<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
BUDGET GROUP, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 7514 59-3227576
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
125 BASIN STREET, SUITE 210
DAYTONA BEACH, FLORIDA 32114
(904) 238-7035
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
SANFORD MILLER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
BUDGET GROUP, INC.
125 BASIN STREET, SUITE 210
DAYTONA BEACH, FLORIDA 32114
(904) 238-7035
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY M. STEIN ROBERT L. APRATI
KING & SPALDING EXECUTIVE VICE PRESIDENT,
191 PEACHTREE STREET GENERAL COUNSEL
ATLANTA, GEORGIA 30303 BUDGET GROUP, INC.
(404) 572-4600 4225 NAPERVILLE ROAD
LISLE, ILLINOIS 60532
(630) 955-7570
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.
If any securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE(2)
--------------------------- ------------- -------------- ----------------- ------------
<S> <C> <C> <C> <C>
Class A Common Stock, $.01 par value per share, and
Warrants to purchase shares of Class A Common
Stock................................................ 4,605,946 $22.05 $101,554,000 $29,959
Class A Common Stock, $.01 par value per share, and
Warrants to purchase shares of Class A Common
Stock................................................ (3) -- -- --
</TABLE>
(1) This amount is based upon the maximum number of shares of Class A Common
Stock and Warrants anticipated to be issued pursuant to the Agreement and
Plan of Merger dated March 4, 1998 (as amended on March 16, 1998, the
"Merger Agreement") by and among Budget Group, Inc., BDG Corporation, Ryder
TRS, Inc., Questor Partners Fund, L.P., Questor Side-by-Side Partners and
Madison Dearborn Capital Partners, L.P. The actual number of shares of Class
A Common Stock and Warrants to be issued pursuant to the Merger Agreement
will vary depending on various factors described in the attached Proxy
Statement/Prospectus.
(2) Estimated solely for the purpose of calculating the registration fee and
computed pursuant to Rule 457(f)(2) under the Securities Act of 1933, as
amended, based on the aggregate book value of Ryder TRS, Inc. Common Stock,
$0.01 par value per share, which was $101,554,000 as of December 31, 1997.
(3) Such indeterminate additional number of shares of Class A Common Stock and
Warrants to purchase shares of Class A Common Stock as may be issuable in
accordance with the terms of the Merger Agreement. Such shares of Class A
Common Stock and Warrants will, if issued, be issued for no additional
consideration and therefore no registration fee is required.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
[BUDGET LOGO]
, 1998
Dear Stockholder:
We cordially invite you to attend a Special Meeting (the "Special Meeting")
of Stockholders of Budget Group, Inc. (the "Company"). The Special Meeting will
be held at the Company's offices at 125 Basin Street, Suite 210, Daytona Beach,
Florida 32114 on , 1998, beginning at 10:00 a.m. local Daytona Beach
time.
The attached Notice of Special Meeting and Proxy Statement fully describes
the formal business to be transacted at the Special Meeting, which includes (i)
the approval of an amendment (the "Certificate Amendment") to the Company's
Certificate of Incorporation to increase the authorized number of shares of
Class A Common Stock which the Company may issue from 35,000,000 to 70,000,000;
(ii) the approval of an amendment (the "Incentive Plan Amendment") to the
Company's 1994 Incentive Stock Option Plan to increase the maximum number of
shares of Class A Common Stock and Class B Common Stock available for grant
under such plan to 3,500,000 shares; (iii) the approval of an amendment (the
"Directors' Plan Amendment" and, together with the Incentive Plan Amendment, the
"Plan Amendments") to the Company's 1994 Directors' Stock Option Plan to
increase the maximum number of shares of Budget Class A Common Stock available
for grant under such plan to 300,000 shares; and (iv) to transact any other
business which may properly be brought before the Special Meeting or any
adjournments thereof.
The Certificate Amendment is necessary in order to issue the maximum number
of shares of Common Stock contemplated by the Agreement and Plan of Merger (the
"Merger Agreement") dated March 4, 1998, as amended on March 16, 1998, by and
among the Company, BDG Corporation, Ryder TRS, Inc. and certain other parties.
The terms of the Merger Agreement are described in the accompanying Proxy
Statement/ Prospectus. The Certificate Amendment is also necessary to effect
each of the Plan Amendments. Details of the Certificate Amendment and each of
the Plan Amendments are included in the accompanying Proxy Statement/Prospectus.
THE APPROVAL AND ADOPTION OF EACH OF THE PLAN AMENDMENTS IS CONTINGENT UPON
THE APPROVAL AND ADOPTION OF THE CERTIFICATE AMENDMENT. UNLESS THE CERTIFICATE
AMENDMENT IS APPROVED AND ADOPTED BY THE COMPANY'S STOCKHOLDERS AT THE SPECIAL
MEETING, NEITHER OF THE PLAN AMENDMENTS WILL BE EFFECTED BY BUDGET.
THE BOARD OF DIRECTORS ASKS THAT YOU VOTE "FOR" THE CERTIFICATE AMENDMENT
AND THE PLAN AMENDMENTS AS DESCRIBED IN THE ENCLOSED NOTICE OF SPECIAL MEETING
AND PROXY STATEMENT.
It is important that your shares be represented at the Special Meeting.
Whether or not you plan to attend, please complete, sign and date the enclosed
Proxy and return it in the enclosed postage prepaid envelope. If you attend the
Special 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 Special
Meeting on , 1998.
Very truly yours,
SANFORD MILLER
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
BUDGET GROUP, INC.
125 BASIN STREET
SUITE 210
DAYTONA BEACH, FLORIDA 32114
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1998
TO THE STOCKHOLDERS OF BUDGET GROUP, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Special Meeting") of
Stockholders of Budget Group, Inc., a Delaware corporation (the "Company"), will
be held at the Company's offices at 125 Basin Street, Suite 210, Daytona Beach,
Florida 32114 on , 1998, beginning at 10:00 a.m. local Daytona Beach
time for the following purposes:
1. To approve an amendment to the Company's Certificate of
Incorporation to increase the authorized number of shares of Class A Common
Stock which the Company may issue from 35,000,000 to 70,000,000.
2. To approve amendments to the Company's 1994 Incentive Stock Option
Plan to increase the maximum number of shares of Class A Common Stock and
Class B Common Stock available for grant under such plan to 3,500,000
shares. At present, the maximum number of shares of Budget Common Stock
that may be made subject to options granted under the Incentive Plan is
1,750,000 shares.
3. To approve an amendment to the Company's 1994 Directors' Stock
Option Plan to increase the maximum number of shares of Budget Class A
Common Stock available for grant under such plan to 300,000 shares. At
present, the maximum number of shares of Budget Class A Common Stock that
may be made subject to options granted under the Director's Plan is 150,000
shares.
4. To transact any other business which may properly be brought before
the Special Meeting or any adjournments thereof.
Stockholders of record at the close of business on , 1998 (the
"Stockholders") are entitled to notice of and to vote at the Special Meeting.
During the period from , 1998 until the Special Meeting, a list of
Stockholders will be open for the examination by any Stockholder during ordinary
business hours, at the Company's offices at 125 Basin Street, Suite 210, Daytona
Beach, Florida 32114.
By Order of the Board of Directors,
SANFORD MILLER
Chairman of the Board and
Chief Executive Officer
Daytona Beach, Florida
, 1998.
EACH STOCKHOLDER IS URGED TO COMPLETE, SIGN, DATE AND MAIL THE ENCLOSED PROXY
PROMPTLY. IF YOU ATTEND THE SPECIAL 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> 4
BUDGET GROUP, INC.
PROXY STATEMENT
SPECIAL MEETING TO BE
HELD ON , 1998
---------------------
BUDGET GROUP, INC.
PROSPECTUS
SHARES OF CLASS A COMMON STOCK
WARRANTS TO PURCHASE
SHARES OF CLASS A COMMON STOCK
---------------------
RYDER TRS, INC.
INFORMATION STATEMENT
---------------------
This Proxy Statement/Prospectus/Information Statement (this "Proxy
Statement/Prospectus") is being furnished to the holders of record (the "Budget
Stockholders") as of the close of business on , 1998 (the "Budget
Record Date") of the Class A Common Stock, par value $.01 per share ("Budget
Class A Common Stock"), and Class B Common Stock, par value $.01 per share
("Budget Class B Common Stock", and, together with Budget Class A Common Stock,
"Budget Common Stock"), of Budget Group, Inc. ("Budget") in connection with the
solicitation of proxies by the Board of Directors of Budget (the "Budget Board")
for use at a special meeting of Budget Stockholders to be held on ,
1998 and at any adjournment or postponement thereof (the "Budget Special
Meeting").
At the Budget Special Meeting, the Budget Stockholders will be asked to
consider and vote upon a proposal to approve and adopt an amendment to Budget's
Amended and Restated Certificate of Incorporation (the "Budget Certificate"),
pursuant to which the number of shares of Budget Class A Common Stock that
Budget would be authorized to issue would be increased from 35,000,000 to
70,000,000 (the "Certificate Amendment"). The purpose of the Certificate
Amendment, in part, is to provide for sufficient authorized shares of Budget
Class A Common Stock to issue the maximum number of shares of Budget Class A
Common Stock contemplated by the Agreement and Plan of Merger dated as of March
4, 1998, (as amended on March 16, 1998, the "Merger Agreement") by and among
Budget, BDG Corporation ("Sub"), a wholly-owned subsidiary of Budget, Ryder TRS,
Inc. ("Ryder") and Questor Partners Fund, L.P. ("Questor Partners"), Questor
Side-by-Side Partners, L.P. ("Questor Side-by-Side", and, together with Questor
Partners, "Questor") and Madison Dearborn Capital Partners, L.P. ("Madison," and
together with Questor, the "Significant Stockholders") pursuant to which Sub
will merge (the "Merger") with and into Ryder. Ryder would be the surviving
corporation in the Merger and would become a wholly-owned subsidiary of Budget.
The Certificate Amendment is also needed to provide for sufficient authorized
shares of Budget Class A Common Stock to issue pursuant to the proposed
amendments, discussed below, to Budget's 1994 Incentive Stock Option Plan and
1994 Directors' Stock Option Plan.
If the Merger is consummated, all of the outstanding shares of common stock,
par value $.01 per share of Ryder ("Ryder Common Stock"), will be converted into
shares of Budget Class A Common Stock ("Merger Shares"), cash, warrants to
purchase Budget Class A Common Stock and additional consideration (collectively,
the "Aggregate Merger Consideration") as follows: (i) an amount payable on the
date (the "Closing Date") of the closing of the Merger (the "Closing") equal to
either (a) if the Certificate Amendment is approved by the Budget Stockholders
3,605,946 shares of Budget Class A Common Stock (the "Maximum Merger Shares")
plus $125,000,000 in cash (less any cash payable to holders of options as
described below) (the "Minimum Cash Consideration") or (b) if the Certificate
Amendment is not approved by the Budget Stockholders, 1,332,909 shares of Budget
Class A Common Stock (the "Minimum Merger Shares") plus $200,000,000 in cash
(less any cash payable to holders of options as described below) (the "Maximum
Cash Consideration"), (ii) warrants to initially purchase 1,000,000 shares of
Budget Class A Common Stock ("Warrants") having a value of up to $20,000,000,
depending on the price of Budget Class A Common Stock 20 months after the
Closing, and (iii) additional consideration payable after the Closing in certain
circumstances in which the market price of Budget Class A Common Stock declines
below $32.9955 per share. The Aggregate Merger Consideration is subject to
certain adjustments as described in this Proxy Statement/Prospectus.
At the Budget Special Meeting, Budget Stockholders will also be asked to
consider and vote upon a proposal to approve and adopt an amendment to Budget's
1994 Incentive Stock Option Plan (the "Incentive Plan") to increase the number
of shares of Budget Common Stock authorized for issuance thereunder to 3,500,000
(the "Incentive Plan Amendment"). At present, the maximum number of shares of
Budget Common Stock that may be made subject to options granted under the
Incentive Plan is 1,750,000 shares. The approval and adoption of the Incentive
Plan Amendment is contingent upon the approval and adoption of the Certificate
Amendment. However, the approval and adoption of the Certificate Amendment is
not contingent upon the approval and adoption of the Incentive Plan Amendment.
At the Budget Special Meeting, Budget Stockholders will also be asked to
consider a proposal to adopt an amendment to Budget's 1994 Directors' Stock
Option Plan (the "Directors' Plan") to increase the number of shares of Budget
Class A Common Stock authorized for issuance thereunder to 300,000 (the
"Directors' Plan Amendment" and, together with the Incentive Plan Amendment, the
"Plan Amendments"). At present, the maximum number of shares of Budget Class A
Common Stock that may be made subject to options granted under the Directors'
Plan is 150,000 shares. The approval and adoption of the Directors' Plan
Amendment is contingent upon the approval and adoption of the Certificate
Amendment. However, the approval and adoption of the Certificate Amendment is
not contingent upon the approval and adoption of the Directors' Plan Amendment.
(continued on next page)
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN
INFORMATION RELEVANT TO OWNERSHIP OF BUDGET CLASS A COMMON STOCK AND THE MERGER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR ANY STATE
SECURITIES REGULATOR HAS APPROVED THE SHARES OF BUDGET CLASS A COMMON STOCK OR
THE WARRANTS TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE.
This Proxy Statement/Prospectus also constitutes an Information Statement
furnished by Ryder to the Ryder Stockholders relating to the Merger. On March 3,
1998, holders of 88.8% of the Ryder Common Stock eligible to vote for the Merger
executed a written consent (the "Written Consent") in lieu of a stockholder
meeting pursuant to Section 228 of the Delaware General Corporation Law (the
"DGCL") approving the Merger Agreement and the Merger. NO PROXY OR CONSENT IS
BEING SOLICITED BY THE BOARD OF DIRECTORS OF RYDER (THE "RYDER BOARD") WITH
RESPECT TO THE MERGER.
Budget has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933 (the "Securities Act") with the
Commission covering the shares of Budget Class A Common Stock and Warrants to
purchase shares of Budget Class A Common Stock to be issued in connection with
the Merger. This Proxy Statement/Prospectus also constitutes a prospectus of
Budget filed as part of the Registration Statement relating to the issuance of
shares of Budget Class A Common Stock and Warrants to Ryder Stockholders
pursuant to the terms of the Merger Agreement.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS AND THE ACCOMPANYING PROXY CARD
IS , 1998 AND THEY ARE FIRST BEING MAILED TO THE BUDGET STOCKHOLDERS
ON OR ABOUT , 1998.
<PAGE> 5
(continued from previous page)
You should rely only on the information contained or incorporated by
reference in this Proxy Statement/Prospectus. We have not authorized anyone to
provide you with information that is different from what is contained in this
Proxy Statement/Prospectus. This Proxy Statement/Prospectus is dated
, 1998. You should not assume that the information contained in the Proxy
Statement/Prospectus is accurate as of any date other than that date, and
neither the mailing of this Proxy Statement/Prospectus to Budget Stockholders
and Ryder Stockholders nor the issuance of shares of Budget Class A Common Stock
in the Merger shall create any implication to the contrary. This Proxy
Statement/ Prospectus is not an offer to sell or a solicitation of an offer to
purchase Budget Class A Common Stock or Warrants in any jurisdiction in which
such offer or solicitation is not authorized or in which the person making such
offer or solicitation is not qualified to do so or to any person to whom it
would be unlawful.
Information contained in this Proxy Statement/Prospectus regarding Budget
has been furnished by Budget, and information contained in this Proxy
Statement/Prospectus regarding Ryder has been furnished by Ryder.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
UPON REQUEST FROM THE GENERAL COUNSEL AND SECRETARY, BUDGET GROUP, INC., 125
BASIN STREET, SUITE 210, DAYTONA BEACH, FLORIDA 32114. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1998.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
----
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 15
Selected Historical Financial Data of Budget................ 21
Selected Historical Financial Data of BRACC................. 22
Selected Historical Financial Data of Ryder................. 23
Notes to Selected Financial Data of Ryder................... 25
Unaudited Pro Forma Consolidated Financial Statements....... 26
Pro Forma Consolidated Balance Sheet........................ 27
Notes to Pro Forma Consolidated Balance Sheet............... 28
Pro Forma Consolidated Statement of Operations.............. 29
Notes to Pro Forma Consolidated Statement of Operations..... 30
General Information......................................... 32
The Budget Special Meeting.................................. 32
The Certificate Amendment (Proposal No. 1).................. 33
The Incentive Plan Amendment (Proposal No. 2)............... 35
The Directors' Plan Amendment (Proposal No. 3).............. 40
The Merger.................................................. 43
Comparison of Rights of Holders of Budget Class A Common
Stock and Ryder Common Stock.............................. 57
Business of Budget.......................................... 63
Business of Ryder........................................... 65
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Ryder........................ 72
Ownership of Ryder Capital Stock............................ 76
Directors and Executive Officers Following the Merger....... 79
Experts..................................................... 80
Legal Matters............................................... 81
Where You Can Find More Information......................... 81
Stockholder Proposals....................................... 82
Index to Consolidated Financial Statements.................. F-1
Annex A -- Certificate of Amendment......................... A-1
Annex B -- Agreement and Plan of Merger..................... B-1
Annex C -- 1994 Incentive Stock Option Plan with Proposed
Amendments................................................ C-1
Annex D -- 1994 Directors' Stock Option Plan with Proposed
Amendments................................................ D-1
Annex E -- Section 262 of the Delaware General Corporation
Law....................................................... E-1
</TABLE>
i
<PAGE> 7
SUMMARY
Certain matters discussed in this Proxy Statement/Prospectus with respect
to the Merger are forward-looking statements within the meaning of the federal
securities laws. Although Budget and Ryder believe that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, they can give no assurance that their expectations will be
achieved. Factors that could cause actual results to differ materially from
Budget's and Ryder's current expectations include, but are not limited to,
general economic conditions and other risks described in this document under the
heading "Risk Factors" (Page 15) or included from time to time in Budget's
reports filed with the Commission, including its annual reports on Form 10-K.
This summary highlights selected information from this Proxy
Statement/Prospectus, and may not contain all of the information that is
important to you. To better understand the Certificate Amendment, the Plan
Amendments and the Merger, you should read this entire document carefully, as
well as those additional documents to which we refer you. See "Where You Can
Find More Information." (Page 81.)
Q: WHY IS BUDGET AMENDING ITS CERTIFICATE OF INCORPORATION? (See Page 33.)
A: The Certificate Amendment is needed in order to issue the Maximum Merger
Shares pursuant to the Merger Agreement, as well as to have sufficient
authorized shares of Budget Class A Common Stock for issuance pursuant to the
Plan Amendments. Although the Certificate Amendment is not a condition to the
Merger, if the Certificate Amendment is not approved, Budget will be required to
pay a greater portion of the Aggregate Merger Consideration in cash instead of
shares of Budget Class A Common Stock. The Certificate Amendment is also
desirable so that there will be sufficient authorized shares for a variety of
other corporate purposes, including to obtain financing to consummate future
acquisitions and to facilitate the growth and expansion of Budget.
Q: WHY IS BUDGET AMENDING THE INCENTIVE PLAN? (See Page 35.)
A: The Incentive Plan Amendment is required in order to have sufficient
shares of Budget Common Stock for issuance pursuant to previous option grants
under the Incentive Plan, as well as to provide for additional available shares
of Budget Common Stock for future grants of stock options to purchase Budget
Common Stock. The Budget Board believes that grants of stock options are an
effective method to attract and retain key employees and that the availability
of shares of Budget Common Stock for future grants under the Incentive Plan is
important to Budget's business prospects and operations.
Q: WHY IS BUDGET AMENDING THE DIRECTORS' PLAN? (See Page 40.)
A: The Directors' Plan Amendment is required in order to have sufficient
shares of Budget Class A Common Stock for issuance pursuant to previous option
grants under the Incentive Plan, as well as to provide for additional available
shares of Budget Common Stock for future grants of stock options to purchase
Budget Class A Common Stock. The Budget Board believes that grants of stock
options are an effective method to attract and retain qualified outside
directors and that the availability of shares of Budget Class A Common Stock for
future grants under the Directors' Plan is important to Budget's business
prospects and operations.
Q: WHY IS BUDGET ACQUIRING RYDER? (See Page 44.)
A: The Budget Board believes that the Merger is in the best interests of
Budget and the Budget Stockholders. The Merger is expected to complement and
enhance Budget's existing truck rental business and to result in significant
synergies and cost savings.
Q: IS THE MERGER CONTINGENT ON THE APPROVAL OF THE CERTIFICATE AMENDMENT?
A: No. The consummation of the Merger is not contingent on the approval of
the Certificate Amendment. However, as described below, the nature of the
consideration to be received by Ryder Stockholders for their shares of Ryder
Common Stock will vary depending on whether the Certificate Amendment is
approved.
<PAGE> 8
Q: ARE THE PLAN AMENDMENTS CONTINGENT ON THE APPROVAL OF THE CERTIFICATE
AMENDMENT?
A: Yes. If the Certificate Amendment is not approved, there will be
insufficient authorized shares of Budget Class A Common Stock to issue shares
pursuant to the Plan Amendments. Therefore, if the Certificate Amendment is not
approved, neither of the Plan Amendments will be effected by Budget.
Q: WHAT IS THE CONSIDERATION THAT RYDER STOCKHOLDERS WILL RECEIVE FOR THEIR
SHARES OF RYDER COMMON STOCK? (See Pages 45-46.)
A: Ryder Stockholders will receive a combination of cash, Budget Class A
Common Stock and Warrants to purchase Budget Class A Common Stock with an
aggregate value (as of the date of the Merger Agreement) of up to approximately
$264,000,000. If the Certificate Amendment is approved, Ryder Stockholders will
receive the Maximum Merger Shares and the Minimum Cash Consideration. If the
Certificate Amendment is not approved, Ryder Stockholders will receive the
Minimum Merger Shares and the Maximum Cash Consideration. The Aggregate Merger
Consideration will be subject to adjustment following the Closing Date to
reflect changes in the price of Budget Class A Common Stock, possible indemnity
claims and other matters. Each Ryder Stockholder will receive a pro rata share
of the Aggregate Merger Consideration, based on the number of shares of Ryder
Common Stock held by such Ryder Stockholder and the total number of shares of
Ryder Common Stock outstanding.
Q: WHAT DO BUDGET STOCKHOLDERS NEED TO DO NOW? (See Page 32.)
A: Just mail your signed proxy card in the enclosed return envelope as soon
as possible, so that we may vote your shares at the Special Meeting. Budget's
Board unanimously recommends that you vote in favor of the Certificate Amendment
and each of the Plan Amendments.
Q: WHAT DO RYDER STOCKHOLDERS NEED TO DO NOW? (See Page 54.)
A: Ryder Stockholders should read this Proxy Statement/Prospectus carefully
and determine whether they desire to receive the Merger Consideration or whether
they desire to exercise their appraisal rights under Delaware law.
Q: CAN BUDGET STOCKHOLDERS CHANGE THEIR VOTES AFTER THEY HAVE MAILED A
SIGNED PROXY CARD?
A: Yes. Budget Stockholders can change their vote at any time before the
Special Meeting. Budget Stockholders can do so in one of three ways. First, a
Budget Stockholder can send a written notice to the Secretary of Budget at the
address below stating that he or she would like to revoke his or her proxy.
Second, a Budget Stockholder can complete a new proxy card and send it to the
Secretary of Budget at the address below. Third, a Budget Stockholder can attend
the Special Meeting and vote in person. Budget Stockholders should send any
written notice revoking your proxy, or any request for a new proxy card, to the
Secretary of Budget at the following address:
Budget Group, Inc., 125 Basin Street, Suite 210, Daytona Beach, Florida
32114.
Q: SHOULD RYDER STOCKHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?
A: No. After the Merger takes place, Ryder Stockholders will receive
instructions on how to exchange their shares of Ryder Common Stock for cash,
shares of Budget Class A Common Stock and Warrants. Ryder Stockholders in
attendance or represented at the Closing who surrender for cancellation
certificates of Ryder Common Stock at such time will receive the cash, shares of
Budget Class A Common Stock and Warrants payable with respect to such
certificates at the Closing.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the Merger in the second quarter of 1998.
However, it is possible that delays in obtaining regulatory approvals or other
consents could require us to postpone the Merger until a later time. In any
case, Budget Stockholders should mail their signed proxy cards as soon as
possible for the Special Meeting.
2
<PAGE> 9
Q: WHERE CAN I FIND MORE INFORMATION ABOUT RYDER AND BUDGET? (See page 81.)
A: Budget's most recent Annual Report on Form 10-K and certain other
documents containing information on Budget are incorporated by reference in this
Proxy Statement/Prospectus. Ryder is not eligible for incorporation of
information by reference into this Proxy Statement/Prospectus under the federal
securities laws. Therefore, detailed information about Ryder is contained in
this Proxy Statement/Prospectus. Ryder Stockholders also may obtain copies of
Ryder's most recent Annual Report on Form 10-K if they desire. You may obtain
copies of these documents by requesting them in writing or by telephone from
Ryder (303-376-7003) or Budget (904-238-7035), as the case may be.
GENERAL INFORMATION
This Proxy Statement/Prospectus is being furnished to the Budget
Stockholders in connection with the solicitation of proxies by the Budget Board
for approval and adoption of (i) the Certificate Amendment, (ii) the Incentive
Plan Amendment and (iii) the Directors' Plan Amendment. The Certificate
Amendment is necessary in order to issue the Maximum Merger Shares and to issue
shares of Budget Class A Common Stock in connection with the Plan Amendments.
This Proxy Statement/Prospectus also constitutes the Information Statement
of Ryder furnished to the Ryder Stockholders. PROXIES ARE NOT BEING SOLICITED
FROM THE RYDER STOCKHOLDERS WITH RESPECT TO THE MERGER.
This Proxy Statement/Prospectus also constitutes the Prospectus of Budget
with respect to the shares of Budget Class A Common Stock and Warrants to be
issued in the Merger. Information in this Proxy Statement/Prospectus with
respect to Budget has been supplied by Budget. Information in this Proxy
Statement/Prospectus with respect to Ryder has been supplied by Ryder.
THE BUDGET SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The Budget Special Meeting will be held at Budget's offices at 125 Basin
Street, Suite 210, Daytona Beach, Florida 32114 on , 1998, beginning at
10:00 a.m. local Daytona Beach time. At the Budget Special Meeting, Budget
Stockholders will be asked to consider and vote upon proposals to (i) approve
and adopt the Certificate Amendment, (ii) approve and adopt the Incentive Plan
Amendment, and (iii) approve and adopt the Directors' Plan Amendment. Copies of
the Certificate Amendment, the Incentive Plan, as proposed to be amended by the
Incentive Plan Amendment, and the Directors' Plan, as proposed to be amended by
the Directors' Plan Amendment, are attached hereto as Annex A, Annex C and Annex
D, respectively, and are incorporated herein by this reference.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of shares of Budget Common Stock at the close of
business on , 1998 (the "Budget Record Date") are entitled to notice
of and to vote at the Budget Special Meeting. As of the Budget Record Date,
there were shares of Budget Class A Common Stock issued and
outstanding held by approximately holders of record, and 1,936,600 shares
of Budget Class B Common Stock issued and outstanding held by three holders of
record. Holders of record of Budget Class A Common Stock on the Budget Record
Date are entitled to one vote per share on any matter that may properly come
before the Budget Special Meeting. Holders of record of Budget Class B Common
Stock on the Budget Record Date for the Budget Special Meeting are entitled to
ten votes per share on any matter that may properly come before the Budget
Special Meeting.
VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
The presence in person or by proxy of the holders of a majority of the
combined voting power of the Budget Common Stock outstanding and entitled to
vote at the Budget Special Meeting as of the Budget
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Record Date is necessary to constitute a quorum at the Budget Special Meeting.
If a quorum is present (i) the affirmative vote of the holders of a majority of
the combined voting power of the shares of Budget Common Stock outstanding on
the Budget Record Date and the affirmative vote of a majority of the Budget
Class A Common Stock outstanding on the Budget Record Date voting separately as
a class is required to approve the Certificate Amendment and (ii) the
affirmative vote of the holders of a majority of the combined voting power of
the shares of the Budget Common Stock present in person or by proxy at the
Budget Special Meeting is required to approve each of the Plan Amendments. As of
the Budget Record Date, the executive officers and directors of Budget
beneficially owned an aggregate of shares of Budget Class A Common
Stock, or approximately % of the shares of Budget Class A Common Stock then
outstanding, and an aggregate of 1,936,600 shares of Budget Class B Common
Stock, for approximately % of the total combined voting power of the shares
of Budget Class A Common Stock and Budget Class B Common Stock then outstanding.
Each of the executive officers and directors of Budget has advised Budget that
he intends to vote his shares of Budget Common Stock in favor of the proposals
to approve and adopt the Certificate Amendment and the Plan Amendments.
Abstentions and broker non-votes will be counted for purposes of determining
whether a quorum is present. Broker non-votes occur when a broker or other
nominee holding shares for a beneficial owner does not vote on a proposal
because the beneficial owner has not checked the applicable box on the proxy.
With respect to the Certificate Amendment, abstentions and broker non-votes will
have the effect of a vote "AGAINST" such Proposal. With respect to each of the
Plan Amendments, abstentions will have the effect of a vote "AGAINST" such
Proposals and broker non-votes will not be considered entitled to vote and thus
will not be counted as a vote "FOR" or "AGAINST" such Proposals.
THE APPROVAL AND ADOPTION OF EACH OF THE PLAN AMENDMENTS IS CONTINGENT ON
THE APPROVAL AND ADOPTION OF THE CERTIFICATE AMENDMENT. UNLESS THE CERTIFICATE
AMENDMENT IS APPROVED AND ADOPTED BY THE BUDGET STOCKHOLDERS AT THE BUDGET
SPECIAL MEETING, NEITHER OF THE PLAN AMENDMENTS WILL BE EFFECTED BY BUDGET.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy for the Budget Special Meeting is enclosed with the copies
of this Proxy Statement/Prospectus being sent to Budget Stockholders. All shares
of Budget Common Stock represented by properly executed proxies will, unless
such proxies have been previously revoked, be voted in accordance with the
instructions indicated on such proxies. If no instructions are indicated on a
signed proxy, such shares will be voted "FOR" approval of the Certificate
Amendment and each of the Plan Amendments and, in the discretion of the proxy
holder, as to any other matter which may properly come before the Budget Special
Meeting. The Budget Board is not aware of any other matters which may be
presented for action at the Budget Special Meeting, but if other matters do come
properly before the Budget Special Meeting it is intended that shares
represented by proxies in the accompanying form will be voted by the persons
named in the proxy in accordance with their best judgment. Any proxy given
pursuant to this solicitation may be revoked in writing by the person giving it
at any time before the proxy is exercised by giving notice to the Budget
Secretary or by submitting a proxy having a later date or by such person
appearing at the Budget Special Meeting and electing to vote in person.
THE CERTIFICATE AMENDMENT (PROPOSAL NO. 1)
Budget's authorized capital stock is currently 37,750,000 shares,
consisting of 37,500,000 shares of Budget Common Stock and 250,000 shares of
preferred stock, par value $.01 per share (the "Preferred Stock"). Of the
authorized shares of Budget Common Stock, 35,000,000 shares are currently
designated Budget Class A Common Stock and 2,500,000 shares are designated
Budget Class B Common Stock. The Budget Board has adopted, subject to Budget
Stockholder approval, the Certificate Amendment to increase the number of
authorized shares of Budget Class A Common Stock from 35,000,000 to 70,000,000
shares. At the Budget Special Meeting, Budget Stockholders will be asked to
consider and vote on the Certificate Amendment. The full text of the Certificate
Amendment is set forth as Annex A to this Proxy Statement/Prospectus.
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<PAGE> 11
As of the Budget Record Date, shares of Budget Common Stock were
issued and outstanding. Accordingly, only shares of Budget Common
Stock remain available for issuance.
The Certificate Amendment is necessary in order to allow Budget to issue
the Maximum Merger Shares in the Merger. The Merger, however, is not contingent
upon the adoption of the Certificate Amendment. In addition, the Certificate
Amendment is necessary to permit the proposed Plan Amendments.
THE BUDGET BOARD HAS DETERMINED THAT THE CERTIFICATE AMENDMENT IS IN THE
BEST INTERESTS OF BUDGET AND ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE
CERTIFICATE AMENDMENT AND RECOMMENDS THAT THE BUDGET STOCKHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE AND ADOPT THE CERTIFICATE AMENDMENT.
THE INCENTIVE PLAN AMENDMENT (PROPOSAL NO. 2)
The Incentive Plan Amendment would increase the total number of shares of
Budget Common Stock available for grant under the Incentive Plan to 3,500,000
shares. At present, the maximum number of shares of Budget Common Stock that may
be made subject to options granted under the Incentive Plan is 1,750,000 shares.
The Budget Board believes that grants of stock options are an effective method
to attract and retain key employees and that the availability of shares for
future grants under the Incentive Plan is important to Budget's business
prospects and operations. Except for the foregoing, the Incentive Plan
Amendment, if approved, would not change the terms of the Incentive Plan. The
full text of the Incentive Plan reflecting the Incentive Plan Amendment is set
forth in Annex C to this Proxy Statement/Prospectus.
On February 26, 1998, Budget granted, subject to approval of the Incentive
Plan Amendment and the Certificate Amendment, options to purchase an aggregate
of 1,150,000 shares of Budget Common Stock at an exercise price of $30.875 per
share, the fair market value of the Budget Class A Common Stock on the date of
grant, to certain eligible employees of the Company. Such options vest at the
rate of 20% per year over a 5-year period. These February 26, 1998 option grants
will be rescinded if the Budget Stockholders do not approve the Certificate
Amendment and the Incentive Plan Amendment.
THE BUDGET BOARD HAS DETERMINED THAT THE INCENTIVE PLAN AMENDMENT IS IN THE
BEST INTEREST OF BUDGET AND ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE
INCENTIVE PLAN AMENDMENT AND RECOMMENDS THAT THE BUDGET STOCKHOLDERS VOTE FOR
THE PROPOSAL TO APPROVE AND ADOPT THE INCENTIVE PLAN AMENDMENT.
THE DIRECTORS' PLAN AMENDMENT (PROPOSAL NO. 3)
The Directors' Plan Amendment would increase the total number of shares of
Budget Class A Common Stock available for grant under the Directors' Plan to
300,000 shares. At present, the maximum number of shares of Budget Class A
Common Stock that may be made subject to options granted under the Directors'
Plan is 150,000 shares. The full text of the Directors' Plan reflecting the
Directors' Plan Amendment is set forth in Annex D to this Proxy
Statement/Prospectus.
On February 26, 1998, Budget granted, subject to approval of the Directors'
Plan Amendment and the Certificate Amendment, options to purchase an aggregate
of 135,000 shares of Budget Class A Common Stock at an exercise price of $30.875
per share, the fair market value of the Budget Class A Common Stock on the date
of grant, to the Company's outside directors. Such options are exercisable
beginning six months after the date of grant. These February 26, 1998 option
grants will be rescinded if the Budget Stockholders do not approve the
Certificate Amendment and the Directors' Plan Amendment.
THE BUDGET BOARD HAS DETERMINED THAT THE DIRECTORS' PLAN AMENDMENT IS IN
THE BEST INTEREST OF BUDGET AND ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE
DIRECTORS' PLAN AMENDMENT AND RECOMMENDS THAT THE BUDGET
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STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE DIRECTORS' PLAN
AMENDMENT.
THE MERGER
The Merger Agreement, which is the legal document that governs the Merger,
is attached as Annex B to this Proxy Statement/Prospectus and is incorporated
herein by this reference. We encourage you to read the Merger Agreement
carefully.
PARTIES TO THE MERGER
BUDGET (See Page 63.)
As used in this Proxy Statement/Prospectus, unless the context otherwise
requires: (i) "TEAM" refers to Budget Group, Inc. and its subsidiaries prior to
its acquisition of Budget Rent a Car Corporation on April 29, 1997 (the "Budget
Acquisition"); (ii) "BRACC" refers to Budget Rent a Car Corporation and its
subsidiaries; (iii) "Budget" or "Budget Group" refers to TEAM (including BRACC)
after giving effect to the Budget Acquisition; and (iv) the "Budget System"
refers to the business of renting cars and trucks and retailing late model
vehicles conducted by Budget and its franchisees under the Budget name. In
connection with the Budget Acquisition, Team Rental Group, Inc. changed its name
to Budget Group, Inc. TEAM was incorporated in 1992 under the laws of the State
of Delaware.
Budget, through subsidiary companies and franchisees, operates Budget Car
and Truck Rental, the third largest worldwide car and truck rental system with
over 3,200 locations and a peak fleet size during 1997 of 283,000 cars, 22,500
trucks and 5,100 pick-ups. 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 120 countries worldwide. The Budget System had approximately 509
Budget-owned locations in the United States and 71 Budget-owned locations
outside of the United States at December 31, 1997. In addition, Budget
franchisees operated approximately 455 royalty-paying franchise locations in the
United States and 2,171 locations internationally at December 31, 1997.
Giving effect to the Budget Acquisition as if it had been completed January
1, 1997, for the year ended December 31, 1997, Budget-owned locations in the
United States accounted for approximately 80% of the Budget System's U.S.
vehicle revenues, while Budget-owned locations outside the United States
accounted for approximately nine percent of the Budget System's international
vehicle rental revenues.
The Budget System is one of only three vehicle rental systems that offer
rental vehicles throughout the world under a single brand name, with locations
in Europe, Canada, Latin America, the Middle East, Asia/Pacific and Africa. The
Budget System currently maintains more local market rental locations throughout
the world than most of its major competitors and is 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.
In addition, Budget owns Cruise America, Inc. ("Cruise America"), one of
the largest North American companies specializing primarily in the rental and
sale of recreational vehicles with 85 locations; Premier Car Rental LLC
("Premier Car Rental"), which serves the insurance replacement market through a
network of 150 locations in 16 major U.S. markets; and Budget Car Sales, Inc.,
one of the largest independent retailers of late model vehicles in the United
States, which operates 26 retail car sales facilities. Budget also owns VPSI,
Inc. ("Van Pool Services"), which leases vans for van pooling operations in 28
states, and Budget Airport Parking, which operates airport parking facilities at
certain locations.
Budget's principal executive offices are located at 125 Basin Street, Suite
210, Daytona Beach, Florida 32114, and its telephone number is (904) 238-7035.
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RYDER (See Page 65.)
As used in this Proxy Statement/Prospectus, the term "Ryder" refers (i) for
periods prior to the Ryder Acquisition (as defined below), to the Consumer Truck
Rental Division (the "Division") of Ryder Truck Rental, Inc. ("RTR"), a
subsidiary of Ryder System, Inc. ("RSI"), and (ii) for periods after the Ryder
Acquisition, to Ryder TRS, Inc. and its subsidiaries as constituted after giving
effect to the Ryder Acquisition.
Ryder was incorporated under the laws of the State of Delaware on September
5, 1996. On October 17, 1996 (the "Ryder Acquisition Closing Date"), pursuant to
Asset and Stock Purchase Agreements and other related agreements (collectively,
the "Ryder Acquisition Agreements"), Ryder acquired from RTR substantially all
of the assets of the Division (the "Ryder Acquisition"). The aggregate adjusted
cash purchase price was $573.3 million. The assets acquired included trucks,
moving equipment and related accessories, prepaid advertising, license fees and
certain hardware and management information systems. The assets also included
the royalty-free right to use the 1-800-GO-RYDER telephone number and other
Ryder trademarks. Ryder also acquired four subsidiaries of RTR: (i) Ryder Move
Management Inc. ("RMM"); (ii) Ryder Truck Rental One-Way, Inc.; (iii) The Move
Shop, Inc.; and (iv) Ryder Relocation Services, Inc. Pursuant to the Ryder
Acquisition Agreements, Ryder agreed to assume all liabilities and obligations
arising out of the conduct of business by Ryder on or after the Ryder
Acquisition Closing Date. RTR and Ryder agreed that Ryder would not be liable
for environmental conditions existing prior to the Ryder Acquisition Closing
Date, whether discovered or undiscovered.
Ryder rents trucks to both individual consumers and businesses. Consumers
rent trucks primarily to move household goods. These customers generally rent
trucks from one Ryder location and return them either to the same location or to
a different location. Ryder also serves a wide range of businesses that rent
light- and medium-duty trucks (i.e., trucks with a gross vehicle weight of less
than 26,000 pounds) for a variety of light commercial applications. Commercial
customers range from small local businesses, such as florists, package delivery
companies and local private moving companies, to large national companies that
rent trucks primarily for the transportation and delivery of inventory and
packages. Commercial rentals complement Ryder's consumer rentals by enabling
Ryder to improve utilization of its trucks on weekdays, when consumer demand is
typically lower than it is on weekends. Ryder is the second largest provider of
truck rentals and related moving supplies and services to consumers and light
commercial users in the United States, with a fleet of approximately 29,000
trucks as of December 31, 1997.
Ryder supplements its truck rental business with a range of other products
and services. Ryder rents automobile towing equipment and other moving
accessories such as hand trucks and furniture pads and sells moving supplies
such as boxes, tape and packing materials. Ryder also offers customers a range
of liability-limiting products such as physical damage waivers, personal
accident and cargo protection and supplemental liability protection. These
accessory products enhance Ryder's appeal to consumers by offering customers
"one-stop" moving services.
Ryder also offers comprehensive household goods relocation services to
corporate employee relocation departments through RMM.
Ryder's principal executive office is located at 1560 Broadway, Suite 1800,
Denver, Colorado 80202. Ryder's telephone number is (303) 376-7003.
BACKGROUND OF THE MERGER (See page 43.)
In August 1997, management of Budget contacted management of Ryder and
Ryder's advisors, including representatives of Questor, to express Budget's
interest in a transaction between the two companies in which Budget would
acquire Ryder. Over the ensuing months management of Budget and Ryder, and their
respective representatives and advisors, discussed such a transaction. The
Merger Agreement was executed on March 4, 1998. See "The Merger -- Background of
the Merger."
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REASONS FOR THE MERGER (See Page 44.)
Ryder. In unanimously approving and adopting the Merger Agreement, the
Ryder Board considered a number of factors, including without limitation, the
following: (i) Ryder's business, operations, financial condition and earnings;
(ii) the terms of the Merger Agreement, including the Merger Consideration;
(iii) the historical stock price performance of Budget and the business,
operations, financial condition and earnings of Budget; and (iv) alternatives to
the proposed Merger.
Budget. The Budget Board unanimously approved the Merger Agreement and the
Merger after consulting with Budget's management and legal counsel and after
considering several factors, including, without limitation, the following: (i)
the belief that the business conducted by Ryder will complement and enhance
Budget's truck rental business and the expectation of significant cost savings
from the Merger; (ii) the belief that Ryder's truck rental operations will
complement and enhance Budget's core car rental operations because of the
ability to leverage pre-existing car rental assets; (iii) the expected accretive
effect of the Merger on Budget's future earnings per share; and (iv) discussions
with certain executive officers of Budget and its outside legal counsel.
TERMS OF THE MERGER AGREEMENT (See Page 45.)
The following is a brief summary of the material terms of the Merger
Agreement, which is attached as Annex B and is incorporated herein by reference.
Such summary is qualified in its entirety by reference to the Merger Agreement.
General. Pursuant to the Merger Agreement, Sub will merge with and into
Ryder, with Ryder as the surviving corporation. As a result of the Merger, the
separate existence of Sub will cease and Ryder will become a wholly-owned
subsidiary of Budget. See "The Merger -- Terms of the Merger Agreement --
General."
Merger Consideration -- General. At the effective time of the Merger (the
"Effective Time"), each share of Ryder Common Stock will be converted into the
right to receive an amount (the "Merger Consideration") equal to the Aggregate
Merger Consideration divided by the total number of shares of Ryder Common Stock
outstanding immediately prior to the Effective Time. The Aggregate Merger
Consideration payable to Ryder Stockholders will be an amount, payable in shares
of Budget Class A Common Stock (the "Aggregate Merger Shares"), cash (the
"Aggregate Cash Consideration"), and Warrants, consisting of (i) Aggregate
Merger Shares and Aggregate Cash Consideration equal to either (a) the Maximum
Merger Shares plus the Minimum Cash Consideration or (b) the Minimum Merger
Shares plus the Maximum Cash Consideration, (ii) Warrants to purchase initially
1,000,000 shares of Budget Class A Common Stock and (iii) the right to
participate in "Contingent Additional Consideration" upon the satisfaction of
certain conditions if the market price of Budget Class A Common Stock declines
below $32.9955 per share (the "Transaction Price") following the Closing. If the
Budget Stockholders approve the Certificate Amendment, the Aggregate Merger
Shares will be the Maximum Merger Shares, and the Aggregate Cash Consideration
will be the Minimum Cash Consideration. If such approval is not obtained, the
Aggregate Merger Shares will be the Minimum Merger Shares, and the Aggregate
Cash Consideration will be the Maximum Cash Consideration. The Aggregate Merger
Consideration is subject to adjustment as described below. See "The
Merger -- Terms of the Merger Agreement -- Merger Consideration -- General."
The Warrants. In addition to the Aggregate Merger Shares and the Aggregate
Cash Consideration, Budget will issue to the Ryder Stockholders who receive the
Aggregate Merger Shares and the Aggregate Cash Consideration ("Original
Holders") Warrants to purchase initially an aggregate of 1,000,000 shares of
Budget Class A Common Stock. If Budget does not purchase the Warrants as
described below, the Warrants will become exercisable for a period of five years
beginning on the thirtieth day (the "Warrant Measurement Date") following the
20-month anniversary of the Closing Date (the "Final Measurement Date"), and the
exercise price of such Warrants will be 125% of the Market Value of the Budget
Class A Common Stock on the Final Measurement Date. "Market Value" of the Budget
Class A Common Stock as of any date means the volume-weighted average closing
prices of the Budget Class A Common Stock for the 30 consecutive trading days
prior to and including such date. Under the terms of the Merger Agreement,
Budget will have the
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<PAGE> 15
right to purchase the Warrants on the Warrant Measurement Date for an aggregate
amount (the "Warrant Value Amount") equal to (i) (x) the aggregate market value
of the Aggregate Merger Shares on the date of the Merger Agreement, computed by
multiplying the Transaction Price by the number of Aggregate Merger Shares (such
product, the "Aggregate Transaction Price") plus (y) $20,000,000 minus (ii) the
aggregate market value of the Aggregate Merger Shares on the Final Measurement
Date. Budget may purchase the warrants by paying the Warrant Value Amount in
cash or shares of Budget Class A Common Stock at its option. The Warrant Value
Amount will not in any event exceed $20,000,000. Following the Final Measurement
Date, unless the Warrants are purchased by Budget, the number of shares of
Budget Class A Common Stock for which the Warrants are exercisable will be
adjusted so that the value of the Warrants is equal to the Warrant Value Amount.
The portion of the Warrant Value Amount to which each Original Holder is
entitled will be reduced in proportion to the number of Merger Shares, if any,
transferred by such Original Holder prior to the Final Measurement Date. See
"The Merger -- Terms of the Merger Agreement -- The Warrants."
Contingent Additional Consideration. In addition to the Aggregate Merger
Shares, the Aggregate Cash Consideration and the Warrants, Budget has also
agreed in the Merger Agreement to pay to the Original Holders an aggregate
amount (the "Contingent Additional Consideration"), payable, at Budget's option,
in cash or shares of Budget Class A Common Stock, equal to the difference
between (i) the Aggregate Transaction Price and (ii) the greater of (x) the
Market Value of the Aggregate Merger Shares on the relevant measurement date or
(y) the price at which any such Aggregate Merger Shares were sold prior to the
relevant measurement date. The relevant measurement dates for computing the
Contingent Additional Consideration will be the 12-month anniversary of the
Closing Date (the "Annual Measurement Date") with respect to 50% of the Merger
Shares and the Final Measurement Date with respect to the other 50% of the
Merger Shares. The amount of Contingent Additional Consideration payable to each
Original Holder will depend upon whether such Original Holder sold Merger Shares
prior to the relevant measurement date and the number and disposition price of
such disposed Merger Shares. See "The Merger -- Terms of the Merger
Agreement -- Contingent Additional Consideration."
Adjustment for Certain Breaches. The number of Aggregate Merger Shares to
be issued to Ryder Stockholders will be adjusted downward in the event of
certain breaches of representations and warranties or the failure to perform
covenants by Ryder or any of the Significant Stockholders which cause losses to
Budget in excess of $5,000,000 or if fees paid by Ryder to third parties in
connection with the Merger exceed $10,000,000. To secure this adjustment
obligation, at the Closing, 1,818,430 shares of Budget Class A Common Stock (if
the Maximum Merger Shares are issued) or 1,332,909 shares of Budget Class A
Common Stock (if the Minimum Merger Shares are issued) will be deposited into
escrow with an escrow agent mutually agreed upon by Budget and Ryder. See "The
Merger -- Terms of the Merger Agreement -- Adjustment for Certain Breaches."
Adjustment for Appraisal Rights. The Aggregate Merger Consideration will
be reduced or increased by the amount by which the aggregate amount payable to
dissenting Ryder Stockholders is greater or less than, respectively, the
Aggregate Merger Consideration. See "The Merger -- Terms of the Merger
Agreement -- Adjustment for Appraisal Rights."
Stockholder Meeting. The Merger Agreement requires that Budget use its
commercially reasonable efforts to have occur as promptly as practicable a
meeting of the Budget Stockholders to vote upon an increase in the authorized
capital stock of Budget to permit Budget to issue the Maximum Merger Shares. If
the Budget Stockholders approve this increase, which will occur if the
Certificate Amendment is approved and adopted, Budget will issue the Maximum
Merger Shares on the Closing Date. If the Budget Stockholders do not approve the
Certificate Amendment, Budget will issue the Minimum Merger Shares on the
Closing Date.
No Solicitation. Under the Merger Agreement, Ryder is prohibited from
soliciting or entering into any discussions or negotiations relating to any
proposal with respect to a merger, consolidation, share exchange, business
combination or similar transaction involving Ryder or any subsidiary of Ryder.
See "The Merger -- Terms of the Merger Agreement -- No Solicitation."
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Budget Board of Directors. The Merger Agreement provides that Jay Alix,
the managing principal of Questor and Chairman of Ryder, will be nominated to
the Board of Directors of Budget, and that the Budget Board will use its
commercially reasonable efforts to continue to cause one of Jay Alix, Robert E.
Shields or Henry L. Druker to be elected to the Budget Board until the earliest
to occur of (a) the third anniversary of the Closing Date, (b) the disposition
by Questor of 75% of the shares of Budget Class A Common Stock acquired by it in
the Merger or (c) the acquisition by Questor of a controlling interest in
certain entities. See "The Merger -- Terms of the Merger Agreement -- Budget
Board of Directors."
Indemnification and Insurance Obligations. Budget has agreed in the Merger
Agreement, for a period of six years following the Effective Time, not to amend
the indemnification provisions set forth in Ryder's Restated and Amended
Certificate of Incorporation (the "Ryder Certificate") or Restated and Amended
By-laws (the "Ryder Bylaws") in a manner that would adversely affect the rights
of the Ryder's officers, directors and employees. The Merger Agreement also
provides, with limited exceptions, that Budget shall cause to be maintained in
effect for a period of six years after the Effective Time the current policies
of directors' and officers' liability insurance and fiduciary liability
insurance maintained by Ryder with respect to matters occurring prior to the
Effective Time.
Standstill Provisions. If the Merger is consummated, the Significant
Stockholders will be prohibited by the Merger Agreement from taking certain
actions designed to gain control of Budget for a period of two years, or if
earlier, until a change in control of Budget occurs or Sanford Miller ceases to
be the Chief Executive Officer of Budget. See "The Merger -- Terms of the Merger
Agreement -- Standstill Provisions."
Registration Rights. The recipients of Budget Class A Common Stock
initially issued in the Merger, issued as Contingent Additional Consideration or
in exchange for, or upon the exercise of, Warrants will have certain
registration rights with respect to such shares of Budget Class A Common Stock,
and Budget has agreed to file a registration statement with respect to such
shares of Budget Class A Common Stock following the Closing. See "The
Merger -- Terms of the Merger Agreement -- Registration Rights."
Conditions to the Merger. Consummation of the Merger is subject to the
following conditions (the "Merger Conditions"): (i) the receipt of all necessary
governmental approvals; (ii) the granting of early termination or the expiration
of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "HSR Act"); and (iii) the absence of governmental actions
prohibiting, or seeking to prohibit, the Merger. See "The Merger -- Terms of the
Merger Agreement -- Conditions to the Merger."
Time of Closing. Assuming all Merger Conditions have been satisfied and
all required approvals have been obtained, the Closing is required to occur
within 30 days following the Budget Special Meeting. However, the Closing may be
delayed in certain circumstances. See "The Merger -- Terms of the Merger
Agreement -- Time of Closing."
Amendment and Waiver. With the exception of certain covenants, the
amendment of which must be approved by a majority of the Ryder Stockholders, the
Merger Agreement may be amended in writing by each of the parties and the
compliance with the Merger Agreement waived in writing by the party waiving
compliance. See "The Merger -- Terms of the Merger Agreement -- Amendment and
Waiver."
Termination. The Merger Agreement may be terminated (a) by either Budget
or Ryder if the Merger Conditions are not satisfied by November 30, 1998 (as
such date may be extended by Ryder under certain circumstances), (b) by either
Ryder or Budget if a final injunction has been issued which prevents the
consummation of the Merger, (c) by Ryder if Budget is in continuing breach of
certain of its obligations under the Merger Agreement, (d) by Budget if Ryder or
any Significant Stockholder has breached any of its representations, warranties
or covenants causing damages, individually or in the aggregate, in excess of
$75,000,000 and, as a result of such damages, Budget is unable, through good
faith efforts, to obtain the financing necessary to fund the Aggregate Cash
Consideration or (e) by mutual written consent of Budget and Ryder. See "The
Merger -- Terms of the Merger Agreement -- Termination."
Termination Fees. If the Merger Agreement is terminated in certain
circumstances then Budget will be required to pay a fee (the "Break Fee") to
Ryder as follows: (i) if the Merger Agreement is terminated because of failure
to satisfy the Merger Conditions by November 30, 1998 (as such date may be
extended by
10
<PAGE> 17
Ryder under certain circumstances) or a final injunction relating to antitrust
matters, Budget will be required to pay $7,500,000 to Ryder; or (ii) if the
Merger Agreement is terminated for any other reason, other than as described in
the next sentence, Budget will pay at least $20,000,000 to Ryder plus any
additional damages. If Budget has indemnity claims against Ryder equal to or
greater than $75,000,000 and, after good faith efforts, cannot finance the
Aggregate Cash Consideration, Budget may refuse to close without payment of a
Break Fee. To secure the Break Fee, Credit Suisse First Boston, a Swiss bank,
through its New York branch ("Credit Suisse"), at the request of Budget and
concurrently with the execution of the Merger Agreement, issued a letter of
credit (the "Letter of Credit") in the amount of $20,000,000 in favor of Ryder,
drawable by Ryder in the amounts and under the circumstances described in
clauses (i) and (ii) above. See "The Merger -- Terms of the Merger
Agreement -- Termination Fees."
EFFECTIVE TIME OF THE MERGER AND EXCHANGE OF SHARES (See Page 51.)
Effective Time of the Merger. The Merger will become effective upon the
filing of the certificate of merger relating thereto (the "Certificate of
Merger") with the Secretary of State of the State of Delaware or at such other
time thereafter as provided therein.
Exchange of Ryder Stock Certificates. Immediately after the Effective
Time, instructions and a letter of transmittal will be furnished to all Ryder
Stockholders for use in exchanging their Ryder stock certificates for
certificates evidencing the shares of Budget Class A Common Stock they will be
entitled to receive as a result of the Merger. RYDER STOCKHOLDERS SHOULD NOT
SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL INSTRUCTIONS AND THE LETTER
OF TRANSMITTAL ARE RECEIVED. HOWEVER, RYDER STOCKHOLDERS IN ATTENDANCE OR
REPRESENTED AT THE CLOSING WHO SURRENDER FOR CANCELLATION CERTIFICATES OF RYDER
COMMON STOCK AT SUCH TIME WILL RECEIVE THE SHARES OF BUDGET CLASS A COMMON
STOCK, WARRANTS AND CASH PAYABLE WITH RESPECT TO SUCH CERTIFICATES AT THE
CLOSING.
REGULATORY APPROVALS (See Page 51.)
Under the Merger Agreement, the obligations of both Budget and Ryder to
consummate the Merger are conditioned upon receipt of all required regulatory
approvals. Under the HSR Act and the rules promulgated thereunder by the Federal
Trade Commission (the "FTC"), the Merger may not be consummated unless
notification has been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the waiting period has expired or been terminated. Pursuant to
the HSR Act, on March 20, 1998, and March 23, 1998, Budget and Ryder,
respectively, filed a Notification and Report Form with the FTC and the
Antitrust Division for review in connection with the Merger. The 30-day waiting
period under the HSR Act applicable to the Merger will expire on April 26, 1998,
unless terminated early or extended by the FTC or the Antitrust Division. There
can be no assurance that the Merger will not be investigated or opposed by the
FTC or the Antitrust Division. See "The Merger -- Regulatory Approvals."
INTERESTS OF CERTAIN PERSONS IN THE MERGER (See Page 52.)
Ryder Stockholders should be aware that certain executive officers and
directors of Ryder have certain interests that may present them with potential
conflicts of interest with respect to the Merger. See "The Merger -- Interests
of Certain Persons in the Merger."
ANTICIPATED ACCOUNTING TREATMENT (See Page 52.)
The Merger will be accounted for under the "purchase" method of accounting,
pursuant to which the assets and liabilities of Ryder will be adjusted to their
respective fair values and included with those of Budget at the Effective Time.
Financial statements of Budget issued after the Effective Time will reflect such
values and will not be restated retroactively to reflect the historical
financial position or results of operations of Ryder. See "The
Merger -- Anticipated Accounting Treatment."
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<PAGE> 18
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (See Page 52.)
The Merger will be treated as a taxable sale of stock by the Ryder
Stockholders for federal income tax purposes. Each Ryder Stockholder, including
those asserting appraisal rights, will recognize gain or loss equal to the
difference between (i) the amount of cash and the fair market value of all
property (including Budget Class A Common Stock) received by such holder in the
Merger and (ii) such holder's tax basis in the Ryder Common Stock transferred in
the Merger. Provided the Ryder Stockholder has held the Ryder Common Stock as a
capital asset, such gain or loss will be capital gain or capital loss, as
described more fully under "The Merger -- Certain Federal Income Tax
Consequences." Ryder Stockholders may be required to report a portion of the
gain with respect to the Merger under the installment method. A Ryder
Stockholder will have a tax basis in the Budget Class A Common Stock received
equal to the value of such shares at the time they are received in the Merger.
See "The Merger -- Certain Federal Income Tax Consequences."
RESALE OF BUDGET CLASS A COMMON STOCK (See Page 54.)
Shares of Budget Class A Common Stock to be issued to Ryder Stockholders in
connection with the Merger will be freely transferable under the Securities Act,
except for shares issued to any person or entity who, at the time of the Merger,
may be deemed an "affiliate" of Ryder within the meaning of Rule 145 under the
Securities Act ("Rule 145") or becomes an affiliate of Budget following the
Merger within the meaning of Rule 144 under the Securities Act ("Rule 144"). In
general, affiliates of Ryder and Budget include their executive officers and
directors and any other person or entity who controls, is controlled by or is
under common control with Ryder or Budget, respectively. Rule 145, among other
things, imposes certain restrictions upon the resale of securities received by
affiliates in connection with certain reclassifications, mergers, consolidations
or asset transfers. These restrictions will consist of volume and manner of sale
restrictions on the resale of shares of Budget Class A Common Stock issued to
such person and entities. Rule 144 imposes similar restrictions on resale of
Budget Class A Common Stock by affiliates of Budget following the Merger. Budget
may place legends on certificates representing shares of Budget Class A Common
Stock that are issued to affiliates of Ryder to restrict transfers in violation
of Rule 145. Recipients of Budget Class A Common Stock in connection with the
Merger will have certain registration rights with respect to such shares of
Budget Class A Common Stock, and will be able to sell such shares of Budget
Class A Common Stock pursuant to such registration rights following the Closing.
See "The Merger -- Resale of Budget Class A Common Stock."
APPRAISAL RIGHTS (See Page 54.)
If the Merger is consummated, holders of Ryder Common Stock are entitled to
appraisal rights and to receive payment in cash for the statutory "fair value"
of their shares (excluding any element of value arising from the accomplishment
or expectation of the Merger), upon compliance with the provisions of Section
262 of the DGCL ("Section 262"). This Proxy Statement/Prospectus is being
enclosed with the required notice by Ryder under Section 262 of each Ryder
Stockholder's appraisal rights. Ryder Stockholders who desire to exercise their
appraisal rights must deliver to Ryder a written demand for appraisal of such
Ryder Stockholder's shares within 20 days following the date of mailing of this
Proxy Statement/Prospectus, which occurred on , 1998. Failure to
follow any of these or other applicable procedures may result in the loss of
statutory appraisal rights. Budget Stockholders are not entitled to appraisal
rights in connection with the Merger. See "The Merger -- Appraisal Rights."
COMPARISON OF RIGHTS OF HOLDERS OF BUDGET CLASS A COMMON STOCK AND RYDER COMMON
STOCK (See Page 57.)
The rights of Ryder Stockholders currently are determined by reference to
the DGCL, the Ryder Certificate and the Ryder Bylaws. Upon consummation of the
Merger, and to the extent they receive shares of Budget Class A Common Stock,
Ryder Stockholders will become stockholders of Budget, also a Delaware
corporation. The rights of Ryder Stockholders will thereafter be governed by the
Budget Certificate and the Budget Bylaws. See "The Merger -- Comparison of
Rights of Holders of Budget Class A Common Stock and Ryder Common Stock."
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<PAGE> 19
MARKETS AND MARKET PRICES
Budget. The Budget Class A Common Stock has been listed on the New York
Stock Exchange (the "NYSE") under the symbol "BD" since April 17, 1997. From the
time of Budget's initial public offering on August 25, 1994 through April 16,
1997, the Budget Class A Common Stock was traded on The Nasdaq National Market
("Nasdaq") under the symbol "TBUD." The following table details the high and low
bid information for the Class A Common Stock as reported by Nasdaq or the high
and low sales prices for the Class A Common Stock as reported by the NYSE, as
the case may be, for the periods indicated:
<TABLE>
<CAPTION>
BUDGET CLASS A
COMMON STOCK
------------------
HIGH LOW
-------- -------
<S> <C> <C>
1996
First Quarter............................................. $ 10.50 $ 8.25
Second Quarter............................................ 17.50 9.25
Third Quarter............................................. 20.25 12.375
Fourth Quarter............................................ 20.25 15.25
1997
First Quarter............................................. $ 29.50 $ 16.00
Second Quarter............................................ 34.875 19.00
Third Quarter............................................. 37.00 28.188
Fourth Quarter............................................ 37.75 32.50
1998
First Quarter............................................. $ 39.50 $ 30.00
Second Quarter (through April 7, 1998).................... 38.6875 36.875
</TABLE>
On March 3, 1998, the last trading date prior to the public announcement of
the signing of the Merger Agreement, the closing sale price of Budget Class A
Common Stock, as reported on a consolidated basis on the NYSE, was $32.25 per
share. On April 7, 1998, the last closing sale price of Budget Class A Common
Stock, as reported on a consolidated basis on the NYSE, was $37.625 per share.
On March 23, 1998, there were 185 holders of record of Budget Class A
Common Stock and three holders of record of Budget Class B Common Stock.
Budget has never paid any cash dividends on Budget Common Stock, and the
Budget Board currently intends to retain all earnings for use in Budget's
business for the foreseeable future. Any future payment of dividends will depend
upon Budget's results of operations, financial condition, cash requirements,
restrictions contained in credit and other agreements and other factors deemed
relevant by the Budget Board.
Ryder. Ryder Common Stock is privately held and there is no established
public trading market for the Ryder Common Stock. As of March 15, 1998 there
were seven holders of record of Ryder's Class A Common Stock, par value $.01 per
share (the "Ryder Class A Common Stock"), two holders of record of Ryder's Class
B Common Stock, par value $.01 per share (the "Ryder Class B Common Stock"), and
approximately 25 holders of record of Ryder's Class C Common Stock, par value
$.01 per share (the "Ryder Class C Common Stock"). Ryder has never paid any
dividends on its common equity. Ryder's present policy is to reinvest earnings
in the business and not to pay any dividends on its common equity.
Ryder's credit agreement prohibits payment of cash dividends by Ryder,
except under specific circumstances.
Ryder's 10% Senior Subordinated Notes due 2006 restrict the payment of cash
dividends based upon a formula and limit the amount of dividends and other
distributions generally to no more than 50% of Ryder's consolidated net income
as defined, subsequent to November 25, 1996, plus the proceeds of any stock
issuances.
During 1997, Ryder sold 1,640 shares of Ryder Class C Common Stock to
certain management employees, a Director and a consultant for $1,000 per share
(the price paid by all existing Ryder Stockholders for Ryder Class A Common
Stock and Ryder Class B Common Stock issued in connection with the Acquisition).
Of these, 500 shares were redeemed in accordance with the provisions of the
subscription agreements for such shares.
13
<PAGE> 20
COMPARATIVE PER SHARE INFORMATION
The following summary presents selected historical comparative unaudited
per share information for Budget and Ryder, individually, and unaudited pro
forma data (the "Pro Forma Budget Group") which gives effect to the Budget
Transactions (as defined in "Unaudited Pro Forma Consolidated Financial
Statements") as if they had occurred for balance sheet purposes at the balance
sheet date and for statement of operations purposes at the beginning of the
period presented. Ryder equivalent per share information amounts are presented
with respect to the Pro Forma Budget Group information. Such per share amounts
allow comparison of historical information with respect to the value of one
share of Ryder Common Stock to the corresponding information with respect to the
pro forma value of one share of Ryder Common Stock as a result of Budget
Transactions, and are computed by multiplying the pro forma amounts by an
exchange ratio. Neither Budget nor Ryder has paid any cash dividends with regard
to Budget Class A Common Stock or Ryder Common Stock, respectively, during the
periods for which comparative unaudited per share information is presented.
For Budget, the statement of operations information for the year ended
December 31, 1997, and balance sheet information as of December 31, 1997, are
based on, and should be read in conjunction with, the consolidated audited
financial statements of Budget incorporated herein by reference. See "Where You
Can Find More Information." For Ryder, the statement of operations information
for the year ended December 31, 1997, and balance sheet information as of
December 31, 1997 are based on, and should be read in conjunction with, the
consolidated audited financial statements of Ryder included herein. The
unaudited information for Pro Forma Budget Group was derived from, and should be
read in conjunction with, the unaudited pro forma information appearing
elsewhere in this Proxy Statement/Prospectus. Pro forma amounts are not
necessarily indicative of results that will be obtained on a combined basis.
<TABLE>
<CAPTION>
PER SHARE
--------------------------
INCOME (LOSS) BOOK VALUE
------------- ----------
<S> <C> <C>
Budget -- Historical
Year ended December 31, 1997.............................. $ 1.60 $ 16.91
Ryder -- Historical(1)
Year ended December 31, 1997.............................. $(114.09) $825.63
Pro Forma Budget Group
Year ended December 31, 1997.............................. $ (0.53) $ 19.18
Ryder -- Pro Forma Budget Group Equivalent(2)
Year ended December 31, 1997.............................. $ (14.72) $537.76
</TABLE>
- ---------------
(1) Based on loss before extraordinary loss on debt extinguishment, net of tax.
(2) Determined by multiplying an exchange ratio by the Pro Forma Budget Group
per share amounts, so that the per share amounts are equated to the
comparative values for each share of Ryder Common Stock. The exchange ratio
was determined based on the Maximum Merger Shares to be issued by Budget and
the number of shares of Ryder Common Stock outstanding as of December 31,
1997, assuming exercise of all outstanding Ryder stock options in accordance
with the terms of the Merger Agreement.
14
<PAGE> 21
RISK FACTORS
Certain matters discussed in this Proxy Statement/Prospectus are
forward-looking statements within the meaning of the federal securities laws.
Although Budget believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, Budget can give no assurance
that its expectations will be achieved. In considering whether to receive shares
of Budget Class A Common Stock in connection with the Merger, the Ryder
Stockholders should carefully consider, in addition to the other information in
this Proxy Statement/Prospectus, the following matters:
ACQUISITIONS; ABILITY TO IMPLEMENT GROWTH STRATEGY
Budget's recent growth is largely attributable to acquisitions and Budget
intends to continue to pursue the acquisition of businesses that Budget believes
would complement or expand its existing businesses. Acquisitions involve a
number of risks that could adversely affect Budget's operating results,
including: (i) the diversion of management's attention; (ii) the assimilation of
the operations and personnel of acquired businesses; (iii) the amortization of
acquired intangible assets; (iv) the assumption of potential liabilities,
disclosed or undisclosed, associated with the businesses acquired, which
liabilities may exceed the amount of indemnification available from the seller;
(v) the risk that the financial and accounting systems utilized by the
businesses acquired will not meet Budget's standards; (vi) the risk that the
businesses acquired will not maintain the quality of services that Budget has
historically provided; (vii) the dilutive effect of the use of Budget's capital
stock as consideration for acquisitions; and (viii) the inability to attract and
retain qualified management. There can be no assurance that Budget will
consummate future acquisitions on satisfactory terms, if at all, that adequate
financing will be available on terms acceptable to Budget, if at all, or that
any acquired operations will be successfully integrated or that such operations
will ultimately have a positive impact on Budget, its financial condition or
results of operations.
In addition to pursuing growth through acquisitions, management of Budget
is undertaking initiatives to increase Budget's revenues and improve its
profitability by, among other things, acquiring the operations of certain
franchisees, enhancing its operations outside the United States, expanding its
retail car sales operations, adding car rental locations in its existing
markets, adding truck rental locations and expanding its truck rental fleet, and
increasing its marketing efforts to corporate accounts. In addition, management
expects Budget to realize certain cost savings and other operating efficiencies
as a result of the implementation of its business strategy. Increasing the
revenues of Budget, and realizing cost savings and other operating efficiencies,
could be affected by a number of factors beyond Budget's control, such as
general economic conditions, increased operating costs of vehicles and
regulatory development. Each of these initiatives will involve risks to Budget,
and there can be no assurance that Budget will be successful in growing its
business or that Budget will achieve the expected cost savings and other
operating efficiencies. In addition, Budget's substantial leverage could affect
its success in growing its business.
