As filed with the Securities and Exchange Commission on August 29, 1996
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HFS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-3059335
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
339 JEFFERSON ROAD
PARSIPPANY, NEW JERSEY 07054
(201) 428-9700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JAMES E. BUCKMAN, ESQ.
339 JEFFERSON ROAD
PARSIPPANY, NEW JERSEY 07054
(201) 428-9700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
VINCENT J. PISANO, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
919 THIRD AVENUE
NEW YORK, NY 10022
(212) 735-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AT
SUCH TIME OR TIMES AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT AS
THE SELLING STOCKHOLDERS SHALL DETERMINE.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING
OFFERED PURSUANT TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE
FOLLOWING BOX. |_|
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE
OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT OF 1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH
DIVIDEND OR INTEREST REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. |X|
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN
OFFERING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE
FOLLOWING BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE
EARLIER EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. |_|
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE
462(C) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE
SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. |_|
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO
RULE 434, PLEASE CHECK THE FOLLOWING BOX. |_|
<PAGE>
CALCULATION OF REGISTRATION FEE
Proposed Maximum Amount
Title of Shares Aggregate of
to be Registered Offering Price(2) Registration Fee
---------------- ----------------- ----------------
Common Stock, $.01 $364,347,500 $125,627
par value(1).........................
(1) These shares are being offered by the Selling Stockholders and no proceeds
will be received by the Company from the sale of such shares. The Company
is registering an indeterminate number of shares of Common Stock, which
will have a market value of up to $364,347,500 at the time of issuance, as
determined in accordance with the Merger Agreement and the Stock Purchase
Agreement described herein, respectively.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
SUBJECT TO COMPLETION
DATED AUGUST 29, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PROSPECTUS
HFS INCORPORATED
COMMON STOCK
This Prospectus relates to the offering from time to time by (i) The
Trust forming a part of the Avis, Inc. Employee Stock Ownership Plan (the "Avis
ESOP") of such number of shares (the "Shares") of common stock, $.01 par value
per share (the "Common Stock"), of HFS Incorporated, a Delaware corporation
("HFS" or the "Company"), to be determined on the date of issuance by dividing
up to $236,070,000 by the average of the closing prices of the Common Stock on
the New York Stock Exchange for the ten consecutive trading days immediately
preceding the third trading day prior to the date of the closing of the
acquisition pursuant to the Merger Agreement described below, (ii) General
Motors Corporation ("GM") of such number of Shares of Common Stock of the
Company, to be determined on the issue date by dividing up to $105,777,500 by
the average of the closing prices of the Common Stock on the New York Stock
Exchange for the ten consecutive trading days immediately preceding the third
trading day prior to the date of the closing of the acquisition pursuant to the
Merger Agreement described below and (iii) certain persons (together with GM and
the Avis ESOP, the "Selling Stockholders") who will receive Shares of Common
Stock pursuant to the Merger Agreement in exchange for their outstanding
"equivalent shares" under the Avis, Inc. Nonqualified Employee Stock Ownership
Equivalent Plan to be determined by multiplying the number of outstanding
"equivalent shares" immediately prior to the effective time of the Merger (as
defined) by $5.00, divided by the average per share closing prices of the Common
Stock on the New York Stock Exchange for the ten consecutive trading days prior
to the effective time of the Merger but not to exceed $22.5 million in Common
Stock at such time. See "Selling Stockholders" and "Plan of Distribution"
herein. The Company will not receive any of the proceeds from the sale of the
Shares offered hereby.
The Shares are being registered pursuant to (i) the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of August 23, 1996, by and among
HFS, Avis Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of HFS ("Avis Acquisition"), U.S. Trust Company of California,
N.A., as Trustee of the Avis ESOP and Avis, Inc. ("Avis") and (ii) the Stock
Purchase Agreement (the "Stock Purchase Agreement"), dated as of August 28,
1996, by and between HFS and GM. The Merger Agreement provides for the
acquisition of Avis and its subsidiaries by HFS pursuant to a merger of Avis
Acquisition into Avis (the "Merger"). The Stock Purchase Agreement provides
for the acquisition by HFS of all of the participating convertible preferred
stock of Avis owned by GM simultaneously with the Merger (the "Stock
Purchase").
The distribution and sale of the shares of Common Stock offered hereby
is subject, with respect to the shares to be sold by GM, to the provisions of
the Stock Purchase Agreement and, with respect to the shares to be sold by the
Avis ESOP, to the provisions of the Merger Agreement. The Merger Agreement and
the Stock Purchase Agreement set forth certain transfer requirements and
restrictions with respect to the transfer of shares of Common Stock offered
hereby, including a restriction on the sale of shares for designated periods
after the closing of the Merger and requirements of prior notice of any
proposed transfer of the shares in certain designated periods. Subject to the
Merger Agreement and the Stock Purchase Agreement, the Selling Stockholders
may sell all or portions of the Common Stock through agents or broker-dealers
on terms to be determined at the time of sale. Subject to the Merger Agreement
and the Stock Purchase Agreement, the Selling Stockholders may sell the Common
Stock offered hereby from time to time on the New York Stock Exchange or such
other national securities exchange, automated interdealer quotation system on
which the shares of Common Stock are then listed, through negotiated
transactions or otherwise at market prices prevailing at the time of the sale
or at negotiated prices. The number of such shares proposed to be so offered
and the terms of such offering, and the number of such shares owned prior to
and after the completion of any such offering shall be set forth in an
accompanying Prospectus Supplement, to the extent necessary. Subject to the
terms of the Merger Agreement and the Stock Purchase Agreement, the aggregate
proceeds to the Selling Stockholders from the sale of any Shares will be the
purchase price of such Shares less the aggregate agents' or broker-dealers'
commission, if any, and other expenses of distribution not borne by the
Company. See "Selling Stockholders" and "Plan of Distribution."
The Company's Common Stock is listed on the New York Stock Exchange
under the symbol "HFS". On August 28, 1996, the last reported sale price of
the Common Stock on the New York Stock Exchange was $61-3/8 per share.
APITAL PRINTING SYSTEMS]
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is August __, 1996
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER, DEALER OR AGENT INVOLVED IN THE OFFERING DESCRIBED HEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at prescribed rates at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. The Commission also maintains a website that contains reports, proxy
and information statements and other information. The website address is
http://www.sec.gov. In addition, such material can be inspected at the offices
of the New York Stock Exchange (the "NYSE"), 20 Broad Street, New York, New
York 10005.
The Company has filed a registration statement (the "Registration
Statement") on Form S-3 with respect to the Common Stock offered hereby with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to
the Registration Statement as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
agreement, instrument or other document referred to herein are not necessarily
complete. With respect to each such agreement, instrument or other document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by reference to such agreement,
instrument or document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's (i) Annual Report on Form 10-K for the year ended
December 31, 1995; (ii) description of the Company's Capital Stock which is
contained in its Registration Statement on Form 8-A dated September 16, 1992,
including the amendment on Form 8-A/A dated September 1, 1995, including any
amendment or report filed for the purpose of updating such description; (iii)
Quarterly Report on Form 10-Q for the quarter ending March 31, 1996; (iv)
Quarterly Report on Form 10-Q for the quarter ending June 30, 1996 as amended
by the Form 10-Q/A filed on August 19, 1996; (v) Current Reports on Form 8-K
dated February 16, 1996, March 8, 1996, April 5, 1996, May 8, 1996, May 21,
1996 and August 29, 1996; and (vi) Current Report on Form 8-K/A, dated August
18, 1995, all of which have previously been filed by the Company with the
Commission, are incorporated herein by reference.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to
be incorporated herein by reference and to be a part hereof from the date of
filing of such documents. Any statement contained in this Prospectus or in a
document incorporated or deemed to be incorporated herein by reference shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated herein by reference or
in any Prospectus Supplement modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
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<PAGE>
The Company will provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon the written or oral request of
such person, a copy of any or all of the documents referred to above which
have been or may be incorporated herein by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
in such documents). Requests for such copies should be directed to James E.
Buckman, Esq., Executive Vice President and General Counsel, 339 Jefferson
Road, Parsippany, New Jersey 07054, (201) 428-9700.
IN CONNECTION WITH ANY UNDERWRITTEN OFFERING OF THE SECURITIES, THE
UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN
THE MARKET PRICES OF SUCH SECURITIES OR OTHER SECURITIES OF THE COMPANY AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
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<PAGE>
THE COMPANY
GENERAL
HFS Incorporated ("HFS" or the "Company"), formerly named Hospitality
Franchise Systems, Inc., is the world's largest franchisor of hotels
and residential real estate brokerage offices. The Company operates nine
national hotel franchise systems: Days Inn(R), Ramada(R) (in the United States),
Howard Johnson's(R), Super 8(R), Travelodge(R) (in North America), Park Inn
International(R) (in the United States and Canada), Villager(SM) Lodge, Knights
Inn(R) and Wingate Inn(SM). In aggregate, these franchise systems consist of
approximately 5,300 properties and 490,000 hotel rooms worldwide. The Company
operates the CENTURY 21(R), Coldwell Banker(R) and Electronic Realty
Associates or ERA(R) (collectively "ERA") real estate brokerage franchise
systems which it acquired on August 1, 1995, May 30, 1996 and February 12,
1996, respectively. Century 21, Coldwell Banker and ERA are the world's
largest, second largest and fourth largest franchisors, respectively, of
residential real estate brokerage offices, with an aggregate of more than
11,200 independently owned and operated franchised offices located worldwide.
As a franchisor of hotels and residential real estate brokerage
offices, the Company licenses the owners and operators of independent
businesses, principally hotels and real estate brokerage offices, to use the
Company's brand names. The Company does not own or operate hotels or real
estate brokerage offices. Instead, the Company provides its customers with
services designed to increase their revenue and profitability. These services
allow customers to retain independence and local control while benefiting from
the economies of scale of widely promoted brand names and standards of
service, national and regional direct marketing and co-marketing arrangements
and global procurement. The most important of these services for hotel owners
are access to a national reservation system, national advertising and
promotional campaigns, co-marketing programs and volume purchasing discounts.
The most significant services to real estate brokerages are national
advertising and promotion, referrals and training. The Company believes
significant opportunities exist to expand the co-marketing and volume
purchasing benefits that it currently provides to its hotel franchisees and to
its real estate brokerage franchisees.
The Company also operates the Coldwell Banker corporate employee
relocation business, which the Company estimates is the second largest
provider of corporate relocation services in the United States based on the
number of transferred employees assisted. The Coldwell Banker corporate
employee relocation business offers its relocation clients a variety of
services in connection with the transfer of its clients' employees. These
services include the selling of a transferee's home, appraisals, inspections,
assistance in finding a new home, property marketing advice, rental
assistance, equity advances, purchasing a transferee's home at the appraised
value when no higher bid is obtained, educational and school placement
counseling, career counseling, spouse/partner employment assistance and group
move services.
The Company continually explores and conducts discussions with regard
to acquisitions and other strategic corporate transactions in its industries
and in other franchise or franchisable businesses. Historically, the Company
has been involved in numerous transactions of various magnitudes for
consideration which included cash or securities (including Common Stock) or
combinations thereof. The Company is continuing to evaluate and to pursue
appropriate acquisition and combination opportunities as they arise in the
expansion of its operations. No assurance can be given with respect to the
timing, likelihood or financial or business effect of any possible
transaction. In the past, acquisitions by the Company have involved both
relatively small acquisitions and acquisitions which have been significant,
including the pending acquisition of Avis in the Merger and Stock Purchase for
approximately $800 million. See "The Avis Acquisition."
As part of its regular on-going evaluation of acquisition
opportunities, the Company is currently engaged in a number of separate and
unrelated preliminary discussions concerning possible acquisitions. The
Company is in the early stages of such discussions and has not entered into
any agreement in principle with respect to any of these possible acquisitions.
The purchase price for the possible acquisitions may be paid in cash, through
the issuance of Common Stock (which would increase the number of shares of
Common Stock outstanding) or other securities of the Company, borrowings, or a
combination thereof. Prior to consummating any such possible acquisitions, the
Company, among other things, will have to initiate and satisfactorily complete
its due diligence investigation; negotiate the financial and other terms
(including price) and conditions of such acquisitions; obtain appropriate
Board of Directors', regulatory and other necessary consents and approvals; and
secure financing. The Company cannot predict whether any such acquisitions
will be consummated or, if consummated, will result in a financial or other
benefit to the Company.
The Company's principal executive offices are located at 339 Jefferson
Road, Parsippany, New Jersey 07054 (telephone number: (201) 428-9700).
THE AVIS ACQUISITION
On August 23, 1996, the Company entered into the Merger Agreement and,
on August 28, 1996, the Company entered into the Stock Purchase Agreement.
Pursuant to the Merger Agreement and the Stock Purchase Agreement, the
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Company has agreed to pay approximately $800 million for all of the
outstanding capital stock of Avis, including payments under certain employee
stock plans of Avis and the redemption of certain series of preferred stock of
Avis (the "Preferred Stock"). While completion of this transaction is not
assured, the Company expects that the transaction will be completed on or
about October 1, 1996.
Avis, together with its subsidiaries, licensees and affiliates,
operates the Avis System, which the Company believes to be the second largest
car rental system in the world. The Avis System consists of approximately
4,139 worldwide locations, including locations at most major airports as well
as downtown locations in major cities in the United States and in
approximately 149 countries and territories. Approximately 84% of the Avis
System rental revenues in the United States are received from locations
operated by Avis directly or under agency arrangements, with the remainder
being received from locations operated by independent licensees. Avis's
international business is conducted by a network of several, wholly owned
subsidiaries and joint ventures along with a number of licensees and
sublicensees. The Avis System in Europe, Africa and the Middle East is
operated by Avis Europe Limited, a United Kingdom based company ("Avis
Europe") which is approximately 9% owned by Avis. The Avis System in Canada,
Latin America, the Caribbean and Asia Pacific, comprising some 65 countries or
territories, is operated by Avis subsidiaries, joint ventures and licensees.
See "The Avis Acquisition."
Following the acquisition of Avis, the Company currently intends to
dispose of a majority interest in the corporation which owns all company owned
Avis car rental locations (the "Operating Company") through an initial public
offering of the common stock of the Operating Company during 1997. It is
expected that the Operating Company would operate under a license from Avis
pursuant to which the Operating Company would pay Avis a royalty based upon
the revenue of the Operating Company. The Company expects that the acquisition
of Avis will also provide further opportunities to expand the Company's
preferred vendor program.
RISK FACTORS
Prior to making an investment decision with respect to the Shares of
Common Stock offered hereby, prospective investors should carefully consider
the specific factors set forth below, together with all of the other
information appearing herein, in light of their particular investment
objectives and financial circumstances.
RISKS RELATED TO HFS'S OPERATIONS
COMPETITION FOR NEW FRANCHISE PROPERTIES AND GENERAL RISKS OF THE LODGING AND
RESIDENTIAL REAL ESTATE BROKERAGE INDUSTRIES
As a franchisor, the Company's products are its brand names and the
support services it provides to its franchisees. Competition among national
brand franchisors in the lodging and residential real estate brokerage
industries to grow their franchise systems is intense. In addition, smaller
chains pose some degree of competitive pressure in selected markets. The
Company believes that competition for the sale of franchises in such
industries is based principally upon the perceived value and quality of the
brand and services as well as the nature of those services offered to
franchisees. The Company believes that prospective franchisees value a
franchise based upon their view of the relationship of conversion costs and
future charges to the potential for increased revenue and profitability.
The Company's revenue varies directly with franchisees' gross revenue,
but is not directly dependent upon franchisees' profitability. However, the
Company believes that the perceived value of its brand names to prospective
franchisees is in part a function of the success of its existing franchisees.
The ability of the Company's franchisees to compete in the lodging and
residential real estate brokerage industries is important to the Company's
prospects because franchise fees are based on franchisees' gross revenue. The
Company's franchisees are generally in intense competition with franchisees of
other systems, independent properties and realtors, and owner-operated chains.
Competition in the lodging business for hotel guests and in the residential
real estate brokerage business for house sales is based upon many factors,
each of which may be more or less important in a given market and location. A
franchisee's success may also be affected by general, regional and local
economic conditions.
REGULATION
The sale of franchises is regulated by various state laws as well as
by the Federal Trade Commission (the "FTC"). The FTC requires that franchisors
make extensive disclosure to prospective franchisees but does not require
registration. A number of states require registration or disclosure in
connection with franchise offers and sales. In addition, several states have
"franchise relationship laws" or "business opportunity laws" that limit the
ability of franchisors to terminate franchise
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agreements or to withhold consent to the renewal or transfer of these
agreements. While the Company's franchising operations are not materially
adversely affected by such existing regulations, the Company cannot predict
the effect any future legislation or regulation may have on its business
operations or financial condition. The Company's casino marketing business is
also subject to extensive government regulation and licensing requirements.
The Federal Real Estate Settlement Procedures Act and state real estate
brokerage laws restrict payments which real estate brokers may receive in
connection with the sale of residences. Such laws may to some extent restrict
preferred vendor arrangements involving the Company's real estate brokerage
franchisees.
DEPENDENCE ON RAMADA LICENSE AGREEMENT
The Company franchises the Ramada brand names to lodging facility
owners in the United States pursuant to a license agreement from an indirect
subsidiary of New World Development Co., Ltd., a Hong Kong company ("New
World"). The license terminates in 2024, but the Company has the right to
renew the license for up to an additional 45 years. In addition, the license
may be terminated by New World for the failure on the part of the Company to
satisfy certain conditions. Termination of this license would result in the
loss of the income stream from franchising the Ramada brand names and, if such
termination occurred prior to its scheduled termination date, would result in
the payment by the Company of liquidated damages equal to three years of
license fees. The license termination provisions are such that the Company
does not believe that it will have any difficulty complying with all of the
material terms of the license agreement; however, termination of such license,
if it occurred, would have a material adverse effect on the Company's business
and financial condition and would constitute an event of default under the
Company's Credit Agreement, dated as of December 16, 1993, among the Company,
Chemical Bank, as agent, and the banks signatories thereto (the "Credit
Agreement").
CERTAIN ANTI-TAKEOVER EFFECTS; DIVESTITURE AND LOSS OF VOTING RIGHTS
Certain provisions of the Company's Amended and Restated Certificate
of Incorporation may have the effect of requiring a stockholder of the Company
to divest its shares of Common Stock or forfeit its voting rights in certain
circumstances where such stockholder's ownership of Common Stock would
adversely affect the Company's ability to secure requisite gaming related
approvals or comply with certain governmental requirements (the "Gaming
Provisions"). The Gaming Provisions may be deemed to have anti-takeover
effects and may delay, defer or prevent a takeover attempt that a stockholder
might consider in its best interest.
In addition, the Company's Board of Directors has the ability to
establish by resolution one or more series of preferred stock having such
number of shares, designation, relative voting rights, dividend rate,
liquidation and other rights, preferences and limitations as may be fixed by
the Company's Board of Directors, without any further stockholder approval.
The issuance of a new series of preferred stock could have the effect of
making it more difficult for a third party to acquire, or discouraging a third
party from acquiring, a majority of the outstanding voting stock of the
Company. See "Description of Capital Stock -- Disqualified Stockholders."
ENTRY INTO CAR RENTAL INDUSTRY
By acquiring Avis, the Company is entering the car rental industry in
which it has not previously participated. While the Company believes that its
experience as a franchisor and service provider in the hotel and residential
real estate brokerage industries will enable it to succeed in the car rental
industry, there can be no assurance that the Company will be able to compete
successfully as a car rental business operator and franchisor.
RISKS RELATED TO AVIS'S OPERATIONS
LEVERAGE; AVAILABILITY OF FINANCING; REQUIREMENTS FOR CAPITAL
Avis maintains a substantial amount of secured indebtedness to finance
its fleet purchases. At June 30, 1996, Avis and its subsidiaries had
approximately $2.467 billion of indebtedness outstanding, approximately $2.139
billion of
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which represented secured indebtedness for the purchase of vehicles. Of the
remaining indebtedness, approximately $170.5 million represents debt of Avis's
foreign subsidiaries and is unsecured. At June 30, 1996, Avis had subordinated
indebtedness of approximately $249.9 million, of which approximately $97.4
million is secured but subordinated to the fleet debt and approximately $152.5
million is unsecured and structurally subordinated to the fleet debt. At June
30, 1996, Avis had approximately $734 million of additional availability under
these vehicle financing facilities to finance the purchase of additional fleet
vehicles.
The level of Avis's indebtedness could have important consequences to
Avis's operation, including: (i) the potential limitation of Avis's ability to
obtain additional financing for certain purposes; (ii) the commitment of a
substantial portion of Avis's cash flow from operations for debt service; and
(iii) the limitation of Avis's ability to react to changes in the car rental
industry and general economic conditions.
Avis depends upon third-party financing to purchase its fleet
vehicles. Continued availability of such financing upon favorable terms is
critical to Avis's operations. Since a substantial portion of such
indebtedness is incurred in connection with major vehicle manufacturers'
repurchase programs ("Repurchase Programs"), a significant change in the
financial condition of the vehicle manufacturers, particularly GM, would
significantly affect Avis's ability to obtain such financing on favorable
terms. In addition, under the terms of certain of Avis's credit facilities,
including the Prime Vehicles Trust, if the senior indebtedness of a repurchase
party (such as GM) fails to maintain certain rating standards or upon the
bankruptcy of a repurchase party or upon the occurrence of certain other
events, certain adverse consequences may result. These adverse consequences
include a prohibition on borrowing additional amounts under such facilities
for the purchase of vehicles from such repurchase party, a requirement to
repay a lender, and a requirement to increase the overall level of
subordinated debt as additional asset support for such facilities. The
inability of Avis to obtain vehicle financing on favorable terms would have a
material adverse effect on Avis's financial condition and results of
operations. See "The Avis Acquisition - Rental Vehicle Purchases."
POTENTIAL CHANGES IN MANUFACTURERS' REPURCHASE PROGRAMS
At August 1, 1996, approximately 94% of the vehicles in Avis's rental
car fleet were subject to the terms of manufacturers' Repurchase Programs
("Program Vehicles"). Repurchase Programs are methods of purchasing vehicles
whereby a buyer, such as Avis, purchases vehicles from the manufacturer at a
specified and stipulated price and, under the program, the manufacturer agrees
to buy the same vehicles back from the purchaser at a future date at a price
based on a pre-determined formula. The formula typically consists of the
capitalized cost less a depreciation factor minus damage and excess mileage.
The availability of Program Vehicles limits Avis's risk of a decline in
residual value at the time of disposition of the vehicles and enables Avis to
fix its depreciation expense in advance. Vehicle depreciation is the largest
cost factor in Avis's car rental operations. Avis could be adversely affected
if automobile manufacturers reduce the availability of Repurchase Programs or
related incentives. See "The Avis Acquisition - Rental Vehicle Disposition."
Avis could be at a competitive disadvantage if U.S. automobile
manufacturers selectively restrict eligibility to participate in their
Repurchase Programs. Over the past decade, U.S. automobile manufacturers have
acquired direct or indirect equity stakes in most of the major car rental
systems. At August 1, 1996, GM had an equity interest in Avis which will be
sold to the Company pursuant to the Stock Purchase Agreement; Ford Motor
Company ("Ford") owned The Hertz Corporation ("Hertz") and had an equity
interest in Budget Rent a Car Corporation ("Budget") and announced its
intention to purchase the remaining outstanding equity of Budget; and Chrysler
Corporation ("Chrysler") had equity interests in Dollar Rent a Car Systems,
Inc. ("Dollar") and Thrifty Rent-A-Car Systems, Inc. ("Thrifty"), although
Chrysler has been reducing its rental car investments. For the 1996 model year,
Avis purchased a significant number of its vehicles pursuant to Repurchase
Programs sponsored by GM. Any effort by GM to restrict eligibility to
participate in Repurchase Programs to car rental systems could adversely affect
Avis's ability to compete with those of its competitors that have continued
access to such programs.
COMPETITION
The car rental industry is characterized by intense competition,
particularly with respect to price and service. In any geographic market, Avis
may encounter competition from national, regional and local car rental
companies. Avis's largest competitors for car rentals include Alamo
Rent-A-Car, Inc. ("Alamo"), Budget, Dollar, Enterprise Rent a Car
("Enterprise"), Hertz, National Car Rental System, Inc. ("National") and
Thrifty.
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There have been occasions during the history of the car rental
industry in which the major car rental companies have been adversely affected
by industry-wide price pressures, and Avis has, on such occasions, priced its
product in response to such pressures. Moreover, at times when the car rental
industry has experienced vehicle oversupply, there has been intensified
competitive pressure. This oversupply has had a negative impact on the
industry's ability to raise rental rates. Avis has taken steps to address its
fixed cost structure to improve its overall competitive position; however,
future oversupply or other factors affecting competition could still adversely
affect Avis's financial condition and results of operations.
SEASONALITY
Based on the Avis fiscal year which begins on March 1 and ends on
February 28, Avis's second quarter, which covers the peak summer travel
months, has historically been the strongest quarter of the year. Avis's second
quarter accounted for over 26% and 71% of Avis's combined total revenue and
pre-tax profit, respectively, in fiscal years 1995 and 1996. As a result, any
occurrence that disrupts travel patterns during the summer period could have a
material adverse effect on Avis's annual performance. Avis's fourth quarter is
generally its weakest, when there is limited leisure travel and a greater
potential for adverse weather conditions. Many of Avis's operating expenses
such as rent, general insurance and administrative personnel are fixed and
cannot be reduced during periods of decreased rental demand.
REGULATION OF LOSS DAMAGE WAIVERS
A traditional revenue source for the car rental industry has been the
sale of loss damage waivers, by which rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage to a rented
vehicle incurred during the rental period. Approximately 3% of Avis's rental
revenue during fiscal 1996 was generated by the sale of loss damage waivers.
The U.S. House of Representatives has from time to time considered legislation
that would regulate the conditions under which loss damage waivers may be sold
by car rental companies. House Bill H.R. 175, introduced in January 1995,
seeks to prohibit the imposition of liability on renters for loss of, or
damage to, rented vehicles, except in certain circumstances, and to prohibit
the sale of loss damage waivers. To date, no action has been taken on this
bill. In addition, approximately 40 states have considered legislation
affecting the sale of loss damage waivers. To date, 24 states have enacted
legislation regulating the sale of loss damage waivers, most of which require
disclosure to each customer at the time of rental that damage to the rented
vehicle may be covered by the customer's personal automobile insurance and
that loss damage waivers may not be necessary. In addition, in the late
1980's, New York and Illinois enacted legislation which eliminated Avis's
right to offer loss damage waivers for sale and limited potential customer
liability to $100 and $200, respectively. In 1996, the New York Legislature
approved legislation to increase this amount to $300. The bill is awaiting the
Governor's action. Moreover, California, Nevada and Indiana have capped rates
that may be charged for collision damage waivers to $9.00, $10.00 and $5.00
per day, respectively. Texas requires that the rate charged for loss damage
waivers be reasonably related to the direct cost of repairs. Adoption of
national or additional state legislation eliminating or limiting the sale of
loss damage waivers could result in the loss or reduction of this revenue
source and additional limitations on potential customers liability could
increase Avis's costs.
ENVIRONMENTAL RISKS INHERENT IN ON-SITE PETROLEUM STORAGE
232 of Avis's domestic and international facilities contain underground
or aboveground tanks for the storage of petroleum products, such as gasoline,
diesel fuel and waste oils. At 211 of Avis's operating locations, one or more of
these tanks are located underground. Avis maintains an environmental compliance
program that includes the replacement of steel tanks and the implementation of
required technical and operational procedures designed to minimize the potential
for leaks and spills, maintenance of records and the regular testing of tank
systems for tightness. However, there can be no assurance that these tank
systems will at all times remain free from leaks or that the use of these
tanks will not result in spills. Any leak or spill, depending on such factors
as the material involved, quantity and environmental setting, could result in
interruptions to Avis's operations and expenditures that could have a material
adverse effect on Avis's results of operations and financial condition. Avis
carries environmental impairment liability coverage with limits of $4 million
per site and $4 million in the aggregate and a deductible generally of
$250,000. This policy covers against liability to third parties and
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clean-up costs, but not business interruption in Avis's own operations. See "The
Avis Acquisition - Regulatory and Environmental Matters."
RISK OF NON-RENEWAL OF AIRPORT CONCESSIONS
Avis conducts rental operations at 229 airports domestically and
internationally, with each of these operations conducted pursuant to a
concession agreement granted by the local airport authority. In general, these
concession agreements are subject to competitive bidding at the time of
renewal. The terms of Avis's airport concession agreements are varied and
include month-to-month terms at certain locations and fixed terms of various
durations at other locations. Avis is at risk of losing its ability to operate
at an airport if it is not a successful bidder at the time its concession
agreement is subject to renewal. The loss of one or more airport operations
may have an adverse effect on Avis.
DEPENDENCE ON AIR TRAVEL INDUSTRY AND FUEL SUPPLY
A significant amount of Avis's North American revenue is generated at
its on-airport or near-airport facilities. A decrease in air travel or any
event that disrupts air travel patterns at such facilities for a continued
period of time could have a material adverse effect on Avis's financial
condition and results of operations. Such events could include labor unrest,
airline bankruptcies or consolidations, substantially higher air fares, a
downturn in the economy, the outbreak of war, high-profile crimes against
tourists, terrorist incidents and natural occurrences, such as earthquakes,
floods and hurricanes.
Avis's operations, as well as those of its competitors, could be
affected by any limitations in fuel supplies or by any imposition of mandatory
allocations or rationing regulations or significant increases in fuel prices.
In the event of a severe disruption of fuel supplies or significant increases
in fuel prices, the operations of Avis and other car rental companies would be
adversely affected.
DEPENDENCE ON PRINCIPAL SUPPLIER
Since approximately 1978, GM has been Avis's principal supplier of
vehicles. The number of vehicles purchased from GM varies from year to year.
In model year 1995, Avis made approximately 82% of its vehicle purchases in
North America from GM. In model year 1996, Avis made approximately 81% of its
vehicle fleet purchases in North America from GM. Under the terms of the GM
Repurchase Program, Avis must purchase at least 100,000 vehicles and maintain
a minimum of 51% GM share penetration of its domestic vehicles during model
years 1996 through 2000. Given the volume of vehicles purchased from GM by
Avis, shifting significant portions of the fleet purchases to other
manufacturers would require lead time. As a result, if GM were unable to
supply Avis with the planned number and types of vehicles, it could have a
material adverse effect on Avis's financial condition and results of
operations.
THE AVIS ACQUISITION
GENERAL
On August 23, 1996, the Company entered into the Merger Agreement and,
on August 28, 1996, the Company entered into the Stock Purchase Agreement.
Pursuant to the Merger Agreement and the Stock Purchase Agreement, the Company
has agreed to pay approximately $800 million for all of the outstanding
capital stock of Avis, including payments under certain employee stock plans
of Avis and the redemption of certain series of Preferred Stock of Avis. While
completion of this transaction is not assured, the Company expects that the
transaction will be completed on or about October 1, 1996.
Avis, together with its subsidiaries, licensees and affiliates,
operates the Avis System, which the Company believes to be the second largest
car rental system in the world. The Avis System consists of over approximately
4,139 locations, including locations at most major airports as well as
downtown locations in major cities in the United States and
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in approximately 149 countries and territories. Approximately 84% of the Avis
System rental revenues in the United States are received from locations
operated by Avis directly or under agency arrangements, with the remainder
being received from locations operated by independent licensees. Avis's
international business is conducted by a network of several wholly owned
subsidiaries and joint ventures along with a number of licensees and
sublicensees. The Avis System in Europe, Africa and the Middle East is
operated by Avis Europe, which is approximately 9% owned by Avis. The Avis
System in Canada, Latin America, the Caribbean and Asia Pacific, comprising
some 65 countries and territories, is operated by Avis subsidiaries, joint
ventures and licensees. During the peak summer season, the Avis System fleet
worldwide consists of more than approximately 386,548 vehicles representing
the following allocations of vehicles throughout the system: (i) 240,548 in
the Avis U.S. Corporate fleet; (ii) 44,000 vehicles in the Avis International
fleet; (iii) 50,932 in the Avis U.S. Licensee fleet; and (iv) 102,000 in the
Avis Europe fleet.
In the United States, Avis's principal rental base is business
travelers who use the Avis System under contractual arrangements between Avis
and their employers. Because business travel normally is heaviest between
Monday and Thursday of each week, Avis's concentration on serving business
travelers has led to excess fleet capacity from Friday through Sunday of most
weeks.
Following the acquisition of Avis, the Company currently intends to
dispose of a majority interest in the Operating Company through an initial
public offering of the common stock of the Operating Company during 1997. It
is expected that the Operating Company would operate under a license from Avis
pursuant to which the Operating Company would pay Avis a royalty based upon
the revenue of the Operating Company. The Company expects that the acquisition
of Avis will also provide further opportunities to expand the Company's
preferred vendor program.
CAR RENTAL INDUSTRY OVERVIEW
The car rental industry provides car and truck rentals to business and
individual customers worldwide. The industry has been composed of two
principal segments: general use (mainly at airport and downtown locations) and
local/replacement (mainly at downtown and suburban locations). The car rental
industry rents primarily from on-airport, near-airport, downtown and suburban
locations to business and leisure travelers and to individuals who have lost
the use of their vehicles through accident, theft or breakdown. In addition to
revenue from vehicle rentals, the industry derives significant revenue from
the sale of rental related products such as insurance, refueling services and
collision damage waivers.
The domestic car rental industry includes eight major companies,
Alamo, Avis, Budget, Dollar, Enterprise, Hertz, National, and Thrifty, and a
large number of smaller and regional or local firms, serving on-airport,
near-airport and other locations. Most of Avis's major competitors operate
through a combination of wholly owned and franchised operations. Other smaller
car rental companies operate primarily through franchises.
The domestic car rental industry has experienced significant growth
over the last decade. The total annual U.S. revenue for the car rental
industry has been estimated by industry sources at $13.5 billion in 1995, an
11.8% compound annual growth rate from $4.4 billion in 1985, and the total
number of rental vehicles in service in the United States has been estimated
by industry sources at 1.5 million in 1995, a 7% compound annual growth rate
from 760,000 in 1985. The Company believes that the factors driving this
industry growth include increases in airline passenger traffic due to lower
airfares, overcapacity in the hotel industry, the trend toward shorter, more
frequent vacations resulting from the growth of the number of households with
two wage earners, the demographic trend toward older, more affluent Americans
who travel more frequently, and increased business travel. The Company
believes that future growth of the car rental industry will be determined by
general economic conditions, developments in the travel industry, and a
variety of other factors, including the car rental industry's relationship
with major vehicle manufacturers. Accordingly, the Company cannot predict
whether such growth will continue and, if so, whether it will continue at
rates comparable to those of the recent past.
Car renters generally are (i) business travelers renting under
negotiated contractual arrangements between specified rental companies and the
travelers' employers, (ii) business travelers who do not rent under negotiated
contractual arrangements (but who may receive discounts through travel,
professional or other organizations), and (iii) leisure travelers, including
renters who have lost the use of their own vehicles through accident, theft or
breakdown. Contractual arrangements normally are the result of negotiations
between rental companies and large corporations, based
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upon rates, billing and service arrangements, and influenced by reliability
and renter convenience. Business travelers who are not parties to negotiated
contractual arrangements and leisure travelers generally are influenced by
advertising, renter convenience and access to special rates because of
membership in travel, professional and other organizations.
Many of Avis's major competitors are owned by, or are affiliated with,
the major automobile manufacturers, and each of the major domestic car rental
companies maintains a close relationship with one or more United States
automobile manufacturers. At August 1, 1996, Ford owned Hertz and had an
equity interest in Budget and announced its intention to purchase the
remaining outstanding equity of Budget; and Chrysler had equity interests in
Dollar and Thrifty, although Chrysler has been reducing its rental car
investments. Automobile manufacturers often provide financing for the
purchase of vehicles and provide payments to car rental companies in
consideration of advertising and promotional programs that benefit the
manufacturers. In addition, manufacturers provide fleet assistance programs,
including Repurchase Programs and similar arrangements, which protect rental
companies against loss on disposition of vehicles and enable rental companies
to adjust their fleet size to take account of seasonal variations in demand.
AVIS CAR RENTAL OPERATIONS
THE AVIS SYSTEM
System-Wide Services. Avis provides the Avis System with: (i) national
promotion, advertising and public relations services; (ii) reservations and
information systems; (iii) data processing support; (iv) marketing programs
with hotels and airlines; (v) a sales staff for marketing to corporate
customers and the travel community; (vi) credit card services for commercial
customers; (vii) training in local marketing techniques; and (viii) operation
and training support. Avis's on-line real-time data processing and information
system, known as the Wizard System, connects more than 2,000 Avis locations in
the United States, Canada, Europe and a number of other countries.
The Wizard System. The Wizard System is a telecommunications and
computer processing system which is used in the Avis System for reservations,
rental agreement processing, accounting, fleet control and a variety of other
purposes. It is operated by WizCom International, Ltd. ("WizCom"), a wholly
owned subsidiary of Avis. In 1995, Budget entered into a computer services
agreement with WizCom that provides Budget with certain reservation system
computer services that are substantially similar to computer services provided
to the Avis System. WizCom has also entered in agreements with hotel and other
rental car companies to provide travel related reservation and distribution
system services. Avis uses the Wizard System as a marketing tool and benefits
from the operating efficiencies obtained through the Wizard System.
The Wizard System is operated by Avis, and is linked to more than
12,000 terminals in more than 2,000 rental locations through telephone lines
and satellite communications. Among the features of the Wizard System which
are not available on most competitors' systems are (a) an advanced graphical
interface reservation system; (b) "Rapid Return," which permits customers who
are returning cars to obtain completed charge records from radio-connected
"Roving Rapid Return" agents who complete and deliver the charge record at the
car as it is being returned; (c) "Wizard on Wheels," which enables Avis
locations to assign cars and complete rental agreements while customers are
being transported to the car; (d) "Avis Link," which automatically identifies
a customer using American Express or other major credit card who is entitled
to special rental rates and conditions, and therefore sharply reduces the
number of instances in which Avis inadvertently fails to honor the benefits of
negotiated rate arrangements to which they are entitled; (e) interactive
interfaces through the airline computerized reservation systems described
under "Marketing"; (f) sophisticated fleet control and revenue management
programs which, among other things, enable rental agents to ensure that a
customer who rents a particular type of vehicle will receive the available
vehicle of that type which has the lowest mileage (benefitting the customer
and Avis by more evenly dispersing utilization among cars of a particular
type); and (g) a comprehensive control and reporting system that enables Avis
to adapt quickly to changes in customer requirements. Avis also benefits from
the low cost and speed of billing available as a result of broad use of the
Wizard System and believes that the Wizard System keeps its clerical and
communications costs below those of its competitors.
RENTAL OPERATIONS
Avis rents a wide variety of automobiles and minivans, most of which
consist of the current and immediately preceding model years. Car rentals are
generally made on a daily, weekly or monthly basis. Rental charges in the
United States usually are computed on the basis of the length of the rental or
on the length of the rental plus a mileage charge.
