secured credit facility, which will be
guaranteed by TEAM. 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.
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.
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<PAGE> 58
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 has 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 Proxy Statement. 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 Proxy Statement.
<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>
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<PAGE> 59
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS
EXCEPT RENTAL 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..................... (411,870) (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 5,345,900
Daily dollar average(e)................................... $ 38.43 $ 39.58 $ 41.26
Vehicle utilization(f).................................... 77.37% 75.14% 76.73%
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............................. $ 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
Retail car sales 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
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> 60
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.
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 7.4
Facilities.................................................. 10.3 10.2 10.1
Personnel................................................... 23.3 23.5 22.0
General and administrative expenses......................... 5.2 6.8 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> 61
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, 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 in 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 its 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 $27.5 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 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 $66.7 million in the 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 1994, $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 and 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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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 $2.2 million of
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
debts 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.
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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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. $500 million is 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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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
automobiles in the United States, operating 22 retail car sales facilities with
pro forma revenues of $257.8 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
U.S. vehicle rental 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
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the past 15 years. In addition, Messrs. Miller and Congdon together have over 25
years of experience operating retail car sales facilities.
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 disposing of 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:
- Consolidate the Budget System and enhance the Budget brand
- Improve the performance of Budget Group's car rental operations
- Continue to expand retail car sales operations
- Expand truck rental operations
Consolidate the Budget System and 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.
Budget Group will seek to enhance the Budget brand name by improving the quality
and consistency of service, operations and communications throughout the
worldwide Budget System. 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.
Improve the Performance of Budget Group's Car Rental Operations
Historically, TEAM has successfully 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 operations, (iii)
increase its marketing to corporate accounts,
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(iv) increased emphasis on the leisure and local rental markets, and (v) expand
Budget's international operations.
Enhance the Performance of Budget Group's 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 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
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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 and 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 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 $257.8 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
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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.
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 "Election of Directors -- Information on Nominees" and
"Management of Budget Group." Budget Group's primary corporate functions will be
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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.
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............................................. 133 151
Other franchisees...................................... 560 500
------- -------
Total U.S......................................... 1,004 955
International:
BRACC-owned............................................ 79 70
Franchisees............................................ 2,027 2,182
------- -------
Total International............................... 2,106 2,252
------- -------
Budget System................................ 3,110 3,207
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
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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 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 Ford vehicles,
15% of Chrysler vehicles and 21% of Mazda 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,
Budget Group will enter into a new ten-year Supply Agreement with Ford. Under
the new Supply Agreement, Budget Group 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 the United States in each model year.
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
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rental, ranged from 73% in January to 83% in August and averaged 77% for the
year ended December 31, 1996.
In 1996, excluding Van Pool, TEAM's average monthly fleet size 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 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
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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 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 3,207 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 revenue 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.
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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 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 $131.9 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 operates 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
its 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
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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 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 Phoenix operations are
self-insured, with a $500,000 retention. TEAM's workers compensation insurance
coverage is subject to a $500,000 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 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.
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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 7.1% 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
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, there are several technical specifications regarding underground
storage tanks applicable to the TEAM and BRACC facilities in the United States,
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.
The historical and current uses of the TEAM and BRACC facilities may have
resulted in spills or releases of various hazardous substances or petroleum
products which now, or in the future, could require remediation. TEAM and BRACC
also may be subject to requirements related to the remediation of, or the
liability for remediation of, hazardous substances that have been released to
the environment at properties they own or operate or at properties to which they
send hazardous substances for treatment or disposal. Such remediation
requirements generally are imposed without regard to fault and liability for any
required environmental remediation, and 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, 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.
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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 of BRACC-owned rental facilities
contain underground storage tanks. In connection with the Budget Acquisition,
Ford has agreed to indemnify TEAM against losses 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) incurred
by TEAM, 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. 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, except that
Ford will not be required to pay the first $2.0 million of aggregate losses
(including those relating to environmental matters). See "Risk
Factors -- Regulatory and Environmental Matters." Although the potential cost of
any necessary remediation at those facilities is not precisely known, it is not
expected to exceed $10 million over the next three to five years.
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 with various local
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unions. 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.
MANAGEMENT OF BUDGET GROUP
The following table sets forth certain information with respect to persons
who, in addition to the current executive officers and significant employees of
TEAM, are expected to serve as executive officers and significant employees of
Budget Group and its subsidiaries upon completion of the Budget Acquisition. For
information with respect to the executive officers, directors and significant
employees of TEAM who will continue to be executive officers, directors and
significant employees of Budget Group and its subsidiaries, see "Election of
Directors -- Information on Nominees" and "Executive Officers."
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH BUDGET GROUP
- ---- --- ---------------------------
<S> <C> <C>
Robert L. Aprati.................... 52 Senior Vice President and General
Counsel -- BRACC
Sandra S. Hughes.................... 48 Vice President, Licensees Integration --
BRACC
Dennis M. O'Gara.................... 45 Vice President, Worldwide Sales -- BRACC
Karl H. Ottolini.................... 40 Vice President, Financial Planning and
Analysis -- BRACC
Mark R. Sotir....................... 32 Vice President, Worldwide Marketing -- BRACC
James J. Sweeney.................... 45 Vice President, Fleet Operations -- BRACC
Stephen G. Worthley................. 53 Vice President and Treasurer -- BRACC
Thomas B. Zorn...................... 34 Vice President, Truck Operations -- BRACC
</TABLE>
Robert L. Aprati has been the Senior Vice President and General Counsel of
BRACC since January 1988. Mr. Aprati is a 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.
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 Regional 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 July 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.
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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.
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 Manager,
Corporate Strategy, Corporate Finance.
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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 Annual Meeting, 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. See "Amendment to the Amended and Restated
Certificate of Incorporation." As of the Record Date, 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 Messrs. Miller, Congdon and Kennedy.
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 55.2% 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 to 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
shall 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, shall 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 shares 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 shall 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 Class A Common Stock immediately
prior to the dissolution, liquidation or winding up of the
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affairs of 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 were 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 provides 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 of 1933 (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
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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 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 and TEAM will enter into a new registration
rights agreement in connection with the sale of the Series B Convertible Notes
(collectively, the "Notes Registration Rights Agreement"). The Notes
Registration Rights Agreement provides that TEAM will file a shelf registration
statement relating to the shares of Class A Common Stock issuable upon
conversion of the Convertible Subordinated Notes, at the earlier of three years
from the date of issuance or promptly after the disposition by Ford of at least
2.25 million shares of Class A Common Stock. The holders may require TEAM to
effect an underwritten public offering pursuant to the shelf registration
statement. TEAM may prohibit offers and sales of securities pursuant to the
shelf registration statement under certain circumstances. In addition, the
holders of an agreed percentage of Convertible Subordinated Notes will be
entitled to make one demand, at the time of the shelf registration or
thereafter, for TEAM to cause the Convertible Subordinated Notes to be
registered for an underwritten offering. 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 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.