INTEGRATION OF BUDGET ACQUISITION
The Budget Acquisition was significantly larger than any of TEAM's previous
acquisitions and the combination and integration of the respective operations of
TEAM and BRACC are of a substantially greater scale than previously undertaken
by either company. The difficulties of managing such combinations and
integration are increased by the necessity of coordinating the operations of
geographically diverse organizations, of integrating different strategies and
operating systems, of integrating management and operating personnel from both
companies and of managing a worldwide franchise system. The success of Budget
depends on the ability of Budget's management team to: (a) manage a
significantly larger organization, (b) maintain and further develop
relationships with Budget's franchisees and (c) conduct operations on a
worldwide basis. There can be no assurance that Budget's management team will be
able to successfully manage the combined operations of TEAM and BRACC. An
inability to successfully manage the integration of TEAM and BRACC would have a
material adverse effect on Budget's results of operations or financial
condition.
15
<PAGE> 22
INTEGRATION OF RYDER FOLLOWING THE MERGER
The success of the Merger will be determined by various factors, including
the financial performance of Ryder's operations after the Merger and Budget
management's ability to effectively integrate the operations of Budget and
Ryder. The integration of the operations of Budget and Ryder may be negatively
affected if costs or difficulties related to the integration of the businesses
of Budget and Ryder are greater than expected. There can be no assurance that
the anticipated benefits of the Merger will be realized or that the Merger will
not adversely affect the future results of operations or financial condition of
Budget.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
Budget has substantial indebtedness and significant debt service
requirements. As of December 31, 1997, Budget's total indebtedness was $2.6
billion (representing 73% of its total capitalization), of which $2.3 billion
represented senior secured indebtedness for the purchase of vehicles and
approximately $300 million represented non-vehicle indebtedness (representing
8.9% of its total capitalization, excluding fleet debt). As of December 31,
1997, Budget had $346.8 million of incremental availability under its vehicle
financing facilities to finance the purchase of fleet vehicles. The degree to
which Budget is leveraged has important consequences for holders of the Budget
Class A Common Stock, including the following: (i) the ability of Budget to
obtain additional financing in the future, whether for working capital, fleet
purchases, acquisitions or other purposes, may be impaired; (ii) a substantial
portion of Budget's cash flow from operations is required to be dedicated to the
payment of principal and interest on its indebtedness, thereby reducing funds
available to Budget for other purposes; (iii) Budget's flexibility in planning
for or reacting to changes in market conditions may be limited; (iv) Budget may
be more vulnerable in the event of a downturn in its business; and (v) because a
substantial portion of its indebtedness bears interest at floating rates, any
increase in prevailing interest rates will result in an increase in interest
expense incurred by Budget, which could have an adverse effect on its results of
operations.
The ability of Budget to meet its debt service obligations will depend on
its future operating performance and financial results, which will be subject in
part to factors beyond the control of Budget. Although Budget's management
believes that Budget's cash flow will be adequate to meet its interest and
principal payments, there can be no assurance that Budget will continue to
generate earnings in the future sufficient to cover its fixed charges. If Budget
is unable to generate earnings in the future sufficient to cover its fixed
charges and is unable to borrow sufficient funds under its existing credit lines
or from other sources, it may be required to refinance all or a portion of its
existing indebtedness or to sell all or a portion of its assets. There can be no
assurance that a refinancing would be possible nor can there be any assurance as
to the timing of any asset sales or the proceeds which Budget could realize
therefrom. In addition, the terms of certain indebtedness of Budget restrict the
ability of Budget to sell assets and the use of the proceeds therefrom.
If for any reason, including a shortfall in anticipated operating results
or proceeds from asset sales, Budget were unable to meet its debt service
obligations, it would be in default under the terms of its indebtedness. In the
event of such a default, the holders of such indebtedness could elect to declare
all such indebtedness immediately due and payable, including accrued and unpaid
interest, and to terminate their commitments (if any) with respect to funding
obligations under such indebtedness. In addition, such holders could proceed
against their collateral, which, in the case of the fleet financing facilities,
consists of substantially all Budget's fleet vehicles.
Budget's results of operations depend significantly on prevailing levels of
interest rates because of the large amount of debt it incurs to purchase
vehicles. In addition, Budget is exposed to increases in interest rates because
a substantial portion of its debt bears interest at floating rates. At December
31, 1997, approximately 62.4% of Budget's average debt bore interest at floating
rates. The amount of Budget's financing costs affects the amount Budget and
Budget franchisees must charge their customers to be profitable.
16
<PAGE> 23
AVAILABILITY OF FINANCING
Budget depends upon third-party financing to purchase its fleet vehicles.
Continued availability of such financing on favorable terms will be critical to
Budget's operations. A majority of Budget's indebtedness is incurred in
connection with major vehicle manufacturers' vehicle repurchase programs. As a
result, a significant change in the credit quality of the vehicle manufacturers,
particularly Ford Motor Company ("Ford"), would significantly affect Budget's
ability to obtain such financing on favorable terms. In addition, certain
events, such as a material increase in damage to vehicles, could reduce the
value of the collateral securing Budget's fleet financing facilities and cause
the acceleration of the repayment of such facilities. An inability of Budget to
obtain vehicle financing on favorable terms would have a material adverse effect
on Budget's financial condition and results of operations. There can be no
assurance that the sources of financing utilized by Budget or alternative
financing will remain or become available to Budget or that such financing will
be available on terms acceptable to Budget.
COMPETITION
The vehicle rental industry is characterized by intense competition,
particularly with respect to price and service. In any geographic market, Budget
may encounter competition from national, regional and local vehicle rental
companies. There have been occasions when the major vehicle rental companies
have been adversely affected by industry-wide price cutting, and Budget has on
such occasions lowered its prices in response. Budget will not generally be able
to unilaterally raise its prices or to maintain its prices in times of
industry-wide price cutting.
The retail car sales industry also is characterized by intense competition,
consisting primarily of local new car dealerships selling new and later model
cars. In addition to local dealerships, Budget may face competition from
retailers that compete on the basis of large inventory size, no-haggle pricing
and aftersale service.
The truck rental industry is highly competitive and includes a number of
significant competitors. Competition is generally based on price, product
quality, brand name recognition, service, convenience and availability.
Competition could adversely affect Budget's operating results following the
Merger by forcing it to reduce its prices, incur additional costs or provide
other services not currently provided.
RESTRICTIONS IMPOSED BY INDEBTEDNESS
The terms of Budget's indebtedness include a number of significant
covenants that, among other things, restrict the ability of Budget to dispose of
assets, incur additional indebtedness, create liens, repay other indebtedness,
pay dividends, make certain investments or acquisitions, repurchase or redeem
capital stock, engage in mergers or consolidations, or engage in certain
transactions with affiliates, and otherwise restrict corporate activities. There
can be no assurance that such restrictions will not adversely affect Budget's
ability to finance its future operations or capital needs or to engage in other
business activities that may be in the interest of Budget. In addition, the
terms of certain of such indebtedness also require Budget to comply with certain
financial covenants. The ability of Budget to comply with such covenants may be
affected by events beyond Budget's control. A breach of any of these covenants
or the inability of Budget to comply with the required financial ratios could
result in a default under such indebtedness. In the event of any such default,
the lenders under such indebtedness could elect to declare all borrowings
outstanding under such indebtedness, together with accrued interest and other
fees, to be due and payable, require Budget to apply all of its available cash
to repay such borrowings or prevent Budget from making scheduled debt service
payments. If Budget were unable to repay any such borrowings when due, the
lenders could proceed against their collateral. If the indebtedness of Budget
under such collateralized indebtedness or other indebtedness were to be
accelerated, there can be no assurance that the assets of Budget would be
sufficient to repay such indebtedness in full. There can be no assurance that
Budget will be able to comply with the covenants included in its debt agreements
in the future or that it would be able to obtain any necessary waivers of those
covenants.
17
<PAGE> 24
POTENTIAL CHANGES IN MANUFACTURERS' REPURCHASE PROGRAMS
Approximately 87% of the vehicles purchased by Budget in model year 1997
were eligible for repurchase by specified automobile manufacturers at fixed
prices on designated dates pursuant to such manufacturers' vehicle repurchase
programs ("Program Vehicles"). The availability of Program Vehicles limits a car
rental company's risk of a decline in residual value at the time of disposition
and enables it to fix its depreciation expense in advance. Vehicle depreciation
is the largest cost factor in Budget's vehicle rental operations. Management
believes that manufacturers' repurchase programs enable the manufacturers to
stimulate fleet sales in times of weak consumer demand for new automobiles. In
response to strong U.S. consumer demand for passenger vehicles in 1993 and 1994,
the major U.S. automobile manufacturers reduced the number of vehicles subject
to repurchase programs and the financial incentives associated with these
programs. U.S. consumer demand for passenger vehicles began to weaken during the
second quarter of 1995, and this weakness continued through 1996. In response to
these market conditions, there was an increase in the availability of repurchase
programs with respect to 1996 model year vehicles, particularly repurchase
programs for imported vehicles, and these programs have continued for 1997 model
year vehicles. However, Budget could be adversely affected if automobile
manufacturers reduce the availability of Program Vehicles or related incentives
or increase the guaranteed depreciation.
DEPENDENCE ON PRINCIPAL SUPPLIER
Ford has been and continues to be Budget's principal supplier of vehicles.
Budget has agreed to purchase or lease Ford vehicles in such quantity that the
percentage of new Ford vehicles purchased or leased by Budget in the United
States, Canada, and other countries outside the European Union represents at
least 70% of the total new vehicle acquisitions by Budget, with a minimum
quantity of at least 80,000 vehicles in the United States in each model year.
Given the volume of vehicles purchased from Ford by Budget, shifting significant
portions of the fleet purchases to other manufacturers would require lead time
and certain operational changes. As a result, any inability of Ford to supply
Budget with the planned number and types of vehicles, any significant decline in
the quality and customer satisfaction with respect to Ford vehicles or any
failure of the parties to reach an agreement on the terms of any purchases,
could have a material adverse effect on Budget's financial condition and results
of operations.
SEASONALITY
The three-month period ended September 30, during the peak summer travel
months, has historically been the strongest period of the year for Budget. As a
result, any occurrence that disrupts travel patterns during the summer period
could have a material adverse effect on Budget's annual performance.
COSTS OF REGULATORY AND ENVIRONMENTAL COMPLIANCE
Budget is subject to various foreign, federal, state and local laws and
regulations that affect the conduct of its operations, including those related
to the sale of loss damage waivers, vicarious liability of vehicle owners,
consumer protection, advertising, used vehicle sales, the taxing and licensing
of vehicles, franchising operations and sales, and environmental compliance and
remediation. There can be no assurance that compliance with these laws and
regulations or the adoption of modified or additional laws and regulations will
not require material expenditures by Budget or otherwise have a material adverse
effect on its results of operations or financial condition.
RISKS OF INTERNATIONAL OPERATIONS
Budget's international vehicle rental operations are subject to certain
risks, including adverse developments in the foreign political and economic
environment, varying governmental regulations, foreign currency fluctuations,
potential difficulties in staffing and managing foreign operations and potential
adverse tax consequences. There can be no assurance that any of these factors
will not have a material adverse effect on Budget's results of operations or
financial condition.
18
<PAGE> 25
DEPENDENCE ON DEALERS
Ryder operates nationwide through approximately 3,900 dealers, of which
approximately 3,600 are independent Ryder dealers and approximately 300 are RTR
dealers. Ryder is dependent on its dealer network to offer its truck rental
services to the public, and the growth and profitability of Ryder depend in part
upon its relationship with its dealers. There can be no assurance that,
following the Merger, Budget will be able to successfully maintain existing
dealerships or to enter into relationships with qualified new dealers. The loss
of a significant number of dealers or the failure to replace dealers could have
a material adverse effect on Budget's results of operations or financial
condition.
Independent dealerships consist primarily of auto parts retailers and
service suppliers, self storage centers, car rental locations and other
vehicle-related businesses that are owned by third parties. As a result, truck
rental services are not the primary business for independent dealers. There can
be no assurance that the independent dealers will concentrate sufficient efforts
on renting Ryder's trucks, which could result in decreased revenues for Budget
following the Merger.
DEPENDENCE ON PRINCIPAL EXECUTIVE OFFICERS
Budget's existing operations and continued future development are dependent
in part on the active participation of Sanford Miller, John Kennedy and Jeffrey
Congdon. The loss of the services of one or more of these individuals could have
a material adverse effect on Budget. Budget has no employment agreements or
covenants not to compete with any of its executive officers or significant
employees.
SUBSTANTIAL VOTING POWER BY PRINCIPAL EXECUTIVE OFFICERS
Budget has two classes of Common Stock: Budget Class A Common Stock,
holders of which are entitled to one vote per share, and Budget Class B Common
Stock, holders of which are entitled to ten votes per share. Messrs. Miller,
Kennedy and Congdon own all outstanding shares of Budget Class B Common Stock,
which, following the Merger, together with the Budget Class A Common Stock owned
by such individuals, will represent approximately 44.0% of the combined voting
power of both classes of common stock. As a result, such officers will be able
to exert substantial influence over the election of the Budget Board (assuming
the Maximum Merger Shares are issued in the Merger), thereby increasing the
probability that members elected by them will continue to direct the business,
policies and management of Budget.
POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER AND BYLAW PROVISIONS; POSSIBLE
ISSUANCES OF PREFERRED STOCK
Certain provisions of Delaware law, Budget's Amended and Restated
Certificate of Incorporation and Budget's Bylaws could delay or impede the
removal of incumbent directors and could make it more difficult for a third
party to acquire, or could discourage a third party from attempting to acquire,
control of Budget. Such provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Budget Class A Common
Stock. In addition, shares of preferred stock may be issued by the Board of
Directors without stockholder approval on such terms and conditions, and having
such rights, privileges and preferences, as the Board of Directors may
determine. The rights of the holders of the Budget Class A Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. Budget has no current plans to
issue any shares of preferred stock.
BENEFITS TO CERTAIN DIRECTORS AND OFFICERS OF RYDER; POSSIBLE CONFLICTS OF
INTEREST
In considering whether to receive shares of Budget Common Stock in
connection with the Merger, Ryder Stockholders should be aware that certain
members of the Ryder Board and management of Ryder may be deemed to have certain
interests in the Merger that are different from the interests of the Ryder
Stockholders generally. See "The Merger -- Interests of Certain Persons in the
Merger." No special procedures were put in place to resolve any conflicts
resulting from these interests. However, the Ryder Board was aware of these
interests and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
19
<PAGE> 26
DIFFERENCES IN RIGHTS OF RYDER SHAREHOLDERS
The rights of the holders of Ryder Common Stock are presently governed by
the Ryder Certificate and the Ryder Bylaws. After completion of the Merger, the
rights of the holders of Ryder Common Stock that are converted into Budget Class
A Common Stock will be governed by the Budget Certificate of Incorporation and
the Budget Bylaws. Certain differences may reduce certain existing rights of
Ryder Stockholders. See "Comparison of Rights of Holders of Ryder Common Stock
and Budget Class A Common Stock."
YEAR 2000
Budget has assessed and continues to assess the impact of the year
2000("Y2K") on its reporting systems and operations (the "Y2K Issue"). The Y2K
Issue exists because many computer systems and applications currently use
two-digit date fields to designate a year. As the century date occurs, certain
date sensitive systems will recognize the year 2000 as the year 1900 or may not
recognize the date at all. This inability to properly treat or recognize the
year 2000 may cause computer systems and applications to process critical
information incorrectly.
During 1997, Budget has recognized approximately $2.2 million to modify
existing computer systems and applications and estimates that an aggregate of
approximately $6.7 million will be incurred in 1998 and 1999 specifically for
Y2K modification. The most significant systems undergoing or to undergo
modifications are the reservation and rental transaction processing systems. A
failure in these systems could cause significant disruption in customer service
levels and therefore materially impact Budget's operating results and financial
condition. Budget expects to complete all major modification efforts in
mid-1999.
20
<PAGE> 27
SELECTED HISTORICAL FINANCIAL DATA OF BUDGET
The following table sets forth selected consolidated statements of
operations data and selected consolidated balance sheet data of Budget. The
selected financial data for each of the five years ended December 31, 1997 are
derived from the consolidated financial statements of Budget. The selected
financial data below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Budget" and the
Consolidated Financial Statements and notes thereto incorporated by reference in
this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED AND AS OF DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
------- -------- -------- -------- ----------
(IN THOUSANDS EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Vehicle rental revenue(a)................. $22,321 $ 38,642 $107,067 $223,250 $1,014,105
Retail car sales revenue.................. -- -- 42,662 134,120 239,992
Total operating revenue................... 22,321 38,642 149,729 357,370 1,303,762
Depreciation -- vehicle................... 4,358 7,382 27,476 60,735 278,495
Cost of vehicle sales..................... -- -- 38,021 113,747 205,791
Operating income.......................... 2,450 4,196 14,180 35,267 171,286
Income before income taxes................ 610 426 1,022 7,818 63,301
Net income................................ $ 428 $ 250 $ 337 $ 4,497 $ 36,926
Weighted average common and common
equivalent shares outstanding:
Basic.................................. (b) 3,704 6,369 9,224 18,494
Diluted................................ (b) 3,704 6,369 9,488 26,245
Earnings per common and common equivalent
share:
Basic.................................. (b) $ 0.07 $ 0.05 $ 0.49 $ 2.00
Diluted................................ (b) $ 0.07 $ 0.05 $ 0.47 $ 1.60
Operating Data:
Rental Data (U.S. only)(c):
Locations in operation at period end... 19 63 133 152 509
Rental transactions(d)................. 163,000 276,000 689,000 1,166,000 5,255,000
Retail Car Sales Data:
Locations in operation at period end... -- -- 7 11 26
Average monthly vehicles sold.......... -- -- 351 752 1,790
Balance Sheet Data:
Revenue earning vehicles, net............. $23,577 $ 97,127 $219,927 $319,257 $2,010,926
Vehicle inventory......................... -- 943 8,938 16,413 34,721
Total assets.............................. 33,325 162,991 386,323 587,223 3,574,815
Fleet debt................................ 23,857 123,779 295,647 360,120 2,291,755
Total debt................................ 28,533 127,187 319,017 455,609 2,610,009
Redeemable preferred stock................ 2,747 -- -- -- --
Common stock warrant...................... -- 2,000 2,000 2,000 --
Stockholders' equity (deficit)............ (1,251) 26,748 39,592 92,001 437,990
</TABLE>
- ---------------
(a) Includes revenue from vehicle rentals and related products (such as
insurance and loss damage waivers).
(b) This information is not meaningful as no shares were publicly held prior to
August 1994.
(c) Does not include data for Van Pool Services or Premier Car Rental.
(d) Rounded to the nearest thousand.
21
<PAGE> 28
SELECTED HISTORICAL FINANCIAL DATA OF BRACC
The following table sets forth selected consolidated statements of
operations data and selected consolidated balance sheet data of BRACC. The
selected financial data for each of the five years ended December 31, 1996 are
derived from the consolidated financial statements of BRACC. The data presented
for each of the three months ended March 31, 1996 and 1997 are derived from
unaudited financial statements, but in the opinion of BRACC reflect all
adjustments (consisting of normal recurring adjustments) that BRACC considers
necessary for a fair presentation of such information in accordance with
generally accepted accounting principles. The selected financial data below
should be read in conjunction with the Consolidated Financial Statements of
Budget and notes thereto incorporated by reference in this Proxy Statement/
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenue:
Vehicle rental revenue(a)............. $1,080,700 $ 954,188 $1,011,203 $1,034,873 $ 963,764 $221,778 $228,135
Retail car sales revenue.............. 72,253 63,596 77,999 83,795 91,503 22,734 20,913
Other revenue......................... 61,435 61,903 66,564 74,802 77,554 17,259 17,363
---------- ---------- ---------- ---------- ---------- -------- --------
Total operating revenue......... $1,214,388 $1,079,687 $1,155,766 $1,193,470 $1,132,821 $261,771 $266,411
Operating costs and expenses:
Direct vehicle and operating.......... 221,239 176,252 134,126 153,081 121,288 25,871 31,713
Depreciation -- vehicle............... 278,344 206,271 257,356 323,619 263,846 54,583 65,439
Depreciation -- non-vehicle........... 25,297 20,431 21,410 19,520 26,645 6,502 6,413
Cost of car sales..................... 64,639 54,969 67,314 72,416 78,944 19,598 18,430
Advertising, promotion and selling.... 108,978 99,879 99,738 106,446 83,304 19,441 27,585
Facilities............................ 115,155 108,741 110,386 113,286 114,325 28,471 28,904
Personnel............................. 274,081 248,947 269,370 280,901 248,655 61,939 63,985
General and administrative............ 85,625 82,731 69,117 88,612 54,194 17,638 14,430
Intangible amortization............... 17,223 17,852 16,874 17,006 16,969 4,185 4,180
---------- ---------- ---------- ---------- ---------- -------- --------
Total operating costs and
expenses...................... $1,190,581 $1,016,073 $1,045,691 $1,174,887 $1,008,170 $238,228 $261,079
Operating income........................ $ 23,807 $ 63,614 $ 110,075 $ 18,583 $ 124,651 $ 23,543 $ 5,332
Other expense:
Vehicle interest expense.............. 101,032 78,205 86,127 124,758 92,738 22,949 22,589
Non-vehicle interest expense.......... 18,923 16,283 18,823 25,151 31,444 7,265 7,043
---------- ---------- ---------- ---------- ---------- -------- --------
Income (loss) before provision for
income taxes.......................... $ (96,148) $ (30,874) $ 5,125 $ (131,326) $ 469 $ (6,671) $(24,300)
Provision (benefit) for income taxes.... (4,900) -- 4,000 1,314 3,000 600 (4,860)
---------- ---------- ---------- ---------- ---------- -------- --------
Net income (loss)....................... $ (91,248) $ (30,874) $ 1,125 $ (132,640) $ (2,531) $ (7,271) $(19,440)
========== ========== ========== ========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <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 $1,494,755
Vehicle inventory............................. 5,753 7,396 9,674 11,756 14,299 14,828
Total assets.................................. 2,590,002 2,405,204 2,602,374 2,488,115 2,328,115 2,484,152
Fleet financing facilities.................... 1,628,190 1,462,783 1,614,247 1,465,472 1,361,619 1,513,259
Other notes payable........................... 216,326 245,714 268,039 452,475 468,767 474,055
Total debt.................................... 1,844,516 1,708,497 1,882,286 1,917,947 1,830,386 1,987,314
Mandatory redeemable preferred stock.......... 206,250 221,250 236,250 251,250 5,178 5,272
Stockholders' equity.......................... 111,934 59,558 49,909 (106,102) 143,965 121,288
</TABLE>
- ---------------
(a) Includes revenue from vehicle rentals and related products (such as
insurance and loss damage waivers).
22
<PAGE> 29
SELECTED HISTORICAL FINANCIAL DATA OF RYDER
The following table sets forth selected historical financial and other data
of Ryder for each of the five years in the period ended December 31, 1997, and
certain pro forma financial and other data for the year ended December 31, 1996.
The pro forma financial data gives effect to the Ryder Acquisition Transactions
(as defined in "Business of Ryder -- General"), Ryder's offering of $175 million
of 10% Senior Subordinated Notes in November 1996 (the "Ryder Note Offering")
and the application of the proceeds therefrom, as if they had occurred on
January 1, 1996. The historical financial information for each of the years
ended December 31, 1994 and 1995 and for the period January 1, 1996 through
October 16, 1996 and October 17, 1996 through December 31, 1996 has been derived
from the audited combined or consolidated financial statements of Ryder. The
historical financial information for the year ended December 31, 1993 is
unaudited but, in the opinion of management of Ryder, includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information. The pro forma information does not purport to
represent what Ryder's results would have actually been if the Ryder Acquisition
Transactions and the Ryder Note Offering had occurred at the date indicated, nor
does such information purport to project the results of Ryder for any future
period. The selected financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Ryder" and "Financial Statements" included elsewhere in this Proxy
Statement/Prospectus.
23
<PAGE> 30
<TABLE>
<CAPTION>
JANUARY 1, OCTOBER 17
1996 1996
THROUGH THROUGH YEAR ENDED
OCTOBER 16, DECEMBER 31, PRO FORMA DECEMBER 31,
1993(M) 1994(M) 1995(M) 1996(M) 1996 1996(M)(N) 1997
-------- -------- -------- ----------- ------------ ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
One-way truck rentals....... $184,875 $218,881 $224,369 $187,931 $ 36,861 $224,792 $ 225,416
Local truck rentals......... 209,049 229,053 214,520 167,140 47,343 214,483 209,487
Accessory rentals and
product sales(a).......... 68,378 75,782 87,211 70,994 15,879 86,873 90,372
Other revenues(b)........... 17,625 25,917 20,621 13,714 2,928 16,642 20,445
-------- -------- -------- -------- -------- -------- ---------
Total revenues................ 479,927 549,633 546,721 439,779 103,011 542,790 545,720
Operating expense............. 171,297 192,830 174,795 146,379 32,908 176,944 191,537
Selling, general and
administrative expense...... 189,915 211,844 216,267 167,258 39,317 209,591 225,850
Depreciation expense (net of
gains) and
amortization(c)............. 94,192 99,594 113,040 93,834 21,222 122,079(d) 112,171
Restructuring and other
charges(e).................. -- -- 6,370 1,891 -- 1,891 --
-------- -------- -------- -------- -------- -------- ---------
Operating income.............. 24,523 45,365 36,249 30,417 9,564 32,285 16,162
Interest expense(f)........... 20,049 24,256 29,663 20,291 9,159 44,641 39,178
-------- -------- -------- -------- -------- -------- ---------
Earnings (loss) before income
taxes and extraordinary
item........................ 4,474 21,109 6,586 10,126 405 (12,356) (23,016)
Provision (benefit) for income
taxes....................... 1,994 8,800 2,984 4,304 156 (4,351) (8,861)
-------- -------- -------- -------- -------- -------- ---------
Earnings (loss) before
extraordinary item.......... $ 2,480 $ 12,309 $ 3,602 $ 5,822 $ 249 $ (8,005) $ (14,155)
Extraordinary loss on debt
extinguishment, net of
taxes....................... -- -- -- -- (3,138) -- (4,611)
-------- -------- -------- -------- -------- -------- ---------
Net earnings (loss)........... $ 2,480 $ 12,309 $ 3,602 $ 5,822 $ (2,889) $ (8,005) $ (18,766)
======== ======== ======== ======== ======== ======== =========
BASIC AND DILUTED AMOUNTS PER
COMMON SHARE:
Earnings (loss) before
extraordinary item.......... $ 3.16 $ (114.09)
Extraordinary item, net of
tax......................... $ (39.80) $ (37.17)
Net loss...................... $ (36.64) $ (151.26)
OTHER FINANCIAL DATA:
EBITDA(g)..................... $118,715 $144,959 $149,289 $124,251 $ 30,786 $154,364 $ 128,333
EBITDA margin................. 24.7% 26.4% 27.3% 28.3% 30.0% 28.4% 23.5%
Adjusted EBITDA(h)............ $118,715 $144,959 $155,659 $126,142 $ 30,786 $156,255 $ 128,333
Adjusted EBITDA margin........ 24.7% 26.4% 28.5% 28.7% 30.0% 28.8% 23.5%
Capital expenditures(i)....... $204,928 $201,304 $232,531 $ 78,113 $ 1,955 $ 80,068 $ 129,385
Proceeds from disposition of
trucks...................... 50,215 50,030 72,211 45,428 10,876 56,304 52,290
STATEMENT OF CASH FLOWS DATA:
Net cash provided by operating
activities.................. $ 87,307 $124,011 $ 88,115 $125,728 $ 46,251 $ 106,986
Net cash used in investing
activities.................. (157,362) (153,137) (162,113) (34,318) (586,790) (71,666)
Net cash provided by (used in)
financing activities........ 69,924 30,285 74,777 (87,699) 558,046 (52,827)
FLEET DATA:
Average operating fleet(j).... 31,078 32,814 34,110 31,693 30,227
Utilization(k)................ 39.8% 44.1% 41.8% 44.6% 46.9%
Average age in months (end of
period)..................... 32 31 29 36 39
Average number of dealers..... 4,477 4,765 5,031 4,516 4,077
BALANCE SHEET DATA (END OF
PERIOD):
Total assets.................. 506,501 575,933 629,817 555,267 617,818 583,427
Total debt(m)................. $ -- -- -- -- 440,619 395,905
Total stockholders'
equity(l)................... $369,464 412,058 490,437 408,560 120,111 101,554
</TABLE>
See Notes to Selected Financial Data of Ryder
24
<PAGE> 31
NOTES TO SELECTED FINANCIAL DATA OF RYDER
(a) Includes rental of automobile towing equipment and moving accessories;
sales of moving supplies; and sales of liability-limiting products such as
physical damage waivers, personal accident and cargo protection, and
supplemental liability protection.
(b) Other revenues represent household relocation services provided by RMM.
(c) Gains on the disposition of trucks, net of vehicle disposition costs and
other adjustments, have been reported as reductions of depreciation expense
by Ryder.
(d) On a pro-forma basis, Ryder changed the estimated useful lives and residual
values used to calculate depreciation expense on certain types of trucks in
order to better reflect recent experience. This accounting change was
treated as a change in estimate and accounted for on a prospective basis
from January 1, 1996. As a result of this change, depreciation expense was
decreased by approximately $6.0 million for the period January 1, 1996
through October 16, 1996.
(e) Ryder recorded restructuring and other charges of $6.4 million and $1.9
million for the year ended December 31, 1995 and the period January 1, 1996
through October 16, 1996, respectively. In the third quarter of 1995, Ryder
consolidated its 20 administrative locations into two area centers. As a
result, Ryder incurred restructuring and other charges for lease
termination, employee severance and employee relocation costs. In 1996,
additional consolidating and restructuring actions were taken by RSI which
impacted Ryder; these actions included management and staff reductions and
elimination of the company-owned car benefit program.
(f) Prior to October 17, 1996, historical interest expense consists of interest
on advances from RSI.
(g) EBITDA represents earnings before interest expense, income taxes,
depreciation (net of gains on the disposition of trucks) and amortization.
Ryder includes information concerning EBITDA because it is used by certain
investors as a measure of Ryder's ability to service and/or incur debt.
EBITDA should not be considered in isolation or as a substitute for net
income or cash flows from operating activities presented in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(h) Adjusted EBITDA represents EBITDA plus restructuring and other charges.
(i) Capital expenditures for rental trucks totaled $189.0 million, $182.0
million, $210.8 million, $62.9 million and $100.8 million for the years
ended December 31, 1993, 1994, 1995, 1996 (pro forma), and 1997,
respectively. Capital expenditures for the year ended December 31, 1995
includes $10.3 million to purchase approximately 1,200 trucks that were
added to the fleet in 1992 under operating leases.
(j) Average operating fleet includes those trucks undergoing maintenance and
excludes those trucks removed from the rental fleet for disposition.
(k) Utilization represents the total number of truck rental days generated by
the fleet for the period divided by the total number of calendar days which
were available for the average operating fleet for the period.
(l) Prior to October 17, 1996, shareholders' equity represents the investment
by and interest-bearing advances from RSI. See the Combined Financial
Statements of Ryder Consumer Truck Rental and related notes thereto.
(m) Certain reclassifications have been made to the 1993, 1994, 1995 and 1996
financial data to conform to 1997 presentations.
(n) The Pro Forma 1996 results do not represent the sum of the two 1996
periods. The Pro Forma 1996 results reflect the Ryder Acquisition
Transactions, the Ryder Note Offering and the application of the proceeds
therefrom, as if they had occurred on January 1, 1996. As a result, the
purchase price was allocated to the assets and liabilities assumed based on
their estimated fair values, and lives and residual values on certain types
of trucks have been changed.
25
<PAGE> 32
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The Pro Forma Consolidated Balance Sheet is based on the historical
financial statements of Budget, Ryder and Cruise America as of December 31,
1997, adjusted to give effect to the "Merger Transactions" (as defined below)
and the merger of Budget and Cruise America (the "Cruise America Transaction")
as if they had occurred as of December 31, 1997. The Pro Forma Consolidated
Statement of Operations is based on the historical financial statements of
Budget, Ryder and Cruise America for the year ended December 31, 1997, and of
BRACC for the period from January 1, 1997, through April 29, 1997, adjusted to
give effect to the Merger Transactions, the Cruise America Transaction and the
Budget Acquisition Transactions (collectively, the "Budget Transactions") as if
they had occurred on January 1, 1997.
The "Merger Transactions" consist of the following: (i) the Merger,
including the conversion of the Ryder Common Stock into Budget Class A Common
Stock, cash and warrants to purchase Budget Class A Common Stock and the right
to receive the Contingent Additional Consideration, if any; and (ii) the
issuance and sale by Budget of $135 million of 5% Convertible Preferred Stock in
a private placement.
The Cruise America Transaction was completed on January 28, 1998 and has
been accounted for using the pooling of interests method of accounting, whereby
Budget issued 0.28073 of a share of Budget Class A Common Stock for each share
of Cruise America Common Stock.
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 sale of 8,625,000 shares of Budget Class A Common Stock by Budget in a
public offering in April 1997 (the "Public Offering") and the application of the
net proceeds thereof; (iii) the private placement (the "Debt Placements") of
$45.0 million aggregate principal amount of Convertible Notes and $165.0 million
aggregate principal amount of 9.57% Guaranteed Senior Notes due 2007 (the
"Guaranteed Senior Notes") by Budget in April 1997 and the application of the
net proceeds thereof; and (iv) the April 1997 credit facilities for fleet
financings (the "April 1997 Fleet Financings") with an aggregate commitment of
$1.4 billion 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. The Budget Acquisition has been accounted for using the purchase method
of accounting.
The Pro Forma Consolidated Financial Statements do not purport to represent
what Budget's results of operations or financial condition would have been had
the Budget Transactions actually occurred on the dates indicated or to predict
Budget'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 Budget and Ryder and the notes
thereto incorporated by reference or included elsewhere in this Proxy
Statement/Prospectus.
The Pro Forma Consolidated Financial Statements have been prepared assuming
that the Certificate Amendment is approved by the Budget Stockholders, thereby
making the Aggregate Merger Consideration consist of the Maximum Merger Shares
and the Minimum Cash Consideration, the Warrants and the Contingent Additional
Consideration. Additionally, the Merger has been reflected in the Pro Forma
Consolidated Financial Statements using the purchase method of accounting,
whereby the total cost of the Merger will be allocated to the tangible and
intangible assets acquired and liabilities assumed based upon their respective
fair values at the Effective Time. Such allocations will be based on studies and
valuations which have not yet been completed. Accordingly, the allocations
reflected in the Pro Forma Consolidated Financial Statements are preliminary and
subject to revision. However, Budget does not expect material changes to the
allocation of the purchase price.
The Pro Forma Consolidated Financial Statements give effect only to the
adjustments set forth in the accompanying notes and do not reflect any other
benefits anticipated by management as a result of the Budget Transactions and
the implementation of Budget's business strategy.
26
<PAGE> 33
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS FOR PRO FORMA ADJUSTMENTS FOR
HISTORICAL CRUISE CRUISE AMERICA HISTORICAL HISTORICAL MERGER
BUDGET AMERICA TRANSACTION BUDGET RYDER TRANSACTIONS
---------- ---------- --------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 157,007 $ 4,448 $ -- $ 161,455 $ (6,324) $ 10,700(b)
Restricted cash.......... 282,731 -- -- 282,731 6,693 --
Trade and vehicle
receivables............ 329,356 4,662 -- 334,018 24,278 --
Vehicle inventory........ 34,721 12,223 -- 46,944 -- --
Revenue earning
vehicles............... 2,010,926 79,778 -- 2,090,704 451,192 19,700(c)
Property and equipment... 140,165 7,382 -- 147,547 9,504 --
Prepaid expenses and
other assets........... 87,681 4,000 -- 91,681 30,587 --
Intangibles.............. 532,228 -- 532,228 47,838 146,269(c)
---------- -------- ---- ---------- -------- --------
$3,574,815 $112,493 $ -- $3,687,308 $563,768 $176,669
========== ======== ==== ========== ======== ========
LIABILITIES
Notes payable............ $2,610,009 $ 76,190 $ -- $2,686,199 $395,905 $ --
Accounts payable, accrued
expenses and other
liabilities............ 418,438 13,253 -- 431,691 78,704 500(d)
Deferred income taxes.... 108,378 2,101 -- 110,479 (13,335) 8,470(c)
---------- -------- ---- ---------- -------- --------
3,136,825 91,544 -- 3,228,369 461,274 8,970
---------- -------- ---- ---------- -------- --------
Redeemable Class C Common
Stock.................. -- -- -- -- 940 (940)(e)
---------- -------- ---- ---------- -------- --------
STOCKHOLDERS' EQUITY
5% convertible preferred
stock.................. -- -- -- -- -- 131,213(f)
Common stock -- Cruise
America................ -- 58 (58)(a) -- -- --
Common stock -- Ryder.... -- -- -- -- 1 (1)(e)
Budget Class A Common
Stock.................. 239 -- 16(a) 255 -- 36(g)
Budget Class B Common
Stock.................. 19 -- -- 19 -- --
Additional paid-in
capital................ 400,099 25,081 42(a) 425,222 123,208 15,736(e),(g)
Foreign currency
translation
adjustment............. (1,326) (1,151) -- (2,477) -- --
Retained earnings
(deficit).............. 39,289 (3,039) -- 36,250 (21,655) 21,655(e)
Treasury stock........... (330) -- -- (330) -- --
---------- -------- ---- ---------- -------- --------
437,990 20,949 -- 458,939 101,554 168,639
---------- -------- ---- ---------- -------- --------
$3,574,815 $112,493 $ -- $3,687,308 $563,768 $176,669
========== ======== ==== ========== ======== ========
<CAPTION>
PRO FORMA
BUDGET
----------
<S> <C>
ASSETS
Cash and cash
equivalents............ $ 165,831
Restricted cash.......... 289,424
Trade and vehicle
receivables............ 358,296
Vehicle inventory........ 46,944
Revenue earning
vehicles............... 2,561,596
Property and equipment... 157,051
Prepaid expenses and
other assets........... 122,268
Intangibles.............. 726,335
----------
$4,427,745
==========
LIABILITIES
Notes payable............ $3,082,104
Accounts payable, accrued
expenses and other
liabilities............ 510,895
Deferred income taxes.... 105,614
----------
3,698,613
----------
Redeemable Class C Common
Stock.................. --
----------
STOCKHOLDERS'
EQUITY
5% convertible preferred
stock.................. 131,213
Common stock -- Cruise
America................ --
Common stock -- Ryder.... --
Budget Class A Common
Stock.................. 291
Budget Class B Common
Stock.................. 19
Additional paid-in
capital................ 564,166
Foreign currency
translation
adjustment............. (2,477)
Retained earnings
(deficit).............. 36,250
Treasury stock........... (330)
----------
729,132
----------
$4,427,745
==========
</TABLE>
27
<PAGE> 34
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) Reflects the conversion of Cruise America common stock into Budget
Class A Common Stock in accordance with the Cruise America merger agreement.
(b) Reflects the increase in cash attributable to:
<TABLE>
<S> <C>
Net cash received from the issuance by Budget of 5%
convertible preferred stock............................... $ 131,213
Cash paid in connection with Merger......................... (125,000)
Cash proceeds from exercise of Ryder stock options.......... 4,487
---------
Net increase in cash........................................ $ 10,700
=========
</TABLE>
(c) Reflects the increase in intangibles from the Merger calculated as
follows:
<TABLE>
<S> <C>
Purchase price
Cash paid................................................. $125,000
Value of Budget Class A Common Stock issued............... 138,980
Accrued offering costs(d)................................. 500
--------
Total purchase price...................................... 264,480
Less: Fair market value of net tangible assets
acquired(1)............................................... (70,373)
--------
Intangibles recorded on acquisition......................... 194,107
Write-off of intangible assets previously recorded by
Ryder..................................................... (47,838)
--------
Net increase in intangible assets......................... $146,269
========
</TABLE>
- ---------------
(1) Fair market value of net assets of Ryder acquired was determined
as follows:
<TABLE>
<S> <C>
Historical net.................................... $54,656
Increase due to stock option exercise............. 4,487
Fair market value adjustment to revenue earning
vehicles........................................ 19,700
Deferred income taxes due to purchase
accounting...................................... (8,470)
-------
$70,373
=======
</TABLE>
(d) Reflects a $500 increase in accrued expenses for the estimated
registration costs of the 5% convertible preferred stock issued by Budget in
connection with the Merger.
(e) Reflects the elimination of the Redeemable Class C common stock and
equity accounts of Ryder as follows:
<TABLE>
<S> <C>
Redeemable Class C common stock............................. $ (940)
---------
Common stock................................................ $ (1)
---------
Additional paid-in capital.................................. $(123,208)
---------
Retained earnings (deficit)................................. $ 21,655
=========
</TABLE>
(f) Reflects the issuance by Budget of the $135,000 in 5% convertible
preferred stock, net of $3,037 of underwriting commissions and offering expenses
estimated at $750.
(g) Reflects the increase in common stock and additional paid-in capital
attributable to the following:
<TABLE>
<S> <C>
Common Stock:
Issuance of 3,606 shares of Budget Class A common stock at
a par value of $.01 per share.......................... $ 36
--------
Additional paid-in capital:
Value of 3,606 shares of Budget Class A Common Stock
issued in the Merger, less $36 related to the par
value.................................................. $118,944
Guaranteed appreciation of Budget Class A Common Stock
issued................................................. 20,000
--------
Increase in additional paid-in capital.................... $138,944
========
</TABLE>
28
<PAGE> 35
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL HISTORICAL BRACC FOR BUDGET PRO FORMA
HISTORICAL CRUISE THROUGH BUDGET ACQUISITION HISTORICAL HISTORICAL
BUDGET AMERICA ACQUISITION(A) TRANSACTIONS BUDGET RYDER
---------- ---------- ---------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Operating revenue:
Vehicle rental revenue... $1,014,105 $ 56,331 $311,945 $ -- $1,382,381 $434,903
Retail vehicle sales
revenue................ 239,992 49,119 29,146 -- 318,257 --
Royalty fees and other... 49,665 2,224 23,132 (3,656)(b) 71,365 110,817
---------- -------- -------- ------- ---------- --------
Total operating
revenue.......... 1,303,762 107,674 364,223 (3,656) 1,772,003 545,720
---------- -------- -------- ------- ---------- --------
Operating costs and
expenses:
Depreciation -- vehicle... 278,495 13,617 89,019 -- 381,131 99,361
Costs of retail vehicle
sales.................. 205,791 45,277 25,691 -- 276,759 --
Operating expense........ 471,828 38,469 168,965 (2,439)(b) 676,823 191,537
Selling, general and
administrative
expense................ 153,716 9,717 58,556 (1,217)(b) 220,772 225,850
Amortization and non-
vehicle depreciation... 22,646 884 14,416 (1,578)(c) 36,368 12,810
---------- -------- -------- ------- ---------- --------
Total operating
costs and
expenses......... 1,132,476 107,964 356,647 (5,234) 1,591,853 529,558
---------- -------- -------- ------- ---------- --------
Operating income (loss)... 171,286 (290) 7,578 1,578 180,150 16,162
---------- -------- -------- ------- ---------- --------
Interest expense.......... 107,985 7,412 40,922 (5,348)(d)(e)(f) 150,971 39,178
---------- -------- -------- ------- ---------- --------
(g)(h)
Income (loss) before
taxes.................... 63,301 (7,702) (33,346) 6,926 29,179 (23,016)
Provision (benefit) for
income taxes............. 26,375 (550) (6,669) (5,514)(i) 13,642 (8,861)
---------- -------- -------- ------- ---------- --------
Net income (loss)......... 36,926 (7,152) (26,677) 12,440 15,537 (14,155)
Accrual of dividends on 5%
convertible preferred
stock.................... -- -- -- -- -- --
---------- -------- -------- ------- ---------- --------
Net income (loss)
attributable to common
shareholders............. $ 36,926 $ (7,152) $(26,677) $12,440 $ 15,537 $(14,155)
========== ======== ======== ======= ========== ========
Weighted average shares
outstanding -- basic..... 18,494 1,618 22,920 124
========== ======== ========== ========
Basic EPS................. $ 2.00 $ (4.42) $ 0.68 $(114.09)
========== ======== ========== ========
Weighted average shares
outstanding -- diluted... 26,245 1,618 27,285 124
========== ======== ========== ========
Diluted EPS............... $ 1.60 $ (4.42) 0.57 $(114.09)
========== ======== ========== ========
<CAPTION>
ADJUSTMENTS FOR
MERGER PRO FORMA
TRANSACTIONS BUDGET GROUP
--------------- ------------
<S> <C> <C>
Operating revenue:
Vehicle rental revenue... $ $1,817,284
Retail vehicle sales
revenue................ 318,257
Royalty fees and other... 182,182
-------- ----------
Total operating
revenue.......... -- 2,317,723
-------- ----------
Operating costs and
expenses:
Depreciation -- vehicle... 3,940(j) 484,432
Costs of retail vehicle
sales.................. -- 276,759
Operating expense........ -- 868,360
Selling, general and
administrative
expense................ (850)(k) 445,772
Amortization and non-
vehicle depreciation... 6,734(l) 55,912
-------- ----------
Total operating
costs and
expenses......... 9,824 2,131,235
-------- ----------
Operating income (loss)... (9,824) 186,488
-------- ----------
Interest expense.......... -- 190,149
-------- ----------
Income (loss) before
taxes.................... (9,824) (3,661)
Provision (benefit) for
income taxes............. (1,264)(i) 3,517
-------- ----------
Net income (loss)......... (8,560) (7,178)
Accrual of dividends on 5%
convertible preferred
stock.................... 6,750(m) 6,750
-------- ----------
Net income (loss)
attributable to common
shareholders............. $(15,310) $ (13,928)
======== ==========
Weighted average shares
outstanding -- basic..... 26,526
==========
Basic EPS................. $ (0.53)
==========
Weighted average shares
outstanding -- diluted... 26,526
==========
Diluted EPS............... $ (0.53)
==========
</TABLE>
29
<PAGE> 36
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
UNAUDITED
(a) Reflects the inclusion of the operations of BRACC from January 1, 1997
to April 29, 1997, the date of the Budget Acquisition.
(b) 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................................ $ 1,217
Royalty expenses paid by TEAM which were recognized as
royalty fees by BRACC................................. 1,700
</TABLE>
Also reflects the elimination of the current period effect of $739
royalty fees recognized by BRACC and $739 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").
(c) Reflects the elimination of $5,824 of amortization of BRACC's existing
goodwill and records an increase of $4,246 amortization on the net
goodwill and other intangible assets recorded through purchase
accounting adjustments.
(d) Reflects the increase in vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest expense related to the April 1997 Fleet
Financings............................................ $17,899
Amortization of costs incurred in connection with
certain of the April 1997 Fleet Financings............ 384
-------
Increase in vehicle interest expense.............. $18,283
=======
</TABLE>
(e) Reflects the decrease in vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest savings on vehicle debt refinanced through the
April 1997 Fleet Financings........................... $17,696
Interest savings on vehicle debt to Ford paid down by
BRACC in connection with the Budget Acquisition....... 1,832
-------
Decrease in vehicle interest expense.............. $19,528
=======
</TABLE>
(f) Reflects the decrease in non-vehicle interest expense attributable to:
<TABLE>
<S> <C>
Interest expense related to the Debt Placements........ $ 6,205
Amortization of costs incurred in connection with
certain of the April 1997 Fleet Financings and the
Debt Placements....................................... 487
-------
Increase in non-vehicle interest expense.......... $ 6,692
=======
</TABLE>
(g) 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 of TEAM................... $ 2,478
Elimination of interest on working capital debt of
$134,136 forgiven by Ford............................. 3,353
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............. 4,928
-------
Decrease in non-vehicle interest expense.......... $10,759
=======
</TABLE>
30
<PAGE> 37
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS -- (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
UNAUDITED
(h) Reflects $36 of interest income -- restricted cash on the $2,400
increase in restricted cash resulting from the receipt of Ford's
funding of the special bonus program implemented in connection with the
Budget Acquisition.
(i) Reflects a tax provision attributable to the combined group on a pro
forma basis.
(j) Reflects an increase of $3,940 in vehicle depreciation expense
attributable to the fair market value adjustment to revenue earning
vehicles.
(k) Reflects the elimination of management fees of $850 incurred by Ryder
under an agreement terminated in connection with the Merger.
(l) Reflects the elimination of $4,023 in amortization of Ryder's existing
intangibles and records an increase in amortization of $10,757 on the
net intangibles established through purchase accounting adjustments.
(m) Reflects the accrual of $6,750 of dividends on the 5% convertible
preferred stock expected to be issued by Budget in connection with the
Merger.
31
<PAGE> 38
GENERAL INFORMATION
This Proxy Statement/Prospectus is being furnished to the Budget
Stockholders in connection with the solicitation of proxies by the Budget Board
for approval and adoption of (i) the Certificate Amendment, (ii) the Incentive
Plan Amendment and (iii) the Directors' Plan Amendment. The Certificate
Amendment is necessary in order to issue the Maximum Merger Shares and to issue
shares of Budget Class A Common Stock in connection with the Incentive Plan
Amendment and the Directors' Plan Amendment.
This Proxy Statement/Prospectus also constitutes the Information Statement
of Ryder furnished to the Ryder Stockholders. PROXIES ARE NOT BEING SOLICITED
FROM THE RYDER STOCKHOLDERS WITH RESPECT TO THE MERGER.
This Proxy Statement/Prospectus also constitutes the Prospectus of Budget
with respect to the shares of Budget Class A Common Stock to be issued in the
Merger. Information in this Proxy Statement/Prospectus with respect to Budget
has been supplied by Budget. Information in this Proxy Statement/Prospectus with
respect to Ryder has been supplied by Ryder.
THE BUDGET SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The Budget Special Meeting will be held at Budget's offices at 125 Basin
Street, Suite 210, Daytona Beach, Florida 32114 on , 1998, beginning at
10:00 a.m. local Daytona Beach time. At the Budget Special Meeting, Budget
Stockholders will be asked to consider and vote upon proposals to (i) approve
and adopt the Certificate Amendment (ii) approve and adopt the Incentive Plan
Amendment and (iii) approve and adopt the Directors' Plan Amendment. Copies of
the Certificate Amendment, the Incentive Plan reflecting the proposed Incentive
Plan Amendment and the Directors' Plan reflecting the proposed Directors' Plan
Amendment are attached hereto as Annex A, Annex C and Annex D, respectively, and
are incorporated herein by this reference.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of shares of Budget Common Stock at the close of
business on the Budget Record Date are entitled to notice of and to vote at the
Budget Special Meeting. As of the Budget Record Date, there were shares
of Budget Class A Common Stock issued and outstanding held by approximately
holders of record, and 1,936,600 shares of Budget Class B Common Stock
issued and outstanding held by three holders of record. Holders of record of
Budget Class A Common Stock on the Budget Record Date are entitled to one vote
per share on any matter that may properly come before the Budget Special
Meeting. Holders of record of Budget Class B Common Stock on the Budget Record
Date for the Budget Special Meeting are entitled to ten votes per share on any
matter that may properly come before the Budget Special Meeting.
VOTE REQUIRED; SECURITY OWNERSHIP OF MANAGEMENT
The presence in person or by proxy of the holders of a majority of the
combined voting power of the Budget Common Stock outstanding and entitled to
vote at the Budget Special Meeting as of the Budget Record Date is necessary to
constitute a quorum at the Budget Special Meeting. If a quorum is present (i)
the affirmative vote of the holders of a majority of the combined voting power
of the shares of Budget Common Stock outstanding on the Budget Record Date and
the affirmative vote of a majority of the Budget Class A Common Stock
outstanding on the Budget Record Date, voting separately as a class is required
to approve the Certificate Amendment and (ii) the affirmative vote of the
holders of a majority of the combined voting power of the shares of the Budget
Common Stock present in person or by proxy at the Budget Special Meeting is
required to approve each of the Plan Amendments. As of the Budget Record Date,
the executive officers and directors of Budget, together with their affiliates,
as a group beneficially owned an aggregate of shares of Budget Class A
Common Stock, or approximately % of the shares of Budget Class A Common
Stock then outstanding, and an aggregate of 1,936,600 shares of Budget Class B
Common Stock, for approximately % of the total combined voting power of the
shares of Budget Class A Common Stock and Budget Class B Common Stock then
outstanding. Each of the executive officers and directors of Budget has advised
32
<PAGE> 39
Budget that he intends to vote his shares of Budget Common Stock in favor of the
proposals to approve and adopt the Certificate Amendment and the Plan
Amendments. Abstentions and broker non-votes will be counted for purposes of
determining whether a quorum is present. Broker non-votes occur when a broker or
other nominee holding shares for a beneficial owner does not vote on a proposal
because the beneficial owner has not checked the applicable box on the Proxy.
With respect to the Certificate Amendment, abstentions and broker non-votes will
have the effect of a vote "AGAINST" such Proposal. With respect to each of the
Plan Amendments, abstentions will have the effect of a vote "AGAINST" such
Proposals and broker non-votes will not be considered entitled to vote and thus
will not be counted as a vote "FOR" or "AGAINST" such Proposals.
Budget is paying all costs of the solicitation of Proxies, including the
expenses of printing and mailing to Budget Stockholders this Proxy
Statement/Prospectus, the accompanying Notice of Special Meeting of Stockholders
and the Proxy. Budget has retained MacKenzie Partners, Inc. to aid in the
solicitation of Proxies. It is estimated that the cost of these services will be
approximately $18,000 plus expenses. Proxies may be solicited personally or by
telephone or facsimile transmission. In addition, Budget will reimburse
brokerage firms and other custodians, nominees and fiduciaries representing
beneficial owners of shares of Budget Class A Common Stock and Budget Class B
Common Stock for their expenses in forwarding solicitation materials to
beneficial owners. Proxies may also be solicited by certain of Budget's
executive officers, directors and regular employees, without additional
compensation, personally or by telephone or facsimile transmission.
THE APPROVAL AND ADOPTION OF EACH OF THE PLAN AMENDMENTS IS CONTINGENT ON
THE APPROVAL AND ADOPTION OF THE CERTIFICATE AMENDMENT. UNLESS THE CERTIFICATE
AMENDMENT IS APPROVED AND ADOPTED BY THE BUDGET STOCKHOLDERS AT THE BUDGET
SPECIAL MEETING, NEITHER OF THE PLAN AMENDMENTS WILL BE EFFECTED BY BUDGET.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy for the Budget Special Meeting is enclosed with the copies
of this Proxy Statement/ Prospectus being sent to Budget Stockholders. All
shares of Budget Common Stock represented by properly executed proxies will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated on such proxies. If no instructions are indicated,
such shares will be voted "FOR" approval of the Certificate Amendment and each
of the Plan Amendments and, in the discretion of the proxy holder, as to any
other matter which may properly come before the Budget Special Meeting. The
Budget Board is not aware of any other matters which may be presented for action
at the Budget Special Meeting, but if other matters do come properly before the
Budget Special Meeting it is intended that shares represented by proxies in the
accompanying form will be voted by the persons named in the proxy in accordance
with their best judgment. Any proxy given pursuant to this solicitation may be
revoked in writing by the person giving it at any time before the proxy is
exercised by giving notice to the Budget Secretary or by submitting a proxy
having a later date or by such person appearing at the Budget Special Meeting
and electing to vote in person.
THE CERTIFICATE AMENDMENT (PROPOSAL NO. 1)
Budget's authorized capital stock is currently 37,750,000 shares,
consisting of 37,500,000 shares of Budget Common Stock and 250,000 shares of
Preferred Stock. Of the authorized shares of Budget Common Stock, 35,000,000
shares are currently designated Budget Class A Common Stock and 2,500,000 shares
are designated Budget Class B Common Stock. The Board has adopted, subject to
approval of the Budget Stockholders, the Certificate Amendment to increase the
number of authorized shares of Budget Class A Common Stock from 35,000,000 to
70,000,000 shares. At the Budget Special Meeting, Budget Stockholders will be
asked to consider and vote on the Certificate Amendment. The full text of the
Certificate Amendment is set forth as Annex A to this Proxy
Statement/Prospectus.
As of the Budget Record Date, shares of Budget Class A Common Stock
were issued and outstanding. Accordingly, only shares of Budget Class A
Common Stock remain available for issuance.
33
<PAGE> 40
The Certificate Amendment is necessary in order to allow Budget to issue
the Maximum Merger Shares in the Merger. However, the Merger is not contingent
upon the adoption of the Certificate Amendment. In addition, the Certificate
Amendment is necessary to permit the Plan Amendments.
Except for the foregoing, Budget does not currently have any plans,
agreements, commitments or understandings with respect to the issuance of
additional shares of Budget Class A Common Stock to be available under the
Certificate Amendment. In addition to the abovementioned reasons, the Board is
proposing the Certificate Amendment at this time in order to provide flexibility
for future activities. The Board believes that the Certificate Amendment is
desirable in order to ensure that there will be sufficient authorized shares for
a variety of corporate purposes, including, without limitation, to obtain
financing, to consummate future acquisitions, to facilitate the growth and
expansion of Budget and for possible stock splits or stock dividends or business
opportunities.
The Board may issue the additional shares of Budget Class A Common Stock,
together with currently authorized but unissued and unreserved shares of Budget
Common Stock, at such times, to such persons and for such consideration as the
Board may determine to be in Budget's best interests without further stockholder
approval, except as otherwise required by statute or stock exchange rules.
Depending on the circumstances, issuance of additional shares of Budget Class A
Common Stock could affect the existing holders of shares by diluting the voting
power of the outstanding shares. Budget's stockholders do not have preemptive
rights under the Budget Certificate and will not have such rights with respect
to the additional authorized shares of Budget Class A Common Stock. While
Section 214 of the DGCL provides that a company's certificate of incorporation
may provide for cumulative voting, such voting is not provided for under the
Budget Certificate. Therefore, the holders of a majority of the voting power of
shares of Budget Common Stock can elect all of the directors being elected at
any annual meeting of stockholders of Budget.
While the Certificate Amendment is not designed to deter or to prevent a
change in control, under certain circumstances, Budget could use the additional
shares of Budget Class A Common Stock (as it could use the currently authorized
but unissued shares of Budget Common Stock or Budget Preferred Stock) to create
voting impediments or to frustrate persons seeking to effect a takeover or
otherwise gain control of Budget or to dilute the public ownership of Budget and
thereby to protect the continuity of Budget's management. Budget could also
privately place any such shares with purchasers who might favor the Budget Board
in opposing a hostile takeover bid, although Budget has no present intention to
do so and has not present knowledge of any such takeover efforts.
VOTE REQUIRED
The Certificate Amendment must be approved by (i) the affirmative vote of a
majority of the combined voting power of the shares of Budget Common Stock that
are outstanding on the Budget Record Date and (ii) the affirmative vote of a
majority of the Budget Class A Common Stock outstanding on the Budget Record
Date, voting separately as a class. Proxies will be voted in accordance with the
specifications marked thereon, and if no specification is marked, a signed Proxy
will be voted "FOR" the adoption of the Certificate Amendment.
RECOMMENDATION OF THE BUDGET BOARD
THE BUDGET BOARD HAS DETERMINED THAT THE CERTIFICATE AMENDMENT IS IN THE
BEST INTERESTS OF BUDGET AND ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE
CERTIFICATE AMENDMENT AND RECOMMENDS THAT THE BUDGET STOCKHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE AND ADOPT THE CERTIFICATE AMENDMENT.
34
<PAGE> 41
THE INCENTIVE PLAN AMENDMENT (PROPOSAL NO. 2)
PROPOSED AMENDMENT
The Incentive Plan Amendment would increase the total number of shares of
Budget Common Stock available for grant under the Incentive Plan to 3,500,000
shares. At present, the maximum number of shares of Budget Common Stock that may
be subject to options granted under the Incentive Plan is 1,750,000 shares. The
Budget Board believes that grants of stock options are an effective method to
attract and retain key employees and that the availability of shares for future
grants under the Incentive Plan is important to Budget's business prospects and
operations.
Except for the foregoing, the Incentive Plan Amendment, if approved, would
not change the terms of the Incentive Plan. The full text of the Incentive Plan
reflecting the Incentive Plan Amendment is set forth in Annex C to this Proxy
Statement.
DESCRIPTION OF THE INCENTIVE PLAN
The following description of the Incentive Plan, giving effect to the
proposed amendments, is a summary and is qualified in its entirety by reference
to the text of the Incentive Plan.
Stock Subject to the Incentive Plan. The Incentive Plan provides for the
issuance of either incentive stock options (the "Incentive Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonqualified stock options (intended not to qualify as incentive
stock options) (the "Nonqualified Options" and, collectively with the Incentive
Options, the "Options" for purposes of this section and the section under the
caption "Certain Federal Income Tax Consequences," below) to employees of
Budget. Upon amendment of the Incentive Plan, the maximum number of shares of
Budget Common Stock that may be made subject to Options granted pursuant to the
Incentive Plan is 3,500,000. Prior to the Incentive Plan Amendment, the maximum
number of shares of Budget Common Stock that may be made subject to Options
granted pursuant to the Incentive Plan is 1,750,000. Options granted under the
Incentive Plan may relate to either Budget Class A Common Stock or Budget Class
B Common Stock.
Administration. The Incentive Plan is administered by a committee (the
"Committee") appointed by the Budget Board consisting of not fewer than two
individuals who are "non-employee" directors under Rule 16b-3 promulgated under
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"). The
Committee has the authority to grant Options under the Incentive Plan and to
determine the number, terms and conditions of all Options so granted. The Budget
Board has the right to amend or terminate the Incentive 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 employees to whom Options are to be granted,
the times at which Options are granted, the number of shares of Budget 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 Budget
Class A Common Stock or Budget Class B Common Stock, the exercise price per
share and the maximum term of each Option. The Committee also has the power to
interpret and construe the Incentive 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 Incentive Plan.
Eligibility. Awards can be made to key employees (as determined by the
Committee) of Budget or its subsidiaries. In making determinations under the
Incentive 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 Budget and its subsidiaries and such other factors as the
Committee deems relevant.
Options. The purchase price per share of Budget 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
35
<PAGE> 42
the Budget Common Stock on the date the Option is granted. Fair market value is
calculated as the last sales price reported for the Budget Common Stock on the
trading day immediately preceding the date of grant as reported by on the
national securities exchange on which the Budget 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 Budget 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 Budget 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 Budget Common Stock or, if less, the total number of shares of Budget
Common Stock remaining unexercised under the Option.
Payment of the Option purchase price may be made (i) in cash, (ii) in whole
shares of Budget Common Stock currently owned by the holder, (iii) in a
combination of cash and Budget Common Stock or (iv) upon delivery of a written
exercise notice, including irrevocable instructions to Budget 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
Budget 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
Budget'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
Incentive 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 Budget
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 Incentive 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 this $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. If an employee is eligible to participate in any other
stock option plan of Budget 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 Incentive Plan become immediately
exercisable in full upon the occurrence of: (i) the sale by Budget 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 Budget Board
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<PAGE> 43
consists of persons who were not nominated by the Budget 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 Budget Board 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
Budget Common Stock in a single transaction or related series of transactions;
(b) the consummation of a tender offer (by a party other than Budget) for more
than 50% of the outstanding shares of Budget Common Stock; or (c) subject to the
provision described below, the consummation of a merger or consolidation
involving Budget. In the event of a merger or consolidation to which Budget 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.
The Incentive Plan is not subject to any of the requirements of the
Employee Retirement Income Security Act of 1974 ("ERISA"). The Incentive Plan is
not, nor is it intended to be, "qualified" under Section 401(a) of the Code.
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 Incentive 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 Budget
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
Budget 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 Budget 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 Budget Common Stock is transferred to the employee, a subsequent
disposition of the Budget Common Stock will result in long-term capital gain or
loss to the employee.
If the employee disposes of the Budget 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 Budget 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 Budget
Common Stock on the date of exercise over the option price or (ii) the amount
realized upon disposition over the adjusted basis of the Budget 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 Budget
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.
Nonqualified Options. An employee will not recognize any taxable income
upon the grant of a Nonqualified Option, and Budget 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
Budget will be entitled to take an income tax deduction in an amount equal to
the excess of the fair market value of the Budget Common Stock on the date of
exercise over the option price. Upon a subsequent sale of
37
<PAGE> 44
the Budget Common Stock by the employee, the employee will recognize short-term
or long-term capital gain or loss.
In addition, (i) if the exercisability or vesting of any Option, whether
Incentive or Nonqualified, is accelerated because of a change in control under
the Incentive Plan, a portion of the compensation relating to the Option may
constitute a parachute payment under Section 280G of the Code, pursuant to which
Budget is disallowed any 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 Budget Common Stock.
ANNUAL MEETING PROPOSED INCENTIVE PLAN AMENDMENTS
In connection with Budget's 1998 Annual Meeting of Stockholders (the
"Annual Meeting") to be held on April 23, 1998, Budget is asking stockholders of
Budget to approve certain amendments to the Incentive Plan (the "Annual Meeting
Proposed Incentive Plan Amendments"). If approved, the Incentive Plan, as
amended, would (i) increase by 500,000 shares the maximum number of shares of
Budget Common Stock available for grant thereunder such that the total number of
shares of Budget Common Stock available for grant is 2,250,000 shares, (ii)
allow each employee of Budget selected by the Committee to receive stock options
to implement a special bonus program provided for under the Stock Purchase
Agreement, dated January 13, 1997, between BRACC and Budget and (iii) allow the
Committee the opportunity to grant options which would be treated as "qualified
performance-based compensation" under Section 162(m) of the Code by limiting the
number of shares of Budget Common Stock for which any employee may be granted an
option in any calendar year to 250,000 shares and by requiring that the
Committee be composed of only "outside directors" within the meaning of Section
162(m) of the Code.
The Annual Meeting Proposed Incentive Plan Amendments are being proposed at
the Annual Meeting instead of the Special Meeting because the stockholders of
Budget must approve the amendments set forth in (i) and (ii) above prior to
April 29, 1998 for certain option grants contingent on the receipt of
stockholder approval of such amendments to be effective. The discussion of the
Incentive Plan herein does not give effect to the Annual Meeting Proposed
Incentive Plan Amendments. For more information, see the information included
under the heading "Amendments to the 1994 Incentive Stock Option Plan (Proposal
No. 3)" of the Proxy Statement for the Annual Meeting of Stockholders to be held
on April 23, 1998, which is incorporated herein by reference. See "Where You Can
Find More Information."
ESTIMATE OF BENEFITS
On February 26, 1998, Budget granted, subject to approval of the Incentive
Plan Amendment and the Certificate Amendment, options to purchase an aggregate
of 1,150,000 shares of Budget Common Stock at an exercise price of $30.875 per
share, the fair market value of the Budget Class A Common Stock on the date of
grant, to certain eligible employees of Budget. Such options vest at the rate of
20% per year over a 5-year period. The option grants on February 26, 1998 will
be rescinded if the Budget Stockholders do not approve the Certificate Amendment
and the Incentive Plan Amendment.
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<PAGE> 45
The following table details the number of options granted on February 26,
1998 to each of the Chief Executive Officer, each of the four most highly
compensated executive officers of Budget in 1997 other than the Chief Executive
Officer, all executive officers as a group and all employees, including all
current officers who are not executive officers, as a group:
FEBRUARY 26, 1998 OPTION GRANTS
<TABLE>
<CAPTION>
NUMBER OF FEBRUARY 26,
NAME AND POSITION 1998 OPTIONS GRANTED
- ----------------- ----------------------
<S> <C>
Sanford Miller.............................................. 115,000(1)
Chairman of the Board of Directors and Chief Executive
Officer
Jeffrey D. Congdon.......................................... 95,000(1)
Vice Chairman of the Board of Directors
John P. Kennedy............................................. 95,000(1)
Vice Chairman of the Board of Directors
Scott R. White.............................................. 50,000(2)
Executive Vice President, Corporate Development
Jeffrey T. Henderickson..................................... 50,000(2)
Senior Vice President
Executive officers as a group (seven persons)............... 490,000(3)
Other employees as a group (approximately 1,500 persons).... 660,000(2)
</TABLE>
- ---------------
(1) Represents options to purchase shares of Budget Class B Common Stock.
(2) Represents options to purchase shares of Budget Class A Common Stock.
(3) Represents options to purchase 305,000 shares of Budget Class B Common Stock
and 185,000 shares of Budget Class A Common Stock.
Except for the foregoing grants, the number of options that will be awarded
under the Incentive Plan in the future is not currently determinable.
On April 7, 1998, the closing sales price of the Budget Class A Common
Stock on the New York Stock Exchange was $37.625. As of the Budget Record Date,
options to purchase a total of shares of Budget Class A Common Stock and
shares of Budget Class B Common Stock with exercise prices ranging from $
to $ per share were outstanding under the Incentive Plan.
VOTE REQUIRED
The Incentive Plan Amendment must be approved by the affirmative vote of a
majority of the combined voting power of the shares of Budget Common Stock
present in person or by Proxy at the Budget Special Meeting. Proxies will be
voted in accordance with the specifications marked thereon, and if no
specification is marked, a signed Proxy will be voted "FOR" the adoption of the
Incentive Plan Amendment.
THE APPROVAL AND ADOPTION OF THE INCENTIVE PLAN AMENDMENT IS CONTINGENT ON
THE APPROVAL AND ADOPTION OF THE CERTIFICATE AMENDMENT. UNLESS THE CERTIFICATE
AMENDMENT IS APPROVED AND ADOPTED BY THE BUDGET STOCKHOLDERS AT THE BUDGET
SPECIAL MEETING, THE INCENTIVE PLAN AMENDMENT WILL NOT BE EFFECTED BY BUDGET.