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Additional charges are made for refueling service, loss damage waivers (a
waiver of Avis's right to make a renter pay for damage to the rented car),
personal accident insurance, personal effects protection and, in some
instances, additional liability insurance. Rates vary at different locations
depending on the type of vehicle, the local market and competitive and cost
factors. Most rentals are made utilizing rate plans under which the customer
is responsible for gasoline used during the rental. Avis also generally offers
its customers the convenience of leaving a rented car at an Avis location in a
city other than the one in which it was rented under its "Rent it Here --
Leave it There" program, although, consistent with industry practices, a
drop-off charge or special intercity rate may be imposed.
North American Operations. Approximately 88% of Avis's United States
rental revenue is generated at 174 of the busiest airports in the United
States. Avis's rental revenue as a percentage of total rental revenues at
those airports for the five-year period ended February 29, 1996 approximated
26%; 23.7%; 24.1%; 22.3% and 23.8%, respectively.
At August 1, 1996, Avis owned and operated approximately 406 corporate
car rental facilities at airport, near-airport and downtown locations
throughout the United States and approximately 36 corporate car rental
facilities in Canada. Of these facilities, approximately 191 primarily serve
airport business and approximately 251 are non-airport locations. By focusing
on travelers at the major airports, Avis has been able to operate more
vehicles from significantly fewer rental sites than its competitors, yielding
significant economies of scale. Avis's emphasis on airport traffic has
resulted in a strong competitive position at the major domestic rental-revenue
airports.
Avis has 77 independent licensees which operate locations in the
United States. The two largest licensees operate the Avis System in the Los
Angeles and Dallas area and account for approximately half of all United
States licensees' rentals. Certain licensees in the United States pay Avis a
fee equal to 5% of their total time and mileage charges, less all customer
discounts, of which Avis is required to pay 40% for corporate licensee-related
programs, while six licensees pay 8% of their gross revenue. Licensees outside
the United States normally pay higher fees. Most of Avis's United States
licensees currently pay 50 cents per rental agreement for use of the Wizard
System, and they are charged for use of other aspects of the Wizard System.
Avis is in many cases one of five to seven vehicle concessionaires at
the airports at which it operates. In general, concession fees for airport
locations are based on a percentage of total commissionable revenues (as
determined by each airport authority), subject to a minimum guaranteed amount.
Concessions are typically awarded by airport authorities every three to five
years based upon competitive bids. Avis's concession arrangements with the
various airport authorities generally include minimum requirements for vehicle
age, operating hours and employee conduct, and provide for relocation in the
event of future construction and abatement of fees in the event of extended
low passenger volume.
International Operations. In addition to countries served by Avis
Europe and its affiliates and licensees, Avis's subsidiaries, joint ventures
and licensees operate the Avis System internationally in approximately 65
countries and territories, with wholly owned subsidiaries in Canada,
Argentina, Australia, New Zealand, Puerto Rico and the United States Virgin
Islands, and joint ventures in Jamaica, Singapore and Malaysia. The principal
business of Avis's foreign subsidiaries is car rentals.
Avis's international system (not including Avis Europe) operates a
combined peak rental and leasing fleet of approximately 44,000 vehicles, of
which approximately 23,000 are operated by subsidiaries, and the balance by
joint ventures and licensees. Revenues of the foreign subsidiaries in the
fiscal year ended February 29, 1996, totaled approximately $212 million,
without taking account of revenues of joint ventures or licensees.
MARKETING
In the United States, approximately 70% of Avis's fiscal 1996 rentals
were generated by travelers who used the Avis System under contractual
arrangements negotiated by Avis with either the travelers' corporate employers
or organizations such as American Association of Retired Persons in which the
travelers have memberships. The remainder of the rental activity is from
business travelers who are not affiliated with corporations or organizations
with which Avis has contractual arrangements, and from leisure renters. Avis's
corporate sales organization is the principal source of contractual
arrangements with corporate accounts. Unaffiliated business travelers are
solicited by direct mail, telemarketing and advertising campaigns.
Avis solicits contractual arrangements with corporate accounts by
emphasizing the Wizard System's advanced
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technology, customer service, pricing and a worldwide rental network. The
Wizard System plays a significant part in securing business of this type
because the Wizard System enables Avis to offer a wide variety of pricing
combinations, special reports and tracking techniques tailored to the
particular needs of each account, and to assure adherence to agreed-upon
rates.
Avis's presence in the United States leisure and incidental business
segment is substantially less significant than its presence in the United
States commercial account segment. Leisure rental activity is important in
enabling Avis to balance the use of its fleet. Typically, business renters use
cars from Monday through Thursday, while in most areas of the United States
leisure renters use cars primarily over weekends.
Avis maintains strong links to the air travel industry. It has
arrangements with American Airlines, American West Airlines, Continental
Airlines, Delta Airlines, Trans World Airlines, United Airlines, USAir and
Northwest Airlines (collectively, the "Airlines") under which participants in
the Airlines' frequent flier programs can earn mileage credits subject to
certain limitations. Frequent flier programs (under which travelers can earn
reduced fares or free flights based upon miles flown on particular airlines)
are a significant sales incentive to United States travelers, and the Company
believes Avis benefits significantly from its frequent flier arrangements with
the Airlines. All the other major car rental companies also participate in one
or more airline frequent flier programs.
Car renters can make Avis reservations through all four major United
States based global distribution systems and several international based
systems. Users of the United States based global distribution systems can
obtain access through these systems to the Avis reservation system concerning
among other things, rental locations, vehicle availability, applicable rate
structures and gives them the ability to reserve and confirm Avis vehicles
directly through these systems.
Avis also maintains strong links to the hotel industry. Avis has
arrangements with Hilton Corporation, the Hyatt Corporation and the Sheraton
Marketing Corporation frequent traveler programs, which provide various
incentives to all program participants.
RENTAL VEHICLE PURCHASES
Avis participates in a variety of vehicle purchase programs with major
domestic and foreign manufacturers, although actual purchases are made
directly through local car dealers. The average price for automobiles
purchased by Avis in 1996 for its rental fleet was approximately $16,250.00.
On average during model year 1996, 82% of the purchases were comprised of GM
vehicles, 13% of Chrysler vehicles and 5% of Nissan, Subaru, Hyundai, Ford,
Toyota and Land Rover vehicles. These percentages vary among Avis's operations
and will most likely change from year to year. The vehicle purchase programs
sponsored by manufacturers sometimes provide Avis with sales incentives for
the purchase of certain models, and most of these programs allow Avis to serve
as a drop-ship location for vehicles, thus enabling Avis to receive a fee from
the manufacturers for preparing newly purchased vehicles for use. There can be
no assurance that Avis will continue to be able to benefit from sales
incentives in the future.
Most of Avis's cars in the United States are purchased, owned and sold
by Prime Vehicles Trust, a trust created by Avis of which Avis is the sole
beneficiary, or by corporate nominees of Prime Vehicles Trust. All decisions
regarding Prime Vehicles Trust purchases and sales of cars are made by Avis,
and Prime Vehicles Trust is combined with Avis for both financial and tax
accounting. The existence of Prime Vehicles Trust has no effect on Avis's
control of the cars in its fleet. However, Avis believes the existence of
Prime Vehicles Trust has been useful in obtaining financing secured by its
cars. Avis expects to continue to take advantage of Prime Vehicles Trust to
finance future fleet purchases.
FLEET UTILIZATION AND SEASONALITY
Avis's business is subject to seasonal variations in customer demand,
with the summer vacation period representing the peak season for vehicle
rentals. This general seasonal variation in demand, along with more localized
changes in demand at each of Avis's operations, causes Avis to vary its fleet
size over the course of the year. In fiscal year 1996, Avis's average monthly
fleet size ranged from a low of 127,000 vehicles in January to a high of
149,000 vehicles in August. Fleet utilization, which is based on the average
number of days vehicles are rented compared to the total number of days
vehicles are available for rental, ranged from 65% in December to 82% in
August and averaged 74% for all of fiscal year 1996.
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RENTAL VEHICLE DISPOSITION
Avis's current operating strategy is to maintain its fleet at an
average age of 12 months or less. Approximately 90% of the vehicles purchased
by Avis in model year 1996 were eligible for participation in manufacturers'
Repurchase Programs. These programs currently require that Avis maintain
Program Vehicles in its fleet for a minimum of six months and impose numerous
return conditions, including those related to mileage and repair condition.
Less than 2.5% of the Program Vehicles purchased by Avis and scheduled to be
returned in 1995 were ineligible for return. At the time of return to the
manufacturer, Avis receives the price guaranteed at the time of purchase and
is thus protected from fluctuations in the prices of previously-owned vehicles
in the wholesale market at the time of disposition. The future percentage of
Program Vehicles in Avis's fleet will be dependent on the availability and
attractiveness of the manufacturers' Repurchase Programs, over which Avis has
no control. See "Risk Factors -- Potential Changes in Manufacturers'
Repurchase Programs."
In addition, Avis sells cars wholesale to dealers in the United States
either through informal arrangements or at auction through standard
consignment agreements.
AVIS CAR RENTAL FACILITIES
Avis leases almost all of its airport and non-airport car rental
facilities and currently operates from 406 corporate rental locations. The
airport facilities are located on airport property owned by airport
authorities or located near the airport on locations convenient for bus
transport of customers to the airport. One of Avis's airport facilities in
each Avis region serves as the administrative headquarters for the region and,
as a general rule, each airport facility includes vehicle storage areas, a
vehicle maintenance facility, a car wash, a refueling station and rental and
return facilities. In all airport locations, the facility leases are not
co-terminus with the local airport concession agreement. See "Risk
Factors--Risk of Non-Renewal of Airport Concessions." Avis's non-airport
facilities generally consist of a limited parking facility and a rental and
return desk and are generally subject to long-term leases with renewal
options. Certain of these leases also have purchase options at the end of
their terms.
AGENCY RENT A CAR SYSTEM, INC.
Agency, a wholly owned subsidiary of Avis, rents used vehicles under a
separate brand name to insurance companies, auto body repair shops and
individual customers to replace vehicles that have either been stolen, damaged
or are undergoing repair. As of August 1, 1996, the Agency business was
comprised of approximately 304 separate locations. See "Legal Matters."
INSURANCE
Avis generally assumes the risk of liability to third parties in the
United States for up to $1 million per occurrence. It has purchased
significant excess insurance coverage against risks which exceed $1 million
per occurrence. One of the benefits of Avis's retaining the risk up to $1
million per occurrence is that Avis maintains its own claims department, which
controls the disposition of most claims. The Company believes that the
maintenance by Avis of its own claims department in recent years has helped
contain Avis's cost of claims paid.
Under its standard car rental contract, Avis provides its renters
liability coverage up to the minimum financial responsibility limits required
by applicable law. Higher limits are provided by separate agreement to some
United States national corporate accounts and Avis makes available to renters,
for an additional daily charge, participation in a group policy underwritten
by a major national insurer which increases renters' coverage to one million
dollars. Avis also offers renters, for additional daily charges, "Personal
Accident Insurance," which pays medical expenses and accidental death benefits
for accidents during the rental period, and "Personal Effects Protection,"
which ensures against loss or damage to the renters' personal belongings
during the rental period. Both these coverages are underwritten by major
national insurers.
REGULATORY AND ENVIRONMENTAL MATTERS
Avis is subject to federal, state and local laws and regulations
including those relating to taxing and licensing of vehicles, franchising,
consumer credit, environmental protection, retail vehicle sales and labor
matters. The principal
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environmental regulatory requirements applicable to Avis's operations relate
to the ownership or use of tanks for the storage of petroleum products, such
as gasoline, diesel fuel and waste oils; the treatment or discharge of waste
waters; and the generation, storage, transportation and off-site treatment or
disposal of solid or liquid wastes. Avis operates 232 domestic and
international facilities at which petroleum products are stored in underground
or aboveground tanks. At 211 of Avis's operating locations, one or more of these
tanks are located underground. Avis has instituted an environmental compliance
program designed to ensure that these tanks are in compliance with applicable
technical and operational requirements, including the replacement of
underground steel tanks and periodic integrity testing of underground storage
tanks. The Company believes that the locations where Avis currently operates
are in compliance, in all material respects, with such regulatory
requirements.
Avis may also be subject to requirements related to the remediation
of, or the liability for remediation of, substances that have been released to
the environment at properties owned or operated by Avis or at properties to
which Avis sends substances for treatment or disposal. Such remediation
requirements may be imposed without regard to fault and liability for
environmental remediation can be substantial. See "Risk Factors --
Environmental Risks Inherent in On-Site Petroleum Storage."
Avis may be eligible for reimbursement or payment of remediation costs
associated with future releases from its regulated underground storage tanks.
Certain of the states in which Avis maintains underground storage tanks have
established funds to assist in the payment of remediation costs for releases
from certain registered underground tanks. Subject to certain deductibles, the
availability of funds, compliance status of the tanks and the nature of the
release, these tank funds may be available to Avis for use in remediating
future releases from its tank systems.
A traditional revenue source for the car rental industry has been the
sale of loss damage waivers, by which car rental companies agree to relieve a
customer from financial responsibility arising from vehicle damage to the
rented car incurred during the rental period. Approximately 3% of Avis's
rental revenue during 1995 was generated by the sale of loss damage waivers.
The U.S. House of Representatives has from time to time considered legislation
that would regulate the conditions under which loss damage waivers may be sold
by car rental companies. House Bill H.R. 175, introduced in January 1995,
seeks to prohibit the imposition of liability on renters for loss of, or
damage to, rented vehicles, except in certain circumstances, and would
prohibit the sale of loss damage waivers. To date, no action has been taken on
this bill. In addition, approximately 40 states have considered legislation
affecting the sale of loss damage waivers. To date, 24 states have enacted
legislation which regulates the sale of loss damage waivers, most of which
requires disclosure to each customer at the time of rental that damage to the
rented vehicle may be covered by the customer's personal automobile insurance
and that loss damage waivers may not be necessary. In addition, in the late
1980's, New York and Illinois enacted legislation which eliminated Avis's
right to offer loss damage waivers for sale and limited potential customer
liability to $100 and $200, respectively. In 1996, the New York Legislature
approved to increase this amount to $300. The bill is awaiting the Governor's
action. Moreover, California, Nevada and Indiana have capped rates that may be
charged for collision damage waivers to $9.00, $10.00 and $5.00 per day,
respectively. Texas requires that the rate charged for loss damage waivers be
reasonably related to the direct cost of the repairs. Adoption of national or
additional state legislation eliminating or limiting the sale of loss damage
waivers could result in the loss or reduction of this revenue source and
additional limitations on potential customers liability could increase Avis's
costs.
LEGAL MATTERS
From time to time, Avis is subject to routine litigation incidental to
its business. Avis maintains insurance policies that cover most of the actions
brought against Avis. See "-- Insurance." Other than as discussed below, Avis
is currently not involved in any legal proceeding which it believes would have
a material adverse effect upon its financial condition or operations.
Avis and two of its subsidiaries, Agency and Avis Rent A Car System,
Inc. ("ARACS"), are involved in litigation with certain licensees of ARACS
("Licensees") that have entered into the Standard Form 1955 Exclusive License
Agreement, as amended (the "ELA"). This litigation concerns Avis's right to
operate Agency as a stand-alone insurance replacement car rental business,
under its own brand name and separate from the Avis System. Several Licensees
conduct their own insurance replacement car rental businesses, and the parties
disagree as to whether such businesses can be operated within any licensee
territory granted by the ELA. Agency operates approximately 304 separate
locations, some of which are located within a geographic territory in which a
Licensee does business pursuant to the ELA.
On September 22, 1995, Avis, ARACS and Agency filed a complaint in the
United States District Court for the
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Eastern District of New York (the "E.D.N.Y. Action") against thirteen
Licensees (the "Licensee Defendants"), which sought a declaration that the
Agency business did not violate the ELA and an injunction against the Licensee
Defendants and all those similarly situated from instituting litigation in
other courts concerning the Agency business. The district court issued a
temporary restraining order ("TRO") barring the Licensee Defendants from
instituting any other lawsuits. The court subsequently dismissed the E.D.N.Y.
Action for lack of personal jurisdiction and dissolved the TRO. The parties
appealed this decision to the Court of Appeals for the Second Circuit. Oral
argument was held in mid-July 1996 and no decision has been rendered yet by
the Court of Appeals for the Second Circuit.
Upon dissolution of the TRO, Avis filed suit in both the United States
District Court for the Central District of California and the United States
District Court for the Northern District of Texas. Each action seeks relief
identical to the relief sought in the E.D.N.Y. Action and each could be
dismissed or consolidated if the E.D.N.Y. Action is reinstated. Various
Licensee Defendants also filed two state court actions, in California and in
Texas, respectively, against Avis, ARACS and Agency. Avis subsequently removed
each state court action to its respective federal court, and these state court
actions have now been consolidated with the federal court actions in
California and Texas, respectively.
EMPLOYEES
Avis has more than 20,000 employees worldwide. Of these, approximately
375 are employed in executive, financial and administrative capacities,
approximately 240 are engaged in marketing or sales capacities, approximately
460 are involved in system design and constant upgrading of the Wizard System,
approximately 700 are engaged in clerical activities in connection with the
administration of Avis and the balance are engaged in car rentals and car care
at rental locations. Approximately 20% of Avis's employees are represented by
65 various local unions under contracts expiring on a variety of dates. No
local union represents more than 2.5% of Avis's employees. Avis believes its
relationships with its employees are good.
PROPERTIES
Avis leases or has concessions relating to space at 707 locations in
the United States and 117 locations outside the United States for all of its
operations. Of those locations, 182 in the United States and 47 outside the
United States are at airports. Additionally, 38 locations in the United States
are owned and three locations outside the United States are owned. Typically,
an airport receives a percentage of car rental revenues, with a guaranteed
minimum. Because there is a limit to the number of car rental locations in an
airport, car rental companies frequently bid for the available locations,
usually on the basis of the size of the guaranteed minimums. Avis and other
car rental firms also rent parking space on or near airports and at their
other car rental locations.
Avis's principal offices are in a 405,000 square foot complex in
Garden City, New York, for which Avis currently pays approximately $875,000
per year under a lease which, by exercising renewal options, has been extended
to 2015. The Avis reservation system is run from leased space in Tulsa,
Oklahoma. Avis also maintains terminal network facilities which it uses in
connection with the Wizard System in Garden City, Tulsa, San Francisco,
California and Bracknell, England. Avis also owns a 166,000 square foot
building in Virginia Beach, Virginia which serves as a satellite
administrative and reservation facility.
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<PAGE>
SELLING STOCKHOLDERS
GENERAL
The Selling Stockholders are the Avis ESOP, GM and certain persons
named below who received all of their Shares in exchange for their outstanding
"equivalent shares" under the Avis, Inc. Nonqualified Employee Stock Ownership
Equivalent Plan (the "Equivalent Plan"). The Selling Stockholders received all
of their respective Shares of Common Stock offered hereby in conjunction with
the Merger Agreement and, with respect to GM, the Stock Purchase Agreement
described below. See "Plan of Distribution." All of the Shares which may be
offered hereby are for the account of such Selling Stockholders. The number
and percentage of Shares beneficially owned before the offering by the Selling
Stockholders, the number of Shares to be sold and the number of Shares
beneficially owned after the offering will be set forth in an accompanying
Prospectus Supplement, to the extent necessary.
The following summaries of certain provisions of the Stock Purchase
Agreement and the Merger Agreement are brief summaries of certain provisions
thereof, do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, such agreements which are exhibits to the
Registration Statement. Capitalized terms are defined in the respective
agreements unless otherwise defined herein. Whenever any term therein is
referred to, such definition is incorporated herein by reference.
THE STOCK PURCHASE AGREEMENT
The distribution and sale of the Shares of Common Stock offered by GM
hereby is subject to the provisions of the Stock Purchase Agreement. If GM
desires to sell all or a portion of the Shares at any time prior to the close
of business on the thirtieth day after the Closing Date, or if such day is not
a business day, the first business day thereafter (the "Directed Sale Date"),
GM has agreed to deliver to HFS, at any time prior to the twenty-fifth day
after the Closing Date (the "Notice Date"), written notice (the "Notice") of
its desire to sell a specified number of Shares and to have HFS direct the
manner and method of such sale. GM and HFS have agreed that HFS shall make all
decisions in its reasonable business judgment regarding the manner and method
of any such requested sale with the goal of obtaining the maximum sale price
for such Shares; provided that, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. may
act as broker or investment banker in connection with such sale or sales. Upon
delivery of the Notice by the Notice Date, HFS has agreed to, not later than
the close of business on the second business day after receipt of the Notice
by HFS (the "Direction Date"), direct (the "Direction") the manner and method
in which GM shall dispose of such number of Shares and HFS has agreed to use
its commercially reasonable efforts to assist GM in effecting such sale. GM
has agreed to use commercially reasonable efforts to effect any such sale as
promptly as practicable after receipt of the Direction and in such manner and
method as set forth in such Direction or subsequent instructions and has
agreed to cooperate fully with all reasonable requests of HFS and assist HFS
in connection with such sale.
THE MERGER AGREEMENT
Avis ESOP. The distribution and sale of the Shares offered by the Avis
ESOP hereby is subject to the provisions of the Merger Agreement. Under the
Merger Agreement, the Avis ESOP has agreed not to sell or otherwise transfer
or dispose of the Shares on or prior to the day that is eleven months
following the Closing Date or, if such day is not a business day, the first
business day thereafter (the "Guarantee Termination Date"), except pursuant to
one or more written requests by HFS (an "HFS Request"), which shall not be
received by the Avis ESOP Trustee later than five business days prior to the
Guarantee Termination Date (the "Final Request Date"), to sell all or a
portion of the Shares which request shall include the number of Shares to be
sold pursuant to such HFS Request (the "Specified Shares") and the manner
proposed to effect such sale. Upon a delivery of an HFS Request, HFS and the
Avis ESOP have agreed to use commercially reasonable efforts to effect such
sale in accordance with HFS's direction and to cooperate fully with all
reasonable requests of the other party in effecting such sale. The Avis ESOP
will not be required to take any action in connection with any HFS Request
(other than certain limited representations and indemnities) that could
reasonably be expected to expose it to any liability unless HFS agrees to
indemnify the Avis ESOP against liabilities incurred by it in connection with
any such action. In connection with any sales by the Avis ESOP pursuant to the
Registration Statement of which this Prospectus is a part, HFS has agreed to
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<PAGE>
provide the Avis ESOP with the right to indemnification and contribution by
HFS in a manner customarily provided by issuers to underwriters in connection
with an underwritten public offering. In the event that none or less than all
of the Specified Shares are sold in accordance with the HFS Request primarily
due to the fact that the Avis ESOP Trustee failed to act in accordance with
the Merger Agreement in connection with such HFS Request, then the Specified
Shares not so sold shall be deemed to be sold for purposes of calculating the
Post-Closing Consideration under the Merger Agreement (i.e. a "Deemed Sale").
In the event that none or less than all of the Specified Shares are sold in
accordance with an HFS Request for a reason other than that set forth in the
preceding sentence, then, no Sale or Deemed Sale shall have occurred with
respect to the Specified Shares not so sold and such shares shall continue to be
subject to the provisions of the Merger Agreement described above and any
subsequent HFS Request.
If on the first day following the Guarantee Termination Date, the Avis
ESOP Trustee is holding Shares as to which there has not been a Deemed Sale
(such Shares, the "Remaining Shares"), the Avis ESOP may sell the Remaining
Shares at any time following the Guarantee Termination Date through the
thirtieth day thereafter or, if such day is not a business day, the first
business day thereafter (the "Final Sale Date"). If the Avis ESOP desires to
sell the Remaining Shares, the Avis ESOP has agreed to deliver to HFS written
notice to such effect prior to any such sale. The Avis ESOP has agreed that
all sales made after the Guarantee Termination Date shall be made in a
commercially reasonable manner for a sale of its type in light of the
circumstances in which it is made. HFS and the Avis ESOP have agreed to use
commercially reasonable efforts to effect such sale. Notwithstanding the
foregoing, in the event the Avis ESOP is prohibited from effecting any sale of
the Remaining Shares under the Merger Agreement prior to the Final Sale Date as
a result of a requirement of law applicable to the Avis ESOP (other than its
organizational documents as in effect on the date of the Merger Agreement)
(including as a result of any failure by HFS to update or keep effective the
Registration Statement of which this Prospectus is a part), the Avis ESOP has
agreed to sell to HFS, and HFS has agreed to purchase, not later than three
business days after the Final Sale Date, such Remaining Shares from the Avis
ESOP for a price to be agreed upon between HFS and the Avis ESOP which price
shall not be less than "adequate consideration" as defined in Section 3(18)(B)
of the Employee Retirement Income Security Act of 1974, as amended, and
Department of Labor Proposed Regulation Section 2510.3-18(b), but only to the
extent HFS is not prohibited from purchasing such Remaining Shares as a result
of a requirement of law of HFS. If HFS is prohibited from purchasing such
Remaining Shares as a result of a requirement of law applicable to HFS, there
shall be no Sale or Deemed Sale of the Remaining Shares and the Avis ESOP shall
have the right, on the third business day after the Final Sale Date, to draw
down on a letter of credit provided by HFS, which shall include a requirement to
deliver the Remaining Shares to one or more banking institutions issuing the
letter of credit.
At any time after the date which is three business days after a Deemed
Sale has occurred with respect to the last of such Shares, or in the case of the
last two sentences of the foregoing paragraph, at any time after the date which
is three days after the Final Sale Date, the Avis ESOP may sell the Shares in
any manner described in this Prospectus. The Company has agreed to cause the
Registration Statement of which this Prospectus is a part to remain effective
until the date that is one year from the Final Sale Date, unless the Shares held
by the Avis ESOP are sold prior to such date.
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Other Selling Stockholders. The following table sets forth certain
information, as of August 28, 1996, with respect
to the number of "equivalent shares" under the Equivalent Plan beneficially
owned by certain Selling Stockholders that will be exchanged for Shares of
Common Stock pursuant to the formula described below:
<TABLE>
<CAPTION>
Number of Number of
"equivalent shares" "equivalent shares"
Selling Stockholders Beneficially Owned (1)(2) Selling Stockholders Beneficially Owned (1)(2)
-------------------- -------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
Steven R. Adams 7,699.35 William L. Lanier 7,797.36
Charles F. Bell 7,812.38 Phillip W. Lommen 7,941.63
Charles A. Bovino 17,583.18 Vincent F. Manago 9,049.54
Thomas J. Byrnes 9,454.10 Gerard E. McCormack 9,107.97
Marceliano Calvo 6,928.88 David P. McNicholas 20,729.14
Robert D. Cardillo 11,448.41 Robert H. Meagher 6,310.49
James E. Collins 20,434.26 Oliver Milton 1,908.66
Michael P. Collins 11,209.22 Kerry L. Morris 7,346.41
Peter F. del Sol 6,614.47 Jan Nyquist 6,482.34
Martin R. Elkin 1,456.66 Ronald W. Robertson 4,393.39
Lawrence Ferezy 18,449.03 Dennis Roth 8,920.64
Joseph E. Fineo 6,922.25 Stanley Roth 9,459.99
Thomas S. Finn 6,557.62 Gerald L. Rourke 10,222.65
James R.B. Fitzsimmons 8,814.47 F. Robert Salerno 15,351.24
John H. Forsythe 11,367.31 Joseph F. Scalabrino 6,597.72
Edward C. Gitlitz 7,193.37 Stanley J. Schwarz 8,700.97
Steven L. Greenberger 11,127.79 Karen C. Sclafani 7,277.10
Edwin D. Hale 10,215.06 Timothy M. Shanley 7,729.14
Theodore P. Heller, Jr. 6,501.33 Augustus J. Siragusa 2,161.67
Russell L. James 9,814.54 Gerald R. Skurky 1,762.04
Seth F. Kaminsky 9,718.02 Stuart E. Soule 5,546.33
John P. Kennedy 7,742.86 Dorothy A. Teubner 9,124.37
Gerard J. Kennell 10,072.28 Daryl R. Thrasher 7,782.44
Don Kolodz 737.38 Sallyann B. Tine 3,705.78
Donald L. Korn 19,441.09 Peter R. Tittler 8,200.17
James D. Krapf 6,208.13 Thomas J. Tobias 8,300.73
Albert T. LaFrance 5,763.20 Joseph V. Vittoria 62,254.54
Richard R. Zaia 7,088.86
Total 528,539.91
</TABLE>
- -------------
(1) The number of whole Shares of Common Stock to be issued in exchange
for the "equivalent shares" shall equal (A)
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the number of "equivalent shares" held by each person immediately
prior to the Effective Time of the Merger, multiplied by $5.00,
divided by (B) the average per share closing prices of the Common
Stock on the NYSE Composite Tape for the 10 consecutive trading days
immediately prior to Effective Time; provided, however, that the
aggregate amount shall not exceed $22.5 million in Common Stock.
(2) The number of "equivalent shares" are subject to increase if, as
expected, additional allocations of "equivalent shares" are made to
Equivalent Plan accounts prior to the closing of the Merger.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares offered hereby. All the proceeds will be received by the Selling
Stockholders.
PLAN OF DISTRIBUTION
The distribution and sale of the Shares is subject to the provisions
of the Merger Agreement and the Stock Purchase Agreement described above under
the headings "Selling Stockholders -- The Merger Agreement" and "-- The Stock
Purchase Agreement." Subject to the Selling Stockholders' compliance with the
transfer and other provisions of the Merger Agreement and the Stock Purchase
Agreement, as the case may be, the distribution of the Shares by the Selling
Stockholders may be effected from time to time, in one or more transactions on
the New York Stock Exchange or otherwise, in secondary distributions pursuant
to, and in accordance with, the rules of the New York Stock Exchange, in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Selling
Stockholders may effect such transactions by selling Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form
of underwriting discounts, concessions, or commissions from Selling
Stockholders and/or purchasers of shares for whom they may act as agent (which
compensation may be in excess of customary commissions). Selling Stockholders
and broker-dealers that participate with Selling Stockholders in the
distribution of shares may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act of 1933, and any commissions received
by them and any profit on the resale of shares may be deemed to be
underwriting compensation. The Company will bear the costs relating to the
registration of the Shares.
The Merger Agreement contains various undertakings by the Selling
Stockholders and the Company. The Company has agreed to cause the Registration
Statement of which this Prospectus is a part to remain effective until the date
that is one year from the Final Sale Date, unless the Shares held by the Avis
ESOP are sold prior to such date. Pursuant to the Merger Agreement, the Company
has also agreed to indemnify the Avis ESOP against certain liabilities,
including liabilities under the Securities Act in connection with the sale of
the Shares.
At the time that a particular offering of Shares is made, to the extent
required, a supplemental prospectus will be distributed which will set forth the
aggregate number of Shares offered, the purchase price and aggregate offering
price, the name or names of any agent or underwriter, and any applicable
commissions or discounts.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 300,000,000
shares of Common Stock, par value $.01 per share, and 10,000,000 shares of
Preferred Stock. As of August 26, 1996, 123,445,314 shares of Common Stock
were issued and outstanding and held of record by 411 stockholders. There are
no shares of Preferred Stock outstanding on the date hereof.
The Company's Amended and Restated Certificate of Incorporation and
By-laws provide that directors shall be removed from office only for cause at
any time by the affirmative vote of the holders of a majority of the shares
entitled to vote for the election of directors at any annual or special
meeting of stockholders for that purpose.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held
of record on all matters on which shareholders are entitled to vote. There are
no cumulative voting rights and holders of Common Stock have no preemptive
rights. All issued and outstanding shares of Common Stock are validly issued,
fully paid and non-assessable. Holders of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors out
of funds legally available for that purpose. Upon dissolution, holders of
Common Stock are entitled to share pro rata in the assets of the Company
remaining after payment in full of all its liabilities and obligations,
including payment of the liquidation preference, if any, of any preferred
stock then outstanding.
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PREFERRED STOCK
The Board of Directors, without further action by the stockholders, is
authorized to issue Preferred Stock in one or more series and to designate as
to any such series the dividend rate, redemption prices, preferences on
liquidation or dissolution, conversion rights, voting rights and any other
preferences, and relative, participating, optional or other special rights and
qualifications, limitations or restrictions. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future.
Issuance of a new series of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions or other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, a majority of the
outstanding voting stock of the Company. The Company has no present plans to
issue any new series of Preferred Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the Delaware General Corporation Law (the
"DGCL") prohibits a publicly held Delaware corporation from engaging in any
"business combination" with an "interested stockholder" for a period of three
years following the time that such stockholder became an interested
stockholder, unless (i) prior to such time either the business combination or
the transaction which resulted in the stockholder becoming an interested
stockholder is approved by the board of directors of the corporation, (ii)
upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding, for purposes of determining the number of
shares outstanding, those shares owned (A) by persons who are both directors
and officers and (B) certain employee stock plans, or (iii) at or after such
time the business combination is approved by the board and authorized at an
annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66-2/3% of the outstanding voting stock which is
not owned by the interested stockholder. A "business combination" includes
certain mergers, consolidations, asset sales, transfers and other transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns
(or within the preceding three years, did own) 15% or more of the
corporation's voting stock.
LIMITATIONS ON CHANGE OF CONTROL
The Company is a party to certain employment agreements, an earnout
agreement, the Credit Agreement and certain indentures, each of which contain
provisions with respect to a change in control of the Company. In addition,
certain provisions of the Company's Amended Restated Certificate of
Incorporation may inhibit changes in control of the Company. See "Description
of Capital Stock--Disqualified Stockholders" and "Risk Factors--Certain
Anti-takeover Effects; Divestiture and Loss of Voting Rights."
DISQUALIFIED STOCKHOLDERS
The Company's Amended and Restated Certificate of Incorporation
provides that no holder of capital stock of the Company who: (1) beneficially
owns five percent or more of the outstanding capital stock of the Company and
who has not fully cooperated with the Company and/or any Gaming Authority (as
defined below) with respect to providing all requested information (including
financial statements) relating to such holder, responding to all inquiries and
questions raised by the Company and/or any Gaming Authority, consenting to
relevant background investigations or complying with any other requests of the
Company and/or any Gaming Authority in connection with any Gaming License (as
defined below); (2) is required by any Gaming Authority to be qualified with
respect to any Gaming License and who has neither been qualified by nor
obtained a waiver of qualification from each Gaming Authority requiring
qualification with respect to any Gaming License in a timely manner; or (3)
has been found to be disqualified or unsuitable with respect to any Gaming
License, which finding has not been reversed, vacated or superseded (each, a
"Disqualified Stockholder"), shall be entitled to vote, directly or
indirectly, any shares of capital stock of the Company beneficially owned by
such holder on any matter, and no shares of capital stock of the Company
beneficially owned by a Disqualified Stockholder shall be considered as
outstanding stock entitled to vote for any purpose.
A Disqualified Stockholder shall, upon the request of the Company,
dispose of such holder's publicly-traded capital stock of the Company within
10 days after receipt of such request. Alternatively, the Company may, at its
option, redeem such Disqualified Stockholder's capital stock of the Company as
provided in the Company's Amended and Restated Certificate of Incorporation at
the Redemption Price (as defined below).
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<PAGE>
Holders of capital stock of the Company shall be required to pay any
costs and investigative fees incurred in connection with any background
investigation by, or qualification or suitability application with, any Gaming
Authority. Upon becoming a Disqualified Stockholder, such holder shall have no
further right to exercise, directly or through any trustee or nominee, any
right conferred by its capital stock of the Company and no further right to
receive any distribution with respect to any such capital stock of the
Company.
As used herein, the term "Gaming Authorities" includes all federal,
state, local or foreign government authorities and the National Indian Gaming
Commission or other tribal authorities which issue or grant any license or
approval necessary or appropriate for the lawful operation of gaming and
related businesses now or hereafter engaged in by the Company or its
subsidiaries; the term "Gaming License" means all licenses and other
regulatory approvals necessary for the lawful operation of gaming and related
businesses now or hereafter engaged in by the Company or any subsidiary within
or without the United States from the Gaming Authorities empowered to issue or
grant Gaming Licenses; and the term "Redemption Price" for a share of capital
stock of the Company means the average closing sale price during the 20-day
period immediately preceding the date of the notice of redemption of a share
of such capital stock on the composite tape for New York Stock Exchange Listed
Stocks, or if such stock is not quoted on the composite tape, on the New York
Stock Exchange, or if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Exchange Act
on which such stock is listed, or if such stock is not listed on any such
exchange, the average last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market with respect
to a share of such capital stock during the 20-day period preceding the date
of the notice of redemption as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or any similar system then
in use, or if no such quotations are available, the fair market value on the
date of the call for redemption of a share of such stock as determined by the
Board of Directors of the Company.
TRANSFER AGENT
Chemical Mellon Shareholder Services is the Registrar and Transfer
Agent for the Company's Common Stock.
LEGAL OPINION
The validity of the Shares of Common Stock offered hereby will be
passed on for the Company by Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York 10022.
EXPERTS
The consolidated financial statements and the related financial
statement schedules incorporated in this Prospectus by reference from the HFS
Incorporated Annual Report on Form 10-K for the year ended December 31, 1995
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports which are incorporated herein by reference and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The balance sheet of Century 21 Real Estate of the Mid-Atlantic
States, Inc. as of December 31, 1995 and the related statements of income,
changes in stockholder's equity and cash flows for the year then ended, which
appear in the Form 8-K dated April 5, 1996 of HFS Incorporated, are
incorporated herein by reference, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated herein
by reference and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated balance sheets of Century 21 Real Estate Corporation
(a wholly-owned subsidiary of MetLife) and its subsidiaries as of December 31,
1994, 1993 and 1992 and the related consolidated statements of income,
stockholder's equity and cash flows for the years then ended, which appear in
the Form 8-K dated August 8, 1995 of HFS Incorporated (formerly Hospitality
Franchise Systems, Inc.), are incorporated herein by reference, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated herein by reference and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of Century 21 of Southwest, Inc. (an "S"
corporation) as of and for the years ended March 31, 1995 and 1994, which
appear in the Form 8-K dated February 16, 1996 of HFS Incorporated have been
incorporated by
22
<PAGE>
reference herein in reliance upon the report dated May 15,
1995, of Toback CPAs, P.C., independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The financial statements of Century 21 of Eastern Pennsylvania, Inc.
(an "S" corporation) as of and for the years ended April 30, 1995 and 1994,
which appear in the Form 8-K dated February 16, 1996 of HFS Incorporated have
been incorporated by reference herein in reliance upon the report dated June
22, 1995, of Woolard, Krajnik, & Company, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Century 21 Real Estate of the Mid-Atlantic
States, Inc. as of and for the years ended December 31, 1994 and 1993, which
appear in the Form 8-K dated February 16, 1996 of HFS Incorporated have been
incorporated by reference herein in reliance upon the report dated May 11,
1995, of Beers & Cutler PLLC, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
expert in accounting and auditing.
