-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QxGwCX6Yl/KxrkBY3ypFxJRKWmvfTIfKV3RGtuGJGObk+v4qiFKCzXqs7z4M41a5 yo0IiOK6nKvXS2IzRqvCZg== 0001005477-99-003138.txt : 19990716 0001005477-99-003138.hdr.sgml : 19990716 ACCESSION NUMBER: 0001005477-99-003138 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990715 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVIS RENT A CAR INC CENTRAL INDEX KEY: 0001040445 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 113347585 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13315 FILM NUMBER: 99665269 BUSINESS ADDRESS: STREET 1: 900 OLD COUNTRY ROAD CITY: GARDEN CITY STATE: NY ZIP: 11530 BUSINESS PHONE: 516-222-3000 MAIL ADDRESS: STREET 1: 900 OLD COUNTRY RD CITY: GARDEN CITY STATE: NY ZIP: 11530 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTON 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 July 15, 1999 (Date of Report) AVIS RENT A CAR, INC. (Exact Name Of Registrant As Specified In Its Charter) DELAWARE 1-13315 11-3347585 (State of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.) 900 Old Country Road Garden City, NY 11530 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (516) 222-3000 ITEM 1. CHANGES IN CONTROL OF REGISTRANT. Not applicable ITEM 2. ACQUISITION OR DISPOSTION OF ASSETS. On June 30, 1999, Avis Fleet Leasing and Management Corporation ("Avis Fleet"), a Texas corporation and a wholly-owned subsidiary of Avis Rent A Car, Inc. (the "Company" or "Avis"), merged under Texas law into PHH Holdings Corporation ("PHH Holdings"), a Texas corporation and indirect subsidiary of Cendant Corporation ("Cendant") [NYSE:CD]. Pursuant to the merger (see Exhibits 2.1 and 2.2), both PHH Holdings and Avis Fleet survived as subsidiaries of their respective parent companies and Avis Fleet acquired (i) the stock of the subsidiaries of PHH Holdings which operate vehicle management and fuel card businesses in the United States, Canada and Europe under the PHH and Wright Express names and (ii) all of the property, rights and assets of such businesses. As consideration for such assets, Avis Fleet paid $1.438 billion in cash and issued 7,200,000 shares of its Series A Preferred Stock and 40,000 shares of its Series C Preferred Stock with a liquidation preference of $362 million to PHH Corporation, an indirect subsidiary of Cendant and the parent of PHH Holdings. The consideration was determined through arm's-length negotiation among the parties, and the Company's Board of Directors, as well as a special committee of independent directors. Each received a fairness opinion from nationally recognized investment banking firms. The Company obtained the cash consideration for this acquisition by (x) issuing $500,000,000 of 11% Senior Subordinated Notes due 2009 in a transaction exempt from registration under the Securities Act of 1933 and (y) borrowing under a $1.35 billion senior secured credit facility with a syndicate of lenders for which The Chase Manhattan Bank is acting as agent. The Company intends to continue using the assets of the acquired companies for the vehicle management and fuel card businesses. Immediately prior to this acquisition, Cendant beneficially owned approximately 19% of the Company's common stock. In addition, four of the Company's directors are also directors of Cendant and two of such directors are executive officers of Cendant. In addition, Cendant licenses the Avis trademark to the Company pursuant to a 50-year master license agreement and receives royalty fees based upon 4% of the Company's revenue, escalating to 4.5% of the Company's revenue over a 5-year period. In addition, Cendant operates the telecommunications and computer processing systems which includes reservations rental agreement processing and fleet control for which Cendant charges the company at cost. ITEM 3. BANKRUPTCY OR RECEIVERSHIP. Not applicable ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT. Not applicable ITEM 5. OTHER EVENTS. Not applicable ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS. Not applicable ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Business Acquired: The following financial statements are annexed hereto as Exhibit 99.1 and are incorporated herein by reference: PHH Vehicle Management Services o Combined Financial Statements as of December 31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and 1996 and Independent Auditors' Report thereon. o Unaudited Condensed Combined Financial Statements as of March 31, 1999 and for the three months ended March 31, 1999 and December 31, 1998. (b) Pro Forma Financial Information: The following unaudited pro forma consolidated financial statements are annexed hereto as Exhibit 99.2 and are incorporated herein by reference: o Pro forma Consolidated Balance Sheet as of March 31, 1999 o Pro forma Consolidated Statements of Operations for the year ended December 31, 1998 and the three months ended March 31,1999 The unaudited pro forma consolidated financial statements of the Company have been derived by the application of pro forma adjustments to the historical financial statements of Avis Rent A Car, Inc. ("Avis") and PHH Vehicle Management Services ("VMS"). The unaudited pro forma consolidated statements of operations for the year ended December 31, 1998 and for the three months ended March 31, 1999, give effect to the acquisition discussed in Item 2 as if it had occurred on January 1 of the earliest period presented. The Unaudited Pro Forma Consolidated Financial Statements assumes completion of the transfer of the capital stock of Wright Express Financial Services Corporation (a wholly-owned subsidiary of Wright Express LLC) as part of the acquisition discussed in Item 2 (the "VMS Acquisition"). The unaudited pro forma consolidated balance sheet as of March 31, 1999 gives effect to the acquisition discussed in Item 2 as if it had occurred on such date. The pro forma adjustments are described in accompanying notes. The VMS Acquisition will be accounted for using the purchase method of accounting for financial accounting purposes. The purchase price will be allocated to the assets acquired and the liabilities assumed, based on their respective fair values. The allocation of the purchase price reflected in the Unaudited Pro Forma Consolidated Financial Statements is preliminary. The adjustments that have been included in the Unaudited Pro Forma Consolidated Financial Statements will change based upon the final allocation of the purchase price when additional information concerning asset and liability valuation is obtained. The actual allocation of the purchase price and the resulting effect on operating income may differ from the unaudited pro forma amounts included herein. However, the changes are not expected to have a material effect on the Unaudited Pro Forma Consolidated Financial Statements of the Company. The Company believes that the accounting used to reflect the above transactions provides a reasonable basis on which to present this unaudited pro forma consolidated financial data. The pro forma consolidated balance sheet and consolidated statements of operations are unaudited and were derived by adjusting the historical financial statements of Avis and VMS. The Unaudited Pro Forma Consolidated Financial Statements are provided for informational purposes only and should not be construed to be indicative of the Company's consolidated financial position or results of operations had the acquisition discussed in Item 2 been consummated on the dates assumed and do not project the Company's consolidated financial position or results of operations for any future date or period. The Unaudited Pro Forma Consolidated Financial Statements and accompanying notes should be read in conjunction with the Company's historical Financial Statements and the VMS combined Financial Statements. (c) Exhibits Exhibit No. Exhibit Description - ----------- -------------------------------------------------------------- 2.1 Agreement and Plan of Merger and Reorganization, dated as of May 22, 1999, by and among PHH Corporation, PHH Holdings Corporation, Avis Rent A Car, Inc. and Avis Fleet Leasing and Management Corporation. 2.2 Amendment to Agreement and Plan of Merger and Reorganization, dated as of June 30, 1999, by and among PHH Corporation, PHH Holdings Corporation, Avis Rent A Car, Inc. and Avis Fleet Leasing and Management Corporation. 23.1 Consent of Deloitte & Touche LLP. 99.1 Combined Financial Statements as of December 31, 1998 and 1997 and for the Years Ended December 31, 1998, 1997 and 1996 and Unaudited Condensed Combined Financial Statements as of March 31, 1999 and for the Three Months Ended March 31, 1999 and 1998 of PHH Vehicle Management Services. 99.2 Unaudited Pro Forma Consolidated Financial Data. 99.3 Press Release of the Company, dated June 30, 1999. 99.4 Certificate of Designation of Powers, Preferences and Special Rights of Series A Cumulative Participating Redeemable Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Avis Fleet Leasing and Management Corporation. 99.5 Certificate of Designation of Powers, Preferences and Special Rights of Series B Cumulative PIK Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Avis Fleet Leasing and Management Corporation. 99.6 Certificate of Designation of Powers, Preferences and Special Rights of Series C Cumulative Redeemable Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Avis Fleet Leasing and Management Corporation. ITEM 8. CHANGE IN FISCAL YEAR. Not applicable ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S. Not applicable SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. AVIS RENT A CAR, INC. (Registrant) Date: July 15, 1999 By: /s/ Kevin M. Sheehan ---------------------------- Kevin M. Sheehan Executive Vice President and Chief Financial Officer Exhibit Index Exhibit No. Exhibit Description - ----------- -------------------------------------------------------------- 2.1 Agreement and Plan of Merger and Reorganization, dated as of May 22, 1999, by and among PHH Corporation, PHH Holdings Corporation, Avis Rent A Car, Inc. and Avis Fleet Leasing and Management Corporation. 2.2 Amendment to Agreement and Plan of Merger and Reorganization, dated as of June 30, 1999, by and among PHH Corporation, PHH Holdings Corporation, Avis Rent A Car, Inc. and Avis Fleet Leasing and Management Corporation. 23.1 Consent of Deloitte & Touche LLP. 99.1 Combined Financial Statements as of December 31, 1998 and 1997 and for the Years Ended December 31, 1998, 1997 and 1996 and Unaudited Condensed Combined Financial Statements as of March 31, 1999 and for the Three Months Ended March 31, 1999 and 1998 of PHH Vehicle Management Services. 99.2 Unaudited Pro Forma Consolidated Financial Data. 99.3 Press Release of the Company, dated June 30, 1999. 99.4 Certificate of Designation of Powers, Preferences and Special Rights of Series A Cumulative Participating Redeemable Convertible Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Avis Fleet Leasing and Management Corporation. 99.5 Certificate of Designation of Powers, Preferences and Special Rights of Series B Cumulative PIK Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Avis Fleet Leasing and Management Corporation. 99.6 Certificate of Designation of Powers, Preferences and Special Rights of Series C Cumulative Redeemable Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Avis Fleet Leasing and Management Corporation. EX-2.1 2 AGREEMENT AND PLAN OF MERGER ================================================================================ AGREEMENT AND PLAN OF MERGER AND REORGANIZATION BY AND AMONG PHH CORPORATION, PHH HOLDINGS CORPORATION, AVIS RENT A CAR, INC. AND AVIS FLEET LEASING AND MANAGEMENT CORPORATION DATED AS OF MAY 22, 1999 ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I THE MERGER...................................................2 1.1 The Merger.......................................................2 1.2 Effective Time...................................................2 1.3 Merger Consideration.............................................2 1.4 Effects of the Merger............................................2 1.5 Transferred Assets...............................................3 1.6 Holdings Retained Assets.........................................3 1.7 Transferred Liabilities..........................................3 1.8 Holdings Retained Liabilities....................................3 1.9 Acquiror Sub Retained Assets.....................................4 1.10 Acquiror Sub Retained Liabilities...............................4 1.11 Unallocated or Contingent Assets or Liabilities.................4 1.12 Charter and By-Laws.............................................4 1.13 Directors; Officers.............................................5 1.14 Effect on Capital Stock.........................................5 ARTICLE II CLOSING; FURTHER ASSURANCES.................................6 2.1 Closing Date.....................................................6 2.2 Escrowed Funds...................................................6 2.3 Deliveries at the Closing........................................6 2.4 Simultaneous Transactions........................................8 2.5 Tax Treatment....................................................9 2.6 Further Assurances...............................................9 2.7 Subsequent Closing...............................................9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND HOLDINGS....................................11 3.1 Organization....................................................12 3.2 Authorization...................................................12 3.3 Transferred Companies...........................................12 3.4 Capitalization; Ownership of Shares.............................13 3.5 Consents and Approvals; No Violation............................14 3.6 Financial Information; Absence of Undisclosed Liabilities.......14 3.7 Absence of Certain Changes or Events............................15 3.8 Tax Matters.....................................................15 3.9 Litigation......................................................16 3.10 Permits; Compliance with Laws..................................17 3.11 Material Contracts.............................................17 3.12 Labor Relations................................................18 3.13 Employee Benefit Plans; ERISA..................................19 3.14 Intellectual Property..........................................21 3.15 Year 2000 Compliance...........................................21 3.16 Environmental Matters..........................................22 i 3.17 Real Property..................................................23 ii Page ---- 3.18 Insurance......................................................23 3.19 Acquisition of Shares for Investment...........................23 3.20 Sufficiency of Assets..........................................23 3.21 Customers......................................................24 3.22 Brokers; Finders and Fees......................................24 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR SUB...............................24 4.1 Organization....................................................24 4.2 Authorization...................................................24 4.3 Capitalization..................................................25 4.4 Consents and Approvals; No Violation............................26 4.5 Acquiror SEC Documents..........................................27 4.6 Financial Information; Absence of Undisclosed Liabilities.......27 4.7 Litigation......................................................27 4.8 Compliance with Laws............................................28 4.9 Availability of Funds...........................................28 4.10 Amortization of Goodwill.......................................28 4.11 No Registration................................................28 4.12 Investigation by Acquiror; Parent's and Holdings' Liability....28 4.13 Brokers; Finders and Fees......................................29 ARTICLE V COVENANTS OF THE PARTIES....................................29 5.1 Conduct of the Business.........................................29 5.2 Conduct of Business by Acquiror.................................31 5.3 Conduct of Business by Acquiror Sub.............................31 5.4 Access to Information...........................................31 5.5 Books and Records; Furnishing Information.......................33 5.6 Consents and Approvals..........................................33 5.7 Commercially Reasonable Efforts.................................34 5.8 Financing.......................................................34 5.9 Employees; Employee Benefits....................................34 5.10 No Solicitation................................................37 5.11 Indemnification................................................38 5.12 Trademark License Agreements...................................38 5.13 Stockholders' Agreement and Registration Rights Agreement......38 5.14 Transition Services Agreement and IT Agreement.................38 5.15 Escrow Agreement...............................................38 5.16 Transitional License Agreement.................................38 5.17 Intercompany Obligations; Affiliate Agreements.................39 5.18 Supplements to Disclosure Schedules............................40 5.19 Public Announcements...........................................40 5.20 Non-Competition................................................41 5.21 Preferred Alliance Agreements..................................41 5.22 License Amendment Agreement....................................41 5.23 No Other Representations.......................................41 ARTICLE VI TAX MATTERS................................................41 ii Page ---- 6.1 Tax Returns.....................................................41 6.2 Indemnification.................................................43 6.3 Computation of Tax Liabilities..................................44 6.4 Contest Provisions..............................................44 6.5 Transfer Taxes..................................................45 6.6 Refunds.........................................................46 6.7 Certain Post-Closing Settlement Payments........................46 6.8 Tax-Free Reorganization Covenants; Other Covenants..............50 6.9 Resolution of All Tax-Related Disputes..........................51 6.10 Post-Closing Actions Which Affect Cendant's Liability for Taxes .........................................................51 6.11 Termination of Existing Tax Sharing Agreements.................51 6.12 Assistance and Cooperation.....................................51 6.13 Adjustment to Merger Consideration.............................52 6.14 Certain Definitions............................................53 6.15 Cendant Options; Holdings Plan.................................53 ARTICLE VII CONDITIONS TO ACQUIROR'S AND ACQUIROR SUB'S OBLIGATIONS...54 7.1 Representations and Warranties..................................55 7.2 Performance.....................................................55 7.3 No Injunction...................................................55 7.4 H-S-R Act.......................................................55 7.5 Required Approvals..............................................55 7.6 Opinion of Parent and Holdings' Counsel........................55 7.7 Financing.......................................................55 ARTICLE VIII CONDITIONS TO PARENT'S AND HOLDINGS' OBLIGATIONS.........56 8.1 Representations and Warranties..................................56 8.2 Performance.....................................................56 8.3 No Injunction...................................................56 8.4 H-S-R Act.......................................................56 8.5 Required Approvals..............................................56 8.6 Opinion of Acquiror and Acquiror Sub's Counsel..................56 ARTICLE IX SURVIVAL; INDEMNIFICATION..................................56 9.1 Survival Periods................................................56 9.2 Parent's and the Holdings Surviving Corporation's Agreement to Indemnify ......................................................57 9.3 Acquiror's and the Acquiror Sub Surviving Corporation's Agreement to Indemnify..........................................58 9.4 Third-Party Indemnification.....................................60 9.5 Insurance.......................................................60 9.6 No Duplication; Sole Remedy.....................................61 9.7 Indemnification of Certain Litigation...........................61 ARTICLE X TERMINATION AND ABANDONMENT.................................61 10.1 Termination....................................................61 10.2 Procedure For, and Effect of, Termination......................62 ARTICLE XI MISCELLANEOUS PROVISIONS...................................63 11.1 Fees and Expenses..............................................63 iii Page ---- 11.2 Amendment......................................................63 11.3 Entire Agreement...............................................63 11.4 Execution in Counterparts......................................63 11.5 Notices........................................................63 11.6 Waivers........................................................64 11.7 Applicable Law.................................................65 11.8 Headings.......................................................65 11.9 Assignments....................................................65 11.10 Severability..................................................65 11.11 Specific Performance..........................................65 11.12 Interpretation................................................65 11.13 No Third-Party Beneficiaries..................................66 iv AGREEMENT AND PLAN OF MERGER AND REORGANIZATION This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of May 22, 1999, is by and among PHH CORPORATION, a Maryland corporation ("Parent"), PHH HOLDINGS CORPORATION, a Texas corporation and a wholly owned subsidiary of Parent ("Holdings"), AVIS RENT A CAR, INC., a Delaware corporation ("Acquiror"), and AVIS FLEET LEASING AND MANAGEMENT CORPORATION, a Texas corporation and a wholly owned subsidiary of Acquiror ("Acquiror Sub"). WHEREAS, Acquiror desires to acquire, and Holdings desires to transfer to Acquiror Sub, all of the vehicle management and fuel card businesses of Holdings (collectively, the "Business"), in exchange for the Merger Consideration (as hereinafter defined); WHEREAS, the Boards of Directors of Holdings and Acquiror Sub have each approved this Agreement and the merger (the "Merger") of Holdings and Acquiror Sub in accordance with the provisions of Article Five of the Texas Business Corporation Act (the "TBCA"), upon the terms and subject to the conditions set forth herein; WHEREAS, Acquiror, as the sole stockholder of Acquiror Sub, and Parent, as the sole stockholder of Holdings, each have approved this Agreement and the Merger upon the terms and subject to the conditions set forth herein; WHEREAS, the Merger will result in, among other things, (i) the survival of each of Holdings and Acquiror Sub, (ii) the allocation to and vesting in Acquiror Sub of the Transferred Assets, the Transferred Liabilities, the Acquiror Sub Retained Assets and the Acquiror Sub Retained Liabilities (each, as hereinafter defined) and (iii) the allocation to and vesting in Holdings of the Holdings Retained Assets and Holdings Retained Liabilities (each, as hereinafter defined); and WHEREAS, for U.S. Federal income tax purposes, the parties intend that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement be adopted as a plan of reorganization under Section 368 of the Code. NOW, THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the parties hereto agree as follows: ARTICLE I THE MERGER 1.1 The Merger. Upon the terms and subject to the conditions hereof, at the Effective Time (as hereinafter defined), Holdings and Acquiror Sub shall be merged in accordance with the provisions of Article Five of the TBCA. Following the Effective Time, each of Holdings and Acquiror Sub shall survive the Merger and, subject to Sections 1.4 and 1.14 hereof, shall maintain its separate corporate existence and shall continue to be governed by the laws of the State of Texas. 1.2 Effective Time. The Merger shall become effective on the date and at the time that a certificate of merger (the "Certificate of Merger") is issued by the Secretary of State of the State of Texas. As used in this Agreement, the term "Effective Time" shall mean the date and time at which the Certificate of Merger is issued. 1.3 Merger Consideration. At the Closing, Acquiror shall cause Acquiror Sub to deliver or cause to be delivered to Parent or Holdings, as the case may be, the following (collectively, the "Merger Consideration"), in consideration of the Merger and the allocation to Acquiror Sub of the Transferred Assets: (a) Acquiror shall cause Acquiror Sub to deliver to Parent, an aggregate of 7,200,000 shares of series A cumulative participating redeemable convertible preferred stock, par value $0.01 per share, of Acquiror Sub (the "Acquiror Sub Series A Preferred Stock"), having an aggregate liquidation preference of $360,000,000, the terms of which are set forth in Exhibit A hereto; (b) Acquiror shall cause Acquiror Sub to deliver to Parent, an aggregate of 40,000 shares of series C cumulative redeemable preferred stock, par value $0.01 per share, of Acquiror Sub (the "Acquiror Sub Series C Preferred Stock" and, together with the Acquiror Sub Series A Preferred Stock, the "Acquiror Sub Preferred Stock"), having an aggregate liquidation preference of $2,000,000, the terms of which are set forth in Exhibit B hereto; and (c) Acquiror shall cause Acquiror Sub to deliver to Parent and Holdings the Instrument of Assumption and the Undertaking (each, as hereinafter defined) evidencing the assumption of the Transferred Liabilities allocated to, assumed by and vested in Acquiror Sub, which includes the outstanding indebtedness of Holdings to Parent which, on the Closing Date, shall not exceed an aggregate principal amount of $1,438,000,000 (the "Holdings Indebtedness"). 