RECOMMENDATION OF THE BUDGET BOARD
THE BUDGET BOARD HAS DETERMINED THAT THE INCENTIVE PLAN AMENDMENT IS IN THE
BEST INTEREST OF BUDGET AND ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE
INCENTIVE PLAN AMENDMENT, AND RECOMMENDS THAT THE BUDGET STOCKHOLDERS VOTE FOR
THE PROPOSAL TO APPROVE AND ADOPT THE INCENTIVE PLAN AMENDMENT.
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<PAGE> 46
THE DIRECTORS' PLAN AMENDMENT (PROPOSAL NO. 3)
PROPOSED AMENDMENT
The Directors' Plan Amendment would increase the total number of shares of
Budget Class A Common Stock available for grant under the Directors' Plan to
300,000 shares. At present, the maximum number of shares of Budget Class A
Common Stock that may be made subject to options granted under the Directors'
Plan is 150,000 shares. The Budget Board believes that grants of stock options
are an effective method to attract and retain qualified outside directors and
that the availability of shares for future grants under the Directors' Plan is
important to Budget's business prospects and operations.
Except for the foregoing, the Directors' Plan Amendment, if approved, would
not change the terms of the Directors' Plan. The full text of the Directors'
Plan reflecting the Directors' Plan Amendment is set forth in Annex D to this
Proxy Statement/Prospectus.
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 (for purposes of this section and the section
under the caption "Certain Federal Income Tax Consequences," below) to outside
directors of Budget. Upon amendment of the Directors' Plan, the maximum number
of shares of Budget Class A Common Stock that may be made subject to Options
granted pursuant to the Directors' Plan is 300,000. Prior to amendment, the
maximum number of shares of Budget Class A Common Stock that may be made subject
to Options granted pursuant to the Directors' Plan is 150,000.
Administration. The Directors' Plan is administered by the Budget Board,
which has 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 Budget Board has the right to amend or terminate the Directors'
Plan in certain circumstances, provided that any amendment or modification must
comply with 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.
Eligibility. Awards under the Directors' Plan can only be made to outside
directors of Budget.
Options. The purchase price per share of Budget Class A Common Stock under
each Option is the fair market value of the Budget Class A Common Stock on the
day the Option is granted. Fair market value is calculated as the last sales
price reported for the Budget Class A Common Stock on the trading day
immediately preceding the date of grant as reported by the national securities
exchange on which the Budget Class A Common Stock is listed. Each Option is
exercisable in full on the date which is six months after the date of the Option
grant, and no Option may be exercisable more than 10 years from the date of
grant. No Option may be exercised as to fewer than 100 shares of Budget Class A
Common Stock or, if less, the total number of shares of Budget Class A Common
Stock remaining unexercised under the Option. No Option is transferable by the
optionee other than by will or the laws of descent and distribution, and each
Option is 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 Budget Class A Common Stock currently owned by the holder, (iii) in a
combination of cash and Budget Class A Common Stock or (iv) upon delivery of a
written exercise notice, including irrevocable instructions to Budget 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.
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<PAGE> 47
Termination of Options. If the optionee ceases to be a director of Budget
or a subsidiary and at the time of termination Budget 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 Budget
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 Budget 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
Budget Common Stock in a single transaction or related series of transactions;
(b) the consummation of a tender offer (by a party other than Budget) for more
than 50% of the outstanding shares of Budget Common Stock; or (c) subject to the
provision described below, the consummation of a merger or consolidation
involving Budget; or (iii) an election of new directors if immediately following
such election a majority of the Budget Board consists of persons who were not
nominated by the Budget Board or nominating committee thereof to stand for
election as directors in such election. In the event of a merger or
consolidation to which Budget is a party but is not the surviving company, the
Budget 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.
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.
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 Budget 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 Budget will be entitled to take an income tax deduction, in an
amount equal to the excess of the fair market value of the Budget Class A Common
Stock on the date of exercise over the option price. Upon a subsequent sale of
the Budget Class A Common Stock by the outside director, the outside director
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, a portion of the
compensation relating to the Option may constitute a parachute payment
41
<PAGE> 48
under Section 280G of the Code, pursuant to which Budget 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 Budget Class A Common Stock.
ESTIMATE OF BENEFITS
On February 26, 1998, Budget granted, subject to approval of the Directors'
Plan Amendment and the Certificate Amendment, options to purchase an aggregate
of 135,000 shares of Budget Class A Common Stock at an exercise price of $30.875
per share, the fair market value of Budget Class A Common Stock on the date of
grant, to Budget's outside directors. Such options are exercisable beginning on
the date occurring six months after the date of grant. The February 26, 1998
options grants will be rescinded if the Budget Stockholders do not approve the
Certificate Amendment and the Directors' Plan Amendment.
Except for the foregoing grants, the number of options that will be awarded
under the Directors' Plan in the future is not currently determinable.
On April 7, 1998, the closing sales price of the Budget Class A Common
Stock on the New York Stock Exchange was $37.625. As of the Budget Record Date,
options to purchase a total of shares of Budget Class A Common Stock with
exercise prices ranging from $ to $ per share were outstanding under
the Directors' Plan.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Budget
Common Stock present in person or by Proxy at the Budget Special Meeting as
required to approve the Directors' Plan Amendment. Proxies will be voted in
accordance with the specification marked thereon, and if no specification is
marked, a signed Proxy will be voted "FOR" adoption of the Directors' Plan
Amendment.
THE APPROVAL AND ADOPTION OF THE DIRECTORS' PLAN AMENDMENT IS CONTINGENT ON
THE APPROVAL AND ADOPTION OF THE CERTIFICATE AMENDMENT. UNLESS THE CERTIFICATE
AMENDMENT IS APPROVED AND ADOPTED BY THE BUDGET STOCKHOLDERS AT THE BUDGET
SPECIAL MEETING, THE DIRECTORS' PLAN AMENDMENT WILL NOT BE EFFECTED BY BUDGET.
RECOMMENDATION OF THE BUDGET BOARD
THE BUDGET BOARD HAS DETERMINED THAT THE DIRECTORS' PLAN AMENDMENT IS IN
THE BEST INTEREST OF BUDGET AND ITS STOCKHOLDERS, HAS APPROVED AND ADOPTED THE
DIRECTORS' PLAN AMENDMENT, AND RECOMMENDS THAT THE BUDGET STOCKHOLDERS VOTE FOR
THE PROPOSAL TO APPROVE AND ADOPT THE DIRECTORS' PLAN AMENDMENT.
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<PAGE> 49
THE MERGER
BACKGROUND OF THE MERGER
In early August 1997, Sanford Miller, Chairman and Chief Executive Officer
of Budget, Scott White, Executive Vice President of Budget, and representatives
of Budget's financial advisor met with Wallace Rueckel, Managing Director of
Questor Management Company ("Questor Management"), and Gerald Riordan, the then
President and Chief Operating Officer of Ryder. The meeting was held at the
offices of Questor in New York, with Mr. Miller participating by telephone. At
the meeting, Budget expressed an interest in pursuing discussions regarding a
possible transaction in which Budget would acquire Ryder. Mr. Rueckel expressed
an interest in discussing the acquisition by Ryder of the truck rental
operations of Budget. Budget indicated that it believed that a combination with
Ryder would complement and enhance Budget's existing truck rental business and
would result in significant cost savings and economies of scale. Mr. Rueckel and
Mr. Riordan indicated at the meeting that they were not at that time prepared to
respond to Budget's expression of interest.
On October 28, 1997, Mr. Miller, Mr. White, Jeffrey Congdon, Vice Chairman
of Budget and President of Budget Car Sales, Inc., and representatives of
Budget's financial advisor met with Jay Alix, Managing Principal of Questor
Management, Robert Shields, Managing Director of Questor Management, and Garrett
Kanehann, an associate of Questor Management, at the offices of Questor in
Southfield, Michigan. Questor indicated at the meeting that it would be willing
to entertain discussions regarding a possible acquisition by Budget of Ryder
under certain conditions. At the meeting, the parties began to discuss the
possible terms and conditions of such a transaction, but the discussions did not
result in any agreement.
During November and December 1997, Mr. Miller and Mr. Alix from time to
time discussed by telephone and in person the possible terms of a transaction.
On December 15, 1997, Budget submitted a non-binding indication of interest to
acquire all of the capital stock of Ryder for $175 million in cash and $65
million in Budget Class A Common Stock. Budget reiterated that it believed that
a combination with Ryder would complement and enhance Budget's existing truck
rental business and would result in significant cost savings and economies of
scale. Questor responded to Budget on December 19, 1997, indicating that it was
not yet prepared to discuss price, but wanted to reach an understanding as to
certain process issues and certain other terms, including the scope and manner
of the due diligence investigation to be conducted by Budget with respect to
Ryder.
Budget and Questor met again on January 5, 1998 at Questor's offices in
Southfield, Michigan. Mr. Miller, Mr. White and representatives of Budget's
financial advisor attended the meeting on behalf of Budget, and Mr. Alix, Mr.
Shields, Henry Druker, Managing Director of Questor, and Mr. Kanehann,
represented Questor. At the meeting, the parties engaged in discussions
regarding the possible terms and conditions of a transaction, including price.
In addition, Budget conducted certain due diligence with respect to Ryder. The
parties reconvened these discussions at a meeting at Questor's offices in New
York on January 7, 1998. At the January 7 meeting, Budget continued its due
diligence investigation, and the parties continued to discuss the possible terms
of a transaction.
Following the January 7 meeting, the parties directed their advisors to
prepare and negotiate a definitive merger agreement and other documents relating
to a possible transaction. These negotiations continued through February 1998.
On February 27, 1998, Mr. Miller, Mr. White and representatives of Budget's
financial advisor met with Mr. Alix, Mr. Shields and Mr. Kanehann at Questor's
offices in New York to discuss and attempt to resolve a number of the remaining
contractual issues.
Discussions among the parties relating to the terms of the definitive
agreements continued through March 3, 1998. On March 3, 1998, a special meeting
of the Budget Board was held. At the meeting, the Budget Board discussed with
Mr. Miller and Budget's legal and financial advisors the terms of the proposed
transaction and the advantages and disadvantages of the proposed transaction.
Following these discussions, the Budget Board voted unanimously to adopt and
approve the Merger Agreement and the transactions contemplated thereby.
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<PAGE> 50
On March 4, 1998, Budget, Ryder and certain stockholders of Ryder
(including Questor) signed the Merger Agreement, providing for the acquisition
by Budget of Ryder in exchange for the payment to the Ryder Stockholders of $125
million in cash, $120 million in Budget Class A Common Stock (valued based on
the weighted volume trading average of Budget Class A Common Stock during the
preceding thirty trading days) and up to $20 million in contingent
consideration. As discussed elsewhere in this Proxy Statement/Prospectus, the
Merger Agreement also provided that the proportion of cash consideration and
stock consideration to be paid to Ryder Stockholders would differ depending on
whether the Certificate Amendment is approved and adopted by Budget
Stockholders.
The Merger Agreement provided Budget with the right to terminate the
agreement if Budget determined that the disclosure schedules provided by Ryder
at the signing of the Merger Agreement were not reasonably satisfactory to
Budget. Following the signing of the Merger Agreement, Budget and its
representatives reviewed and discussed the disclosure schedules with Ryder and
its representatives. Based upon these discussions and certain items reflected in
the disclosure schedules, the parties agreed in an amendment to the Merger
Agreement dated March 16, 1998 to reduce the stock portion of the consideration
to be paid to the Ryder Stockholders by approximately $1 million.
Reasons for the Merger
Ryder. In unanimously approving and adopting the Merger Agreement, the
Ryder Board considered a number of factors, including, without limitation, the
following:
1. Ryder's business, operations, financial condition and earnings on
an historical and prospective basis;
2. The terms of the Merger Agreement, including the Merger
Consideration;
3. The historical stock price performance of Budget, the potential for
increased earnings for Ryder Stockholders as stockholders of Budget, and
Budget's substantial market capitalization;
4. The business, operations, financial condition and earnings of
Budget on an historical basis; and
5. Alternatives to the proposed Merger for enhancing stockholder
value.
The foregoing discussion of the information and factors considered by the
Ryder Board is not intended to be exhaustive but is believed to include all
material factors considered by the Ryder Board. In reaching its determination to
approve the Merger Agreement and the transactions contemplated thereby, the
Ryder Board did not assign any relative or specific weights to the factors
considered in reaching such determination.
Budget. The Budget Board believes that the terms of the Merger Agreement
and the Merger and the other transactions contemplated thereby are in the best
interests of Budget and the Budget Stockholders. Accordingly, the Budget Board
has approved and adopted the Merger Agreement. In reaching its decision, the
Budget Board considered several factors and consulted with Budget's management
and outside legal counsel. The principal reasons, to which relative weights were
not assigned, for the Budget Board's approval of the Merger Agreement include
the following:
1. The Budget Board believes that the business conducted by Ryder will
complement and enhance Budget's truck rental businesses. The Merger is also
expected to result in significant cost savings, including (i) significant
economies of scale in fleet purchasing and management, vehicle maintenance
and in the costs of parts, supplies and equipment and (ii) the opportunity
to consolidate duplicative back office administration functions, such as
fleet and yield management systems.
2. The Budget Board believes, through Budget's experience with Budget
Truck Rental, that truck rental operations complement and enhance Budget's
core car rental operations because of the ability to service cars and
trucks from the same facilities and to leverage other pre-existing car
rental assets.
3. The senior executives of Budget negotiated the Aggregate Merger
Consideration with executives of Ryder on an arms-length basis and, as part
of such negotiations, considered the projected contribution
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of Ryder's business operations to the results of operations of Budget and
the fact that the proposed Merger would be expected to be accretive to
Budget's estimated future earnings per share.
4. The Budget Board considered presentations from, and discussions
with, certain executive officers of Budget and outside legal counsel
regarding the business, financial, accounting and legal due diligence with
respect to Ryder and the terms and conditions of the Merger Agreement.
The Budget Board also discussed certain negative factors and risks that
could arise from the Merger. These included, among others, potential
difficulties of integrating Ryder's operations into those of Budget, the
significant costs involved in connection with consummating the Merger and the
substantial time and effort Budget management will expend to effect the Merger
and integrate the business of Ryder into Budget. The Budget Board also
considered the fact that Ryder reported a net loss in 1997 and that the
development of certain of Ryder's internal systems will need to be completed
following the Merger. The Budget Board believed that the benefits and advantages
of the Merger outweighed the negative factors and risks.
TERMS OF THE MERGER AGREEMENT
The following is a brief summary of the material terms of the Merger
Agreement, which is attached as Annex B and is incorporated herein by reference.
Such summary is qualified in its entirety by reference to the Merger Agreement.
General. Upon the terms and subject to the conditions of the Merger
Agreement and in accordance with the applicable provisions of the DGCL, Sub will
be merged with and into Ryder and the separate existence of Sub will cease.
Ryder will survive the Merger as a wholly-owned subsidiary of Budget and will
continue to be governed by the laws of the State of Delaware, and the separate
corporate existence of Ryder will continue unaffected by the Merger.
Merger Consideration-General. At the Effective Time, each outstanding
share of Ryder Common Stock will be converted into the right to receive Merger
Consideration equal to the Aggregate Merger Consideration divided by the total
number of shares of Ryder Common Stock outstanding immediately prior to the
Effective Time. Subject to the adjustments described below, the Aggregate Merger
Consideration will consist of a combination of the following: (a) Aggregate Cash
Consideration equal to a minimum of the Minimum Cash Consideration (less any
cash payable with respect to options, as described below) and a maximum of the
Maximum Cash Consideration (less any cash payable with respect to options), with
the precise amount of cash as described in greater detail below; (b) Aggregate
Merger Shares equal to a minimum of the Minimum Merger Shares and a maximum of
the Maximum Merger Shares, with the precise number of shares of Budget Common
Stock determined as described below and subject to adjustment as described
below; (c) Warrants to purchase initially an aggregate of 1,000,000 shares of
Budget Class A Common Stock as described below; and (d) the right to receive the
Contingent Additional Consideration, if any, as described below.
Budget Class A Common Stock. Budget shall issue shares of Budget Class A
Common Stock in the Merger to Ryder Stockholders as follows: (x) if the
Certificate Amendment is approved, Budget will issue the Maximum Merger Shares
at the Closing or (y) if the Certificate Amendment is not approved, Budget will
issue the Minimum Merger Shares at the Closing. Within one business day after
the date of the Budget Special Meeting, Budget is required to notify Ryder in
writing of the outcome of the vote at the Budget Special Meeting. No fractional
shares of Budget Class A Common Stock will be issued in the Merger. Each holder
of shares of Ryder Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Budget Class A
Common Stock will receive, in lieu thereof, cash (without interest) in an amount
equal to such fractional part of a share of Budget Class A Common Stock
multiplied by the Transaction Price.
Cash Consideration. The Aggregate Cash Consideration delivered to the
Ryder Stockholders at the Closing will be (i) if the Maximum Merger Shares are
issued, the Minimum Cash Consideration minus any cash payable with respect to
Options (as described below), or (ii) if the Minimum Merger Shares are issued,
the Maximum Cash Consideration minus any cash payable with respect to Options
(as described below).
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Budget currently anticipates financing the Aggregate Cash Consideration through
the issuance of convertible preferred stock in a private placement.
The Warrants. At the Effective Time, Budget will issue to the Original
Holders Warrants to purchase initially an aggregate of 1,000,000 shares of
Budget Class A Common Stock, such Warrants to be substantially in the form to be
negotiated between Budget and Ryder as promptly as practicable following the
date of the Merger Agreement. Within five (5) Business Days following the Final
Measurement Date, and subject to receipt by Budget from each applicable Original
Holder of a certificate certifying as to whether such person or any of its
permitted transferees has disposed of any Original Shares and containing all
other information regarding such holder reasonably necessary to make the
computations described herein, Budget shall compute, with respect to each
Original Holder, the "Total Warrant Value" for such Original Holder. The "Total
Warrant Value" for any Original Holder will be (i) the Warrant Value Amount
multiplied by (ii)(x) the number of Original Shares issued to such Original
Holder in the Merger and held by such Original Holder on the Final Measurement
Date divided by (y) the number of Original Shares issued to all Original Holders
in the Merger.
If the Total Warrant Value for any Original Holder is positive, and Budget
does not purchase such Original Holder's Warrants for the Total Warrant Value,
then such Original Holder shall be entitled, until the Warrant Measurement Date,
to exercise their Warrants to purchase shares of Budget Class A Common Stock.
Budget shall have the right to buy the Warrant held by each Warrant holder, in
whole and not in part, by paying the Warrant Value Amount on the Warrant
Measurement Date to all of the holders of Warrants either in immediately
available funds or shares of Budget Class A Common Stock.
Prior to the Final Measurement Date, a majority in interest of the Original
Holders are required to retain, at Budget's expense, a nationally recognized
investment banking firm with significant experience in the equity derivatives
market (reasonably acceptable to Budget) to determine the revised aggregate
number of shares of Budget Class A Common Stock issuable upon exercise of the
Warrants. The revised number of shares of Budget Class A Common Stock for which
the Warrants will be exercisable will be such that, in the written opinion of
such investment banking firm rendered within 15 days after the Final Measurement
Date, on the Final Measurement Date, the Warrants issued to the Original Holders
would have an aggregate value equal to the Warrant Value Amount. Within two (2)
Business Days after the determination of the Warrant Value Amount, Budget is
required to notify each Warrant holder of the Warrant Value Amount and such
holder of its Total Warrant Value and contemporaneously, such investment bank
shall provide to Budget and holder a copy of its opinion as well as a standing
bid to purchase such Warrants at a price equal to the Warrant Value Amount for a
period of 30 days.
Contingent Additional Consideration. In addition to the Aggregate Merger
Shares, the Aggregate Cash Consideration and the Warrants, each Original Holder
shall be entitled to receive from Budget Contingent Additional Consideration
equal to the difference (the "Make-Whole Amount") between (i) the aggregate
Transaction Price of the Merger Shares received by such Original Holder and (ii)
the greater of (x) the Market Value of the Merger Shares on the relevant
measurement date or (y) the price at which any such Merger Shares were sold by
such Original Holder prior to the relevant measurement date. The measurement
dates will be the Annual Measurement Date with respect to 50% of the Merger
Shares received by each Original Holder and the Final Measurement Date with
respect to the other 50% of the Merger Shares received by each Original Holder.
If the Make-Whole Amount as so calculated is more than zero with respect to any
Original Holder, then, within 20 days after the determination of the applicable
Make-Whole Amount, Budget will pay to such Original Holder, in immediately
available funds or, at Budget's option, shares of Budget Class A Common Stock
with a Market Value as of the Annual Measurement Date or the Final Measurement
Date, as the case may be, equal to the Make-Whole Amount (any such shares being
referred to as "Make-Whole Shares").
Adjustment for Certain Breaches. The number of Aggregate Merger Shares
will be adjusted downwards by an amount (the "Reduction Amount") equal to the
sum of (i) the extent to which one or more of the representations and warranties
of Ryder contained in the Merger Agreement fails to be true, or one or more of
the covenants of Ryder or any Significant Stockholder set forth in the Merger
Agreement fails to be performed
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on or prior to the Closing Date, which causes an aggregate value reduction to
Budget which exceeds $5,000,000 (the "Materiality Threshold"), and (ii) the
extent to which the third party fees paid by Ryder in connection with the
execution and performance of the Merger Agreement (the "Fees") are in excess of
$10,000,000. The value reduction associated with the failure of representations
and warranties of Ryder to be true and correct or the failure of covenants of
Ryder or the Significant Stockholders to be performed shall mean the actual
damages sustained as a result thereof, taking into account any insurance
recovery that is available to Budget or Sub, any insurance proceeds received by
Ryder and the present economic value of any tax benefits to be realized by
Budget, Ryder or any of their respective controlled affiliates as a result of
such damages. For purposes of determining the number of Merger Shares equal to
the Reduction Amount, each Merger Share will be deemed to have a value equal to
the Transaction Price. Upon a final determination of the Reduction Amount, if
any, the number of shares of Budget Class A Common Stock issued in the Merger to
each Original Holder shall be reduced by an amount representing such holder's
pro rata share of the Reduction Amount based on the percentage of the Aggregate
Merger Shares received by such Original Holder.
Escrow Agreement. In order to secure the obligations of the Original
Holders to deliver any Reduction Amounts, the Merger Agreement provides that at
the Effective Time, 1,818,430 shares of Budget Class A Common Stock (if the
Maximum Merger Shares are issued), or 1,332,909 shares of Budget Class A Common
Stock (if the Minimum Merger Shares are issued) (as the case may be, the "Escrow
Shares") will be deposited in escrow with an escrow agent mutually agreed upon
by Budget and Ryder prior to the Closing (the "Escrow Agent"), to be held and
administered in accordance with the terms and conditions of an Escrow Agreement
(the "Escrow Agreement"), against which Escrow Shares Budget will be entitled to
indemnification from the Original Holders for any Reduction Amounts. The form of
Escrow Agreement agreed upon by the parties provides that, in the event of a
Reduction Amount, Budget will be entitled, subject to the resolution, in
accordance with the terms of the Escrow Agreement, of any dispute as to the
Reduction Amount, to receive Escrow Shares from each Original Holder based on
such Original Holder's pro rata portion of the Reduction Amount (based on such
Original Holder's pro rata ownership of the Escrow Shares). The indemnification
obligations of the Original Holders under the Escrow Agreement will terminate on
the 120th day following the Closing Date (the "Termination Date"). On the
Termination Date, the Escrow Agent will distribute to the Original Holders any
remaining Escrow Shares, less a number of Escrow Shares sufficient to satisfy
any pending claims for Reduction Amounts and to pay certain expenses of the
representative of the Original Holders under the Escrow Agreement.
Treatment of Options. Ryder agreed in the Merger Agreement to take all
actions necessary to provide that all outstanding options granted under any
stock option plan, program or similar arrangement of Ryder or any of its
Subsidiaries, each as amended (the "Stock Option Plans"), become fully
exercisable and vested immediately prior to the Effective Time whether or not
otherwise exercisable and vested. All options which are outstanding immediately
prior to the Effective Time will be canceled and the holders thereof shall be
entitled to elect (1) to receive from Ryder at the same times and in the same
manner as the Ryder Stockholders, for each option to acquire one share of Ryder
Common Stock, (A) an amount in cash equal to (x) the cash payable to the holder
of one share of Ryder Common Stock assuming all options had been exercised prior
to the Effective Time minus (y) the exercise price per share of such option (the
"Exercise Difference"), plus (B) certificates representing that number of shares
of Budget Class A Common Stock which the holder of one share of Ryder Common
Stock would have the right to receive assuming all options had been exercised
prior to the Effective Time, plus (C) Warrants in an amount issued to the holder
of one share of Ryder Common Stock, plus (D) the right to receive the Make-Whole
Consideration that may be payable to the holder of one share of Ryder Common
Stock, or (2) if the Exercise Difference is negative, as a condition for
receiving the Budget Class A Common Stock, the Warrants and the right to receive
the Make-Whole Consideration under clause (1) above, to pay such difference in
cash to Ryder on or before the Closing Date. Pursuant to the Merger Agreement,
the Stock Option Plans will terminate immediately prior to the Effective Time.
Adjustment for Appraisal Rights. Ryder Stockholders will have certain
appraisal rights as described below. The Merger Agreement provides for certain
adjustments to the Merger Consideration to be received by
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non-dissenting Ryder Stockholders to reflect payments made to dissenting Ryder
Stockholders. In particular, if (i) any Ryder Stockholder is entitled to receive
as payment for its Dissenting Shares an amount per share that exceeds the amount
of the Merger Consideration (such excess, the "Appraisal Reduction Amount"),
then the number of Aggregate Merger Shares shall be reduced by an amount equal
to such Appraisal Reduction Amount (with each share of Budget Class A Common
Stock having a value equal to the amount of the Merger Consideration for these
purposes), and each Original Holder shall surrender to Budget shares of Budget
Class A Common Stock for cancellation, in each case representing such holder's
pro rata share of the Appraisal Reduction Amount based on the percentage of the
Aggregate Merger Shares received by such holder, or if such Original Holder has
transferred any of its Original Shares, then such Original Holder shall pay in
immediately available funds an amount equal to such holder's pro rata share of
the Appraisal Reduction Amount, or (ii) any Company Stockholder is entitled to
receive an amount per share that is less than the amount of the Merger
Consideration (such deficiency, the "Appraisal Addition Amount"), then Budget
shall promptly pay to the Original Holders pro rata in cash an amount equal to
the Appraisal Addition Amount multiplied by the aggregate number of dissenting
shares subject to such Appraisal Addition Amount.
Representations and Warranties. The Merger Agreement contains customary
representations and warranties, including representations and warranties
regarding (i) the corporate organization of Ryder and Budget, (ii) the power and
authority of Budget, Sub, Ryder and the Significant Stockholders to enter into
the Merger Agreement and consummate the transactions contemplated thereby; (iii)
the capitalization of Ryder and Budget, (iv) the noncontravention of the Merger
Agreement or the Merger with any organization document of Ryder or Budget, any
agreement of which Budget or Ryder is a party or any applicable law; and (v)
compliance with applicable laws.
Covenants. The Merger Agreement also contains customary covenants
including, among others, covenants regarding (i) the conduct of Ryder's business
prior to the Effective Time, (ii) receipt of required approvals by Ryder and
Budget, (iii) continued access to information, (iv) further assurances, (v)
communications among the parties; (vi) Budget's listing on the NYSE of the
shares of Budget Class A Common Stock to be issued in the Merger or upon
exercise of, or in exchange for, the Warrants and (vii) confidentiality.
No Solicitation. Under the Merger Agreement, Ryder is prohibited from, and
Questor is prohibited from allowing Ryder to, solicit or enter into any
discussions or negotiation relating to any proposal with respect to a merger,
consolidation, share exchange, business combination or similar transaction
involving Ryder or any subsidiary of Ryder, or any purchase of all or any
significant portion of the assets or stock of Ryder or any subsidiary of Ryder
(an "Acquisition Proposal"). Ryder is required to promptly notify Budget of the
receipt of any Acquisition Proposal.
Sales of Ryder Common Stock. The Merger Agreement prohibits, prior to the
Effective Time or the termination of the Merger Agreement, the Significant
Stockholders from offering for sale, selling, distributing or otherwise
disposing of any of their Ryder Common Stock.
Budget Stockholders' Meeting. The Merger Agreement provides that Budget
must use all commercially reasonable efforts to have occur as promptly as
practicable a meeting of Budget Stockholders to vote upon a proposed increase in
the authorized capital stock of Budget to permit Budget to issue the Maximum
Merger Shares. If the Budget Stockholders approve this increase, which will
occur if the Certificate Amendment is approved and adopted, Budget will issue
the Maximum Merger Shares on the Closing Date. If the Budget Stockholders do not
approve the Certificate Amendment, Budget will issue the Minimum Merger Shares
on the Closing Date.
Budget Board of Directors. The Merger Agreement provides that Jay Alix,
the managing principal of Questor and the Chairman of Ryder, will be nominated
to the Budget Board, and that the Budget Board will use its commercially
reasonable efforts to continue to cause one of Jay Alix, Robert E. Shields or
Henry L. Druker to be elected to the Budget Board until the earliest to occur of
(a) the third anniversary of the Closing Date, (b) the disposition by Questor of
75% of the shares of Budget Class A Common Stock acquired by it in the Merger,
or (c) the acquisition by Questor of a controlling interest in certain entities.
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Indemnification and Insurance Obligations. Budget has agreed in the Merger
Agreement, for a period of six years following the Effective Time, not to amend
the indemnification provisions set forth in the Ryder Certificate or Ryder
By-laws in a manner that would adversely affect the rights of the Ryder's
officers, directors and employees to indemnification and advancement of expenses
thereunder and agreed to fulfill and honor such obligations to the maximum
extent permitted by law. The Merger Agreement also provides, with limited
exceptions, that Budget shall cause to be maintained in effect for a period of
six years after the Effective Time the current policies of directors' and
officers' liability insurance and fiduciary liability insurance maintained by
Ryder with respect to matters occurring prior to the Effective Time.
Standstill Provisions. Each of the Significant Stockholders agreed in the
Merger Agreement that if the Closing occurs, and unless it shall have been
specifically invited in writing by the Budget Board, it will not, directly or
indirectly (a) acquire any securities that would result in doubling such
Significant Stockholder's beneficial ownership of Budget Class A Common Stock,
or (b) cause or participate in the making directly or indirectly of any proxy
contest or any tender or exchange offer for securities of Budget, or (c) take
any actions to seek to obtain control of the Budget Board. These standstill
provisions will terminate upon the earliest to occur of (a) March 4, 2000, (b) a
change in control of Budget or (c) the date upon which Sanford Miller ceases to
be, or gives or receives notice with respect to terminating his role as, Chief
Executive Officer of Budget.
Blackout Period for Purchases and Sales of Budget Class A Common
Stock. The Merger Agreement provides that Budget will not purchase any Budget
Class A Common Stock on the open market or otherwise, during any of the periods
commencing 30 trading days before, and ending on, any of the Annual Measurement
Date, Final Measurement Date and Warrant Measurement Date, as the case may (the
"Blackout Period"), and will not make any announcement with respect to any
future purchase of Budget Class A Common Stock during the Blackout Period or
within thirty days prior to the Blackout Period. The Merger Agreement also
provides that the Significant Stockholders will not sell any Budget Class A
Common Stock on the open market or otherwise during the Blackout Period, and
will not make any announcement with respect to any future sales of Budget Class
A Common Stock during the Blackout Period or within thirty days prior thereto.
These restrictions will terminate on the Warrant Measurement Date.
Registration Rights. In the Merger Agreement, Budget agreed that the
recipients of Budget Class A Common Stock initially issued in the Merger, issued
as Make-Whole Shares or in exchange for, or upon the exercise of Warrants (the
"Registrable Securities"), would have certain registration rights with respect
to such Registrable Securities. In particular, Budget agreed that, within 15
days after the Effective Time, Budget will file a "shelf" registration statement
pursuant to Rule 415 under the Securities Act (a "Shelf Registration Statement")
with respect to the Registrable Securities. Budget agreed that such Shelf
Registration Statement would cover, in the event the Minimum Merger Shares are
issued, 1,332,909 shares of Budget Class A Common Stock, or, in the event the
Maximum Merger Shares are issued in the Merger 3,605,946 shares of Budget Class
A Common Stock. Budget also agreed to use its commercially reasonable efforts to
have the Shelf Registration Statement declared effective on or before 60 days
after the Effective Time, and to keep the Shelf Registration Statement effective
until all of the Registrable Securities are eligible to be sold without
restriction under the Securities Act. Budget will pay all expenses relating to
the preparation and filing of the Shelf Registration Statement, but will not pay
for any underwriting fees, expenses, discounts or other costs payable to any
underwriter, broker or dealer. The Merger Agreement contains other customary
provisions relating to the obligations of each party with respect to the Shelf
Registration Statement, the sale of Registrable Securities thereunder, and the
indemnification and contribution obligations of each party.
Conditions to the Merger. The obligations of each party to effect the
Merger are subject to the satisfaction on or prior to the Closing Date of each
of the following Merger Conditions: (i) receipt of all consents, authorizations,
orders and approvals of (or filings or registrations with) any governmental
authority or other regulatory body, as may be required to be obtained by Ryder
or Budget in connection with the performance of this Agreement; (ii) early
termination shall have been granted or applicable waiting periods shall have
expired under the HSR Act in connection with the Merger; (iii) no governmental
authority or other regulatory body (including any court of competent
jurisdiction ) shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether
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temporary, preliminary or permanent) which is then in effect and has the effect
of making illegal, or in any way prohibiting the Merger; and (iv) no
governmental authority or other regulatory body shall have commenced any action,
suit or proceeding seeking to enjoin or otherwise prohibit the transactions
contemplated hereby, nor shall there be a substantial likelihood that any
governmental authority or other regulatory body will seek to commence any such
action, suit or proceeding.
Time of Closing. The Merger Agreement provides that the Closing will occur
on (a) the later of (i) the second business day following the day on which the
Merger Conditions have been satisfied or waived, (ii) April 20, 1998, (iii) the
date that is thirty days after the Special Meeting (or any other meeting held in
satisfaction of Budget's obligations to hold such a meeting as described above),
(iv) the date that is thirty days after the earliest to occur of receipt of (A)
a grant of early termination or the expiration of all applicable waiting periods
(including extensions thereof) under the HSR Act, and (v) if a notice has been
given by Budget with respect to a Major Breach (as defined below), the date that
is fifteen (15) days after the Determination Date (as defined below) or (b) such
other date as the parties hereto agree in writing.
Survival of Representations and Warranties. The representations and
warranties made by Budget, Sub or Ryder and the covenants made by Ryder and the
Significant Stockholders will survive for a period ending 120 days after the
Closing Date, and shall terminate and have no further force or effect
thereafter, except that the covenants made by the Significant Stockholders with
respect to their standstill obligations and the Blackout Period shall survive
until their expiration or termination as described above. The covenants made by
Budget and Sub will survive the Closing except in accordance with the terms
thereof.
Remedies for Breaches of Representations, Warranties and Covenants. If the
Closing occurs, the sole and exclusive remedy of Budget if any of the
representations and warranties of Ryder fails to be true and correct or one or
more of the covenants of Ryder or the Significant Stockholders set forth in the
Merger Agreement hereof fails to be performed on or prior to the Closing Date is
to cause the Aggregate Merger Shares to be adjusted in accordance with the
Adjustment Amount described above; provided, however, that in no event shall any
notice given by Budget after 120 days after the Closing Date as to such failure
result in Budget or Sub having any right to the Adjustment Amount or any other
remedy. However, if prior to the Closing Date Budget notifies Ryder and the
Significant Stockholders in writing that (i) Budget estimates that the value of
any such failures, individually or in the aggregate, exceeds $75,000,000, (ii)
such value is in excess of $75,000,000 and (iii) as a result of such failures,
Budget is unable, after having used its good faith efforts, to obtain the
financing necessary to pay the Aggregate Cash Consideration, then Budget will
have the right to terminate the Merger Agreement if Budget and Ryder agree, or
in the event of dispute it is determined in accordance with the dispute
mechanisms of the Escrow Agreement (the date of final resolution being the
"Determination Date"), that the value reduction of such failures, individually
or in the aggregate, exceeds $75,000,000 (such event, a "Major Breach").
Breaches of the representations, warranties and covenants of Budget or Sub
contained in the Merger Agreement will not give Ryder a right to terminate this
Agreement, but will instead entitle the holders of outstanding Ryder Shares
immediately prior to the Effective Time to seek damages in respect thereof.
Amendment and Waiver. The Merger Agreement may be amended in writing by
each of the parties and the compliance with the Merger Agreement waived in
writing by the party waiving compliance. However, after the Closing Date, no
amendment or modification may be made that affects any of the rights of the
Original Holders with respect to certain "Special Covenants" (as defined below)
without the written consent of 51% of the Original Holders or to the obligations
of Budget with respect to the indemnification and insurance of Ryder officers
and directors, as discussed above, that adversely affects the rights of the
indemnified parties. The "Special Covenants" include, among others, the
covenants relating to (i) the composition of the Budget Board following the
Closing, (ii) purchases of Budget Class A Common Stock during the Blackout
Period, (iii) registration rights and (iv) Major Breaches.
Termination. The Merger Agreement may be terminated prior to the Closing
as follows:(i) by either Budget or Ryder if the Merger Conditions have not been
satisfied by the Termination Date (subject to extension by Ryder to February 28,
1999 in the case of failure of the condition relating to pending injunctions);
(ii) by either Budget or Ryder if a final and no longer appealable permanent
injunction (but not
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any temporary restraining order or preliminary injunction) has been issued by
final order of any federal or state court in the United States which prevents
the consummation of the Merger; (iii) by Ryder if Budget or Sub shall have
breached certain of their covenants in any material respect and such breach
continues for a period of ten days after the receipt of notice of the breach
from Ryder; (iv) by Budget if Ryder or any Significant Stockholder shall have
committed a Major Breach; or (v) at any time on or prior to the Closing Date, by
mutual written consent of Budget and Ryder.
Termination Fees. If the Merger Agreement is terminated in certain
circumstances then Budget will be required to pay the Break Fee to Ryder as
follows: (i) if the Merger Agreement is terminated because of failure to satisfy
the Merger Conditions by November 30, 1998 (or February 28, 1999 if extended by
Ryder) or a final injunction relating to antitrust matters, Budget will be
required to pay $7,500,000 to Ryder; or (ii) if the Merger Agreement is
terminated for any other reason, other than by Budget in response to a Major
Breach, it will pay at least $20,000,000 to Ryder plus any additional damages,
up to an amount equal to $75,000,000 (including the amount drawn under the
Letter of Credit), or, at its option, Ryder will have the right to seek specific
performance.
Letter of Credit. To secure the Break Fee, Credit Suisse, at the request
of Budget and concurrently with the execution of the Merger Agreement, issued a
Letter of Credit in an amount of up to $20,000,000 in favor of Ryder, drawable
by Ryder in the amounts and under the circumstances described in clauses (i) and
(ii) of "-- Termination Fees" above. Unless extended in writing by Credit
Suisse, the Letter of Credit will terminate on December 15, 1998, or upon the
occurrence of certain other events specified in the Letter of Credit. The Merger
Agreement provides that, if the Termination Date is properly extended by Ryder,
or if the time of Closing is delayed because of a Major Breach, both as
described above, Budget will cause the Letter of Credit to remain in full force
and effect or will cause a substitute letter of credit to be issued containing
substantially identical terms and which will remain in full force and effect
until March 15, 1999. In the Merger Agreement, Ryder agreed that it would not
draw upon, or exercise any rights with respect to, the Letter of Credit unless
and only to the extent Ryder is permitted to do so as described above under
"Termination Fees." In addition, Ryder agreed that within one business day
following the earlier of (x) the Closing Date, and (y) the date on which the
Merger Agreement is terminated in a manner which does not give rise to a right
on the part of Ryder to draw on the Letter of Credit, Ryder would instruct the
bank issuing the Letter of Credit to terminate the Letter of Credit and would
surrender the Letter of Credit to such bank for cancellation.
EFFECTIVE TIME OF THE MERGER AND EXCHANGE OF SHARES
Effective Time of the Merger. The Merger will become effective upon the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware or at such other time thereafter as provided therein.
Exchange of Ryder Stock Certificates. Immediately after the Effective
Time, instructions and a letter of transmittal will be furnished to all Ryder
Shareholders for use in exchanging their Ryder stock certificates for
certificates evidencing the shares of Budget Class A Common Stock they will be
entitled to receive as a result of the Merger. RYDER STOCKHOLDERS SHOULD NOT
SUBMIT THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL INSTRUCTIONS AND THE LETTER
OF TRANSMITTAL ARE RECEIVED. HOWEVER, RYDER STOCKHOLDERS IN ATTENDANCE OR
REPRESENTED AT THE CLOSING WHO SURRENDER FOR CANCELLATION CERTIFICATES OF RYDER
COMMON STOCK AT SUCH TIME WILL RECEIVE THE SHARES OF BUDGET COMMON STOCK,
WARRANTS AND CASH PAYABLE WITH RESPECT TO SUCH CERTIFICATES AT THE CLOSING.
REGULATORY APPROVALS
Under the Merger Agreement, the obligations of both Budget and Ryder to
consummate the Merger are conditioned upon receipt of all required regulatory
approvals.
Under the HSR Act and the rules promulgated thereunder by the FTC, the
Merger may not be consummated unless notification has been given and certain
information has been furnished to the FTC and the Antitrust Division and the
waiting period has expired or been terminated. Pursuant to the HSR Act, on March
20, 1998 and March 23, 1998, Budget and Ryder, respectively, filed a
Notification and Report Form with the FTC and the Antitrust Division for review
in connection with the Merger. The 30-day waiting period
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under the HSR Act applicable to the Merger will expire on April 26, 1998, unless
terminated early or extended by the FTC or the Antitrust Division.
Notwithstanding the termination of the HSR Act waiting period, at any time
before or after consummation of the Merger, the FTC or the 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 Merger or to cause the divestiture of substantial assets of Budget or
Ryder. In addition, states and private parties may also bring legal action under
the antitrust laws under certain circumstances. Based on information available
to them, Budget and Ryder believe that the Merger 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 Merger based on an alleged violation of
the antitrust laws will not be made or that, if such a challenge were made,
Budget and Ryder would prevail or would not be required to accept certain
conditions, possibly including divestitures, in order to consummate the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain executive officers and directors of Ryder may be deemed to have
interests that may present them with potential conflicts of interest with
respect to the Merger. Budget has agreed to indemnify the executive officers and
directors of Ryder against certain liabilities arising prior to the Effective
Time in accordance with Ryder's existing indemnification obligations and to
maintain Ryder's existing directors' and officers' liability insurance policy or
a comparable policy, in each case for a period of six years after the Effective
Time. In addition, Jay Alix, the Chairman and Chief Executive Officer of Ryder,
will become a director of Budget following the Merger, and Budget is required to
nominate one of Jay Alix, Robert E. Shields or Henry L. Druker, each of whom is
a current officer of Ryder or of one of the Significant Stockholders, to the
Budget Board for up to three years following the Closing Date. As of March 15,
1998, executive officers and directors of Ryder beneficially owned or controlled
91,512 shares of Ryder Class A Common Stock and 818 shares of Ryder Class C
Common Stock (without giving effect to the acceleration of options to purchase
Ryder Common Stock immediately prior to the Merger). After the Merger occurs,
such persons will, subject to the assumptions set forth in "Ownership of Ryder
Capital Stock," beneficially own or control approximately 2,655,583 shares of
Budget Class A Common Stock. The Ryder Board was aware of these interests and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for under the "purchase" method of accounting,
pursuant to which the assets and liabilities of Ryder will be adjusted to their
respective fair values and included with those of Budget as of the Effective
Time. Financial statements of Budget issued after the Effective Time will
reflect such values and will not be restated retroactively to reflect the
historical financial position or results of operations of Ryder. The Aggregate
Merger Consideration will be allocated to the assets and liabilities of Ryder
acquired based on their estimated fair values on the date on which the Merger is
consummated with the excess of the Aggregate Merger Consideration over the book
value of the assets acquired being allocated to goodwill.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion concerns the material United States federal income
tax consequences of the Merger applicable to the Ryder Stockholders. The
applicable statutory provisions are subject to change, as are their
interpretations and applications, which may vary in individual circumstances.
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. The following discussion assumes that all Ryder
Stockholders are "United States persons" for federal income tax purposes and
hold the Ryder Common Stock as a "capital asset."
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The Merger
The Merger will be treated as a taxable sale of stock for federal income
tax purposes. Each Ryder Stockholder, including those asserting appraisal
rights, will recognize gain or loss equal to the difference between (i) the
amount of cash and the fair market value of all property (including Budget Class
A Common Stock) received by such holder in the Merger and (ii) such holder's tax
basis in the Ryder Common Stock transferred in the Merger. Provided the Ryder
Stockholder has held the Ryder Common Stock as a capital asset, such gain or
loss will be capital gain or capital loss. Under recently enacted legislation,
the maximum regular individual U.S. federal income tax rate on capital gains is
20% for property held for more than 18 months and 28% for property held for more
than one year but not more than 18 months. Capital gains on the sale of property
held for one year or less are subject to U.S. federal income tax at ordinary
income rates.
The treatment of the Warrants for federal income tax purposes is not clear.
Whether the Warrants are treated as issued on the Closing Date or on the 20
month anniversary of the Closing Date, however, their value will give rise to
additional gain to the Ryder Stockholders. Such gain will constitute capital
gain taxable at the same rate as the other Merger consideration, excluding, in
the latter case, the portion thereof characterized as imputed interest for
federal income tax purposes.
Because of the possibility (i) that Contingent Additional Consideration
will be payable after the close of the taxable year of the Merger; and (ii) the
Warrants will be treated as issued on the 20 month anniversary of the Closing
Date, the sale of the Ryder Common Stock is likely to constitute an installment
sale for federal income tax purposes. Accordingly, each Ryder Stockholder who
realizes gain with respect to shares of Ryder Common Stock in the Merger may be
required to report such gain under the installment method unless the holder
makes an election not to use such method. The rules for the reporting of
installment sales are complex, and include special provisions both for certain
types of deferred payments and for shareholders who own shares of Ryder Common
Stock through partnership entities. In general, however, installment sale
treatment permits the deferral of gain with respect to any payments received in
a taxable year following the year of sale until such payments are received. In
addition, a portion of any such payment will constitute imputed interest for
federal income tax purposes.
As a condition to reporting under the installment method, a Ryder
Stockholder must allocate his tax basis in the Ryder Common Stock between the
consideration received on the Closing Date and the consideration received
thereafter on a ratable basis. In the case of deferred payments subject to a
fixed ceiling, such Ryder Stockholder must assume for purposes of such
allocation that he will receive the maximum possible payment. Accordingly, if
the maximum possible payment significantly exceeds the fair market value of the
right to receive such payments as of the Closing Date, a Ryder Stockholder who
does not elect out of the installment method may recognize a taxable gain in the
year of the Merger that exceeds the difference between the fair market value of
the total Merger consideration and such Ryder Stockholder's tax basis in the
Ryder Common Stock. Although such Ryder Stockholder may recognize an offsetting
capital loss in the year of the deferred payment, the recognition of such loss
may not produce an immediate federal income tax benefit. Each Ryder Stockholder
should consult his or her own tax advisor in determining the manner in which
such gain should be reported under the installment method and in deciding
whether to elect out of the installment method.
A Ryder Stockholder will have a tax basis in the Budget Class A Common
Stock equal to the value of such shares at the time they are received in the
Merger. Likewise, a Ryder Stockholder will have a tax basis in the Warrants
equal to the value of such Warrants at the time they are treated as received for
federal income tax purposes in the Merger.
THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN
TAX ASPECTS OF THE MERGER. THE DISCUSSION IS BASED ON CURRENTLY EXISTING
PROVISIONS OF THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER
AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE
SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF
THIS DISCUSSION. EACH RYDER STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO THE SPECIFIC TAX
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CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT
OF FEDERAL STATE, LOCAL AND FOREIGN TAX LAWS.
RESALE OF BUDGET CLASS A COMMON STOCK
Shares of Budget Class A Common Stock to be issued to Ryder Stockholders in
connection with the Merger will be freely transferable under the Securities Act,
except for shares issued to any person or entity who, at the time of the Merger,
may be deemed an "affiliate" of Ryder within the meaning of Rule 145 or becomes
an affiliate of Budget following the Merger within the meaning of Rule 144. In
general, affiliates of Ryder and Budget include their executive officers and
directors and any other person or entity who controls, is controlled by or is
under common control with Ryder or Budget, respectively. Rule 145, among other
things, imposes certain restrictions upon the resale of securities received by
affiliates in connection with certain reclassifications, mergers, consolidations
or asset transfers. These restrictions will consist of volume and manner of sale
restrictions on the resale of shares of Budget Class A Common Stock issued to
such person and entities. Rule 144 imposes similar restrictions on resale of
Budget Class A Common Stock by affiliates of Budget following the Merger. Budget
may place legends on certificates representing shares of Budget Class A Common
Stock that are issued to affiliates of Ryder to restrict transfers in violation
of Rule 145. All Ryder Stockholders, including those who would be subject to the
resale restrictions of Rule 145 and Rule 144, will be entitled to certain demand
registration rights with respect to the shares of Budget Class A Common Stock
issued to them in accordance with the Merger Agreement.
APPRAISAL RIGHTS
The following summary of Section 262 is qualified in its entirety by
reference to Section 262, the complete text of which is attached hereto as Annex
E. This summary contains all of the material provisions of Section 262.
Holders of shares of Ryder Common Stock are entitled to appraisal rights
under Section 262, provided that they comply with the conditions established by
Section 262.
Section 262 is reprinted in its entirety as Annex E to this Proxy
Statement/Prospectus. The following discussion is not a complete statement of
the law relating to appraisal rights and is qualified in its entirety by
reference to Annex E. This discussion and Annex E should be reviewed carefully
by any holder who wishes to exercise statutory appraisal rights or who wishes to
preserve the right to do so, as failure to comply with the procedures set forth
herein or therein will result in the loss of appraisal rights.
A record holder of shares of Ryder Common Stock who makes the demand
described below with respect to such shares, and who otherwise complies with the
statutory requirements of Section 262 will be entitled to an appraisal by the
Delaware Court of Chancery (the "Delaware Court") of the fair value of his or
her shares of Ryder Common Stock. All references in this summary of appraisal
rights to a "stockholder" or "holders of shares of Ryder Common Stock" are to
the record holder or holders of shares of Ryder Common Stock.
Under Section 262, where a merger is accomplished pursuant to Section 228
of the Delaware General Corporation Law, either before or within 10 days after
the effective date of the merger each constituent corporation (or, after the
effective date, the surviving constituent corporation) must notify each
stockholder of each constituent corporation entitled to appraisal rights of the
merger and that appraisal rights are available to such stockholders and include
in each such notice a copy of Section 262. This Proxy Statement/Prospectus is
being enclosed with such notice to the record holders of Ryder Common Stock.
Holders of shares of Ryder Common Stock who desire to exercise their
appraisal rights must deliver a written demand for appraisal to Ryder within 20
days after the date of mailing of this notice. A demand for appraisal must be
executed by or on behalf of the stockholder of record and must reasonably inform
Ryder of the identity of the stockholder of record and that such stockholder
intends thereby to demand appraisal of the Ryder Common Stock.
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A stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to:
Ryder TRS, Inc.
1560 Broadway
Suite 1800
Denver, Colorado 80202
Attn: General Counsel
A person having a beneficial interest in shares of Ryder Common Stock that
are held of record in the name of another person, such as a broker, fiduciary,
depositary or other nominee, must act promptly to cause the record holder to
follow the steps summarized herein properly and in a timely manner to perfect
appraisal rights. If the shares of Ryder Common Stock are owned of record by a
person other than the beneficial owner, including a broker, fiduciary (such as a
trustee, guardian or custodian), depository or other nominee, such demand must
be executed by or for the record owner. If the shares of Ryder Common Stock are
owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by or for all joint owners. An authorized
agent, including an agent for two or more joint owners, may execute the demand
for appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner.
A record holder, such as a broker, fiduciary, depositary or other nominee,
who holds shares of Ryder Common Stock as a nominee for others, may exercise
appraisal rights with respect to the shares held for all or less than all
beneficial owners of shares as to which such person is the record owner. In such
case, the written demand must set forth the number of shares covered by such
demand. Where the number of shares is not expressly stated, the demand will be
presumed to cover all shares of Ryder Common Stock outstanding in the name of
such record owner.
Within 120 days after the Effective Time, either Ryder or any stockholder
who has complied with the required conditions of Section 262 may file a petition
in the Delaware Court, with a copy served on Ryder in the case of a petition
filed by a stockholder, demanding a determination of the fair value of the
shares of all dissenting stockholders. There is no present intent on the part of
Ryder to file an appraisal petition and stockholders seeking to exercise
appraisal rights should not assume that Ryder will file such a petition or that
Ryder will initiate any negotiations with respect to the fair value of such
shares. Accordingly, holders of Ryder Common Stock who desire to have their
shares appraised should initiate any petitions necessary for the perfection of
their appraisal rights within the time periods and in the manner prescribed in
Section 262. Within 120 days after the Effective Time, any stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from Ryder a statement setting forth
the aggregate number of shares of Ryder Common Stock not voting in favor of the
merger and with respect to which demands for appraisal were received by Ryder
and the number of holders of such shares. Such statement must be mailed within
10 days after the written request therefor has been received by Ryder.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court may dismiss
the proceedings as to such stockholder. Where proceedings are not dismissed, the
Delaware Court will appraise the shares of Ryder Common Stock owned by such
stockholders, determining the fair value of such shares exclusive of any element
of value arising from the accomplishment or expectation of the merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value.
Although Ryder believes that the Merger Consideration is fair, no
representation is made as to the outcome of the appraisal of fair value as
determined by the Court and stockholders should recognize that such an appraisal
could result in a determination of a value higher or lower than, or the same as,
the Merger Consideration. Moreover, Ryder does not anticipate offering more than
the Merger Consideration to any stockholder exercising appraisal rights and
reserves the right to assert, in any appraisal proceeding, that, for
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purposes of Section 262, the "fair value" of a share of Ryder Common Stock is
less than the Merger Consideration. In determining "fair value", the Delaware
Court is required to take into account all relevant factors. In Weinberger v.
UOP, Inc., the Delaware Supreme Court discussed the factors that could be
considered in determining fair value in an appraisal proceeding, stating that
"proof of value by any techniques or methods which are generally considered
acceptable in the financial community and otherwise admissible in court" should
be considered and that "[f]air price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
has stated that in making this determination of fair value the court must
consider market value, asset value, dividends, earnings prospects, the nature of
the enterprise and any other facts which could be ascertained as of the date of
the merger which throw any light on future prospects of the merged corporation.
Section 262 provides that fair value is to be "exclusive of any element of value
arising from the accomplishment or expectation of the merger." In Cede & Co. v.
Technicolor, Inc., the Delaware Supreme Court stated that such exclusion is a
"narrow exclusion [that] does not encompass known elements of value," but which
rather applies only to the speculative elements of value arising from such
accomplishment or expectation. In Weinberger, the Delaware Supreme Court
construed Section 262 to mean that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the date
of the merger and not the product of speculation, may be considered." In
addition, Delaware courts have decided that the statutory appraisal remedy,
depending on the factual circumstances, may or may not be a stockholder's
exclusive remedy in connection with transactions such as the merger.
Holders of shares of Ryder Common Stock considering seeking appraisal
should recognize that the fair value of their shares determined under Section
262 could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. However, costs do not include
attorneys' and expert witness fees. Each dissenting stockholder is responsible
for his or her attorneys' and expert witness expenses, although, upon
application of a dissenting stockholder of Ryder, the Delaware Court may order
that all or a portion of the expenses incurred by any dissenting stockholder in
connection with the appraisal proceeding, including without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all shares of stock entitled to appraisal.
Any holder of shares of Ryder Common Stock who has duly demanded appraisal
in compliance with Section 262 will not be entitled to vote for any purpose any
shares subject to such demand or to receive payment of dividends or other
distributions on such shares, except for dividends or distributions payable to
stockholders of record at a date prior to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of Ryder. If no petition for
appraisal is filed with the Delaware Court within 120 days after the Effective
Time, stockholders' rights to appraisal shall cease, and all holders of shares
of Ryder Common Stock will be entitled to receive the consideration offered
pursuant to the Merger Agreement. Inasmuch as Ryder has no obligation to file
such a petition, and Ryder has no present intention to do so, any holder of
shares of Ryder Common Stock who desires such a petition to be filed is advised
to file it on a timely basis. Any stockholder may withdraw such stockholder's
demand for appraisal by delivering to Ryder a written withdrawal of his or her
demand for appraisal and acceptance of the Merger Consideration, except (i) that
any such attempt to withdraw made more than 60 days after the Effective Time
will require written approval of Ryder and (ii) that no appraisal proceeding in
the Delaware Court shall be dismissed as to any stockholder without the approval
of the Delaware Court, and such approval may be conditioned upon such terms as
the Delaware Court deems just.
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COMPARISON OF RIGHTS OF HOLDERS OF BUDGET CLASS A COMMON STOCK
AND RYDER COMMON STOCK
Upon consummation of the Merger, and to the extent they receive shares of
Budget Class A Common Stock, the stockholders of Ryder, a Delaware corporation,
will become stockholders of Budget, also a Delaware corporation. The rights of
Ryder Stockholders will thereafter be governed by the Budget Certificate and the
Budget Bylaws. The following is a summary of the material differences between
the rights of Ryder Stockholders and the Budget Stockholders pursuant to the
differences between the Budget Certificate and Budget Bylaws, on the one hand,
and the Ryder Certificate and the Ryder Bylaws, on the other hand. The following
summary does not purport to be a complete statement of the difference in the
rights of Ryder Stockholders and Budget Stockholders. This summary is qualified
in its entirety by reference to the full text of the Budget Certificate and the
Budget Bylaws, the Ryder Certificate and Ryder Bylaws, and Delaware Law.
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Budget consists of 35,000,000 shares of
Budget Class A Common Stock, 2,500,000 shares of Budget Class B Common Stock,
and 250,000 shares of Preferred Stock, par value $.01 per share. The authorized
capital stock of Ryder consists of 225,000 shares of Ryder Class A Common Stock,
25,000 shares of Ryder Class B Common Stock and 25,000 shares of Ryder Class C
Common Stock. If the Certificate Amendment is approved, the number of authorized
shares of Budget Class A Common Stock will increase from 35,000,000 shares to
70,000,000 shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
Delaware Law permits a corporation to declare and pay dividends to
stockholders out of surplus (defined as net assets minus capital) or, if there
is no surplus, out of net profits for the fiscal year in which the dividend is
declared and/or for the proceeding fiscal year as long as the amount of capital
of the corporation following the declaration and payment of the dividend is not
less than the aggregate amount of the capital represented by the issued and
outstanding stock of any classes which may have a preference upon the
distribution of assets. Subject to the rights of holders of preferred stock, the
Budget Certificate permits Budget to declare and pay dividends on its common
stock if such dividends are declared and paid in equal distributions to the
holders of Budget Class A Common Stock and Budget Class B Common Stock. The
Ryder Certificate permits Ryder to declare and pay dividends on Ryder Common
Stock if such dividends are declared and paid in equal distributions to holders
of Ryder Class A Common Stock, Ryder Class B Common Stock and Ryder Class C
Common Stock.
SPECIAL MEETING OF STOCKHOLDERS
Under the DGCL, a special meeting of stockholders can be called by the
corporation's board of directors or by such person or persons as may be
authorized by the corporation's certificate of incorporation or bylaws. Under
the Budget Bylaws, a special meeting of the stockholders of Budget may be called
by the Budget Board, the Chairman of the Board, the Chief Executive Officer, the
President or the Secretary of Budget or by the record holders of at least a
majority of the combined voting power of the shares of capital stock issued,
outstanding and entitled to vote at the meeting. Under the Ryder Bylaws, a
special meeting of the stockholders of Ryder may be called by the Ryder Board,
and must be called by the President of Ryder at the request of the holders of a
majority of outstanding shares of capital stock entitled to vote.
VOTING REQUIREMENTS GENERALLY
Under the DGCL, the affirmative vote of the majority of shares present in
person or represented by proxy at a duly held meeting at which a quorum is
present and entitled to vote on the subject matter is deemed to be the act of
the stockholders, unless the DGCL, the certificate of incorporation or the
bylaws of the corporation specify a different voting requirement.
The Budget Bylaws states that each Budget Stockholder is entitled to one
vote for every share of Budget Class A Common Stock held and ten votes for every
Budget Class B Common Stock held by such
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stockholder. The vote of a majority of the combined voting power of the shares
present in person or represented by proxy at a duly held meeting at which a
quorum is present is deemed to be the act of the Budget Stockholders. The Ryder
Certificate states that each holder of Ryder Class A Common Stock shall be
entitled to one vote per share on all matters to be voted on by Ryder
Stockholders, and the holders of Ryder Class B Common Stock and Ryder Class C
Common Stock shall have no right to vote on any matters to be voted on by Ryder
Stockholders; provided, however, that the holders of Ryder Class B Common Stock
and Ryder Class C Common Stock shall have the right to vote as a separate class
on any merger or consolidation of Ryder with or into another entity in which the
holders of Ryder Class B Common Stock or Ryder Class C Common Stock would
receive or be exchanged for consideration different on a per share basis from
the consideration received with respect to or in exchange for shares of Ryder
Class A Common Stock. The Ryder Bylaws state that the vote of a majority of the
voting stock of Ryder present in person or represented by proxy shall constitute
a quorum for the transaction of all business.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under Delaware Law, an amendment to a corporation's certificate of
incorporation requires the approval of the board of directors and the approval
of a majority of the outstanding shares entitled to vote thereon. The holders of
the outstanding shares of a class are entitled to vote as a separate class on a
proposed amendment that would increase or decrease the aggregate number of
authorized shares of such class, increase or decrease the par value of the
shares of such class or alter or change the powers, preferences or special
rights of the shares of such class so as to affect them adversely. If any
proposed amendment would alter or change the powers, preferences or special
rights of one or more series of any class so as to affect them adversely, but
would not so affect the entire class, then only the shares of the series so
affected by the amendment will be considered a separate class for purposes of
voting by classes.
The Budget Certificate does not state how the Budget Certificate may be
amended. The Ryder Certificate states that Section 4 of the Ryder Certificate
(e.g., voting rights, dividends, liquidation and conversion) may not be amended
without the approval of a majority of the outstanding Ryder Class B Common Stock
voting as a separate class and does not otherwise state how the Ryder
Certificate may be amended.
AMENDMENT OF BYLAWS
Under Delaware Law, the stockholders may amend the bylaws. The certificate
of incorporation may also confer the power to amend the bylaws upon the board of
directors; however, the fact that such power has been conferred on the board of
directors will not divest the stockholders' power to amend the bylaws.
The Budget Certificate gives the Budget Board the power to adopt or amend
the bylaws without any stockholder action. The Budget Bylaws empower both the
Budget Board and the Budget Stockholders to amend the bylaws unless the Budget
Certificate or Delaware Law reserves such amendment power to the stockholders in
whole or in part, or if the stockholders in adopting, amending or repealing a
particular bylaw expressly provide that the board of directors may not amend or
repeal that bylaw.
Under the Ryder Certificate, the Ryder Bylaws may be made, altered, amended
or repealed by the Ryder Stockholders or by a majority of the Board of Directors
of Ryder. The Ryder Bylaws further provides that the Board of Directors of Ryder
holds the power to make, rescind, alter, amend and repeal the Bylaws; provided,
however, that the Ryder Stockholders shall have the power to rescind, alter,
amend or repeal any bylaws made by the Board of Directors of Ryder and to enact
by-laws which if so expressed shall not be rescinded, altered, amended or
repealed by the Board of Directors of Ryder.
ACTION BY WRITTEN CONSENT
Under Delaware Law, unless otherwise provided in a corporation's
certificate of incorporation, any action that may be taken at any annual or
special meeting of stockholders may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, is signed by
the holders of
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outstanding shares having not less than the minimum number of votes that would
be necessary to authorize such action at a meeting at which all shares entitled
to vote thereon were present and voted.
The Budget Bylaws do not restrict the ability of the Budget Stockholders to
take action by written consent. The Ryder Bylaws permit the Ryder Stockholders
to take action by written consent.
Under Delaware Law, the directors of a corporation shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors at a meeting of shareholders at which a quorum is present,
unless the certificate of incorporation provides otherwise or provide for
cumulative voting. The Budget Certificate does not provide for cumulative
voting. The Ryder Certificate does not provide for cumulative voting.
Under Delaware Law, vacancies and newly created directorships may be filled
by a majority of the directors then in office, although less than a quorum,
unless otherwise provided in the certificate of incorporation or bylaws. If, at
the time of filling any vacancy or newly created directorship, the directors
then in office constitute less than a majority of the whole board of directors
as constituted immediately prior to such increase, the Delaware Court of
Chancery may, upon application of stockholders holding at least ten percent of
the total number of shares outstanding having the right to vote for such
directors, order an election to be held to fill any such vacancies or newly
created directorships or to replace the directors chosen by the directors then
in office.
Under the Budget Bylaws, vacancies occurring on the Budget Board as a
result of the removal of a director without cause may be filled only by a vote
of the record holders of a majority of the combined voting power of the shares
present and entitled to vote. Vacancies occurring for any other reason may be
filled by such vote or written consent of the Budget Board. The Ryder Bylaws
states that any vacancy among the directors, occurring from any cause
whatsoever, may be filled by a majority of the remaining directors, though less
than a quorum; provided, however, that the Ryder Stockholders removing any
director may at the same meeting fill the vacancy caused by such removal. In the
event the directors fail to fill such vacancy, the Ryder Stockholders may at any
special meeting called for that purpose fill such vacancy.
NUMBER AND QUALIFICATION OF DIRECTORS
Under Delaware Law, the minimum number of directors a corporation may have
is one. The number of directors shall be fixed by, or in the manner provided in,
the bylaws, unless the certificate of incorporation fixes the number of
directors, in which case a change in the number of directors shall be made only
by amendment of the certificate of incorporation.
The Budget Bylaws provide for three directors, or such other number as
shall be fixed from time to time by the Budget Board. The Ryder Bylaws provide
for initially three directors, or such other number as shall be fixed from time
to time by the Board of Directors of Ryder.
REMOVAL OF DIRECTORS
Under Delaware Law, a director of a corporation without a classified board
of directors may be removed with or without cause. Budget does not have a
classified board of directors. The Budget Bylaws provide that any director or
all the directors may be removed with or without cause by the holders of the
majority of the combined voting power of the shares then entitled to vote at an
election of the Budget Board.
The Ryder Bylaws provides that any director may be removed, with or without
cause, by the holders of a majority of the shares of capital stock entitled to
vote, either by written consent or at any special meeting of the stockholders
called for that purpose.
DISSENTER'S/APPRAISAL RIGHTS
Under Delaware Law, a stockholder has a right to an appraisal by the Court
of Chancery of the fair value of such stockholder's shares of stock in
connection with certain mergers or consolidations. However, no appraisal rights
are available for the shares of any class or series of stock which stock at the
record date were
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either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. ("NASD") or held of record by more than
2,000 holders (the "Market Shares"). Notwithstanding the previous sentence,
appraisal rights are available for the Market Shares if the holders are required
by the terms of the merger to accept for the Market Shares anything except (i)
shares of the surviving corporation; (ii) shares of any other corporation which
shares of stock at the effective date of the merger will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the NASD or held of record by more than
2,000 holders; (iii) cash in lieu of fractional shares; or (iv) any combination
of (i) through (iii).
No class of shares of Ryder Common Stock are currently listed on a national
securities exchange or designated as a national market system security or
qualify as Market Shares, and thus the holders of Ryder Common Stock have
appraisal rights under Delaware Law. ANY HOLDER OF RYDER COMMON STOCK WHO
EXCHANGES ITS SHARES OF RYDER COMMON STOCK FOR SHARES OF BUDGET CLASS A COMMON
STOCK IN THE MERGER WILL BE DEEMED TO HAVE WAIVED ITS APPRAISAL RIGHTS.
PREEMPTIVE RIGHTS
Under Delaware Law, stockholders do not possess common law preemptive
rights as to the issuance of additional or treasury securities by the
corporation, unless the corporation's certificate of incorporation provides
otherwise. The Budget Certificate and the Budget Bylaws do not provide for
preemptive rights. The Ryder Certificate and the Ryder Bylaws do not provide for
preemptive rights (but holders of Ryder Class C Common Stock have certain rights
to purchase additional shares). See "Ownership of Ryder Capital Stock --
Offering of Stock and Options to Management of Ryder."
LIQUIDATION RIGHTS
Generally under Delaware Law, shareholders are entitled to share ratably in
the distribution of assets upon the dissolution of their corporation. Preferred
shareholders typically do not participate in the distribution of assets of a
dissolved corporation beyond their established contractual preferences. Once the
rights of preferred shareholders have been fully satisfied, common shareholders
are entitled to the distribution of any remaining assets. Under the Budget
Certificate, Budget is authorized to issue up to 250,000 shares of preferred
stock, with such powers, preferences and rights as are designated by the Budget
Board.
Under the Ryder Certificate, the holders of Ryder Class A, Class B and
Class C Common Stock shall share ratably on a per share basis in all
distributions to the holders of Ryder Common Stock in any liquidation,
dissolution or winding up of Ryder.
ANTI-TAKEOVER PROVISIONS
Statutory Provisions. Section 203 of the DCGL prohibits a publicly held
Delaware corporation from engaging, under certain circumstances, in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person becomes an interested
stockholder, unless (i) prior to the date at which the stockholder became an
interested stockholder, the board of directors approved either the business
combination or the transaction in which the person becomes an interested
stockholder; (ii) upon consummation of the transaction which results in the
stockholder 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 officers or
held in certain employee stock plans); or (iii) the business combination is
approved by the board of directors and by at least 66 2/3% of the outstanding
voting stock of the corporation (excluding shares held by the interested
stockholder) at a meeting of stockholders (and not by written consent) held on
or subsequent to the date such stockholder became an interested stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 15% or
more of the corporation's voting stock. A "business combination" includes,
without limitation, mergers, consolidations,
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stock sales and asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
Budget's Classification of Stock. Budget has two classes of Common Stock:
Budget Class A Common Stock, holders of which are entitled to one vote per
share, and Budget Class B Common Stock, holders of which are entitled to ten
votes per share. Three executive officers own all outstanding shares of Budget
Class B Common Stock, which, following the Merger, together with the Budget
Class A Common Stock owned by such individuals, will represent approximately
44.0% of the combined voting power of both classes of Common Stock. As a result,
such officers will be able to exert substantial influence over any vote to
approve a potential business combination.