The consolidated financial statements of Century 21 Region V, Inc. as
of and for the year ended July 31, 1995, which appear in the Form 8-K dated
February 16, 1996 of HFS Incorporated have been incorporated by reference
herein in reliance upon the report dated January 12, 1995, of White, Nelson &
Co. LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as expert in accounting and
auditing.
The consolidated financial statements of Electronic Realty Associates,
Inc. for the years ended December 31, 1994 and 1993, included in the HFS
Incorporated Current Report on Form 8-K dated February 16, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Electronic Realty Associates,
L.P. for the years ended December 31, 1995 and 1994, included in the HFS
Incorporated Current Report on Form 8-K dated April 5, 1996, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated balance sheets of Coldwell Banker Corporation and
subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, stockholders' equity (deficiency) and cash flows for
each of the two years in the period ended December 31, 1995, included in the HFS
Incorporated Current Report on Form 8-K dated May 8, 1996, audited by Coopers &
Lybrand LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and
cash flows for the three months ended December 31, 1993 and the consolidated
statements of operations and cash flows for the nine months ended September
30, 1993 of Coldwell Banker Corporation and subsidiaries (formerly Coldwell
Banker Residential Holding Company and subsidiaries) have been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Avis, Inc. as of February 29,
1996 and February 28, 1995 and for each of the three years in the period ended
February 29, 1996, included in the HFS Incorporated Current Report on Form 8-K
dated August 29, 1996, have been so incorporated herein in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission
Registration Fee ............... $125,627
Accounting Fees and Expenses ..... 75,000
Legal Fees and Expenses .......... 100,000
Blue Sky Fees and Expenses ....... 25,000
Miscellaneous..................... 10,000
--------
Total Expenses................. $335,627
The Company will pay all fees and expenses associated with filing the
Registration Statement. The Selling Stockholders are to pay all their
respective costs and expenses (including fees and expenses of counsel,
financial advisors or any other advisors or agents retained by such holders
and excluding all reasonable fees and expenses associated with filing the
Registration Statement) associated with the sale of the Shares.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section 145 of
the Delaware General Corporation Law, as amended ("GCL"), which provides that
a corporation may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation), by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at its request in such capacity of another
corporation or business organization against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interest of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe that such person's conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of a
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses that such officer or
director actually and reasonably incurred.
Reference is also made to Section 102(b)(7) of the GCL, which permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the GCL or (iv) for any transaction from which the
director derived an improper personal benefit.
Articles Ninth and Tenth of the Company's Amended and Restated Certificate
of Incorporation provide for the elimination of personal liability of a
director for breach of fiduciary duty as permitted by Section 102(b)(7) of the
GCL, and provides that the Company shall indemnify its directors and officers
to the full extent permitted by Section 145 of the GCL.
The Company maintains at its expense, a policy of insurance which insures
its Directors and Officers, subject to certain exclusions and deductions as
are usual in such insurance policies, against certain liabilities which may be
incurred in those capacities.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of August 23, 1996, by and among HFS Incorporated, Avis
Acquisition Corp., U.S. Trust Company of California, N.A., as Trustee of the Trust forming a part of
the Avis, Inc. Employee Stock Ownership Plan and Avis, Inc.
2.2 Stock Purchase Agreement, dated as of August 28, 1996, by and between HFS Incorporated and General
Motors Corporation.
4.1 Form of Certificate for the Company's Common Stock, par value $.01 per share (incorporated by
reference to the Company's Registration Statement on Form S-1, Registration No. 33-51422, Exhibit
4.1).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom regarding the legality of the Securities being
registered hereby.
23.1 Consent of Deloitte & Touche LLP relating to the financial statements of HFS Incorporated.
23.2 Consent of Deloitte & Touche LLP relating to the financial statements of Century 21 Real Estate
Corporation.
23.3 Consent of Deloitte & Touche LLP relating to the financial statements of Century 21 Real Estate of
Mid-Atlantic States, Inc.
23.4 Consent of Toback CPAs, P.C. relating to the financial statements of Century 21 of Southwest, Inc.
23.5 Consent of Woolard, Krajnik & Company relating to the financial statements of Century 21 of Eastern
Pennsylvania, Inc.
23.6 Consent of Beers & Cutler PLLC, relating to the financial statements of Century 21 Real Estate of the
Mid-Atlantic States, Inc.
23.7 Consent of White, Nelson & Co. LLP relating to the financial statements of Century 21 Region V, Inc.
23.8 Consent of Ernst & Young LLP relating to the financial statements of Electronic Realty Associates,
Inc. and Electronic Realty Associates, L.P.
23.9 Consent of Coopers & Lybrand L.L.P. relating to the financial statements of Coldwell Banker
Corporation.
23.10 Consent of Deloitte & Touche LLP relating to the financial statements of Coldwell Banker Corporation.
23.11 Consent of Price Waterhouse LLP relating to the financial statements of Avis, Inc.
23.12 Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5.1).
24.1 Power of Attorney (included in the signature page to the Registration Statement).
</TABLE>
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement, to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT, TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF PARSIPPANY, STATE OF NEW JERSEY, ON
AUGUST 29, 1996.
HFS INCORPORATED
By: /s/ James E. Buckman
---------------------------------
James E. Buckman
Executive Vice President,
General Counsel and Director
POWER OF ATTORNEY
KNOW ALL THOSE BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS EACH OF HENRY R. SILVERMAN, STEPHEN P.
HOLMES AND JAMES E. BUCKMAN, OR ANY OF THEM, EACH ACTING ALONE, HIS TRUE AND
LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR SUCH PERSON AND IN HIS NAME, PLACE AND STEAD, IN ANY AND
ALL CAPACITIES, IN CONNECTION WITH THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM S-3 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, INCLUDING, WITHOUT
LIMITATION THE GENERALITY OF THE FOREGOING, TO SIGN THE REGISTRATION STATEMENT
IN THE NAME AND ON BEHALF OF THE REGISTRANT OR ON BEHALF OF THE UNDERSIGNED AS
A DIRECTOR OR OFFICER OF THE REGISTRANT, AND ANY AND ALL AMENDMENTS OR
SUPPLEMENTS TO THE REGISTRATION STATEMENT, INCLUDING ANY AND ALL STICKERS AND
POST-EFFECTIVE AMENDMENTS TO THE REGISTRATION STATEMENT, AND TO SIGN ANY AND
ALL ADDITIONAL REGISTRATION STATEMENTS RELATING TO THE SAME OFFERING OF
SECURITIES AS THE REGISTRATION STATEMENT THAT ARE FILED PURSUANT TO RULE
462(B) UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND TO FILE THE SAME,
WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH
THE SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE SECURITIES EXCHANGE
OR SECURITIES SELF-REGULATORY BODY, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, EACH ACTING ALONE, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, OR THEIR SUBSTITUTES OR SUBSTITUTE, MAY LAWFULLY DO OR CAUSE TO BE
DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Henry R. Silverman Chairman of the Board, Chief Executive Officer and August 29, 1996
----------------------------- Director (Principal Executive Officer)
(Henry R. Silverman)
/s/ John D. Snodgrass President, Chief Operating Officer and Director August 29, 1996
-----------------------------
(John D. Snodgrass)
/s/ Stephen P. Holmes Executive Vice President, Chief Financial Officer, August 29, 1996
----------------------------- Treasurer and Director (Principal Financial Officer
(Stephen P. Holmes) and Principal Accounting Officer)
/s/ James E. Buckman Executive Vice President, General Counsel and Director August 29, 1996
-----------------------------
(James E. Buckman)
/s/ Robert F. Smith Director August 29, 1996
-----------------------------
(Robert F. Smith)
II-4
<PAGE>
/s/ Leonard Schutzman Director August 29, 1996
-----------------------------
(Leonard Schutzman)
/s/ Martin L. Edelman Director August 29, 1996
-----------------------------
(Martin L. Edelman)
Director August 29, 1996
-----------------------------
(Robert W. Pittman)
/s/ Roger J. Stone, Jr. Director August 29, 1996
-----------------------------
(Roger J. Stone, Jr.)
/s/ Robert E. Nederlander Director August 29, 1996
-----------------------------
(Robert E. Nederlander)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of August 23, 1996 by and among HFS Incorporated, Avis
Acquisition Corp., U.S. Trust Company of California, N.A., as Trustee of the Trust forming a part
of the Avis, Inc. Employee Stock Ownership Plan and Avis, Inc.
2.2 Stock Purchase Agreement, dated as of August 28, 1996 by and between HFS Incorporated and General
Motors Corporation.
4.1 Form of Certificate for the Company's Common Stock, par value $.01 per share (incorporated by
reference to the Company's Registration Statement on Form S-1, Registration No. 33-51422, Exhibit
4.1).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom regarding the legality of the Securities being
registered hereby.
23.1 Consent of Deloitte & Touche LLP relating to the financial statements of HFS Incorporated.
23.2 Consent of Deloitte & Touche LLP relating to the financial statements of Century 21 Real Estate
Corporation.
23.3 Consent of Deloitte & Touche LLP relating to the financial statements of Century 21 Real Estate
of Mid-Atlantic States, Inc.
23.4 Consent of Toback CPAs, P.C. relating to the financial statements of Century 21 of Southwest, Inc.
23.5 Consent of Woolard, Krajnik & Company relating to the financial statements of Century 21 of
Eastern Pennsylvania, Inc.
23.6 Consent of Beers & Cutler PLLC, relating to the financial statements of Century 21 Real Estate of the
Mid-Atlantic States, Inc.
23.7 Consent of White, Nelson & Co. LLP relating to the financial statements of Century 21 Region V,
Inc.
23.8 Consent of Ernst & Young LLP relating to the financial statements of Electronic Realty
Associates, Inc. and Electronic Realty Associates, L.P.
23.9 Consent of Coopers & Lybrand L.L.P. relating to the financial statements of Coldwell Banker
Corporation.
23.10 Consent of Deloitte & Touche LLP relating to the financial statements of Coldwell Banker
Corporation.
23.11 Consent of Price Waterhouse LLP relating to the financial statements of Avis, Inc.
23.12 Consent of Skadden, Arps, Slate, Meagher & Flom (included in Exhibit 5.1).
24.1 Power of attorney (included in the signature page to the Registration Statement).
</TABLE>
AGREEMENT AND PLAN OF MERGER
dated as of August 23, 1996
by and among
HFS INCORPORATED,
AVIS ACQUISITION CORP.,
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
of the Trust forming a part of
the Avis, Inc. Employee Stock Ownership Plan
and
AVIS, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 Defined Terms....................................... 1
1.2 Other Definitional Provisions....................... 15
ARTICLE II
THE MERGER
2.1 Effective Time of the Merger........................ 16
2.2 Closing............................................. 16
2.3 Effects of the Merger............................... 16
2.4 Certificate of Incorporation and Bylaws............. 16
2.5 Directors........................................... 16
2.6 Officers............................................ 17
2.7 Mechanism for Conversion; Conversion of Capital
Stock........................................... 17
2.8 Dissenting Shares................................... 18
2.9 Payment of Per Share Merger Consideration for
Non-ESOP Shares................................. 18
2.10 Payment of the ESOP Shares Merger Consideration
for ESOP Shares................................. 20
2.11 Payment of Per Series Share Consideration for
Company Series Preferred Stock.................. 25
2.12 Deliveries at Closing............................... 27
ARTICLE III
RELATED TRANSACTIONS
3.1 Purchase of GM Shares............................... 27
3.2 Cancellation of Units............................... 27
3.3 Cancellation of Equivalent Shares................... 28
3.4 Redemption of Series C Preferred Stock.............. 29
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization........................................ 30
4.2 Authority; Enforceability........................... 31
4.3 Non-Contravention................................... 31
4.4 Consents............................................ 31
i
<PAGE>
Page
----
4.5 Capital Stock of the Company........................ 32
4.6 Subsidiaries........................................ 34
4.7 Financial Statements................................ 34
4.8 Absence of Certain Changes or Events................ 35
4.9 Legal Proceedings................................... 38
4.10 No Undisclosed Liabilities.......................... 38
4.11 Contracts........................................... 39
4.12 Properties.......................................... 41
4.13 Intellectual Property............................... 42
4.14 Employee Benefits; ERISA............................ 44
4.15 Taxes............................................... 48
4.16 Environmental Laws.................................. 51
4.17 Labor and Employment Matters........................ 53
4.18 Information in Disclosure Documents and
Registration Statement.......................... 54
4.19 Requisite Stockholder Vote.......................... 55
4.20 Compliance with Laws................................ 55
4.21 Insurance........................................... 56
4.22 Records............................................. 56
4.23 Franchisees......................................... 57
4.24 Offering Circulars.................................. 57
4.25 Affiliate Transactions.............................. 57
4.26 Brokers............................................. 58
4.27 Appointment of ESOP Trustee......................... 58
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ESOP TRUSTEE
5.1 Organization; Authority.............................. 58
5.2 Enforceability....................................... 58
5.3 Non-Contravention.................................... 59
5.4 Consents............................................. 59
5.5 Legal Counsel; Independent Financial Advisor......... 59
5.6 Brokers.............................................. 59
5.7 Opinion of Financial Advisor......................... 60
5.8 Information in Disclosure Documents and
Registration Statement.......................... 60
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
6.1 Organization........................................ 60
6.2 Authority; Enforceability........................... 60
6.3 Non-Contravention................................... 61
ii
<PAGE>
Page
----
6.4 Consents............................................ 61
6.5 SEC Documents....................................... 61
6.6 Information in Disclosure Documents and
Registration Statement.......................... 62
6.7 Brokers............................................. 62
6.8 Parent Shares....................................... 62
6.9 Operations of Merger Sub............................ 62
6.10 Financing Arrangements.............................. 63
ARTICLE VII
COVENANTS
7.1 Conduct of Business................................. 63
7.2 No Solicitation..................................... 66
7.3 Investigation....................................... 67
7.4 No Public Announcement.............................. 68
7.5 Reasonable Best Efforts............................. 68
7.6 Disclosure Supplements.............................. 70
7.7 Stockholders Consent................................ 70
7.8 Expenses............................................ 71
7.9 Further Assurances.................................. 71
7.10 Cancellation of Unallocated Shares.................. 71
7.11 Financial Statements................................ 72
7.12 Pre-Closing Actions................................. 72
7.13 Subsidiary Corporate Action......................... 73
7.14 The Refinancing..................................... 73
7.15 Directors', Officers' and Fiduciaries'
Indemnification................................. 73
7.16 Non-Solicitation of Employees....................... 74
7.17 Termination of the ESOP............................. 74
7.18 Stock Purchase Agreement............................ 75
7.19 Affected Employees.................................. 75
7.20 Employee Benefits................................... 75
7.21 Company Owned Locations............................. 77
ARTICLE VIII
CONDITIONS TO THE CLOSING
8.1 Conditions to the Obligations of Each Party......... 78
8.2 Additional Conditions to the Obligations of
Parent and Merger Sub........................... 79
8.3 Additional Conditions to the Obligations of the
Company......................................... 81
iii
<PAGE>
Page
----
8.4 Additional Conditions to the Obligations of the
ESOP Trust................................. 82
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination.................................... 83
9.2 Effect of Termination.......................... 83
ARTICLE X
MISCELLANEOUS
10.1 Nonsurvival of Representations and Warranties. 84
10.2 Notices....................................... 84
10.3 Interpretation................................ 85
10.4 No Third Party Beneficiaries.................. 85
10.5 Amendment..................................... 85
10.6 Extension; Waiver............................. 85
10.7 Entire Agreement.............................. 86
10.8 Successors and Assigns........................ 86
10.9 Governing Law................................. 86
10.10 Submission to Jurisdiction.................... 86
10.11 Specific Performance.......................... 87
10.12 Counterparts.................................. 87
EXHIBITS
Exhibit A Form of FIRPTA Affidavit
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 23, 1996, by and
among HFS INCORPORATED, a Delaware corporation ("Parent"), AVIS ACQUISITION
CORP., a Delaware corporation and a wholly owned indirect subsidiary of Parent
("Merger Sub"), U.S. Trust Company of California, N.A. (the "ESOP Trustee"),
solely in its capacity as trustee of, and on behalf of, the trust (the "ESOP
Trust") forming a part of the Avis, Inc. Employee Stock Ownership Plan (the
"ESOP"), and AVIS, INC., a Delaware corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Merger Sub
and the Company, and the appropriate fiduciary committee of the ESOP Trustee,
have approved this Agreement and the transactions contemplated hereby,
including, but not limited to, the merger (the "Merger") of Merger Sub with
and into the Company, all upon the terms and subject to the conditions set
forth in this Agreement;
WHEREAS, simultaneously with, and as a result of, the Merger, the
Company is required to, and will, redeem all outstanding shares of Series C
Preferred Stock (as defined herein); and
WHEREAS, Parent will enter into a stock purchase agreement (the
"Stock Purchase Agreement") with General Motors Corporation ("GM") whereby, at
the Closing (as defined herein), immediately prior to the Effective Time (as
defined herein), Parent (or one of its Subsidiaries (as defined herein)) shall
purchase from GM, and GM shall sell to Parent (or one of its Subsidiaries),
all of the outstanding shares of Convertible Preferred Stock (as defined
herein);
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, intending to be legally bound
thereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. For purposes of this Agreement (including the
schedules hereto), the terms defined in this Agreement shall have the
respective meanings specified herein, and, in addition, the following terms
shall have the following meanings:
"Acquisition Transaction": shall have the meaning as
set forth in Section 7.2 hereof.
<PAGE>
"Additional Amount": shall have the meaning as set
forth in Section 2.10(d) hereof.
"Affected Employees": shall have the meaning as set
forth in Section 7.19 hereof.
"Affiliate": as to any person, any other person which, directly or
indirectly, is in control of, is controlled by, or is under common
control with, such person. The term "control" (including, with
correlative meanings, the terms "controlled by" and "under common
control with"), as applied to any person, means the possession, direct
or indirect, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of
voting securities or other ownership interest, by contract or otherwise.
"Agreement": this Agreement and Plan of Merger, as
amended, modified or supplemented from time to time.
"Allocated Shares": shall have the meaning as set
forth in Section 4.5(a) hereof.
"Annual Financial Statements": shall have the meaning
as set forth in Section 4.7(a) hereof.
"Applicable Rate": the LIBOR Rate for the relevant
Interest Period plus 20 basis points.
"ARACS": Avis Rent A Car System, Inc., a Delaware
corporation and a wholly owned direct Subsidiary of the
Company.
"Audits": shall have the meaning as set forth in
Section 4.15(e) hereof.
"Avis Lube Licensees": shall have the meaning as set
forth in Section 4.23 hereof.
"Balance Sheet": shall have the meaning as set forth
in Section 4.7(a) hereof.
"business day": any day other than a Saturday or Sunday on which
banks in New York and California (and for the purpose of a computation
of the LIBOR Rate, London) are required to be open for the conduct of
business.
"Buyer": shall have the meaning as set forth in
Section 3.1 hereof.
"Certificate": shall have the meaning as set forth in
Section 2.7(e) hereof.
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"Certificate of Merger": shall have the meaning as set
forth in Section 2.1 hereof.
"Cleanup": means all actions required to: (1) clean-
up, remove, treat or remediate Hazardous Materials in the
indoor or outdoor environment; (2) prevent the Release of
Hazardous Materials so that they do not migrate, endanger or
threaten to endanger public health or welfare or the indoor
or outdoor environment; (3) perform pre-remedial studies and
investigations and post-remedial monitoring and care; or (4)
respond to any government requests for information or
documents in any way relating to cleanup, removal, treatment
or remediation or potential cleanup, removal, treatment or
remediation of Hazardous Materials in the indoor or outdoor
environment.
"Closing": shall have the meaning as set forth in
Section 2.2 hereof.
"Closing Consideration": shall have the meaning as set
forth in Section 2.10(b)(i) hereof.
"Closing Date": shall have the meaning as set forth in
Section 2.2 hereof.
"Code": the Internal Revenue Code of 1986, as amended.
"Company": shall have the meaning as defined in the
recital hereof.
"Company Capital Stock": collectively, Company Common
Stock, Company Series Preferred Stock, Series C Preferred
Stock and Convertible Preferred Stock.
"Company Common Stock": the common stock, par value
$.01 per share, of the Company.
"Company Series Preferred Stock": shall mean the
Series A Preferred Stock and the Series B Preferred Stock.
"Composite Tape": shall have the meaning as set forth
in Section 2.10(c)(i) hereof.
"Computer Programs": shall mean (i) any and all computer software
programs, (ii) databases and compilations, including, without
limitation, any and all data and collections of data, whether machine
readable or otherwise, (iii) all of the foregoing (A) including, without
limitation, all versions thereof, all screen displays and designs
thereof, and all component modules of source code or object code or
natural language code therefor, and (B) whether recorded on paper,
magnetic media or other electronic or non-electronic
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device, (iv) all descriptions, flow-charts and other work product used
to design, plan, organize and develop any of the foregoing, and (v) all
documentation, including, without limitation, user manuals and training
materials, relating to any of the foregoing.
"Confidentiality Agreement": the Confidentiality
Agreement between Parent and the Company dated as of March
22, 1996.
"Consents": shall have the meaning as set forth in
Section 8.2(n) hereof.
"Convertible Preferred Stock": shall have the meaning
as set forth in Section 4.5(a) hereof.
"Deemed Sale": shall have the meaning as set forth in
Section 2.10(d) hereof.
"DGCL": shall have the meaning as set forth in Section
2.1 hereof.
"Disclosure Schedule": the document being delivered by
the Company simultaneously with the execution of this
Agreement scheduling the items required to be disclosed
therein.
"Dissenting Shares": shall have the meaning as set
forth in Section 2.8 hereof.
"Effective Time": shall have the meaning as set forth
in Section 2.1 hereof.
"Engagement Letter": shall have the meaning as set
forth in Section 7.2 hereof.
"Environmental Claim": means any claim, action, cause of action,
investigation or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, 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, of any Hazardous Materials at any location,
whether or not owned, leased 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.
"Environmental Laws": means all federal, state, local
and foreign laws and regulations relating to pollution or
protection of human health or the environment, including,
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without limitation, laws relating to Releases or threatened Releases of
Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, Release, disposal,
transport or handling of Hazardous Materials and all laws and
regulations with regard to recordkeeping, notification, disclosure and
reporting requirements respecting Hazardous Materials.
"Equivalent Plan": shall have the meaning as set forth
in Section 3.3 hereof.
"Equivalent Shares": shall have the meaning as set
forth in Section 3.3 hereof.
"Equivalent Shares Consents": shall have the meaning
as set forth in Section 4.4(b) hereof.
"ERISA": the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Affiliate": shall have the meaning as set forth
in Section 4.14(a) hereof.
"ERISA Plans": shall have the meaning as set forth in
Section 4.14(a) hereof.
"ESOP": shall have the meaning as defined in the
recital hereof.
"ESOP Amount": the amount, if any, of up to $15 million, which (x)
is to be established, and notified in writing to Parent and the Company
at least five business days prior to the Closing Date, by the ESOP
Trustee to the extent the ESOP Trustee determines in good faith is
required by ERISA, based on a reasonable final valuation of the Company
using the same valuation methodology as used in prior valuations of the
Company by the ESOP Trustee's financial advisor in connection with the
transactions contemplated hereby in order for the ESOP Trustee to
approve the transactions contemplated hereby and (y) the ESOP Trustee
determines in good faith must be part of the ESOP Shares Merger
Consideration in order for the ESOP Trustee, in the exercise of its
fiduciary duties, to approve the transactions contemplated hereby.
"ESOP Debt": shall have the meaning as set forth in
Section 4.5(c) hereof.
"ESOP Participant": at any time, any person who has a
positive account balance with the ESOP at such time.
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"ESOP Shares": the Allocated Shares immediately prior
to the Effective Time after giving effect to the actions
required by Section 7.10 hereof.
"ESOP Shares Merger Consideration": $341 million, plus
the ESOP Amount, if any.
"ESOP Trust": shall have the meaning as defined in the
recital hereof.
"ESOP Trustee": shall have the meaning as defined in
the recital hereof.
"Exchange Act": the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the SEC
promulgated thereunder, all as the same shall be in effect
from time to time.
"Final Request Date": shall have the meaning as set
forth in Section 2.10(c)(ii) hereof.
"Final Sale Date": shall have the meaning as set forth
in Section 2.10(c)(iii) hereof.
"Financing Lease": any lease of property, real or
personal, the obligations of the lessee in respect of which
are (x) required in accordance with GAAP to be capitalized
on a balance sheet of the lessee or (y) operating leases of
automobiles that are located in the U.S., although not
capital leases.
"First Union": shall have the meaning as set forth in
Section 2.9(a) hereof.
"Franchisee": any person who owns or possesses the
right to operate an "Avis Rent A Car" or similar franchised
business under a franchise or license agreement entered into
with the Company or any of its Subsidiaries or any
Subfranchisor.
"FTC Act": the Federal Trade Commission Act, as amended, and the
rules and regulations of the Federal Trade Commission promulgated
thereunder, including, without limitation, Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures,
all as the same shall be in effect from time to time.
"GAAP": generally accepted accounting principles in
the United States of America in effect from time to time and
at any time specified in the Agreement.
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"GM": shall have the meaning as defined in the recital
hereof.
"GM Shares": shall have the meaning as set forth in
Section 3.1 hereof.
"Governmental Authority": any nation or government,
any state or other political subdivision thereof and any
entity (including, without limitation, a court) exercising
executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Governmental Order": as to any person, any judgment,
injunction, decree, order or other determination of an
arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such person or any
of its property or assets or to which such person or any of
its property or assets is subject.
"Guarantee Obligation": as to any person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any debt, leases,
dividends or other obligations (the "primary obligations") of any other
third person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (1) for the purchase
or payment of any such primary obligation or (2) to maintain working
capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (iv)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof, provided, however, that the
term Guarantee Obligation shall not include endorsements of instruments
for deposit or collection in the ordinary course of business.
"Guarantee Termination Date": shall have the meaning
as set forth in Section 2.10(c)(ii) hereof.
"Guaranteed Amount": shall have the meaning as set
forth in Section 2.10(b)(i) hereof.
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"Hazardous Materials": means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in
the National Oil and Hazardous Substances Pollution Contin-
gency Plan, 40 C.F.R. ss. 300.5, or defined as such by, or
regulated as such under, any Environmental Law.
"HSR Act": shall have the meaning as set forth in
Section 4.4(a) hereof.
"Indebtedness": of any person at any date, (a) all indebtedness of
such person for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such person which is evidenced
by a note, bond, debenture or similar instrument, (c) all obligations of
such person under Financing Leases, (d) all obligations of such person
in respect of acceptances issued or created for the account of such
person and (e) all liabilities secured by any Lien on any property owned
by such person even though such person has not assumed or otherwise
become liable for the payment thereof.
"Indemnified Parties": shall have the meaning as set
forth in Section 7.15(a) hereof.
"Information Statement": shall have the meaning as set
forth in Section 4.18 hereof.
"Intellectual Property": shall mean all industrial and intellectual
property rights used in the business of the Company or any of its
Subsidiaries as currently conducted, including, without limitation, all
patents and patent applications; trademarks, trademark registrations and
applications; trade names; service marks and service mark registrations
and applications; copyright and copyright registrations and
applications; Computer Programs; technology, know-how, trade secrets,
proprietary processes and formulae.
"Interest Income": shall mean the interest earned on
the investments made by the ESOP Trust pursuant to the last
sentence of Section 2.10(c)(ii).
"Interest Period": each consecutive period of 30 days
(or such lesser number of days to the Payment Date if then
established).
"Interim Financial Statements": shall have the meaning
as set forth in Section 4.7(a) hereof.
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"Investment Rating Agencies": Moody's Investors
Service, Standard & Poor's Ratings Services and Duff &
Phelps Credit Rating Co.
"IRS Determination": shall have the meaning as set
forth in Section 7.17 hereof.
"Issuing Banks" shall have the meaning as set forth in
Section 2.10(b)(ii).
"L/C Amount": an amount equal to (I) the excess of (x) the ESOP
Shares Merger Consideration over (y) the portion of the Closing
Consideration paid in cash, plus (II) the interest that would be paid on
the amount specified in clause (I) for the period from and including the
Closing Date to but not including the date which is one year after the
Closing Date if interest were to be payable at the rate of 10% per
annum.
"Letter of Credit": shall have the meaning as set
forth in Section 2.10(b)(ii) hereof.
"Letter of Transmittal": shall have the meaning as set
forth in Section 2.9(b) hereof.
"LIBOR Rate": with respect to each Interest Period from and
including the Closing Date to but not including the Payment Date, the
interest rate per annum offered for deposits in U.S. Dollars for a
respective Interest Period in the London interbank market which appears
on Telerate Page 3750 or such other page as may replace Page 3750 on
that service or such other service or services as may be nominated by
the British Bankers' Association for the purpose of displaying such rate
(collectively, "Telerate Page 3750") as of 11:00 A.M. London time on the
second business day prior to the first day of such Interest Period, as
mutually determined by Parent and the ESOP Trustee. In the event that
(i) more than one such LIBOR Rate is provided, the average of such rates
shall apply or (ii) no such LIBOR Rate is published, then the LIBOR Rate
shall be determined from such comparable financial reporting company as
Parent and the ESOP Trustee shall mutually determine.
"Licenses": shall have the meaning as set forth in
Section 4.13(b) hereof.
"Lien": any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien
(statutory or other), charge or other security interest or
any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or
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other title retention agreement and any Financing Lease having
substantially the same economic effect as any of the foregoing).
"Material Adverse Effect": a material adverse effect on (a) the
business, properties, assets, liabilities, prospects, condition
(financial or otherwise) or results of operations of (i) the Company (or
the Surviving Corporation) and its Subsidiaries taken as a whole or (ii)
ARACS, (b) the validity or enforceability of this Agreement, or (c) the
ability of the Company or any of its respective Subsidiaries to
consummate the transactions contemplated hereby.
"Measurement Value": (i) for 66-2/3% of the Units held by each
person that are Units issued under the SAR, $9.04; (ii) for 33-1/3% of
the Units held by each person that are Units issued under the SAR,
$12.51; (iii) for the 41,950 Units not issued under the SAR that were
issued in 1995, $12.51; and (iv) for all other Units not issued under
the SAR, $18.93.
"Merger": shall have the meaning as defined in the
recital hereof.
"Merger Consideration": the aggregate Per Share Merger
Consideration payable in connection with the Merger.
"Merger Sub": shall have the meaning as defined in the
recital hereof.
"1997 Distributee": shall have the meaning as set
forth in Section 2.10(e) hereof.
"1997 Distributee Amount": an amount, equal to $10
million which will be used (to the extent necessary) to pay
the 1997 Distributees the portion of their respective ESOP
account balances provided for in Section 2.10(e) hereof.
"1997 Distribution" shall have the meaning as set forth
in Section 2.10(e) hereof.
"Non-ESOP Shares": the outstanding shares of Company Common Stock
distributed from the ESOP prior to the Effective Time and held of record
by former employees of the Company (or their beneficiaries), and not
subject to the ESOP.
"NYSE": shall have the meaning as set forth in Section
2.10(c)(i) hereof.
"Offering Circulars": shall have the meaning as set
forth in Section 4.24 hereof.
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"Other Disclosure Documents": shall have the meaning
as set forth in Section 4.18 hereof.
"Other Entity": shall have the meaning as set forth in
Section 4.6 hereof.
"Parent": shall have the meaning as defined in the
recital hereof.
"Parent Common Stock": the common stock, par value
$.01 per share, of Parent.
"Parent Disclosure Schedule": shall have the meaning
as set forth in Section 6.3 hereof.
"Parent Request": shall have the meaning as set forth
in Section 2.10(c)(ii) hereof.
"Parent Shares": shall have the meaning as set forth
in Section 2.10(c)(i) hereof.
"Parent's Plan": shall have the meaning as set forth
in Section 7.20 hereof.
"Paying Agent": shall have the meaning as set forth in
Section 2.9(a) hereof.
"Payment Date": shall have the meaning as set forth in
Section 2.10(d) hereof.
"PBGC": shall have the meaning as set forth in Section
4.14(c) hereof.
"PCBs": shall have the meaning as set forth in Section
4.16(g).
"Per Equivalent Share Consideration": shall have the
meaning as set forth in Section 3.3 hereof.
"Per Series Share Consideration": $50 per share of
Series A Preferred Stock and $50 per share of Series B
Preferred Stock, plus in each case accrued and unpaid
dividends thereon.
"Per Share Merger Consideration": an amount equal to
(i) $341 million, plus the ESOP Amount, if any, divided by
(ii) the number of ESOP Shares outstanding.
"Per Share Redemption Consideration": shall have the
meaning as set forth in Section 3.4(a) hereof.
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"Permits": as to any person, all licenses, permits, franchises,
orders, approvals, concessions, registrations, authorizations and
qualifications with and under all federal, state, local or foreign laws
and Governmental Authorities and all industry or other nongovernmental
self-regulatory organizations that are issued to such person (including,
without limitation, environmental Permits).
"Permitted Investments": shall have the meaning as set
forth in Section 2.9(a) hereof.
"person": an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"PI/PD Litigation": shall have the meaning as set
forth in Section 4.9 hereof.
"Plans": shall have the meaning as set forth in
Section 4.14(a) hereof.
"Post-Closing Consideration": shall have the meaning
as set forth in Section 2.10(d) hereof.
"Redemption Amount": shall have the meaning as set
forth in Section 3.4(a) hereof.
"Redemption Agent": shall have the meaning as set
forth in Section 3.4(a) hereof.
"Refinancing": shall have the meaning as set forth in
Section 7.14 hereof.
"Registration Statement": shall have the meaning as
set forth in Section 2.10(c)(i) hereof.
"Release": any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, dispersal, leaching or migration
into the indoor or outdoor environment (including, without limitation,
ambient air, surface water, groundwater and surface or subsurface
strata) or into or out of any property, including the movement of
Hazardous Materials through or in the air, soil, surface water,
groundwater or property.
"Remaining Shares": shall have the meaning as set
forth in Section 2.10(c)(iii).
"Rental Business": the business of operating a motor
vehicle rental business which specializes in the rental of
vehicles, without drivers for periods of less than one year.
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"Requirement of Law": as to any person, the Certificate of
Incorporation and Bylaws or other organizational or governing documents
of such person, and any law, treaty, rule or regulation or order of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such person or any of its properties or
assets or to which such person or any of its properties or assets is
subject.
"Requisite Stockholder Vote": shall have the meaning
as set forth in Section 4.19 hereof.
"Sale": shall have the meaning as set forth in Section
2.10(d) hereof.
"SAR": shall have the meaning as set forth in Section
3.2 hereof.
"SEC": the Securities and Exchange Commission or its
successor.
"Securities Act": the Securities Act of 1933, as
amended, and the rules and regulations of the SEC
promulgated thereunder, all as the same shall be in effect
from time to time.
"Series A Preferred Stock": the Company's Cumulative
Redeemable Preferred Stock, Series A, par value $.01 per
share.
"Series B Preferred Stock": the Company's Cumulative
Redeemable Preferred Stock, Series B, par value $.01 per
share.
"Series C Preferred Stock": the Company's Cumulative
Redeemable Preferred Stock, Series C, par value $.01 per
share.
"Series Preferred Paying Agent": shall have the
meaning as set forth in Section 2.11(a) hereof.
"SPD": shall have the meaning as set forth in Section
4.14(b)(iv) hereof.
"Specified Shares": shall have the meaning as set
forth in Section 2.10(c)(ii).
"Stockholders Agreement": the Stockholders Agreement,
dated as of January 25, 1989, by and among the Company, the
ESOP and GM.
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"Stock Purchase Agreement": shall have the meaning as
defined in the recital hereof.
"Subfranchisor": any person (including a Subsidiary of
the Company) to whom the Company or any of its Subsidiaries
has granted the right to sell or grant a franchise of the
Rental Business to a third party.
"Subsidiary": shall mean, with respect to any party, any
corporation or other organization, whether incorporated or
unincorporated, of which such party or any other subsidiary of such
party beneficially owns a majority of the voting or economic interests.
Without limiting the foregoing, and in any event, the Prime Vehicles
Trust is for all purposes of this Agreement a Subsidiary of the Company.
"Successor Welfare Plan": shall have the meaning as
set forth in Section 7.20(b) hereof.
"Superior Proposal": shall have the meaning as set
forth in Section 7.7(b) hereof.
"Surviving Corporation": shall have the meaning as set
forth in Section 2.3 hereof.
"Tax Attributes": shall have the meaning as set forth
in Section 4.15(1)(u) hereof.
"Tax Return": shall have the meaning as set forth in
Section 4.15(5) hereof.
"Taxes": shall have the meaning as set forth in
Section 4.15(5) hereof.
"Transaction Fees": shall mean (i) in the case of a Sale, all
costs, discounts and transaction fees actually incurred in connection
with such Sale, including, but not limited to, all underwriting fees,
attorneys' and accountants' fees and expenses, printing fees and travel
expenses, which are actually incurred in connection with the applicable
type of Sale; and (ii) in the case of a Deemed Sale, all costs,
discounts and transaction fees deemed incurred in connection with the
Deemed Sale as mutually agreed to between Parent and the ESOP Trustee
which shall include, but not be limited to, all underwriting fees and
attorneys' and accountants' fees and expenses and such other expenses,
all of which would be reasonably and customarily incurred in connection
with a sale of Parent Common Stock.
"Transaction Proposal": shall have the meaning as set
forth in Section 7.2 hereof.
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"Transition Period": the period of time from the Closing Date
through the earlier of (i) the third anniversary of the Closing Date,
(ii) the date on which there has been an initial public offering of
equity securities of the Company (or the Surviving Corporation) or of
any of its Subsidiaries operating all or substantially all of the Rental
Business of the Company (or the Surviving Corporation); provided that
after such offering Parent no longer directly or indirectly owns or
controls a majority interest in the voting stock or equity interests of
such entity; and (iii) the date on which there has been a distribution
to the stockholders of Parent of more than 50% of the voting stock or
equity interests of the Company (or the Surviving Corporation) or of any
of its Subsidiaries operating all or substantially all of the Rental
Business of the Company (or the Surviving Corporation).
"Trust Agreement": shall have the meaning as set forth
in Section 4.27 hereof.
"Unallocated Shares": at any time, shares of Company
Common Stock which are held of record by the ESOP and not
allocated to the accounts of ESOP Participants at such time.
"Unit Consents": shall have the meaning as set forth
in Section 4.4(b) hereof.
"Unit Plans": shall have the meaning as set forth in
Section 3.2 hereof.
"Units": shall have the meaning as set forth in
Section 3.2 hereof.
"WARN Act": shall have the meaning as set forth in
Section 4.17(b) hereof.
1.2 Other Definitional Provisions.
(a) The words "hereof," "herein" and "hereunder" and other
words of similar import when used in this Agreement shall refer to this
Agreement and the exhibits and schedules as a whole and not to any particular
part or subdivision thereof, and Section, schedule and exhibit references are
to this Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms, and
the words of any gender shall include each other gender where appropriate.
