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SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO
SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AVIS GROUP HOLDINGS, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/x/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Class A Common Stock, Par Value $0.01 per share, of Avis Group Holdings, Inc.
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(2) Aggregate number of securities to which transaction applies:
25,708,652 shares of Class A Common Stock and 7,793,435 options to purchase
shares of Class A Common Stock.
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
The filing fee was determined based upon the sum of (a) the product of
25,708,652 shares of Class A Common Stock and the merger consideration of $33.00
per share and (b) the difference between $33.00 and the exercise price per share
of Class A Common Stock of each of the 7,793,435 shares covered by outstanding
options. In accordance with Rule 0-11 under the Securities Exchange Act of 1934,
as amended, the filing fee was determined by multiplying the amount calculated
pursuant to the preceding sentence by 1/50 of one percent.
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(4) Proposed maximum aggregate value of transaction: $936,763,069
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(5) Total fee paid: $187,352
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/x/ Fee paid previously with preliminary materials: $187,352
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/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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AVIS GROUP HOLDINGS, INC.
900 Old County Road
Garden City, New York 11530
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 2001
To the Stockholders of Avis Group Holdings, Inc.
A special meeting of the stockholders of Avis Group Holdings, Inc.,
will be held at the corporate offices of Avis Group Holdings, Inc., 900 Old
Country Road, Garden City, New York 11530 on February 28, 2001 at 2:00 p.m.
local time, to consider and vote upon the following matters:
1. To consider and vote upon a proposal to adopt the Agreement
and Plan of Merger, dated as of November 11, 2000, by and among Avis, Cendant
Corporation, a Delaware corporation, PHH Corporation, a Maryland corporation and
an indirect wholly-owned subsidiary of Cendant, and Avis Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of PHH Corporation, pursuant
to which, among other things (a) Avis Acquisition Corp. will be merged with and
into Avis, with Avis being the surviving corporation and (b) each outstanding
share of our Class A common stock, par value $0.01 per share, will be converted
into the right to receive $33.00 in cash without interest (other than shares
held by any of our subsidiaries, held in our treasury, held by Cendant, or any
subsidiary of Cendant or held by stockholders who perfect their appraisal rights
under Delaware law); and
2. To vote to adjourn the meeting, if necessary.
The board of directors has specified January 24, 2001, at the close of
business, as the record date for the purpose of determining the stockholders who
are entitled to receive notice of and to vote at the special meeting. A list of
the stockholders entitled to vote at the special meeting will be available for
examination by any stockholder at the special meeting. For ten days prior to the
special meeting, this stockholder list will also be available for inspection by
stockholders at our corporate offices at 900 Old Country Road, Garden City, New
York 11530, during ordinary business hours.
Please read the proxy statement and other materials concerning Avis and
the merger, which are mailed with this notice, for a more complete statement
regarding the matters to be acted upon at the special meeting.
Our board of directors, based on a unanimous recommendation of a
special committee of the board of directors, unanimously recommends that you
vote "FOR" adoption of the merger agreement.
Your vote is important. Whether or not you plan to attend the special
meeting, please complete, sign and date the accompanying proxy card and return
it in the enclosed prepaid envelope. If you attend the special meeting, you may
revoke your proxy and vote in person if you wish, even if you have previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
By Order of the Board of Directors
/s/ Karen C. Sclafani
Karen C. Sclafani
Vice President, General Counsel and
Secretary
Dated January 26, 2001
and mailed on or about January 29, 2001
AVIS GROUP HOLDINGS, INC.
900 Old County Road
Garden City, New York 11530
January 26, 2001
Dear Fellow Stockholder:
You are cordially invited to attend a special meeting of the
stockholders of Avis Group Holdings, Inc. ("Avis"), to be held at the corporate
offices of Avis, 900 Old Country Road, Garden City, New York 11530 on February
28, 2001, at 2:00 p.m. local time. A notice of the special meeting, a proxy
statement and related information about Avis and a proxy card are enclosed. All
holders of the outstanding shares of our Class A common stock, par value $0.01
per share, as of January 24, 2001 will be entitled to notice of and to vote at
the special meeting. You may vote shares at the special meeting only if you are
present in person or represented by proxy.
At the special meeting, you will be asked to consider and to vote on a
proposal to adopt the Agreement and Plan of Merger, dated as of November 11,
2000, by and among Avis, Cendant Corporation, PHH Corporation, and Avis
Acquisition Corp., pursuant to which Avis Acquisition Corp. will be merged with
and into Avis, with Avis continuing as the surviving corporation and an indirect
wholly-owned subsidiary of Cendant. If the merger agreement is adopted and the
merger becomes effective, each outstanding share will be converted into the
right to receive $33.00 in cash, other than shares held by any of our
subsidiaries, held in our treasury, held by Cendant or any subsidiary of Cendant
or held by stockholders who perfect their appraisal rights under Delaware law. A
copy of the merger agreement is attached as Appendix A to the accompanying proxy
statement, and we urge you to read it in its entirety.
A special committee of the board of directors of Avis, consisting of
two independent directors, was formed to consider and evaluate the merger. The
special committee has unanimously recommended to the board of directors of Avis
that the merger agreement be approved. In connection with its evaluation of the
merger, the special committee engaged Morgan Stanley & Co. Incorporated to act
as its financial advisor and to advise the special committee and our board of
directors. Morgan Stanley has rendered its opinion dated as of November 10, 2000
to the effect that, as of such date and based upon and subject to the
assumptions, limitations and qualifications set forth in such opinion, the
merger consideration of $33.00 per share in cash is fair from a financial point
of view to the stockholders of Avis, other than Cendant and its affiliates. The
written opinion of Morgan Stanley is attached as Appendix B to the accompanying
proxy statement, and you should read it carefully.
Our board of directors, based on the unanimous recommendation of the
special committee, has unanimously approved and declared the advisability of the
merger agreement, and has unanimously determined that the merger consideration
of $33.00 per share of common stock is fair to our public stockholders and that
the merger is advisable and in the best interests of Avis and our stockholders.
Our board of directors unanimously recommends that you vote "FOR" adoption of
the merger agreement.
Adoption of the merger agreement requires both the affirmative vote of
the holders of a majority of all outstanding shares of common stock and the
affirmative vote of the holders of a majority of the votes cast at the special
meeting by holders of shares of common stock other than Cendant or any
subsidiary of Cendant. Cendant has agreed to cause its shares, representing
approximately 17.8% of our outstanding shares of common stock, to be voted in
favor of adoption of the merger agreement. We urge you to read the accompanying
proxy statement carefully as it sets forth details of the proposed merger and
other important information related to the merger.
Your vote is important. Whether or not you plan to attend the special
meeting, please complete, sign and date the accompanying proxy card and return
it in the enclosed prepaid envelope. If you attend the special meeting, you may
revoke your proxy and vote in person if you wish, even if you have previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
/s/ A. Barry Rand
Chairman of the Board and
Chief Executive Officer
This proxy statement is dated January 26, 2001 and is first being mailed to
stockholders on or about January 29, 2001.
This transaction has not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the fairness or merits of this transaction nor upon the accuracy or
adequacy of the information contained in this document. Any representation to
the contrary is unlawful.
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE MERGER........................................1
SUMMARY TERM SHEET............................................................3
The Special Meeting..................................................3
Reasons for Engaging in the Transaction..............................4
The Parties to the Transaction.......................................4
Effects of the Merger................................................5
Recommendations of the Special Committee and our Board of Directors..5
Opinion of Morgan Stanley............................................5
Avis' Position as to the Fairness of the Merger......................6
Cendant's, PHH Corporation's and Avis Acquisition Corp.'s Position
as to the Fairness of the Merger...................................6
Interests of our Directors and Executive Officers in the Merger......6
Accounting Treatment.................................................7
Material U.S. Federal Income Tax Consequences........................7
The Merger Agreement.................................................7
FORWARD LOOKING STATEMENTS MAY PROVE INACCURATE..............................11
INTRODUCTION.................................................................12
Proposal to be Considered at the Special Meeting....................12
Voting Rights; Vote Required for Approval...........................12
Voting and Revocation of Proxies....................................13
Solicitation of Proxies.............................................13
Comparative Market Price Data.......................................14
Dividends...........................................................15
Our Selected Consolidated Financial Information.....................15
Consolidated Ratios of Earnings to Fixed Charges and Book Value
Per Share.........................................................18
Recent Developments.................................................18
SPECIAL FACTORS..............................................................19
Background of the Merger............................................19
Opinion of Morgan Stanley...........................................26
Reasons for the Recommendations of the Special Committee and our
Board of Directors................................................31
Our Forecasts.......................................................35
Avis' Position as to the Fairness of the Merger.....................36
Cendant's, PHH Corporation's and Avis Acquisition Corp.'s
Position as to the Fairness of the Merger; Cendant's Reasons
for the Merger....................................................37
Purpose and Structure of the Merger.................................39
Certain Effects of the Merger; Plans or Proposals After the Merger..39
Interests of Executive Officers and Directors in the Merger.........40
Certain Relationships Between Cendant and Avis......................43
Material U.S. Federal Income Tax Consequences of the Merger to
our Stockholders...................................................45
THE MERGER...................................................................46
Effective Time of Merger............................................47
Payment of Merger Consideration and Surrender of Stock Certificates.47
Accounting Treatment................................................48
Financing of the Merger; Fees and Expenses of the Merger............48
Appraisal Rights....................................................48
Regulatory Approvals and Other Consents.............................50
The Merger Agreement................................................51
General ..................................................51
Consideration to be Received by the Stockholders...........51
Stock Options..............................................51
Representations and Warranties.............................51
Covenants..................................................52
Employee Benefits..........................................54
Special Meeting............................................54
No Solicitation of Other Offers............................54
Access to Information......................................56
Note Tender Offer..........................................56
Conditions to the Merger...................................56
Termination of the Merger Agreement........................57
Termination Fees; Expenses.................................58
Amendment to the Merger Agreement..........................59
OTHER MATTERS................................................................59
Security Ownership of Certain Beneficial Owners and Management......59
Transactions in Common Stock by Certain Persons.....................61
Other Matters for Action at the Special Meeting.....................62
Proposals by Holders of Shares of Common Stock......................62
Expenses of Solicitation............................................62
Preliminary Presentation by Bear Stearns............................62
Preliminary Presentations by Lehman Brothers........................68
Experts.............................................................72
Available Information...............................................72
Information Incorporated by Reference...............................73
APPENDIX A -- Agreement and Plan of Merger.................................A-1
APPENDIX B -- Opinion of Morgan Stanley & Co. Incorporated.................B-1
APPENDIX C -- Section 262 of the Delaware General Corporation Law .........C-1
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What is the proposed transaction?
A: An indirect wholly-owned subsidiary of Cendant will merge into Avis with
Avis being the surviving corporation in the merger. As a result of the
merger, Avis will become an indirect wholly-owned subsidiary of Cendant.
Q: What will I be entitled to receive in the merger?
A: If the merger is completed, each of your shares of common stock will be
converted into the right to receive $33.00 in cash, without interest.
Q: What does our board of directors recommend?
A: Our board of directors recommends that you vote "FOR" adoption of the
merger agreement. Our board of directors has determined, based on the
unanimous recommendation of our special committee of independent Avis
directors, that the merger consideration of $33.00 per share of common
stock in cash is fair to our public stockholders and the merger is
advisable and in the best interests of Avis and our public stockholders. To
review the background of and reasons for the Merger, see "SPECIAL
FACTORS--Background of the Merger" and "SPECIAL FACTORS--Reasons for the
Recommendations of the Special Committee and our Board of Directors".
Q: What vote is required to adopt the merger agreement?
A: Both the affirmative vote of the holders of a majority of all outstanding
shares of common stock and the affirmative vote of the holders of a
majority of the votes cast at the special meeting by holders of common
stock, other than Cendant and its subsidiaries, are required to adopt the
merger agreement. See "INTRODUCTION--Voting Rights; Vote Required for
Approval." Cendant, which beneficially owns 17.8% of our outstanding common
stock, has agreed to cause its shares to be voted in favor of the adoption
of the merger agreement.
Q: What should I do now? How do I vote?
A: After you read and consider carefully the information contained in this
proxy statement, please fill out, sign and date your proxy card and mail
your signed proxy card in the enclosed return envelope as soon as possible
so that your shares may be represented at the special meeting. Failure to
return your proxy or vote in person at the meeting will have the same
effect as a vote against the adoption of the merger agreement for purposes
of the vote based on the shares outstanding. See "INTRODUCTION--Voting and
Revocation of Proxies."
Q: What if I oppose the merger? Do I have appraisal rights?
A: Stockholders who object to the merger may elect to pursue their appraisal
rights to receive the statutorily determined "fair value" of their shares
(which could be more or less than the $33.00 per share merger
consideration), but only if they comply with the procedures of Delaware
law. In order to qualify for these rights, you must not vote in favor of
the merger. For a comprehensive summary of these procedures, see "THE
MERGER--Appraisal Rights."
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Yes, but only if you provide instructions to your broker on how to vote.
You should fill out, sign, date and return the proxy card and otherwise
follow the directions provided by your broker regarding how to instruct
your broker to vote your shares. See "INTRODUCTION--Voting and Revocation
of Proxies."
Q: Can I change my vote or revoke my proxy after I have mailed my signed proxy
card?
A: Yes, you can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can send
a written notice stating that you would like to revoke your proxy. Second,
you can complete and submit a new proxy card. If you choose either of these
methods, you must submit your notice of revocation or your new proxy card
to us by February 27, 2001. Third, you can attend the special meeting and
vote in person. Simply attending the meeting, however, will not revoke your
proxy; you must vote at the meeting. If you have instructed a broker to
vote your shares, you must follow directions received from your broker to
change your vote. See "INTRODUCTION--Voting and Revocation of Proxies."
Q: Should I send in my share certificates now?
A: No. Shortly after the merger is completed, you will receive a letter of
transmittal with instructions informing you how to send in your stock
certificates to Cendant's paying agent. You should use the letter of
transmittal to exchange stock certificates for the merger consideration to
which you are entitled as a result of the merger. YOU SHOULD NOT SEND ANY
STOCK CERTIFICATES WITH YOUR PROXY CARDS. You should follow the procedures
described in "THE MERGER--Payment of Merger Consideration and Surrender of
Stock Certificates."
Q: When do you expect the merger to be completed?
A: We are working towards completing the merger as soon as possible. For the
merger to occur, it must be approved by our stockholders and we must obtain
certain governmental and other third party approvals. If the stockholders
adopt the merger agreement, we expect to complete the merger on or about
March 1, 2001. See "THE MERGER--Regulatory Approvals and Other Consents."
Q: What are the tax consequences of the merger to me?
A: The receipt of cash in exchange for common stock surrendered in the merger
will constitute a taxable transaction for U.S. federal income tax purposes
and under most state, local, foreign and other tax laws. In general, a
stockholder who surrenders common stock pursuant to the merger will
recognize a gain or loss equal to the difference, if any, between $33.00
per share and such stockholder's adjusted tax basis in such share. Each
holder of an option to acquire common stock who receives a cash payment
equal to the difference between $33.00 and the exercise price per share of
such option will have ordinary income to the extent of the cash received.
We urge you to consult your own tax advisor regarding the specific tax
consequences that may result from your individual circumstances as well as
the foreign, state and local tax consequences of the disposition of shares
in the merger. To review the tax considerations of the merger in greater
detail, see "SPECIAL FACTORS--Material U. S. Federal Income Tax
Consequences of the Merger to our Stockholders."
Q: Who can help answer my other questions?
A: If you have more questions about the merger, you should contact our proxy
solicitation agent:
Morrow & Co., Inc.
445 Park Avenue
New York, New York 10022
Telephone: (212) 754-8000
Call Toll-Free (800) 654-2468
SUMMARY TERM SHEET
This summary term sheet highlights material information from this proxy
statement and does not contain all of the information that is important to you.
To understand the merger fully, you should read carefully this entire proxy
statement (including the information incorporated by reference), the appendices
and the additional documents referred to in this proxy statement.
The Special Meeting
Date, Time, Place and Matters to be Considered
o The special meeting of stockholders of Avis Group Holdings, Inc.
will be held on February 28, 2001 at 2:00 p.m. local time, at
the corporate offices of Avis Group Holdings, Inc., 900 Old
Country Road, Garden City, New York 11530. At the special
meeting, stockholders will consider and vote upon a proposal to
adopt the Agreement and Plan of Merger, dated as of November 11,
2000, among Avis, Cendant, PHH Corporation, an indirect
wholly-owned subsidiary of Cendant, and Avis Acquisition Corp.,
an indirect wholly-owned subsidiary of Cendant, pursuant to
which Avis Acquisition Corp. will be merged into Avis. A copy of
the merger agreement is attached as Appendix A to this proxy
statement. For additional information regarding the matters to
be considered at the special meeting see "INTRODUCTION--Proposal
to be Considered at the Special Meeting."
Record Date for Voting
o Only holders of record of shares of common stock of Avis at the
close of business on January 24, 2001 are entitled to notice of
and to vote at the special meeting. On that date, there were
approximately 73 holders of record of common stock, and
31,473,969 shares of our common stock outstanding, of which
25,938,169 shares are held by stockholders other than Cendant
and its subsidiaries. Each share of common stock entitles the
holder to cast one vote at the special meeting. For additional
information regarding the record date for voting see
"INTRODUCTION--Voting Rights; Vote Required for Approval."
Procedures Relating to Your Vote at the Special Meeting
o The presence, in person or by proxy, of the holders of a
majority of all outstanding shares of common stock as of the
record date is necessary to constitute a quorum at the special
meeting. Abstentions and broker non-votes are counted for the
purpose of establishing a quorum.
o Adoption of the merger agreement requires both the affirmative
vote of the holders of a majority of all outstanding shares of
common stock and the affirmative vote of the holders of a
majority of the votes cast at the special meeting by holders of
common stock other than Cendant and its subsidiaries.
Abstentions and broker non-votes will have the effect of a vote
"AGAINST" the adoption of the merger agreement for purposes of
the vote based on the shares outstanding, but will have no
effect on the outcome of the vote based on the votes cast.
o You should complete, date and sign your proxy card and mail it
in the enclosed return envelope as soon as possible so that your
shares may be represented at the special meeting, even if you
plan to attend the meeting in person. Unless contrary
instructions are indicated on your proxy, all of your shares
represented by valid proxies will be voted "FOR" the adoption of
the merger agreement.
o If your shares are held in "street name" by your broker, your
broker will vote your shares, but only if you provide
instructions on how to vote. You should follow the procedures
provided by your broker regarding the voting of your shares.
o You can revoke your proxy and change your vote in any of the
following ways:
o Deliver to our secretary at our corporate offices at 900
Old Country Road, Garden City, New York 11530, on or
before the business day prior to the special meeting, a
later dated, signed proxy card or a written revocation of
your proxy.
o Deliver a later dated, signed proxy card or a written
revocation to us at the special meeting.
o Attend the special meeting and vote in person. Your
attendance at the meeting will not, by itself, revoke
your proxy; you must vote in person at the meeting.
o If you have instructed a broker to vote your shares, you
must follow the directions received from your broker to
change those instructions. For additional information
regarding the procedure for delivering your proxy see
"INTRODUCTION--Voting and Revocation of Proxies" and
"INTRODUCTION--Solicitation of Proxies."
Reasons for Engaging in the Transaction
o The principal purposes of the merger are to enable Cendant to
acquire all of the equity interests in Avis not owned by it and
to provide you the opportunity to receive a cash price for your
shares at a significant premium over the market price at which
the common stock traded before Cendant's announcement on August
15, 2000 of its proposal to acquire Avis at $29.00 per share.
Our board of directors believes that the transaction is fair to
and in the best interests of our public stockholders. See
"SPECIAL FACTORS--Reasons for the Recommendations of the Special
Committee and our Board of Directors" and "SPECIAL
FACTORS--Purpose and Structure of the Merger."
The Parties to the Transaction
o Avis. Avis is a Delaware corporation and one of the world's
leading service and information providers for comprehensive
automotive transportation and vehicle management solutions. Avis
operates Avis Rent A Car System, Inc., the world's second
largest general-use car rental business, with locations in the
United States, Canada, Australia, New Zealand and the Latin
American Caribbean region; PHH North America, one of the world's
leading vehicle management companies; and Wright Express, the
world's largest fleet card provider. For additional information
and news concerning Avis, please log onto the Avis web site at
www.avis.com or call Company News on Call (800-758-5804, access
code #078975). Avis' website, and the information contained in
the website, is not a part of this proxy statement. Avis' common
stock is traded on the New York Stock Exchange under the symbol
"AVI." Avis' principal address is 900 Old Country Road, Garden
City, New York 11530 and the telephone number is (516) 222-3000.
o Cendant. Cendant is a Delaware corporation and a global provider
of real estate, travel and direct marketing related consumer and
business services. Cendant's core competencies include building
franchise systems, providing outsourcing solutions and direct
marketing. As a franchiser, Cendant is among the world's leading
franchisers of real estate brokerage offices, hotels, rental car
agencies, and tax preparation services. As a provider of
outsourcing solutions, Cendant is a major provider of mortgage
services to consumers, the global leader in employee relocation,
and the world's largest vacation exchange service. In direct
marketing, Cendant provides access to insurance, travel,
shopping, auto, and other services primarily to customers of its
affinity partners. Other business units include NCP, the UK's
largest private car park operator, and WizCom, an information
technology services provider. Headquartered in New York, NY, the
Company has approximately 28,000 employees and operates in over
100 countries. Cendant's common stock is traded on the NYSE
under the symbol "CD." More information about Cendant, its
companies, brands and current SEC filings may be obtained by
visiting Cendant's website at www.cendant.com or by calling
87-4INFO-CD (877-446-3623). Cendant's website, and the
information contained in the website, is not a part of this
proxy statement. Cendant's principal address is 9 West 57th
Street, New York, New York 10019 and the telephone number is
(212) 413-1800.
o PHH Corporation. PHH Corporation is a Maryland corporation and
an indirect wholly-owned subsidiary of Cendant. PHH Corporation
was originally formed for the purpose of providing mortgages,
fleet management and relocation services worldwide. PHH
Corporation currently operates in two business segments, (1)
providing home buyers with mortgages and (2) assisting employers
with employee relocations. In the mortgage segment, PHH
Corporation's Cendant Mortgage Corporation subsidiary
originates, sells and services residential mortgage loans in the
United States, marketing such services to consumers through
relationships with corporations, affinity groups, financial
institutions, real estate brokerage firms and mortgage banks. In
the relocation segment, PHH Corporation's Cendant Mobility
Services Corporation subsidiary is the largest provider of
corporate relocation services in the world, offering relocation
clients a variety of services in connection with the transfer of
a client's employees. PHH Corporation's principal address is 6
Sylvan Way, Parsippany, New Jersey 07054 and the telephone
number is (973) 428-9700.
o Avis Acquisition Corp. Avis Acquisition Corp. is a Delaware
corporation and an indirect wholly-owned subsidiary of Cendant
that was formed solely for the purpose of effecting the
transactions contemplated by the merger agreement and has not
engaged in any business except in furtherance of such purpose.
Avis Acquisition Corp.'s principal address is 6 Sylvan Way,
Parsippany, New Jersey 07054 and the telephone number is (973)
428-9700.
Effects of the Merger
o Upon completion of the merger, Avis will be an indirect
wholly-owned subsidiary of Cendant. The shares will no longer be
traded on the NYSE. In addition, the registration of the shares
under the Securities and Exchange Act of 1934 will be
terminated. Accordingly, following the merger, there will be no
publicly traded Avis common stock outstanding.
Recommendations of the Special Committee and our Board of Directors
o The special committee of our board of directors, consisting of
two independent Avis directors, was formed to consider and
evaluate the merger. The special committee has determined
unanimously that the merger consideration is fair to our public
stockholders and recommended to our board of directors that they
declare the merger advisable and in the best interests of Avis
and our public stockholders, approve the merger agreement and
determine to recommend that our stockholders vote to adopt the
merger agreement. Our board of directors, based on the unanimous
recommendation of the special committee, has unanimously
determined that the merger consideration is fair to our public
stockholders, and that the merger is advisable and in the best
interests of Avis and our public stockholders and declared that
the merger agreement is advisable. Accordingly, our board of
directors has approved the merger agreement and unanimously
recommends that you vote "FOR" the proposal to adopt the merger
agreement. For a discussion of the material factors considered
by the special committee and our board of directors in reaching
their conclusions and the reasons why the special committee and
the board of directors determined that the merger is fair see
"SPECIAL FACTORS--Reasons for the Recommendations of the Special
Committee and our Board of Directors."
Opinion of Morgan Stanley
o In connection with the merger, the special committee and our
board of directors considered the opinion of the special
committee's financial advisor, Morgan Stanley & Co.
Incorporated, as to the fairness of the merger consideration to
the holders of shares, other than Cendant and its affiliates,
from a financial point of view. Morgan Stanley delivered its
opinion to the special committee on November 10, 2000 that, as
of the date of the opinion and based on and subject to the
assumptions, limitations and qualifications described in the
opinion, the consideration to be received by the holders of
shares, other than Cendant and its affiliates, pursuant to the
merger agreement is fair from a financial point of view to such
holders. Morgan Stanley's opinion was provided for the
information of the special committee and the board of directors
of Avis and does not constitute a recommendation to any
stockholder with respect to any matter relating to the proposed
merger. See "SPECIAL FACTORS--Opinion of Morgan Stanley."
o The full text of Morgan Stanley's written opinion is attached as
Appendix B to this proxy statement. We encourage you to read
Morgan Stanley's opinion in its entirety for a description of
the assumptions made, matters considered and limitations on the
review undertaken.
Avis' Position as to the Fairness of the Merger
o We believe the merger and the merger consideration to be fair to
our stockholders, other than Cendant and its subsidiaries. In
reaching this determination we have relied on numerous factors,
including:
o the fact that the merger consideration represents a
premium over the closing price of our common stock on the
last full trading day prior to Cendant's August 15, 2000
announcement of the preliminary proposal by Cendant of
$29.00 per share and exceeds recent historical market
prices of our common stock;
o the fact that the merger was approved and recommended by
the special committee; and
o the fact that Morgan Stanley delivered an opinion to the
effect that the merger consideration to be received by
our stockholders in the merger, other than Cendant and
its subsidiaries, is fair to such holders from a
financial point of view.
For a more detailed discussion of the material factors upon which these
beliefs are based, see "SPECIAL FACTORS--Avis' Position as to the Fairness of
the Merger."
Cendant's, PHH Corporation's and Avis Acquisition Corp.'s Position as to the
Fairness of the Merger
o Cendant, PHH Corporation and Avis Acquisition Corp. believe that
the consideration to be received in the merger by Avis
stockholders (other than Cendant and its subsidiaries) is fair
to such holders and that the merger is procedurally fair to Avis
stockholders (other than Cendant and its subsidiaries). For a
detailed discussion of the material factors upon which these
beliefs are based, see "SPECIAL FACTORS - Cendant's, PHH
Corporation's and Avis Acquisition Corp.'s Position as to the
Fairness of the Merger; Cendant's Reasons for the Merger."
Interests of our Directors and Executive Officers in the Merger
o In considering the recommendation of our board of directors with
respect to the merger agreement and the transactions
contemplated thereby, you should be aware that, in addition to
the matters discussed above, our executive officers and members
of our board of directors have various interests in the merger
that are in addition to or different from the interests of our
stockholders generally and that such interests create potential
conflicts of interest.
o Our executive officers and directors have options to purchase
common stock. These options will become fully vested at the time
of the merger. Our executive officers and directors will be
entitled to receive, for each share covered by the their
options, an amount in cash equal to the difference between the
$33.00 per share merger consideration and the per share exercise
price of each option. Alternatively, at the election of any of
our executives or directors, rather than receiving such cash
payment, such executive officer or director may receive an
option to purchase shares of Cendant common stock with
approximately the same value. Our executive officers and
directors in aggregate hold options to purchase 3,780,408 shares
and the aggregate spread for such options is $45,800,521.
o Some of our executive officers are entitled to receive severance
payments and benefits if, following the merger, their employment
terminates under specified circumstances. See "SPECIAL
FACTORS--Interests of Executive Officers and Directors in the
Merger - Employment Agreements."
o The members of the special committee have each received
compensation of $100,000 from Avis in connection with serving on
the special committee.
o Three of our directors are also directors and/or executive
officers of Cendant.
o Indemnification arrangements and directors' and officers'
liability insurance for our present and former directors and
officers will be continued by the surviving corporation after
the merger. In addition, Cendant will provide an indemnity for
our present and former directors and officers. See "SPECIAL
FACTORS--Interests of Executive Officers and Directors in the
Merger."
o On January 4, 2001, Mr. Rand announced that he will leave his
position at Avis following completion of the merger and that,
following the merger, he will serve as a special advisor to Mr.
Silverman and Cendant's Board of Directors on terms to be
mutually agreed upon. On January 5, 2001, Cendant announced
that, following the merger, Mr. Sheehan will leave his position
at Avis and will become the chief financial officer of Cendant
on terms to be mutually agreed upon.
Accounting Treatment
o The merger will be accounted for under the purchase method of
accounting. For a discussion of the accounting treatment for the
Merger see "THE MERGER--Accounting Treatment."
Material U.S. Federal Income Tax Consequences
o The receipt of $33.00 in cash for each share of common stock
pursuant to the merger will be a taxable transaction for U.S.
federal income tax purposes and under most state, local, foreign
and other tax laws. For U.S. federal income tax purposes, each
of our stockholders generally will realize taxable gain or loss
as a result of the merger measured by the difference, if any,
between the tax basis of each share of our common stock owned by
such stockholder and $33.00. Each holder of a compensatory
option to acquire our common stock who receives a cash payment
equal to the difference between $33.00 and the exercise price
per share of such option will have ordinary income to the extent
of the cash received. For additional information regarding
material U.S. federal income tax consequences of the merger to
our stockholders, see "SPECIAL FACTORS--Material U.S. Federal
Income Tax Consequences of the Merger to our Stockholders."
The Merger Agreement
o Effective Time of Merger
The merger will become effective upon the filing of a duly executed
certificate of merger with the Secretary of State of the State of Delaware or
such later time as otherwise agreed by Cendant and the special committee and as
specified in the certificate of merger. The filing will occur after all
conditions to the merger contained in the merger agreement have been satisfied
or waived. Avis, Cendant, PHH Corporation and Avis Acquisition Corp. anticipate
that the merger will be consummated on or about March 1, 2001. For additional
information regarding the effective time of the merger see "THE
MERGER--Effective Time of Merger."
o Conditions to the Merger
The respective obligations of Avis, Cendant, PHH Corporation and Avis
Acquisition Corp. to effect the merger are subject to the satisfaction of
various conditions, including, among others:
o the adoption of the merger agreement by both the holders of (1)
a majority of all outstanding shares of common stock as of the
record date and (2) a majority of the votes cast at the special
meeting by stockholders other than Cendant and its subsidiaries;
o the absence of any injunction or other order issued by any court
or governmental authority prohibiting or restricting the merger
or restricting the ownership or operation of Avis by Cendant or
its subsidiaries;
o the absence of any action, pending or threatened by a
governmental entity seeking to (1) prohibit or restrain the
merger, (2) obtain damages that would result in a material
adverse effect on Avis, or (3) restrict the ownership or
operation of Avis by Cendant or its subsidiaries;
o the termination or expiration of any waiting period applicable
to the merger under the Hart-Scott-Rodino Antitrust Improvements
Act and any applicable foreign competition or antitrust law;
o the absence of any change in our board of director's or the
special committee's recommendation of the merger agreement and
the absence of any recommendation by our board of directors or
the special committee of any acquisition proposal of a third
party;
o the absence of any event which might reasonably be expected to
result in a material adverse effect on Avis; and
o the receipt by Avis of certain other governmental and third
party approvals and consents relating to certain of Avis'
activities and agreements.
If Avis waives a material condition to the merger that is for Avis'
benefit, we will take such actions as are required by applicable law.
For additional information regarding the conditions of each party's
obligation to effect the merger see "THE MERGER--The Merger
Agreement--Conditions to the Merger" and "THE MERGER--The Merger
Agreement--Termination of the Merger Agreement."
o No Solicitation of Other Offers
The merger agreement provides that neither we nor any of our
representatives will take any action:
o to solicit, initiate, invite or encourage the making of any
proposal with respect to certain acquisition proposals by third
parties; or
o except as provided below, to participate in any discussions or
negotiations with, or furnish any information to, any person
relating to any such acquisition proposal.
If Avis, our board of directors or the special committee receives an
unsolicited acquisition proposal from a third party which could reasonably be
expected to result in a proposal superior to the merger, we may furnish
information and access to the third party pursuant to a confidentiality
agreement not less restrictive than the confidentiality agreement between us and
Cendant, and participate in discussions or negotiations with such third party.
We have agreed to keep Cendant informed of the status of any other proposals and
negotiations.
If the special committee determines in good faith that failure to take
such action would constitute a breach of our board of directors' fiduciary
duties to the stockholders, the special committee and our board of directors may
change their recommendation of the merger and, following the special meeting, if
our stockholders do not adopt the merger agreement, terminate the merger
agreement to accept a superior proposal, subject to certain conditions,
including the payment of a termination fee of $28 million to Cendant and
transaction expenses of up to $2.5 million.
For additional information regarding the agreement not to solicit other
offers see "THE MERGER--The Merger Agreement--No Solicitation of Other Offers."
o Termination of Merger Agreement
The merger agreement may be terminated at any time prior to the
effective time of the merger:
o by mutual consent of the parties to the merger agreement, if
approved by the boards of directors of both Cendant and Avis,
and the special committee;
o by either Avis or Cendant if the merger is not completed on or
prior to June 30, 2001, and the terminating party is not in
breach of the merger agreement;
o by either Avis or Cendant if a governmental entity issues a
non-appealable final ruling permanently restraining or
prohibiting the merger;
o by either Avis or Cendant if the merger agreement is not adopted
by both the holders of (1) a majority of all outstanding shares
of common stock as of the record date, and (2) a majority of the
votes cast at the special meeting by stockholders, other than
Cendant or its subsidiaries;
o by Cendant, if (1) Avis commits a material breach of any
covenant in the merger agreement which is not cured prior to the
earlier of 60 days after notice of the breach and June 30, 2001,
(2) any of Avis' representations in the merger agreement are
untrue and result in a material adverse effect on Avis which is
not cured prior to the earlier of 60 days after notice of the
breach and June 30, 2001, (3) the special committee or our board
of directors (a) withdraws or changes its approval or
recommendation of the merger agreement in any manner which
Cendant reasonably determines to be adverse to Cendant; (b)
approves or recommends to our stockholders a third party
acquisition; (c) violates any of the no solicitation provisions
of the merger agreement; (d) takes a public position or makes
any disclosures to our stockholders which have the effect of
(a), (b) or (c) above; or (e) resolves to enter into an
acquisition agreement with a third-party or (4) Avis enters into
a definitive agreement relating to a third party acquisition or
violates any of the no-solicitation provisions of the merger
agreement; or
o by Avis, if (1) Cendant commits a material breach of any
covenant in the merger agreement which is not cured prior to the
earlier of 60 days after notice of the breach and June 30, 2001,
(2) any of Cendant's representations in the merger agreement are
untrue in a material respect which is not cured prior to the
earlier of 60 days after notice of the breach and June 30, 2001,
or (3) following the special meeting, (a) stockholder approval
is not obtained, (b) we execute a definitive agreement with a
third party with respect to a proposal superior to the merger,
(c) the special committee determines in good faith, after
receipt of advice of its outside legal counsel, that it would be
a breach of fiduciary duties not to terminate the merger
agreement in order to enter into a definitive agreement with
such third party, and (d) we provided Cendant three business
days' prior notice of our intent to terminate the merger
agreement and paid Cendant a fee of $28 million and transaction
expenses of up to $2.5 million.
For additional information regarding the ability of the parties to
terminate the merger agreement see "THE MERGER--The Merger
Agreement--Termination of the Merger Agreement."
o Termination Fees; Expenses
The merger agreement provides for the payment to Cendant of a fee by us
of $28 million and transaction expenses of up to $2.5 million if the merger
agreement is terminated in certain circumstances, including the following:
o by Cendant or Avis if the merger does not occur on or prior to
June 30, 2001, and (1) prior to the termination, we became aware
that a third party made or intended to make an acquisition
proposal, and (2) within twelve months following the date of the
termination, an acquisition of Avis is consummated by a third
party or an acquisition agreement is entered into with a third
party;
o by Cendant if there is a material breach of any of our covenants
or any of our representations or warranties, and the breach is
not cured on or prior to the earlier of 60 days after notice of
the breach and June 30, 2001, and (1) prior to the termination,
we became aware that a third party made or intended to make an
acquisition proposal, and (2) within twelve months following the
date of the termination, an acquisition of Avis by a third party
is consummated or an acquisition agreement is entered into with
a third party; o by Cendant if (1) the special committee or our
board of directors (a) withdraws or changes its approval or
recommendation of the merger agreement in any manner which
Cendant reasonably determines to be adverse to Cendant; (b)
approves or recommends to our stockholders a third party
acquisition of Avis; (c) violates any of the no solicitation
provisions of the merger agreement; (d) takes a public position
or makes a disclosure to our stockholders which has the effect
of (a), (b) or (c) above; or (e) resolves to enter into an
acquisition agreement with a third-party, or (2) Avis executes
an agreement relating to an acquisition of Avis by a third party
or violates any of the non-solicitation provisions of the merger
agreement;
o by Cendant if the merger agreement is not adopted by our
stockholders and (1) an acquisition of Avis by a third party is
publicly announced or otherwise made known to the public at or
prior to the special meeting and (2) within twelve months
following the date of the termination, an acquisition of Avis by
a third party is consummated or an acquisition agreement is
entered into with a third party; or
o by Avis following the special meeting if (1) the merger
agreement is not adopted by our stockholders, (2) Avis executes
an acquisition agreement with a third party with respect to a
proposal superior to the merger, (3) the special committee
terminates the merger agreement because it determines in good
faith, after receipt of advice of its outside legal counsel,
that it would be a breach of the board of directors' fiduciary
duties not to terminate the merger agreement in order to enter
into the acquisition agreement with such third party and (4) we
provided Cendant three business days' prior notice of our intent
to terminate the merger agreement.
The effect of the fee and expense reimbursement provisions is to make
it more expensive for any other potential acquiror of Avis to acquire control of
Avis. This might discourage a potential acquiror from making an offer to acquire
Avis. For additional information regarding the fees and expenses that must be
paid by us under certain circumstances see "THE MERGER--The Merger
Agreement--Termination Fees; Expenses."
o Amendments to the Merger Agreement
The merger agreement may be amended only in writing by each of the
parties to the merger agreement. After approval of the merger agreement by our
stockholders, no amendment to the merger agreement may be made which by law
requires further approval of the stockholders without obtaining this further
approval. For additional information regarding the ability of the parties to
amend the merger agreement see "THE MERGER--The Merger Agreement--Amendments to
the Merger Agreement."
o Regulatory Approvals
o Avis is required to make filings with or obtain approvals from
certain United States and foreign antitrust regulatory
authorities in connection with the merger, including a filing
under the Hart-Scott-Rodino Antitrust Improvements Act. An
application and notice was filed with the Federal Trade
Commission and the Department of Justice on November 22, 2000,
and the applicable waiting period under the Hart-Scott-Rodino
Act was terminated on December 8, 2000. For additional
information regarding regulatory approvals see "THE
MERGER--Regulatory Approvals and Other Consents".
o If the merger agreement is adopted by our stockholders, we
expect to complete the merger on or about March 1, 2001.
o Financing of the Merger
o The total amount of funds required to consummate the merger and
to pay related fees and expenses is estimated to be
approximately $959 million. Cendant and PHH Corporation plan to
fund the purchase price, directly or indirectly, through a
combination of the issuance of debt, the sale of Cendant common
stock, and cash on hand at the effective time of the merger. The
merger is not conditioned on any financing arrangements. For
additional information regarding financing of the merger see
"THE MERGER--Financing of the Merger".
FORWARD LOOKING STATEMENTS MAY PROVE INACCURATE
This proxy statement contains statements related to future events,
which are forward-looking statements. Forward-looking statements involve risks
and uncertainties, including the impact of competitive products and pricing,
changing market conditions; and risks which are detailed from time to time in
Avis' publicly-filed documents, including its Annual Report on Form 10-K for the
period ended December 31, 1999, and Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2000, June, 30, 2000 and September 30, 2000. Actual
results may differ materially from those projected. These forward-looking
statements represent Avis' judgments as of the date of this proxy statement. Any
references to Private Securities Litigation Reform Act in Avis' publicly-filed
documents which are incorporated by reference into this proxy statement are
specifically not incorporated by reference into this proxy statement.
INTRODUCTION
This proxy statement is furnished in connection with the solicitation
of proxies by our board of directors for a special meeting of stockholders to be
held on February 28, 2001 at 2:00 p.m. local time, at the corporate offices of
Avis, 900 Old Country Road, Garden City, New York 11530, or at any adjournment
of the special meeting. Shares of our Class A common stock, par value $0.01 per
share, represented by properly executed proxies received by us will be voted at
the special meeting or any adjournment of the special meeting in accordance with
the terms of such proxies, unless revoked.
Proposal to be Considered at the Special Meeting
At the special meeting, you will consider and vote upon a proposal to
adopt a merger agreement, dated as of November 11, 2000, among Avis, Cendant
Corporation, PHH Corporation, an indirectly wholly-owned subsidiary of Cendant,
and Avis Acquisition Corp., a wholly-owned subsidiary of PHH Corporation.
The merger agreement provides for the merger of Avis Acquisition Corp.
with and into Avis. Upon the effective time of the merger, the separate
corporate existence of Avis Acquisition Corp. will cease, and Avis will be the
surviving corporation and an indirect wholly-owned subsidiary of Cendant.
Pursuant to the merger:
o each outstanding share of common stock will be converted into
the right to receive an amount in cash equal to $33.00 per
share, without interest (other than shares held by any of our
subsidiaries, held in our treasury, held by Cendant or any
subsidiary of Cendant or held by stockholders who perfect their
appraisal rights under Delaware law);
o each outstanding option to purchase Avis common stock will be
canceled in exchange for the right to receive a cash payment
equal to the difference between the $33.00 per share merger
consideration and the per share exercise price of the option
multiplied by the number of shares subject to the option or,
alternatively, rather than receiving such cash payment, an
option holder may elect to convert outstanding options into
options to acquire Cendant common stock with approximately the
same value; and
o each outstanding share of Avis Acquisition Corp. will be
converted into a share of the surviving corporation in the
merger.
Stockholders who perfect their appraisal rights under Delaware law will
be entitled to receive from the surviving corporation in the merger a cash
payment in the amount of the "fair value" of such shares, determined in
accordance with Delaware law, but after the merger such shares will not
represent any interest in the surviving corporation other than the right to
receive such cash payment. See "THE MERGER--Appraisal Rights."