The Ryder Certificate and the Ryder Bylaws do not contain any antitakeover
provisions. Following the Merger, no Ryder Stockholder will be an "interested
stockholder" of Budget.
TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS
Under Delaware Law, no contract or transaction between a corporation and
one or more of its directors or officers, or between a corporation and any other
entity in which one or more of its directors or officers are directors or
officers, or have a financial interest, is void or voidable solely by reason of
such interest if (i) the material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
known to the board of directors or committee which authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors; (ii) the material facts as to the director's or officer's
relationship or interest and as to the contract or transaction are disclosed or
known to the stockholders entitled to a vote thereon, and the contract or
transaction is specifically approved by the stockholders; or (iii) the contract
or transaction is fair as to the corporation as of the time it is authorized,
approved or ratified by the board of directors, a committee thereof, or the
stockholders. A corporation may make loans to, guarantee the obligations of or
otherwise assist its officers or other employees and those of its subsidiaries,
including directors who are also officers or employees, when such action, in the
judgment of the directors, may reasonably be expected to benefit the
corporation.
None of the Budget Certificate, the Budget Bylaws, the Ryder Certificate or
the Ryder Bylaws imposes any further restrictions regarding transactions
involving officers or directors of Budget or Ryder, respectively.
INDEMNIFICATION
Under Delaware Law, a corporation has the power to indemnify any agent
against expenses, judgments, fines and settlements incurred in a proceeding,
other than an action by or in the right of the corporation, if the person acted
in good faith and in a manner that the person reasonably believed to be in the
best interests of the corporation or not opposed to the best interests of the
corporation, and, in the case of a criminal proceeding, had no reason to believe
that their conduct was unlawful. In the case of an action by or in the right of
the corporation, the corporation has the power to indemnify any agent against
expenses incurred in defending or settling the action if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation; provided, however, that no
indemnification may be made when a person is adjudged liable to the corporation,
unless a court determines such person is entitled to indemnification for
expenses, and then such indemnification may be made only to the extent that such
court shall determine. Delaware Law requires that to the extent a present or
former officer or director of a corporation is successful on the merits or
otherwise in defense of any third-party or derivative proceeding, or in defense
of any claim, issue or matter therein, the corporation must indemnify such
person against expenses incurred in connection therewith.
The Budget Bylaws permit indemnification in circumstances described under
the Delaware Law. Also, the Budget Bylaws state that the rights to
indemnification provided thereunder are not exclusive of any other
indemnification rights the directors might be entitled to under law.
The Ryder Certificate permit indemnification in circumstances described
under Delaware Law. The Ryder Certificate also states that the rights to
indemnification provided thereunder are not exclusive of any
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other indemnification rights the directors might be entitled to under the Ryder
Bylaws or any other contracts or agreements.
DIRECTORS' LIABILITY
Under Delaware Law, a corporation may adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that such provision may not eliminate or
limit director monetary liability for (i) breaches of the director's duty of
loyalty to the corporation or its stockholders; (ii) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law;
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) transactions in which the director received an improper
personal benefit. Both the Budget Certificate and the Ryder Certificate contain
this provision.
STOCKHOLDER APPROVAL OF MERGER
Under Delaware Law, mergers generally require the approval of the
stockholders of each of the merging corporations. Unless otherwise required in a
corporation's certificate of incorporation, Delaware Law does not require the
vote of stockholders of a constituent corporation surviving the merger if (i)
the merger agreement does not amend the existing certificate of incorporation,
(ii) each share of the surviving corporation outstanding before the merger is an
identical outstanding or treasury share after the merger, and (iii) either no
shares of the surviving corporation and no securities convertible into such
stock are to be issued in the merger or the number of shares to be issued by the
surviving corporation in the merger does not exceed 20% of the shares
outstanding immediately prior to the merger.
The Ryder Certificate states that each holder of Ryder Class A Common Stock
shall be entitled to one vote per share on all matters to be voted on by Ryder
Stockholders, and the holders of Ryder Class B Common Stock and Ryder Class C
Common Stock shall have no right to vote on any matters to be voted on by Ryder
Stockholders; provided, however, that the holders of Ryder Class B Common Stock
and Ryder Class C Common Stock shall have the right to vote as a separate class
on any merger or consolidation of Ryder with or into another entity in which the
Ryder Class B Common Stock or Ryder Class C Common Stockholders would receive or
be exchanged for consideration different on a per share basis from the
consideration received with respect to or in exchange for shares of Ryder Class
A Common Stock. The Ryder Bylaws states that the vote of a majority of the
voting stock of Ryder present in person or represented by proxy shall constitute
a quorum for the transaction of all business.
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BUSINESS OF BUDGET
GENERAL
Budget, through subsidiary companies and franchisees, operates Budget Car
and Truck Rental, the third largest worldwide car and truck rental system with
over 3,200 locations and a peak fleet size during 1997 of 283,000 cars, 22,500
trucks and 5,100 pick-ups. 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 120 countries worldwide. The Budget System had approximately 509
Budget-owned locations in the United States and 71 Budget-owned locations
outside of the United States at December 31, 1997. In addition, Budget
franchisees operated approximately 455 royalty-paying franchise locations in the
United States and 2,171 locations internationally at December 31, 1997.
Giving effect to the Budget Acquisition as if it had been completed January
1, 1997, for the year ended December 31, 1997, Budget-owned locations in the
United States accounted for approximately 80% of the Budget System's U.S.
vehicle rental revenues, while Budget-owned locations outside the United States
accounted for approximately 9% of the Budget System's international vehicle
rental revenues.
The Budget System is one of only three vehicle rental systems that offer
rental vehicles throughout the world under a single brand name, with locations
in Europe, Canada, Latin America, the Middle East, Asia/Pacific and Africa. The
Budget System currently maintains more local market rental locations throughout
the world than most of its major competitors and is 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.
In addition, Budget owns Cruise America, one of the largest North American
companies specializing primarily in the rental and sale of recreational vehicles
with 85 locations; Premier Car Rental, which serves the insurance replacement
market through a network of 150 locations in 16 major U.S. markets; and Budget
Car Sales, Inc., one of the largest independent retailers of late model vehicles
in the United States, which operates 26 retail car sales facilities. Budget also
owns Van Pool Services, which leases vans for van pooling operations in 28
states, and Budget Airport Parking, which operates airport parking facilities at
certain locations.
Budget management's long-term strategy is to create an automotive services
company which leverages the asset base and expertise of Budget. Budget assets
include a trade name that is recognized around the world; locations for the
rental, sale and maintenance of vehicles; a workforce that is proficient in
acquiring, financing, monitoring, maintaining and selling cars and trucks; and
advanced information systems to support these operations. Increasing the
utilization of these assets by acquiring automobile-related businesses would
reduce Budget'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. Key elements of this strategy include:
enhancing the Budget brand; improving the performance of car rental operations;
continuing to expand retail car sales operations and expanding truck rental
operations.
Sanford Miller (Chairman of the Board and Chief Executive Officer), John P.
Kennedy (Vice Chairman of the Board) and Jeffrey D. Congdon (Vice Chairman of
the Board and President of Budget Car Sales) (collectively, the "Principal
Executive Officers") together have over 75 years of experience in the vehicle
rental business and had acquired and operated 152 Budget rental locations and 11
Budget retail car facilities prior to the Budget Acquisition. In addition,
Messrs. Miller and Congdon together have over 25 years of experience operating
retail car sales facilities.
THE BUDGET ACQUISITION
On April 29, 1997, Budget acquired all the outstanding capital stock of
BRACC pursuant to a series of stock purchase agreements among TEAM, Ford Motor
Company, BRACC and the common stockholder of BRACC (the "Stock Purchase
Agreements"). The consideration paid by TEAM pursuant to the Stock Purchase
Agreements consisted of approximately $275 million cash and the issuance to Ford
of 4,500 shares
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of Series A Convertible Preferred Stock, which were converted into 4,500,000
shares of Budget Class A Common Stock and sold in a public offering in October
1997.
Pursuant to the Stock Purchase Agreements, Ford contributed $2.4 million in
cash to Budget in connection with the establishment of a Special Bonus Program
which provides bonus payments to BRACC employees. Budget has made payments in
options and cash pursuant to the Special Bonus Program totaling approximately
$4.8 million.
Concurrently with the consummation of the Budget Acquisition, BRACC entered
into a supply agreement with Ford (the "Supply Agreement"). Under the terms of
the Supply Agreement, Budget agreed to purchase or lease Ford vehicles in such
quantity in the United States, Canada and other countries outside the European
Union such that the percentage of Ford vehicles purchased or leased in each
country will be at least 70% of the total number of vehicles leased or purchase
in each model year by BRACC at its affiliates.
Concurrently with the consummation of the Budget Acquisition, Budget
entered into a ten-year advertising agreement with Ford (the "Advertising
Agreement") under which Budget has undertaken to carry out promotional programs
that feature and promote the rental of Ford vehicles. 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.
RECENT DEVELOPMENTS
Cruise America. On January 28, 1998, Budget acquired Cruise America, which
is one of the largest companies in North America specializing in the rental and
sale of recreational vehicles ("RVs"). Cruise America began rental and sales
operations in Miami, Florida in 1972, with an initial strategy to locate rental
centers in metropolitan gateway cities which are destinations for large numbers
of domestic and international travelers. Since that time, Cruise America has
established rental and/or sales locations across the United States and Canada.
At December 31, 1997, Cruise America operated a total of 16 Hub offices, 69
Satellite offices and a rental fleet of 2,810 RVs. Besides rentals, Cruise
America sells new and used RVs (including vehicles retired from the rental
fleet) from its Hub offices. The sales effort is marketed under the name RV
DEPOT and for the year ended April 30, 1997, RV sales represented approximately
44% of total revenue.
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BUSINESS OF RYDER
GENERAL
Ryder was incorporated under the laws of the State of Delaware on September
5, 1996. On the Ryder Acquisition Closing Date, pursuant to the Ryder
Acquisition Agreements, Ryder acquired from RTR substantially all of the assets
of the Division in the Ryder Acquisition. The aggregate adjusted cash purchase
price was $573.3 million. The assets acquired included trucks, moving equipment
and related accessories, prepaid advertising, license fees and certain hardware
and management information systems. The assets also included the royalty-free
right to use the 1-800-GO-RYDER telephone number and other Ryder trademarks.
Ryder also acquired four subsidiaries of RTR: (i) RMM, (ii) Ryder Truck Rental
One-Way, Inc., (iii) The Move Shop, Inc. and (iv) Ryder Relocation Services,
Inc. Pursuant to the Ryder Acquisition Agreements, Ryder agreed to assume all
liabilities and obligations arising out of the conduct of business by Ryder on
or after the Ryder Acquisition Closing Date. RTR and Ryder agreed that Ryder
would not be liable for environmental conditions existing prior to the Ryder
Acquisition Closing Date, whether discovered or undiscovered.
Financing for the Ryder Acquisition, and for related fees and expenses,
consisted of (i) $123.0 million of equity capital provided by Questor and
certain other investors; (ii) $350.0 million of term loans (the "Term Facility")
and $31.0 million of revolving loans (the "Revolving Credit Facility") borrowed
under a $500.0 million senior secured credit facility; and (iii) $100.0 million
of loans borrowed under a senior subordinated loan facility. The Ryder
Acquisition, the financing thereof, and the payment of related transaction fees
and expenses are referred to herein as the "Ryder Acquisition Transactions."
Ryder used the net proceeds from the Ryder Note Offering to repay certain
indebtedness.
During 1997, Ryder's special purpose subsidiary, FCTR, Inc. ("Finco")
entered into a commercial paper program that permits the issuance of up to
$450.0 million in commercial paper notes. In conjunction with the commercial
paper program, Ryder refinanced the amounts outstanding under its Term Facility
and Revolving Credit Facility. In addition, Ryder entered into an agreement
pursuant to which Ryder has established a five year, $40.0 million secured
revolving credit facility. Ryder has also entered into a $50.0 million facility
for the issuance of cash collateralized letters of credit.
DESCRIPTION OF BUSINESS
GENERAL DESCRIPTION OF BUSINESS
Ryder rents trucks to both individual consumers and businesses. Consumers
generally rent trucks from one Ryder location and return them either to the same
location or to a different location. Commercial customers range from small local
businesses, such as florists, package delivery companies and local private
moving companies, to large national companies that rent Ryder trucks primarily
for the transportation and delivery of inventory and packages. Commercial
rentals complement Ryder's consumer rentals by enabling Ryder to improve
utilization of its trucks on weekdays, when consumer demand is typically lower
than it is on weekends. Ryder is the second largest provider of truck rentals
and related moving supplies and services to consumers and light commercial users
in the United States, with a fleet of approximately 29,000 trucks as of December
31, 1997.
Ryder supplements its truck rental business with a range of other products
and services. Ryder rents automobile towing equipment and other moving
accessories such as hand trucks and furniture pads and sells moving supplies
such as boxes, tape and packing materials. Ryder also offers customers a range
of liability-limiting products such as physical damage waivers, personal
accident and cargo protection and supplemental liability protection. These
accessory products enhance Ryder's appeal to consumers by offering customers
"one-stop" moving services.
Ryder also offers comprehensive household goods relocation services to
corporate employee relocation departments through RMM.
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SALES, MARKETING AND ADVERTISING
Ryder's marketing and promotional activities are designed to build brand
awareness and preference by positioning Ryder as the high-quality truck rental
provider and emphasizing the convenience and ease of doing business with Ryder.
A substantial portion of Ryder's advertising budget is devoted to Yellow Pages
advertising, which management believes is the most effective advertising medium
for truck rentals. Ryder also utilizes national television advertising, local
radio and print and direct mail to support specific market objectives. Ryder
also uses a number of other advertising media to target potential customers just
before they move.
VEHICLE ACQUISITION AND DISPOSITION
Ryder purchases the chassis for its trucks primarily from Ford, General
Motors and Navistar, and purchases the "boxes" (the storage compartment on the
back of the truck) from Morgan Body Company, UtiliMaster, Grumman Olson and
Supreme Corporation.
Purchasing of trucks is coordinated through Ryder's headquarters in Denver,
Colorado. Orders are generally placed in the fall for delivery primarily in time
for the busy summer season. Ryder believes that its purchasing expertise and the
volume of its purchases enable it to buy vehicles on terms that are more
favorable than those available to its smaller competitors. Ryder disposes of its
used vehicles through several outlets, including trade-ins through
manufacturers, sales through RTR's truck sales operations and sales through
Ryder's dealers. Ryder disposes of its trucks throughout the year, with a larger
proportion being sold or traded in during the first and fourth quarters.
OPERATIONS
Ryder is headquartered in Denver, Colorado and operates under the Ryder
name through a national network of approximately 3,900 dealers at December 31,
1997. Ryder maintains regional marketing offices, each of which is headed by a
Director and General Manager ("DGM") who reports to the Vice President and
General Manager, Field Operations. DGMs are primarily responsible for overall
business development and recruiting, training and managing the dealers. Each
geographic area also has a team of dealer coordinators, based in the respective
area centers, who are collectively responsible for the operation and management
of the fleet and who report to the Vice President of Operations. In addition,
each DGM also supervises Sales Executives who are responsible for RMM's sales
and account management.
Trucks are shared among the members of each market team, and dealers have
access through their point-of-sale systems to information concerning inventory
levels at all dealers within their team. Ryder involves its dealers in business
planning through local, regional and national dealer councils which meet on a
regular basis to provide Ryder with input regarding operating and marketing
issues.
DEALER NETWORK
Ryder's truck rental services are offered nationwide through approximately
3,900 independent dealers, and approximately 20 retail outlets owned and
operated by Ryder. The number of dealers peaked above 5,000 in 1995 and has now
been reduced to the current level as a result of Ryder's efforts to rationalize
its distribution network. Management continually evaluates its distribution
network.
Dealerships consist primarily of auto sales and service retailers, rental
centers, self storage centers, car rental locations and other vehicle-related
businesses that are owned by independent parties. These dealers rent Ryder
trucks in addition to operating their principal lines of business. Dealers owned
and operated by RTR also rent trucks on behalf of Ryder under substantially the
same terms and conditions as for other dealers.
Dealership agreements can be terminated by either party upon 30 to 90 days'
prior written notice, depending on dealer tenure. RTR dealership arrangements
can be terminated at certain times depending on dealer revenues. See
"-- Relationships with RSI."
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SEASONALITY
Truck rentals display some seasonality, with generally higher levels of
demand occurring during the summer months and the third quarter typically being
Ryder's strongest quarter. On average, approximately 50% of Ryder's annual
revenues are earned from May through September, with August being the strongest
month.
Ryder's cash flows also display seasonality due to the timing of truck
purchases and dispositions. Ryder typically receives delivery of trucks between
March and June of each year, resulting in additional borrowing needs during that
period. Dispositions are spread more evenly throughout the year, with greater
dispositions occurring during the first and fourth quarters.
COMPETITION
The truck rental industry is highly competitive, with U-Haul being the
principal competitor with a greater market share than Ryder. U-Haul has more
dealers and operates a significantly greater number of its own stores than does
Ryder. However, management believes that Ryder's fleet of trucks is younger than
U-Haul's fleet. Other competitors include Budget Rent-A-Car and Penske Truck
Leasing, among others. Competition in the industry is generally based on price,
product quality, brand name recognition, service, convenience and availability.
EMPLOYEES
As of December 31, 1997, Ryder had approximately 700 full-time employees,
none of whom was represented by a union. Ryder also engages part-time drivers to
transfer trucks among dealers. Ryder believes that its relationship with its
employees is satisfactory and that its employees, many of whom have long
experiences with Ryder, represent a valuable resource.
INTELLECTUAL PROPERTY
Ryder has the royalty-free right to use certain Ryder trademarks, subject
to certain restrictions until October 17, 2006. After October 17, 2001, Ryder
must begin using these trademarks in conjunction with a successor name. On
October 17, 2006, Ryder will no longer be permitted to use the Ryder name in any
manner. Ryder has the royalty-free right to use the 1-800-GO-RYDER number,
subject to certain restrictions, for a period of up to 13 years. Ryder also has
the royalty-free right to use the Ryder signature color scheme in perpetuity,
subject to certain restrictions. Ryder's material trademarks have been
registered with the United States Patent and Trademark Office. The unexpected
loss of such trademarks prior to the expiration of the ten-year period could
have a material adverse effect on Ryder's business.
INSURANCE
Ryder has retained a portion of its risk under automobile and general
liability insurance and other insurance programs for activities subsequent to
the Acquisition. Coverage varies, but generally Ryder retains a significant
portion of the per occurrence claims under $1 million. Ryder has excess
liability insurance per occurrence for claims between $1 million and $100
million. The reserves for these claims are based on actuarial or other
estimates. There can be no assurance that the estimates will not change as a
result of limitations inherent in the estimation process.
GOVERNMENTAL REGULATION
Ryder and its operations are subject to various federal, state and local
laws and regulations, including those relating to taxing and licensing of
vehicles, transportation and vehicle safety, consumer protection, insurance,
advertising, used vehicle sales and labor matters. Ryder believes that it is in
substantial compliance with applicable laws and regulations. However, Ryder may
be affected by the adoption of additional laws or regulations and/or changes,
from time to time, in existing laws and regulations and/or the interpretation
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thereof. In addition, Ryder's operations, as well as those of its competitors,
could be affected by any limitation in fuel supply or any rationing of fuel.
Ryder offers for sale, in addition to the rental of trucks, certain
liability-limiting products, such as physical damage waivers pursuant to which
Ryder agrees to waive its right to recovery from a renter for damage to the
truck. Certain states have enacted legislation, generally applicable to
automobile rentals, which limits the rates that may be charged for collision
damage waivers, limits potential customer liability for damage to rented
vehicles and/or restricts or regulates the sale of such liability-limiting
products. In addition, Congress has from time to time considered legislation to
regulate the sale of collision damage waivers by rental companies, but no such
legislation has been enacted to date. The adoption of additional state or
federal legislation applicable to truck rentals that would restrict the sale, or
limit the rates or otherwise regulate the sale, of collision damage waivers or
other liability-limiting products, or would limit potential customer liability
could adversely affect sales of these products by Ryder.
A number of states currently hold a vehicle owner, including vehicle rental
companies, vicariously liable, regardless of fault, for the actions of any
person lawfully driving such owned vehicle.
ENVIRONMENTAL MATTERS
Ryder and its operations are subject to various federal, state and local
environmental laws and regulations, including laws and regulations which relate
to the ownership or use of tanks for the storage of petroleum products, the
management and removal of asbestos-containing materials in buildings, and the
disposal of solid or liquid wastes. Ryder believes that it is in substantial
compliance with applicable environmental laws and regulations. Such laws and
regulations impose liability on responsible parties to remediate, or contribute
to the costs of remediating, sites at which petroleum products or hazardous
wastes or substances were disposed of or released, which may include sites
operated by Ryder or to which it may have sent waste products for disposal,
treatment or recycling. Such remediation requirements may be imposed without
regard to fault or legality at the time of disposal or release. Ryder may be
affected by the adoption of additional laws or regulations related to
environmental matters and/or changes from time to time in existing laws and
regulations and/or the interpretation thereof.
RSI has remediated contamination at one property pursuant to such
remediation laws, and there can be no assurance that contamination requiring
remediation will not be found in the future at other properties leased by Ryder.
Also, there can be no assurance that asbestos- containing building materials,
such as asbestos-containing floor and ceiling materials, do not exist in one or
more of Ryder's leased buildings. RSI, however, has agreed, pursuant to the
Ryder Acquisition Agreements, to retain liability for, and to indemnify Ryder
against, certain environmental conditions existing at the properties at the time
Ryder assumed the leases from RSI. Therefore, Ryder believes that it will not
incur material liability in the event that such environmental conditions are
found to exist. However, there can be no assurance that if recourse to the
indemnification for environmental matters provided in the Ryder Acquisition
Agreements becomes necessary that it will be available or uncontested.
Ryder also maintains aboveground storage tanks at one property for the
storage of petroleum products, and performs light vehicle maintenance at some of
its leased properties. There can be no assurance that underground storage tanks
do not exist on one or more of Ryder's leased properties. While RSI has agreed
to retain liability for and indemnify Ryder against claims relating to
environmental conditions existing prior to the date of the Ryder Acquisition,
whether discovered or undiscovered, there can be no assurance that present or
future activities undertaken by Ryder will not result in environmentally related
expenditures for which Ryder may be responsible. Ryder believes, however, that
such expenditures would not have a material adverse effect on its financial
condition.
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<PAGE> 75
RELATIONSHIP WITH RSI
In connection with the Ryder Acquisition, Ryder entered into a number of
agreements with RTR, which are summarized below.
Non-Competition Covenants
In connection with the Ryder Acquisition, RTR and Ryder each agreed not to
engage in certain types of rental transactions after the Ryder Acquisition
Closing Date. For a period of ten years after such date, RTR agreed not to
engage in the "one-way" consumer and "one-way" light commercial truck rental
businesses. For a period of two years following the Ryder Acquisition Closing
Date, RTR agreed to refer to Ryder all customers in the one-way consumer and
one-way light commercial rental businesses.
For as long as Ryder is using the Ryder name, Ryder has agreed not to
engage in leasing (generally defined as the renting of a truck for a period in
excess of ninety days, which can be extended up to one year) or heavy duty truck
rentals. Until October 17, 1998, Ryder has agreed to refer to RTR all customers
of leasing or heavy duty truck rentals.
Ryder and RTR each engage in the local consumer rental business and the
local light commercial rental business. For this purpose RTR will serve as a
dealer for the rental of Ryder's trucks. However, during RTR's non-compete
period, RTR has agreed not to advertise with respect to the local consumer
rental business or to engage through third party dealers, agents or franchisees
in the local consumer rental business.
Except as described in the second paragraph of "Dealer and Cooperation
Arrangements" below, neither party is restricted from engaging in the local
light commercial rental business (defined as the rental of trucks with a
manufacturer's gross vehicle weight of under 26,000 pounds for a business
purpose). Pursuant to the Ryder Acquisition Agreements, Ryder and RTR have
agreed to cooperate with each other to develop a joint marketing and truck
rental program with respect to certain large customers in the light commercial
rental business.
Dealer and Cooperation Arrangements
Pursuant to the Dealer Agreement, RTR agreed to act as a dealer for the
rental of Ryder's trucks and accessory equipment at certain of the RTR branch
locations for a commission slightly lower than the standard commission. This
commission will be adjusted to match Ryder's standard commission rate beginning
in 1999. Each party may, upon 60 days' notice to the other party, remove RTR's
dealer locations as dealers of Ryder's trucks without cause (based on rental
revenues for such dealers for the immediately preceding year) according to an
agreed upon schedule. RTR or Ryder may terminate the Dealer Agreement with
respect to any dealer location upon a material breach of the terms of such
agreement not cured within 30 days after notice thereof. RTR agreed to limit the
size of its vehicle fleet of light duty trucks (i.e., trucks having a
manufacturer's gross vehicle weight of 16,000 pounds or less) to 6,500 trucks in
1997 and 7,500 trucks in 1998, so long as Ryder (i) makes an agreed upon number
of trucks available to RTR and (ii) does not open any new dealers within a
two-mile radius of any branch of RTR during such period.
Pursuant to the Ryder Acquisition Agreements, Ryder and RTR also agreed for
a period of up to ten years to cooperate with each other in structuring a joint
program for Yellow Pages advertising in phone books. RTR also agreed to sell to
Ryder, through RTR's affiliate, Network Sales, Inc., truck parts and components
at wholesale cost for so long as such affiliate is a distributor of repair parts
and components.
Service Agreements
RTR continues to provide Ryder with various services, including acting as
agent in the sale of used trucks and providing maintenance on Ryder's trucks.
RTR has agreed to act as Ryder's agent in selling Ryder's used trucks at
RTR's Used Truck Centers and other RTR branch locations. In consideration for
such services, Ryder has agreed to pay RTR a fixed amount per vehicle sold, plus
a per vehicle sales commission in accordance with RTR's used truck
representative sales
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<PAGE> 76
compensation plan consistent with past practice. Ryder also agreed to reimburse
RTR for a fixed amount per truck sold for advertising expenses. Ryder agreed to
consign to RTR a certain percentage of the total number of used vehicles it
trades or sells in each of the years from 1997 through 2001. After December 31,
2001, either party may terminate the agreement upon 60 days' notice.
RTR has agreed, pursuant to the Vehicle Maintenance Agreement, to provide
maintenance for Ryder's vehicles at a rate that is intended to approximate the
rate RTR charged Ryder prior to the Ryder Acquisition Closing Date. Ryder has
agreed to order a minimum amount of labor hours of repairs each year from RTR,
which each party has the unilateral right to reduce in 1998 and thereafter by an
amount up to 20% of the minimum amount of labor hours for that year.
RTR has agreed, pursuant to the Administrative Services Agreement and the
MIS Support Agreement, to provide Ryder, at its request, for a period of up to
two years after the Ryder Acquisition Closing Date, with certain administrative
and management information systems support services related to its operations.
Services currently provided under these agreements include those relating to
accounting and tax functions, payroll administration, vehicle administration,
and computer systems support. Pursuant to the Administrative Services Agreement,
Ryder is charged a rate that is intended to approximate the internal transfer
pricing rate charged by RTR to Ryder prior to the Ryder Acquisition Closing
Date, plus a markup with respect to certain services. Any or all services may be
discontinued upon 60 days' notice from Ryder.
Pursuant to the MIS Support Agreement, Ryder is charged a rate that is
intended to approximate the internal transfer pricing rate charged Ryder by RTR
prior to the Ryder Acquisition Closing Date, which rate is fixed for the term of
the contract, provided that Ryder's usage of such services does not increase
from Ryder's usage prior to the Ryder Acquisition Closing Date. Any or all
services may be discontinued upon 90 days' notice from Ryder.
Intellectual Property
RTR has assigned certain patents, including patents relating to loading
ramps, to Ryder. Pursuant to the Patent License Agreement, Ryder has granted RTR
the right to use these patents.
Pursuant to the Copyright License Agreement, RTR has granted Ryder the
royalty-free right to use written promotional materials, which were developed
and copyrighted by RTR prior to the Ryder Acquisition Closing Date, in
connection with marketing Ryder's business for ten years, subject to certain
restrictions. Ryder may grant sublicenses of its rights to its dealers, subject
to certain restrictions. See "-- General Description of Business -- Intellectual
Property."
Pursuant to the Software License Agreement, RTR has granted Ryder a
royalty-free perpetual right to use certain computer software necessary for the
operation of Ryder's business that was not transferred to Ryder by RTR in the
Ryder Acquisition.
Ryder believes that the overall arrangement with RSI is adequate, in all
material respects, to provide for an effective transition of Ryder to an
independently operating entity.
PROPERTIES
Ryder leases all of its office and retail locations and owns no real
property. Ryder has granted a security interest in all of its leases.
Significant office operations are located in the metropolitan area of
Denver, Colorado, where Ryder presently maintains its headquarters. Ryder
entered into an agreement in March 1997 pursuant to which it leased office space
in downtown Denver for a minimum term of 10 years and a minimum annual rent
commitment ranging from $0.9 million to $1.4 million. Ryder's independent
dealers generally operate out of facilities owned or leased by them for their
principal businesses.
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<PAGE> 77
LEGAL PROCEEDINGS
Ryder is a party to various claims, legal actions and complaints arising in
the ordinary course of business. While any proceeding or litigation has an
element of uncertainty, Ryder's management believes that the disposition of
these matters will not have a material impact on the financial condition,
liquidity or results of operations of Ryder.
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<PAGE> 78
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF RYDER
The following discussion and analysis of the financial condition and
results of operations covers periods both before and subsequent to completion of
the Ryder Acquisition Transactions. As a result of the Ryder Acquisition, the
purchase price was allocated to Ryder's assets and liabilities assumed based on
their estimated fair values as of October 17, 1996. Ryder also changed the
estimated lives and residual values used to calculate the provision for
depreciation on certain types of trucks. In addition, Ryder entered into new
financing arrangements and has its own capital structure. Accordingly, the
results of operations for periods subsequent to October 17, 1996 are not
comparable to prior periods.
The Pro Forma Condensed Statement of Operations for the year ended December
31, 1996, reflects the Ryder Acquisition Transactions, the Ryder Note Offering
and the application of the proceeds therefrom, as if they had occurred on
January 1, 1996. The pro forma results of operations do not purport to be
indicative of the results that would actually have been obtained if the Ryder
Acquisition Transactions, the Ryder Note Offering and the application of the
proceeds therefrom had occurred on January 1, 1996, or of the results that may
be obtained in the future.
RESULTS OF OPERATIONS
The following table sets forth a comparison of the results of operations
for three years ended December 31, 1995, 1996 (pro forma) and 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Truck rental and related revenue............................ $546.7 $542.8 $545.7
Operating expense........................................... 174.8 177.0 191.5
Selling, general and administrative expense................. 216.3 209.6 225.8
Depreciation expense (net of gains) and amortization........ 113.0 122.1 112.2
Restructuring and other charges............................. 6.4 1.9 --
------ ------ ------
Operating income....................................... 36.2 32.2 16.2
Interest expense............................................ 29.6 44.6 39.2
------ ------ ------
Earnings (loss) before income taxes and extraordinary
item................................................. 6.6 (12.4) (23.0)
Income tax expense (benefit)................................ 3.0 (4.4) (8.8)
------ ------ ------
Earnings (loss) before extraordinary item.............. 3.6 (8.0) (14.2)
------ ------ ------
Extraordinary loss, net of tax.............................. -- -- (4.6)
------ ------ ------
Net earnings (loss).................................... $ 3.6 $ (8.0) $(18.8)
====== ====== ======
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 (Pro
Forma)
Revenues of $545.7 million were $2.9 million or 0.5% ahead of 1996 with
increased liability-limiting product sales and growth in relocation services
being partially offset by lower local truck and towing equipment rentals.
Although truck rental revenue decreased, utilization increased from 44.6% in
1996 to 46.9% in 1997, and revenue per vehicle increased by 4.4%. This was a
direct result of management's decision to focus efforts on improving fleet
utilization. One-way truck rental transactions were 3.4% higher than in 1996
while local truck rental transactions were 3.6% lower. Revenues from relocation
services were 35.7% higher than last year driven by a growing customer base and
increased relocation activity.
Operating expense in 1997 increased by $14.5 million or 8.2% (35.1% of
revenue compared to 32.6% in 1996). The increase was driven by increased costs
associated with higher fleet transfer activity, higher physical damage expense
associated with the timing of repairs and variable costs associated with
increased relocation services revenue. Also contributing to a lesser extent were
higher maintenance costs associated with an increase in the number of miles
driven compared to 1996 and an increase in maintenance costs per mile associated
with an older fleet. In addition, bodily injury and property damage ("BIPD")
costs were higher
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<PAGE> 79
than last year. In 1996, Ryder participated in RSI's overall risk management
program under which the amount of BIPD reserves recorded by RTR was based on a
number of factors including: (i) undiscounted estimated liabilities for the
claims received in 1996; (ii) estimated claims incurred but not reported for
1996; and (iii) changes in estimates of prior year reserves based upon actual
claims experience. In 1997, Ryder operated its own risk management program and
has recorded its BIPD reserves based upon the undiscounted estimated liabilities
for the claims received and an estimate of claims incurred but not reported for
its first year of operations. Accordingly, the BIPD expense for periods
subsequent to the date of acquisition is not comparable to prior periods. While
management believes the amount of the 1997 reserves is adequate, these reserves
may need to be adjusted in the future based on actual claims experience.
Selling, general and administrative expense increased in 1997 by $16.2
million or 7.7% (41.4% of revenue compared to 38.6% in 1996). The increase was
due to increased advertising and sales promotions, professional fees related to
the transition of Ryder to a stand-alone business, costs associated with
upgrading the phone reservation process, an increase in the bad debt reserve
related to potential credit issues primarily associated with the transition to a
stand-alone business, and transition costs associated with Ryder's move to
Denver, Colorado.
Depreciation (net of gains) and amortization expense decreased by $9.9
million largely as a result of a 4.6% decrease in the average fleet size.
Interest expense of $39.2 million, including the amortization of deferred
financing costs, was $5.4 million below 1996 due primarily to lower debt levels
and a reduction in interest rates associated with the commercial paper program.
The effective income tax rate was 38.5% for 1997 compared to a pro forma
effective rate of 35.2% for 1996. The 1996 rate includes the effect of combining
the pre- and post-acquisition operations and the Ryder Acquisition Transaction
adjustments. Based on current estimates of future earnings, the net deferred tax
asset is expected to be recovered within the next five to ten years.
An extraordinary item of $4.6 million, net of related income tax benefit,
was recognized in 1997 for the write off of financing costs related to the
extinguishment of the senior bank facilities.
Year Ended December 31, 1996 (Pro Forma) Compared to Year Ended December 31,
1995
Revenues of $542.8 million were $3.9 million or 0.7% below 1995. One-way
and local truck rentals and accessory rentals and product sales were essentially
flat while revenues from relocation services declined.
Operating expense of $177.0 million was $2.2 million or 1.3% higher than
1995 (32.6% of revenue compared to 32.0% in 1995). Higher vehicle maintenance
costs, which were primarily the result of an increase in the average age of the
fleet from 29 months to 36 months, were partially offset by a reduction in
vehicle operating lease expense due to the purchase of approximately 1,200
trucks in late 1995 that had been leased in 1992.
Selling, general and administrative expense decreased $6.7 million or 3.1%
to $209.6 million (38.6% of revenue compared to 39.6% in 1995). The decrease
resulted from a combination of cost savings generated from the consolidation of
administrative functions in late 1995 as well as lower advertising expenses.
Depreciation (net of gains) and amortization expense increased $9.1 million
or 8.1% to $122.1 million primarily as a result of the step-up of revenue
earning equipment, software development costs and intangible assets to their
estimated fair value in connection with the acquisition. The pro forma effect of
these changes is reflected in 1996 but not in 1995. Ryder did not recognize any
vehicle gains or losses for the period from October 17, 1996 through December
31, 1996 as a result of acquired vehicles being adjusted to their fair market
values at the date of the acquisition.
Restructuring charges were $1.9 million in 1996 compared with $6.4 million
in 1995. The 1996 charge reflects costs associated with the elimination of
Ryder-owned car benefit program and employee severance costs resulting from
actions taken by RSI during the second and third quarters of 1996. The 1995
charge
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<PAGE> 80
reflect Ryder's consolidation of 20 administrative locations into two area
centers and includes lease termination costs, employee severance costs and
employee relocation costs.
Interest expense of $44.6 million was $15.0 million or 50.7% higher than
1995 due to changes in Ryder's financing structure. On a pro forma basis,
interest expense in 1996 reflects the impact of borrowings associated with the
Ryder Acquisition Transactions while 1995 reflects charges from RSI based upon
its overall interest expense.
INFLATION
Ryder does not believe that inflation has had a material impact on its
financial position or results of operations during the periods covered by the
historical consolidated financial statements of Ryder included elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
Ryder's liquidity needs subsequent to the Ryder Acquisition arise primarily
from debt service, working capital needs and the funding of capital
expenditures. Ryder's principal sources of cash to fund these liquidity needs
have been net cash from operating activities, proceeds from sales of revenue
earning equipment and borrowings under Ryder's commercial paper program.
The components of net cash from operating activities are detailed in the
historical consolidated financial statements of Ryder included elsewhere herein
and include net loss adjusted for (i) depreciation (net of gains) and
amortization expense, (ii) deferred income taxes, (iii) extraordinary loss, and
(iv) changes in operating assets and liabilities. Net cash flows from operating
activities for the year ended December 31, 1997 amounted to $107.0 million.
Ryder's capital expenditures, primarily for the purchase of revenue earning
equipment, net of disposal proceeds, were $77.1 million in 1997 compared with
$23.8 million for the same period in 1996. Ryder disposes of vehicles through
several outlets, including trade-ins through manufacturers, sales through RTR's
truck sales operations and sales through Ryder's independent dealers. Ryder also
disposes of other property and equipment in the ordinary course of business.
Ryder estimates that its total capital expenditures for 1998 will range between
$130.0 million and $180.0 million and proceeds from dispositions will range
between $30.0 million and $50.0 million.
During 1997, Finco entered into a commercial paper program that permits the
issuance of up to $450.0 million in commercial paper notes subject to borrowing
base availability provided by the RCTR truck fleet. In conjunction with the
commercial paper program, Ryder refinanced the amount outstanding on that date
under its senior bank facilities. In addition, Ryder entered into an agreement
pursuant to which Ryder has established a five-year, $40.0 million secured
revolving credit facility. Ryder has also entered into a $50.0 million facility
for the issuance of cash collateralized letters of credit. All of the
aforementioned agreements contain certain covenants and restrictions, including,
among other things, restrictions on the payment of dividends and the incurrence
of additional indebtedness.
Amounts available under the commercial paper program are subject to
borrowing base availability and may be generally used for the purchase of
trucks. The remaining availability under the commercial paper program on
December 31, 1997 was approximately $118.1 million. Amounts available under the
$40.0 million revolving credit facility are also subject to borrowing base
availability and may be generally used for working capital purposes. The
remaining availability under this facility on December 31, 1997 was $37.7
million. Ryder generally manages the cash balances and working capital position
of Ryder to minimize amounts outstanding under the debt agreement.
During the third quarter, Ryder recognized an extraordinary loss from the
early extinguishment of debt of $4.6 million, net of related income tax benefit,
associated with the refinancing of the senior bank facilities.
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<PAGE> 81
Ryder believes that cash generated from operations and asset depositions,
together with the amounts available under the aforementioned facilities, will be
adequate to meet its debt service, capital expenditure and working capital
requirements for the foreseeable future, although no assurance can be given in
this regard.
YEAR 2000 COMPLIANCE
As part of the transition to a stand-alone entity, Ryder has several new
technology initiatives under development which include modification of its
computer software for year 2000 compliance. Although it is not possible to
quantify the impact year 2000 compliance issues will have on Ryder's customers
or suppliers, Ryder does not anticipate any material adverse effect on its
financial condition, liquidity or results of operations.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" in June
1997. This statement, which is required to be adopted in the first quarter of
1998, establishes standards for reporting comprehensive income and its
components. This statement is not expected to have a material effect on Ryder's
financial statements.
The FASB also issued Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information," in June
1997. This statement, which is required to be adopted in the first quarter of
1998, establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. This statement is not expected to have
a material effect on Ryder's financial statements.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This statement
addresses costs that are capitalizable and costs that must be expensed, and
provides guidance on amortization periods for internal use software. This SOP is
required to be adopted for fiscal years beginning after December 15, 1998 and
early adoption is encouraged for annual financial statements which had not been
issued at the time of the SOP's issuance. Ryder's existing accounting policy for
software development costs is in conformity with the provisions of this SOP. As
such, Ryder adopted this statement in the fourth quarter of 1997, resulting in
no financial statement impact.
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<PAGE> 82
OWNERSHIP OF RYDER CAPITAL STOCK
Ryder is authorized to issue 275,000 shares of Ryder Common Stock of which
225,000 shares are Ryder Class A Common Stock, 25,000 shares are Ryder Class B
Common Stock and 25,000 shares are Ryder Class C Common Stock. As of March 15,
1998, 109,090 shares of Ryder Class A Common Stock, 13,910 shares of Ryder Class
B Common Stock and 975 shares of Ryder Class C Common Stock were issued and
outstanding.
The holders of Ryder Class A Common Stock are entitled to vote on all
matters to be voted upon by shareholders of Ryder. Holders of Ryder Class B
Common Stock and Ryder Class C Common Stock have no voting rights other than as
required by law and with respect to certain mergers or other transactions in
which such holders would be treated differently from holders of Ryder Class A
Common Stock. Shares of Ryder Class A Common Stock are convertible into the same
number of shares of Ryder Class B Common Stock, and shares of Ryder Class B
Common Stock are convertible into the same number of shares of Ryder Class A
Common Stock in connection with certain events, including certain sales of
securities, mergers or similar transactions that would result in a change of
control of Ryder, as provided in the Ryder Certificate. Shares of Ryder Class C
Common Stock are not convertible into shares of Ryder Class A Common Stock or
Class B Common Stock, except under the circumstances described under
"-- Offering of Stock and Options to Management of Ryder."
The table below sets forth certain information, as of March 15, 1998,
regarding the ownership of each class of Ryder Common Stock by (i) each person
who beneficially owns five percent or more of the outstanding shares of such
class of Ryder Common Stock, (ii) each director and executive officer of Ryder
and (iii) all directors and executive officers of Ryder as a group. The table
below also reflects the ownership by such persons of Budget Class A Common
Stock, and the percentage of such ownership, following the Merger, based on the
assumptions set forth in the footnotes below.
<TABLE>
<CAPTION>
RYDER CLASS A RYDER CLASS C
COMMON STOCK COMMON STOCK
--------------------------- --------------------------- SHARES OF BUDGET
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE CLASS A PERCENTAGE OF BUDGET
CLASS A OF CLASS A CLASS C OF CLASS C COMMON STOCK CLASS A
SHARES SHARES SHARES SHARES BENEFICIALLY COMMON STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY OWNED BENEFICIALLY OWNED
NAME OWNED OWNED OWNED OWNED AFTER MERGER(8) AFTER MERGER(9)
- ---- ------------ ------------ ------------ ------------ ---------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
ALL FIVE PERCENT
SHAREHOLDERS:
Questor Partners Fund,
L.P.(1)................... 62,433 57.2% -- -- 1,753,443 6.0%
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Questor Side-by-Side
Partners, L.P.(1)......... 4,479 4.1% -- -- 125,793 *
103 Springer Building
3411 Silverside Road
Wilmington, Delaware 19810
Madison Dearborn Capital
Partners, L.P.(2)......... 24,600 22.6% -- -- 690,896 2.4%
Three First National Plaza
Suite 3800
Chicago, Illinois 60602
ALL DIRECTORS AND NAMED
EXECUTIVE OFFICERS:
Jay Alix.................... 66,912(1) 61.3% 0 0 1,879,237 6.4%
Alfred A. Piergallini....... 0 0 100 10.2% 2,809 *
Thomas R. Reusche........... 24,600(4) 22.6% 0 0 690,896 2.4%
Ronald A. Rittenmeyer....... 0 0 0 0 0 0
Wallace L. Rueckel.......... 0 0 0 0 0 0
Edward L. Scarff............ 66,912(1) 61.3% 0 0 1,879,237 6.4%
J. William Schutzenhofer.... 0 0 0 0 0 0
Gerald R. Riordan........... 0 0 0 0 0 0
</TABLE>
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<PAGE> 83
<TABLE>
<CAPTION>
RYDER CLASS A RYDER CLASS C
COMMON STOCK COMMON STOCK
--------------------------- --------------------------- SHARES OF BUDGET
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE CLASS A PERCENTAGE OF BUDGET
CLASS A OF CLASS A CLASS C OF CLASS C COMMON STOCK CLASS A
SHARES SHARES SHARES SHARES BENEFICIALLY COMMON STOCK
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY OWNED BENEFICIALLY OWNED
NAME OWNED OWNED OWNED OWNED AFTER MERGER(8) AFTER MERGER(9)
- ---- ------------ ------------ ------------ ------------ ---------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen T.D. Dixon.......... 0 0 59(5) 5.9% 6,881(10) *
Deborah L. Riston........... 0 0 147(6) 14.4% 13,088(11) *
David S. Russell............ 0 0 146(7) 14.3% 13,340(12) *
Michael A. Zawalski......... 0 0 0 0 7,021(13) *
All directors and executive
officers as a group (16 in
number)................... 91,512(3) 83.9% 818 66.6% 2,655,583(14) 9.1%
</TABLE>
- ---------------
* less than 1%
(1) Questor Principals, Inc. ("Questor Principals") is the general partner of
(i) Questor General Partner, L.P., the general partner of Questor Partners,
and (ii) Questor Side-by-Side. Questor Management Company ("Questor
Management") has been appointed to act on behalf of the general partners of
Questor Partners and Questor Side-by-Side with respect to matters relating
to such partnerships. Questor Partners and Questor Side-by-Side together
own beneficially 66.912 shares of Class A Common Stock, representing 61.3%
of the outstanding shares of such stock. Jay Alix, Melvyn N. Klein, Dan W.
Lufkin and Edward L. Scarff are the shareholders of each of Questor
Principals and Questor Management, with the power, jointly, to direct the
actions of such corporations, and may be deemed to share beneficial
ownership of the shares owned by Questor Partners and Questor Side-by-Side
by virtue of their status and rights as such shareholders, but each
expressly disclaims beneficial ownership of such shares by reason of such
status and rights.
(2) Thomas R. Reusche, a director of the Company, is the designee of Madison
Dearborn as a director of the Company.
(3) Includes (i) the shares of Ryder Class A Common Stock owned by Questor
Partners and Questor Side-by-Side, as to which Messrs. Alix and Scarff,
directors of the Company, may be deemed to share beneficial ownership (see
note (1)), and (ii) the shares of Ryder Class A Common Stock owned by
Madison Dearborn, as to which Mr. Reusche, as the designee of Madison
Dearborn as a director of the Company, may be deemed to have beneficial
ownership, but Mr. Reusche expressly disclaims beneficial ownership of such
shares by reason of such status.
(4) Consists of the shares of Ryder Class A Common Stock owned by Madison
Dearborn, as to which Mr. Reusche, as the designee of Madison Dearborn as a
director of Ryder, may be deemed to have beneficial ownership, but Mr.
Reusche expressly disclaims beneficial ownership of such shares by reason
of such status.
(5) Includes 29 shares of Ryder Class C Common Stock issuable upon the exercise
of options exercisable within 60 days of March 15, 1998.
(6) Includes 47 shares of Ryder Class C Common Stock issuable upon the exercise
of options exercisable within 60 days of March 15, 1998.
(7) Includes 46 shares of Ryder Class C Common Stock issuable upon the exercise
of options exercisable within 60 days of March 15, 1998.
(8) Assumes that the Maximum Merger Shares are issued in the Merger, and that
the ownership of Ryder Common Stock by each person does not change after
March 15, 1998 and prior to the Effective Time, except for the acquisition
of shares of Ryder Common Stock upon exercise of options held by such
person on March 15, 1998. Assumes that all outstanding options to purchase
Ryder Common Stock that become exercisable in accordance with the terms of
the Merger Agreement are exercised prior to the Effective Time. As of March
15, 1998, options to purchase a total of 4,418 shares of Ryder Common Stock
were outstanding.
(9) Assumes that 29,171,808 shares of Budget Class A Common Stock will be
outstanding following the Effective Time, based on 25,565,862 shares of
Class A Common Stock currently outstanding plus the Maximum Merger Shares.
(10) Assumes, for purposes of determining the number of shares of Ryder Common
Stock which will be owned by such person and converted into Budget Class A
Common Stock at the Effective Time, that
77
<PAGE> 84
the options held by Mr. Dixon to acquire 215 shares of Ryder Class C Common
Stock will, in accordance with the terms of the Merger Agreement, become
fully exercisable prior to the Effective Time, and will be exercised prior
to the Effective Time.
(11) Assumes, for purposes of determining the number of shares of Ryder Common
Stock which will be owned by such person and converted into Budget Class A
Common Stock at the Effective Time, that the options held by Ms. Riston to
acquire 366 shares of Ryder Class C Common Stock will, in accordance with
the terms of the Merger Agreement, become fully exercisable prior to the
Effective Time, and will be exercised prior to the Effective Time.
(12) Assumes, for purposes of determining the number of shares of Ryder Common
Stock which will be owned by such person and converted into Budget Class A
Common Stock at the Effective Time, that the options held by Mr. Russell to
acquire 375 shares of Ryder Class C Common Stock will, in accordance with
the terms of the Merger Agreement, become fully exercisable prior to the
Effective Time, and will be exercised prior to the Effective Time.
(13) Assumes, for purposes of determining the number of shares of Ryder Common
Stock which will be owned by such person and converted into Budget Class A
Common Stock at the Effective Time, that the options held by Mr. Zawalski
to acquire 250 shares of Ryder Class C Common Stock will, in accordance
with the terms of the Merger Agreement, become fully exercisable prior to
the Effective Time, and will be exercised prior to the Effective Time.
(14) Assumes, for purposes of determining the number of shares of Ryder Common
Stock which will be owned by such person and converted into Budget Class A
Common Stock at the Effective Time, that the options held by such officers
and directors to acquire 2,460 shares of Ryder Class C Common Stock will,
in accordance with the terms of the Merger Agreement, become fully
exercisable prior to the Effective Time, and will be exercised prior to the
Effective Time.
Each of Societe Generale and Chase Equity, an affiliate of Chase, owns
5,345 shares of Ryder Class A Common Stock (each representing 4.9% of the
outstanding Ryder Class A Common Stock). Societe Generale also owns 9,415 shares
of Ryder Class B Common Stock and Chase Equity also owns 4,495 shares of Ryder
Class B Common Stock.
SHAREHOLDERS' AGREEMENT
In connection with its formation and the Ryder Acquisition, Ryder entered
into a Shareholders' Agreement (the "Shareholders Agreement") with all of the
holders of Ryder Class A Common Stock and Ryder Class B Common Stock
(collectively, the "Shareholders"). The Shareholders Agreement contains certain
restrictions on transfers of Ryder Common Stock and provisions under which
Shareholders may sell Ryder Common Stock or require other Shareholders to sell
Ryder Common Stock or under which Ryder may acquire Ryder Common Stock from
Shareholders. The Shareholders Agreement provides that, upon certain issuances
by Ryder of equity securities to any of the initial Shareholders (or their
permitted transferees), Shareholders will have rights to maintain their
percentage equity interests in Ryder's capital stock by purchasing a portion of
such equity securities.
Pursuant to the Shareholders Agreement, each of the Shareholders agrees to
vote its shares of Ryder Common Stock so that the Ryder Board will consist of
one director appointed by Madison Dearborn and as many other directors as shall
be appointed by Questor.
Subject to certain conditions, the Shareholders will have certain demand
and "piggyback" rights to have their shares of Ryder Common Stock registered
under the Securities Act. Ryder has agreed to pay the costs and expenses
associated with any such registration, except for discounts and commissions.
78
<PAGE> 85
The Shareholders Agreement will expire on the earlier to occur of the
closing of the underwritten initial public offering of Ryder Common Stock and
October 17, 2006. The Shareholders Agreement will also terminate upon
consummation of the Merger.
OFFERING OF STOCK AND OPTIONS TO MANAGEMENT OF RYDER
During 1997, Ryder sold 1,640 shares of Ryder Class C Common Stock to
certain management employees, a Director and a consultant for $1,000 per share
(being the price paid by all existing shareholders for Ryder Class A Common
Stock and Ryder Class B Common Stock issued in connection with the Ryder
Acquisition). Of these, 500 shares were redeemed in accordance with the
provisions of the subscription agreement. In addition, certain management
employees and the Director received options to purchase, for the same price, a
total of 5,780 shares of Ryder Class C Common Stock. As of December 31, 1997,
4,487 of these options remained outstanding.
The agreement under which these shares were issued to the employees
contains provisions requiring Ryder to repurchase the shares (and any other
shares of Ryder Class C Common Stock acquired by the employees), and the
employee to sell, at fair market value in the case of an employee's death and,
depending on the circumstances, either fair market or book value in the case of
an employee's retirement or termination of employment. The agreement under which
200 shares were issued to the Director and the consultant do not contain
provisions requiring Ryder to repurchase the shares. The holders of the shares
have certain other rights, including rights to participate in certain issuances
of shares of capital stock to affiliates of Ryder, the right to sell shares in
certain sales by Questor of its own shares of Ryder Common Stock and the right
to participate in certain other specified transactions. The agreements provide
further that it would be a condition of an initial public offering of Ryder
Common Stock that the Ryder Certificate be amended to provide for the conversion
of Ryder Class C Common Stock into Ryder Common Stock of the class held by
Questor. The agreement would terminate (except with respect to options granted
thereunder) in the event of an initial public offering.
DIRECTORS AND EXECUTIVE OFFICERS
FOLLOWING THE MERGER
The following information is presented with respect to individuals other
than current directors and executive officers of Budget who will serve as
directors or executive officers of Budget effective as of the Effective Time.
Pursuant to the Merger Agreement, Jay Alix, currently the Chairman of the Board
and Chief Executive Officer of Ryder, will be nominated to serve as a director
of Budget following the Merger.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jay Alix....................................... 42 Chairman of the Board and Chief Executive
Officer of Ryder
</TABLE>
Jay Alix has been the Chairman of the Board and Chief Executive Officer of
Ryder since October, 1996. Mr. Alix has been a principal of Questor Principals
and Questor Management since 1995 and has been President of Jay Alix &
Associates, Inc. ("JA&A"), a turnaround management firm located in Southfield,
Michigan, Chicago and New York City, since 1981. From 1992 to 1995, Mr. Alix and
JA&A were retained by General Motors Corporation to direct the restructuring of
its National Car Rental subsidiary, and during that period Mr. Alix was the
Chief Executive Officer and a director of National Car Rental.
EXECUTIVE COMPENSATION
Mr. Alix does not receive any compensation in his capacity as Chief
Executive Officer of Ryder or in his capacity as a director. However, Mr. Alix
is an affiliate of certain entities which receive fees from Ryder. See
"-- Certain Relationships and Related Transactions."
79
<PAGE> 86
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement with Questor Management
On October 17, 1996, the date of the Ryder Acquisition, Ryder entered into
a Management and Consulting Agreement with Questor Management, pursuant to which
Questor Management provides consulting, management and advisory services to
Ryder, including services with respect to strategic planning, financial matters
and operations. As compensation for such services, Questor Management is paid an
annual management fee of $850,000 and costs and expenses incurred by Questor
Management in providing such services. In consideration of services previously
rendered by Madison Dearborn and in consideration of consulting, management, and
advisory services relating to Ryder to be rendered at a reasonable level in the
future at the request of Questor Management, Questor Management agreed to pay to
Madison Dearborn 20% of the annual management fee paid to Questor Management.
Ryder also agreed to indemnify Questor Management and its affiliates from
liabilities and claims arising out of or in connection with the performance by
Questor Management of such services, other than those resulting from the gross
negligence or willful misconduct of Questor Management. This agreement will
continue for so long as Questor Management or any affiliate thereof or affiliate
of any such affiliate continues to hold any shares of Ryder Common Stock. The
agreements provided for in this Management and Consulting Agreement constituted
part of the agreement by affiliates of Questor Management for the capitalization
of Ryder, and, as Ryder is controlled by such affiliates, may be deemed not to
have been negotiated at arm's length.
Agreement with Jay Alix & Associates, Inc. for Management Consulting
Services
Ryder has entered into an agreement with JA&A (the "JA&A Agreement"),
pursuant to which JA&A provides financial consulting services to Ryder in an
effort to improve Ryder's operating performance. For such services, JA&A is paid
on an hourly basis and is reimbursed for its out-of-pocket expenses. A $250,000
retainer that was paid by Ryder in connection with an earlier (now terminated)
engagement with JA&A was applied as a retainer for the current JA&A Agreement.
Pursuant to the JA&A Agreement, Ryder may pay JA&A a contingent success fee. The
determination of whether to award such fee, and the amount, if any, thereof, is
within the sole discretion of Ryder Board.
Ryder agreed to indemnify JA&A and its principals, employees and agents
from all claims and liabilities relating to or arising out of the engagement
other than for actions taken or omitted to be taken by JA&A in bad faith. Ryder
believes that the terms of the agreement are at least as favorable to it as
those that could have been obtained from an unaffiliated third party.
Other Transactions with Affiliates
Ronald A. Rittenmeyer, Ryder's President and Chief Operating Officer, was a
principal with JA&A from January 1997 until February 1998.
EXPERTS
The consolidated financial statements of Budget and its subsidiaries, as of
and for each of the two years in the period ended December 31, 1997, included in
Budget's Annual Report on Form 10-K dated December 31, 1997 and incorporated by
reference in this Proxy Statement/Prospectus, have been audited by Arthur
Andersen LLP, independent certified public accountants, as indicated in their
report with respect thereto and are incorporated by reference herein in reliance
upon the authority of said firm as experts in accounting and auditing.
The supplemental consolidated balance sheets of Budget and its subsidiaries
as of December 31, 1997 and 1996 and the related supplemental consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997, after restatement for the
1998 pooling of interests with Cruise America, Inc., included in Budget's
Current Report on Form 8-K filed on April 8, 1998 and incorporated by reference
in this Proxy Statement/Prospectus, have been audited by Arthur Andersen LLP,
independent certified public accountants, as indicated in their report with
respect thereto and
80
<PAGE> 87
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements for the year ended December 31, 1995
appearing in Budget's Annual Report on Form 10-K for the year ended December 31,
1997, and incorporated by reference in this Proxy Statement/Prospectus, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been incorporated
herein in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of BRACC as of December 31, 1995 and
1996 and for each of the years in the three-year period ended December 31, 1996
have been incorporated by reference in this Proxy Statement/Prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Ryder TRS, Inc. and Subsidiaries
as of December 31, 1996 and 1997 and for the period from September 5, 1996 (date
of inception) to December 31, 1996 and the year ended December 31, 1997,
included in this Proxy Statement/Prospectus, have been included herein in
reliance upon the report of Coopers & Lybrand L.L.P., independent accountants,
given upon the authority of that firm as experts in accounting and auditing.
The combined financial statements of Ryder Consumer Truck Rental (a
division of Ryder Truck Rental, Inc., a wholly-owned subsidiary of Ryder System,
Inc.) as of December 31, 1995 and October 16, 1996, and for the year ended
December 31, 1995 and the period from January 1, 1996 to October 16, 1996,
included in this Proxy Statement/Prospectus, have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as indicated in their
reports with respect thereto, and are included in this Proxy
Statement/Prospectus in reliance upon such reports given upon the authority of
said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Budget Class A Common Stock being registered
under the Registration Statement of which this Proxy Statement/Prospectus forms
a part will be passed upon for Budget by King & Spalding, Atlanta, Georgia.
Certain legal matters in connection with the Merger will be passed upon for
Ryder by Willkie Farr & Gallagher, New York, New York and Morris, Nichols, Arsht
& Tunnell, Wilmington, Delaware.
WHERE YOU CAN FIND MORE INFORMATION
Budget and Ryder are subject to the informational requirements of the
Exchange Act and file annual, quarterly and special reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information that the companies file at the Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Budget's and Ryder's SEC filings are also available to
the public from commercial document retrieval services and at the Internet web
site maintained by the Commission at http://www.sec.gov. Shares of Budget Class
A Common Stock are listed on the NYSE, and copies of documents filed with the
Commission can be inspected and copied at the NYSE offices at 20 Broad Street,
New York, New York 10005.
Budget filed the Registration Statement to register with the Commission the
Budget Class A Common Stock and Warrants to be issued to Ryder Stockholders in
the Merger. This Proxy Statement/Prospectus is a part of that Registration
Statement and constitutes a prospectus of Budget, as well as being a proxy
statement of Budget for the Budget Special Meeting and an information statement
for Ryder Stockholders. As allowed by Commission rules, this Proxy
Statement/Prospectus does not contain all the information you can find in the
Registration Statement or the exhibits to that Registration Statement.
81
<PAGE> 88
The Commission allows Budget to "incorporate by reference" information into
this Proxy Statement/Prospectus, which means that Budget can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be part
of this Proxy Statement/Prospectus, except for any information superseded by
information contained directly in the Proxy Statement/Prospectus. This Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that Budget has previously filed with the Commission. These documents contain
important information about Budget and its financial condition.
BUDGET SEC FILINGS (FILE NO. 0-23962)
(i) Budget's Annual Report on Form 10-K for the year ended December 31,
1997;
(ii) Budget's Current Reports on Form 8-K filed on May 13, 1997, and April
8, 1998;
(iii) Budget's Proxy Statement for its Annual Meeting of Stockholders to be
held on April 23, 1998; and
(iv) The description of the Budget Class A Common Stock included in
Budget's Registration Statement on Form 8-A, dated April 15, 1997.
Budget has supplied all information contained or incorporated by reference
in this Proxy Statement/Prospectus relating to Budget, and Ryder has supplied
all such information relating to Ryder.
If you are a Budget Stockholder or a Ryder Stockholder you can obtain any
of the above documents through Budget, the Commission or the Commission's
Internet web site as described above. Documents incorporated by reference are
available from Budget without charge, excluding all exhibits unless Budget has
specifically incorporated by reference an exhibit in this Proxy
Statement/Prospectus. Budget Stockholders and Ryder Stockholders may obtain
documents incorporated by reference in this Proxy Statement/Prospectus by
requesting them in writing or by telephone from Budget at the following address:
BUDGET GROUP, INC.
Attention: Secretary
4225 Naperville Road
Lisle, IL 60532-3662
(630) 955-1900
If you would like to request documents from Budget, please do so by five
business days prior to the date of the Budget Special Meeting to receive them
before the Budget Special Meeting. If you request any incorporated documents
from Budget, they will be mailed to you by first-class mail, or other equally
prompt means, within one business day of receipt of your request.
STOCKHOLDER PROPOSALS
The deadline for submission of stockholder proposals to be presented at the
1998 Annual Meeting of Stockholders of Budget was December 17, 1997. Any Budget
Stockholder satisfying the Commission requirements and wishing to submit a
proposal to be included in the Proxy Statement for the 1999 Annual Meeting of
Stockholders should submit the proposal in writing to the General Counsel and
Secretary, Budget Group, Inc., 125 Basin Street, Suite 210, Daytona Beach,
Florida 32114. The Company must receive a proposal by November 22, 1998 in order
to consider it for inclusion in the Proxy Statement for the 1999 Annual Meeting
of Stockholders.
82
<PAGE> 89
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RYDER TRS, INC. AND SUBSIDIARIES
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-3
Consolidated Statements of Operations for the period from
September 5, 1996 (date of inception) to December 31, 1996
and the year ended December 31, 1997...................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the period from September 5, 1996 (date of inception)
to December 31, 1996 and the year ended December 31,
1997...................................................... F-5
Consolidated Statements of Cash Flows for the period from
September 5, 1996 (date of inception) to December 31, 1996
and the year ended December 31, 1997...................... F-6
Notes to Consolidated Financial Statements.................. F-7
RYDER CONSUMER TRUCK RENTAL DIVISION
Independent Auditors' Report................................ F-17
Combined Balance Sheet at December 31, 1995................. F-18
Combined Statement of Operations and Changes in Ryder
Investment for the year ended December 31, 1995........... F-19
Combined Statement of Cash Flows for the year ended December
31, 1995.................................................. F-20
Notes to Combined Financial Statements...................... F-21
Independent Auditors' Report................................ F-29
Combined Balance Sheet at October 16, 1996.................. F-30
Combined Statement of Earnings and Changes in Ryder
Investment for the period January 1, 1996 to October 16,
1996...................................................... F-31
Combined Statement of Cash Flows for the period January 1,
1996 to October 16, 1996.................................. F-32
Notes to Combined Financial Statements...................... F-33
</TABLE>
F-1
<PAGE> 90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Ryder TRS, Inc.
We have audited the accompanying consolidated balance sheets of Ryder TRS,
Inc. and Subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the period from September 5, 1996 (date of inception) to December 31,
1996 and the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ryder TRS, Inc.
and Subsidiaries as of December 31, 1996 and 1997, and the consolidated results
of their operations and their cash flows for the period from September 5, 1996
(date of inception) to December 31, 1996 and the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
March 5, 1998
F-2
<PAGE> 91
RYDER TRS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 17,507 $ --
Restricted cash -- letters of credit...................... -- 1,650
Receivables............................................... 33,084 24,278
Prepaid licenses, net..................................... 1,205 3,641
Deferred income taxes..................................... 2,613 9,381
Other current assets...................................... 6,564 8,203
-------- --------
Total current assets.............................. 60,973 47,153
Restricted cash -- letter of credit and compensating
balances.................................................. -- 5,043
Revenue earning equipment and operating property and
equipment, net............................................ 491,054 460,696
Software development costs, net............................. 13,929 18,743
Intangible assets, net...................................... 51,862 47,838
Deferred income taxes....................................... -- 3,954
-------- --------
Total assets...................................... $617,818 $583,427
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Drafts payable............................................ $ -- $ 6,324
Accounts payable.......................................... 11,499 32,528
Payable to Ryder Truck Rental, Inc........................ 16,783 3,888
Accrued expenses.......................................... 23,814 30,439
-------- --------
Total current liabilities......................... 52,096 73,179
Commercial paper notes...................................... -- 227,890
Senior subordinated notes................................... 168,900 168,015
Senior bank facilities...................................... 271,719 --
Accrued expenses............................................ 4,992 11,849
-------- --------
Total liabilities................................. 497,707 480,933
-------- --------
Redeemable Class C Common Stock: 940 shares issued and
outstanding............................................... -- 940
Commitments and contingencies (Note 17)
Shareholders' equity: Common stock: $.01 par value,
275,000 shares authorized, 109,090 Class A shares,
13,910 Class B shares and 200 Class C shares (in 1997)
issued and outstanding................................. 1 1
Additional paid-in capital................................ 122,999 123,208
Accumulated deficit....................................... (2,889) (21,655)
-------- --------
Total shareholders' equity........................ 120,111 101,554
-------- --------
Total liabilities and shareholders' equity........ $617,818 $583,427
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 92
RYDER TRS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEPTEMBER 5,
1996 (DATE OF YEAR
INCEPTION) TO ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------- ------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Truck rental and related revenue............................ $103,011 $ 545,720
Operating expense........................................... 32,908 191,537
Selling, general and administrative expense................. 39,317 225,850
Depreciation expense (net of gains) and amortization........ 21,222 112,171
-------- ---------
Operating income.................................. 9,564 16,162
Interest Expense............................................ 9,159 39,178
-------- ---------
Earnings (loss) before income taxes and
extraordinary item.............................. 405 (23,016)
Provision (benefit) for income tax.......................... 156 (8,861)
-------- ---------
Earnings (loss) before extraordinary item......... 249 (14,155)
Extraordinary loss on debt extinguishment, net of tax....... (3,138) (4,611)
-------- ---------
Net loss.................................................. $ (2,889) $ (18,766)
======== =========
Basic and diluted amounts per common share:
Earnings (loss) before extraordinary item................. $ 3.16 $ (114.09)
-------- ---------
Extraordinary item, net of tax............................ $ (39.80) $ (37.17)
======== =========
Net loss.................................................. $ (36.64) $ (151.26)
======== =========
Weighted average number of common shares.................... 78,846 124,068
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 93
RYDER TRS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM
SEPTEMBER 5, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
NON-REDEEMABLE
CLASS A CLASS B CLASS C
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------ ------------------ PAID-IN ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT TOTAL
------- --------- ------ --------- ------ --------- ---------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 5,
1996.................... -- $-- -- $-- -- $-- $ -- $ -- $ --
(date of inception)
Initial capitalization.... 109,090 1 13,910 -- -- -- 122,999 -- 123,000
Net loss.................. -- -- -- -- -- -- -- (2,889) (2,889)
------- --- ------ --- ----- --- -------- -------- --------
Balance at December 31,
1996.................... 109,090 1 13,910 -- -- -- 122,999 (2,889) 120,111
Shares issued............. -- -- -- -- 200 -- 200 -- 200
Class C Shares redeemed at
book value.............. -- -- -- -- -- -- 9 -- 9
Net loss.................. -- -- -- -- -- -- -- (18,766) (18,766)
------- -- ------ --- ----- -- -------- -------- --------
Balance at December 31,
1997.................... 109,090 $ 1 13,910 $-- 200 $-- $123,208 $(21,655) $101,554
======= === ====== === ===== === ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 94
RYDER TRS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEPTEMBER 5,
1996 (DATE OF
INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (2,889) $ (18,766)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Write-off of deferred financing costs related to the
extinguishment of debt................................ 5,102 7,497
Depreciation expense (net of gains) and amortization... 21,222 112,171
Amortization of deferred financing costs............... 471 2,341
Deferred income tax benefit............................ (2,077) (11,747)
Change in operating assets and liabilities, net of
effects of acquisition in 1996:
Accounts receivable.................................. (9,259) (3,121)
Prepaid expenses and other current assets............ (349) (3,995)
Accounts payable and accrued expenses................ 28,064 31,643
Payable to Ryder Truck Rental, Inc., net............. 5,966 (9,037)
--------- ---------
Net cash provided by operating activities......... 46,251 106,986
--------- ---------
Cash flows from investing activities:
Cash paid for acquisition................................. (582,703) --
Purchase price refund receivable from Ryder Truck Rental,
Inc.................................................... (6,082) 5,429
Capital expenditures...................................... (1,955) (129,385)
Proceeds from sales of revenues earning equipment......... 3,950 52,290
--------- ---------
Net cash used in investing activities............. (586,790) (71,666)
--------- ---------
Cash flows from financing activities:
Net borrowing under commercial paper notes................ -- 233,145
Borrowing under senior bank facilities.................... 381,000 --
Payment on senior bank facilities......................... (100,000) (281,000)
Borrowing under senior subordinated notes................. 175,000 --
Borrowing under senior subordinated credit facility....... 100,000 --
Payment on senior subordinated credit facility............ (100,000) --
Drafts payable............................................ -- 6,324
Capital contributions..................................... 123,000 --
Deferred financing costs.................................. (20,954) (5,752)
Change in restricted cash................................. -- (6,693)
Issuance of Class C common stock.......................... -- 1,640
Redemption of Class C common stock........................ -- (491)
--------- ---------
Net cash provided by (used in) financing
activities...................................... 558,046 (52,827)
--------- ---------
Increase (decrease) in cash and cash
equivalents..................................... 17,507 (17,507)
Cash and cash equivalents at beginning of period............ -- 17,507
--------- ---------
Cash and cash equivalents at end of period.................. $ 17,507 $ --
========= =========
Supplemental disclosures:
Cash paid for:
Interest............................................... $ 3,398 $ 41,005
========= =========
Income taxes........................................... $ -- $ 783
========= =========
Non-cash item:
Purchase adjustments increasing assets acquired and
liabilities assumed................................... $ -- $ 2,868
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 95
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Ryder TRS, Inc. ("TRS") was incorporated on September 5, 1996 for the
purpose of consummating the transactions that are more fully described in Note 3
below. TRS (together with its subsidiaries, "Ryder") is a provider of truck
rentals and related moving supplies and services to the consumer and light
commercial markets in the United States. Ryder rents trucks, towing equipment
and accessory equipment, and sells liability-limiting products and moving
supplies to consumers and commercial customers through a nationwide network that
approximated 3,900 dealers at December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. The accompanying financial statements include the
operations, assets and liabilities of TRS and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents. All highly liquid investments with maturities
of three months or less when purchased are cash equivalents. Cash which is
restricted as to its use is segregated on Ryder's balance sheet and is excluded
from cash and cash equivalents.