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ARTICLE II
THE MERGER
2.1 Effective Time of the Merger. Upon the terms and subject to the
conditions hereof, a certificate of merger (the "Certificate of Merger") shall
be duly prepared and executed by the Surviving Corporation and thereafter
delivered to the Secretary of State of the State of Delaware for filing, as
provided in the Delaware General Corporation Law ("DGCL"), as soon as
practicable on the Closing Date. The Merger shall become effective upon the
filing of the Certificate of Merger with the Secretary of State of the State
of Delaware, or at such time thereafter as provided in the Certificate of
Merger (the "Effective Time").
2.2 Closing. The closing of the transactions contemplated hereby
(the "Closing") will take place at 10:00 a.m. on a date to be specified by the
parties hereto, which shall be no later than the second business day following
the satisfaction or waiver of the conditions set forth in Article VIII hereof
(the "Closing Date"), at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York 10022, unless another date or place is
agreed to in writing by the parties hereto.
2.3 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Company as the surviving corporation (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.
2.4 Certificate of Incorporation and Bylaws.
(a) The Certificate of Incorporation of the Company in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, until thereafter changed or
amended as provided therein or in accordance with applicable law.
(b) The Bylaws of the Company in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or in accordance with
applicable law.
2.5 Directors. The directors of Merger Sub immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office from the Effective Time in accordance with the Certificate
of
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Incorporation and Bylaws of the Surviving Corporation and until his successor
is duly elected and qualified.
2.6 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation,
each to hold office from the Effective Time in accordance with the Certificate
of Incorporation and Bylaws of the Surviving Corporation and until his
successor is duly appointed and qualified.
2.7 Mechanism for Conversion; Conversion of Capital Stock. As of
the Effective Time, by virtue of the Merger and without any action on the part
of the holder of any shares of Company Capital Stock, or the holder of any
capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each issued and outstanding
share of the capital stock, par value $.01 per share, of Merger Sub shall be
converted into and become one fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock, Subsidiary- Owned Stock
and Parent-Owned Stock. All shares of Company Capital Stock that are owned by
(i) the Company as treasury stock, (ii) any of the Company's Subsidiaries, and
(iii) Parent, Merger Sub or any other Subsidiary of Parent, shall be cancelled
and retired and shall cease to exist and no consideration shall be delivered
in exchange therefor.
(c) Conversion of Company Common Stock. Each issued and
outstanding share of Company Common Stock (other than shares to be cancelled
in accordance with Section 2.7(b) hereof and Dissenting Shares) shall be
converted into the right to receive (in accordance with, and as provided in,
Sections 2.9 and 2.10 hereof) the Per Share Merger Consideration. The Per
Share Merger Consideration will be payable in accordance with Section 2.9
hereof with respect to the Non-ESOP Shares and in accordance with Section 2.10
hereof with respect to the ESOP Shares.
(d) Company Series Preferred Stock. Each issued and
outstanding share of the Company Series Preferred Stock (other than shares to
be cancelled in accordance with Section 2.7(b) hereof and Dissenting Shares)
shall be converted into the right to receive (in accordance with, and as
provided in, Section 2.11 hereof) the Per Series Share Consideration.
(e) Transfer Books; No Further Ownership Rights. All shares of
Company Common Stock and Company Series Preferred Stock, when converted in
accordance with Sections 2.7(c) or 2.7(d), respectively, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease
to exist,
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and each holder of a certificate (each, a "Certificate") formerly representing
such shares of Company Common Stock and Company Series Preferred Stock shall
cease to have any rights with respect thereto, except the right to receive the
Per Share Merger Consideration or the Per Series Share Consideration,
respectively, in accordance with Sections 2.9, 2.10 and 2.11 hereof, as the
case may be. At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock or Company Series Preferred Stock
on the records of the Company.
2.8 Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, shares of Company Common Stock or Company Series Preferred
Stock which are issued and outstanding immediately prior to the Effective Time
and which are held by holders of such shares of Company Common Stock or
Company Series Preferred Stock who have properly exercised appraisal rights
with respect thereto in accordance with Section 262 of the DGCL (the
"Dissenting Shares") shall not be converted into or be exchangeable for the
right to receive the Per Share Merger Consideration or the Per Series Share
Consideration, respectively, and holders of such shares of Company Common
Stock or Company Series Preferred Stock shall be entitled to receive payment
of the appraised value of such shares in accordance with the provisions of
Section 262 of the DGCL unless and until such holders fail to perfect or shall
have effectively withdrawn or lost their rights to appraisal and payment under
the DGCL. If, after the Effective Time, any such holder fails to perfect or
shall have effectively withdrawn or lost such right, such shares of Company
Common Stock or Company Series Preferred Stock shall thereupon be treated as
if they had been converted into and to have become exchangeable for, at the
Effective Time, the right to receive the Per Share Merger Consideration or Per
Series Share Consideration, as the case may be, to which the holder of such
shares is entitled, without any interest thereon. The Company shall give
Parent prompt notice of any demands received by the Company for appraisal of
shares of Company Common Stock and Company Series Preferred Stock and, prior
to the Effective Time, Parent shall have the right to participate in all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not, except with the prior written consent
of Parent, make any payment with respect to, or settle or offer to settle, any
such demands.
2.9 Payment of Per Share Merger Consideration for Non-
ESOP Shares.
(a) Paying Agent. First Union National Bank of
North Carolina ("First Union") shall act as agent for the holders
of Non-ESOP Shares in connection with the Merger (the "Paying
Agent") to receive the funds to which holders of the Non-ESOP
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Shares shall become entitled pursuant to Section 2.7(c) hereof. At the
Closing, Parent shall deliver, or shall cause to be delivered, to the Paying
Agent the funds necessary to pay the aggregate Per Share Merger Consideration
on the Certificates which immediately prior to the Effective Time represented
Non- ESOP Shares. The Company, Parent and First Union shall enter into
agreements reasonably satisfactory to the Company and Parent with respect to
First Union's various duties under this Agreement. The funds deposited with
the Paying Agent shall be invested by the Paying Agent as directed by Parent
or the Surviving Corporation only in (i) short-term U.S. government
securities, (ii) a mutual fund or collective investment account which invests
solely in such U.S. government securities, or (iii) short-term deposits in one
or more U.S. banks whose obligations are rated investment grade by any one of
the Investment Rating Agencies (collectively, "Permitted Investments").
(b) Exchange Procedures. As soon as practicable after the
Effective Time, the Paying Agent will, and is hereby directed to, mail to each
holder of record of a Certificate which immediately prior to the Effective
Time represented outstanding Non-ESOP Shares whose shares were converted
pursuant to Section 2.7 hereof into the right to receive the Per Share Merger
Consideration (i) a letter of transmittal (which shall be in such form and
have such provisions as Parent and the Company acting together may reasonably
specify) at least 12 business days prior to the Effective Time and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for the Per Share Merger Consideration (collectively, a "Letter of
Transmittal"). Upon surrender of such a Certificate for cancellation to the
Paying Agent or to such other agent or agents as may be appointed by the
Paying Agent, together with a Letter of Transmittal, duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor the Per
Share Merger Consideration in cash, without interest, for each Non-ESOP Share
formerly represented by such Certificate, and the Certificate so surrendered
shall forthwith be cancelled. If payment of the Per Share Merger Consideration
is to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of the payment of
the Per Share Merger Consideration to a person other than the registered
holder of the Certificate surrendered or shall have established to the
satisfaction of the Surviving Corporation that such tax either has been paid
or is not applicable. Until surrendered as contemplated by this Section 2.9,
each such Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Per Share Merger
Consideration in accordance
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with the terms and provisions of this Agreement and a Letter of
Transmittal.
(c) Termination of Fund; No Liability. At any time following
six months after the Effective Time, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds (including any
interest received with respect thereto) which had been made available to the
Paying Agent and which have not been disbursed to holders of Certificates
formerly representing Non-ESOP Shares, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect
to the Per Share Merger Consideration payable upon due surrender of such
Certificates, without any interest thereon. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Paying Agent shall be liable to any
holder of a Certificate for Per Share Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
2.10 Payment of the ESOP Shares Merger Consideration
for ESOP Shares.
(a) At the Closing, immediately subsequent to the Effective
Time, the ESOP Trust, as the record holder of all Certificates formerly
representing all outstanding ESOP Shares, shall surrender all such
Certificates for cancellation to the Surviving Corporation, together with a
Letter of Transmittal duly executed by the ESOP Trust as the holder of record
of all such Certificates, and upon such surrender and cancellation, the ESOP
Trust shall receive on the Closing Date, in accordance with the provisions of
this Section 2.10, the ESOP Shares Merger Consideration comprised of (i) the
Closing Consideration and (ii) the executed Letter of Credit, under which the
ESOP Trustee will be able to make, on the Payment Date, a drawing equal to the
Post-Closing Consideration in accordance with the terms of this Section 2.10.
(b) (i) The "Closing Consideration" shall equal $246.07
million payable to the ESOP Trust at the sole option of Parent in either cash
(without interest) or shares of Parent Common Stock or a combination thereof,
upon surrender of the Certificates formerly representing all outstanding ESOP
Shares; provided, however, that (A) the 1997 Distributee Amount shall be paid
in cash, and (B) the amount, if any, of Closing Consideration that Parent
elects to pay in shares of Parent Common Stock shall be paid in accordance
with Section 2.10(c) hereof, and the amount actually so paid in shares of
Parent Common Stock shall be referred to herein as the "Guaranteed Amount."
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(ii) The "Letter of Credit" shall consist of
one or more irrevocable letters of credit in favor of the ESOP Trust in form
and substance, and issued by one or more banking institutions (the "Issuing
Banks"), satisfactory to the ESOP Trustee, the Company, Parent and the Issuing
Banks, for a term of 13 months from the Closing Date, in an aggregate stated
amount equal to the L/C Amount, providing that the ESOP Trustee may draw down
on the Letter of Credit one time on the Payment Date in an amount not to
exceed the Post-Closing Consideration (subject to required certification by
the ESOP Trust as specified in the Letter of Credit and delivery of the
Remaining Shares of Parent Stock in the case of the last sentence of Section
2.10(c)(iii)).
(c) (i) If Parent elects to make payment of any portion of the
Closing Consideration in shares of Parent Common Stock pursuant to Section
2.10(b)(i), then the number of whole shares of Parent Common Stock (the
"Parent Shares") to be issued by Parent in satisfaction thereof shall be
determined by dividing the amount of such payment by the average of the per
share closing prices of Parent Common Stock on the New York Stock Exchange
("NYSE") Composite Transaction Reporting System (the "Composite Tape") for the
10 consecutive trading days immediately preceding the third trading day prior
to the Closing Date, and cash shall be delivered in lieu of any fractional
share (determined in accordance with the valuation of the Parent Shares
above). The Parent Shares will be registered for sale by the ESOP Trust
pursuant to one or more registration statements (the "Registration Statement")
under the Securities Act, but the ESOP Trust will be prohibited from selling
or otherwise transferring the Parent Shares except pursuant to the terms of
this Section 2.10(c) and all certificates for the Parent Shares shall contain
a legend to such effect. If the ESOP Trust holds shares of Parent Common Stock
as of the Final Sale Date, Parent shall keep the Registration Statement with
respect to the Parent Shares effective and current for a period of up to one
year from the Final Sale Date.
(ii) The ESOP Trust shall not sell or
otherwise transfer or dispose of the Parent Shares except: (A) in accordance
with this Section 2.10(c)(ii), pursuant to one or more written requests by
Parent directing the ESOP Trust to sell all or a portion of the Parent Shares
(each a "Parent Request"), which shall state the number of Parent Shares to be
sold pursuant to such Parent Request (the "Specified Shares") and include the
manner proposed to effect such sale, all principal terms of such sale known at
such time, and the proposed date or dates of such sale (which shall not be
later than the Guarantee Termination Date) and no Parent Request shall be
received by the ESOP Trust later than five business days prior to the
Guarantee Termination Date (the "Final Request Date") and all such sales shall
be consummated no later than the day that is eleven months following the
Closing Date or, if such day is not a business day, the first
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business day thereafter (the "Guarantee Termination Date"); (B) in accordance
with Section 2.10(c)(iii) hereof if a Sale and/or Deemed Sale of all the
Parent Shares has not occurred as of the Guarantee Termination Date; or (C) in
any manner described in the Registration Statement after the Payment Date, and
any such sale made after the Payment Date shall not in any manner affect the
valuation of the Parent Shares for purposes of Section 2.10(d) hereof. Upon a
delivery of a Parent Request, Parent and the ESOP Trust will use commercially
reasonable efforts to effect such sale in accordance with Parent's direction,
and in full compliance with all Requirements of Law applicable to such
parties, and to cooperate with all reasonable requests of the other party in
effecting such sale (including, in the case of the ESOP Trust, entering into
customary underwriting agreements with nationally recognized investment
banking firms or entering into customary stock purchase agreements with
purchasers containing no representations or indemnities other than customary
representations to the effect that (a) the ESOP Trust has the power to make
the sale, (b) such sale does not violate its organizational documents or any
agreements to which it is a party or by which it is bound, (c) it owns the
Parent Shares free and clear of any Liens and upon delivery of such Parent
Shares against payment therefor, it will transfer good and valid title of such
Parent Shares free and clear of all Liens, and indemnification to the
underwriters with respect to information supplied by it with respect to itself
for use in a registration statement). The ESOP Trust will not be required to
take any action in connection with any Parent Request (other than giving the
foregoing representations and indemnities) that could reasonably be expected
to expose it to any liability unless Parent agrees to indemnify the ESOP Trust
against liabilities incurred by it in connection with any such action in
accordance with Section 6 of the Engagement Letter (as if Parent were a party
thereto). In connection with any sales by the ESOP Trust pursuant to the
Registration Statement, Parent agrees to provide the ESOP Trust with the right
to indemnification and contribution by Parent in a manner customarily provided
by issuers to underwriters in connection with an underwritten public offering.
If all or a portion of the Specified Shares are sold in accordance with the
terms of the Parent Request and this Section 2.10(c)(ii), the value of the
Specified Shares so sold, for the purposes of Section 2.10(d) hereof, shall be
the gross proceeds of such sale less the Transaction Fees. In the event that
none or less than all of the Specified Shares are sold in accordance with a
Parent Request primarily due to the fact that the ESOP Trustee failed to act
in accordance with this Section 2.10(c)(ii) in connection with such Parent
Request, then the Specified Shares not so sold shall be deemed to be sold, for
purposes of Section 2.10(d) hereof (i.e. a Deemed Sale), for an amount equal
to (x) in the case where no shares were sold, the average of the per share
closing prices of Parent Common Stock on the Composite Tape on the day or days
which the ESOP Trust reasonably could have
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consummated the sale of the Specified Shares pursuant to the Parent Request
multiplied by the number of the Specified Shares, less the Transaction Fees
and (y) in the case where less than all the Specified Shares were sold, the
per share gross proceeds less the per share Transaction Fees of the Specified
Shares sold pursuant to the Parent Request multiplied by the Specified Shares
not so sold. In the event that none or less than all of the Specified Shares
are sold in accordance with a Parent Request for a reason other than that set
forth in the preceding sentence, then, no Sale or Deemed Sale shall have
occurred with respect to the Specified Shares not so sold and such shares
shall continue to be subject to this Section 2.10(c) and any subsequent Parent
Request. All proceeds received by the ESOP Trust from any Sale pursuant to
this Section 2.10 shall promptly be invested in Permitted Investments in a
segregated account by the ESOP Trust and not withdrawn from such investments
until the Payment Date.
(iii) If on the first day following the
Guarantee Termination Date the ESOP Trustee is holding Parent Shares as to
which there has not been a Deemed Sale in accordance with Section 2.10(c)(ii)
(such shares, the "Remaining Shares"), the ESOP Trust may sell the Remaining
Shares at any time following the Guarantee Termination Date through the
thirtieth (30th) day thereafter or, if the thirtieth (30th) day thereafter is
not a business day, the first business day thereafter (the "Final Sale Date").
If the ESOP Trust desires to sell the Remaining Shares in accordance with this
Section 2.10(c)(iii), the ESOP Trust shall deliver to Parent written notice to
such effect prior to any such sale. All sales to be made by the ESOP Trust
after the Guarantee Termination Date shall be made by the ESOP Trust in a
commercially reasonable manner for a sale of its type in light of the
circumstances in which it is made. Parent and the ESOP Trust will use
commercially reasonable efforts to effect such sale in full compliance with
all Requirements of Law applicable to such parties, and to cooperate with all
reasonable requests of the other party in effecting such sale, subject to the
indemnification requirements of Section 2.10(c)(iii). If such sale is
consummated, the value of the Remaining Shares sold, for purposes of Section
2.10(d) hereof, shall be the gross proceeds of such sale less the Transaction
Fees. If the ESOP Trust has not sold all the Remaining Shares by the Final
Sale Date in accordance with this Section 2.10(c)(iii), the Remaining Shares
not so sold shall be deemed to be sold, for purposes of Section 2.10(d) hereof
(i.e. a Deemed Sale), for an amount equal to the per share closing price of
Parent Common Stock on the Composite Tape on the Final Sale Date, multiplied
by the number of Remaining Shares not so sold, less the Transaction Fees.
Notwithstanding the foregoing, in the event the ESOP Trust is prohibited from
effecting any sale of the Remaining Shares under this Section 2.10(c)(iii)
prior to the Final Sale Date as a result of a Requirement of Law applicable to
the ESOP Trust (other than its organizational documents as in effect on the
date hereof) or the ESOP Trustee (other than its
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organizational documents) (including as a result of any failure by Parent to
update or keep effective the Registration Statement), the ESOP Trust will sell
to Parent, and Parent will purchase, not later than three business days after
the Final Sale Date, such Remaining Shares from the ESOP Trust for a price to
be agreed upon between Parent and the ESOP Trust which price shall not be less
than "adequate consideration" as defined in Section 3(18)(B) of ERISA and
Department of Labor Proposed Regulation Section 2510.3- 18(b), but only to the
extent Parent is not prohibited from purchasing such Remaining Shares as a
result of a Requirement of Law of Parent. The value of the Remaining Shares so
sold in accordance with the immediately preceding sentence, for purposes of
Section 2.10(d) hereof, shall be the gross proceeds of such sale less the
Transaction Fees. If Parent is prohibited from purchasing such Remaining
Shares as a result of a Requirement of Law applicable to Parent, there shall
be no Sale or Deemed Sale of such Remaining Shares and the ESOP Trust shall
have the right, on the third business day after the Final Sale Date, to draw
down on the Letter of Credit in accordance with its terms, which shall include
a requirement to deliver the Remaining Shares to the Issuing Banks, and in
accordance with Section 2.10(d).
(d) The "Post-Closing Consideration" shall be an amount in
cash equal to the sum of $94.93 million (the "Additional Amount"), the
Guaranteed Amount, and the ESOP Amount, if any, plus interest on each of the
Additional Amount, the Guaranteed Amount and the ESOP Amount, if any, at the
Applicable Rate from and including the Closing Date to but not including the
Payment Date, less (i) any cash payments made by Parent to the ESOP Trustee,
for the benefit of the ESOP, after the Closing Date, (ii) the value of the
Parent Shares as calculated in accordance with Section 2.10(c) hereof pursuant
to each Sale and/or Deemed Sale of Parent Shares, as the case may be, and
(iii) Interest Income as of the Payment Date; provided, however, (x) the
Post-Closing Consideration will not exceed the L/C Amount and (y) if Parent
paid the entire amount of Closing Consideration in cash, then the Post-Closing
Consideration shall not include the Guaranteed Amount and clauses (ii) and
(iii) above shall have no effect. For purposes of this Agreement, a "Sale"
shall be the consummation of the sale of Parent Shares in accordance with the
provisions of clause (ii) or (iii) of Section 2.10(c) hereof, and a "Deemed
Sale" shall be the valuation of the Parent Shares in the absence of a Sale in
accordance with the provisions of clause (ii) or (iii) of Section 2.10(c)
hereof. On the date (the "Payment Date") which is three business days after
the first date by which a Sale and/or Deemed Sale has occurred with respect to
the last of the Parent Shares held by the ESOP Trust or, in the case of the
last three sentences of Section 2.10(c)(iii), the date which is three business
days after the Final Sale Date, the ESOP Trust shall make a drawing under the
Letter of Credit in an amount equal to the Post-Closing Consideration. On the
date following the earlier of the Payment Date and the date of the
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expiration of the Letter of Credit to the extent no drawing has been made
thereunder, the ESOP Trust will return the Letter of Credit to Parent (to the
extent not surrendered to the Issuing Banks on the Payment Date).
(e) Notwithstanding anything to the contrary contained herein,
ESOP Participants who are entitled to receive a distribution from the ESOP on
or prior to the first anniversary of the Closing (each a "1997 Distributee")
of all or a portion of their respective account balances in the ESOP other
than as a result of the transactions contemplated by this Agreement, such a
distribution, shall be entitled to receive from the ESOP an amount in cash
equal to such portion of such 1997 Distributee's account balance (all such
distributions, the "1997 Distribution").
(f) The intent of this Section 2.10 is to provide the ESOP
Trust with the right and ability to receive, no later than on or about the
first anniversary of the Closing, except in the case of a Deemed Sale, cash in
an aggregate amount of $341 million plus the ESOP Amount, if any, increased in
respect of all amounts not paid in cash on the Closing Date by the Applicable
Rate for each Interest Period from the Closing Date to but not including the
Payment Date. This Section 2.10 shall be interpreted and applied in light of
such intent.
2.11 Payment of Per Series Share Consideration for
Company Series Preferred Stock.
(a) First Union shall act as agent for the holders of shares
of Company Series Preferred Stock in connection with the Merger (the "Series
Preferred Paying Agent") to receive the funds to which holders of shares of
Company Series Preferred Stock shall become entitled pursuant to Section
2.7(d). At the Closing, Parent shall deliver, or shall cause to be delivered,
to the Series Preferred Paying Agent the amount in immediately available funds
necessary to pay the aggregate Per Series Share Consideration on the
Certificates which immediately prior to the Effective Time represented shares
of Company Series Preferred Stock. Such amount shall equal $18,698,680 plus
any accrued and unpaid dividends on such stock. The funds deposited with the
Series Preferred Paying Agent shall be invested by the Series Preferred Paying
Agent as directed by Parent or the Surviving Corporation only in Permitted
Investments.
(b) Exchange Procedures. As soon as practicable after the
Effective Time, the Series Preferred Paying Agent will, and is hereby directed
to, mail a Letter of Transmittal to each holder of record of a Certificate
which immediately prior to the Effective Time represented outstanding shares
of Company Series Preferred Stock whose shares were converted pursuant to
Section 2.7 hereof into the right to receive the Per Series Share
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Consideration. The Letter of Transmittal and instructions comprising the
Letter of Transmittal for purposes of this Section 2.11(b) shall be agreed
upon as to form and substance at least 12 business days prior to the Effective
Time and First Union shall provide to the General Counsel of the Company at
least 10 business days prior to the Effective Time copies of the Letter of
Transmittal, which may be made available to holders of shares of the Company
Series Preferred Stock for completion prior to the Effective Time. Upon
surrender of such a Certificate for cancellation to the Series Preferred
Paying Agent or to such other agent or agents as may be appointed by the
Series Preferred Paying Agent, together with a Letter of Transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the Per Series Share Consideration in cash, without
interest, for each share of Company Series Preferred Stock formerly
represented by such Certificate, and the Certificate so surrendered shall
forthwith be cancelled. If payment of the Per Series Share Consideration is to
be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of the payment of
the Per Series Share Consideration to a person other than the registered
holder of the Certificate surrendered or shall have established to the
satisfaction of the Surviving Corporation that such tax either has been paid
or is not applicable. Until surrendered as contemplated by this Section 2.11,
each such Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Per Series Share
Consideration in accordance with the terms and provisions of this Agreement
and a Letter of Transmittal.
(c) Termination of Fund; No Liability. At any time following
six months after the Effective Time, the Surviving Corporation shall be
entitled to require the Series Preferred Paying Agent to deliver to it any
funds (including any interest received with respect thereto) which had been
made available to the Series Preferred Paying Agent and which have not been
disbursed to holders of Certificates formerly representing shares of Company
Series Preferred Stock, and thereafter such holders shall be entitled to look
to the Surviving Corporation (subject to abandoned property, escheat or other
similar laws) only as general creditors thereof with respect to the Per Series
Share Consideration payable upon due surrender of such Certificates, without
any interest thereon. Notwithstanding the foregoing, neither the Surviving
Corporation nor the Series Preferred Paying Agent shall be liable to any
holder of a Certificate for Per Series Share Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
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2.12 Deliveries at Closing. At the Closing:
(a) There shall be delivered to Parent, Merger Sub and the
Company the certificates, opinions and other documents and instruments
provided to be delivered under Article VIII hereof.
(b) Parent, Merger Sub and the Company shall cause the
Certificate of Merger to be filed in accordance with the DGCL, and shall take
any and all other lawful actions, and do any other lawful things necessary, to
effect the Merger and to enable the Merger to become effective.
(c) The ESOP Trust, as the holder of record of all
Certificates formerly representing all outstanding ESOP Shares, shall deliver
to the Company for cancellation all such Certificates.
(d) Parent and Merger Sub shall deliver, or cause to be
delivered, to the ESOP Trust the Closing Consideration as follows: (i) the
cash portion of the Closing Consideration shall be delivered by wire transfer
of immediately available funds to an account designated by the ESOP Trust to
the Parent at least two business days prior to the Closing Date, (ii) the
Parent Shares, registered in the name of the ESOP Trust (if Parent elected to
pay any portion of the Closing Consideration in shares of Parent Common
Stock), and (iii) the Letter of Credit.
ARTICLE III
RELATED TRANSACTIONS
3.1 Purchase of GM Shares. At the Closing, immediately prior to the
Effective Time, Parent or a wholly owned Subsidiary of Parent ("Buyer") will
purchase from GM, and GM will sell, assign, transfer and convey to Buyer, all
outstanding shares of Participating Convertible Preferred Stock (the "GM
Shares"), in accordance with the Stock Purchase Agreement.
3.2 Cancellation of Units. First Union shall act as paying agent
for each holder of outstanding "appreciation units" (the "Units") under the
Avis, Inc. Phantom Stock Plan, the Avis, Inc. Stock Appreciation Rights Plan
(the "SAR") and any other similar plans maintained by the Company or any of
its Subsidiaries (collectively, the "Unit Plans") to receive at the Closing in
immediately available funds from Parent and the Company in the amount
specified in the next sentence which such holders are entitled to receive upon
the consummation of the Merger, and upon receipt of such funds the Units shall
be cancelled and the Unit Plans shall be terminated and of no further force
and effect. In consideration for such cancellation and
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termination, each person holding Units immediately prior to the Effective Time
shall become entitled to receive a lump sum cash payment equal to (A x B) - C,
where A equals the number of Units held by such person at such time, B equals
$25 and C equals the aggregate Measurement Value of the Units held by such
person; provided, however, that the aggregate amount to be paid hereunder in
respect of all Units shall not exceed $64.4 million.
3.3 Cancellation of Equivalent Shares. First Union shall act as
paying agent for each holder of outstanding "equivalent shares" (the
"Equivalent Shares") under the Avis, Inc. Nonqualified Employee Stock
Ownership Equivalent Plan (the "Equivalent Plan") to receive at the Closing
from Parent and the Company the amount specified below in immediately
available funds and Parent Common Stock (reduced, or offset through later
reimbursement, by any and all amounts held by any trust established to fund
liabilities of the Company under the Equivalent Plan, including without
limitation, the Trust Agreement for Avis, Inc. Nonqualified Employee
Equivalent Plan, dated as of August 16, 1994) which such holders are entitled
to receive upon the consummation of the Merger, and upon receipt of such
funds, the Equivalent Shares shall be cancelled and all Stock Accounts
thereunder (as defined in the Equivalent Plan) shall be terminated. In
consideration for the cancellation of the Equivalent Shares, each person
holding Equivalent Shares immediately prior to the Effective Time shall become
entitled to receive, for each Equivalent Share cancelled, an amount equal to
the Per Share Merger Consideration (the "Per Equivalent Share Consideration").
The aggregate Per Equivalent Share Consideration to be paid to a holder of
Equivalent Shares shall be comprised of (i) a number of whole shares of Parent
Common Stock registered pursuant to the Registration Statement under the
Securities Act equal to (A) the number of Equivalent Shares held by such
person immediately prior to the Effective Time, multiplied by $5.00, divided
by (B) the average per share closing prices of Parent Common Stock on the
Composite Tape for the 10 consecutive trading days immediately preceding the
third trading day prior to the Effective Time, (ii) a cash payment equal to
(A) the number of Equivalent Shares held immediately prior to the Effective
Time, multiplied by (B) the Per Share Equivalent Consideration, minus $5.00,
and (iii) a cash payment equal to the value of any fractional share of Parent
Common Stock not issued pursuant to (i) above (determined in the same manner
as (i) above); provided, however, prior to the Closing, the Company shall take
any and all action with respect to the Equivalent Plan to provide that the
aggregate amount to be paid hereunder in cash and Parent Common Stock in
respect of all Equivalent Shares shall not exceed $21.5 million (not including
any amount to be paid on the Equivalent Shares resulting from payment of the
ESOP Amount, if any, which in such case shall not exceed an additional $1
million). In connection with any sales of Parent Common Stock by the former
holders of Equivalent Shares pursuant to the
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Registration Statement, Parent agrees to provide such persons with the right
to indemnification and contribution by Parent in a manner customarily provided
by issuers to underwriters in connection with an underwritten public offering.
3.4 Redemption of Series C Preferred Stock.
(a) Redemption Agent. First Union shall act as agent for the
holders of shares of Series C Preferred Stock in connection with the
redemption of such shares in connection with the Merger (the "Redemption
Agent") to receive the funds to which holders of shares of Series C Preferred
Stock shall become entitled pursuant to the Certificate of Designation as a
result of the Merger. At or prior to Closing, Parent and the Company shall
deliver, or cause to be delivered, $53,763,136.08 in immediately available
funds, plus any accrued and unpaid dividends on such stock, with the
Redemption Agent representing the funds necessary to redeem the outstanding
shares of Series C Preferred Stock (the "Redemption Amount"). The per share
amount to be received by the holders of the Series C Preferred Stock in the
redemption is $18.68 plus any accrued and unpaid dividends (the "Per Share
Redemption Consideration"). The Redemption Amount shall be invested by the
Redemption Agent as directed by the Parent or the Surviving Corporation only
in Permitted Investments.
(b) Redemption Procedures. Not less than 20 nor more than 60
days prior to the Closing Date, the Company shall, at Parent's instruction (or
without such instruction if the Company is prepared to close the Merger
contemplated hereby), cause the Redemption Agent to mail to each holder of
record of shares of Series C Preferred Stock (i) a redemption notice (which
shall be in such form and have such provisions as Parent and the Company
acting together may reasonably specify including, without limitation, a
provision stating that the redemption is conditioned upon the consummation of
the Merger) and (ii) instructions for use in effecting the surrender of each
share of Series C Preferred Stock in exchange for the Per Share Redemption
Consideration, without interest. Upon surrender of shares of Series C
Preferred Stock for cancellation to the Redemption Agent or to such other
agent or agents as may be appointed by the Redemption Agent, together with any
requested letter of transmittal, duly executed, the holder of such Series C
Preferred Stock shall be entitled to receive in exchange therefor the Per
Share Redemption Consideration for each share of Series C Preferred Stock, and
the certificate so surrendered shall forthwith be cancelled. If payment of the
Per Share Redemption Consideration is to be made to a person other than the
person in whose name the surrendered certificate is registered, it shall be a
condition of payment that the certificate so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer
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and other taxes required by reason of the payment of the consideration to a
person other than the registered holder of the certificate surrendered or
shall have established to the satisfaction of the Surviving Corporation that
such tax either has been paid or is not applicable. Until surrendered as
contemplated by this Section 3.4(b), each certificate formerly representing
shares of Series C Preferred Stock shall be deemed at and any time after the
Effective Time to represent only the right to receive upon such surrender the
Per Share Redemption Consideration as set forth above in accordance with the
terms and provisions of this Agreement and the redemption notice.
(c) Termination of Redemption Fund; No Liability. At any time
following six months after the Effective Time, the Surviving Corporation shall
be entitled to require the Redemption Agent to deliver to it any funds
(including any interest received with respect thereto) which had been made
available to the Redemption Agent and which have not been disbursed to holders
of certificates formerly representing shares of Series C Preferred Stock, and
thereafter such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) only as general
creditors thereof with respect to the Per Share Redemption Consideration
payable upon due surrender of their certificates, without any interest
thereon. Notwithstanding the foregoing, neither the Surviving Corporation nor
the Redemption Agent shall be liable to any holder of a certificate formerly
representing shares of Series C Preferred Stock for consideration delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as
follows:
4.1 Organization. The Company and each of its Subsidiaries (i) is
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of organization, (ii) has full corporate power and authority to
own all of its properties and assets and to carry on its business as it is now
being conducted, and (iii) is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except in such jurisdictions where the failure to be so qualified and in good
standing would not individually or in the aggregate have a Material Adverse
Effect. The Company has delivered to Parent a complete and correct copy of the
certificate of incorporation and Bylaws or comparable
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organizational documents, each as amended to date, of the Company and each of
its Subsidiaries. Such organizational documents are in full force and effect
and neither the Company nor any of its Subsidiaries is in violation of any
provision of such organizational documents.
4.2 Authority; Enforceability. The Company has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby (other than, with respect to
the Merger, the approval and adoption of this Agreement by the Requisite
Stockholder Vote). The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the Merger and the other
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than, with respect to the
Merger, the approval and adoption of this Agreement by the Requisite
Stockholder Vote). This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, when executed
and delivered by the other parties thereto.
4.3 Non-Contravention. The execution and delivery by the Company of
this Agreement does not, and the consummation by the Company of the
transactions contemplated hereby and the performance by the Company of its
obligations hereunder will not, (a) subject to obtaining the approvals set
forth in Section 4.4, violate, or result in the violation of, any Requirement
of Law of the Company or any of its Subsidiaries, or (b) except as described
in Section 4.3 of the Disclosure Schedule, (i) result in the creation of any
Lien on the properties or assets of the Company or any of its Subsidiaries, or
(ii) violate, or result in the violation of, or default (with or without
notice or lapse of time, or both) under, any provision of, or result in the
termination or acceleration of, or give rise to a right of termination or
acceleration of or the loss of a material benefit under, any loan agreement,
note, contract, lease or other material agreement, Plan, obligation,
instrument, Lien or Permit applicable to the Company or any of its
Subsidiaries or their respective properties or assets.
4.4 Consents. (a) Except for filings under the Hart- Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the DGCL, and
under the Securities Act with respect to the Registration Statement and as set
forth in Section 4.4 of the Disclosure Schedule, no consent, authorization,
order or approval of, or filing or registration with, any Governmental
Authority is required for or in connection with the execution and delivery of
this Agreement by the Company and the consummation by
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the Company of the transactions contemplated hereby and the
performance by the Company of its obligations hereunder.
(b) As of the date hereof, the Company has obtained consents
(the "Unit Consents") to the treatment of Units provided for in Section 3.2
from all of the holders of outstanding Units and consents (the "Equivalent
Share Consents") to the treatment of Equivalent Shares provided for in Section
3.3 from holders of at least 95% of all outstanding Equivalent Shares. The
Company will not agree to amend any such consent (and any additional consent
obtained prior to the Closing Date) without the prior written approval of
Parent. All such consents were (and any additional consents obtained prior to
the Closing Date will be) validly obtained in accordance with all Requirements
of Law applicable to the Company and such holders and such consents by their
terms shall remain valid, and shall remain in possession of the Company, at
all times through the Effective Time.
4.5 Capital Stock of the Company.
(a) The entire authorized capital stock of the Company as of
June 30, 1996 consists of the following: (i) 100,000,000 shares of Company
Common Stock, of which 23,618,321.0313 shares are validly issued and
outstanding, fully paid and nonassessable and comprised of (A) 23,603,524.0313
shares which are owned beneficially and of record by the ESOP Trust, of which
(1) 8,813,077 shares are allocated to the accounts of ESOP Participants
("Allocated Shares"), all of such shares are owned free and clear of any
Liens, and (2) 14,790,448 shares are Unallocated Shares owned beneficially and
of record by the ESOP Trust and subject to the Liens set forth in Section
4.5(a) of the Disclosure Schedule, (B) 14,797 shares of which are Non-ESOP
Shares, and (C) 5,424,594.4687 shares are held by the Company in treasury; and
(ii) 25,000,000 shares of preferred stock, par value $.01 per share,
consisting of (A) 15,000,000 shares of Participating Convertible Preferred
Stock, par value $.01 per share (the "Convertible Preferred Stock"), of the
Company of which 9,788,623 shares are validly issued and outstanding, fully
paid and nonassessable and are owned of record by GM and represent the GM
Shares and are convertible into shares of Company Common Stock on a share for
share basis, (B) 2,500,000 shares of Series A Preferred Stock, of which
186,986.80 shares are validly issued and outstanding, fully paid and
nonassessable, (C) 2,500,000 shares of Series B Preferred Stock, of which
186,986.80 shares are validly issued and outstanding, fully paid and
nonassessable, and (D) 5,000,000 shares of Series C Preferred Stock, of which
2,878,112.21 shares are validly issued and outstanding, fully paid and
nonassessable and Section 4.5(a) of the Disclosure Schedule lists the nine
holders of record of Series C Preferred Stock with the largest holdings of
Series C Preferred Stock.
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(b) As of June 30, 1996, 4,408,950 Units and 528,539.91
Equivalent Shares are issued and outstanding. The Measurement Values are true
and correct as of the date hereof and through December 31, 1996. Except as set
forth in the preceding sentence and in Section 4.5(b) of the Disclosure
Schedule, and except for the Convertible Preferred Stock, there are no
outstanding options, warrants, calls, rights or commitments or any other
agreements of any character relating to the sale, issuance or voting of, or
the granting of rights to acquire, any shares of the capital stock of the
Company or any cash equivalents thereto, or any securities or other
instruments convertible into, exchangeable for or evidencing the right to
purchase any shares of capital stock of the Company or any cash equivalents
thereto.