Voting Rights; Vote Required for Approval
Only holders of record of shares of common stock at the close of
business on January 24, 2001, referred to as the "record date", are entitled to
notice of and to vote at the special meeting. On that date, there were
approximately 73 holders of record of common stock, and 31,473,969 shares
outstanding, of which 25,938,169 shares held by stockholders other than Cendant
or its subsidiaries. Each share of common stock entitles its holder to one vote
on all matters properly coming before the special meeting. Any stockholder
entitled to vote may vote either in person or by properly executed proxy. A
majority of the outstanding shares of common stock entitled to vote, represented
in person or by proxy, will constitute a quorum at the special meeting.
Abstentions and broker non-votes (i.e., shares held by brokers in "street name",
voting on certain matters due to discretionary authority or instructions from
the beneficial owner, but not voting on other matters due to lack of authority
to vote on such matters without instructions from the beneficial owner) are
counted for the purpose of establishing a quorum at the special meeting. The
merger agreement must be adopted by both the holders of at least a majority of
the outstanding shares of common stock and the affirmative vote of the holders
of at least a majority of the votes cast at the special meeting by the holders
of common stock other than Cendant and its subsidiaries. Abstentions and broker
non-votes will have the effect of a vote "AGAINST" adoption of the merger
agreement for purposes of the vote based on the shares of common stock
outstanding, but will have no effect on the outcome of the vote based on the
votes cast. Votes will be tabulated by our transfer agent, Computershare
Investor Services.
Each of our directors and executive officers has indicated that he or
she intends to vote his or her shares in favor of adoption of the merger
agreement. See "SPECIAL FACTORS--Reasons for the Recommendations of the Special
Committee and Our Board of Directors" and "SPECIAL FACTORS--Interests of
Executive Officers and Directors in the Merger." Cendant, which beneficially
owns approximately 17.8% of the outstanding common stock, has agreed to cause
its shares to be voted in favor of the adoption of the merger agreement. If the
special committee changes its recommendation of the merger agreement and the
merger, and the merger agreement has not been terminated, we will still hold the
special meeting for stockholders to vote on the merger agreement and will take
such actions as are required by applicable law to permit us to continue to
solicit proxies impartially and, at the special meeting, vote the proxies we
receive.
Voting and Revocation of Proxies
All shares of common stock represented by properly executed proxies
received prior to or at the special meeting and not revoked will be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated, such proxies will be voted for the proposal to adopt the merger
agreement and to adjourn the special meeting, if necessary.
The stockholder giving the proxy may revoke it by:
o delivering to our secretary at our executive offices at 900 Old
Country Road, Garden City, New York 11530, on or before the
business day prior to the special meeting, a later dated, signed
proxy card or a written revocation of such proxy;
o delivering a later dated, signed proxy card or a written
revocation to us at the special meeting;
o attending the special meeting and voting in person; or
o if you have instructed a broker to vote your shares, following
the directions received from your broker to change those
instructions.
Revocation of the proxy will not affect any vote previously taken.
Attendance at the special meeting will not in itself constitute the revocation
of a proxy; you must vote in person at the meeting.
Our board of directors is not currently aware of any business to be
brought before the special meeting other than that described in this proxy
statement. No proxies marked "AGAINST" the proposal to adopt the merger
agreement will be voted in favor of a motion to adjourn or postpone the special
meeting for the purpose of soliciting further proxies in favor of adoption of
the merger agreement.
Solicitation of Proxies
We will bear the expenses in connection with the solicitation of
proxies. Upon request, we will reimburse brokers, dealers and banks, or their
nominees, for reasonable expenses incurred in forwarding copies of the proxy
material to the beneficial owners of shares which such persons hold of record.
Solicitation of proxies will be made principally by mail. Proxies may also be
solicited in person, or by telephone or telegraph, by our officers and regular
employees. Such persons will receive no additional compensation for these
services, but will be reimbursed for any transaction expenses incurred by them
in connection with these services. For information about the solicitation of
proxies for the special meeting, see "THE MERGER--The Merger Agreement--Special
Meeting."
We have also retained Morrow & Co., Inc. for a fee of $7,500 plus
transaction expenses, to assist in the solicitation of proxies from
stockholders, including brokerage houses and other custodians, nominees and
fiduciaries.
We are mailing this proxy material to stockholders on or about January
29, 2001.
Comparative Market Price Data
The common stock is listed on the NYSE under the symbol "AVI". The
following table sets forth the high and low sales price per share on the NYSE
Composite Tape for the calendar quarters indicated:
2000 Quarters Ended: High Low
March 31, 2000 $25.37 $13.25
June 30, 2000 21.62 17.00
September 30, 2000 31.88 18.75
December 31, 2000 32.63 26.81
(through January 24, 2001) 32.75 32.44
1999 Quarters Ended:
March 31, 1999 $29.75 $21.31
June 30, 1999 37.88 23.81
September 30, 1999 32.00 19.50
December 31, 1999 25.69 17.00
1998 Quarters Ended:
March 31, 1998 $38.25 $27.00
June 30, 1998 33.13 20.00
September 30, 1998 28.25 15.25
December 31, 1998 24.50 11.38
On August 14, 2000, the last full trading day prior to Cendant's
announcement of its preliminary proposal to acquire Avis, the last reported
sales price per share was $25.50. On January 24, 2001, the most recent
practicable trading day prior to the date of this proxy statement, the last
reported sales price per share was $32.6875. Stockholders should obtain current
market price quotations for the common stock in connection with voting their
shares.
Dividends
Avis has not declared a dividend since its initial public offering in
September 1997. Under the merger agreement, Avis has agreed not to declare or
pay any dividends on the common stock prior to the closing of the merger.
Our Selected Consolidated Financial Information
Set forth below is the selected historical consolidated financial
information of Avis and our subsidiaries. The historical financial information
was derived from the audited consolidated financial statements included in our
Annual Report on Form 10-K for the years ended December 31, 1997, 1998 and 1999
and from the unaudited summary consolidated financial statements included in our
Quarterly Report on Form 10-Q for the period ended September 30, 2000, and other
information and data contained in the Annual Reports and the Quarterly Report.
More comprehensive financial information is included in such reports and the
financial information which follows is qualified in its entirety by reference
to, and should be read in conjunction with, such reports and all of the
financial statements and related notes, copies of which may be obtained as set
forth below under the caption "OTHER MATTERS--Available Information."
AVIS GROUP HOLDINGS, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
($ in thousands except per share date)
Predecessor Companies2
Combined October 17 ---------------------------
Years Ended December 31, Year Ended to January 1 to Year Ended
------------------------------- December 31, December 31, October 16, December 31,
1999 1998 1997 19961 1996 1996 1995
Statements of Operations
Data:5
Revenue
Vehicle rental $ 2,500,746 $2,297,582 $2,046,154 $1,867,517 $362,844 $1,504,673 $1,615,951
Vehicle leasing 692,935
Other fee based 139,046
----------- ---------- ---------- ---------- -------- ---------- ----------
3,332,727 2,297,582 2,046,154 1,867,517 362,844 1,504,673 1,615,951
---------- ---------- ---------- ---------- -------- ---------- ----------
Costs and expenses2 3,166,810 2,185,354 1,995,831 1,795,457 360,583 1,434,874 1,555,251
---------- ---------- ---------- ---------- -------- ---------- ----------
Income before provision
for income taxes 165,917 112,228 50,323 72,960 2,261 69,799 60,700
Provision for income
taxes 73,332 48,707 22,850 32,238 1,040 31,198 34,635
---------- ---------- ---------- ---------- -------- ---------- ----------
Net income 92,585 63,521 27,473 39,822 1,221 38,601 26,065
Preferred stock
dividends3 (9,110)
---------- ---------- ---------- ---------- -------- ---------- ----------
Earnings applicable to
common stockholders $83,475 $63,521 $27,473 $39,822 $1,221 $38,601 $26,065
========== ========== ========== ========== ======== ========== ==========
Earnings per share4
Basic $2.66 $1.86 $.89 $.04 $1.25 $.84
Diluted $2.61 $1.82 $.88 $.04 $1.25 $.84
Statements of Financial
Position Data:
Vehicles, net rental $3,367,362 $3,164,816 $3,018,856 $2,243,492 $2,243,492 $2,404,275 $2,167,167
Vehicles, net leasing $3,134,009
Total assets $11,078,258 $4,497,062 $4,274,657 $3,131,232 $3,131,232 $3,186,503 $2,824,798
Debt and minority
interest $8,569,110 $3,014,712 $2,826,422 $2,542,974 $2,542,974 $2,645,095 $2,289,747
Common stockholders'
equity $661,684 $622,614 $453,722 $76,415 $76,415 $740,113 $688,260
Nine Months Ended
-------------------------------
September 30, September 30,
2000 1999
Statements of Operations Data:5
Revenue:
Vehicle rental $1,989,167 $1,913,929
Vehicle leasing 1,051,794 346,064
Other fee based 198,815 67,199
---------- ----------
3,239,776 2,327,192
Costs and expenses 3,051,199 2,181,044
---------- ----------
Income before provision
for income taxes 188,577 146,148
Provision for income taxes 83,162 64,305
---------- ----------
Net income 105,415 81,843
Preferred stock dividends3 (14,118) (4,555)
---------- ----------
Earnings applicable to
common stockholders $91,297 $77,288
========== ==========
Earnings per share:4
Basic $2.93 $2.46
Diluted $2.89 $2.40
Statements of Financial Position
Data:
Vehicles, net rental $4,009,732 $3,531,642
Vehicles, net leasing $3,013,687 $2,936,844
Total assets $10,270,459 $11,183,579
Debt and minority interest $7,453,463 $8,716,227
Common stockholders' equity $743,843 $657,384
See Notes to the Selected Consolidated Financial Information
Notes to Avis' Selected Consolidated Financial Information
1 Presented on a combined twelve-month basis and includes the results of Avis
for the period from October 17 to December 31, 1996 and the results of the
predecessor companies for the period from January 1 to October 16, 1996.
2 See Notes 1 and 5 to the audited consolidated financial statements included
in the 1999 Annual Report on Form 10K. Costs and expenses includes royalty
fees payable to Cendant for the years ended December 31, 1999, 1998, 1997
and charges from Cendant for the period from October 17, 1996 to December
31, 1996.
3 Represents dividends on the preferred stock of Avis Fleet Leasing and
Management Corporation.
4 Basic earnings per share for the years ended December 31, 1999, 1998 and
1997 are computed based upon 31,330,536 shares, 34,172,249 shares and
30,925,000 shares outstanding, respectively. Diluted earnings per share for
the years ended December 31, 1999, 1998 and 1997 are computed based on 31,
985,569 shares, 34,952,557 shares and 31,181,134 shares, respectively,
which include the dilutive effect of the assumed exercise of outstanding
stock options. Basic and diluted earnings per share are computed based on
30,925,000 shares outstanding for the interim periods ended December 31,
1996, October 16, 1996 and for the year ended December 31, 1995. Basic
earnings per share for the nine months ended September 30, 2000 and 1999
are computed based upon 31,133,834 and 31,394,335 shares outstanding,
respectively. Diluted earnings per share for the nine months ended
September 30, 2000 and 1999 are computed based upon 31,609,275 and
32,172,196 shares, respectively.
5 Includes the results of operations of Avis Fleet Leasing and Management
Corporation subsequent to the date of acquisition on June 30, 1999.
Consolidated Ratios of Earnings to Fixed Charges and Book Value Per Share
Set forth below is the ratio of earnings to fixed charges for each of
the last five fiscal years and for the nine months ended September 30, 2000 and
the book value per common share of Avis as of December 31, 1997, 1998 and 1999
and as of September 30, 2000.
Fiscal Years Ended December 31, Nine Months Ended
-------------------------------------------------- ------------------
1995 1996 1997 1998 1999 September 30, 2000
---- ---- ---- ---- ---- ------------------
Ratio of Earnings to
Fixed Charges1 1.3X 1.3X 1.2X 1.4X 1.3X 1.4X
As of December 31, As of September 30,
----------------------------------------------------- -------------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Book Value per
Common Share
Outstanding2 -- -- $14.55 $17.81 $20.69 $23.53
- -----------
1 For purposes of calculating the ratio of earnings to fixed charges,
"earnings" consists of earnings before equity in earnings of affiliates,
taxes on earnings and "fixed charges." "Fixed charges" consists of
interest, amortization of debt financing costs and the estimated interest
components of rent and preferred dividends.
2 Book value per common share outstanding is calculated as total common
stockholders' equity divided by the diluted number of common shares
outstanding at the end of the period. Prior to September 1997, Avis was
not a public company.
Recent Developments
On August 15, 2000, five stockholders of Avis filed lawsuits in the
Delaware Court of Chancery on behalf of a class of Avis stockholders against
Cendant, Avis and the members of the Board of Directors of Avis. The complaints
in these lawsuits alleged, among other things, that the defendants breached
fiduciary duties to Avis stockholders in connection with Cendant's preliminary
proposal to acquire all of the outstanding shares of Avis that Cendant does not
own at a price of $29.00 per share. On September 14, 2000 the Court of Chancery
consolidated these lawsuits as a single consolidated action captioned In re Avis
Group Holdings, Inc., Consolidated C.A. No. 18223. The parties to the
consolidated stockholder litigation have orally agreed to settle the litigation,
subject to court approval, on the basis of the increase in Cendant's offer price
to $33.00 per share, and are discussing a memorandum of understanding to
memorialize the terms of their agreement.
On August 23, 2000, an Avis stockholder filed a lawsuit (Index No.
29005/00) in the Supreme Court of the State of New York, Kings County, on behalf
of a class of Avis stockholders against Avis, Cendant and certain members of our
board of directors. The complaint alleged, among other things, that the
defendants breached fiduciary duties to Avis stockholders in connection with
Cendant's preliminary proposal to acquire all of the outstanding shares of Avis
that Cendant does not own at a price of $29.00 per share. A stipulation was
filed on October 12, 2000 extending the defendant's time to answer indefinitely
until 20 days after plaintiff's request that defendants so respond.
SPECIAL FACTORS
Background of the Merger
On October 17, 1996, a subsidiary of Cendant acquired all of the
outstanding shares of a predecessor of Avis for an aggregate purchase price of
$806 million. On September 24, 1997, Avis completed an initial public offering,
or "IPO" of Avis common stock, at a price of $17 per share which diluted
Cendant's ownership in Avis to approximately 27.5% of the outstanding shares.
Cendant received no proceeds from the IPO. Since the IPO, Cendant has continued
to review Avis' performance and monitor industry developments and Cendant has
had representatives on Avis' board of directors.
On July 30, 1997, Avis entered into a 50-year master license agreement
with Cendant which grants Avis the right to use the Avis trademark in connection
with the operation of the Avis vehicle rental business in certain specified
territories. The master license agreement currently requires Avis to pay a
royalty equal to approximately 4% of Avis' gross revenue for the right to
operate an Avis franchise. For a more complete description of the master license
agreement, see "SPECIAL FACTORS - Certain Relationships Between Cendant and
Avis."
On March 23, 1998, Avis sold 5 million additional shares through a
public offering in which Cendant reduced its beneficial ownership interest in
Avis by selling 1 million shares at a price of $34 per share. In addition,
pursuant to a stock repurchase program, Avis repurchased from Cendant 1.3
million shares in January 1999 for total proceeds of $31.5 million and 314,200
shares in April 1999 for total proceeds of $9.3 million. In addition, in August
1999, Cendant sold 350,000 shares for total proceeds of $7.8 million. As a
result of these sales and repurchases, Cendant's beneficial ownership of common
stock was reduced to its current level of 5,535,800 shares, or approximately
17.8% of the outstanding shares.
On June 30, 1999, Avis acquired PHH Corporation's vehicle management
and fuel card businesses for approximately $1.8 billion, comprised of 7.2
million shares of preferred stock of Avis Fleet Leasing and Management
Corporation, a subsidiary of Avis, with a liquidation value of $360 million and
the assumption of approximately $1.44 billion of indebtedness. The preferred
stock is convertible into a number of shares of Avis common stock and Avis
non-voting class B common stock which, based on current conversion rates, would
result in Cendant having beneficial ownership of up to a 20% voting interest in
Avis and a 33% economic interest. The preferred stock is convertible only upon
the attainment of certain earnings and market price thresholds which presently
have not been met, and upon certain other events that have not occurred; thus,
the preferred stock is not convertible as of the date of this proxy statement
and is not likely to be convertible prior to the special meeting, and,
therefore, cannot be voted in connection with the merger.
In the spring of 2000, Avis entered into discussions with BNP Paribas
concerning the formation of a joint venture for their respective European
vehicle fleet leasing and management operations. On April 17, 2000, Avis and BNP
Paribas entered into a letter of intent with respect to the formation of such a
joint venture.
On April 19, 2000, A. Barry Rand, Chairman and Chief Executive Officer
of Avis, met with Henry R. Silverman, Chairman of the Board, Chief Executive
Officer and President of Cendant, and Stephen P. Holmes, Cendant's Vice Chairman
and the Chairman and Chief Executive Officer of Cendant's Travel Division and a
director of Avis, to discuss Avis' strategy to increase shareholder value. At
that meeting, Mr. Rand expressed his desire to reunite the ownership of the Avis
name with Avis' car rental business, thereby eliminating the negative impact on
margins of the royalty fee paid to Cendant under the master license agreement
and better positioning Avis to participate in possible consolidation in the
industry, as the elimination of such royalty fee could result in increased
market valuation of Avis stock and improve Avis' ability to use its stock as
currency in any potential acquisitions. Mr. Rand mentioned that Avis was
considering the possible acquisition of a company in the leisure car rental
industry in the spring of 2000, but a specific target had not been identified.
In addition, Mr. Rand also expressed his view that the "overhang effect" of
Cendant's large equity position in Avis hampered Avis' ability to attract
institutional investors and inhibited buying activity in Avis' common stock
since he believed investors might be concerned that Cendant could at any time
elect to sell a sizable block of its shares of Avis stock in the market which
would put downward pressure on the price of Avis' stock. In anticipation of
Avis' expected increased cash flow as a result of the repayment of Avis
indebtedness with the proceeds received by Avis upon the closing of the BNP
Paribas joint venture, Mr. Rand asked whether Cendant would be willing to
consider selling its ownership rights to the Avis name to Avis. Mr. Silverman
and Mr. Holmes stated that Cendant was not interested in selling its rights to
the Avis name.
On June 30, 2000, Avis and BNP Paribas entered into a definitive
agreement with respect to the formation of a joint venture for their respective
European vehicle fleet leasing and management operations. Such agreement
provided for Avis to receive a 20% interest in such joint venture.
On July 11, 2000, Messrs. Silverman and Holmes met again with Mr. Rand
to discuss Avis' strategic alternatives to increase shareholder value. At that
meeting, Mr. Rand reiterated his views that Avis' royalty obligations under the
master license agreement with Cendant were cumbersome to Avis. The strategic
alternatives then discussed were (1) Avis acquiring a company in the leisure car
rental industry, (2) Avis acquiring the Avis trademark from Cendant, and (3)
maintaining Avis as an independent publicly traded company. Mr. Silverman
suggested that, based upon the significant business pressures faced by Avis as
described by Mr. Rand, leveraging Avis further in connection with any strategy
to increase shareholder value seemed imprudent and Mr. Rand agreed with such
assessment; thus, the first two alternatives discussed were not pursued. Mr.
Rand then sought to determine whether (1) Cendant would be receptive to
increasing its equity investment in Avis and (2) if not, whether Cendant would
oppose a third party investment in Avis. Mr. Silverman agreed to consider an
increased equity investment in Avis, and also raised the possibility of an
acquisition by Cendant of 100% of Avis, provided that Cendant could have access
to additional financial and business information regarding Avis by which to
evaluate such a transaction. At the conclusion of this meeting, Messrs.
Silverman and Rand determined that their respective management teams should meet
to commence a preliminary due diligence process in connection with such
evaluation.
On July 27, 2000, a representative of Cendant's legal counsel, Skadden,
Arps, Slate, Meagher & Flom LLP, spoke to a representative of Avis' legal
counsel, White & Case LLP, to discuss a confidentiality agreement and proposed
standstill agreement in which Cendant would agree not to acquire any additional
Avis stock or take any other action to obtain control of Avis, other than in a
transaction approved by the Avis board of directors. The Skadden Arps
representative indicated that Cendant was unwilling to sign a standstill
agreement since Cendant wanted to retain all of its options with respect to its
investment in Avis, including the ability to acquire additional Avis stock.
Following such conversation, James E. Buckman, Vice Chairman and General Counsel
of Cendant, spoke with Kevin Sheehan, President, Corporate and Business Affairs
and Chief Financial Officer of Avis, to discuss the proposed confidentiality and
standstill agreement. Mr. Buckman informed Mr. Sheehan of Cendant's
unwillingness to enter into a standstill agreement. Mr. Buckman reiterated such
unwillingness to Mr. Rand over the course of the next several days.
On July 31, 2000, Avis and Cendant executed a confidentiality
agreement. Over the course of the next few days, representatives of Cendant met
with representatives of Avis to conduct financial and business due diligence and
to discuss changes in the Avis business since the time of the IPO. Avis
management provided Cendant representatives with financial forecasts for Avis,
as described under "SPECIAL FACTORS--Our Forecasts."
On August 4, 2000, Cendant engaged Lehman Brothers as its financial
advisor in connection with a potential transaction with Avis.
On August 9, 2000, Avis' joint venture with BNP Paribas was
consummated, and Avis received $800 million in cash as a result of such
transaction, repayment of intercompany debt of $225 million, the first of 40
quarterly payments for licensing of technology, and a 20% interest in the joint
venture. Immediately after the closing of the BNP Paribas transaction, Avis
received a cash dividend of $32 million. Avis used these proceeds to repay a
portion of its outstanding indebtedness.
That same day, our board of directors approved a stock repurchase
program authorizing Avis to repurchase up to $100 million of common stock, with
the funds for such repurchases to come from Avis' cash flow. A press release was
issued on August 10, 2000 announcing the closing of the joint venture with BNP
Paribas and approval of the stock repurchase program.
On August 14, 2000, representatives of Cendant met with representatives
of Lehman Brothers and Skadden Arps at Cendant's offices in New York to discuss
Cendant's proposed increase in its ownership position in Avis. At the meeting,
representatives of Lehman Brothers discussed with Cendant management the
historical financial performance and market valuation of Avis and other
competitors in the rental car industry. Based in part on that presentation and
on the financial and business due diligence information obtained by Cendant
representatives during their meetings with Avis representatives, a decision was
made to propose an acquisition of 100% of the outstanding Avis shares not owned
by Cendant.
During the evening of August 14, 2000, Mr. Silverman contacted Mr. Rand
by telephone to inform Mr. Rand that Cendant was sending a proposal letter to
our board of directors, by which Cendant would make a preliminary, non-binding
proposal to acquire all of the outstanding Avis shares not beneficially owned by
Cendant at a price of $29.00 per share in cash (the "Preliminary Proposal"). Mr.
Silverman described to Mr. Rand the terms of the Preliminary Proposal. Cendant
thereafter sent the proposal letter to Mr. Rand and the other members of our
board of directors. The proposal letter stated that the Preliminary Proposal was
subject to satisfactory completion of legal and financial due diligence and did
not represent a binding offer or proposal.
On August 15, 2000, Cendant issued a press release announcing the
Preliminary Proposal and the terms of the proposal letter.
On August 15, 2000, Avis management retained Bear Stearns & Co. Inc.,
an internationally recognized investment banking firm, to assist Avis in
evaluating the Preliminary Proposal.
Subsequent to the issuance of the press release, Messrs. Rand and
Silverman discussed the process by which the Preliminary Proposal would be
evaluated by our board of directors. By letter dated August 16, 2000, Mr.
Silverman expressed to Mr. Rand Cendant's view that the Preliminary Proposal
should be reviewed and considered by an independent committee of our board of
directors, consisting of non-management directors not affiliated with Cendant.
Mr. Rand responded by letter dated August 17, 2000 that our board of directors
would be meeting to determine the appropriate process to be implemented in
response to the Preliminary Proposal.
On August 18, 2000, our board of directors held a special meeting at
which it determined to establish a special committee of directors who were
independent of Cendant and not members of Avis management, consisting of Deborah
Harmon and Michael Kennedy, to evaluate the Preliminary Proposal and to take all
action necessary in connection with or in response to the Preliminary Proposal,
including hiring its own financial and legal advisors to assist it in evaluating
the Preliminary Proposal. Following the meeting, a press release was issued by
Avis announcing that the special committee had been appointed to review and
consider the Preliminary Proposal.
On August 19, 2000, the special committee retained Cahill Gordon &
Reindel as its independent legal advisor.
On August 22, 2000, Cendant filed a statement on Schedule 13D with the
SEC reporting the Preliminary Proposal and Cendant's intention to acquire all of
the outstanding shares of Avis common stock not beneficially owned by Cendant.
On August 23, 2000, Ms. Harmon and Mr. Kennedy held a meeting of the
special committee with representatives of Cahill Gordon present. The special
committee received presentations from three internationally recognized
investment banks, including Morgan Stanley, in order to assist the special
committee in selecting a financial advisor. After these presentations,
representatives of Cahill Gordon made a presentation to the special committee
regarding their fiduciary duties in evaluating the Preliminary Proposal.
On August 29, 2000, the special committee determined to retain Morgan
Stanley as its financial advisor, subject to finalizing terms of an engagement
letter, which was subsequently finalized. On September 1, 2000, Morgan Stanley
began its due diligence investigation of Avis.
On August 31, 2000, Hertz Corp., which Avis views as its leading
competitor in the car rental industry, issued a press release announcing that it
did not expect to achieve its earnings projections for the third quarter of
2000. The next day, Avis issued a press release stating that it remained
comfortable with its earnings projections for the third and fourth quarters of
2000.
On September 7, 2000, representatives of Cahill Gordon met with
representatives of Skadden Arps by telephone concerning the special committee's
request that Cendant execute a standstill agreement. It was determined during
that call that no standstill agreement would be executed by Cendant.
On September 14, 2000, representatives of Cendant, as well as
representatives of Lehman Brothers and Skadden Arps, met with the special
committee and representatives of Morgan Stanley and Cahill Gordon to discuss the
Preliminary Proposal. At this meeting, Mr. Silverman made a presentation to the
special committee as to the background of the transaction and the discussions
that had taken place (as described above). Mr. Silverman also discussed the
financial terms of the Preliminary Proposal, the premium the proposed price
represented to the Avis common stock price prior to the public announcement of
the Preliminary Proposal, developments in the industry in general and, in
particular, the August 31, 2000 Hertz profit warning and the general declines in
the market valuation of competitors in the industry following the August 31,
2000 Hertz press release. At this meeting, written materials prepared by Lehman
Brothers were delivered to the special committee and its advisors. These
materials described the rationale for undertaking the proposed transaction at
this time, including the elimination of the royalty fee under the master license
agreement, the improved access Avis would have to investment grade capital as a
result of the transaction, the elimination of the Cendant "overhang effect" on
Avis stock (as described above) and Avis' improved position to participate in
any consolidation in the industry. The materials also included calculations of
the premium the Preliminary Proposal represented to Avis' historical trading
prices, and the implied valuation of Avis based on historical price to earnings
relationships to Hertz and other competitors in the rental car industry. The
materials also set forth recent stock price performance of companies in the
rental car industry, particularly since the Hertz August 31st press release. For
a more complete description of these materials, see "OTHER MATTERS--Preliminary
Presentations by Lehman Brothers."
On September 18, 2000, the special committee and its legal and
financial advisors met with Mr. Rand and other members of Avis management,
together with representatives of White & Case and Bear Stearns. At the meeting,
Avis management presented information to the special committee, assisted by Bear
Stearns. Mr. Rand stated that the goal of Avis' management is to increase
shareholder value and that the purpose of the presentation was to present the
special committee with information concerning Avis' vehicle management business
and its car rental business for its consideration when evaluating the
Preliminary Proposal. Following Mr. Rand's presentation, Mr. Sheehan gave an
overview of Avis' business, including earnings projections and recent
transactions and their impact on Avis. Following Mr. Sheehan's presentation,
representatives of Bear Stearns made a presentation outlining and discussing
certain traditional financial analyses applied to Avis. In the presentation, the
Preliminary Proposal was compared to valuations of Avis shares implied by an
analysis of comparable acquisition transactions, an analysis of trading values
of comparable companies and a discounted cash flow analysis. The presentation
also compared the $29 price of the Preliminary Proposal to hypothetical Avis
stock prices implied by various potential alternatives that might be available
to Avis, including executing its current business plan, implementing a stock
repurchase program and implementing a stock repurchase program after completing
certain divestitures. It was also stated that Avis' earnings and level of free
cash flow generation provided Avis with the opportunity to achieve a higher
stockholder value independently. For a more complete description of these
materials, see "OTHER MATTERS--Preliminary Presentation by Bear Stearns."
On September 21, 2000, Ford Motor Company announced that it had made a
preliminary proposal to acquire the approximately 18.5% of the equity of Hertz
not owned by Ford at a price of $30 per share.
On September 21, 2000, a meeting of the special committee was held at
which representatives of Cahill Gordon and Morgan Stanley were present. Morgan
Stanley made a presentation to the special committee reporting its preliminary
view as to the relevant valuation considerations regarding the Preliminary
Proposal to purchase Avis for $29.00 per share. The attendees at the meeting
then discussed strategic options potentially available to Avis. The strategic
alternatives discussed at this meeting were: (1) continuing to operate Avis as
an independent publicly traded company; (2) conducting an auction process for
the sale of Avis; and (3) attempting to attain a higher offer from Cendant
through negotiations. The special committee determined that an auction process
would most likely not result in a third-party acquiror who would be prepared to
pay more than Cendant because of Avis' royalty obligations, could cause
disruption of Avis' business and could delay or put at risk a possible value
maximizing transaction with Cendant. The special committee also took into
account the fact that the Preliminary Proposal had been made public more than a
month earlier, and no third party had come forward with an offer or proposal to
acquire Avis. Accordingly, the special committee determined to attempt to
negotiate a transaction with Cendant that would both provide value to
shareholders superior to the likely value that would be realized by continuing
to operate Avis independently and achieve the best sale price for Avis. The
special committee did not foreclose the strategic option of ultimately
recommending that Avis continue to operate as an independent publicly traded
company. The special committee believed that negotiating with Cendant would not
prejudice Avis' ability to continue to operate as an independent publicly traded
company if the special committee were to ultimately conclude that this strategic
option was in the best interest of Avis' stockholders (other than Cendant and
its affiliates). In furtherance of these objectives, the special committee
instructed Morgan Stanley to inform Cendant that the special committee did not
believe its $29.00 price was compelling and that Cendant should put forth its
best offer.
On September 22, 2000, representatives of Morgan Stanley telephoned Mr.
Silverman and communicated the response of the special committee.
On September 25, 2000, representatives of Morgan Stanley had a
telephone conversation with Mr. Johnson and representatives of Lehman Brothers
to discuss the status of the Preliminary Proposal. During that call,
representatives of Morgan Stanley indicated that the special committee was
interested in pursuing a transaction with Cendant but Cendant would need to
increase its price. Cendant indicated that it was not willing to increase its
price at that time. During these discussions, Mr. Johnson and Lehman Brothers
noted the potential adverse impact on pricing in the car rental market that
might occur as a result of Hertz becoming a wholly-owned subsidiary of Ford.
On September 26, 2000, a conference call was held among the special
committee and representatives of Morgan Stanley and Cahill Gordon to update the
special committee on Morgan Stanley's recent discussions with Cendant and Lehman
Brothers. After learning of the substance of these discussions, the special
committee indicated that its view of the $29.00 offer remained unchanged. After
the call, Morgan Stanley informed Lehman Brothers of the special committee's
views and reiterated the need for Cendant to put forth its best offer.
From September 27 to October 1, Morgan Stanley and Lehman Brothers
continued their discussions regarding the Preliminary Proposal. During these
discussions, Lehman Brothers representatives stated that the Preliminary
Proposal represented an attractive offer in light of stock market declines
occurring in September and the premium the Preliminary Proposal represented to
Avis' market price prior to its public announcement. Morgan Stanley reiterated
that a compelling bid would need to reflect Avis' strong financial prospects and
that the Preliminary Proposal did not adequately reflect the positive market
momentum that Avis' stock had achieved during the several months prior to the
acquisition announcement. On October 2, 2000, a conference call was held with
the special committee and representatives of Morgan Stanley and Cahill Gordon to
update the special committee on Morgan Stanley's recent discussions with Cendant
and Lehman Brothers. The special committee instructed Morgan Stanley to inform
Cendant that the special committee believed that a transaction would likely not
be recommended by the special committee to our board of directors unless Cendant
increased its offer price to the mid-30s dollar range. The special committee
also instructed Morgan Stanley to seek a face-to-face meeting with Mr.
Silverman.
On October 6, 2000, representatives of Morgan Stanley met with Mr.
Silverman, other members of Cendant's management team and representatives of
Lehman Brothers. At this meeting, Mr. Silverman reiterated his view that $29.00
per share was a compelling offer, particularly in light of developments since
the Preliminary Proposal was made, such as the Ford offer to acquire the
outstanding Hertz shares, decreased market valuation of competitors in the
rental car industry following the August 31, 2000 Hertz press release, increased
oil prices and decreased flight schedules that had been recently announced by
airlines. Representatives of Morgan Stanley reiterated the special committee's
position that the transaction would need to be improved to the mid-30s dollar
range.
By letter dated October 10, 2000, Mr. Silverman requested a
face-to-face meeting with the members of the special committee to negotiate the
financial terms of the proposed transaction.
On October 11, 2000, the special committee met telephonically with
representatives of Morgan Stanley and Cahill Gordon. Morgan Stanley provided an
update on the October 6 meeting with Mr. Silverman, other members of Cendant's
management team and Lehman Brothers, and the attendees discussed Mr. Silverman's
October 10 letter. Following this meeting, Ms. Harmon and Mr. Kennedy determined
to meet personally with Mr. Silverman.
On October 17, 2000, at Cendant's offices in New York, representatives
of Cendant, Skadden Arps and Lehman Brothers met with the special committee and
representatives of Cahill Gordon and Morgan Stanley to discuss valuation and
pricing of the proposed transaction. The special committee and Cendant engaged
in negotiations regarding the price at which the special committee would be
willing to recommend a transaction to our board of directors. During the course
of that meeting, Cendant offered to increase its price to $32.00 per share. The
special committee indicated that it was not willing to recommend a transaction
at that price. No agreement was reached on price, and the Cendant
representatives terminated the meeting. At this meeting, written materials were
presented to the special committee and its advisors by Lehman Brothers. These
materials compared the premium represented by the Preliminary Proposal with the
premium represented by the Ford offer to acquire the outstanding Hertz shares.
The materials also included a summary of Avis' historical trading prices, and
the trading price of Avis stock since announcement of the Preliminary Proposal,
as compared with the performance of S&P 500 and competitors in the rental car
industry. The materials also included an implied valuation of Avis based on
historical price to earnings relationships to competitors in the rental car
industry. For a more complete description of these materials, see "OTHER
MATTERS--Preliminary Presentations by Lehman Brothers."
Following the meeting, the special committee instructed Morgan Stanley
to contact Mr. Silverman to make clear that the special committee's views on
price were firm and that Cendant would need to show meaningful improvement in
its offer to conclude a transaction. Representatives of Morgan Stanley contacted
Mr. Silverman and informed him of the special committee's views.
On October 18, 2000, representatives of Lehman Brothers contacted
representatives of Morgan Stanley and requested the opportunity for Cendant to
conduct further due diligence in order to determine whether Cendant would be
willing to raise its offer. After discussions with representatives of Morgan
Stanley and Cahill Gordon, the special committee agreed to permit Cendant to
conduct a due diligence review of Avis.
On October 20, 2000, Cendant commenced its business due diligence which
continued through October 21, 2000, at which time representatives of Lehman
Brothers contacted representatives of Morgan Stanley and informed them that
Cendant would be prepared to meet with the special committee on October 26, 2000
to discuss the results of their business due diligence. The special committee
and Cendant agreed to a meeting on October 26, 2000.
On October 23, 2000, representatives of Cendant met with
representatives of Skadden Arps and Deloitte & Touche LLP, Cendant's independent
accounting firm, to discuss the structure of the proposed acquisition of Avis.
On October 23, 2000, representatives of Cendant and Lehman Brothers met
with representatives of Avis at Avis' Garden City, New York headquarters to
conduct a financial due diligence review. On October 24, 2000, representatives
of Cendant and Lehman Brothers conducted a financial due diligence review of
Avis' fleet leasing and management operations in Hunt Valley, Maryland.
On October 26, 2000, the special committee, representatives of Cendant,
their respective financial advisors and counsel to the special committee met to
discuss the results of Cendant's business due diligence. At this meeting, the
special committee and representatives of Cendant continued price negotiations
and also discussed the governmental and third party approvals and consents that
would be required in connection with the proposed transaction, and the estimated
time needed to obtain such approvals and consents. At this meeting, Cendant
expressed a willingness to agree on a price between $32.00 and $33.00, but no
final agreement was reached on a mutually acceptable price.
Following this meeting, representatives of Cendant discussed with
representatives of Lehman Brothers and Skadden Arps the status of negotiations
and Cendant's alternatives. During this discussion, a decision was made to
increase Cendant's offer price to $33.00 per share; but, if no agreement were
reached at this price, the proposal would be withdrawn. Representatives of
Cendant and its financial and legal advisors also discussed Cendant's
alternatives if the proposal were withdrawn, including commencing a cash tender
offer.
On October 27, 2000, representatives of Lehman Brothers telephoned
representatives of Morgan Stanley and stated that Cendant was willing to
increase the price of its proposal to $33.00 per share, but that such price was
its best and final offer. In addition, a representative of Skadden Arps
telephoned representatives of Cahill Gordon to emphasize that Cendant's proposal
at $33.00 per share was firm, and that Cendant's proposal would be withdrawn if
an understanding could not be reached at that price. Skadden Arps also further
clarified that the proposal remained subject to completion of due diligence and
negotiation of a definitive merger agreement. That same day, after discussions
among the special committee and its legal and financial advisors, during which
Morgan Stanley indicated that it believed it would be able to render a fairness
opinion at the proposed price of $33.00 per share, representatives of Morgan
Stanley informed representatives of Lehman Brothers that the special committee
would be willing to recommend a transaction at $33.00 per share in cash, subject
to the satisfactory negotiation of a definitive merger agreement. On this basis,
Cendant agreed to proceed with negotiation of a transaction, and the special
committee agreed to permit Cendant to conduct additional due diligence.
On October 27, 2000, Skadden Arps distributed a draft merger agreement
to the special committee and its legal and financial advisors. From October 31
through November 11, 2000, Cendant and the special committee and their
respective counsel negotiated the terms of the draft merger agreement.
From October 31 through November 10, representatives of Cendant,
Skadden Arps and Deloitte & Touche LLP conducted further due diligence review of
Avis.
On November 1, 2000, representatives of Avis and White & Case met
telephonically with representatives of Cendant, Skadden Arps, and Deloitte &
Touche LLP to conduct due diligence relating to the structure and terms of the
BNP Paribas joint venture. On November 2, 2000, representatives of Cendant and
Avis met with representatives of BNP Paribas to discuss the joint venture.
On November 2, 2000, with the approval of counsel to the special
committee, Mr. Rand met with Mr. Silverman and Mr. Holmes to discuss their views
with respect to (1) potential benefits of the proposed acquisition to Avis and
Cendant; (2) the impact of such transaction upon Avis' senior management team;
and (3) the placement of Avis' three business units within Cendant's
organizational structure. In addition, Mr. Rand inquired as to Cendant's plans
for Avis' senior management team following closing of the proposed transaction.
Messrs. Silverman and Holmes responded that Cendant had not yet made decisions
in that regard. Mr. Rand then indicated that he would like to communicate the
announcement of the transaction to Avis' senior management team and act as a
conduit for conversations between them and Cendant with respect to their
employment following the closing of the transaction.
On November 6, 2000, the Cendant board of directors met and approved
the acquisition of all outstanding shares not beneficially owned by Cendant at a
price of $33.00 per share in cash. The Cendant board authorized Cendant's
management to finalize the terms of the merger agreement and, once finalized, to
execute and deliver the merger agreement. The boards of directors of PHH
Corporation and Avis Acquisition Corp. subsequently approved the merger and the
merger agreement.
On November 8, 2000, Mr. Buckman and a representative of Skadden Arps
telephoned representatives of Cahill Gordon to finalize negotiations with
respect to the significant outstanding issues on the draft merger agreement.
On November 9, 2000, a meeting of the special committee was held with
representatives of Morgan Stanley and Cahill Gordon present. At this meeting,
Morgan Stanley reviewed with the special committee its financial analysis of the
proposed transaction and its draft fairness opinion (subsequently finalized,
executed and delivered at the November 10, 2000 Avis board meeting) and informed
the special committee that Morgan Stanley was prepared to opine that the $33.00
per share cash consideration to be received in the merger was fair, from a
financial point of view, to holders of common stock (other than Cendant and its
affiliates). In addition, at this meeting, Cahill Gordon reviewed the terms of
the merger agreement with the special committee. After full discussion and based
on Morgan Stanley's statement regarding the fairness of the proposed merger
consideration, the special committee unanimously determined that the $33.00 per
share merger consideration was fair to the public holders of Avis common stock
and to recommend to our board of directors that the board declare the merger
advisable and in the best interests of Avis and its stockholders, approve the
merger agreement and determine to recommend that the Avis stockholders vote to
adopt the merger agreement.
On November 10, 2000, our board of directors met to receive the special
committee's recommendation and to consider and vote upon the merger agreement.
At this meeting, the special committee described for our board of directors the
process it had followed in connection with the transaction, as well as the
factors considered and reasons for the special committee's recommendation. In
addition, at this meeting, Morgan Stanley reviewed with our board of directors
its financial analysis of the proposed transaction and delivered to the special
committee and the board its written opinion to the effect that, as of that date
and based on and subject to the matters described in the written opinion, the
consideration to be received by the holders of common stock (other than Cendant
and its affiliates) pursuant to the merger agreement was fair, from a financial
point of view, to such holders. In addition, at this meeting, White & Case
reviewed with our board of directors its fiduciary duties in connection with its
consideration of the merger agreement. After the discussion, our board of
directors unanimously determined that, based on the recommendation of the
special committee and the opinion of Morgan Stanley, the $33.00 per share merger
consideration was fair to the holders of Avis common stock and that the merger
was advisable and in the best interests of Avis and its stockholders, approved
the merger agreement and determined to recommend that the Avis stockholders vote
to adopt the merger agreement.
Following our board of directors' meeting, Avis and Cendant and their
respective legal advisors finalized the disclosure letter required by the merger
agreement, and as of November 11, 2000, executed the merger agreement. Cendant
and Avis announced the merger by press release issued on November 13, 2000.