Revenue Recognition. Truck rental and related revenue is recognized as
earned.
Prepaid Licenses. Vehicle licensing fees are deferred when paid and
amortized to expense over the period to which the fees relate.
Advertising Costs. Yellow Page directory costs are deferred when paid and
amortized over the period the directories are effective, which is typically 12
months. Unamortized prepaid Yellow Page directory costs were $5.4 million and
$5.8 million at December 31, 1996 and 1997, respectively. Ryder expenses the
production costs of advertising as incurred. The cost of air time and print
space for media advertising is expensed when used. Total advertising expense was
$3.2 million for the period from September 5, 1996 to December 31, 1996, and
$31.3 million for the year ended December 31, 1997.
Revenue Earning Equipment and Operating Property and Equipment. Revenue
earning equipment, principally rental trucks, and operating property and
equipment that were acquired, pursuant to the transaction described in Note 3,
recorded based on an allocation of purchase price to estimated fair value as of
the acquisition date. Subsequent additions are stated at cost. Depreciation is
computed using the straight-line method over lives as follows: (i) revenue
earning equipment -- 1 to 8 years; (ii) office equipment and furniture -- 1 to 7
years; and (iii) transfer vehicles -- 1 to 4 years. Vehicle repairs and
maintenance which do not extend the life or increase the value of the vehicle
are expensed as incurred.
Software Development Costs. Ryder capitalizes certain external and
internal direct costs incurred in developing and obtaining internal use
software. Costs are amortized over their expected useful lives, which is five
years for most software projects. Software maintenance costs are amortized over
the maintenance period. Software training costs are expensed as incurred.
Accumulated amortization related to software development costs was $0.3 million
and $2.8 million at December 31, 1996 and 1997, respectively.
Deferred Financing Costs. Deferred financing costs relate to costs
associated with the senior bank facilities, commercial paper notes, senior
subordinated loan facility, and senior subordinated notes. These costs are
presented in the balance sheet as offsets to the related debt and are amortized
to interest expense over the expected terms of the related debt.
F-7
<PAGE> 96
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets. Intangible assets represent costs allocated to the
tradename and the dealer network acquired with Ryder. The cost of the tradename
is being amortized on a straight-line basis over the ten-year term of the
Trademark License Agreement with Ryder Truck Rental, Inc. The cost of the dealer
network is being amortized on a straight-line basis over a fifteen-year period.
Income Taxes. Deferred tax assets and liabilities are determined based
upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates. Deferred tax balances
will be adjusted for tax law changes in periods that include the enactment date
of any tax rate or law changes. No impairment reserve was considered necessary
at December 31, 1996 and 1997.
Impairment of Long-lived Assets. The carrying value of long-lived assets
is reviewed when events or changes in circumstances indicate the value may not
be recoverable from projected undiscounted future cash flows. No impairment
reserve was considered necessary at December 31, 1997.
Basic and Diluted Per Common Share Amounts. Basic and diluted amounts per
common share are based on the weighted average number of common shares
outstanding during the period. Outstanding options for Class C Common Stock
(Note 16) were not included in the computation of diluted earnings per share,
because to do so would have been anti-dilutive. These could potentially dilute
EPS in the future.
Reclassifications. Certain reclassifications have been made to the 1996
financial statements to conform to current year presentation.
Impact of Recent Accounting Pronouncements. The Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income" in June 1997. This statement,
which is required to be adopted in the first quarter of 1998, establishes
standards for reporting comprehensive income and its components. This statement
is not expected to have a material effect on Ryder's financial statements.
The FASB also issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in June 1997. This statement, which is
required to be adopted in the first quarter of 1998, establishes standards for
the way that public companies report information about operating segments in
annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports. This
statement is not expected to have a material effect on Ryder's financial
statements.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This statement
addresses costs that are capitalizable, costs that must be expensed, and
provides guidance on amortization periods for internal use software. Ryder's
existing accounting policy for software development costs is in conformity with
the provisions of this SOP. As such, Ryder adopted this statement in the fourth
quarter of 1997, resulting in no financial statement impact.
3. ACQUISITION OF THE RYDER CONSUMER TRUCK RENTAL BUSINESS
On October 17, 1996, pursuant to an Asset and Stock Purchase Agreement,
Ryder acquired from Ryder Truck Rental, Inc., a subsidiary of Ryder System, Inc.
(collectively, the "Seller"), substantially all the assets and assumed certain
of the liabilities of the Seller's Consumer Truck Rental division (the
"Business"). The aggregate adjusted cash purchase price was approximately $573.3
million, which is net of $6.0 million subsequently refunded to Ryder. In
addition, Ryder paid approximately $9.4 million of fees and expenses that were
capitalized as part of the acquisition cost (see Note 4). The acquisition of the
Business has been accounted for as a purchase and, accordingly, its results of
operations are included in the consolidated financial statements since the date
of acquisition.
F-8
<PAGE> 97
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financing for the acquisition and $14.8 million of deferred financing costs
consisted of (i) $123.0 million of equity capital through the issuance of
109,090 shares of Class A Common Stock and 13,910 shares of Class B Common
Stock; (ii) $350.0 million of term loans and $31.0 million of revolving loans
borrowed under a $500.0 million senior secured credit facility with certain
banks (the "Senior Bank Facilities"); and (iii) $100.0 million of loans borrowed
under a senior subordinated loan facility (see Notes 11 and 12).
The purchase price has been allocated to assets acquired and liabilities
assumed based on fair market value at the date of acquisition. The resulting
book value of assets acquired and liabilities assumed is summarized as follows
(in thousands):
<TABLE>
<S> <C>
Revenue earning equipment and operating property and
equipment................................................. $522,556
Software development costs.................................. 13,915
Prepaid expenses and other current assets................... 8,106
Dealer network and tradename................................ 52,700
Accounts payable and accrued liabilities.................... (14,574)
Total............................................. $582,703
</TABLE>
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of the Business had occurred as of January
1, 1996. The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the acquisition been in effect for the
periods presented, nor do they purport to be indicative of the results that will
be obtained in the future (in thousands):
<TABLE>
<CAPTION>
PRO FORMA YEAR
ENDED DECEMBER 31,
1996 (UNAUDITED)
------------------
<S> <C>
Truck rental and related revenue........................... $542,790
Operating income........................................... 32,285
Net loss................................................... (8,005)
</TABLE>
4. TRANSACTIONS WITH AFFILIATED PARTIES
In conjunction with the acquisition, Ryder paid and capitalized merger and
acquisition fees totaling $8.0 million to certain shareholders or their
affiliates for services relating to the acquisition. Additionally, Ryder entered
into a Management and Consulting Agreement with an affiliate of one of Ryder's
shareholders providing for annual compensation of $850,000, subject to certain
conditions, for a period that will continue for as long as the shareholder or
certain affiliates of the shareholder hold any shares of Common Stock of Ryder.
Ryder also entered into an agreement for certain advisory services with another
affiliate of one of the shareholders which can be terminated by either party at
any time. During the period from September 5, 1996 through December 31, 1996,
and the year ended December 31, 1997, the amounts charged to earnings with
respect to this agreement were approximately $.8 million and $4.3 million,
respectively.
5. RESTRICTED CASH
Under terms of the commercial paper notes (see Note 10), Ryder is required
to maintain on deposit compensating balances equal to 2% of the outstanding face
amount of the commercial paper notes. Ryder invests in investment-grade quality
commercial paper, restricted as to use, as collateral under certain current and
noncurrent letter of credit arrangements.
F-9
<PAGE> 98
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. REVENUE EARNING EQUIPMENT AND OPERATING PROPERTY AND EQUIPMENT
Revenue earning equipment and operating property and equipment consisted of
the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Trucks...................................................... $479,736 $517,879
Towing equipment and other.................................. 14,786 15,982
Office equipment and furniture.............................. 14,336 16,722
Transfer vehicles........................................... 397 1,158
-------- --------
509,255 551,741
Accumulated depreciation.................................... (18,201) (91,045)
-------- --------
Total............................................. $491,054 $460,696
======== ========
</TABLE>
7. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Accounts receivable......................................... $ 9,456 $15,004
Receivables from truck sales................................ 6,926 5,047
Receivable from Ryder Truck Rental, Inc..................... 10,817 6,959
Purchase price adjustment from Seller....................... 6,190 --
------- -------
$33,389 $27,010
Allowance for doubtful accounts............................. (305) (2,732)
------- -------
Total............................................. $33,084 $24,278
======= =======
</TABLE>
8. INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Tradename................................................... $15,300 $15,300
Dealer network.............................................. 37,400 37,400
------- -------
52,700 52,700
Accumulated amortization.................................... (838) (4,862)
------- -------
Total............................................. $51,862 $47,838
======= =======
</TABLE>
F-10
<PAGE> 99
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ACCRUED EXPENSES
Accrued expenses consisted of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Auto and general liability reserves......................... $ 4,789 $ 20,784
Dealer commissions.......................................... 6,930 7,143
Employee related accruals................................... 1,640 4,654
Accrued purchase costs...................................... 6,000 4,347
Interest.................................................... 5,291 1,872
Other....................................................... 4,156 3,488
------- --------
Total............................................. 28,806 42,288
Non-current portion......................................... (4,992) (11,849)
------- --------
Current portion................................... $23,814 $ 30,439
======= ========
</TABLE>
10. COMMERCIAL PAPER NOTES
During 1997, Ryder's special purpose subsidiary, FCTR, Inc. ("Finco"),
entered into a commercial paper program that permits the issuance of up to
$450.0 million in commercial paper notes, subject to borrowing base availability
provided by the RCTR truck fleet. A liquidity facility (the "Facility") provides
committed liquidity support for a period of 364 days renewable at the option of
the lenders. Any advances under the Facility that are outstanding on the
termination date of a liquidity lender's commitment will not mature for eighteen
months after such termination date. Accordingly, any amounts outstanding under
the program or advances outstanding under the Facility are classified as
long-term debt. RCTR, Inc., a wholly-owned special purpose subsidiary of Ryder
("Leasco"), and Finco each have their own separate creditors which, upon the
liquidation of either subsidiary, will be entitled to be satisfied out of the
assets of Leasco or Finco, respectively, prior to any value in either of the
subsidiaries becoming available to Ryder. Finco's obligations are collateralized
by (i) its rights to receive payments under a loan agreement with Leasco, (ii)
any of Finco's cash and eligible investments, (iii) an assignment of Leasco's
rights under the lease agreement with Ryder (including the rights to receive
payments thereunder), and (iv) the vehicles in Leasco's fleet.
In conjunction with the commercial paper program, TRS entered into an
agreement pursuant to which TRS has established a five-year, $40.0 million
secured revolving credit facility. Ryder has also entered into a $50.0 million
facility for the issuance of cash collateralized letters of credit. No amounts
were outstanding at December 31, 1997 under either of these facilities.
Commitment fees for these facilities are based on 0.05% of the unused portion.
Commercial Paper Notes and related agreements consisted of the following as
of December 31, 1997 (in thousands):
<TABLE>
<S> <C>
Commercial Paper Notes...................................... $233,145
Deferred financing costs and unamortized discounts.......... (5,255)
--------
Total............................................. $227,890
========
</TABLE>
The outstanding commercial paper notes reported at December 31, 1997 are
net of $19.1 million which is held for the benefit of another party by a member
of the consolidated group.
All of the aforementioned agreements contain certain covenants and
restrictions, including, among other things, restrictions on the payment of the
dividends and the incurrence of additional indebtedness. In addition, under
these agreements, Ryder is required to comply with specified financial ratios
and tests. As of December 31, 1997, Ryder was in compliance with such covenants.
F-11
<PAGE> 100
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying value of the commercial paper notes approximates its fair
value. The effective interest rate of Commercial Paper Notes for the period they
were outstanding during 1997 ranged from 5.58% to 6.20%.
11. SENIOR SUBORDINATED NOTES
During 1996, Ryder issued $175.0 million of 10% Senior Subordinated Notes
(the "Notes") due December 1, 2006 with interest payable semiannually commencing
June 1, 1997. The Senior Subordinated Notes consisted of the following as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Senior Subordinated Notes................................... $175,000 $175,000
Deferred financing costs.................................... (6,100) (6,985)
-------- --------
Total............................................. $168,900 $168,015
======== ========
</TABLE>
The 10% Notes are uncollateralized obligations of Ryder, are not redeemable
prior to December 1, 2001 except as discussed below, and are redeemable at the
option of Ryder, in whole or in part, at the following redemption prices
(expressed as a percentage of principal amount), if redeemed during the 12 month
period commencing on December 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
2001........................................................ 105.000%
2002........................................................ 103.333%
2003........................................................ 101.667%
2004 and thereafter......................................... 100.000%
</TABLE>
Prior to December 2, 1999, Ryder may also redeem up to 33.3% of the
original principal amount with proceeds of one or more public offerings at a
redemption price of 110%. In addition, upon the occurrence of a change of
control, the Notes may also be redeemed at the option of Ryder, upon the payment
of an applicable premium. If a change of control occurs on or after December 1,
2001, each holder of the Notes may require Ryder to repurchase all or a portion
of such holder's Notes at a purchase price equal to 101% of the principal amount
thereof. The terms of the Notes include restrictions on additional indebtedness,
asset sales, dividends, mergers and transactions with affiliates.
The net proceeds from the issuance of the Notes were used to refinance the
then existing $100.0 million senior subordinated loan facility and $69.0 million
of the term facility. During 1996, and in connection with the refinancing, Ryder
recognized an extraordinary loss of $3.1 million, net of related income tax
benefit of $2.0 million, from the extinguishment.
The carrying value of the Notes approximates its fair amount as of December
31, 1997 and 1996.
12. SENIOR BANK FACILITIES
Senior Bank Facilities consisted of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
-------- ----
<S> <C> <C>
$350.0 million Term Facility................................ $281,000 $--
Deferred financing costs.................................... (9,281) --
-------- --
Total............................................. $271,719 $--
======== ==
</TABLE>
The Senior Bank Facilities consisted of a $350.0 million term facility (the
"Term Facility") and a $150.0 million revolving credit facility (the "Revolving
Credit Facility"), of which $50.0 million was available for letters of credit.
At December 31, 1996, no amount was outstanding under the Revolving Credit
Facility.
F-12
<PAGE> 101
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, Ryder recognized an extraordinary loss of $4.6 million, net of
related income tax benefit of $2.9 million, from the extinguishment of debt
associated with the refinancing of amounts outstanding under the Senior Bank
Facilities.
13. INCOME TAXES
Income tax provision (benefit) included the following components (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 5,
1996 (DATE OF
INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------- ------------
<S> <C> <C>
Current tax:
Federal................................................... $ 224 $ --
State..................................................... 45 --
----- -------
269 --
----- -------
Deferred tax:
Federal................................................... (92) (7,758)
State..................................................... (21) (1,103)
----- -------
(113) (8,861)
----- -------
Income tax expense (benefit)................................ $ 156 $(8,861)
===== =======
</TABLE>
A reconciliation of the Federal statutory tax rate with the effective tax
rate (benefit) rate as a percentage of pretax earnings or loss is as follows:
<TABLE>
<CAPTION>
1996 1997
---- -----
<S> <C> <C>
Statutory tax rate.......................................... 34.0% (34.0)%
State income taxes, net of Federal income tax benefit....... 4.8 (4.8)
Other....................................................... (0.3) 0.3
---- -----
Effective tax rate (benefit)................................ 38.5% (38.5)%
==== =====
</TABLE>
The components of the net deferred income tax accounts as of December 31
were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred income tax assets:
Accrued self-insurance.................................... $ 1,980 $ 8,074
Net operating loss carryforward........................... 2,087 50,969
Alternative minimum tax credit carryforward............... 269 --
Miscellaneous other accruals.............................. 364 1,307
------- --------
4,700 60,350
------- --------
Deferred income tax liabilities:
Property and equipment basis differences.................. (2,506) (47,015)
Other items............................................... (117) --
------- --------
(2,623) (47,015)
------- --------
Net deferred income tax asset............................... $ 2,077 $ 13,335
======= ========
</TABLE>
At December 31, 1997, Ryder has net operating loss carryforwards of $131.2
million which will expire in 2011 and 2012 if not utilized. Based on current
estimates of future earnings, the net deferred tax asset is
F-13
<PAGE> 102
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expected to be recovered within the next five to ten years. Therefore, Ryder has
recorded no valuation allowance against its deferred tax assets as of December
31, 1996 and 1997.
14. TRANSACTIONS WITH SELLER
In connection with the acquisition of the Business, Ryder entered into
various agreements with the Seller regarding dealer relationships, vehicle
maintenance, facility leases, sales of used trucks, administrative services and
management information systems support. The agreements generally specify periods
of 60 to 90 days in which Ryder, or either party in some cases, must give notice
to cease support for the functions. During the period from September 5, 1996 to
December 31, 1996 and the year ended December 31, 1997, the amounts charged to
earnings with respect to these agreements were approximately $17.0 million and
$48.4 million, respectively.
15. COMMON STOCK
Ryder's Certificate of Incorporation authorizes 275,000 shares of Common
Stock designating 225,000 shares as Class A Common Stock, 25,000 shares as Class
B Common Stock and 25,000 shares as Class C Common Stock.
The holders of the Class B Common Stock and Class C Common Stock have no
voting rights except in certain limited circumstances. Class A Common Stock is
convertible into the same number of shares of Class B Common Stock. Upon the
occurrence of certain events, Class B Common Stock is convertible into the same
number of shares of Class A Common Stock. Class C Common Stock is not
convertible into Class A Common Stock or Class B Common Stock.
Ryder and all of the holders of its Class A Common Stock and Class B Common
Stock (collectively, the "Shareholders") are parties to a shareholders'
agreement (the "Shareholders Agreement"). The Shareholders Agreement contains
certain restrictions on transfers of Common Stock and provisions under which
Shareholders may sell Common Stock or require other Shareholders to sell Common
Stock or under which Ryder may acquire Common Stock from Shareholders. The
Shareholders Agreement provides that, upon certain issuances by Ryder of equity
securities to any of the initial Shareholders (or their permitted transferees),
Shareholders will have rights to maintain their percentage equity interests in
Ryder's capital stock by purchasing a portion of such equity securities.
16. REDEEMABLE CLASS C COMMON STOCK
During 1997, Ryder sold to certain management employees, a Director and a
consultant, 1,640 shares of its Class C Common Stock for $1,000 per share.
Redemptions of 500 shares of the Class C Common Stock occurred during 1997.
During 1997, certain management employees and the Director received options to
purchase, for the same price, a total of 5,780 additional shares.
The agreement under which these shares were issued to the employees
contains provisions requiring Ryder to repurchase the shares (and any other
shares of the Class C Common Stock acquired by the employees), and the
shareholder to sell, at fair market value in the case of an employee's death
and, depending on the circumstances, either fair market or book value in the
case of an employee's retirement or termination of employment. The agreement
under which 200 shares were issued to the Director and the consultant do not
contain provisions requiring Ryder to repurchase the shares. The holders of the
shares have certain other rights, including rights to participate in certain
issuances of shares of capital stock to affiliates of Ryder, and the right to
sell shares if certain controlling shareholders sell any of their own shares of
common stock in Ryder, and the right to participate in other specified
transactions. The agreement further provides that it would be a condition of an
initial public offering of Ryder's common stock that Ryder's Certificate of
Incorporation be amended to provide for the conversion of Class C Common Stock
into common stock.
F-14
<PAGE> 103
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The options referred to above are exercisable for ten years (subject to
certain provisions for earlier termination) limited to 20% of the shares covered
thereby in 1998, and an additional 20% each year thereafter, through 2002. The
options are generally non-transferable, and the right to exercise any
unexercised portion thereof expires upon the occurrence of certain events.
Ryder accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." Accordingly, compensation expense for stock options
granted to employees or directors under Ryder's stock option plans is generally
measured as the difference between the estimated fair market value of Ryder's
stock at the date of grant and the amount an employee must pay to acquire the
stock. The options granted during 1997 were issued at an exercise price of
$1,000, the estimated fair market value on the date of each grant.
<TABLE>
<S> <C>
Options outstanding as of December 31, 1996................. --
Options granted............................................. 5,780
Options exercised........................................... --
Options forfeited........................................... (1,293)
-------
Options outstanding as of December 31, 1997................. (4,487)
-------
Options exercisable as of December 31, 1997................. --
Weighted average fair value per option granted during the
year...................................................... $ 144
Weighted average remaining contractual life in years........ 9
</TABLE>
Ryder has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Had compensation expense been
determined based on fair value of the options granted at their grant dates,
consistent with the fair value approach prescribed by SFAS No. 123, Ryder's net
loss and net loss per share for the year ended December 31, 1997 would have been
reflected as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Net loss (in thousands)..................................... $18,766 $18,940
Basic and diluted net loss per share........................ $151.26 $152.66
</TABLE>
The fair value of each option granted was estimated on the date of grant
using a minimum value option-pricing model with the following assumptions: (i)
expected life of five years, (ii) dividend yield of 0%, and (iii) forfeiture
rate of 5%. The effects of applying SFAS No. 123 in providing pro forma
disclosures are not likely to be representative of the effects on reported net
income in future years.
17. COMMITMENTS AND CONTINGENCIES
Ryder leases facilities and office equipment under operating lease
agreements. The consolidated statements of operations include rent expense of
$0.6 million and $3.5 million for the period from September 5, 1996 (date of
inception) to December 31, 1996, and the year ended December 31, 1997,
respectively. Future annual minimum payments for facilities and office equipment
leases in effect at December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $2,909
1999........................................................ 2,108
2000........................................................ 1,798
2001........................................................ 988
2002........................................................ 990
Thereafter.................................................. 2,069
</TABLE>
F-15
<PAGE> 104
RYDER TRS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Ryder has retained a portion of its risk under automobile and general
liability insurance and other insurance programs for activities subsequent to
the Acquisition. Coverage varies, but generally Ryder retains a significant
portion of the per occurrence claims under $1 million. Ryder has excess
liability insurance per occurrence for claims between $1 million and $100
million. The reserves for these claims are based on actuarial or other
estimates. There can be no assurance that the estimates will not change as a
result of limitations inherent in the estimation process.
In the normal course of its business, Ryder has made various commitments to
purchase vehicles over the next several months.
Ryder is a party to various claims, legal actions and complaints arising in
the ordinary course of business. While any proceeding or litigation has an
element of uncertainty, management believes that the disposition of these
matters will not have a material impact on the financial condition, liquidity or
results of operations of Ryder.
18. PENDING MERGER
On March 4, 1998, Ryder and Budget Group, Inc. ("Budget") announced the
signing of a merger agreement under which Ryder is to be acquired by Budget and
is to become a separate and wholly-owned subsidiary of Budget. Budget also
operates Budget Car and Truck Rental. Under the merger agreement, Company
shareholders will receive approximately $264 million comprised of $125 million
of cash, $119 million of Budget Group Class A Common Stock and up to $20 million
of contingent additional consideration. Subject to the receipt of all necessary
governmental approvals, closing is expected to occur in the second quarter of
1998.
F-16
<PAGE> 105
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Ryder System, Inc.:
We have audited the accompanying combined balance sheet of Ryder Consumer
Truck Rental (a division of Ryder Truck Rental, Inc., a wholly-owned subsidiary
of Ryder System, Inc.) as of December 31, 1995, and the related combined
statements of operations and changes in Ryder investment and cash flows for the
year then ended. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Ryder Consumer Truck
Rental as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Miami, Florida
September 23, 1996
F-17
<PAGE> 106
RYDER CONSUMER TRUCK RENTAL
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 2,610
Receivables............................................... 35,780
Tires in service.......................................... 27,603
Deferred income taxes..................................... 7,733
Prepaid expenses and other current assets................. 10,451
--------
Total current assets.............................. 84,177
Revenue earning equipment................................... 519,762
Operating property and equipment............................ 21,409
Other assets................................................ 4,469
--------
Total assets...................................... $629,817
========
LIABILITIES AND RYDER INVESTMENT
Current liabilities:
Accounts payable.......................................... $ 6,737
Accrued expenses and other liabilities.................... 34,886
--------
Total current liabilities......................... 41,623
Deferred income taxes....................................... 70,175
Other non-current liabilities............................... 27,582
Investment by and advances from Ryder....................... 490,437
--------
Total liabilities and Ryder investment............ $629,817
========
</TABLE>
See accompanying notes to combined financial statements.
F-18
<PAGE> 107
RYDER CONSUMER TRUCK RENTAL
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN RYDER INVESTMENT
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Truck rental and related revenue............................ $546,721
Operating expense........................................... 185,920
Selling, general and administrative expense................. 213,600
Depreciation expense, net of gains.......................... 104,258
Interest expense............................................ 29,663
Restructuring and other charges............................. 6,370
Miscellaneous expense, net.................................. 324
--------
540,135
--------
Earnings before income taxes................................ 6,586
Provision for income taxes.................................. 2,984
--------
Net earnings................................................ 3,602
========
Changes in Ryder Investment:
Investment by and advances from Ryder at beginning of
period................................................. $412,058
Net earnings.............................................. 3,602
Net change in investment by and advances from Ryder....... 74,777
--------
Investment by and advances from Ryder at end of period.... $490,437
========
</TABLE>
See accompanying notes to combined financial statements.
F-19
<PAGE> 108
RYDER CONSUMER TRUCK RENTAL
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities
Net earnings.............................................. $ 3,602
Depreciation expense, net of gains........................ 104,258
Deferred income taxes..................................... 2,852
Increase in receivables................................... (9,169)
Decrease in accounts payable.............................. (17,607)
Decrease in accrued expenses and other liabilities........ (5,045)
Decrease in other non-current liabilities................. (1,393)
Other, net................................................ 1,835
--------
Net cash provided by operating activities......... 79,333
--------
Cash flows from investing activities:
Purchases of property and revenue earning equipment....... (223,749)
Sales of property and revenue earning equipment........... 72,410
Other, net................................................ (1,992)
--------
Net cash used in investing activities............. (153,331)
--------
Cash flows from financing activities:
Net increase in investments by and advances from Ryder.... 74,777
--------
Net cash provided by financing activities......... 74,777
--------
Increase in cash............................................ 779
Cash at beginning of period................................. 1,831
--------
Cash at end of period....................................... $ 2,610
========
</TABLE>
See accompanying notes to combined financial statements.
F-20
<PAGE> 109
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- NATURE OF BUSINESS
Ryder Consumer Truck Rental (the "Company") is a division of Ryder Truck
Rental, Inc., a wholly-owned subsidiary of Ryder System, Inc. ("Ryder"). The
Company consists of the U.S.-based consumer truck rental operations of Ryder and
Ryder's wholly-owned subsidiary, Ryder Move Management, Inc. The Company is
engaged in the domestic rental of trucks to do-it-yourself movers and "light
commercial" customers, and the sale of related moving accessories and
liability-limiting products. The Company, through Ryder Move Management, is also
engaged in household goods relocation services for corporate employee relocation
programs. The Company's truck rental distribution network consists of
independent dealers and Ryder branch locations. Approximately 10% to 15% of
Ryder's revenue is generated through Ryder branch locations. The Company's
business is seasonal, with generally higher levels of demand during the summer
months. As a result, the Company typically experiences greater profitability in
the second half of the year compared with the first half.
NOTE 2 -- SALE OF COMPANY
On September 19, 1996, Ryder Truck Rental, Inc. entered into a definitive
agreement to sell substantially all the assets and certain liabilities of the
Company to Questor Partners Fund, L.P. and certain other investors (collectively
"Questor") for approximately $575 million. In addition, Ryder will give Questor
a royalty-free license to use the Ryder trademark and color scheme, subject to
certain restrictions, for a total of 10 years (with required modifications to
the trademark after five years). Ryder and Questor have also entered into
service agreements for various periods of time ranging from two to five years,
with options for extensions after five years for certain of the agreements.
Under the agreements, Ryder will continue to provide various services to the
Company including vehicle maintenance, claims processing, management information
systems and other administrative services. In addition, certain Ryder branch
locations will continue to act as consumer truck rental dealers and Ryder will
continue to assist in the disposition of the Company's used vehicles through its
sales network. Rates agreed upon for the various services are considered
reasonable based on market rates. The transaction is expected to be completed
prior to the end of 1996.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Combined Financial Statements are presented for periods
prior to the date of the sale agreement utilizing the historical accounting
practices followed by Ryder.
Basis of Presentation. The accompanying Combined Financial Statements
include the operations, assets and liabilities of the Company. The financial
statements do not include assets and liabilities of Ryder not specifically
identifiable to the Company. The financial information included herein is not
necessarily indicative of the financial position and results of operations or
cash flows that would have occurred had the Company been an independent
stand-alone entity during the periods presented, nor is it necessarily
indicative of future results of the Company.
Receivables. Receivables consist primarily of trade receivables resulting
from rental transactions and receivables from the sale of revenue earning
equipment. Receivables are reduced by amounts considered by management to be
uncollectible based on historical collection loss experience and review of the
current status of existing receivables.
Revenue Earning Equipment, Operating Property and Equipment and
Depreciation. Revenue earning equipment, principally rental trucks, and
operating property and equipment are stated at cost. Provision for depreciation
is computed using the straight-line method on substantially all depreciable
assets. Annual straight-line depreciation rates are 14% to 20% for revenue
earning equipment, 13% to 25% for office equipment and furniture and 19% to 30%
for transfer vehicles and company cars.
F-21
<PAGE> 110
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Gains on sales of revenue earning equipment, net of vehicle disposition
costs, are reported as reductions of depreciation expense and totaled $21.9
million for the year ended December 31, 1995. Gains on operating property and
equipment sales are reflected in miscellaneous expense, net.
Tires in Service. The Company capitalizes the cost of tires as a component
cost of the purchase of revenue earning equipment, and amortizes such tires cost
to expense over the lives of the vehicles and equipment. The cost of replacement
tires and tire repairs are expensed as incurred. For financial statement
purposes, the estimated cost of tires in service are reclassified to current
assets.
Software Development Costs. Internal costs for development of internal use
software are expensed as incurred. Incremental external costs for software
development are capitalized and amortized over the expected useful lives of the
software which range from four to five years. Other assets in the Combined
Balance Sheet are comprised primarily of software development and purchased
software costs.
Advertising Costs. The Company expenses the production costs of
advertising as incurred. The cost of air time and print space for media
advertising is expensed when used. The cost of yellow page advertising is
amortized over the life of the directory, primarily 12 months. Advertising
expense was $30.3 million for the year ended December 31, 1995.
Accrued Insurance and Loss Reserves. The Company participates in Ryder's
overall risk management programs for auto and general liability, workers'
compensation and other insurance programs. The primary risks to Ryder and the
Company are associated with auto and general liability and Ryder retains losses
for the exposure up to $1 million per occurrence. Ryder insures losses above $1
million with third party insurance companies.
The Company has recorded insurance reserves for auto and general liability
claims which reflect the Company's portion of the undiscounted estimated
liabilities up to $500,000 per occurrence (plus allocated loss adjustment
expense) and an estimate of claims incurred but not reported. Such liabilities
are necessarily based on estimates and, while management believes that the
amount is adequate, there can be no assurance that changes to management's
estimates may not occur due to limitations inherent in the estimation process.
Changes in the estimates of these reserves are charged or credited to income in
the period determined. Amounts estimated to be paid within one year have been
classified as accrued expenses with the remainder included in other non-current
liabilities. For exposures from $500,000 to $1 million per occurrence, the
Company is charged a premium based on the Company's loss experience and the
related liability is retained by Ryder. Costs associated with insurance premiums
to third party insurance companies for coverage in excess of $1 million are
allocated by Ryder to the Company based on the Company's pro rata share of
Ryder's revenue.
Revenue Recognition. Truck rental and related revenue is recognized as
earned.
Income Taxes. The Company has been included in consolidated income tax
filings of Ryder for Federal and state income tax purposes. However, the income
tax provision included in the accompanying Combined Financial Statement has been
determined as if the Company was an independent stand-alone entity filing
separate income tax returns.
Deferred tax assets and liabilities are determined based upon differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that currently would be in effect
when the differences are expected to reverse. Deferred tax balances will be
adjusted for tax law changes in periods that include the enactment date of such
changes. See Note (9).
Other Costs. Vehicle licensing fees are deferred when paid and amortized
to income over the period to which the fees relate. Vehicle repairs and
maintenance which do not extend the life or increase the value of the vehicle
are expensed as incurred. Advertising and sales promotion costs are expensed as
incurred.
F-22
<PAGE> 111
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE 4 -- TRANSACTIONS WITH RYDER
Certain Ryder branch locations provide vehicle repairs and maintenance
services to the Company and also serve as consumer truck rental dealers. Rates
charged to the Company for repairs and maintenance approximate rates charged to
significant Ryder customers and reflect the cost of parts and the cost of labor
plus a mark-up. Commission rates paid to Ryder for trucks rented through Ryder
locations are based on revenue generated from the transactions and are generally
consistent with those paid to independent dealers.
The Company participates in Ryder's combined risk management programs for
auto and general liability and Ryder processes claims related to auto and
general liability and workers' compensation. The Company also participates in
Ryder medical and dental, pension, postretirement and savings plans. See Notes
(3) and (10).
Ryder provides various general and administrative services to the Company
including information systems, treasury, legal, human resources, payroll,
marketing, purchasing, accounting and others. Costs for these services are
charged to the Company through Ryder's internal cost allocation methodologies
which are designed to estimate the actual costs incurred by Ryder to render
these services. In addition, general and administrative costs charged by Ryder
include a corporate management fee, which is based on Ryder's equity and revenue
levels. The Company also shares various facilities with Ryder for which it is
charged an amount based on relative square footage which is intended to
represent the Company's portion of occupancy costs including utilities,
maintenance and other costs.
The Company is charged by Ryder for vehicle disposition costs, including
sales commissions, costs to prepare vehicles for sale and a per vehicle service
fee.
The Company's cash and financing needs are managed by Ryder. The
accompanying Combined Balance Sheet does not include Ryder's general corporate
debt, which is used to finance the operations of all of Ryder's business units.
However, Ryder allocates its corporate interest expense to each business unit
based upon a target debt to equity ratio. The composition of the investment by
and advances from Ryder in the Combined Balance Sheets has been periodically
adjusted to effect this target debt to equity ratio. Interest expense charged to
the Company by Ryder is principally based upon the interest cost incurred by
Ryder for certain of its indebtedness.
Management believes that the method of allocating expenses is reasonable,
and that the expense reflected in the financial statements would not be
materially different if the Company operated as an independent stand-alone
entity. However, if the Company operated as an independent stand-alone entity,
actual expenses could differ from these amounts.
F-23
<PAGE> 112
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts charged and allocated by Ryder to the Company for the above expense
items are summarized in the following table:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Operating expense:
Repairs and maintenance................................... $57,378
Auto and general liability costs.......................... 26,464
Selling, general and administrative expense:
General and administrative................................ 20,136
Commissions on truck rentals.............................. 10,071
Pension, postretirement and savings plans................. 1,078
Other self insurance costs................................ 1,326
Occupancy................................................. 429
Depreciation expense, net of gains:
Vehicle disposition costs................................. 6,970
Interest expense............................................ 29,663
</TABLE>
The components of the investment by and advances from Ryder in the Combined
Balance Sheet were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Interest-bearing advances from Ryder........................ $362,607
Ryder investment............................................ 127,830
--------
$490,437
========
</TABLE>
NOTE 5 -- RECEIVABLES
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Trade accounts receivables.................................. $19,785
Receivables from vehicle sales.............................. 14,575
Other receivables........................................... 1,934
-------
36,294
Allowance for doubtful accounts........................... (514)
-------
$35,780
=======
</TABLE>
Bad debt expense totaled $1.0 million for the year ended December 31, 1995.
F-24
<PAGE> 113
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- REVENUE EARNING EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Rental trucks............................................... $ 777,610
Towing and other equipment.................................. 31,898
---------
809,508
Accumulated depreciation.......................... (289,746)
---------
$ 519,762
=========
</TABLE>
NOTE 7 -- OPERATING PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Office equipment and furniture.............................. $ 38,871
Transfer vehicles and company cars.......................... 5,458
Other....................................................... 63
--------
44,392
Accumulated depreciation.......................... (22,983)
--------
$ 21,409
========
</TABLE>
NOTE 8 -- ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Auto and general liability reserves......................... $ 43,104
Dealer commissions.......................................... 5,210
Advertising................................................. 818
Other self-insurance reserves............................... 2,264
Other accruals.............................................. 11,072
--------
62,468
Non-current portion......................................... (27,582)
--------
Accrued expenses and other liabilities...................... $ 34,886
========
</TABLE>
F-25
<PAGE> 114
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INCOME TAXES
The provision for income taxes included the following components (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
(IN THOUSANDS)
<S> <C>
Current tax expense:
Federal................................................... $ 79
State..................................................... 53
------
132
Deferred tax expense:
Federal................................................... 2,377
State..................................................... 475
------
2,852
------
Provision for income taxes.................................. $2,984
======
</TABLE>
A reconciliation of the Federal statutory tax rate with the effective tax
rate follows:
<TABLE>
<CAPTION>
% OF PRETAX INCOME
YEAR ENDED
DECEMBER 31,
1995
------------------
<S> <C>
Statutory tax rate.......................................... 35.0
State income taxes, net of Federal income tax benefit....... 5.3
Non-deductible items........................................ 5.0
----
Effective tax rate.......................................... 45.3
====
</TABLE>
Non-deductible items in the above table are comprised of meal and
entertainment expenses and fines and penalties. As described in Notes (1) and
(3), the Company was a division of Ryder for the period presented in the
accompanying Combined Financial Statements. The deferred tax assets and
liabilities shown below have been determined as though the Company was a
separate company and not part of Ryder's consolidated U.S. income tax returns.
On the date of sale (see Note 2) deferred tax assets and liabilities will be
subject to redetermination by the buyer. No tax attributes will carry over to
the buyer from the Company or Ryder.
The components of the net deferred income tax liability were as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred income tax assets:
Accrued self-insurance.................................... $ 18,428
Alternative minimum taxes................................. 5,104
Miscellaneous other accruals.............................. 2,627
--------
26,159
--------
Deferred income tax liabilities:
Property and equipment basis differences.................. (86,264)
Other items............................................... (2,337)
--------
(88,601)
--------
Net deferred income tax liability........................... $(62,442)
========
</TABLE>
F-26
<PAGE> 115
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had unused alternative minimum tax credits, for tax purposes,
of $5.1 million at December 31, 1995 available to reduce future income tax
liabilities. The alternative minimum tax credits may be carried forward
indefinitely.
On a separate return basis, no valuation allowance was deemed necessary for
the periods presented.
NOTE 10 -- PENSION, POSTRETIREMENT AND SAVINGS PLANS
Certain employees of the Company participate in a defined benefit pension
plan sponsored by Ryder. This plan generally provides participants with benefits
based on years of service and career-average compensation levels. Separate
calculations of the components of net pension expense and funded status of the
plan are not provided as such information is not maintained separately for
employees of the Company. Pension expense allocated to the Company by Ryder
(based on headcount) totaled $700,000 for the year ended December 31, 1995. As
part of the agreement for the sale of the Company, employees of the Company
participating in the plan will be treated as terminated and vested at the date
of sale and Ryder will retain both the plan assets and liabilities attributable
to such employees.
Employees of the Company take part in certain non-funded plans sponsored by
Ryder which provide retired employees with certain health care and life
insurance benefits. Substantially all employees of the Company are eligible for
these benefits. Health care benefits for Ryder's principal plan are generally
provided to qualified retirees under age 65 and eligible dependents. Generally,
this plan requires qualified early retirees to make contributions which vary
based on years of service and include provisions which cap company
contributions. The Company's portion of the actuarially determined costs related
to these plans was $106,000 for the year ended December 31, 1995.
Ryder also maintains defined contribution savings plans that cover
substantially all eligible employees. Contributions to the plans include
employee contributions and contributions made by Ryder under a matching program.
Defined contribution expense totaled $272,000 for the year ended December 31,
1995. Upon sale of the Company, employees of the Company will become fully
vested in the plan and Ryder will transfer their account balances to a successor
plan at a later date.
Management believes that the method of allocating expenses for the above
plans is reasonable, and that the expense reflected in the financial statements
would not be materially different if the Company operated as an independent
stand-alone entity. However, if the Company operated as an independent
stand-alone entity, actual expenses could differ from these amounts.
NOTE 11 -- RESTRUCTURING AND OTHER CHARGES
In the third quarter of 1995, the Company consolidated its twenty
administrative locations into two central locations. As a result, the Company
incurred restructuring charges totaling $3.1 million in 1995 for lease
termination ($.9 million) and employee related costs ($2.2 million), of which
$2.8 million remained accrued at December 31, 1995. Approximately 170 employees
were affected by the restructuring actions. In addition, the Company incurred
employee relocation costs of $3.3 million in 1995 related to these actions.
F-27
<PAGE> 116
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company leases facilities, office equipment and revenue earning
equipment (in 1995) under operating lease agreements. The Company also shares
various facilities with Ryder. For the year ended December 31, 1995, rent
expense totaled $5.1 million. The Company had no lease commitments for revenue
earning equipment at December 31, 1995. Future minimum payments for facilities
and office equipment leases in effect at December 31, 1995 are as follows (in
thousands):
<TABLE>
<S> <C>
TWELVE MONTHS ENDED:
December 31, 1996........................................... $2,536
December 31, 1997........................................... 2,015
December 31, 1998........................................... 1,672
December 31, 1999........................................... 874
December 31, 2000........................................... 819
Thereafter.................................................. 1,104
------
$9,020
======
</TABLE>
At December 31, 1995, the Company had commitments totaling $3.9 million
related to the completion of the Company's Customer Reservation and Customer
Service project which was in progress at December 31, 1995 and is expected to be
completed in 1997.
Ryder is a party to various claims, legal actions and complaints arising in
the ordinary course of business which relate to operations of the Company. While
any proceeding or litigation has an element of uncertainty, management believes
that the disposition of these matters will not have a material impact on the
financial condition, liquidity or results of operations of the Company. In
addition, the Company has no environmental liabilities or contingencies which
management believes will have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
F-28
<PAGE> 117
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Ryder System, Inc.:
We have audited the accompanying combined balance sheet of Ryder Consumer
Truck Rental (a division of Ryder Truck Rental, Inc., a wholly-owned subsidiary
of Ryder System, Inc.) as of October 16, 1996, and the related combined
statements of earnings and changes in Ryder investment and cash flows for the
period January 1, 1996 through October 16, 1996. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Ryder Consumer Truck
Rental as of October 16, 1996, and the results of its operations and its cash
flows for the period January 1, 1996 through October 16, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Miami, Florida
December 20, 1996
F-29
<PAGE> 118
RYDER CONSUMER TRUCK RENTAL
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 6,321
Receivables............................................... 18,109
Tires in service.......................................... 24,543
Deferred income taxes..................................... 6,186
Prepaid expenses and other current assets................. 13,168
--------
Total current assets.............................. 68,327
Revenue earning equipment................................... 466,118
Operating property and equipment............................ 15,149
Other assets................................................ 5,673
--------
Total assets...................................... $555,267
========
LIABILITIES AND RYDER INVESTMENT
Current liabilities:
Accounts payable.......................................... $ 11,931
Accrued expenses and other liabilities.................... 31,390
--------
Total current liabilities......................... 43,321
Deferred income taxes....................................... 76,443
Other non-current liabilities............................... 26,943
Investment by and advances from Ryder....................... 408,560
--------
Total liabilities and Ryder investment............ $555,267
========
</TABLE>
See accompanying notes to combined financial statements.
F-30
<PAGE> 119
RYDER CONSUMER TRUCK RENTAL
COMBINED STATEMENT OF EARNINGS AND CHANGES IN RYDER INVESTMENT
<TABLE>
<CAPTION>
JANUARY 1-
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Truck rental and related revenue............................ $439,779
Operating expense........................................... 155,264
Selling, general and administrative expense................. 166,568
Depreciation expense, not of gains.......................... 84,949
Interest expense............................................ 20,291
Restructuring and other charges............................. 1,891
Miscellaneous expense, net.................................. 690
--------
429,653
--------
Earnings before income taxes.............................. 10,126
Provision for income taxes................................ 4,304
--------
Net earnings.............................................. $ 5,822
========
Changes in Ryder Investment:
Investment by and advances from Ryder at beginning of
period................................................. $490,437
Net earnings.............................................. 5,822
Net decrease in investment by and advances from Ryder..... (87,699)
--------
Investment by and advances from Ryder at end of period.... $408,560
========
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE> 120
RYDER CONSUMER TRUCK RENTAL
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1-
OCTOBER 16,
1996
---------------
(IN THOUSANDS)
<S> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 5,822
Depreciation expense, net of gains........................ 84,949
Deferred income taxes..................................... 7,815
Decrease in receivables................................... 17,671
Increase in accounts payable.............................. 5,194
Decrease in accrued expenses and other liabilities........ (3,496)
Decrease in other non-current liabilities................. (639)
Other, net................................................ (473)
--------
Net cash provided by operating activities......... 116,843
Cash flows from investing activities:
Purchases of property and revenue earning equipment....... (69,228)
Sales of property and revenue earning equipment........... 45,428
Other, net................................................ (1,633)
--------
Net cash used in investing activities............. (25,433)
--------
Cash flows from financing activities:
Net decrease in investments by and advances from Ryder.... (87,699)
--------
Net cash used in financing activities............. (87,699)
--------
Increase in cash............................................ 3,711
Cash at beginning of period................................. 2,610
--------
Cash at end of period....................................... $ 6,321
========
</TABLE>
See accompanying notes to combined financial statements.
F-32
<PAGE> 121
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS
JANUARY 1 THROUGH OCTOBER 16, 1996
NOTE 1 -- NATURE OF BUSINESS
Ryder Consumer Truck Rental (the "Company") is a division of Ryder Truck
Rental, Inc., a wholly-owned subsidiary of Ryder System, Inc. ("Ryder"). The
Company consists of the U.S.-based consumer truck rental operations of Ryder and
Ryder's wholly-owned subsidiary, Ryder Move Management, Inc. The Company is
engaged in the domestic rental of trucks to do-it-yourself movers and "light
commercial" customers, and the sale of related moving accessories and
liability-limiting products. The Company, through Ryder Move Management, is also
engaged in household goods relocation services for corporate employee relocation
programs. The Company's truck rental distribution network consists of
independent dealers and Ryder branch locations. Approximately 10% to 15% of the
Company's revenue is generated through Ryder branch locations. The Company's
business is seasonal, with generally higher levels of demand during the summer
months. As a result, the Company typically experiences greater profitability in
the second half of the year compared with the first half.
NOTE 2 -- SALE OF COMPANY
On October 17, 1996, Ryder Truck Rental, Inc. completed the sale of
substantially all the assets and certain liabilities of the Company to Questor
Partners Fund, L.P. and certain other investors (collectively "Questor") for
$579.4 million (subject to adjustment upon final audit of assets sold). In
addition, Ryder gave Questor a royalty-free license to use the Ryder trademark
and color scheme, subject to certain restrictions, for a total of 10 years (with
required modifications to the trademark after five years). Ryder and Questor
also entered into service agreements for various periods of time ranging from
two to five years, with options for extensions after five years for certain of
the agreements. Under the agreements, Ryder will continue to provide various
services to the Company including vehicle maintenance, claims processing,
management information systems and other administrative services. In addition,
certain Ryder branch locations will continue to act as consumer truck rental
dealers and Ryder will continue to assist in the disposition of the Company's
used vehicles through its sales network. Rates agreed upon for the various
services are considered reasonable based on market rates.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Combined Financial Statements are presented utilizing the
historical accounting practices followed by Ryder.
Basis of Presentation. The accompanying Combined Financial Statements
include the operations, assets and liabilities of the Company. The financial
statements do not include assets and liabilities of Ryder not specifically
identifiable to the Company. The financial information included herein is not
necessarily indicative of the financial position and results of operations or
cash flows that would have occurred had the Company been an independent
stand-alone entity during the period presented, nor is it necessarily indicative
of future results of the Company.
Receivables. Receivables consist primarily of trade receivables resulting
from rental transactions and receivables from the sale of revenue earning
equipment. Receivables are reduced by amounts considered by management to be
uncollectible based on historical collection loss experience and review of the
current status of existing receivables.
Revenue Earning Equipment, Operating Property and Equipment and
Depreciation. Revenue earning equipment, principally rental trucks, operating
property and equipment are stated at cost. Provision for depreciation is
computed using the straight-line method on substantially all depreciable assets.
Annual straight-line depreciation rates are 14% to 20% for revenue earning
equipment, 13% to 25% for office equipment and furniture and 19% to 30% for
transfer vehicles and company cars. Effective January 1, 1996,
F-33
<PAGE> 122
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the estimated useful lives and residual values used to calculate the provision
for depreciation on certain types of revenue earning equipment were changed to
reflect recent experience. As a result of this change, depreciation expense was
decreased by approximately $6.0 million for the period January 1 through October
16, 1996.
Gains on sales of revenue earning equipment, net of vehicle disposition
costs, are reported as reductions of depreciation expense and totaled $8.7
million for the period January 1 through October 16, 1996. Gains on operating
property and equipment sales are reflected in miscellaneous expense, net.
Tires in Service. The Company capitalizes the cost of tires as a component
cost of the purchase of revenue earning equipment, and amortizes such tires cost
to expense over the lives of the vehicles and equipment. The cost of replacement
tires and tire repairs is expensed as incurred. For financial statement
purposes, the estimated cost of tires in service is reclassified to current
assets.
Software Development Costs. Internal costs for development of internal use
software are expensed as incurred. Incremental external costs for software
development are capitalized and amortized over the expected useful lives of the
software which range from four to five years. Other assets in the Combined
Balance Sheet are comprised primarily of software development and purchased
software costs.
Advertising Costs. The Company expenses the production costs of
advertising as incurred. The cost of air time and print space for media
advertising is expensed when used. The cost of yellow page advertising is
amortized over the life of the directory, primarily 12 months. Advertising
expense was $23.1 million for the period ended October 16, 1996.
Accrued Insurance and Loss Reserves. The Company participates in Ryder's
overall risk management programs for auto and general liability, workers'
compensation and other insurance programs. The primary risks to Ryder and the
Company are associated with auto and general liability and Ryder retains losses
for the exposure up to $1 million per occurrence. Ryder insures losses above $1
million with third party insurance companies.
The Company has recorded insurance reserves for auto and general liability
claims which reflect the Company's portion of the undiscounted estimated
liabilities up to $500,000 per occurrence (plus allocated loss adjustment
expense) and an estimate of claims incurred but not reported. Such liabilities
are necessarily based on estimates and, while management believes that the
amount is adequate, there can be no assurance that changes to management's
estimates may not occur due to limitations inherent in the estimation process.
Changes in the estimates of these reserves are charged or credited to income in
the period determined. Amounts estimated to be paid within one year have been
classified as accrued expenses with the remainder included in other non-current
liabilities. For exposures from $500,000 to $1 million per occurrence, the
Company is charged a premium based on the Company's loss experience and the
related liability is retained by Ryder. Costs associated with insurance premiums
to third party insurance companies for coverage in excess of $1 million are
allocated by Ryder to the Company based on the Company's pro rata share of the
Company's revenue.
Revenue Recognition. Truck rental and related revenue is recognized as
earned.
Income Taxes. The Company has been included in consolidated income tax
filings of Ryder for Federal and state income tax purposes. However, the income
tax provision included in the accompanying Combined Financial Statements has
been determined as if the Company was an independent stand-alone entity filing a
separate income tax return.
Deferred tax assets and liabilities are determined based upon differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that currently would be in effect
when the differences are expected to reverse. Deferred tax balances will be
adjusted for tax law changes in periods that include the enactment date of such
changes. See Note (9).
F-34
<PAGE> 123
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Other Costs. Vehicle licensing fees are deferred when paid and amortized
to income over the period to which the fees relate. Vehicle repairs and
maintenance which do not extend the life or increase the value of the vehicle
are expensed as incurred. Advertising and sales promotion costs are expensed as
incurred.
Accounting Changes. On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Statement
establishes standards for measuring impairment of long-lived assets,
identifiable intangibles and goodwill related to these assets. Adoption of the
Statement had no impact on the Company's results of operations or financial
position in 1996.
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE 4 -- TRANSACTIONS WITH RYDER
Certain Ryder branch locations provide vehicle repairs and maintenance
services to the Company and also serve as consumer truck rental dealers. Rates
charged to the Company for repairs and maintenance approximate rates charged to
significant Ryder customers and reflect the cost of parts and the cost of labor
plus a mark-up. Commission rates paid to Ryder for trucks rented through Ryder
locations are based on revenue generated from the transactions and are generally
consistent with those paid to independent dealers.
The Company participates in Ryder's combined risk management programs for
auto and general liability and Ryder processes claims related to auto and
general liability and workers' compensation. The Company also participates in
Ryder medical and dental, pension, postretirement and savings plans. See Notes
(3) and (10).
Ryder provides various general and administrative services to the Company
including information systems, treasury, legal, human resources, payroll,
marketing, purchasing, accounting and others. Costs for these services are
charged to the Company through Ryder's internal cost allocation methodologies
which are designed to estimate the actual costs incurred by Ryder to render
these services. In addition, general and administrative costs charged by Ryder
include a corporate management fee, which is based on Ryder's equity and revenue
levels. The Company also shares various facilities with Ryder for which it is
charged an amount based on relative square footage which is intended to
represent the Company's portion of occupancy costs including utilities,
maintenance and other costs.
The Company is charged by Ryder for vehicle disposition costs, including
sales commissions, costs to prepare vehicles for sale and a per vehicle service
fee.
The Company's cash and financing needs are managed by Ryder. The
accompanying Combined Balance Sheet does not include Ryder's general corporate
debt, which is used to finance the operations of all of Ryder's business units.
However, Ryder allocates its corporate interest expense to each business unit
based upon a target debt to equity ratio. The composition of the investment by
and advances from Ryder in the Combined Balance Sheet has been periodically
adjusted to effect this target debt to equity ratio. Interest expense charged to
the Company by Ryder is principally based upon the interest cost incurred by
Ryder for certain of its indebtedness.
Management believes that the method of allocating expenses is reasonable,
and that the expense reflected in the financial statements would not be
materially different if the Company operated as an independent stand-alone
entity. However, if the Company operated as an independent stand-alone entity,
actual expenses could differ from these amounts.
F-35
<PAGE> 124
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts charged and allocated by Ryder to the Company for the above expense
items are summarized in the following table (in thousands):
<TABLE>
<CAPTION>
JANUARY 1-
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Operating expense:
Repairs and maintenance................................... $47,147
Auto and general liability costs.......................... 21,194
Selling, general and administrative expense:
General and administrative................................ 12,531
Commissions on truck rentals.............................. 7,377
Pension, postretirement and savings plans................. 677
Other self insurance costs................................ 962
Occupancy................................................. 245
Depreciation expense, net of gains:
Vehicle disposition costs................................. 4,836
Interest expense.......................................... 20,291
</TABLE>
The components of the investment by and advances from Ryder in the Combined
Balance Sheet were as follows (in thousands):
<TABLE>
<CAPTION>
OCTOBER 16,
1996
-----------
<S> <C>
Interest-bearing advances from Ryder........................ $284,151
Ryder investment............................................ 124,409
--------
$408,560
========
</TABLE>
NOTE 5 -- RECEIVABLES
<TABLE>
<CAPTION>
OCTOBER 16,
1996
-----------
<S> <C>
Trade accounts receivable................................... $16,546
Receivables from vehicle sales.............................. 594
Other receivables........................................... 2,324
-------
19,464
Allowance for doubtful accounts........................... (1,355)
-------
$18,109
=======
</TABLE>
Bad debt expense totaled $1.9 million for the period January 1 through
October 16, 1996.
F-36
<PAGE> 125
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- REVENUE EARNING EQUIPMENT
<TABLE>
<CAPTION>
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Rental trucks............................................... $ 751,636
Towing and other equipment.................................. 28,534
---------
780,170
Accumulated depreciation.................................... (314,052)
---------
$ 466,118
=========
</TABLE>
NOTE 7 -- OPERATING PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Office equipment and furniture.............................. $ 38,575
Transfer vehicles........................................... 1,289
Other....................................................... 161
--------
40,025
Accumulated depreciation.................................. (24,876)
--------
$ 15,149
========
</TABLE>
NOTE 8 -- ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
OCTOBER 16,
1996
--------------
(IN THOUSANDS)
<S> <C>
Auto and general liability reserves......................... $ 42,854
Dealer commissions.......................................... 2,986
Advertising................................................. 1,064
Other self-insurance reserves............................... 2,025
Other accruals.............................................. 9,404
--------
58,333
Non-current portion......................................... (26,943)
--------
Accrued expenses and other liabilities...................... $ 31,390
========
</TABLE>
F-37
<PAGE> 126
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INCOME TAXES
The provision for income taxes included the following components (in
thousands):
<TABLE>
<CAPTION>
JANUARY 1-
OCTOBER 16,
1996
-----------
<S> <C>
Current tax expense:
Federal................................................... $(2,993)
State..................................................... (518)
-------
(3,511)
Deferred tax expense:
Federal................................................... 6,514
State..................................................... 1,301
-------
7,815
-------
Provision for income taxes.................................. $ 4,304
=======
</TABLE>
A reconciliation of the Federal statutory tax rate with the effective tax
rate follows:
<TABLE>
<CAPTION>
JANUARY 1-
OCTOBER 16,
1996
-----------
<S> <C>
Statutory tax rate.......................................... 35.0
State income taxes, net of Federal income tax benefit....... 5.0
Non-deductible items........................................ 2.5
-----
Effective tax rate.......................................... 42.5
=====
</TABLE>
Non-deductible items in the above table are comprised of meal and
entertainment expenses and fines and penalties. As described in Notes (1) and
(3), the Company was a division of Ryder during the period presented in the
accompanying Combined Financial Statements. The deferred tax assets and
liabilities shown below have been determined as though the Company was a
separate company and not part of Ryder's consolidated U.S. income tax returns.
On the date of sale (see Note 2) deferred tax assets and liabilities are subject
to redetermination by the buyer. No tax attributes will carry over to the buyer
from the Company or Ryder.
The components of the net deferred income tax liability follow (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 16,
1996
-----------
<S> <C>
Deferred income tax assets:
Accrued self-insurance.................................... $ 17,009
Alternative minimum taxes................................. 4,444
Miscellaneous other accruals.............................. 2,109
--------
23,562
Deferred income tax liabilities:
Property and equipment basis differences.................. (88,856)
Other items............................................... (4,963)
--------
(93,819)
--------
Net deferred income tax liability........................... $(70,257)
========
</TABLE>
F-38
<PAGE> 127
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had unused alternative minimum tax credits, for tax purposes,
of $4.4 million at October 16, 1996 available to reduce future income tax
liabilities. The alternative minimum tax credits may be carried forward
indefinitely.
On a separate return basis, no valuation allowance was deemed necessary.
NOTE 10 -- PENSION, POSTRETIREMENT AND SAVINGS PLANS
Certain employees of the Company participate in a defined benefit pension
plan sponsored by Ryder. This plan generally provides participants with benefits
based on years of service and career-average compensation levels. Separate
calculations of the components of net pension expense and funded status of the
plan are not provided as such information is not maintained separately for
employees of the Company. Pension expense allocated to the Company by Ryder
(based on headcount) totaled $408,000 for the period January 1 through October
16, 1996. As part of the agreement for the sale of the Company, employees of the
Company participating in the plan were treated as terminated and vested at the
date of sale and Ryder retained both the plan assets and liabilities
attributable to such employees.
Employees of the Company take part in certain non-funded plans sponsored by
Ryder which provide retired employees with certain health care and life
insurance benefits. Substantially all employees of the Company are eligible for
these benefits. Health care benefits for Ryder's principal plan are generally
provided to qualified retirees under age 65 and eligible dependents. Generally,
this plan requires qualified early retirees to make contributions which vary
based on years of service and include provisions which cap company
contributions. The Company's portion of the actuarially determined costs related
to these plans was $77,000 for the period January 1 through October 16, 1996.
Ryder also maintains defined contribution savings plans that cover
substantially all eligible employees. Contributions to the plans include
employee contributions and contributions made by Ryder under a matching program.
Defined contribution expense totaled $192,000 for the period January 1 through
October 16, 1996. Upon sale of the Company, employees of the Company became
fully vested in the plan and Ryder will transfer their account balances to a
successor plan at a later date.
Management believes that the method of allocating expenses for the above
plans is reasonable, and that the expense reflected in the financial statements
would not be materially different if the Company operated as an independent
stand-alone entity. However, if the Company operated as an independent
stand-alone entity, actual expenses could differ from these amounts.
NOTE 11 -- RESTRUCTURING AND OTHER CHARGES
In 1996, actions were taken by Ryder which impacted the Company including
management and staff reductions and elimination of the company-owned car benefit
program. The Company recorded a restructuring charge of $1.9 million related to
these actions consisting of $1.1 million for employee-related costs (of which
$0.7 million remained accrued at October 16, 1996) and asset write-downs of $0.8
million. These actions are expected to result in ongoing annual savings of
approximately $0.8 million.
F-39
<PAGE> 128
RYDER CONSUMER TRUCK RENTAL
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company leases facilities and office equipment under operating lease
agreements. The Company also shares various facilities with Ryder. For the
period January 1 through October 16, 1996, rent expense totaled $2.5 million.
The Company had no lease commitments for revenue earning equipment at October
16, 1996. Future minimum payments for facilities and office equipment leases in
effect at October 16, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
TWELVE MONTHS ENDED:
October 16, 1997.......................................... $2,294
October 16, 1998.......................................... 1,867
October 16, 1999.......................................... 966
October 16, 2000.......................................... 881
October 16, 2001.......................................... 520
Thereafter................................................ 745
------
$7,273
======
</TABLE>
At October 16, 1996, the Company had commitments totaling $3.3 million
related to the completion of the Company's Customer Reservation and Customer
Service project which was in progress at October 16, 1996 and is expected to be
completed in 1997.
Ryder is a party to various claims, legal actions and complaints arising in
the ordinary course of business which relate to operations of the Company. While
any proceeding or litigation has an element of uncertainty, management believes
that the disposition of these matters will not have a material impact on the
financial condition, liquidity or results of operations of the Company. In
addition, the Company has no environmental liabilities or contingencies which
management believes will have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
F-40
<PAGE> 129
ANNEX A
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
BUDGET GROUP, INC.
Budget Group, Inc., formerly known as 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 Special meeting of
the stockholders of the Corporation to be duly called by the Board of
Directors of the Corporation (the "Special Meeting"). The resolution
setting forth the proposed amendment (the "Amendment") is as follows:
NOW, THEREFORE, BE IT RESOLVED, that the Amended and Restated Certificate
of Incorporation be 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
73,000,000 shares of capital stock, consisting of 72,750,000 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, 70,000,000 shares shall be
designated "Budget Class A Common Stock" and 2,750,000 shares shall be
designated "Budget Class B Common Stock." The rights, preferences,
privileges and restrictions granted and imposed upon the Preferred
Stock, the Budget Class A Common Stock and the Budget 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 Special Meeting, the Amendment was approved and adopted by the
stockholders at the Special 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.
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 , 1998.
By:
------------------------------------
Robert L. Aprati
Executive Vice President,
General Counsel and Secretary
A-1
<PAGE> 130
ANNEX B
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 4, 1998
BY AND AMONG
BUDGET GROUP, INC.,
BDG CORPORATION,
RYDER TRS, INC.,
AND
CERTAIN OTHER PARTIES
================================================================================
<PAGE> 131
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. The Transactions................................................ B-1
Section 1.1. The Transactions............................................ B-1
Section 1.2. The Merger.................................................. B-1
Section 1.3. Effects of Merger........................................... B-2
ARTICLE II. The Surviving Corporation...................................... B-2
Section 2.1. Certificate of Incorporation................................ B-2
Section 2.2. By-Laws..................................................... B-2
Section 2.3. Officers and Directors...................................... B-2
ARTICLE III. Determination of Merger Consideration; Conversion of Shares;
Etc........................................................... B-2
Section 3.1. Determination of Merger Consideration....................... B-2
Section 3.2. Conversion of Shares in the Merger.......................... B-2
Section 3.3. Adjustment to Merger Shares................................. B-3
Section 3.4. Contingent Additional Consideration......................... B-4
Section 3.5. Warrants.................................................... B-5
Section 3.6. Escrow Holdback Shares...................................... B-6
Section 3.7. Stock Options............................................... B-7
Section 3.8. Appraisal Rights............................................ B-7
Section 3.9. Buyer to Make Certificates Available........................ B-8
Section 3.10. Dividends; Transfer Taxes................................... B-9
Section 3.11. No Fractional Securities.................................... B-9
Section 3.12. Closing of Company Transfer Books........................... B-9
Section 3.13. Legends and Transfer Restrictions........................... B-9
Section 3.14. Exemptions from Registration and Qualification.............. B-10
Section 3.15. Registration Rights......................................... B-10
Section 3.16. Business Combinations....................................... B-10
ARTICLE IV. Representations and Warranties of the Company.................. B-11
Section 4.1. Corporate Organization and Authorization.................... B-11
Section 4.2. Capitalization.............................................. B-12
Section 4.3. Noncontravention............................................ B-12
Section 4.4. SEC Filings................................................. B-13
Section 4.5. Financial Statements; Stockholders' Equity.................. B-13
Section 4.6. Legal Proceedings........................................... B-13
Section 4.7. Employee Plans.............................................. B-14
Section 4.8. Intellectual Property....................................... B-15
Section 4.9. Events Subsequent to September 30, 1997..................... B-15
Section 4.10. Compliance with Laws........................................ B-15
Section 4.11. Registration Statement...................................... B-16
Section 4.12. Properties; Leases.......................................... B-16
Section 4.13. Tax Matters................................................. B-17
Section 4.14. Brokerage................................................... B-18
Section 4.15. Insurance; Protection Products.............................. B-18
Section 4.16. Contracts................................................... B-18
Section 4.17. Transactions with Affiliates................................ B-18
Section 4.18. Voting Requirements; Dissenters' Rights..................... B-19
Section 4.19. Labor Matters............................................... B-19
Section 4.20. Quantity and Maintenance of Trucks.......................... B-19
Section 4.21. Accounts Receivable......................................... B-19
Section 4.22. Licenses, Permits, etc. .................................... B-19
Section 4.23. Disclosure.................................................. B-19
</TABLE>
i
<PAGE> 132
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE V. Representations and Warranties of Buyer......................... B-20
Section 5.1. Corporate Organization and Authorization.................... B-20
Section 5.2. Capitalization.............................................. B-20
Section 5.3. Noncontravention............................................ B-21
Section 5.4. SEC Filings................................................. B-21
Section 5.5. Financial Statements........................................ B-21
Section 5.6. Legal Proceedings........................................... B-21
Section 5.7. Events Subsequent to September 30, 1997..................... B-22
Section 5.8. Compliance with Laws........................................ B-22
Section 5.9. Registration Statement...................................... B-22
Section 5.10. Properties; Insurance....................................... B-22
Section 5.11. Financing................................................... B-22
Section 5.12. Brokerage................................................... B-22
ARTICLE VI. Covenants and Agreements....................................... B-22
Section 6.1. Conduct of the Company Prior to the Effective Time.......... B-22
Section 6.2. Conduct of Buyer Prior to the Effective Time................ B-24
Section 6.3. Other Offers for the Company; Sale of Common Stock by
Significant Stockholders.................................... B-25
Section 6.4. Continued Effectiveness of Representations and Warranties of
the Parties................................................. B-25
Section 6.5. Corporate Examinations and Investigations................... B-26
Section 6.6. Buyer Approvals............................................. B-26
Section 6.7. Company Approvals........................................... B-26
Section 6.8. Letter of Credit............................................ B-26
Section 6.9. Further Assurances.......................................... B-27
Section 6.10. Buyer Board of Directors.................................... B-27
Section 6.11. Indemnification of Company Officers and Directors;
Insurance................................................... B-27
Section 6.12. Confidentiality............................................. B-27
Section 6.13. Certificates, Opinions, Etc. ............................... B-27
Section 6.14. Interim Financials.......................................... B-28
Section 6.15. Communications.............................................. B-28
Section 6.16. Releases.................................................... B-28
Section 6.17. Transfer Taxes.............................................. B-28
Section 6.18. Standstill.................................................. B-28
Section 6.19. Buyer's Stockholders' Meeting............................... B-28
Section 6.20. Stock Purchases, Repurchases and Sales; Registration
Rights...................................................... B-28
Section 6.21. Listing..................................................... B-29
Section 6.22. Registration Rights......................................... B-29
Section 6.23. Buyer Review of Disclosure Schedules........................ B-29
ARTICLE VII. Conditions Precedent To Merger................................ B-29
ARTICLE VIII. Closing...................................................... B-30
ARTICLE IX. Representations and Warranties as of the Closing Date;
Survival; Material Breaches.................................... B-30
Section 9.1. Representations and Warranties as of the Closing Date....... B-30
Section 9.2. Survival.................................................... B-30
Section 9.3. Certain Material Breaches................................... B-30
ARTICLE X. Termination of Agreement........................................ B-31
Section 10.1. Termination................................................. B-31
Section 10.2. Effect of Termination....................................... B-32
Section 10.3. Amounts Payable in Connection with Termination.............. B-32
ARTICLE XI. Definitions.................................................... B-32
Section 11.1. Definitions................................................. B-32
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE XII. Miscellaneous................................................. B-38
Section 12.1. Publicity................................................... B-38
Section 12.2. Notices..................................................... B-38
Section 12.3. Entire Agreement............................................ B-39
Section 12.4. Waivers and Amendments; Non Contractual Remedies;
Preservation of Remedies; Liability......................... B-39
Section 12.5. Governing Law............................................... B-39
Section 12.6. Binding Effect; No Assignment............................... B-39
Section 12.7. Third Party Beneficiaries................................... B-40
Section 12.8. Counterparts................................................ B-40
Section 12.9. Exhibits, Schedules and Annexes............................. B-40
Section 12.10. Headings.................................................... B-40
Section 12.11. Submission to Jurisdiction; Venue........................... B-40
Section 12.12. Severability................................................ B-40
</TABLE>
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ANNEX
<TABLE>
<S> <C>
Annex I Restricted Persons
Annex II Buyer Opinion Matters
Annex III Company Opinion Matters
EXHIBIT INDEX
Exhibit A Warrant Assumptions
Exhibit B Form of Holdback Escrow Agreement
Exhibit C Letter of Credit
Exhibit D Press Release
Exhibit E Rights and Obligations with respect to Registrable
Securities
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of March 4,
1998, is made by and among Budget Group, Inc., a Delaware corporation ("Buyer"),
BDG Corporation, a Delaware corporation and a direct or indirect wholly owned
subsidiary of Buyer ("Sub"), Ryder TRS, Inc., a Delaware corporation (the
"Company"), and Questor Partners Fund, L.P., a Delaware limited partnership,
Questor Side-by-Side Partners, L.P., a Delaware limited partnership, and Madison
Dearborn Capital Partners, L.P., a Delaware limited partnership (each a
"Significant Stockholder" and collectively, the "Significant Stockholders").