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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" 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 an
unlimited number of "piggyback" registrations 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 Securities and Exchange Commission (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 and (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, 85% of eligible risk vehicles (as defined), 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
financial and other covenants, including (i) a specified minimum consolidated
net worth ratio, (ii) a maximum consolidated leverage ratio, (iii) a minimum
consolidated interest coverage ratio and (iv) a minimum debt service coverage
ratio. In addition, the New Working Capital Facility will generally limit TEAM's
ability to incur additional debt, engage in certain sales of assets and make
dividend and other payments in excess of certain levels, and will contain other
customary negative covenants.
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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 $50.0 million aggregate principal amount of
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 offered on a pro rata unit basis with the Guaranteed Senior Notes,
as defined below.
The Series B Convertible Notes will be convertible, at the option of the
holders, into shares of Class A Common Stock, after the third 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 to be determined.
Redemption. The Convertible Subordinated Notes will be redeemable, in
whole or in part, at the option of Budget Group, at a premium equal to the
coupon on the notes of such series 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, 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.
GUARANTEED SENIOR NOTES
Concurrently with the consummation of the Offering, BRACC will issue up to
$150.0 million aggregate principal amount of Guaranteed Senior Notes due 2007
(the "Guaranteed Senior Notes"). The Guaranteed Senior Notes will be offered on
a pro rata unit basis with the Series B Convertible Notes. The Guaranteed Senior
Notes will be guaranteed by Budget Group and certain subsidiaries of BRACC.
Mandatory Redemption. The Guaranteed Senior Notes will require annual
principal payments equal to approximately 14.3% of the aggregate principal
amount of the notes commencing on of 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 100 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.
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 covenants limiting
liens, sale and leaseback transactions, restricted subsidiary debt, consolidated
funded debt, maintenance of consolidated stockholders'
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equity, sale of assets, merger or consolidation and transactions with
affiliates. In addition, upon a change of control (as defined in the note
purchase agreement), each noteholder may require BRACC 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."
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INDEPENDENT AUDITORS
Arthur Andersen LLP has served as independent auditors of the Company for
1996. One or more representatives of Arthur Andersen LLP will be present at the
Annual Meeting, will have an opportunity to make a statement, if they so desire,
and will be available to respond to appropriate questions. The Board of
Directors has not made a selection of independent auditors for 1997 but expects
to make a recommendation following consummation of the Budget Acquisition.
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 Deloitte & Touche LLP ("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 did not contain 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 common stock 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 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. TEAM
issued its financial statements in accordance with the recommendation of D&T. In
connection with resolution of the matter described in this paragraph, 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 Exhibit 16 to the Current Report
on Form 8-K previously filed by TEAM relating to this matter. 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.
ANNUAL REPORT TO STOCKHOLDERS
This Proxy Statement constitutes the Company's Annual Report and contains
all of the information required by Rule 14a-3 promulgated under the Exchange Act
to be contained in an annual report to stockholders.
ANNUAL REPORT ON FORM 10-K
The Company will provide without charge a copy of its Annual Report on Form
10-K for the year ended December 31, 1996, including the financial statements
and financial statement schedules, as filed with the Securities and Exchange
Commission (without exhibits), upon the written request of any Stockholder of
record as of February 27, 1997. Copies of exhibits to the Annual Report on Form
10-K will be furnished (upon payment of the Company's reasonable expenses in
furnishing such exhibits) upon request to Donald J. Norwalk, Treasurer, Team
Rental Group, Inc., 125 Basin Street, Daytona Beach, Florida 32114.
80
<PAGE> 88
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which are
to be brought before the meeting. If any other matters are presented for proper
action, it is the intention of the persons named in the Proxy to vote in
accordance with their discretion pursuant to the terms of the Proxy.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting of Stockholders must be received at the Company's executive offices on
or before December 17, 1997, for inclusion in the Company's Proxy Statement and
form of Proxy with respect to such meeting.
By Order of the Board of Directors,
SANFORD MILLER,
Chairman of the Board and
Chief Executive Officer
It is important that the proxies be returned promptly. Therefore,
Stockholders who do not expect to attend the meeting in person are urged to fill
in, sign, date and return the enclosed proxy.
81
<PAGE> 89
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 -- 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 for Each of the Three
Years in the Period Ended December 31, 1996............... F-26
Consolidated Statements of Stockholders' Equity for Each of
the Three Years in the Period Ended December 31, 1996..... F-27
Consolidated Statements of Cash Flows for Each of the Three
Years in the Period Ended December 31, 1996............... F-28
Notes to Consolidated Financial Statements.................. F-29
</TABLE>
F-1
<PAGE> 90
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> 91
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> 92
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> 93
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.............................. 341 632 1,501
Interest income -- restricted cash........................ (670) (1,348) (781)
Non-recurring bank fees................................... -- -- 1,275
Related party interest expense............................ 190 -- 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> 94
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> 95
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> 96
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> 97
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
F-9
<PAGE> 98
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)
decline in cash flows from rental operations. The impairment would be measured
as the amount by which the carrying value of the related asset exceeds the
present value of estimated 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> 99
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
F-11
<PAGE> 100
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)
owned subsidiary, acquire vehicles under operating leases, redeem the
outstanding redeemable preferred stock, acquire the Budget Rent a Truck
franchise rights for San Diego, California, repay loans and accrued interest to
related and non-related third parties, and purchase equipment leased from
related parties.
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.
F-12
<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)
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.
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>
F-13
<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)
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 $333,842
Less -- accumulated depreciation and amortization........... (25,922) (14,585)
-------- --------
$219,927 $319,257
======== ========
</TABLE>
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
F-14
<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)
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 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 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%.
F-15
<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)
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 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 note
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
F-16
<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)
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.
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> 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)
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> 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)
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 Common Stock and Class B Common Stock, respectively, remained
outstanding under the Company's stock option plans.
F-19
<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)
<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
F-20
<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)
defined. Prior to the purchase of the direct franchise rights, the Company paid
royalty fees of 12% of gross rental revenue.