1.4 Effects of the Merger. At the Effective Time, by virtue of the Merger and without any further act or deed on the part of Parent, Holdings, Acquiror or Acquiror Sub, the 2 Merger shall have the following effects in accordance with the applicable provisions of the TBCA: (a) each of Holdings and Acquiror Sub shall survive the Merger and shall maintain its separate corporate existence; Holdings shall continue as a surviving corporation under its same name ("Holdings Surviving Corporation"); and Acquiror Sub shall continue as a surviving corporation under its same name ("Acquiror Sub Surviving Corporation"); (b) the Transferred Assets shall be allocated to and vested in Acquiror Sub and the Transferred Liabilities shall be allocated to, assumed by and vested in Acquiror Sub; (c) the Acquiror Sub Retained Assets and the Acquiror Sub Retained Liabilities shall be allocated to, retained by and vested in Acquiror Sub; and (d) the Holdings Retained Assets and the Holdings Retained Liabilities shall be allocated to, retained by and vested in Holdings. 1.5 Transferred Assets. The rights, properties and assets of Holdings to be allocated to and vested in Acquiror Sub in the Merger pursuant to Section 1.4 hereof (the "Transferred Assets") shall be all of Holdings' right, title and interest in and to those assets of Holdings set forth on Schedule II hereto. 1.6 Holdings Retained Assets. The rights, properties and assets of Holdings to be allocated to, retained by and vested in Holdings in the Merger pursuant to Section 1.4 hereof (the "Holdings Retained Assets") shall be all of Holdings' right, title and interest in and to all of the properties, assets, rights, claims, contracts and businesses of Holdings immediately prior to the Effective Time, other than the Transferred Assets, and shall include, without limitation, those assets set forth on Schedule III hereto, which are not to be allocated to or vested in Acquiror Sub by virtue of the Merger or otherwise in connection with this Agreement or the transactions contemplated hereby. 1.7 Transferred Liabilities. The liabilities and obligations of Holdings to be allocated to, assumed by and vested in Acquiror Sub in the Merger pursuant to Section 1.4 hereof (the "Transferred Liabilities") shall be those liabilities and obligations of Holdings set forth on Schedule IV hereto, whether direct or indirect, known or unknown, absolute or contingent. 1.8 Holdings Retained Liabilities. The liabilities and obligations of Holdings to be allocated to, retained by and vested in Holdings in the Merger pursuant to Section 1.4 hereof (the "Holdings Retained Liabilities") shall be all liabilities and obligations of Holdings and its Affiliates and subsidiaries immediately prior to the Effective Time, other than the Transferred Liabilities, and shall include, without limitation, the liabilities and obligations set forth on Schedule V hereto, which are not to be allocated to, assumed by or vested in Acquiror Sub by virtue of the Merger or otherwise in connection with this Agreement or the transactions contemplated hereby. 3 1.9 Acquiror Sub Retained Assets. The rights, properties and assets of Acquiror Sub to be allocated to, retained by and vested in Acquiror Sub in the Merger pursuant to Section 1.4 hereof (the "Acquiror Sub Retained Assets") shall be all of Acquiror Sub's right, title and interest in and to all of the properties, assets, rights, claims, contracts and businesses of Acquiror Sub immediately prior to the Effective Time. No properties, assets, rights, claims, contracts or businesses of Acquiror Sub shall be allocated to or vested in Holdings by virtue of the Merger or otherwise in connection with this Agreement or the transactions contemplated hereby. 1.10 Acquiror Sub Retained Liabilities. The liabilities and obligations of Acquiror Sub to be allocated to, retained by and vested in Acquiror Sub in the Merger pursuant to Section 1.4 hereof (the "Acquiror Sub Retained Liabilities") shall be all liabilities and obligations of Acquiror Sub immediately prior to the Effective Time. No liabilities or obligations of Acquiror Sub shall be allocated to, assumed by or vested in Holdings by virtue of the Merger or otherwise in connection with this Agreement or the transactions contemplated hereby. 1.11 Unallocated or Contingent Assets or Liabilities. It is the intention and agreement of the parties that all assets and liabilities of Holdings and Acquiror Sub be allocated between them pursuant to Sections 1.4 through 1.10 hereof. Nevertheless, to the extent that there exist any unallocated or contingent assets or liabilities of Holdings or Acquiror Sub that are not allocated pursuant to this Agreement, upon consummation of the Merger, such assets or liabilities shall be allocated as follows: (a) to the extent such unallocated or contingent assets or liabilities of Holdings or Acquiror Sub relate to or arise out of the Transferred Assets, the Transferred Liabilities, the Acquiror Sub Retained Assets or the Acquiror Sub Retained Liabilities, such unallocated or contingent assets or liabilities shall be allocated to, assumed by and vested in Acquiror Sub; and (b) to the extent such unallocated or contingent assets or liabilities of Holdings relate to or arise out of the Holdings Retained Assets or the Holdings Retained Liabilities, such unallocated or contingent assets or liabilities shall be allocated to, retained by and vested in Holdings. 1.12 Charter and By-Laws. (a) The Articles of Incorporation and By-Laws of Holdings, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation and By-Laws of the Holdings Surviving Corporation following the Merger until amended as provided by the TBCA and such Articles of Incorporation and By-Laws. 4 (b) The Articles of Incorporation and By-Laws of Acquiror Sub, as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation and By-Laws of the Acquiror Sub Surviving Corporation following the Merger until amended as provided by the TBCA and such Articles of Incorporation and By-Laws. 1.13 Directors; Officers. (a) The directors of Holdings immediately prior to the Effective Time shall be the initial directors of the Holdings Surviving Corporation following the Merger and shall hold office from the Effective Time until their successors are duly elected or appointed and qualified in the manner provided in the Articles of Incorporation or By-Laws of the Holdings Surviving Corporation or as otherwise provided by the TBCA. (b) The directors of Acquiror Sub immediately prior to the Effective Time shall be the initial directors of the Acquiror Sub Surviving Corporation following the Merger and shall hold office from the Effective Time until their successors are duly elected or appointed and qualified in the manner provided in the Articles of Incorporation or By-Laws of the Acquiror Sub Surviving Corporation or as otherwise provided by the TBCA. (c) The officers of Holdings immediately prior to the Effective Time shall be the initial officers of the Holdings Surviving Corporation following the Merger and shall hold office from the Effective Time until their successors are duly elected or appointed and qualified in the manner provided in the Articles of Incorporation or By-Laws of the Holdings Surviving Corporation or as otherwise provided by the TBCA. (d) The officers of Acquiror Sub immediately prior to the Effective Time shall be the initial officers of the Acquiror Sub Surviving Corporation following the Merger and shall hold office from the Effective Time until their successors are duly elected or appointed and qualified in the manner provided in the Articles of Incorporation or By-Laws of the Acquiror Sub Surviving Corporation or as otherwise provided by the TBCA. 1.14 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any act or deed on the part of Parent, Holdings, Acquiror, Acquiror Sub or any holder of any of the following securities: (a) Each issued and outstanding share of class A common stock, par value $.01 per share, of Holdings ("Holdings Class A Common Stock") shall remain issued and outstanding and shall become and thereafter represent one fully paid and nonassessable share of class A common stock, par value $.01 per share, of the Holdings Surviving Corporation ("HSC Class A Common Stock") (which shall continue to be represented by the certificate representing such share immediately prior to the Effective Time). (b) (i) One hundred and thirty (130) issued and outstanding shares of class B common stock, par value $0.01 per share of Holdings ("Holdings Class B Common 5 Stock") shall be converted into the right to receive an aggregate of 7,200,000 fully paid and nonassessable shares of Acquiror Sub Series A Preferred Stock, (ii) one (1) issued and outstanding share of Holdings Class B Common Stock shall be converted into the right to receive 40,000 fully paid and nonassessable shares of Acquiror Sub Series C Preferred Stock and (iii) each of the remaining issued and outstanding shares of Holdings Class B Common Stock shall remain issued and outstanding and shall become and thereafter represent one fully paid and nonassessable share of class B common stock, par value $.01 per share, of the Holdings Surviving Corporation ("HSC Class B Common Stock") (which shall continue to be represented by the certificate representing such share immediately prior to the Effective Time). (c) Each issued and outstanding share of common stock, par value $0.01 per share, of Acquiror Sub shall remain issued and outstanding and shall become and thereafter represent one fully paid and nonassessable share of common stock, par value $0.01 per share, of the Acquiror Sub Surviving Corporation (which shall continue to be represented by the certificate representing such share immediately prior to the Effective Time). ARTICLE II CLOSING; FURTHER ASSURANCES 2.1 Closing Date. The closing of the transactions contemplated by this Agreement (the "Closing") and all actions specified in this Agreement to occur at the Closing shall take place at 10:00 a.m. on June 30, 1999; provided, however, that if the conditions set forth in Articles VII and VIII hereof shall not have been satisfied or waived on or prior to such date, then the Closing shall take place on the third business day following satisfaction or waiver of the conditions set forth in Articles VII and VIII hereof, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, unless the parties shall agree in writing to another time, date or place. The date on which the Closing occurs is referred to herein as the "Closing Date." The filing of the Articles of Merger (as hereinafter defined) in accordance with the TBCA shall be made on the Closing Date. 2.2 Escrowed Funds. At the Closing, Acquiror shall cause Acquiror Sub to deposit immediately available funds into an escrow account with an escrow agent mutually agreeable to Acquiror Sub and Holdings (the "Escrow Agent") in an amount equal to $1,438,000,000 (collectively, the "Escrowed Funds") for repayment in full the Holdings Indebtedness. Once Acquiror Sub deposits the Escrowed Funds pursuant to this Section 2.2, it shall have no further obligations in respect of the Holdings Indebtedness. 2.3 Deliveries at the Closing. (a) At the Closing, the following documents and agreements shall be duly executed and delivered by Acquiror, Acquiror Sub, Parent and Holdings, as applicable, and any other parties thereto: 6 (i) the Stockholders' Agreement (as hereinafter defined); (ii) the Trademark License Agreement (as hereinafter defined); (iii) the Transition Services Agreement (as hereinafter defined); (iv) the Escrow Agreement (as hereinafter defined); (v) the Transitional License Agreement (as hereinafter defined); (vi) the Non-Competition Agreement (as hereinafter defined); (vii) IT Agreement (as hereinafter defined); (viii) the License Amendment Agreement (as hereinafter defined); and (ix) articles of merger and a plan of merger (together, the "Articles of Merger"), substantially in the form of Exhibit C hereto. (b) At the Closing, Acquiror and Acquiror Sub shall deliver or cause to be delivered to Parent and Holdings: (i) duly executed stock certificates representing the shares of Acquiror Sub Series A Preferred Stock and Acquiror Sub Series C Preferred Stock to be issued in the Merger pursuant to Section 1.14(a) hereof; (ii) an instrument of assumption, substantially in the form of Exhibit D hereto (the "Instrument of Assumption"), duly executed by Acquiror Sub, evidencing the assumption by Acquiror Sub of the Holdings Indebtedness; (iii) a payment by wire transfer of immediately available funds in an amount equal to the Intercompany Indebtedness (as hereinafter defined) to a bank account designated in writing by Parent at least two (2) business days prior to the Closing Date; (iv) an undertaking substantially in the form of Exhibit E hereto (the "Undertaking") and any other documents and agreements with third parties as may be reasonably necessary to evidence (a) the assumption by Acquiror Sub of the Transferred Liabilities (other than the Holdings Indebtedness and the Intercompany Indebtedness) or (b) the guaranties, letters of credit and/or letters of comfort referred to in Section 5.17(b) hereof; 7 (v) a certificate of Acquiror executed on its behalf by a duly authorized executive officer of Acquiror, certifying as to the satisfaction of the conditions set forth in Sections 8.1 and 8.2 hereof; and (vi) such other instruments or documents as may reasonably be requested by Holdings in order to effect the transactions contemplated by this Agreement. (c) At the Closing, Acquiror and Acquiror Sub shall deliver or cause to be delivered to the Escrow Agent the wire transfer referred to in Section 2.2 hereof. (d) At the Closing, Holdings shall deliver or cause to be delivered to Acquiror and Acquiror Sub: (i) (x) stock certificates representing all of the issued and outstanding shares of capital stock of the Transferred Companies (as hereinafter defined) together with the books and records of each of the Transferred Companies (other than books and records located on the premises of any Transferred Company); and (y) stock powers duly executed in blank as to the issued and outstanding shares of capital stock of each of the Transferred Companies that is a direct subsidiary of Holdings (collectively, the "Directly Transferred Companies"); (ii) evidence in writing reasonably satisfactory to Acquiror that the Intercompany Agreements set forth in Section 5.17(i) of the Holdings Disclosure Schedule (other than the Intercompany Agreements listed in Section 5.17(ii) thereof) shall have been terminated and any liabilities of the Transferred Companies to any Person with respect thereto shall have been released; (iii) a certificate of Holdings executed on its behalf by a duly authorized executive officer of Holdings, certifying as to the satisfaction of the conditions set forth in Sections 7.1 and 7.2 hereof; (iv) written resignations, effective as of the Effective Time, of each of the officers (except as otherwise agreed by Acquiror) and directors of the Transferred Companies; and (v) such other instruments or documents as may reasonably be requested by Acquiror in order to effect the transactions contemplated by this Agreement. (e) At the Closing, immediately following the Effective Time, Parent shall transfer to a third party not affiliated with Parent or Acquiror the shares of Acquiror Sub Series C Preferred Stock issued to Parent in the Merger, pursuant to a binding agreement to be entered into between the date hereof and the Closing Date. 2.4 Simultaneous Transactions. All of the transactions contemplated hereby and each of the deliveries at the Closing shall be deemed to occur simultaneously at the Effective 8 Time, and no such transaction shall be deemed to have been consummated until each and every transaction has been consummated. 2.5 Tax Treatment. The parties intend that the Merger shall qualify as a reorganization under Section 368(a) of the Code, and that this Agreement shall constitute a "plan of reorganization" for purposes of Section 368 of the Code. 2.6 Further Assurances. After the Effective Time, the parties hereto shall from time to time, at the reasonable request of the other, execute and deliver such instruments of conveyance and transfer or instruments of assumption and take such other actions as the other may reasonably request, in order to more effectively consummate the transactions contemplated hereby and to carry out the terms hereof. Without limiting the generality of the foregoing, at any time and from time to time after the Effective Time, (a) at the request of Acquiror, Parent (to the extent applicable) and Holdings shall take such action including, without limitation, executing and delivering all such deeds, bills of sale, assignments and any documents and agreements with third parties as may be reasonably necessary to more effectively allocate to and vest in the Acquiror Sub Surviving Corporation all of Holdings' right, title and interest in and to the Transferred Assets and (b) at the request of Holdings, Acquiror shall, and shall cause the Acquiror Sub Surviving Corporation to, take such action to more effectively assume and vest in the Acquiror Sub Surviving Corporation the Transferred Liabilities, including, without limitation, executing such documents, instruments and agreements with third parties as may be reasonably necessary for the Acquiror Sub Surviving Corporation to assume all of Holdings' obligations under each of the Transferred Liabilities. 2.7 Subsequent Closing. (a) In the event that (i) all Required Approvals (as hereinafter defined) of any Governmental Entity having jurisdiction over Wright Express Financial Services Corporation, a Utah corporation ("WEX"), have not been obtained and (ii) all other conditions to Closing set forth in Articles VII and VIII hereof in respect of the Merger and all of the other Transferred Assets have been fulfilled or waived in accordance with the terms of this Agreement, then the parties hereto agree that the Merger shall be consummated and the Closing shall proceed in respect of all of the Transferred Assets other than the outstanding shares of capital stock of WEX (the "Deferred Assets"), and that a subsequent closing ("Subsequent Closing") in respect of the Deferred Assets take place following the Closing. The Subsequent Closing shall take place at 10:00 a.m., New York City time, on a date (the "Subsequent Closing Date") to be agreed upon by the parties hereto, which shall be no later than the third business day following the date on which all Required Approvals of Governmental Entities having jurisdiction over WEX shall have been obtained, any conditions to the Required Approvals shall have been satisfied and any statutory waiting periods in respect thereof shall have expired, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022 or such other date or place as the parties may agree in writing. 9 (b) Notwithstanding any other provision of this Agreement, if there is to be a Subsequent Closing, then the following shall apply: (i) Following the Closing, Holdings (or an Affiliate thereof) shall retain all right, title and interest in and to the Deferred Assets and each of Parent, Holdings, Acquiror and Acquiror Sub shall continue to use their best efforts to obtain the Required Approvals as soon as practicable; (ii) $15,500,000 of the Escrowed Funds (the "Retained Escrow Amount") shall remain in escrow with the Escrow Agent following the Closing and, except as provided in subsection (d) below, shall be released and delivered to Holdings, together with any interest earned thereon, at the Subsequent Closing; (iii) After all Required Approvals are obtained, the Subsequent Closing shall occur in accordance with Subsection (a) above and, at the Subsequent Closing, (A) the Escrow Agent shall release and deliver to Acquiror Sub the Deferred Assets, upon which all of Holdings right, title and interest in and to the Deferred Assets shall be transferred to Acquiror Sub or, at the election of Holdings, to Acquiror or such other Affiliate of Acquiror (other than Acquiror Sub) as may be specified by Acquiror, and (B) the Escrow Agent shall release and deliver to Holdings the Retained Escrow Amount, together with all interest earned thereon through the Subsequent Closing Date; (iv) It is the intention of the parties that, upon the occurrence of a Subsequent Closing, the acquisition of WEX by Acquiror Sub or Acquiror, as the case may be, shall be effective as of the Closing Date for purposes of this Agreement, and the business of WEX shall be run for the benefit of Acquiror Sub or Acquiror, as the case may be, during the period from the Closing Date through and including the Subsequent Closing Date; and (v) During the period from the Closing Date through the Subsequent Closing, WEX will continue to provide to the Business the credit card and other services currently provided to the Business on the terms set forth in the Transition Services Agreement or such other management agreement as may be mutually agreed upon by the parties hereto and Acquiror shall, and shall cause the Transferred Companies to, provide to WEX such services as are currently provided by Wright Express Corporation, a Delaware corporation and the parent company of WEX ("Wright Express"). (c) During the period from the Closing Date to the Subsequent Closing Date, except as consented to by Acquiror in writing, Parent and Holdings shall cause WEX: (i) to conduct its business and operations in the ordinary course in substantially the same manner as presently conducted and to use reasonable best efforts to preserve its relationships with customers, suppliers and others having business with WEX; 10 (ii) provide Wright Express and Wright Express Canada, Inc. with substantially the same services and on the same terms as it provided to such entities prior to the Closing; (iii) to provide Acquiror Sub with information (financial or otherwise) regarding WEX or its services to the Transferred Companies as may be reasonably requested by Acquiror Sub; (iv) to take such or omit to take such actions as may be reasonably requested by Acquiror Sub; and (v) not to take any action that, if taken during the period from the date of this Agreement through the Effective Time without the consent of Acquiror, would constitute a breach of Section 5.1 hereof, assuming for this purpose that the threshold for capital expenditures in Section 5.1(viii) hereof is $100,000 individually and in the aggregate and "material" in Section 5.1 shall be measured with regard to WEX as a stand-alone entity. (d) If the Governmental Entities having jurisdiction over WEX (i) notify Holdings and/or Acquiror that a final, nonappealable decision has been made by such Governmental Entities that the Required Approvals will not be granted or (ii) have failed to provide the Requisite Approval on or prior to October 31, 1999, then (i) the Subsequent Closing with respect to the Deferred Assets shall not occur, (ii) Holdings shall retain all right, title and interest in and to the Deferred Assets and (iii) the Retained Escrow Amount, together with any interest earned thereon, shall be released and delivered by the Escrow Agent to Acquiror Sub. All obligations of Parent and Holdings with respect to delivering the Deferred Assets to Acquiror and Acquiror Sub pursuant to this Agreement shall thereafter cease and be null and void, and Holdings shall be free to exercise all rights of ownership over the Deferred Assets, including the right to freely dispose thereof. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND HOLDINGS Parent and Holdings jointly and severally represent and warrant to Acquiror and Acquiror Sub as follows (it being understood and agreed that, notwithstanding anything to the contrary contained in this Article III or in any other Article of this Agreement, neither Parent nor Holdings makes any representation or warranty with respect to any direct or indirect subsidiary of Parent or Holdings that is not a Transferred Company, or with respect to any properties, assets, liabilities, obligations or businesses of Parent or Holdings or their respective subsidiaries or Affiliates that are not included in the Transferred Assets, the Transferred Liabilities or the Business, except as explicitly set forth herein): 11 3.1 Organization. Each of Parent and Holdings is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate all of its properties and assets and to carry on its business as it is presently being conducted. 3.2 Authorization. Each of Parent and Holdings has all requisite corporate power and authority to execute and deliver this Agreement, and to execute and deliver each of the Stockholders' Agreement, the Trademark License Agreement, the IT Agreement, the License Amendment Agreement, the Non-Competition Agreement, the Transition Services Agreement, the Escrow Agreement, the Transitional License Agreement, the Undertaking and the Instrument of Assumption (collectively, the "Transaction Agreements") to which it is a party, and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. The execution and delivery by Parent and Holdings of this Agreement and each of the Transaction Agreements to which it is a party, and the consummation by Parent and Holdings of the transactions contemplated hereby and thereby, have been duly authorized by all requisite corporate action on the part of Parent and Holdings. This Agreement has been, and, at the Closing, each of the Transaction Agreements will be, duly executed and delivered by each of Parent and Holdings to the extent it is a party thereto, and (assuming the valid authorization, execution and delivery thereof by the other parties thereto) this Agreement constitutes, and each of the Transaction Agreements, when duly executed and delivered, will constitute, a valid and binding agreement of Parent and Holdings to the extent it is a party thereto, enforceable against them in accordance with its terms, except that (a) such enforcement may be subject to bankruptcy, reorganization, fraudulent conveyance, moratorium, insolvency and other laws now or hereafter in effect relating to or affecting creditors' rights and (b) enforcement thereof, including, among other things, the remedy of specific performance and injunctive and other forms of equitable relief, may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 3.3 Transferred Companies. (a) Schedule I hereto sets forth a complete list of all of the Transferred Companies and their respective jurisdictions of organization. Except as set forth in Section 3.3 of the disclosure schedule being delivered by Parent and Holdings to Acquiror concurrently herewith (the "Holdings Disclosure Schedule"), (i) those direct and indirect subsidiaries of Holdings listed on Schedule I hereto (the "Transferred Companies") are the only subsidiaries or Affiliates of Parent or Holdings that presently are actively engaged in the conduct of the Business and (ii) none of the Transferred Companies owns any equity interest in any corporation or other entity, other than another Transferred Company. Each Transferred Company is duly organized, validly existing and (in the case of those Transferred Companies that are incorporated in a jurisdiction where such expression has legal significance) in good standing under the laws of its jurisdiction of organization and has all requisite corporate or other power and authority to own, lease and operate all of its properties and assets and to carry on its business as it is presently being conducted, except where the failure to be so organized, existing or in good standing or to have such power or authority would not, individually or in the aggregate, have a Material 12 Adverse Effect on the Business (as hereinafter defined). Each of the Transferred Companies is duly qualified to do business, and is in good standing, in each jurisdiction in which the nature of its business or the ownership, operation or leasing of its properties makes such qualification necessary, except where the failure to be so qualified and in good standing would not individually or in the aggregate, have a Material Adverse Effect on the Business. (b) As used in this Agreement (i), "Affiliate" shall mean, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person; provided, however, that the term "Affiliate" shall not include, with respect to any Person, any public corporation in which such Person owns securities representing less than 50% of the outstanding voting power; and (ii) "Material Adverse Effect on the Business" means any material adverse change in, or effect on, the business, assets, liabilities, results of operation or condition (financial or otherwise) of the Transferred Companies, taken as a whole; provided, however, that the effects of changes that are generally applicable to the industries in which the Transferred Companies operate or to the economy generally shall be excluded from such determination. 