(c) Immediately prior to the Effective Time and after giving
effect to Section 7.10 hereof, (i) no more than 23,618,322 shares of Company
Common Stock will be issued and outstanding, of which (A) no more than
10,200,000 shares and no less than 8,813,078 shares will be Allocated Shares
(of which no more than 250,000 shares will be subject to the 1997
Distribution), and (B) not more than 15,000 shares of which will be Non-ESOP
Shares, (ii) no shares of Company Common Stock will be held in treasury by the
Company, (iii)(A) 186,986.80 shares of Series A Preferred Stock, (B)
186,986.80 shares of Series B Preferred Stock, (C) 2,878,112.21 shares of
Series C Preferred Stock, and (D) 9,788,623 shares of Convertible Preferred
Stock will be issued and outstanding and (iv) no more than 4,408,950 Units and
no more than 625,000 Equivalent Shares will be outstanding, provided that the
foregoing representation shall not be breached if the Closing Date occurring
after November 1, 1996 results in additional contributions (other than as set
forth in Section 7.1(l) of the Disclosure Schedule) after such date to the
ESOP Trust by the Company which are utilized to make payment on the ESOP Debt
thereby increasing the Allocated Shares and Equivalent Shares, and in such
event, the number of Allocated Shares and Equivalent Shares in such
representation shall be increased to such higher number of Allocated Shares
and Equivalent Shares. As used herein, "ESOP Debt" shall mean the Indebtedness
owing by the ESOP Trust to the Company. The aggregate amount payable by Parent
and the Company in respect of the Equivalent Shares in connection with the the
transactions contemplated hereby and pursuant to the Equivalent Plan shall not
exceed $21.5 million (not including any amount to be paid on the Equivalent
Shares resulting from payment of the ESOP Amount, if any, which in such case
shall not exceed an additional $1 million). Prior to the Closing, the Company
shall take any and all action necessary with respect to the Equivalent Plan to
effect the matters set forth in the preceding sentence.
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4.6 Subsidiaries. Section 4.6 of the Disclosure Schedule sets forth
the name of each Subsidiary of the Company and any other corporation,
partnership, joint venture or other entity in which the Company directly or
indirectly owns any equity or other ownership interest (an "Other Entity"),
the number of authorized, issued and outstanding shares of each Subsidiary of
the Company and Other Entity, the name of the record and beneficial owner of
such shares and the jurisdiction of organization for each Subsidiary of the
Company and Other Entity. All the outstanding shares of capital stock of each
such Subsidiary are validly issued, fully paid and nonassessable, and have not
been issued in violation of any preemptive or similar rights. Except as set
forth in Section 4.6 of the Disclosure Schedule, all outstanding shares of
capital stock of each such Subsidiary and Other Entity are owned beneficially
and of record by the Company or one of its other Subsidiaries free and clear
of any Liens. Except as set forth in Section 4.6 of the Disclosure Schedule,
there are no outstanding options, warrants, calls, rights or commitments, or
any other agreements of any character relating to the sale, issuance or voting
of, or the granting of rights to acquire, any shares of the capital stock of
any such Subsidiary, or any securities or other instruments convertible into,
exchangeable for or evidencing the right to purchase any shares of capital
stock of any such Subsidiary.
4.7 Financial Statements.
(a) Section 4.7 of the Disclosure Schedule contains a copy of
the audited consolidated balance sheets of the Company as of February 29, 1996
and February 28, 1995 and the related consolidated statements of income, of
changes in stockholders equity, of changes in redeemable preferred stock, and
of cash flows for the fiscal years ended on each such date, and the notes and
schedules thereto, accompanied by the report thereon of Price Waterhouse LLP
(the "Annual Financial Statements"). The Annual Financial Statements present
fairly the consolidated financial condition of the Company and its
Subsidiaries as of such dates and the consolidated results of its operations
and its consolidated cash flows for the fiscal years then ended. The
consolidated balance sheet of the Company as of February 29, 1996 is hereafter
referred to as the "Balance Sheet." The unaudited consolidated balance sheet
of the Company as of May 31, 1996, and the related unaudited consolidated
statements of income and of cash flows for the three-month period ended on
such date, certified by the chief financial officer of the Company, are also
contained in Section 4.7 of the Disclosure Schedule (the "Interim Financial
Statements"). The Interim Financial Statements present fairly the consolidated
financial condition of the Company and its Subsidiaries as of such date and
the consolidated results of their operations and their consolidated cash flows
for the three-month period then ended (subject to normal year-end audit
adjustments and the other
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adjustments disclosed therein). Price Waterhouse LLP are independent public
accountants with respect to the Company as required by the Securities Act.
(b) The financial statements referenced in Section 4.7(a),
including the related schedules and notes thereto, have all been prepared in
accordance with GAAP applied consistently throughout the periods involved
(except as disclosed therein and except, in the case of unaudited financial
statements, for normal recurring adjustments and the other adjustments
disclosed therein (which are not, individually or in the aggregate, material),
and the absence of footnotes). Reserves are reflected on the Balance Sheet
against all liabilities of the Company and its Subsidiaries in amounts that
have been established on a basis consistent with the past practices of the
Company and its Subsidiaries and in accordance with GAAP and such reserves are
adequate, reasonable and appropriate.
4.8 Absence of Certain Changes or Events. Except as expressly
contemplated or permitted by this Agreement or as set forth in Section 4.8 of
the Disclosure Schedule, since February 29, 1996, the Company and each of its
Subsidiaries have conducted their respective businesses only in the ordinary
course and consistent with past practice, and there has not been any
development or event which has had or could reasonably be expected to have a
Material Adverse Effect. Without limiting the generality of the foregoing,
except as described in Section 4.8 of the Disclosure Schedule, except for
those actions after the date of this Agreement permitted pursuant to Section
7.1, and except as entered into or effected in the ordinary course consistent
with past business practices of the Company and its Subsidiaries taken as a
whole, neither the Company nor any of its Subsidiaries has since February 29,
1996:
(i) incurred any damage, destruction or loss
which materially and adversely affects its business or assets;
(ii) made any material changes in its
customary methods of operations, including, without limitation,
its marketing practices and its relationships with the
Franchisees;
(iii) increased the compensation or benefits
payable by it to its employees generally except for increases in compensation
or benefits in the ordinary course of business consistent with past practice
which are not, individually or in the aggregate, material to the Company or
such Subsidiary, or increased the compensation or benefits payable by it to
(a) any director or (b) any specific employee who, as of the date hereof,
receives from the Company and its Subsidiaries in excess of $30,000 base
salary on an annual basis;
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(iv) incurred any Indebtedness for borrowed
money;
(v) permitted any of its assets to be
subject to a Lien, except for Liens the existence of which would
not constitute a breach of the representations set forth in
Section 4.12;
(vi) failed to pay any creditor any material
amount owed to such creditor within 60 days of such amount
becoming due;
(vii) paid any liability before the same
became due in accordance with its terms;
(viii) made any loan or advance to any
person or incurred any Guarantee Obligations;
(ix) made any payment or distribution to any
Affiliate, including, without limitation, any repayment of any Indebtedness,
except for payments or distributions by a wholly owned Subsidiary of the
Company (defined to include any Subsidiary all of whose shares are owned
directly or indirectly by the Company other than nominee, director qualifying
or similar shares) to the Company or another wholly owned Subsidiary of the
Company or by the Company to one of its wholly owned Subsidiaries or to the
ESOP Trust (by way of contributions or dividends on ESOP Shares);
(x) entered into any agreement or
transaction with any of its directors, officers or employees, except those
which are not, individually or in the aggregate, material to the Company or
any of its Subsidiaries.
(xi) made any capital expenditure or
commitment for any capital expenditure in excess of $150,000
individually or $3 million in the aggregate;
(xii) merged or consolidated with, or
acquired an interest in, any person;
(xiii) leased (as lessor), sold or otherwise
disposed of any properties or assets, except those which are not, individually
or in the aggregate, material to the Company and its Subsidiaries taken as a
whole;
(xiv) entered into any material joint
venture, partnership or other similar arrangement with any
person;
(xv) terminated, discontinued, closed or
disposed of any facility or any material business operation;
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(xvi) issued, sold or redeemed any capital
stock, notes, bonds or other securities, or any option, warrant, stock
appreciation right or other right to acquire the same;
(xvii) declared or paid any dividends or
other distributions in respect of its capital stock (except for declarations
by a wholly owned Subsidiary of the Company in favor of the Company or another
wholly owned Subsidiary of the Company and payments or distributions by a
wholly owned Subsidiary of the Company to the Company or another wholly owned
Subsidiary of the Company);
(xviii) amended, terminated, cancelled or
compromised any undisputed material claims;
(xix) allowed any of its Permits to lapse or
terminate or failed to renew any of its Permits, in each case other than with
respect to Permits the failure of which to be in effect could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect;
(xx) amended or modified, in any material
respect, or consented to the early termination of, any contract
listed in Section 4.11 of the Disclosure Schedule;
(xxi) amended its certificate of
incorporation or by-laws;
(xxii) failed to maintain its assets in
accordance with past practice and in good operating condition and repair
(ordinary wear and tear excepted), except those which are not, individually or
in the aggregate, material to the Company and its Subsidiaries taken as a
whole;
(xxiii) entered into any lease (as lessee)
under which it would be obligated to make payments in any one year of $1
million or more, other than leases related to automobiles;
(xxiv) made any change in the financial or
accounting practices or policies customarily followed by it (other than
changes required by GAAP) or made any election with respect to Taxes;
(xxv) entered into any contract or other
agreement or other transaction that increases its liabilities by
$5 million or more; or
(xxvi) entered into any contract or other
agreement to do any of the foregoing.
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4.9 Legal Proceedings. Except as described in Section 4.9 of the
Disclosure Schedule, except for personal injury and property damage litigation
("PI/PD Litigation"), and except for litigation commencing after the date
hereof, no litigation, investigation or proceeding of or before any arbitrator
or Governmental Authority has been commenced, is pending or, to the knowledge
of the Company, threatened by or against the Company or any of its
Subsidiaries or against any of their respective properties or assets. No
litigation, proceeding or investigation of or before any arbitrator or
Governmental Authority has been commenced, is pending or, to the knowledge of
the Company, threatened by or against the Company or any of its Subsidiaries
or against any of their respective properties or assets (including any items
subject to the exceptions above) which could reasonably be expected to have
individually or in the aggregate a Material Adverse Effect (after taking into
account the reserves and insurance referred to below in the case of PI/PD
Litigation). Section 4.9 of the Disclosure Schedule sets forth a brief
description of each judgment, injunction, decree, order or other determination
of an arbitrator or a court or other Governmental Authority applicable to the
Company or any of its Subsidiaries or any of their respective properties or
assets since February 29, 1993 except for any thereof commencing after the
date hereof. No judgment, injunction, decree, order or other determination of
an arbitrator or a court or other Governmental Authority applicable to the
Company or any of its Subsidiaries or any of their respective properties or
assets (including any items subject to the exceptions above) which could
reasonably be expected to have individually or in the aggregate a Material
Adverse Effect. The Company will promptly notify Parent of any material
litigation, investigation or proceeding commencing, or any material judgment,
injunction, decree, order or other determination arising, after the date
hereof. The reserves on the Balance Sheet relating to PI/PD Litigation
represent the Company's and its Subsidiaries' aggregate self retained
liability for such claims and such reserves are adequate, reasonable and
appropriate in the aggregate. The Company's and its Subsidiaries' liability
relating to PI/PD Litigation in excess of such reserves is fully and
adequately covered by insurance policies with third parties.
4.10 No Undisclosed Liabilities. There are no material liabilities
of the Company or any of its Subsidiaries (absolute, accrued, contingent or
otherwise), other than (a) liabilities (i) to the extent reflected or reserved
against on the Balance Sheet or (ii) incurred since the date of the Balance
Sheet or the Interim Balance Sheet in the ordinary course of business,
consistent with past practice, (b) liabilities under contracts listed in
Section 4.11 of the Disclosure Schedule or under contracts entered into in the
ordinary course of business which are not required to be listed in Section
4.11 of the Disclosure Schedule and are not in the aggregate material and
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(c) liabilities disclosed in Section 4.10 of the Disclosure
Schedule.
4.11 Contracts.
(a) Section 4.11 of the Disclosure Schedule lists (without
duplication) each of the following contracts and other agreements to which the
Company or any of its Subsidiaries is a party or by or to which the Company or
any of its Subsidiaries or any of their respective assets or properties is
bound or subject in each case as of the date hereof:
(i) material agreements between the Company
and any of its Subsidiaries or between any two or more
Subsidiaries of the Company;
(ii) material agreements between the Company
or any of its Subsidiaries on the one hand, and a Franchisee, on
the other hand;
(iii) agreements (including written
settlement agreements) currently in effect pursuant to which the Company or
any of its Subsidiaries licenses the right to use any material Intellectual
Property to any person or from any person (indicating which of the Company or
its Subsidiaries is currently party to such agreement);
(iv) advertising, market research and other
marketing agreements providing for payments by the Company and
its Subsidiaries of more than $1.5 million per agreement;
(v) agreements relating to the franchise
business in general providing for payments by the Company and its
Subsidiaries of more than $300,000 per agreement;
(vi) agreements relating to any committee or
organization of, or representing, Franchisees;
(vii) employment, severance and consulting
agreements with any current or former director, officer or employee which
provide for continuing obligations on the part of the Company or any of its
Subsidiaries;
(viii) agreements with any labor union or
similar association representing any employee;
(ix) agreements for the sale or lease (as
lessor) by the Company or any of its Subsidiaries of any assets
or properties (other than automobiles) in excess of $300,000 per
agreement;
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(x) agreements relating to the acquisition
or lease (as lessee) by the Company or any of it Subsidiaries of
any assets or properties in excess of $300,000 per agreement, and
all airport concession agreements;
(xi) agreements relating to the disposition
or acquisition of any ownership interest with a book value of
$100,000 or more in any person;
(xii) joint venture, partnership or similar
agreements;
(xiii) agreements that materially limit or
purport to materially limit the ability of the Company or any of its
Subsidiaries to compete in any line of business or with any person or in any
geographical area or during any period of time;
(xiv) agreements relating to the incurrence
of Indebtedness by the Company or any of its Subsidiaries or
restricting the ability of the Company or any of its Subsidiaries
to incur Indebtedness;
(xv) agreements relating to any Guarantee
Obligations of the Company or any of its Subsidiaries (other than indemnities
made in the ordinary course of business which are not material to the Company
and its Subsidiaries taken as a whole);
(xvi) agreements relating to the making of
any loan or advance by the Company or any of its Subsidiaries other than (x)
intercompany loans among the Company and its wholly owned Subsidiaries and (y)
those made in the ordinary course of business which are not in excess of
$50,000;
(xvii) agreements providing for the
indemnification by the Company or any of its Subsidiaries to any person except
those entered into in the ordinary course of business which are not material
to the Company and its Subsidiaries taken as a whole;
(xviii) agreements with any Governmental
Authority except those entered into in the ordinary course of business which
are not material to the Company and its Subsidiaries taken as a whole and
other than tax audit agreements; and
(xix) all other agreements whether or not
made in the ordinary course of business which are material to the Company and
its Subsidiaries taken as a whole.
(b) There have been delivered or made available to Parent true
and complete copies of all of the written agreements listed in Section 4.11 of
the Disclosure Schedule and
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a written summary of all of the oral agreements, if any, listed in Section
4.11 of the Disclosure Schedule. Each contract and agreement to which the
Company or any of its Subsidiaries is a party or by or to which the Company or
any of its Subsidiaries or any of their respective assets or properties is
bound or subject (to the extent listed in Section 4.11 of the Disclosure
Schedule) is in full force and effect and constitutes a legal, valid and
binding obligation of the Company or one of its Subsidiaries, as the case may
be, and, to the Company's knowledge without inquiry, of each other party
thereto, enforceable against the Company or one of its Subsidiaries, as the
case may be, in accordance with its terms. Neither the Company nor any of its
Subsidiaries has received any written notice (x) that any such agreement is
not enforceable against any party thereto or (y) of early termination or
intention to early terminate from any other party to any such agreement.
Except as set forth in Section 4.11 of the Disclosure Schedule, neither the
Company or any of its Subsidiaries nor, to the Company's knowledge, any other
party to any such agreement is in material breach of or material default under
any such agreement.
4.12 Properties.
(a) Section 4.12 of the Disclosure Schedule contains a list of
all real estate owned or leased by the Company or any of its Subsidiaries
(except any thereof first acquired and leased after the date hereof as
permitted by Section 7.1 hereof). Each of the Company and its Subsidiaries has
good record and marketable title in fee simple to all such real property
listed as owned, and has valid leasehold interests in all such real property
listed as leased, in each case free and clear of all Liens except for (i)
defects in title or Liens which do not and will not materially interfere with
the present use of such property, otherwise materially impair business
operations at such properties, or materially detract from the value of such
property, or (ii) statutory or other similar Liens securing payments not yet
due. The current use of such owned and leased real estate by the Company or
any of its Subsidiaries does not violate the certificate of occupancy thereof
or any local zoning or similar land use or government regulations in any way
that could have a Material Adverse Effect. Each such lease is valid without
material default thereunder by the lessee or the lessor. There is no material
defect in the normal operating condition and repair of the equipment owned or
leased by the Company and its Subsidiaries.
(b) The Company and its Subsidiaries have good and marketable
title to all assets (other than the real property which is represented and
warranted in paragraph (a) above) shown on the Balance Sheet or acquired since
the date of the Balance Sheet, other than the assets shown on the Balance
Sheet and
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disposed of since the date of the Balance Sheet in the ordinary course but
subject to such Liens existing thereon.
4.13 Intellectual Property.
(a) Except as set forth on Section 4.13 of the Disclosure
Schedule, the Company or one of its Subsidiaries owns or has the right to use,
sell or license the Intellectual Property, free and clear of all Liens (except
for any thereof first acquired after the date hereof, permitted by Section
7.1). Section 4.13 of the Disclosure Schedule sets forth a complete and
accurate list of all federal, state and foreign patents and patent
applications, trademark or service mark applications and registrations,
copyright registrations and applications, and material unregistered
copyrights, service marks, trademarks and trade names, each as owned by the
Company or one of its Subsidiaries (indicating which of the Company and its
Subsidiaries owns such rights). Either the Company or one of its Subsidiaries
currently is listed in the records of the appropriate United States, state or
foreign agency as the sole owner of record for each application and
registration listed on Section 4.13 of the Disclosure Schedule.
(b) Section 4.13 of the Disclosure Schedule sets forth a
complete and accurate list of all agreements pertaining to the use of or
granting any right to use or practice any rights under any Intellectual
Property, whether the Company or any of its Subsidiaries is the licensee or
licensor thereunder (collectively, the "Licenses") (except for any thereof
first acquired after the date hereof as permitted by Section 7.1), and any
written settlement agreements relating to Intellectual Property entered into
on or after February 29, 1991. The Licenses are valid and binding obligations
of the Company or any of its Subsidiaries, enforceable in accordance with
their terms, and there are no breaches or defaults thereunder.
(c) Section 4.13 of the Disclosure Schedule lists all of the
material Computer Programs which are owned, licensed, leased or otherwise used
by the Company or any of its Subsidiaries in connection with the operation of
their businesses as currently conducted (except for any thereof first acquired
after the date hereof as permitted by Section 7.1), and identifies which is
owned, licensed, leased, or otherwise used, as the case may be. As soon as
practicable after the date hereof, but in no event later than the Closing
Date, the Company shall deliver to Parent a list identifying which of the
Company or its Subsidiaries owns, licenses, leases or otherwise uses the
Computer Programs listed in Section 4.13 of the Disclosure Schedule. Unless
otherwise indicated on Section 4.13 of the Disclosure Schedule, each Computer
Program listed in Section 4.13 of the Disclosure Schedule is (i) owned by the
Company or any of its Subsidiaries, (ii) currently in the public domain or
other-
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wise available to the Company or any of its subsidiaries without the approval
or consent of any third party, or (iii) used in accordance with rights granted
to the Company or any of its Subsidiaries pursuant to a written agreement,
license or lease from a third party.
(d) The registrations listed on Section 4.13 of the Disclosure
Schedule are valid, subsisting, in proper form and enforceable, and have been
duly maintained, including the submission of all necessary filings in
accordance with the legal and administrative requirements of the appropriate
jurisdictions. Unless otherwise indicated on Section 4.13 of the Disclosure
Schedule, the registrations and applications listed on Section 4.13 of the
Disclosure Schedule have not lapsed, expired or been abandoned, and no
application or registration therefor is the subject of any pending, existing
or, to the best of the Company's knowledge, threatened, opposition,
interference, cancellation proceeding or other legal or governmental
proceeding before any registration authority in any jurisdiction.
(e) No material trade secret or confidential know-how or other
confidential information relating to the Company or any of its Subsidiaries
has been disclosed or authorized to be disclosed to any third party, other
than pursuant to a non-disclosure agreement that fully protects the Company's
and its Subsidiaries' proprietary interests in and to such confidential
information.
(f) Except as set forth on Section 4.13 of the Disclosure
Schedule, (a) the conduct of the businesses of the Company and its
Subsidiaries does not infringe upon any intellectual property right owned or
controlled by any third party and (b) there are no claims or suits pending or,
to the best of the Company's knowledge, threatened, and neither the Company
nor any of its Subsidiaries has received any notice of a claim or suit (i)
alleging that the Company's or any of its Subsidiaries' activities or the
conduct of their businesses infringes upon or constitutes the unauthorized use
of the proprietary rights of any third party, or (ii) challenging the
ownership, use, validity or enforceability of the Intellectual Property.
(g) Except as set forth on Section 4.13 of the Disclosure
Schedule, no third party is infringing upon any Intellectual Property owned or
controlled by the Company or any of its Subsidiaries and no such claims have
been made by the Company or any of its Subsidiaries.
(h) Except as set forth on Section 4.13 of the Disclosure
Schedule, to the best of the Company's knowledge, there are no judgments or
orders which restrict the Company's or any of its Subsidiaries' rights to use
any Intellectual Property, and no concurrent use or other agreements (aside
from license and
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other like agreements) which restrict the Company's or any of its
Subsidiaries' rights to use any Intellectual Property owned by the Company and
its Subsidiaries.
(i) The consummation of the transaction contemplated hereby
will not result in the loss or impairment of the Company's or any of its
Subsidiaries' right to own or use any of the material Intellectual Property
nor will it require the consent of any Governmental Authority or third party
in respect of any such material Intellectual Property.
4.14 Employee Benefits; ERISA.
(a) Section 4.14(a) of the Disclosure Schedule contains a true
and complete list of each material bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance, change-in-control, or
termination pay, hospitalization or other medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension, or retirement
plan, program, agreement or arrangement, and each other material employee
benefit plan, program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by the Company, any of its
Subsidiaries or by any trade or business, whether or not incorporated (an
"ERISA Affiliate"), that together with the Company would be deemed a "single
employer" within the meaning of Section 4001(b)(1) of ERISA, for the benefit
of any employee or former employee of the Company, any of its Subsidiaries or
any ERISA Affiliate (the "Plans"). Section 4.14(a) of the Disclosure Schedule
identifies each of the Plans that is an "employee welfare benefit plan," or
"employee pension benefit plan" as such terms are defined in Sections 3(1) and
3(2) of ERISA (such plans being hereinafter referred to collectively as the
"ERISA Plans"). None of the Company, any of its Subsidiaries, or any ERISA
Affiliate has any formal plan or commitment, whether legally binding or not,
to create any additional Plan or modify or change any existing Plan that would
affect any employee or former employee of the Company, any of its Subsidiaries
or any ERISA Affiliate except to the extent that any such creation,
modification or change could not, individually or in the aggregate, reasonably
be expected to result in a material liability of the Company or any of its
Subsidiaries.
(b) With respect to each of the Plans, the Company has
heretofore delivered to Parent true and complete copies of each of the
following documents:
(i) a copy of the Plan documents (including
all amendments thereto) for each written Plan;
(ii) a copy of the annual report or Internal
Revenue Service Form 5500 Series, if required under ERISA, with
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respect to each such Plan for the last three Plan years ending prior to the
date of this Agreement for which such a report was filed;
(iii) a copy of the actuarial report, if re-
quired under ERISA, with respect to each such Plan for the last three Plan
years ending prior to the date of this Agreement;
(iv) a copy of the most recent Summary Plan
Description ("SPD"), together with all Summaries of Material Modification
issued with respect to such SPD, required under ERISA with respect to such
Plan;
(v) if the Plan is funded through a trust or
any other funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements
thereof, if any;
(vi) all contracts relating to the Plans
with respect to which the Company, any of its Subsidiaries or any ERISA
Affiliate may have any material liability, including, without limitation,
insurance contracts, investment management agreements, subscription and
participation agreements and record keeping agreements; and
(vii) the most recent determination letter
received from the Internal Revenue Service with respect to each Plan that is
intended to be qualified under Section 401(a) of the Code.
(c) No liability under Title IV of ERISA has been incurred by
the Company, any of its Subsidiaries or any ERISA Affiliate since January 1,
1990 that has not been satisfied in full, and no condition exists that
presents a material risk to the Company, any of its Subsidiaries or any ERISA
Affiliate of incurring a material liability under such Title, other than
liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC"),
which payments have been made when due with respect to any ERISA Plan. To the
extent this representation applies to Sections 4064, 4069 or 4204 of Title IV
of ERISA, it is made not only with respect to the ERISA Plans but also with
respect to any employee benefit plan, program, agreement or arrangement
subject to Title IV of ERISA to which the Company, any of its Subsidiaries or
any ERISA Affiliate made, or was required to make, contributions during the
five-year period ending on the last day of the Company's most recent fiscal
year ending prior to the date of this Agreement.
(d) The PBGC has not instituted proceedings pursuant to
Section 4042 of ERISA to terminate any of the ERISA Plans subject to Title IV
of ERISA and, to the Company's
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knowledge, no condition exists that presents a material risk that such
proceedings will be instituted by the PBGC.
(e) With respect to each of the ERISA Plans that is subject to
Title IV of ERISA, the present value of accumulated benefit obligations under
such plan, as determined by the Plan's actuary based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such plan's actuary with respect to such plan, did not, as of its
latest valuation date, exceed the then current value of the assets of such
plan allocable to such accumulated benefit obligations.
(f) None of the Company, any of its Subsidiaries, any ERISA
Affiliate, any of the ERISA Plans, any trust created thereunder, to the
Company's knowledge, nor any trustee, or administrator thereof has engaged in
a transaction or has taken or failed to take any action in connection with
which the Company, any of its Subsidiaries or any ERISA Affiliate could
reasonably be expected to be subject to any material liability for either a
civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax
imposed pursuant to Section 4975(a) or (b), 4976 or 4980B of the Code.
(g) All contributions and premiums which the Company, any of
its Subsidiaries or any ERISA Affiliate is required to pay under the terms of
each of the ERISA Plans and Section 412 of the Code, have, to the extent due,
been paid in full or properly recorded on the financial statements or records
of the Company except to the extent that the failure to make any such
contribution or pay any such premium could not, individually or in the
aggregate, reasonably be expected to result in a material liability to the
Company and its Subsidiaries taken as a whole; and none of the ERISA Plans or
any trust established thereunder has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of
each of the ERISA Plans ended prior to the date of this Agreement. No lien has
been imposed under Section 412(n) of the Code or Section 302(f) of ERISA on
the assets of the Company, any Subsidiary of the Company or any ERISA
Affiliate and no event or circumstance has occurred that is reasonably likely
to result in the imposition of any such lien on any such assets on account of
any ERISA Plan.
(h) With respect to any ERISA Plan that is a "multiemployer
plan," as such term is defined in Section 3(37) of ERISA, (i) neither the
Company, any of its Subsidiaries nor any ERISA Affiliate has, since September
26, 1980, made or suffered a "complete withdrawal" or a "partial withdrawal,"
as such terms are respectively defined in Sections 4203 and 4205 of ERISA,
(ii) no event has occurred that presents a material risk of a
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partial withdrawal, (iii) none of the Company, any of its Subsidiaries, or any
ERISA Affiliate has any contingent liability under Section 4204 of ERISA, and
no circumstances exist that present a material risk that any such plan will go
into reorganization, and (iv) the aggregate withdrawal liability of the
Company, its Subsidiaries and the ERISA Affiliates, computed as if a complete
withdrawal by the Company, any of its Subsidiaries and the ERISA Affiliates
had occurred under each such Plan on the date hereof, would not be
significant.
(i) Each of the Plans has been operated and administered in
all material respects in accordance with applicable laws, including but not
limited to ERISA and the Code.
(j) Each of the ERISA Plans that is intended to be "qualified"
within the meaning of Section 401(a) of the Code has received a determination
letter from the Internal Revenue Service stating that it is so qualified.
(k) Any Fund established under an ERISA Plan that is intended
to satisfy the requirements of Section 501(c)(9) of the Code has received a
determination letter from the Internal Revenue Service stating that it has so
satisfied such requirements.
(l) Except as set forth in Section 4.14(l) of the Disclosure
Schedule, no amounts payable under the Plans or any other contract, agreement
or arrangement to which the Company, any of its Subsidiaries or any ERISA
Affiliate is a party could reasonably be expected, as a result of the
transactions contemplated hereby, to fail to be deductible for federal income
tax purposes by virtue of Section 280G of the Code.
(m) Except as set forth in Section 4.14(m) of the Disclosure
Schedule, no Plan provides for employee welfare benefits, including, without
limitation, death or medical benefits (whether or not insured), with respect
to current or former employees of the Company, any of its Subsidiaries or
ERISA Affiliates after retirement or other termination of service (other than
(i) coverage mandated by applicable law, (ii) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in Section
3(2) of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the books of the Company, its Subsidiaries or the ERISA Affiliates, or (iv)
benefits, the full direct cost of which is borne by the current or former
employee (or beneficiary thereof)).
(n) Except as set forth in Section 4.14(n) of the Disclosure
Schedule and as specifically provided by this Agreement, the consummation of
the transactions contemplated by this Agreement will not (i) entitle any
current or former
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employee or officer of the Company, any of its Subsidiaries or any ERISA
Affiliate to severance pay, unemployment compensation or any other similar
termination payment or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or officer.
(o) There are no pending, or, to the Company's knowledge,
threatened or anticipated, 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 and other than claims that
individually or in the aggregate could not reasonably be expected to result in
a material liability of the Company and its Subsidiaries taken as a whole).
4.15 Taxes. (1) Except as set forth in Section 4.15
of the Disclosure Schedule:
(a) Giving effect to all extensions obtained, each of the
Company and its Subsidiaries has (x) duly and timely filed (or there has been
filed on its behalf) with the appropriate Governmental Authorities all Tax
Returns required to be filed by it, and all such Tax Returns are true, correct
and complete and (y) timely paid or there has been paid on its behalf all
Taxes due or claimed to be due from it by any taxing authority;
(b) The Company and its Subsidiaries have complied in all
respects with all applicable laws, rules and regulations relating to the
payment and withholding of Taxes (including, without limitation, withholding
of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions
under any foreign laws) and have, within the time and manner prescribed by
law, withheld and paid over to the proper Governmental Authorities all amounts
required to be withheld and paid over under all applicable laws;
(c) There are no Liens for Taxes upon the assets or properties
of the Company or its Subsidiaries except for statutory Liens for current
Taxes not yet due;
(d) None of the Company or any of its Subsidiaries has
requested any extension of time within which to file any Tax Return in respect
of any 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 any Taxes or Tax Returns has been given by or on behalf of the
Company or any of its Subsidiaries;
(e) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings ("Audits") exist or have been
initiated with regard to any Taxes or Tax Returns of the Company or any of its
Subsidiaries, and none of the
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Company or any of its Subsidiaries has received any notice that such an Audit
is pending or threatened with respect to any Taxes due from or with respect to
the Company or any of its Subsidiaries or any Tax Return filed by or with
respect to the Company or any of its Subsidiaries;
(f) None of the Company or any of its Subsidiaries has
requested or received an adverse ruling from any taxing authority or signed a
closing or other agreement with any taxing authority which could have an
adverse effect on the Company and its Subsidiaries taken as a whole;
(g) The Tax Returns of the Company and its Subsidiaries for
the taxable periods ending before February 28, 1992 have been examined by the
appropriate governmental authority (or the applicable statute of limitations
for the assessment of Taxes for such periods has expired) and a list of all
Audits commenced or completed with respect to the Company and its Subsidiaries
from January 1, 1993 is set forth on Section 4.15 of the Disclosure Schedule;
(h) All tax deficiencies which have been claimed, proposed or
asserted against the Company or its Subsidiaries have been fully paid or
finally settled, and no issue has been raised in any examination by any taxing
authority which, by application of similar principles, could be expected to
result in the proposal or assertion of a Tax deficiency for any other year not
so examined;
(i) None of the Company or any of its Subsidiaries is required
to include in income any adjustment pursuant to Section 481(a) of the Code, by
reason of any voluntary or involuntary change in accounting method (nor has
any taxing authority proposed in writing any such adjustment or change of
accounting method);
(j) None of the Company or any of its Subsidiaries is a party
to, is bound by, or has any obligation under, any Tax sharing agreement, Tax
indemnification agreement or similar contract or arrangement. None of the
Company or any of its Subsidiaries is aware of any potential liability or
obligation to any person as a result of, or pursuant to, any such agreement,
contract or arrangement;
(k) No power of attorney has been granted by or with respect
to the Company or any of its Subsidiaries with respect to any matter relating
to Taxes;
(l) No amounts paid by the Company or any of its Subsidiaries
to the ESOP or any other ERISA Plan would fail to be deductible under Section
404 of the Code;
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(m) None of the Company or any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code (or any predecessor provision)
or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the
Code) owned by the Company or any of its Subsidiaries;
(n) The reserves for Taxes (determined in accordance with
generally accepted accounting principles consistently applied) reflected in
the Interim Financial Statements are adequate for the payment of all Taxes
incurred or which may be incurred by the Company and its Subsidiaries through
the date thereof. Since the date of the Interim Financial Statements, none of
the Company or any of its Subsidiaries has incurred any liability for Taxes
other than in the ordinary course of business;
(o) Since January 1, 1985, none of the Company or any of its
Subsidiaries has been a member of an affiliated group (or similar state or
local filing group) other than the group in which the Company is the common
parent;
(p) The Company is not and since March 1991 has not been a
United States real property holding company as defined in Section 897(c)(2) of
the Code;
(q) None of the Company or any of its Subsidiaries has any
deferred intercompany gain or loss arising as a result of a deferred
intercompany transaction within the meaning of Treasury Regulation Section
1.1502-13 (or any similar provision under state, local or foreign law);
(r) None of the Company or any of its Subsidiaries has taken
any position on any Tax Return that could give rise to an understatement of
federal income tax liability within the meaning of Section 6662(d) of the
Code;
(s) No excess loss accounts (as described in Section 1.1502-19
of the Treasury Regulations) exist with respect to any of the Company's
Subsidiaries;
(t) None of the Company or any of its Subsidiaries has
participated in, or cooperated with, an international boycott within the
meaning of Section 999 of the Code;
(u) Section 4.15 of the Disclosure Schedule sets forth (as
actual or, in the case of Tax Attributes, for the preceding and current
taxable year estimated) the net operating losses, Section 1231 losses (as such
term is defined under Section 1231(a)(3)(B) of the Code), capital losses,
alternative minimum tax credits, and other similar tax attributes ("Tax
Attributes") (for federal, state, local, foreign and all other
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tax purposes, as applicable) of the Company and each of its Subsidiaries and
the date on which such Tax Attributes will expire. Prior to the consummation
of the transaction contemplated by this Agreement, none of such Tax Attributes
are subject to Section 382 of the Code, the separate return limitation year
provisions of Section 1.1502 of the Treasury Regulations or any other
applicable law disallowing, limiting or reducing their use on any other basis;
(2) All material elections with respect to Taxes required to be
specifically described on a Tax Return listed in Schedule 4.15 of the
Disclosure Schedule including affecting the Company or any of its Subsidiaries
are set forth in Section 4.15 of the Disclosure Schedule.
(3) The Company and its Subsidiaries have previously delivered or
made available to the Purchaser complete and accurate copies of each of (i)
all audit reports, letter rulings, technical advice memoranda and similar
documents issued by a Governmental Authority relating to the United States
federal, state, local or foreign Taxes due from or with respect to the Company
and its Subsidiaries, (ii) the United States federal income Tax Returns, and
those state, local and foreign income Tax Returns filed by the Company and its
Subsidiaries and (iii) any closing agreements entered into by the Company or
any of its Subsidiaries with any taxing authority in each case existing on the
date hereof. The Company will deliver to Parent all materials with respect to
the foregoing for all matters arising after the date hereof.
(5) For purposes of this Agreement, (i) "Taxes" (including, with
correlative meaning, the term "Tax") shall mean all taxes, charges, fees,
levies, penalties or other assessments imposed by any federal, state, local or
foreign taxing authority, including, but not limited to, income, gross
receipts, excise, property, sales, transfer, franchise, payroll, withholding,
social security or other taxes, including any interest, penalties or additions
attributable thereto and (ii) "Tax Return" shall mean any return, report,
information return or other document (including any related or supporting
information) with respect to Taxes.
4.16 Environmental Laws.
(a) Except as set forth in Section 4.16(a) of the Disclosure
Schedule, the Company and its Subsidiaries are in compliance with all
applicable Environmental Laws (which compliance includes, without limitation,
the possession by the Company and its Subsidiaries of all Permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof), except where failure to be
in compliance would not have a Material Adverse Effect.
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(b) Except as set forth in Section 4.16(b) of the Disclosure
Schedule, no transfers of Permits or other governmental authorizations under
Environmental Laws, and no additional permits or other governmental
authorizations under Environmental Laws, will be required to permit the
conduct of the business of the Company and its Subsidiaries in substantial
compliance with all applicable Environmental Laws immediately following the
Closing Date, as conducted by the Company and its Subsidiaries immediately
prior to the Closing Date. To the extent that such transfers or additional
Permits and other governmental authorizations are required, the Company agrees
to cooperate in a commercially reasonable manner with Parent to effect such
transfers and obtain such Permits and other governmental authorizations prior
to the Closing Date.
(c) Except as set forth in Section 4.16(c) of the Disclosure
Schedule, there is no Environmental Claim pending or, to the Company's
knowledge, threatened against the Company or any of the Subsidiaries or, to
the Company's knowledge, 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
Environmental Claim would have a Material Adverse Effect.
(d) Except as set forth in Section 4.16(d) of the Disclosure
Schedule, there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the Release or
presence of any Hazardous Material, which could form the basis of any
Environmental Claim against the Company or any of its Subsidiaries, or to the
Company's knowledge, 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
Environmental Claim would have a Material Adverse Effect.
(e) Except as set forth in Section 4.16(e) of the Disclosure
Schedule, the Company and its Subsidiaries have not, and to the Company's
knowledge, no other person has, placed, stored, deposited, discharged, buried,
dumped or disposed of Hazardous Materials or any other wastes produced by, or
resulting from, any business, commercial or industrial activities, operations
or processes, on, beneath or adjacent to any property currently or formerly
owned, operated or leased by the Company or any of its Subsidiaries, except
(x) for inventories of such substances to be used, and wastes generated
therefrom, in the ordinary course of business of the Company and its
Subsidiaries, or (y) which would not have a Material Adverse Effect.
(f) Except as set forth in Section 4.16(f) of the Disclosure
Schedule, the Company has delivered or otherwise made available for inspection
to Parent complete and accurate copies
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and results of any reports, studies, analyses or tests possessed or, to the
knowledge of the Company, initiated by the Company or any of its Subsidiaries
pertaining to Hazardous Materials in, on, beneath or adjacent to any property
currently or formerly owned, operated or leased by the Company or any of its
Subsidiaries, or regarding the Company's or any of its Subsidiaries'
compliance with applicable Environmental Laws.