Opinion of Morgan Stanley
Morgan Stanley has acted as financial advisor to the special committee
in connection with the proposed merger as described under "SPECIAL
FACTORS--Background of the Merger." On November 10, 2000, Morgan Stanley
delivered its opinion to the special committee on behalf of the Avis board that,
as of the date of the opinion and based on and subject to the assumptions,
limitations and qualifications described in the opinion, the consideration to be
received by the holders of shares of Avis common stock, other than Cendant and
its affiliates, pursuant to the merger agreement was fair from a financial point
of view to such holders.
The full text of the written opinion of Morgan Stanley, dated November
10, 2000, which sets forth assumptions made, matters considered and limitations
on the review undertaken in connection with that opinion, is attached to this
proxy statement as Appendix B and is incorporated herein by reference. Avis
stockholders are urged to, and should, read the Morgan Stanley opinion in its
entirety. The Morgan Stanley opinion was provided for the information of the
special committee and our board of directors in their evaluation of the merger,
and the Morgan Stanley opinion is not intended to be, nor does it constitute, a
recommendation as to how any holder of shares should vote with respect to the
merger.
In arriving at its opinion, Morgan Stanley, among other things:
o reviewed certain publicly available financial statements and
other information of Avis;
o reviewed certain internal financial statements and other
financial and operating data concerning Avis prepared by or on
behalf of the management of Avis;
o reviewed certain financial projections prepared by the
management of Avis;
o discussed the past and current operations and financial
condition and prospects of Avis with senior executives of Avis;
o reviewed the reported prices and trading activity for the common
stock;
o compared the financial performance of Avis and the prices and
trading activity of the common stock with that of certain other
comparable publicly traded companies and their securities;
o reviewed the financial terms, to the extent publicly available,
of certain transactions that Morgan Stanley deemed comparable to
the proposed transaction;
o participated in discussions and negotiations among
representatives of Avis and Cendant and their respective
financial and legal advisors;
o reviewed a draft of the merger agreement and certain related
documents; and
o performed such other analyses and considered such other factors
that Morgan Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon,
without independent verification, the accuracy and completeness of the
information reviewed by it for purposes of its opinion. With respect to the
financial projections, Morgan Stanley assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of Avis. In addition, Morgan
Stanley assumed that the merger would be consummated substantially in accordance
with the terms set forth in the merger agreement. Morgan Stanley did not make
any independent valuation or appraisal of the assets or liabilities of Avis, nor
was it furnished with any such appraisals. The Morgan Stanley opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to it as of, the date of the
Morgan Stanley opinion. In arriving at its opinion, with the consent of the
special committee, Morgan Stanley did not solicit interest from any party with
respect to the acquisition of Avis or any of its assets.
In connection with rendering its opinion, Morgan Stanley made a
presentation to the special committee on November 9, 2000 and to our board of
directors on November 10, 2000 with respect to the material analyses it
performed in evaluating the fairness of the consideration proposed to be paid in
the merger to holders of shares of common stock, other than Cendant and its
affiliates. The following is a summary of the material aspects of those
presentations, which includes information presented in tables. In order to fully
understand the financial analyses used by Morgan Stanley, the tables must be
read together with the text that accompanies them. The tables alone do not
constitute a complete description of the financial analyses performed by Morgan
Stanley. The following quantitative information, to the extent based on market
data, is as of November 8, 2000, and does not necessarily indicate current or
future market conditions.
Market and Merger Analysis. Morgan Stanley reviewed for the special
committee the background of discussions with Cendant and its representatives
regarding a possible transaction, and summarized the terms of the proposed
merger as follows:
11/8/2000 8/15/2000 Final
Offer Summary Market Price Cendant Offer Cendant Offer
Price Per Share $30.63 $29.00 $33.00
Implied Market Premium:
One Day Prior to Announcement of Cendant Bid - 20.1% 13.7% 29.4%
8/14/2000 ($25.50)
One Week Prior to Announcement of Cendant Bid - 30.7% 23.7% 40.8%
8/7/2000 ($23.44)
One Month Prior to Announcement of Cendant Bid 30.0% 23.1% 40.1%
- 7/14/2000 ($23.56)
Pre-Announcement 52 Week High - 12/31/1999 19.8% 13.5% 29.1%
($25.56)
Pre-Announcement 52 Week Low - 3/7/2000 ($13.38) 128.9% 116.7% 146.7%
Avis Indexed Price ($24.09) 27.1% 20.4% 37.0%
Ratio of Price to Estimated Fiscal Year 2000 Diluted 9.6x 9.1x 10.3x
Earnings per Share
Ratio of Price to Estimated Fiscal Year 2001 Diluted 7.6x 7.2x 8.2x
Earnings per Share
Ratio of Price to Book Value as of June 30, 2000 1.4x 1.3x 1.5x
Ratio of Adjusted Aggregate Value as of June 30, 4.7x 4.5x 4.9x
2000 to Adjusted Estimated Fiscal Year 2000 EBITDA
Ratio of Adjusted Aggregate Value as of June 30, 4.6x 4.4x 4.8x
2000 to Adjusted Estimated Fiscal Year 2001 EBITDA
As used in this table, the "Avis Indexed Price" was determined by indexing the
price of a share of Avis common stock on August 14, 2000, the date prior to
Cendant's announcement of its bid for Avis, to the performance of the Standard &
Poors 500 Index. Estimated Avis diluted earnings per share for fiscal year 2000
and 2001 were based on IBES mean earnings estimates as of November 8, 2000.
IBES, or the Institutional Brokerage Estimate System, is a data service that
compiles earnings estimates of securities research analysts. "Adjusted Aggregate
Value" for Avis was the aggregate value of Avis as of November 8, 2000 based on
the relevant price for Common Stock, adjusted to exclude debt incurred by Avis
to finance the acquisition of vehicles for its rental and leasing fleets.
"Estimated Adjusted EBITDA" (earnings before interest, taxes, depreciation and
amortization, adjusted to exclude vehicle-related depreciation and
vehicle-related interest expense) amounts for fiscal years 2000 and 2001 were
based on Avis management's forecasts provided to Morgan Stanley. Financial
information for Avis was as of June 30, 2000.
Relative Trading Analysis. Morgan Stanley reviewed with the special
committee its analysis of the trading history of Avis common stock against the
S&P 500 Index, Hertz Corporation and an index of publicly traded car rental
companies consisting of ANC Rental Corporation, Dollar Thrifty Automotive Group,
Inc. and Budget Group, Inc. Morgan Stanley believed that this analysis informed
its conclusions as to fairness by providing information regarding trends in
market valuation in recent periods of companies comparable to Avis, including
the notable decline in market values of car rental companies during September,
2000.
Price Performance from December 31, 1997 to November 8, 2000
Avis Common Stock -4.1%
Car rental company index -71.5%
Hertz Corporation common stock -15.7%
S&P 500 Index 45.2%
Price Performance from December 31, 1999 to November 8, 2000
Avis Common Stock 19.8%
Car rental company index -45.5%
Hertz Corporation common stock -32.3%
S&P 500 Index -4.1%
Cendant's public announcement of its initial offer to purchase Avis
occurred on August 15, 2000.
Comparable Company Trading Analysis. Morgan Stanley analyzed the
multiples of market price to IBES 2001 earnings per share estimates for a group
of publicly traded companies that shared similar characteristics with Avis. This
group included Hertz Corporation, ANC Car Rental Corporation, Dollar Thrifty
Automotive Group, Inc. and Budget Group, Inc. Morgan Stanley used this analysis
because it believed that applying the price to 2001 earnings per share multiples
of Avis's peer companies to Avis's forecast earnings per share provided
additional insight into the potential trading range for Avis Common Stock on a
standalone basis and that this information assisted in evaluating the proposed
consideration in the merger. Based on this analysis, Morgan Stanley applied a
reference range of price-to-earnings multiples for the peer group of 5.0x to
6.5x, which implied the following indicative reference ranges for the value of
Avis Common Stock:
Source of Estimate of Avis 2001 2001 P/E Multiple Range for
Earnings per Share Comparable Companies Implied Value per Share
Low High Low High
- ---------------------------------------- ------------------- ------------------ ------------------- ------------------
IBES ($4.01 per share) 5.0x 6.5x $20 $26
Management ($4.15 per share) 5.0 6.5 $21 $27
Component Trading Analysis. Morgan Stanley determined an equity value
range for each of Avis' three principal lines of businesses, represented by its
vehicle rental operations, PHH North America and Wright Express, based on the
portion of Avis management's estimated 2001 pre-tax income and 2001 net income
for Avis allocable to each of those businesses and a range of multiples of price
to estimated 2001 earnings derived from the financial and market data of
publicly traded companies that Morgan Stanley deemed comparable to each of these
businesses. Morgan Stanley performed this analysis because it provided an
additional independent factor in evaluating fairness, in that it permitted
Morgan Stanley to create a component valuation using as reference points
investor valuations of publicly traded companies that were similar to each of
Avis' three main business lines. In determining the net income allocable to each
of the three businesses, Morgan Stanley assumed a pro rata allocation of $60
million in pre-tax corporate expenses of Avis and $19 million in dividends on
Avis preferred stock to each of the businesses based on its contribution to
pre-tax income.
To establish equity value ranges for the three principal lines of
business of Avis, Morgan Stanley applied ranges of price-to-earnings ratios
derived from financial data about companies Morgan Stanley considered to be
peers of each of the three lines of business.
2001 P/E Multiple Range for Implied Equity Value
Peers
2001 pre-tax 2001 Net Low High Low High
income ($MM) Income ($MM)
- ------------------------------- -------------- --------------- -------------- -------------- ------------ ------------
Vehicle Rental $156 $87 4.5x 6.0x $393 $524
PHH North America 64 36 6.0 8.0 217 289
Wright Express 22 12 14.0 16.0 173 198
-------------- --------------- ------------ ------------
242 136 783 1,012
Equity Value Per Share $25 $33
Precedent Premiums Paid. Morgan Stanley reviewed publicly available
information for selected completed or pending transactions to determine the
implied premiums payable in transactions over recent trading prices. The
transactions selected were transactions that were announced between January 1,
1995 and November 8, 2000 in which the acquiring company owned 50% or more of
the common stock of the target company prior to the transaction. Morgan Stanley
performed this analysis because it believed that examining premiums paid in
precedent mergers between affiliated companies and comparing them to the
proposed merger provided a useful reference point in determining whether the
consideration offered in this merger was fair from a financial point of view.
Morgan Stanley believed that such transactions, in which there appeared to be a
controlling shareholder prior to announcement, formed an appropriate basis for
comparison to the proposed merger in view of all of the circumstances, including
not only Cendant's current equity ownership of Avis (including both common and
convertible preferred stock) but also the fact that Cendant's ownership of the
Wizard System and the Avis System License, and its rights under the master
licensing agreement with Avis, effectively make it impractical for a third party
to pursue any acquisition of Avis without Cendant's consent.
Based on this review, Morgan Stanley applied a range of market premiums
from 20% to 30% to the implied reference valuation ranges derived from the
Comparable Company Trading Analysis described above and to the market price for
Avis common stock on August 14, 2000, the day before the public announcement of
Cendant's initial bid.
Implied Price Per Share Premium Range Implied Value Per Share
Low High Low High Low High
- -------------------------------------- ------------ ------------- ------------ ----------- ------------- -------------
Value Range Derived from Com- $20 $26 20% 30% $24 $34
parable Companies Trading Analysis -
IBES
Value Range Derived from Com- 21 27 20 30 25 35
parable Companies Trading Analysis -
Management
Price of Avis Common Stock, August 25.50 20 30 31 33
14, 2000
Discounted Cash Flow Analysis. Morgan Stanley performed a discounted
cash flow analysis to determine an indicative range of present values per share
of common stock, assuming Avis continued to operate as a standalone entity.
Morgan Stanley performed this analysis because it provided additional insight
into the possible value of Avis Common Stock based on management's expectations
of Avis' fundamental financial performance and the cash flows such performance
could theoretically deliver to investors. This range was determined by adding
(1) the present value of the estimated future unlevered free cash flows that
Avis could generate over the four-year period from 2000 to 2004, and (2) the
present value of Avis' "terminal value" at the end of year 2004, and then
adjusting these aggregate values to equity values by subtracting net debt and
preferred stock. To determine the unlevered free cash flows and the Avis
terminal value, Morgan Stanley utilized financial information provided in Avis
management's financial forecasts. The Avis "terminal value" at the end of the
period was determined by applying a range of multiples of Adjusted Aggregate
Values to forward Adjusted EBITDA to estimated 2005 Adjusted EBITDA. Year 2005
Adjusted EBITDA was determined by extrapolating 2004 Adjusted EBITDA at its
forecast growth rate for 2004. Morgan Stanley used a forward Adjusted Aggregate
Value to Adjusted EBITDA multiple range of 2.75x to 3.25x, and a discount rate
range to discount cash flows back to present value of 9 to 11%. This discount
rate range was determined to be appropriate by Morgan Stanley based on its
estimates of Avis' weighted average cost of capital, which considered the cost
of Avis' preferred stock and debt securities (estimated from market rates on
Avis' securities where publicly traded and otherwise on comparable securities)
and of Avis' common equity (estimated using the capital asset pricing model).
The final discount rate range was determined by weighting these individual
inputs according to their proportionate composition in Avis' total capital
structure. Based on the above analysis, the indicative per share value reference
range for the common stock was approximately $29 to $38.
The preceding is a summary of each of the material financial analyses
furnished by Morgan Stanley to the special committee and our board of directors,
but does not purport to be a complete description of the analyses performed by
Morgan Stanley in connection with the Morgan Stanley opinion. The preparation of
financial analyses and fairness opinions is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary description. Morgan Stanley made no attempt to assign specific weights
to particular analyses or factors considered, but rather made judgments as to
the significance and relevance of all of the analyses and factors considered as
a whole to give its fairness opinion as described above. Accordingly, Morgan
Stanley believes that its analyses, and the summary set forth above, must be
considered as a whole, and that selecting portions of the analyses and of the
factors considered by Morgan Stanley, without considering all of the analyses
and factors, could create a misleading or incomplete view of the processes
underlying the analyses conducted by Morgan Stanley and its opinion. With regard
to the comparable companies or transactions used in various of the analyses
summarized above, Morgan Stanley selected comparable public companies or
transactions, as the case may be, on the basis of various factors, including the
size and similarity to Avis or the line of business in question or the merger,
as applicable. However, no company or transaction used as a comparison in these
analyses is identical to Avis or the merger, as the case may be. As a result,
these analyses are not purely mathematical, but also take into account
differences in financial and operating characteristics of the subject companies
or transactions to which Avis or the merger is being compared. In its analyses,
Morgan Stanley made numerous assumptions with respect to Avis, industry
performance, general business, economic, market and financial conditions, and
other matters, many of which are beyond the control of Avis. Any estimates
contained in Morgan Stanley's analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by these analyses. Estimates of
values of companies do not purport to be appraisals or necessarily to reflect
the prices at which companies may actually be sold. Because these estimates are
inherently subject to uncertainty, none of Avis, the special committee, our
board of directors, Morgan Stanley or any other person assumes responsibility if
future results or actual values differ materially from the estimates.
Morgan Stanley's analyses were prepared solely as part of Morgan
Stanley's analysis of the fairness of the consideration to be paid to holders of
common stock, other than Cendant and its affiliates, pursuant to the merger
agreement and were provided to the special committee and to our board of
directors in that connection. The Morgan Stanley opinion was only one of the
factors taken into consideration by the special committee in making its
determination to recommend that our board of directors approve the merger
agreement.
The special committee retained Morgan Stanley based upon its experience
and expertise. Morgan Stanley is a nationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
Morgan Stanley is a full-service securities firm engaged in securities
trading and brokerage activities, financing and financial advisory services in
addition to its investment banking activities. In the ordinary course of
business, Morgan Stanley may from time to time trade in the securities or
indebtedness of Cendant or Avis for its own account, the accounts of investment
funds and other clients under management of Morgan Stanley and for the accounts
of its customers and, accordingly, may at any time hold a long or short position
in these securities or indebtedness.
Pursuant to Morgan Stanley's engagement letter, Avis agreed to pay
Morgan Stanley an advisory fee upon commencement of its engagement of $750,000
and $50,000 per month for each month of the engagement thereafter. Avis also
agreed to pay Morgan Stanley an opinion fee of $2 million upon and in connection
with Morgan Stanley delivering its fairness opinion, and an additional fee of
$100,000 for each "bring down" or other opinion letter Morgan Stanley provides.
If a sale of Avis (including the merger) is accomplished, Avis has agreed to pay
Morgan Stanley a transaction fee equal to approximately $8.5 million, against
which fee any fees paid pursuant to the immediately preceding two sentences will
be credited. In addition, Avis also has agreed to reimburse Morgan Stanley for
its reasonable travel and other transaction expenses incurred in connection with
its engagement and to indemnify Morgan Stanley and its affiliates against
certain liabilities and expenses relating to or arising out of its engagement.
The full text of Morgan Stanley's presentation to the special committee
on November 9, 2000 and to the Avis board of directors on November 10, 2000 has
been included as Exhibit (c)(2) to the Schedule 13E-3 filed by Avis and Cendant
in connection with the merger, and the foregoing summary is qualified by
reference to that exhibit. The full text of Morgan Stanley's presentation also
is available for inspection and copying at the corporate offices of Avis during
our regular business hours.
Reasons for the Recommendations of the Special Committee and our Board of
Directors
In view of the wide variety of factors considered in connection with
the evaluation of Cendant's offer, the special committee and our board of
directors did not find it practicable to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors they considered in
reaching their determinations. In reaching their recommendations, the special
committee and our board of directors considered a number of factors both for and
against recommending the merger, including the following:
o The presentations made by Morgan Stanley to the special
committee on November 9, 2000 and to our board of directors on
November 10, 2000 and their opinion as of November 10, 2000
that, based on and subject to the assumptions, limitations and
qualifications described in the opinion, the merger
consideration of $33.00 per share of common stock was fair from
a financial point of view to Avis stockholders (other than
Cendant and its affiliates). The special committee and our board
of directors considered Morgan Stanley's presentations and
opinion to be factors that weighed in favor of the merger.
o The merger consideration of $33.00 per share of common stock
represents a premium of 29.4% over the closing price per share
on August 14, 2000, the day before Cendant first publicly
announced its preliminary non-binding proposal to acquire Avis,
and a premium of 40.8% over the closing price per share on
August 7, 2000, one week prior to Cendant's announcement. The
special committee and our board of directors considered these
premiums to be a factor that weighed in favor of the merger.
o The special committee's belief that, after extensive
negotiations by and on behalf of the special committee with
Cendant and its representatives, Avis has obtained the highest
price per share that Cendant is willing to pay. The special
committee and our board of directors considered this to be a
factor that weighed in favor of the merger.
o The fact that our board of directors delegated broad powers to
the special committee in conducting its evaluation of Cendant's
offer, negotiating with Cendant and in considering and pursuing
other strategic alternatives to a transaction with Cendant. The
special committee and our board of directors considered this to
be a factor in favor of the merger.
o The likelihood that a third party would be willing to offer a
higher price than Cendant in light of:
(1) Cendant being Avis' largest stockholder with approximately
17.8% voting common equity interest and an approximately 33%
economic interest, taking into account Cendant's convertible
preferred stock investment on an as converted basis
(recognizing, however, that such preferred stock is not likely
to be convertible prior to the special meeting and, therefor
cannot be voted in connection with the merger);
(2) the fact that Cendant owns the Wizard System and the Avis
System License, and that Cendant's rights under the master
license agreement with Avis could be a deterrent to any
potential third party acquiror involved in a change of control
transaction with Avis;
(3) the fact that Avis must pay a royalty to Cendant under the
master license agreement, which significantly reduces Avis'
operating margins;
(4) the likelihood that Cendant stands to realize more
operational benefits and cost savings by acquiring Avis'
business than would other third party acquirors; the special
committee's and our board of directors' belief that Avis'
business would add more value to Cendant than it would to other
potential acquirors led them to conclude that Cendant would be
able to offer more for Avis than would other potential
acquirors, particularly in light of the royalty fee under the
master license agreement which would need to be paid by any
other third party acquiror; and
(5) the fact that, in the nearly three months between Cendant's
August 15, 2000 public announcement of its preliminary offer to
acquire Avis and the special committee's decision to recommend
approval of the Merger on November 9, 2000, no third party came
forward with an offer or proposal to acquire Avis.
The special committee and our board of directors considered
these to be factors which would significantly impede the
likelihood of a superior offer and, as such, considered them to
be factors weighing in favor of the merger.
o The internally generated financial forecasts for Avis compiled
by Avis' management, the risks associated with meeting those
projections, the fact that Avis has historically achieved the
results projected in management produced projections, and the
possible future values of Avis' stock if the projections are, or
are not, met. See "SPECIAL FACTORS-- Our Forecasts". Although
different assumptions about the future performance of Avis in
relation to these projections may have dictated in favor or
against the merger depending on the assumptions made, on
balance, the special committee and our board of directors
considered these projections to be a factor in favor of the
merger. There are numerous assumptions relating to, among other
things, industry performance, market and financial conditions,
as well as factors not within the control of a company, that
must be made in attempting to determine the value of a company
by projecting future cash flows. While the special committee and
our board of directors were aware that the upper range of
implied value obtained from a discounted cash flow analysis
derived from Avis' projections was in excess of $33.00 per
share, they believed that the opportunity to achieve $33.00 per
share under the terms of the merger agreement was a superior
alternative to attempting to achieve value in excess of $33.00
per share as an independent publicly traded company because of
the risks associated with the assumptions underlying an implied
value of Avis common stock in excess of $33.00 per share, which
assumptions included achieving the financial results set forth
in Avis' projections as well as market conditions occurring
which would provide favorable valuation multiples. In
determining the independent going concern value of Avis for
purposes of determining the fairness of the merger, the special
committee relied to a significant extent upon the financial
analyses performed by Morgan Stanley summarized in "SPECIAL
FACTORS - Opinion of Morgan Stanley." While the special
committee relied upon the expertise of Morgan Stanley as an
internationally recognized investment banking firm in performing
such analyses, the special committee is in concurrence with the
conclusions resulting from such analyses and adopted them for
purposes of its evaluation of Cendant's offer.
o Avis' position as one of the industry leaders in terms of market
share and revenue in the car rental and fleet leasing industries
and Avis' strong historical financial performance relative to
its peers. The special committee and our board of directors
considered this to be a factor that weighed against the merger.
The special committee and the board of directors believed that
Avis could continue to operate successfully as an independent
publicly traded company and that Avis did not have to consummate
an extraordinary transaction such as the merger as a result of
any operating, management or similar difficulties. They
believed, however, that the merger consideration of $33.00 per
share was a superior alternative to continuing to operate Avis
independently in view of the uncertainty inherent in forecasting
future operational performance and market conditions and thus in
concluding that a share price in excess of $33.00 would be
achieved in the foreseeable future.
o The pricing volatility in the car rental market increases the
risk associated with achieving Avis' financial forecasts. The
special committee and our board of directors considered this to
be a factor that weighed in favor of the merger.
o The fact that Avis currently has a high proportion of debt
capital relative to its peers and that it has significant future
debt obligations and a high level of future interest rate
exposure. The special committee and our board of directors
believed that Avis' higher debt service obligations and exposure
to fluctuations in interest rates made Avis' financial condition
relatively more precarious as compared to its less leveraged
peers, thereby placing it at a potential competitive
disadvantage. The special committee and our board of directors
considered this to be a factor that weighed in favor of the
merger.
o The fact that stock market prices for public car rental
companies have generally shown declines since mid-1999 and have
underperformed the S&P 500 Index during 1999 and 2000. The
special committee and our board of directors believed that these
trends represented significant impediments, beyond the control
of Avis' management, to attaining a greater going concern value
for Avis than the value of the merger consideration. The special
committee and our board of directors considered these to be
factors that weighed in favor of the merger.
o The likely trading prices of Avis' stock, in the short term and
long term, in the event that Cendant's offer was withdrawn or
rejected. The special committee and our board of directors
believed that the likely short term effect of Cendant's offer
being withdrawn or rejected would be a significant decline in
the value of Avis' common stock. In addition, as discussed
above, the special committee and our board of directors believed
that there are significant risks to attaining a trading price in
excess of the merger consideration for Avis' stockholders in the
long term. The special committee and our board of directors
considered this to be a factor that weighed in favor of the
merger.
o The fact that, under the merger agreement, Cendant's offer is
not subject to a financing condition. The special committee and
our board of directors believed that Cendant has sufficient
available financial resources to consummate the merger and that
the lack of a financing contingency increased the likelihood
that the merger would be consummated. The special committee and
our board of directors considered this to be a factor in favor
of the merger.
o The fact that, under the merger agreement, Avis has the right to
terminate the merger agreement after the special meeting (if
stockholders do not vote to adopt the merger agreement) if the
special committee, after receiving an unsolicited superior
proposal to be acquired by a third party, determines (after
receipt of advice from its outside legal counsel) that a failure
to take such action would constitute a breach of its fiduciary
duties, and that our board of directors and special committee
have the right to change their recommendations to Avis
stockholders (after receipt of advice from its outside legal
counsel) if a failure to take such action would constitute a
breach of their respective fiduciary duties. The special
committee and our board of directors also considered that if
Avis so terminates the merger agreement or the special committee
or our board of directors makes a determination to change their
recommendations, Avis will be required to pay a $28 million fee
to Cendant and to reimburse up to $2.5 million of Cendant's
transaction expenses. The special committee and our board of
directors considered these to be factors that weighed in favor
of the merger.
o The fact that the merger agreement provides that, among other
conditions, in order for the merger to occur, in addition to the
requirements of Delaware law, a majority of the shares held by
stockholders other than Cendant and its subsidiaries which are
represented and voted at the special meeting will have to be
voted in favor of adoption of the merger agreement. The special
committee and our board of directors considered this to be a
factor that weighed in favor of the merger.
o The likelihood that while some stockholders will prefer to
receive cash for their shares, some may have preferred to
continue as stockholders of Avis, and that if the merger is
completed, all stockholders (other than Cendant and its
subsidiaries) will receive cash for their shares, and thus it
will no longer be possible for stockholders, other than Cendant
and its subsidiaries, to maintain an equity ownership interest
in Avis and that the merger will be a taxable transaction to
Avis stockholders who receive cash in the merger. The special
committee and our board of directors considered this to be a
factor that weighed against the merger.
o The fact that appraisal rights will be available under Delaware
law with respect to the merger. The special committee and our
board of directors considered this to be a factor that weighed
in favor of the merger.
o The fact that three members of our board of directors are also
members of Cendant's board of directors, one of whom is also an
executive officer of Cendant. While the special committee and
our board of directors did not consider this to be a factor in
favor of or against the merger, it was a significant factor in
the manner in which the special committee conducted itself with
respect to ensuring that vigorous negotiations with Cendant on
behalf of Avis' public stockholders took place.
o The special committee and our board of directors did not
consider book value to be a material factor in their
consideration of the merger because they did not believe that
Avis and its publicly traded peers trade on the basis of book
value.
o The special committee and our board of directors did not
consider the liquidation value of Avis' assets to be a material
factor in their consideration of the merger because they
believed that the value that could be obtained through a
liquidation of Avis' assets would be significantly less than the
value that could be obtained through a sale of Avis' business as
a going concern.
o The special committee and our board of directors did not
consider the prices paid by Avis in prior stock repurchases (See
"OTHER MATTERS--Transactions in Common Stock by Certain
Persons") to be a material factor in their consideration of the
merger, because those stock purchases did not result in a change
of control in Avis as the merger will if consummated.
o While the special committee received a presentation from each of
Bear Stearns and Lehman Brothers as described in "Background of
the Merger", they did not put significant weight on these
presentations in their consideration of the merger because they
had retained their own financial advisor, Morgan Stanley, who
was independent of both Avis management and Cendant and whose
obligations were to the special committee alone.
Our Forecasts
In connection with Cendant's review of Avis and in the course of the
negotiations between Avis, the special committee and Cendant described in
"SPECIAL FACTORS--Background of the Merger," Avis provided Cendant with certain
non-public business and financial information. This information was also
provided to Morgan Stanley and was used by Morgan Stanley in its analysis of the
fairness of the cash merger consideration to be received by the public
stockholders. See "SPECIAL FACTORS--Opinion of Morgan Stanley." The non-public
information provided by Avis included certain forecasts of the future operating
performance of Avis. The Avis forecasts include management forecasts of: (1)
Avis' revenues, (2) adjusted EBITDA, (3) pre-tax income, and (4) diluted
earnings per share, as of July 28, 2000 which covered the years 2000 through
2004. The special committee and our board or directors also reviewed the Avis
forecasts in connection with approving the merger agreement and the merger.
Avis does not, as a matter of course, publicly disclose forecasts as to
future revenues or earnings. The Avis forecasts were not prepared with a view to
public disclosure and are included in this proxy statement only because such
information was made available to Cendant in connection with its due diligence
investigation of Avis and was considered by the special committee and our board
of directors in connection with approving the merger agreement and the merger.
Accordingly, it is expected that there will be differences between actual and
forecasted results, and actual results may be materially different than those
set forth below. The Avis forecasts were not prepared with a view to comply with
the published guidelines of the SEC regarding forecasts, nor were they prepared
in accordance with the guidelines established by the American Institute of
Certified Public Accountants for preparation and presentation of financial
forecasts. Moreover, Deloitte & Touche LLP, Avis' independent auditors, has not
examined, compiled or applied any procedures to the Avis forecasts in accordance
with standards established by the American Institute of Certified Public
Accountants and expresses no opinion or any assurance on their reasonableness,
accuracy or achievability. These forward-looking statements reflect numerous
assumptions made by Avis' management, many of which are inherently uncertain and
subject to change. In addition, factors such as industry performance, rental car
pricing, general business, economic, regulatory, and market and financial
conditions, all of which are difficult to predict, may cause the Avis forecasts
or the underlying assumptions to be inaccurate. Accordingly, there can be no
assurance that the Avis forecasts will be realized, and actual results may be
materially more or less favorable than those contained in the Avis forecasts.
The inclusion of the Avis forecasts herein should not be regarded as an
indication that the special committee, our board of directors, Avis, Cendant or
any of their respective financial advisors considered or consider the Avis
forecasts to be a reliable prediction of future events, and the Avis forecasts
should not be relied upon as such. To the extent the Avis forecasts represent
Avis management's best estimate of possible future performance, such estimate is
made only as of the date of such forecasts and is not made as of any later date,
and stockholders should take this into account when evaluating any factors or
analyses based on the Avis forecasts.
The Avis forecasts that Avis provided to Cendant and that Morgan
Stanley used in rendering its fairness opinion and the special committee and our
board of directors reviewed in connection with approving the merger agreement
and the merger are summarized below:
($ in millions except diluted earnings per share)
Fiscal Years Ended December 31,
-------------------------------------------------------------------------------
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
Revenue.............. $4,215 $4,311 $4,559 $4,822 $5,105
Adjusted EBITDA...... $412 $419 $467 $522 $583
Pre-tax Income....... $217 $278 $318 $364 $419
Diluted Earnings Per
Share................ $3.23 $4.15 $4.83 $5.58 $6.48
Avis' Position as to the Fairness of the Merger
We believe the merger to be fair to our stockholders, other than
Cendant and its subsidiaries, based upon numerous factors, including the
following material factors:
o the fact that the merger consideration represents a 29.4%
premium over the closing price of our common stock on the last
full trading day prior to Cendant's August 15, 2000 announcement
of the Preliminary Proposal and exceeds recent historical market
prices of our common stock (see "INTRODUCTION--Comparative
Market Price Data");
o the approval of the merger by all of the members of the special
committee and the fact that the members of the special
committee, based on the factors described in "SPECIAL
FACTORS--Reasons for the Recommendations of the Special
Committee and our Board of Directors," determined that the
merger is fair to and in the best interests of Avis and our
stockholders, other than Cendant and its subsidiaries, and
declared that the merger agreement is advisable;
o the opinion of Morgan Stanley that the merger consideration to
be received by our stockholders, other than Cendant and its
subsidiaries, was fair from a financial point of view to our
stockholders, other than Cendant and its subsidiaries;
o the fact that the merger agreement was extensively negotiated
between the representatives of the special committee and
representatives of Cendant;
o the fact that the special committee engaged Morgan Stanley, a
leading internationally recognized investment bank, and that
Morgan Stanley rendered an opinion as to the fairness of the
merger consideration, from a financial point of view, to our
stockholders, other than Cendant and its affiliates, was a
relevant factor in the determination by our board of directors
that the merger is fair to our stockholders, other than Cendant
and its subsidiaries; and
o the factors considered by the special committee and our board of
directors, and the analysis of the special committee and our
board of directors referred to under "SPECIAL FACTORS--Reasons
for the Recommendations of the Special Committee and our Board
of Directors."
Avis believes that the transaction was procedurally fair to Avis
stockholders (other than Cendant and its affiliates) because:
o the merger must be approved by a majority of the votes cast at
the special meeting by holders of Avis common stock other than
Cendant and its subsidiaries;
o the members of the special committee who negotiated the
transaction on behalf of the stockholders of Avis who are not
employees of Avis and are not affiliated with Cendant;
o the special committee retained Morgan Stanley, who is not
affiliated with Cendant or Avis' management, to serve as
independent financial advisor to the special committee and to
render a fairness opinion with respect to the merger;
o the special committee engaged Cahill Gordon, who is not
affiliated with Cendant or Avis' management, to serve as
independent legal advisor to the special committee; and
o the merger was unanimously approved by the board of directors of
Avis, including all of the members of the board of directors of
Avis who are neither employees of Avis nor affiliates of
Cendant.
After considering the foregoing, we believe the merger consideration to
be fair to our stockholders, other than Cendant and its subsidiaries. In
reaching this determination we have not assigned specific weights to particular
factors, and considered all factors as a whole. None of the factors that we
considered led us to believe that the merger was unfair to the stockholders,
other than Cendant and its subsidiaries.
None of the members of our board of directors, in their respective
capacity as such, received any reports, opinions or appraisals from any outside
party relating to the merger or the fairness of the consideration to be received
by the stockholders, other than those received from Morgan Stanley, Bear Stearns
and Lehman Brothers. See "SPECIAL FACTORS--Interests of Executive Officers and
Directors in the Merger", "OTHER MATTERS--Preliminary Presentation by Bear
Stearns" and "OTHER MATTERS--Preliminary Presentations by Lehman Brothers."
Cendant's, PHH Corporation's and Avis Acquisition Corp.'s Position as to the
Fairness of the Merger; Cendant's Reasons for the Merger
Cendant, PHH Corporation and Avis Acquisition Corp. believe that the
consideration to be received in the merger by Avis stockholders (other than
Cendant and its subsidiaries) is fair to such holders. This belief is based on
the following factors:
o the special committee and its advisors successfully negotiated
to increase the consideration to be paid to Avis stockholders in
the merger from $29.00 to $33.00 per share;
o the consideration to be paid in the merger represents a 29.4%
premium over the reported closing price of shares on the last
full trading day prior to Cendant's August 15, 2000 announcement
of the Preliminary Proposal, and a 40.1% premium to the closing
price one month prior to such announcement;
o the merger will provide consideration to the Avis stockholders
entirely in cash and is not subject to any financing conditions;
o the consideration to be paid in the merger represents a multiple
of 10.6 times Avis' earnings per share for the twelve month
period ended September 30, 2000;
o the historical financial performance of Avis and the risks
associated with Avis continuing to achieve its strong financial
performance, including economic conditions, industry pressures
such as pricing volatility, and interest rate fluctuations;
o the forecasts for Avis provided to Cendant by Avis' management,
as described in "SPECIAL FACTORS - Our Forecasts," which, when a
range of price-to-earnings multiples were applied to the
estimated earnings in such forecasts, indicate possible future
values of Avis as a going concern, and the risks associated with
meeting those projections;
o since August 15, 2000, Cendant's Preliminary Proposal and Avis'
availability as an acquisition candidate have been known in the
investment community and in the business community, and neither
Avis nor its advisors has received any proposals to date for the
acquisition of Avis; and
o the ability of stockholders to obtain "fair value" for their
shares if they exercise and perfect their appraisal rights under
the Delaware law.
Cendant, PHH Corporation and Avis Acquisition Corp. believe that the
merger is procedurally fair to Avis' stockholders (other than Cendant and its
subsidiaries). This belief is based on the following factors:
o the merger consideration and the other terms and conditions of
the merger agreement were the result of good faith negotiations
between Cendant and the special committee, consisting of
non-management directors not affiliated with Cendant, and their
respective advisors;
o the special committee retained Morgan Stanley, who is not
affiliated with Cendant or Avis' management, to serve as
independent financial advisor to the special committee, and the
special committee received a fairness opinion from Morgan
Stanley as to the $33.00 per share merger consideration;
o the special committee engaged Cahill Gordon, who is not
affiliated with Cendant or Avis' management, to serve as
independent legal advisor to the special committee;
o the merger was unanimously approved by the board of directors of
Avis, including all of the members of the board of directors of
Avis who are neither employees of Avis nor affiliates of
Cendant; and
o the merger is conditioned upon approval by the holders of a
majority of the votes cast at the special meeting by holders of
shares of common stock other than Cendant and its subsidiaries.
Cendant, PHH Corporation and Avis Acquisition Corp. considered each of
the foregoing factors to support its determination as to the fairness of the
merger. None of Cendant, PHH Corporation or Avis Acquisition Corp. found it
practicable to assign, nor did it assign, relative weights to the individual
factors considered in reaching its conclusion as to fairness. The liquidation of
Avis' assets was not considered to be a viable course of action based on
Cendant's desire for Avis to continue to conduct its business following the
merger as an indirect subsidiary of Cendant. Therefore, no appraisal of
liquidation value was sought for purposes of valuing the Avis shares. Cendant,
PHH Corporation and Avis Acquisition Corp. do not consider the book value of
Avis to be a material factor in their belief that the merger consideration is
fair because they believe that book value is not a true indication of the value
of Avis. In addition, Cendant, PHH Corporation and Avis Acquisition Corp. did
not consider the purchase prices paid in previous purchases of Avis stock, as
described in "OTHER MATTERS - Transactions in Common Stock by Certain Persons,"
to be a material factor in their consideration of the merger, because the prices
paid in those stock purchases may not reflect the value of Avis as a whole.
Moreover, while Morgan Stanley provided the special committee with a fairness
opinion with respect to the merger, Cendant did not rely on the analyses in such
opinion since it was specifically addressed to the special committee and Morgan
Stanley was not retained by Cendant. In addition, although Bear Stearns and
Lehman Brothers did prepare presentations for the special committee, as
described in "OTHER MATTERS--Preliminary Presentation by Bear Stearns" and
"OTHER MATTERS--Preliminary Presentations by Lehman Brothers," Cendant did not
rely on such presentations in its determination of fairness of the merger since
such presentations did not make any recommendations or draw any conclusions as
to the fairness of the consideration to be received by Avis stockholders in the
merger. Although Lehman Brothers generally assisted in this transaction and, in
particular, analyzed the financial aspects of the proposed transaction, advised
Cendant on negotiating strategies, participated in negotiations with Avis and
Morgan Stanley and analyzed Avis' forecasts and assumptions therein, Lehman
Brothers did not deliver a fairness opinion as to the $33.00 per share price to
be received by holders of Avis shares and did not provide Cendant, PHH
Corporation or Avis Acquisition Corp. with any reports, opinions or appraisals.
The foregoing discussion of the information and factors considered and
weight given by Cendant, PHH Corporation and Avis Acquisition Corp. is not
intended to be exhaustive but is believed to include all material factors.
Purpose and Structure of the Merger
The purpose of the merger is for Cendant to increase its ownership of
Avis from approximately 17.8% to 100% and to permit Avis stockholders to realize
a significant premium to market prices for their shares. Cendant determined to
undertake the merger at this time in light of changes in the respective business
models of Cendant and Avis since the time of the Avis IPO, including Cendant's
decision to enhance its travel-related businesses and changes in the manner by
which Avis finances vehicles in its rental fleet. The transaction will result in
Avis having improved access to investment grade capital, allowing it to better
compete with other participants in the rental car and vehicle management
industries. In addition, undertaking the transaction would eliminate the
concerns expressed by Mr. Rand at the April 19, 2000 meeting, such as the
royalty obligations under the master license agreement with Cendant and the
"overhang" resulting from Cendant's equity position in Avis. As a result, Avis
will be in a better position to participate in any potential consolidation in
the industry. In addition, Avis determined to undertake the transaction at this
time based on the recommendation of the special committee, which recommendation
was based on the reasons described in "SPECIAL FACTORS--Reasons for the
Recommendations of the Special Committee and our Board of Directors". As a
result of the merger, Avis will become an indirect wholly-owned subsidiary of
Cendant. The reason the acquisition has been structured as a merger is to effect
a prompt and orderly transfer of ownership of Avis from the public stockholders
to Cendant and provide Avis stockholders with cash for all of their shares. Avis
and Cendant also considered structuring the acquisition as a tender offer, to be
followed by a merger of Avis into a subsidiary of PHH Corporation, as a
potential method to expedite closing of the transaction. Such alternative
structure was not pursued, however, in light of the governmental and third party
consents required to consummate the acquisition under either structure, which
could postpone the closing of a tender offer, thereby negating any potential
benefit of such structure over the merger structure.
The board of directors of each of Cendant, PHH Corporation and Avis
Acquisition Corp. believes that undertaking the proposed transaction in this
form and at this time represents the most attractive way of accomplishing
several strategic business objectives, including Cendant's interest in
increasing its investment in the rental car business and further enhancing its
travel-related businesses, and also joining ownership of the Avis trademark and
the reservation system technology with the business operations of Avis.
Moreover, the acquisition of the publicly held Avis shares is expected to be
immediately accretive to Cendant's earnings, based on the forecasts provided to
Cendant by Avis management, as disclosed in "SPECIAL FACTORS--Our Forecasts",
and assuming the accuracy of the estimated transaction-related costs described
in `THE MERGER--Financing of the Merger." For further background on Cendant's
reasons for the merger, see "SPECIAL FACTORS--Background of the Merger" and
"SPECIAL FACTORS--Cendant's Position as to the Fairness of the Merger; Cendant's
Reasons for the Merger."
Certain Effects of the Merger; Plans or Proposals After the Merger
Following the merger, Avis will be an indirect wholly-owned subsidiary
of Cendant. Cendant currently intends to cause all of the vehicle management and
fuel card businesses operated by Avis Fleet Leasing and Management Corporation
to be retained under PHH Corporation, and all of the Avis car rental operations
to be transferred to Cendant Car Holdings, Inc., an indirect wholly-owned
subsidiary of Cendant that is not part of the PHH Corporation line of
subsidiaries.
Cendant and PHH Corporation will continue after these transactions to
review Avis and its assets, corporate structure, capitalization, operations,
property, management, personnel and policies to determine what changes, if any,
are desirable to best organize and integrate the activities of Avis with
Cendant's other operations. Cendant and PHH Corporation expressly reserve the
right to make any changes that they deem necessary or appropriate in light of
their review or in light of future developments. On January 4, 2001, Mr. Rand
announced that he will leave his position at Avis following completion of the
merger and that, following the merger, he will serve as a special advisor to Mr.