3.4 Capitalization; Ownership of Shares. (a) Section 3.4(a) of the Holdings Disclosure Schedule sets forth the authorized capital stock of, and the number of issued and outstanding shares of capital stock or other equity interests in, Holdings and each of the Transferred Companies. As of the date of this Agreement, except as set forth in Section 3.4(a) of the Holdings Disclosure Schedule, there are no issued and outstanding shares of capital stock or other equity interests in any of the Transferred Companies, or any subscriptions, options, warrants, calls, rights, convertible securities or other agreements or commitments of any character obligating Parent, Holdings or any of the Transferred Companies to issue, transfer or sell, or cause to be issued, transferred or sold, any capital stock or other equity interests in any of the Transferred Companies, nor are there any shares of capital stock or other equity interests reserved for issuance pursuant thereto. Each outstanding share of capital stock of each Transferred Company that is a corporation is duly authorized, validly issued, fully paid and nonassessable and (except as otherwise required by applicable Law (as hereinafter defined)) free of preemptive rights. Each equity interest of each Transferred Company that is not a corporation is duly authorized, validly issued and (except as otherwise required by applicable Law) free of preemptive rights. (b) Except as set forth in Section 3.4(b) of the Holdings Disclosure Schedule, (i) all of the issued and outstanding shares of capital stock of, or other equity or membership interests in, the Transferred Companies (collectively, the "Shares") are owned of record and beneficially by Holdings either directly or indirectly through a Transferred Company, free and clear of all liens, pledges, charges, claims, security interests or other encumbrances, except for liens for current Taxes not yet due and payable (collectively, "Liens"), (ii) there are no restrictions on the payment of dividends by any of the Transferred Companies (other than by operation of Law) and (iii) no Transferred Company is subject to any obligation or requirement to provide funds for or to make any investment (in the form of a loan, capital contribution or 13 otherwise) in any Person. The consummation of the Merger will convey to Acquiror Sub good title to the Shares of the Directly Transferred Companies, free and clear of all Liens, except for those created by Acquiror or the Acquiror Sub Surviving Corporation or arising out of ownership of the Shares by the Acquiror Sub Surviving Corporation. 3.5 Consents and Approvals; No Violation. Except for the filing of the Articles of Merger under the TBCA and the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H-S-R Act"), or as set forth in Section 3.5 of the Holdings Disclosure Schedule, neither the execution and delivery by Parent or Holdings of this Agreement or the Transaction Agreements to which it is a party nor the consummation by Parent or Holdings of the transactions contemplated hereby or thereby will: (i) conflict with or violate the certificate or articles of incorporation, by-laws or comparable charter or organizational documents of Parent, Holdings or any of the Transferred Companies, (ii) violate any statute, law, judgment, decree, order, regulation or rule (collectively, "Laws") of any Governmental Entity (as hereinafter defined) applicable to Parent, Holdings or the Transferred Companies or any of their respective properties or assets, (iii) result in a violation or breach of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or require any consent of another party to, any indenture, license, lease, contract, instrument, agreement or commitment (collectively, "Contracts") to which Parent or Holdings (each, with respect to the Business) or any of the Transferred Companies is a party or by which Parent or Holdings (each, with respect to the Business) or any of the Transferred Companies or any of their respective properties or assets is bound, (iv) result in the creation of any Lien on any of the assets of Holdings or any Transferred Company or (v) require any filing with, or the obtaining of any consent, approval, certificate, license, permit, waiver or authorization of ("Governmental Consent"), any governmental or regulatory authority, court or agency, whether federal, state, local or foreign (each, a "Governmental Entity"), other than, in the case of clauses (ii), (iii), (iv) and (v), such violations, breaches, conflicts, defaults, terminations, accelerations, third-party consents, Liens and Governmental Consents which, individually or in the aggregate, would not have a Material Adverse Effect on the Business, would not adversely affect in any material respect the ability of Parent or Holdings to consummate the transactions contemplated hereby or would not adversely affect in any material respect the ability of Acquiror Sub to conduct the Business after the Closing in substantially the same manner as presently conducted. 3.6 Financial Information; Absence of Undisclosed Liabilities. (a) Section 3.6(a) of the Holdings Disclosure Schedule sets forth the audited combined balance sheets of the Transferred Companies as of December 31, 1998 and the related audited combined statements of income and changes in cash flows for the year then ended (collectively, the "Audited Financial Statements"). Except as otherwise noted therein, the Audited Financial Statements were prepared in conformity with United States generally accepted accounting principles ("GAAP"), consistently applied, and fairly present in all material respects the combined financial condition, results of operations and cash flows of the Transferred Companies as of and for the period indicated therein. 14 (b) Except as set forth in Section 3.6(b) of the Holdings Disclosure Schedule, since December 31, 1998, none of the Transferred Companies has incurred any liabilities or obligations (whether direct or indirect, accrued, contingent or otherwise) that would be required to be reflected on a balance sheet or in notes thereto prepared in accordance with GAAP, except for (i) liabilities and obligations incurred in the ordinary course of business and (ii) liabilities and obligations that, individually or in the aggregate, would not have a Material Adverse Effect on the Business. 3.7 Absence of Certain Changes or Events. Except as disclosed in Section 3.7 of the Holdings Disclosure Schedule, since December 31, 1998, (a) there has been no action taken by any of the Transferred Companies through the date hereof that, if taken during the period from the date of this Agreement through the Effective Time without the consent of Acquiror, would constitute a breach of Section 5.1 hereof; and (b) there has been no event or development that has had or would have, individually or in the aggregate, a Material Adverse Effect on the Business. 3.8 Tax Matters. Except as set forth on Section 3.8 of the Holdings Disclosure Schedule: (a) Each of the Transferred Companies (i) has timely filed (or there has been timely filed on its behalf) with the appropriate taxing authorities all material Tax Returns (as hereinafter defined) required to be filed by or with respect to it, and all such Tax Returns are correct in all material respects, and (ii) has timely paid or accrued and adequately disclosed and fully provided for on the Audited Financial Statements all material Taxes (as hereinafter defined) required to be paid; (b) There are no outstanding waivers in writing or comparable consents regarding the application of any statute of limitations in respect of any material Taxes of any of the Transferred Companies nor have any of the Transferred Companies been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of any material Taxes of the Transferred Companies; (c) There is no action, suit, investigation, audit, claim or assessment pending or proposed to any Transferred Company in writing with respect to Taxes of Holdings or any of the Transferred Companies nor has Holdings or any of the Transferred Companies received any written notices from any taxing authority relating to any issue which could affect the Tax liability of the Transferred Companies; (d) There are no Liens for Taxes upon any of the Transferred Assets or any assets of the Transferred Companies, except for Liens relating to current Taxes not yet due and payable or Liens for Taxes being contested in good faith which have been fully disclosed and adequately provided for on the Audited Financial Statements in accordance with GAAP; 15 (e) (i) Since April 30, 1997 and (ii) prior to April 30, 1997, to the knowledge of all responsible tax officers of Holdings, none of the Transferred Companies has been included in any "consolidated," "unitary" or "combined" income Tax Return provided for under the law of the United States, any foreign jurisdiction or any state or locality with respect to Taxes for any taxable period for which the statute of limitations has not expired; (f) All material Taxes which Holdings or any of the Transferred Companies is (or was) required by law to withhold or collect have been duly withheld or collected, and have been timely paid over to the proper authorities to the extent due and payable; (g) (i) Since April 30, 1997 and (ii) prior to April 30, 1997, to the knowledge of all responsible tax officers of Holdings, no claim has been made in writing by any taxing authority in a jurisdiction where Holdings or any of the Transferred Companies does not file Tax Returns that Holdings or any of the Transferred Companies is or may be subject to taxation by that jurisdiction; (h) None of the Transferred Companies is a party to any agreement that, as a result of the consummation of the transactions contemplated by this Agreement, would require any of the Transferred Companies to make any payment that would constitute an "excess parachute payment" for purposes of Sections 280G and 4999 of the Code; (i) No indebtedness of any of the Transferred Companies consists of "corporate acquisition indebtedness" within the meaning of Section 279 of the Code; and (j) There are no Tax sharing, allocation, indemnification or similar agreements in effect as between any of the Transferred Companies or any predecessors or Affiliates thereof and any other party (including Holdings or any predecessor or Affiliate thereof) under which Acquiror or Acquiror Sub or any of the Transferred Companies could be liable after the Closing Date for any Taxes or other claims of any party. 3.9 Litigation. (a) Except as set forth in Section 3.9 of the Holdings Disclosure Schedule, as of the date of this Agreement, there is no action, suit, proceeding or investigation by or before any Governmental Entity which is pending or, to Holdings' Knowledge, threatened, against Parent or Holdings (in each case, relating to the Business) or any Transferred Company, which, if adversely determined, individually or in the aggregate, would (a) have a Material Adverse Effect on the Business, (b) adversely affect in any material respect the ability of Parent or Holdings to consummate the transactions contemplated hereby or (c) adversely affect, in any material respect, the ability of Acquiror Sub to conduct the Business after the Closing in substantially the same manner as presently conducted. (b) For purposes of this Agreement, "Holdings' Knowledge" shall mean, with respect to any representation and warranty, the actual knowledge of each of Messrs. 16 Mark Miller, President and Chief Executive Officer of PHH Vehicle Management Services, LLC ("VMS"), Neil Cashen, Senior Vice President, Finance and Planning of VMS, John Cullum, President, Cendant Business Answers (Europe) PLC ("CBA"), David Bird, Managing Director of CBA, and Joseph Weikel, Vice President and General Counsel of VMS, and Ms. Mairead McKenna, Legal Services Director of CBA, after having reviewed the applicable representation and warranty and any disclosure schedule related thereto. 3.10 Permits; Compliance with Laws. (a) Holdings (to the extent related to the Business) and each of the Transferred Companies is in possession of all franchises, authorizations, licenses, permits, easements, variances, consents, certificates, approvals and orders of any Governmental Entity necessary for it to own, lease and operate its properties or to carry on the Business as it is presently being conducted (the "Permits"), except where the failure to have any of the Permits would not, individually or in the aggregate, have a Material Adverse Effect on the Business. (b) Except (i) as disclosed in Section 3.10(b) of the Holdings Disclosure Schedule, and (ii) with respect to tax, labor, ERISA and employee benefit, intellectual property and environmental Laws, which are exclusively addressed in Sections 3.8, 3.12, 3.13, 3.14 and 3.16 hereof, respectively, the Business presently is being conducted in compliance in all material respects with all applicable Laws. 3.11 Material Contracts. (a) Except for Contracts set forth in Section 3.11(a) of the Holdings Disclosure Schedule (collectively, the "Material Contracts"), neither Holdings (with respect to the Business) nor any Transferred Company is a party to or bound by: (i) any Contract that provides for payment to a Transferred Company for the performance of services in an amount in excess of $1,000,000 annually; (ii) any Contract to be performed relating to capital expenditures (other than those provided for in the Capital Expenditure Plans of the Business for 1999) in excess of $500,000 in any calendar year, or in the aggregate require expenditures in excess of $2,000,000; (iii) any Contract not entered into the ordinary course of business, requiring payments by or to the Transferred Companies in excess of $1,000,000; (iv) any Contract which contains restrictions with respect to payment of dividends or any other distribution in respect of the capital stock of a Transferred Company; 17 (v) any Contract relating to indebtedness for borrowed money in an amount in excess of $1,000,000 (excluding trade payables in the ordinary course of business, intercompany indebtedness and leases for telephones, copy machines, facsimile machines and other office equipment); (vi) any lease (or sublease) of Real Property requiring payments by the Transferred Companies in an amount in excess of $1,000,000 annually; (vii) any loan or advance to (other than advances to employees in the ordinary course of business in amounts not exceeding $1,000,000 in the aggregate), or investment in (other than investments in any Transferred Company), any Person, or any Contract relating to the making of any such loan, advance or investment; (viii) any guarantee in respect of any indebtedness or obligation of any Person in an amount in excess of $1,000,000 (other than in the ordinary course of business and other than with respect to any indebtedness or obligation of any Transferred Company); (ix) any material Contract limiting the ability of any Transferred Company to engage in any line of business or to compete with any Person; (x) any material amendment, modification or supplement in respect of any of the foregoing. (b) Except as set forth in Section 3.12(b) of the Holdings Disclosure Schedule: (i) there is no pending default under or breach of any Material Contract by Holdings or any Transferred Company party thereto, and no event has occurred that, with the lapse of time or the giving of notice or both, would constitute a default thereunder by Holdings or any Transferred Company party thereto, in any such case in which such default, breach or event, individually or in the aggregate, would have a Material Adverse Effect on the Business; and (ii) no party to any such Material Contract has given written notice to Holdings or any Transferred Company of, or made a written claim against Holdings or any Transferred Company with respect to, any breach or default thereunder, in any such case, in which such breach or default, individually or in the aggregate, would have a Material Adverse Effect on the Business. 3.12 Labor Relations. Except as set forth in Section 3.12 of the Holdings Disclosure Schedule, (a) neither Holdings nor any of the Transferred Companies is a party to any collective bargaining agreement or labor Contract with respect to any Persons employed by any of the Transferred Companies (the "Business Personnel"), (b) Holdings is not a party to any employment agreement with any of the Business Personnel, (c) since January 1, 1998, neither Holdings nor any of the Transferred Companies has engaged in any unfair labor practice with respect to the Business Personnel, and there is no unfair labor practice complaint or grievance against Holdings or any of the Transferred Companies by the National Labor Relations Board or any comparable state agency pending or, to Holdings' Knowledge, threatened in writing with respect to the Business Personnel, except where such unfair labor practice, complaint or 18 grievance would not, individually or in the aggregate, have a Material Adverse Effect on the Business, and (d) there is no labor strike, dispute, slowdown or stoppage pending or, to Holdings' Knowledge, threatened against Holdings (with respect to the Business) or any of the Transferred Companies which may interfere with the business activities of the Business, except for such disputes, strikes or work stoppages which would not, individually or in the aggregate, have a Material Adverse Effect on the Business. 3.13 Employee Benefit Plans; ERISA. (a) Each "employee benefit plan," within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained by Holdings and/or any of its subsidiaries or any organization which, together with Holdings and/or any such subsidiary (each, an "ERISA Affiliate"), would be treated as a "single employer" within the meaning of Section 414 of the Code or to which Holdings or any such ERISA Affiliate contributes (or has any obligation to contribute) or is a party and in which any Business Personnel participates or under which any of them has accrued and remains entitled to any benefit (collectively, the "Employee Benefit Plans") is listed on Section 3.13(a) of the Holdings Disclosure Schedule. Except as set forth on Section 3.13(a) of the Holdings Disclosure Schedule: (i) each Employee Benefit Plan is in compliance with applicable law and has been administered and operated in accordance with its terms, except to the extent that any such noncompliance, administration or operation would not result in a material liability; (ii) each Employee Benefit Plan which is intended to be "qualified" within the meaning of Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service, dated after December 31, 1993 and, to Holdings' Knowledge, no event has occurred and no condition exists which could reasonably be expected to result in the revocation of any such determination; (iii) neither Holdings (with respect to the Business) or any of the Transferred Companies is a participant in any "multiemployer plan," within the meaning of Section 4001(a)(3) of ERISA; (iv) the actuarial present value of the accumulated plan benefits (whether or not vested) under any Employee Benefit Plan covered by Title IV of ERISA as of the close of the plan year ended April 30, 1998 did not exceed the fair value of the assets allocable thereto; (v) the execution of this Agreement and consummation of the transactions contemplated hereby do not constitute a triggering event under any Employee Benefit Plan, policy, arrangement, statement, commitment or agreement, which (A) (either alone or upon the occurrence of any additional or subsequent event) will or may result in any payment, "parachute payment" (as such term is defined in Section 280G of the Code) or (B) by itself will result in any material payment, severance, bonus, retirement, or increase any benefits or accelerate the payment or vesting of any benefits to any employee or former employee or director of Holdings or any of its subsidiaries (other than that which would be solely a liability of Parent); (vi) no Employee Benefit Plan provides for post-employment or retiree welfare benefits, except to the extent required by Part 6 of Subtitle B of Title I of ERISA or Section 4980B of the Code or such other similar law; (vii) no Employee Benefit Plan maintained by Holdings or an ERISA Affiliate which is covered by Title IV of ERISA has been terminated and no proceedings have been instituted to terminate or appoint a trustee to administer any such plan; (viii) no "reportable event" (as defined in Section 4043 of ERISA) has occurred with respect to any Employee Benefit Plan maintained by Holdings or an ERISA Affiliate and 19 covered by Title IV of ERISA; (ix) no Employee Benefit Plan maintained by Holdings or an ERISA Affiliate which is subject to Section 412 of the Code or Section 302 or ERISA has incurred any "accumulated funding deficiency," within the meaning of Section 412 of the Code or Section 302 of ERISA, or obtained a waiver of any minimum funding standard or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA; (x) neither Holdings nor any ERISA Affiliate has incurred any unsatisfied withdrawal liability under Part 1 of Subtitle E of Title IV of ERISA to any "multiemployer plan," within the meaning of Section 4001(a)(3) of ERISA; (xi) full payment has been timely made of all amounts which Holdings and/or any of its subsidiaries is required under applicable law or under any Employee Benefit Plan or related agreement to have paid as of the last day of the most recent fiscal year of such Employee Benefit Plan ended prior to the date hereof, and Holdings and each of its subsidiaries have made adequate provisions, in accordance with GAAP, in their financial statements for all obligations and liabilities under all Employee Benefit Plans or any related agreement or applicable law, and, to Holdings' Knowledge, no event has occurred and no condition exists that would reasonably be expected to result in a material increase in the level of such amounts paid or accrued for the most recently ended fiscal year; (xii) no Employee Benefit Plan provides for the payment of severance, termination, change in control or similar-type payments or benefits; (xiii) neither Holdings nor any of its subsidiaries, nor, to Holdings' Knowledge, any other "disqualified person" or "party in interest" (as defined in Section 4975(e)(2) of the Code and Section 3(14) of ERISA, respectively) has engaged in any transaction in connection with any Employee Benefit Plan that could reasonably be expected to result in the imposition of a material penalty pursuant to Section 502 of ERISA, damages pursuant to Section 409 of ERISA or a tax pursuant to Section 4975 of the Code; and (xiv) no claim, action or litigation, has been made or commenced with respect to any Employee Benefit Plan (other than routine claims for benefits payable in the ordinary course, and appeals of denied such claims). (b) Each "employee benefit plan," within the meaning of Section 3(3) of ERISA, which is maintained outside of the United States by Holdings and/or any of its subsidiaries primarily for the benefit of Business Personnel substantially all of whom are residing outside of the United States (collectively, the "Foreign Plans") is listed on Section 3.13(a) of the Holdings Disclosure Schedule. Except as set forth on Section 3.13(b) of the Holdings Disclosure Schedule: (i) no event has occurred with respect to any Foreign Plan that would reasonably be expected to result directly in any material liability under any applicable law; (ii) Holdings and/or its subsidiaries have complied with, and each Foreign Plan conforms in form and operation to, all applicable Laws, except to the extent that any such noncompliance or nonconformance would not result in a material liability; (iii) all pension and incentive compensation obligations under any Foreign Plan have been fully funded, accrued on the Audited Financial Statements or paid by Holdings and/or one of its subsidiaries, as applicable; and (iv) no liability, claim, action or litigation, has been made, commenced or, to Holdings' Knowledge, threatened with respect to any Foreign Plan (other than routine claims for benefits payable in the ordinary course, and appeals of denied such claims). 