The Company also participates in a "One-Way" truck rental program in San
Diego County and Imperial County, California sponsored by 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
F-21
<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)
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.
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.
F-22
<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)
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>
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> 112
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> 113
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> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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.
F-31
<PAGE> 120
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
(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
F-32
<PAGE> 121
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-33
<PAGE> 122
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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%.
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> 123
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> 124
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> 125
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> 126
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> 127
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.
F-39
<PAGE> 128
BUDGET RENT A CAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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> 129
ANNEX A
TEXT OF PROPOSED
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TEAM RENTAL GROUP, INC.
Team Rental Group, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. That pursuant to an action duly and properly taken by the Board of
Directors of the Corporation, resolutions were duly adopted setting forth a
proposed amendment of the Amended and Restated Certificate of Incorporation
of the Corporation, declaring said amendment to be advisable and referring
said amendment to the stockholders of the Corporation for consideration
thereof and approval and adoption by the stockholders at the annual meeting
of the stockholders of the Corporation to be duly called by the Board of
Directors of the Corporation (the "Annual Meeting"). The resolution setting
forth the proposed amendment (the "Amendment") is as follows:
NOW, THEREFORE, BE IT RESOLVED, that Section FIRST of the Company's
Certificate of Incorporation is hereby amended by deleting Section FIRST
in its entirety and replacing it with the following:
"FIRST: Name. The name of the Corporation is Budget Group, Inc."
FURTHER RESOLVED, that Section FOURTH of the Company's Certificate
of Incorporation is hereby amended by deleting paragraph A of Section
FOURTH in its entirety and replacing it with the following:
"FOURTH: A. Authorized Capital.
The Corporation is authorized to issue 37,750,000 shares of
capital stock, consisting of 37,500,000 shares of common stock, par
value $.01 per share (the "Common Stock"), and 250,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). Of
the shares of Common Stock, 35,000,000 shares shall be designated
"Class A Common Stock" and 2,500,000 shares shall be designated
"Class B Common Stock." The rights, preferences, privileges and
restrictions granted and imposed upon the Preferred Stock, the Class
A Common Stock and the Class B Common Stock are set forth below."
2. That thereafter, pursuant to a resolution of the Board of Directors
calling for the Amendment to be submitted to a vote of the stockholders at
the Annual Meeting, the Amendment was approved and adopted by the
stockholders at the Annual Meeting, at which meeting the necessary number
of shares were voted in favor of the Amendment in accordance with Section
242 of the General Corporation Law of the State of Delaware.
3. That the Amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
4. The undersigned officer of the Corporation hereby acknowledges that
the foregoing is the act and deed of the Corporation and that the facts
stated herein are true.
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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed to this Certificate and has caused this Certificate to be signed this
day of April, 1997.
By:
------------------------------------
Sanford Miller
Chairman and Chief Executive Officer
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ANNEX B
1994 INCENTIVE STOCK OPTION PLAN
SENTENCES OR PARAGRAPHS CONTAINING PROPOSED AMENDMENTS ARE SET FORTH IN ALL
CAPITAL LETTERS.
1. Purpose. The purpose of this plan is to advance the interests of TEAM
Rental Group, Inc. by providing an opportunity to selected key employees of the
Company and its Subsidiaries to purchase shares of Common Stock through the
exercise of options granted pursuant to this Plan, which may be either Incentive
Options or Nonqualified Options. By encouraging such stock ownership, the
Company seeks to establish as close an identity as feasible between the
interests of the Company and its Subsidiaries and those of such key employees
and also seek to attract, retain, motivate and reward employees of superior
ability, training and experience.
2. Definitions
(1) Board means the Board of Directors of the Company.
(2) Code means the Internal Revenue Code of 1986 and regulations
thereunder, as amended from time to time.
(3) Committee means the committee appointed by the Board responsible
for administering the Plan in accordance with Section 5.
(4) Common Stock means the Class A common stock of the Company, par
value $.01 per share, and the Class B common stock, par value $.01 per
share, of the Company.
(5) Company means TEAM Rental Group, Inc., a Delaware corporation.
(6) Director means each individual who is serving as a member of the
Board as of the time of reference.
(7) Employee means an employee of the Company or any Subsidiary within
the meaning of Code Section 3401(c); "key employee" means a salaried
Employee who is determined by the Committee to be eligible to be granted
Options under the Plan.
(8) Exchange Act means the Securities Exchange Act of 1934 and the
rules and regulations promulgated pursuant thereto, as amended from time to
time.
(9) Incentive Option means a stock option intended to qualify as an
"incentive stock option" within the meaning of Code Section 422 and
designated as such.
(10) Nonqualified Option means a stock option not intended to be an
Incentive Option and designated as a nonqualified stock option, the federal
income tax treatment of which is determined generally under Code Section
83.
(11) Option means either an Incentive Option or a Nonqualified Option
granted pursuant to this Plan.
(12) Plan means this TEAM Rental Group, Inc. 1994 Incentive Stock
Option Plan as set forth herein, and as amended from time to time.
(13) Securities Act means the Securities Act of 1933 and rules and
regulations promulgated pursuant thereto, as amended from time to time.
(14) Subsidiary means a "subsidiary" of the Company within the meaning
of Code Section 424(f), which generally is defined as any corporation
(other than the Company) in an unbroken chain of corporations beginning
with the Company if, at the relevant time, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one
of the other corporations in the chain.
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3. Effective Date. This Plan was approved and adopted by the Board on
April 25, 1994. The effective date of the Plan is April 25, 1994, the date on
which the Plan was approved by the stockholders of the Company.
4. Stock Subject to Plan. The maximum aggregate number of shares of Common
Stock that may be made subject to Options granted hereunder is 1,750,000 shares,
which number shall be adjusted in accordance with Section 9 in the event of any
change in the Company's capital structure. Shares of Common Stock issued
pursuant to the Plan may consist, in whole or in part, of either authorized and
unissued shares or issued shares held in the Company's treasury. Any shares
subject to an Option that for any reason expires or is terminated unexercised as
to such shares may again be the subject of an Option under the Plan.