Silverman and Cendant's Board of Directors on terms to be mutually agreed upon.
On January 5, 2001, Cendant announced that, following the merger, Mr. Sheehan
will leave his position at Avis and will become the chief financial officer of
Cendant on terms to be mutually agreed upon.
Except as otherwise described herein, neither Cendant nor PHH
Corporation has any current plans or proposals which relate to or would result
in: (1) an extraordinary corporate transaction, such as a reorganization or
liquidation involving Avis; (2) any purchase, sale or transfer of a material
amount of assets of Avis; (3) any change in the management of Avis or any change
in any material term of the employment contract of any executive officer; or (4)
any other material change in Avis' corporate structure or business.
As a result of the merger, the interest of Cendant in Avis' net book
value and net earnings will increase to 100% and Cendant and its subsidiaries
will be entitled to all benefits resulting from that interest, including all
income generated by Avis' operations and any future increase in Avis' value and
the right to elect all members of the Avis board of directors. Similarly,
Cendant will also bear the risk of losses generated by Avis' operations and any
decrease in the value of Avis after the merger. For U.S. federal income tax
purposes, no gain or loss will be realized by Avis, Cendant, PHH Corporation or
Avis Acquisition Corp. as a result of the merger.
Upon consummation of the merger, Avis will be a privately held
corporation. Accordingly, stockholders will not have the opportunity to
participate in the earnings and growth of Avis after the merger and will not
have any right to vote on corporate matters. Similarly, stockholders will not
face the risk of losses generated by Avis' operations or decline in the value of
Avis after the merger.
Following completion of the merger, the shares will no longer be traded
on the NYSE. In addition, the registration of the shares under the Exchange Act
will be terminated upon application by Avis to the Securities and Exchange
Commission. Accordingly, following the merger, there will be no publicly traded
common stock outstanding.
It is expected that, if the merger is not consummated, Avis' current
management, under the general direction of the our board of directors, will
continue to manage Avis as an ongoing business.
Interests of Executive Officers and Directors in the Merger
In considering the recommendation of our board of directors with
respect to the merger agreement and the transactions contemplated thereby, you
should be aware that, in addition to the matters discussed above, our executive
officers and our board of directors have various interests in the merger
described in this section that are in addition to, or different from, the
interests of our stockholders generally and create potential conflicts of
interest.
Executive Officers
As of the effective time of the merger, all outstanding options to
purchase common stock will become fully vested. The merger agreement provides
that, for each share covered by outstanding stock options at the time of the
merger, the executive officers will have the right to receive a cash payment
equal to the difference between the $33.00 per share merger consideration and
the per share exercise price of such options, referred to as the "spread",
reduced by applicable withholding tax. Alternatively, at the election of any of
our executive officers, rather than receiving such cash payment, such executive
may receive an option to purchase shares of Cendant common stock with
approximately the same value. Any stock options with an exercise price in excess
of the merger consideration will be automatically converted into an option to
purchase shares of Cendant common stock with approximately the same value.
The following table summarizes the total number of shares covered by
options, and the number of such options that are currently held, vested and
unvested, by each executive officer, and all executive officers as a group, as
well as the aggregate amount to which each executive officer and the executive
officers as a group would be entitled if they elected to receive the spread for
all of their options as of the date of this proxy statement:
Common Shares Common Shares Common Shares
Subject to Subject to Subject to All
Vested Options Unvested Options Aggregate
Name of Executive Officer (#) Options1(#) (#) Spread ($)
A. Barry Rand 0 569,333 569,333 $8,006,245
F. Robert Salerno 528,920 581,096 1,110,016 14,224,530
Kevin M. Sheehan 282,300 426,774 709,074 8,626,487
Thomas J. Byrnes 33,840 55,922 89,762 1,179,049
Maria M. Miller2 25,400 0 25,400 225,713
Michael P. Collins 41,060 56,450 97,510 1,310,537
Richard S. Jacobson 7,320 14,714 22,034 261,069
Gerard J. Kennell 39,060 46,712 85,772 1,198,579
James A. Keyes 4,040 16,884 19,924 193,721
Lawrence E. Kinder 14,000 77,442 91,442 495,434
William E. Madison 0 81,262 81,262 992,511
Mark E. Miller 55,000 301,748 356,748 1,925,916
Karen C. Sclafani 18,340 37,380 55,720 567,355
Timothy M. Shanley 33,973 46,438 80,411 1,114,937
EXECUTIVE OFFICERS AS A GROUP 1,083,253 2,312,155 3,395,408 $40,322,083
- ----------
1 All unvested options vest upon completion of the merger.
2 Maria M. Miller resigned as an officer on July 17, 2000.
Employment Agreements
Mr. Rand has an employment agreement with Avis which terminates on
January 1, 2005. Under the terms of his agreement, Mr. Rand is entitled to a
base salary of $700,000, which may be increased annually at Avis' discretion
after review by the Compensation Committee of our board of directors, and a
bonus of up to 100% of base salary. If the employment of Mr. Rand is terminated
by Avis other than for cause (as defined in his agreement) or by Mr. Rand for
good reason (as defined in his employment agreement) within 24 months following
a change in control of Avis, he is entitled to receive a lump sum cash payment
equal to the sum of (1) 36 times his average monthly base salary during the 24
months (or lesser period) preceding his termination, (2) three times the average
annual amount of any bonus for which he was eligible for the last two fiscal
years prior to his termination, and (3) a prorated share of his bonus for the
year in which his termination provided that he was employed by Avis for at least
eight months during that year. Mr. Rand is also entitled to be fully grossed up,
on an after-tax basis, for any excise taxes imposed under the Internal Revenue
Code on any "excess parachute payment" that he receives in connection with the
change in control. On January 4, 2001, Mr. Rand announced that he would leave
his position at Avis following completion of the merger and that following the
merger, he would serve as a special advisor to Mr. Silverman and Cendant's Board
of Directors on terms to be mutually agreed upon.
On January 5, 2001, Cendant announced that following the merger, Mr.
Sheehan will leave his current position with Avis and will become the chief
financial officer of Cendant on terms to be mutually agreed.
Mr. Salerno has an employment agreement with a predecessor company of
Avis which terminates on February 8, 2002. Under the terms of his agreement, Mr.
Salerno is entitled to receive an annual base salary of not less than $400,000,
subject to increase by our board of directors. If the employment of Mr. Salerno
is terminated by Avis in connection with a change in control, he is entitled to
receive his salary for the remaining term of his agreement or for a period of 12
months, whichever is greater, 70% of maximum bonus and certain perquisites under
the agreement in a single lump sum within 30 days following his termination.
Mr. Shanley has an employment agreement with a predecessor company of
Avis which terminates on February 8, 2002. Under the terms of his agreement, Mr.
Shanley is entitled to receive an annual base salary of not less than $172,000,
subject to increase by our board of directors. If the employment of Mr. Shanley
is terminated by Avis in connection with a change in control, he is entitled to
receive his salary for the remaining term of his agreement or for a period of 12
months, whichever is greater, 70% of maximum bonus and certain perquisites under
the agreement in a single lump sum within 30 days following his termination.
Mr. Madison's offer letter provides that, following a change of
control, if his employment is terminated or his responsibilities are
substantially reduced, he is entitled to receive separation pay for 18 months
following the date of termination of his employment. The separation pay is the
aggregate of his base salary and targeted bonus (which is 50% of his base
salary), and is payable bi-weekly. Mr. Madison's current base salary is
$267,000.
Mr. Kennell has an employment agreement with a predecessor company of
Avis which terminates on February 8, 2002. Under the terms of his agreement, Mr.
Kennell is entitled to receive an annual base salary of not less than $177,000,
subject to increase by our board of directors. If the employment of Mr. Kennell
is terminated by Avis in connection with a change in control, he is entitled to
receive his salary for the remaining term of his agreement or for a period of 12
months, whichever is greater, 70% of maximum bonus and certain perquisites under
the agreement in a single lump sum within 30 days following his termination.
Non-Management Directors
As of the effective time of the merger, all outstanding options to
purchase common stock held by non-management directors will become fully vested.
The merger agreement provides that, for each share covered by outstanding stock
options at the time of the merger, the directors will have the right to receive
a cash payment equal in amount to the spread, or, at the election of any of our
directors, an option to purchase shares of Cendant common stock with
approximately the same value. Any stock options with an exercise price in excess
of the merger consideration will be automatically converted into an option to
purchase shares of Cendant common stock with approximately the same value.
The following table summarizes the total number of shares covered by
options, and the number of such options that are currently held, vested and
unvested, by each non-management director, and all non-management directors as a
group, as well as the aggregate amount to which each non-management director and
the non-management directors as a group would be entitled if they elected to
receive the spread for all of their options as of the date of this proxy
statement:
Common Shares Common Shares Common Shares
Subject Subject to Subject to
to Vested Unvested All Options Aggregate
Name of Director Options (#) Options1 (#) (#) Spread ( $ )
W. Alan Cathcart 30,000 20,000 50,000 $ 800,000
Leonard S. Coleman, Jr. 30,000 20,000 50,000 800,000
Alfonse M. D'Amato 10,000 40,000 50,000 218,750
Martin L. Edelman 45,000 20,000 65,000 939,688
Deborah L. Harmon 30,000 20,000 50,000 800,000
Stephen P. Holmes 30,000 20,000 50,000 800,000
Michael J. Kennedy 30,000 20,000 50,000 800,000
Michael P. Monaco2 20,000 0 20,000 320,000
Non-Management Directors as a Group 225,000 160,000 385,000 $5,478,438
- ----------
1 All unvested options vest upon completion of the merger.
2 Michael P. Monaco resigned as a director on May 10, 2000.
Messrs. Holmes and Monaco also own 1,000 shares of common stock each.
As of the effective time of the merger, they will each receive the $33.00 merger
consideration for each such share.
Special Committee
The members of the special committee each received compensation of
$100,000 from Avis in connection with serving on the special committee. Our
board of directors and the special committee believe that the foregoing payments
do not affect the special committee's independence or impartiality.
Indemnification and Insurance
The merger agreement provides that the surviving corporation's
certificate of incorporation and by-laws will contain the provisions with
respect to indemnification of directors and officers as set forth in Avis'
certificate of incorporation and by-laws and will maintain in effect the current
directors' and officers' liability insurance or substantially similar insurance
covering those persons who are currently covered on the date of the merger
agreement by our directors' and officers' liability insurance policy for a
period of at least six years (provided that the surviving corporation in the
merger is not required to pay an annual premium for any such policy in excess of
200% of the last annual premium paid by us prior to the merger agreement). The
merger agreement also provides that Cendant and the surviving corporation will
indemnify and hold harmless any former or current officer or director of Avis
against any losses in connection with any threatened or actual action, suit or
proceeding, based in whole or in part on, or arising in whole or in part out of,
the fact that the person is or was an officer or director of Avis.
Certain Relationships Between Cendant and Avis
Acquisition of Avis by Cendant and Subsequent Initial Public Offering of Avis
Ownership Interest in Avis. Upon entering into an Agreement and Plan of
Merger to acquire Avis in July 1996, HFS (Cendant's predecessor) announced its
strategy to reduce its interest in Avis' car rental operations while retaining
assets associated with the franchise business, including trademarks, reservation
system assets and franchise agreements. In September 1997, Avis completed an IPO
of its common stock, which diluted Cendant's equity interest in Avis to about
27.5%. Cendant received no proceeds from the IPO. On March 23, 1998, Avis sold 5
million additional shares through a public offering in which Cendant reduced its
beneficial ownership interest in Avis by selling 1 million shares for $34.00 per
share, which reduced Cendant's common equity interest in Avis to approximately
20%. On January 15, 1999, pursuant to a stock repurchase program, Avis
repurchased from Cendant 1.3 million shares for $24.25 per share or an aggregate
of $31,525,000, and on April 24, 1999, Cendant sold 314,200 shares to Avis for
$29.50 per share or an aggregate of $9,268,990. On August 25, 1999, Cendant sold
350,000 shares of Avis for $22.19 per share or an aggregate of $7,766,500. As a
result of these sales and repurchases, Cendant's common equity interest in Avis
was reduced to its current level of approximately 17.8%.
Appointment to the Avis Board of Directors of Cendant Officers and
Directors. The following individuals, who serve on our board of directors, also
serve as directors of Cendant and, in the case of Mr. Holmes, as an officer of
Cendant in the capacity set forth below:
o Stephen P. Holmes. Mr. Holmes also serves as Cendant's Vice
Chairman and Chairman and Chief Executive Officer of Cendant's
Travel Division.
o Leonard S. Coleman, Jr.
o Martin Edelman
In addition, Michael P. Monaco, a former officer and director of Cendant, served
on our board of directors from the IPO of Avis until May 10, 2000.
Master License Agreement. On July 30, 1997, Avis entered into a 50-year
master license agreement with Cendant which grants Avis the right to use the
Avis trademark in connection with the operation of the Avis vehicle rental
business in certain specified territories. Pursuant to the master license
agreement, Avis has agreed to pay Cendant a monthly base royalty of 3.0% of
gross revenue of car rental operations. In addition, Avis has agreed to pay a
supplemental royalty of 1.0 % of gross revenue payable quarterly in arrears
which will increase 0.2% effective January 1, 2001 and will increase 0.1% per
year effective August 1, 2001 and in each of the following two years thereafter
to a maximum of 1.5%, or supplemental fee. These fees have been paid by Avis
since January 1, 1997. Until the fifth anniversary of the master license
agreement, the supplemental fee or a portion of the supplemental fee may be
deferred by Avis if Avis does not attain certain financial targets. During 1997,
1998 and 1999, total royalties paid to Cendant by Avis were $82 million, $92
million and $102 million, respectively.
Wizard System. Under a computer services agreement and a reservation
services agreement, Cendant operates a telecommunications and computer
processing system, known as the Wizard System, which services Avis for
reservations, rental agreement processing, accounting and fleet control. Cendant
provides these services to Avis at cost. The Wizard System also processes
incoming customer calls, during which customers inquire about locations, rates
and availability and place or modify reservations.
Call Transfer Agreement. Under a call transfer agreement, until March
4, 2002, Avis has agreed to pay Cendant $1.75 for each call transferred from
Cendant's lodging customers and $8.00 for each resulting rental in connection
with Cendant transferring its lodging customers to Avis for vehicle rentals.
Avis must pay Cendant a minimum fee of $2.25 million per year under the call
transfer agreement. Avis paid Cendant approximately $2.8 million in call
transfer fees in 1999.
Office Space Leases. Cendant provides Avis at cost with office space at
Avis' headquarters in Garden City, New York and at facilities in Virginia Beach,
Virginia, and Tulsa, Oklahoma.
Acquisition of the Fleet Leasing Business by Avis
Agreement and Plan of Merger and Reorganization. On June 30, 1999, Avis
acquired PHH Corporation's vehicle management and fuel card businesses in
exchange for 7.2 million shares of preferred stock of Avis Fleet Leasing and
Management Corporation, a subsidiary of Avis, and the assumption of $1.8 billion
of indebtedness. The preferred stock is convertible into a number of shares of
Avis common stock and Avis non-voting class B common stock which, based on
current conversion rates, would result in Cendant having beneficial ownership of
up to a 20% voting interest in Avis and a 33% economic interest. The preferred
stock is convertible only upon the attainment of certain earnings and market
price thresholds which presently have not been met, and upon certain other
events that have not occurred; thus, the preferred stock currently is not
convertible.
Stockholders' Agreement. In connection with the issuance of preferred
stock to PHH Corporation in connection with the acquisition of our fleet leasing
and management business, we entered into a stockholders' agreement with Avis
Fleet Leasing and PHH Corporation. The stockholders' agreement requires Avis to
take all actions necessary to complete the conversion of the preferred stock
issued to Cendant into class B common stock and common stock in accordance with
the terms of the certificate of designations of the preferred stock.
Registration Rights Agreement. In connection with the issuance of
preferred stock to PHH Corporation in connection with the acquisition of our
fleet leasing and management business, we entered into a registration rights
agreement with Avis Fleet Leasing, PHH Holdings Corporation and PHH Corporation.
Under the registration rights agreement, PHH Corporation can require Avis to
register under the federal and applicable state securities laws the shares of
Avis common stock it receives upon conversion of its Avis Fleet Leasing
preferred stock.
Non-Competition Agreement. Avis, Avis Fleet Leasing, PHH Holdings and
PHH Corporation entered into a non-competition agreement that restricts PHH
Corporation from directly or indirectly engaging in or owning any interest in
any business that engages in the vehicle fleet management and fuel card
businesses for a period of five years and also prohibits PHH Corporation, for a
period of two years, from soliciting persons employed by Avis who were formerly
PHH Corporation employees.
Trademark License Agreement. PHH Corporation retained the "PHH"
trademark and certain other trademarks, trade names, logos and service marks
after the sale of the fleet leasing business to Avis. However, pursuant to a
trademark license agreement between Avis Fleet Leasing and PHH Holdings, PHH
Holdings granted Avis a perpetual, worldwide, royalty-free, exclusive right and
license to use certain trademarks, trade names, logos and service marks solely
in connection with Avis' vehicle management and fuel card products and services
and the marketing, promotion and sale thereof.
Information Technology Services Agreement. In connection with the
acquisition of our fleet leasing and management business, Cendant entered into
an information technology services agreement with PHH Vehicle Management and
Services, LLC, a subsidiary of Avis. Under the agreement, Cendant provides PHH
Vehicle Management with information technology services relating to its business
operations, including vehicle leasing, advisory services, card processing and
fleet management services in the United States, Europe, Canada.
Other Agreements. Cendant has agreed to reimburse Avis for a portion of
the fees and expenses incurred by Avis in connection with the merger. In
addition, in connection with the acquisition of our fleet leasing and management
business, Avis, Avis Fleet Leasing, PHH Corporation and Cendant entered into
various transitional service agreements and ancillary agreements, none of which
were individually material, but may have been considered material in the
aggregate. Each of these agreements has expired pursuant to its terms.
Material U.S. Federal Income Tax Consequences of the Merger to our Stockholders
The following is a description of the material U.S. federal income tax
consequences of the merger to holders of shares who dispose of such shares in
the merger, who are United States Persons (as defined below), and who, on the
date of disposition, hold such shares as capital assets (as defined in the
Internal Revenue Code) (each, a "United States Holder"). This discussion is
based on the Internal Revenue Code, proposed and final income tax regulations
issued under the Internal Revenue Code, and administrative and judicial
interpretations of the Code and regulations, each as in effect and available on
the date of this proxy statement. These income tax laws, regulations and
interpretations, however, may change at any time, and any change could be
retroactive to the date of this proxy statement. Although we will not seek any
rulings from the Internal Revenue Service or an opinion of counsel with respect
to the transactions contemplated by the merger agreement, we believe that the
merger will have the U.S. federal income tax consequences described below to the
United States Holders.
We urge all holders to consult their own tax advisors regarding the
specific tax consequences that may result from their individual circumstances as
well as foreign, state and local tax consequences of the disposition of shares
in the merger. Except as specifically noted otherwise, the following discussion
does not address potential foreign, state, local and other tax consequences, nor
does it address special tax consequences that may be applicable to particular
classes of taxpayers, including financial institutions, real estate investment
trusts, regulated investment companies, brokers and dealers or traders in
securities or currencies, persons whose functional currency is not the U.S.
dollar, insurance companies, tax-exempt organizations, S corporations, persons
who hold common stock as part of a position in a straddle or as part of a
hedging or conversion transaction, persons who acquired common stock pursuant to
an exercise of employee stock options or rights or otherwise as compensation,
persons who hold employee stock options or rights to acquire common stock and
taxpayers subject to alternative minimum tax.
A "United States Person" is a beneficial owner of common stock, who for
U.S. federal income tax purposes is: (1) a citizen or resident of the U.S.,
including some former citizens or residents of the U.S.; (2) a partnership or
corporation created or organized in or under the laws of the U.S. or any state
thereof, including the District of Columbia; (3) an estate if its income is
subject to U.S. federal income taxation regardless of its source; or (4) a trust
if such trust validly has elected to be treated as a United States person for
U.S. federal income tax purposes or if (a) a U.S. court can exercise primary
supervision over its administration and (b) one or more United States persons
have the authority to control all of its substantial decisions.
A United States Holder generally will realize gain or loss upon the
surrender of such holder's shares pursuant to the merger in an amount equal to
the difference, if any, between the amount of cash received and such holder's
aggregate adjusted tax basis in the shares surrendered therefor.
In general, any gain or loss realized by a United States Holder in the
merger will be eligible for capital gain or loss treatment. Any capital gain or
loss recognized by a United States Holder will be long-term capital gain or loss
if the shares giving rise to such recognized gain or loss have been held for
more than one year; otherwise, such capital gain or loss will be short term. A
non-corporate United States Holder's long-term capital gain generally is subject
to U.S. federal income tax at a maximum rate of 20% while any capital loss can
be offset only against other capital gains plus $3,000 ($1,500 in the case of a
married individual filing a separate return) of other income in any tax year.
Any unutilized capital loss will carry over as a capital loss to succeeding
years for an unlimited time until the loss is exhausted.
For corporations, a capital gain is subject to U.S. federal income tax
at a maximum rate of 35% while any capital loss can be offset only against other
capital gains. Any unutilized capital loss generally can be carried back three
years and forward five years to be offset against net capital gains generated in
such years.
Each holder of a compensatory option to acquire shares who receives a
cash payment equal to the spread on such stock option will have ordinary income
to the extent of the cash received or treated as received (including any
applicable withholding taxes).
Under the U.S. federal backup withholding tax rules, unless an
exemption applies, the paying agent, will be required to withhold, and will
withhold, 31% of all cash payments to which a holder of shares or other payee is
entitled pursuant to the merger agreement, unless the stockholder or other payee
provides a tax identification number (social security number, in the case of an
individual, or employer identification number, in the case of other
stockholders), certifies that such number is correct, and otherwise complies
with such backup withholding tax rules. Each of our stockholders, and, if
applicable, each other payee, should complete and sign the Substitute Form W-9
included as part of the letter of transmittal to be returned to the paying
agent, in order to provide the information and certification necessary to avoid
backup withholding tax, unless an exemption applies and is established in a
manner satisfactory to the paying agent.
The U.S. federal income tax consequences set forth above are for
general information only and are not intended to constitute a complete
description of all tax consequences relating to the merger. Each holder of
shares is urged to consult his or her own tax advisor to determine the
particular tax consequences to such stockholder of the merger, including the
applicability and effect of foreign, state, local and other tax laws.
THE MERGER
The following information describes the material aspects of the merger.
This description does not purport to be complete and is qualified in its
entirety by reference to the appendices hereto, including the merger agreement
which is attached to this proxy statement as Appendix A and is incorporated
herein by reference. You are urged to read Appendix A in its entirety. See also
"THE MERGER--The Merger Agreement" below.
Our board of directors has determined, based on the unanimous
recommendation of the special committee, that the merger is fair to and in the
best interests of Avis and our public stockholders and has declared that the
merger agreement is advisable and has recommended adoption of the merger
agreement by you. See "SPECIAL FACTORS--Reasons for the Recommendations of the
Special Committee and our Board Of Directors."
Our board of directors unanimously recommends a vote "FOR" adoption of
the merger agreement.
Effective Time of Merger
If the merger agreement is adopted by the requisite vote of
stockholders and the other conditions to the merger are satisfied (or waived to
the extent permitted), the merger will be consummated and become effective at
the time a certificate of merger is filed with the Secretary of State of the
State of Delaware or such later time as otherwise agreed by Cendant and the
special committee and as specified in the certificate of merger. If the merger
agreement is adopted by our stockholders we expect to complete the merger on or
about March 1, 2001.
The merger agreement may be terminated prior to the effective time of
the merger by Avis or Cendant in certain circumstances, whether before or after
the adoption of the merger agreement by stockholders. See "THE MERGER--The
Merger Agreement--Termination of the Merger Agreement."
Payment of Merger Consideration and Surrender of Stock Certificates
Cendant has designated First Union National Bank, an agent reasonably
acceptable to the special committee, to act as paying agent for purposes of
making the cash payments contemplated by the merger agreement. Immediately prior
to the effective time of the merger, Cendant and PHH Corporation will deposit in
trust with the paying agent cash in United States dollars in an aggregate amount
equal to the merger consideration for all stockholders. The paying agent will,
pursuant to irrevocable instructions, deliver to you your merger consideration
according to the procedure summarized below.
At the close of business on the day of the effective time of the merger
our stock ledger with respect to common stock will be closed.
As soon as practicable after the effective time of the merger, Cendant
will cause the paying agent to mail to you a letter of transmittal and
instructions advising you of the effectiveness of the merger and the procedure
for surrendering to the paying agent your certificates in exchange for the
merger consideration. Upon the surrender for cancellation to the paying agent of
your certificates, together with a letter of transmittal, executed and completed
in accordance with its instructions, and any other items specified by the letter
of transmittal, the paying agent will promptly pay to you your merger
consideration. No interest will be paid or accrued in respect of cash payments
of merger consideration. Payments of merger consideration also will be reduced
by applicable withholding taxes.
If the merger consideration (or any portion of it) is to be delivered
to a person other than you, it will be a condition to the payment of the merger
consideration that your certificates be properly endorsed or accompanied by
appropriate stock powers and otherwise in proper form for transfer, that the
transfer otherwise be proper and not violate any applicable federal or state
securities laws, and that you pay to the paying agent any transfer or other
taxes payable by reason of the transfer or establish to the satisfaction of the
paying agent that the taxes have been paid or are not required to be paid.
You should not forward your stock certificates to the paying agent
without a letter of transmittal, and you should not return your stock
certificates with the enclosed proxy.
At and after the effective time of the merger, you will cease to have
any rights as our stockholder, except for the right to surrender your
certificate in exchange for payment of the merger consideration or, if you
exercise your appraisal rights, the right to perfect your right to receive
payment for your shares pursuant to Delaware law, and no transfer of common
stock will be made on the stock transfer books of the surviving corporation.
Certificates presented to the surviving corporation after the effective time
will be canceled and exchanged for cash as described above.
Promptly following the date which is 180 days after the effective date
of the merger, the paying agent will return to the surviving corporation all
cash, certificates and other instruments in its possession that constitute any
portion of the merger consideration, and the paying agent's duties will
terminate. Thereafter, stockholders may surrender their certificates to the
surviving corporation and (subject to applicable abandoned property laws, laws
regarding property which is not accounted for by the laws of intestacy and
similar laws) receive the merger consideration without interest, but will have
no greater rights against the surviving corporation or Cendant than may be
accorded to general creditors of the surviving corporation or Cendant under
applicable law. None of the paying agent, Avis, Cendant, PHH Corporation or Avis
Acquisition Corp. will be liable to stockholders for any merger consideration
delivered to a public official pursuant to applicable abandoned property laws,
laws regarding property which is not accounted for by the laws of intestacy and
similar laws.
Accounting Treatment
The merger will be accounted for under the purchase method of
accounting under which the total consideration paid in the merger will be
allocated among the surviving corporation's consolidated assets and liabilities
based on the fair values of the assets acquired and liabilities assumed.
Financing of the Merger; Fees and Expenses of the Merger
The total amount of funds required to consummate the merger and to pay
related fees and expenses is estimated to be approximately $959 million. Cendant
has agreed to reimburse Avis for a portion of the fees and expenses incurred by
Avis in connection with the merger. Cendant and PHH Corporation plan to fund the
purchase price, directly or indirectly, through a combination of the issuance of
debt, the sale of Cendant common stock and cash on hand at the effective time of
the merger. The merger is not conditioned on any financing arrangements.
The fees and expenses in connection with the merger are set forth in
the table below:
Morgan Stanley's Fees $ 8,523,000
Legal, Accounting and Other Professional Fees(1) 19,540,477
Printing, Proxy Solicitation and Mailing Costs 209,852
Special Committee Fees 200,000
Filing Fees 280,000
Miscellaneous 26,195
Total $28,779,524
(1) Includes fees paid to Bear Stearns and Lehman Brothers.
Appraisal Rights
Pursuant to Delaware law, if (1) you properly file a demand for
appraisal in writing prior to the vote taken at the special meeting and (2) your
shares are not voted in favor of the merger, you will be entitled to appraisal
rights under Section 262 of the General Corporation Law of the State of
Delaware.
Section 262 is reprinted in its entirety as Appendix C to this proxy
statement. The following discussion is not a complete statement of the law
relating to appraisal rights and is qualified in its entirety by reference to
Appendix C. This discussion and Appendix C should be reviewed carefully by you
if wish to exercise statutory appraisal rights or you wish to preserve the right
to do so, as failure to comply with the procedures set forth in Section 262 will
result in the loss of your appraisal rights.
If you make the demand described below with respect to your shares, you
are continuously the record holder of your shares through the effective time of
the merger, otherwise comply with the statutory requirements of Section 262 and
neither vote in favor of the merger agreement nor consent to the merger in
writing, you shall be entitled to an appraisal by the Delaware Court of Chancery
of the "fair value" of your shares exclusive of any element of value arising
from the accomplishment or expectation of the merger, together with a fair rate
of interest, as determined by the Delaware Court of Chancery.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the special meeting, not less than 20 days prior
to the meeting we must notify you that appraisal rights are available and
include in the notice a copy of Section 262. This proxy statement constitutes
your notice of your appraisal rights, and the applicable statutory provisions
are attached to this proxy statement as Appendix C.
If you desire to exercise your appraisal rights you must not vote in
favor of the merger agreement or the merger and you must deliver a separate
written demand for appraisal to us prior to the vote of the special meeting. If
you sign and return a proxy without expressly directing by checking the
applicable boxes on the reverse side of the enclosed proxy card that your shares
be voted against the proposal or that an abstention be registered with respect
to your shares in connection with the proposal, you will effectively have waived
your appraisal rights as to those shares because, in the absence of express
contrary instructions, your shares will be voted in favor of the proposal. (See
"INTRODUCTION--Voting and Revocation of Proxies.") Accordingly, if you desire to
perfect appraisal rights with respect to any of your shares you must, as one of
the procedural steps involved in such perfection, either (1) refrain from
executing and returning the enclosed proxy card and from voting in person in
favor of the proposal to adopt the merger agreement or (2) check either the
"Against" or the "Abstain" box next to the proposal on the proxy card or
affirmatively vote in person against the proposal or register in person an
abstention with respect to the proposal.
Only a holder of record is entitled to assert appraisal rights for the
shares of our common stock registered in that holder's name. A demand for
appraisal must be executed by or on behalf of the holders of record and must
reasonably inform us of the holder's of record identity and that the holder of
record intends to demand appraisal of the holder's shares. If you have a
beneficial interest in shares that are held of record in the name of another
person, such as a broker, fiduciary or other nominee, you must act promptly to
cause the record holder to follow properly and in a timely manner to perfect
whatever appraisal rights are available, and your demand must be executed by or
for the record owner. If your shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, your 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; however, the agent must
identify the record owner and expressly disclose the fact that, in exercising
the demand, the agent is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares 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
the person is the record owner. In such case, the written demand must set forth
the number of shares covered by the demand. Where the number of shares is not
expressly stated, the demand will be presumed to cover all shares in the name of
such record owner.
If you elect to exercise appraisal rights, you should mail or deliver
your written demand to: Avis Group Holdings, Inc., 900 Old Country Road, Garden
City, New York 11530, Attention: Corporate Secretary.
The written demand for appraisal should specify your name and mailing
address, the number of shares owned, and that you are demanding appraisal of
your shares. A proxy or vote against the merger agreement will not by itself
constitute a demand. Within ten days after the effective date of the merger, the
surviving corporation in the merger must provide notice of the effective time of
the merger to you if you have complied with Section 262.
Within 120 days after the effective date of the merger, either the
surviving corporation or you, if you have complied with the required conditions
of Section 262 and are otherwise entitled to appraisal rights, may file a
petition in the Delaware Court of Chancery, and if you file a petition you must
serve a copy on the surviving corporation, demanding a determination of the fair
value of the shares of all stockholders demanding an appraisal. Avis does not
have any present intention to file any such petition in the event that a
stockholder makes a written demand. Accordingly, if you desire to have your
shares appraised you should initiate any petitions necessary for the perfection
of your appraisal rights within the time periods and in the manner prescribed in
Section 262. If appraisal rights are available and if you have complied with the
applicable provisions of Section 262, within 120 days after the effective date
of the merger, you will be entitled, upon written request, to receive from the
surviving corporation in the merger a statement setting forth the aggregate
number of shares not voting in favor of the merger agreement and with respect to
which we received demands for appraisal, and the aggregate number of holders of
such shares. The statement must be mailed within 10 days after the written
request for the statement has been received by the surviving corporation or
within 10 days after the expiration of the period for delivery of demands for
appraisal rights whichever is later.
If a petition for an appraisal is timely filed by a holder of our
shares and a copy thereof is served upon the surviving corporation, the
surviving corporation will then be obligated within 20 days to file with the
Delaware Register in Chancery a duly verified list containing the names and
addresses of all stockholders who have demanded an appraisal of their shares of
common stock and with whom agreements as to the value of their shares have not
been reached. After notice to those stockholders as required by the Court, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition to
determine those stockholders who have complied with Section 262 and who have
become entitled to appraisal rights thereunder. If you have demanded an
appraisal, the Delaware Court of Chancery may require you to submit your
certificates to the Register in Chancery for notation on the certificates of the
pendency of the appraisal proceeding; and if you fail to comply with the
direction, the Delaware Court of Chancery may dismiss the proceedings as to you.
Where proceedings are not dismissed, the Delaware Court of Chancery will
appraise the shares owned by stockholders demanding an appraisal, determining
the "fair value" of such shares, together with a fair rate of interest, if any,
to be paid upon the amount determined to be the fair value. In such event, the
Delaware Court of Chancery's appraisal may be more than, less than, or equal to
the merger consideration and stockholders should be aware that investment
advisor's opinions as to fairness from a financial point of view are not
opinions as to "fair value" under Section 262. In determining fair value, the
Delaware Court of Chancery is to take into account all relevant factors. In
relevant case law, 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 "fair price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
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 ascertainable as of the date of the merger that
throw light on future prospects of the merged corporation. The Delaware Supreme
Court also stated 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." Section 262, however,
provides that fair value is to be "exclusive of any element of value arising
from the accomplishment or expectation of the merger." In addition, Delaware
courts have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenting stockholder's exclusive remedy.
The Court will also determine the amount of interest, if any, to be
paid upon the amounts to be received by persons whose shares of our common stock
have been appraised. The cost of the appraisal proceeding may be determined by
the Delaware Court of Chancery and taxed against the parties as the Delaware
Court of Chancery deems equitable in the circumstances. Upon application of a
stockholder who has demanded an appraisal, the Delaware Court of Chancery may
order that all or a portion of the expenses incurred by any the stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorney's fees and the fees and expenses of experts, be charged pro
rata against the value of all shares of stock entitled to appraisal.
If you have demanded appraisal in compliance with Section 262 you will
not, after the effective time of the merger, be entitled to vote for any purpose
any shares subject to your demand or to receive payment of dividends or other
distributions on your shares, except for dividends or distributions payable to
holders of record as of a date prior to the effective time of the merger.
At any time within 60 days after the effective date of the merger, you
will have the right to withdraw your demand for appraisal; after this period,
you may withdraw your demand for appraisal only with the consent of the
surviving corporation. If no petition for appraisal is filed with the Delaware
Court of Chancery within 120 days after the effective date of the merger, your
rights to appraisal shall cease. You may withdraw your demand for appraisal by
delivering to the surviving corporation a written withdrawal of your demand for
appraisal and an acceptance of the merger, except that (1) any attempt to
withdraw made more than 60 days after the effective time of the merger will
require written approval of the surviving corporation, and (2) no appraisal
proceeding in the Delaware Court of Chancery shall be dismissed without the
approval of the Delaware Court of Chancery, and the approval may be conditioned
upon such terms as the Delaware Court of Chancery deems just.
If you fail to comply fully with the statutory procedure set forth in
Section 262 you will forfeit your rights of appraisal and will be entitled to
receive the merger consideration for your shares.
Regulatory Approvals and Other Consents
Under the Hart-Scott-Rodino Act, certain mergers and acquisitions may
not be consummated unless notice has been given and certain information has been
furnished to the Antitrust Division of the United States Department of Justice
and the Federal Trade Commission and certain waiting period requirements have
been satisfied. The merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act. An application and notice was
filed on November 22, 2000 with the Federal Trade Commission and the Department
of Justice and the applicable waiting period under the Hart-Scott-Rodino Act was
terminated on December 8, 2000. In addition, we expect to make all other filings
required under other antitrust or competition laws or by other antitrust
authorities.
In addition, we must obtain the approval of the Foreign Investment
Review Board of Australia and the Commissioner of Insurance of the State of
Colorado (with respect to the change in the ultimate ownership of our subsidiary
Pathfinder Insurance Company only). We have received consents of the Federal
Deposit Insurance Corporation and the Federal Reserve Board and the Utah State
Department of Financial Institutions (for the change in ultimate ownership of
Wright Express Financial Services Corporation only).
It is also a condition to Cendant's obligations to complete the merger
that we obtain the consent of various third parties, some of which include
governmental agencies, pursuant to agreements and arrangements to which we are a
party.
The Merger Agreement
The following discussion of the material terms of the merger agreement
is qualified in its entirety by reference to the complete text of the merger
agreement, which is included in this proxy statement as Appendix A (exclusive of
all schedules) and is incorporated herein by reference.
General
The merger agreement provides for Avis Acquisition Corp. to merge with
and into us. We will be the surviving corporation in the merger, and, as a
result of the merger, Cendant will indirectly own all of the surviving
corporation's common stock.
In the merger, Avis will amend and restate its certificate of
incorporation in its entirety which will be the certificate of incorporation of
the surviving corporation, and the by-laws of Avis Acquisition Corp. will be the
by-laws of the surviving corporation. Also, as of the completion of the merger,
the officers of Avis will be the officers of the surviving corporation and the
directors of Avis Acquisition Corp. will be the directors of the surviving
corporation.
Consideration to be Received by the Stockholders
At the effective time of the merger, each share then issued and
outstanding (other than shares held by any of our subsidiaries, held in our
treasury, held by Cendant or any subsidiary of Cendant and held by stockholders
who perfect their appraisal rights under Delaware law) will be converted into
the right to receive $33.00 in cash without interest, reduced by applicable
withholding tax.
Each share of common stock of Avis Acquisition Corp. then issued and
outstanding will, by virtue of the merger and without any action on the part of
Avis Acquisition Corp., become one fully paid and nonassessable share of common
stock of the surviving corporation.
Stock Options
As of the effective time of the merger, all outstanding options to
purchase shares issued to our officers and employees will become fully vested.
The merger agreement provides that each stock option will be converted into the
right to receive (1) an amount in cash equal to the product of (a) the number of
shares subject to the option, multiplied by (b) the difference between the
$33.00 per share merger consideration and the per share exercise price of the
option, reduced by applicable withholding tax, or, (2) at the option holder's
election, an option to purchase shares of common stock of Cendant with
approximately the same value. Any options with an exercise price greater than
the merger consideration will be automatically converted into options to
purchase shares of common stock of Cendant with approximately the same value.
Representations and Warranties
We have made various representations and warranties in the merger
agreement to Cendant, PHH Corporation and Avis Acquisition Corp. relating to:
o corporate organization and existence;
o power and authority of Avis to enter into and perform its
obligations under the merger agreement and enforceability of the
merger agreement against Avis;
o capital structure of Avis and our subsidiaries;
o vote required by Avis' stockholders to adopt the merger
agreement;
o required consents and approvals of governmental entities and
absence of conflict with our governing documents and certain
agreements and permits;
o the making and accuracy of SEC filings (including our financial
statements);
o absence of certain material changes since June 30, 2000 that may
reasonably be likely to have a material adverse effect on Avis;
o compliance with applicable laws;
o absence of material litigation;
o employee benefit plans;
o tax matters;
o absence of undisclosed material liabilities;
o intellectual property rights;
o identification and enforceability of material contracts;
o accuracy of the proxy statement and related materials;
o utilization of, and payment of fees to, brokers and finders;
o environmental matters;
o non-contravention with state takeover statutes and governing
documents; and
o labor matters.
Covenants
We agreed that we and each of our subsidiaries will, except as
expressly contemplated by the merger agreement or consented to in writing by
Cendant, conduct our respective businesses and operations only according to our
ordinary course of business, consistent with past practice, and use reasonable
best efforts to preserve intact our respective business organization, keep
available the services of our present officers, employees and consultants and
maintain existing relationships with suppliers, creditors, business associates
and others having business dealings with us.
We also agreed that, except as expressly contemplated by the merger
agreement or consented to in writing by Cendant, until the earlier of the
termination of the merger agreement or the effective time of the merger, we will
not and will not permit any of our subsidiaries to:
Organizational Documents
o amend its certificate of incorporation or by-laws;
Capital
o issue, sell, pledge, dispose of or encumber any shares of
capital stock of any class or any other equity interest, or any
options, warrants, convertible securities or other rights of any
kind to acquire any shares of capital stock, or any other equity
interest, except for the issuance of shares pursuant to the
exercise of options outstanding on the date of the merger
agreement;
o declare, set aside, make or pay any dividend or other
distribution in respect of any of its capital stock or any other
equity interest or make any other payments to stockholders in
their capacity as such, except that our wholly-owned
subsidiaries may declare and pay dividends to their respective
parents;
o split, combine or reclassify any of its capital stock or any
other equity interest or issue or authorize the issuance of any
other securities in respect of, or in substitution for shares of
its capital stock or any other equity interest;
o redeem, purchase or otherwise acquire any of its capital stock
or any other equity interests;
Acquisitions and Dispositions
o acquire, lease, encumber or dispose of any material assets,
other than the purchase, sale, rental and lease of vehicles in
the ordinary course of business, consistent with past practice;
o acquire (by merger, consolidation, acquisition of stock, assets
or otherwise) any corporation, partnership or other business
organization or division thereof;
o dispose of any of our subsidiaries (by merger, consolidation,
sale of stock or assets or otherwise);
o incur or assume any indebtedness for borrowed money or other
liability, other than in connection with the financing of
vehicles in the ordinary course of business, consistent with
past practice;
o amend or terminate any confidentiality agreements, standstill
agreements or material contracts to which we or our subsidiaries
are a party or by which we or our subsidiaries are bound, or
waive, release or assign any material rights or claims, other
than in the ordinary course of business, consistent with past
practice;
o guarantee or otherwise become liable or responsible for the
obligations of any other person, other than in the ordinary
course of business, consistent with past practice;
o make any material loans, or capital contributions to, or
investments in, any other person, other than to our wholly-owned
subsidiaries in the ordinary course of business, consistent with
past practice;
o repurchase or take any other action with respect to our issued
and outstanding 11% senior subordinated notes due May 2009;
o other than in the ordinary course of business, consistent with
past practice, enter into any material commitment, transaction,
contract or agreement;
Employee Benefits
o increase the compensation, severance or other benefits payable
or to become payable to its directors, officers or employees,
other than increases in salary or wages of our or its employees
(who are not our directors or executive officers) in accordance
with past practice or pursuant to binding commitments;
o grant any severance or termination pay not currently required;
o enter into any employment or severance agreement;
o adopt or amend any collective bargaining agreement, employee
benefit plan, or arrangement for the benefit of any current or
former directors, officers or employees, except, as may be
required by law or as would not result in a material increase in
the cost of maintaining such collective arrangement;
Other Covenants
o pay or satisfy any of its material claims, liabilities or
obligations, other than in the ordinary course of business,
consistent with past practice, or in accordance with their terms
of liabilities reflected or reserved against, in, or
contemplated by, our financial statements;
o change accounting policies or procedures, except as required by
a change in generally accepted accounting principles, SEC
position or applicable law,
o approve or authorize any action to be submitted to our
stockholders for approval other than pursuant to the merger
agreement;
o make or change any material election with respect to taxes,
agree or settle any material claim or assessment in respect of
taxes, or agree to an extension or waiver of the limitation
period to any material claim or assessment in respect of taxes;
o take any action that would or is reasonably likely to result in
any of the conditions to the merger not being satisfied or that
would materially impair the ability of us, Cendant, PHH
Corporation or Avis Acquisition Corp. to consummate the merger
or materially delay the merger; or
o agree, authorize or announce to take any of the actions
described above.