20 3.14 Intellectual Property. (a) The Transferred Companies own or possess valid and enforceable and adequate licenses or other legal rights to use all Intellectual Property Rights (as hereinafter defined) as are necessary to permit the Transferred Companies to conduct the Business as presently conducted, except where the failure to have such Intellectual Property Rights would not, individually or in the aggregate, have a Material Adverse Effect on the Business. Except as set forth in Section 3.14 of the Holdings Disclosure Schedule, (i) no claims, or, to Holdings' Knowledge, threat of claims, have been asserted by any Person related to the use in the conduct of the Business of any Intellectual Property Rights or challenging or questioning the validity or effectiveness of any license or agreement relating to Intellectual Property Rights, except for such claims which, individually or in the aggregate, would not have a Material Adverse Effect on the Business, (ii) the conduct of the Business as presently conducted does not infringe on the Intellectual Property Rights of any Person, except for such infringements which, individually or in the aggregate, would not have a Material Adverse Effect on the Business, and (iii) to Holdings' Knowledge, all filings, registrations and issuances pertaining to the Intellectual Property Rights owned by the Transferred Companies, including any and all patents, registered trademarks and copyright registrations, are in full force and effect and the Transferred Companies have good and marketable title thereto. (b) For purposes of this Agreement, (i) "Person" shall mean an individual, partnership, limited partnership, limited liability partnership, limited liability company, foreign limited liability company, trust, estate, corporation, custodian, trustee, executor, administrator, nominee or any other entity and (ii) "Intellectual Property Rights" shall mean rights under patents, trademarks, trade names, service marks, Internet domain names, trade secrets, copyrights, software, mailing lists and other proprietary intellectual property rights, whether or not registered, and all registrations thereof and applications for registration with respect thereto. 3.15 Year 2000 Compliance. (a) To Holdings Knowledge, the Transferred Companies have identified substantially all of their internal systems and software that are subject to Year 2000 Compliance risk and, to Holdings Knowledge, no Material Adverse Effect on the Business will result from the failure of such systems or software to be Year 2000 Compliant. As used herein, "Year 2000 Compliant" shall mean, with respect to all internal computer systems and software, whether embedded or otherwise, the ability to consistently and accurately handle date information before, on and after January 1, 2000 without a material loss of functionality, including, but not limited to, accepting date input, providing date output, performing calculations on dates or portions of dates and comparing, sequencing, storing and displaying dates (including all leap year considerations). (b) The Transferred Companies have adopted a Year 2000 Compliance program, which consists of four phases: (i) identification of all mission critical business systems 21 and software subject to Year 2000 Compliance risks; (ii) assessment of such business systems and software to determine the method of correcting Year 2000 Compliance problems; (iii) implementing the corrective measures; and (iv) testing and maintaining Year 2000 Compliance. The Transferred Companies have completed at least phases (i), (ii) and (iii) above with respect to all of their mission critical internal systems and software. (c) Parent and Holdings make no representation or warranty concerning the Year 2000 Compliance of suppliers of products and services to the Transferred Companies or of the Transferred Companies' customers, or as to whether the failure of such suppliers or customers to be Year 2000 Compliant would have a Material Adverse Effect on the Business. The Transferred Companies are developing contingency plans intended to minimize the effects of any such failures by crucial third parties. (d) The above stated representation is a Year 2000 readiness disclosure statement pursuant to the Year 2000 Readiness and Disclosure Act. 3.16 Environmental Matters. Except as set forth in Section 3.16 of the Holdings Disclosure Schedule: (a) The Business presently is being conducted in compliance with all applicable Environmental Laws (as hereinafter defined), including, but not limited to, the possession of all Permits and other governmental authorizations required under applicable Environmental Laws, except where the failure to comply with such Environmental Laws would not have a Material Adverse Effect on the Business; (b) There is no pending or, to Holdings' Knowledge, threatened Environmental Claim against Holdings (relating to the Business or any Real Property) or any of the Transferred Companies under any Environmental Laws, which, if adversely determined, individually or in the aggregate, would have a Material Adverse Effect on the Business; and (c) There have been no releases, spills or discharges of Hazardous Substances (as hereinafter defined) by any of the Transferred Companies during the period of Parent's (or its Affiliates') ownership of such Transferred Company or, to Holdings' Knowledge, by any of the Transferred Companies prior to such period, or by any other Person, on or underneath any of the properties presently owned, leased or operated by any of the Transferred Companies that would have a Material Adverse Effect on the Business. (d) There are no presently existing facts, circumstances, conditions or occurrences regarding any business or operations of the Transferred Companies or any Real Property that would reasonably be anticipated (i) to form the basis of an Environmental Claim against the Transferred Companies or any Real Property or (ii) to cause such Real Property to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law, which, in either case, would have a Material Adverse Effect on the Business. 22 (e) For purposes of this Agreement, "Environmental Laws" shall mean any applicable national, federal, state or local Laws relating to the environment, pollution or protection of the environment, health, safety or Hazardous Substances. "Hazardous Substances" means all substances defined as hazardous, toxic, petroleum or petroleum products, asbestos in any form that is friable, polychlorinated biphenyls, radon gas and any other restricted pollutant or a contaminant under the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5, or defined, limited or prohibited as such by, or regulated as such under, any Environmental Law. "Environmental Claims" shall mean any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations or proceedings relating in any way to any Environmental Law or any permit issued under any such Environmental Law (for purposes of this definition, "Claims"), including, without limitation (i) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law and (ii) any and all Claims, by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Substances or arising from alleged injury or threat of injury to health or the environment. 3.17 Real Property. With respect to each parcel of real property owned in fee, leased or subleased by the Transferred Companies (the "Real Property"), Section 3.17 of the Holdings Disclosure Schedule sets forth a complete and accurate list setting forth its address and, in the case of owned Real Property, its legal description. Except as set forth in Section 3.17 of the Holdings Disclosure Schedule, each of the Transferred Companies has fee simple title to all Real Property owned by such entity, and has valid leasehold interests in all Real Property leased by such entity, in each case free and clear of all Liens except for defects in title or Liens which, individually or in the aggregate, would not have a Material Adverse Effect on the Business. 3.18 Insurance. Section 3.18 of the Holdings Disclosure Schedule sets forth an accurate summary of all material insurance policies maintained by Holdings (with respect to the Business) and the Transferred Companies. Such insurance policies are in full force and effect on the date hereof, and are in such amounts, on such terms and covering such risks, including fire and other risks insured against by extended coverage, as are, in the opinion of Holdings' management, reasonably prudent for the Business. 3.19 Acquisition of Shares for Investment. Holdings is acquiring the shares of Acquiror Sub Series A Preferred Stock to be issued by Acquiror Sub upon consummation of the Merger for investment purposes without any present intention of distributing or selling any such shares in violation of federal or state securities laws. 3.20 Sufficiency of Assets. Except as contemplated by the Intercompany Agreements and the items set forth in Section 3.20 of the Holdings Disclosure Schedule, the assets of the Transferred Companies constitute all the assets necessary to conduct the Business in substantially the same manner as presently conducted. 23 3.21 Customers. Section 3.21 of the Holdings Disclosure Schedule sets forth the twenty (20) largest customers (each a "Material Customer") of the Business for the period from January 1, 1999 through March 31, 1999, based on gross revenues received from each such customer during such period. No Transferred Company has received written notice, or to Holding's Knowledge, any oral notice, from any Material Customer that such Material Customer is canceling or otherwise substantially reducing its usage or purchase of the products and services of, the Business. 3.22 Brokers; Finders and Fees. Except for Chase Securities Inc., whose fees will be paid by Parent, none of Parent, Holdings, any Transferred Company or any of their respective Affiliates has employed any investment banker, broker or finder or incurred any liability for any investment banking fees, brokerage fees, commissions or finders' fees in connection with this Agreement or the transactions contemplated hereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND ACQUIROR SUB Acquiror and Acquiror Sub jointly and severally represent and warrant to Parent and Holdings as follows: 4.1 Organization. (a) Each of Acquiror and Acquiror Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to own, lease and operate all of its properties and assets and to carry on its business as it is presently being conducted. Each of Acquiror and Acquiror Sub is duly qualified or licensed to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of its business or the ownership, operation or leasing of its properties makes such qualification necessary, except where the failure to be so qualified and in good standing would not have an Acquiror Material Adverse Effect (as hereinafter defined). (b) As used in this Agreement, "Acquiror Material Adverse Effect" means any material adverse change in, or effect on, the business, assets, liabilities, results of operations or condition (financial or otherwise) of Acquiror, Acquiror Sub or Acquiror's other subsidiaries, taken as a whole; provided, however, that the effects of changes that are generally applicable to the industries in which such entities operate or to the economy generally shall be excluded from such determination. 4.2 Authorization. Each of Acquiror and Acquiror Sub has all requisite corporate power and authority to execute and deliver this Agreement and each of the Transaction 24 Agreements to which it is a party and to perform its obligations hereunder and thereunder and consummate the transactions contemplated hereby and thereby. The execution and delivery by Acquiror and Acquiror Sub of this Agreement and each of the Transaction Agreements to which it is a party and the consummation by Acquiror and Acquiror Sub of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of each of Acquiror and Acquiror Sub. This Agreement has been, and, at the Closing, each of the Transaction Agreements will be, duly executed and delivered by each of Acquiror and Acquiror Sub to the extent it is a party thereto and (assuming the valid authorization, execution and delivery thereof by the other parties thereto) this Agreement constitutes, and each of the Transaction Agreements, when duly executed and delivered, will constitute, a valid and binding agreement of Acquiror and Acquiror Sub to the extent it is a party thereto, enforceable against them in accordance with its terms, except that (a) such enforcement may be subject to any bankruptcy, reorganization, fraudulent conveyance, moratorium, insolvency and other Laws, now or hereafter in effect, relating to or limiting creditors' rights generally and (b) enforcement thereof, including, among other things, the remedy of specific performance and injunctive and other forms of equitable relief, may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 4.3 Capitalization. (a) Section 4.3 of the disclosure schedule being delivered by Acquiror to Holdings concurrently herewith (the "Acquiror Disclosure Schedule") sets forth the authorized capital stock of, and the number of issued and outstanding shares of capital stock in, Acquiror and Acquiror Sub. As of the date of this Agreement, except as set forth in Section 4.3 of the Acquiror Disclosure Schedule, there are no issued and outstanding shares of capital stock or other equity interests in Acquiror or Acquiror Sub or any subscriptions, options, warrants, calls, rights, convertible securities or other agreements or commitments of any character obligating Acquiror or Acquiror Sub to issue, transfer or sell, or cause to be issued, transferred or sold, any capital stock or other equity interests in Acquiror or Acquiror Sub, nor are there any shares of capital stock or other equity interests reserved for issuance pursuant thereto. Each outstanding share of capital stock of Acquiror and Acquiror Sub is duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights. (b) Acquiror Sub is a newly formed company incorporated under the laws of the State of Texas and has engaged in no activity other than as provided in, or contemplated by, this Agreement. Acquiror has no present plan or intention to cause Acquiror Sub to reincorporate out of the State of Texas. Except as set forth in Section 4.3 of the Acquiror Disclosure Schedule, (i) all of the issued and outstanding shares of capital stock of Acquiror Sub are, and immediately prior to the Effective Time, will be, owned of record and beneficially by Acquiror and are, and immediately prior to the Effective Time, will be, free and clear of all Liens, (ii) there are no restrictions of any kind which prevent the payment of dividends by Acquiror Sub and (iii) Acquiror Sub (except by operation of Law) is not subject to any obligation or requirement to provide funds for or to make any investment (in the form of a loan, capital contribution or otherwise) to or in any Person. 25 (c) The shares of Acquiror Sub Preferred Stock to be issued upon consummation of the Merger pursuant to the terms of this Agreement have been duly authorized and reserved for issuance and, at the Effective Time, such shares of Acquiror Sub Preferred Stock will be validly issued, fully paid and nonassessable shares of preferred stock of Acquiror Sub, free of preemptive rights, and will be entitled to the rights, preferences and powers set forth in the Certificate of Designations with respect thereto. The shares of Series B cumulative PIK preferred stock of Acquiror Sub ("Acquiror Sub Series B Preferred Stock") have been duly authorized and when issued as paid-in-kind dividends upon the Acquiror Sub Series A Preferred Stock, such shares will be validly issued, fully paid and nonassessable shares of Acquiror Sub Series B Preferred Stock, free of preemptive rights and will be entitled to the rights, preferences and powers set forth in the Certificate of Designations with respect thereto. (d) The shares of common stock, par value $0.01 per share, of Acquiror (the "Acquiror Common Stock"), issuable upon exchange of the non-voting class B common stock of Acquiror (the "Acquiror Class B Common Stock") which is issuable upon conversion of the Acquiror Sub Series A Preferred Stock pursuant to the terms of the Certificate of Designations with respect thereto, have been duly authorized and reserved for issuance and, upon issuance after such conversion, such shares of Acquiror Common Stock will be validly issued, fully paid and nonassessable, and free of preemptive rights. The transactions contemplated by this Agreement, which includes the issuance of shares of Acquiror Class B Common Stock upon conversion of the Acquiror Sub Series A Preferred Stock, have been duly authorized by the board of directors of Acquiror and, subject to the receipt of the Class B Stockholder Approval (as defined in the Stockholders' Agreement), when issued upon conversion of the Acquiror Sub Series A Preferred Stock, such shares of Acquiror Class B Common Stock will be duly authorized, validly issued, fully paid and nonassessable, and free of preemptive rights. 4.4 Consents and Approvals; No Violation. Except for the filing of the Articles of Merger under the TBCA and the applicable requirements of the H-S-R Act, or as set forth in Section 4.4 of the Acquiror Disclosure Schedule, neither the execution and delivery by Acquiror or Acquiror Sub of this Agreement or the Transaction Agreements to which it is a party nor the consummation by Acquiror and Acquiror Sub of the transactions contemplated hereby or thereby will (i) conflict with or violate the certificate or articles of incorporation, by-laws or comparable charter or organizational documents of Acquiror or Acquiror Sub, (ii) violate any Laws of any Governmental Entity applicable to Acquiror or Acquiror Sub or any of their respective properties or assets, (iii) result in a violation or breach of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or require any consent of another party to, any Contract to which Acquiror or Acquiror Sub is a party or by which Acquiror or Acquiror Sub or any of their respective properties or assets is bound, (iv) result in the creation of any Lien on any of the assets of Acquiror Sub or (v) require any Governmental Consent of any Governmental Entity, other than, in the case of clauses (ii), (iii), (iv) and (v), such violations, breaches, conflicts, defaults, terminations, accelerations, third-party consents, Liens and 26 Governmental Consents, which would not, individually or in the aggregate, have an Acquiror Material Adverse Effect and would not adversely affect in any material respect the ability of Acquiror or Acquiror Sub to consummate the transactions contemplated hereby. 4.5 Acquiror SEC Documents. Acquiror has filed all reports, forms, registrations, schedules, statements and other documents required to be filed by it with the Securities and Exchange Commission ("SEC") since January 1, 1998 (the "Acquiror SEC Documents"). As of their respective dates, the Acquiror SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act") or the Securities Exchange Act of 1934, as amended, as the case may be, and the applicable rules and regulations promulgated thereunder. Except to the extent that information contained in any Acquiror SEC Document has been revised, amended or superseded by a later Acquiror SEC Document, none of the Acquiror SEC Documents filed prior to the date hereof, when filed, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4.6 Financial Information; Absence of Undisclosed Liabilities. (a) Except as otherwise noted therein, the consolidated financial statements of Acquiror included in the Acquiror SEC Documents were prepared in accordance with GAAP, consistently applied (except, in the case of the unaudited statements, for normal year-end audit adjustments), and fairly present in all material respects the consolidated financial condition, results of operations and cash flows of Acquiror and its consolidated subsidiaries as of and for the periods indicated therein (subject, in the case of the unaudited statements, to normal year-end audit adjustments and to any other adjustments described therein). (b) Except as set forth in the Acquiror SEC Documents filed prior to the date hereof or in Section 4.6(b) of the Acquiror Disclosure Schedule, since the date of the most recent audited financial statements included in the Acquiror SEC Documents, Acquiror has not incurred any liabilities or obligations (whether direct or indirect, accrued, contingent or otherwise) that would be required to be reflected on a balance sheet or in notes thereto prepared in accordance with GAAP, except for (i) liabilities and obligations incurred in the ordinary course of business and (ii) liabilities and obligations that, individually or in the aggregate, would not have a Acquiror Material Adverse Effect. 4.7 Litigation. Except as set forth in the Acquiror SEC Documents filed prior to the date hereof or in Section 4.7 of the Acquiror Disclosure Schedule, as of the date of this Agreement, there is no action, suit, proceeding or investigation by or before any Governmental Entity which is pending, or, to the knowledge of Acquiror, threatened against Acquiror, Acquiror Sub or any of Acquiror's other subsidiaries, which, if adversely determined, individually or in the aggregate, would (a) have a Acquiror Material Adverse Effect or (b) adversely affect in any material respect the ability of Acquiror or Acquiror Sub to consummate the transactions contemplated hereby. 27 4.8 Compliance with Laws. Except as disclosed in the Acquiror SEC Documents filed prior to the date hereof or as set forth in Section 4.8 of the Acquiror Disclosure Schedule, the businesses of Acquiror and Acquiror Sub are presently being conducted in compliance with all applicable Laws, except for such noncompliance which, individually or in the aggregate, would not have a Acquiror Material Adverse Effect. 4.9 Availability of Funds. Acquiror has delivered to Holdings, prior to the date hereof, true, correct and complete copies of commitment letters (the "Commitment Letters") providing commitments by the financial institutions issuing such letters ("Lenders") to lend to Acquiror the Financing (as hereinafter defined). Such Commitment Letters are in full force and effect on the date hereof. Pursuant to such Commitment Letters, Acquiror has commitments for, and at the Closing will have available (assuming such Commitment Letters are honored and the conditions set forth therein are satisfied by the Lenders) the Financing. As used in this Agreement, "Financing" means immediately available funds in an amount sufficient to consummate the transactions contemplated hereby and pay all related fees and expenses. 4.10 Amortization of Goodwill. Acquiror has been advised by Deloitte & Touche LLP, that as of the date hereof, pursuant to GAAP, the goodwill generated by the transactions contemplated hereby would be amortized by Acquiror over forty (40) years. 4.11 No Registration. Assuming the accuracy of Holdings' representations in Section 3.19, no registration of the shares of Acquiror Sub Preferred Stock to be issued by Acquiror Sub upon consummation of the Merger, pursuant to the provisions of the Securities Act or any state securities or "blue sky" laws, will be required by the issuance of such shares upon consummation of the Merger. 4.12 Investigation by Acquiror; Parent's and Holdings' Liability. Acquiror has conducted its own independent review and analysis of the business, operations, assets, liabilities, results of operations, financial condition, and prospects of the Business and acknowledges that Acquiror has been provided access to the personnel, properties, premises and records of the Business for such purpose. Except for the specific representations and warranties of Parent and Holdings set forth in Article III of this Agreement (subject to the limitations and restrictions contained therein) and the indemnities of Parent and Holdings set forth in Sections 6.2 and 9.2 of this Agreement, in entering into this Agreement, Acquiror: (a) acknowledges that none of Parent, Holdings, the Transferred Companies or any of their respective directors, officers, shareholders, employees, Affiliates, controlling persons, agents, advisors or representatives makes or has made any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information provided or made available to Acquiror or its directors, officers, employees, Affiliates, controlling persons, agents or representatives; and (b) agrees, to the fullest extent permitted by Law, that none of Parent, Holdings, the Transferred Companies or any of their respective directors, officers, employees, shareholders, Affiliates, controlling persons, agents, advisors or representatives shall have any liability or responsibility whatsoever to Acquiror or its directors, officers, employees, Affiliates, controlling persons, 28 agents or representatives on any basis (including, without limitation, in contract or tort, under federal or state securities Laws or otherwise) based upon any information provided or made available, or statements made (including, without limitation, in materials furnished in the Business' data room, in presentations by the management of the Business or otherwise), to Acquiror or Acquiror Sub or their directors, officers, employees, Affiliates, controlling persons, advisors, agents or representatives (or any omissions therefrom). 