Certain terms used in this Agreement are defined in Article XI.
WITNESSETH:
WHEREAS, Buyer, Sub and the Company desire to effect a business combination
by means of the merger of Sub with and into the Company;
WHEREAS, the Board of Directors of Buyer and the Board of Directors and
stockholder of Sub and the Board of Directors and the Significant Stockholders
of the Company have approved the merger of Sub with and into the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein; and
WHEREAS, the parties hereto also desire to agree on certain other terms and
conditions.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties hereto agree
as follows:
ARTICLE I.
THE TRANSACTIONS
Section 1.1. The Transactions. On the terms and subject to the conditions
set forth in this Agreement, Buyer shall acquire all the Outstanding Company
Shares by means of the Merger. Subject to Article III, the total consideration
to be received by the holders of the Outstanding Company Shares shall consist of
a combination of the following:
(a) an aggregate amount payable in cash to all such holders equal to a
minimum of $125,000,000 (less any cash payable with respect to the Options
pursuant to Section 3.7) and a maximum of $200,000,000 (less any cash
payable with respect to the Options pursuant to Section 3.7), with the
precise amount thereof determined as set forth in Section 3.1;
(b) an aggregate number of shares of Buyer Class A Common Stock
issuable to all such holders equal to a minimum of 1,363,822 shares (the
"Minimum Merger Shares") and a maximum of 3,636,860 shares (the "Maximum
Merger Shares") (in each case less any shares of Buyer Class A Common Stock
issued to the holders of Options pursuant to Section 3.7), with the precise
number thereof determined as set forth in Section 3.1 and subject to
adjustment as provided in Article III;
(c) Warrants to purchase initially an aggregate of 1,000,000 shares of
Buyer Class A Common Stock as provided in Section 3.5; and
(d) the right to receive the Contingent Additional Consideration, if
any, as provided in Section 3.4.
Section 1.2. The Merger. (a) Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the applicable provisions of
the Delaware General Corporation Law (the "Delaware Corporation Law"), Sub shall
be merged with and into the Company and the separate existence of Sub shall
thereupon cease. The Company shall be the surviving corporation in the Merger
(the "Surviving Corporation") and shall continue to be governed by the laws of
the State of Delaware, and the separate corporate existence of the Company with
all its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger.
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(b) Effective Time of the Merger. The Merger shall become effective at
such time as a properly executed Certificate of Merger is duly filed with the
Secretary of State of Delaware, which filing shall be made as soon as
practicable following fulfillment or waiver of the conditions set forth in
Article VII hereof or such later time as is specified in such filing (the
"Effective Time").
Section 1.3. Effects of Merger. The Merger shall have the effects set
forth in Section 259 of the Delaware Corporation Law.
ARTICLE II.
THE SURVIVING CORPORATION
Section 2.1. Certificate of Incorporation. Subject to Section 6.11, at
the Effective Time the Certificate of Incorporation of the Surviving Corporation
shall be amended so as to be identical to the Certificate of Incorporation of
Sub, other than such Article relating to the company name of Sub and such
Article relating to the identity of the incorporator of Sub, and thereafter may
be amended in accordance with its terms and as provided by the Delaware
Corporation Law.
Section 2.2. By-Laws. Subject to Section 6.11, at the Effective Time the
by-laws of the Surviving Corporation shall be amended so as to be identical to
the by-laws of Sub, and thereafter may be amended in accordance with their terms
and as provided by the Delaware Corporation Law.
Section 2.3. Officers and Directors. The officers of Sub and the
directors of Sub immediately prior to the Effective Time shall be the officers
and directors, respectively, of the Surviving Corporation after the Effective
Time, in each case until their respective successors are duly elected and
qualified.
ARTICLE III.
DETERMINATION OF MERGER CONSIDERATION;
CONVERSION OF SHARES; ETC.
Section 3.1. Determination of Merger Consideration. (a) Buyer shall issue
shares of Buyer Class A Common Stock in the Merger to the holders of the
Outstanding Company Shares and the holders of Options as follows:
(i) (x) if the approval by the stockholders of Buyer contemplated in
Section 6.19 hereof for the authorization of the increase in the capital
stock of Buyer to permit Buyer to issue the Maximum Merger Shares is
obtained, then at the time of the Closing Buyer shall issue a number of
shares of Buyer Class A Common Stock equal to the number of Maximum Merger
Shares or (y) if such approval by the stockholders of Buyer is not
obtained, then at the time of the Closing Buyer shall issue a number of
shares of Buyer Class A Common Stock equal to the number of Minimum Merger
Shares; and
(ii) within one (1) Business Day after the date of the meeting
contemplated in Section 6.19 hereof, Buyer shall notify the Company in
writing of the outcome of such stockholders' vote.
As used herein, the "Aggregate Merger Shares" shall be the Maximum Merger
Shares, if issued, or the Minimum Merger Shares, if issued.
(b) The total amount of cash to be paid in the Merger to the holders of the
Outstanding Company Shares under Section 3.2(a) (the "Aggregate Cash
Consideration") shall be (i) if the Maximum Merger Shares are issued,
$125,000,000 minus any cash payable with respect to the Options pursuant to
Section 3.7, or (ii) if the Minimum Merger Shares are issued, $200,000,000 minus
any cash payable with respect to the Options pursuant to Section 3.7.
Section 3.2. Conversion of Shares in the Merger. (a) Company Common
Stock. Subject to Article III hereof, at the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any capital stock of
the Company (each, a "Company Stockholder" or collectively, the "Company
Stockholders"), each Outstanding Company Share shall be converted into (A) that
number of fully paid and
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nonassessable shares of Buyer Class A Common Stock equal to the quotient
obtained by dividing the Aggregate Merger Shares (less any shares of Buyer Class
A Common Stock issued to the holders of Options pursuant to Section 3.7) by the
Outstanding Company Shares, plus (B) an amount in cash equal to the quotient
obtained by dividing the Aggregate Cash Consideration by the Outstanding Company
Shares, plus (C) Warrants to purchase initially the number of shares of Buyer
Class A Common Stock determined by dividing 1,000,000 by the number of
Outstanding Company Shares, plus (D) the right to receive a portion of the
Contingent Additional Consideration provided in Section 3.4, determined by
dividing such aggregate Contingent Additional Consideration by the number of
Outstanding Company Shares (the consideration per share of Company Common Stock
as determined herein, the "Merger Consideration"). If between the date hereof
and the Effective Time, the outstanding shares of Buyer Class A Common Stock
shall be changed into a different number of shares or a different class by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or if a stock dividend thereon shall be
declared with a record date within such period, the calculations of Minimum
Merger Shares, Maximum Merger Shares and Aggregate Merger Shares shall be
correspondingly adjusted.
(b) Cancellation of Company Treasury Stock. At the Effective Time by
virtue of the Merger, all shares of Company Common Stock which are held in the
treasury of the Company or which are owned by any wholly owned Subsidiary of the
Company shall be canceled and shall cease to exist.
(c) Sub Shares. At the Effective Time by virtue of the Merger, each issued
and outstanding share of capital stock of Sub shall be converted into one
validly issued, fully paid and nonassessable share of common stock, par value
$.01 per share, of the Surviving Corporation.
Section 3.3. Adjustment to Merger Shares. (a) Adjustment Events. The
number of Aggregate Merger Shares shall be adjusted downwards if (i) it shall
have been determined that (A) one or more of the representations and warranties
of the Company contained herein (without giving effect to any qualifications
contained in any representation and warranty set forth in Article IV hereof with
respect to any Material Adverse Effect on the Company) fails to be true and
correct (i) as of the date hereof or, if any representation and warranty speaks
as of a specified date, then as of such date or (ii) in the case of
representations and warranties that do not speak of a specified date, then as of
the Closing Date, or (B) one or more of the covenants of the Company or any
Significant Stockholder set forth in this Agreement hereof fails to be performed
on or prior to the Closing Date, but only to the extent the aggregate value
reduction to Buyer as a result of all the foregoing (as determined under Section
9.3) exceeds $5,000,000 (the "Materiality Threshold"), or (ii) the Fees are in
excess of $10,000,000, which downward adjustment, in the case of this clause
(ii), shall be made only to the extent of the amount by which the Fees exceed
$10,000,000, as provided in Section 3.3(b), and which adjustment shall be made
without giving effect to the Materiality Threshold. The value reduction
associated with the failure of representations and warranties of the Company to
be true and correct or the failure of covenants of the Company or the
Significant Stockholders to be performed shall mean the actual damages (without
duplication) sustained as a result thereof (without giving effect to any
qualifications contained in any representation and warranty set forth in Article
IV hereof with respect to any Material Adverse Effect on the Company), taking
into account any insurance recovery that is available to Buyer or Sub (exclusive
of any self insurance), any insurance proceeds received by the Company and the
present economic value of any tax benefits to be realized by Buyer, the Company
or any of their respective controlled Affiliates as a result of such damages.
(b) Share Reduction. The number of Aggregate Merger Shares shall be
reduced by an amount equal to the sum of (i) the amount, if any, of the value
reduction in excess of the Materiality Threshold resulting from the failure of
any representation and warranty made by the Company to be true and correct or
the failure of the Company or any Significant Stockholder to perform its
respective covenants plus (ii) the amount by which the Fees exceed $10,000,000
(such sum, the "Reduction Amount"), in each case as determined in accordance
with Section 3.3(a) (with each share of Buyer Class A Common Stock for purposes
of calculating such deduction, being deemed to have a value equal to the
Transaction Price). Upon a final determination that any such reduction is
required, the number of shares of Buyer Class A Common Stock issued in the
Merger to each Original Holder shall be reduced by an amount representing such
holder's pro rata share of the Reduction Amount based on the percentage of the
Aggregate Merger Shares received by such holder.
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Section 3.4. Contingent Additional Consideration. (a) Determination as to
Whether Contingent Additional Consideration is Payable. In addition to the
Merger Consideration payable pursuant to Sections 3.2 and 3.5 and the
consideration payable to holders of Options pursuant to Section 3.7, each holder
of shares of Company Common Stock and Options immediately prior to the Effective
Time which receives shares of Buyer Class A Common Stock in the Merger (any such
holder and its Permitted Transferees, an "Original Holder", and any such shares,
the "Original Shares") shall be entitled to receive from Buyer an additional
amount of cash or shares of Buyer Class A Common Stock as, but only to the
extent, provided herein (the "Contingent Additional Consideration").
(b) Annual Measurement Date. As promptly as possible following the date
which is the first year anniversary of the Closing Date (the "Annual Measurement
Date"), and subject to receipt by Buyer from the applicable Original Holder of a
certificate certifying as to whether such person or any of its Permitted
Transferees has disposed of any Original Shares and containing all other
information regarding such holder necessary to make the computations referred to
in this Section 3.4(b) (the delivery of which certificate shall be a condition
of such person's ability to receive payment under this Section 3.4(b)), Buyer
shall compute, with respect to each Original Holder, (i) the "Total Value" of
50% of the aggregate number of Original Shares acquired by such Original Holder
(or its Permitted Transferees) in the Merger (such 50% being referred to as the
"Annual Shares") and (ii) the "Annual Make-Whole Amount" (as defined below). For
purposes of this paragraph, the "Total Value" of the Annual Shares of an
Original Holder (and its Permitted Transferees) shall be (A) with respect to any
Annual Shares held by such holder as of the Annual Measurement Date (the
"Remaining Annual Shares"), an amount equal to the Market Value per share of
Buyer Class A Common Stock as of the Annual Measurement Date multiplied by the
number of Remaining Annual Shares (it being agreed that sales by such holder or
any of its Permitted Transferees prior to the Annual Measurement Date of any
Original Shares, up to the total of Annual Shares, shall be deemed to be sales
of Annual Shares) (the "Total Remaining Annual Value") and (B) if such holder or
any of its Permitted Transferees shall have sold Annual Shares after the Closing
Date and prior to the Annual Measurement Date (it being agreed that sales of any
Original Shares by such holder, up to the total number of Annual Shares, shall
be deemed to be sales of Annual Shares) (each a "Disposed Annual Share" and
collectively, the "Disposed Annual Shares"), an amount equal to the sum of each
"Disposed Annual Value" (such sum, the "Total Disposed Annual Value"). With
respect to each sale of Disposed Annual Shares, the "Disposed Annual Value"
shall be determined on the Annual Measurement Date and shall be an amount equal
to the Transaction Price minus the higher of the Market Value per share of the
Buyer Class A Common Stock on the Annual Measurement Date and the price at which
such Disposed Annual Shares were sold (such higher value, the "Annual
Disposition Price") multiplied by the number of Disposed Annual Shares so sold;
provided, however, that if the Annual Disposition Price is higher than the
Transaction Price, the Disposed Annual Value shall be deemed to be zero. The
"Annual Make-Whole Amount" with respect to an Original Holder (and its Permitted
Transferees) shall mean the sum of (1) the amount, but only if positive, equal
to (a) the Transaction Price multiplied by the number of Remaining Annual Shares
owned by such Original Holder or its Permitted Transferees on the Annual
Measurement Date minus (b) the Total Remaining Annual Value as of the Annual
Measurement Date of the Remaining Annual Shares held by such Original Holder or
its Permitted Transferees and (2) the Total Disposed Annual Value as of the
Annual Measurement Date of the Disposed Annual Shares of such Original Holder or
its Permitted Transferees.
(c) Final Measurement Date. As promptly as possible following the date
which is the twentieth monthly anniversary of the Closing Date (the "Final
Measurement Date"), and subject to receipt by Buyer from the applicable Original
Holder of a certificate certifying as to whether such person or any of its
Permitted Transferees has disposed of any Original Shares and containing all
information regarding such holder necessary to make the computations referred to
in this Section 3.4(c) (the delivery of which certificate shall be a condition
of such person's ability to receive payment under this Section 3.4(c)), Buyer
shall compute, with respect to each Original Holder, (i) the "Total Value" of
the Original Shares acquired by such Original Holder (and its Permitted
Transferees) in the Merger which are not Annual Shares (the "Final Shares") and
(ii) the "Final Make-Whole Amount" (as defined below). For purposes of this
paragraph, the "Total Value" of the Final Shares of an Original Holder (and its
Permitted Transferees) shall be (A) with respect to any Final Shares held by
such holder as of the Final Measurement Date (the "Remaining Final Shares"), an
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amount equal to the Market Value per share of Buyer Class A Common Stock as of
the Final Measurement Date multiplied by the number of Remaining Final Shares
(the "Total Remaining Final Value") and (B) if such holder or its Permitted
Transferees shall have sold Final Shares after the Closing Date and prior to the
Final Measurement Date (each a "Disposed Final Share" and collectively, the
"Disposed Final Shares", an amount equal to the sum of each "Disposed Final
Value" (such sum, the "Total Disposed Final Value"). With respect to each sale
of Disposed Final Shares, the "Disposed Final Value" shall be determined on the
Final Measurement Date and shall be an amount equal to the Transaction Price
minus the higher of the Market Value per share of the Buyer Class A Common Stock
on the Final Measurement Date and the price at which such Disposed Final Shares
were sold (such higher value, the "Final Disposition Price") multiplied by the
number of Disposed Final Shares so sold; provided, however, that if the Final
Disposition Price is higher than the Transaction Price, the Disposed Final Value
shall be deemed to be zero. The "Final Make-Whole Amount" with respect to an
Original Holder (and its Permitted Transferees) shall mean the sum of (1) the
amount, but only if positive, equal to (a) the sum of the Transaction Price
multiplied by the number of Remaining Final Shares held by such Original Holder
or its Permitted Transferees on the Final Measurement Date minus (b) the Total
Remaining Final Value as of the Final Measurement Date of the Remaining Final
Shares of such Original Holder or its Permitted Transferees and (2) the Total
Disposed Final Value as of the Final Measurement Date of the Disposed Final
Shares of such Original Holder or its Permitted Transferees.
(d) Payment of Make-Whole Amount. If the Annual Make-Whole Amount or the
Final Make-Whole Amount is more than zero with respect to any Original Holder,
then, within 20 calendar days after the determination of the applicable
Make-Whole Amount, Buyer shall pay in immediately available funds to each such
Original Holder an amount equal to the applicable Make-Whole Amount; provided,
however, that except as provided below, Buyer may, in its sole discretion, make
all or any portion of any such payment by delivering to any such Original Holder
fully paid and non-assessable shares of Buyer Class A Common Stock with a Market
Value as of the Annual Measurement Date or the Final Measurement Date, as the
case may be, equal to the applicable Make-Whole Amount (any such shares being
referred to as "Make-Whole Shares"); and provided, further, that Buyer shall not
have the option set forth in the preceding proviso if Buyer Class A Common Stock
is no longer listed on the NYSE or another national securities exchange or
automated quotation system.
(e) Separate Agreements with Holders. At the request of any holder of
shares of Company Common Stock (or, after the Effective Time, any Original
Holder), Buyer will enter into a separate agreement with such holder to evidence
the obligations of Buyer under this Section 3.4.
(f) Adjustments for Reclassifications, Etc. If after the date hereof and
before the determination set forth in this Section 3.4, the outstanding shares
of Buyer Class A Common Stock shall be changed into a different number of shares
or a different class by reason of any reclassification, recapitalization,
split-up, combination, exchange of shares or readjustment, or if a stock
dividend thereon shall be declared with a record date within such period, the
calculations set forth in this Section 3.4 shall be correspondingly adjusted.
Section 3.5. Warrants. (a) Issuance and Exercise of Warrants. Buyer
shall issue to the Original Holders at the Effective Time warrants to purchase
initially an aggregate of 1,000,000 shares of Buyer Class A Common Stock, such
Warrants to be substantially in the form to be negotiated between the Buyer and
the Company as promptly as practicable following the date hereof (herein called
the "Warrants" and individually called a "Warrant") and containing terms
consistent with this Section 3.5 and the Warrant Assumptions set forth in
Exhibit A attached hereto (it being understood that upon negotiation of such
form of Warrants, the agreed upon form shall be deemed to become Exhibit A
attached hereto). Within five (5) Business Days following the Final Measurement
Date, and subject to receipt by Buyer from the applicable Original Holder of a
certificate certifying as to whether such person or any of its Permitted
Transferees has disposed of any Original Shares and containing all other
information regarding such holder reasonably necessary to make the computations
referred to in this Section 3.5(a) (the delivery of which certificate shall be a
condition of such person's ability to receive amounts under this Section
3.5(a)), Buyer shall compute, with respect to each Original Holder and each
Permitted Transferee of such Original Holder, the "Total Warrant Value" for such
Original Holder and its Permitted Transferees. The "Total Warrant Value" for any
Original Holder and its Permitted Transferees shall be (i) the Warrant Value
Amount (as defined below) multiplied by (ii)(x) the
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number of Original Shares issued to such Original Holder in the Merger and held
by such Original Holder and its Permitted Transferees on the Final Measurement
Date divided by (y) the number of Original Shares issued to all Original Holders
in the Merger. The "Warrant Value Amount" shall be the lesser of (i) $20 million
or (ii)(x)(A) the Transaction Price multiplied by the aggregate number of
Original Shares issued in the Merger plus (B) $20 million minus (y) the Market
Value of a share of Buyer Class A Common Stock on the Final Measurement Date
multiplied by the aggregate number of Original Shares issued in the Merger.
If the Total Warrant Value for any Original Holder and its Permitted
Transferees is positive, then such Original Holder and its Permitted Transferees
shall be entitled, for a period of five years beginning on the thirtieth day
after the Final Measurement Date (the "Warrant Measurement Date"), to exercise
their Warrants to purchase shares of Buyer Class A Common Stock. Buyer shall
have the right to buy the Warrant held by each Warrant holder, in whole and not
in part, by paying the Warrant Value Amount on the Warrant Measurement Date to
the holder thereof either in immediately available funds or, except as provided
below, in shares of Buyer Class A Common Stock valued at the Market Value per
share of Buyer Class A Common Stock as of the Warrant Measurement Date (but not
in a combination of both); provided, however, that Buyer shall not have the
option set forth above and Buyer shall pay the Warrant Value Amount in
immediately available funds to each Warrant holder, if Buyer Class A Common
Stock is no longer listed on the NYSE or another national securities exchange or
automated quotation system.
(b) Determination of Exercise Price. Prior to the Final Measurement Date,
a majority in interest of the Original Holders shall retain, at Buyer's expense,
a nationally recognized investment banking firm with significant experience in
the equity derivatives market (reasonably acceptable to Buyer) to determine the
revised aggregate number of shares issuable upon exercise of the Warrants such
that, in the written opinion of such investment banking firm rendered within 15
days after the Final Measurement Date, on the Final Measurement Date, the
Warrants issued to the Original Holders and their Permitted Transferees would
have an aggregate value, based upon the assumptions set forth on Exhibit A,
equal to the Warrant Value Amount. Within two (2) Business Days after the
determination of the Warrant Value Amount, Buyer shall notify each Warrant
holder of the Warrant Value Amount and such holder of its Total Warrant Value
and contemporaneously, such investment bank shall provide to Buyer and holder a
copy of its opinion and of its standing bid, each as described in Exhibit A.
(c) Separate Agreements with Holders. At the request of any holder of
shares of Company Common Stock (or, after the Effective Time, any Original
Holder), Buyer will enter into a separate agreement with such holder to evidence
the obligations of Buyer under this Section 3.5.
(d) Adjustments for Reclassifications, Etc. If after the date hereof the
outstanding shares of Buyer Class A Common Stock shall be changed into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, or if a stock dividend thereon shall be declared with a record
date within such period, the aggregate number of Warrants and calculations set
forth in this Section 3.5 shall be correspondingly adjusted.
Section 3.6. Escrow Holdback Shares. (a) At the Effective Time, 1,818,430
shares of Buyer Class A Common Stock (if the Maximum Merger Shares are issued),
or 1,363,822 shares of Buyer Class A Common Stock (if the Minimum Merger Shares
are issued) (as the case may be, the "Escrow Holdback Shares") shall be
deposited in escrow with an escrow agent mutually agreed upon by Buyer and the
Company prior to the Closing (the "Holdback Escrow Agent"), to be held and
administered in accordance with the terms and conditions of a Holdback Escrow
Agreement, substantially in the form attached hereto as Exhibit B (the "Holdback
Escrow Agreement"), against which Escrow Holdback Shares Buyer shall be
entitled, in accordance with the terms of the Holdback Escrow Agreement, to
recover Damages (as defined in the Holdback Escrow Agreement) that may be
suffered by Buyer and that are indemnifiable in accordance with the terms of the
Holdback Escrow Agreement (an "Escrow Claim Event").
(b) Claims in respect of Escrow Claim Events shall be made, and may be
disputed, in accordance with the terms and conditions of the Holdback Escrow
Agreement. Upon the occurrence of certain events, the number of Escrow Holdback
Shares shall be released to Buyer to satisfy such claims as determined in
accordance with the terms of the Holdback Escrow Agreement. Upon termination of
the escrow, all shares of
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Buyer Class A Common Stock remaining in escrow shall be released in accordance
with the terms of the Holdback Escrow Agreement.
(c) The holder of any shares of Buyer Class A Common Stock received in the
Merger, by acceptance thereof, agrees to the terms set forth in Section 3.6 of
this Agreement and in Exhibit E and to the appointment of the Indemnification
Representative named in the notice and transmittal form provided by the Exchange
Agent pursuant to Section 3.9 of this Agreement.
Section 3.7. Stock Options. (a) The Company shall take all actions
necessary to provide that all outstanding options to acquire shares of Company
Common Stock ("Options") granted under any stock option plan, program or similar
arrangement of the Company or any of its Subsidiaries, each as amended (the
"Stock Option Plans"), shall become fully exercisable and vested immediately
prior to the Effective Time whether or not otherwise exercisable and vested. The
Company shall comply with the terms of the Stock Option Plans, as applicable,
and, to the extent required thereunder, provide written notice to the holders of
Options that such Options shall be treated as set forth herein. All Options
which are outstanding immediately prior to the Effective Time shall be canceled
and become null and void and the holders thereof shall be entitled to elect (1)
to receive from the Company at the same times and in the same manner as the
Company Stockholders pursuant to this Article III, for each Option to acquire
one share of Company Common Stock, (A) an amount in cash equal to (x) the cash
payable to the holder of one share of Company Common Stock pursuant to Section
3.2 assuming all Options had been exercised prior to the Effective Time minus
(y) the exercise price per share of such Option (the "Exercise Difference"),
plus (B) certificates representing that number of shares of Buyer Class A Common
Stock which the holder of one share of Company Common Stock would have the right
to receive pursuant to Sections 3.1 and 3.2 as adjusted as set forth in Section
3.3 hereof assuming all Options had been exercised prior to the Effective Time,
plus (C) Warrants in an amount issued to the holder of one share of Company
Common Stock pursuant to Section 3.5, plus (D) the right to receive the
Contingent Additional Consideration that may be payable to the holder of one
share of Company Common Stock pursuant to Section 3.4, or (2) if the Exercise
Difference is negative, as a condition for receiving the Buyer Class A Common
Stock, the Warrants and the right to receive the Contingent Additional
Consideration under clause (1) above, to pay such difference in cash to the
Company on or before the Closing Date. All applicable withholding taxes
attributable to the payments made hereunder or to distributions contemplated
hereby shall be deducted from the amounts payable under clause (A) above or by
payment of cash by the Option holder if amounts payable under clause (A) are
insufficient.
(b) The Stock Option Plans shall terminate immediately prior to the
Effective Time.
Section 3.8. Appraisal Rights. (a) Notwithstanding anything in this
Agreement to the contrary, but only in the circumstances and to the extent
provided by the Delaware Corporation Law, shares of Company Common Stock that
are outstanding immediately prior to the Effective Time and that are held by
Company Stockholders who were entitled to but did not vote such shares in favor
of the Merger (or who did not provide written consent to the Merger if approval
was effected through written consent) and who shall have properly and timely
delivered to the Company a written demand for appraisal of their shares of
Company Common Stock in accordance with Section 262 of the Delaware Corporation
Law ("Dissenting Shares") shall not be converted into the right to receive, or
be exchangeable for, the Merger Consideration. Instead, the holders thereof
shall be entitled to payment of the fair value of such shares in accordance with
the provisions of Section 262 of the Delaware Corporation Law; provided,
however, that (i) if any holder of Dissenting Shares shall subsequently withdraw
its demand for payment of the fair value of such Dissenting Shares or (ii) if
any holder fails to establish and perfect its entitlement to the relief provided
in Section 262 of the Delaware Corporation Law, the rights and obligations of
such holder to receive such fair value shall terminate, and such Dissenting
Shares shall thereupon be deemed to have been converted into the right to
receive, and to have become exchangeable for, as of the Effective Time, the
Merger Consideration in accordance with Section 3.2(a) hereof.
(b) Within three (3) days prior to the Effective Time, the Company shall
give Buyer written notice of any demands received by the Company for appraisal
of Dissenting Shares. Prior to the Closing, the Company shall control all
negotiations and proceedings with respect to such demands and on and after the
Closing,
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Questor shall exercise such control. The Surviving Corporation shall promptly
pay to any holder of Dissenting Shares any and all amounts due and owing to such
holder as a result of any settlement or determination by the Court of Chancery
of the State of Delaware with respect to such demands. If, as a result of any
such settlement or determination (i) any Company Stockholder is entitled to
receive as payment for its Dissenting Shares an amount per share that exceeds
the amount of the Merger Consideration (such excess over the amount of the
Merger Consideration, the "Appraisal Reduction Amount"), then the number of
Aggregate Merger Shares shall be reduced by an amount equal to such Appraisal
Reduction Amount (with each share of Buyer Class A Common Stock having a value
equal to the amount of the Merger Consideration for purposes of this Section
3.8), and each Original Holder shall surrender to Buyer shares of Buyer Class A
Common Stock for cancellation, in each case representing such holder's pro rata
share of the Appraisal Reduction Amount based on the percentage of the Aggregate
Merger Shares received by such holder, or if such Original Holder has
transferred any of its Original Shares, then such Original Holder shall pay in
immediately available funds an amount equal to such holder's pro rata share of
the Appraisal Reduction Amount, or (ii) any Company Stockholder is entitled to
receive an amount per share that is less than the amount of the Merger
Consideration (such decrease under the amount of the Merger Consideration, the
"Appraisal Addition Amount"), then Buyer shall promptly pay to the Original
Holders pro rata in cash an amount equal to the Appraisal Addition Amount
multiplied by the aggregate number of Dissenting Shares subject to such
Appraisal Addition Amount. The Company shall comply with the notice provisions
of Section 262 of the Delaware Corporation Law.
Section 3.9. Buyer to Make Certificates Available. (a) Prior to the
Closing, Buyer shall select a person or persons to act as exchange agent for the
Merger (the "Exchange Agent"), which person or persons shall be reasonably
acceptable to the Company. On the Closing Date, Buyer shall deliver to the
Exchange Agent, in trust for the benefit of the Company Stockholders (other than
Company Stockholders who hold Dissenting Shares), cash in the amount sufficient
to pay the aggregate cash portion of the Merger Consideration, certificates
representing Buyer Class A Common Stock sufficient to pay the aggregate stock
portion of the Merger Consideration (less the Escrow Holdback Shares delivered
to the Holdback Escrow Agent in accordance with Section 3.6) and Warrants
sufficient to pay the aggregate warrant portion of the Merger Consideration. As
soon as reasonably practicable after the Effective Time but in no event more
than ten (10) Business Days after the Effective Time, Buyer shall cause the
Exchange Agent to send a notice and a transmittal form to each Company
Stockholder advising such holder of the effectiveness of the Merger and the
procedure for surrendering to the Exchange Agent for cancellation such holder's
certificates representing Company Common Stock ("Certificates") in exchange for
the Merger Consideration. Each Company Stockholder will be entitled to receive,
upon surrender to the Exchange Agent for cancellation of one or more
Certificates and compliance with this Article III, a certified or bank cashier's
check in the amount equal to the cash which such holder has the right to receive
pursuant to the provisions of this Article III (including any cash in lieu of
fractional shares of Buyer Class A Common Stock), shares of Buyer Class A Common
Stock and Warrants which such holder has the right to receive pursuant to the
provisions of this Article III, and the Certificates so surrendered shall
forthwith be canceled; provided, however, that any Company Stockholder in
attendance or represented at the Closing which surrenders for cancellation
Certificates at such time will receive such cash, shares and Warrants as set
forth above at the Closing with respect to the shares of Company Common Stock
represented by such Certificates. The cash paid, the shares of Buyer Class A
Common Stock and the Warrants issued upon the surrender of Certificates in
accordance with the terms hereof shall be deemed to have been paid and issued in
full satisfaction of all rights pertaining to such shares of Company Common
Stock (except with respect to the right to receive the Contingent Additional
Consideration, if any, as provided in Section 3.4).
(b) Any Company Stockholder who has not exchanged its Certificates for the
Merger Consideration in accordance with subsection (a) within six months after
the Effective Time shall have no further claim upon the Exchange Agent, and
shall thereafter look only to Buyer and the Surviving Corporation for payment in
respect of its shares of Company Common Stock. Until so surrendered,
Certificates shall represent solely the right to receive the Merger
Consideration, subject to the holdback contemplated by Section 3.6 of this
Agreement. If any Certificates entitled to payment pursuant to Section 3.2 shall
not have been surrendered for such payment prior to such date on which any
payment in respect thereof would otherwise escheat to or
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become the property of any Governmental Entity, the shares of Company Common
Stock represented thereby shall, to the extent permitted by applicable law, be
deemed to be canceled and no money or other property will be due to the holder
thereof.
Section 3.10. Dividends; Transfer Taxes. No Distributions that are
declared or made with respect to Buyer Class A Common Stock will be paid to
persons entitled to receive certificates representing Buyer Class A Common Stock
pursuant to this Agreement until such persons properly surrender their
Certificates. Upon such surrender, there shall be paid to the person in whose
name the certificates representing such Buyer Class A Common Stock shall be
issued any Distributions which shall have become payable with respect to such
Buyer Class A Common Stock in respect of a record date after the Effective Time
and before the time of surrender. In no event shall the person entitled to
receive such Distributions be entitled to receive interest on such
Distributions. In the event that any certificates for any shares of Buyer Class
A Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it shall be a
condition of such exchange that the Certificate or Certificates so surrendered
shall be properly endorsed or be otherwise in proper form for transfer and that
the person requesting such exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of certificates for such
shares of Buyer Class A Common Stock in a name other than that of the registered
holder of the Certificate surrendered, or shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
shall be liable to a holder of shares of Company Common Stock for any shares of
Buyer Class A Common Stock or dividends thereon delivered to a public official
pursuant to any applicable escheat, abandoned property or similar laws.
Section 3.11. No Fractional Securities. Notwithstanding any other
provision of this Agreement, no certificates or scrip for shares of common stock
representing less than one share of Buyer Class A Common Stock shall be issued
upon the surrender for exchange of Certificates pursuant to this Article III and
no Distribution that is declared or made with respect to Buyer Class A Common
Stock, stock split or interest shall relate to any fractional security, and such
fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder. Each holder of shares of Company Common Stock
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Buyer Class A Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of Buyer Class A Common Stock multiplied by the Transaction Price.
Section 3.12. Closing of Company Transfer Books. Immediately prior to the
Effective Time, the Company Common Stock transfer books shall be closed and no
transfer of Company Common Stock shall thereafter be made.
Section 3.13. Legends and Transfer Restrictions. (a) Unless the shares of
Buyer Class A Common Stock issued in the Merger or pursuant to Section 3.4 or
pursuant to the exercise of the Warrants issued pursuant to Section 3.5 or
pursuant to Section 3.7 shall have been registered prior to their respective
issuance dates under the provisions of the Securities Act, each certificate
representing such shares of Buyer Class A Common Stock may contain one or more
of the following legends:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be offered, sold,
pledged, hypothecated, exchanged, transferred or otherwise disposed of
unless (A) registered under such Act and any applicable state securities
and "blue sky" laws or (B) an opinion of counsel satisfactory to Buyer and
its counsel that such registration is not necessary has been delivered to
Buyer"; and
any legend required by the securities or blue sky laws of any state where a
holder of Buyer Class A Common Stock resides, including any legend necessitated
by any other agreement to which such holder is or may become a party arising out
of this Agreement.
(b) The holder of any shares of Buyer Class A Common Stock, by acceptance
thereof, agrees, so long as the legend described in this Section 3.13 shall
remain on the certificate evidencing such shares, prior to any transfer
(including any pledge, sale, assignment, hypothecation, gift or other transfer)
of any of the same, to
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comply in all respects with the legend requirements of this Section 3.13. Each
certificate evidencing the shares issued upon any such transfer shall bear the
same legends as set forth in this Section 3.13 unless, immediately following
such transfer, such shares are no longer subject to any restriction on transfer
under any applicable agreement or under applicable federal or state securities
laws.
Section 3.14. Exemptions from Registration and Qualification. At Buyer's
option, the shares of Buyer Class A Common Stock to be issued in connection with
the Merger will be issued either (a) in a transaction exempt from registration
under the Securities Act by reason of Section 4(2) thereof and Rule 506 of
Regulation D promulgated thereunder, and will be exempt from registration or
qualification under state securities and "blue sky" laws or (b) pursuant to a
Registration Statement on Form S-4 (the "S-4").
Section 3.15. Registration Rights. The holders of shares of Buyer Class A
Common Stock issued pursuant to Section 3.2, 3.4 or 3.7 or issuable upon
exercise of, or issued in exchange for, the Warrants issued pursuant to Section
3.5 shall have, subject to compliance with the obligations contained therein,
the registration rights set forth in Exhibit E hereto, and Buyer shall take such
actions to register shares of Buyer Class A Common Stock issuable thereunder as
provided therein.
Section 3.16. Business Combinations. If, on or prior to the later of (i)
the Final Measurement Date, (ii) the Warrant Measurement Date, or (iii) the date
on which no Warrants are outstanding, Buyer shall consolidate or merge in a
transaction in which Buyer is not the Surviving Person (as defined below), merge
into any other person or convey, transfer or lease its properties and assets
substantially as an entirety to any person in one or a series of transactions (a
"Business Combination"), the provisions of Section 3.16(b) are applicable
unless:
(a)(1) the person formed by such consolidation or into which Buyer is
merged or the person which acquires by conveyance or transfer, or which
leases, the properties and assets of Buyer substantially as an entirety
(the "Surviving Person") is a corporation, partnership or limited liability
company, (2) the consideration payable to holders of Buyer Class A Common
Stock consists solely of stock of the Surviving Person or its parent that
is listed on a national securities exchange or automated quotation system
(other than cash paid in lieu of fractional shares and cash paid for
Dissenting Shares), and (3) the Surviving Person or, if the Surviving
Person is a wholly-owned subsidiary and the consideration payable consists
of stock of the parent of such Surviving Person, such Surviving Person's
parent, expressly assumes payment of all amounts due as Contingent
Additional Consideration and delivery of shares upon exercise of the
Warrants (in each case appropriately adjusting such payment or delivery
obligation to reflect the exchange ratio and the other terms of the
Business Combination) and the performance of every covenant of this
Agreement on the part of Buyer to be performed or observed;
(2) Buyer shall deliver to each holder of Company Common Stock
immediately prior to the Effective Time or each Original Holder at or after
the Effective Time, as the case may be, an officer's certificate, stating
that such Business Combination complies with this Section 3.16 and that all
conditions precedent herein provided relating to such transaction have been
complied with; and
(3) The Surviving Person shall succeed to, and be substituted for, and
may exercise every right and power of, Buyer under this Agreement with the
same effect as if the Surviving Person had been named as Buyer herein, and
thereafter.
(b) In case of a Business Combination in which all of the criteria
contained in clause (a)(1) herein are not met with respect to the Surviving
Person or its parent, as applicable, or at Buyer's option in the case of
any Business Combination, the Annual Measurement Date, the Final
Measurement Date and the Warrant Measurement Date shall be deemed to be the
date of consummation of the Business Combination unless such date has
already occurred and Buyer shall pay on or prior to the date of such
Business Combination to each person entitled thereto in immediately
available funds (i) all amounts remaining to be payable pursuant to Section
3.4(d) and (ii) the Warrant Value Amount, assuming the applicable payment
dates therein are the dates of such Business Combination.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that:
Section 4.1. Corporate Organization and Authorization. (a) The
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power and authority to enter into this Agreement and to carry out
the transactions contemplated hereby.
(b) The Company has all requisite corporate power and authority to
carry on its business as presently conducted. The Company is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by it or
the nature of the activities conducted by it makes such qualification
necessary, except where the failure to so qualify or to maintain such good
standing (either in one jurisdiction or in the aggregate) would not have a
Material Adverse Effect on the Company. As used in this Agreement, the term
"Material Adverse Effect" means with respect to any person, any change or
effect that is (i) materially adverse to the condition (financial or
otherwise), business operations, assets or results of operations of such
person and its Subsidiaries, taken as a whole or (ii) has a material
adverse effect on the ability of such person to enter into this Agreement
or consummate the transactions contemplated hereby.
(c) As of the date hereof, each Subsidiary of the Company is
identified in the Company's quarterly report on Form 10-Q for the quarter
ended June 30, 1997. Except for the Subsidiaries of the Company listed in
such quarterly report, there is no corporation, association, subsidiary,
partnership, limited liability company or other entity of which the Company
owns or controls, directly or indirectly, more than 10% of the outstanding
equity interests.
(d) Each Subsidiary of the Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority and,
except as set forth on Schedule 4.1(d), all governmental authorizations,
certificates, permits, licenses, consents and approvals required to carry
on its business as presently conducted, except where the failure to possess
such authorizations, certificates, licenses, consents and approvals (either
individually or in the aggregate) would not have, individually or in the
aggregate, a Material Adverse Effect on the Company. Each Subsidiary of the
Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of the activities conducted by it makes
such qualification necessary, except where the failure to so qualify or to
maintain such good standing (either in one jurisdiction or in the
aggregate) would not have, individually or in the aggregate, a Material
Adverse Effect on the Company. Except as set forth on Schedule 4.1(d),
there are no voting trusts or other agreements or understandings with
respect to the voting of capital stock or other equity interests of the
Company or any Subsidiary of the Company to which the Company or any
Subsidiary of the Company is a party.
(e) Except as set forth on Schedule 4.1(e), all of the outstanding
capital stock of each Subsidiary of the Company (i) has been validly
issued, is fully paid and nonassessable and is not subject to preemptive or
similar rights and (ii) is owned by the Company, directly or indirectly,
free and clear of any lien or other encumbrance. There are no outstanding
(i) securities of any Subsidiary of the Company convertible into or
exchangeable for shares of capital stock or other voting securities or
ownership interests in any Subsidiary of the Company or (ii) options or
other rights to acquire from the Company or any Subsidiary of the Company,
and no other obligation of the Company or any Subsidiary of the Company to
issue, any capital stock, voting securities or other ownership interests
in, or any securities convertible into or exchangeable for, any capital
stock, voting securities or ownership interests in such Subsidiary (items
in clauses (i) and (ii) being referred to collectively as the "Company
Subsidiary Securities"). There are no outstanding obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any outstanding Company Subsidiary Securities.
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(f) This Agreement has been duly executed and delivered by the Company
and, except for obtaining the approval to the Merger of (i) a majority of
holders of the Company Common Stock and (ii) the Board of Directors of the
Company, each of which approval has been obtained prior to the execution
hereof, no corporate authorization on the part of the Company is necessary
to consummate the transactions contemplated by this Agreement.
(g) This Agreement constitutes a valid and binding agreement of the
Company and is enforceable against the Company in accordance with its
terms, except to the extent enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally and general equitable principles
(whether considered in a proceeding in equity or at law).
(h) The copies of the respective Certificates of Incorporation and
By-Laws, and all amendments thereto to the date of this Agreement, of the
Company and its Subsidiaries heretofore delivered to Buyer are complete and
true copies of such documents as in effect on the date hereof.
Section 4.2. Capitalization. (a) As of the date hereof, the authorized
stock of the Company consists of Two Hundred Seventy Five Thousand (275,000)
shares of Common Stock, par value $0.01 per share ("Company Common Stock"), of
which (i) Two Hundred Twenty Five Thousand (225,000) shares have been designated
Class A Common Stock, (ii) Twenty Five Thousand (25,000) shares have been
designated Class B Common Stock and (iii) Twenty Five Thousand (25,000) shares
have been designated Class C Common Stock.
(b) As of the date hereof, (i) One Hundred Nine Thousand Ninety (109,090)
shares of Class A Common Stock are outstanding, (ii) Thirteen Thousand Nine
Hundred Ten (13,910) shares of Class B Common Stock are outstanding and (iii) no
more than Eighteen Hundred (1,800) shares of Class C Common Stock are
outstanding. All of such issued and outstanding shares of Company Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable and, except as set forth on Schedule 4.2(b) hereto, not subject to
preemptive or similar rights. All holders of Class A and B Company Common Stock
are Accredited Investors. Schedule 4.2(b) hereto sets forth the name of each
holder of Class A, Class B and Class C Company Common Stock as of March 2, 1998
and the number of shares owned by each such holder on such date.
(c) Schedule 4.2(c) hereto sets forth, as of the date hereof, the name of
each holder of Options, together with the number of options to purchase Company
Common Stock held by each such holder. Except as set forth in this Section
4.2(c) and on Schedule 4.2(c), there are (i) as of the date hereof, no
outstanding shares of capital stock or other equity securities of the Company
and no outstanding options, warrants or rights to purchase or acquire from the
Company any capital stock of the Company or other equity securities, (ii) no
existing registration covenants with the Company with respect to Outstanding
Company Shares, and (iii) as of the date hereof, no convertible securities or
other contracts, commitments, agreements, understandings, arrangements or
restrictions by which the Company is bound to issue any additional shares of its
capital stock or other equity securities. Except as set forth in Schedule
4.2(c), there are no outstanding obligations of the Company to repurchase,
redeem or otherwise acquire any outstanding shares of capital stock or other
equity securities of the Company.
Section 4.3. Noncontravention. Subject to the expiration or termination
of the applicable waiting period required by the H-S-R Act, except as disclosed
in Schedule 4.3 hereto, neither the execution, delivery or performance of this
Agreement nor the consummation of the transactions contemplated hereby:
(i) violates, or conflicts with, or constitutes a default under, the
certificate or articles of incorporation or by-laws, as amended, of any of
the Company or any of its Subsidiaries, or
(ii) violates or will violate any statute or law or any rule,
regulation, order, judgment or decree of any court or governmental
authority to which the Company or any of its Subsidiaries or any of their
properties or assets is subject, except where the existence of such
violation would not, individually or in the aggregate, have a Material
Adverse Effect on the Company, or
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(iii) (with or without notice or lapse of time or both), constitutes a
default under any contract or agreement of any kind to which the Company or
any of its Subsidiaries is a party or by which any of them is bound, except
where the existence of such defaults would not, individually or in the
aggregate, be material to the Company and its Subsidiaries, taken as a
whole, or
(iv) requires that the Company obtain any consents or approvals of
third parties, except where the failure to obtain such consents or
approvals would not, individually or in the aggregate, be material to the
Company and its Subsidiaries, taken as a whole.
Section 4.4. SEC Filings. The Company has timely made all filings with
the SEC that it has been required to make under the Securities Act or the
Exchange Act (collectively, the "Company Public Reports"). Each of the Company
Public Reports has complied with the Securities Act and the Exchange Act in all
material respects. None of the Company Public Reports, as of its respective
date, contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. Included in
such Company Public Reports are (i) the unaudited consolidated statements of
operations (x) for the Company, for the three months ended September 30, 1997
and the nine months ended September 30, 1997 and (y) for the Company's
predecessor, the three months ended September 30, 1996 and the nine months ended
September 30, 1996, (ii) the audited consolidated balance sheets of the Company
and its Subsidiaries at December 31, 1996 and the notes thereto, (iii) for the
period from September 5, 1996 to December 31, 1996 the audited consolidated
statement of operations, changes in shareholders' equity and cash flows of the
Company and the notes thereto, (iv) the unaudited consolidated balance sheet of
the Company and its Subsidiaries at September 30, 1997 (the "Interim Balance
Sheet"), (v) the unaudited consolidated statements of cash flows (x) for the
Company's predecessor, for the nine months ended September 30, 1996 and (y) for
the Company, for the nine months ended September 30, 1997 and the notes thereto
and (vi) for the Company's predecessor the other financial statements contained
in the Company Public Reports (collectively, the "Interim Financial
Statements").
Section 4.5. Financial Statements; Stockholders' Equity. (a) Except as
set forth in Schedule 4.5, all of the financial statements included in the
Company Public Reports, and the audited financial statements of the Company for
the year ended December 31, 1997 to be delivered prior to the Closing complied
(or will comply) as to form in all material respects with the published rules
and regulations of the SEC with respect thereto, were prepared (or will be
prepared) in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Rule 10-01 of Regulation S-X of
the SEC) and fairly present (or will fairly present) in accordance with
applicable requirements of GAAP (subject, in the case of unaudited statements,
to normal recurring adjustments, none of which were or are expected,
individually or in the aggregate, to be material in amount) the consolidated
financial position of the Company and its consolidated Subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of the Company and its consolidated Subsidiaries for the periods
presented therein. Except as set forth in the Company Public Reports and except
as incurred or accrued in the ordinary course of business consistent with prior
practice subsequent to September 30, 1997, neither the Company nor any
Subsidiary of the Company has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of the Company and its consolidated
Subsidiaries or in the notes thereto, other than liabilities or obligations
which individually or in the aggregate, do not have, and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
(b) The total stockholders' equity of the Company, on a consolidated basis,
as of December 31, 1997, determined in accordance with GAAP, is at least
$101,500,000.
Section 4.6. Legal Proceedings. Except as disclosed in the Company Public
Reports or as set forth on Schedule 4.6 hereto, as of the date hereof there are
no (and, except as arising in the normal course of business from the date hereof
through the Closing Date or relating to breaches or liabilities disclosed in the
Disclosure Schedules as of the date hereof, as of the Closing Date there will be
no) claims, actions, suits, proceedings or
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investigations pending or, to the Company's Knowledge, threatened by or against
or involving, the Company or any of its Subsidiaries (a) seeking to enjoin,
prohibit, restrain or otherwise prevent the transactions contemplated hereby or
(b) which, if determined adversely to the Company, would, individually or in the
aggregate, result in a Material Adverse Effect on the Company. Except as
disclosed in the Company Public Reports, as of the date hereof there are no
(and, except as arising in the normal course of business from the date hereof
through the Closing Date or relating to breaches or liabilities disclosed in the
Disclosure Schedule as of the date hereof, as of the Closing Date there will be
no) judgments, decrees or orders issued by any court, board or other
governmental or administrative agency presently outstanding and unsatisfied
against the Company or any Subsidiary of the Company or any of their respective
assets, except where the existence of such judgment, decree or order would not
have, individually or in the aggregate, a Material Adverse Effect on the
Company.
Section 4.7. Employee Plans. (a) None of the Employee Benefit Plans is a
"multiemployer plan", as defined in Section 4001(a)(3) of ERISA ("Multiemployer
Plan"). Neither the Company nor any Subsidiary of the Company has withdrawn in a
complete or partial withdrawal from any Multiemployer Plan, nor has any of them
incurred any liability due to the termination or reorganization of a
Multiemployer Plan. "Employee Benefit Plans" means "employee benefit plans", as
defined in Section 3(3) of ERISA, and all other employee benefit arrangements,
employment agreements, or payroll practices, including, without limitation, any
such arrangements or payroll practices providing severance pay, sick leave,
vacation pay, salary continuation for disability, retirement benefits, deferred
compensation, bonus pay, incentive pay, stock options (including those held by
directors, employees, and consultants), hospitalization insurance, medical
insurance, life insurance, scholarships or tuition reimbursements, that are
maintained by the Company or any of its Subsidiaries or to which the Company or
any of its Subsidiaries is obligated to contribute thereunder for current or
former employees of the Company or any Subsidiary of the Company.
(b) None of the Employee Benefit Plans is a "single employer plan", as
defined in Section 4001(a)(15) of ERISA, that is subject to Title IV of ERISA.
Neither the Company nor any Subsidiary of the Company has incurred any
outstanding material liability under Section 4062 of ERISA to the PBGC or to a
trustee appointed under Section 4042 of ERISA. Neither the Company nor any ERISA
Affiliate has engaged in any transaction described in Section 4069 of ERISA.
(c) To the Company's Knowledge, each Employee Benefit Plan that is intended
to qualify under Section 401 of the Code, and each trust maintained pursuant
thereto, has been determined to be exempt from federal income taxation under
Section 501 of the Code by the IRS, and, to the Company's Knowledge, nothing has
occurred with respect to the operation of any such Employee Benefit Plan that
would cause the loss of such qualification or exemption or the imposition of any
material liability, penalty or tax under ERISA or the Code.
(d) There has been no material violation of ERISA or the Code with respect
to the filing of applicable reports, documents and notices regarding the
Employee Benefit Plans with the Secretary of the Department of Labor or the
Secretary of the Department of Treasury or the furnishing of required reports,
documents or notices to the participants or beneficiaries of the Employee
Benefit Plans.
(e) To the Company's Knowledge, there are no pending audits,
investigations, actions, claims or lawsuits which have been asserted, instituted
or, to the Company's Knowledge, threatened, against the Employee Benefit Plans,
the assets of any of the trusts under such plans or the plan sponsor or the plan
administrator, or against any fiduciary of the Employee Benefit Plans with
respect to the operation of such plans (other than routine benefit claims).
(f) To the Company's Knowledge, the Employee Benefit Plans have been
maintained, in all material respects, in accordance with their terms and with
all provisions of ERISA and the Code (including rules and regulations
thereunder) and other applicable federal and state laws and regulations.
(g) Except as set forth on Schedule 4.7(g), no payment required to be made
to any employee associated with the Company or any Subsidiary of the Company as
a result of the transactions contemplated hereby
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under any contract or otherwise will, if made, constitute an "excess parachute
payment" within the meaning of Section 280G of the Code.
(h) To the Company's Knowledge, except as provided in Section 4.7 or set
forth on Schedule 4.7(h), the consummation of the transactions contemplated
hereby will not accelerate the vesting or payment of any benefit under any
Employee Benefit Plan.
(i) For purposes of this Section 4.7, the term "Subsidiaries" (or
"Subsidiary" as the context may require) means any entity treated as a single
employer with the Company under Section 414(b), (c), (m) or (o) of the Code.
Section 4.8. Intellectual Property. Except as set forth on Schedule 4.8,
the Company and its Subsidiaries own, free and clear of any liens, or are
licensed or otherwise have the right to use all (i) Transferred Intellectual
Property as set forth on Schedule 4.8 and (ii) the intellectual property
licensed to the Company under the Copyright License Agreement, the Software
License Agreement and the Trademark License Agreement (such agreements, together
with the Transferred Intellectual Property, the "Company Intellectual
Property"). Except as set forth on Schedule 4.8, the Company Intellectual
Property includes all the intellectual property which is material to the
business, financial condition or results of operations of the Company and its
Subsidiaries taken as a whole. Except for any of the following that would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company, and except as set forth on Schedule 4.8:
(a) no proceedings have been instituted or are pending or, to the
Company's Knowledge, are threatened, which challenge any rights in respect
of the validity of the Company Intellectual Property;
(b) to the Company's Knowledge, none of the Company Intellectual
Property infringes upon or otherwise violates the rights of others or is
being infringed upon by others, and none is subject to any outstanding
order, decree, judgment, stipulation or charge;
(c) with the exception of the Patent License Agreement, no licenses,
sublicenses or agreements granting rights in any of the Company
Intellectual Property have been granted or entered into by the Company,
which in each case remain in effect; and
(d) the Company has not received any notice of interference or
infringement of any of the Company Intellectual Property.
Neither the Company nor any of its Subsidiaries is obligated to pay any
royalties or make similar payments in respect of the Company Intellectual
Property.
Section 4.9. Events Subsequent to September 30, 1997. Except as set forth
on Schedule 4.9 hereto or as disclosed in the Company Public Reports, since
September 30, 1997, the Company has conducted its business in the ordinary
course and there has not been (a) any material adverse change in the condition
(financial or otherwise), business, operations, assets or results of operations
of the Company and its Subsidiaries, (b) any declaration, setting aside or
payment of any dividend or any other distribution with respect to any of the
capital stock or other equity interests of the Company, or (c) any material
change by the Company in accounting principles.
Section 4.10. Compliance with Laws. (a) Except for such non-compliance as
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company and, except as disclosed on Schedule 4.10(a), the conduct of the
Company and its Subsidiaries complies in all material respects with all
statutes, laws, regulations, ordinances, rules, judgments, orders or decrees
applicable thereto, except for violations or failures to so comply, if any, that
are consistent with the relevant industry standard. No action or proceeding
relating to any such statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees is pending or, to the Company's Knowledge, threatened, except
for such actions and proceedings as would not, individually or in the aggregate,
have a Material Adverse Effect on the Company.
(b) Schedule 4.10(b) sets forth information as to any violation or alleged
violation, with respect to any real property leased by the Company or any of its
Subsidiaries, of any existing federal, state, local or foreign
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law or regulation (or order, permit, plan or compliance schedule) pertaining to
environmental protection, including without limitation the discharge or disposal
of air or water pollutants, poisoned waste wells, or the storage, treatment or
disposal of solid or hazardous or toxic substances (collectively, "Environmental
Law") of which the Company or any of its Subsidiaries has received notice which
would have, individually or in the aggregate, a Material Adverse Effect on the
Company. Except as disclosed in Schedule 4.10(b), neither the Company nor any of
its Subsidiaries is currently, and to the Company's Knowledge has not been, in
material violation of any such Environmental Law, and, except as set forth in
Schedule 4.10(b), neither the Company nor any of its Subsidiaries is currently
required to incur any material expenditures for purposes of compliance
therewith, except for such violations, expenditures, or noncompliance, as would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. The Company has furnished Buyer with copies of all internally prepared
or commissioned environmental studies, assessments or reports in the Company's
possession or control that are specific to the properties subject to the
Disclosed Leases.
(c) Except as disclosed in Schedule 4.10(c), to the Company's Knowledge,
there are no underground storage tanks or regulated above ground storage tanks
located at any real property subject to the Leases, nor has the Company used any
such property or permitted any such property to be used for the maintenance and
servicing of vehicles.
(d) Except as disclosed in Schedule 4.10(d), to the Company's Knowledge, no
asbestos or asbestos containing material is present at any real property subject
to the Leases.
(e) Except as disclosed in Schedule 4.10(e), to the Company's Knowledge, no
hazardous substance, pollutant or contaminant, as defined in any Environmental
Law, and no oil, as defined in the Oil Pollution Act of 1990, 33 U.S.C. 2730,
was released at any real property subject to the Leases at any time when the
Company used or occupied such property except for such presence which would not
now or with the passage of time require any remediation, removal, corrective
action, investigation or monitoring under any Environmental Law.
Section 4.11. Registration Statement. The information with respect to the
Company or any Subsidiary of the Company that the Company furnishes to Buyer in
writing specifically for use in (a) the S-4 and the Registration Statement on
Form S-3 (the "S-3") will not contain at the time any such Registration
Statement becomes effective, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein not misleading and (b) the Proxy Statement
relating to the stockholders' meeting referred to in Section 6.19 (the "Proxy
Statement") will not contain at the time such Proxy Statement is mailed and the
date of the stockholders' meeting, any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein not misleading.
Section 4.12. Properties; Leases. Except as disclosed in the Company
Public Reports or as set forth on Schedule 4.12 and except for Permitted Liens,
(a) the Company or one of its Subsidiaries has good and marketable title,
free and clear of all liens and encumbrances, to the trucks and the other assets
of the Company and its Subsidiaries that are reflected in the financial
statements included in the Company's Form 10-Q for the quarter ended September
30, 1997, except where such failure to hold such title would not, individually
or in the aggregate, have a Material Adverse Effect on the Company. The Company
owns or holds under valid and existing lease or license each piece of real or
personal property included in or capitalized on the Interim Financial
Statements;
(b) neither the Company nor any of its Subsidiaries owns any real property.
Schedule 4.12 sets forth a complete and correct list of the leases (i) for the
Company's headquarters and (ii) for the locations in which the Company has
significant office operations (the "Disclosed Leases"). Except for any of the
following that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company, (i) to the Company's
Knowledge, neither the whole nor any portion of any property on which the
Company or any of its Subsidiaries has a leasehold interest (the "Leases") has
been condemned, requisitioned or otherwise taken by any public authority, and no
notice of any such condemnation, requisition or taking has been received or is
threatened, (ii) to the Company's Knowledge, the Leases are in full force and
effect and
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are valid, binding and enforceable in accordance with their respective terms
against the parties thereto, except to the extent such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting creditors' rights generally or by general equitable
principles, (iii) no amount payable under any Lease is past due, (iv) the
Company, and to the Company's Knowledge each other party thereto, has complied
with all material commitments and obligations on its part to be performed or
observed under each Lease, and (v) the Company has not received any notice of a
default (which has not been cured), offset or counterclaim under any Lease, or
any other communication calling upon the Company to comply with any provision of
any Lease or asserting non-compliance (which has not been cured), and no event
or condition has happened or presently exists which constitutes a material
default or, after notice or lapse of time or both, would constitute a material
default under any Lease; and
(c) the Company has not mortgaged, pledged or otherwise encumbered its
interest in any premises covered by the Leases, nor has it assigned its interest
under any Lease or sublet all or any portion of any real property which it
leases nor has it granted to any person any rights to any of the premises
covered by any Lease or in and to any Lease, other than the right of any dealer
to occupy any part of the premises covered by the Leases for the purpose of
operating a store for the business of the Company or any of its Subsidiaries.
Section 4.13. Tax Matters. (a) Except as otherwise disclosed in Schedule
4.13(a): (i) all Tax returns required to be filed by each of the Company and its
Subsidiaries have been filed and each has paid (or the Company has paid on its
Subsidiary's behalf), or has set up an adequate reserve for the payment of, all
material Taxes required to be paid in respect of the periods covered by such
returns; (ii) neither the Company nor any of its Subsidiaries is delinquent in
the payment of any material tax, assessment or governmental charge; (iii) except
for Permitted Liens, there are no Tax liens upon the assets of the Company or
any of its Subsidiaries except liens for Taxes not yet due or being contested in
good faith through appropriate proceedings; and (iv) no material deficiency for
any Taxes has been proposed, asserted or assessed against the Company or any of
its Subsidiaries that has not been resolved, reserved against or paid in full.
(b) Except as otherwise disclosed in Schedule 4.13(b): (i) all Taxes,
deposits or other payments for which the Company or any of its Subsidiaries is
liable through the date hereof either have been paid or accrued in full on the
books and records of the Company or its Subsidiaries, as applicable, except for
such Taxes as are not required by GAAP to be accrued or are immaterial in
amount; (ii) there are not now any extensions of time in effect with respect to
the dates on which any returns or reports with respect to any Taxes were or are
due to be filed; (iii) no audit or investigation of any return or report of
Taxes is currently underway, pending or, to the Company's knowledge, threatened;
and (iv) there are no outstanding waivers or agreements by the Company or any
Subsidiary of the Company for the extension of time for the assessment of any
material Taxes or deficiency thereof, nor are there any requests for rulings,
outstanding subpoenas or requests for information or any other matter pending
between the Company or any of its Subsidiaries and any taxing authority.
(c) The Company has delivered to Buyer true and complete copies of all
federal and state income tax returns (together with any Revenue Agent's Reports)
relating to the operations of the Company and the Subsidiaries of the Company
for the taxable years ended since 1996.
(d) None of the Company or any of its Subsidiaries has filed a consent
pursuant to Section 341(f) of the Code. None of the Company, any of its
Subsidiaries or any predecessor in interest of such party, has filed, or may be
deemed to have filed, any election under Section 338 of the Code.
(e) Except as set forth on Schedule 4.13(e), neither the Company nor any of
its Subsidiaries has made any payment which constitutes an "excess parachute
payment" within the meaning of Section 280G of the Code, and no payment by the
Company or any of its Subsidiaries required to be made under any contract will,
if made, constitute an "excess parachute payment" within the meaning of Section
280G of the Code.
(f) Except as set forth in Schedule 4.13(f), neither the Company nor any of
its Subsidiaries is a party to any tax allocation or tax sharing agreement.
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(g) None of the Company or any of its Subsidiaries has been a member of an
affiliated group (within the meaning of Section 1504(a) of the Code) filing a
consolidated federal income tax return (other than a group the common parent of
which was the Company).
Section 4.14. Brokerage. Except for Questor Management Company, no
broker, agent, finder or financial advisor has acted, directly or indirectly,
for the Company, and with such exception, the Company has not incurred any
obligation to pay any brokerage fee, agent's commission, finder's fee, financial
advisory fee or other commission in connection with the transactions
contemplated by this Agreement.
Section 4.15. Insurance; Protection Products. (a) Schedule 4.15(a) lists
insurance policies owned or held by the Company or any of its Subsidiaries as of
February 28, 1998, which may cover the Company or any of its assets. As of the
date hereof, all such policies are in full force and effect, all premiums with
respect thereto covering all periods up to and including the date hereof have
been paid to the extent due, and no notice of cancellation or termination has
been received with respect to any such policy. To the best of the Company's
Knowledge, the insurance maintained by the Company and its Subsidiaries is
customary in the industry and complies with applicable material governmental
regulations.
(b) Schedule 4.15(b) lists all protection products offered as of the date
hereof by the Company and its Subsidiaries in connection with the rental of
trucks by the Company.
Section 4.16. Contracts. Schedule 4.16 sets forth a complete and correct
list of (i) all material contracts between Ryder Truck Rental, Inc. and/or Ryder
System Inc. and the Company or any of its Subsidiaries and (ii) all contracts
entered into by the Company or any of its Subsidiaries since September 30, 1997
and on or prior to the date hereof that would be required to be filed as an
exhibit to any Form 10-K or 10-Q filed by the Company. The Company has delivered
to the Buyer or its representatives true and complete originals or copies of all
contracts set forth in clauses (i) and (ii). Except as disclosed in Schedule
4.16, to the Company's Knowledge, all material contracts entered into by the
Company or any of its Subsidiaries by which such parties are bound including the
contracts disclosed in clauses (i) and (ii) above and the contracts filed as
exhibits to the Company Public Reports (the "Contracts") are valid and binding
and enforceable against the Company or its Subsidiaries, as the case may be, and
against the other parties thereto, except to the extent such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting creditors' rights generally or by general equitable
principles, the Company is not, and to the Company's knowledge, the other
parties thereto are not, as of the date hereof, in material breach of any
Contract or material default thereunder, and there does not exist under any
provision thereof, to the Company's Knowledge, as of the date hereof, any event
that, with the giving of notice or the lapse of time or both, would constitute
such a breach or default, except for such failures to be valid and binding and
such breaches, defaults and events as to which requisite waivers or consents
have been or are obtained or which would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. Except as disclosed on Schedule
4.16, as of the date hereof no indemnification claim has been made by Ryder
Truck Rental, Inc. and/or Ryder System Inc. with respect to any contracts
between Ryder Truck Rental, Inc. and/or Ryder System Inc. and the Company or its
Subsidiaries, as the case may be. To the Company's Knowledge, no material
indemnification claims exist under any of the Contracts set forth in clause (i)
above. Except as set forth in Schedule 4.16, no contract to which the Company or
any of its Subsidiaries, contains any provision which creates, or purports to
create, or subjects the Company or any of its Affiliates to, any material
restriction on any business activity that may be conducted by the Company or any
of its Affiliates through non-competes.
Section 4.17. Transactions with Affiliates. (a) Except as set forth in
Schedule 4.17(a), no director, no shareholder and no persons controlled by any
director or shareholder of the Company or any of its Subsidiaries or any entity
in which any such director or other affiliate or associate, owns any beneficial
interest (other than a publicly held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market and less than 1%
of the stock of which is beneficially owned by any such person) has any interest
in: (i) any contract, arrangement or understanding with, or relating to, the
business or operations of the Company or any of its Subsidiaries; (ii) any loan,
arrangement, understanding, agreement or contract for or relating to
indebtedness of the Company or any of its Subsidiaries; or (iii) any property
(real, personal or
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mixed), tangible, or intangible, used or currently intended to be used in, the
business or operations of the Company or any of its Subsidiaries.
(b) Except as set forth on Schedule 4.17(b), no officer of the Company or
any of its Subsidiaries has sold or transferred any property or assets to or
purchased or acquired any property or assets from, or otherwise engaged in any
other transactions with the Company or any of its Subsidiaries, except that the
Company and any of its Subsidiaries may have engaged in any of the foregoing
transactions in the ordinary course of business at prices and on terms and
conditions no less favorable to the Company or such Subsidiary than could have
been obtained in an arm's-length basis from unrelated third parties.