5. Administration. The Plan shall be administered by a Committee appointed
by the Board consisting of not fewer than two individuals who are Directors, who
are not Employees and who are "NON-EMPLOYEE DIRECTORS" UNDER RULE 16B-3 PURSUANT
TO SECTION 16 OF THE EXCHANGE ACT. The Board shall have the discretion to remove
and appoint members of the Committee from time to time. The Committee shall have
full power and discretion, subject to the express provisions of the Plan, (i) to
determine the key employees to whom Options are to be granted, the time or times
at which Options are to be granted, the number of shares of Common Stock to be
made subject to each Option, whether each Option is to be an Incentive Option or
a Nonqualified Option, the exercise price per share under each Option, and the
maximum term of each Option; (ii) to interpret and construe the Plan and to
prescribe, amend and rescind rules and regulations for its administration; (iii)
to determine the terms and provisions of each option agreement evidencing an
Option; and (iv) to make all other determinations the Committee deems necessary
or advisable for administering the Plan. All decisions of the Committee shall be
made by a majority of its members, which shall constitute a quorum, and shall be
reflected in minutes of its meetings.
6. Eligibility. Options may be granted to such Employees who are key
employees as the Committee selects. A Director who is not an Employee is not
eligible to receive Options pursuant to this Plan.
7. Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by stock option agreements in such form and containing such
terms and conditions as the Committee shall determine. If an Employee to whom an
Option is granted does not execute an option agreement evidencing that Option in
the form prescribed by the Committee within the later of (i) thirty days from
the date of grant of the Option or (ii) ten days after the Employee's receipt of
an option agreement from the Company, the Option shall be void and of no further
force or effect. Each Option agreement evidencing an Option shall contain among
its terms and conditions the following:
(1) Price. Subject to the conditions on Incentive Options contained
in Section 8(2), if applicable, the purchase price per share of Common
Stock payable upon the exercise of each Option granted hereunder shall be
as determined by the Committee in its discretion but shall not be less than
the fair market value of the Common Stock on the day the Option is granted.
The fair market value of Common Stock shall be determined as follows:
(i) if the Common Stock is listed on a national securities exchange
or is a National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System security, the last reported sale price
on such exchange or system on the trading day immediately preceding the
date of a grant hereunder; or
(ii) if the Common Stock is not so listed, the mean of the last bid
and asked prices reported by NASDAQ, or if no such reports are
available, by the National Quotation Bureau Incorporated on the trading
day immediately preceding the date of a grant hereunder.
(2) Number of Shares and Kind of Option. Each option agreement shall
specify the number of shares to which it pertains and shall specify whether
the Option is a Nonqualified Option or an Incentive Option.
(3) Terms of Exercise. Subject to the conditions on Incentive Options
contained in Section 8(2), if applicable, and to Section 10, each Option
shall be exercisable for the full amount or for any part
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thereof and at such intervals or in such installments as the Committee may
determine at the time it grants such Option; provided, however, that (i) no
Option shall be exercised as to fewer than 100 shares of Common Stock or,
if less, the total number of shares of Common Stock remaining unexercised
under the Option, and (ii) no Option shall be exercisable with respect to
any shares earlier than six months from the date the Option is granted or
later than ten years after the date the Option is granted, except to the
extent permitted in the event of the death or disability of the holder of a
Nonqualified Option under Section 7(7).
(4) Notice of Exercise and Payment. An Option shall be exercisable
only by delivery of a written notice to the Company's Treasurer, or any
other officer of the Company the Committee designates to receive such
notices, specifying the number of shares of Common Stock for which the
Option is being exercised. If the shares of Common Stock acquired upon
exercise of an Option are not at the time of exercise effectively
registered under the Securities Act, the optionee shall provide to the
Company, as a condition to the optionee's exercise of the Option, a letter,
in form and substance satisfactory to the Company, to the effect that the
shares are being purchased for the optionee's own account for investment
and not with a view to distribution or resale, and to such other effects as
the Company deems necessary or appropriate to comply with federal and
applicable state securities laws. Payment shall be made in full at the time
the Option is exercised. Payment shall be made by:
(i) cash;
(ii) delivery and assignment to the Company of shares of Common
Stock owned by the optionee;
(iii) a combination of (i) and (ii); or
(iv) delivery of a written exercise notice, including irrevocable
instructions to the Company to deliver the stock certificates issuable
upon exercise of the Option directly to a broker named in the notice
that has agreed to participate in a "cashless" exercise on behalf of the
optionee.
Upon the optionee's satisfaction of all conditions required for the
exercise of the Option and payment in full of the purchase price for the
shares being acquired, the Company shall, within a reasonable period of
time following such exercise, deliver a certificate representing the shares
of Common Stock so acquired; provided, that the Company may postpone
issuance and delivery of shares upon any exercise of an Option to the
extent necessary or advisable to comply with applicable exchange listing
requirements, National Association of Securities Dealers, Inc. ("NASD")
requirements, or federal or state securities laws.
(5) Withholding Taxes. The Company's obligation to deliver shares of
Common Stock upon exercise of an Option, in whole or in part, shall be
subject to the optionee's satisfaction of all applicable federal, state and
local tax withholding obligations.
(6) Nontransferability of Option. No Option shall be transferable by
the optionee otherwise than by will or the laws of descent and distribution
and shall be exercisable during the optionee's lifetime only by the
optionee (or the optionee's guardian or legal representative).
(7) Termination of Options. Each option agreement evidencing an
Option shall contain provisions for the termination of the Option if the
optionee ceases for any reason to be an Employee, which provisions shall be
no more favorable to the optionee than the following:
(i) Termination With Consent. If the optionee ceases to be an
Employee and the Company or Subsidiary that is the Employee's primary
employer at the time of termination consents in writing to the
optionee's exercise of an Option following such termination, then the
optionee may, at any time within a period of 90 days following the date
of such termination, exercise such Option to the extent that the Option
was exercisable on the date the optionee ceased to be an Employee;
(ii) Retirement. If the optionee ceases to be an Employee by
reason of retirement under one or more of the Company's (or
Subsidiary's) retirement plans including, without limitation, early
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retirement, then the optionee may, at any time within a period of 90
days following the date of such termination, exercise each Option held
by the optionee on such date to the full extent of the Option;
(iii) Death or Disability. In the event of the Optionee's death or
disability (within the meaning of Code Section 22(e)(3)) either (x)
while an Employee or (y) with respect only to Nonqualified Options,
while eligible to exercise a Nonqualified Option under Subsections
7(7)(i) or (ii) above, then the optionee (or the optionee's legal
representative, executor, administrator, or person acquiring an Option
by bequest or inheritance) may, at any time within a period of one year
following the date of the optionee's death or commencement of
disability, exercise each Option held by the optionee on such date to
the full extent of the Option; and
(iv) Other Termination. If the optionee ceases to be an Employee
for any reason other than those enumerated in Subsections 7(7)(i)
through (iii) above, each Option granted to the optionee to the extent
outstanding on the date of such termination of employment, shall
terminate immediately on such termination of employment and may not be
exercised thereafter;
provided, however, that no Option may be exercised to any extent by anyone
after the date of expiration of the Option's term, except that a
Nonqualified Option shall remain exercisable as provided in Subsection
7(7)(iii) regardless of the Option's term.