Employee Benefits
The merger agreement provides that until December 31, 2001, our and our
subsidiaries' employees who are not covered by collective bargaining agreements
will receive salary or wages and bonus opportunities and employee benefits that
are not materially less favorable in the aggregate than those they were entitled
to on the date of the merger agreement. Cendant has further agreed to honor
certain employee benefit arrangements in accordance with their terms, and to
keep in place our current severance and retention plans and policies until
December 31, 2001. Our and our subsidiaries' employees will be given credit for
their service with Avis or any of its subsidiaries under all Cendant employee
benefit plans in which they may participate for purposes of eligibility for and
vesting of benefits and, with respect to certain Cendant employee benefit plans,
for purposes of determination of benefits. In addition, our and our
subsidiaries' employees will be given credit for deductibles paid and expenses
they incur prior to the merger.
Special Meeting
The merger agreement provides that as promptly as practicable after the
date of the merger agreement we must give notice of, convene and hold the
special meeting, and use our reasonable efforts to solicit from you proxies in
favor of the adoption of the merger agreement. We have also agreed not to
postpone or adjourn the special meeting without the consent of Cendant.
No Solicitation of Other Offers
The merger agreement provides that neither we nor our representatives
will:
o encourage, invite, initiate or solicit any inquiries relating to
a proposal by any person with respect to a Third-Party
Acquisition (as defined below); or
o except as provided below, participate in any negotiations or
discussions with, or furnish or cause to be furnished any
information to, any person relating to a Third-Party
Acquisition.
The merger agreement also provides that we will:
o cease any discussions or negotiations with any person in
connection with any potential Third-Party Acquisition and seek
to have returned to us any confidential information we provided
to such person; and
o take all actions necessary to rescind the stock repurchase
program.
If, prior to the special meeting, we, our board of directors or the
special committee, receives an unsolicited bona fide written proposal from any
person with respect to a Third-Party Acquisition which could reasonably be
expected to result in a Superior Proposal (as defined below), then we may
furnish information and access to such person pursuant to a confidentiality
agreement no less restrictive than our confidentiality agreement with Cendant,
and may participate in discussions and negotiations with such person. We have
agreed to keep Cendant informed of the status of any proposals and negotiations
relating to a Third-Party Acquisition.
The merger agreement also provides that neither our board of directors
nor the special committee shall:
o withdraw, modify or fail at Cendant's request to reaffirm, (1)
the approval by our board of directors of the merger agreement
or the merger, (2) the favorable recommendation of the special
committee and our board of directors of the merger, or (3) our
board of directors' recommendation to stockholders to in favor
of adoption of the merger agreement;
o approve or recommend, or propose publicly to approve or
recommend, any Third-Party Acquisition; or
o cause Avis to enter into any agreement or memorandum of
understanding related to any Third-Party Acquisition.
However, if the special committee determines in good faith, after
receipt of advice of its outside legal counsel, that failure to take such action
would constitute a breach of our board of directors' fiduciary duties to the
stockholders, the special committee and our board of directors may:
o withdraw or modify its approval or recommendation of the merger
agreement and the merger, and inform the stockholders
accordingly; and
o in relation to a Third-Party Acquisition that constitutes a
Superior Proposal (1) recommend the Superior Proposal, and/or
(2) following the special meeting, if our stockholders' approval
of the merger agreement is not obtained, terminate the merger
agreement and enter into an agreement with respect to the
Superior Proposal, if prior to the terminating the merger
agreement and entering into an agreement with respect to a
Superior Proposal (a) Avis paid to Cendant the termination fee
of $28 million and transaction expenses up to $2.5 million, and
(b) the special committee shall have given Cendant three
business days' prior written notice that Avis intends to
terminate the merger agreement and provided Cendant with a
reasonable opportunity to respond to the Superior Proposal.
If the special committee changes its recommendation of the merger
agreement and the merger, unless the merger agreement has been terminated, we
will still hold the special meeting for stockholders to vote on the merger
agreement, and will take such actions as are required by applicable law to
permit us to continue to solicit proxies impartially and, at the special
meeting, vote the proxies we receive.
"Third-Party Acquisition" means: (1) the acquisition of us by a third
party by merger, purchase of stock or assets or otherwise; (2) the acquisition
by a third party of 20% or more of our assets or our common stock; or (3) our
adoption of a plan of liquidation, our declaration or payment of an
extraordinary dividend or our repurchase of more than 20% of our common stock.
"Superior Proposal" means any bona fide written proposal to acquire for
cash and/or securities all of our shares or all or substantially all of our
assets that (1) is not subject to any financing conditions, (2) provides
stockholders with consideration that the special committee determines in good
faith, is more favorable from a financial point of view than the consideration
to be received by stockholders in the merger, (3) is determined by the special
committee in its good faith judgment to be likely of being completed, (4) does
not, in the definitive acquisition agreement with the third party, contain any
"due diligence" conditions, and (5) has not been obtained in violation of our no
solicitation obligations.
Access to Information
Subject to the terms of a confidentiality agreement with Cendant, we
will afford to Cendant and its representatives, reasonable access to our
properties, books and records and furnish Cendant with all information
concerning the business it reasonably requests. In addition, Cendant has
electronically linked our financial reporting system to its financial reporting
system.
Note Tender Offer
Avis has outstanding 11% senior subordinated notes due May 2009. On a
change of control of Avis the noteholders may require Avis to repurchase the
notes at 101% of their face value. In the merger agreement we have agreed to
permit Cendant to commence a tender offer to purchase the notes with its own
funds and we have agreed to cooperate with any such tender offer. Cendant has
not determined whether it intends to initiate such tender offer.
Conditions to the Merger
Each party's obligations to effect the merger is subject to a number of
conditions, including the following:
o the adoption of the merger agreement by both the holders of (1)
a majority of all outstanding shares as of the record date, and
(2) a majority of the votes cast at the special meeting by
stockholders, other than Cendant or its subsidiaries;
o the absence of any injunction or other order issued by any court
or governmental authority prohibiting or restricting the merger
or restricting the ownership or operation of Avis by Cendant or
its subsidiaries;
o the absence of any action, pending or threatened by a
governmental entity seeking to (1) prohibit or restrain the
merger, (2) obtain damages that would result in a material
adverse effect on Avis, or (3) restrict the ownership or
operation of Avis by Cendant or its subsidiaries; and
o the termination or expiration of any waiting period applicable
to the merger under the Hart-Scott-Rodino Act and any applicable
foreign competition or antitrust laws.
Our obligation to effect the merger is subject to a number of
conditions, including the following:
o the representations and warranties of Cendant, PHH Corporation
and Avis Acquisition Corp. shall be true and correct; and
o Cendant, PHH Corporation and Avis Acquisition Corp. shall have
performed and complied in all material respects with all
obligations under the merger agreement.
The obligation of Cendant, PHH Corporation and Avis Acquisition Corp.
to effect the merger is subject to a number of conditions, including the
following:
o our representations and warranties shall be true and correct
except for such breaches as would not have a material adverse
effect on Avis;
o we shall have performed and complied in all material respects
with all our obligations under the merger agreement except for
such failure to perform or comply as would not have a material
adverse effect on Avis;
o neither our board of directors nor the special committee shall
have (1) withdrawn, modified or changed its approval or
recommendation of the merger agreement or the merger in any
manner which Cendant reasonably determines to be adverse to
Cendant, (2) recommended the approval or acceptance of a
Superior Proposal or Third-Party Acquisition from a third party,
or (3) executed an acquisition agreement with a third party;
o no event, change, development or circumstance shall have
occurred or shall exist which is reasonably expected to result
in a material adverse effect to our business, results of
operations or financial or other condition; and
o we shall have obtained those consents, approvals and waivers
agreed upon in the merger agreement.
If the merger agreement is adopted by our stockholders, we do not
anticipate any other material uncertainty surrounding the merger conditions, and
we expect to complete the merger on or about March 1, 2001.
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to the
effective time by mutual written consent if approved by the boards of director
of both Cendant and Avis, and the special committee.
Either Cendant or Avis (if approved by the special committee) may
terminate the merger agreement if:
o the merger does not occur on or prior to June 30, 2001 and the
terminating party has not caused the failure of the merger to
occur by such date;
o a governmental entity issues a nonappealable final order
permanently restraining or prohibiting the merger; or
o at the special meeting the merger agreement is not approved by
both the holders of (1) a majority of all outstanding shares as
of the record date, and (2) a majority of the votes cast at the
special meeting by stockholders, other than Cendant or its
subsidiaries.
Cendant may terminate the merger agreement if:
o there is a material breach by us of any covenant in the merger
agreement and the breach is not cured on or prior to the earlier
of 60 days after notice of the breach and June 30, 2001;
o any of our representations or warranties in the merger agreement
are untrue which would result in a material adverse effect on
Avis and the breach is not cured on or prior to the earlier of
60 days after notice of the breach and June 30, 2001; or
o (1) the special committee or our board of directors (a)
withdraws or changes its approval or recommendation of the
merger agreement in any manner which Cendant reasonably
determines to be adverse to Cendant; (b) approves or recommends
to our stockholders a Third-Party Acquisition or a Superior
Proposal; (c) violates any of the no solicitation provisions of
the merger agreement; (d) takes a public position or makes any
disclosures to our stockholders which have the effect of (a),
(b) or (c) above; or (e) resolves to enter into an acquisition
agreement relating to a Third-Party Acquisition or a Superior
Proposal; or (2) we (a) execute an acquisition agreement
relating to a Third-Party Acquisition or a Superior Proposal, or
(b) violate any of the no solicitation provisions of the merger
agreement.
We may terminate the merger agreement (if approved by the special
committee) if:
o there is a material breach by Cendant, PHH Corporation or Avis
Acquisition Corp. of its covenants in the merger agreement and
the breach is not cured on or prior to the earlier of 60 days
after notice of the breach and June 30, 2001;
o any representation or warranty of Cendant, PHH Corporation or
Avis Acquisition Corp. shall be untrue in any material respect
and the breach is not cured on or prior to the earlier of 60
days after notice of the breach and June 30, 2001; or
o following the special meeting, (1) stockholders have not adopted
the merger agreement, (2) we concurrently execute and deliver a
definitive agreement with respect to a Superior Proposal and (3)
the special committee determines in good faith, after receipt of
advice of its outside legal counsel, that a failure to terminate
the merger agreement in order to enter into a definitive
agreement with regard to the Superior Proposal would constitute
a breach of its fiduciary duties and, prior to the termination,
(a) we gave Cendant three business days' advance notice of our
intention to accept the Superior Proposal and complied in all
respects with the no-solicitation provisions of the merger
agreement and provisions relating to the special meeting; and
(b) we paid Cendant a $28 million termination fee and
transaction expenses up to $2.5 million as set forth under "THE
MERGER--The Merger Agreement--Termination Fees; Expenses".
Upon termination, the merger agreement will become void and there shall
be no liability on the part of any party except as set forth under "THE MERGER
- -- The Merger Agreement -- Termination Fees; Expenses". However, no party shall
be relieved from any liability for any breach of the merger agreement.
Termination Fees; Expenses
We shall pay to Cendant a fee of $28 million and transaction expenses
up to $2.5 million if the merger agreement is terminated:
o by Cendant or us if the merger does not occur on or prior to
June 30, 2001, and (1) prior to the termination, we became aware
that a third party made or intends to make a proposal relating
to a Third-Party Acquisition, and (2) within twelve months
following the date of the termination, a Third-Party Acquisition
is consummated or a definitive agreement with respect to a
Third-Party Acquisition is executed by us;
o by Cendant if there is a material breach of any of our covenants
or if any of our representations or warranties are untrue, and
the breach is not cured on or prior to the earlier of 60 days
after notice of the breach and June 30, 2001, and (1) prior to
the termination, we became aware that a person made or intends
to make a proposal relating to a Third-Party Acquisition, and
(2) within twelve months following the date of the termination,
a Third-Party Acquisition is consummated or a definitive
agreement with respect to a Third-Party Acquisition is executed
by us;
o by Cendant if (1) the special committee or our board of
directors (a) withdraws or changes its approval or
recommendation of the merger in a manner which Cendant
reasonably determines to be adverse to Cendant; (b) approves or
recommends to our stockholders a Third-Party Acquisition or a
Superior Proposal; (c) violates any of the no solicitation
provisions of the merger agreement; (d) takes a public position
or makes a disclosure to the our stockholders which has the
effect of (a), (b) or (c) above; or (e) resolves to enter into
an acquisition agreement relating to a Third-Party Acquisition
or a Superior Proposal; or (2) we (a) execute an acquisition
agreement relating to a Third-Party Acquisition or a Superior
Proposal, or (b) violate any of the no solicitation provisions
of the merger agreement;
o by Cendant if the approval of the merger by our stockholders is
not obtained at the special meeting and (1) a Third-Party
Acquisition is publicly announced or otherwise made known to the
public at or prior to the special meeting and (2) within twelve
months following the date of the termination, a Third-Party
Acquisition is consummated or a definitive agreement with
respect to a Third-Party Acquisition is executed by us; or
o by Avis (if approved by the special committee) if following the
special meeting, (1) approval of the merger by our stockholders
shall not have been obtained, (2) we concurrently execute and
deliver a definitive agreement with respect to a Superior
Proposal, (3) the special committee determines in good faith,
after receipt of advice of its outside legal counsel, that a
failure to terminate the merger agreement in order to enter into
a definitive agreement with regard to the Superior Proposal
would constitute a breach of the board of directors' fiduciary
duties to our stockholders and, prior to the termination, and
(4) prior to termination we gave Cendant three business days'
advance notice of our intention to accept the Superior Proposal
and complied in all respects with the no-solicitation provisions
of the merger agreement and provisions relating to the special
meeting.
Amendment to the Merger Agreement
The merger agreement may be amended by the parties to the merger
agreement in writing, by action taken by their respective boards of directors
and by the special committee, at any time before or after the approval by our
stockholders of the merger, but after any approval by our stockholders of the
merger, no amendment shall be made which by law requires the further approval of
stockholders without obtaining further approval.
OTHER MATTERS
Security Ownership of Certain Beneficial Owners and Management
The information set forth on the following table is furnished as of
October 30, 2000 with respect to any person (including any "group" as that term
is used in Section 13(d)(3) of the Exchange Act), who is known to us to be the
beneficial owner of more than 5% of any class of our voting securities, and as
to those shares of our equity securities beneficially owned by each of our
directors and nominees for director, our named executive officers, and all of
our executive officers and directors as a group. There are no options, warrants
or other rights held by any of the persons listed in the table below which are
exercisable within 60 days of the date of the filing of this proxy statement,
other than the options held by the executive officers and directors of Avis
listed in the section entitled "SPECIAL FACTORS--Interests of Executive Officers
and Directors in the Merger" which will automatically vest and be exercisable
upon the effective time of the merger.
Amount of Beneficial
Ownership Percent of
Name of Shares Class
PRINCIPAL STOCKHOLDERS
Cendant1 5,535,800 17.8%
6 Sylvan Way
Parsippany, NJ 07054
Neberger & Berman2 1,954,368 6.3%
605 Third Avenue
New York, NY 10158
T. Rowe Price Associates, Inc2 1,721,900 5.5%
100 E. Pratt Street
Baltimore, MD 21202
Gabelli Asset Management Inc. and affiliates3 2,912,100 8.27%
One Corporate Center
Rye, NY 10580-1435
DIRECTORS AND EXECUTIVE OFFICERS
Thomas J. Byrnes 33,840 *
W. Alan Cathcart 30,000 *
Leonard S. Coleman, Jr. 30,000 *
Michael P. Collins 42,060 *
Alfonse M. D'Amato 10,000 *
Martin L. Edelman 45,000 *
Deborah L. Harmon 30,000 *
Stephen P. Holmes 31,000 *
Richard S. Jacobson 7,320 *
Michael J. Kennedy 30,000 *
Gerard J. Kennell 39,160 *
James A. Keyes 4,040 *
Lawrence E. Kinder 14,000 *
William E. Madison 25,000 *
Mark E. Miller 55,000 *
A. Barry Rand 0 *
F. Robert Salerno 534,920 1.7%
Karen C. Sclafani 18,840 *
Timothy M. Shanley 34,173 *
Kevin M. Sheehan4 285,300 *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (20 persons) 1,299,653 4.1%
- ----------------
* Less than 1%
1 Cendant beneficially owns 5,535,800 shares, which shares are held of
record by its indirect wholly-owned subsidiary, Cendant Car Holdings, Inc.
2 Based upon information supplied by our stock watch firm, Morrow & Co.,
Inc.
3 The shares are owned as follows: Gabelli Funds, LLC owns 653,900 shares
(2.10%) as agent, GAMCO Investors, Inc. owns 1,856,200 shares (5.96%) as
agent, Gabelli Associates Limited owns 191,500 shares (.61%), Gabelli
Associates Fund owns 187,500 shares (.60%), Gabelli Foundation, Inc. owns
20,000 shares (.06%) and Gabelli Fund, LDC owns 3,000 shares (.01%).
4 Includes 1,000 shares held by Mr. Sheehan's children.
Transactions in Common Stock by Certain Persons
The following table sets forth certain information concerning purchases
and dispositions of Common Stock since September 1, 1998 by Avis and our
subsidiaries, directors and officers. The transactions by the listed executive
officers were all exercises of stock options at a strike price of $17.00 per
share, except for Mr. Rand whose strike price was $18.9375. Option exercise also
includes a disposition made on the same day in the open market.
NUMBER OF NUMBER OF SHARES WHERE AND HOW
NAME DATE SHARES PURCHASED DISPOSED OF PRICE PER SHARE TRANSACTION EFFECTED
- ---- ---- ----------------- ------------ --------------- --------------------
Avis 9/1/98 60,000 -- $16.50 Open market
Avis 9/1/98 15,000 -- $16.50 Open market
Avis 9/3/98 259,600 -- $18.125 Open market
Avis 9/3/98 117,200 -- $18.25 Open market
Avis 9/14/98 25,000 -- $19.6875 Open market
Avis 9/15/98 634,100 -- $19.375 Open market
Avis 9/16/98 330,000 -- $20.00 Open market
Avis 9/16/98 59,100 -- $20.00 Open market
Avis 10/28/98 884,000 -- $18.625 Open market
Avis 11/24/98 248,700 -- $20.00 Open market
Avis 11/24/98 40,000 -- $20.00 Open market
Avis 1/15/99 1,300,000 -- $24.25 Cendant
James A. Keyes 1/20/99 1,420 1,420 $26.50 Option exercise
Thomas J. Byrnes 1/28/99 4,620 4,620 $27.625 Option exercise
Thomas J. Byrnes 1/28/99 9,600 9,600 $27.50 Option exercise
Avis 2/5/99 10,600 -- $23.8691 Open market
Avis 2/8/99 198,500 -- $24.00 Open market
Avis 2/9/99 76,000 -- $23.00 Open market
Avis 2/10/99 150,000 -- $22.9548 Open market
Avis 2/11/99 25,000 -- $22.375 Open market
Avis 2/11/99 10,000 -- $22.25 Open market
Avis 2/18/99 19,500 -- $21.5215 Open market
Avis 2/26/99 24,000 -- $22.625 Open market
Avis 2/26/99 24,500 -- $23.00 Open market
Avis 3/9/99 150,000 -- $22.375 Open market
Avis 3/10/99 25,000 -- $21.96 Open market
Gerard J. Kennell 3/18/99 7,000 7,000 $27.00 Open market
Timothy M. Shanley 3/29/99 12,087 12,087 $28.00 Option exercise
Michael P. Collins 4/23/99 5,000 5,000 $32.00 Option exercise
Avis 4/26/99 314,200 -- $29.50 Cendant
Richard S. Jacobson 5/4/99 2,660 2,660 $34.00 Option exercise
James A. Keyes 8/15/00 1,400 1,400 $30.00 Option exercise
Kevin M. Sheehan 11/14/00 75,000 75,000 $31.9375 Option exercise
A. Barry Rand 12/27/00 206,667 206,667 $32.4592 Option exercise
As of November 14, 2000, Bankers Trust Company, as Trustee, holds 133,683 shares
of our common stock for participants in our Avis Voluntary Investment Savings
Plan.
Other Matters for Action at the Special Meeting
Our board of directors is not aware of any matters to be presented for
action at the special meeting other than those described herein and does not
intend to bring any other matters before the special meeting. However, if other
matters should come before the special meeting, it is intended that the holders
of proxies solicited hereby will vote thereon in their discretion.
Proposals by Holders of Shares of Common Stock
Due to the contemplated consummation of the merger, Avis does not
currently expect to hold a 2001 annual meeting of stockholders because,
following the merger, Avis will not be a publicly held company. In the event the
merger is not consummated for any reason, Avis must receive proposals of
stockholders intended to be presented at the 2001 annual meeting of stockholders
at our principal executive offices no later than the tenth day following our
public announcement of the date of our 2001 annual meeting, for inclusion in our
proxy statement and form of proxy relating to that meeting.
Expenses of Solicitation
Avis will bear the cost of preparing, mailing, and soliciting the proxy
statement. In addition to our solicitations by mail, our directors, officers,
and regular employees may solicit proxies personally and by telephone,
facsimile, or other means, for which they will receive no compensation in
addition to their normal compensation. Avis has also retained Morrow & Co., Inc.
located at 445 Park Avenue, New York, New York 10022, telephone number
1-800-654-2468, to assist in the solicitation of proxies from stockholders,
including brokerage houses and other custodians, nominees, and fiduciaries and
will pay a fee of $7,500 plus that firm's transaction expenses. Arrangements
will also be made with brokerage houses and other custodians, nominees, and
fiduciaries for the forwarding of solicitation material to the beneficial owners
of common stock held of record by such persons, and Avis may reimburse them for
their reasonable transaction and clerical expenses.
Preliminary Presentation by Bear Stearns
Bear Stearns acted as financial advisor to Avis in connection with its
review of various strategic alternatives including the merger. Bear Stearns was
retained by Avis management to assist them following the announcement of the
Preliminary Proposal by Cendant and prior to the decision of our board of
directors to form a special committee. Bear Stearns was not retained by and did
not act as financial advisor to the special committee or our board of directors
or participate in any negotiations with Cendant. Bear Stearns is an
internationally recognized investment banking firm that has substantial
experience in transactions similar to the merger. Bear Stearns, as part of its
investment banking business, is continuously engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and other transactions.
Avis retained Bear Stearns based on its qualifications, expertise and
reputation in providing advice to companies with respect to proposed
transactions similar to the Preliminary Proposal and the merger and also because
it is familiar with Avis' business. In September 1997, Bear Stearns was the lead
manager for Avis Rent A Car in connection with its $381 million initial public
offering. In March 1998, Avis Rent A Car selected Bear Stearns to lead manage a
$165 million follow-on offering which consisted entirely of primary shares with
the over allotment option to be comprised of secondary shares owned by Cendant.
The Bear Stearns' engagement letter provides that Bear Stearns will
receive: (i) an initial, non-refundable fee upon commencement of its engagement
of $200,000, (ii) upon the earlier of (x) receipt by Bear Stearns of a request
from Avis to render a fairness opinion with respect to a contemplated
transaction or (y) execution by Avis of an agreement in connection with a
transaction related to Bear Stearns' engagement, a cash fee of $2,000,000, (iii)
if a transaction with Cendant was consummated, an additional cash fee equal to
.45% of the aggregate transaction value, which is defined as not including the
securities already owned by Cendant and its affiliates at April 7, 2000, (iv) if
a transaction with respect to a subsidiary of Avis was consummated, an
additional cash fee ranging between .955% and .370% of the aggregate value of
the transaction and (v) if a recapitalization of Avis was consummated, an
additional cash fee ranging between .955% and .370% of the aggregate principal
amount of the sum of any debt securities exchanged in such recapitalization, the
aggregate value of any securities of Avis repurchased by Avis, the aggregate
value of any dividend, spin-off, split-off, or other distribution by Avis of
cash, debt, securities, or other assets or property of Avis and the aggregate
value of the securities of Avis and its subsidiaries retained by the
stockholders of Avis in connection with such recapitalization. In the event any
transaction were to be consummated in more than one step, the aggregate value
upon which the fees are to be calculated shall include such further steps. Any
fees payable pursuant to (i) and (ii) above will be credited against any fees
payable by Avis to Bear Stearns pursuant to (iii)-(v) above. In addition, Avis
has also agreed to reimburse Bear Stearns for its reasonable travel and other
transaction expenses incurred in connection with its engagement and to indemnify
Bear Stearns and its affiliates against certain liabilities and expenses
relating to or arising out of its engagement.
In connection with Bear Stearns' engagement, Bear Stearns conducted a
financial analysis of Cendant's Preliminary Proposal of $29 per share. On
September 18, 2000, Bear Stearns delivered a joint presentation with management
of Avis to the special committee. The presentation given by Bear Stearns and
management was a preliminary financial analysis of the $29 Preliminary Proposal.
Bear Stearns did not finalize its analysis or conduct a subsequent analysis in
respect of the final $33 consideration offered by Cendant to the Avis
shareholders. Further, the presentation was not intended to address the
fairness, from a financial point of view, to the shareholders of Avis of the
Preliminary Proposal.
The joint presentation delivered to the special committee by Bear
Stearns and Avis management has been included as Exhibit (c)(3) to the Schedule
13E-3 filed by Avis and Cendant in connection with the merger, and the following
summary is qualified by reference to that exhibit. The full text of Bear
Stearns' presentation is also available for inspection and copying at the
corporate offices of Avis during regular business hours.
Overview of Operating and Trading Performance. Prior to the
presentation of the valuation analyses prepared by Bear Stearns, Avis management
reviewed for the special committee Avis' historical and projected financial
performance, using the projections described under "SPECIAL FACTORS--Our
Forecasts." Management also emphasized that Avis had consistently reported
actual results in excess of internal forecasts and had revised its forecasts
upward over time, as summarized in the table below:
Fiscal Year Ending
-------------------------------------------------------------------------------
1998 1999 2000 2001 2002
6/23/98 Forecast $1.62 $2.04 $2.45 $2.94 $3.53
3/17/99 Forecast $2.18 $2.62 $3.15 $3.79
7/28/00 Forecast $3.23 $4.15 $4.83
Actual $1.82 $2.61
Management also reviewed Avis' daily historical trading performance
since its initial public offering in 1997. Bear Stearns then presented a graph
depicting Avis' one year forward P/E ratio, based on First Call consensus
estimates, since its initial public offering and noted that Avis' historical one
year forward P/E ratio was higher than the 7.3x price to 2001 First Call
consensus earnings estimate implied by the Cendant Preliminary Proposal from the
time of its initial public offering until the early part of 2000, though lower
in the months immediately preceding the Cendant Preliminary Proposal.
Summary of Preliminary Proposal. Bear Stearns summarized for the
special committee the valuation multiples implied by the Preliminary Proposal
and by the then current market price based on Avis' management projections. Bear
Stearns noted that the market price was higher than the price of the Preliminary
Proposal, indicating that investors anticipated a final offer price higher than
the $29 Preliminary Proposal. The foregoing information can be summarized in the
following table:
Valuation Summary At Current Market At Cendant Preliminary
Proposal
Price per Share $30.94 $29.00
Premium to Market (6.3%)
Net Equity Value $1,029.9 $956.1
Enterprise Value $1,927.2 $1,853.4
Enterprise Value/EBITDA
LTM 5.2x 5.0
2000E 5.0 4.8
2001E 4.6 4.4
Price/EPS
LTM 8.5x 8.0x
2000E 8.2 7.7
2001E 7.4 7.0
Segment Precedent Transaction Analysis. Based on publicly available
historical information, Bear Stearns calculated historical multiples of
enterprise value to EBITDA and stock price to earnings per share paid by
acquirors of publicly traded companies in each of Avis' three main business
lines including its vehicle rental operations, PHH North America ("PHH-NA") and
Wright Express ("WEX"). The particular precedent transactions for each segment
were chosen because the targets in those transactions had operations that, for
purposes of this analysis, were considered by Bear Stearns to be similar, in
varying degrees, to the operations of the applicable Avis business. Bear Stearns
then calculated the harmonic mean of the multiples from the precedent
transactions for each Avis business line and weighted the harmonic mean from
each business line by such business line's contribution to Avis' 2000E
consolidated EBITDA. Relative contributions to Avis' 2000E consolidated EBITDA
were determined on a pro forma basis for the contribution of PHH Europe to Arval
PHH, and other income generated through the participation in Arval PHH and
technology fee receipts from Arval PHH were allocated to the PHH-NA business
line. The resulting weighted multiple was then compared to the multiples implied
by the Preliminary Proposal. The results of this analysis were summarized for
the special committee as follows:
Avis Harmonic Mean Valuation Multiples
2000E EBITDA
Enterprise Equity/Net Income
Value/EBITDA
Segment # of Comparable $ % of
Transactions Total
LTM LTM
Vehicle Rental 8 $242.5 63.1% 9.4x 18.8x
PHH-NA 5 103.2 26.8 10.2 19.5
WEX 8 38.9 10.1 14.1 35.3
Weighted 10.1x 20.7x
Multiple
Cendant 5.0 8.0
Preliminary
Proposal-Implied
Multiple
Segment Comparable Company Analysis. Based on publicly available
historical and projected information, Bear Stearns calculated historical and
projected valuation multiples of enterprise value to EBITDA and current stock
price to earnings per share for publicly traded comparable companies in each of
Avis' three main business lines including its vehicle rental operations, PHH-NA
and WEX. The particular comparable companies for each segment were chosen
because they have operations that, for purposes of this analysis, were
considered by Bear Stearns to be similar, in varying degrees, to the operations
of the applicable Avis business. Bear Stearns then calculated the harmonic mean
of the multiples from the comparable companies for each Avis business line and
weighted the harmonic mean from each business line by such business line's
contribution to Avis' 2000E consolidated EBITDA, in a manner consistent with the
weightings determined in the segment precedent transaction analysis described in
the preceding paragraph. The resulting weighted multiple was then compared to
the multiples implied by the Preliminary Proposal. The results of this analysis
were summarized for the special committee as follows:
Avis Harmonic Mean Valuation Multiples
2000E EBITDA
Enterprise Value/EBITDA Price/EPS
Segment # of $ % of LTM 2000E 2001E LTM 2000E 2001E
Comps Total
Vehicle 4 $242.5 63.1% 4.1x 3.8x 3.3x 8.3x 8.3x 7.1x
Rental
PHH-NA 4 103.2 26.8 3.9 3.8 3.3 8.5 7.7 6.7
WEX 7 38.9 10.1 9.4 8.6 7.5 21.1 19.8 16.7
Weighted 4.6x 4.3x 3.7x 9.6x 9.3x 8.0x
Multiple
Cendant 5.0 4.8 4.4 8.0 7.7 7.0
Preliminary
Proposal-Implied
Multiple
Discounted Cash Flow Analysis. Bear Stearns performed a discounted cash
flow analysis to determine an indicative range of present values per share of
Avis common stock, assuming Avis continued to operate as a stand-alone entity in
a manner consistent with its projections. In order to calculate this range, Bear
Stearns first determined Avis' implied enterprise value by adding (1) the
present value of the estimated future unlevered free cash flows that Avis would
generate over the five-year period from 2001 to 2005 if it operated in a manner
consistent with its projections, and (2) the present value of Avis' "terminal
value" at the end of year 2005. Bear Stearns then subtracted net debt and
preferred stock from this implied enterprise value in order to calculate total
equity value and the resulting per share price. The Avis terminal value at the
end of the period was determined by applying a range of multiples of enterprise
values to an estimated 2005 EBITDA. Year 2005 EBITDA was determined by
extrapolating 2004 EBITDA at its forecasted growth rate for 2004. Bear Stearns
used a trailing enterprise value to EBITDA multiple range of 4.0x to 5.0x when
calculating the terminal value. The present value of the sum of the projected
unlevered free cash flows and the terminal value was calculated using a discount
rate rate of 11 to 13%. This discount rate range was determined to be
appropriate by Bear Stearns based on its calculated estimate of Avis' weighted
average cost of capital. Based on this analysis, the indicative per share value
range for Avis' common stock was approximately $34 to $48 per share.
Hypothetical Future Stock Price Analyses. Bear Stearns also reviewed
with the special committee its analysis of the hypothetical future price of Avis
common stock assuming it (1) executed the business plan underlying its
projections, (2) executed its business plan while repurchasing outstanding
shares of its common stock and (3) divested Avis Fleet Leasing & Management
("AFL&M") (i.e. PHH-NA and WEX) and used the proceeds to repay debt, redeem its
preferred stock and repurchase shares of common stock. In each case, Bear
Stearns emphasized that these hypothetical future stock prices were intended to
illustrate the potential value achievable under the company's existing business
plan and specified assumptions, but were not intended to be indicative of the
appropriate valuation for Avis in the context of a change of control
transaction.
Status Quo/Stock Repurchase. For purposes of the status quo and status
quo with stock repurchase scenarios, Bear Stearns assumed that Avis continued to
operate its entire business in accordance with its projections. In the latter
scenario, Bear Stearns also assumed that the company used the cash generated by
its business to commence a stock repurchase program. The amount assumed to be
available for stock repurchases each year was calculated based on the lesser of
the free cash flow generated during the period and 50% of reported net income
during the prior period. The shares were assumed to be repurchased at a per
share price determined by multiplying the forward multiple of projected earnings
per share used to determine the hypothetical future stock price, as described
below, and estimates of earnings per share for the applicable period prior to
the impact of the stock repurchases in such period. Earnings per share estimates
were then recalculated after giving effect to such stock repurchases.
Hypothetical future stock prices were then calculated by multiplying the
earnings per share estimates by forward P/E multiples of 7.0x and 8.0x. These
hypothetical future stock prices were also converted to present values using a
discount rate equal to Avis' cost of equity, estimated to be 14% using the
Capital Asset Pricing Model. The foregoing analysis was summarized for the
special committee in the following charts:
Hypothetical Future Stock Prices
Forward P/E Multiple 12/31/01 12/31/02 12/31/03 12/31/04
7.0x $37.21 $45.22 $55.20 $66.34
8.0x 41.89 50.50 61.17 72.89
Present Value of Hypothetical Future Stock Prices
Forward P/E Multiple 12/31/01 12/31/02 12/31/03 12/31/04
7.0x $31.37 $33.44 $35.81 $37.75
8.0x 35.32 37.35 39.68 41.48
Divestiture Case. Based on estimates of the values that management
thought could be obtained for PHH-NA and WEX, Bear Stearns calculated the after
tax proceeds available upon completion of these divestitures, taking into
account the potential call by BNP of Avis' 20% interest in Arval PHH, the
acceleration of technology fees from Arval PHH and certain deferred tax
obligations that may be triggered upon the sale. Bear Stearns assumed that the
available proceeds would be used to redeem Avis' senior subordinated notes and
its outstanding preferred stock. Using the pro forma capital structure and
operating results resulting from these divestitures, Bear Stearns calculated the
pro forma enterprise value for Avis based on its enterprise value to 2001E
EBITDA multiple of 4.1x on the day prior to the announcement of the Cendant
proposal. Avis' pro forma equity value and the resulting pro forma share price
immediately following the divestitures were then calculated by adding to the
calculated enterprise value the remaining cash available from the proceeds from
the divestitures. This analysis was summarized for the special committee in the
following table:
Status Quo Pro Forma
(Pre-Announcement Stock (Sale of PHH-NA and WEX)
Price)
Enterprise Value $1,724.3 $1,157.3
Less: Debt (601.2) 0.0
Less: Preferred Stock (380.2) 0.0
Plus: Unrestricted Cash 84.2 332.6
Equity Value $827.0 $1,490.0
2001E EBITDA 419.0 281.2
Enterprise Value / 2001E EBITDA 4.1x 4.1x
Price per Share $25.50 $43.02
Bear Stearns then also calculated hypothetical future stock prices for
Avis under this scenario assuming the cash remaining from the divestitures after
repayment of the debt and redemption of the preferred stock was used to
repurchase shares of Avis common stock. The shares were assumed to be
repurchased at a per share price determined by multiplying the forward multiple
of projected earnings per share of 7.5x by estimates of earnings per share prior
to the impact of the stock repurchase. Earnings per share estimates for each
period were then recalculated after giving effect to the divestitures and such
stock repurchase, and the resulting hypothetical future stock prices were
calculated by multiplying the earnings per share estimate for the applicable
period by a forward P/E multiple of 7.5x.
Summary of Alternatives. Bear Stearns summarized the three alternatives
described above by calculating earnings per share under each scenario and
determining the hypothetical future stock price at December 31, 2000 and
December 31, 2001 by multiplying the projected earnings per share in the
applicable period by an estimated forward P/E ratio of 7.5x. The resulting
values of hypothetical future stock prices under each scenario were summarized
for the special committee in the following chart:
Pro Forma EPS Hypothetical Stock Prices
@ 7.5x Forward P/E
---------------------- --------------------------
2001E 2002E 12/31/00 12/31/01
Status Quo $4.15 $4.82 $31.13 $36.15
Status Quo - Stock Repurchase 4.34 5.27 32.56 39.55
Divest AFL & M - Stock Repurchase 5.36 5.77 40.22 43.24
Based on all of the foregoing analyses, Bear Stearns concluded that the
Preliminary Proposal did not adequately reflect Avis' fair value under
traditional valuation methodologies, and that Avis would have an opportunity to
achieve higher shareholder values independently under the various scenarios
summarized in the preceding section. These conclusions were based solely on the
methods previously described and specifically did not address other issues
relating to the attractiveness of the Preliminary Proposal, including, but not
limited to, the following:
(1) Avis' lack of ownership of the Avis brand name, the
Wizard System and the Avis System License;
(2) the likelihood of receiving a control premium from a
third party other than Cendant due to, among other
things, Avis' lack of ownership of the assets referred to
in item (1) above, the failure of a new third party
bidder to emerge since the Preliminary Proposal was
announced, the number of potential synergies available to
Cendant relative to a third party and Cendant's
substantial existing voting and economic interest in
Avis; and
(3) limitations on Avis' ability to execute the divestitures
of PHH-NA and WEX in a tax efficient manner.
Bear Stearns relied upon, without independent verification, the
accuracy and completeness of the financial and other information, including,
without limitation, the projections provided by Avis management for purposes of
preparing its preliminary analysis. With respect to Avis management projections,
Bear Stearns assumed that they were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the senior management of
Avis as to the expected future performance of Avis. Bear Stearns has not
independently verified any such financial information or the projections
provided by Avis, and Bear Stearns has further relied upon the assurances of the
senior management of Avis that they are unaware of any facts that would make the
information and projections provided to Bear Stearns incomplete or misleading.
In conducting its preliminary review of the Cendant proposal, Bear
Stearns did not perform or obtain any independent appraisal of the assets or
liabilities of Avis, contingent or otherwise, and was not furnished with any
such appraisals. Bear Stearns was not asked to take into consideration in its
analysis whether or not the transaction is taxable to holders of Avis shares.
Preliminary Presentations by Lehman Brothers
As financial advisor to Cendant in connection with the merger, Lehman
Brothers was not requested to, and did not, render any appraisal or opinion in
connection with the merger. However, Lehman Brothers did prepare materials that
were presented to the special committee on September 14, 2000 and October 17,
2000. These presentations were made in order to assist the management of Cendant
in their negotiations with the special committee, and Lehman Brothers did not
make any findings, recommendations or conclusions in these presentations. At the
time these presentations were made, the special committee was considering the
Preliminary Proposal made by Cendant. These presentations discussed Cendant's
rationale for the proposed transaction and provided various methodologies the
special committee could use to analyze Cendant's Preliminary Proposal. These
analyses, which are described below, do not purport to be the most appropriate
and relevant methods of analysis for these particular circumstances. Any
estimates contained in these analyses were not necessarily indicative of actual
values or predictive of future results of values, which may be significantly
more or less favorable than as set forth in the analyses. Estimates of values of
companies do not purport to be appraisals or necessarily to reflect the prices
at which companies may actually be sold. Because these estimates are inherently
subject to uncertainty, none of Cendant, Avis, the special committee, our board
of directors, Lehman Brothers or any other person assumes responsibility if
future results or actual values differ materially from the estimates.
Lehman Brothers' advisory services were provided for the assistance of
Cendant in connection with its negotiations with the special committee. These
presentations are not intended to be and do not constitute a recommendation to
any stockholder of Avis as to how such stockholder should vote with respect to
the merger. These presentations should not be deemed to constitute an opinion
that the $29 per share Preliminary Proposal or the $33 per share consideration
to be offered to the Avis stockholders (other than Cendant and its affiliates)
is fair, from a financial point of view or otherwise, to such stockholders,
Cendant, or any other person.
In preparing its presentation materials, Lehman Brothers reviewed and
analyzed, among other things:
(1) publicly available information concerning Avis and
various companies that constituted Avis' peer group
(which included Hertz, Budget, Dollar and ANC,
collectively the "Peer Group") that Lehman Brothers
believed to be relevant to its analysis, including,
without limitation, each of the periodic reports and
proxy statements filed by Avis and the Peer Group since
January 1, 1998, including the audited and unaudited
financial statements included in such reports and
statements;
(2) financial and operating information with respect to the
corporate structure, businesses, operations and prospects
of Avis as furnished to Lehman Brothers by Cendant and
Avis, including financial projections based on Avis'
business plan as described under "Our Forecasts"; and
(3) a trading history of the stocks of Avis and the Peer
Group from September 24, 1997 to October 16, 2000.
In preparing its presentations, Lehman Brothers assumed and relied
upon the accuracy and completeness of the financial and other information used
by Lehman Brothers without assuming any responsibility for independent
verification of such information. With respect to the financial projections of
Avis, upon advice of Cendant, Lehman Brothers assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Avis as to the future financial
performance of Avis and that Avis will perform in accordance with such
projections. In preparing its presentations, Lehman Brothers did not conduct a
physical inspection of the properties and facilities of Avis and have not made
or obtained any evaluations or appraisals of the assets or liabilities of Avis.