Section 4.18. Voting Requirements; Dissenters' Rights. The affirmative
vote of the holders of a majority of the Outstanding Company Shares with respect
to this Agreement and the Merger was the only vote of the holders of any class
or series of the Company's capital stock necessary to approve this Agreement,
the Merger and the transactions contemplated by this Agreement and the Merger.
Section 4.19. Labor Matters. As of the date hereof, there are no
collective bargaining agreements with labor unions or associations representing
employees of the Company or any Subsidiary of the Company. Since October 17,
1996, there has been no material work stoppage against the Company or any of its
Subsidiaries by any employees of the Company or any of its Subsidiaries nor, to
the Company's Knowledge, is any such stoppage threatened. Neither the Company
nor any of its Subsidiaries has been involved in or, to the Company's Knowledge,
threatened with, any collective bargaining dispute, arbitration, lawsuit or
administrative proceeding relating to a collective bargaining matter involving
the employees of the Company or any of its Subsidiaries (excluding routine
workers' compensation claims) that would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Section 4.20. Quantity and Maintenance of Trucks. As of January 31, 1998,
the Company owned at least 29,000 trucks. Since such date, the Company has
maintained the trucks in accordance with its ordinary course of business
consistent with past practice, unless and until sold to third parties in the
ordinary course of business.
Section 4.21. Accounts Receivable. All accounts receivable of the Company
and its Subsidiaries which are reflected on the Interim Balance Sheet are fairly
presented thereon in accordance with GAAP.
Section 4.22. Licenses, Permits, etc. Except as disclosed on Schedule
4.22, each of the Company and its Subsidiaries have all material licenses,
permits, certificates, franchises, consents, approvals and other authorizations
of any Governmental Entity required to carry on their business as presently
conducted (the "Licenses"). All Licenses have been validly obtained and are in
full force and effect except for those whose failure to be in full force and
effect would not reasonably be expected to, individually or in the aggregate,
have a Material Adverse Effect on the Company. Except as disclosed on Schedule
4.22, as of the date hereof, no proceeding is pending or, to the Company's
Knowledge, threatened seeking the revocation or limitation of any such License
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on the Company. The businesses of the Company and its
Subsidiaries are presently being conducted in a manner that does not violate in
any material respect any of the terms or conditions under which any License was
granted.
Section 4.23. Disclosure. None of the representations and warranties by
the Company in this Agreement and no statement on the part of the Company
contained in any of the Schedules hereto contains or will contain as to the
applicable representation and warranty any untrue statement of a material fact
or omits or will at the Closing omit to state any material fact necessary in
order to make any of the statements herein or therein, in light of the
circumstances under which it was made, not misleading.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company that:
Section 5.1. Corporate Organization and Authorization. (a) Each of
Buyer and Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power and authority to enter into this Agreement and to carry out
the transactions contemplated hereby.
(b) Buyer has all requisite corporate power and authority and, except
as set forth on Schedule 5.1(b), all governmental authorizations, permits,
certificates, licenses, consents and approvals required to carry on its
business as presently conducted, except where the failure to possess such
authorizations, permits, certificates, licenses, consents and approvals
(either individually or in the aggregate) would not have a Material Adverse
Effect on Buyer. Buyer is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of the
activities conducted by it makes such qualification necessary, except where
the failure to so qualify or to maintain such good standing (either in one
jurisdiction or in the aggregate) would not have, individually or in the
aggregate, a Material Adverse Effect on Buyer.
(c) This Agreement has been duly executed and delivered by Buyer and
Sub and, except for approval of this Agreement by Buyer's and Sub's Board
of Directors and by a majority of holders of Sub's common stock, which
approval has been obtained prior to the execution hereof, no corporate
authorization on the part of Buyer or Sub is necessary to consummate the
transactions contemplated by this Agreement. No approval by the
shareholders of Buyer is required by law, charter or by-laws of Buyer,
listing agreement with, or policy of the NYSE or otherwise for the
consummation of this Agreement, it being understood, however, that in order
for Buyer to issue a number of shares in excess of the Minimum Merger
Shares, it must obtain shareholder approval to amend its Certificate of
Incorporation to increase the number of shares of authorized common stock
(and the failure of Buyer to obtain such approval shall give rise to
Buyer's obligation to issue the Minimum Merger Shares and the Aggregate
Cash Consideration deliverable pursuant to Section 3.1(b) hereof when the
Minimum Merger Shares are issued pursuant to Section 3.1(a) hereof).
(d) This Agreement constitutes a valid and binding agreement of Buyer
and Sub and is enforceable against Buyer and Sub in accordance with its
terms, except to the extent enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally and general equitable principles
(whether considered in a proceeding in equity or at law).
(e) The copies of the Certificate of Incorporation and By-Laws, and
all amendments thereto to the date of this Agreement, of Buyer and Sub
heretofore delivered to the Company are complete and true copies of such
documents as in effect on the date hereof.
Section 5.2. Capitalization. (a) As of the date hereof, the authorized
capital stock of Buyer consists of: (i) Thirty Seven Million Five Hundred
Thousand (37,500,000) shares of Common Stock, par value $0.01 per share ("Buyer
Common Stock"), of which (x) Thirty Five Million (35,000,000) shares of Common
Stock have been designated Class A Common Stock, par value $0.01 per share
("Buyer Class A Common Stock") and (y) Two Million Five Hundred Thousand
(2,500,000) shares of Common Stock have been designated Class B Common Stock,
par value $.01 per share ("Buyer Class B Common Stock"), and (ii) Two Hundred
Fifty Thousand (250,000) shares of Preferred Stock, par value $0.01 per share.
(b) As of March 3, 1998, (i) Twenty Five Million Six Hundred Sixty Two
Thousand Eight Hundred Fifty Seven (25,662,857) shares of Buyer Class A Common
Stock, and (ii) One Million Nine Hundred Thirty Six Thousand Six Hundred
(1,936,600) shares of Buyer Class B Common Stock are issued and outstanding. All
of such issued and outstanding shares of Buyer Common Stock are validly issued,
fully paid and nonassessable. Except as set forth in Schedule 5.2(b) hereto, as
of March 3, 1998, Buyer has no other outstanding capital securities or
securities convertible into or exchangeable for any shares of its capital stock
or
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any preemptive or other rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, any calls, commitments or claims of any character relating to,
any shares of its capital stock or any securities convertible into or
exchangeable for any shares of its capital stock.
(c) Buyer has a sufficient number of shares of Buyer Class A Common Stock
authorized and reserved for issuance to the holders of the Outstanding Company
Shares and holders of Options to issue the Minimum Merger Shares in accordance
with Section 3.1(a)(i)(y) of this Agreement.
Section 5.3. Noncontravention. Subject to the expiration or termination
of the applicable waiting period required by the H-S-R Act, except as disclosed
in Schedule 5.3 hereto, neither the execution, delivery or performance of this
Agreement nor the consummation of the transactions contemplated hereby:
(i) violates, or conflicts with, or constitutes a default under, the
certificate or articles of incorporation or by-laws, as amended, of any of
Buyer or any of its Subsidiaries, or
(ii) violates or will violate any statute or law or any rule,
regulation, order, judgment or decree of any court or governmental
authority to which Buyer or any of its Subsidiaries or any of their
properties or assets are subject, except where the existence of such
violation would not, individually or in the aggregate, have a Material
Adverse Effect on Buyer, or
(iii) (with or without notice or lapse of time or both), constitutes a
default under any contract or agreement of any kind to which Buyer or any
of its Subsidiaries is a party or by which either of them is bound, except
where the existence of such default would not, individually or in the
aggregate, have a Material Adverse Effect on Buyer, or
(iv) except as disclosed on Schedule 5.3, requires that Buyer obtain
any consents or approvals of third parties, except where the failure to
obtain such consent or approval would not, individually or in the
aggregate, have a Material Adverse Effect on Buyer.
Section 5.4. SEC Filings. Since January 1, 1995, Buyer has made all
filings with the SEC that it has been required to make under the Securities Act
or the Exchange Act (collectively, the "Buyer Public Reports"). Each of the
Buyer Public Reports has complied with the Securities Act and the Exchange Act
in all material respects. None of the Buyer Public Reports, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
Section 5.5. Financial Statements. All of the financial statements
included in the Buyer Public Reports complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with GAAP applied on a consistent basis
during the period involved (except as may be indicated in the notes thereto or,
in the case of unaudited statements, as permitted by Rule 10-01 of Regulation
S-X of the SEC) and fairly present in accordance with applicable requirements of
GAAP (subject, in the case of unaudited statements, to normal recurring
adjustments, none of which were or are expected, individually or in the
aggregate, to be material in amount) the consolidated financial position of
Buyer and its consolidated Subsidiaries as of their respective dates and the
consolidated results of operations and the consolidated cash flows of Buyer and
its consolidated Subsidiaries for the periods presented therein. Except as set
forth in the Buyer Public Reports, neither the Buyer nor any of its Subsidiaries
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet of the Company and its consolidated Subsidiaries or in the notes
thereto, other than liabilities or obligations which, individually or in the
aggregate, do not have and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Buyer.
Section 5.6. Legal Proceedings. Except as disclosed in the Buyer Public
Reports or as set forth on Schedule 5.6 hereto, there are no claims, actions,
suits, proceedings or investigations pending or, to Buyer's knowledge,
threatened by or against or involving, Buyer or any Subsidiary of Buyer (a)
seeking to enjoin, prohibit, restrain or otherwise prevent the transactions
contemplated hereby or (b) which, if determined adversely to Buyer would,
individually or in the aggregate, result in a Material Adverse Effect on Buyer.
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Except as disclosed in Buyer Public Reports, there are no judgments, decrees or
orders issued by any court, board or other governmental or administrative agency
presently outstanding and unsatisfied against Buyer or any Subsidiary of Buyer,
except where the existence of such judgment, decree or order would not,
individually or in the aggregate, have a Material Adverse Effect on Buyer.
Section 5.7. Events Subsequent to September 30, 1997. Except as set forth
on Schedule 5.7 hereto or as disclosed in the Buyer Public Reports, since
September 30, 1997, there has not been (a) any effect or change which would
have, individually or in the aggregate, a Material Adverse Effect on Buyer, (b)
any declaration, setting aside or payment of any dividend or any other
distribution with respect to any of the capital stock or other equity interests
of Buyer, or (c) any material change by Buyer in accounting principles.
Section 5.8. Compliance with Laws. Except for such non-compliance as
would not, individually or in the aggregate, have a Material Adverse Effect on
Buyer and, except as disclosed in the Buyer Public Reports, to the best of
Buyer's knowledge, the conduct of Buyer complies in all material respects with
all environmental and other statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto, except for violations or
failures so to comply, if any, that are consistent with the relevant industry
standard. To the best of Buyer's knowledge, no action or proceeding relating to
any such statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees is pending or threatened, except for such actions and proceedings as
would not, individually or in the aggregate, have a Material Adverse Effect on
Buyer.
Section 5.9. Registration Statement. The information with respect to
Buyer or any Subsidiary of Buyer included in (a) the S-4 and the S-3 will not
contain at the time any such Registration Statement becomes effective, any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein not
misleading and (b) the Proxy Statement will not contain at the time such Proxy
Statement is mailed and the date of the stockholders' meeting referred to in
Section 6.19, any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein not misleading.
Section 5.10. Properties; Insurance. Except as disclosed in Schedule 5.10
and except for Permitted Liens, Buyer or a Subsidiary of Buyer has good and
marketable title to its material assets and the material assets of its
Subsidiaries, free and clear of all liens and encumbrances, except where such
failure to hold such title would not, individually or in the aggregate, have a
Material Adverse Effect on Buyer.
Section 5.11. Financing. Buyer has previously delivered to the Company a
complete and correct copy of a "highly confident" letter from Credit Suisse
First Boston in form and substance satisfactory to the Company, and such letter
is in full force and effect and has not been amended or otherwise modified.
Section 5.12. Brokerage. Except for Credit Suisse First Boston, no
broker, agent, finder or financial advisor has acted, directly or indirectly,
for Buyer, nor has Buyer incurred any obligation to pay any brokerage fee,
agent's commission, finder's fee, financial advisory fee or other commission in
connection with the transactions contemplated by this Agreement.
ARTICLE VI.
COVENANTS AND AGREEMENTS
Section 6.1. Conduct of the Company Prior to the Effective Time. (a) The
Company shall, and shall cause its Subsidiaries (and Questor shall cause the
Company and its Subsidiaries) (i) to carry on their respective businesses in the
usual, regular and ordinary course of business in substantially the same manner
as heretofore conducted, (ii) not to engage at any time in any business or
business activity other than the business currently conducted by them and
business activities reasonably incidental thereto and (iii) use commercially
reasonable efforts to preserve intact their present business organizations, keep
available the services of their present officers and employees and preserve
their relationships with customers, suppliers, dealers, agents and others having
business dealings with them to the end that their goodwill and on-going
businesses shall be unimpaired at the Effective Time, except such impairment as
would not have a Material Adverse Effect on the Company. The Company shall, and
shall cause its Subsidiaries to (i) maintain
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insurance coverages in the usual manner consistent with prior practices, (ii)
maintain its books, accounts and records in the usual manner consistent with
prior practices, (iii) comply in all material respects with all laws, ordinances
and regulations of governmental entities applicable to the Company and its
Subsidiaries, (iv) maintain and keep its properties and equipment in good
repair, working order and condition, ordinary wear and tear excepted, and (v)
perform in all material respects its obligations under all contracts and
commitments to which it is a party or by which it is bound, in each case, except
for clauses (i) and (v), other than where the failure to so maintain, comply or
perform, would, individually or in the aggregate, not result in a Material
Adverse Effect on the Company;
(b) Except as required or permitted by this Agreement, neither the Company
nor any of its Subsidiaries shall nor shall they propose to (and Questor shall
not permit the Company or any of its Subsidiaries to) (i) sell or agree to sell
any capital stock owned by it in any of its Subsidiaries, (ii) amend its
Certificate of Incorporation or By-laws, (iii) split, combine or reclassify its
outstanding capital stock or declare, set aside or pay any dividend or other
distribution payable in cash, stock or property, or (iv) directly or indirectly
redeem, purchase or otherwise acquire or agree to redeem, purchase or otherwise
acquire any Company Class C Common Stock except for repurchases of Company
Common Class C Stock from employees, officers, consultants or directors in the
ordinary course of business;
(c) Except as set forth on Schedule 6.1(c), the Company shall not, nor
shall it permit any of its Subsidiaries (and Questor shall not permit the
Company or any of its Subsidiaries) to:
(i) except for the issuance of shares pursuant to Options outstanding
as of the date hereof and except as required or permitted by this
Agreement, issue, deliver or sell or agree to issue, deliver or sell any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class, except for issuances, deliveries or sales to
employees, officers, consultants or directors of not more than 2,000 shares
of Class C Common Stock;
(ii) acquire, lease or dispose or agree to acquire, lease or dispose
of any capital assets or any other assets other than in the ordinary course
of business and consistent with past practice;
(iii) incur additional indebtedness in excess, in the aggregate, of
$25,000,000, or encumber or grant a security interest in any asset to
secure indebtedness, in the aggregate, in excess of $25,000,000 or enter
into any other material transaction other than, in each case, in the
ordinary course of business, it being understood that it is within the
ordinary course of business of the Company and its Subsidiaries to issue
indebtedness within the limits of existing credit facilities;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, in each case in this clause (iv) which
are material, individually or in the aggregate, to the Company and its
Subsidiaries taken as a whole, except that the Company may create new
wholly owned subsidiaries in the ordinary course of business;
(v) fail to comply in all material respects with the applicable
provisions of ERISA, the Code and the regulations and published
interpretations thereunder with respect to Employee Benefit Plans;
(vi) sell or transfer any material properties or assets to, or
purchase or acquire any material property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except that
the Company or any of its Subsidiaries may engage in any of the foregoing
transactions (A) pursuant to existing arrangements disclosed on Schedule
4.17, or (B) except for transactions with Significant Stockholders, in the
ordinary course of business at prices and on terms and conditions no less
favorable to the Company or any of its Subsidiaries than could be obtained
on an arm's-length basis from unrelated third parties;
(vii) without Buyer's consent, which consent shall not be unreasonably
withheld or delayed, make any material tax election under the Code (other
than in the ordinary course of business consistent with past practice) or
settle or compromise any tax liability involving amounts in excess of
$1,000,000 in the aggregate;
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(viii) pay, discharge, settle or satisfy any claims, litigation,
liabilities or obligations (whether absolute, accrued, asserted or
unasserted, contingent or otherwise) involving amounts in excess of
$1,000,000 in the aggregate, other than the payment, discharge or
satisfaction of liabilities (x) reflected or reserved against in, or
contemplated by, the financial statements (or the notes thereto) of the
Company included in the Company Public Reports or (y) in the ordinary
course of business consistent with past practice;
(ix) fail to use all commercially reasonable efforts to keep its
insurable properties adequately insured at all times by financially sound
and reputable insurers, maintain such other insurance, to such extent and
against such risks, including fire and other risks insured against by
extended coverage, as is customary with companies in the same or similar
businesses operating in the same or similar locations, including public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any
properties owned, occupied or controlled by it, fail to maintain such other
insurance as may be required by law, provided, however, that
notwithstanding anything to the contrary contained herein, the Company may
continue its current insurance practices;
(x) fail to maintain in full force and effect insurance that, to the
best of the Company's Knowledge, is customary in the industry and complies
with applicable material governmental regulations, provided, however, that
notwithstanding anything to the contrary contained herein, the Company may
continue its current insurance practices;
(xi) with respect to its fleet of trucks, fail to perform maintenance
(routine or unscheduled) and repairs, fail to keep its fleet, in all
material respects, in good working order and condition, or fail to maintain
its fleet as required in order to keep the manufacturer's warranty, in all
material respects, if any, in force;
(xii) fail to use all commercially reasonable efforts to continue to
collect its accounts receivable in the ordinary course of business and
consistent with past practice;
(xiii) fail to prepare and file all material federal, state, local and
foreign returns for Taxes and other material Tax reports, filings and
amendments thereto required to be filed by it, or fail to allow Buyer, at
its request, to review all such returns, reports, filings and amendments
prior to the filing thereof, which review shall not interfere with the
timely filing of such returns;
(xiv) increase by more than 10% the base salary of any of its
employees whose base salary is in excess of $100,000 as of the date hereof,
except consistent with past practice or enter into a new material Employee
Benefit Plan;
(xv) except as may be required by applicable law (in which case Buyer
shall have the option to participate in such negotiation), enter into any
negotiation with respect to any collective bargaining agreement;
(xvi) make any loans to any third party in excess of $1,000,000 in the
aggregate except in the ordinary course of business;
(xvii) without Buyer's consent which may not be unreasonably withheld
or delayed amend or cancel or agree to the material amendment or
cancellation of any contract filed as an exhibit to the Company Public
Reports or enter into any new contract required to be filed as such an
exhibit;
(xviii) without Buyer's consent which may not be unreasonably withheld
or delayed make any change in any accounting methods, except as may be
required by GAAP or as appropriate to conform to changes in GAAP; or
(xix) enter into any contract, agreement commitment or arrangement to
take any of the actions described in Section 6.1(b) or elsewhere in this
Section 6.1(c).
Section 6.2. Conduct of Buyer Prior to the Effective Time. Buyer shall
not, and shall cause its Subsidiaries not to, engage in any transaction which
has the effect of, individually or in the aggregate, materially restricting, or
in any way materially delaying, preventing or prohibiting the Merger or the
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consummation of the transactions contemplated by this Agreement; provided,
however, that Buyer shall comply with Section 3.16. Buyer shall not reserve for
any other purpose or issue to any person or persons (other than the Company
Stockholders pursuant to Article III of this Agreement) any shares of Buyer
Class A Common Stock that it has reserved for issuance of the Minimum Merger
Shares in accordance with Section 3.1(a) of this Agreement.
Section 6.3. Other Offers for the Company; Sale of Common Stock by
Significant Stockholders. (a) From the date hereof until the termination of this
Agreement or the Effective Time, whichever first occurs, the Company shall not,
nor shall it permit any of its Subsidiaries to, nor shall it authorize or permit
any officer, director or employee of, or any investment banker, attorney or
other advisor or representative or agent of, the Company or any of its
Subsidiaries (and Questor shall not permit the Company or any of its
Subsidiaries) to, directly or indirectly, (i) solicit, initiate or encourage the
submission of any Acquisition Proposal (as hereinafter defined) or (ii) enter
into or encourage any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to encourage or
facilitate any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to, any Acquisition Proposal. Notwithstanding
anything in this Agreement to the contrary, the Company shall promptly advise
Buyer in writing of (i) the receipt by it (or any of the other entities or
persons referred to above) after the date hereof of any Acquisition Proposal, or
any inquiry which could reasonably be expected to lead to any Acquisition
Proposal, (ii) the identity of the person making any such Acquisition Proposal
or inquiry and (iii) the terms and conditions of such Acquisition Proposal or
inquiry. For purposes of this Agreement, "Acquisition Proposal" means any bona
fide proposal with respect to a merger, consolidation, share exchange, business
combination or similar transaction involving the Company or any Subsidiary of
the Company, or any purchase of all or any significant portion of the assets or
stock of the Company or any Subsidiary of the Company.
(b) From the date hereof until the termination of this Agreement or the
Effective Time, whichever first occurs, in addition to being bound by the terms
of Section 6.3(a), the Significant Stockholders shall not offer for sale, sell,
distribute or otherwise dispose of any of their Company Common Stock.
Section 6.4. Continued Effectiveness of Representations and Warranties of
the Parties. From the date hereof through the Effective Time,
(a) the Company shall use (and Questor shall cause the Company to use) all
commercially reasonable efforts to conduct its affairs in such a manner so that,
except as otherwise contemplated or permitted by this Agreement, the
representations and warranties of the Company contained in Article IV shall
continue to be true and correct in all material respects on and as of the
Closing Date as if made on and as of the Closing Date, (i) except that any such
representations and warranties that are given as of a particular date shall be
true and correct in all material respects as of such date, and (ii) in the case
of Section 4.9 (Events Subsequent to September 30, 1997) only, except for such
changes with respect thereto (x) which are contemplated by this Agreement or (y)
which are attributable to the execution of this Agreement, or the announcement
or contemplation of the transactions proposed herein;
(b) Buyer shall use its reasonable efforts to conduct its affairs in such a
manner so that, except as otherwise contemplated or permitted by this Agreement,
the representations and warranties contained in Article V shall continue to be
true and correct in all material respects on and as of the Closing Date as if
made on and as of the Closing Date, (i) except that any such representations and
warranties that are given as of a particular date shall be true and correct in
all material respects as of such date, and (ii) in the case of Section 5.7
(Events Subsequent to September 30, 1997) only, except for such changes with
respect thereto (x) which are contemplated by this Agreement or (y) which are
attributable to the execution of this Agreement, or the announcement or
contemplation of the transactions proposed herein;
(c) the Company shall promptly notify Buyer of any event, condition or
circumstance occurring from the date hereof through the Closing Date of which
the Company becomes aware that would cause any material revisions to any
Schedule provided by the Company pursuant to this Agreement, or that would
constitute a violation or breach of this Agreement by the Company; and
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(d) Buyer and Sub shall promptly notify the Company of any event, condition
or circumstance occurring from the date hereof through the Closing Date of which
they become aware that would cause any material revisions to any Schedule
provided by Buyer pursuant to this Agreement, or that would constitute a
violation or breach of this Agreement by Buyer. No such notification shall be
deemed an amendment to any Schedule to this Agreement.
Section 6.5. Corporate Examinations and Investigations. Prior to the
Closing Date, each of Buyer and the Company, as the case may be, shall be
entitled, at its cost and expense, through its employees and representatives, to
make such investigation of the assets, liabilities, business and operations of
the other party, and such examination of the books, records and financial
condition of the other party, upon prior notice and during normal business
hours. Any such investigation and examination shall be conducted at reasonable
times and under reasonable circumstances and the applicable party and its
respective employees and representatives, including, without limitation, its
counsel and independent public accountants, shall cooperate with such
representatives in connection with such review and examination. In furtherance
of the foregoing, the Company will provide Buyer with regular updates concerning
the preparation of the Audited Financial Statements and will cause its
accountants to give reasonable access to Buyer's accountants during the course
of the audit of the Audited Financial Statements and to discuss such draft
Audited Financial Statements with Buyer's accountants.
Section 6.6. Buyer Approvals. Buyer shall use all reasonable efforts to
obtain as promptly as practicable all necessary approvals, authorizations and
consents of any person or Governmental Entity required to be obtained by Buyer
to consummate the transactions contemplated hereby ("Buyer Approvals"), and will
cooperate with the Company in seeking to obtain all such approvals,
authorizations and consents; provided, however, that neither Buyer nor any of
its Subsidiaries shall be required to take any action to obtain such approvals,
authorizations and consents if such action, either alone or together with
another action, would result in the divestiture of assets by Buyer or the
Company that would directly result in the loss of more than 30% of the Company's
revenues (as of the date hereof). Buyer shall use all reasonable efforts to
provide such information to such persons, bodies and authorities as such
persons, bodies or authorities or the Company may reasonably request.
Section 6.7. Company Approvals. The Company shall use all reasonable
efforts to obtain as promptly as practicable all necessary approvals,
authorizations and consents of any person or Governmental Entity required to be
obtained by the Company to consummate the transactions contemplated hereby
("Company Approvals"), and will cooperate with the Buyer in seeking to obtain
all such approvals, authorizations and consents. The Company shall use all
reasonable efforts to provide such information to such persons, bodies and
authorities as such persons, bodies and authorities or Buyer may reasonably
request.
Section 6.8. Letter of Credit. Buyer has obtained and delivered to the
Company on or before the date hereof a Letter of Credit naming the Company as
beneficiary thereof in the amount of $20,000,000 and in substantially the form
attached hereto as Exhibit C (the "Letter of Credit") which will remain in full
force and effect until December 15, 1998 or as otherwise provided therein;
provided, however, that if the Company exercises its option to extend the
Termination Date pursuant to the proviso of Section 10.1(a), Buyer shall cause
the Letter of Credit to remain in full force and effect or a substitute letter
of credit containing substantially identical terms to remain in full force and
effect until March 15, 1999 or as otherwise provided therein; and provided,
further, that if the Closing Date is extended beyond November 30, 1998, solely
as a result of clause (a)(v) of the definition of Closing Date, Buyer shall
cause the Letter of Credit to remain in full force and effect or a substitute
letter of credit containing substantially identical terms to remain in full
force and effect until March 15, 1999 or as otherwise provided therein. The
Company agrees with Buyer that it shall not draw upon, or exercise any rights
with respect to, the Letter of Credit unless and only to the extent the Company
is permitted to do so under Article X of this Agreement. In addition, the
Company agrees with Buyer that within one (1) Business Day following the earlier
of (x) the Closing Date, and (y) the date on which this Agreement is terminated
in a manner which does not give rise to a right on the part of the Company to
draw on the Letter of Credit pursuant to Section 10.3, the Company shall
instruct the bank issuing the Letter of Credit to terminate the Letter of Credit
by giving the notice described in clause (ii) of paragraph 5 of the Letter of
Credit and shall surrender the Letter of Credit to such bank for cancellation.
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Section 6.9. Further Assurances. (a) Each of Buyer, Sub and the Company
shall execute such documents and other papers and take such further actions as
may be reasonably required or desirable to carry out the provisions hereof and
the transactions contemplated hereby. Each of Buyer, Sub and the Company shall
use all reasonable efforts to cause all actions to effectuate the Merger for
which such party is responsible under this Agreement to be taken as promptly as
practicable, including using all reasonable efforts to obtain all necessary
waivers, consents and approvals (including, but not limited to, filings under
the H-S-R Act) and to lift any injunction or other legal bar to the Merger (and,
in each case, to proceed with the Merger as expeditiously as possible).
Notwithstanding the foregoing, there shall be no action required to be taken and
no action will be taken in order to consummate and make effective the
transactions contemplated by this Agreement if such action, either alone or
together with another action, would result in the divestiture of assets by Buyer
or the Company that would directly result in the loss of more than 30% of the
Company's revenues (as of the date hereof).
(b) In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and/or directors of Buyer, the Company, Questor and the Surviving
Corporation shall take all such necessary action.
Section 6.10. Buyer Board of Directors. As of the Effective Time, Buyer's
Board of Directors shall cause at least one person designated on Schedule 6.10
(the "Designee") to be nominated to Buyer's Board of Directors and shall use its
commercially reasonable efforts to cause such Designee to be elected to Buyer's
Board of Directors until the earliest to occur of (a) the third anniversary of
the Closing Date, (b) the disposition by Questor of 75% of the shares of Buyer
Class A Common Stock acquired by Questor pursuant to Article III hereof, or (c)
the acquisition by Questor of a Controlling Interest in any person listed on
Annex I attached hereto. In furtherance of its obligations under this Section
6.10, Buyer, among other things, shall no later than the Effective Time increase
the number of directors on its Board of Directors by one and elect the initial
Designee set forth on Schedule 6.10 to the Buyer's Board of Directors.
Section 6.11. Indemnification of Company Officers and Directors;
Insurance. (a) Buyer agrees, for a period of six years following the Effective
Time, not to amend the indemnification provisions set forth in the Certificate
of Incorporation or By-laws of the Surviving Corporation in a manner that would
adversely affect the rights of the Company's officers, directors and employees
to indemnification and advancement of expenses thereunder and agrees to cause
the Surviving Corporation to fulfill and honor such obligations to the maximum
extent permitted by law; provided, however, that nothing in this Section 6.11
shall prevent Buyer from effecting any merger, reorganization or consolidation
of the Surviving Corporation.
(b) Buyer shall cause to be maintained in effect for a period of six years
after the Effective Time the current policies of directors' and officers'
liability insurance and fiduciary liability insurance maintained by the Company
with respect to matters occurring prior to the Effective Time; provided,
however, that (i) Buyer may substitute therefor policies of substantially the
same coverage containing terms and conditions that are substantially the same
for the indemnified parties to the extent reasonably available and (ii) Buyer
shall not be required to pay an annual premium for such insurance in excess of
one hundred and fifty percent (150%) of the last annual premium paid prior to
the date of this Agreement, but in such case shall purchase the maximum amount
of coverage possible for such premium.
(c) This Section 6.11 is intended to be for the benefit of, and shall be
enforceable by, the indemnified parties referred to herein, their heirs and
personal representatives and shall be binding on Buyer, Sub and the Surviving
Corporation and their respective successors and assigns.
Section 6.12. Confidentiality. Questor and Buyer reaffirm their
obligations to comply with the provisions set forth in the Confidentiality
Agreement and agree that such obligations shall survive the termination of this
Agreement. The Significant Stockholders and the Company agree to keep
confidential all nonpublic information relating to Buyer received in connection
with the transactions contemplated by this Agreement.
Section 6.13. Certificates, Opinions, Etc. At the Closing, each of Buyer,
Sub and the Company shall deliver such opinions (covering the matters listed on
Annexes II and III hereto) and certificates as are reasonably required by the
other parties.
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Section 6.14. Interim Financials. As promptly as practicable after each
monthly accounting period subsequent to the date of this Agreement and prior to
the Effective Time, the Company will cause to be delivered to Buyer periodic
financial reports relating to the Company and its Subsidiaries in the form in
which the Company customarily prepares such reports for its internal purposes,
including, without limitation, a monthly interim unaudited balance sheet and
income statement. The Company covenants that such interim statements will be
prepared on a basis consistent with prior interim periods.
Section 6.15. Communications. In connection with the continued operation
of the business of the Company and its Subsidiaries subsequent to the date of
this Agreement and prior to the Effective Time, the Company shall promptly
respond in good faith to any reasonable inquiries from representatives of Buyer
with respect to the ongoing operations of the Company and its Subsidiaries. The
Company acknowledges that Buyer does not and will not waive any rights it may
have under this Agreement as a result of such communications.
Section 6.16. Releases. If the Closing occurs, then the Company hereby
unconditionally, absolutely and irrevocably releases each Significant
Stockholder and each Significant Stockholder hereby unconditionally, absolutely
and irrevocably releases the Company from any and all claims, rights and causes
of action which such releasing person may have or may have had against the
released party, prior to, or arising with respect to any acts or omissions
occurring or facts or circumstances existing prior to, the Closing; provided,
however, that nothing in this Section 6.16 shall release any rights which any of
these parties may have under this Agreement.
Section 6.17. Transfer Taxes. Buyer and the Company shall cooperate in
the preparation, execution and filing of all returns, applications or other
documents regarding any real property transfer, stamp, recording, documentary of
other taxes (including, without limitation, any New York State Real Estate
Transfer Tax) and any other fees and similar taxes which become payable in
connection with the Merger (collectively, "Transfer Taxes"). From and after the
Effective Date, Buyer shall pay or cause to be paid, without deduction or
withholding from any amounts payable to the holders of the Outstanding Company
Shares, all Transfer Taxes.
Section 6.18. Standstill. If the Closing occurs, each of Questor and
Madison Dearborn agrees that thereafter, unless it shall have been specifically
invited in writing by the Board of Directors of Buyer, it will not, directly or
indirectly (a) acquire any securities that would result in the beneficial
ownership of Buyer Class A Common Stock by it in an amount equal to the sum of
(x) the amount of Buyer Class A Common Stock received by it under the terms of
this Agreement, multiplied by (y) 2 (two) (subject to a corresponding adjustment
in the event the outstanding shares of Buyer Class A Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, stock dividend, etc.), or (b) cause or participate
in the making directly or indirectly of any proxy contest or any tender or
exchange offer for securities of Buyer, or (c) take any actions to seek to
obtain control of the Board of Directors of Buyer. This Section 6.18, and the
obligations of Questor and Madison Dearborn hereunder, shall terminate upon the
earliest to occur of (a) the twenty-fourth monthly anniversary of the date
hereof, (b) a Buyer Change of Control Event or (c) the date upon which Sanford
Miller ceases to be, or gives or receives notice with respect to terminating his
role as, Chief Executive Officer of Buyer.
Section 6.19. Buyer's Stockholders' Meeting. Buyer shall use all
commercially reasonable efforts to have occur as promptly as practicable a
meeting of Buyer's stockholders to vote upon a proposed increase in the
authorized capital stock of Buyer to permit Buyer to issue the Maximum Merger
Shares. Each party hereto shall promptly furnish all information concerning it
as any other party hereto may reasonably request in connection with the Proxy
Statement, the Registration Statement on Form S-3, or the Registration Statement
on Form S-4 or in connection with compliance with any state blue sky or
securities laws.
Section 6.20. Stock Purchases, Repurchases and Sales; Registration
Rights. If the Closing occurs:
(a) Buyer will not, and will not permit any of its Subsidiaries or
controlled Affiliates to, purchase any shares of Buyer Common Stock in open
market, privately negotiated transactions or otherwise, on any day during
the period commencing 30 trading days before the Annual Measurement Date,
Final
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Measurement Date and Warrant Measurement Date, as the case may be, and
ending on the Annual Measurement Date, Final Measurement Date and Warrant
Measurement Date, as the case may be (the "Blackout Period"). In addition,
Buyer will not, and will not permit any of its Subsidiaries or controlled
Affiliates to, make any announcement with respect to any upcoming or future
purchase, repurchase, buy-back or similar transaction involving any shares
of Buyer Common Stock during the Blackout Period or within thirty (30) days
prior thereto.
(b) Each of Questor and Madison Dearborn will not, and will not permit
any of their Subsidiaries or controlled Affiliates to, sell any shares of
Buyer Common Stock in open market, privately negotiated transactions or
otherwise, on any day during the Blackout Period. In addition, Questor and
Madison Dearborn will not, and will not permit any of their Subsidiaries or
controlled Affiliates to, make any announcement with respect to any
upcoming or future sale or similar transaction involving any shares of
Buyer Common Stock during the Blackout Period or within thirty (30) days
prior thereto.
(c) Sections 6.20(a) and 6.20(b) shall terminate upon the Warrant
Measurement Date.
(d) Each Significant Stockholder agrees to comply with its obligations
as a Holder under the registration rights provisions set forth in Exhibit E
hereto.
Section 6.21. Listing. Prior to issuance, Buyer shall use its
commercially reasonable efforts to cause to be approved for listing on the NYSE,
subject to official notice of issuance, all shares of Buyer Class A Common Stock
to be issued pursuant to Sections 3.2, 3.4 and 3.7 hereof and to be issued upon
exercise of, or in exchange for, the Warrants granted pursuant to Section 3.5
hereof on the NYSE.
Section 6.22. Registration Rights. Buyer shall take such actions as are
necessary to provide the registration rights set forth in Exhibit E hereto to
the holders of shares of Buyer Class A Common Stock issued pursuant to Section
3.2, 3.4 or 3.7 or issuable upon exercise of, or issued in exchange for, the
Warrants granted pursuant to Section 3.5, and Buyer shall take such actions to
register shares of Buyer Class A Common Stock issuable thereunder as provided
therein. This Section 6.22 shall survive and be in full force and effect until
the Termination Date (as defined in Exhibit E hereto).
Section 6.23. Buyer Review of Disclosure Schedules. Simultaneously with
the execution and delivery of this Agreement, the Company shall deliver to Buyer
all Schedules required to be provided by the Company under this Agreement (the
"Disclosure Schedules"). The Company shall afford such access to management as
Buyer and its representatives may reasonably require in their review of such
Disclosure Schedules. The Company shall have the right to supplement the
Disclosure Schedules prior to 5 P.M., E.S.T., Friday, March 6, 1998; provided,
however, that the Buyer shall have a reasonable opportunity to review such
supplemented schedules prior to 5 P.M., E.S.T., Friday, March 6, 1998. If Buyer
notifies the Company in writing prior to 5 P.M., E.S.T., Friday, March 6, 1998,
that such Disclosure Schedules are not reasonably satisfactory to it, Buyer
shall have the right to terminate this Agreement. Such Disclosure Schedules so
supplemented shall be deemed delivered on the date hereof.
ARTICLE VII.
CONDITIONS PRECEDENT TO MERGER
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions:
(a) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental authority or other regulatory body,
as may be required to be obtained by the Company or Buyer in connection
with the performance of this Agreement have been received; provided,
however, that such condition shall not be deemed satisfied if such
consents, authorizations, orders or approvals are conditioned upon the
divestiture of assets by the Buyer or the Company that would directly
result in the loss of more than 30% of the Company's revenues (as of the
date hereof).
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(b) Early termination shall have been granted or applicable waiting
periods shall have expired under the H-S-R Act in connection with the
transactions contemplated hereby.
(c) No governmental authority or other regulatory body (including any
court of competent jurisdiction) shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making illegal, or in any way
prohibiting the Merger (the Company and Buyer agreeing to use their
commercially reasonable efforts to have any such injunction lifted).
(d) No governmental authority or other regulatory body shall have
commenced any action, suit or proceeding seeking to enjoin or otherwise
prohibit the transactions contemplated hereby, nor shall there be a
substantial likelihood that any governmental authority or other regulatory
body will seek to commence any such action, suit or proceeding.
ARTICLE VIII.
CLOSING
The closing (the "Closing") of the transactions contemplated by this
Agreement shall take place at the offices of Willkie Farr & Gallagher, 153 East
53rd Street, New York, New York, at 10:00 a.m. local time on the Closing Date or
at such other time and place as the parties may mutually agree.
ARTICLE IX.
REPRESENTATIONS AND WARRANTIES AS OF THE CLOSING DATE;
SURVIVAL; MATERIAL BREACHES
Section 9.1. Representations and Warranties as of the Closing
Date. (a) The representations and warranties of Buyer and the Company shall be
deemed to be reaffirmed in all material respects at and as of Closing Date as
though made at and as of the Closing Date, except to the extent contemplated by
this Agreement, and except to the extent such representations and warranties (i)
speak as of the date hereof or a specified date (which representations and
warranties shall be deemed to be reaffirmed in all material respects solely as
of such date) or (ii) are already qualified by materiality, in which event such
representations and warranties shall be deemed to be reaffirmed as of the
appropriate date in all respects.
(b) On the Closing Date, each of the Company and the Buyer shall deliver a
certificate of an appropriate senior officer as to compliance with Section
9.1(a).
(c) Not later than five (5) Business Days prior to the Closing, the Company
and Buyer will each supplement or amend the Schedules relating to their
respective representations and warranties in this Agreement in order to make
such representations true and correct as of the Closing Date. Such supplemented
or updated schedules shall not be deemed to cure (or affect the rights of any
party with respect to) any breach of any representation or warranty made on the
date hereof.
Section 9.2. Survival. The representations and warranties made by Buyer,
Sub or the Company and the covenants made by the Company or the Significant
Stockholders shall survive the execution and delivery of this Agreement for a
period ending 120 days after the Closing Date, and shall terminate and have no
further force or effect thereafter, except that the covenants made by the
Significant Stockholders in Sections 6.16, 6.18 and 6.20 shall survive until
their expiration or termination in accordance with the terms thereof, and except
as set forth in Section 9.3 hereof. The covenants made by Buyer and Sub shall
survive the Closing except in accordance with the terms thereof.
Section 9.3. Certain Material Breaches. (a) If the Closing occurs, the
sole and exclusive remedy of Buyer and Sub in the event that any of the
representations and warranties of the Company (without giving effect to any
qualifications contained in any representation and warranty set forth in Article
IV hereof with respect to any Material Adverse Effect on the Company) fails to
be true and correct (i) as of the date hereof or, if any representation and
warranty speaks as of a specified date, then as of such date or (ii) in the case
of
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representations and warranties that do not speak of a specified date then as of
the Closing Date or one or more of the covenants of the Company or the
Significant Stockholders set forth in this Agreement hereof fails to be
performed on or prior to the Closing Date is to cause the Aggregate Merger
Shares to be adjusted to the extent provided in Section 3.3. Each of Buyer and
Sub, on the one hand, and the Company and each Significant Stockholder, on the
other hand, shall notify the other in writing of each event or circumstance
known to it that it discovers after the date hereof constituting or causing a
failure of any representation or warranty to be true and correct as of the
applicable date or a covenant made or agreed to by the Company or any
Significant Stockholder promptly after such event or circumstance becomes known
to it, but in any event no later than five (5) Business Days prior to the
Closing Date, or if Buyer or Sub obtains such knowledge thereafter, Buyer shall
notify the Indemnified Representative (as defined in the Holdback Escrow
Agreement)) in writing promptly after obtaining such knowledge; provided,
however, that in no event shall any notice given after the Cut-off Date (as
defined in the Holdback Escrow Agreement) result in Buyer or Sub having any
right to any adjustment in accordance with Section 3.3 or any other remedy.
Within two (2) Business Days after receiving any such notice from the Company or
a Significant Stockholder, Buyer shall inform the Company and the Significant
Stockholders in writing of Buyer's good faith estimate of the value of any such
failures of the representations and warranties (without giving effect to any
qualifiers as to Material Adverse Effect on the Company) to be true and correct
or such failures of covenants to be performed. If prior to the Closing Date
Buyer notifies the Company and the Significant Stockholders in writing that (i)
Buyer estimates that the value (determined in accordance with Section 3.3(a)) of
any such failures, individually or in the aggregate, exceeds $75,000,000, (ii)
such value is in excess of $75,000,000 and (iii) as a result of such failures,
Buyer is unable, after having used its good faith efforts, to obtain the
financing necessary to pay the Aggregate Cash Consideration, then Buyer shall
have the right to terminate this Agreement pursuant to Section 10.1(d) if there
is a determination in accordance with the procedures set forth below that the
value reduction of such failures, individually or in the aggregate, as
calculated pursuant to Section 3.3(a) exceeds $75,000,000. Buyer shall provide
the Company and each Significant Stockholder with all information reasonably
requested in order to make a determination with respect to the value reduction
associated with any such failure or alleged failure. The parties hereto shall
negotiate in good faith to agree upon any such value reduction. If such an
agreement cannot be reached, then such value reduction shall be determined
pursuant to the dispute mechanisms set forth in Section 2.2(f) of the Holdback
Escrow Agreement (the date of final resolution shall be the "Determination
Date").
(b) Breaches of the representations, warranties and covenants of Buyer or
Sub contained in this Agreement shall not give the Company a right to terminate
this Agreement, but shall instead entitle the holders of Outstanding Company
Shares immediately prior to the Effective Time to seek damages in respect
thereof. Each of Buyer and Sub, on the one hand, and the Company, on the other
hand, shall notify the other in writing of each event or circumstance known to
it that it discovers after the date hereof constituting or causing a breach of
any of the representations, warranties and covenants made by Buyer or Sub
promptly after such event or circumstance becomes known to it, but in any event
no later than five (5) Business Days prior to the Closing Date, or if
thereafter, then promptly after obtaining such knowledge.
ARTICLE X.
TERMINATION OF AGREEMENT
Section 10.1. Termination. This Agreement may be terminated prior to the
Closing as follows:
(a) by either Buyer or the Company if the conditions specified in
Article VII have not been satisfied by November 30, 1998 (the "Termination
Date"); provided, however, that if the condition described in paragraph (d)
of Article VII is not satisfied prior to the Termination Date, no later
than such Termination Date, the Company may at its option given in writing
to Buyer extend the Termination Date to February 28, 1999;
(b) by either Buyer or the Company if a final and no longer appealable
permanent injunction (but not any temporary restraining order or
preliminary injunction) has been issued by final order of any federal or
state court in the United States which prevents the consummation of the
Merger;
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(c) by the Company if Buyer or Sub shall have breached any of their
respective obligations under Article VI of this Agreement in any material
respect and such breach continues for a period of ten days after the
receipt of notice of the breach from the Company;
(d) by Buyer pursuant to Section 6.23 or if the Company or any
Significant Stockholder shall have breached any of its representations,
warranties or covenants under the circumstances set forth in the fourth
sentence of Section 9.3(a) that give rise to Buyer's right to terminate
this Agreement; or
(e) at any time on or prior to the Closing Date, by mutual written
consent of Buyer and the Company.
Section 10.2. Effect of Termination. If this Agreement is terminated and
the transactions contemplated hereby are not consummated as described above,
this Agreement shall become void and be of no further force and effect, except
for the provisions of this Agreement relating to the obligations of parties
under Sections 6.8 (Letter of Credit), 6.12 (Confidentiality), 10.2 (Effect of
Termination) and 10.3 (Amounts Payable in Connection with Termination). None of
the parties hereto shall have any liability in respect of a termination of this
Agreement prior to Closing, except to the extent set forth in Section 10.3 and
except to the extent that termination results from the intentional, willful or
knowing violation of the representations, warranties, covenants or agreements of
such party under this Agreement; provided, however, that notwithstanding
anything to the contrary contained herein, in the event of any such termination,
Questor shall have no liability for breach of any covenant contained herein.
Section 10.3. Amounts Payable in Connection with Termination.
(a) If this Agreement is terminated pursuant to Section 10.1(a) or
Section 10.1(b) (but only with respect to such Section 10.1(b) if such permanent
injunction relates to antitrust matters), the Company, upon providing or
receiving notice of such termination, shall have the right to immediately draw
the Letter of Credit in an amount equal to $7,500,000 as agreed liquidated
damages.
(b) If this Agreement is terminated for any reason, except pursuant to
Section 10.1(a), 10.1(b) (under the circumstances described in Section 10.3(a))
or 10.1(d), the Company, upon providing or receiving notice of such termination,
shall have the right to immediately draw the Letter of Credit in the full amount
of $20,000,000 as agreed partial liquidated damages; provided, however, that the
Company shall be entitled to recovery from Buyer for any damages suffered by it
as a result of such termination up to an amount equal to $75,000,000 (including
the amount drawn under the Letter of Credit); and provided, further, that the
Company shall have no obligation to accept liquidated damages and at its option
shall have the right to seek specific performance.
ARTICLE XI.
DEFINITIONS
Section 11.1. Definitions. The following terms when used in this
Agreement shall have the following meanings:
"Accredited Investor" shall have the meaning specified in Regulation D
promulgated under the Securities Act.
"Acquisition Proposal" has the meaning set forth in Section 6.3(a).
"Affiliate" (or "affiliates" as the context may require), with respect
to any person, means any other person controlling, controlled by or under
common control with such person.
"Aggregate Cash Consideration" has the meaning set forth in Section
3.1(b).
"Aggregate Merger Shares" has the meaning set forth in Section 3.1(a).
"Agreement" has the meaning set forth in the preamble hereof.
"Annual Disposition Price" has the meaning set forth in Section
3.4(b).
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"Annual Make-Whole Amount" has the meaning set forth in Section
3.4(b).
"Annual Measurement Date" has the meaning set forth in Section 3.4(b).
"Annual Shares" has the meaning set forth in Section 3.4(b).
"Appraisal Addition Amount" has the meaning set forth in Section
3.8(b).
"Appraisal Reduction Amount" has the meaning set forth in Section
3.8(b).
"Audited Financial Statements" means the consolidated statements of
income, changes in stockholders' equity and cash flow of the Company and
its Subsidiaries for the fiscal year ended December 31, 1997, and a
consolidated balance sheet of the Company and its Subsidiaries as at the
end of such year, in each case audited by Coopers & Lybrand.
"Blackout Period" has the meaning set forth in Section 6.20.
"Business Combination" has the meaning set forth in Section 3.16.
"Business Day" means any day other than a Saturday or a Sunday, or a
day on which banking institutions in the State of New York are obligated by
law or executive order to close.
"Buyer" has the meaning set forth in the preamble hereof.
"Buyer Approvals" has the meaning set forth in Section 6.6.
"Buyer Change of Control Event" shall mean a transaction or series of
related transactions in which (i) a person or group acquires shares of
Buyer which represent a majority of the outstanding voting shares after
giving effect to such transaction or (ii) the members of the Board of
Directors of Buyer immediately prior to such transaction(s) no longer
constitute a majority of the Board of Directors of Buyer or any successor
thereto immediately following such transaction(s).
"Buyer Class A Common Stock" has the meaning set forth in Section
5.2(a).
"Buyer Class B Common Stock" has the meaning set forth in Section
5.2(a).
"Buyer Common Stock" has the meaning set forth in Section 5.2(a).
"Buyer Public Reports" has the meaning set forth in Section 5.4.
"Certificates" has the meaning set forth in Section 3.9(a).
"Closing" has the meaning set forth in Article VIII.
"Closing Date" means (a) the later of (i) the second Business Day
following the day on which the conditions to the consummation of the Merger
specified in Article VII have been satisfied or waived, (ii) April 20,
1998, (iii) the date that is thirty (30) days after the meeting of Buyer's
stockholders contemplated in Section 6.19 hereof, (iv) the date that is
thirty (30) days after the earliest to occur of receipt of (A) a grant of
early termination, and (B) the expiration of all applicable waiting periods
(including extensions thereof), in each case under the H-S-R Act, in
connection with the transactions contemplated hereby, and (v) if a notice
has been given by Buyer under the fourth sentence of Section 9.3(a), the
date that is fifteen (15) days after the Determination Date or (b) such
other date as the parties hereto agree in writing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preamble hereof.
"Company Approvals" has the meaning set forth in Section 6.7.
"Company Common Stock" has the meaning set forth in Section 4.2(a).
"Company Intellectual Property" has the meaning set forth in Section
4.8.
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"Company's Knowledge" or similar language means the actual knowledge
of the Company's Chief Executive Officer, President, Chief Financial
Officer and General Counsel and such knowledge which each such person
should be reasonably expected to have in such capacity.
"Company Public Reports" has the meaning set forth in Section 4.4.
"Company Stockholders" (or "Company Stockholder" as the context may
require) has the meaning set forth in Section 3.2(a).
"Company Subsidiary Securities" has the meaning set forth in Section
4.1(e).
"Confidentiality Agreement" has the meaning set forth in Section 12.3.
"Contingent Additional Consideration" has the meaning set forth in
Section 3.4(a).
"Contracts" has the meaning set forth in Section 4.16.
"Controlling Interest", with respect to any person, shall mean the
ownership of shares which represent 40% of the outstanding voting stock of
such person.
"Copyright License Agreement" shall mean the copyright agreement,
dated October 17, 1996, by and between Ryder Truck Rental, Inc., a Florida
corporation and the Company.
"Delaware Corporation Law" has the meaning set forth in Section
1.2(a).
"Designee" has the meaning set forth in Section 6.10.
"Determination Date" has the meaning set forth in Section 9.3(b).
"Disclosed Leases" has the meaning set forth in Section 4.12(b).
"Disclosure Schedule" has the meaning set forth in Section 6.23.
"Disposed Annual Share" (or "Disposed Annual Shares" as the context
may require) has the meaning set forth in Section 3.4(b).
"Disposed Annual Value" has the meaning set forth in Section 3.4(b).
"Disposed Final Shares" has the meaning set forth in Section 3.4(c).
"Disposed Final Value" has the meaning set forth in Section 3.4(c).
"Dissenting Shares" has the meaning set forth in Section 3.8.
"Distribution" (or "Distributions" as the context may require) means
any distribution of cash, securities or property on or in respect of the
Company Common Stock or Buyer Common Stock, as the case may be, whether as
a dividend or otherwise.
"Effective Time" has the meaning set forth in Section 1.2(b).
"Employee Benefit Plans" has the meaning set forth in Section 4.7(a).
"Environmental Law" has the meaning set forth in Section 4.10(b).
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Company, is treated as a single
employer under Section 414(b) or (c) of the Code, or solely for purposes of
Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Claim Event" has the meaning set forth in Section 3.6(a).
"Escrow Holdback Shares" has the meaning set forth in Section 3.6(a).
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"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the regulations and rulings issued thereunder.
"Exchange Agent" has the meaning set forth in Section 3.9(a).
"Exercise Difference" has the meaning set forth in Section 3.7(a).
"Fees" means the fees of Questor Management Company and Willkie Farr &
Gallagher incurred in connection with this Agreement and other fees payable
by the Company to third parties as a result of the execution, delivery and
performance of this Agreement.
"Final Disposition Price" has the meaning set forth in Section 3.4(c).
"Final Make-Whole Amount" has the meaning set forth in Section 3.4(c).
"Final Measurement Date" has the meaning set forth in Section 3.4(c).
"Final Shares" has the meaning set forth in Section 3.4(c).
"GAAP" means generally accepted accounting principles in the United
States of America from time to time in effect.
"Governmental Entity" (or "Governmental Entities" as the context may
require) means (a) any international, foreign, federal, state, county,
local or municipal government or administrative agency or political
subdivision thereof, (b) any governmental agency, authority, board, bureau,
commission, department or instrumentality, (c) any court or administrative
tribunal, (d) any non-governmental agency, tribunal or entity that is
vested by a governmental agency with applicable jurisdiction, or (e) any
arbitration tribunal or other non-governmental authority with applicable
jurisdiction.
"H-S-R Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Holdback Escrow Agent" has the meaning set forth in Section 3.6(a).
"Holdback Escrow Agreement" has the meaning set forth in Section
3.6(a).
"Interim Balance Sheet" has the meaning set forth in Section 4.4.
"Interim Financial Statements" has the meaning set forth in Section
4.4.
"IRS" means the Internal Revenue Service or any successor agency or
department.
"Lease" (or "Leases" as the context may require) has the meaning set
forth in Section 4.12(b).
"Letter of Credit" has the meaning set forth in Section 6.8.
"License" has the meaning set forth in Section 4.22.
"lien or other encumbrance" (or "liens or other encumbrances" or
"liens or other encumbrance" or "lien or other encumbrances" or similar
language as the context may require or any similar formulation) means any
lien, claim, pledge, mortgage, assessment, security interest, charge,
option, right of first refusal, easement, servitude, adverse claim,
transfer restriction under any stockholder or similar agreement or other
encumbrance of any kind.
"Madison Dearborn" means Madison Dearborn Capital Partners, L.P., a
Delaware limited partnership.
"Make-Whole Shares" has the meaning set forth in Section 3.4(d).
"Market Value" of any share of capital stock as of a specific date
means the volume-weighted average closing prices on the NYSE (or, if such
security is not listed on the NYSE, such other principal exchange or
over-the-counter market on which such security is listed) for the 30
consecutive days on which trading of such security occurs ending at the
close of trading on such date (or the last trading day prior to such date).
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"Material Adverse Effect" has the meaning set forth in Section 4.1(b).
"Materiality Threshold" has the meaning set forth in Section 3.3(a).
"Maximum Merger Shares" has the meaning set forth in Section 1.1(b).
"Merger" has the meaning set forth in the recitals.
"Merger Consideration" has the meaning set forth in Section 3.2(a).
"Minimum Merger Shares" has the meaning set forth in Section 1.1(b)
"Multiemployer Plan" has the meaning set forth in Section 4.7(a).
"NYSE" means the New York Stock Exchange, Inc.
"Options" has the meaning set forth in Section 3.7(a).
"Original Holder" has the meaning set forth in Section 3.4(a).
"Original Shares" has the meaning set forth in Section 3.4(a).
"Outstanding Company Shares" means the total number of shares of
Company Common Stock outstanding immediately prior to the Effective Time,
excluding any treasury shares.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency or department.
"Permitted Liens" means (1) statutory liens for Taxes not yet due and
payable, (2) imperfections of title with respect to any Company asset, and
statutory liens or other similar liens arising in the ordinary course of
business with respect to any Company asset, in each case, that do not have
a material adverse effect on the value or use of such asset, (3) mechanics
liens for work performed on any Company asset for which payment therefor is
not in default and (4) those liens or other encumbrances disclosed in
Schedule 4.12.
"Permitted Transferee", with respect to any person, means a transferee
(i) that controls, is controlled by, or is under common control with the
transferor, (ii) who is a spouse, child, parent or sibling of the
transferor, or (iii) with respect to a partnership, that is a limited or
general partner of such partnership. For purposes of this definition the
word "control" means with respect to any person, ownership of equity
interests representing 50% or more of the voting interest of such person
and the words "controlling" and "controlled" have correlative meanings.
"person" (or "persons" as the context may require) means any
individual, corporation, partnership, firm, joint venture, limited
liability company, association, joint-stock company, trust, unincorporated
organization, Governmental Entity or other entity.
"property" (or "properties" as the context may require) means real,
personal or mixed property, tangible or intangible.
"Proxy Statement" has the meaning set forth in Section 4.11.
"Questor" means, collectively, Questor Partners Fund, L.P., a Delaware
limited partnership and Questor Side-by-Side Partners, L.P., a Delaware
limited partnership.
"Receiving Party" has the meaning set forth in Section 12.1.
"Reduction Amount" has the meaning set forth in Section 3.3(b).
"Releasing Party" has the meaning set forth in Section 12.1.
"Remaining Annual Shares" has the meaning set forth in Section 3.4(b).
"Remaining Final Shares" has the meaning set forth in Section 3.4(c).
"S-3" has the meaning set forth in Section 4.11.
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"S-4" has the meaning set forth in Section 3.14.
"SEC" means the Securities and Exchange Commission or any successor
agency or department.
"Securities Act" means the Securities Act of 1933, as amended, and the
regulations and rulings issued thereunder.
"Significant Stockholders" (or "Significant Stockholder" as the
context may require) has the meaning set forth in the preamble hereof.
"Software License Agreement" means the software license agreement,
dated October 17, 1996, by and between Ryder Truck Rental, Inc., a Florida
corporation, and the Company.
"Special Covenants" has the meaning set forth in Section 12.7.
"Stock Option Plans" has the meaning set forth in Section 3.7(a).
"Sub" has the meaning set forth in the preamble hereof.
"Subsidiaries" (or "Subsidiary" as the context may require), means
each entity as to which a person, directly or indirectly, owns or has the
power to vote, or to exercise a controlling influence with respect to, 50%
or more of the securities of any class of such entity, the holders of which
are ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
entity.
"Surviving Corporation" has the meaning set forth in Section 1.2(a).
"Surviving Person" has the meaning set forth in Section 3.16.
"Taxes" means all taxes, assessments, charges, duties, fees, levies or
other governmental charges (including interest, penalties or additions
associated therewith) including federal, state, city, county, foreign or
other income, franchise, capital stock, real property, personal property,
tangible, withholding, FICA, unemployment compensation, disability,
transfer, sales, use, excise, gross receipts and all other taxes of any
kind for which the Company or any Subsidiary of the Company is liable
imposed by the United States or any state, county, city, country or foreign
government or subdivision or agency thereof.
"Tax Return" means a report, return or other information required to
be supplied to a governmental entity with respect to Taxes including, where
permitted or required, combined or consolidated returns for a group of
entities.
"Termination Date" has the meaning set forth in Section 10.1(a).
"Total Disposed Annual Value" has the meaning set forth in Section
3.4(b).
"Total Disposed Final Value" has the meaning set forth in Section
3.4(c).
"Total Remaining Annual Value" has the meaning set forth in Section
3.4(b).
"Total Remaining Final Value" has the meaning set forth in Section
3.4(c).
"Total Warrant Value" has the meaning set forth in Section 3.5(a).
"Trademark License Agreement" means the trademark license agreement,
dated as of October 17, 1996, between Ryder System, Inc., a Florida
corporation and the Company.
"Transaction Price" means $32.9955 per share of Buyer Class A Common
Stock.
"Transfer Tax" (or "Transfer Taxes" as the context may require) has
the meaning set forth in Section 6.17.
"Transferred Intellectual Property" means transferred patents,
transferred software and transferred trademarks as set forth on Schedule
4.8.
"Warrants" (or "Warrant" as the context may require) has the meaning
set forth in Section 3.5(a).
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"Warrant Measurement Date" has the meaning set forth in Section
3.5(a).
"Warrant Value Amount" has the meaning set forth in Section 3.5(a).
ARTICLE XII.
MISCELLANEOUS
Section 12.1. Publicity. So long as this Agreement is in effect, except
as may otherwise be required by law or stock exchange regulations, prior to
making a press release that any party (a "Releasing Party") may determine to
issue in connection with the transactions contemplated by this Agreement, the
Releasing Party will, to the extent possible, promptly notify the other party of
such conclusion and provide to the other party (the "Receiving Party") a draft
of such press release. If the Receiving Party disagrees with any statement made
by the Releasing Party in such press release, as issued, the Receiving Party
shall be entitled to issue its own press release regarding the matters covered
in the press release issued by the Releasing Party. Buyer and the Company shall
jointly distribute a press release in the form attached hereto as Exhibit D
announcing the Merger and related transactions.
Section 12.2. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered, express mail or nationally recognized courier service, postage
prepaid. Any such notice shall be deemed given when so delivered personally or
by courier or successfully telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mails, as follows:
(i) if to Buyer or Sub to:
Budget Group, Inc.
125 Basin Street
Suite 210
Daytona Beach, Florida 32114
Attn: Chief Executive Officer
Telecopy No.: (904) 226-8380
with a concurrent copy to:
Budget Group, Inc.
4225 Naperville Road
Lisle, Illinois 60532-3662
Attn: General Counsel
Telecopy No.: (630) 955-7810
and an additional concurrent copy to:
King & Spalding
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: C. William Baxley, Esq.
Telecopy No.: 404-572-5100
(ii) if to the Company to:
Ryder TRS, Inc.
One Civic Center
1560 Broadway, Suite 1800
Denver, Colorado 80202
Attn: Michael Zawalski
Telecopy No.: (303) 376-0783
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with a concurrent copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Thomas M. Cerabino, Esq.
Telecopy No.: (212) 821-8111
and an additional concurrent copy to:
Questor Management Company
4000 Town Center
Suite 530
Southfield, Michigan 48075
Attn: Robert E. Shields, Esq.
Telecopy No.: (248) 213-2215
Any party may by notice given in accordance with this Section 12.2 to the
other parties designate another address or person for receipt of notices
hereunder.
Section 12.3. Entire Agreement. This Agreement (including the Exhibits,
Annexes and Schedules hereto) and the agreements contemplated hereby contain the
entire agreement among the parties with respect to the subject matter hereof,
and supersede all prior agreements, written or oral, with respect thereto.
Notwithstanding the execution of this Agreement, the confidentiality letter by
and between Buyer and Questor, as the same may be amended, modified or
supplemented from time to time (the "Confidentiality Agreement"), shall remain
in full force and effect and shall not be superseded by this Agreement.
Section 12.4. Waivers and Amendments; Non Contractual Remedies;
Preservation of Remedies; Liability. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by each of the parties or, in the case of waiver, by
the party waiving compliance. After the Closing Date, no amendment or
modification may be made (i) to the definition of Special Covenants or to any
other provision of this Agreement that affects any of the rights of the Original
Holders with respect to the Special Covenants without the written consent of 51%
of the Original Holders or (ii) to Section 6.11 that adversely affects the
rights of the indemnified parties referred to thereunder. No delay on the part
of any party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof. Nor shall any waiver on the part of any party of any such
right, power or privilege, nor any single or partial exercise of any such right,
power or privilege, preclude any further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies of any party based
upon, arising out of or otherwise in respect of any inaccuracy in or breach of
any representation, warranty, covenant or agreement contained in this Agreement
shall in no way be limited by the fact that the act, omission, occurrence or
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach. The
limitations on claims set forth in this Section 12.4 and elsewhere in this
Agreement (including Article X) shall not apply in the case of fraud on the part
of the Company, the Significant Stockholders or Buyer, as the case may be.
Section 12.5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
Section 12.6. Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns and heirs and legal representatives. Neither this
Agreement, nor any right hereunder, may be assigned by any party without the
prior written consent of the other party hereto, provided however, that Buyer
may assign this Agreement or any of its rights hereunder to one or more of its
Subsidiaries so long as Buyer remains obligated hereunder, and provided further,
that
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notwithstanding anything in this Section 12.6, Buyer shall not be released from
its obligations under Article III of this Agreement.
Section 12.7. Third Party Beneficiaries. Except for Article III, Sections
6.10 (Buyer Board of Directors), 6.17 (Transfer Taxes), 6.20 (Buyer Stock
Purchases and Repurchases), 6.21 (Listing), 6.22 (Registration Rights), 9.3
(Certain Material Breaches) and 10.3 (Fees and Expenses), this Section 12.7 and
Exhibit E (collectively, the "Special Covenants"), nothing in this Agreement is
intended or shall be construed to give any person, other than the parties
hereto, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein. On and after the Closing Date,
each of the holders of Original Shares shall be deemed to be third party
beneficiaries with respect to the Special Covenants, and each shall be entitled
to enforce such provisions directly against Buyer or the Surviving Corporation,
as applicable, to the same extent as if such person were a party hereto. In
addition, each of the indemnified parties referred to in Section 6.11 shall be
entitled to enforce the provisions thereof directly against Buyer or the
Surviving Corporation, as applicable, to the same extent as if such indemnified
person were a party hereto.
Section 12.8. Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
Section 12.9. Exhibits, Schedules and Annexes. The Exhibits, Schedules
and Annexes are a part of this Agreement as if fully set forth herein. All
references herein to Articles, Sections, subsections, clauses, Exhibits, Annexes
and Schedules shall be deemed references to such parts of this Agreement, unless
the context shall otherwise require.
Section 12.10. Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
Section 12.11. Submission to Jurisdiction; Venue. Any action or
proceeding against any party hereto with respect to this Agreement, except for
(a) any action, proceeding or other dispute with respect to any calculations
made under Section 3.5 (which shall be resolved in the manner set forth in
Section 3.5(c)), and (b) any action, proceeding or dispute with respect to any
adjustment to the Aggregate Merger Shares (which shall be resolved in accordance
with Sections 3.3 and 9.3 of this Agreement and in accordance with Section 2.1
of the Holdback Escrow Agreement), shall be brought in the Court of Chancery of
the State of Delaware or if (but only if) such court does not have subject
matter jurisdiction over such action or proceedings, in the courts of the state
of Delaware and, by execution and delivery of this Agreement, each party hereto
hereby irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each party hereto
irrevocably consents to the service of process at any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address set
forth in Section 12.2, such service to become effective thirty days after such
mailing. Nothing herein shall affect the right of any party hereto to serve
process on any other party hereto in any other manner permitted by law. Each
party hereto irrevocably waives any objection which it may now have or hereafter
have to the laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Agreement brought in the courts
referred to above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum.
Section 12.12. Severability. If any court of competent jurisdiction
determines that any provision of this Agreement is not enforceable in accordance
with its terms, then such provision shall be deemed to be modified so as to
apply such provision, as modified, to the protection of the legitimate interests
of the parties hereto to the fullest extent legally permissible and shall not
affect the validity or enforceability of the remaining provisions of this
Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written.
BUDGET GROUP, INC.
By: /s/ SANFORD MILLER
------------------------------------
Sanford Miller
Chief Executive Officer
BDG CORPORATION
By: /s/ SCOTT WHITE
------------------------------------
Scott White
President
RYDER TRS, INC.
By: /s/ JAY ALIX
------------------------------------
Jay Alix
Chairman of the Board
and Chief Executive Officer
With respect to Sections 3.4(g), 6.1, 6.3, 6.4(a), 6.9(b), 6.12, 6.18 and
6.20 hereof
QUESTOR PARTNERS FUND, L.P.,
By: Questor General Partner, L.P.,
its General Partner
By: Questor Principals, Inc.,
its General Partner
By: /s/ JAY ALIX
------------------------------------
Jay Alix
Managing Principal
QUESTOR SIDE-BY-SIDE PARTNERS, L.P.,
By: Questor Principals, Inc.,
its General Partner
By: /s/ JAY ALIX
------------------------------------
Jay Alix
Managing Principal
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With respect to Sections 6.3(b), 6.18 and 6.20 hereof
MADISON DEARBORN CAPITAL PARTNERS, L.P.
By: Madison Dearborn Partners, L.P.,
its General Partner
By: Madison Dearborn Partners, Inc.
its General Partner
By: /s/ THOMAS R. REUSCHE
--------------------------------------
Thomas R. Reusche
Vice President
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EXHIBIT A
WARRANT ASSUMPTIONS
A nationally recognized investment banking firm with significant experience
in the equity derivatives market selected by a majority in interest of the
Original Holders and reasonably satisfactory to Buyer shall determine the
aggregate number of shares issuable upon exercise of the Warrants.
The term of the Warrants will be fixed at five years after the Warrant
Measurement Date.
The exercise price will be 25% above the Market Value as of the Final
Measurement Date.
The valuation methodology for the Warrant will be the then applicable
valuation methodology employed in the dealer market. Concurrently with
delivering its opinion on the determination to the holders and Buyer, the dealer
will also deliver to Buyer and to holders a standing bid at a value price equal
to the Warrant Value Amount for 30 days.