(8) Legends. Any restriction on transfer of shares of Common Stock
provided in this Plan or in the option agreement evidencing any Option
shall be noted or referred to conspicuously on each certificate evidencing
such shares.
8. Restrictions on Incentive Options. Incentive Options (but not
Nonqualified Options) granted under this Plan shall be subject to the following
restrictions:
(1) Limitation on Number of Shares. The aggregate fair market value,
determined as of the date an Incentive Option is granted, of the shares
with respect to which Incentive Options are exercisable for the first time
by an Employee during any calendar year shall not exceed $100,000. If an
Incentive Option is granted pursuant to which the aggregate fair market
value of shares with respect to which it first become exercisable in any
calendar year by an Employee exceeds the aforementioned $100,000
limitation, the portion of such Option which is in excess of the $100,000
limitation shall be treated as a Nonqualified Option pursuant to Code
Section 422(d)(1). In the event that an Employee is eligible to participate
in any other stock option plan of the Company or a Subsidiary which is also
intended to comply with the provisions of Code Section 422, the $100,000
limitation shall apply to the aggregate number of shares for which
Incentive Options may be granted under all such plans.
(2) 10% Stockholder. If an Employee to whom an Incentive Option is
granted pursuant to the provisions of the Plan is on the date of grant the
owner of stock (as determined under Code Section 424(d)) possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or a Subsidiary, then the following special provisions shall be
applicable to the Incentive Option granted to such individual:
(i) The Option price per share subject to such Incentive Option
shall not be less than 110% of the fair market value of one share on the
date of grant; and
(ii) The Incentive Option shall not have a term in excess of five
(5) years from its date of grant.
9. Adjustment for Changes in Capitalization. Appropriate and equitable
adjustment shall be made in the maximum number of shares of Common Stock subject
to the Plan under Section 4 and, subject to Section 10, in the number, kind and
option price of shares of Common Stock subject to then outstanding Options to
give effect to any changes in the outstanding Common Stock by reason of any
stock dividend, stock split, stock combination, merger, consolidation,
reorganization, recapitalization or any other change in the capital structure of
the Company affecting the Common Stock after the effective date of the Plan.
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10. Change in Control; Merger, Etc.
(1) Change in Control. Upon the occurrence of any of the events
listed below, all outstanding Incentive Options and Nonqualified Options
held by all optionees pursuant to this Plan shall become immediately
exercisable in full. The events are as follows:
(i) The sale by the Company of all or substantially all of its
assets, or all or substantially all of the assets of its Subsidiaries,
taken as a whole;
(ii) Any of the following events if, immediately following such
event, a majority of the Directors consists of persons who were not
Directors immediately prior to the date of such event:
(a) the sale of 50% or more of the outstanding shares of Common
Stock of the Company in a single transaction or related series of
transactions;
(b) the consummation of a tender offer (by a party other than
the Company) for more than 50% of the outstanding shares of Common
Stock of the Company; or
(c) subject to Section 10(2) below, the consummation of a merger
or consolidation involving the Company; or
(iii) An election of new Directors if immediately following such
election a majority of the Directors consists of persons who were not
nominated by the Board or nominating committee thereof to stand for
election as Directors in such election.
(2) Where Company Does Not Survive. In the event of a merger or
consolidation to which the Company is a party but is not the surviving
company, the Committee in its discretion may vote to negate and give no
effect to the acceleration of Options pursuant to Section 10(1)(ii)(c), but
only if and to the extent that an executed agreement of merger or
consolidation provides that the optionee holding such an Option shall
receive the same merger consideration as the optionee would have received
as a stockholder of the Company had the exercisability of the Option been
accelerated in accordance with Section 10(1)(ii)(c) and had the optionee,
immediately prior to the merger or consolidation, exercised the Option for
the full number of shares subject thereto, paid the exercise price in full,
and satisfied all other conditions for the exercise of the Option.
(3) Liquidation or Dissolution. The provisions of Section 9 and
Subsections 10(1) and (2) shall not cause any Option to terminate other
than in accordance with other applicable provisions of the Plan. However,
in the event of the liquidation or dissolution of the Company, each
outstanding Option shall terminate, except to the extent otherwise
specifically provided in the option agreement evidencing the Option.
11. Rights of Optionees. No Employee shall have a right to be granted an
Option or, having received an Option, a right again to be granted an Option. An
optionee shall have no rights as a stockholder with respect to any shares of
Common Stock covered by his or her Option until the date the Option has been
exercised and the full purchase price for such shares has been received by the
Company. Nothing in this Plan or in any Option granted pursuant to the Plan
shall confer on any individual any right to continue in the employ of the
Company or any Subsidiary or interfere in any way with the right of the Company
or any Subsidiary to terminate or modify the terms or conditions of the
employment of the Option holder.
12. Amendment and Termination of the Plan. Unless sooner terminated by the
Board, the Plan shall terminate, so that no Options may be granted pursuant to
it thereafter, on April 24, 2004. The Board may at any time amend, suspend or
terminate the Plan in its discretion without further action on the part of the
stockholders of the Company, except that:
(1) no such amendment, suspension or termination of the Plan shall
adversely affect or impair any then outstanding Option without the consent
of the optionee holding the Option; and
(2) any such amendment, suspension or termination that requires
approval by the stockholders of the Company to comply with applicable
provisions of the Code, rules promulgated pursuant to Section 16 of the
Exchange Act, applicable state law or NASD or exchange listing requirements
shall be subject to approval by the stockholders of the Company within the
applicable time period prescribed thereunder, and shall be null and void if
such approval is not obtained.
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ANNEX C
1994 DIRECTORS' STOCK OPTION PLAN
SENTENCES OR PARAGRAPHS CONTAINING PROPOSED AMENDMENTS ARE SET FORTH IN ALL
CAPITAL LETTERS.
1. Purpose. The purpose of this plan is to advance the interests of TEAM
Rental Group, Inc. by providing an opportunity to selected directors of the
Company to purchase shares of Common Stock through the exercise of options
granted pursuant to this Plan, which shall be nonqualified options. By
encouraging such stock ownership, the Company seeks to establish as close an
identity as feasible between the interests of the Company and those of its
directors and also seeks to attract, retain, motivate and reward individuals of
superior ability and experience.