(g) Without in any way limiting the generality of the
foregoing, except as set forth in Section 4.16(g) of the Disclosure Schedule,
any properties owned, operated or leased by the Company or any of its
Subsidiaries do not contain any: underground storage tanks; asbestos;
polychlorinated biphenyls ("PCBs"); underground injection wells; radioactive
materials; or septic tanks or waste disposal pits in which process wastewater
or any Hazardous Materials have been discharged or disposed the existence of
which, individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect.
4.17 Labor and Employment Matters.
(a) Except to the extent set forth in Section 4.17(a) of the
Disclosure Schedule as of the date hereof: (i) there is no labor strike,
dispute, slowdown, stoppage or lockout actually pending, or to the knowledge
of the Company, threatened, against or affecting the Company or any of its
domestic or Canadian Subsidiaries, or, to the knowledge of the Company, any of
international Subsidiaries (other than Canada) and during the past five years
there has not been any such action; (ii) no union claims to represent the
employees of the Company or any of its Subsidiaries; (iii) neither the Company
nor any of its Subsidiaries is a party to or bound by any collective
bargaining or similar agreement with any labor organization, or work rules or
practices agreed to with any labor organization or employee association
applicable to employees of the Company or any of its Subsidiaries; (iv) none
of the employees of the Company or any of its Subsidiaries is represented by
any labor organization and the Company does not have any knowledge of any
current union organizing activities among the employees of the Company or any
of its Subsidiaries, nor does any question concerning representation exist
concerning such employees; (v) there are no material written personnel
policies, rules or procedures applicable to employees of the Company or any of
its Subsidiaries, other than those set forth in Section 4.17(a) of the
Disclosure Schedule, true and correct copies of which have heretofore been
delivered to Parent; (vi) the Company and each of its Subsidiaries are, and
have at all times been, in compliance with all applicable material laws
respecting employment and employment practices, terms and conditions of
employment, wages, hours of work and occupational safety and health, and are
not engaged in any unfair labor practices as defined in the National Labor
Relations Act or other applicable law, ordinance or regulation; (vii)
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there is no unfair labor practice charge or complaint against the Company or
any of its Subsidiaries pending or, to the knowledge of the Company,
threatened before the National Labor Relations Board or any similar state or
foreign agency; (viii) there is no material grievance arising out of any
collective bargaining agreement or other grievance procedure; (ix) to the
knowledge of the Company, no material charges with respect to or relating to
the Company or any of its Subsidiaries are pending before the Equal Employment
Opportunity Commission or any other agency responsible for the prevention of
unlawful employment practices; (x) neither the Company nor any of its
Subsidiaries has received notice of the intent of any federal, state, local or
foreign agency responsible for the enforcement of labor or employment laws to
conduct an investigation with respect to or relating to the Company or any of
its Subsidiaries and no such investigation is in progress; and (xi) there are
no complaints, lawsuits or other proceedings pending or, to the knowledge of
the Company, threatened in any forum by or on behalf of any present or former
employee of the Company or any of its Subsidiaries, any applicant for
employment or classes of the foregoing alleging breach of any express or
implied contract or employment, any law or regulation governing employment or
the termination thereof or other discriminatory, wrongful or tortious conduct
in connection with the employment relationship. Except as set forth in Section
4.17(a) of the Disclosure Schedule, there are no employment contracts or
severance agreements with any employees of the Company or any of its
Subsidiaries. The Company will promptly notify Parent of any material labor
and employment matter outlined in clauses (i) through (xi) above arising after
the date hereof.
(b) Since the enactment of the Worker Adjustment and
Retraining Notification Act (the "WARN Act"), neither the Company nor any of
its Subsidiaries has effectuated (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Company or any of its
Subsidiaries; or (ii) a "mass layoff" (as defined in the WARN Act) affecting
any site of employment or facility of the Company or any of its Subsidiaries;
nor has the Company or any of its Subsidiaries been affected by any
transaction or engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law. Except as set
forth in Section 4.17(b) of the Disclosure Schedule none of the Company's or
any of its Subsidiaries' employees has suffered an "employment loss" (as
defined in the WARN Act) since six (6) months prior to the date of this
Agreement.
4.18 Information in Disclosure Documents and
Registration Statement. None of the information supplied or to
be supplied by the Company or any of its Subsidiaries for the
purpose of inclusion or incorporation by reference in (i) the
Registration Statement to be filed with the SEC by Parent in
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respect of registration of Parent Common Stock to be issued in connection with
the transactions contemplated hereby and by the Stock Purchase Agreement will,
at the time it is filed with the SEC and at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein if necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, (ii) any information statement relating to the
solicitation of voting instructions from the ESOP Participants in connection
with the Merger (the "Information Statement") will, at the date mailed and at
the time of the closing of such solicitation and the date of the Requisite
Stockholder Vote, contain any untrue statement of a material fact or omit to
state any 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, and (iii) any other disclosure document delivered to
holders of Company Capital Stock in connection with the transactions
contemplated hereby and by the Stock Purchase Agreement and any syndication
and other materials to be delivered to potential financing sources in
connection with the transactions contemplated hereby and by the Stock Purchase
Agreement ("Other Disclosure Documents") will, at the date delivered, contain
any untrue statement of 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.
4.19 Requisite Stockholder Vote. The affirmative vote of the
holders of record of a majority of the outstanding shares of (x) Company
Common Stock (on a diluted basis for the Convertible Preferred Stock) and (y)
the Convertible Preferred Stock voting as a separate class, approving this
Agreement is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement and the
transactions contemplated by this Agreement (the "Requisite Stockholder
Vote").
4.20 Compliance with Laws.
(a) Each of the Company and its Subsidiaries is in compliance
in all respects with all Requirements of Law, including, without limitation,
the FTC Act and all applicable state and foreign franchise laws, holds all
Permits that are material to the conduct of its business or the ownership of
its properties, and is in compliance with each such Permit, except where the
failure to so comply with Requirements of Law or hold such Permits would not
have a Material Adverse Effect.
(b) (i) The sale or grant by the Company or any
of its Subsidiaries of each franchise or subfranchise of the
Rental Business to any Franchisee, and (ii) the acquisition by
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the Company or any of its Subsidiaries of any franchise or subfranchise of the
Rental Business from a Franchisee or Sub- franchisor, was made in compliance
in all material respects with all Requirements of Law, including, without
limitation, the FTC Act, if applicable, and all applicable state and foreign
franchise laws.
(c) Except as disclosed in Section 4.20(c) of the Disclosure
Schedule, since January 1, 1993, none of the Company or any of its
Subsidiaries has received any written or any other communication from any
Governmental Authority asserting that the Company or any of its Subsidiaries
is not in compliance with any Requirement of Law or any Permit which
non-compliance could, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
4.21 Insurance. Section 4.21 of the Disclosure Schedule sets forth
a complete and accurate list of all (except for those acquired after the date
hereof in accordance with Section 7.1) primary, excess and umbrella policies,
bonds and other forms of insurance currently owned or held by or on behalf of
and/or providing insurance coverage to the Company and each of its
Subsidiaries and their respective businesses, properties and assets (or its
directors, officers, salespersons, agents or employees), including the
following information for each such policy: type(s) of insurance coverage
provided; name of insurer; effective date; policy number; per occurrence and
annual aggregate deductibles or self-insured retention; per occurrence and
annual aggregate limits of liability and the extent, if any, to which the
limits of liability have been exhausted. All such policies are in full force
and effect. Neither the Company nor any of its Subsidiaries has received
notice of default under any such policy, and has not received written notice
of any pending or threatened termination or cancellation, coverage limitation
or reduction, or material premium increase with respect to any such policy the
failure of which to maintain would have a Material Adverse Effect. Section
4.21 of the Disclosure Schedule sets forth a complete and accurate summary of
all of the self-insurance coverage provided by the Company and its
Subsidiaries and except as set forth in such Section 4.21 of the Disclosure
Schedule, no letters of credit have been posted and no cash has been
restricted to support any reserves for insurance on the Interim Balance Sheet.
4.22 Records.
(a) The respective corporate record books of the Company and
each of its Subsidiaries contain accurate and complete records of all material
meetings and accurately reflect all other actions taken by the stockholders,
Board of Directors and all material committees of the Board of Directors of
the Company and its Subsidiaries. Complete and accurate copies of
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all such record books have been made available by the Company to
Parent.
(b) The books, records and work papers of the Company and its
Subsidiaries are complete and correct, have been maintained in accordance with
applicable federal, foreign, state and local laws and regulations and good
business practices and accurately reflect the basis for the financial
condition and results of operations of the Company set forth in the Annual
Financial Statements and Interim Financial Statements.
4.23 Franchisees. As of June 30, 1996, there were 253 Franchisees
(excluding Franchisees of Avis Europe Limited and its Subsidiaries) and 4
Subfranchisors. Set forth in Section 4.23 of the Disclosure Schedule is the
name of each such Franchisee and Subfranchisor, his territory, the address of
each Franchisee's and Subfranchisor's office, and the scheduled renewal or
expiration date of each Franchisee's and Subfranchisor's franchise agreement.
Except as described in Section 4.23 of the Disclosure Schedule, there is no
material dispute between the Company or any of its Subsidiaries, on one hand,
and any Franchisee or Subfranchisor, on the other hand. As of June 30, 1996,
there were 21 licensees ("Avis Lube Licensees") who own or possess the right
to operate an "Avis Lube" or similar licensed business under a license
agreement entered into with the Company of any of its Subsidiaries. Set forth
in Section 4.23 of the Disclosure Schedule is the name of each such Avis Lube
Licensee, his territory, the address of each Avis Lube Licensee's office, and
the scheduled renewal or expiration date of each Avis Lube Licensee's license
agreement. Except as described in Section 4.23 of the Disclosure Schedule,
there is no material dispute between the Company or any of its Subsidiaries,
on one hand, and any Avis Lube Licensee, on the other hand.
4.24 Offering Circulars. The Company has delivered to Parent a true
and complete copy of the current uniform franchise offering circular and other
disclosure statements of the Company or of any of its Subsidiaries in
connection with its sale of franchises to Subfranchisors and Franchisees (the
"Offering Circulars"). As of their respective dates, such documents complied
in all material respects with the requirements of the FTC Act, to the extent
applicable, and to applicable state and foreign laws; and none of such
documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.25 Affiliate Transactions. Section 4.25 of the
Disclosure Schedule contains a summary of all transactions since
January 1, 1993 and all currently proposed transactions between
the Company or any of its Subsidiaries, on the one hand, and any
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current or former director or officer of the Company or any of its
Subsidiaries or any such director's or officer's Affiliates known as such to
the Company, or any entity known as such to the Company, in which any such
director, officer or Affiliate has a direct or indirect material interest,
other than standard employment agreements or arrangements and employee benefit
plans.
4.26 Brokers. With the exception of Lehman Brothers, Inc., CS First
Boston Corporation and Houlihan, Lokey, Howard & Zukin, and U.S. Trust Company
of California, N.A. (and as additionally mutually agreed in writing by the
parties hereto) no person is or will be entitled to any broker's, finder's,
investment banker's, financial advisor's or similar fee from the Company or
any of its Subsidiaries or the ESOP Trust in connection with this Agreement or
the transactions contemplated hereby. The Company has delivered to Parent a
copy of the engagement letter for Lehman Brothers, Inc. and U.S. Trust Company
of California, N.A. has delivered to Parent copies of its engagement letters
with the Company, and none of such engagement letters have been amended since
the date of their respective execution.
4.27 Appointment of ESOP Trustee. The ESOP Trustee has been
properly appointed as trustee of the ESOP Trust and as investment manager of
the ESOP. The Company has delivered to the ESOP Trustee complete and accurate
copies of the ESOP plan document and the trust agreement establishing the ESOP
Trust (the "Trust Agreement"), and there have been no amendments to such
documents since March 21, 1996 which have not been promptly forwarded to the
ESOP Trustee.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ESOP TRUSTEE
The ESOP Trustee, in its capacity as such, represents and warrants
to Parent and Merger Sub as follows:
5.1 Organization; Authority. The ESOP Trustee (i) is a duly
organized and validly existing trust company in good standing and with full
authority to act as ESOP Trustee and exercise trust powers under the laws of
its jurisdiction of organization and (ii) subject to and in reliance on the
Company's representation in Section 4.27, has full corporate power and
authority to act on behalf of the ESOP Trust and to execute and deliver this
Agreement and to carry out the transactions contemplated hereby. All authority
exercised hereunder by the ESOP Trustee is solely in its fiduciary capacity as
the trustee under the Trust Agreement, and in no other capacity.
5.2 Enforceability. This Agreement has been duly
executed and delivered by the ESOP Trustee on behalf of the ESOP
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Trust and constitutes the legal, valid and binding obligation of the ESOP
Trust enforceable against the ESOP Trustee in accordance with its terms,
except as may be limited by or subject to any bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally, and subject to
general principles of equity.
5.3 Non-Contravention. The execution, delivery and performance of
this Agreement and the transactions contemplated hereby will not violate (i)
the ESOP Trustee's charter or Bylaws or other organizational documents, each
as amended or restated to date, (ii) any provision of any indenture, mortgage,
deed of trust, agreement, instrument, order, arbitration award, judgment or
decree to which the ESOP Trustee or, to the knowledge of the ESOP Trustee, the
ESOP Trust is a party or by which it or, to the knowledge of the ESOP Trustee,
the ESOP Trust or any of their respective properties or assets are bound, or
(iii) to the knowledge of the ESOP Trustee after due inquiry, ERISA.
5.4 Consents. No authorization, approval or consent of any
Governmental Authority is necessary to be obtained by the ESOP Trustee or the
ESOP in connection with the sale of the ESOP Shares by the ESOP Trustee on
behalf of the ESOP hereunder.
5.5 Legal Counsel; Independent Financial Advisor. The ESOP Trustee,
at the expense of the Company, has retained independent legal counsel
knowledgeable in matters regarding ERISA and Code fiduciary responsibilities
and has retained an independent financial advisor to advise the ESOP Trustee
regarding the transactions contemplated by this Agreement.
5.6 Brokers. With the exception of CS First Boston Corporation and
Houlihan, Lokey, Howard & Zukin (and as additionally mutually agreed in
writing by the parties hereto) (as referenced in Section 4.26 hereof), the
ESOP Trustee has not employed any broker, finder or agent, or agreed to pay or
incurred any brokerage fee, finder's fee, commission or other similar form of
compensation in connection with this Agreement or the transactions
contemplated hereby. The ESOP Trust has delivered to Parent a copy of the
engagement letter of CS First Boston Corporation and such engagement letter
has not been amended since the date of its execution and the ESOP Trust has
delivered to Parent a draft of the engagement letter with Houlihan, Lokey,
Howard & Zukin and will deliver, when executed, an executed copy thereof. The
executed engagement letter will have such changes as the ESOP Trust deems
appropriate; provided, however, the ESOP Trust will not increase the fees set
forth therein or modify the terms thereof in a manner that would materially
prejudice the Company, the Surviving Corporation or Parent.
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5.7 Opinion of Financial Advisor. The ESOP has received a
preliminary opinion of CS First Boston Corporation, financial advisor to the
ESOP Trustee, to the effect that (i) the ESOP Shares Merger Consideration is
not less than "adequate consideration," as defined in Section 3(18)(B) of
ERISA and Department of Labor Proposed Regulation Section 2510.3-18(b) and
(ii) the sale of the ESOP Shares in accordance with the terms of this
Agreement is fair to the ESOP from a financial point of view.
5.8 Information in Disclosure Documents and Registration Statement.
None of the information supplied or to be supplied by the ESOP Trustee with
respect to the ESOP Trustee for the purpose of inclusion or incorporation by
reference in (i) the Registration Statement will, at the time it is filed with
the SEC and at the time it becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein if necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
(ii) any Other Disclosure Document will, at the date delivered, contain any
untrue statement of 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. None of the information supplied or to
be supplied by the ESOP Trustee for the purpose of inclusion or incorporation
by reference in the Information Statement will, at the date mailed and at the
time of the closing of the solicitation and the date of the Requisite
Stockholder Vote, contain any statement or omit to state any material fact
which would violate any provision of ERISA or the ESOP plan documents.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub each represent and warrant to the Company and
the ESOP Trustee as follows:
6.1 Organization. Each of Parent and Merger Sub (a) is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and (b) has full power and authority to own all
of its properties and assets and to carry on its business as it is now being
conducted.
6.2 Authority; Enforceability. Each of Parent and Merger Sub has
the corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder (other than, with respect to Merger Sub, the
approval of Parent as the sole stockholder of Merger Sub). The execution and
delivery by each of Parent and Merger Sub of this Agreement and
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the performance by each of them of their respective obligations hereunder have
been duly authorized by the Board of Directors of each of Parent and Merger
Sub. No other proceedings on the part of Parent or Merger Sub are necessary to
authorize the execution and delivery of this Agreement or the performance by
Parent or Merger Sub of their respective obligations hereunder (other than,
with respect to Merger Sub, the approval of Parent as the sole stockholder of
Merger Sub). This Agreement has been duly executed and delivered by each of
Parent and Merger Sub and constitutes a legal, valid and binding agreement of
each of Parent and Merger Sub, enforceable against each of them in accordance
with its terms.
6.3 Non-Contravention. The execution and delivery by each of Parent
and Merger Sub of this Agreement does not, and the consummation by them of the
transactions contemplated hereby and the performance by them of their
respective obligations hereunder will not, (a) subject to obtaining the
approvals set forth in Section 6.3 of a disclosure schedule delivered by
Parent to the Company simultaneously herewith (the "Parent Disclosure
Schedule"), violate, or result in the violation of, any Requirement of Law of
Parent or Merger Sub or (b) except as described in Section 6.3 of the Parent
Disclosure Schedule, (i) result in the creation of any Lien on any of the
properties or assets of Parent or Merger Sub, or (ii) violate, or result in
the violation of, or default (with or without notice or lapse of time, or
both) under, any provision of, or result in the termination or acceleration
of, or give rise to a right of termination or acceleration of or the loss of a
material benefit under, any loan agreement, note, contract, lease or other
material agreement, obligation, franchise, instrument, Lien or Permit
applicable to Parent or Merger Sub or their respective properties or assets.
6.4 Consents. Except for filings under the HSR Act, the DGCL, and
the Securities Act with respect to the Registration Statement and as set forth
in Section 6.4 of the Parent Disclosure Schedule, no consent, authorization,
order or approval of, or filing or registration with, any Governmental
Authority is required for or in connection with the execution and delivery of
this Agreement by Parent or Merger Sub, the consummation by Parent or Merger
Sub of the transactions contemplated hereby and the performance by Parent or
Merger Sub of their respective obligations hereunder.
6.5 SEC Documents. Parent has made available to the Company a copy
of its Form 10-K for the fiscal year ended December 31, 1995 and its Form 10-Q
for the fiscal quarter ended June 30, 1996, as amended by the Form 10-Q/A
filed on August 19, 1996, and its proxy statement relating to its 1996 annual
meeting of stockholders held on May 20, 1996. As of their respective dates,
such documents complied in all material respects with the
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requirements of the Exchange Act, and none of such documents, as amended,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Parent included in such documents
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly present the consolidated financial position
of Parent and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended.
6.6 Information in Disclosure Documents and Registration Statement.
None of the information supplied or to be supplied by Parent for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
it is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein if necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, (ii) the Information Statement will, at the date mailed and at
the time of the closing of the solicitation and the date of the Requisite
Stockholder Vote, contain any untrue statement of a material fact or omit to
state any 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, and (iii) any Other Disclosure Document will, at the
date delivered, contain any untrue statement of 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.
6.7 Brokers. With the exception of Bear Stearns & Co., Inc., no
person is or will be entitled to any broker's, finder's, investment banker's,
financial advisor's or similar fee from Parent or its Affiliates in connection
with this Agreement or the transactions contemplated hereby or thereby.
6.8 Parent Shares. Upon the Closing, the Parent Shares shall have
been duly authorized and validly issued, shall be fully paid and nonassessable
and shall be registered under the Securities Act pursuant to the Registration
Statement.
6.9 Operations of Merger Sub. Merger Sub was formed
solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities,
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has conducted its operations only as contemplated hereby and is an indirect
wholly owned Subsidiary of Parent.
6.10 Financing Arrangements. On the Closing Date, Parent will have
available, and will make available to Merger Sub, if necessary, all financing
necessary to satisfy all of Parent's and Merger Sub's obligations for payment
on the Closing Date pursuant to Articles II and III hereof (including
providing the Letter of Credit).
ARTICLE VII
COVENANTS
7.1 Conduct of Business. Except as contemplated by this Agreement
or with the prior written consent of Parent, during the period from the date
of this Agreement to the Effective Time, the Company will, and will cause each
of its Subsidiaries to, conduct its operations only in the ordinary course of
business consistent with past practice and will use all reasonable efforts,
and will cause each of its Subsidiaries to use all reasonable efforts, to
preserve intact its present business organization, keep available the services
of its present officers and employees and preserve its material relationships
with licensors, licensees, Franchisees, Subfranchisors, customers, suppliers,
employees and any others having business dealings with it. Without limiting
the generality of the foregoing, and except as otherwise expressly provided in
this Agreement, or as disclosed in Section 7.1 of the Disclosure Schedule, the
Company will not, and will not permit any of the Subsidiaries to, prior to the
Effective Time, without the prior written consent of Parent:
(a) adopt any amendment to its certificate of
incorporation or by-laws or comparable organizational documents
or adopt a rights plan;
(b) except for issuances of capital stock of the Company's
Subsidiaries to the Company or a wholly owned Subsidiary of the Company,
issue, reissue, sell, deliver or pledge or authorize or propose the issuance,
reissuance, sale, delivery or pledge of additional shares of capital stock of
any class, or any securities convertible into capital stock of any class, or
any rights, warrants or options to acquire any convertible securities, or
capital stock;
(c) declare, set aside or pay any dividend or other
distribution (whether in cash, securities or property or any combination
thereof) in respect of any class or series of its capital stock, except that
any wholly owned Subsidiary of the Company may pay dividends to the Company or
any of the Company's
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wholly owned Subsidiaries and except in accordance with paragraph (n) below;
provided that the Company will declare and pay dividends on the Company Series
Preferred Stock and Series C Preferred Stock as of the times provided in the
relevant Certificates of Designation and, unless Parent otherwise directs, at
the Closing Date;
(d) adjust, split, combine, subdivide, reclassify or redeem,
purchase or otherwise acquire, or propose to redeem or purchase or otherwise
acquire, any shares of its capital stock, or any of its other securities
(other than as permitted by paragraph (f) below);
(e) (i) sell, lease, transfer or dispose of any material
assets or rights, (ii) permit any asset to suffer any Lien thereupon, except
for such Lien existing on the date hereof, (iii) acquire any material assets
or rights, unless in the case of (i), (ii) and (iii), (A) in the ordinary
course of business consistent with past practice, or (B) pursuant to
obligations in effect on the date hereof and set forth in Section 4.11 of the
Disclosure Schedule or (iv) enter into any commitment or transaction binding
on the Company or any of its Subsidiaries with respect to (i), (ii) or (iii)
above, unless in the ordinary course of business consistent with past
practice;
(f) (i) incur, assume or refinance any Indebtedness, (ii)
assume, guarantee, endorse or otherwise become liable (whether directly,
contingently or otherwise) for any Guarantee Obligations of any other person,
or (iii) make any loans, advances or capital contributions to, or investments
in, any other person, unless in the case of (i), (ii) and (iii), (A) in the
ordinary course of business consistent with past practice or (B) pursuant to
obligations in effect on the date hereof and set forth in Section 4.11 of the
Disclosure Schedule;
(g) pay, discharge or satisfy any liability, obligation, or
Lien (absolute, accrued, asserted or unasserted, contingent or otherwise) of
the Company or any of its Subsidiaries, other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice
or in accordance with their terms, of claims, liabilities or obligations of
the Company or its Subsidiaries (i) reflected or reserved against the Balance
Sheet or (ii) incurred in the ordinary course of business since February 29,
1996;
(h) change any of the accounting or tax princi-
ples, practices or methods used by the Company (except as re-
quired by GAAP);
(i) make any change in the compensation payable or to become
payable to any of its officers, directors, employees, agents or consultants
(other than general increases in
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wages to employees made on the anniversary of employment in the ordinary
course consistent with past practice), enter into or amend any employment,
severance, termination or other agreement or employee benefit plan or make any
loans to any of its officers, directors, employees, agents or consultants or
make any change in its existing borrowing or lending arrangements for or on
behalf of any of such persons pursuant to an employee benefit plan or
otherwise, whether contingent on consummation of the Merger or otherwise;
(j) pay, agree to pay or make any accrual or arrangement for
payment of any pension, retirement allowance or other employee benefit
pursuant to any existing plan, agreement or arrangement to any officer,
director or employee or pay or agree to pay or make any accrual or arrangement
for payment to any employees of the Company or any of its Subsidiaries of any
amount relating to unused vacation days, except in the ordinary course of
business and consistent with past practice or as permitted by this Agreement;
first commit itself or themselves to adopt or pay, grant, issue, accelerate or
accrue salary or other payments or benefits pursuant to any pension,
profit-sharing, bonus, extra compensation, incentive, deferred compensation,
stock purchase, stock option, stock appreciation right, group insurance,
severance pay, retirement or other employee benefit plan, agreement or
arrangement, or any employment or consulting agreement with or for the benefit
of any director, officer, employee, agent or consultant, whether past or
present; or amend in any material respect any such existing plan, agreement or
arrangement in a manner inconsistent with the foregoing;
(k) make or authorize any capital expenditures
except in the ordinary course consistent with past practice;
(l) settle or compromise any Tax liability or
agree to any adjustment of any Tax Attribute;
(m) (i) enter into, amend or early terminate any contract,
except in the ordinary course of business consistent with past practice, or
(ii) take any action or fail to take any action that, with or without either
notice or lapse of time, would constitute a material default under any
contract listed on Section 4.11 of the Disclosure Schedule;
(n) make any payments (other than compensation payable to
employees of the Company and its Subsidiaries or contributions to the ESOP
Trust in amounts necessary to permit the ESOP Trust to make required
repayments of the ESOP Debt in accordance with its terms consistent with past
practice), loans, advances or other distributions to, or enter into any
transaction, agreement or arrangement with, the Company's stockholders or
their affiliates, associates or family members;
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(o) make any change in its accounts payable
practices generally;
(p) terminate or amend or fail to perform any of its
obligations or permit any material default to exist or cause any material
breach under, or enter into (except for renewals in the ordinary course of
business consistent with past practice), any material policy of insurance;
(q) dispose of or permit to lapse any material
item of Intellectual Property;
(r) modify, amend or enter into any collective
bargaining agreement;
(s) fail to duly and timely file any Tax Return with the
appropriate Governmental Authorities required to be filed by it in a true
complete and correct form or to timely pay all Taxes shown to be due thereon
or make any material elections with respect to Taxes with respect to such Tax
Returns; or
(t) take, or agree in writing or otherwise to take, any of the
foregoing actions or any action which would make any representation or
warranty contained in this Agreement untrue or incorrect as of the date when
made or which could reasonably be expected to prevent the satisfaction of any
condition to Closing set forth in Section 8.2 hereof.
7.2 No Solicitation. Unless this Agreement has been terminated as
provided in Section 9.1 hereof, none of the Company, its Subsidiaries or
Affiliates or their respective directors and officers shall, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any person or group of
persons (other than Parent or its directors, officers, employees or other
Affiliates or representatives) concerning any merger, business combination,
sale of material assets, sale of shares of capital stock or other securities
convertible into capital stock or with any voting rights or similar
transaction involving the Company or any of its Subsidiaries (an "Acquisition
Transaction"); provided, however, that prior to the Closing, to the extent
required by the fiduciary obligations of the Board of Directors of the
Company, or by the fiduciary obligations of the ESOP Trustee under ERISA, as
determined in good faith by the Board of Directors and the ESOP Trustee,
respectively, after consultation with outside counsel, the Company may, (i) in
response to an unsolicited request therefor, furnish information with respect
to the Company to any person pursuant to a customary confidentiality agreement
(as determined by the Company's outside counsel) and discuss (A) such
information and (B) the terms of this Section 7.2 and (ii) upon receipt by the
Company of a proposal for an Acquisition Transaction (a "Transaction
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Proposal"), participate in negotiations regarding a Transaction Proposal. If
the ESOP Trustee determines that it is necessary to participate in
negotiations regarding a Transaction Proposal, then the confidentiality clause
contained in the first sentence of Section 3 of the engagement letter (the
"Engagement Letter") among the ESOP Trustee, the Company and the Company's
ESOP fiduciary committee dated March 7, 1996, shall cease to be effective with
respect to such negotiations. The Company and the ESOP Trustee, as the case
may be, will immediately communicate to Parent any such inquiries or
Transaction Proposals and the terms thereof and whether the Company or the
ESOP Trustee, as applicable, intends to commence negotiations with such person
with respect to a Transaction Proposal. If at any time after such first
notice, the Company or the ESOP Trustee, as applicable, intends to commence
negotiations with respect to such Transaction Proposal, the Company or the
ESOP Trustee, as applicable, will promptly deliver to Parent a written notice
to such effect.
7.3 Investigation.
(a) The Company agrees to permit Parent and its accountants,
counsel and other representatives to have, during the period from the date of
this Agreement to the Closing Date, reasonable access to the premises, books,
records and contracts of the Company and its Subsidiaries during normal
business hours and upon reasonable notice. The Company shall make available to
or furnish, or cause to be made available to or furnished to, Parent such
financial and operating data and other information with respect to the
business, properties and prospects of the Company and Subsidiaries as Parent
shall from time to time reasonably request, in each case to the extent the
Company may do so in light of existing confidentiality arrangements. Any
information regarding the Company and Subsidiaries heretofore obtained from
the Company or its Subsidiaries by Parent or its representatives or hereafter
obtained from the Company or its Subsidiaries by Parent or its representatives
shall be subject to the terms of the Confidentiality Agreement and such
information shall be held by Parent and its representatives in accordance with
the terms of such Confidentiality Agreement.
(b) No investigation pursuant to this Section 7.3 shall affect
any representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
(c) Notwithstanding the provisions of paragraph (a) of this
Section 7.3, Parent may disclose, and the Company will disclose, information
concerning the Company and its Subsidiaries, and their respective businesses,
assets and properties, including, without limitation, the ESOP, and the
transactions contemplated by this Agreement in the Registration State-
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ment, Information Statement and Other Disclosure Documents prepared by the
Company, the ESOP Trust or Parent or any of their Affiliates and prospective
financing sources in connection with the transactions contemplated hereby. The
Company shall cause its accountants, counsel, agents and other representatives
to cooperate with Parent and/or the ESOP Trust in the preparation of such
documents and other reasonable requests with respect to such documents.
7.4 No Public Announcement. No party hereto shall make any public
announcement concerning the transactions contemplated by this Agreement
without the prior approval of the other parties, which approval shall not be
unreasonably withheld, except as such announcement may be required by law
(including ERISA) or the rules and regulations of a stock exchange, in which
case the party required to make the announcement shall use all reasonable
efforts to provide the other party with reasonable time under the
circumstances to comment on such announcement in advance of such announcement.
7.5 Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto agrees to use its commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable including, but not
limited to, (i) the preparation and filing of all applicable forms under the
HSR Act, (ii) the preparation and filing, if necessary, of the Registration
Statement, Information Statement and Other Disclosure Documents, (iii) the
preparation and filing of all other forms, registrations and notices required
to be filed to consummate the transactions contemplated by this Agreement and
the taking of such actions as are necessary to obtain any requisite approvals,
consents, orders, exemptions or waivers by any third party or Governmental
Authority, and (iv) the satisfaction of all conditions to Closing.
(b) Each party shall promptly consult with the other parties
hereto with respect to, provide any necessary information not subject to legal
privilege with respect to and provide the other (or its counsel) copies of,
all filings made by such party with any Governmental Authority or any other
information supplied by such party to a Governmental Authority in connection
with this Agreement and the transactions contemplated by this Agreement
(except personal information with respect to officers and directors). Each
party hereto shall promptly inform the other of any material communication
from any Government Authority regarding any of the transactions contemplated
by this Agreement. If any party or affiliate thereof receives a request
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for additional information or documentary material from any such Government
Authority with respect to the transactions contemplated by this Agreement,
then such party will endeavor in good faith to make, or cause to be made, as
soon as reasonably practicable and after consultation with the other party, an
appropriate response in compliance with such request. For purposes of this
clause (b), with respect to matters other than the HSR Act, none of the
parties hereto shall be required to consult with the other parties hereto with
respect to each inquiry or request for additional information from a
Governmental Authority but shall provide the other parties hereto with weekly
updates as to such matters; provided, however, that the Company shall promptly
notify and consult with Parent if any such inquiry or request requires
disclosure of additional material information with respect to the Company,
Parent or the transactions contemplated hereby, or could reasonably be
expected to result in an adverse ruling from the Governmental Authority;
provided, further, however, that the Company will provide all additional
information and updates as reasonably requested by Parent.
(c) Notwithstanding the foregoing, nothing in this Agreement
shall be deemed to require Parent to enter into any agreement with any
Governmental Authority or to consent to any order, decree or judgment
requiring Parent to hold separate or divest, or to restrict the dominion or
control of Parent or any of its affiliates over, any of the assets, properties
of businesses of Parent, its Affiliates or the Company, in each case as in
existence on the date hereof. In addition, no party hereto shall take any
action after the date hereof that could reasonably be expected to materially
delay the obtaining of, or result in not obtaining, any permission, approval
or consent from any Governmental Authority necessary to be obtained prior to
Closing.
(d) Each party hereto agrees to instruct its counsel to
deliver executed copies of any opinion of counsel to be delivered hereunder
(or a reliance letter thereon) to any third party where such delivery is
necessary to consummate the transactions contemplated hereby, including,
without limitation, the Refinancing and Parent's and Merger Sub's financing.
(e) Prior to the Closing, the Company and the ESOP Trust shall
each give all consents or waivers required to be given by it, and each shall
receive all consents or waivers required to be received by it, pursuant to the
Certificate of Designation for the Convertible Preferred Stock and the
Stockholders Agreement in connection with the transactions contemplated by
this Agreement and the Stock Purchase Agreement, including, without
limitation, the waiver of all rights of first refusal with respect to the
transactions contemplated hereby and thereby and the requirement of Parent to
enter into the Stockholders Agreement.
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(f) Prior to the Closing, the Company shall cause to be
delivered a certificate executed by a majority of the nine holders of record
of Series C Preferred Stock with the largest holdings of Series C Preferred
Stock stating that the deposit of funds with the Redemption Agent at the
Closing for redemption of the Series C Preferred Stock pursuant to the terms
of this Agreement is a satisfactory escrow arrangement in accordance with the
Series C Preferred Stock Certificate of Designation.
7.6 Disclosure Supplements. From time to time prior to the Closing,
the Company shall supplement or amend the Disclosure Schedule and Parent shall
supplement and amend the Parent Disclosure Schedule with respect to any matter
hereafter arising or any information obtained after the date hereof which, if
existing, occurring or known at or prior to the date of this Agreement, would
have been required to be set forth or described in the such schedules or which
is necessary to complete or correct any information in such schedule or in any
representation and warranty which has been rendered inaccurate thereby. For
all purposes of this Agreement any such supplement or amendment shall be
disregarded and given no effect.
7.7 Stockholders Consent.
(a) The Company shall provide the recordholders of Company Common
Stock and the recordholders of Convertible Preferred Stock, in each case
holding a sufficient number of shares to approve the action, with a written
consent to approve this Agreement and the Merger to be executed by a
sufficient number of holders to obtain the Requisite Stockholder Vote, and the
Company will, through its Board of Directors, recommend to the recordholders
of Company Common Stock and the recordholders of Convertible Preferred Stock
approval of such matters and will coordinate and cooperate with Parent with
respect to the timing of obtaining such written consent. Upon approval of an
action by written consent, the Company shall thereafter deliver to the other
holders of Company Capital Stock the required notice pursuant to Section 228
of the DGCL, which shall be subject to Parent's satisfaction.
(b) The ESOP Trust will as promptly as practical after execution of
this Agreement prepare and deliver one or more disclosure documents
constituting the Information Statement to the ESOP Participants and recommend
therein to the ESOP Participants approval of the Merger as contemplated herein
and solicit voting instructions from the ESOP Participants in accordance
therewith. Notwithstanding the foregoing, in the event that the Board of
Directors of the Company or the ESOP Trustee, as the case may be, receives a
Transaction Proposal that, in the exercise of their respective fiduciary
obligations (as determined in good faith by the Board of Directors or the ESOP
Trustee, as the case may be, after consultation with outside
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counsel), either of them determines to be a Superior Proposal (as defined
below), the Board of Directors or the ESOP Trustee may withdraw or modify its
approval or recommendation of this Agreement or the Merger, approve or
recommend any such Superior Proposal, enter into an agreement with respect to
such Superior Proposal and terminate this Agreement. For purposes of this
Agreement, a "Superior Proposal" means any Transaction Proposal on terms which
the Board of Directors or the ESOP Trustee determines in its good faith
reasonable judgment (after reviewing the advice of, and consultation with, a
financial advisor of nationally recognized reputation and legal counsel) to be
more favorable to the Company's stockholders (or, in the case of the ESOP
Trustee, to the ESOP Participants) than the transactions contemplated by this
Agreement.
7.8 Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall, except as
otherwise provided herein, be paid by the party incurring such expenses;
provided, however, that if the transactions contemplated hereby are
consummated, the Surviving Corporation shall be responsible for and shall
promptly pay after the Closing, upon delivery to the Surviving Corporation of
documentation satisfactory to it, all costs and expenses (including, without
limitation, all reasonable legal and accounting fees) of the Company, the ESOP
Trust and the ESOP Trustee (or reimburse the party paying same if such costs
and expenses have been paid after the Closing upon delivery to the Surviving
Corporation of satisfactory documentation) incurred in connection with this
Agreement and the Stock Purchase Agreement and the transactions contemplated
hereby and thereby; provided, further, that if such transactions are not
consummated such expenses of the ESOP Trust and the ESOP Trustee shall be paid
or reimbursed to the ESOP Trust or ESOP Trustee, as applicable, by the
Company.
7.9 Further Assurances. The parties hereto agree that, from time to
time after the Closing, without additional consideration (except as to the
ESOP Trustee as specifically set forth in Section 2.10 (c)(ii)), each of them
will execute and deliver such further instruments and take such other action
as may be necessary to make effective the transactions contemplated by this
Agreement. In addition to the foregoing, Parent will provide, or cause to be
provided, directly or provide to the Company for the Company to provide, all
of the funds payable on the Closing Date to First Union pursuant to Sections
3.2, 3.3 and 3.4 hereof.
7.10 Cancellation of Unallocated Shares. Prior to the Effective
Time, at a time mutually agreed to between the Company, Parent and the ESOP
Trust, the Company shall forgive the ESOP Debt (and return to the ESOP Trust
the promissory notes evidencing same marked cancelled) and the ESOP Trustee
shall
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deliver all of the Unallocated Shares at such time (which shares shall have
been released from the pledge securing the ESOP Debt) to the Company for
cancellation, and upon such delivery the Unallocated Shares shall be cancelled
by the Company.