4.13 Brokers; Finders and Fees. Except for Lehman Brothers Inc. and BT Wolfensohn, whose fees will be paid by Acquiror, neither Acquiror nor any of its Affiliates has employed any investment banker, broker or finder or incurred any liability for any investment banking, financial advisory or brokerage fees, commissions or finders' fees in connection with this Agreement or the transactions contemplated hereby. ARTICLE V COVENANTS OF THE PARTIES 5.1 Conduct of the Business. During the period from the date of this Agreement to the Effective Time, except for the right of Holdings, at its option, at any time prior to the Effective Time, to convert Wright Express Corporation, a Delaware corporation, into a limited liability company, whether by merger or otherwise, and as otherwise contemplated by this Agreement or the transactions contemplated hereby or consented to by Acquiror in writing, Parent and Holdings shall cause each of the Transferred Companies: (a) to conduct its business and operations in the ordinary course in substantially the same manner as presently conducted and to use reasonable best efforts to preserve its relationships with customers, suppliers and others having business dealings with the Business; and (b) not to: (i) sell, license or dispose of any of its material properties or assets, except (A) to a Transferred Company or (B) in the ordinary course of business in substantially the same manner as presently conducted; (ii) make any loans, advances (other than loans or advances (A) in the ordinary course of business (including to Holdings in accordance with Holdings' normal cash management policies) in substantially the same manner as presently conducted and (B) required by the terms of any existing written agreements), capital contributions to, or investments in, any Person other than another Transferred Company; (iii) enter into any new written employment agreement with any of the Business Personnel providing for annual compensation in excess of $75,000 (plus 29 customary sales quota payments in the case of sales or similar personnel) or increase in any manner the compensation of any of the Business Personnel, except for such renewals of employment agreements and increases as are granted in the ordinary course of business pursuant to its customary practices (which shall include normal periodic performance reviews and related compensation and benefit increases); (iv) except for the Holdings Plan, adopt, grant, extend or increase the rate or term of any Plan or any new bonus, insurance, pension or other employee benefit plan, payment or arrangement made to, for or with any such Business Personnel, except (A) increases required by any applicable Law, (B) increases in the ordinary course of business consistent with past practice, (C) the adoption of the Holdings Plan (as defined below), (D) grants of options ("Cendant Options") to purchase the common stock of Cendant Corporation, a Delaware corporation and an Affiliate of Holdings ("Cendant"), to Business Personnel, and (E) any other benefits payable in any form by Holdings; (v) make any change in any of its present accounting methods and practices, except as required by changes in GAAP; (vi) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any options, warrants or rights to acquire, any such shares, voting securities or convertible securities; (vii) split, combine or reclassify, or pay any dividend in respect of, any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock (other than to another Transferred Company and distributions to repay intercompany indebtedness or to pay Taxes in the ordinary course of business); (viii) make or authorize any capital expenditures (in addition to those provided for in the Capital Expenditures Plans of the Business for 1999) in excess of $500,000, individually, or $2,000,000 in the aggregate; (ix) settle or compromise any material Tax liability, except in the ordinary course of business; (x) (A) incur any indebtedness for borrowed money other than in the ordinary course of business to acquire vehicles and/or for ordinary course of business working capital, relating to current Taxes or for Tax allocations to Cendant and its Affiliates (including to Holdings or Affiliates of Holdings), or (B) issue any debt securities or assume, guarantee or endorse the obligations of any other Person other than in connection with indebtedness referred to in clause A above; (xi) amend its respective certificate or articles of incorporation or by-laws or comparable organizational documents; or 30 (xii) take, or agree to take, any of the foregoing actions. 5.2 Conduct of Business by Acquiror. During the period from the date of this Agreement to the Effective Time, except as otherwise contemplated by this Agreement or the transactions contemplated hereby or consented to by Holdings in writing: (a) Acquiror shall not, and shall cause Acquiror Sub and each of Acquiror's other subsidiaries not to, take any action that would or would be reasonably likely to result in the disqualification of the Merger as a "reorganization" for purposes of Section 368 of the Code; and (b) Acquiror shall cause Acquiror Sub not to: (i) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any options, warrants or rights to acquire, any such shares, voting securities or convertible securities; (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock; (iii) amend its articles of incorporation or by-laws; or (iv) take, or agree to take, any of the foregoing actions. (c) Acquiror shall not take any action, including, without limitation, repurchasing any shares of Acquiror Common Stock, that would result in Cendant owning, directly or indirectly, more than twenty percent (20%) of the outstanding shares of Acquiror Common Stock. 5.3 Conduct of Business by Acquiror Sub. From the date of this Agreement to the Effective Time, Acquiror Sub will not engage in any activities of any nature, acquire any assets or incur any indebtedness or assume any liabilities or obligations, in each case, except as expressly provided in or contemplated by this Agreement and as may be related to Acquiror Sub incurring indebtedness necessary to refinance indebtedness required to be repaid under the terms of this Agreement. 5.4 Access to Information. (a) From the date of this Agreement to the Closing, Parent and Holdings shall, and shall cause each of the Transferred Companies to, (i) except as set forth in subparagraph (c), give Acquiror and its authorized representatives reasonable access to all books, records, personnel, offices and other facilities and properties of the Business, (ii) permit Acquiror 31 to make such copies and inspections thereof as Acquiror may reasonably request and (iii) cause the officers, independent auditors (subject to Acquiror and Acquiror Sub executing indemnification letters and waiver letters satisfactory to such independent auditor) of the Transferred Companies to furnish Acquiror with such financial and operating data and other information with respect to the business and properties of the Transferred Companies as Acquiror may from time to time reasonably request; provided, however, that any such access shall be conducted at Acquiror's expense, at a reasonable time, under the supervision of Holdings or the Transferred Companies and in such a manner as to maintain the confidentiality of this Agreement and the transactions contemplated hereby and not to interfere unreasonably with the operation of the business of Holdings or any Transferred Company (iv) take such action, including without limitation, providing the reasonable use of appropriate officers as Acquiror and Acquiror Sub may reasonably request in connection with obtaining the Financing; provided that such action does not unreasonably interfere with such officer's duties in connection with the conduct of the Business. (b) From the date of this Agreement to the Closing, Acquiror shall, and shall cause Acquiror Sub to, (i) give Holdings and its authorized representatives reasonable access to all books, records, personnel, offices and other facilities and properties of Acquiror Sub, (ii) permit Holdings to make such copies and inspections thereof as Holdings may reasonably request and (iii) cause the officers of Acquiror and Acquiror Sub to furnish Holdings with (x) such financial and operating data and other information with respect to the business and properties of Acquiror Sub as Holdings may from time to time reasonably request and (y) such financial data of Acquiror as Holdings may from time to time reasonably request; provided, however, that any such access shall be conducted at Holdings' expense, at a reasonable time, under the supervision of Acquiror and Acquiror Sub and in such a manner as to maintain the confidentiality of this Agreement and the transactions contemplated hereby and not to interfere unreasonably with the operation of the business of Acquiror or Acquiror Sub. (c) All information and access provided to Acquiror and its representatives pursuant to subsection (a) above shall be subject to the terms and conditions of the letter agreement (the "Confidentiality Agreement"), among Acquiror, Cendant, Parent and PHH Vehicle Management Services Corporation, dated March 19, 1999. The Confidentiality Agreement shall survive the execution of this Agreement and the Closing, without limitation. Notwithstanding anything to the contrary contained in this Agreement, none of Cendant, Parent, Holdings, any Transferred Company or any of their respective Affiliates shall have any obligation to make available or provide to Acquiror or its representatives a copy of any consolidated, combined or unitary Tax Return filed by Cendant, Parent, Holdings, or any of their respective Affiliates or predecessors, or any related materials. (d) Parent and Holdings shall, and shall cause their representatives to, keep confidential all information provided by Acquiror and Acquiror Sub. Such information shall not be used by Parent or Holdings or their representatives for any purpose other than in connection with analyzing the transactions contemplated hereby. 32 5.5 Books and Records; Furnishing Information. (a) For a period of three years after the Closing Date, the Holdings Surviving Corporation shall make available to Acquiror and Acquiror Sub Surviving Corporation for inspection and copying at Acquiror's expense, at reasonable times after reasonable request therefor, any records and documents (or portions thereof) retained by the Holdings Surviving Corporation relating primarily to the Business which, at the time of said request, are in the Holdings Surviving Corporation's possession or control. Holdings agrees that it shall preserve and keep all books and records referred to above for a period of at least three years from the Closing Date; provided, however, that records relating to Taxes and Tax Returns shall be kept for the applicable statutory period (including extensions thereof). After such period, before the Holdings Surviving Corporation shall dispose of any of such books and records, at least 90 calendar days' prior written notice to such effect shall be given by the Holdings Surviving Corporation to Acquiror, and Acquiror shall be given an opportunity, at its cost and expense, to remove and retain all or any part of such books and records as Acquiror may select. (b) For a period of three years after the Closing Date, Acquiror and the Acquiror Sub Surviving Corporation shall make available to the Holdings Surviving Corporation for inspection and copying at the Holdings Surviving Corporation's expense, at reasonable times after reasonable request therefor, any records and documents (or portions thereof) relating primarily to the Business delivered by Holdings to Acquiror hereunder which, at the time of said request, are in Acquiror's or the Acquiror Sub Surviving Corporation's possession or control. Acquiror agrees that it shall preserve and keep all books and records referred to above for a period of at least three years from the Closing Date; provided, however, that records relating to Taxes and Tax Returns shall be kept for the applicable statutory period (including extensions thereof). After such period, before Acquiror shall dispose of any of such books and records, at least 90 calendar days' prior written notice to such effect shall be given by Acquiror to the Holdings Surviving Corporation, and the Holdings Surviving Corporation shall be given an opportunity, at its cost and expense, to remove and retain all or any part of such books and records as the Holdings Surviving Corporation may select. 5.6 Consents and Approvals. (a) Each of Parent, Holdings, Acquiror and Acquiror Sub shall cooperate and use best efforts to make all filings and obtain all consents of Governmental Entities and third parties required to consummate the transactions contemplated hereby, including, without limitation, under the H-S-R Act and any mandatory foreign antitrust or competition Laws, and in connection with the Required Approvals. In furtherance of the foregoing, each of Parent, Holdings, Acquiror and Acquiror Sub shall file or cause to be filed with the United States Federal Trade Commission ("FTC") and the United States Department of Justice ("DOJ") a notification and report form under the HSR Act within five (5) business days following the date hereof. 33 (b) Each of Parent, Holdings, Acquiror and Acquiror Sub shall promptly inform the other parties hereto of any material communication from the FTC, DOJ or any other Governmental Entity regarding any of the transactions contemplated by this Agreement. If any of Parent, Holdings, Acquiror or Acquiror Sub, or any Affiliate thereof, receives a request for additional information or documentary material from any such Governmental Entity with respect to the transactions contemplated by this Agreement, then such party shall use its best efforts to respond to such request, as promptly as practicable, after consultation and coordination with the other parties hereto. In addition to the foregoing, Acquiror agrees to provide, and cause Acquiror Sub to provide, such assurances as to financial capability, resources and creditworthiness as may be reasonably requested by any third party whose consent is sought hereunder. 5.7 Commercially Reasonable Efforts. Each of Parent, Holdings, Acquiror and Acquiror Sub shall cooperate, and use commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate the transactions contemplated by this Agreement. 5.8 Financing. (a) Acquiror and Acquiror Sub shall comply with all terms of the Commitment Letters and shall take all actions required on their part under the terms of the Commitment Letters, including without limitation, providing the Lenders with all information that they may request and entering into appropriate loan agreements or other agreements in order to obtain the Financing. (b) In the event that (i) any Lender shall notify Acquiror or Acquiror Sub that it is withdrawing or terminating the Commitment Letters or that any of the conditions to the Financing in the Commitment Letters cannot be satisfied and will not be waived or (ii) Acquiror has agreed to any amendment to the Commitment Letters that establish additional conditions to the Lenders' obligations to provide the Financing or otherwise makes it more difficult for Acquiror to obtain the Financing (unless Holdings has agreed in writing that Acquiror can effect any such amendment) (each a "Funding Termination Event"), then Acquiror shall immediately notify Holdings of such Funding Termination Event. In the event all or any portion of the Financing becomes unavailable for any reason under the Commitment Letters, Acquiror shall use its commercially reasonable efforts to secure all or such portion of the Financing on terms no less favorable in the aggregate to Acquiror than the terms contained in the Commitment Letters. Acquiror shall immediately notify Holdings if any Lenders shall notify Acquiror or Acquiror Sub that it is amending the Commitment Letters. 5.9 Employees; Employee Benefits. (a) On and after the Closing, until at least the first anniversary of the Closing Date, Acquiror shall cause the Transferred Companies to provide such Business Personnel with salaries and benefit plans, programs and arrangements substantially equivalent in 34 the aggregate (without consideration given to defined benefit pension plans) as those provided by Parent and its Affiliates as of the date hereof. (b) If any Business Personnel becomes a participant in any employee benefit plan, practice or policy of Acquiror or any of its Affiliates, such employee shall be given credit under such plan for all service prior to the Closing Date with the Transferred Companies or any predecessor employer or other Affiliate of Holdings (to the extent such credit was given by the Transferred Companies, such predecessor or other Affiliate of Holdings), and all service with the Transferred Companies or Acquiror or any of its Affiliates following the Closing Date but prior to the time such employee becomes such a participant, for purposes of determining eligibility and vesting and for all other purposes for which such service is either taken into account or recognized; provided, however, such service need not be credited to the extent it would result in a duplication of benefits including, without limitation, benefit accrual under defined benefit plans. To the extent allowable under applicable Law, Acquiror shall, and shall cause the Transferred Companies to, (i) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Business Personnel under any welfare benefit plans in which such Business Personnel may be eligible to participate after the Closing Date and (ii) provide the Business Personnel with credit for any co-payments and deductibles paid prior to the Closing Date in satisfying any applicable deductible or out-of-pocket requirements under any welfare plans of Acquiror or any of its Affiliates in which the Business Personnel are eligible to participate after the Closing Date. (c) In the event that any of the Business Personnel employed by the Transferred Companies immediately prior to the Closing (each, an "Affected Employee") is discharged by the Transferred Companies after the Effective Time, then Acquiror shall be responsible for any and all severance costs for such Affected Employee, including, without limitation, payments owing under those agreements, plans or arrangements listed in Section 5.9 of the Holdings Disclosure Schedule. Acquiror shall be responsible and assume all liability for all notices or payments due to any Affected Employees, and all notices, payments, fines or assessments due to any Governmental Entity, pursuant to any applicable foreign, federal, state or local Law, with respect to the employment, discharge or layoff of employees by the Transferred Companies after the Closing, including, but not limited to, the Worker Adjustment and Retraining Notification Act, COBRA and any rules or regulations as have been issued in connection therewith. (d) Prior to the Closing, Parent shall take all such action as it shall deem necessary or appropriate, including, if necessary, adopting any amendments, so that, effective as of the Effective Time, each of the Transferred Companies shall cease to be a participating employer in the PHH Corporation Pension Plan (the "Pension Plan") and that all Business Personnel shall become fully vested in their accrued benefits under the Pension Plan. Following the Effective Time, distribution of benefits under the Pension Plan to employees and former employees of the Transferred Companies shall be made in accordance with the terms of the Pension Plan. 35 (e) There shall be established a bonus plan providing for bonuses to employees of the Transferred Companies substantially in the form of the bonus plan set forth in Section 5.9(e) of the Holdings Disclosure Schedule (the "Holdings Plan"). Holdings shall be responsible for all amounts payable pursuant to the Holdings Plan (other than severance payments due thereunder) and shall pay all amounts due thereunder (other than severance payments due thereunder) to the Acquiror Sub Surviving Corporation (which shall immediately pay or cause to be paid all such amounts to the appropriate employees entitled thereto) as and when such amounts become due. (f) Subject to Section 6.15 hereof, Holdings shall remain fully responsible for, and shall indemnify Acquiror, the Acquiror Sub Surviving Corporation, the Transferred Companies and their respective Affiliates, and the officers, directors, employees and agents of Acquiror, the Acquiror Sub Surviving Corporation, the Transferred Companies and their respective Affiliates and hold them harmless from and against, any and all claims, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) and other liabilities and obligations relating to under or arising in connection with the Holdings Plan (other than severance payments due thereunder). (g) After the Closing, Acquiror shall be responsible for, and shall indemnify and hold harmless Parent, Holdings and their respective Affiliates, and the officers, directors, employees and agents of Parent, Holdings and their respective Affiliates, and the fiduciaries (including plan administrators) of the Employee Benefit Plans, from and against any and all claims, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) and other liabilities and obligations relating to or arising out of (i) all salaries, commissions and vacation entitlements accrued but unpaid as of the Closing and post-Closing bonuses due to any Affected Employee (other than those arising under the Holdings Plan, except for severance payment obligations) and (ii) any claims of, or damages or penalties sought by, any Affected Employee, or any Governmental Entity on behalf of or concerning any Affected Employee, with respect to any act or failure to act by Acquiror to the extent arising from the employment, discharge, layoff, termination or constructive termination after the Closing of any Affected Employee who becomes an employee of Acquiror or becomes or remains an employee of the Transferred Companies on or after the Closing. (h) Effective as of the Closing, the parties hereto shall take all action necessary and appropriate to cause the applicable Transferred Companies to (i) remain or become the sole sponsor of (A) the PHH Europe PLC Employee Benefits Plan (the "UK DB Plan") and (B) the PHH Flexible Pension Scheme (the "UK DC Plan and, collectively with the UK DB Plan, the "UK Plans") and (ii) subject to paragraphs (b) and (c) of this Section 5.9, assume and be solely responsible for all assets, liabilities and obligations whatsoever under the UK Plans. (i) As soon as practicable following the Closing, but in no event later than required by applicable law (i) Parent or one of its affiliates shall have in effect a defined contribution plan (the "Parent DC Plan") and a defined benefit plan (the "Parent DB Plan"), each 36 of which shall fully comply with all applicable laws, (ii) Acquiror shall cause the UK DB Plan to transfer to the Parent DB Plan all of the assets and liabilities relating to each of the currently active employees of Parent and its affiliates who are not also Business Personnel (the "Remaining DB Participants") and (iii) Acquiror shall cause the UK DC Plan to transfer to the Parent DC Plan all of the assets and liabilities relating to each of the currently active employees of Parent and its affiliates who are not also Business Personnel (the "Remaining DC Participants"). (j) With respect to the transfer described in clause (iii) of paragraph (b) above, an amount of cash or property reasonably acceptable to the trustee of the Parent DC Plan shall be transferred which shall equal 100% of the account balances of the Remaining DC Participants as of the date of such transfer. With respect to the transfer described in clause (ii) of paragraph (b) above, an amount of cash or property reasonably acceptable to the trustee of the Parent DB Plan shall be transferred which shall equal the total fair market value of assets funded in the UK DB Plan as of the date of transfer, multiplied by the Pro Rata Fraction. The Pro Rata Fraction shall equal the total liabilities applicable to the Remaining DB Participants, divided by the total liabilities under the UK DB Plan, in each case as of the date of transfer. Further, the Pro Rata Fraction shall be determined (i) in a manner consistent with all applicable laws, and (ii) based upon accrued service and final pensionable pay at the date of transfer and, subject to the next sentence hereof, the actuarial assumptions and methods utilized in connection with the most recently completed actuarial valuation as of the date of transfer. If the actuary for the UK DB Plan and the actuary for the Parent DB Plan cannot agree on the reasonableness of the actuarial assumptions and methods to be used in connection with the determination of the Pro Rata Fraction, such reasonableness shall be determined by a third enrolled actuary selected by the parties hereto which determination shall be binding and final. The costs of such third actuary shall be borne equally by the parties. Nothing contained in the foregoing shall in any way adversely impact the accrued benefits or legal rights of any participant of the UK DB Plan. Immediately following the date hereof, the parties hereto shall work together in good faith to develop a reasonable and equitable method of valuation and transfer in respect of the foregoing and shall effectuate such transfers as soon as practicable. 5.10 No Solicitation. From and after the date hereof, neither Parent nor Holdings shall, and each shall cause each of the Transferred Companies not to, nor will they permit any of their respective Affiliates to, nor shall they authorize any officer, director, employee, investment banker, attorney or representative of Parent, Holdings or any of their Affiliates to, (a) directly or indirectly, solicit, initiate or encourage the submission of any proposal or offer from any Person other than Acquiror or its directors, officers, employees, Affiliates or representatives, (b) enter into or approve any agreement with respect to, or (c) directly or indirectly participate in any discussions or negotiations with, or provide any information to, any Person other than Acquiror or its directors, officers, employees, Affiliates or representatives, relating to any (i) merger, consolidation or other business combination involving the Business or any of the Transferred Companies, (ii) restructuring, recapitalization or liquidation of the Business or any of the Transferred Companies, or (iii) acquisition or disposition of any substantial portion of the assets of the Business or any of the Transferred 37 Companies or any of the securities of the Transferred Companies (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal"). 5.11 Indemnification. Following the Closing, Acquiror shall cause each of the Transferred Companies not to make any changes to its respective certificate or articles of incorporation or by-laws (or similar document) which would adversely affect the rights of Persons who are current or former officers and directors of the Transferred Companies, as applicable, to claim indemnification from such entity under the terms of such certificate or articles of incorporation or by-laws (or similar document) as in effect on the date hereof for acts taken prior to the Effective Time. Acquiror shall make, or cause the Transferred Companies to make, any payments required under such indemnification provisions relating to facts or circumstances occurring prior to the Effective Time. 5.12 Trademark License Agreements. It is understood and agreed that the Transferred Assets do not include, and Acquiror Sub shall not acquire direct or indirect ownership of, the items of intellectual property used in the Business and listed on Schedule VI hereto, which intellectual property is owned by Holdings (the "Retained Intellectual Property"). At the Closing, Holdings, on the one hand, and Acquiror and Acquiror Sub, on the other hand, shall enter into a license agreement with respect to the Retained Intellectual Property substantially in the form of Exhibit F hereto (the "Trademark License Agreement"). 