The presentations delivered to the special committee by Lehman Brothers
on September 14, 2000 and October 17, 2000 have been included as Exhibits (c)(4)
and (c)(5), respectively, to the Schedule 13E-3 filed by Avis and Cendant in
connection with the merger, and the following summary is qualified by reference
to those exhibits. The full text of Lehman Brothers' presentations is also
available for inspection and copying at the corporate offices of Avis during
regular business hours.
September 14, 2000 Presentation. In the materials prepared by Lehman
Brothers and presented to the special committee on September 14, 2000, the
following methodologies were included: premium analysis, comparable company
analysis, stock price performance analysis and forward and historical
Price/Earnings analysis, as described below. These materials described the
rationale for undertaking the proposed transaction at this time, including the
elimination of the royalty fee under the master license agreement, the improved
access Avis would have to investment grade capital as a result of the
transaction, the elimination of the Cendant "overhang effect" on Avis stock and
Avis' improved position to participate in any consolidation in the industry.
Premium Analysis. Using publicly available information, Lehman Brothers
reviewed the historical closing prices of Avis stock for the dates July 14, 2000
(1 month prior to the transaction announcement to the market), August 8, 2000 (1
week prior), August 14, 2000 (1 day prior), July 11, 2000 (initial management
meeting), December 31, 1999 (52 week high), March 7, 2000 (52 week low) and
August 9, 2000 (1 day prior to Avis' stock repurchase announcement). Lehman
Brothers compared the $29 per share price of the Preliminary Proposal to the
prices prevailing on the respective dates above. The table below sets forth the
percentage premiums that the $29 per share price of the Preliminary Proposal
represents to the price as of the respective dates above:
1-month 23%
1-week 25%
1-day 14%
Initial management meeting 33%
52-week high 13%
52-week low 117%
1-day prior to Avis' stock repurchase announcement 22%
Comparable Company Analysis. Using publicly available information,
Lehman Brothers compared the public stock market trading multiples for Avis with
those of the Peer Group. Lehman Brothers captured certain data, including
trading price as of September 13, 2000, 52 week high and low trading price,
market capitalization, earnings reported for the Last Twelve Months ("LTM") and
consensus analyst earnings estimates for 2000 and 2001 ("2000E" and "2001E"
respectively). Lehman Brothers then calculated the total debt/total capital
ratio in addition to market price as a multiple of the LTM, 2000 and 2001
earnings estimates. It was determined by Lehman Brothers that the Peer Group
total debt/total capital ratio median was 83.2% as compared to 86.6% for Avis.
Lehman Brothers also determined the price to earnings per share multiples for
Avis, using the $29 per share price of the Preliminary Proposal and the Peer
Group. The following table shows the results of such analyses:
Median for $29 Preliminary
Price as a Multiple of: Peer Group Proposal
LTM Earnings Per Share 6.9x 10.3x
2000E Earnings Per Share 6.9x 9.3x
2001E Earnings Per Share 5.7x 7.3x
Stock Price Performance Analysis. Using publicly available information,
Lehman Brothers presented the closing prices of Avis and the Peer Group for
August 31, 2000 (1 day prior to Hertz's press release that earnings for the
remainder of 2000 would be lower than previously expected) and September 13,
2000 (the day before this presentation). Lehman Brothers then calculated the
percentage change in stock market price over the period for Avis as 0.6% versus
a Peer Group median change of -13.7%.
Avis Forward Price/Earnings ("P/E") Analysis. Using publicly available
information, Lehman Brothers calculated the multiple of price to 1 year forward
earnings ("Forward P/E") depicting Avis relative to Hertz for the time period
beginning August 14, 1998 and ending August 14, 2000 (1 day prior to the
transaction announcement). During this time period, Avis' Forward P/E traded at
a high of 82% relative to the Hertz Forward P/E, a low of 48% and a median of
65%.
Avis Historical P/E Analysis. Using publicly available information,
Lehman Brothers calculated the Forward P/E multiples for Avis and Hertz, as well
as the ratio of Avis' Forward P/E multiple to Hertz' Forward P/E multiple, for
the periods of September 14, 1998 to August 14, 2000, August 14, 1999 to August
14, 2000 and January 3, 2000 to August 14, 2000. The historical ratio of Avis to
Hertz' Forward P/E was then multiplied by the current Hertz P/E multiple and
then multiplied by the consensus Avis 12 month forward earnings per share
("EPS") estimate to yield the implied value per share for Avis (the "implied
price"). Lehman Brothers then calculated the premium that the $29 offer
represented to this implied price for the periods mentioned above. The table
below sets forth the mean and median percentage premiums that the $29 per share
price of the Preliminary Proposal represented to the implied price for the
periods mentioned above:
Period Mean Median
September 14, 1998 to August 14, 2000 65% 66%
August 14, 1999 to August 14, 2000 71% 73%
January 3, 2000 to August 14, 2000 72% 73%
Overall 70% 72%
October 17, 2000 Presentation. Lehman Brothers also prepared materials
that were presented to the special committee on October 17, 2000. The
presentation set forth various methodologies including comparative offer
premiums/discounts analysis, Forward P/E analysis, implied Forward P/E analysis,
stock price performance analysis, comparable company analysis and earnings
sensitivity analysis, as described below.
Comparative Offer Premiums/Discounts Analysis. Using publicly available
information, Lehman Brothers formed two graphs. The first is a graph of
comparative offer premiums showing that Cendant's Preliminary Proposal of $29
per share for Avis was 14% above Avis' 52 week high stock price, 23% above Avis'
stock price one month prior to the offer and 117% above its 52 week low. The
second is a graph of comparative offer premiums and discounts showing that
Ford's offer of $30 per share for Hertz is 41% below Hertz's 52 week high stock
price, 6% below Hertz's stock price one month prior to the offer and 24% above
its 52 week low.
Forward P/E Analysis. Using publicly available information, Lehman
Brothers compiled data to form a graph depicting the Forward P/E for Avis
relative to Hertz between August 14, 1998 and August 14, 2000 (one day prior to
Cendant's offer). Avis' Forward P/E relative to the Hertz' Forward P/E ranged
between a high of 82% and a low of 48% with a median of 65%.
Implied Forward P/E Analysis. Lehman Brothers used information obtained
from Morgan Stanley's analysis of going private transactions (as used in its
opinion for Travelers Property Casualty Corp.), indicating that the average
price increase from the initial offer to the final offer for all such
transactions was 3.91%. Lehman Brothers then formed a table showing the $30 per
share Ford offer for Hertz and Hertz' consensus 2001E EPS of $3.44/share. The
P/E ratio was then calculated for the Ford offer for Hertz as well as at a 3.91%
and 10% premium which yielded P/E multiples of 8.7x, 9.1x and 9.6x respectively.
An implied Avis price was then calculated by Lehman Brothers by multiplying the
Ford offer P/E ratio of 8.7x by the historical Avis/Hertz Forward P/E ratio
range of 48%-82%, yielding an implied Avis price range of $17.37 to $32.65.
Stock Price Performance Analysis. Using publicly available information,
Lehman Brothers compiled data to form two graphs of stock price performance.
Graph one depicts stock price performance for the S&P 500 Index, Avis and the
Peer Group for the period September 24, 1997 to August 14, 2000; the S&P 500
increased 57%, Avis increased 50% and the Peer Group decreased 17%. Graph two
depicts stock price performance for the S&P 500, Avis and the Peer Group for the
period August 14, 2000 to October 16, 2000 (the period from announcement of this
transaction to the day before this presentation); the S&P 500 decreased 7%, Avis
increased 14% and the Peer Group decreased 18%.
Comparable Company Analysis. Using publicly available information,
Lehman Brothers reviewed the public stock market trading multiples for the Peer
Group. Lehman Brothers captured certain data, including trading price for the
Peer Group as of October 16, 2000, and the 52-week high and low and EPS
estimates for LTM, 2000 and 2001 for Avis and the Peer Group. Lehman Brothers
then calculated the price as a multiple of LTM, 2000 and 2001 EPS estimates, and
firm value (market capitalization plus total debt, minority interest and
preferred equity less cash)/LTM revenue for the respective companies (using the
Preliminary Proposal for Avis) Lehman Brothers also calculated the percent
change between the trading prices (using the Preliminary Proposal for Avis) as
of October 16, 2000 and the 52-week high and low. The following table show the
results of these calculations:
Avis based on
Median for $29 Preliminary
Price as a Multiple of: Peer Group Proposal
LTM Earnings Per Share 7.6x 10.3x
2000E Earnings Per Share 6.1x 9.3x
2001E Earnings Per Share 5.1x 7.3x
Ratio of Firm Value/LTM Revenue 1.97x 2.06x
Price as a Percentage of:
52 Week High -35.8% +13.5%
52 Week Low +20.2% +116.7%
Earnings Sensitivity Analysis. Lehman Brothers utilized Avis management
earnings estimates for the years 2000 and 2001 and assumed that they increased
at 16.5% annually to 2004. They were then adjusted for a hypothetical 1.0%
reduction in time and mileage inflation. Multiplying each year's adjusted
earnings estimate by a terminal value of 7x - 9x yielded an implied future share
price for Avis, which was then discounted at 17.5% to produce implied present
values of Avis of between $15.20 and $28.10 per share.
The preceding is a summary of each of the material financial analyses
presented in the presentations prepared by Lehman Brothers and presented to the
special committee in connection with their consideration of the Preliminary
Proposal. This summary does not purport to be a complete description of the
analyses performed by Lehman Brothers. Lehman Brothers made no attempt to assign
specific weights to particular analyses or factors considered.
Lehman Brothers is an internationally recognized investment banking
firm and, as part of its investment banking activities, is regularly engaged in
the evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. Cendant selected Lehman Brothers
because of its expertise, reputation and familiarity with Cendant and Avis and
because its investment banking professionals have substantial expertise in
transactions similar to the merger.
The engagement of Lehman Brothers in connection with the proposed
merger was formalized by an engagement letter dated August 4, 2000 between
Cendant and Lehman Brothers pursuant to which Cendant has agreed to pay Lehman
Brothers a cash fee of $5,000,000, $4,500,000 of which is contingent upon
consummation of the merger. In addition, Cendant has agreed to reimburse Lehman
Brothers for reasonable expenses incurred by Lehman Brothers and to indemnify
Lehman Brothers and certain related persons for certain liabilities that may
arise out of its engagement.
Lehman Brothers has performed various investment banking services for
both Cendant and Avis in the past two years relating to both acquisition
advisory and financing transactions, including advising Avis on its acquisition
of Cendant's vehicle management services business in August, 1999, and has
received customary fees for its services. In the ordinary course of Lehman
Brothers' business, Lehman Brothers may actively trade in the equity and debt
securities of Cendant or Avis for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Experts
Our consolidated financial statements for the years ended December 31,
1999, 1998, 1997 and 1995 and for the periods ended December 31, 1996 and
October 16, 1996, incorporated herein by reference, have been audited by
Deloitte & Touche LLP, independent auditors.
It is not anticipated that a representative of Deloitte & Touche LLP
will attend the special meeting.
Available Information
Avis is subject to the informational reporting requirements of the
Exchange Act and in accordance with the Exchange Act, Avis files reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information can be inspected and copies made at the Public Reference
Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and the SEC's
regional offices at 7 World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the SEC at its Washington address at prescribed rates.
Information regarding the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330. Copies of such material may also be
accessed through the SEC's web site at www.sec.gov. Avis' common stock is listed
on the NYSE under the symbol "AVI." Such materials may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
Avis and Cendant have filed a Schedule 13E-3 with the SEC with respect
to the merger. As permitted by the SEC, this proxy statement omits certain
information contained in the Schedule 13E-3. The Schedule 13E-3, including any
amendments and exhibits filed or incorporated by reference as a part of it, is
available for inspection or copying as set forth above. Statements contained in
this proxy statement or in any document incorporated in this proxy statement by
reference regarding the contents of any contract or other document are not
necessarily complete and each such statement is qualified in its entirety by
reference to such contract or other document filed as an exhibit with the SEC.
If you would like to request documents from us, please do so at least
five business days before the date of the special meeting in order to receive
timely delivery of such documents prior to the special meeting.
You should rely only on the information contained or incorporated by
reference in this proxy statement to vote your shares at the special meeting.
Avis has not authorized anyone to provide you with information that is different
from what is contained in this proxy statement. This proxy statement is dated
January 26, 2001.
You should not assume that the information contained in this proxy
statement is accurate as of any date other than that date, and the mailing of
this proxy statement to stockholders does not create any implication to the
contrary. This proxy statement does not constitute a solicitation of a proxy in
any jurisdiction where, or to or from any person to whom, it is unlawful to make
such proxy solicitation in such jurisdiction.
Information Incorporated by Reference
Our Annual Report on Form 10-K for the years ended December 31, 1997,
December 31, 1998 and December 31, 1999 and our Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000, each filed by us with the SEC
(Commission File No. 000-13315) are incorporated by reference into this proxy
statement. Our 10-Ks and 10-Q are not presented in this proxy statement or
delivered with it, but are available (without exhibits, unless the exhibits are
specifically incorporated in this proxy statement by reference) to any person,
including any beneficial owner, to whom this proxy statement is delivered,
without charge, upon written request directed to us at 900 Old Country Road,
Garden City, New York 11530, Attention: General Counsel at 516-222-3000. Copies
of our 10-Ks and 10-Qs so requested will be sent, within one business day of
receipt of such request, by first class mail, postage paid.
All documents Avis files pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this proxy statement and prior to the date
of the special meeting shall be deemed to be incorporated by reference in this
proxy statement and to be a of this proxy statement hereof from the respective
dates of filing of such documents. Any statement contained in this proxy
statement or in a document incorporated or deemed to be incorporated by
reference in this proxy shall be deemed to be modified or superseded for
purposes of this proxy statement to the extent that a statement contained in any
subsequently filed document that also is or is deemed to be incorporated by
reference in this proxy modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this proxy statement. Any references to
Private Securities Litigation Reform Act in Avis' publicly-filed documents which
are incorporated by reference into this proxy statement are specifically not
incorporated by reference into this proxy statement.
-------------------------------
No persons have been authorized to give any information or to make any
representations other than those contained, or incorporated by reference, in
this proxy statement, and if given or made, such information or representations
must not be relied upon as having been authorized by us or any other person.
Avis has supplied all information contained in this proxy statement relating to
Avis, and Cendant has supplied all information contained in this proxy statement
relating to Cendant, Avis Acquisition Corp. and their affiliates.
By order of the Board of Directors
/s/ Karen C. Sclafani
Vice President, General Counsel
and Secretary
January 26, 2001
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Kevin M. Sheehan and Karen C. Sclafani,
or either of them, proxies (each with full power of substitution) to vote, as
indicated below and in their discretion upon such other matters, not known or
determined at the time of solicitation of this proxy, as to which stockholders
may be entitled to vote at the special meeting of the stockholders of Avis Group
Holdings, Inc. to be held at the Company's corporate offices, 900 Old Country
Road, Garden City, New York 11530 on February 28, 2001, at 2:00 p.m., local
time, and at any adjournment or postponement of the special meeting, as
indicated on the reverse side.
This proxy is solicited on behalf of the board of directors. This
proxy, when properly executed, will be voted in a manner directed herein by the
undersigned stockholder. If no direction is made, the proxy will be voted "FOR"
proposals 1 and 2.
(Continued and to be signed on the reverse side)
1. A proposal to adopt the Agreement and Plan of Merger, dated as of
November 11, 2000, by and among Cendant Corporation, PHH Corporation, Avis
Acquisition Corp. and Avis Group Holdings, Inc.
/ / FOR / / AGAINST / / ABSTAIN
2. To adjourn the meeting, if necessary, to solicit additional votes in
favor of adoption of the merger agreement.
/ / FOR / / AGAINST / / ABSTAIN
The undersigned hereby acknowledges receipt of the notice of the
special meeting and the proxy statement.
PLEASE SIGN AND DATE THIS PROXY BELOW.
Date:
------------------------------
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Please sign exactly as your
name appears on left. When
signing as attorney, executor,
administrator, guardian or
corporate official, please give
full title.
APPENDIX A
--------------------------
AGREEMENT
AND
PLAN OF MERGER
by and among
CENDANT CORPORATION,
PHH CORPORATION,
AVIS ACQUISITION CORP.
and
AVIS GROUP HOLDINGS, INC.
dated as of November 11, 2000
---------------------------
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
November 11, 2000, is by and among Cendant Corporation, a Delaware corporation
("Parent"), PHH Corporation, a Maryland corporation and an indirect wholly owned
Subsidiary (as defined below) of Parent ("PHH"), Avis Acquisition Corp., a
Delaware corporation and a wholly owned Subsidiary of PHH ("Merger Sub"), and
Avis Group Holdings, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, Cendant Car Holdings, Inc., a Delaware corporation and an
indirect, wholly owned Subsidiary of Parent ("Car Holdings"), is the beneficial
owner of 5,535,800 shares of class A common stock, par value $.01 per share, of
the Company (the "Company Common Stock"), which represents approximately 17.8%
of the outstanding shares of Company Common Stock;
WHEREAS, Parent and PHH have proposed that PHH acquire (the
"Acquisition") all of the issued and outstanding shares of Company Common Stock
not beneficially owned (within the meaning of Rule 13d-3 of the Exchange Act (as
defined below)) by Parent, PHH, Merger Sub, Car Holdings or any other direct or
indirect Subsidiary of Parent (collectively, the "Acquisition Group") (such
outstanding shares of Company Common Stock not owned by the Acquisition Group
being referred to herein as the "Shares");
WHEREAS, in furtherance of the Acquisition, it is proposed that Merger
Sub shall be merged with and into the Company, with the Company continuing as
the surviving corporation (the "Merger"), in accordance with the General
Corporation Law of the State of Delaware (the "DGCL") and upon the terms and
subject to the conditions set forth herein;
WHEREAS, a special committee of the board of directors of the Company
(the "Board"), consisting entirely of nonmanagement directors of the Company who
are not Affiliates (as defined below) of the Acquisition Group (the "Independent
Committee"), was established for, among other purposes, the purpose of
evaluating the Acquisition and making a recommendation to the Board with regard
to the Acquisition;
WHEREAS, the Independent Committee has received the opinion of Morgan
Stanley & Co., Incorporated ("Morgan Stanley"), financial advisor to the
Independent Committee, that, as of the date hereof, the consideration to be
received by the holders of Shares pursuant to the Merger is fair to such holders
from a financial point of view;
WHEREAS, the Board, based on the unanimous recommendation of the
Independent Committee, has, in light of and subject to the terms and conditions
set forth herein, (i) determined that (x) the Merger Consideration (as defined
below), is fair to the holders of Shares and (y) the Merger is advisable and in
the best interests of the Company and the holders of Shares; (ii) approved, and
declared the advisability of, this Agreement and (iii) determined to recommend
that the stockholders of the Company vote to adopt this Agreement;
WHEREAS, the respective boards of directors of Parent, PHH and Merger
Sub have approved this Agreement; the board of directors of Merger Sub has
declared the advisability of the Agreement; and PHH, as the sole stockholder of
Merger Sub, has adopted this Agreement; and
WHEREAS, the Company, Parent, PHH and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and the other transactions contemplated hereby (collectively, the
"Transactions") and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined below), and upon the
terms and subject to the conditions of this Agreement and in accordance with the
DGCL, Merger Sub shall be merged with and into the Company. Following the
Merger, the Company shall continue as the surviving corporation (the "Surviving
Corporation") and as a wholly owned subsidiary of PHH, and the separate
corporate existence of Merger Sub shall cease in accordance with the DGCL.
1.2 Effective Time. Subject to the provisions of this Agreement, the
parties shall cause the Merger to be consummated by filing a certificate of
merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware in such form as required by, and executed in accordance with, the
relevant provisions of the DGCL as soon as practicable on or after the Closing
Date (as defined below). The Merger shall become effective upon such filing or
at such time thereafter as is agreed by Parent and the Independent Committee and
provided in the Certificate of Merger (the "Effective Time," and the date of
such effectiveness shall be the "Effective Date").
1.3 Closing of the Merger. The closing of the Merger (the "Closing")
shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP,
Four Times Square, New York, New York, at 10:00 a.m. (local time) on a date to
be specified by the parties, which shall be no later than the second Business
Day after satisfaction or waiver (as permitted by this Agreement and applicable
law) of all of the conditions set forth in Article VI hereof (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the fulfillment or waiver of those conditions) (the "Closing Date"), unless
another time, date or place is agreed by Parent and the Independent Committee in
writing.
1.4 Effects of the Merger. The Merger shall have the effects set forth
in Section 259 of the DGCL. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all properties, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation and By-laws. At the Effective Time,
the Amended and Restated Certificate of Incorporation of the Company shall be
amended and restated in its entirety to read as set forth in Annex A and, as so
amended, shall be the certificate of incorporation of the Surviving Corporation
until thereafter amended as provided by law and such certificate of
incorporation, subject to the provisions of Section 5.5. The by-laws of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the by-laws
of the Surviving Corporation until thereafter amended in accordance with its
terms, and as provided by applicable law, and the certificate of incorporation
of the Surviving Corporation, subject to the provisions of Section 5.5.
1.6 Directors. The directors of Merger Sub at the Effective Time, from
and after the Effective Time, shall be the directors of the Surviving
Corporation, each to hold office in accordance with the certificate of
incorporation and by-laws of the Surviving Corporation until such director's
successor is duly elected and qualified in the manner provided in the Surviving
Corporation's certificate of incorporation and by-laws, or as otherwise provided
by applicable law.
1.7 Officers. The officers of the Company at the Effective Time, from
and after the Effective Time, shall be the officers of the Surviving Corporation
until such officer's successor is duly elected or appointed and qualified in the
manner provided in the Surviving Corporation's certificate of incorporation and
by-laws, or as otherwise provided by applicable law.
1.8 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall determine or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or otherwise to
carry out this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of either the Company or Merger Sub, all such deeds, bills of sale,
instruments of conveyance, assignments and assurances and to take and do, in the
name and on behalf of the Company, Merger Sub or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out this Agreement.
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Shares. At the Effective Time, by virtue of the
Merger, and without any action on the part of the holder thereof:
(a) subject to Section 2.3, each Share issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive an amount in cash, without interest, equal to thirty-three United States
Dollars ($33.00) (the "Merger Consideration") in the manner provided in Section
2.2 hereof;
(b) each Share issued and held in the Company's treasury or held by any
Subsidiary of the Company immediately prior to the Effective Time shall, by
virtue of the Merger, cease to be outstanding and shall be cancelled and retired
without payment of any consideration therefor;
(c) each share of Company Common Stock held by any member of the
Acquisition Group immediately prior to the Effective Time shall be converted
into and become one fully paid and nonassessable share of common stock of the
Surviving Corporation; and
(d) each share of common stock, par value $.01 per share, of Merger Sub
("Merger Sub Common Stock") issued and outstanding immediately prior to the
Effective Time shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
2.2 Delivery of Merger Consideration.
(a) Immediately prior to the Effective Time, Parent and PHH shall
deposit or cause to be deposited in trust (the "Payment Fund") with an agent
designated by Parent and reasonably satisfactory to the Independent Committee
(the "Payment Agent") for the benefit of the holders of certificates
representing the Shares issued and outstanding as of the Effective Time
(collectively, "Certificates"), the aggregate Merger Consideration to be paid in
respect of the Shares. The Payment Fund shall not be used for any other purpose.
The Payment Fund shall be invested by the Payment Agent, as directed by the
Surviving Corporation, in (i) obligations of or guaranteed by the United States,
and (ii) certificates of deposit, bank repurchase agreements and bankers'
acceptances of any bank or trust company organized under federal law or under
the law of any state of the United States or of the District of Columbia that
has capital, surplus and undivided profits of at least $1 billion or in money
market funds which are invested substantially in such investments. Any net
earnings with respect thereto shall be paid to the Surviving Corporation as and
when requested by the Surviving Corporation.
(b) As soon as reasonably practicable after the Effective Time, Parent
shall instruct the Payment Agent to mail to each holder of record of Shares
immediately prior to the Effective Time (excluding any Shares cancelled pursuant
to Section 2.1 hereof):
(i) a letter of transmittal (the "Letter of Transmittal") (which
shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of such Certificates to
the Payment Agent and shall be in such form and have such other provisions
as Parent reasonably specifies), and
(ii) instructions for use in effecting the surrender of each
Certificate in exchange for the Merger Consideration with respect to each
of the Shares formerly represented thereby.
(c) Parent and the Surviving Corporation shall cause the Payment Agent
to pay to the holders of a Certificate, as soon as practicable after receipt of
any Certificate (or in lieu of any such Certificate which has been lost, stolen
or destroyed, an affidavit of lost, stolen or destroyed share certificates
(including customary indemnity or bond against loss) in form and substance
reasonably satisfactory to Parent) together with the Letter of Transmittal, duly
executed, and such other documents as Parent or the Payment Agent reasonably
request, in exchange therefor a check in the amount equal to the Merger
Consideration multiplied by the number of Shares represented by such
Certificate. No interest shall be paid or accrued on any cash payable upon the
surrender of any Certificate. Each Certificate surrendered in accordance with
the provisions of this Section 2.2(c) shall be cancelled forthwith.
(d) In the event of a transfer of ownership of Shares which is not
registered in the transfer records of the Company, the Merger Consideration may
be paid to the transferee only if (i) the Certificate representing such Shares
surrendered to the Payment Agent in accordance with Section 2.2(c) hereof is
properly endorsed for transfer or is accompanied by appropriate and properly
endorsed stock powers and is otherwise in proper form to effect such transfer,
(ii) the Person requesting such transfer pays to the Payment Agent any transfer
or other taxes payable by reason of such transfer or establishes to the
satisfaction of the Payment Agent that such taxes have been paid or are not
required to be paid, and (iii) such Person establishes to the reasonable
satisfaction of Parent that such transfer would not violate any applicable
federal or state securities laws.
(e) Subject to Section 2.3, at and after the Effective Time, each
holder of a Certificate that represented issued and outstanding Shares
immediately prior to the Effective Time shall cease to have any rights as a
stockholder of the Company, except for the right to surrender his or her
Certificate in exchange for the Merger Consideration multiplied by the number of
Shares represented by such Certificate. At the Effective Time, the stock
transfer books of the Company shall be closed, except as otherwise provided by
applicable law, and no transfer of Shares shall be made on the stock transfer
books of the Surviving Corporation. If, after the Effective Time, Certificates
are presented to the Surviving Corporation or the Payment Agent for any reason,
they shall be cancelled and exchanged as provided in this Article II, except as
otherwise provided by applicable law.
(f) The Merger Consideration paid in the Merger shall be net to the
holder of Shares in cash, and without interest thereon, subject to reduction
only for any applicable withholding Taxes (as defined below).
(g) Promptly following the date which is 180 days after the Effective
Date, the Payment Agent shall deliver to the Surviving Corporation all cash
(including any interest received with respect thereto), Certificates and other
documents in its possession relating to the transactions contemplated hereby,
and the Payment Agent's duties shall terminate. Thereafter, each holder of a
Certificate (other than Certificates representing Dissenting Shares (as defined
below)) may surrender such Certificate to the Surviving Corporation and (subject
to any applicable abandoned property, escheat or similar law) receive in
consideration therefor (and only as general creditors thereof) the aggregate
Merger Consideration relating thereto, without any interest thereon.
Notwithstanding the foregoing, no member of the Acquisition Group, nor the
Surviving Corporation, the Company or the Payment Agent shall be liable to a
holder of a Certificate for any Merger Consideration properly delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Any portion of the Merger Consideration made available to the
Payment Agent pursuant to Section 2.2(a) to pay for Shares for which appraisal
rights have been perfected shall be returned to Parent or PHH upon demand.
2.3 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Shares that are issued and outstanding immediately before the
Effective Time and that are held by stockholders who have not voted in favor of
the adoption of this Agreement or consented thereto in writing and who have
properly exercised appraisal rights with respect thereto in accordance with
Section 262 of the DGCL shall not be converted into the right to receive the
Merger Consideration as provided in Section 2.1, unless such holders fail to
perfect or withdraw or otherwise lose their rights to appraisal. Instead,
ownership of such Shares shall entitle the holder thereof to receive the
consideration determined pursuant to Section 262 of the DGCL; provided, however,
that if such holder fails to perfect or effectively withdraws such holder's
right to appraisal and payment under the DGCL, each of such Shares shall
thereupon be deemed to have been converted, at the Effective Time, into the
right to receive the Merger Consideration, without any interest thereon, upon
surrender of the Certificate or Certificates in the manner provided in Section
2.2 hereof. The Company shall give Parent (i) prompt notice of any demands (or
withdrawals of demands) for appraisal of any Shares received by the Company
pursuant to the applicable provisions of the DGCL and any other instruments
served pursuant to the DGCL and received by the Company and (ii) the opportunity
to direct all negotiations and proceedings with respect to demands for appraisal
under the DGCL. The Company shall not, except with the prior written consent of
Parent, make any payment with respect to any such demands for appraisal or offer
to settle, or settle, any such demands.
2.4 Treatment of Company Options.
(a) Subject to Section 2.4(b), the Company shall take all action
necessary so that each option to purchase shares of Company Common Stock (each,
an "Option") granted under the Company's 1997 Stock Option Plan and 2000
Incentive Compensation Plan (collectively, the "Assumed Option Plans" and,
individually, an "Assumed Option Plan") outstanding and unexercised immediately
prior to the Effective Time shall be cancelled immediately prior to the
Effective Time in exchange for the right to receive an amount in cash equal to
the product of (i) the number of shares of Company Common Stock subject to such
Option immediately prior to the Effective Time and (ii) the excess, if any, of
the Merger Consideration over the per share exercise price of such Option, to be
delivered by the Surviving Corporation promptly following the Effective Time.
All applicable withholding taxes attributable to the payments made hereunder
shall be deducted from the amounts payable under this Section 2.4.
Notwithstanding the foregoing, or Section 2.4(b), any Option with an exercise
price greater than the Merger Consideration immediately prior to the Effective
Time shall be automatically converted into an Assumed Option in accordance with
Section 2.4(c), whether or not the holder thereof shall have made a Retention
Election with respect to such Option in accordance with Section 2.4(b). The
Company shall use its commercially reasonable efforts to obtain the consent of
each holder of Options to the foregoing treatment of such Options to the extent
required under the Assumed Option Plans pursuant to which such Options were
granted.
(b) Notwithstanding the provisions of Section 2.4(a), each person who,
on or prior to the Effective Date, is the holder of an outstanding and
unexercised Option shall be entitled, with respect to all or any portion of such
holder's Option, to make an unconditional election to the Company in writing (a
"Retention Election") on or prior to the Effective Date, to convert, as of the
Effective Time, such portion of their Options as may be specified in such
Retention Election into options to purchase shares of common stock, par value
$.01 per share, of Parent ("Cendant Common Stock"), as set forth in subsection
(c) below, in lieu of receiving a cash payment, if any, in consideration for the
cancellation of such portion of their Options in the manner described in Section
2.4(a).
(c) Any portion of an Option with respect to which a timely Retention
Election has been delivered to the Company (the "Elected Portion") shall, at the
Effective Time, become and represent an option to purchase Cendant Common Stock;
and Parent shall assume each such option (hereinafter, an "Assumed Option")
subject to the terms of the applicable Assumed Option Plan, in each case as
heretofore amended or restated, as the case may be, and the agreement evidencing
the grant thereunder of such Assumed Option; provided, however, that from and
after the Effective Time, (i) the number of shares of Cendant Common Stock
purchasable upon exercise of such Assumed Option shall be equal to the number of
shares of Company Common Stock that were purchasable under such Assumed Option
immediately prior to the Effective Time multiplied by the Exchange Ratio (as
defined below), and rounded up or down to the nearest whole share, and (ii) the
per share exercise price under each such Assumed Option shall be adjusted by
dividing the per share exercise price of each such Assumed Option by the
Exchange Ratio, and rounding up or down to the nearest whole cent; provided,
however, that in the case of any Options intended to qualify as "incentive stock
options" under Section 422 of the Code, the adjustments pursuant to this Section
2.4(c) shall be determined in order to comply with Section 424(a) of the Code.
The terms of the Assumed Option shall be the same as the original Option except
that all references to the Company shall be deemed to be references to Parent.
The terms of each Assumed Option shall, to the extent provided in the applicable
Assumed Option Plan, be subject to further adjustment as appropriate to reflect
any stock split, stock dividend, recapitalization or other similar transaction
with respect to Cendant Common Stock on or subsequent to the Effective Time. The
"Exchange Ratio" shall be equal to the ratio obtained by dividing the amount of
the Merger Consideration by the average closing price of one share of Cendant
Common Stock on the New York Stock Exchange for the ten (10) consecutive trading
days immediately preceding the Effective Date.
(c) The parties acknowledge that each Option to purchase shares of
Company Common Stock under the Assumed Option Plans shall become fully vested
and exercisable in connection with consummation of the Merger in accordance with
and subject to the terms of such Option and the relevant Assumed Option Plan.
2.5 Adjustments. If, during the period between the date of this
Agreement and the Effective Time, any change in the outstanding Shares shall
occur in accordance with the terms of this Agreement, including by reason of any
reclassification, recapitalization, stock split or combination, exchange or
readjustment of Shares, or stock dividend thereon with a record date during such
period, the cash payable pursuant to the Offer, the Merger Consideration and any
other amounts payable pursuant to this Agreement shall be appropriately
adjusted.
2.6 Stockholders Meeting.
(a) The Company, acting through the Board, shall, in accordance with
and to the extent permitted by applicable law:
(i) as promptly as practicable after the date hereof, call, give
notice of, convene and hold a special meeting of its stockholders (the
"Stockholders Meeting") for the purpose of considering and taking action
upon the adoption of this Agreement;
(ii) prepare and file with the Securities and Exchange Commission
(the "SEC") a preliminary proxy statement relating to this Agreement and
the Merger as promptly as practicable after the date hereof, and use its
commercially reasonable efforts to obtain and furnish the information
required to be included in such proxy statement and, after consultation
with Parent, respond promptly to any comments made by the SEC and its staff
with respect to the preliminary proxy statement and cause a definitive
proxy statement relating to this Agreement and the Merger (such proxy
statement, together with any and all amendments or supplements thereto, the
"Proxy Statement") to be mailed to its stockholders at the earliest
practicable time;
(iii) include in the Proxy Statement the recommendations of the
Independent Committee and the Board that stockholders of the Company vote
in favor of the adoption of this Agreement (as the same may be amended,
modified or withdrawn in accordance with Section 5.2(d) hereof); and
(iv) use its reasonable best efforts to solicit from holders of
Shares proxies in favor of the adoption of this Agreement and take all
other action necessary or advisable to secure, at the Stockholders Meeting,
the affirmative vote of (A) the holders of a majority of the outstanding
shares of Company Common Stock (voting as one class, with each share of
Company Common Stock having one vote) and (B) the holders of a majority of
the votes cast at the Stockholders Meeting by holders of Shares in favor of
the adoption of this Agreement (the "Company Stockholder Approval"). The
Company shall cause all Shares for which valid proxies have been submitted
and not revoked to be voted at the Stockholders Meeting in accordance with
the instructions on such proxies.
(b) Once the Stockholders Meeting has been called and noticed, the
Company shall not postpone or adjourn the Stockholders Meeting (other than for
the absence of a quorum) without the prior written consent of Parent.
(c) Parent, PHH and Purchaser agree to promptly provide the Company
with the information concerning Parent, PHH and Purchaser and their respective
Affiliates required to be included in the Proxy Statement. At the Stockholders
Meeting, Parent, PHH and Purchaser shall vote, or cause to be voted, all shares
of Company Common Stock beneficially owned by them or any of their respective
Subsidiaries in favor of the adoption of this Agreement.
(d) Notwithstanding anything to the contrary contained in this
Agreement, in the event that the Independent Committee changes its
recommendation of this Agreement and the Merger in accordance with Section
5.2(d) hereof and this Agreement has not been terminated pursuant to Article VII
hereof, then, without limiting the Company's ability to disclose the
recommendations of the Board and the Independent Committee in the Proxy
Statement:
(i) in performing its obligations under this Section 2.6, the
Company shall not be obligated to solicit from holders of Shares proxies in
favor of the adoption of this Agreement or to take all action necessary or
advisable to secure, at the Stockholders Meeting, the Company Stockholders
Approval, but instead shall be obligated to solicit impartially from
holders of Shares proxies to be voted at the Stockholders Meeting (making
no instructions to vote in favor or against, but merely to return a
completed proxy card) and to take all action necessary or advisable to
maximize, at the Stockholders Meeting, the number of proxies submitted by
holders of Shares;
(ii) the Company shall remain obligated to vote all unspecified
but executed proxies submitted by holders of Shares in favor of the
adoption of this Agreement;
(iii) Parent and its affiliates and agents shall have the right,
as a participant in the Company's solicitation of proxies, to communicate
with and solicit from holders of Shares the submission of Company proxies
in favor of the adoption of this Agreement and to take all actions
necessary or advisable to secure, at the Stockholders Meeting, the Company
Stockholders Approval and otherwise to act as a participant in the
Company's solicitation; and
(iv) The Company shall cooperate with Parent in connection with
any actions taken by it pursuant to clause (d)(ii) above and shall make any
filings under Federal securities laws required in connection therewith.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent, PHH and Merger Sub as of
the date of this Agreement as follows:
3.1 Organization. The Company and each of its Subsidiaries is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate or other power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted. The Company and each of its Subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary where the failure to be so
duly qualified or licensed or in good standing would, individually or in the
aggregate, result in a Material Adverse Effect (as defined below). As used
herein, the term "Material Adverse Effect" means a material adverse change in,
or effect on, the business, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries taken as a whole, but shall not
include any change, event, effect, occurrence or circumstance arising in
connection with or as a result of (i) the announcement or performance of the
Transactions contemplated by this Agreement, in and of themselves, or (ii)
Parent's announcement or other communication of Parent of the plans or
intentions of Parent with respect to any conduct of any business of the Company
or any of its Subsidiaries.
3.2 Authority Relative to this Agreement.
(a) The Company has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the Transactions,
including, without limitation, the Merger. The execution and delivery of this
Agreement by the Company, and the consummation of the Transactions to be
consummated by it, have been duly authorized by the Board and no other corporate
proceedings on the part of the Company are required to authorize this Agreement
or to consummate the Transactions to be consummated by it, other than, with
respect to the Merger, (i) the Company Stockholder Approval and (ii) the filing
and recordation of the Certificate of Merger in accordance with the DGCL. This
Agreement has been duly executed and delivered by the Company and (assuming due
authorization, execution and delivery hereof by Parent, PHH and Merger Sub)
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except that (i) such enforcement may
be subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws, now or hereafter in effect, relating to creditors' rights
generally and (ii) equitable remedies of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(b) The Company hereby represents and warrants that (i) the Independent
Committee has been duly authorized and constituted; (ii) the Board, based on the
recommendation of the Independent Committee at a meeting duly called and held,
has (A) determined that (x) the Merger Consideration is fair to the holders of
Shares and (y) the Merger is advisable and in the best interests of the Company
and the holders of Shares, (B) approved and declared the advisability of, this
Agreement and (C) determined to recommend that the stockholders of the Company
vote to adopt this Agreement in accordance with the provisions of the DGCL. The
Independent Committee and the Board have received the written opinion (the
"Fairness Opinion") of Morgan Stanley to the effect that, as of the date hereof,
the Merger Consideration to be paid to the holders of Shares is fair to such
holders from a financial point of view, and, as of the date hereof, such
Fairness Opinion has not been withdrawn. The Company has delivered a true,
correct and complete copy of the Fairness Opinion to Parent.
3.3 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock is the only vote of holders of
any class or series of the Company's capital stock required to approve the
Merger and adopt this Agreement under the DGCL, the Company's Amended and
Restated Certificate of Incorporation and the Company's Amended and Restated
By-Laws.
3.4 State Takeover Statutes. The Company has elected not to be governed
by Section 203 of the DGCL in accordance with the provisions of Section 203(b)
of the DGCL. The restrictions on business combinations contained in Section 203
of the DGCL do not apply to the Merger or the other Transactions nor shall they
apply to any member of the Acquisition Group as a result of this Agreement or
the Transactions.
3.5 Capitalization.
(a) The authorized capital stock of the Company consists of 100,000,000
shares of Company Common Stock, 15,000,000 shares of class B common stock, par
value $.01 per share of the Company (the "Class B Common Stock") and 20,000,000
shares of preferred stock, par value $.01 per share, of the Company ("Preferred
Stock"). As of October 31, 2000, there were (i) 31,156,172 shares of Company
Common Stock issued and outstanding, (ii) 4,768,828 shares of Company Common
Stock held in the Company's treasury, (iii) 9,000,000 shares of Company Common
Stock reserved for issuance upon the exercise of outstanding Options, (iv) no
shares of Company Common Stock reserved for issuance upon the conversion of the
Class B Common Stock, (v) no shares of Class B Common Stock issued, (vi) no
shares of Class B Common Stock reserved for issuance upon conversion of the
series A preferred stock, par value $.01 per share, of Avis Fleet Leasing and
Management Corporation, a Texas corporation and a subsidiary of the Company (the
"Avis Fleet") and series B preferred stock, par value $.01 per share of Avis
Fleet, and (vii) no shares of Preferred Stock issued. All issued and outstanding
shares of Company Common Stock are, and all shares of Company Common Stock
issuable upon exercise of Options or conversion of the Class B Common Stock
shall be, when issued in accordance with the respective terms thereof, duly
authorized and validly issued, fully paid and nonassessable, and free of
preemptive rights.
(b) Except as set forth in subsection (a) above or in Section 3.5(b) of
the disclosure letter delivered by the Company to Parent prior to the execution
of this Agreement (the "Company Disclosure Letter"), the Company does not have
any shares of its capital stock issued or outstanding and there are no
outstanding subscriptions, options, warrants, calls, convertible securities,
rights or other agreements or commitments (i) to which the Company or any of its
Subsidiaries is a party of any character relating to the issued or unissued
capital stock or other equity interests of the Company or any of its
Subsidiaries, or (ii) obligating the Company or any Subsidiary of the Company to
(A) issue, transfer or sell any shares of capital stock or other equity
interests of the Company or any Subsidiary of the Company or securities
convertible into or exchangeable for such shares or equity interests, (B) grant,
extend or enter into any such subscription, option, warrant, call, convertible
securities or other right, agreement, arrangement or commitment to repurchase,
(C) redeem or otherwise acquire any such shares of capital stock or other equity
interests or (D) provide a material amount of funds to, or make any material
investment (in the form of a loan, capital contribution or otherwise) in, any
Person.