2. Definitions
(1) Board means the Board of Directors of the Company.
(2) Code means the Internal Revenue Code of 1986 and regulations
thereunder, as amended from time to time.
(3) Common Stock means the Class A common stock of the Company, par
value $.01 per share.
(4) Company means TEAM Rental Group, Inc., a Delaware corporation.
(5) Director means each individual who is serving as a member of the
Board as of the time of reference.
(6) Exchange Act means the Securities Exchange Act of 1934 and the
rules and regulations promulgated pursuant thereto, as amended from time to
time.
(7) Option means a nonqualified option, the federal income tax
treatment of which is determined generally under Code Section 83, granted
pursuant to this Plan.
(8) Plan means this TEAM Rental Group, Inc. 1994 Directors' Stock
Option Plan as set forth herein, and as amended from time to time.
(9) Securities Act means the Securities Act of 1933 and rules and
regulations promulgated pursuant thereto, as amended from time to time.
(10) Subsidiary means a "subsidiary" of the Company within the meaning
of Code Section 424(f), which generally is defined as any corporation
(other than the Company) in an unbroken chain of corporations beginning
with the Company if, at the relevant time, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50%
or more of the total combined voting power of all classes of stock in one
of the other corporations in the chain.
3. Effective Date. This Plan was approved and adopted by the Board on
April 25, 1994. The effective date of the Plan is April 25, 1994, the date on
which the Plan was approved by the stockholders of the Company.
4. Stock Subject to Plan. The maximum aggregate number of shares of Common
Stock that may be made subject to Options granted hereunder is 150,000 shares,
which number shall be adjusted in accordance with Section 8 in the event of any
change in the Company's capital structure. Shares of Common Stock issued
pursuant to the Plan may consist, in whole or in part, of either authorized and
unissued shares or issued shares held in the Company's treasury. Any shares
subject to an Option that for any reason expires or is terminated unexercised as
to such shares may again be the subject of an Option under the Plan.
5. Administration. THE PLAN SHALL BE ADMINISTERED BY THE BOARD. THE BOARD
SHALL HAVE FULL POWER AND DISCRETION, SUBJECT TO THE EXPRESS PROVISIONS OF THE
PLAN, (i) TO DETERMINE THE NON-EMPLOYEE DIRECTORS TO WHOM OPTIONS ARE TO BE
GRANTED, THE TIME OR TIMES AT WHICH OPTIONS ARE TO BE GRANTED,
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THE NUMBER OF SHARES OF COMMON STOCK TO BE MADE SUBJECT TO EACH OPTION, THE
EXERCISE PRICE PER SHARE UNDER EACH OPTION, AND THE MAXIMUM TERM OF EACH OPTION;
(ii) TO INTERPRET AND CONSTRUE THE PLAN AND TO PRESCRIBE, AMEND AND RESCIND
RULES AND REGULATIONS FOR ITS ADMINISTRATION; (iii) TO DETERMINE THE TERMS AND
PROVISIONS OF EACH OPTION AGREEMENT EVIDENCING AN OPTION; AND (IV) TO MAKE ALL
OTHER DETERMINATIONS THE BOARD DEEMS NECESSARY OR ADVISABLE FOR ADMINISTERING
THE PLAN. ALL DECISIONS OF THE BOARD SHALL BE MADE BY A MAJORITY OF ITS MEMBERS,
WHICH SHALL CONSTITUTE A QUORUM, AND SHALL BE REFLECTED IN MINUTES OF ITS
MEETINGS. To the extent that recordkeeping and other ministerial functions must
be performed to administer and operate the Plan properly, either the Board or a
committee appointed by the BOARD consisting of not fewer than two individuals
shall perform such administrative functions. The Board shall have the discretion
to remove and appoint members of the committee from time to time.
6. Eligibility. Each individual who is a Director and who is not an
employee shall be ELIGIBLE TO RECEIVE GRANTS OF OPTIONS UNDER THE PLAN.
7. [INTENTIONALLY OMITTED BY AMENDMENT.]
8. Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by stock option agreements. If a Director to whom an Option
is granted does not execute an option agreement evidencing that Option in the
form prescribed by the Board within the later of (i) thirty days from the date
of grant of the Option or (ii) ten days after the Director's receipt of an
option agreement from the Company, the Option shall be void and of no further
force or effect. Each option agreement evidencing an Option shall contain among
its terms and conditions the following:
(1) Price. The purchase price per share of Common Stock payable upon
the exercise of each Option granted hereunder shall be the fair market
value of the Common Stock on the day the Option is granted. The fair market
value of Common Stock shall be determined as follows:
(i) if the Common Stock is listed on a national securities exchange
or is a National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System security, the last reported sale price
on such exchange or system on the trading day immediately preceding the
date of a grant hereunder; or
(ii) If the Common Stock is not so listed, the mean of the last bid
and asked prices reported by NASDAQ, or if no such reports are
available, by the National Quotation Bureau Incorporated on the trading
day immediately preceding the date of a grant hereunder.
(2) Terms of Exercise. Subject to Section 10, each Option shall be
exercisable in full; provided, however that (i) no Option shall be
exercised as to fewer than 100 shares of Common Stock or, if less, the
total number of shares of Common Stock remaining unexercised under the
Option, and (ii) no Option shall be exercisable with respect to any shares
earlier than six months from the date the Option is granted or later than
ten years after the date the Option is granted, except to the extent
permitted in the event of the death or disability of the holder of an
Option under Section 8(5).
(3) Notice of Exercise and Payment. An Option shall be exercisable
only by delivery of a written notice to the Company's Treasurer specifying
the number of shares of Common Stock for which the Option is being
exercised. If the shares of Common Stock acquired upon exercise of an
Option are not at the time of exercise effectively registered under the
Securities Act, the optionee shall provide to the Company, as a condition
to the optionee's exercise of the Option, a letter, in form and substance
satisfactory to the Company, to the effect that the shares are being
purchased for the optionee's own account for investment and not with a view
to distribute or resale, and to such other effects as the Company deems
necessary or appropriate to comply with federal and applicable state
securities laws. Payment shall be made in full at the time the Option is
exercised. Payment shall be made by:
(i) cash;
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(ii) delivery and assignment to the Company of shares of Common
Stock owned by the optionee;
(iii) a combination of (i) and (ii); or
(iv) delivery of a written exercise notice, including irrevocable
instructions to the Company to deliver the stock certificates issuable
upon exercise of the Option directly to a broker named in the notice
that has agreed to participate in a "cashless" exercise on behalf of the
optionee.