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EXHIBIT E
RIGHTS AND OBLIGATIONS WITH RESPECT TO
REGISTRABLE SECURITIES
The holders of Warrants granted pursuant to Section 3.5 of the Agreement
and Plan of Merger (the "Merger Agreement") and the Buyer Class A Common Stock
issued pursuant to Sections 3.2, 3.4 and 3.7 of the Merger Agreement and issued
upon exercise of, or in exchange for, any Warrants shall have the following
rights and obligations with respect to such shares:
1. Definitions. Capitalized terms used herein without definition shall
have the respective meanings set forth in the Merger Agreement. As used in this
Exhibit E, unless the context otherwise requires, the following terms have the
following respective meanings:
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Exchange Act shall include a
reference to the comparable section, if any, of any such successor federal
statute.
"Majority Holders" means stockholders owning a majority of the
Registrable Securities outstanding at the time of determination.
"Registrable Securities" means (i) shares of Buyer Class A Common
Stock received in the Merger by the Original Holders (such Original Holders
and their transferees, the "Holders", and each such Original Holder and any
transferee a "Holder") at the Effective Time by virtue of the Merger, (ii)
Make-Whole Shares received by the Holders pursuant to Section 3.4 of the
Merger Agreement and their transferees, (iii) shares of Buyer Class A
Common Stock received by the Holders upon exercise of any Warrants issued
pursuant to Section 3.5 of the Merger Agreement and their transferees, (iv)
shares of Buyer Class A Common Stock received upon exercise of any Options
pursuant to Section 3.7 of the Merger Agreement and their transferees and
(v) any Related Registrable Securities and their transferees. As to any
particular Registrable Securities, such securities shall cease to be
Registrable Securities when (a) a registration statement with respect to
the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (b) they shall have been
otherwise transferred, and new certificates for them not bearing a legend
restricting further transfer shall have been delivered by Buyer and
subsequent public distribution of them shall not, in the opinion of counsel
to the holders, which counsel shall be reasonably acceptable to Buyer,
require registration of them under the Securities Act, or (c) they shall
have ceased to be outstanding.
"Registration Expenses" means all costs, fees and expenses incident to
Buyer's performance of or compliance with Section 2, including, without
limitation, all registration, filing and NASD fees, all fees and expenses
of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses and the
fees and disbursements of counsel for Buyer and of its independent public
accountants and of a single counsel for the Holders, but excluding any
underwriting fees, expenses, discounts or other costs payable to any
underwriter, broker or dealer.
"Registration Statement" has the meaning set forth in Section 2.1.
"Related Registrable Securities" means any securities of Buyer issued
or issuable with respect to the shares of Buyer Class A Common Stock
received by the Holders in connection with the Transactions by way of a
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or
otherwise.
"Representative" has the meaning set forth in Section 2.3.
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"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act shall include a reference to the
comparable section, if any, of any such successor federal statute.
"Seller Indemnified Parties" has the meaning set forth in Section
2.4(a).
"Shares" means the shares of Buyer Class A Common Stock to be received
by the Holders in the Transactions.
"Target Date" means 60 days after the Effective Time, 1998.
"Termination Date" means the first date on which all of the
Registrable Securities (including all shares of Buyer Class A Common Stock
issuable upon exercise of the Warrants) may be distributed to the public by
each Holder pursuant to Rule 144(k) (or any similar successor provision)
under the Securities Act.
"Transactions" means the transactions described in clauses (i) through
(iv) of the definition of "Registrable Securities".
2. Registration Under Securities Act, etc.
2.1 Filing of Registration Statement. (a) As soon as practicable, but in
any event no later than 15 days after the Effective Time, Buyer shall file a
"shelf" registration statement pursuant to Rule 415 under the Securities Act
(the "Registration Statement") with respect to the Registrable Securities to be
issued to the Holders pursuant to the Merger Agreement. Buyer agrees that the
Registration Statement will cover, in the event the Minimum Merger Shares are
issued in the Merger, 1,363,822 shares of Buyer Class A Common Stock or, in the
event the Maximum Merger Shares are issued in the Merger, 3,636,860 shares of
Buyer Class A Common Stock. In the event that the number of shares of Buyer
Class A Common Stock that are covered by the Registration Statement is less than
the number of Registrable Securities, Buyer shall, as promptly as practicable
after the issuance of Registrable Securities not covered by the Registration
Statement, file an additional "shelf" registration statement and Buyer shall
comply with all of its obligations set forth in this Exhibit E with respect to
such additional registration statement to the same extent as if such
registration statement were the Registration Statement. Buyer shall use its
commercially reasonable efforts to (i) have the Registration Statement declared
effective on or before the Target Date, and (ii) keep the Registration Statement
continuously effective from the date such Registration Statement is declared
effective until the Termination Date.
(b) Subject to Section 9 hereof, Buyer shall promptly supplement or amend,
if necessary, the Registration Statement as required by the registration form
utilized by Buyer or by the instructions applicable to such registration form or
by the Securities Act and, in each case, Buyer shall furnish to the holders of
the Registrable Securities to which the Registration Statement relates and the
managing underwriters, if any, copies of any such supplement or amendment prior
to its being used and/or filed with the Commission. Buyer shall pay all
Registration Expenses incurred in connection with the Registration Statement and
any supplements or amendments thereto, whether or not it becomes effective, and
whether all, none or some of the Registrable Securities are sold pursuant to the
Registration Statement.
2.2 Registration Procedures. (a) In connection with any registration
statement filed pursuant to Section 2.1, Buyer will, as expeditiously as
possible:
(i) subject to Section 9 hereof, prepare and file with the Commission
such registration statement and such amendments and supplements to such
registration statement and the prospectus used in connection therewith
continuously as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement or as may be reasonably requested by the Majority
Holders, until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition
(including methods described in any amendment or supplement referred to in
(ii) below) by the seller or sellers thereof set forth in such registration
statement (without
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limiting the generality of the foregoing, Buyer will prepare and file such
amendments and supplements as may be required to permit the distributees of
any Registrable Securities held by a partnership or other entity or the
donees of any Registrable Securities held by any stockholder to sell such
shares pursuant to the registration statement);
(ii) if requested by the managing underwriter or underwriters or the
Majority Holders of the Registrable Securities being sold in connection
with an underwritten offering, promptly incorporate in a prospectus
supplement or post-effective amendment such information as the managing
underwriters or such holders request should be included therein relating to
the plan of distribution with respect to such Registrable Securities being
sold to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten (or
best efforts underwritten) offering of the Registrable Securities to be
sold in such offering; and make all required filings of such prospectus
supplement or post-effective amendment as soon as practicable after
receiving notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment;
(iii) furnish to each seller of Registrable Securities covered by such
registration statement and the managing underwriters, if any, without
charge, one original and as many conformed copies of such registration
statement and of each such amendment thereto as reasonably requested by
such seller or underwriter (including, in the case of the original copy,
all exhibits) and such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus) and any
other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller or underwriter may reasonably request;
(iv) use its commercially reasonable efforts (x) to register or
qualify all Registrable Securities and other securities covered by such
registration statement and the managing underwriters, if any, under such
other securities or blue sky laws of such States of the United States of
America where an exemption is not available and as the sellers of
Registrable Securities covered by such registration statement and the
managing underwriter, if any, shall reasonably request, (y) to keep such
registrations and qualifications, in effect for so long as such
registration statement remains in effect, and (z) to take any other action
which may be necessary or advisable to enable such sellers or managing
underwriters to consummate the disposition in such jurisdictions of the
securities to be sold by such sellers or managing underwriters, provided
that in connection therewith Buyer shall not be required to qualify as a
foreign corporation or as a dealer in securities or to file a general
consent to service of process or to subject itself to taxation in any
jurisdiction;
(v) use its commercially reasonable efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other federal or state governmental agencies or
authorities or self regulatory organizations as may be necessary, in the
opinion of counsel to Buyer or to the managing underwriters, to enable the
seller or sellers thereof or the managing underwriters, if any, to
consummate the disposition of such Registrable Securities;
(vi) promptly notify each seller of Registrable Securities covered by
such registration statement and the managing underwriters, if any, at any
time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the happening of any event
as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, in the light of
the circumstances under which they were made, and, subject to Section 9
hereof, at the request of any such seller, and the managing underwriters,
if any, promptly prepare and furnish to each prospective seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(vii) in connection with any underwritten offering of Registrable
Securities pursuant to the Registration Statement, enter into an
underwriting agreement in form, scope and substance as is
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customary in underwritten offerings and take all such other actions as are
reasonably requested by the managing underwriter in order to expedite or
facilitate the disposition of such Registrable Securities and in connection
therewith (a) make such representations and warranties to the underwriters
in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings with respect to the business
of Buyer and the Registration Statement; (b) obtain opinions of counsel to
Buyer and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing underwriters,
shall be addressed to the underwriters and shall cover the matters
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by underwriters); (c)
obtain "cold comfort" letters and updates thereof from Buyer's independent
certified public accountants addressed to the underwriters, such letters to
be in customary form and covering matters of the type customarily covered
in "cold comfort" letters by underwriters in connection with primary
underwritten offerings; (d) if any underwriting agreement is entered into,
the same shall set forth in full the indemnification provisions and
procedures of Section 2.4 hereof with respect to all parties to be
indemnified pursuant to said Section; and (e) Buyer shall deliver such
documents and certificates as may be requested by the managing underwriters
to evidence compliance with clause (iv) above and with any customary
conditions contained in the underwriting agreement or other agreement
entered into by Buyer. The above shall be done at each closing under such
underwriting or similar agreement as and to the extent required thereunder,
and if at any time the representations and warranties of Buyer contemplated
in clause (vii)(a) above cease to be true and correct, Buyer shall so
advise the underwriter(s), if any, and each seller promptly and, if
requested by such seller, shall confirm such advice in writing;
(viii) make appropriate representatives of its management available,
upon the reasonable request of the Majority Holders of Registrable
Securities, but in no event upon less than 15 days' notice, for a
reasonable period for a road show in connection with the underwritten
offering of the Registrable Securities by an underwriter. Buyer will also
make representatives of management reasonably available for conference
calls in connection with any public offering upon reasonable advance
notice; and
(ix) to maintain on file with the NYSE and each other exchange on
which Buyer Class A Common Stock is listed a copy of the most recent
prospectus and otherwise use its commercially reasonable efforts to allow
the sellers to satisfy the prospectus delivery requirements of the
Securities Act in a manner not requiring physical delivery of a prospectus.
(b) Buyer may require each holder of Registrable Securities as to which any
registration is being effected to (i) furnish Buyer such information regarding
such holder and the distribution of such securities as Buyer may from time to
time reasonably request in writing and (ii) otherwise agree to comply with the
Securities Act and the Exchange Act in connection with the registration and
distribution of the Registrable Securities.
(c) As a condition to including shares in any registration statement, Buyer
may require any holder of Registrable Securities to agree that, upon receipt of
any notice from Buyer of the happening of any event of the kind described in (i)
subdivision (vi) of Section 2.2(a) or (ii) Section 9, such holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until (x) in the
case of a notice under clause (i) above, such holder's receipt of the copies of
the supplemented or amended prospectus contemplated by subdivision (vi) of
Section 2.2(a), or until it is advised in writing by Buyer that the use of the
applicable prospectus may be resumed, and, if so directed by Buyer, such holder
will promptly deliver to Buyer (at Buyer's expense) all copies, other than
permanent file copies, then in such holder's possession of the prospectus
relating to such Registrable Securities current at the time of receipt of such
notice or (y) in the case of a notice under clause (ii) above, until expiration
of the 30th day following the date of such notice or of any subsequent notice
given in accordance with Section 8 hereof.
(d) If Buyer suspends a registration statement or requires stockholders to
cease sales of Registrable Securities pursuant to this section, Buyer shall, as
promptly as practicable following the termination of the circumstances which
entitled Buyer to do so, take such actions as may be necessary to reinstate the
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effectiveness of such registration statement and/or give written notice to all
sellers of Registrable Securities authorizing them to resume sales pursuant to
such registration statement.
2.3 Preparation; Reasonable Investigation. In connection with the
preparation and filing of the registration statement under the Securities Act
pursuant to this Exhibit E, Buyer (i) shall give a representative holder
designated in writing to Buyer by the Majority Holders (the "Representative"),
any underwriter participating in any disposition of Registrable Securities, and
counsel and accountants designated by the Representative and such underwriters
the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, (ii) shall give each of them such
reasonable access to its books and records and such opportunities to discuss the
business of Buyer with its officers and the independent public accountants who
have certified its financial statements as shall be necessary, in the opinion of
the Representative and any underwriter participating in any disposition of
Registrable Securities, and such counsel or accountants, to conduct a reasonable
investigation within the meaning of the Securities Act, subject to each such
person agreeing to treat confidentially any non-public information disclosed to
them as a result of such investigation and (iii) shall promptly notify the
Representative and any underwriter participating in any disposition of
Registrable Securities, and their counsel of any stop order issued or threatened
by the Commission and promptly take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered.
2.4 Indemnification. (a) Indemnification by Buyer. Buyer shall indemnify
and hold harmless, in the case of any registration statement filed pursuant to
Section 2.1, each seller of any Registrable Securities covered by such
registration statement, each other Person, if any, who controls such seller
within the meaning of the Securities Act, each broker, dealer or underwriter
acting on behalf of such seller and their respective directors, officers,
partners, shareholders, employees and affiliates ("Seller Indemnified Parties")
against any losses, claims, expenses, damages or liabilities (or actions or
proceedings, whether commenced or threatened, or inquiries or investigations, in
respect thereof), joint or several, to which such Seller Indemnified Parties may
become subject under the Securities Act or otherwise, including, without
limitation, the reasonable fees and expenses of legal counsel, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, or inquiries or investigations, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or any violation by Buyer of the Securities Act, and Buyer will reimburse each
such Seller Indemnified Parties for any reasonable legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, expense, damage, liability, action or proceeding, inquiry or
investigation; provided, that Buyer shall not be liable in any such case to the
extent that any such loss, claim, damage, liability (or action, proceeding,
inquiry or investigation in respect thereof) or expense arises out of or is
based upon (i) an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to Buyer
through an instrument duly executed by or on behalf of such seller specifically
stating that it is for use in the preparation thereof or (ii) the sale of
Registrable Securities pursuant to the registration statement to any person, if
such seller (x) failed to send or give a copy of the prospectus, as the same may
be then supplemented or amended, to such person within the time required by the
Securities Act and the untrue statement or alleged untrue statement or omission
or alleged omission of a material fact contained in such prospectus was
corrected in the prospectus, as amended or (y) engaged in such sale in breach of
its agreements pursuant to Section 2.2(c). Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of any
such Seller Indemnified Parties and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Sellers. As a condition to including any
Registrable Securities in any registration statement, each prospective seller
shall agree to indemnify and hold harmless severally and not jointly (in the
same manner and to the same extent as set forth in Section 2.4(a)) Buyer, and
each director,
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officer, employee and shareholder of Buyer and each other Person, if any, who
participates or may be considered as an underwriter in the offering or sale of
such securities and each other Person who controls Buyer within the meaning of
the Securities Act ("Buyer Indemnified Parties") with respect to (i) any untrue
statement or alleged untrue statement of a material fact contained in or any
omission or alleged omission to state therein a material fact in any such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
Buyer through an instrument duly executed by or on behalf of such seller
specifically stating that it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement (provided that the liability of such indemnifying party
under this clause (i) shall be limited to the amount of net proceeds received by
such indemnifying party in the offering giving rise to such liability), or (ii)
any sale of any Registrable Securities by such seller under the circumstances
described in clause (ii) of the proviso to Section 2.4(a). Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of Buyer Indemnified Parties and shall survive the transfer of such
securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified party
of notice of the commencement of any action, proceeding, investigation or
inquiry involving a claim referred to in the preceding subparagraphs of this
Section 2.4, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party, give written notice to the latter of such
commencement; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding subparagraphs of this Section 2.4, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action, proceeding, claim, liability,
investigation or inquiry is brought against an indemnified party, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that if the indemnified party reasonably believes it is advisable for it to be
represented by separate counsel because there exists a conflict of interest
between its interests and those of the indemnifying party with respect to such
claim, or there exist defenses available to such indemnified party which may not
be available to the indemnifying party, or if the indemnifying party shall fail
to assume responsibility for such defense, the indemnified party may retain
counsel satisfactory to it and the indemnifying party shall pay all fees and
expenses of one such counsel, provided that in no event shall Buyer be required
to pay the expenses of more than one such counsel. No indemnifying party shall
be liable for any settlement of any action or proceeding effected without its
written consent, which consent shall not be unreasonably withheld or delayed. No
indemnifying party shall, without the consent of the indemnified party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim,
proceeding, inquiry, investigation or litigation or which requires action other
than the payment of money by the indemnifying party. Each indemnified party
shall furnish such information regarding itself or the claim in question as an
indemnifying party may reasonably request in writing and as shall be reasonably
requested in connection with the defense of such claim and litigation resulting
therefrom.
(d) Contribution. If the indemnification provided for in this Section 2.4
shall for any reason be held by a court of competent jurisdiction to be
unavailable to an indemnified party under subparagraph (a) or (b) hereof in
respect of any loss, claim, damage, liability, inquiry or investigation or any
action or proceeding in respect thereof, then, in lieu of the amount paid or
payable under subparagraph (a) or (b) hereof, the indemnified party and the
indemnifying party under subparagraph (a) or (b) hereof shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same), (i) in
such proportion as is appropriate to reflect the relative fault of Buyer and the
sellers of Registrable Securities covered by the registration statement in
connection with the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as
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well as any other relevant equitable considerations (the relative fault of Buyer
and such sellers to be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
Buyer or such sellers and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission) or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as shall be appropriate to reflect the
relative benefits received by Buyer and such sellers from the offering of the
securities covered by such registration statement. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Such sellers' obligations to
contribute as provided in this subparagraph (d) are several in proportion to the
relative value of their respective Registrable Securities covered by such
registration statement and not joint and no seller shall be liable under this
subparagraph (d) for any amount in excess of the proceeds received by the seller
in the offering giving rise to the liability hereunder. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld or delayed.
(e) Other Indemnification. Indemnification and contribution similar to
that specified in the preceding subparagraphs of this Section 2.4 (with
appropriate modifications) shall be given by Buyer and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law, rule or regulation
of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
required by this Section 2.4 shall be made by prompt periodic payments of the
amount thereof during the course of the investigation or defense, as and when
bills are received or expense, loss, damage or liability is incurred.
3. Rule 144 and Rule 144A. Buyer shall take all actions reasonably
necessary to enable holders of Registrable Securities to sell such securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time or (b) Rule 144A under the Securities Act, as such
Rule may be amended from time to time, including, without limiting the
generality of the foregoing, filing on a timely basis all reports required to be
filed by the Exchange Act. Upon the request of any holder of Registrable
Securities or holder of rights to acquire Registrable Securities, Buyer will
deliver to such holder a written statement as to whether it has complied with
such requirements.
4. Participation in Underwritten Registrations. (a) If any of the
Registrable Securities covered by the Registration Statement are to be sold in
an underwritten offering, the investment bank or investment bankers and manager
or managers that will administer the offering will be selected by the Buyer and
shall be reasonably satisfactory to the Majority Holders of the Registrable
Securities included in such offering.
(b) In the event any holder proposes to sell Registrable Securities covered
by the Registration Statement in an underwritten offering, it will so notify
Buyer and provide Buyer with the information to be included in the notice to be
given by Buyer hereinafter set forth. Promptly (and in any event within ten (10)
Business Days) after receipt of such notice, Buyer will give written notice to
each other holder of Registrable Securities of (i) the name of the proposing
holder, (ii) the number of Registrable Securities proposed to be sold by such
proposing holder, and (iii) the right of each other holder to elect to have all
or a portion of the Registrable Securities owned by such holder included in such
underwritten offering by notifying Buyer and the proposing holder of such
election (and specifying the number of Registrable Securities to be so included)
within ten (10) Business Days after receipt of such notice from Buyer. A holder
making such an election on a timely basis shall be entitled to have the number
of Registrable Securities specified in such election included in the
underwritten offering; provided, however, that, if the managing underwriter
advises the participating holders in writing that marketing factors require a
limitation of the number of Registrable Securities to be underwritten, the
amount of Registrable Securities that may be included in the underwriting shall
be so limited and shall be allocated among the participating holders pro rata in
accordance with the number of Registrable Securities proposed to be included in
the underwritten offering by the participating holders.
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(c) No holder may participate in any underwritten registration hereunder
unless such holder (x) agrees to sell such holder's securities on the basis
provided in any underwriting arrangements approved by the holders entitled
hereunder to approve such arrangements and (y) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
Nothing in this Section 4 shall be construed to create any additional rights
regarding the registration of Registrable Securities in any holder otherwise
than as set forth herein.
5. Amendments. This Exhibit E may be amended only upon the prior written
consent of Buyer and the Majority Holders. Each holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by any consent
authorized by this Section 5, whether or not such Registrable Securities shall
have been marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to Buyer, be
treated as the holder of such Registrable Securities for purposes of any
request, consent, waiver or other action by any holder or holders of Registrable
Securities pursuant to this Exhibit E or any determination of any number or
percentage of shares of Registrable Securities held by any holder or holders of
Registrable Securities contemplated by this Exhibit E. If the beneficial owner
of any Registrable Securities so elects, Buyer may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
7. Notices. All notices, demands and other communications provided for or
permitted hereunder shall be made in the manner provided in the Merger
Agreement, and, in the case of the Holders, shall be addressed in the manner set
forth in the stock record books of Buyer.
8. Assignment. This Exhibit E shall be binding upon and inure to the
benefit of and shall be enforceable by the Original Holders, by virtue of the
approval of the Merger and such stockholder's receipt of Buyer Class A Common
Stock pursuant to the Merger Agreement, and by Buyer and its respective
successors and assigns and, with respect to any Company Stockholder, any
Original Holder of any Registrable Securities and their transferees and assigns,
provided that, with respect to a transferee or assignee of shares of Registrable
Securities, (i) such transfer is effected in accordance with applicable
securities law, (ii) Buyer is given written notice of such assignment
contemporaneous with such assignment or promptly thereafter, and (iii) the
transferee or assignee by written agreement acknowledges that he is bound by the
terms of this Exhibit E.
9. Holdback Agreements. Notwithstanding anything in this Exhibit E to the
contrary, if (a)(i) Buyer is in possession of material non-public information,
(ii) the Board of Directors of Buyer determines that disclosure of such material
non-public information would not be in the best interests of Buyer and its
stockholders and (iii) the Board of Directors or Chief Executive Officer of
Buyer determines that suspension of the rights of the Holders to make sales
pursuant to the Registration Statement is necessary in order to avoid a
requirement to disclose such material, non-public information, (b) the Buyer has
made a public announcement relating to an acquisition or business combination
including Buyer or a subsidiary of Buyer, or (c) the Board of Directors of Buyer
determines in good faith that it is in the best interests of Buyer and its
stockholders not to disclose the existence of facts surrounding any proposed or
pending corporate transaction involving Buyer, then Buyer may notify the Holders
that it elects to suspend the rights of the Holders to make sales pursuant to
the Registration Statement for a period of time not to exceed 30 days from the
date of such notice, provided that, Buyer may exercise its rights under this
Section 9 no more than one time during any period of 180 consecutive days.
10. No Inconsistent Agreements. Buyer will not hereafter enter into any
agreement with respect to its securities which is inconsistent with the rights
granted to the holders of Registrable Securities in this Exhibit E.
11. Remedies. Each holder of Registrable Securities, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
will be entitled to specific performance of its rights hereunder. Buyer agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a
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breach by it of the provisions of this Exhibit E and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
12. Separate Agreements with Holders. As promptly as practicable after the
execution of the Merger Agreement, Buyer will enter into a separate agreement
with each Company Stockholder (and, after the Effective Time, each Holder) to
evidence the obligations of Buyer and each Company Stockholder, or, if after the
Effective Time, each Holder under this Exhibit E.
13. Dispositions by Holders. Each Holder agrees not to sell or offer to
sell less than 100,000 shares of Registrable Securities in any single offering
pursuant to the Registration Statement, except that, if such Holder is an
Original Holder and immediately after the Effective Time beneficially owns an
aggregate of less than 100,000 shares of Registrable Securities, such Holder may
sell or offer to sell such shares of Buyer Class A Common Stock in an offering
being made with one or more Holders covering an aggregate of at least 100,000
shares of Registrable Securities.
14. Lockup. Each Significant Stockholder and any transferee of a
Significant Stockholder represents, warrants, covenants and agrees that from the
Effective Time until the expiration of ninety (90) days following the Effective
Time, such Significant Stockholder or transferee will not, without the prior
written consent of Buyer, offer, sell, contract to sell, or otherwise dispose
of, directly or indirectly, any shares of Buyer Class A Common Stock or other
instrument which by its terms is convertible into, exercisable or exchangeable
for, any shares of Buyer Class A Common Stock of which such Significant
Stockholder or transferee is at the Effective Time, or may in the future become,
the beneficial owner (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended).
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AMENDMENT NO. 1
TO AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 dated as of March 16, 1998 to the Agreement and Plan of
Merger, dated as of March 4, 1998, by and among Budget Group, Inc. ("Buyer"),
BDG Corporation ("Sub"), Ryder TRS, Inc. (the "Company"), and certain other
parties (the "Merger Agreement"). Capitalized terms not otherwise defined herein
have the meanings given to them in the Merger Agreement.
WHEREAS, the parties to the Merger Agreement agreed to merge Sub with and
into the Company in accordance with the terms and conditions of the Merger
Agreement and Section 251 of the General Corporation Law of the State of
Delaware;
WHEREAS, the parties desire to amend certain provisions of the Merger
Agreement as more fully set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
agreements herein, the parties hereto agree as follows:
Section 1.1(b) of the Merger Agreement is amended and restated in its
entirety to read as follows:
"(b) an aggregate number of shares of Buyer Class A Common Stock
issuable to all such holders equal to a minimum of 1,332,909 shares (the
"Minimum Merger Shares") and a maximum of 3,605,946 shares (the "Maximum
Merger Shares") (in each case less any shares of Buyer Class A Common Stock
issued to the holders of Options pursuant to Section 3.7), with the precise
number thereof determined as set forth in Section 3.1 and subject to
adjustment as provided in Article III;"
Section 3.6(a) of the Merger Agreement is amended and restated in its
entirety to read as follows:
"(a) At the Effective Time, 1,818,430 shares of Buyer Class A Common
Stock (if the Maximum Merger Shares are issued), or 1,332,909 shares of
Buyer Class A Common Stock (if the Minimum Merger Shares are issued) (as
the case may be, the "Escrow Holdback Shares") shall be deposited in escrow
with an escrow agent mutually agreed upon by Buyer and the Company prior to
the Closing (the "Holdback Escrow Agent"), to be held and administered in
accordance with the terms and conditions of a Holdback Escrow Agreement,
substantially in the form attached hereto as Exhibit B (the "Holdback
Escrow Agreement"), against which Holdback Shares Buyer shall be entitled,
in accordance with the terms of the Holdback Escrow Agreement, to recover
Damages (as defined in the Holdback Escrow Agreement) that may be suffered
by Buyer and that are indemnifiable in accordance with the terms of the
Holdback Escrow Agreement (an "Escrow Claim Event")."
Section 3.5(b) (with respect to the heading thereto only) of the Merger
Agreement is amended to read as follows:
"(b) Determination of Warrant Shares."
The text contained in Section 3.5(b) shall not be modified hereby and shall
remain in full force and effect as written in the Merger Agreement.
Section 2.1(a) of Exhibit E to the Merger Agreement is amended and restated
in its entirety to read as follows:
"(a) As soon as practicable, but in any event no later than 15 days
after the Effective Time, Buyer shall file a "shelf" registration statement
pursuant to Rule 415 under the Securities Act (the "Registration
Statement") with respect to the Registrable Securities to be issued to the
Holders pursuant to the Merger Agreement. Buyer agrees that the
Registration Statement will cover, in the event the Minimum Merger Shares
are issued in the Merger, 1,332,909 shares of Buyer Class A Common Stock
or, in the event the Maximum Merger Shares are issued in the Merger,
3,605,946 shares of Buyer Class A Common Stock. In the event that the
number of shares of Buyer Class A Common Stock that are covered by the
Registration Statement is less than the number of Registrable Securities,
Buyer shall, as promptly as practicable after the issuance of Registrable
Securities not covered by the Registration
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Statement, file an additional "shelf" registration statement and Buyer
shall comply with all of its obligations set forth in this Exhibit E with
respect to such additional registration statement to the same extent as if
such registration statement were the Registration Statement. Buyer shall
use its commercially reasonable efforts to (i) have the Registration
Statement declared effective on or before the Target Date, and (ii) keep
the Registration Statement continuously effective from the date such
Registration Statement is declared effective until the Termination Date.
# # #
The Company represents and warrants to Buyer that this Amendment has been
duly executed and delivered by the Company, the form of this Amendment has been
approved by the Board of Directors of the Company and a majority of the holders
of Company Common Stock and no further corporate authorization on the part of
the Company is necessary to consummate the transactions contemplated by this
Amendment.
This Amendment constitutes a valid and binding agreement of the Company and
is enforceable against the Company in accordance with its terms, except to the
extent enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally and general equitable principles (whether considered in a proceeding
in equity or at law).
Buyer represents and warrants to the Company that this Amendment has been
duly executed and delivered by Buyer and Sub and, this Amendment has been
approved by Buyer's and Sub's Board of Directors and by a majority of holders of
Sub's common stock, and no further corporate authorization on the part of Buyer
or Sub is necessary to consummate the transactions contemplated by this
Amendment.
This Amendment constitutes a valid and binding agreement of Buyer and Sub
and is enforceable against Buyer and sub in accordance with its terms, except to
the extent enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally and general equitable principles (whether considered in a proceeding
in equity or at law).
The Merger Agreement is hereby reaffirmed in all respects and shall remain
in full force and effect in accordance with its terms except as amended or
modified by this Amendment.
This Amendment may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
date first written above.
BUDGET GROUP, INC.
By: /s/ SANFORD MILLER
------------------------------------
Sanford Miller
Chief Executive Officer
BDG CORPORATION
By: /s/ SCOTT WHITE
------------------------------------
Scott White
President
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RYDER TRS, INC.
By: /s/ JAY ALIX
----------------------------------
Jay Alix
Chairman of the Board and
Chief Executive Officer
QUESTOR PARTNERS FUND, L.P.,
By: Questor General Partner, L.P.,
its general partner
By: Questor Principals, Inc.,
its general partner
By: /s/ JAY ALIX
------------------------------------
Jay Alix
Managing Principal
QUESTOR SIDE-BY-SIDE PARTNERS, L.P.,
By: Questor Principals, Inc.,
its general partner
By: /s/ JAY ALIX
------------------------------------
Jay Alix
Managing Principal
MADISON DEARBORN CAPITAL PARTNERS,
L.P.
By: Madison Dearborn Partners, L.P.,
its general partner
By: Madison Dearborn Partners, Inc.,
its general partner
By: /s/ THOMAS R. REUSCHE
------------------------------------
Thomas R. Reusche
Vice President
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ANNEX C
1994 INCENTIVE STOCK OPTION PLAN
WITH PROPOSED AMENDMENTS
Sentences or clauses contained in the proposed amendments are set forth in all
capital letters
1. Purpose. The purpose of this plan is to advance the interests of Budget
Group, Inc., formerly known as 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 Budget Group, Inc., formerly known as 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 Budget 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 3,500,000 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 no 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.
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(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 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;
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(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
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
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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
1994 DIRECTORS' STOCK OPTION PLAN
WITH PROPOSED AMENDMENTS
Sentences or clauses contained in the proposed amendments are set forth in all
capital letters
1. Purpose. The purpose of this plan is to advance the interests of Budget
Group, Inc., formerly known as 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 Budget Group, Inc., formerly known as 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 Budget 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 300,000 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.
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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, 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 preformed 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.]
8. Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by stock option agreements. 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;
(ii) delivery and assignment to the Company of shares of Common
Stock owned by the optionee;
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(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 deliver 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.
(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 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 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 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. 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
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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 E
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to sec.251
(g) of this title), sec.252, sec.254, sec.258, sec.263 or sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof)or depositary receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders.
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record dates shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
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<PAGE> 204
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
120, L. '97, eff. 7-1-97.)
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<PAGE> 205
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following summary is qualified in its entirety by reference to the
complete statute, Certificate of Incorporation, Bylaws and agreement referred to
below.
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides that a corporation has the power to indemnify any director or
officer, or former director or officer, who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) against the expenses,
(including attorney's fees), judgments, fines or amounts paid in settlement
actually and reasonably incurred by them in connection with the defense of any
action by reason of being or having been directors or officers, if such person
shall have acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, provided that such person had no reasonable cause
to believe his conduct was unlawful, except that, if such action shall be in the
right of the corporation, no such indemnification shall be provided as to any
claim, issue or matter as to which such person shall have been judged to have
been liable to the corporation unless and to the extent that the Court of
Chancery of the State of Delaware, or any court in which such suit or action was
brought, shall determine upon application that, in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses as such court shall deem proper.
As permitted by Section 102(b)(7) of the DGCL, the Amended and Restated
Certificate of Incorporation of the Registrant filed herewith (the "Restated
Certificate of Incorporation") provides that no director shall be liable to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director other than (i) for breaches of the director's duty of loyalty to
the Registrant and its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for the unlawful payment of dividends or unlawful stock purchases or
redemptions under Section 174 of the DGCL, and (iv) for any transaction from
which the director derived an improper personal benefit.
The Registrant's Bylaws provide indemnification of the Registrant's
directors and officers, both past and present, to the fullest extent permitted
by the DGCL, and allow the Registrant to advance or reimburse litigation
expenses upon submission by the director or officer of an undertaking to repay
such advances or reimbursements if it is ultimately determined that
indemnification is not available to such director or officer pursuant to the
Bylaws. The Registrant's Bylaws will also authorize the Registrant to purchase
and maintain insurance on behalf of an officer or director, past or present,
against any liability asserted against him in any such capacity whether or not
the Registrant would have the power to indemnify him against such liability
under the provisions of the Restated Certificate of Incorporation or Section 145
of the DGCL.
The Registrant has entered into indemnification agreements with each of its
directors and certain of its executive officers. The indemnification agreements
require the Registrant, 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.
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<PAGE> 206
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Plan and Agreement of Merger dated as of November 25, 1997
among Budget Group, Inc., Cruise America, Inc. and CA
Acquisition Corporation (incorporated by reference to
Exhibit 2.1 of Registration Statement on Form S-4, File No.
333-42327, dated December 16, 1997, as amended by Amendment
No. 1 to Form S-4 dated December 29, 1997).
2.2 -- Agreement and Plan of Merger dated as of March 4, 1998 by
and among Budget Group, Inc., BDG Corporation, Ryder TRS
Inc., and certain other parties (reference is made to Annex
B of the Joint Proxy Statement/Prospectus included as a part
of this Registration Statement).
2.3 -- Amendment No. 1 to Agreement and Plan of Merger dated as of
March 16, 1998 by and among Budget Group, Inc., BDG
Corporation, Ryder TRS Inc., and certain other parties
(reference is made to Annex B to the Joint Proxy
Statement/Prospectus included as a part of this Registration
Statement).
2.4 -- Common Stock Purchase Agreement, dated as of January 13,
1997, between John J. Nevin and the Registrant (incorporated
by reference to Exhibit 2.7 to the Registrant's Registration
Statement on Form S-1, File No. 333-21691, dated February
12, 1997).
2.5 -- Budget Stock Purchase Agreement, dated as of January 13,
1997, between Budget Rent-a-Car Corporation and Team Rental
Group, Inc. (currently known as Budget Group, Inc.)
(incorporated by reference to Exhibit 2.8 to the
Registrant's Registration Statement on Form S-1, File No.
333-21691, dated February 12, 1997).
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form S-1, File No.
33-78274, dated April 28, 1994).
3.2 -- Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (incorporated by reference
to Exhibit 3.2 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-1, File No. 333-4507, dated
June 28, 1996).
3.3 -- Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (incorporated by reference
to Exhibit 3.3 to the Registrant's Registration Statement on
Form S-1, File No. 333-34799, dated September 26, 1997).
3.4 -- By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
4.1 -- Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on
Form S-1, File No. 333-34799, dated September 26, 1997).
4.2 -- Base Indenture between Team Fleet Financing Corporation, as
Issuer, Team Rental Group, Inc., as Servicer and Team
Interestholder, and Bankers Trust Company, as Trustee,
relating to Rental Car Asset Backed Notes (incorporated by
reference to Exhibit 4.1 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994).
4.3 -- Supplemental Indenture relating to Rental Car Asset Backed
Notes (incorporated by reference to Exhibit 4.2 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
4.4 -- Base Indenture among BRAC SOCAL Funding Corporation, as
Issuer, BRAC-OPCO, Inc., as Servicer and Retained
Interestholder, and Bankers Trust Company, as Trustee
(incorporated by reference to Exhibit 4.5 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
4.5 -- Series 1995-1 Supplement to Base Indenture among BRAC SOCAL
Funding Corporation, as Issuer, BRAC-OPCO, Inc., as Servicer
and Retained Interestholder, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.6 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
</TABLE>
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<PAGE> 207
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
4.6 -- Supplement No. 1 to Indenture, dated as of October 20, 1995,
among BRAC SOCAL Funding Corporation, BRAC-OPCO, Inc., Team
Rental of Southern California, Inc. and Bankers Trust
Company, as Trustee (incorporated by reference to Exhibit
4.7 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
4.8 -- Registration Rights Agreement, dated as of August 25, 1994,
among the Registrant, Brian Britton, Jeffrey Congdon,
Richard Hinkle, John Kennedy, Sanford Miller and Richard
Sapia (incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
4.8 -- Indenture dated as of December, 1997 between the Company and
the Chase Manhattan Bank, as Trustee (incorporated herein by
reference from the Company's Registration Statement on Form
S-3, File No. 33341093, dated November 26, 1997, as amended
by Amendment No. 1 to Form S-3 dated January 7, 1998).
4.8 -- Form of Indenture dated as of January 8, 1998 between the
Company and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from the Company's
Registration Statement on Form S-3, File No. 33341093, dated
November 26, 1997, as amended by Amendment No. 1 to Form S-3
dated January 7, 1998).
4.9 -- First Amendment to Registration Rights Agreement, dated as
of November 1, 1994, among the Registrant, Brian Britton,
Jeffrey Congdon, Richard Hinkle, John Kennedy, Sanford
Miller and Richard Sapia (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994).
4.10 -- Letter Agreement, dated as of November 1, 1994, between
Andrew Klein and the Registrant acknowledging that Andrew
Klein is a party to the Registration Rights Agreement, dated
as of August 25, 1994, as amended (incorporated by reference
to Exhibit 10.25 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994).
4.11 -- Registration Rights Agreement, dated as of October 20, 1995,
between Team Rental Group, Inc. and Budget Rent-a-Car of
Southern California (incorporated by reference to Exhibit
4.12 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
4.12 -- Registration Rights Agreement, dated as of December 1, 1996,
between Team Rental Group, Inc. and the holders of the
Convertible Subordinated Notes (incorporated by reference to
Exhibit 4.12 to the Registrant's Registration Statement on
Form S-1, File No. 333-21691, dated February 12, 1997).
4.13 -- Warrant No. 1-1994, dated as of August 24, 1994, to purchase
175,000 shares of Class A Common Stock, par value $.01 per
share, of the Registrant, issued to Budget Rent-a-Car
Corporation (incorporated by reference to Exhibit 10.26 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994).
4.14 -- NationsBank Warrant dated as of April 26, 1996 (incorporated
by reference to Exhibit 4.14 to the Registrant's
Registration Statement on Form S-1, File No. 333-21691,
dated February 12, 1997).
4.15 -- Amended and Restated Base Indenture dated as of December 1,
1996 among Team Fleet Financing Corporation, as Issuer, Team
Rental Group, Inc., as Servicer and Team Interestholder, and
Bankers Trust Registrant, as Trustee (incorporated by
reference to Exhibit 4.15 to the Registrant's Registration
Statement on Form S-1, File No. 333-21691, dated February
12, 1997).
4.16 -- Series 1996-1 Supplement to the Amended and Restated Base
Indenture dated as of December 1, 1996 among Team Fleet
Financing Corporation, as Issuer, Team Rental Group, Inc.,
as Servicer and Team Interestholder, and Bankers Trust
Company, as Trustee (incorporated by reference to Exhibit
4.16 to the Registrant's Registration Statement on Form S-1,
File No. 333-21691, dated February 12, 1997).
</TABLE>
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<PAGE> 208
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
4.17 -- Amended and Restated Master Motor Vehicle Lease Agreement
dated as of December 1, 1996 among Team Fleet Financing
Corporation, as Lessor, Team Rental Group, Inc., as
Guarantor, and certain subsidiaries of Team Rental Group,
Inc., as lessees (incorporated by reference to Exhibit 4.17
to the Registrant's Registration Statement on Form S-1, File
No. 333-21691, dated February 12, 1997).
4.18 -- Motor Vehicle Lease Agreement Series 1996-1 dated as of
December 1, 1996 among Team Fleet Financing Corporation, as
Lessor, Team Rental Group, Inc., as Guarantor, and certain
subsidiaries of Team Rental Group, Inc., as lessees
(incorporated by reference to Exhibit 4.18 to the
Registrant's Registration Statement on Form S-1, File No.
333-21691, dated February 12, 1997).
4.19 -- Registration Rights Agreement, dated as of November 6, 1997,
among the Registrant and the Stockholders of Budget Rent a
Car of St. Louis, Inc. (incorporated by reference to Exhibit
4.7 of the Registrant's Registration Statement on Form S-3,
File No. 333-41093, dated November 26, 1997).
5.1 -- Opinion of King & Spalding.*
10.1 -- Amended and Restated Sublicense Agreement, dated as of
October 20, 1995, between Budget Rent-a-Car of Southern
California and Team Rental of Southern California, Inc.,
along with Corporate Guaranty of Team Rental Group, dated as
of October 20, 1995 (incorporated by reference to Exhibit
10.11 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.2 -- Lease Agreement dated September 1, 1993 between Miller and
Hinkle, a Florida general partnership, and Capital City
Leasing, Inc., as amended by First Amendment dated as of
July 1, 1994 (Henrico County, Virginia) (incorporated by
reference to Exhibit 10.41 to Amendment No. 3 to the
Registrant's Registration Statement on Form S-1, File No.
33-78274, dated August 12, 1994).
10.3 -- Lease Agreement dated June 1, 1994 between Miller and
Hinkle, a Florida general partnership, and Capital City
Leasing, Inc. (Chesterfield County, Virginia) (incorporated
by reference to Exhibit 10.25 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-1, File No.
333-4507, dated June 13, 1996).
10.4 -- Lease Agreement dated as of September 12, 1995 between MCK
Real Estate Corporation, Team Car Sales of Richmond, Inc.
and Team Rental Group, Inc. (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.5 -- Agreement of Lease dated as of August 31, 1995 between MCK
Real Estate Corporation and Team Rental of Philadelphia,
Inc. (incorporated by reference to Exhibit 10.25 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.6 -- Supply Agreement among Ford Motor Company, Team Rental
Group, Inc. and Budget Rent-a-Car Corporation (incorporated
by reference to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1, File No. 333-21691,
dated February 12, 1997).
10.7 -- Advertising Agreement between Ford Motor Company and Budget
Rent-a-Car Corporation (incorporated by reference to Exhibit
10.7 to the Registrant's Registration Statement on Form S-1,
File No. 333-21691, dated February 12, 1997).
10.8 -- Promissory Note, dated October 20, 1995, from Team Rental of
Southern California, Inc. to Budget Rent-a-Car of Southern
California in the principal amount of approximately
$4,775,000 (incorporated by reference to Exhibit 10.46 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
</TABLE>
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<PAGE> 209
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.9 -- Subordinated Notes Purchase Agreement, dated as of December
1, 1996, by and between the Registrant and the investors
listed therein (incorporated by reference to Exhibit 10.20
of the Registrant's Registration Statement on Form S-1, File
No. 333-21691, dated February 12, 1997).
10.10 -- Subordination Agreement, dated as of October 20, 1995, among
Budget Rent-a-Car of Southern California, BRAC-OPCO, Inc.,
Team Rental Group, Inc. and Team Rental of Southern
California (incorporated by reference to Exhibit 10.49 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.11 -- Shareholders' Agreement, dated as of October 20, 1995, by
and among Team Rental Group, Inc., the holders of the
Company's Class B Common Stock, and Budget Rent-a-Car of
Southern California (incorporated by reference to Exhibit
10.50 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.12 -- 1994 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.27 to the Registrant's Registration Statement
on Form S-1, File No. 33-78274, dated April 28, 1994).
10.13 -- Amendment No. 1 to 1994 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.54 to Amendment No.
2 to the Registrant's Registration Statement on Form S-1,
File No. 333-4507, dated June 28, 1996).
10.14 -- 1994 Director's Plan (incorporated by reference to Exhibit
10.28 to the Registrant's Registration Statement on Form
S-1, File No. 33-78274, dated April 28, 1994).
10.15 -- Indemnification Agreement dated April 25, 1994 between the
Registrant and Sanford Miller (incorporated by reference to
Exhibit 10.29 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.16 -- Indemnification Agreement dated April 25, 1994 between the
Registrant and John Kennedy (incorporated by reference to
Exhibit 10.30 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.17 -- Indemnification Agreement dated April 25, 1994 between the
Registrant and Jeffrey Congdon (incorporated by reference to
Exhibit 10.31 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.18 -- Indemnification Agreement dated April 25, 1994 between the
Registrant and Ronald Agronin (incorporated by reference to
Exhibit 10.32 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.19 -- Indemnification Agreement dated April 25, 1994 between the
Registrant and Stephen Weber (incorporated by reference to
Exhibit 10.33 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.20 -- Form of Forbearance Agreement dated as of January 1, 1998
between the Company and each of Messrs. Miller, Congdon and
Kennedy (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.21 -- Form of Executive Agreement dated as of January 1, 1998
between the Company and each of Messrs. Miller, Congdon and
Kennedy (incorporated by reference to Exhibit 10.21 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.22 -- Senior Note Purchase Agreement dated as of April 23, 1997
between Budget Rent a Car Corporation, as Issuer, and the
Registrant, as Guarantor (incorporated by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997).
</TABLE>
II-5
<PAGE> 210
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.23 -- Credit Agreement dated as of April 29, 1997 among Budget
Rent a Car Corporation, as the Borrower, Budget Group, Inc.,
as a Guarantor, and Certain Financial Institutions, as the
Lenders, Credit Suisse First Boston, as a Co-Syndication
Agent and the Administrative Agent, and NationsBanc Capital
Markets, Inc., as a Co-Syndication Agent and the
Documentation Agent, as amended by First Amendment to Credit
Agreement dated as of October 24, 1997, Amendment and Waiver
No. 2 to Credit Agreement dated as of January 28, 1998 and
Amendment No. 3 to Credit Agreement dated as of March 13,
1998 (incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.24 -- Second Amendment 1994 Incentive Stock Option Plan.
10.25 -- 1997 Amendment 1994 Directors' Stock Option Plan.
16.1 -- Letter re: Change in Certifying Accountant (incorporated by
reference to Exhibit 16 to the Registrant's Current Report
on Form 8-K dated November 26, 1996, as amended).
21.1 -- Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997).
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of KPMG Peat Marwick LLP.
23.4 -- Consent of Coopers & Lybrand L.L.P.
23.5 -- Consent of KPMG Peat Marwick LLP.
23.6 -- Consent of Jay Alix.*
23.7 -- Consent of King & Spalding (included in Exhibit 5.1).
24.1 -- Power of Attorney (included on Page II-8).
99.1 -- Form of Proxy.
</TABLE>
b. Financial Statement Schedules.
None.
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total value of securities
offered would not exceed that which was registered) and any deviation from
the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-6
<PAGE> 211
(2) That, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 212
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lisle, State of Illinois,
on April 8, 1998.
Budget Group, Inc.
By: /s/ ROBERT L. APRATI
------------------------------------
Robert L. Aprati
Executive Vice President
and General Counsel
POWER OF ATTORNEY
We, the undersigned directors and officers of Budget Group, Inc. do hereby
constitute and appoint Robert L. Aprati and Scott R. White, and each or any of
them, our true and lawful attorneys-in-fact and agents, to do any and all acts
and things in our names and on our behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our name in the
capacities indicated below, which said attorneys and agents, or any of them, may
deem necessary or advisable to enable said Corporation to comply with the
Securities Act of 1933 and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this registration
statement, or any registration statement for this offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto; and we do hereby ratify
and confirm all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SANFORD MILLER Chairman of the Board and Chief April 8, 1998
- ----------------------------------------------------- Executive Officer (Principal
Sanford Miller Executive Officer) and
Director
/s/ JOHN KENNEDY Vice Chairman and Director April 8, 1998
- -----------------------------------------------------
John Kennedy
/s/ JEFFREY CONGDON Vice Chairman and Director April 8, 1998
- -----------------------------------------------------
Jeffrey Congdon
/s/ MICHAEL CLAUER Chief Financial Officer April 8, 1998
- ----------------------------------------------------- (Principal Financial Officer)
Michael Clauer
/s/ THOMAS KRAM Vice President -- Controller April 8, 1998
- ----------------------------------------------------- (Principal Accounting
Thomas Kram Officer)
</TABLE>
II-8
<PAGE> 213
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD D. AGRONIN Director April 8, 1998
- -----------------------------------------------------
Ronald D. Agronin
/s/ STEPHEN L. WEBER Director March 31, 1998
- -----------------------------------------------------
Stephen L. Weber
/s/ JEFFREY MIRKIN Director April 8, 1998
- -----------------------------------------------------
Jeffrey Mirkin
/s/ JAMES F. CALVANO Director April 8, 1998
- -----------------------------------------------------
James F. Calvano
/s/ MARTIN P. GREGOR Director April 1, 1998
- -----------------------------------------------------
Martin P. Gregor
</TABLE>
II-9
<PAGE> 214
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
2.1 -- Plan and Agreement of Merger dated as of November 25, 1997
among Budget Group, Inc., Cruise America, Inc. and CA
Acquisition Corporation (incorporated by reference to
Exhibit 2.1 of Registration Statement on Form S-4, File No.
333-42327, dated December 16, 1997, as amended by Amendment
No. 1 to Form S-4 dated December 29, 1997).
2.2 -- Agreement and Plan of Merger dated as of March 4, 1998 by
and among Budget Group, Inc., BDG Corporation, Ryder TRS
Inc., and certain other parties (reference is made to Annex
B of the Joint Proxy Statement/Prospectus included as a part
of this Registration Statement).
2.3 -- Amendment No. 1 to Agreement and Plan of Merger dated as of
March 16, 1998 by and among Budget Group, Inc., BDG
Corporation, Ryder TRS Inc., and certain other parties
(reference is made to Annex B to the Joint Proxy
Statement/Prospectus included as part of this Registration
Statement).
2.4 -- Common Stock Purchase Agreement, dated as of January 13,
1997, between John J. Nevin and the Registrant (incorporated
by reference to Exhibit 2.7 to the Registrant's Registration
Statement on Form S-1, File No. 333-21691, dated February
12, 1997).
2.5 -- Budget Stock Purchase Agreement, dated as of January 13,
1997, between Budget Rent-a-Car Corporation and Team Rental
Group, Inc. (currently known as Budget Group, Inc.)
(incorporated by reference to Exhibit 2.8 to the
Registrant's Registration Statement on Form S-1, File No.
333-21691, dated February 12, 1997).
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form S-1, File No.
33-78274, dated April 28, 1994).
3.2 -- Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (incorporated by reference
to Exhibit 3.2 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-1, File No. 333-4507, dated
June 28, 1996).
3.3 -- Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (incorporated by reference
to Exhibit 3.3 to the Registrant's Registration Statement on
Form S-1, File No. 333-34799, dated September 26, 1997).
3.4 -- By-Laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
4.1 -- Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on
Form S-1, File No. 333-34799, dated September 26, 1997).
4.2 -- Base Indenture between Team Fleet Financing Corporation, as
Issuer, Team Rental Group, Inc., as Servicer and Team
Interestholder, and Bankers Trust Company, as Trustee,
relating to Rental Car Asset Backed Notes (incorporated by
reference to Exhibit 4.1 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994).
4.3 -- Supplemental Indenture relating to Rental Car Asset Backed
Notes (incorporated by reference to Exhibit 4.2 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
4.4 -- Base Indenture among BRAC SOCAL Funding Corporation, as
Issuer, BRAC-OPCO, Inc., as Servicer and Retained
Interestholder, and Bankers Trust Company, as Trustee
(incorporated by reference to Exhibit 4.5 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
4.5 -- Series 1995-1 Supplement to Base Indenture among BRAC SOCAL
Funding Corporation, as Issuer, BRAC-OPCO, Inc., as Servicer
and Retained Interestholder, and Bankers Trust Company, as
Trustee (incorporated by reference to Exhibit 4.6 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
</TABLE>
II-10
<PAGE> 215
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
4.6 -- Supplement No. 1 to Indenture, dated as of October 20, 1995,
among BRAC SOCAL Funding Corporation, BRAC-OPCO, Inc., Team
Rental of Southern California, Inc. and Bankers Trust
Company, as Trustee (incorporated by reference to Exhibit
4.7 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
4.8 -- Registration Rights Agreement, dated as of August 25, 1994,
among the Registrant, Brian Britton, Jeffrey Congdon,
Richard Hinkle, John Kennedy, Sanford Miller and Richard
Sapia (incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
4.8 -- Indenture dated as of December, 1997 between the Company and
the Chase Manhattan Bank, as Trustee (incorporated herein by
reference from the Company's Registration Statement on Form
S-3, File No. 33341093, dated November 26, 1997, as amended
by Amendment No. 1 to Form S-3 dated January 7, 1998).
4.8 -- Form of Indenture dated as of January 8, 1998 between the
Company and The Chase Manhattan Bank, as Trustee
(incorporated herein by reference from the Company's
Registration Statement on Form S-3, File No. 33341093, dated
November 26, 1997, as amended by Amendment No. 1 to Form S-3
dated January 7, 1998).
4.9 -- First Amendment to Registration Rights Agreement, dated as
of November 1, 1994, among the Registrant, Brian Britton,
Jeffrey Congdon, Richard Hinkle, John Kennedy, Sanford
Miller and Richard Sapia (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994).
4.10 -- Letter Agreement, dated as of November 1, 1994, between
Andrew Klein and the Registrant acknowledging that Andrew
Klein is a party to the Registration Rights Agreement, dated
as of August 25, 1994, as amended (incorporated by reference
to Exhibit 10.25 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994).
4.11 -- Registration Rights Agreement, dated as of October 20, 1995,
between Team Rental Group, Inc. and Budget Rent-a-Car of
Southern California (incorporated by reference to Exhibit
4.12 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
4.12 -- Registration Rights Agreement, dated as of December 1, 1996,
between Team Rental Group, Inc. and the holders of the
Convertible Subordinated Notes (incorporated by reference to
Exhibit 4.12 to the Registrant's Registration Statement on
Form S-1, File No. 333-21691, dated February 12, 1997).
4.13 -- Warrant No. 1-1994, dated as of August 24, 1994, to purchase
175,000 shares of Class A Common Stock, par value $.01 per
share, of the Registrant, issued to Budget Rent-a-Car
Corporation (incorporated by reference to Exhibit 10.26 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994).
4.14 -- NationsBank Warrant dated as of April 26, 1996 (incorporated
by reference to Exhibit 4.14 to the Registrant's
Registration Statement on Form S-1, File No. 333-21691,
dated February 12, 1997).
4.15 -- Amended and Restated Base Indenture dated as of December 1,
1996 among Team Fleet Financing Corporation, as Issuer, Team
Rental Group, Inc., as Servicer and Team Interestholder, and
Bankers Trust Registrant, as Trustee (incorporated by
reference to Exhibit 4.15 to the Registrant's Registration
Statement on Form S-1, File No. 333-21691, dated February
12, 1997).
4.16 -- Series 1996-1 Supplement to the Amended and Restated Base
Indenture dated as of December 1, 1996 among Team Fleet
Financing Corporation, as Issuer, Team Rental Group, Inc.,
as Servicer and Team Interestholder, and Bankers Trust
Company, as Trustee (incorporated by reference to Exhibit
4.16 to the Registrant's Registration Statement on Form S-1,
File No. 333-21691, dated February 12, 1997).
</TABLE>
II-11
<PAGE> 216
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
4.17 -- Amended and Restated Master Motor Vehicle Lease Agreement
dated as of December 1, 1996 among Team Fleet Financing
Corporation, as Lessor, Team Rental Group, Inc., as
Guarantor, and certain subsidiaries of Team Rental Group,
Inc., as lessees (incorporated by reference to Exhibit 4.17
to the Registrant's Registration Statement on Form S-1, File
No. 333-21691, dated February 12, 1997).
4.18 -- Motor Vehicle Lease Agreement Series 1996-1 dated as of
December 1, 1996 among Team Fleet Financing Corporation, as
Lessor, Team Rental Group, Inc., as Guarantor, and certain
subsidiaries of Team Rental Group, Inc., as lessees
(incorporated by reference to Exhibit 4.18 to the
Registrant's Registration Statement on Form S-1, File No.
333-21691, dated February 12, 1997).
4.19 -- Registration Rights Agreement, dated as of November 6, 1997,
among the Registrant and the Stockholders of Budget Rent a
Car of St. Louis, Inc. (incorporated by reference to Exhibit
4.7 of the Registrant's Registration Statement on Form S-3,
File No. 333-41093, dated November 26, 1997).
5.1 -- Opinion of King & Spalding.*
10.1 -- Amended and Restated Sublicense Agreement, dated as of
October 20, 1995, between Budget Rent-a-Car of Southern
California and Team Rental of Southern California, Inc.,
along with Corporate Guaranty of Team Rental Group, dated as
of October 20, 1995 (incorporated by reference to Exhibit
10.11 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.2 -- Lease Agreement dated September 1, 1993 between Miller and
Hinkle, a Florida general partnership, and Capital City
Leasing, Inc., as amended by First Amendment dated as of
July 1, 1994 (Henrico County, Virginia) (incorporated by
reference to Exhibit 10.41 to Amendment No. 3 to the
Registrant's Registration Statement on Form S-1, File No.
33-78274, dated August 12, 1994).
10.3 -- Lease Agreement dated June 1, 1994 between Miller and
Hinkle, a Florida general partnership, and Capital City
Leasing, Inc. (Chesterfield County, Virginia) (incorporated
by reference to Exhibit 10.25 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-1, File No.
333-4507, dated June 13, 1996).
10.4 -- Lease Agreement dated as of September 12, 1995 between MCK
Real Estate Corporation, Team Car Sales of Richmond, Inc.
and Team Rental Group, Inc. (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.5 -- Agreement of Lease dated as of August 31, 1995 between MCK
Real Estate Corporation and Team Rental of Philadelphia,
Inc. (incorporated by reference to Exhibit 10.25 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.6 -- Supply Agreement among Ford Motor Company, Team Rental
Group, Inc. and Budget Rent-a-Car Corporation (incorporated
by reference to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1, File No. 333-21691,
dated February 12, 1997).
10.7 -- Advertising Agreement between Ford Motor Company and Budget
Rent-a-Car Corporation (incorporated by reference to Exhibit
10.7 to the Registrant's Registration Statement on Form S-1,
File No. 333-21691, dated February 12, 1997).
10.8 -- Promissory Note, dated October 20, 1995, from Team Rental of
Southern California, Inc. to Budget Rent-a-Car of Southern
California in the principal amount of approximately
$4,775,000 (incorporated by reference to Exhibit 10.46 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
</TABLE>
II-12
<PAGE> 217
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.9 -- Subordinated Notes Purchase Agreement, dated as of December
1, 1996, by and between the Registrant and the investors
listed therein (incorporated by reference to Exhibit 10.20
of the Registrant's Registration Statement on Form S-1, File
No. 333-21691, dated February 12, 1997).
10.10 -- Subordination Agreement, dated as of October 20, 1995, among
Budget Rent-a-Car of Southern California, BRAC-OPCO, Inc.,
Team Rental Group, Inc. and Team Rental of Southern
California (incorporated by reference to Exhibit 10.49 to
the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
10.11 -- Shareholders' Agreement, dated as of October 20, 1995, by
and among Team Rental Group, Inc., the holders of the
Company's Class B Common Stock, and Budget Rent-a-Car of
Southern California (incorporated by reference to Exhibit
10.50 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
10.12 -- 1994 Incentive Stock Option Plan (incorporated by reference
to Exhibit 10.27 to the Registrant's Registration Statement
on Form S-1, File No. 33-78274, dated April 28, 1994).
10.13 -- Amendment No. 1 to 1994 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.54 to Amendment No.
2 to the Registrant's Registration Statement on Form S-1,
File No. 333-4507, dated June 28, 1996).
10.14 -- 1994 Director's Plan (incorporated by reference to Exhibit
10.28 to the Registrant's Registration Statement on Form
S-1, File No. 33-78274, dated April 28, 1994).
10.15 -- Indemnification Agreement dated April 25, 1994 between the
Registrant and Sanford Miller (incorporated by reference to
Exhibit 10.29 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.16 -- Indemnification Agreement dated April 25, 1994 between the
Registrant and John Kennedy (incorporated by reference to
Exhibit 10.30 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.17 -- Indemnification Agreement dated April 25, 1994 between the
Registrant and Jeffrey Congdon (incorporated by reference to
Exhibit 10.31 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.18 -- Indemnification Agreement dated April 25, 1994 between the
Registrant and Ronald Agronin (incorporated by reference to
Exhibit 10.32 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.19 -- Indemnification Agreement dated April 25, 1994 between the
Registrant and Stephen Weber (incorporated by reference to
Exhibit 10.33 to the Registrant's Registration Statement on
Form S-1, File No. 33-78274, dated April 28, 1994).
10.20 -- Form of Forbearance Agreement dated as of January 1, 1998
between the Company and each of Messrs. Miller, Congdon and
Kennedy (incorporated by reference to Exhibit 10.20 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.21 -- Form of Executive Agreement dated as of January 1, 1998
between the Company and each of Messrs. Miller, Congdon and
Kennedy (incorporated by reference to Exhibit 10.21 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.22 -- Senior Note Purchase Agreement dated as of April 23, 1997
between Budget Rent a Car Corporation, as Issuer, and the
Registrant, as Guarantor (incorporated by reference to
Exhibit 10.22 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997).
</TABLE>
II-13
<PAGE> 218
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.23 -- Credit Agreement dated as of April 29, 1997 among Budget
Rent a Car Corporation, as the Borrower, Budget Group, Inc.,
as a Guarantor, and Certain Financial Institutions, as the
Lenders, Credit Suisse First Boston, as a Co-Syndication
Agent and the Administrative Agent and NationsBanc Capital
Markets, Inc., as a Co-Syndication Agent and the
Documentation Agent, as amended by First Amendment to Credit
Agreement dated as of October 24, 1997, Amendment and Waiver
No. 2 to Credit Agreement dated as of January 28, 1998 and
Amendment No. 3 to Credit Agreement dated as of March 13,
1998. (incorporated by reference to Exhibit 10.23 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.24 -- Second Amendment 1994 Incentive Stock Option Plan.
10.25 -- 1997 Amendment 1994 Directors' Stock Option Plan.
16.1 -- Letter re: Change in Certifying Accountant (incorporated by
reference to Exhibit 16 to the Registrant's Current Report
on Form 8-K dated November 26, 1996, as amended).
21.1 -- Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997).
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of KPMG Peat Marwick LLP.
23.4 -- Consent of Coopers & Lybrand L.L.P.
23.5 -- Consent of KPMG Peat Marwick LLP.
23.6 -- Consent of Jay Alix.*
23.7 -- Consent of King & Spalding (included in Exhibit 5.1).
24.1 -- Power of Attorney (included on Page II-8).
99.1 -- Form of Proxy
</TABLE>
b. Financial Statement Schedules.
None.
- ---------------
* To be filed by amendment.
II-14
<PAGE> 1
EXHIBIT 10.24
SECOND AMENDMENT
TEAM RENTAL GROUP, INC.
1994 INCENTIVE STOCK OPTION PLAN
Pursuant to the power reserved in Section 12 of the TEAM Rental Group,
Inc. 1994 Incentive Stock Option Plan (the "Plan"), the Plan has been amended
as follows:
1. The definition of "Disinterested Person" contained in Section 2(7) of
the Plan is deleted and the subsequent subsections of Section 2 are renumbered
as appropriate.
2. The first sentence in Section 4 is deleted and replaced with the
following sentence:
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 a
change in the Company's capital structure.
3. The first sentence in Section 5 is deleted and replaced with the
following sentence:
The Plan shall be administered by a Committee appointed by the Board
consisting of no 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.
4. Clause (i) of Section 5 is deleted and replaced with the following:
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;
5. This Second Amendment to the Plan shall supercede any and all prior
documents relating to the points addressed in this Second Amendment.
<PAGE> 1
EXHIBIT 10.25
1997 AMENDMENT
TEAM RENTAL GROUP, INC.
1994 DIRECTORS' STOCK OPTION PLAN
Pursuant to power reserved in Section 12 of the Team Rental Group, Inc.
1994 Directors' Stock Option Plan (the "Plan"), the Plan has been amended as
follows:
1. The first sentence in Section 4 has been deleted and replaced with the
following:
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.
2. The first sentence in Section 5 has been deleted and replaced with the
following three sentences:
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, 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.
3. Section 6 shall be deleted and replaced with the following:
Each individual who is a Director and who is not an employee
shall be eligible to receive grants of Options under the
Plan.
<PAGE> 2
4. Section 7 of the Plan is deleted and replaced with the following:
[INTENTIONALLY OMITTED].
5. The second sentence of Section 8 (regarding options being void if an
option agreement is not executed) is deleted.
6. This 1997 Amendment to the Plan shall supercede any and all prior
documents relating to the points addressed in this 1997 Amendment.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report on the
consolidated financial statements of Budget Group, Inc. (formerly known as Team
Rental Group, Inc.) and subsidiaries as of and for the years ended December 31,
1997 and 1996, dated February 24, 1998 (except with respect to a certain matter
discussed in Note 17, as to which the date is March 4, 1998) included in Budget
Group, Inc.'s Annual Report on Form 10-K dated December 31, 1997, and our report
on the supplemental consolidated financial statements of Budget Group, Inc. and
subsidiaries as of December 31, 1997 and 1996, and for each of the three years
in the period ended December 31, 1997, dated March 20, 1998, included in Budget
Group, Inc.'s Current Report on Form 8-K filed on April 8, 1998, and to all
references to our firm included in or made a part of this Registration
Statement.
/s/ Arthur Andersen LLP
April 8, 1998
Orlando, Florida
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in this Registration Statement
of Budget Group, Inc. on Form S-4 of our reports dated April 12, 1996 appearing
in Budget Group, Inc.'s Current Report on Form 8-K dated April 6, 1998 and
appearing in the Annual Report on Form 10-K of Budget Group, Inc. for the year
ended December 31, 1997 and to the reference to us under the heading "Experts"
in the Proxy Statement/Prospectus, which is a part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
Indianapolis, Indiana
April 6, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors of
Budget Rent a Car Corporation:
We consent to the incorporation by reference in this Registration Statement
of Budget Group, Inc. on Form S-4 dated April 8, 1998, of our report dated
February 18, 1997, related to Budget Rent a Car Corporation, from Budget Group,
Inc.'s current report on Form 8-K dated May 13, 1997, and to the reference to
our firm under the heading "Experts" in this Registration Statement.
/s/ KPMG PEAT MARWICK LLP
April 8, 1998
Chicago, Illinois
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this proxy statement/prospectus on Form S-4
of our report dated March 5, 1998, on our audits of the consolidated financial
statements of Ryder TRS, Inc. and Subsidiaries. We also consent to the
references to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
April 7, 1998
Denver, Colorado
<PAGE> 1
EXHIBIT 23.5
The Board of Directors
Ryder TRS, Inc.:
We consent to the use of our reports dated September 23, 1996 and December 20,
1996 included herein and to the reference to our firm under the heading
"Experts" in the prospectus. This consent should not be regarded as in any way
updating the aforementioned report or representing that we performed any
procedures subsequent to the dates of such reports.
/s/ KPMG PEAT MARWICK LLP
Miami, Florida
April 7, 1998
<PAGE> 1
EXHIBIT 99.1
BUDGET GROUP, INC.
PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS ON , 1998
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 Budget Group,
Inc. (the "Company"), which the undersigned would be entitled to vote if
personally present at the Special Meeting of Stockholders (the "Special
Meeting") to be held on , , 1998, beginning at local time at
the Company's offices at 125 Basin Street, Suite 210, Daytona Beach, Florida
32114, and at any adjournment thereof, upon the matters described in the
accompanying Notice of Special 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 Special 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.
Proposal No. 1. To approve the Amendment to the Company's Amended and
Restated Certificate of Incorporation to increase the number of shares of Budget
Class A Common Stock available for grant to 70,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal No. 2. To approve the Plan Incentive Amendment to increase the
maximum number of shares of Common Stock that may be made subject to option
grants under the 1994 Incentive Stock Option Plan to 3,500,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal No. 3. To approve the Directors' Plan Amendment to increase the
maximum number of shares of Budget Class A Common Stock that may be made subject
to option grants under the 1994 Directors' Stock Option Plan to 300,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting.
THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE
(continued and to be signed on reverse side)
(continued from other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" ALL PROPOSALS. IF ANY OTHER MATTERS ARE PROPERLY PRESENTED AT THE
SPECIAL MEETING FOR ACTION TO BE TAKEN THEREUNDER, THIS PROXY WILL BE VOTED ON
SUCH MATTERS BY THE PERSONS NAMED AS PROXIES HEREIN IN ACCORDANCE WITH THEIR
BEST JUDGMENT.
Date: , 1998
-------------------------
-------------------------------
(Signature)
-------------------------------
(Signature)
-------------------------------
(Name(s))
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,
limited liability company or
partnership, it should be
executed in the full entity
name by a duly authorized
officer, member or partner, as
the case may be.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. IF YOU ATTEND
THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY.