(c) Neither the Company nor any of its Subsidiaries has outstanding
bonds, debentures, notes or other obligations, the holders of which have the
right to vote (or which are convertible into or exercisable for securities
having the right to vote) with the stockholders of the Company or such
Subsidiary on any matter. Except as set forth in Section 3.5(c) of the Company
Disclosure Letter, there are no voting trusts or other agreements or
understandings to which the Company or any of its Subsidiaries is a party with
respect to the voting of the capital stock or other equity interest of the
Company or any of its Subsidiaries.
3.6 Subsidiaries.
(a) Section 3.6(a) of the Company Disclosure Letter sets forth a
complete and accurate list of each Subsidiary of the Company. Except as set
forth in Section 3.6 of the Company Disclosure Letter, all outstanding equity
securities or other equity interests in each Subsidiary of the Company (i) are
owned of record and beneficially by the Company or another of the Company's
wholly owned Subsidiaries, free of all liens, claims, charges or encumbrances,
and (ii) have been duly authorized, and are validly issued, fully paid and
nonassessable, and free of preemptive rights. Section 3.6(a) of the Company
Disclosure Letter sets forth all debt securities in excess of $500,000 issued by
the Company or any Subsidiary of the Company.
(b) Except as set forth in Section 3.6(b) of the Company Disclosure
Letter, neither the Company nor any Subsidiary of the Company owns, directly or
indirectly, a material amount of any capital stock, interest or equity
investment or debt security in any corporation, partnership, limited liability
company, joint venture, business, trust or other entity other than interests in
another Subsidiary of the Company.
3.7 No Conflict; Required Filings and Consents.
(a) Except for (i) applicable requirements of (A) the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (B) the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and any similar
foreign competition laws applicable hereto, and (C) any state securities or blue
sky laws applicable hereto, (ii) the filing and recordation of the Certificate
of Merger, as required by the DGCL, and (iii) as set forth in Section 3.7(a) of
the Company Disclosure Letter, neither the execution and delivery of this
Agreement by the Company nor the consummation by the Company of the Transactions
contemplated hereby shall require on the part of the Company or any Subsidiary
of the Company any filing with, or obtaining of, any permit, authorization,
consent or approval of, or any notice to, any court, tribunal, legislative,
executive or regulatory authority or agency (a "Governmental Entity"), where the
failure to so file or obtain would, individually or in the aggregate, result in
a Material Adverse Effect or would materially impair the Company's ability to
consummate the Transactions.
(b) Except as set forth in Section 3.7(b) of the Company Disclosure
Letter, neither the execution and delivery of this Agreement by the Company nor
the consummation by the Company of the Transactions will (i) conflict with or
result in any breach of any provision of the Amended and Restated Certificate of
Incorporation of the Company or the Amended and Restated By-laws of the Company
or equivalent organizational documents of any Subsidiary of the Company, (ii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default under, or give rise to any right of
termination, cancellation, suspension, modification or acceleration of any
obligation under, or result in the creation of a lien under, any of the terms,
conditions or provisions of, or otherwise require the consent or waiver of, or
notice to, any other party under, any bond, note, mortgage, indenture, other
evidence of indebtedness, guarantee, license, agreement or other contract or
instrument ("Contract") to which the Company or any Subsidiary of the Company is
a party or by which any of them or any of their respective properties or assets
is bound, (iii) violate any law, statute, rule, regulation, order, writ,
injunction or decree applicable to the Company, any Subsidiary of the Company or
any of their respective properties or assets, or (iv) require the Company to pay
any existing indebtedness where such violations, breaches, defaults or rights,
in the case of clause (ii) or (iii), would, individually or in the aggregate,
result in a Material Adverse Effect or would materially impair the Company's
ability to consummate the Transactions.
3.8 SEC Documents and Financial Statements.
(a) The Company has filed all forms, reports and documents required to
be filed with the SEC pursuant to the Exchange Act since December 31, 1998
(collectively, the "Company SEC Reports"). The Company SEC Reports, as of their
respective filing dates, (i) did not contain 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 therein, in light of the circumstances under
which they were made, not misleading, and (ii) complied in all material respects
with the then applicable requirements of the Exchange Act, the Securities Act of
1933, as amended (the "Securities Act") and the applicable rules and regulations
thereunder. No Subsidiary of the Company is required to file any forms, reports
or other documents with the SEC.
(b) The consolidated financial statements (including all related notes)
included in the Company SEC Reports fairly present the consolidated financial
position of the Company and its consolidated Subsidiaries as of the respective
dates thereof, and the results of operations and the changes in cash flows of
the Company and its consolidated Subsidiaries for the respective periods set
forth therein. Each of the consolidated financial statements (including all
related notes) included in the Company SEC Reports has been prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP"), except as otherwise noted therein, and subject, in the case of interim
financial statements, to normal and recurring year-end audit adjustments.
3.9 No Undisclosed Liabilities. Except as and to the extent disclosed
in Section 3.9 of the Company Disclosure Letter or reflected or reserved against
in the Company's consolidated balance sheets included in the Company SEC
Reports, and except for liabilities and obligations incurred in the ordinary
course of business, consistent with past practice since December 31, 1999,
neither the Company nor any Subsidiary of the Company has any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, that
would be required by GAAP to be reflected on a consolidated balance sheet of the
Company and its Subsidiaries (or in the notes thereto).
3.10 Absence of Certain Changes. Except as contemplated by this
Agreement or set forth in Section 3.10 of the Company Disclosure Letter or in
the Form 10-Q of the Company filed with respect to the quarter ended June 30,
2000, since June 30, 2000, (a) the businesses of the Company and its
Subsidiaries have been conducted in the ordinary course of business, consistent
with past practice, (b) neither the Company nor any Subsidiary of the Company
has taken any action which, if taken after the date hereof, would violate
Section 5.1 hereof if taken without the approval of Parent, and (c) there has
not occurred any event, circumstance or condition which, individually or
together with all such events, circumstances or conditions, has resulted or
would result in a Material Adverse Effect.
3.11 Proxy Statement. None of the information supplied by the Company
for inclusion or incorporation by reference in the Proxy Statement shall, at the
time it is filed with the SEC, at the time it is first mailed to the Company's
stockholders, or at the time of the Stockholders Meeting, contain 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 therein, in light of
the circumstances under which they are made, not misleading, except that no
representation or warranty is made by the Company as to any information supplied
by Parent, PHH or Merger Sub to the Company for inclusion or incorporation by
reference in the Proxy Statement. The Proxy Statement shall comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder.
3.12 Litigation. Except as specifically disclosed in the Company SEC
Reports or set forth in Section 3.12 of the Company Disclosure Letter, there is
no action, suit, proceeding, inquiry or investigation pending or, to the
knowledge of the Company, threatened against or involving the Company or any of
its Subsidiaries, at law or in equity, by or before any Governmental Entity
which (i), as of the date hereof, questions or challenges the validity of this
Agreement or which (ii), if adversely determined, would result in a Material
Adverse Effect or would materially impair or delay the ability of the Company to
consummate the Transactions to be consummated by it.
3.13 Taxes. Except as set forth in Section 3.13 of the Company
Disclosure Letter:
(a) Each of the Company and its Subsidiaries has (i) duly and timely
filed (or there has been filed on their behalf) with the appropriate
Governmental Entities all material Tax Returns (as defined below) required to be
filed by it and all such material Tax Returns are true, correct and complete;
(ii) duly paid in full (or there has been duly paid on its behalf) all Taxes (as
defined below) shown on such Tax Returns that are due and payable; and (iii)
made adequate provision, in accordance with GAAP (or adequate provision has been
made on its behalf), for the payment of all current Taxes not yet due.
(b) Each of the Company and its Subsidiaries has complied in all
material respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes and has, within the time and the manner
prescribed by law, withheld and paid over the proper Governmental Entities all
material amounts required to be so withheld and paid over.
(c) Neither the Company nor any of its Subsidiaries has requested an
extension of time within which to file any material Tax Return in respect of a
taxable year which has not since been filed and no outstanding waivers or
comparable consents regarding the application of the statute of limitations with
respect to material Taxes or material Tax Returns has been given by or on behalf
of the Company or any of its Subsidiaries.
(d) No material federal, state, local or foreign audits, examinations
or other administrative court proceedings have been commenced or, to the
Company's knowledge, are threatened with regard to any material Taxes or
material Tax Returns of the Company or any of its Subsidiaries. No written
notification has been received by the Company or any of its Subsidiaries that
such an audit, examination or other proceeding is pending or threatened with
respect to any material Taxes due from or with respect to or attributable to the
Company or any of its Subsidiaries or any material Tax Return filed by or with
respect to the Company or any of its Subsidiaries.
(e) Neither the Company nor any of its Subsidiaries is a party to any
agreement, plan, contract or arrangement that could result, separately or in the
aggregate, in a payment of (i) any "excess parachute payments" within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or (ii) any amount that would not be deductible under Section 162(m) of
the Code.
(f) Neither the Company nor any of its Subsidiaries is a party to any
material tax sharing, tax indemnity or other agreement or arrangement.
(g) There are no material liens for Taxes upon the assets of the
Company or any of its Subsidiaries except liens for Taxes not yet due and
payable.
(h) For purposes of this Agreement, "Taxes" shall mean any and all
taxes, charges, fees, levies or other assessments, including income, gross
receipts, excise, real or personal property, sales, withholding, social
security, occupation, use, service, service use, value added, license, net
worth, payroll, franchise, transfer and recording taxes, fees and charges,
imposed by the United States Internal Revenue Service (the "IRS") or any taxing
authority (whether domestic or foreign including any state, local or foreign
government or any subdivision or taxing agency thereof (including a United
States possession)), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest, penalties
or additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments. For purposes of this
Agreement, "Tax Return" shall mean any report, return, document, declaration or
other information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes.
3.14 Employee Benefit Plans.
(a) Each material employee benefit plan, program, arrangement or
agreement, including each "employee benefit plan," within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), in each case, maintained by the Company or any of its Subsidiaries,
or to which the Company or any of its Subsidiaries contributes or is required to
contribute (each, a "Plan"; collectively, "Plans") is listed in Section 3.14(a)
of the Company Disclosure Letter. None of the Company or any of its Subsidiaries
has any commitment or formal plan to create any additional employee benefit plan
or modify or change any existing Plan (except as required to maintain the
tax-qualified status of any Plan intended to qualify under Section 401(a) of the
Code).
(b) Except as disclosed in the Company SEC Reports or Section 3.14(b)
of the Company Disclosure Letter or to the extent that any breach of the
representations set forth in this sentence would not have a Material Adverse
Effect: (i) each Plan (other than any Plan that is a "multiemployer plan,"
within the meaning of Section 4001(a)(3) of ERISA (a "Multiemployer Plan")) is
in compliance with applicable law and has been administered and operated in all
respects in accordance with its terms; (ii) each Plan (other than any
Multiemployer Plan) which is intended to be "qualified" within the meaning of
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
has received a favorable determination letter regarding its tax-qualified status
from the IRS and the Company is not aware of any circumstances that could
reasonably be expected to result in the revocation of such letter; (iii) the
actuarial present value of the accumulated plan benefits (whether or not vested)
under each Plan covered by Title IV of ERISA (other than any Multiemployer Plan)
as of the close of its most recent plan year did not exceed the fair value of
the assets allocable thereto; (iv) no Plan covered by Title IV of ERISA (other
than any Multiemployer Plan) has been terminated and no proceedings have been
instituted to terminate or appoint a trustee to administer any such plan; (v) no
"reportable event" (as defined in Section 4043 of ERISA) has occurred with
respect to any Plan covered by Title IV of ERISA (other than any Multiemployer
Plan); (vi) no Plan (other than any Multiemployer Plan) subject to Section 412
of the Code or Section 302 of ERISA nor any such employee benefit plan sponsored
or maintained by any entity that, together with the Company, would be deemed a
"single employer" within the meaning of Section 4001(b) of ERISA (an "ERISA
Affiliate") has incurred any accumulated funding deficiency within the meaning
of Section 412 of the Code or Section 302 of ERISA, or obtained a waiver of any
minimum funding standard or an extension of any amortization period under
Section 412 of the Code or Section 303 or 304 of ERISA; (vii) the Company and
each Subsidiary of the Company have made all contributions to each Plan required
by the terms of each such Plan or any collectively bargained agreement; (viii)
neither the Company nor any Subsidiary of the Company has incurred any
unsatisfied withdrawal liability under Part 1 of Subtitle E of Title IV of ERISA
to any Multiemployer Plan; (ix) no Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees or former employees of the Company or any of its Subsidiaries for
periods extending beyond their retirement or other termination of service, other
than (1) coverage mandated by applicable law, (2) death benefits under any
"pension plan," or (3) benefits the full cost of which is borne by the current
or former employee (or his or her beneficiary); (x) neither the Company nor any
of its Subsidiaries nor, to the knowledge of the Company, any other
"disqualified person" or "party in interest" (as defined in Section 4975(e)(2)
of the Code and Section 3(14) of ERISA, respectively) has engaged in any
transactions in connection with any Plan that would result in the imposition of
a penalty pursuant to Section 502(i) of ERISA or a tax pursuant to Section 4975
of the Code; (xi) there has been no failure of a Plan that is a group health
plan (as defined in Section 5000(b)(1) of the Code) to meet the requirements of
Section 4980B(f) of the Code with respect to a qualified beneficiary (as defined
in Section 4980B(g) of the Code); (xii) there are not pending or, to the
Company's knowledge, threatened, claims by or on behalf of any Plan, by any
employee or beneficiary covered under any such Plan or otherwise involving any
such Plan (other than routine claims for benefits payable in the ordinary
course, and appeals of denied claims); and (xiii) no liability under Title IV or
Section 302 of ERISA has been incurred by the Company or any ERISA Affiliate
that has not been satisfied in full, and no condition exists that could
reasonably be expected to present a material risk to the Company or any ERISA
Affiliate of incurring any such liability, other than liability for premiums due
the Pension Benefit Guaranty Corporation (which premiums have been paid when
due).
(c) The Company has heretofore delivered or made available to Parent
true and complete copies of each Plan and any amendments thereto, any related
trust or other funding vehicle, any summaries required under ERISA or the Code,
the most recent annual reports filed with the IRS, and the most recent
determination letter received from the IRS with respect to each Plan intended to
qualify under Section 401(a) of the Code.
(d) Except as set forth in Section 3.14(d) of the Company Disclosure
Letter, the consummation of the Transactions shall not, either alone or in
combination with another event, (i) entitle any current or former employee or
officer of the Company or any of its Subsidiaries to severance pay, unemployment
compensation or any other payment or benefit, except as expressly provided in
this Agreement, or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee or officer.
3.15 Compliance with Applicable Laws. Except as set forth in Section
3.15 of the Company Disclosure Letter, each of the Company and its Subsidiaries,
and their respective properties, assets and operations, are in compliance in all
material respects with all applicable statutes, laws, rules, regulations,
judgments, decrees, orders, arbitration awards, franchises, permits or licenses
or other governmental authorizations or approvals which are material to the
business and operations of the Company or its Subsidiaries. Except as set forth
in Section 3.15 of the Company Disclosure Letter, the Company and its
Subsidiaries hold all licenses, franchises, ordinances, authorizations, permits,
certificates, variances, exemptions, concessions, leases, rights of way,
easements, instruments, orders and approvals, domestic or foreign ("Permits"),
required for the ownership of the assets and operation of the businesses of the
Company and its Subsidiaries where the failure of which to hold would,
individually or in the aggregate, result in a Material Adverse Effect. Except as
set forth in Section 3.15 of the Company Disclosure Letter, all Permits of the
Company and its Subsidiaries required under any statute, law, rule or regulation
of any Governmental Entity are in full force and effect where the failure to be
in full force and effect would have a Material Adverse Effect.
3.16 Material Contracts.
(a) Except as set forth in Section 3.16(a) of the Company Disclosure
Letter, neither the Company nor any Subsidiary of the Company is a party to, or
bound by, any Contract which is material to the Company and its Subsidiaries,
taken as a whole (a "Company Material Contract"). Notwithstanding the foregoing,
each of the following Contracts shall be a Company Material Contract and shall
be set forth in Section 3.16 of the Disclosure Schedule:
(i) any contracts or agreements under which the Company or any
Subsidiary of the Company has any outstanding indebtedness, obligation or
liability for borrowed money or the deferred purchase price of property or
has the right or obligation to incur any such indebtedness, obligation or
liability in excess of $500,000;
(ii) any bonds or agreements of guarantee or indemnification in
which the Company or any Subsidiary of the Company acts as surety,
guarantor or indemnitor with respect to any obligation (fixed or
contingent) in excess of $500,000, other than any such guarantees of the
obligations of the Company or any Subsidiary of the Company;
(iii) any noncompete agreements to which the Company, any
Subsidiary of the Company or any Affiliate thereof is a party;
(iv) any partnership and joint venture agreements; and
(v) any Contract that provides for the payment of any amount or
entitles any Person to receive any other benefit or exercise any other
right as a result of the execution, delivery or performance of this
Agreement, or the consummation of the Transactions, including the Merger.
(b) Neither the Company nor any Subsidiary of the Company is in breach
of or default under the terms of any Company Material Contract where such breach
or default would have a Material Adverse Effect. To the knowledge of the
Company, no other party to any Company Material Contract is in breach of or
default under the terms of any Company Material Contract where such breach or
default would have a Material Adverse Effect. Each Company Material Contract is
a valid and binding obligation of the Company or the Subsidiary of the Company
which is party thereto and, to the knowledge of the Company, of each other party
thereto, and is in full force and effect, except that (i) such enforcement may
be subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws, now or hereafter in effect, relating to creditors' rights
generally and (ii) equitable remedies of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
3.17 Environmental Laws.
(a) Except as set forth in Section 3.17(a) of the Company Disclosure
Letter, each of the Company and its Subsidiaries is (i) in compliance in all
material respects with all applicable Environmental Laws (as defined below),
which compliance includes the possession by the Company and its Subsidiaries of
all Permits and other governmental authorizations required under applicable
Environmental Laws, and (ii) in compliance with the terms and conditions of such
Permits where the failure to be in compliance would result in a liability or
obligation of the Company or any of its Subsidiaries of any nature, whether or
not accrued, contingent or otherwise, in an amount exceeding $500,000
individually, and $5,000,000 in the aggregate. Except as set forth in Section
3.17(a) of the Company Disclosure Letter, neither the Company nor any of its
Subsidiaries has received any communication or written notice, whether from a
Governmental Entity, citizens group, employee or otherwise, that alleges that
the Company or any of its Subsidiaries is not in compliance with applicable
Environmental Laws, where the failure to be in compliance would result in a
liability or obligation of the Company or any of its Subsidiaries of any nature,
whether or not accrued, contingent or otherwise, in an amount exceeding $500,000
individually, and $5,000,000 in the aggregate and, to the best knowledge of the
Company and its Subsidiaries after due inquiry, there are no circumstances that
may prevent or interfere with such compliance in the future, where the failure
to be in compliance would result in a liability or obligation of the Company or
any of its Subsidiaries of any nature, whether or not accrued, contingent or
otherwise, in an amount exceeding $500,000 individually, and $5,000,000 in the
aggregate.
(b) Except as set forth in Section 3.17(b) of the Company Disclosure
Letter, there is no Environmental Claim (as defined below) which, if adversely
determined, would result in a liability or obligation of the Company or any of
its Subsidiaries, whether or not accrued, contingent or otherwise, in an amount
exceeding $500,000 individually, and $5,000,000 in the aggregate, pending or
threatened against the Company or any of its Subsidiaries or, to the best
knowledge of the Company and its Subsidiaries after due inquiry, against any
person or entity whose liability for any Environmental Claim the Company or any
of its Subsidiaries has or may have retained or assumed either contractually or
by operation of law which, if adversely determined, would result in a liability
or obligation of the Company or any of its Subsidiaries, whether or not accrued,
contingent or otherwise, in an amount exceeding $500,000 individually, and
$5,000,000 in the aggregate.
(c) Except as set forth in Section 3.17(c) of the Company Disclosure
Letter, there are no past or present actions, activities, circumstances,
conditions, events or incidents, including the Release (as defined below) of any
Hazardous Materials (as defined below), that could form the basis of any
material Environmental Claim (as defined below) against the Company or any of
its Subsidiaries or, to the best knowledge of the Company and its Subsidiaries
after due inquiry, against any Person or entity whose liability for any material
Environmental Claim the Company or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law.
(d) Without in any way limiting the generality of the foregoing, except
as set forth in Section 3.17(d) of the Company Disclosure Letter, all
underground storage tanks owned, operated, or leased by the Company or any of
its Subsidiaries and which are subject to regulation under the federal Resource
Conservation and Recovery Act (or equivalent state or local law regulating
underground storage tanks) meet the technical standards prescribed at Title 40
Code of Federal Regulations Part 280 which became effective December 22, 1998
(or any applicable state or local law requirements which are more stringent than
such technical standards or which became effective before such date) where the
failure to meet such standards or requirements would result in a liability or
obligation of the Company or any Subsidiary, whether or not accrued, contingent
or otherwise, in an amount exceeding $500,000 individually, and $5,000,000 in
the aggregate.
(e) The Company has provided to Parent true and correct copies of all
material assessments, reports and investigations or audits in the possession of
the Company or its Subsidiaries regarding environmental matters pertaining to,
or the environmental condition of, any property currently or formerly owned,
operated or leased by the Company or its Subsidiaries, or the compliance (or
noncompliance) by the Company or any of its Subsidiaries with any Environmental
Laws.
(f) For purposes of this Agreement:
(i) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any person or entity
alleging potential liability (including potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (a) the presence, or Release
into the environment, of any Hazardous Materials at any location, whether
or not owned or operated by the Company or any of its Subsidiaries or (b)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
(ii) "Environmental Laws" means all federal, interstate, state,
local and foreign laws and regulations relating to pollution or protection
of human health, safety, or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including laws and
regulations relating to emissions, discharges, releases or threatened
releases of Hazardous Materials, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(iii) "Hazardous Materials" means chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, radioactive
materials, asbestos, petroleum and petroleum products.
(iv) "Release" shall mean releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, escaping, leaching, disposing or
dumping.
3.18 Intellectual Property. Except for the rights (the "Licensed
Rights") licensed to the Company pursuant to the Master License Agreement, dated
as of July 30, 1997, among Cendant Car Rental, Inc., Avis Rent A Car System,
Inc. and Wizard Co., Inc. (the "Avis License"), either the Company or a
Subsidiary of the Company owns, or is licensed or otherwise possesses legally
enforceable rights to use, all Intellectual Property (as defined below) used in
their respective businesses where the failure to own, license or otherwise
possess such Intellectual Property would result in a Material Adverse Effect and
the consummation of the Transactions shall not alter or impair such rights in
any material respect. Except as set forth in Section 3.18 of the Company
Disclosure Letter, there are no pending or, to the knowledge of the Company,
threatened claims by any Person challenging the use by the Company or its
Subsidiaries of any material trademarks, trade names, service marks, service
names, mark registrations, logos, assumed names, registered and unregistered
copyrights, patents or applications and registrations therefor (collectively,
the "Intellectual Property") in their respective operations as currently
conducted which, if adversely determined, would result in a Material Adverse
Effect. The conduct of the businesses of the Company and its Subsidiaries (other
than the use by the Company and its Subsidiaries of the Licensed Rights in
accordance with the terms of the Avis License) does not infringe, in any
material respect, upon any intellectual property rights or any other proprietary
right of any Person, and neither the Company nor any Subsidiary has received any
written notice from any other Person pertaining to or challenging the right of
the Company or any Subsidiary to use any of the Intellectual Property. Except as
set forth in Section 3.18 of the Company Disclosure Letter, neither the Company
nor any of its Subsidiaries has made any claim of a violation or infringement by
others of its rights to or in connection with the Intellectual Property used in
their respective businesses which violation or infringement would have a
Material Adverse Effect.
3.19 Labor Matters.
(a) Except as set forth in Section 3.19(a) of the Company Disclosure
Letter or specifically disclosed in the Company SEC Reports, there are no labor
or collective bargaining agreements to which the Company or any Subsidiary of
the Company is a party. To the knowledge of the Company, there is no union
organizing effort pending or threatened against the Company or any Subsidiary of
the Company. Except as set forth in Section 3.19(a) of the Company Disclosure
Letter, there is no labor strike, labor dispute, work slowdown, stoppage or
lockout pending or, to the knowledge of the Company, threatened against or
affecting the Company or any Subsidiary of the Company, which has had or would
result in a Material Adverse Effect. Except as set froth in Section 3.19(a) of
the Company Disclosure Letter, there is no unfair labor practice or labor
arbitration proceeding pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary of the Company, that has had or would
result in a Material Adverse Effect. The Company and its Subsidiaries are in
compliance in all material respects with all applicable laws respecting (i)
employment and employment practices, (ii) terms and conditions of employment and
wages and hours, and (iii) unfair labor practice. Except as set forth in Section
3.19(a) of the Company Disclosure Letter or specifically disclosed in the
Company SEC Reports, there is no action, suit, proceeding, inquiry or
investigation pending or, to the knowledge of the Company, threatened against or
involving the Company or any of its Subsidiaries, at law or in equity, alleging
a violation of applicable laws, rules or regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours, or
unfair labor practice that has had or would result in a Material Adverse Effect.
(b) Except as set forth in Section 3.19(b) of the Company Disclosure
Letter, no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements which would have a Material Adverse Effect is
pending and no claim therefor exists.
(c) Neither the Company nor any of its Subsidiaries has any liabilities
under the Worker Adjustment and Retraining Notification Act (the "WARN Act")
that has had or would result in a Material Adverse Effect.
3.20 Brokers or Finders. None of the Company or any of its Subsidiaries
or Affiliates has entered into any agreement or arrangement entitling any agent,
broker, investment banker, financial advisor or other firm or Person to any
brokers' or finders' fee or any other commission or similar fee in connection
with any of the Transactions, except Morgan Stanley and Bear, Stearns & Co. Inc.
("Bear Stearns"), whose fees and expenses shall be paid by the Company in
accordance with the Company's agreement with such firm. True and correct copies
of engagement letters between the Company and each of Morgan Stanley and Bear
Stearns have been provided to Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT, PHH AND MERGER SUB
Each of Parent, PHH and Merger Sub jointly and severally represents and
warrants to the Company as follows:
4.1 Organization. Each of Parent, PHH and Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted. Merger Sub has not engaged in any activities other
than in connection with or as contemplated by this Agreement and has no material
liabilities other than those incident to its formation and the Transactions.
4.2 Authority Relative to this Agreement. Each of Parent, PHH and
Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the Transactions. The execution and
delivery of this Agreement by Parent, PHH and Merger Sub, and the consummation
of the Transactions, have been duly authorized by the respective board of
directors of each of Parent, PHH and Merger Sub, and by PHH as the sole
stockholder of Merger Sub, and no other corporate proceeding on the part of
Parent, PHH or Merger Sub is required to authorize this Agreement or to
consummate the Transactions, other than the filing and the recordation of the
Certificate of Merger in accordance with the DGCL. This Agreement has been duly
executed and delivered by each of Parent, PHH and Merger Sub and (assuming due
and valid authorization, execution and delivery hereof by the Company)
constitutes a valid and binding agreement of each of Parent, PHH and Merger Sub,
enforceable against each of Parent, PHH and Merger Sub in accordance with its
terms, except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, relating to creditor's rights generally and (ii) equitable remedies
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
4.3 No Conflict; Required Filings and Consents.
(a) Except (i) for applicable requirements of (A) the Exchange Act, (B)
the HSR Act and any similar foreign competition laws, and (C) any state
securities and blue sky filings applicable hereto, (ii) for the filing and
recordation of the Certificate of Merger, as required by the DGCL, and (iii) as
set forth in the disclosure letter delivered by Parent, PHH and Merger Sub prior
to the execution of this Agreement to the Company (the "Parent Disclosure
Letter"), neither the execution and delivery of this Agreement by Parent, PHH
and Merger Sub, nor the consummation by Parent, PHH and Merger Sub of the
Transactions, shall require, on the part of Parent, PHH or Merger Sub, any
filing with, or obtaining of, any permit, authorization, consent or approval of,
any Governmental Entity, except for such filings, permits, authorizations,
consents or approvals the failure of which to make or obtain would not
materially impair the ability of Parent, PHH or Merger Sub to consummate the
Transactions.
(b) Except as set forth in Section 4.3(b) of the Parent Disclosure
Letter, neither the execution and delivery of this Agreement by Parent, PHH or
Merger Sub, nor the consummation by Parent, PHH or Merger Sub of the
Transactions, shall (i) conflict with or result in a breach of the certificate
of incorporation or by-laws of Parent, PHH or Merger Sub, (ii) result in a
violation or breach of or constitute (with or without due notice or lapse of
time, or both) a default under, or give rise to any right of termination,
cancellation, suspension, modification or acceleration under, or result in the
creation of a lien under, any of the terms, conditions or provisions of, or
otherwise require the consent or waiver of, or notice to, any other party under,
any material bond note, mortgage, indenture, other evidence of indebtedness,
guarantee, license, agreement or other contract or instrument to which Parent,
PHH or Merger Sub is a party or by which any of them or any of their respective
properties or assets is bound, or (iii) violate any law, statute, rule,
regulation, order, writ, injunction or decree applicable to Parent, PHH or
Merger Sub, or any of their respective properties or assets except, in the case
of clauses (ii) and (iii), for such violations, breaches, defaults or rights
which would not materially impair the ability of Parent, PHH or Merger Sub to
consummate the Transactions.
4.4 Proxy Statement. None of the information supplied by Parent, PHH or
Merger Sub for inclusion or incorporation by reference in the Proxy Statement
shall, at the time it is filed with the SEC, at the time it is first mailed to
the Company's stockholders or at the time of the Stockholders Meeting, contain
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
therein, in light of the circumstances under which they are made, not
misleading.
4.5 Litigation. Except as set forth in Section 4.5 of the Parent
Disclosure Letter, there is no action, suit, proceeding, inquiry or
investigation pending or, to the knowledge of Parent, PHH or Merger Sub,
threatened involving Parent, PHH or Merger Sub, at law or in equity, by or
before any Governmental Entity which questions or challenges the validity of
this Agreement or which, if adversely determined, would materially impair or
delay the ability of Parent, PHH or Merger Sub to consummate the Transactions.
4.6 Financing. Parent and PHH have or shall have sufficient cash on
hand and shall provide, or cause to be provided, at such time or times as such
funds are required, to Merger Sub or, as the case may be, the Company, such cash
on hand (i) to pay the Merger Consideration and to pay any other amounts
required to be paid in order to consummate the Transactions contemplated by this
Agreement, including pursuant to Section 2.4, (ii) to pay any fees and expenses
in connection with the Transactions and (iii) to satisfy the obligations to pay
any existing indebtedness of the Company or its Subsidiaries that is required to
be repaid as a result of the Transactions.
4.7 Brokers or Finders. None of Parent, PHH, Merger Sub or any of their
respective Affiliates has entered into any agreement or arrangement entitling
any agent, broker, investment banker, financial advisor or other firm or Person
to any brokers' or finders' fee or any other commission or similar fee in
connection with any of the Transactions, except Lehman Brothers and Chase
Securities Inc., whose fees and expenses shall be paid by Parent in accordance
with Parent's agreement with each such firm.
ARTICLE V
COVENANTS
5.1 Conduct of Business by the Company Pending the Merger. The Company
covenants and agrees that, during the period from the date of this Agreement and
continuing until the earlier to occur of the termination of this Agreement or
the Effective Time, except as contemplated by this Agreement or required by
applicable law or rule of the New York Stock Exchange, unless Parent shall
otherwise agree in writing (such agreement not to be unreasonably withheld,
conditioned or delayed), and except as set forth in Section 5.1 of the Company
Disclosure Letter:
(a) the Company shall conduct its business and shall cause the
businesses of its Subsidiaries to be conducted, only in, and the Company and its
Subsidiaries shall not take any action except in, the ordinary course of
business, consistent with past practice; and the Company shall use its
reasonable best efforts to preserve intact the business organizations of the
Company and its Subsidiaries, and to maintain (i) the services of the present
officers, employees and consultants of the Company and its Subsidiaries and (ii)
its existing relations with suppliers, creditors, business associates and others
having business dealings with it; and
(b) without limiting the generality of the foregoing, the Company shall
not, and shall cause its Subsidiaries not to, take any of the following actions:
(i) amend its certificate of incorporation or by-laws;
(ii) issue, sell, pledge, dispose of or encumber, or authorize
the issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class or any other equity interest, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of capital stock, or any other equity interest in the Company or any
of its Subsidiaries (except for the issuance of shares of Company Common
Stock pursuant to the exercise of Options outstanding on the date hereof);
(iii) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock or any other equity
interest, including any constructive or deemed distributions, and any
distribution in connection with the adoption of a shareholders rights plan,
or make any other payments to stockholders in their capacity as such,
except that a wholly owned Subsidiary of the Company may declare and pay a
dividend to its parent;
(iv) split, combine or reclassify any of its capital stock or any
other equity interest or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its capital stock or any other equity interest;
(v) redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock or any other equity interests;
(vi) (A) purchase, acquire, sell, transfer, lease, license,
mortgage, encumber or dispose of any material assets, other than the
purchase, sale, rental and lease of vehicles in the ordinary course of
business, consistent with past practice; (B) acquire (by merger,
consolidation or acquisition of stock or assets or otherwise) any
corporation, partnership or other business organization or division
thereof; (C) sell, transfer or dispose of any Subsidiary of the Company (by
merger, consolidation, sale of stock or assets or otherwise); (D) incur or
assume any indebtedness for borrowed money or other liability, other than
in connection with the financing of vehicles in the ordinary course of
business, consistent with past practice; (E) modify, amend or terminate any
confidentiality agreements, standstill agreements or Company Material
Contracts to which the Company or its Subsidiaries is a party or by which
it is bound, or waive, release or assign any material rights or claims,
other than in the ordinary course of business, consistent with past
practice; (F) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other Person, other than in the ordinary course of
business, consistent with past practice; (G) make any material loans,
advances or capital contributions to, or investments in, any other Person
(other than to its wholly owned Subsidiaries in the ordinary course of
business, consistent with past practice); (H) repurchase, redeem, repay or
take any other action with respect to the issued and outstanding 11% Senior
Subordinated Notes of the Company due May 2009 (the "Notes"), other than
pursuant to Section 5.7; or (I) other than in the ordinary course of
business, consistent with past practice, enter into any material
commitment, transaction, contract or agreement, including any of the
following entered into outside the ordinary course of business (i) any
material capital expenditure, (ii) any material contract or agreement
outside the ordinary course of business, (iii) any contracts or agreements
that cannot be cancelled on notice of thirty (30) days or less and (iv) any
noncompete agreements or other agreements that limit the ability of the
Company to conduct any line of business;
(vii) increase the compensation, severance or other benefits
payable or to become payable to its directors, officers or employees, other
than increases in salary or wages of employees of the Company or its
Subsidiaries (who are not directors or executive officers of the Company)
in accordance with past practice or pursuant to binding commitments made
prior to the date hereof, or grant any severance or termination pay (except
payments required to be made under the Plans or other obligations existing
on the date hereof in accordance with the terms of such obligations) to, or
enter into any employment or severance agreement with, any employee of the
Company or any of its Subsidiaries, or establish, adopt, enter into or
amend any collective bargaining agreement, Plan, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees or any of their beneficiaries, except, in each case, as may be
required by law or as would not result in a material increase in the cost
of maintaining such collective bargaining agreement, Plan, trust, fund,
policy or arrangement;
(viii) pay, repurchase, discharge or satisfy any of its material
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business, consistent with past
practice, or pursuant to contractual requirements existing on the date
hereof, of claims, liabilities or obligations reflected or reserved
against, in, or contemplated by, the consolidated financial statements (or
the notes thereto) of the Company and its Subsidiaries;
(ix) take any action to change accounting policies or procedures
or any of its methods of reporting income, deductions or other items for
income tax purposes, except as required by a change in GAAP, SEC position
or applicable law occurring after the date hereof;
(x) approve or authorize any action to be submitted to the
stockholders of the Company for approval other than pursuant to this
Agreement;
(xi) make or change any material election with respect to Taxes,
agree or settle any material claim or assessment in respect of Taxes, or
agree to an extension or waiver of the limitation period to any material
claim or assessment in respect of Taxes;
(xii) voluntarily take, or commit to take, any action that would
or is reasonably likely to result in any of the conditions to the Merger
set forth in Article VI not being satisfied or make any representation or
warranty of the Company contained herein that is not qualified as to
materiality inaccurate in any material respect, or any representation or
warranty that is qualified as to materiality untrue in any respect at, or
as of any time prior to, the Effective Time, or that would materially
impair the ability of the Company, Parent, PHH or Merger Sub to consummate
the Transactions, including the Merger, in accordance with the terms hereof
or materially delay such consummation; or
(xiii) agree, authorize or announce to take any of the actions
described in subsections (i) through (xii) above.
5.2 No Solicitation.
(a) Except as set forth below, from and after the date hereof and prior
to the Effective Time, the Company shall not, directly or indirectly, through
any Subsidiary or Affiliate of the Company, or through any officer, director,
employee, investment banker, agent or other representative of the Company or any
Subsidiary or Affiliate of the Company, (i) encourage, invite, initiate or
solicit any inquiries relating to or the submission or making of a proposal by
any Person with respect to a Third-Party Acquisition (as defined below) or (ii)
participate in, or encourage, invite, initiate or solicit, negotiations or
discussions with, or furnish or cause to be furnished any information to, any
Person relating to a Third-Party Acquisition. Upon the execution of this
Agreement, the Company shall immediately (i) cease, or cause to be ceased, any
discussions or negotiations with any Person, entity or group in connection with
any proposed or potential Third-Party Acquisition and shall seek to have
returned to the Company any confidential information provided in any such
discussions or negotiations and (ii) take all actions necessary to rescind the
Company's stock repurchase program authorized by the Board on August 9, 2000.
Notwithstanding the foregoing, prior to the Stockholders Meeting, if the
Company, the Board or the Independent Committee, without being in violation of
the terms of this Section 5.2, receives an unsolicited bona fide written
proposal from any Person or group with respect to a Third-Party Acquisition
which could reasonably be expected to result in a Superior Proposal (as defined
below), then the Company may, directly or indirectly, furnish information and
access to such Person or group pursuant to an appropriate confidentiality
agreement, and may participate in discussions and negotiations with, such Person
or group; provided, however, that the terms of such confidentiality agreement
shall have terms that are not less restrictive than the terms set forth in the
confidentiality agreement between the Company and Parent, dated as of July 31,
2000 (the "Confidentiality Agreement").
(b) The Company shall within twenty-four (24) hours notify Parent in
writing upon receipt of any proposal, written or oral, relating to a Third-Party
Acquisition or any request for nonpublic information relating to the Company or
any of its Subsidiaries in connection with any pending, proposed or contemplated
Third-Party Acquisition or for access to the properties, books or records of the
Company or any Subsidiary by any Person that informs the Board or the
Independent Committee that it is considering making, or has made, a proposal
relating to a Third-Party Acquisition. Such notice shall identify the Person
submitting the proposal, attach a copy of any written correspondence or other
written materials relating to such proposal, summarize any significant terms of
such proposal not reflected in any such attached materials, state whether the
Company is providing or intends to provide the Person or group making such
proposal with access to information concerning the Company or any of its
Subsidiaries, as provided in this Section 5.2 and, if it proposes to provide
such access to information, state that such proposal could reasonably be
expected to result in a Superior Proposal and the basis for such conclusion. The
Company also shall promptly notify Parent of any significant development
relating to any inquiries, discussions, negotiations, proposals or requests for
information concerning any Third-Party Acquisition. The Company shall keep
Parent informed of the status of any such negotiations and shall further update,
to the extent of any significant developments, the information required to be
provided in each notice upon the request of Parent.
(c) Except as provided in subparagraph (d) below, neither the Board nor
the Independent Committee shall (i) withdraw or modify, or propose to withdraw
or modify, or refuse or fail at Parent's request to reaffirm, (A) the approval
by the Board of this Agreement or the Merger, (B) the favorable recommendation
of the Independent Committee and the Board with respect thereto, or (C) the
Board's recommendation to stockholders of the Company that they vote their
shares of Company Common Stock in favor of adoption of this Agreement, and the
Board's direction that this Agreement be submitted to stockholders for such
adoption; (ii) approve or recommend, or propose publicly to approve or
recommend, any Third-Party Acquisition; or (iii) cause the Company to enter into
any agreement in principle, letter of intent, contract, agreement (whether
written or oral) or memorandum of understanding (each, a "Company Acquisition
Agreement") related to any Third-Party Acquisition.
(d) Notwithstanding the foregoing, in the event that the Independent
Committee determines in good faith, after receipt of advice of its outside legal
counsel, that failure to take such action would constitute a breach of the
Board's fiduciary duties to the Company's stockholders under applicable law, the
Independent Committee (and the Board acting on the recommendation of the
Independent Committee) may (i) withdraw or modify its approval or recommendation
of this Agreement and the Merger and disclose such withdrawal or modification to
the Company's stockholders; and, (ii) solely in relation to a Third-Party
Acquisition that constitutes a Superior Proposal, provided the Board, the
Independent Committee and the Company have not violated the terms of this
Section 5.2, (A) recommend such Superior Proposal, and/or (B) following the
Stockholders Meeting, if the Company Stockholder Approval shall not have been
obtained, terminate this Agreement in accordance with Section 7.1(d)(iii) hereof
and, contemporaneously with such termination, cause the Company to enter into a
Company Acquisition Agreement with respect to such Superior Proposal, provided,
however, that (x) prior to taking any of the foregoing actions, the Company
shall have paid Parent by wire transfer the amount payable pursuant to Section
7.3 and (y) prior to taking the action described in clause (B) above, the
Independent Committee shall have (1) given Parent at least three Business Days'
prior written notice that the Company intends to terminate this Agreement and
provided Parent with a reasonable opportunity to respond to any such Superior
Proposal (which response could include a proposal to revise the terms of the
Transactions) and (2) fully considered any such response by Parent and concluded
that, notwithstanding such response, such proposal continues to be a Superior
Proposal in relation to the Transactions, as the terms of the Transactions may
be proposed to be revised by Parent's response. Notwithstanding the foregoing,
the obligation of the Company to duly call, give notice of, convene and hold the
Stockholders Meeting in accordance with Section 2.3 hereof shall not be affected
by the commencement, proposal, public disclosure or communication to the Company
of a Third-Party Acquisition or a Superior Proposal or by the taking of any
action by the Board or the Independent Committee in accordance with this Section
5.2. No action taken by the Board or the Independent Committee in accordance
with this Section 5.2 shall constitute a breach of any other section of this
Agreement.
(e) As used in this Agreement, the term "Third-Party Acquisition" shall
mean any of the following events: (i) the acquisition of the Company by merger,
purchase of stock or assets, joint venture or otherwise by, or a "merger of
equals" with, any Person (which includes a "person," as such term is defined in
Section 13(d)(3) of the Exchange Act) other than a member of the Acquisition
Group (a "Third Party"); (ii) the acquisition by a Third Party of any material
portion (which shall include twenty percent (20%) or more) of the assets of the
Company and its Subsidiaries, taken as a whole; (iii) the acquisition by a Third
Party of twenty percent (20%) or more of the outstanding shares of Company
Common Stock; (iv) the adoption by the Company of a plan of liquidation or the
declaration or payment of an extraordinary dividend; or (v) the repurchase by
the Company or any of its Subsidiaries of more than twenty percent (20%) of the
outstanding shares of Company Common Stock.