Upon the optionee's satisfaction of all conditions required for the
exercise of the Option and payment in full of the purchase price for the
shares being acquired, the Company shall, within a reasonable period of
time following such exercise, deliver a certificate representing the shares
of Common Stock so acquired; provided, that the Company may postpone
issuance and delivery of shares upon any exercise of an Option to the
extent necessary to advisable to comply with applicable exchange listing
requirements, National Association of Securities Dealers, Inc. ("NASD")
requirements, or federal or state securities laws.
(4) Nontransferability of Option. No Option shall be transferable by
the optionee otherwise than by will or the laws of descent and distribution
and shall be exercisable during the optionee's lifetime only by the
optionee (or the optionee's guardian or legal representative).
(5) Termination of Options. Each option agreement evidencing an
Option shall contain provisions for the termination of the Option if the
optionee ceases for any reason to be a Director, which provisions shall be
as follows:
(i) Termination With Consent. If the Optionee ceases to be a
Director of the Company or a Subsidiary and at the time of termination
the Company consents in writing to the optionee's exercise of an Option
following such termination, then the optionee may, at any time within a
period of 90 days following the date of such termination, exercise such
Option to the extent that the Option was exercisable on the date the
optionee ceased to be a Director;
(ii) Retirement. If the optionee ceases to be a Director by reason
of retirement at or after age 65, then the optionee may, at any time
within a period of 90 days following the date of such termination,
exercise each Option held by the optionee on such date to the full
extent of the Option;
(iii) Death or Disability. In the event of the Optionee's death or
disability (within the meaning of Code Section 22(e)(3)) either (x)
while a Director or (y) while eligible to exercise an Option under
Subsections 8(5)(i) or (ii) above, then the optionee (or the optionee's
legal representative, executor, administrator, or person acquiring an
Option by bequest or inheritance) may, at any time within a period of
one year following the date of the optionee's death or commencement of
disability, exercise each Option held by the optionee on such date to
the full extent of the Option; and
(iv) Other Termination. If the optionee ceases to be a Director
for any reason other than those enumerated in Subsections 8(5)(i)
through (iii) above, each Option granted to the optionee to the extent
outstanding on the date of such termination, shall terminate immediately
on such termination and may not be exercised thereafter;
provided, however, that no Option may be exercised to any extent by anyone
after the date of expiration of the Option's term, except that an Option
shall remain exercisable as provided in Subsection 8(5)(iii) regardless of
the Option's term.
(6) Legends. Any restriction on transfer of shares of Common Stock
provided in this Plan or in the option agreement evidencing any Option
shall be noted or referred to conspicuously on each certificate evidencing
such shares.
9. Adjustment for Changes in Capitalization. Appropriate and equitable
adjustment shall be made in the maximum number of shares of Common Stock subject
to the Plan under Section 4 and, subject to Section 10, in the number, kind and
option price of shares of Common Stock subject to then outstanding
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Options to give effect to any changes in the outstanding Common Stock by reason
of any stock dividend, stock split, stock combination, merger, consolidation,
reorganization, recapitalization or any other change in the capital structure of
the Company affecting the Common Stock after the effective date of the Plan.
9. Change in Control; Merger, Etc.
(1) Change in Control. Upon the occurrence of any of the events
listed below, all outstanding Options held by all optionees pursuant to
this Plan shall become immediately exercisable in full. The events are as
follows:
(i) The sale by the Company of all or substantially all of its
assets, or all or substantially all of the assets of its Subsidiaries,
taken as a whole;
(ii) Any of the following events if, immediately following such
event, a majority of the Directors consists of persons who were not
Directors immediately prior to the date of such event:
(a) the sale of 50% or more of the outstanding shares of Common
Stock of the Company in a single transaction or related series of
transactions;
(b) the consummation of a tender offer (by a party other than
the Company) for more than 50% of the outstanding shares of Common
Stock of the Company; or
(c) subject to Section 10(2) below, the consummation of a merger
or consolidation involving the Company; or
(iii) An election of new Directors if immediately following such
election a majority of the Directors consists of persons who were not
nominated by the Board or the nominating committee thereof to stand for
election as Directors in such election.
(2) Where Company Does Not Survive. In the event of a merger or
consolidation to which the Company is a party but is not the surviving
company, the Committee in its discretion may vote to negate and give no
effect to the acceleration of Options pursuant to Section 10(1)(ii)(c), but
only if and to the extent that an executed agreement of merger or
consolidation provides that the optionee holding such an Option shall
receive the same merger consideration as the optionee would have received
as a stockholder of the Company had the exercisability of the Option been
accelerated in accordance with Section 10(1)(ii)(c) and had the optionee,
immediately prior to the merger or consolidation, exercised the Option for
the full number of shares subject thereto, paid the exercise price in full,
and satisfied all other conditions for the exercise of the Option.
(3) Liquidation or Dissolution. The provisions of Section 8 and
Subsections 9(1) and (2) shall not cause any Option to terminate other than
in accordance with other applicable provisions of the Plan. However, in the
event of the liquidation or dissolution of the Company, each outstanding
Option shall terminate, except to the extent otherwise specifically
provided in the option agreement evidencing the Option.
11. Rights of Optionees. An optionee shall have no rights as a stockholder
with respect to any shares of Common Stock covered by his or her Option until
the date the Option has been exercised and the full purchase price for such
shares has been received by the Company.
12. Amendment and Termination of the Plan. Unless sooner terminated by the
Board, the Plan shall terminate, so that no Options may be granted pursuant to
it thereafter, on April 24, 2004. The Board may at any time amend, suspend or
terminate the Plan in its discretion without further action on the part of the
stockholders of the Company, except that:
(1) no such amendment, suspension or termination of the Plan shall
adversely affect or impair any then outstanding Option without the consent
of the optionee holding the Option; and
(2) any such amendment, suspension or termination that requires
approval by the stockholders of the Company to comply with applicable
provisions of the Code, rules promulgated pursuant to Section 16 of the
Exchange Act, applicable state law or NASD or exchange listing requirements
shall be subject to approval by the stockholders of the Company within the
applicable time period prescribed thereunder, and shall be null and void if
such approval is not obtained.
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ANNEX D
[LETTERHEAD OF
CREDIT SUISSE FIRST BOSTON CORPORATION]
Board of Directors
Team Rental Group, Inc.