7.11 Financial Statements. The Company shall deliver to Parent the
balance sheet, income statement and statement of cash flows (without
footnotes) prepared in accordance with GAAP of the Company for each quarter
ended at least 20 days prior to the Closing Date. The Company shall prepare
such financial statements promptly at the end of each quarter and shall
deliver such financial statements to Parent promptly upon completion. The
Company shall prepare all reasonably requested financial statements required
to be included in the Registration Statement.
7.12 Pre-Closing Actions. Prior to Closing, at the reasonable
written request of Parent, the Company shall use its commercially reasonable
efforts to, and shall cause each of its Subsidiaries to use its commercially
reasonable efforts to, do all things reasonably necessary in connection with
the matters and actions mutually agreed to between Parent and the Company with
respect to the Company (which are not otherwise required to be performed by
the Company pursuant to any other term or provision of this Agreement,
including, without limitation, compliance with all representations and
warranties and covenants hereunder), including, without limitation, taking all
actions, entering into all agreements, obtaining all consents and approvals,
and making all filings with respect thereto; provided that no action will be
required to be taken under this Section 7.12 which (x) could reasonably be
determined to violate any Requirement of Law of the Company and its
Subsidiaries or (y) could not be reversed without cost, expense, or loss to
the Company and its Subsidiaries if this Agreement is terminated pursuant to
Section 9.1 hereof or would have a cost or expense to the Company and its
Subsidiaries when effected unless, in each case pursuant to this clause (y),
the Company is indemnified by Parent for all such costs, expenses and losses
in a manner satisfactory to the Company and Parent. All actions to be taken by
the Company and its Subsidiaries and all agreements and instruments to be
entered into by the Company and its Subsidiaries in connection with the
foregoing shall be at the direction of Parent and subject to the satisfaction
and approval of Parent.
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7.13 Subsidiary Corporate Action. Prior to the Closing, the Company
will cause all necessary corporate action to be taken by its Subsidiaries as
needed to duly authorize the Subsidiaries to consummate the transactions
contemplated hereby.
7.14 The Refinancing. Parent and the Company agree to use
commercially reasonable efforts to refinance (by extension, amendment,
refinancing or otherwise) the existing Indebtedness of the Company and its
Subsidiaries (the "Refinancing") in connection with the Merger.
Notwithstanding the fact that Parent and the Company have agreed with respect
to the structure and method of the Refinancing, Parent shall have the right to
modify or change the structure or method of the Refinancing if in Parent's
reasonable judgment: (i) such new structure or method would provide a material
benefit to the Company or the Surviving Corporation and (ii) such new
structure or method would not result in the Closing not occurring prior to
December 31, 1996. Parent and the Company will cooperate and take all
reasonable actions to cause the Refinancing to be consummated on or prior to
the Closing; provided, that Parent will not be required to guarantee or
otherwise provide financial support for any of the Indebtedness incurred
pursuant to the Refinancing. All agreements and instruments to be entered into
by the Company and its Subsidiaries in connection with the foregoing shall be
in form and substance satisfactory to Parent.
7.15 Directors', Officers' and Fiduciaries' Indemnification.
(a) The provisions of the Certificate of Incorporation and By-laws
of the Surviving Corporation and of each Subsidiary concerning elimination of
liability and indemnification of directors, officers and other fiduciaries
(the "Indemnified Parties") shall not be amended in any manner that would
adversely affect the rights thereunder of any person that is as of the date
hereof an officer, director or fiduciary of the Company or of any such
Subsidiary.
(b) The Company may obtain, prior to the Closing Date, directors
and officers liability insurance and fiduciary liability insurance which shall
extend for a period not to exceed seven years, the reporting period with
respect to actions or omissions occurring prior to the Closing Date which are
covered under the directors and officers liability insurance and fiduciary
liability insurance policies currently in effect (copies of which heretofore
have been delivered to Parent) and which extended coverage shall apply to
persons presently covered by the Company's (and any of its Subsidiary's)
officers and directors liability insurance and fiduciary liability policies on
the same terms as provided therein. The Company may, prior to the Closing
Date, also purchase a "call option" which would permit the Company and/or
persons insured under each of the
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directors and officers liability and fiduciary liability policies, in the
event of the exhaustion of any predetermined amount of the limit of either
policy by reported claims before the expiration of the extended reporting
period, to purchase, at that time, an additional limit of coverage
representing 25% of the original limit. In the event that the Company does
purchase such a "call option" for either the directors and officers liability
policy or the fiduciary liability policy, or both, and circumstances arise
during the extended reporting period which would enable the "call option" to
be exercised, the Surviving Corporation (and each Subsidiary) shall exercise
the "call option" and shall pay the additional premium required to do so;
provided, however, that such additional premium shall not exceed $200,000 in
the case of the directors and officers liability insurance policy or $200,000
in the case of the fiduciary liability insurance policy, and further provided
that if the full limit of the "call option" cannot be exercised for that
amount of premium, the Surviving Corporation will obtain at least as much
comparable insurance coverage as is available for that amount of premium.
(c) The provisions of this Section 7.15 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his heirs and
representatives.
7.16 Non-Solicitation of Employees. To the extent this Agreement is
terminated pursuant to Section 9.1 hereof, by the Company, for a period
commencing on the date hereof through the first anniversary of such
termination, neither Parent nor any of its Affiliates shall affirmatively seek
to hire any officer of the Company or its Subsidiaries in any capacity
whatsoever without the express written consent of the Company.
7.17 Termination of the ESOP. The Surviving Corporation (if after
Closing) or the Company (if prior to Closing) shall terminate the ESOP
promptly following, or within three business days prior to, the Closing as
determined by the Company, the ESOP Trustee and Parent after consultation. The
Company shall take all necessary actions to cause the ESOP account of each
ESOP Participant on the Closing Date to become fully vested and nonforfeitable
no later than as of the Closing Date. Promptly following such termination, the
Surviving Corporation shall apply to the appropriate District Director of
Internal Revenue for a determination (the "IRS Determination") that the
termination of the ESOP and the ESOP Trust does not adversely affect their
tax-qualified and tax-exempt status under Sections 401(a) and 501(a) of the
Code, respectively. Promptly following the latest to occur of (i) the drawing,
if any, by the ESOP Trust under the Letter of Credit with respect to the Post-
Closing Consideration, (ii) the surrender by the ESOP Trust of the Letter of
Credit after expiration thereof and (iii) the receipt by the Surviving
Corporation of the IRS Determination,
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the Surviving Corporation shall take all necessary actions to allow the ESOP
Participants to receive immediate lump sum distributions of their account
balances. Prior to the Closing, with the prior written approval of Parent
(which shall not be unreasonably withheld), the Company shall amend the ESOP
and the ESOP Trust as it and the ESOP Trustee deem necessary to allow for the
consummation of the transactions contemplated by this Agreement. The
indemnification by the Company of the ESOP Trustee contained in Section 6 of
the Engagement Letter, both as stated in such letter and as incorporated into
the ESOP Trust agreement pursuant to a letter from the ESOP Trustee to the
Company and the Committee dated June 21, 1996, shall survive the termination
of the ESOP and the ESOP Trust until all applicable statutes of limitations
have run on any action which could be brought against the ESOP Trustee in
connection with the transactions contemplated by this Agreement.
7.18 Stock Purchase Agreement. Parent has delivered to the Company
and the ESOP Trust a draft (dated August 20, 1996) of the the Stock Purchase
Agreement and will deliver, when executed, an executed copy thereof. The final
executed Stock Purchase Agreement will have such changes as Parent deems
appropriate; provided, however, Parent will not modify the Stock Purchase
Agreement to increase the consideration to be paid for the Convertible
Preferred Stock pursuant to the Stock Purchase Agreement or in a manner that
would materially prejudice the consummation of the transactions contemplated
hereby.
7.19 Affected Employees. It is the intention of the parties hereto
that the employees of the Company and its Subsidiaries (including employees on
vacation, leave of absence, disability or layoff) (the "Affected Employees")
immediately prior to the Closing Date will remain employees of the Surviving
Corporation and its Subsidiaries immediately following the Closing Date at the
salary levels (or higher) that were in effect immediately prior to the Closing
Date, subject to the right of the Surviving Corporation and its Subsidiaries
to deal with (including by terminating employment) their employees.
7.20 Employee Benefits.
(a) Parent will and will cause the Surviving Corporation and
the Surviving Corporation's Subsidiaries to give to each Affected Employee the
same service credit with Parent, the Surviving Corporation and the Surviving
Corporation's Subsidiaries as each such Affected Employee previously earned up
to the Closing Date for purposes of determining the Affected Employee's
eligibility to participate in, vesting under, benefit accrual under,
eligibility for early distribution of benefits from and eligibility for early
retirement or any subsidized benefit provided for in any employee benefit
plan, practice or policy established, maintained or contributed to by Parent
(a "Parent's
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Plan") in which such Affected Employee is eligible to participate and shall
where appropriate cause each Parent's Plan to reflect the foregoing
requirement; provided, however, that any determination as to whether an
Affected Employee is eligible to participate in a Parent's Plan instead of a
Surviving Corporation's Plan shall be solely in Parent's discretion.
(b) The Affected Employees will be provided such pension and
other employee benefits (including the Avis, Inc. Retiree Health Care Plan),
which are identical to, or no less favorable in the aggregate than, such
benefits provided by the Company and its Subsidiaries immediately prior to the
Closing Date. Parent shall, or shall cause the Surviving Corporation to, waive
any pre-existing condition exclusions under any employee welfare benefit plan
covering Affected Employees on and after the Closing Date, other than any such
exclusions that were not waived under the comparable plan of the Company prior
to the Closing Date. For purposes of computing deductible amounts (or like
adjustments or limitations on coverage) under any Parent's Plan which is an
"employee welfare benefit plan," as defined in Section 3(1) of ERISA (a
"Successor Welfare Plan") in which such Affected Employee is eligible to
participate (provided, however, that any determination as to whether an
Affected Employee is eligible to participate in a Parent's Plan instead of a
Surviving Corporation's Plan shall be solely in Parent's discretion), expenses
and claims previously recognized for similar purposes under plans of the
Company or any of its Subsidiaries providing similar benefits prior to the
Closing Date shall be credited or recognized under the applicable Successor
Welfare Plan. The obligations under this Section 7.20(b) shall terminate at
the end of the Transition Period.
(c) All employment agreements to which the Company or any of
its Subsidiaries is a party immediately prior to the Effective Time will
continue in full force and effect and (except with the consent of the
respective employee) unamended thereafter and, to the extent the Company is
party thereto, shall be assumed by the Surviving Corporation and Parent shall
cause the Surviving Corporation to perform under such employment contracts in
accordance with their terms to the extent the Surviving Corporation is a party
thereto.
(d) During the Transition Period (i) the Company's bonus,
incentive and severence plans in effect as of the Closing Date (other than
equity based plans, including all plans scheduled to terminate pursuant to
this Agreement) shall remain in effect for the benefit of those Affected
Employees eligible to participate in each such respective plan immediately
prior to the Closing Date and such plans shall be administered substantially
in accordance with past practice, or replaced with equivalent plans in which
the benefits are paid in cash, (ii) the regular base rate of pay of each
Affected Employee during
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employment shall not be reduced below the rate in effect for such Affected
Employee as of the date of this Agreement and (iii) in each one-year period
beginning on the Closing Date, no more than five percent (5%) of the aggregate
number of Affected Employees employed by the Company (or the Surviving
Corporation) and its Subsidiaries as of the Closing Date, may be terminated by
the Company (or the Surviving Corporation) or any of its Subsidiaries,
excluding from such five percent (5%) those Affected Employees (A) who
voluntarily resign or retire from the Company, terminate by reason of death or
disability, or are terminated for cause and (B) who are terminated directly as
a result of a decrease in the volume of car rentals at any car rental location
owned by the Company (or the Surviving Corporation) or its Subsidiaries.
(e) The provisions of Sections 7.19 and 7.20 of this Agreement
are intended to be for the benefit of, and shall be enforceable by, the
Affected Employees; provided, that (i) at least 100 such Affected Employees
act in concert in any proceeding (and no such proceeding shall be pursuant to
a class action or a purported class action, unless such class action is
mandated by a court) to assert their rights hereunder, (ii) such rights relate
solely to Sections 7.19 and 7.20 of this Agreement, and (iii) any dispute
regarding such rights is submitted to binding arbitration before the American
Arbitration Association in New York City pursuant to the Employment Dispute
Resolution Rules of the American Arbitration Association; provided, however,
the provisions of clause (i) above shall not apply to disputes directly
relating to employment agreements referenced in Section 7.20(c) and the senior
management bonus plan referenced in Section 7.20(d)(i). No other rights of
Affected Employees are intended or may be inferred under any provision of this
Agreement.
7.21 Company Owned Locations. During the Transition Period, Parent
will not sell to any party who is not a wholly owned Subsidiary of the
Surviving Corporation at the time of such sale, and will cause the Surviving
Corporation to not sell to any party who is not a wholly owned Subsidiary of
the Surviving Corporation at the time of such sale, any of the top 100 Company
owned car rental locations (as determined based on 1996 fiscal year revenues
for such locations) or any wholly owned Subsidiary holding any such locations,
except in connection with an initial public offering or distribution or unless
such divestiture is required pursuant to any order, decree, judgment or
agreement with any Governmental Authority or any preexisting contract.
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ARTICLE VIII
CONDITIONS TO THE CLOSING
8.1 Conditions to the Obligations of Each Party. The respective
obligations of each party to effect the Closing are subject to the fulfillment
at or prior to the Closing of each of the following conditions precedent:
(a) No Injunction or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated hereby shall be
in effect, nor shall any proceeding by any Governmental Authority seeking any
of the foregoing be pending. There shall not be in effect any statute, rule,
regulation or order of any court, governmental or regulatory body which
prohibits or makes illegal the transactions contemplated by this Agreement.
(b) HSR Act. The waiting period (including any extensions
thereof) under the HSR Act shall have expired or otherwise terminated with
respect to all matters contemplated by this Agreement and the Stock Purchase
Agreement.
(c) Stockholder Approval. This Agreement shall
have been approved by the Requisite Stockholder Vote.
(d) GM Closing. The purchase and sale of the GM Shares
contemplated by Section 3.1 hereof and the Stock Purchase Agreement shall have
been, or shall concurrently be, consummated; provided, that there has not been
a breach of Section 7.18 hereof. It being understood that this condition shall
be fulfilled only if Parent, the Company, and their Subsidiaries enter into
all related agreements with GM.
(e) Conclusions of the ESOP Trustee. The ESOP Trustee, after
considering the opinions and recommendations of its advisors and such other
information as it may deem necessary or advisable, shall have reached the
conclusions that (i) the solicitation of voting instructions from ESOP
Participants in connection with obtaining the Requisite Stockholder Vote was
done in a manner which would not cause the ESOP Trustee to be in violation of
ERISA in complying with the provisions of the ESOP plan document regarding
voting of the ESOP Shares and (ii) the consummation of the transactions
contemplated by this Agreement would not cause the ESOP Trustee to be in
violation of any provision of ERISA, and Parent and the Company shall have
received an officer's certificate of the ESOP Trustee to such effect.
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8.2 Additional Conditions to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub are also subject to fulfillment
(or waiver by Parent) at or prior to the Closing of each of the following
conditions precedent:
(a) Representations and Warranties. The representations and
warranties of the Company contained in Article IV of this Agreement shall be
true and correct in all material respects as of the Closing Date as though
made at and as of the Closing Date, except to the extent that they expressly
refer to an earlier time, in which case they shall be true and correct in all
material respects as of such time.
(b) Performance of Covenants. The Company shall have duly
performed and complied in all material respects with each covenant and
agreement required by this Agreement to be performed or complied with by it
prior to or on the Closing Date.
(c) Officer's Certificates. Parent shall have
received from a duly authorized senior officer of the Company a
certificate as to the matters described in Sections 8.2(a) and
8.2(b).
(d) Opinion of Counsel. Parent shall have received the opinion
of White & Case, dated the Closing Date and addressed to Parent, in the form
and substance as mutually agreed to by Parent and the Company.
(e) Corporate Action. Parent shall have received a copy of the
resolutions duly adopted by the Board of Directors of the Company authorizing
the execution, delivery and performance by the Company and its Subsidiaries,
as applicable, of this Agreement, certified by the Secretary or an Assistant
Secretary of such entity.
(f) Dissenting Shares. No more than five percent of the
outstanding shares of Company Common Stock and no more than ten percent of
either class of Company Series Preferred Stock shall be Dissenting Shares.
(g) Unallocated Shares. The Unallocated Shares
shall have been delivered to and cancelled by the Company and the
Company shall have delivered to Parent an officer's certificate
to such effect.
(h) Registration Statement/NYSE Listing. The Registration
Statement shall have become effective under the Securities Act and shall not
be the subject of any stop order or proceeding by the SEC seeking a stop
order. The shares of Parent Common Stock issuable pursuant to this Agreement
and the Stock Purchase Agreement shall have been authorized for listing on the
NYSE, upon official notice of issuance.
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(i) Refinancing. The Refinancing shall have
been, or shall concurrently be, consummated on terms and
conditions satisfactory to Parent.
(j) No Material Adverse Effect. Since February 29, 1996, there
shall have been no events(s) or occurrences(s) which individually or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect.
(k) Pre-Closing Actions. The pre-closing actions referred to
in Section 7.12 hereof, including, without limitation, the execution by all
parties of all documents to be entered into thereunder and the obtaining of
all consents and approvals required thereby (to the extent required), shall
have been completed to the satisfaction of Parent.
(l) Company Common Stock. Immediately prior to the Closing,
the number of shares of Company Common Stock representing (i) shares
distributable to the 1997 Distributees during 1997 and prior to a final
distribution of account balances as provided for in Section 7.17 hereof shall
not be greater than 250,000, and (ii) Non-ESOP Shares shall not be greater
than 15,000.
(m) Unit Consents and Equivalent Share Consents. Unit Consents
shall have been validly executed and delivered to the Company by 100% of the
holders of the Units and Equivalent Share Consents shall have been validly
executed and delivered to the Company by 95% of the holders of the Equivalent
Shares.
(n) Other Consents. (i) All authorizations, Permits, consents,
orders or approvals of, or declarations or filings with, or expirations or
terminations of waiting periods imposed by, any Governmental Authority and all
third party consents (collectively, "Consents") necessary to effect the
transactions contemplated by this Agreement or to prevent the transactions
from resulting in a breach of Sections 4.4 and 6.4, shall have occurred, been
filed or been obtained, except those Consents which the failure to occur, file
or obtain by the Closing Date would not, individually or in the aggregate,
subject Parent, the Surviving Corporation or any of their Subsidiaries to a
significant penalty or other material adverse consequence as a result of
consummating the transactions contemplated hereby without such Consents,
including, without limitation, the inability of Parent, the Surviving
Corporation and their Subsidiaries to conduct the business of the Company and
its Subsidiaries after the Closing in substantially the same manner and in all
material respects as conducted by the Company and its Subsidiaries prior to
the Closing; (ii) Parent shall have received an officer's certificate of the
Company to the extent relating to the Consents other than those which Parent
is taking responsibility to obtain and to the effect that the Company
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reasonably expects all the Consents to be obtained by the Surviving
Corporation after the Closing in due course and in a timely manner but in no
event later than six months after the Closing Date; and (iii) Parent shall
have reasonably concluded that the condition set forth in clause (i) above is
satisfied.
(o) Series C Preferred Stock. Parent shall have
received the certificate referenced in Section 7.5(f) hereof.
(p) FIRPTA Certificate. Parent shall have received from the
Company two letters, each having an original signature, in the form attached
as Exhibit A hereto. Notwithstanding anything to the contrary set forth
herein, if the Company fails to provide Parent with such letters, Parent shall
be entitled to withhold the requisite amounts from the Merger Consideration in
accordance with Section 1445 of the Code.
(q) Representations and Warranties. The representations and
warranties of the ESOP Trustee contained in Article V of this Agreement shall
be true and correct in all material respects as of the Closing Date as though
made at and as of the Closing Date, except to the extent that they expressly
refer to an earlier time, in which case they shall be true and correct in all
material respects as of such time.
(r) Performance of Covenants. The ESOP Trustee shall have duly
performed and complied in all material respects with each covenant and
agreement required by this Agreement to be performed or complied with by it
prior to or on the Closing Date.
(s) Officer's Certificates. Parent shall have
received from a duly authorized senior officer of the ESOP
Trustee a certificate as to the matters described in Sections
8.2(q) and 8.2(r).
(t) Corporate Action. Parent shall have received a copy of the
resolutions duly adopted by the fiduciary committee of the ESOP Trustee
authorizing the execution, delivery and performance by the ESOP Trustee of
this Agreement, certified by the appropriate officer of such entity.
8.3 Additional Conditions to the Obligations of the Company. The
obligations of the Company are also subject to fulfillment (or waiver by the
Company) at or prior to the Closing of each of the following conditions
precedent:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in Article VI of this Agreement
shall be true and correct in all material respects as of the Closing Date as
though made at and as of the Closing Date, except to the extent they expressly
refer to
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an earlier time, in which case they shall be true and correct in all material
respects as of such time.
(b) Performance of Covenants. Parent and Merger Sub shall have
duly performed and complied in all material respects with each covenant and
agreement required by this Agreement to be performed or complied with by it
prior to or on the Closing Date.
(c) Officer's Certificate. The Company shall have received
from a duly authorized senior officer of each of Parent and Merger Sub a
certificate as to the matters described in Sections 8.3(a) and 8.3(b).
(d) Corporate Action. The Company shall have received: (i) a
copy of the resolutions duly adopted by the Board of Directors of each of
Parent and Merger Sub authorizing the execution, delivery and performance by
Parent and Merger Sub of this Agreement, certified by the Secretary or an
Assistant Secretary of Parent and Merger Sub.
(e) Opinion of Counsel. The Company shall have received the
opinion of Skadden, Arps, Slate, Meagher & Flom, dated the Closing Date and
addressed to the Company, in the form and substance as mutually agreed to by
Parent and the Company.
(f) ESOP Participants Voting Instructions. ESOP Participants
holding accounts in the ESOP with respect to 51% or more of the ESOP Shares
shall have instructed the ESOP Trustee to vote for the Merger pursuant to the
solicitation of voting instructions from the ESOP Participants conducted by
the ESOP Trustee.
8.4 Additional Conditions to the Obligations of the ESOP Trust. The
obligations of the ESOP Trust are also subject to fulfillment (or waiver by
the ESOP Trustee) at or prior to the Closing of the following conditions
precedent:
(a) Cancellation of ESOP Debt, etc. On or prior to the
Closing, the ESOP Trust shall have received from the Company all promissory
notes evidencing outstanding ESOP Debt marked cancelled and the return of all
Unallocated Shares (with such shares concurrently delivered to the Company for
cancellation as provided in Section 7.10 hereof).
(b) ESOP and ESOP Trust Amendments. The ESOP Trustee shall
have received certified copies of resolutions of the Board of Directors of the
Company containing the amendments to the ESOP and ESOP Trust documents, if
any, required under Section 7.17 hereof.
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(c) ESOP Participants Voting Instructions. ESOP Participants
holding accounts in the ESOP with respect to 51% or more of the ESOP Shares
shall have instructed the ESOP Trustee to vote for the Merger pursuant to the
solicitation of voting instructions of the ESOP Participants conducted by the
ESOP Trustee.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual agreement of the Company, Parent
and the ESOP Trust;
(b) by Parent, on the one hand, or the Company or the ESOP
Trust, on the other hand, upon notice given to the other in the event that the
other shall, contrary to the terms of this Agreement, fail or refuse to
consummate the transactions contemplated hereby or to take any other action
referred to herein necessary to consummate the transactions contemplated
hereby, after affording such defaulting party a thirty-day period after notice
in which to cure;
(c) by any of Parent, the Company or the ESOP Trust, upon
notice given to the others if the Closing shall not have taken place on or
before December 31, 1996; provided, that the failure of the Closing to occur
on or before such date is not the result of the breach of the covenants,
agreements, representations or warranties hereunder of the party seeking such
termination;
(d) by Parent, on the one hand, or the Company or the ESOP
Trustee, on the other hand, upon notice given to the other if any court or
Governmental Authority of competent jurisdiction shall have issued a final
permanent order, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement; or
(e) by the Company, or the ESOP Trust, in the event that the
Company or the ESOP Trust, as the case may be, receives a Superior Proposal in
accordance with the provisions of Section 7.7 hereof.
9.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 9.1 hereof, the obligations of the parties
hereto shall terminate, except that the provisions of the last sentence of
Section 7.3(a) and Sections 7.8, 7.16, 9.2, 10.9 and 10.10 hereof shall
survive and
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no party shall be relieved of any liability for any breach of any provision
contained in this Agreement. Notwithstanding the foregoing, and in no way
limiting any other rights hereunder, in the event this Agreement is terminated
by the Company or the ESOP Trust in accordance with Section 9.1(e) hereof, the
Company shall pay Parent by wire transfer in immediately available funds a fee
of $8 million on the date of termination of this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties made by the parties to this Agreement
(including the schedules hereto and the certificates delivered in accordance
with Sections 8.2(c) and 8.3(c) hereof, insofar as such schedules and such
certificates relate to such representations and warranties) shall survive the
Effective Time.
10.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or transmitted
by facsimile or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
if to Parent or Merger Sub, to:
HFS Incorporated
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: General Counsel
Facsimile: 201-428-5269
with a copy to:
Skadden, Arps, Slate, Meagher
& Flom
919 Third Avenue
New York, New York 10022
Attention: David Fox, Esq.
Facsimile: 212-735-2000
if to the Company, to:
Avis, Inc.
900 Old Country Road
Garden City, New York 11530
Attention: General Counsel
Facsimile: 516-222-4101
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with a copy to:
White & Case
1155 Avenue of the Americas
New York, New York 10036
Attention: Sean J. Geary, Esq.
Facsimile: 212-354-8113
if to the ESOP, to:
U.S. Trust Company of California, N.A.
515 South Flower Street
Suite 2700
Los Angeles, California 90071
Attention: Charles E. Wert
Facsimile: 213-488-1366
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: Michael J. Segal, Esq.
Facsimile: 212-821-8111
10.3 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.4 No Third Party Beneficiaries. Except as specifically set forth
herein, nothing herein express or implied shall confer upon any person other
than the parties hereto any rights, benefits or remedies of any nature or kind
under or by reason of this Agreement.
10.5 Amendment. This Agreement (including the exhibits hereto) may
be amended by the parties hereto, but may not be amended except by an
instrument or instruments in writing signed and delivered on behalf of each of
the parties hereto.
10.6 Extension; Waiver. At any time prior to the Closing Date, any
party hereto which is entitled to the benefits hereof may (a) extend the time
for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracy in the representations and warranties of the
other party contained herein or in any schedule hereto or in any document
delivered pursuant hereto, and (c) waive compliance with any of the agreements
of the other party hereto or conditions contained herein. Any agreement on the
part of a party hereto to
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any such extension or waiver shall be valid if set forth in an instrument in
writing signed and delivered on behalf of such party.
10.7 Entire Agreement. This Agreement (including the exhibits,
schedules, documents and instruments referred to herein) and the
Confidentiality Agreement constitute the entire agreement and supersede all
other prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof.
10.8 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Notwithstanding the foregoing, this
Agreement shall not be assignable by any party hereto (other than by operation
of law) without the prior written consent of the other parties hereto;
provided, that Parent may assign its rights but not its obligations hereunder
to any of its wholly owned Subsidiaries.
10.9 Governing Law. This Agreement shall be governed
in all respects, including validity, interpretation and effect,
by the laws of the State of New York.
10.10 Submission to Jurisdiction.
(a) Each of the parties hereto hereby irrevocably and
unconditionally: (i) submits for itself and its property in any legal action
or proceeding relating to this Agreement, or for recognition and enforcement
of any judgment in respect thereof, to the nonexclusive general jurisdiction
of the courts of the State of New York and the courts of the United States for
the Southern District of New York; (ii) consents that any such action or
proceeding may be brought in such courts and waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same; (iii) agrees that service of
process in any such action or proceeding may be affected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to it at its address set forth in Section 10.2 or at
such other address for a party as shall be specified by a notice pursuant
thereto; and (iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction.
(b) Each of the parties hereto hereby irrevocably and
unconditionally waives trial by jury in any legal action or proceeding
referred to in Section 10.10(a).
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10.11 Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or equity.
10.12 Counterparts. This Agreement may be executed by facsimile and
in counterparts, all of which for all purposes shall be deemed to be an
original and all of which shall, taken together, constitute the same
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on their behalf by their respective officers hereunder duly
authorized all as of the date first written above.
HFS INCORPORATED
By:
----------------------------------------
Name:
Title:
AVIS ACQUISITION CORP.
By:
----------------------------------------
Name:
Title:
AVIS, INC.
By:
----------------------------------------
Name:
Title:
U.S. TRUST COMPANY OF
CALIFORNIA, N.A., solely in its
capacity as trustee of, and on
behalf of, the trust forming a part
of the Avis, Inc. Employee Stock
Ownership Plan
By:
----------------------------------------
Name:
Title:
88
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of August 28, 1996, by and
between HFS INCORPORATED, a Delaware corporation ("Purchaser"), and GENERAL
MOTORS CORPORATION, a Delaware corporation ("GM").
WHEREAS, GM is the beneficial and record owner of 9,788,623 shares
of participating convertible preferred stock, par value $.01 per share (the
"Convertible Preferred Stock"), of Avis, Inc., a Delaware corporation (the
"Company"), and such shares owned by GM constitute all of the outstanding
shares of Convertible Preferred Stock of the Company (the "Shares");
WHEREAS, GM desires to sell to Purchaser, and Purchaser desires to
purchase from GM, the Shares on the terms and subject to the conditions set
forth in this Agreement; and
WHEREAS, simultaneously with the execution of this Agreement,
Purchaser, Avis Acquisition Corp., a wholly owned indirect Subsidiary of
Purchaser ("Merger Sub"), U.S. Trust Company of California, N.A., as trustee
of the Avis, Inc. Stock Ownership Plan, and the Company entered into an
agreement and plan of merger (the "Merger Agreement") whereby, upon the
terms and subject to the conditions set forth therein, Merger Sub will merge
(the "Merger") with and into the Company simultaneously with the purchase and
sale of the Shares hereunder;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, intending to be legally bound
thereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. For purposes of this Agreement (including the
schedules hereto), the terms defined in this Agreement shall have the
respective meanings specified herein, and, in addition, the following terms
shall have the following meanings:
"Additional Amount": an amount equal to 71.85% of the
ESOP Amount.
"Affiliate": as to any person, any other person
which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such person.
The term "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"),
<PAGE>
as applied to any person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and
policies of such person, whether through the ownership of voting
securities or other ownership interest, by contract or otherwise.
"Agreement": this Stock Purchase Agreement, as amended,
modified or supplemented from time to time.
"ARACS": Avis Rent A Car System, Inc., a Delaware
corporation and a wholly owned direct Subsidiary of the
Company.
"business day": any day other than a Saturday or
Sunday on which banks in New York and California are
required to be open for the conduct of business.
"Certificate of Designation": the Certificate of
Designation for the Convertible Preferred Stock.
"Common Stock": the common stock, par value $.01 per
share, of the Company.
"Disclosure Schedule": the document being delivered by
GM simultaneously with the execution of this Agreement
scheduling the items required to be disclosed therein.
"Dividend Amount": the aggregate amount, if any, which
is paid as a cash dividend to the holders of Convertible
Preferred Stock at any time from the date of this Agreement
through the Closing Date.
"ESOP": The Avis, Inc. Employee Stock Ownership Trust,
a trust created pursuant to the Avis, Inc. Employee Stock
Ownership Plan.
"ESOP Amount": an amount up to $15 million of
additional consideration payable to the ESOP in connection
with the Merger.
"Exchange Act": the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC
promulgated thereunder, all as the same shall be in effect
from time to time.
"Financing Lease": any lease of property, real or
personal, the obligations of the lessee in respect of which
are required in accordance with GAAP to be capitalized on a
balance sheet of the lessee.
"Franchisee": any person who owns or possesses the
right to operate an "Avis Rent A Car" or similar franchised
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business under a franchise or license agreement entered into with the
Company or any of its Subsidiaries or any Subfranchisor.
"GAAP": generally accepted accounting principles in the
United States of America in effect from time to time.
"GMAC": General Motors Acceptance Corporation, a wholly
owned Subsidiary of GM.
"Governmental Authority": any nation or government, any
state or other political subdivision thereof and any entity
(including, without limitation, a court) exercising
executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Governmental Order": as to any person, any judgment,
injunction, decree, order or other determination of an
arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such person or any
of its property or assets or to which such person or any of
its property or assets is subject.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Financing Lease having substantially the
same economic effect as any of the foregoing) and any restriction on the
Shares pursuant to a voting, stockholders or similar agreement or any
other restriction on the Shares of any kind.
"Material Adverse Effect": a material adverse effect on (a) the
business, properties, assets, liabilities, net worth, sales, income,
prospects, condition (financial or otherwise) or results of operations
(historical or projected) of (i) the Company and its Subsidiaries taken
as a whole, (ii) ARACS, or (iii) the business of the Company with
Franchisees, taken as a whole, (b) the validity or enforceability of
this Agreement, (c) the ability of Purchaser or GM or any of their
respective Affiliates to (i) consummate the transactions contemplated
hereby or (ii) receive the benefits hereunder or (d) the ability of
Purchaser or the Company, or any of their respective Subsidiaries or
Affiliates to (i) consummate the transactions contemplated by the Merger
Agreement or (ii) receive the benefits thereunder.
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"Permits": as to any person, all licenses, permits, franchises,
orders, approvals, concessions, registrations, authorizations and
qualifications with and under all federal, state, local or foreign laws
and Governmental Authorities and all industry or other nongovernmental
self-regulatory organizations that are issued to such person.
"person": an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"Purchaser Common Stock": the common stock, par value
$.01 per share, of Purchaser.
"PVT": the Prime Vehicles Trust.
"Rental Business": the business of operating a motor
vehicle rental business which specializes in the rental of
vehicles, without drivers.
"Requirement of Law": as to any person, the Certificate of
Incorporation and Bylaws or other organizational or governing documents
of such person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other Governmental Authority, in each
case applicable to or binding upon such person or any of its property or
assets or to which such person or any of its property or assets is
subject.
"SEC": the Securities and Exchange Commission or its
successor.
"Securities Act": the Securities Act of 1933, as
amended, and the rules and regulations of the SEC
promulgated thereunder, all as the same shall be in effect
from time to time.
"Stockholders Agreement": the Stockholders Agreement,
dated as of January 25, 1989, by and among the Company, the
ESOP and GM.
"Subfranchisor": any person (including a Subsidiary of
the Company) to whom the Company or any of its Subsidiaries
has granted the right to sell or grant a franchise of the
Rental Business to a third party.
1.2 Other Definitional Provisions. (a) The words
"hereof," "herein" and "hereunder" and other words of similar
import when used in this Agreement shall refer to this Agreement
and the Exhibits, Schedules and the Disclosure Schedule as a
whole and not to any particular part or subdivision thereof, and
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Section, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms, and
the words of any gender shall include each other gender where appropriate.
ARTICLE II
SALE AND PURCHASE OF THE SHARES
2.1 Purchase and Sale of the Shares. Upon the terms and subject to
the conditions of this Agreement, at the Closing (as defined in Section 2.3
hereof), GM shall sell, assign, transfer, convey and deliver to Purchaser, and
Purchaser shall purchase, acquire and accept from GM, all of the Shares free
and clear of any and all Liens.
2.2 Consideration.
(a) Upon the terms and subject to the conditions of this
Agreement, in consideration of the aforesaid sale, conveyance, assignment,
transfer and delivery of the Shares, Purchaser agrees to pay to GM an amount
equal to $295 million, plus the Additional Amount, if any (the "Purchase
Price"). The Purchase Price shall be comprised of (i) $200 million, plus the
Fractional Cash (as defined in Section 2.2(b) hereof), in cash (the "Cash
Component"), and (ii) $95 million, plus the Additional Amount, if any (the
"Closing Value"), in whole shares of Purchaser Common Stock (as determined in
accordance with paragraph (b) below), subject to the Post-Closing Adjustment
(as defined in Section 2.7 hereof), if any.
(b) The number of whole shares of Purchaser Common Stock to be
delivered pursuant to Section 2.2(a)(ii) hereof (the "Purchaser Shares") shall
be determined by dividing the Closing Value by the average of the per share
closing prices of Purchaser Common Stock on the New York Stock Exchange
Composite Transaction Reporting System for the 10 consecutive trading days
immediately preceding the third trading day prior to the Closing Date, and
cash shall be delivered in lieu of any fractional share (determined in
accordance with the valuation of the Purchaser Shares above (the "Fractional
Cash")).
(c) The Purchaser Shares will be registered pursuant to a
registration statement (the "Registration Statement") under the Securities
Act for resale by GM, however, GM hereby agrees not to sell or otherwise
transfer the Purchaser Shares except in accordance with Section 2.6 hereof.
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2.3 Closing. The closing of the transactions contemplated hereby
(the "Closing") will take place at a time and date specified by the parties
hereto, which shall be simultaneous with the closing of the transactions
contemplated by the Merger Agreement, subject to the satisfaction or waiver of
the conditions set forth in Article VI hereof (the "Closing Date"), at the
offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York,
New York 10022.
2.4 Deliveries by GM. At the Closing, GM will deliver or cause to
be delivered (unless previously delivered) to Purchaser, the following:
(a) Stock certificates representing the Shares accompanied by
stock powers duly endorsed in blank or accompanied by duly executed
instruments of transfer, and any other documents that are necessary to
transfer to Purchaser good and valid title to the Shares free and clear
of all Liens, with all necessary transfer tax stamps affixed or
accompanied by evidence that all stock transfer taxes have been paid.
(b) The opinion referred to in Section 6.2(d)
hereof.
(c) Counterparts to the Financing Agreement (as defined in
Section 5.7 hereof) duly executed by GM or GMAC, as applicable.
(d) All other documents, instruments and writings
required to be delivered by GM at the Closing.
2.5 Deliveries by the Purchaser. At the Closing, Purchaser will
deliver or cause to be delivered (unless previously delivered) to GM, the
following:
(a) the Cash Component in immediately available funds by wire
transfer to an account designated by GM to Purchaser at least two
business days prior to the Closing.
(b) The Purchaser Shares registered in the name
of GM.
(c) The opinion referred to in Section 6.3(d)
hereof.
(d) A counterpart to the Financing Agreement duly executed by
the Affiliate of the Company which is a party thereto.
(e) All other documents, instruments and writings
required to be delivered by Purchaser at the Closing.