(f) For purposes of this Agreement, "Superior Proposal" means any bona
fide written proposal to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, all of the shares of Company Common Stock
then outstanding or all or substantially all of the assets of the Company to be
followed by a pro rata distribution of the sale proceeds to stockholders of the
Company, that (i) is not subject to any financing conditions or contingencies,
(ii) provides holders of Company Common Stock with per share consideration that
the Independent Committee determines in good faith, after receipt of advice of
its financial advisor, is more favorable from a financial point of view than the
consideration to be received by holders of Company Common Stock in the Merger,
(iii) is determined by the Independent Committee in its good faith judgment,
after receipt of advice of its financial advisor and outside legal counsel, to
be likely of being completed (taking into account all legal, financial,
regulatory and other aspects of the proposal, the Person making the proposal and
the expected timing to complete the proposal), (iv) does not, in the definitive
Company Acquisition Agreement, contain any "due diligence" conditions, and (v)
has not been obtained by or on behalf of the Company in violation of this
Section 5.2.
5.3 Access to Information; Confidentiality.
(a) Until the Effective Date, the Company shall (and shall cause its
Subsidiaries to) afford to the officers, employees, accountants, counsel,
financing sources and other representatives of Parent, reasonable access during
normal business hours to its properties, books, contracts, commitments and
records; furnish to Parent all information concerning its business, properties,
and personnel as Parent may reasonably request or has reasonably requested; and
use reasonable best efforts to make available during normal business hours to
the officers, employees, accountants, counsel, financing sources and other
representatives of Parent the appropriate individuals (including management
personnel, attorneys, accountants and other professionals) for discussion of the
Company's business, properties, prospects and personnel as Parent may reasonably
request.
(b) Parent shall keep all information disclosed to the persons
identified in clause (a) above pursuant to this Agreement confidential in
accordance with the terms of the Confidentiality Agreement.
(c) As soon as practicable (but in no case later than 21 days) after
the execution of this Agreement, the Company shall permit Parent to
electronically link the Company's financial reporting system to Parent's
financial reporting consolidation system ("Hyperion"). The link to Hyperion will
be completed by Parent's financial reporting staff, with assistance from the
Company's accounting staff, at no incremental cost to the Company. Parent will
provide the necessary Hyperion and ancillary software to be installed on a
computer in the Company's accounting department.
5.4 Consents; Approvals.
(a) The Company, Parent and Merger Sub shall each use its reasonable
best efforts (which efforts, to the extent reasonably practicable, shall be made
prior to the consummation of the Merger), and cooperate with each other, to
obtain as promptly as practicable all consents, waivers, approvals,
authorizations or orders (including all rulings and approvals of all United
States and foreign Governmental Entities), and the Company, Parent, PHH and
Merger Sub shall make all filings (including all filings with United States and
foreign Governmental Entities) required in connection with the authorization,
execution and delivery of this Agreement by the Company, Parent, PHH and Merger
Sub and the consummation by them of the Transactions.
(b) Each party hereto shall make an appropriate filing of a
notification and report form pursuant to the HSR Act with respect to the
Transactions within fifteen Business Days after the date hereof, shall as
promptly as practicable supply any additional information and documentary
material that may be requested pursuant to the HSR Act, and shall use reasonable
best efforts to obtain early termination of the waiting period under the HSR
Act. In addition, each party hereto shall promptly make any other filing that
may be required under any antitrust law or by any antitrust authority and shall
as promptly as practicable supply and additional information and documentary
material that may be required in connection therewith.
5.5 Indemnification and Insurance.
(a) From and after the Effective Date, Parent and the Surviving
Corporation and their respective successors shall indemnify, defend and hold
harmless each Person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of the
Company or any of the Subsidiaries (the "Covered Parties") against all losses,
claims, damages, costs, expenses (including reasonable attorneys' fees and
expenses), liabilities or judgments or amounts that are paid in settlement with
the approval of the indemnifying party (which approval shall not be unreasonably
withheld or delayed) incurred in connection with any threatened or actual
action, suit or proceeding based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director or officer of the
Company ("Indemnified Liabilities"), including all Indemnified Liabilities based
in whole or in part on, or arising in whole or in part out of, this Agreement or
the transactions contemplated hereby, in each case to the fullest extent that a
corporation is permitted by law to indemnify its own directors or officers, as
the case may be. In the event any such claim, action, suit, proceeding or
investigation is brought against any Covered Party, the indemnifying parties
shall assume and direct all aspects of the defense thereof, including
settlement, and the Covered Party shall cooperate in the defense of any such
matter. The Covered Party shall have a right to participate in (but not control)
the defense of any such matter with its own counsel and at its own expense.
Notwithstanding the right of the indemnifying parties to assume and control the
defense of such litigation, claim or proceeding, such Covered Party shall have
the right to employ separate counsel and to participate in the defense of such
litigation, claim or proceeding, and the indemnifying parties shall bear the
fees, costs and expenses of such separate counsel and shall pay such fees, costs
and expenses promptly after receipt of an invoice from such Covered Party if (i)
the use of counsel chosen by the indemnifying parties to represent such Covered
Party would present such counsel with a conflict of interest, (ii) the
defendants in, or targets of, any such litigation, claim or proceeding shall
have been advised by counsel that there may be legal defenses available to it or
to other Covered Parties which are different from or in addition to those
available to the indemnifying parties or (iii) the indemnifying parties shall
not have employed counsel satisfactory to such Covered Party, in the exercise of
the Covered Party's reasonable judgment, to represent such Covered Party within
a reasonable time after notice of the institution of such litigation, claim or
proceeding. The Covered Parties as a group shall be represented by a single law
firm (plus no more than one local counsel in any jurisdiction) with respect to
each such matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more Covered Parties. The indemnifying parties shall not settle any such matter
unless (i) the Covered Party gives prior written consent, which shall not be
unreasonably withheld or delayed, or (ii) the terms of the settlement provide
that the Covered Party shall have no responsibility for the discharge of any
settlement amount and impose no other obligations or duties on the Covered
Party, and the settlement discharges all rights against the Covered Party with
respect to such matter. Any Covered Party wishing to claim indemnification under
this Section 5.5, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Parent and the Surviving Corporation (but
the failure so to notify shall not relieve the indemnifying party from any
liability which it may have under this Section 5.5, except to the extent such
failure materially prejudices the indemnifying parties). Each Covered Party
shall be entitled to the advancement of expenses to the full extent permitted by
law in connection with any such action (subject to tendering any undertaking to
repay such expenses, to the extent required by applicable law). Notwithstanding
the foregoing, in the event that there is any conflict between this Section
5.5(a) and the terms of the Amended and Restated Certificate of Incorporation or
Amended and Restated By-Laws of the Company, the Amended and Restated
Certificate of Incorporation and/or Amended and Restated By-laws, as the case
may be, shall prevail.
(b) All rights to indemnification, all limitations on liability and all
rights to advancement of expenses existing in favor of a Covered Party as
provided herein, in the Company's Amended and Restated Certificate of
Incorporation, Amended and Restated By-Laws or other indemnification agreements
as in effect as of the date hereof shall survive the Merger and shall continue
in full force and effect, without any amendment thereto, for a period of six
years from the Effective Time to the extent such rights are consistent with
applicable law; provided that in the event any claim or claims are asserted or
made within such six-year period, all rights to indemnification in respect of
any such claim or claims shall continue until disposition of any and all such
claims; provided further, that any determination required to be made with
respect to whether a Covered Party's conduct complies with the standards set
forth under applicable law, the Company's Amended Restated Certificate of
Incorporation, Amended and Restated By-Laws or such agreements, as the case may
be, shall be made by independent legal counsel selected by the Covered Party and
reasonably acceptable to the Surviving Corporation.
(c) In the event that Cendant or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into any
other Person and shall not be the surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any Person, then, and in each such case, to the
extent necessary to effectuate the purposes of this Section 5.5, proper
provision shall be made so that such successors, assigns and transferees, as the
case may be, assume the obligations set forth in this Section 5.5, and none of
the actions described in the foregoing clauses (i) or (ii) shall be taken until
such provision is made.
(d) For a period of six years after the Effective Time, Cendant shall
cause the Surviving Corporation and its successors to maintain in effect,
without any lapses in coverage, policies of directors' and officers' liability
insurance (or a "tail" policy) for the benefit of those Persons who are covered
by the Company's directors' and officers' liability insurance policies as of the
date hereof, providing coverage with respect to matters occurring prior to the
Effective Time that is at least equal to the coverage provided under the
Company's current directors' and officers' liability insurance policies to the
extent that such liability insurance can be maintained at an annual cost to the
Surviving Corporation of not greater than 200 percent of the premium for the
current Company directors' and officers' liability insurance; provided that if
such insurance (or "tail" policy) cannot be so maintained at such cost, the
Surviving Corporation shall maintain as much of such insurance as can be so
maintained at a cost equal to 200 percent (200%) of the current annual premiums
of the Company for such insurance.
5.6 Employee Benefits.
(a) During the period commencing at the Effective Time and ending on
December 31, 2001, Parent shall cause all current and former employees and
officers of the Company and its Subsidiaries who are entitled to receive
compensation and benefits as of the Effective Time, other than employees covered
by collective bargaining agreements, to receive (i) the salary or wage level and
bonus opportunity, to the extent applicable, not materially less favorable in
the aggregate than that in effect on the date hereof and (ii) benefits,
perquisites and other terms and conditions of employment that are not materially
less favorable in the aggregate than the benefits, perquisites and other terms
and conditions that they were entitled to receive on the date hereof.
(b) Subject to Section 5.6(a) hereof, from and after the Effective
Time, Parent shall honor, pay, perform and satisfy any and all liabilities,
obligations and responsibilities to, or in respect of, each employee and officer
of the Company and its Subsidiaries, and each former employee and officer of the
Company and its Subsidiaries, as of the Effective Time arising under the terms
of, or in connection with, any employee benefit, fringe benefit, deferred
compensation or incentive compensation plan or arrangement or any employment,
consulting, retention, severance, change-of-control or similar agreement, in
each case, to the extent listed in Section 3.14(a) or 3.16(a) of the Company
Disclosure Letter and in accordance with the terms thereof in effect on the date
hereof. Without limiting the generality of the foregoing, until December 31,
2001, Parent shall keep in effect all severance and retention plans, practices
and policies that are applicable to employees and officers of the Company and
its Subsidiaries as of the date hereof.
(c) Parent shall, or shall cause the Surviving Corporation and its
Subsidiaries to, give Continuing Employees full credit for purposes of
eligibility and vesting under any employee benefit plans or arrangements
maintained by Parent, the Surviving Corporation or any Subsidiary of Parent or
the Surviving Corporation for such Continuing Employees' service with the
Company, any Subsidiary of the Company or any of their respective predecessors
to the same extent recognized by the Company, any Subsidiary of the Company or
any such predecessor for similar purposes immediately prior to the Effective
Time. In addition, Parent shall, or shall cause the Surviving Corporation and
its Subsidiaries to, give Continuing Employees full credit for purposes of the
determination of benefits under any employee benefit plans or arrangements in
effect as of the date hereof maintained by Parent for such Continuing Employees'
service with the Company, any Subsidiary of the Company or any of their
respective predecessors to the same extent recognized by the Company, any
Subsidiary of the Company or any such predecessor for similar purposes
immediately prior to the Effective Time. Parent shall, or shall cause the
Surviving Corporation and its Subsidiaries to, (i) waive all limitations as to
preexisting conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to the Continuing Employees
under any welfare plan that such employees may be eligible to participate in
after the Effective Time, other than limitations or waiting periods that are
already in effect with respect to such employees and that have not been
satisfied as of the Effective Time under any welfare plan maintained for the
Continuing Employees immediately prior to the Effective Time, and (ii) provide
each Continuing Employee with credit for any co-payments and deductibles paid
prior to the Effective Time in satisfying any applicable co-payment, deductible
or out-of-pocket requirements in respect of the year during which the Effective
Time occurs under any welfare plans that such employees are eligible to
participate in after the Effective Time to the same extent as if those
deductibles or co-payments had been paid under the welfare plans for which such
employees are eligible after the Effective Time.
(d) Nothing contained herein shall constitute assurance of continued
employment of any officer or employee of the Company or any of its Subsidiaries
following the Effective Time.
5.7 Note Tender Offer. Parent may, in its sole and absolute discretion,
commence a tender offer and consent solicitation to repurchase any and all of
the outstanding Notes (the "Note Tender Offer") on terms and conditions
determined solely by Parent. The Note Tender Offer shall be effected in
compliance with applicable laws and SEC rules and regulations. The Company shall
cooperate with Parent, PHH and Merger Sub in connection with the preparation of
all documents and the making of all filings required in connection with the Note
Tender Offer and shall use its commercially reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate the Note Tender Offer; provided,
however, that it is understood and agreed by the parties hereto that (i) such
Note Tender Offer shall be consummated no earlier than the Closing Date, (ii)
the Company shall have no obligation to provide any funds to consummate the Note
Tender Offer, and (iii) Parent or PHH shall provide the funds required to
consummate the Note Tender Offer on or after the Effective Time, together with
all related fees and expenses.
5.8 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent (on behalf of itself, PHH and Merger Sub) shall
give prompt notice to the Company, of (i) the occurrence or non-occurrence of
any event known to it, the occurrence or non-occurrence of which is reasonably
likely to cause any representation or warranty of such party contained in this
Agreement to be materially untrue or inaccurate, (ii) any failure of the Company
or Parent, PHH or Merger Sub, as the case may be, to comply with or satisfy, or
the occurrence or non-occurrence of any event known to it, the occurrence or
non-occurrence of which is reasonably likely to cause the failure by such party
materially to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; (iii) the occurrence of any other
event known to it which would be reasonably likely (A) to have a Material
Adverse Effect or (B) to cause any condition set forth in Article VI to be
unsatisfied in any material respect at any time prior to the Effective Time; or
(iv) any action, suit, proceeding, inquiry or investigation pending or, to the
knowledge of the Company, threatened which questions or challenges the validity
of this Agreement; provided, however, that the delivery of any notice pursuant
to this Section 5.8 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
5.9 Further Action. Upon the terms and subject to the conditions hereof
each of the parties hereto shall use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to its obligations under this Agreement.
5.10 Public Announcements. Parent, PHH, Merger Sub and the Company
shall consult with each other before issuing any press release or making any
public statement with respect to this Agreement, the Merger or the other
Transactions and shall not issue any such press release or make any such public
statement without the prior consent of the other parties, which shall not be
unreasonably withheld; provided, however, that any party may, without the prior
consent of the others, issue such press release or make such public statement as
may, upon the advice of counsel, be required by law or the rules and regulations
of The New York Stock Exchange, in advance of obtaining such prior consent, in
which case, the parties shall cooperate to reach mutual agreement as to the
language of any such report, statement or press release. Immediately following
the execution and delivery of this Agreement, Parent, PHH, Merger Sub and the
Company are each issuing press releases to be mutually agreed upon with respect
to this Agreement, the Merger and the other Transactions.
5.11 Transfer Taxes. Parent shall pay any real property or other
similar transfer Taxes incurred in connection with the consummation of the Offer
and the Merger.
5.12 Financial Statements. Upon request by Parent or PHH, the Company
shall use commercially reasonable efforts to cooperate with Parent and PHH in
connection with preparing such financial statements as are required by
applicable law and by SEC rules and regulations to be filed by PHH with the SEC
in connection with the prospectus for the medium term notes to be issued by PHH;
such cooperation shall include, without limitation, providing all information
reasonably requested by Parent or PHH.
5.13 Section 16 Matters. The Company shall take all such steps as may
be required to cause any dispositions of Company Common Stock (including
derivative securities with respect to the Company Common Stock) resulting from
the Transactions contemplated by this Agreement by each officer or director who
is subject to the reporting requirements of Section 16(a) of the Exchange Act
with respect to the Company to be exempt under Rule 16b-3 promulgated under the
Exchange Act, such steps to be taken in accordance with the No-Action Letter,
dated January 12, 1999, issued by the Commission to Skadden, Arps, Slate,
Meagher & Flom LLP.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver (to the extent permitted by applicable law) at or
prior to the Effective Time of the following conditions:
(a) Stockholder Approval. The Company Stockholder Approval shall have
been obtained at or prior to the Effective Time in accordance with the DGCL.
(b) No Injunction or Statute. No statute, rule, regulation, order,
decree, judgment, injunction or ruling shall have been enacted, entered,
promulgated or enforced by any court or other Governmental Entity of competent
jurisdiction which, in any such case, (i) prohibits or restricts the ownership
or operation by Parent (or any of its Affiliates or Subsidiaries) of a material
portion of the Company's and its Subsidiaries' businesses or assets, or compels
Parent (or any of its Affiliates or Subsidiaries) to dispose of or hold separate
any material portion of the Company's and its Subsidiaries' businesses or
assets, or (ii) restrains in any material respect or prohibits the consummation
of the Merger, which has not been vacated, dismissed or withdrawn prior to the
Effective Time. The Company and Parent shall use their respective best efforts
to have any of the foregoing vacated, dismissed or withdrawn by the Effective
Time.
(c) No Action. No action, suit or proceeding shall have been
instituted, or shall be pending or threatened by a Governmental Entity (i)
seeking to restrain in any material respect or prohibit the consummation of the
Merger or the performance of any of the other Transactions contemplated by this
Agreement, (ii) seeking to obtain from the Company, Parent, PHH or Merger Sub
any damages that would result in a Material Adverse Effect or (iii) seeking to
impose the restrictions, prohibitions or limitations referred to in subsection
(b) above.
(d) HSR Act. Any waiting period applicable to the Merger under the HSR
Act and any applicable foreign competition or antitrust laws shall have been
terminated or expired.
6.2 Conditions to Obligations of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment or waiver (to the extent permitted by applicable law) at or prior to
the Effective Time of the following conditions:
(a) The representations and warranties of Parent, PHH and Merger Sub
set forth in this Agreement shall be true and correct in all respects as of the
Effective Time as though made on or as of such time (ignoring for purposes of
this determination any materiality or Material Adverse Effect qualifiers
contained within individual representations and warranties), except for (i)
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need
only be true and correct as of such date or with respect to such period and (ii)
such failures to be true and correct as would not, individually or in the
aggregate, reasonably be expected to materially impair the ability of Parent,
PHH or Merger Sub to consummate the Merger.
(b) Parent, PHH and Merger Sub shall have performed and complied in all
material respects with all obligations, agreements and covenants required by
this Agreement to be performed and complied with by it prior to the Effective
Time.
(c) The Company shall have received a certificate signed by the chief
financial officer of Parent, dated as of the Closing Date, to the effect that,
to the best of such officer's knowledge, the conditions set forth in Section
6.2(a) and Section 6.2(b) have been satisfied.
6.3 Conditions to Obligations of Parent and Merger Sub to Effect the
Merger. The obligation of Parent, PHH and Merger Sub to effect the Merger shall
be subject to the fulfillment or waiver (to the extent permitted by applicable
law) at or prior to the Effective Time of the following conditions:
(a) The representations and warranties of the Company set forth in this
Agreement shall be true and correct in all respects as of the Effective Time as
though made on or as of such time (ignoring for purposes of this determination
any materiality or Material Adverse Effect qualifiers contained within
individual representations and warranties), except for (i) those representations
and warranties that address matters only as of a particular date or only with
respect to a specific period of time which need only be true and correct as of
such date or with respect to such period and (ii) such failures to be true and
correct as would not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect.
(b) The Company shall have performed and complied in all material
respects with all obligations, agreements and covenants required by this
Agreement to be performed or complied with by it prior to the Effective Time,
except for such failures to perform or comply as would not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
(c) Parent shall have received a certificate signed by the chief
financial officer of the Company, dated as of the Closing Date, to the effect
that, to the best of such officer's knowledge, the conditions set forth in
Section 6.3(a) and Section 6.3(b) have been satisfied.
(d) Neither the Board nor the Independent Committee (i) shall have
withdrawn, modified or changed its approval or recommendation of this Agreement,
the Merger or the other Transactions in any manner which Parent reasonably
determines to be adverse to Parent, (ii) shall have recommended the approval or
acceptance of a Superior Proposal or Third-Party Acquisition from a Person or
entity other than a member of the Acquisition Group, or (iii) shall have
executed any Company Acquisition Agreement.
(e) No event, change, development or circumstance shall have occurred
or shall exist which is reasonably expected to result in a Material Adverse
Effect.
(f) The Company shall have obtained the consents, approvals and waivers
set forth in Section 6.3(f) of the Company Disclosure Schedule.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, notwithstanding adoption of this Agreement by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Board of Directors
of each of the Company (provided such termination has been approved by the
Independent Committee) and Parent; or
(b) by either the Company (provided such termination has been approved
by the Independent Committee) or Parent as follows:
(i) if the Effective Time shall not have occurred on or prior to
June 30, 2001; provided, however, that the right to terminate this
Agreement under this Section 7.1(b)(i) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Merger to be consummated on or
prior to such date; or
(ii) if a Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other nonappealable final action
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger (which order, decree, ruling or other action the
parties hereto shall have used their best efforts to lift); or
(iii) if the Company Stockholder Approval shall not have been
obtained at the Stockholders Meeting; or
(c) by Parent, on behalf of itself, PHH and Merger Sub, as follows:
(i) upon a material breach of any covenant or agreement set forth
in this Agreement (a "Terminating Breach") on the part of the Company;
provided that, if such Terminating Breach is curable on or prior to the
earlier of (A) 60 days following notice of such Terminating Breach and (B)
June 30, 2001 by the Company through the exercise of its reasonable best
efforts and for so long as the Company continues to exercise such
reasonable best efforts, Parent may not terminate this Agreement under this
Section 7.1(c)(i) until the earlier of (A) 60 days following notice of such
Terminating Breach and (B) June 30, 2001; or
(ii) (x) the Independent Committee or the Board shall (A)
withdraw, modify or change its approval or recommendation of this
Agreement, the Merger or the other Transactions in any manner which Parent
reasonably determines to be adverse to Parent; (B) approve or recommend to
the stockholders of the Company a Third-Party Acquisition or a Superior
Proposal; (C) violate any of the provisions of Section 5.2 hereof; (D) take
any public position or make any disclosures to the Company's stockholders
which has the effect of any of the foregoing; or (E) resolve to enter into
a Company Acquisition Agreement relating to a Third-Party Acquisition or a
Superior Proposal; or (y) the Company shall (A) execute a Company
Acquisition Agreement relating to a Third-Party Acquisition or a Superior
Proposal (B) violate any of the provisions of Section 5.2 hereof; or
(iii) if any representation or warranty of the Company set forth
in this Agreement shall have become untrue or shall have been untrue when
made, if such failure to be true and correct, individually or in the
aggregate, would result in a Material Adverse Effect; provided that, if
such failure is curable on or prior to the earlier of (A) 60 days following
notice of such Terminating Breach and (B) June 30, 2001 by the Company
through the exercise of its reasonable best efforts and for so long as the
Company continues to exercise such reasonable best efforts, Parent may not
terminate this Agreement under this Section 7.1(c)(iii) until the earlier
of (A) 60 days following notice of such Terminating Breach and (B) June 30,
2001; or
(d) by the Company (provided such termination has been approved by the
Independent Committee) as follows:
(i) upon a Terminating Breach on the part of Parent, PHH or
Merger Sub; provided that, if such Terminating Breach is curable on or
prior to the earlier of (A) 60 days following notice of such Terminating
Breach and (B) June 30, 2001 by Parent, PHH or Merger Sub through the
exercise of its reasonable best efforts and for so long as Parent, PHH and
Merger Sub continue to exercise such reasonable best efforts, the Company
may not terminate this Agreement under this Section 7.1(d)(i) until the
earlier of (A) 60 days following notice of such Terminating Breach and (B)
June 30, 2001; or
(ii) if any representation or warranty of Parent, PHH or Merger
Sub, respectively, set forth in this Agreement shall have been untrue in
any material respect or shall have been untrue in any material respect when
made; provided that, if such failure is curable prior to the earlier of (A)
60 days following notice of such Terminating Breach and (B) June 30, 2001
by Parent, PHH or Merger Sub, as the case may be, through the exercise of
its reasonable best efforts and for so long as Parent, PHH or Merger Sub,
as the case may be, continues to exercise such reasonable best efforts, the
Company may not terminate this Agreement under this Section 7.1(d)(ii)
until the earlier of (A) 60 days following notice of such Terminating
Breach and (B) June 30, 2001; or
(iii) if, following the Stockholders Meeting, (A) the Company
Stockholder Approval shall not have been obtained, (B) the Company
concurrently executes and delivers a definitive agreement with respect to a
Superior Proposal and (C) the Independent Committee determines in good
faith, after receipt of advice of its outside legal counsel, that a failure
to terminate this Agreement in order to enter into a definitive agreement
with regard to such Superior Proposal would constitute a breach of its
fiduciary duties to the Company's stockholders under applicable law;
provided that, prior to such termination, (x) the Company has given Parent
three (3) Business Days' advance notice of the Company's intention to
accept such Superior Proposal and shall have complied in all respects with
the provisions of Section 2.6 and Section 5.2; and (y) the Company shall
have paid by wire transfer the Fee and the Parent Expenses pursuant to
Section 7.3(b).
7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
Affiliates, directors, officers, stockholders, representatives or agents except
for any obligation of the Company or Parent set forth in Article VII hereof, if
any. Notwithstanding the foregoing, or any other provision of this Agreement
(including Section 7.3), nothing herein shall relieve the Company, Parent, PHH
or Merger Sub from liability for any breach hereof.
7.3 Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such expenses, whether or not the Merger is consummated.
(b) The Company shall pay, or cause to be paid, to Parent, the Parent
Expenses (as defined below) actually incurred and a fee of $28,000,000 (the
"Fee") upon the first to occur of any of the following events:
(i) the termination of this Agreement by Parent or the Company
pursuant to subsection (b)(i) of Section 7.1, or the termination of this
Agreement by Parent pursuant to Subsection (c)(i) or (c)(iii) of Section
7.1; provided, that prior to such termination, the Company becomes aware
that any Person has made or intends to make a proposal relating to a
Third-Party Acquisition and, within twelve months following the date of
such termination, a Third-Party Acquisition is consummated or a definitive
agreement with respect to a Third-Party Acquisition is executed by the
Company;
(ii) the termination of this Agreement by Parent pursuant to
Section 7.1(c)(ii);
(iii) the termination of this Agreement by the Company pursuant
to Section 7.1(d)(iii); or
(iv) the termination of this Agreement by Parent pursuant to
Section 7.1(b)(iii); provided, that a Third-Party Acquisition shall be
publicly announced or otherwise made known to the public at or prior to the
Stockholders Meeting and, within twelve months following the date of such
termination, a Third-Party Acquisition is consummated or a definitive
agreement with respect to a Third-Party Acquisition is executed by the
Company.
(c) "Parent Expenses" means all out-of-pocket expenses and fees
(including fees and expenses payable to all banks, investment banking agents and
counsel for arranging, committing to provide or providing any financing for the
Transactions contemplated hereby or structuring the Transactions contemplated
hereby and all fees of counsel, accountants, experts and consultants to Parent,
PHH and Merger Sub and all printing and advertising expenses) actually incurred
or accrued by either of them or on their behalf in connection with the
Transactions, including the financing thereof, and actually incurred or accrued
by banks, investment banking firms, other financial institutions and other
Persons and incurred by Parent, PHH and Merger Sub in connection with the
negotiation, preparation, execution and performance of this Agreement, the
structuring and financing of the Transactions and any financing commitments or
agreements relating thereto; provided, however, that in no event shall the
amount of Parent Expenses exceed $2,500,000.
(d) The Fee and Parent Expenses shall be paid by wire transfer of same
day funds to an account designated by Parent within two Business Days after a
demand for payment following the first to occur of any of the events described
in Section 7.3(b); provided that, in the event of a termination of this
Agreement under Section 7.1(d)(iii), the Fee and Parent Expenses shall be paid
as therein provided as a condition to the effectiveness of such termination.
(e) The agreements contained in this Section 7.3 are an integral part
of the Transactions and do not constitute a penalty. In the event of any dispute
between the Company and Parent as to whether the Fee and Parent Expenses under
this Section 7.3 are due and payable, the prevailing party shall be entitled to
receive from the other party the reasonable costs and expenses (including
reasonable legal fees and expenses) in connection with any action, including the
filing of any lawsuit or other legal action, relating to such dispute. Interest
shall be paid on the amount of any unpaid Fee or Parent Expenses at the publicly
announced prime rate of Citibank, N.A. from the date such Fee or Parent Expenses
was required to be paid.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Effective
Time of the Merger; provided, that the agreements contained in Article I,
Article II, Sections 5.5 and 5.6 and this Article VIII shall survive the
Effective Time.
8.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission (provided that any
notice received by facsimile transmission or otherwise at the addressee's
location on any Business Day after 5:00 p.m. (addressee's local time) shall be
deemed to have been received at 9:00 a.m. (addressee's local time) on the next
Business Day), by reliable overnight delivery service (with proof of service),
hand delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:
If to Parent, PHH or Merger Sub:
Cendant Corporation
6 Sylvan Way
Parsippany, New Jersey 07054
Attention: General Counsel
Telecopier No.: 973-496-5335
with copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq.
Telecopier No.: 302-651-3001
If to the Company:
Avis Group Holdings, Inc.
World Headquarters
900 Old Country Road
Garden City, New York 11530
Attention: General Counsel
Telecopier No.: 516-222-6922
with copies to:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Attention: John M. Reiss, Esq.
Telecopier No.: 212-354-8113
and to the Special Committee at:
JER Partners
1650 Tysons Blvd.
Suite 1600
McLean, VA 22102
Attention: Deborah Harmon
Telecopier: (703) 714-8124
with copies to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005-1702
Attention: Richard E. Farley, Esq.
Telecopier No.: 212-269-5420
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed. Any party to this Agreement
may notify any other party of any changes to the address or any of the other
details specified in this paragraph; provided that such notification shall only
be effective on the date specified in such notice or five (5) Business Days
after the notice is given, whichever is later. Rejection or other refusal to
accept or the inability to deliver because of changed address of which no notice
was given shall be deemed to be receipt of the notice as of the date of such
rejection, refusal or inability to deliver.
8.3 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder may be assigned by any of the parties
(whether by operation of law or otherwise) without the prior written consent of
the other parties, except that Merger Sub may assign any of its rights and
obligations hereunder to a wholly owned Subsidiary of Parent which is a Delaware
corporation; provided, however, that no such assignment shall relieve Merger Sub
of its obligations hereunder. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties and their
respective successors and permitted assigns. Notwithstanding anything contained
in this Agreement to the contrary, except for the provisions of Sections 5.5 and
5.6, nothing in this Agreement, expressed or implied, is intended to confer on
any Person other than the parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
8.4 Entire Agreement. This Agreement, the Company Disclosure Letter,
the Parent Disclosure Letter and any documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter of this Agreement and supersede all prior
representations, warranties, agreements and understandings among the parties,
both written and oral, with respect thereto, except the Confidentiality
Agreement which shall continue in full force and effect; provided that if there
is any conflict between the Confidentiality Agreement and this Agreement, this
Agreement shall prevail.
8.5 Amendment. Subject to applicable law, this Agreement may be amended
by the parties hereto, by action taken by their respective boards of directors
and, with respect to the Company, by the Independent Committee, at any time
before or after the Company Stockholder Approval, but after any such Company
Stockholder Approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
8.6 Governing Law; Consent to Jurisdiction.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws thereof.
(b) Each of the parties hereto (i) consents to submit itself to the
exclusive personal jurisdiction of any Delaware state court or any federal court
located in the State of Delaware in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement and (ii)
agrees that it shall not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court.
8.7 Counterparts. This Agreement may be executed by the parties 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 of this Agreement
each signed by less than all, but together signed by all of the parties hereto.
This Agreement shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
8.8 Headings. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
8.9 Interpretation. When a reference is made in this Agreement to an
Article or Section, such reference shall be to an Article or Section of this
Agreement unless otherwise indicated. The table of contents to this Agreement is
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant thereto unless
otherwise defined therein. The definitions contained in this Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns. Each of
the parties has participated in the drafting and negotiation of this Agreement.
If an ambiguity or question of intent or interpretation arises, this Agreement
must be construed as if it is drafted by all the parties and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of
authorship of any of the provisions of this Agreement. The inclusion of any
matters in the Company Disclosure Letter or the Parent Disclosure Letter in
connection with any representation, warranty, covenant or agreement that is
qualified as to materiality or "Material Adverse Effect" shall not be an
admission by the Company that such matters is material or would have a Material
Adverse Effect.
8.10 Waivers. No action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. Any term,
covenant or condition of this Agreement may be waived at any time by the party
which is entitled to the benefit thereof, but only by a written notice signed by
such party expressly waiving such term or condition. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be construed
as a waiver of any prior or subsequent breach of the same or any other provision
hereunder.
8.11 Incorporation of Annex and Disclosure Letters. The Company
Disclosure Letter and the Parent Disclosure Letter are hereby incorporated in
this Agreement and made a part of this Agreement for all purposes as if fully
set forth in this Agreement.
8.12 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent (and only to the extent) of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible.
8.13 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur if any of the provisions of this Agreement was
not performed in accordance with its specific terms or as otherwise breached and
that money damages would not be an adequate remedy for any breach of this
Agreement. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court referred to
in Section 8.6(b), this being in addition to any other remedy to which they are
entitled at law or in equity or pursuant to this Agreement. In any such action
for specific performance, each of the parties shall waive (i) the defense of
adequacy of a remedy at law and (ii) any requirement for the securing and
posting of any bond.
8.14 Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
8.15 Execution. This Agreement may be executed by facsimile signatures
by any party and such signature shall be deemed binding for all purposes hereof,
without delivery of an original signature being thereafter required.
8.16 Date for any Action. In the event that any date on which any
action is required to be taken hereunder by any of the Parties hereto is not a
Business Day, such action shall be required to be taken on the next succeeding
day which is a Business Day.
8.17 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each Party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section 5.5 (which is intended to be for the benefit of
the Persons covered thereby and may be enforced by such Persons).
8.18 Certain Definitions. As used in this Agreement:
(a) The term "Affiliate," as applied to any Person, shall mean any
other Person directly or indirectly controlling, controlled by, or under common
control with, that Person; for purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by,"
"under common control with"), as applied to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities, by contract or otherwise.
(b) The term "Associate" has the meaning set forth in Rule 12b-2 under
the Exchange Act.
(c) A Person shall be deemed to "beneficially" own securities if such
Person would be the beneficial owner of such securities under Rule 13d-3 under
the Exchange Act, including securities which such Person has the right to
acquire (whether such right is exercisable immediately or only after the passage
of time).
(d) The term "Business Day" means any day on which commercial banks are
open for business in New York, New York other than a Saturday, a Sunday or a day
observed as a holiday in New York, New York under the laws of the State of New
York or the federal laws of the United States.
(e) The term "Person" shall include individuals, corporations,
partnerships, trusts, limited liability companies, associations, unincorporated
organizations, joint ventures, other entities, groups (which term shall include
a "group" as such term is defined in Section 13(d)(3) of the Exchange Act),
labor unions or Governmental Entity.
(f) The term "Subsidiary," when used with respect to any party, means
any corporation or other organization, whether incorporated or unincorporated,
of which such party directly or indirectly owns or controls at least a majority
of the securities or other interests having by their terms ordinary voting power
to elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization, or any
organization of which such party is a general partner.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
CENDANT CORPORATION
By: /s/ Henry R. Silverman
-------------------------------
Name: Henry R. Silverman
Title: Chairman, President and
Chief Executive Officer
PHH CORPORATION
By: /s/ James E. Buckman
-------------------------------
Name: James E. Buckman
Title: Executive Vice President
and General Counsel
AVIS ACQUISITION CORP.
By: /s/ James E. Buckman
-------------------------------
Name: James E. Buckman
Title: Executive Vice President
and General Counsel
AVIS GROUP HOLDINGS, INC.
By: /s/ Kevin M. Sheehan
-------------------------------
Name: Kevin M. Sheehan
Title: President, Corporate and
Business Affairs, Chief
Financial Officer
Defined Terms
Page
Acquisition...................................................................1
Acquisition Group.............................................................1
Affiliate....................................................................56
Agreement.....................................................................1
Associate....................................................................56
Assumed Option................................................................8
Assumed Option Plan...........................................................8
Assumed Option Plans..........................................................8
Avis Fleet...................................................................14
Avis License.................................................................25
Bear Stearns.................................................................27
Beneficially.................................................................56
Board.........................................................................1
Business Day.................................................................56
Car Holdings..................................................................1
Cendant Common Stock..........................................................8
Certificate of Merger.........................................................2
Certificates..................................................................5
Class B Common Stock.........................................................13
Closing.......................................................................3
Closing Date..................................................................3
Code.........................................................................20
Code.........................................................................19
Company.......................................................................1
Company Acquisition Agreement................................................34
Company Common Stock..........................................................1
Company Disclosure Letter....................................................14
Company SEC Reports..........................................................16
Company Stockholder Approval.................................................10
Confidentiality Agreement....................................................33
Contract.....................................................................16
Control......................................................................56
Covered Parties..............................................................37
DGCL..........................................................................1
Effective Date................................................................3
Effective Time................................................................3
Elected Portion...............................................................8
Environmental Claim..........................................................25
Environmental Laws...........................................................25
ERISA........................................................................19
ERISA Affiliate..............................................................20
Exchange Act.................................................................15
Exchange Ratio................................................................9
Fairness Opinion.............................................................13
Fee..........................................................................49
GAAP.........................................................................16
Governmental Entity..........................................................15
Hazardous Materials..........................................................25
HSR Act......................................................................15
Hyperion.....................................................................37
Indemnified Liabilities......................................................38
Independent Committee.........................................................1
Intellectual Property........................................................25
IRS..........................................................................19
Letter of Transmittal.........................................................5
Material Adverse Effect......................................................12
Merger........................................................................1
Merger Consideration..........................................................4
Merger Sub....................................................................1
Merger Sub Common Stock.......................................................5
Morgan Stanley................................................................1
Multiemployer Plan...........................................................20
Note Tender Offer............................................................41
Notes........................................................................31
Option........................................................................8
Parent Disclosure Letter.....................................................28
Parent Expenses..............................................................49
Payment Agent.................................................................5
Payment Fund..................................................................5
Permits......................................................................21
Person.......................................................................56
PHH...........................................................................1
Plan.........................................................................19
Plans........................................................................19
Preferred Stock..............................................................13
Proxy Statement..............................................................10
Release......................................................................25
Retention Election............................................................8
SEC..........................................................................10
Securities Act...............................................................16
Shares........................................................................1
Stockholders Meeting.........................................................10
Subsidiary...................................................................57
Superior Proposal............................................................36
Surviving Corporation.........................................................2
Tax Return...................................................................19
Taxes........................................................................19
Terminating Breach...........................................................47
Third Party..................................................................35
Third-Party Acquisition......................................................35
Transactions..................................................................2
WARN Act.....................................................................27
APPENDIX B
November 10, 2000
The Special Committee of the Board of Directors
on behalf of the Board of Directors
Avis Group Holdings, Inc.
900 Old Country Road
Garden City, NY 11530
Members of the Special Committee of the Board of Directors:
We understand that Avis Group Holdings, Inc. (the "Company"), Cendant
Corporation (the "Parent"), PHH Corporation, an indirect wholly-owned subsidiary
of Parent ("PHH"), and Avis Acquisition Corp., an indirect wholly-owned
subsidiary of Parent (the "Merger Sub"), propose to enter into a Agreement and
Plan of Merger, substantially in the form of the draft dated November 9, 2000
(the "Merger Agreement"), which will provide, among other things, for the merger
(the "Merger") of the Merger Sub with and into the Company. Pursuant to the
Merger, the Company will become a wholly-owned subsidiary of the Parent, and
each outstanding share of Class A common stock, par value $0.01 per share (the
"Class A Common Stock"), other than shares held in treasury or held by the
Parent or any of its subsidiaries or as to which dissenters' rights have been
perfected, will be converted into the right to receive $33.00 per share in cash.
We further understand that the Parent beneficially owns, directly or indirectly,
approximately 17.8% of the Class A Common Stock. The terms and conditions of the
Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be received by
the holders of shares of Class A Common Stock (other than Parent and its
affiliates) pursuant to the Merger Agreement is fair from a financial point of
view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by or on behalf
of the management of the Company;
(iii) reviewed certain financial projections prepared by the management
of the Company;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of the
Company;
(v) reviewed the reported prices and trading activity for the Class A
Common Stock;
(vi) compared the financial performance of the Company and the prices
and trading activity of the Class A Common Stock with that of
certain other comparable publicly traded companies and their
securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain transactions that we deemed comparable to the proposed
transaction;
(viii) participated in discussions and negotiations among representatives
of the Company and Parent and their respective financial and legal
advisors;
(ix) reviewed the draft Merger Agreement and certain related documents;
and
(x) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. In
addition, we have assumed that the Merger will be consummated substantially in
accordance with the terms set forth in the Merger Agreement. We have not made
any independent valuation or appraisal of the assets or liabilities of the
Company, nor have we been furnished with any such appraisals. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
In arriving at our opinion, with the consent of the Special Committee, we did
not solicit interest from any party with respect to the acquisition of the
Company or any of its assets.
We have acted as financial advisor to the Special Committee on behalf of the
Board of Directors of the Company in connection with this transaction and will
receive a fee for our services.
It is understood that this letter is for the information of the Special
Committee of the Board of Directors and the Board of Directors of the Company,
does not constitute a recommendation as to how any holder of such shares should
vote with respect to the Merger, and may not be used for any other purpose
without our prior written consent; provided however, that the Company may
include the opinion in its entirety as an exhibit to any report, statement, or
schedule filed by the Company with the Securities and Exchange Commission under
the Securities Exchange Act of 1934 in connection with the Merger.
Based on and subject to the foregoing, we are of the opinion on the date hereof
that the consideration to be received by the holders of shares of Class A Common
Stock (other than Parent and its affiliates) pursuant to the Merger Agreement is
fair from a financial point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Jeffrey W. Smith
----------------------------------
Jeffrey W. Smith
Managing Director
APPENDIX C
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
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 Section 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 Section 251 (other than a merger effected pursuant to
Section 251 (g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 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 Section 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 Section
Section 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 depository 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 Section 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.
(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 such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder'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 stockholder's
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 Section
228 or Section 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 holders' 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 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 date 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.
(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 such stockholder's 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 such stockholder's 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 proceeding 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
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder 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
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 attorneys' fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded 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 together 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 such stockholder's
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.
339, L. '98. Eff. 7-1-98.)