125 Basin Street
Daytona Beach, Florida 32114
January 13, 1997
Members of the Board:
You have asked us to advise you with respect to the fairness to Team Rental
Group, Inc. ("Team") from a financial point of view of the consideration to be
paid by Team pursuant to the terms of the Budget Stock Purchase Agreement, dated
as of January 13, 1997, between Budget Rent a Car Corporation ("Budget") and
Team, the Preferred Stock Purchase Agreement, dated as of January 13, 1997,
between Ford Motor Company ("Ford") and Team, and the Common Stock Purchase
Agreement, dated as of January 13, 1997, between John J. Nevin and Team
(collectively, the "Agreements"). The Agreements provide for the acquisition by
Team of 100% of the equity securities of Budget (the "Stock Sale") for aggregate
consideration of (i) $275 million in cash and (ii) the greater of (A) 4,500
shares of Team Series A Convertible Preferred Stock, par value $.01 per share
(the "Team Preferred Stock"), and (B) a number of shares of Team 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 Team Class A Common
Stock, par value $.01 per share (the "Team Class A Stock"), on the Nasdaq
National Market for the ten consecutive trading days immediately preceding the
second trading day prior to the closing date of the Stock Sale. In addition, at
the closing of the Stock Sale, Team will enter into a Supply Agreement with Ford
and Budget (the "Supply Agreement") and Budget will enter into an Advertising
Agreement with Ford and Budget Rent a Car Systems, Inc. (the "Advertising
Agreement"), the forms of which are attached as exhibits to the Agreements.
In arriving at our opinion, we have reviewed the Agreements, the Supply
Agreement and the Advertising Agreement, certain publicly available business and
financial information relating to Team, and certain business and financial
information relating to Budget provided by Ford and Budget. We have also
reviewed certain other information, including financial forecasts, provided to
us by Budget and Team, and have met with the managements of Team and Budget to
discuss the businesses and prospects of Team and Budget.
We have also considered certain financial data of Budget, and we have compared
that data with similar data for publicly held companies in businesses similar to
those of Team and Budget and we have considered, to the extent publicly
available, the financial terms of certain other business combinations and other
transactions which have recently been effected. We also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
managements of Team and Budget as to the future financial performance of Team
and Budget. We have also, with your consent, assumed that no penalties will be
paid by Team to Ford under the Supply Agreement. In addition, we have not made
an independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of Budget, nor have we been furnished with any such evaluations or
appraisals. Our opinion is necessarily based upon information available to us,
and financial, economic, market and other conditions as they exist and can be
evaluated, on the date hereof. We are not expressing an opinion as to what the
value of the Team Preferred Stock actually will be when issued to Ford pursuant
to the Stock Sale (or as to the value of the Team Class A Stock issuable upon
conversion of the Team Preferred Stock) or the prices at which such securities
will trade or otherwise be transferable subsequent to the Stock Sale.
D-1
<PAGE> 141
We have acted as financial advisor to Team in connection with the Stock Sale and
will receive a fee for our services, which is contingent upon the consummation
of the Stock Sale.
In the past, we have performed certain investment banking services for Team,
Budget and Ford, for which services we have received compensation. Credit Suisse
First Boston is acting as a lender and lead underwriter or placement agent in
connection with Team's financing for the Stock Sale, for which services it will
receive compensation.
In the ordinary course of its business, Credit Suisse First Boston and its
affiliates may actively trade the debt and equity securities of both Ford and
Team for their own accounts and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of Team in connection with its evaluation of the Stock Sale, does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed issuance of Team Preferred Stock (or Team Class A Stock
issuable upon conversion of the Team Preferred Stock) in connection with the
Stock Sale, and is not to be quoted or referred to, in whole or in part, in any
registration statement, prospectus, proxy, information statement, or in any
other document used in connection with the offering or sale of securities, nor
shall this letter be used for any other purposes, without our prior written
consent.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the consideration to be paid by Team in the Stock Sale is fair to Team
from a financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
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<PAGE> 142
APPENDIX
TEAM RENTAL GROUP, INC.
PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS ON APRIL 22, 1997
The undersigned hereby appoints SANFORD MILLER and JOHN P. KENNEDY, and
each of them, proxies, with full power of substitution and resubstitution, for
and in the name of the undersigned, to vote all shares of stock of Team Rental
Group, Inc. (the "Company"), which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders to be held on Tuesday,
April 22, 1997 at 9:00 a.m. (local time) at the Company's offices at 125 Basin
Street, Daytona Beach, Florida, and at any adjournment thereof, upon the matters
described in the accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement, receipt of which is hereby acknowledged, and upon any other business
that may properly come before the meeting or any adjournment thereof. Said
proxies are directed to vote on the matters described in the Notice of Annual
Meeting and Proxy Statement as follows, and otherwise in their discretion upon
such other business as may properly come before the meeting or any adjournment
thereof.
1. To elect nine directors to the Board of Directors:
<TABLE>
<S> <C>
Sanford Miller James F. Calvano
John P. Kennedy Martin P. Gregor
Jeffrey D. Congdon Alan D. Liker
Ronald D. Agronin Jeffrey R. Mirkin
Dr. Stephen L. Weber
</TABLE>
[ ] FOR ALL NOMINEES (except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation (i) to increase to 35,000,000 the authorized number
of shares of Class A Common Stock and (ii) to change the name of the Company to
Budget Group, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve an amendment to the Company's 1994 Incentive Stock Option
Plan (i) to increase by 990,000 the number of shares of Common Stock available
for grant under such plan such that the total number of shares of Common Stock
available for grant under such plan is 1,750,000 and (ii) to approve certain
other amendments to such plan as described in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To approve an amendment to the Company's 1994 Directors' Stock Option
Plan (i) to increase by 125,000 the number of shares of Common Stock available
for grant under such plan such that the total number of shares of Common Stock
available for grant under such plan is 150,000 and (ii) to approve certain other
amendments to such plan as described in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED, AND TO BE SIGNED, ON THE OTHER SIDE)
<PAGE> 143
5. In the discretion of the proxies, on any other matter that may properly
come before the meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED,
THIS PROXY WILL BE VOTED FOR THE PROPOSALS ON THE OTHER SIDE.
Date: , 1997
--------------------------
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--------------------------------------
Please sign exactly as your name or
names appear hereon. Where more than
one owner is shown above, each should
sign. When signing in a fiduciary or
representative capacity, please give
full title. If this proxy is submitted
by a corporation, it should be
executed in the full corporate name by
a duly authorized officer. If a
partnership, please sign in
partnership name by authorized person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.
YOUR VOTE IS IMPORTANT.
PLEASE ACT PROMPTLY.