5.13 Stockholders' Agreement and Registration Rights Agreement. At the Closing, Holdings, Acquiror and Acquiror Sub shall enter into (i) a stockholders' agreement, substantially in the form of Exhibit G hereto (the "Stockholders' Agreement"), and (ii) a registration rights agreement with respect to the shares of Acquiror Common Stock to be issued to Parent upon exchange of the Acquiror Class B Common Stock issuable upon conversion of the Acquiror Sub Series A Preferred Stock, substantially in the form of the existing registration rights agreement between Acquiror and Cendant. 5.14 Transition Services Agreement and IT Agreement. Parent, Holdings, Acquiror and Acquiror Sub shall use their reasonable best efforts to negotiate, on a good faith basis, the terms and conditions of (i) a transition services agreement which shall set forth the services to be provided between the Transferred Companies, on the one hand, and Parent and its Affiliates, on the other hand, as may reasonably be requested by Parent and/or Acquiror Sub, on a basis to be mutually agreed upon (the "Transition Services Agreement") and (ii) an Information Technology Services Agreement, to be mutually agreed upon (the "IT Agreement"). 5.15 Escrow Agreement. At the Closing, Acquiror, Acquiror Sub, Parent, Holdings and the Escrow Agent shall enter into an escrow agreement, substantially in the form of Exhibit H hereto (the "Escrow Agreement"). 5.16 Transitional License Agreement. Parent shall cause Cendant to grant to Acquiror and Acquiror Sub a limited license to use the marks CENDANT, CENDANT BUSINESS ANSWERS, the "C" logo and the other items of intellectual property set forth in 38 Section 5.16 of the Holdings Disclosure Schedule for the sole purpose of selling off or otherwise disposing of any existing inventory of products or business materials of the Business in the United Kingdom, which license shall commence at the Effective Time and end as soon as practicable, but in no event later than the first anniversary of the Effective Time or the disposal of all such existing inventory. At the Closing, Parent shall cause Cendant, on the one hand, and Acquiror and Acquiror Sub, on the other hand, to enter into a transitional license agreement substantially in the form of Exhibit I hereto (the "Transitional License Agreement"). 5.17 Intercompany Obligations; Affiliate Agreements. (a) Section 5.17(i) of the Holdings Disclosure Schedule lists all intercompany accounts, obligations (including indebtedness) and agreements between Holdings or any of its Affiliates (other than the Transferred Companies) on the one hand, and the Transferred Companies, on the other hand (the "Intercompany Agreements"). Except as set forth in Section 5.17(ii) of the Holdings Disclosure Schedule, as of the Effective Time, Holdings and the Transferred Companies shall cause all Intercompany Agreements to be terminated in all respects such that there is no cost or liability thereunder on the part of the Transferred Companies. (b) Notwithstanding subsection (a) or any other provision of this Agreement, but subject to the following sentence of this Section 5.17(b), all intercompany indebtedness between any of the Transferred Companies, on the one hand, and Parent, on the other hand, outstanding on the date hereof and not repaid prior to the Effective Time or incurred after the date hereof as permitted by Section 5.1(b)(x) and not repaid prior to the Effective Time, which in any event will not exceed, at the Effective Time, without the agreement of Acquiror, an aggregate of $425,000,000 (such amount collectively, the "Intercompany Indebtedness"), shall be repaid at the Effective Time pursuant to Section 2.3(b)(iii) hereof. From the date of this Agreement to the Effective Time, the amount of the Intercompany Indebtedness may be increased, either as permitted by Section 5.1(b)(x) or with the written consent of Acquiror, in connection with the operation of the Business, and any such increase shall be included in the amount of the Intercompany Indebtedness that is to be paid pursuant to Section 2.3(b)(iii) hereof to the extent such increased amount has not been repaid prior to the Effective Time. If Parent or Holdings requests in writing to increase the amount of the Intercompany Indebtedness in connection with operating the Business between the date of this Agreement and the Effective Time and Acquiror does not consent to such request within two (2) business days of receiving such request, neither Acquiror or Acquiror Sub shall have any right under this Agreement resulting or arising from or related to the failure of any Transferred Company to engage in, or continue, any transaction as a result of Acquiror's failure to consent to increase the amount of the Intercompany Indebtedness in connection with such transaction, including without limitation, any rights under Articles VII or IX hereof. Upon payment of the Intercompany Indebtedness as required by Section 2.3(b) (iii), Acquiror Sub and the Transferred Companies shall have no further obligations with respect to Intercompany Indebtedness and in any event shall have no obligations with respect to any other such intercompany indebtedness not included in the Intercompany Indebtedness. 39 (c) Acquiror shall use its commercially reasonable efforts to cause itself, Acquiror Sub or any other Affiliate of Acquiror to be substituted in all respects for Parent and/or Holdings, effective as of the Effective Time, in respect of all obligations of Parent and/or Holdings under each of the guaranties, letters of credit, letters of comfort and other obligations obtained by Parent and/or Holdings (including, without limitation, leases of real and personal property) that are listed on Section 5.17(c)(i) of the Disclosure Schedule for the benefit of the Business or any of the Transferred Companies or any extensions or modifications thereto in accordance with this Agreement (collectively, the "Guaranties"). If Acquiror and Acquiror Sub are unable to effect such a substitution with respect to any Guaranty after using all commercially reasonable efforts to do so, Acquiror and Acquiror Sub shall (a) obtain letters of credit for the benefit of Parent and/or Holdings, as applicable, on terms and from financial institutions reasonably satisfactory to Parent and Holdings, with respect to the obligations covered by each of those Guaranties listed on Section 5.17(c)(ii) of the Disclosure Schedule for which Acquiror and Acquiror Sub do not effect such substitution and (b) indemnify and hold harmless Parent and/or Holdings, as the case may be, from and against all obligations, liabilities, losses, claims, actions and causes of action incurred by or asserted against Parent and/or Holdings arising out of or relating to such Guaranties from and after the Effective Time. 5.18 Supplements to Disclosure Schedules. Holdings and Acquiror may supplement or amend the Holdings Disclosure Schedule and Acquiror Disclosure Schedule, respectively, prior to the Effective Time with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or otherwise disclosed therein (the "Updated Information"). No such supplement or amendment to include the Updated Information shall (i) affect the ability of Parent, Holdings, Acquiror or Acquiror Sub to rely on the conditions to Closing set forth in Sections 7.1 and 8.1, respectively, (ii) be deemed to have been set forth or otherwise disclosed as of the date of this Agreement unless the parties specifically agree thereto in writing or (iii) affect the ability of Parent, Holdings, Acquiror or Acquiror Sub to make any claim for indemnification or otherwise as a result of any breach of any representation or warranty. 5.19 Public Announcements. Prior to the Closing, except as otherwise agreed to by the parties, the parties and each of their respective Affiliates shall not issue any report, statement or press release or otherwise make any public statements with respect to this Agreement and the transactions contemplated hereby, except as in the reasonable judgment of a party or its Affiliate may be required by Law or in connection with their obligations as publicly-held, exchange-listed companies, in which case, the parties and each of their Affiliates will cooperate to reach mutual agreement as to the language of any such report, statement or press release. Immediately following the execution and delivery of this Agreement, Parent, Holdings and Acquiror are each issuing press releases to be mutually agreed upon with respect to this Agreement and the transactions contemplated hereby. 40 5.20 Non-Competition; Non-Solicitation. At the Closing, Parent, Holdings, Acquiror and Acquiror Sub shall enter into a non-competition and non-solicitation agreement, substantially in the form of Exhibit J hereto (the "Non-Competition Agreement"). 5.21 Preferred Alliance Agreements. Between the date hereof and the Closing Date, the parties shall use best efforts to negotiate in good faith and enter into preferred alliance agreements and such other joint marketing programs as the parties deem appropriate and desirable. 5.22 License Amendment Agreement. Between the date hereof and the Closing Date, the parties shall use commercially reasonable efforts to negotiate in good faith and enter into as of the Effective Time an amendment to the Master License Agreement, dated July 30, 1997, among Acquiror, Wizard Co., Inc. and Cendant Car Rental, Inc. (the "License Amendment Agreement") substantially on the terms set forth in a letter dated May 21, 1999 from Cendant Car Rental, Inc. to Acquiror. 5.23 No Other Representations. Acquiror and Acquiror Sub understand and acknowledge that, except for the representations and warranties contained in Article III hereof, none of Parent, Holdings or any other Person makes any representation or warranty, express or implied, on behalf of Parent, Holdings or any of their respective subsidiaries or Affiliates, including the Transferred Companies. ARTICLE VI TAX MATTERS 6.1 Tax Returns. Subject to Sections 6.1(g) and 6.5. (a) Parent or an Affiliate of Parent shall file or cause to be filed when due all Tax Returns that are required to be filed by or with respect to Holdings and each of the Transferred Companies for taxable years or periods ending on or before the Closing Date and Parent or an Affiliate of Parent shall remit (or cause to be remitted), subject to Section 6.2(a) below, any Taxes due in respect of such Tax Returns and, with respect to recurring items, such returns shall be prepared in a manner consistent with past practices to the extent permissible under applicable Laws. Acquiror shall pay to Parent any Excluded Taxes in respect of such Tax Returns. (b) Acquiror shall file or cause to be filed when due all Tax Returns that are required to be filed by or with respect to the Acquiror Sub Surviving Corporation and each of the Transferred Companies for taxable years or periods ending after the Closing Date (including Straddle Periods (as hereinafter defined)) and Acquiror shall remit (or cause to be remitted) any Taxes due in respect of such Tax Returns. (c) Any Tax Return required to be filed by Acquiror with respect to the Transferred Companies relating to any taxable year or period beginning on or before and 41 ending after the Closing Date (the "Straddle Period") shall be submitted (with copies of any relevant schedules, work papers and other documentation then available) to Parent for Parent's approval not less than 30 days prior to the due date for the filing of such Tax Return, which approval shall not be unreasonably withheld or delayed. Parent shall have the option of providing to Acquiror, at any time at least 15 days prior to the Due Date (as hereinafter defined), written instructions as to how Parent wants any, or all, of the items for which it may be liable reflected on such Tax Return. Acquiror shall, in preparing such Tax Return, cause the items for which Parent is liable hereunder to be reflected in accordance with Parent's instructions (unless, in the opinion of nationally recognized tax counsel to Acquiror, complying with the Parent's instructions would likely subject Acquiror to any criminal penalty or to civil penalties under sections 6662 through 6664 of the Code or similar provisions of applicable state, local or foreign Laws) and, in the absence of having received such instructions, in accordance with past practice, if any, to the extent permissible under applicable Law. (d) Subject to Section 6.1(c), Parent shall pay to Acquiror the Taxes for which Parent is liable pursuant to Section 6.2(a)(ii) but which are payable with any Tax Return to be filed by Acquiror with respect to any Straddle Period upon the written request of Acquiror, setting forth in detail the computation of the amount owed, no later than 5 days prior to the Due Date. (e) Within 120 days after the Closing Date, Acquiror shall cause the Acquiror Sub Surviving Corporation to prepare and provide to Parent a package of Tax information materials, including, without limitation, schedules and work papers (the "Tax Package") required by Parent or an Affiliate of Parent to enable Parent or an Affiliate of Parent to prepare and file all Tax Returns required to be prepared and filed by it pursuant to Section 6.1(a). The Tax Package shall be prepared in good faith in a manner consistent with past practice. (f) Parent or an Affiliate of Parent may, in its sole and absolute discretion, amend any Tax Return filed or required to be filed for any taxable years or periods ending on or before the Closing Date; provided, however, that neither Parent nor any Affiliate of Parent shall amend any such Tax Return that materially and adversely affects or may materially and adversely affect the Tax liability of the Acquiror, Acquiror Sub Surviving Corporation or any of the Transferred Companies or any Affiliate of the foregoing for any period ending after the Closing Date, including the portion of any Straddle Period that is after the Closing Date, without the prior consent of the Acquiror, which consent shall not be unreasonably withheld or delayed. (g) Notwithstanding anything to the contrary contained in this Section 6.1, Parent shall file or cause to be filed any Forms 5471 with respect to any of the Transferred Companies (that are incorporated in a foreign jurisdiction) that are required to be filed for any taxable period that ends on or before, or that includes, the Closing Date. 42 6.2 Indemnification. (a) Parent shall indemnify, defend and hold Acquiror and Acquiror's subsidiaries and Affiliates and the successors to the foregoing (and their respective shareholders, officers, directors, employees and agents) harmless on an after-Tax basis (subject to Section 6.13) from and against the following (net of the amount of any Tax Benefit (as hereinafter defined) Actually Realized (as hereinafter defined) by Acquiror, the Acquiror Sub Surviving Corporation or any of the Transferred Companies as a result of the payment or accrual of any of the following: (i) any liability for Taxes of or attributable to Holdings or any of the Transferred Companies as members of the "affiliated group" (within the meaning of Section 1504(a) of the Code) of which Cendant (or any predecessor or successor) is the common parent that arises under Treasury Regulation Section 1.1502-6(a) or comparable provisions of foreign, state or local Law; and (ii) any liability for Taxes of or attributable to Holdings or any of the Transferred Companies for any taxable year or period that ends on or before the Closing Date ("Pre-Closing Period") and, with respect to any Straddle Period, the portion of such Straddle Period deemed to end on and include the Closing Date (in the manner set forth in Section 6.3(a)); provided, however, that Parent shall not be liable for and shall not indemnify Acquiror (and its subsidiaries and Affiliates) for (A) any liability for Taxes resulting from transactions or actions taken by Acquiror, Acquiror Sub or any of the Transferred Companies on the Closing Date that are taken after the Closing, except for transactions or actions undertaken in the ordinary course of business; (B) any Taxes that result from an actual or deemed election under Section 338 of the Code (or any similar provisions of state, local or other Law) with respect to any of the Transferred Companies in connection with any of the transactions contemplated by this Agreement; and (C) any Transfer Taxes (as hereinafter defined) for which Acquiror is liable pursuant to Section 6.5 hereof (collectively, the Taxes described in (A) through (C) above are referred to hereinafter as "Excluded Taxes"). (b) Acquiror shall indemnify and hold Parent and Parent's subsidiaries and Affiliates (including Cendant) harmless from and against (net of the amount of any Tax Benefit Actually Realized by Parent or its subsidiaries or Affiliates as a result of the payment or accrual of any of the following): (i) Taxes of or attributable to the Acquiror Sub Surviving Corporation or any of the Transferred Companies for any taxable year or period that begins after the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period beginning after the Closing Date (in the manner set forth in Section 6.3(a)); and (ii) Excluded Taxes. 43 6.3 Computation of Tax Liabilities. (a) To the extent permitted or required by Law or administrative practice, (i) the taxable year of Holdings and each of the Transferred Companies that includes the Closing Date shall be treated as closing on (and including) the Closing Date and, notwithstanding the foregoing, (ii) all transactions of or with respect to the Acquiror Sub Surviving Corporation or any of the Transferred Companies not in the ordinary course of business occurring after the Closing shall be reported on Acquiror's or the Acquiror Sub Surviving Corporation's consolidated United States federal income Tax Return to the extent permitted by Treasury Regulation Section 1.1502-76(b)(1)(ii)(B) and shall be similarly reported on other Tax Returns of Acquiror or its Affiliates to the extent permitted by Law. For purposes of Section 6.2(a) and (b), where it is necessary to apportion between Parent and Acquiror the Tax liability of an entity for a Straddle Period (which is not treated under the immediately preceding sentence as closing on the Closing Date), such liability shall be apportioned between the period deemed to end at the close of the Closing Date, subject to Sections 6.2(a) and 6.3(a)(ii), and the period deemed to begin at the beginning of the day following the Closing Date on the basis of an interim closing of the books, except that Taxes (such as real property Taxes) imposed on a periodic basis shall be allocated on a daily basis; provided, however, that if the capital structure of an entity is changed after the Closing Date, the Tax liability of the entity for a Straddle Period apportioned to the period deemed to end at the close of the Closing Date shall not exceed the Tax liability which would have been due if the Tax liability had been calculated as of such date, based on the income, assets, capital, liability and other attributes of the entity on the Closing Date. (b) In determining Parent's liability for Taxes pursuant to this Agreement, Parent shall be credited with the amount of estimated Taxes paid by or on behalf of Holdings or any of the Transferred Companies prior to the Closing. To the extent that Parent's liability for Taxes for a taxable year or period is less than the amount of estimated income Taxes previously paid by or on behalf of Holdings or any of the Transferred Companies with respect to all or a portion of such taxable year or period, Acquiror shall pay Parent the difference within two days of the earlier of (i) the receipt of a refund relating to such overpayment or (ii) the filing of a Tax Return in which a credit attributable to such overpayment is utilized. 6.4 Contest Provisions. (a) Each of Acquiror, on the one hand, and Parent, on the other hand (the "Recipient"), shall notify the chief tax officer of the other party in writing within 15 days of receipt by the Recipient of written notice of any pending or threatened audits, notice of deficiency, proposed adjustment, assessment, examination or other administrative or court proceeding, suit, dispute or other claim (a "Tax Claim") which could affect the liability for Taxes of such other party. If the Recipient fails to give such prompt notice to the other party it shall not be entitled to indemnification for any Taxes arising in connection with such Tax Claim if and to the extent that such failure to give notice materially and adversely affects the other party's right to participate in the Tax Claim. 44 (b) Parent shall have the sole right to represent Holdings for any taxable period, and shall have the sole right to represent any of the Transferred Companies' interests in any Tax Claim relating to taxable periods ending on or before the Closing Date and to employ counsel of its choice at its expense. Parent or any Affiliate of Parent may not settle or otherwise dispose of any Tax Claim of any of the Transferred Companies relating to such periods if such settlement or disposition materially and adversely affects or may materially and adversely affect the Tax liability of the Acquiror, Acquiror Sub Surviving Corporation or any of the Transferred Companies or any Affiliate of the foregoing without the prior written consent of Acquiror, which consent may not be unreasonably withheld or delayed. In the case of a Straddle Period, Parent shall be entitled to provide comments which shall be considered in good faith with respect to any Tax Claim relating in any part to Taxes attributable to the portion of such Straddle Period deemed to end on or before the Closing Date and, with the written consent of Acquiror, at Parent's sole expense, may assume the control of such entire Tax Claim. None of Acquiror, any of its Affiliates, the Acquiror Sub Surviving Corporation or the Transferred Companies may settle or otherwise dispose of any Tax Claim with respect to any Straddle Period for which Parent may have a liability under this Agreement without the prior written consent of Parent, which consent may not be unreasonably withheld or delayed. (c) Acquiror shall have the sole right to control any audit or examination by any taxing authority, initiate any claim for refund or amend any Return, and contest, resolve and defend against any assessment for additional Taxes, notice of Tax deficiency or other adjustment of Taxes of, or relating to, the income, assets or operations of the Transferred Companies for all taxable periods beginning after the Closing Date ("Post-Closing Period"); provided, however, that Acquiror shall not initiate any such claim for refund or amend any such Tax Return or settle or dispose of any Tax Claim with respect to a Post-Closing Period if such claim for refund, amendment, settlement, or disposition materially and adversely affects or may materially and adversely affect the Tax liability of Cendant, Parent, Holdings or any of its Affiliates, without the prior written consent of Parent, which consent shall not be unreasonably withheld or delayed. 6.5 Transfer Taxes. All excise, sales, use, privilege, transfer (including real property transfer or gains), stamp, documentary, filing, recordation, value added, bulk sales and other similar taxes, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties, arising out of or in connection with or attributable to the transactions contemplated by this Agreement (collectively, "Transfer Taxes"), shall be borne one half Acquiror and one half by Parent. Notwithstanding Section 6.1 of this Agreement, which shall not apply to Tax Returns relating to Transfer Taxes, any Tax Returns that must be filed in connection with Transfer Taxes shall be prepared and filed when due by the party primarily or customarily responsible under the applicable local Law for filing such Tax Returns, and such party shall pay the Transfer Taxes shown to be due on such Tax Return, and notify the other party in writing of the Transfer Taxes shown to be due on such Tax Return and how such Transfer Taxes were calculated, and if the other party is Acquiror, Acquiror shall, or 45 shall cause the Acquiror Sub Surviving Corporation to, reimburse Parent in immediately available funds within 10 days of the receipt of such notice. 6.6 Refunds. (a) Any Tax refund (including any interest in respect thereof) received by Acquiror, the Acquiror Sub Surviving Corporation or any Transferred Company, and any amounts of overpayments of Tax credited against Tax which Acquiror, the Acquiror Sub Surviving Corporation or any of the Transferred Companies otherwise would be or would have been required to pay that relate to any taxable period, or portion thereof, ending on or before the Closing Date shall be for the account of Parent, and Acquiror shall pay over to Parent any such refund or the amount of any such credit within 15 days after receipt or entitlement thereto. Acquiror shall pay Parent interest at the rate prescribed under Section 6621(a)(1) of the Code, compounded daily, on any amount not paid when due under this Section 6.6. For purposes of this Section 6.6, where it is necessary to apportion a refund or credit between Acquiror and Parent for a Straddle Period, such refund or credit shall be apportioned between the period deemed to end at the close of the Closing Date, and the period deemed to begin at the beginning of the day following the Closing Date on the basis of an interim closing of the Company's books, except that refunds or credits of Taxes (e.g., real property Taxes) imposed on a periodic basis shall be allocated on a daily basis. (b) Acquiror shall cooperate, and shall cause the Acquiror Sub Surviving Corporation and any of the Transferred Companies to cooperate, in obtaining any refund that Parent reasonably believes should be available with respect to Pre-Closing Periods, including, without limitation, through filing a Form 1139 or other appropriate form with the applicable taxing authorities; provided, however, that Acquiror and Acquiror Sub Surviving Corporation and any of the Transferred Companies shall not be obligated to carry back any Tax attribute of a Post-Closing Period to a Pre-Closing Period. 