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2.6 Sale of Purchaser Shares. If GM desires to sell all or a
portion of the Purchaser Shares at any time prior to the close of business on
the 30th day after the Closing Date, or if such day is not a business day, the
first business day thereafter (the "Directed Sale Date"), GM shall deliver to
Purchaser, at any time prior to the 25th day after the Closing Date (the
"Notice Date"), written notice (the "Notice") of its desire to sell a
specified number of Purchaser Shares. GM and Purchaser agree that the
Purchaser shall make all decisions in its reasonable business judgment
regarding the method and manner of such sale; provided, that the primary
objective of such method and manner shall be to obtain the maximum sale price
for such shares; and provided, further, that any of Merrill, Lynch, Pierce,
Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Goldman,
Sachs & Co. may act as broker or investment banker in connection with such
sale or sales. Upon delivery of the Notice by the Notice Date, Purchaser
shall, not later than the close of business on the second business day after
receipt of the Notice by the Purchaser (the "Direction Date"), direct (the
"Direction") the manner and method in which GM shall dispose of such number of
Purchaser Shares and Purchaser shall use its commercially reasonable efforts
to assist GM in effecting such sale. GM will use commercially reasonable
efforts to effect any such sale as promptly as practicable after receipt of
the Direction and in such manner and method as set forth in such Direction or
subsequent instructions and will cooperate fully with all reasonable requests
of Purchaser and assist Purchaser in connection with such sale, and such
assistance shall include, but not be limited to, the following, as applicable:
(i) providing reasonable assistance in connection with the preparation of any
required written offering materials (private or public), (ii) entering into
customary underwriting agreements with nationally recognized investment
banking firms and related documentation and (iii) entering into customary
stock purchase agreements with the purchasers of such shares and related
documentation. In the event a sale pursuant to this Section 2.6 is in process
prior to the Directed Sale Date and consummation of such sale reasonably
requires a continuation of the sale through the Directed Sale Date, the
Directed Sale Date shall be deemed to be extended to the date necessary to
consummate such sale.
2.7 Post-Closing Adjustment. If GM consummates the sale of all or a
portion of the Purchaser Shares in one or more transactions in accordance with
the provisions of Section 2.6 hereof, Purchaser shall pay to GM the amount by
which the Closing Value exceeds the Current Value (as defined below) (the
"Post- Closing Adjustment"). For purposes of this Agreement, "Current Value"
is the amount equal to the net sale proceeds received by GM in a bona fide
sale to a third party of Purchaser Shares, plus, in the event that less than
all of the Purchaser Shares were sold pursuant to Section 2.6 hereof, the
value of the Purchaser Shares not so sold based on the Closing Value of such
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Purchaser Shares not so sold. If Purchaser is required to pay the Post-Closing
Adjustment, Purchaser shall deliver such funds to GM, in cash by wire transfer
of immediately available funds, within five business days after consummation
of the last sale pursuant to Section 2.6 hereof, upon receipt of any
documentation requested by Purchaser with respect to: (i) the date, per share
price, and manner in which such sale was effected, (ii) the number of
Purchaser Shares sold and GM's calculation of the Current Value and
Post-Closing Adjustment, and (iii) sufficient detail and copies of all
relevant documentation or other evidence to support GM's determination of the
Current Value, including without limitation, copies of any sales contracts or
brokerage statements.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GM
GM hereby represents and warrants to Purchaser as follows:
3.1 Organization and Existence. GM is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of organization and has full power and authority to own all of
its properties and assets and to carry on its business as it is now being
conducted.
3.2 Authority; Enforceability. GM has, and to the extent applicable
GMAC has, the requisite corporate power and authority to execute and deliver
this Agreement and the Financing Agreement and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of
this Agreement by GM and the consummation by GM of the transactions
contemplated hereby and by the Financing Agreement have been duly authorized
by all necessary corporate action on the part of GM and no other corporate
proceedings on the part of GM are necessary to authorize this Agreement or the
Financing Agreement or to consummate the transactions so contemplated. The
execution, delivery and performance of the Financing Agreement by GMAC and the
consummation by GMAC of the transactions contemplated thereby will be duly
authorized by all necessary corporate action on the part of GMAC prior to the
Closing and no other corporate proceedings on the part of GMAC will be
necessary to authorize the Financing Agreement or to consummate the
transactions so contemplated. This Agreement has been duly executed and
delivered by GM and constitutes, and the Financing Agreement when executed and
delivered by GM or GMAC, as applicable, will constitute, a valid and binding
obligation of GM and GMAC, as applicable, enforceable against them in
accordance with its terms, when executed and delivered by the other parties
thereto, except (i) as such enforceability may be limited by
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bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting creditors' rights generally, and (ii) as such enforceability may be
limited by general principles of equity, regardless of whether asserted in a
proceeding in equity or law.
3.3 Non-Contravention. The execution and delivery by GM of this
Agreement does not, and the execution and delivery of the Financing Agreement
by GM and GMAC, as applicable, will not, and the consummation by GM and GMAC
of the transactions contemplated hereby and thereby and the performance by
them of their respective obligations hereunder and thereunder will not, (a)
subject to obtaining the approvals set forth in Section 3.4 hereof, violate,
or result in the violation of, any Requirement of Law of GM or any of its
Affiliates, (b) result in the creation of any Lien on the properties or assets
of GM or any of its Affiliates, or (c) except as described in Section 3.3 of
the Disclosure Schedule, violate, or result in the violation of, or default
(with or without notice or lapse of time, or both) under, any provision of, or
result in the termination or acceleration of, or give rise to a right of
termination or acceleration of or the loss of a benefit under, any loan
agreement, note, lease or other agreement, obligation, instrument, Lien or
Permit applicable to GM or any of its Affiliates or their respective
properties or assets, but only to the extent that such effect would be
material to the business or assets of GM, taken as a whole.
3.4 Consents. Except for filings under the Securities Act with
respect to the Registration Statement and as set forth in Section 3.4 of the
Disclosure Schedule, no consent, authorization, order or approval of, or
filing or registration with, any Governmental Authority is required for or in
connection with the execution and delivery of this Agreement and the Financing
Agreement by GM and its Affiliates, as applicable, the consummation by GM and
its Affiliates of the transactions contemplated hereby and thereby and the
performance by them of their respective obligations hereunder and thereunder.
3.5 Title to Shares. GM has good, valid and marketable title to the
Shares, free and clear of all Liens and any other restriction of whatever
nature other than restrictions on transfer pursuant to the Stockholders
Agreement. At the Closing, Purchaser will acquire from GM good, valid and
marketable title to the Shares, free and clear of all Liens and any other
restriction of whatever nature.
3.6 Information in Disclosure Documents and
Registration Statement. None of the information supplied or to
be supplied by GM or any of its Affiliates specifically for
inclusion or incorporation by reference in (i) the Registration
Statement to be filed with the SEC by Purchaser with respect to
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the registration of Purchaser Common Stock to be issued in connection with the
transactions contemplated hereby and by the Merger Agreement will, at the time
it is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein if necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) any disclosure document delivered by Purchaser, the
Company or any of their respective Affiliates in connection with the
transactions contemplated hereby or by the Merger Agreement, including,
without limitation, any disclosure document delivered to holders of the
Company's capital stock in connection with the transactions contemplated
hereby and by the Merger Agreement and any syndication and other materials to
be delivered to potential financing sources in connection with the
transactions contemplated hereby and by the Merger Agreement ("Other
Disclosure Documents"), will, at the date delivered, contain any untrue
statement of 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.
3.7 Merger Agreement. GM has received a copy of the
Merger Agreement.
3.8 Brokers and Finders. No person is or will be entitled to any
broker's, finder's, investment banker's, financial advisor's or similar fee
from GM or its Affiliates in connection with this Agreement or the Financing
Agreement or the transactions contemplated hereby or thereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to GM as follows:
4.1 Organization. Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has full power and authority to own all of its properties and assets and
to carry on its business as it is now being conducted.
4.2 Authority; Enforceability. Purchaser has the
corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The
execution and delivery by Purchaser of this Agreement and the
performance by it of its obligations hereunder has been duly
authorized by the Board of Directors of Purchaser. No other
proceedings on the part of Purchaser are necessary to authorize
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the execution and delivery of this Agreement or the performance by Purchaser
of its obligations hereunder. This Agreement has been duly executed and
delivered by Purchaser and constitutes a legal, valid and binding agreement of
Purchaser, enforceable against it in accordance with its terms, except (i) as
such enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally,
and (ii) as such enforceability may be limited by general principles of
equity, regardless of whether asserted in a proceeding in equity or law.
4.3 Non-Contravention. The execution and delivery by Purchaser of
this Agreement does not, and the consummation by it of the transactions
contemplated hereby and the performance by it of its obligations hereunder
will not, (a) subject to obtaining the approvals set forth in Section 4.3 of a
disclosure schedule delivered by Purchaser to GM simultaneously herewith (the
"Purchaser Disclosure Schedule"), violate, or result in the violation of, any
Requirement of Law of Purchaser, (b) result in the creation of any Lien on any
of the properties or assets of Purchaser, or (c) violate, or result in the
violation of, or default (with or without notice or lapse of time, or both)
under, any provision of, or result in the termination or acceleration of, or
give rise to a right of termination or acceleration of or the loss of a
benefit under, any loan agreement, note, lease or other agreement, obligation,
franchise, instrument, Lien or Permit applicable to Purchaser or its
properties or assets, but only to the extent that such effect would be
material to the business or assets of Purchaser, taken as a whole.
4.4 Consents. Except for filings under the Securities Act with
respect to the Registration Statement and as set forth in Section 4.4 of the
Purchaser Disclosure Schedule, no consent, authorization, order or approval
of, or filing or registration with, any Governmental Authority is required for
or in connection with the execution and delivery of this Agreement by
Purchaser, the consummation by Purchaser of the transactions contemplated
hereby and the performance by Purchaser of its obligations hereunder.
4.5 SEC Documents. Purchaser has made available to GM a copy of its
Form 10-K for the fiscal year ended December 31, 1995 and its Form 10-Q for
the fiscal quarter ended June 30, 1996, as amended by the Form 10-Q/A filed on
August 19, 1996, and its proxy statement relating to its 1996 annual meeting
of stockholders held on May 20, 1996. As of their respective dates, such
documents complied in all material respects with the requirements of the
Exchange Act, and none of such documents, as amended, contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
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financial statements of Purchaser included in such documents comply as to form
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q of the SEC) and
fairly present the consolidated financial position of Purchaser and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended.
4.6 Information in Disclosure Documents and Registration
Statements. None of the information supplied or to be supplied by Purchaser
for inclusion or incorporation by reference in (i) the Registration Statement
will, at the time any such Registration Statement is filed with the SEC and at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein if necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) any Other
Disclosure Document will, at the date delivered, contain any untrue statement
of 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.
4.7 Purchaser Shares. Upon issuance on the Closing Date, the
Purchaser Shares shall be validly issued, fully paid and nonassessable and
shall not have been issued in violation of any preemptive or similar rights.
4.8 Brokers. With the exception of Bear Stearns & Co., Inc., no
person is or will be entitled to any broker's, finder's, investment banker's,
financial advisor's or similar fee from Purchaser or its Affiliates in
connection with this Agreement or the transactions contemplated hereby or
thereby.
ARTICLE V
COVENANTS
5.1 Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement as promptly as practicable including, but not limited
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to, (i) the preparation and filing, if necessary, of the Registration
Statement and Other Disclosure Documents, (ii) the preparation and filing of
all other forms, registrations and notices required to be filed to consummate
the transactions contemplated by this Agreement and the Merger Agreement and
the taking of such actions as are necessary to obtain any requisite approvals,
consents, orders, exemptions or waivers by any third party or Governmental
Authority, and (iii) the satisfaction of all conditions to Closing.
(b) Each party shall promptly consult with the other with
respect to, provide any necessary information not subject to legal privilege
with respect to, and provide the other (or its counsel) copies of, all filings
made by such party with any Governmental Authority or any other information
supplied by such party to a Governmental Authority in connection with this
Agreement and the transactions contemplated by this Agreement. Each party
hereto shall promptly inform the other of any communication from any
Governmental Authority regarding any of the transactions contemplated by this
Agreement. If any party or Affiliate thereof receives a request for additional
information or documentary material from any such Governmental Authority with
respect to the transactions contemplated by this Agreement, then such party
will endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other party, an
appropriate response in compliance with such request.
(c) Notwithstanding the foregoing, nothing in this Agreement
shall be deemed to require Purchaser to enter into any agreement with any
Governmental Authority or to consent to any order, decree or judgment
requiring Purchaser to hold separate or divest, or to restrict the dominion or
control of Purchaser or any of its Affiliates over, any of the assets,
properties of businesses of Purchaser, its Affiliates or the Company.
(d) Each party hereto agrees to instruct its counsel to
deliver executed copies of any opinion of counsel reasonably requested to be
delivered hereunder to any third party where such delivery is necessary to
consummate the transactions contemplated hereby or by the Merger Agreement.
5.2 No Public Announcement; Confidentiality.
(a) No party hereto shall make any public announcement
concerning the transactions contemplated by this Agreement and the
transactions contemplated hereby without the prior approval of the other
party, which approval shall not be unreasonably withheld, except as such
announcement may be required by law or the rules and regulations of a stock
exchange, in which case the party required to make the announcement shall
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use all reasonable efforts to provide the other party with reasonable time
under the circumstances to comment on such announcement in advance of such
announcement.
(b) The parties hereto agree that all information about GM
obtained by Purchaser, on the one hand, and all information about Purchaser
and the Company obtained by GM, on the other hand, disclosed in connection
with the transactions contemplated hereby and the Merger Agreement (other than
publicly available information) shall be held in confidence for a period of
ten years from the Closing Date by Purchaser and GM, as the case may be, and
such information shall not be disclosed to any person (other than such
person's Affiliates and its or their directors, officers, employees, agents,
representatives and potential financing sources) except as may be required by
judicial process, administrative order, or any law, rule or regulation.
(c) Notwithstanding the provisions of paragraph (b) of this
Section 5.2, Purchaser may disclose, and GM will disclose, information
concerning GM and GMAC as reasonably necessary with respect to the
transactions contemplated by this Agreement and the Merger Agreement and in
the Registration Statement and Other Disclosure Documents prepared by
Purchaser, the Company or any of their respective Affiliates and prospective
financing sources in connection with the transactions contemplated hereby and
the Merger Agreement. GM will cooperate with all such requested disclosure.
5.3 Disclosure Supplements. From time to time prior to the Closing,
GM shall supplement or amend the Disclosure Schedule and Purchaser shall
supplement and amend the Purchaser Disclosure Schedule with respect to any
matter hereafter arising or any information obtained after the date hereof
which, if existing, occurring or known at or prior to the date of this
Agreement, would have been required to be set forth or described in such
schedules or which is necessary to complete or correct any information in such
schedules or in any representation and warranty which has been rendered
inaccurate thereby. For all purposes of this Agreement any such supplement or
amendment shall be disregarded and given no effect.
5.4 Expenses. Whether or not the transactions contemplated hereby
are consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall, except as otherwise
provided herein, be paid by the party incurring such expenses.
5.5 Further Assurances. The parties hereto agree
that, from time to time after the Closing, without additional
consideration, each of them will execute and deliver such further
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instruments and take such other action as may be necessary to make effective
the transactions contemplated by this Agreement.
5.6 Fleet Agreement. GM agrees to provide Purchaser, the Company
and any of their respective Affiliates which are a party to a fleet agreement
with GM (the "Fleet Agreement") with competitive status, which will entitle
such persons to receive from GM comparable benefits available to other car
rental companies; provided, however, that, with respect to 1996 and 1997 model
year vehicles, such persons shall be entitled to the benefits and status
available under both the Fleet Agreement for the 1996 and 1997 model years, as
applicable. GM agrees to permit the Fleet Agreement to be assigned to any
Affiliate of Purchaser or the Company which owns and operates the fleet;
provided, that, all rights and obligations under the Fleet Agreement are
expressly assumed by such person, including, without limitation, all rights
and obligations with respect to incentives and defenses provided under the
Fleet Agreement. If requested by Purchaser, GM agrees to amend the Fleet
Agreement prior to the Closing in a manner mutually acceptable to Purchaser
and GM.
5.7 Financing Agreement. At or prior to the Closing, GM shall cause
GMAC to enter into an agreement whereby GMAC shall provide up to $200 million
of secured financing to PVT (the "Financing Agreement"), on substantially the
terms set forth in Exhibit A hereto. The Financing Agreement shall be in form
and substance satisfactory to Purchaser and GM.
5.8 Consent to Transaction. Prior to the Closing, GM shall have
given all consents or waivers required to be given by it, and shall have
received all consents or waivers required to be received by it, pursuant to
the Certificate of Designation and the Stockholders Agreement in connection
with the transactions contemplated by this Agreement and the Merger Agreement,
including, without limitation, the waiver of all rights of first refusal with
respect to the transactions contemplated hereby and thereby and the
requirement of Purchaser to enter into the Stockholders Agreement.
5.9 Approval of Merger. GM, in its capacity as the sole stockholder
of Convertible Preferred Stock, shall vote the shares of Convertible Preferred
Stock (or act by written consent), as a separate class and in the same class
with the holders of Common Stock, to approve and adopt the Merger Agreement
and the transactions contemplated thereby, and shall take any and all actions
as may be necessary or appropriate to effect such a vote (or written consent)
at the time the Company calls for such a vote (or written consent).
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5.10 No Conversion. GM shall not convert the Shares
into shares of Common Stock, unless requested to do so in writing
by Purchaser.
ARTICLE VI
CONDITIONS TO THE CLOSING
6.1 Conditions of Obligation of Each Party. The respective
obligations of each party to effect the Closing are subject to the fulfillment
at or prior to the Closing Date of each of the following conditions precedent:
(a) No Injunction or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated hereby shall be
in effect, nor shall any proceeding by any Governmental Authority seeking any
of the foregoing be pending. There shall not be in effect any statute, rule,
regulation or order of any court, governmental or regulatory body which
prohibits or makes illegal the transactions contemplated by this Agreement.
6.2 Additional Conditions to the Obligations of Purchaser. The
obligations of Purchaser are also subject to fulfillment (or waiver by
Purchaser) at or prior to the Closing Date of each of the following conditions
precedent:
(a) Representations and Warranties. The representations and
warranties of GM contained in Article III of this Agreement shall be true and
correct in all material respects as of the Closing Date as though made at and
as of the Closing Date, except to the extent that they expressly refer to an
earlier time, in which case they shall be true and correct as of such time.
(b) Performance of Covenants. GM shall have duly performed and
complied in all respects with each covenant, agreement and condition required
by this Agreement to be performed or complied with by it prior to or on the
Closing Date.
(c) Officer's Certificates. Purchaser shall have
received from a duly authorized senior officer of GM a
certificate as to the matters described in Sections 6.2(a) and
6.2(b).
(d) Opinion of Counsel. Purchaser shall have received the
opinion of GM Legal Staff dated the Closing Date and addressed to Purchaser,
in form and substance as mutually agreed to by Purchaser and GM.
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(e) Corporate Action. Purchaser shall have received a copy of
the resolutions duly adopted by the Board of Directors of GM authorizing the
execution, delivery and performance by GM of this Agreement, and the Financing
Agreement.
(f) Financing Agreement. The Financing Agreement (and any
amendment to the Fleet Agreement) shall be in form and substance satisfactory
to Purchaser and duly executed counterparts of the Financing Agreement (and
any such amendment to the Fleet Agreement) shall have been delivered to the
other parties thereto.
(g) Consents. All consents and waivers referred to in Sections
5.8 and 5.9 hereof shall have been given or obtained.
(h) Other Closing. All conditions precedent to
the closing of the transactions contemplated by the Merger
Agreement other than the Closing shall have been satisfied or
waived.
(i) No Material Adverse Effect. There shall have
been no Material Adverse Effect since February 29, 1996.
6.3 Additional Conditions to the Obligations of GM. The obligations
of GM are also subject to fulfillment (or waiver by GM) at or prior to the
Closing Date of each of the following conditions precedent:
(a) Representations and Warranties. The representations and
warranties of Purchaser contained in Article IV of this Agreement shall be
true and correct in all material respects as of the Closing Date as though
made at and as of the Closing Date, except to the extent they expressly refer
to an earlier time, in which case they shall be true and correct as of such
time.
(b) Performance of Covenants. Purchaser shall have duly
performed and complied in all respects with each covenant, agreement and
condition required by this Agreement to be performed or complied with by it
prior to or on the Closing Date.
(c) Officer's Certificate. GM shall have
received from a duly authorized senior officer of Purchaser a
certificate as to the matters described in Sections 6.3(a) and
6.3(b).
(d) Opinion of Counsel. GM shall have received the opinion
Skadden, Arps, Slate, Meagher & Flom dated the Closing Date and addressed to
GM, in form and substance as mutually agreed to by Purchaser and GM.
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(e) Corporate Action. GM shall have received a copy of the
resolutions duly adopted by the Board of Directors of Purchaser authorizing
the execution, delivery and performance by Purchaser of this Agreement,
certified by the Secretary or an Assistant Secretary of Purchaser.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual agreement of the GM and Purchaser;
(b) by Purchaser, on the one hand, or GM, on the
other hand, if the Merger Agreement is terminated;
(c) by Purchaser, on the one hand, or GM, on the other hand,
upon notice given to the other if the Closing shall not have taken place on or
before December 31, 1996; provided that the failure of the Closing to occur on
or before such date is not the result of the breach of the covenants,
agreements, representations or warranties hereunder of the party seeking such
termination; or
(d) by Purchaser, on the one hand, or GM on the other hand,
upon notice given to the other if any court or governmental authority of
competent jurisdiction shall have issued a final permanent order enjoining or
otherwise prohibiting the transactions contemplated by this Agreement.
7.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 7.1 hereof, the obligations of the parties
hereto shall terminate, except that the provisions of Sections 5.2(b), 5.4,
7.2, 8.9 and 8.10 hereof shall survive and no party shall be relieved of any
liability for any breach of any provision contained in this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties. None of the
representations and warranties made by the parties in this Agreement shall
survive the Closing, except for the representations and warranties set forth
in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.8, 4.1, 4.2, 4.3, 4.4, and 4.8
shall survive the Closing indefinitely (including the schedules hereto
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and the certificates delivered in accordance with Sections 6.2(c) and 6.3(c)
hereof, insofar as such schedules and such certificates relate to such
representations and warranties).
8.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or transmitted
by facsimile or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
if to Purchaser, to:
HFS Incorporated
339 Jefferson Road
Parsippany, New Jersey 07054
Attention: General Counsel
Facsimile: 201-428-5269
with a copy to:
Skadden, Arps, Slate, Meagher
& Flom
919 Third Avenue
New York, New York 10022
Attention: David Fox, Esq.
Facsimile: 212-735-2000
if to GM, to:
General Motors Corporation
767 Fifth Avenue
New York, New York 10153
Attention: Treasurer
Facsimile: (212) 418-3695
With a copy to:
General Motors Corporation
3044 West Grand Boulevard
Detroit, Michigan 48232
Attention: General Counsel
Facsimile: (313) 974-0209
8.3 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19
<PAGE>
8.4 No Third Party Beneficiaries. Nothing herein express or implied
shall confer upon any person other than the parties hereto any rights,
benefits or remedies of any nature or kind under or by reason of this
Agreement.
8.5 Amendment. This Agreement may be amended by the parties hereto,
but may not be amended except by an instrument or instruments in writing
signed and delivered on behalf of each of the parties hereto.
8.6 Extension; Waiver. At any time prior to the Closing Date, any
party hereto which is entitled to the benefits hereof may (a) extend the time
for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracy in the representations and warranties of the
other party contained herein or in any schedule hereto or in any document
delivered pursuant hereto, and (c) waive compliance with any of the agreements
of the other party hereto or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid if set
forth in an instrument in writing signed and delivered on behalf of such
party.
8.7 Entire Agreement. This Agreement, including the schedules,
exhibits, documents and instruments referred to herein, constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof.
8.8 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Notwithstanding the foregoing, this
Agreement shall not be assignable by any party hereto (other than by operation
of law) without the prior written consent of the other parties hereto;
provided, that Purchaser may assign its rights and obligations hereunder to
any of its Subsidiaries.
8.9 Governing Law. This Agreement shall be governed
in all respects, including validity, interpretation and effect,
by the laws of the State of New York.
8.10 Submission to Jurisdiction. Each of the parties hereto hereby
irrevocably and unconditionally: (i) submits for itself and its property in
any legal action or proceeding relating to this Agreement, or for recognition
and enforcement of any judgment in respect thereof, to the nonexclusive
general jurisdiction of the courts of the State of New York and the courts of
the United States for the Southern District of New York; (ii) consents that
any such action or proceeding may be brought in such courts and waives any
objection that it may now or hereafter have to the venue of any such action or
proceeding
20
<PAGE>
in any such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same; (iii) agrees
that service of process in any such action or proceeding may be affected by
mailing a copy thereof by registered or certified mail (or any substantially
similar form of mail), postage prepaid, to it at its address set forth in
Section 8.2 or at such other address for a party as shall be specified by a
notice pursuant thereto; and (iv) agrees that nothing herein shall affect the
right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.
8.11 Counterparts. This Agreement may be executed by facsimile and
in counterparts, all of which for all purposes shall be deemed to be an
original and all of which shall, taken together, constitute the same
Agreement.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on their behalf by their respective officers hereunder duly
authorized all as of the date first written above.
HFS INCORPORATED
By:
------------------------------------
Name:
Title:
GENERAL MOTORS CORPORATION
By:
------------------------------------
Name:
Title:
22
<PAGE>
Exhibit A
Term Sheet -- Financing Agreement
---------------------------------
Borrower: Initially, Prime Vehicles Trust ("PVT").
Subject to Further Review (as defined be-
low), Borrower may be another entity that
purchases fleet from General Motors Corpo-
ration ("GM") and rents cars under the
Avis, Agency or other car rental brand name
owned by HFS Incorporated ("HFS") or its
subsidiaries.
Lender: General Motors Acceptance Corporation
("GMAC").
Guarantor: GM.
Closing
Date: On or before the closing of the purchase
and sale of preferred stock contemplated by
the Stock Purchase Agreement to which this
Exhibit A is attached.
Issue: Revolving Credit Facility (the "Financing")
of which all or any portion of which shall
be designated senior or senior subordinated
secured. The senior subordinated secured
portion shall be determined in accordance
with Section 1.01 of the Restated Third
Amendment and Restatement of the Pledge and
Security Agreement dated as of September
21, 1987 (definition of Required Subordi-
nated Debt Percentage) and Section 3.6 of
the Amended and Restated Loan Agreement
dated September 21, 1987.
Amount: $200 million.
Term: Five years from Closing Date.
Covenants: Same as those contained in the Adjustable
Rate Securities Acquisition Credit Agree-
ment and the Amended and Restated Loan
Agreement with such adjustments as mutually
agreed upon. PVT debt junior in ranking to
the Financing will at all times be equal to
<PAGE>
or exceed the net payable from Avis Rent A
Car System, Inc. to PVT.
Ranking of
Senior
Subordinated
Secured
Portion: Initially, senior subordinated secured por-
tion would be senior to Avis, Inc. subordi-
nated PVT debt; junior to senior secured
PVT debt; and pari passu with other senior
subordinated secured debt of PVT.
In the event the PVT is dissolved, the senior
subordinated secured portion may, with the consent of
GMAC, also be junior to other debt secured on a senior
basis by the fleet, which is not currently PVT debt,
and pari passu with other mezzanine debt or credit
enhancement supporting senior secured fleet financing.
Prepayment: Floating rate loan: Prepayable at 100% at
all times without premium or penalty.
Fixed rate loan: Prepayment premium of three percent
(3.00%) of the principal amount of the prepayment
(other than pursuant to an acceleration by Lender).
Related
Agreements: The provisions of the Restated Third Amend-
ment and Restatement of the Lease Agreement
dated as of September 21, 1987 between
Bankers Trust Company as Trustee for PVT
(Lessor) and Avis Rent A Car System, Inc.
(Lessee) with Avis, Inc. as Guarantor and
the Restated Third Amendment and Re-
statement of the Pledge and Security Agree-
ment dated as of September 21, 1987 between
Bankers Trust Company as Trustee for PVT
and the Bank of New York as agent under the
agreement shall remain in effect.
Credit
Review
Prior to
Closing: GMAC's commitment to lend pursuant to the
terms hereof shall only be given upon the
approval of the facility by GM and GMAC.
2
<PAGE>
Further
Review: To the extent HFS changes the ownership,
capital or financing structure of its car
rental operations during the Term (other
than as permitted in accordance with the
covenants contained in the Financing Agree-
ment), GM and GMAC together will have the
right to review such changes in structure
and make a good faith reasonable determina-
tion as to whether the Financing will con-
tinue to be made available based on the in-
creased risk to GM and GMAC as a result of
such changes in ownership, capital or fi-
nancing structure. The general basis for
determining GM's and GMAC's risk associated
with providing the Financing in any subse-
quent structure will be their risk associ-
ated with providing the Financing as of May
1996. Continued extension of the Financing
pursuant to this section will be solely at
GM's and GMAC's discretion.
3
August 29, 1996
The Board of Directors
HFS Incorporated
339 Jefferson Road
Parsippany, New Jersey 07054
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We are acting as special counsel to HFS Incorporated, a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act"), on Form S-3,
pursuant to Rule 415 of the General Rules and Regulations promulgated under
the Securities Act (the "Rules and Regulations"), of the number of shares
(the "Shares") of the Company's Common Stock, par value $0.01 per share
(the "Common Stock"), (i) determined on the date of issuance by dividing
up to $236,070,000 by the average of the closing prices of the Common Stock
on the New York Stock Exchange for the ten consecutive trading days immediately
preceding the third trading day prior to the date of the closing of the merger
(the "Merger") of Avis Acquisition Corp., a Delaware corporation and wholly
owned subsidiary of the Company, with and into Avis, Inc. ("Avis"), with Avis
becoming a wholly owned subsidiary of the Company, in accordance with the
Merger Agreement (as hereinafter defined), to be offered and sold from time
to time by the Avis, Inc. Employee Stock Ownership Trust (the "Trust"), (ii)
determined on the date of issuance by dividing up to $105,777,500 by the
average of the closing prices of the Common Stock on the New York Stock
Exchange for the ten consecutive trading days immediately preceding the third
trading day prior to the date of the closing of the Merger in accordance with
the Stock Purchase Agreement (as hereafter defined), to be offered and sold
from time to time by General Motors Corporation ("GM") and (iii) determined
by (A) multiplying the number of outstanding
<PAGE>
The Board of Directors
HFS Incorporated
August 29, 1996
Page 2
"equivalent shares" under the Avis, Inc. Nonqualified Employee Stock Ownership
Equivalent Plan (the "Plan") immediately prior to the Merger by $5.00, divided
by (B) the average per share closing prices of the Common Stock on the New
York Stock Exchange for the ten consecutive trading days immediately preceding
the third trading day prior to the effective time of the Merger, but not to
exceed $22.5 million in Common Stock at such time, to be offered and sold from
time to time by the holders (such holders, together with GM and the Trust, the
"Selling Stockholders") of outstanding "equivalent shares" under the Plan who
will receive shares of Common Stock in exchange for the "equivalent shares"
pursuant to the Merger Agreement.
This opinion is being furnished in accordance with the requirements
of Item 601(b)(5) of Regulation S-K of the Rules and Regulations promulgated.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Registration Statement on Form S-3 relating to the
Shares as filed with the Securities and Exchange Commission (the "Commission")
on the date hereof (together with all exhibits thereto, the "Registration
Statement"); (ii) the Amended and Restated Certificate of Incorporation of the
Company, as currently in effect (the "Certificate of Incorporation"); (iii)
the By-laws of the Company, as currently in effect (the "By-Laws"); (iv) the
Agreement and Plan of Merger, dated as of August 23, 1996, by and between the
Company, Avis Acquisition Corp., U.S. Trust Company of California, N.A., as
Trustee of the Trust and Avis (the "Merger Agreement"); (v) the Stock Purchase
Agreement, dated as of August 28, 1996 by and between the Company and GM (the
"Stock Purchase Agreement"); (vi) a specimen of the share certificate used to
evidence the Common Stock; and (vii) resolutions of the Company's Board of
Directors relating to (A) the preparation of the Registration Statement and
the registration of the Shares under the Securities Act and (B) the issuance
of the Shares. We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company and
such agreements, certificates of public officials, certificates of officers or
<PAGE>
The Board of Directors
HFS Incorporated
August 29, 1996
Page 3
other representatives of the Company and others and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified, photostatic, conformed or
reproduced copies and the authenticity of the originals of such latter
documents. In making our examination of documents executed or to be executed
by parties other than the Company, we have assumed that such parties had or
will have the power, corporate or other, to enter into and perform all
obligations thereunder, and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof. As to
any facts material to the opinions expressed herein which were not
independently established or verified, we have relied upon oral or written
statements and representations of officers and other representatives of the
Company and others.
Our opinion is subject to the assumption and qualification that
each of the representations and warranties made by (i) Avis and the Trust
that are contained in the Merger Agreement was true and correct as of the date
of the Merger Agreement and will be true and correct as of the date of
effectiveness of the Merger, pursuant to the Merger Agreement; and (ii) GM
that are contained in the Stock Purchase Agreement was true and correct as the
date of the Stock Purchase Agreement and will be true and correct as of the
date of the closing pursuant to the Stock Purchase Agreement (the "Stock
Purchase").
Members of our Firm are admitted to the Bar in the States of
Delaware and New York, and we do not express any opinion as to the laws of any
other jurisdiction other than the laws of the United States of America to the
extent referred to specifically herein. The Shares may be offered from time to
time on a delayed or
<PAGE>
The Board of Directors
HFS Incorporated
August 29, 1996
Page 4
continuous basis, and this opinion is limited to the laws specified above,
including the Rules and Regulations, as in effect on the date hereof.
Based upon and subject to the foregoing, we are of the opinion
that, assuming (i) the Registration Statement, as finally amended (including
all necessary post-effective amendments), has become effective; (ii) the
Merger set forth in the Merger Agreement has become effective in accordance
with the terms thereof and Delaware law; (iii) the Stock Purchase set forth
in the Stock Purchase Agreement has been consummated in accordance with the
terms thereof; and (iv) the certificates representing the Shares in the form
of the specimen certificates examined by us are duly executed, countersigned,
registered and delivered, the Shares, when issued to the Selling Stockholders
upon the consummation of the Merger in accordance with the Merger Agreement
and the Stock Purchase in accordance with the Stock Purchase Agreement,
respectively, will be duly authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the use of the name of our firm in the
Registration Statement under the caption "Legal Matters" and to the filing of
this opinion as an Exhibit to the Registration Statement. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules
and regulations of the Commission promulgated thereunder.
Very truly yours,
Skadden, Arps, Slate, Meagher & Flom
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated on Form S-3 of our reports dated February 22, 1996 (February
28, 1996 as to Note 2A) and March 29, 1996 appearing in and incorporated by
reference in the Annual Report on Form 10-K, for the year ended December 31,
1995 and to the reference to us under the heading "Experts" in the Prospectus,
which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
August 26, 1996
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated February 7,
1995 related to the consolidated balance sheets of Century 21 Real Estate
Corporation (formerly a wholly-owned subsidiary of Metropolitan Life Insurance
Company) and subsidiaries as of December 31, 1994, 1993, and 1992, and the
related consolidated statements of income, stockholder's equity and cash flows
for the years then ended included in the Company's Current Report on Form 8-K/A
dated August 18, 1995 and to the reference to us under the heading "Experts" in
the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Costa Mesa, California
August 26, 1996
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated February 19,
1996, related to the balance sheet of Century 21 Real Estate of the Mid-Atlantic
States, Inc. as of December 31, 1995 and the related statements of income,
changes in stockholder's equity and cash flow for the year then ended included
in the Company's Current Report on Form 8-K dated April 5, 1996 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
August 26, 1996
Exhibit 23.4
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated May 15, 1995,
related to the financial statements of Century 21 Of The Southwest, Inc. as of
and for the years ended March 31, 1995 and 1994, included in the Company's
Current Report on Form 8-K dated February 16, 1996 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ Toback CPA's, P.C.
Phoenix, Arizona
August 26, 1996
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated June 22, 1995
(except for Note 13, as to which the date is October 12, 1995), related to the
financial statements of Century 21 of Eastern Pennsylvania, Inc. as of and for
the years ended April 30, 1995 and 1994, included in the Company's Current
Report on Form 8-K dated February 16, 1996 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ Woolard, Krajnik & Company
- --------------------------------
WOODLARD, KRAJNIK & COMPANY, LLP
Exton, Pennsylvania
August 26, 1996
Exhibit 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
HFS Incorporated (the Company) on Form S-3 of our report dated May 11, 1995,
related to the financial statements of Century 21 Real Estate of the Mid-
Atlantic States, Inc. as of and for the years ended December 31, 1994 and 1993,
included in the Company's Current Report on Form 8-K dated February 16, 1996 and
to the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
/s/ Beers & Cutler PLLC
Washington, D.C.
August 26, 1996
Exhibit 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated January 12,
1996, related to the consolidated financial statements of Century 21 Region V,
Inc. and subsidiaries as of and for the year ended July 31, 1995, included in
the Company's Current Report on Form 8-K dated February 16, 1996 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ White, Nelson & Co, LLP
Anaheim, California
August 26, 1996
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of HFS Incorporated for
the registration of up to $363,347,500 of common stock and to the incorporation
by reference therein of our report dated February 27, 1995, with respect to the
consolidated financial statements of Electronic Realty Associates, Inc. for the
years ended December 31, 1994 and 1993, included in the Current Report on Form
8-K of HFS Incorporated dated February 16, 1996, filed with the Securities and
Exchange Commission, and our report dated February 21, 1996, with respect to the
consolidated financial statements of Electronic Realty Associates, L.P. for the
years ended December 31, 1995 and 1994, included in the Current Report on Form
8-K of HFS Incorporated dated April 5, 1996, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
--------------------------
ERNST & YOUNG LLP
Kansas City, Missouri
August 26, 1996
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated February 27,
1996, related to the consolidated financial statements of Coldwell Banker
Corporation and Subsidiaries as of December 31, 1995 and 1994, and for each of
the two years in the period ended December 31, 1995. We also consent to the
reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND LLP
Newport Beach, California
August 26, 1996
EXHIBIT 23.10
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
HFS Incorporated (the "Company") on Form S-3 of our report dated March 11, 1994,
related to the consolidated statements of operations, stockholders' equity and
cash flows for the three months ended December 31, 1993 and the consolidated
statements of operations and cash flows for the nine months ended September 30,
1993 of Coldwell Banker Corporation and subsidiaries (formerly Coldwell Banker
Residential Holding Company and subsidiaries) included in the Company's Current
Report on Form 8-K dated May 8, 1996 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
August 26, 1996
EXHIBIT 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of HFS Incorporated
of our report dated April 25, 1996 relating to the consolidated financial
statements of Avis, Inc., which appears in the Current Report on Form 8-K of HFS
Incorporated. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Price Waterhouse LLP
New York, New York
August 23, 1996