6.7 Certain Post-Closing Settlement Payments. (a) If the examination of any Federal, state, local or other Tax Return of Cendant, Parent, Holdings, or any of the Transferred Companies for any taxable period ending on or before the Closing Date, the pre-closing portion of any Straddle Period or for any taxable year in which the Merger occurs, shall result (by settlement or otherwise) in any adjustment which permits Acquiror, the Acquiror Sub Surviving Corporation or any of the Transferred Companies or any Affiliate thereof to increase deductions, losses or tax credits or decrease the income, gains or recapture of tax credits which would otherwise (but for such adjustments) have been reported or taken into account (including by way of any increase in basis) by Acquiror, the Acquiror Sub Surviving Corporation or any of the Transferred Companies or any Affiliate thereof for one or more periods ending after the Closing Date, in each case in respect of the Transferred Assets, Parent will notify Acquiror and provide it with adequate information so that Acquiror (or its Affiliates), the Acquiror Sub Surviving Corporation or any of the Transferred Companies or any Affiliate thereof, as the case may be, can reflect on its Tax Returns such 46 increases in deductions, losses or tax credits or decreases in income (including by way of increase in basis), gains or recapture of tax credits. Upon receipt of such information and upon the reasonable request of Parent, Acquiror (or its Affiliates), the Acquiror Sub Surviving Corporation or any of the Transferred Companies, as the case may be, shall reflect on its Tax Returns (including amended Tax Returns) the information provided above. Acquiror shall pay to Holdings the amount of any resulting Tax Benefits Actually Realized by the Acquiror, the Acquiror Sub Surviving Corporation or any of the Transferred Companies (or any of their respective Affiliates). (b) If the examination of any Federal, state, local or other Tax Return of Acquiror, the Acquiror Sub Surviving Corporation or any of the Transferred Companies for any taxable period beginning and ending after the Closing Date or the post-closing portion of any Straddle Period shall result (by settlement or otherwise) in any adjustment which permits Parent (or its Affiliates) to increase deductions, losses or tax credits or decrease the income, gains or recapture of tax credits which would otherwise (but for such adjustments) have been reported or taken into account (including by way of any increase in basis) by Parent (or its Affiliates) for one or more periods ending on or before the Closing Date, in each case in respect of the Transferred Assets, Acquiror will notify Parent and provide it with adequate information so that Parent can reflect on its or its Affiliates' Tax Returns (including amended Tax Returns) such increases in deductions, losses or tax credits or decreases in income, gains or recapture of tax credits. Upon receipt of such information, and upon the reasonable request of Acquiror, Parent (or its Affiliates) shall reflect on its tax returns the information provided above. Parent shall pay to Acquiror the amount of any resulting Tax Benefits Actually Realized by Parent (or any of its Affiliates). (c) Upon (A) the exercise of a Cendant Option by an employee or former employee of any of the Transferred Companies and the payment of cash or other property by Cendant (or its designated agent) to the holder of the Cendant Option or (B) the payment by Holdings of any amount with respect to the Holdings Plan, as described in Section 5.9, Acquiror shall pay or cause the Acquiror Sub Surviving Corporation or any of the Transferred Companies to pay, as the case may be, to Holdings the amount of any Tax Benefit Actually Realized by Acquiror, Acquiror Sub Surviving Corporation or any of the Transferred Companies (or any of their respective Affiliates) attributable to any exercise or payment described in this Section 6.7(c). (d) Prior to the Closing Date, Acquiror and Holdings shall negotiate and draft a schedule (the "Allocation Schedule") allocating the Merger Consideration among the Transferred Assets. Upon completion of the Allocation Schedule, each of the Acquiror and Holdings shall execute a copy thereof and return such copy to the other party. For all purposes (including tax and accounting), the parties shall treat the fair market value of the Transferred Assets as set forth in the Allocation Schedule. (e) For purposes of this Agreement, "Tax Benefit" shall mean the sum of the amount by which the actual Tax liability (after giving effect to any alternative minimum or 47 similar Tax) of a corporation to the appropriate taxing authority is reduced (including, without limitation, by or as a result of a deduction, increase in basis, entitlement to refund, credit or otherwise, whether available in the current taxable year, as an adjustment to the taxable income in any other taxable year or as a carryforward or carryback, as applicable) plus any interest (on an after-Tax basis) from such government or jurisdiction relating to such Tax liability. For purposes of this Agreement, a Tax Benefit shall be deemed to have been "Actually Realized" at the time any refund of Taxes is actually received or applied against other Taxes due, or at the time of the filing of a Tax Return (including any Tax Return relating to estimated Taxes) on which a loss, deduction or credit or increase in basis is applied to reduce the amount of Taxes which would otherwise be payable. In accordance with the provisions of this paragraph (e), Acquiror and Parent agree that for purposes of this Agreement, where a Tax Benefit may be realized that may result in the payment to, or reduce a payment by, the other party hereto, each party will as promptly as practicable take or cause its Affiliates to take such reasonable or appropriate steps (including, without limitation, the filing of an amended Tax Return or claim for refund) to obtain at the earliest possible time any such reasonable available Tax Benefit. (f) For purposes of any Tax Benefit Actually Realized determined under Section 6.7(e) and this Agreement: (i) No later than 45 days after the filing of a Tax Return for any taxable period that includes a date (x) upon which any Cendant Option was exercised or any payment was made or accrued with respect to or in connection with the Holdings Plan, as described in Section 5.9, (y) after the Closing Date if there has been an examination of any federal, state, local or other Tax Return of Cendant, Holdings or any of the Transferred Companies (or any of their respective Affiliates) which results in an adjustment described in Section 6.7(a) of this Agreement or (z) upon which any amount was paid or accrued by Acquiror, the Acquiror Sub Surviving Corporation or the Transferred Companies in respect of a claim for which Parent is required to indemnify Acquiror pursuant to this Agreement, Acquiror shall provide Parent a detailed statement ("Tax Benefit Statement") specifying the amount, if any, of any Tax Benefit that was Actually Realized by Acquiror, the Acquiror Sub Surviving Corporation or the Transferred Companies for such Tax period. To the extent that any deductions or other Tax items (including basis) that could give rise to a Tax reduction or savings do not result in the actual realization of such a Tax reduction or savings in the year described in the previous sentence, this Section 6.7(f)(i) shall apply to each subsequent taxable period of Acquiror, the Acquiror Sub Surviving Corporation or the Transferred Companies, as the case may be, until either such Tax savings are Actually Realized (resulting in a Tax Benefit) or the losses or other carryforwards to which such deductions or other Tax items (including basis) gave rise expire unused, if applicable. For each relevant taxable period, Parent shall be provided with full access to the non-proprietary work papers and other materials and information of Acquiror's (or the Acquiror Sub Surviving Corporation's or the Transferred Companies') accountants in connection with the review of the Tax Benefit Statement. If Parent disagrees in any respect with Acquiror's computation of the amount of the Tax Benefit Actually Realized, Parent may, on or prior to 45 days after the receipt of the Tax Benefit Statement from Acquiror, deliver a notice to Acquiror or the Acquiror Sub Surviving Corporation setting forth in reasonable detail the basis 48 for Parent's disagreement therewith ("Tax Benefit Dispute Notice"). If no Tax Benefit Dispute Notice is received by Acquiror or the Acquiror Sub Surviving Corporation on or prior to the 45th day after Parent's receipt of the Tax Benefit Statement from Acquiror, the Tax Benefit Statement shall be deemed accepted by Parent. (ii) Within 15 days after Acquiror's receipt of a Tax Benefit Dispute Notice, unless the matters in the Tax Benefit Dispute Notice have otherwise been resolved by mutual agreement of the parties, Acquiror and Parent shall jointly select a nationally-recognized independent certified public accountant (the "Tax Benefit Accountant"); provided, however, if Acquiror and Parent are unable to agree upon the Tax Benefit Accountant within such 15-day period, then Acquiror and Parent shall each select a nationally-recognized independent certified public accountant which shall then jointly choose the Tax Benefit Accountant within 15 days thereafter. The Tax Benefit Accountant shall conduct such review of the work papers and such other materials and information, and the Tax Benefit Dispute Notice, and any supporting documentation as the Tax Benefit Accountant in its sole discretion deems necessary, and the Tax Benefit Accountant shall conduct such hearings or hear such presentations by the parties or obtain such other information as the Tax Benefit Accountant in its sole discretion deems necessary. (iii) The Tax Benefit Accountant shall, as promptly as practicable and in no event later than 45 days following the date of its retention, deliver to Parent and Acquiror a report (the "Tax Benefit Report") in which the Tax Benefit Accountant shall, after reviewing disputed items set forth in the Tax Benefit Dispute Notice, determine what adjustments, if any, should be made to the amount of the Tax Benefit Actually Realized. The Tax Benefit Report shall set forth, in reasonable detail, the Tax Benefit Accountant's determination with respect to the disputed items or amounts specified in the Tax Benefit Dispute Notice, and the revisions, if any, to be made to the amount of the Tax Benefit Actually Realized, together with supporting calculations. All fees and expenses relating to this work of the Tax Benefit Accountant shall be borne equally by Acquiror and Parent. The Tax Benefit Report shall be final and binding upon Acquiror and Parent, shall be deemed a final arbitration award that is binding on each of Acquiror and Parent, and no party shall seek further recourse to courts, other arbitral tribunals or otherwise. The amount, if any, of the Tax Benefit Actually Realized set forth in the Tax Benefit Report shall, in accordance with the provisions of this Section 6.7, be paid to Parent in immediately available funds no later than five days after delivery of the Tax Benefit Report to Acquiror. (g) In the event that, after the Closing Date, there is a sale, exchange, transfer or other disposition ("Disposition") of (i) the common stock of Acquiror Sub Surviving Corporation to a Person other than Acquiror or a subsidiary thereof, (i) any material assets of Acquiror Sub Surviving Corporation or (ii) any material Transferred Asset, which Disposition would materially and adversely affect the Tax Benefits Actually Realized that are then or thereafter payable to Parent by Acquiror pursuant to this Agreement, Acquiror shall make appropriate arrangements, reasonably satisfactory to Parent, to ensure that Parent is paid any Tax Benefits Actually Realized that Parent would have been entitled to be paid, consistent with the 49 principles of this Agreement, absent such Disposition, it being agreed that projections of income attributable to the property subject to such Disposition that are reasonably satisfactory to Parent and Acquiror may be used in making determinations hereunder as to Tax Benefits Actually Realized that become due. 6.8 Tax-Free Reorganization Covenants; Other Covenants. (a) Following the Merger, the Acquiror Sub Surviving Corporation shall, and Acquiror shall cause the Acquiror Sub Surviving Corporation and the Transferred Companies to, continue the historic business of the Business or use a significant portion of the Business' historic business assets in a business, in each case, within the meaning of Section 1.368-1(d) of the Treasury Regulations. (b) Acquiror and the Acquiror Sub Surviving Corporation do not have a current plan or intention to sell or otherwise dispose of the Transferred Assets or the assets of the Transferred Companies, except for dispositions made in the ordinary course of business or transfers described in Section 368(a)(2)(C) of the Code. (c) For a two-year period following the date of the Merger, the Acquiror Sub Surviving Corporation shall, and Acquiror shall cause the Acquiror Sub Surviving Corporation to, remain incorporated in the state of Texas. (d) Absent a Final Determination to the contrary, the Acquiror Sub Surviving Corporation shall, and Acquiror shall cause the Acquiror Sub Surviving Corporation and the Transferred Companies to, (A) report the Merger on its Tax Returns as a tax-free reorganization described in Section 368(a) of the Code, (B) treat the Merger as being a tax-free reorganization under Section 368(a) of the Code for all other purposes and (C) not take any action that is inconsistent with the treatment of the Merger as a tax-free reorganization under Section 368(a) of the Code. Acquiror shall, and shall cause the Acquiror Sub Surviving Corporation and the Transferred Companies to, provide commercially reasonable cooperation to Parent, Cendant and their Affiliates and representatives with respect to all reasonable requests relating to supporting and defending the qualification of the Merger as a reorganization described in Section 368(a) of the Code, including, but not limited to, preparing responses to information requests by a Tax Authority and making available books, records and other documentation during normal business hours. For purposes of this Agreement, "Final Determination" shall mean (i) the entry of a decision of a court of competent jurisdiction at such time as an appeal may no longer be taken from such decision or (ii) the execution of a closing agreement or its equivalent between the particular taxpayer and the relevant taxing authority. (e) Acquiror, Acquiror Sub, Holdings and Parent acknowledge and agree that, pursuant to Section 381 of the Code, and subject to other applicable limitations (including, without limitation, Sections 382 and 383 of the Code and the separate return limitation year rules of the consolidated return regulations), the Acquiror Sub Surviving 50 Corporation shall succeed to and take into account the items of Holdings described in Section 381(c) of the Code. 6.9 Resolution of All Tax-Related Disputes. In the event that Parent and Acquiror cannot agree on the calculation of any amount relating to Taxes or the interpretation or application of any provision of this Agreement relating to Taxes (except as provided in Section 6.7(e)), such dispute shall be resolved by a nationally recognized accounting firm mutually acceptable to each of Parent and Acquiror, whose decision shall be final and binding upon all persons involved and whose expenses shall be shared equally by Parent and Acquiror. 6.10 Post-Closing Actions Which Affect Cendant's Liability for Taxes. (a) Acquiror shall not, and shall not permit the Acquiror Sub Surviving Corporation or any of the Transferred Companies to, engage in any transaction on the Closing Date or take any action on the Closing Date that are taken after the Closing, except for transactions or actions undertaken in the ordinary course of business which could increase Parent's (or any Affiliate of Parent's) liability for Taxes (including any liability of Parent to indemnify Acquiror for Taxes pursuant to this Agreement). (b) None of Acquiror, the Acquiror Sub Surviving Corporation or any Affiliate of Acquiror shall (or shall cause or permit any of the Transferred Companies to) amend, refile or otherwise modify any Tax Return relating in whole or in part to any of the Transferred Companies with respect to any taxable year or period ending on or before the Closing Date (or with respect to any Straddle Period) without the prior written consent of Parent, which consent may not be unreasonably withheld. 6.11 Termination of Existing Tax Sharing Agreements. Any and all existing Tax sharing allocation, indemnification or similar agreements or arrangements, written or unwritten, between the Transferred Companies and Parent or any of its subsidiaries, predecessors or Affiliates (other than any of the Transferred Companies), shall be terminated as of the Closing and there shall be no continuing obligation to make any payments thereunder. 6.12 Assistance and Cooperation. After the Closing Date, each of Parent and Acquiror shall, upon request from the other (and shall cause their respective Affiliates to): (a) subject to Section 6.5, timely sign and deliver such certificates or forms as may be reasonably necessary or appropriate to establish an exemption from (or otherwise reduce), or file Tax Returns or other reports with respect to Transfer Taxes; (b) assist the other party in preparing any Tax Returns which such other party is responsible for preparing and filing in accordance with Section 6.1; (c) cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding, any Tax Returns of the Transferred Companies; 51 (d) make available to the other and to any taxing authority as reasonably requested in connection with any Tax Return described in Section 6.1 or any proceeding described in Section 6.4, all information relating to any Taxes or Tax Returns of the Transferred Companies; and (e) furnish the other with copies of all correspondence received from any taxing authority in connection with any Tax audit or information request with respect to any such taxable period. Notwithstanding the foregoing or any other provision in this Agreement, neither Acquiror nor any of its Affiliates shall have the right to receive or obtain any information relating to Taxes of Parent (or any Affiliate of Parent), or any of its predecessors other than information relating solely to Holdings or the Transferred Companies for Pre-Closing Periods. 6.13 Adjustment to Merger Consideration. (a) Subject to 6.13(b), for all Tax purposes, to the extent permitted by applicable law, any payment by Acquiror or Parent under this Agreement shall be treated as an adjustment to the consideration payable upon consummation of the Merger. (b) If the Internal Revenue Service (the "IRS") (or similar taxing authority) issues a written notice of proposed adjustment (an "Adjustment Notice") (or similar notice) with respect to characterization of an indemnity payment as a Purchase Price adjustment (the "Characterization Issue"), the Acquiror shall notify Parent as soon as practicable but no later than ten business days after the Acquiror's (or any of its Affiliates) receipt of such Adjustment Notice. In the event of any IRS or other proceedings related to a Characterization Issue, Acquiror shall permit Parent to provide comments which shall be considered in good faith (solely with respect to the Characterization Issue), provided, however, that Acquiror shall control all such proceedings. At its sole option, Acquiror may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the IRS in respect of a Characterization Issue and shall be entitled to settle or contest such Characterization Issue, as the case may be; provided, however, that if Parent elects by written notice to Acquiror to fund Acquiror's reasonable expenses with respect to any IRS or other proceeding, Acquiror shall use reasonable commercial efforts to uphold the characterization of the indemnity payment as an adjustment to the Purchase Price, but shall not be required to litigate such treatment unless Parent provides Acquiror with a written opinion of counsel selected by Parent, but reasonably acceptable to Acquiror, that the characterization of the indemnity payment will more likely than not be treated as an adjustment to the Purchase Price. If and to the extent that the treatment of an indemnification payment as an adjustment to the Purchase Price is finally determined to be erroneous pursuant to this Section 6.13, the indemnifying party shall be required to pay to the indemnified party the liability for any Taxes incurred by the indemnified party as a result of the receipt of the indemnity payment. 52 6.14 Certain Definitions. For purposes of this Agreement, "Due Date" shall mean, with respect to any Tax Return, the date such return is due to be filed (taking into account any valid extensions); "Tax" or "Taxes" shall mean taxes (other than those taxes described in Section 6.5 hereof) of any kind, levies or other like assessments, customs, duties, imposts, charges or fees, and shall include any Tax liability for such amounts as a result of either being a member of a combined, consolidated, unitary or affiliated group or of a contractual obligation to indemnify any Person for Taxes, including, without limitation, income, franchise, gross receipts, ad valorem, value added, excise, real or property, asset, sales, use, license, payroll, transaction, capital, net worth, withholding, estimated, social security, utility, workers' compensation, severance, production, unemployment compensation, occupation, premium, windfall profits, transfer and gains taxes or other governmental taxes imposed or payable to the United States, or any state, county, local or foreign government or subdivision or agency thereof, together with any interest, penalties or additions with respect thereto and any interest in respect of such additions or penalties; and "Tax Returns" shall mean all returns, reports, statements, declarations, estimates and forms or other documents (including any related or supporting information), required to be filed with respect to any Taxes. 6.15 Cendant Options; Holdings Plan. (a) Promptly after an exercise of a Cendant Option, Parent (or an Affiliate of Parent) shall provide the Acquiror Sub Surviving Corporation with a report detailing such exercise. On a monthly basis, Parent (or an Affiliate of Parent) shall pay over to the Acquiror Sub Surviving Corporation the amount of all withholding taxes (the "Withholding Taxes") required to be collected by Cendant under applicable law and one-half of the amount of all Employment Taxes (as defined below) required to be paid under applicable law, in each case, in respect of the exercise of such Cendant Options in the preceding calendar month and shall provide a report (the "Tax Report") confirming the exercises occurring during such calendar month. With respect to all Cendant Options outstanding as of the Closing Date held by Affected Employees holding Cendant Options as of the Closing Date ("Optionholders"), so long as an Optionholder continues to be employed by a Transferred Company or other Affiliate of Acquiror, the Cendant Options held by such Optionholder shall continue to vest in accordance with their stated terms without regard to the termination of employment provisions of such Cendant Options, and such Cendant Options shall remain exercisable until the earliest to occur of (i) the date that is one year after the date on which such Cendant Option becomes vested in full, (ii) the date which is one year after the termination of the Optionholder's employment with a Transferred Company or other Affiliate of Acquiror, or (iii) the original expiration date of such Cendant Option. Following the Closing, Acquiror shall deliver, or cause to be delivered to Cendant, (i) on not less than a quarterly basis updated personnel records of all Optionholders (which records shall include address and name change information, work location, and any other information relevant to the withholding of Taxes, and (ii) not less frequently than each pay period, names and dates of termination of employment of Optionholders who terminated employment with the Transferred Companies or other Affiliate of Acquiror during the preceding pay period. 53 (b) Acquiror shall cause the Acquiror Sub Surviving Corporation or any of the Transferred Companies, as the case may be, to pay to the proper Governmental Entity (A) all Withholding Taxes and Employment Taxes received from Parent (or its Affiliate) pursuant to Section 6.15(a) and (B) one-half of the amount of any FICA or FUTA Tax (or any similar employment Taxes required under state or local law) ("Employment Taxes") required to be paid with respect to the exercise of any Cendant Options and (c) all Employment Taxes received from Parent (and its Affiliate) pursuant to Section 6.15(d). In addition, in connection with any payment by the Acquiror , the Acquiror Sub Surviving Corporation or any of the Transferred Companies of any amount with respect to the Holdings Plan, the Acquiror Sub Surviving Corporation or any of the Transferred Companies, as the case may be, shall (A) withhold the Withholding Taxes required to be withheld under applicable Law and pay such Withholding Taxes to the proper Governmental Entity and (B) pay to the proper Governmental Entity one-half of the amount of any Employment Taxes that are required to be paid under applicable Law. Acquiror shall cause the Acquiror Sub Surviving Corporation or any of the Transferred Companies, as the case may be, to (A) prepare and file any Tax Returns required to be filed in connection with Withholding Taxes and Employment Taxes within the time and manner prescribed by applicable Law and (B) prepare and provide to persons who exercised such Cendant Options or received payments with respect to the Holdings Plan, any statement, form or other document required to be provided under applicable Law. (c) Unless otherwise required by applicable Law, the parties to this Agreement shall treat, with respect to any payment described in Section 6.15(a) or (b), any amount that is required to be included in the gross income of the holder of any Cendant Option, or a person who receives a payment pursuant to the Holdings Plan, as an amount that may be properly deductible by the Acquiror Sub Surviving Corporation or any of the Transferred Companies, as the case may be, after the Closing Date. (d) In connection with any payment by the Acquiror, the Acquiror Sub Surviving Corporation or any of the Transferred Companies of any amount with respect to the Holdings Plan, Acquiror shall, within a reasonable period prior to the time that Employment Taxes with respect to any such payments are due, provide Parent with sufficient information to enable Parent to determine the total amount of Employment Taxes required to be paid under applicable law. As promptly as practicable after receipt of such information, Parent shall pay over to the Acquiror Sub Surviving Corporation one-half of the amount of all Employment Taxes in respect of any such payments. ARTICLE VII CONDITIONS TO ACQUIROR'S AND ACQUIROR SUB'S OBLIGATIONS The obligation of Acquiror and Acquiror Sub under this Agreement to consummate the transactions contemplated hereby shall be subject to the satisfaction of each of the following conditions, unless waived in writing by Acquiror: 54 7.1 Representations and Warranties. The representations and warranties of Parent and Holdings contained in this Agreement shall be true and correct as of the date hereof and as of the Closing Date as though such representations and warranties were made at and as of such date (except that representations and warranties given as of a specific date need be true and correct only as of such date), except where the failure of such representations and warranties to be so true and correct has not had, and is not likely to have, individually or in the aggregate, a Material Adverse Effect on the Business (disregarding for this purpose any qualification as to materiality or Material Adverse Effect on the Business contained in such representations and warranties). 7.2 Performance. Parent and Holdings shall have performed and complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date. 7.3 No Injunction. No court of competent jurisdiction shall have issued any order, decree or ruling, and there shall not be any statute, rule or regulation, enjoining or prohibiting the consummation of the transactions contemplated hereby or preventing the conduct of any material portion of the Business after the Effective Time in substantially the same manner as presently conducted. 7.4 H-S-R Act. Any waiting periods applicable to the transactions contemplated by this Agreement under the H-S-R Act shall have expired or been terminated. 7.5 Required Approvals. Subject to Section 2.7 hereof, the consents of (a) the Federal Deposit Insurance Corp. and (b) the Utah State Department of Financial Institutions (together, the "Required Approvals") shall have been obtained and shall remain in full force and effect and any statutory waiting periods in respect thereof shall have expired. 7.6 Opinion of Parent and Holdings' Counsel. Parent and Holdings shall have delivered to Acquiror and Acquiror Sub opinions of counsel to Parent and Holdings in the form of Exhibit K hereto. 7.7 Financing. Acquiror shall have received the proceeds of the Financing. 7.8 GoodwillAmortization. Acquiror shall have received advice from Deloitte & Touche LLP that under GAAP at the Effective Time, the goodwill generated by the transactions contemplated hereby shall be amortized over forty (40) years. 55 ARTICLE VIII CONDITIONS TO PARENT'S AND HOLDINGS' OBLIGATIONS The obligation of Parent and Holdings under this Agreement to consummate the transactions contemplated hereby shall be subject to the satisfaction of each of the following conditions, unless waived in writing by Holdings: 8.1 Representations and Warranties. The representations and warranties of Acquiror and Acquiror Sub contained in this Agreement shall be true and correct as of the date hereof and as of the Closing Date as though such representations and warranties were made at and as of such date (except that representations and warranties given as of a specific date need be true and correct only as of such date), except where the failure of such representations and warranties to be so true and correct has not had, and is not likely to have, individually or in the aggregate, an Acquiror Material Adverse Effect (disregarding for this purpose any qualification as to materiality or Acquiror Material Adverse Effect contained in such representations and warranties). 8.2 Performance. Acquiror and Acquiror Sub shall have each performed and complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date. 8.3 No Injunction. No court of competent jurisdiction shall have issued any order, decree or ruling, and there shall not be any statute, rule or regulation, enjoining or prohibiting the consummation of the transactions contemplated hereby. 8.4 H-S-R Act. Any waiting periods applicable to the transactions contemplated by this Agreement under the H-S-R Act shall have expired or been terminated. 8.5 Required Approvals. Subject to Section 2.7 hereof, the Required Approvals shall have been obtained and shall remain in full force and effect and any statutory waiting periods in respect thereof shall have expired. 8.6 Opinion of Acquiror and Acquiror Sub's Counsel. Acquiror and Acquiror Sub shall have delivered to Parent and Holdings opinions of counsel to Acquiror and Acquiror Sub in the form of Exhibit L hereto. ARTICLE IX SURVIVAL; INDEMNIFICATION 9.1 Survival Periods. Each of the representations and warranties made by the parties in this Agreement shall survive the Closing and the Effective Time until the first 56 anniversary of the Closing Date; provided, however, that the representations and warranties contained in Sections 3.2, 3.3(a), 3.4, 3.8, 3.13, 4.2 and 4.3 hereof (the "Surviving Representations") shall survive the Closing without limitation (subject to any applicable statutes of limitations). Except with respect to the Surviving Representations, the parties intend to shorten the statute of limitations and agree that no claims or causes of action may be brought against Parent, the Holdings Surviving Corporation, Acquiror or the Acquiror Sub Surviving Corporation based upon, directly or indirectly, any of the representations, warranties or agreements contained in Articles III and IV hereof after the applicable survival period or, except as provided in Section 10.2 hereof, any termination of this Agreement except, in each case, with respect to claims asserted prior to and pending at the time of such expiration. This Section 9.1 shall not limit any covenant or agreement of the parties which contemplates performance after the Effective Time. 9.2 Parent's and the Holdings Surviving Corporation's Agreement to Indemnify. (a) Subject to the terms and conditions set forth herein, from and after the Effective Time, each of Parent and the Holdings Surviving Corporation shall indemnify and hold harmless Acquiror and the Acquiror Sub Surviving Corporation and their respective directors, officers, employees and Affiliates and their respective successors and permitted assigns (collectively, the "Acquiror Indemnitees") from and against all liability, demands, claims, actions or causes of action, assessments, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) (collectively, the "Acquiror Damages") asserted against or incurred by any Acquiror Indemnitee as a result of or arising out of (i) a breach of any representation or warranty of Parent or Holdings contained in this Agreement (provided that for purposes of indemnification pursuant to this Section 9.2(a), any breach of any representation or warranty shall be determined without regard to any qualification related to materiality or Material Adverse Effect on the Business); (ii) a breach of any covenant or agreement of Parent, Holdings or the Holdings Surviving Corporation contained in this Agreement; and (iii) the Holdings Retained Liabilities and the Holdings Retained Assets. (b) The obligation of Parent and the Holdings Surviving Corporation to indemnify the Acquiror Indemnitees pursuant to clause 9.2(a)(i) hereof is subject to the following limitations: (i) no indemnification shall be made by Parent or the Holdings Surviving Corporation unless the aggregate amount of Acquiror Damages exceeds $30,000,000 and, in such event, indemnification shall be made by Parent or the Holdings Surviving Corporation only to the extent such Acquiror Damages exceed $18,000,000; provided, however, that the amount of Acquiror Damages for any individual Claim must exceed $250,000, it being acknowledged and agreed that Acquiror Indemnitiees shall not have the right to make a Claim for indemnification under this Agreement in respect of Acquiror Damages in an amount less than $250,000 ("De Minimis Acquiror Claims") and such De Minimis Acquiror Claims shall not count toward the threshold amounts referred to above; 57 (ii) in no event shall the aggregate obligation of Parent and the Holdings Surviving Corporation to so indemnify the Acquiror Indemnitees exceed $500,000,000; and (iii) Parent and the Holdings Surviving Corporation shall be obligated to indemnify the Acquiror Indemnitees only for those claims giving rise to Acquiror Damages as to which the Acquiror Indemnitees have given Parent and the Holdings Surviving Corporation written notice thereof prior to the end of the applicable survival period (as provided for in Section 9.1 hereof); any written notice delivered by an Acquiror Indemnitee to Parent and the Holdings Surviving Corporation with respect to Acquiror Damages shall set forth with as much specificity as is reasonably practicable the basis of the claim for Acquiror Damages and, to the extent reasonably practicable, a reasonable estimate of the amount thereof. (c) The amount of any Acquiror Damages shall be reduced by (i) any amount received by a Acquiror Indemnitee with respect thereto under any insurance coverage or from any other party alleged to be responsible therefor and (ii) the amount of any Tax Benefit Actually Realized by the Acquiror Indemnitee (or any of its Affiliates) relating thereto. The Acquiror Indemnitees shall use reasonable efforts to collect any amounts available under such insurance coverage and from such other party alleged to have responsibility. If a Acquiror Indemnitee receives an amount under insurance coverage or from such other party with respect to Acquiror Damages at any time subsequent to any indemnification provided by Parent or the Holdings Surviving Corporation pursuant to this Section 9.2, then such Acquiror Indemnitee shall promptly reimburse Parent or the Holdings Surviving Corporation, as the case may be, for any payment made or expense incurred by Parent or the Holdings Surviving Corporation in connection with providing such indemnification up to such amount received by the Acquiror Indemnitee. 9.3 Acquiror's and the Acquiror Sub Surviving Corporation's Agreement to Indemnify. (a) Subject to the terms and conditions set forth herein, from and after the Effective Time, Acquiror and the Acquiror Sub Surviving Corporation shall indemnify and hold harmless Parent, the Holdings Surviving Corporation and their respective directors, officers, employees and Affiliates and their respective successors and permitted assigns (collectively, the "Holdings Indemnitees") from and against all liability, demands, claims, actions or causes of action, assessments, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) (collectively, "Holdings Damages") asserted against or incurred by any Holdings Indemnitee as a result of or arising out of (i) a breach of any representation or warranty of Acquiror or Acquiror Sub contained in this Agreement (provided that for purposes of indemnification pursuant to this Section 9.3(a), any breach of any representation or warranty shall be determined without regard to any qualification related to materiality or "Acquiror Material Adverse Effect"); (ii) a breach of any covenant or agreement on the part of Acquiror, Acquiror Sub or the Acquiror Sub Surviving Corporation contained in this 58 Agreement; (iii) the Transferred Liabilities; (iv) the Acquiror Sub Retained Liabilities and the Acquiror Sub Retained Assets, (b) Acquiror's and the Acquiror Sub Surviving Corporation's obligation to indemnify the Holdings Indemnitees pursuant to clause 9.3(a)(i) hereof is subject to the following limitations: (i) no indemnification shall be made by Acquiror or the Acquiror Sub Surviving Corporation unless the aggregate amount of Holdings Damages exceeds $30,000,000 and, in such event, indemnification shall be made by Acquiror or the Acquiror Sub Surviving Corporation only to the extent such Holdings Damages exceed $18,000,000; provided, however, that the amount of such Holdings Damages for any individual claim must exceed $250,000; it being acknowledged and agreed that Seller shall not have the right to make a claim for indemnification under this Agreement in respect of any Holdings Damages in an amount less than $250,000 ("De Minimis Holdings Claims"), and such De Minimis Holdings Claims shall not count toward the threshold amounts referred to above; (ii) in no event shall the aggregate obligation of Acquiror and the Acquiror Sub Surviving Corporation to so indemnify the Holdings Indemnitees exceed $500,000,000; and (iii) Acquiror and the Acquiror Sub Surviving Corporation shall be obligated to indemnify the Holdings Indemnitees only for those claims giving rise to Holdings Damages as to which the Holdings Indemnitees have given Acquiror and the Acquiror Sub Surviving Corporation written notice thereof prior to the end of the applicable survival period (as provided in Section 9.1 hereof); any written notice delivered by a Holdings Indemnitee to Acquiror and the Acquiror Surviving Corporation with respect to Holdings Damages shall set forth with as much specificity as is reasonably practicable the basis of the claim for Acquiror Damages and, to the extent reasonably practicable, a reasonable estimate of the amount thereof. (c) The amount of any Holdings Damages shall be reduced by (i) any amount received by a Holdings Indemnitee with respect thereto under any insurance coverage or from any other party alleged to be responsible therefor and (ii) the amount of any Tax Benefit Actually Realized by the Holdings Indemnitee (or any of its Affiliates) relating hereto. The Holdings Indemnitees shall use reasonable efforts to collect any amounts available under such insurance coverage and from such other party alleged to have responsibility. If a Holdings Indemnitee receives any amount under insurance coverage or from such other party with respect to Holdings Damages at any time subsequent to any indemnification provided by Acquiror or the Acquiror Sub Surviving Corporation pursuant to this Section 9.3, then such Holdings Indemnitee shall promptly reimburse Acquiror or the Acquiror Sub Surviving Corporation, as the case may be, for any payment made or expense incurred by Acquiror or the Acquiror Sub Surviving Corporation in connection with providing such indemnification up to such amount received by the Holdings Indemnitee. 59 9.4 Third-Party Indemnification. The obligations of Parent and the Holdings Surviving Corporation to indemnify the Acquiror Indemnitees under Section 9.2 hereof with respect to Acquiror Damages and the obligations of Acquiror and the Acquiror Sub Surviving Corporation to indemnify the Holdings Indemnitees under Section 9.3 hereof with respect to Holdings Damages, in either case, resulting from the assertion of liability by third parties (each, as the case may be, a "Claim"), will be subject to the following terms and conditions: (a) Any party against whom any Claim is asserted will give the indemnifying party written notice of any such Claim promptly after learning of such Claim, and the indemnifying party may at its option undertake the defense thereof by representatives of its own choosing. Failure to give prompt notice of a Claim hereunder shall not affect the indemnifying party obligations under this Article IX, except to the extent the indemnifying party is materially prejudiced by such failure to give prompt notice. If the indemnifying party, within 30 days after notice of any such Claim, or such shorter period as is reasonably required, fails to assume the defense of such Claim, the Acquiror Indemnitee or the Holdings Indemnitee, as the case may be, against whom such Claim has been made will (upon further notice to the indemnifying party) have the right to undertake the defense, compromise or settlement of such Claim on behalf of, and for the account and risk, and at the expense, of, the indemnifying party, subject to the right of the indemnifying party to assume the defense of such Claim at any time prior to settlement, compromise or final determination thereof. (b) Anything in this Section 9.4 to the contrary notwithstanding, the indemnifying party shall not enter into any settlement or compromise of any action, suit or proceeding or consent to the entry of any judgment (i) which does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the Holdings Indemnitee or the Acquiror Indemnitee, as the case may be, of a written release from all liability in respect of such action, suit or proceeding or (ii) for other than monetary damages to be borne by the indemnifying party, without the prior written consent of the Holdings Indemnitee or the Acquiror Indemnitee, as the case may be, which consent shall not be unreasonably withheld. (c) The indemnifying party and the indemnified party shall cooperate fully in all aspects of any investigation, defense, pre-trial activities, trial, compromise, settlement or discharge of any claim in respect of which indemnity is sought pursuant to this Article IX, including, but not limited to, by providing the other party with reasonable access to employees and officers (including as witnesses) and other information. 9.5 Insurance. The indemnifying party shall be subrogated to the rights of the indemnified party in respect of any insurance relating to Acquiror Damages or Holdings Damages, as the case may be, to the extent of any indemnification payments made hereunder. 60 9.6 No Duplication; Sole Remedy. (a) Any liability for indemnification hereunder shall be determined without duplication of recovery by reason of the state of facts giving rise to such liability constituting a breach of more than one representation, warranty, covenant or agreement. (b) Subject to Section 11.11 hereof, the respective rights to indemnification of Parent, the Holdings Surviving Corporation, Acquiror and the Acquiror Sub Surviving Corporation as provided for in Sections 6.2, 9.2 and 9.3, as applicable, for a breach of this Agreement, shall constitute such party's sole remedy for such a breach and the breaching party shall have no other liability or damages to the other party resulting from the breach, except that nothing herein shall relieve a party from liability for fraud. 9.7 Indemnification of Certain Litigation. From and after the Effective Time, each of Parent and the Holdings Surviving Corporation shall continue the defense of, indemnify and hold harmless the Acquiror Indemnitees and the Transferred Companies from and against any Acquiror Damages asserted against or incurred by any Acquiror Indemnitee or any Transferred Company as a result of or arising out of the litigation referred to in item 6 of Section 3.9 of the Holdings Disclosure Schedule, provided that no indemnification shall be made by Parent or the Holdings Surviving Corporation unless the aggregate amount of Acquiror Damages exceeds $500,000 and, in such event, indemnification shall be made by Parent or Holdings Surviving Corporation only to the extent such Acquiror Damages exceed $500,000. Notwithstanding anything to the contrary contained in this Agreement, (i) the indemnification obligations of Parent and Holdings Surviving Corporation provided under this Section 9.7(a) shall not be subject to the limitations set forth in Section 9.2(b) and (b) shall not be subrogated in respect of any insurance and (ii) any amounts paid hereunder shall not be counted against the amounts set forth in Section 9.2(b). ARTICLE X TERMINATION AND ABANDONMENT 10.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Effective Time: (a) by mutual written consent of the parties hereto; or (b) by Parent or Holdings at any time after June 30, 1999; (c) by Acquiror or Acquiror Sub at any time after July 31, 1999; (d) by Parent or Holdings if Acquiror shall notify (or be required under Section 5.8 to notify) Holdings of a Funding Termination Event (unless any Lender whose 61 commitment has been withdrawn or terminated has been replaced with another lending institution of comparable funding resources with an equal or greater commitment on substantially the same terms and subject to substantially the same conditions); or (e) by Parent or Holdings if there shall have occurred any disruption or adverse change, as determined by Parent or Holdings in its sole discretion, in the financial or capital markets generally, or in the markets for bank loan or bridge loan syndication, high yield debt, asset-backed securities or equity securities in particular or affecting the syndication or funding of bank loans or bridge loans (or the refinancing thereof) (each a "Market Event"), provided that Parent or Holdings cannot terminate this Agreement if, after giving written notice to the Lenders of its intent to terminate this Agreement, the Lenders, within three (3) Business Days, confirm in writing that such Market Event will not result in their refusing to comply with their obligations under the Commitment Letters. 10.2 Procedure For, and Effect of, Termination. In the event of termination of this Agreement and abandonment of the transactions contemplated hereby by the parties hereto pursuant to Section 10.1 hereof, written notice thereof shall be given by a party so terminating to the other party and this Agreement shall forthwith terminate and shall become null and void and of no further effect, and the transactions contemplated hereby shall be abandoned without further action by any of the parties hereto. If this Agreement is terminated pursuant to Section 10.1 hereof: (a) each party shall redeliver all documents, work papers and other materials of the other parties relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same, and all confidential information received by any party hereto with respect to the other party shall be treated in accordance with the Confidentiality Agreement and Section 5.4(b) hereof; (b) all filings, applications and other submissions made pursuant hereto shall, at the option of Holdings, and to the extent practicable, be withdrawn from the agency or other Person to which made; and (c) there shall be no liability or obligation hereunder on the part of Parent, Holdings, Acquiror or Acquiror Sub or any of their respective directors, officers, employees, Affiliates, controlling persons, agents or representatives, except that such party may have liability to the other party if the basis of termination is a willful, material breach by such party of one or more of the provisions of this Agreement, and except that (i) the obligations provided for in Sections 5.4 and 11.1 hereof shall survive any such termination and (ii) all of the rights and obligations of each of the parties pursuant to the Confidentiality Agreement shall survive the termination of this Agreement without limitation. 10.3 Alternative Transaction. In the event that a Tax Notification (as defined in Exhibit M hereto) shall be delivered, then the parties hereto shall effectuate the transactions set forth in Exhibit M hereto. 62 ARTICLE XI MISCELLANEOUS PROVISIONS 11.1 Fees and Expenses. Except as otherwise provided in this Agreement, whether or not the transactions contemplated hereby are consummated, all fees, costs and expenses incurred in connection with such transactions will be paid by the party incurring said expenses. Parent, Holdings and the Holdings Surviving Corporation shall indemnify Acquiror, Acquiror Sub and the Acquiror Sub Surviving Corporation for the fees of Chase Securities, Inc. and any other brokerage or similar fees payable in connection with the transactions contemplated hereby based on agreements made by or on behalf of Parent, Holdings, any Transferred Company or their respective Affiliates, and Acquiror and the Acquiror Sub Surviving Corporation shall indemnify Parent, Holdings and the Holdings Surviving Corporation for the fees of Lehman Brothers Inc. and BT Wolfensohn and any other brokerage or similar fees payable in connection with the transactions contemplated hereby based on agreements made by or on behalf of Acquiror, Acquiror Sub or any of their respective Affiliates. 11.2 Amendment. This Agreement may be modified, supplemented or amended only by a written instrument executed by each of the parties hereto. 11.3 Entire Agreement. This Agreement (together with the Transaction Agreements, the Disclosure Schedules, Schedules and Exhibits expressly identified or referred to in this Agreement) and the Confidentiality Agreement constitute the entire agreement of the parties with respect to its subject matter, and supersede all prior agreements and understandings of the parties, oral and written, with respect to its subject matter. 11.4 Execution in Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document. 11.5 Notices. Unless otherwise provided herein, all notices and other communications hereunder shall be in writing and may be given by any of the following methods: (a) personal delivery; (b) facsimile transmission; (c) registered or certified mail, postage prepaid, return receipt requested; or (d) overnight delivery service. Such notices and communications shall be sent to the appropriate party at its address or facsimile number given below or at such other address or facsimile number for such party as shall be specified by notice given hereunder (and shall be deemed given upon receipt by such party or upon actual delivery to the appropriate address, or, in case of a facsimile transmission, upon transmission thereof by the sender and issuance by the transmitting machine of a confirmation slip that the number of pages constituting the notice have been transmitted without error; in the case of notices sent by facsimile transmission, the sender shall contemporaneously mail a copy of the notice to the 63 addressee at the address provided for above, provided, however, that such mailing shall in no way alter the time at which the facsimile notice is deemed received): If to Parent or Holdings: PHH Corporation 6 Sylvan Way Parsippany, New Jersey 07054 Telecopy: (973) 496-5355 Attention: General Counsel Copies to: Cendant Corporation 9 West 57th Street, 37th Floor New York, New York 10019 Telecopy: (212) 413-1922 Attention: General Counsel and Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square Wilmington, Delaware 19801 Telecopy: (302) 651-3001 Attention: Patricia Moran Chuff, Esq. If to Acquiror or Acquiror Sub: Avis Rent a Car, Inc. 900 Old Country Road Garden City, New York 11530 Telecopy: (516) 222-6922 Attention: Karen Sclafani, Esq. Copy to: White & Case LLP 1155 Avenue of the Americas New York, New York 10036 Telecopy: (212) 354-8113 Attention: Sean Geary, Esq. 11.6 Waivers. At any time prior to the Closing, the parties hereto may (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties of the other parties contained herein or in any document delivered pursuant hereto and (iii) waive compliance by the other parties hereto with any of the agreements or conditions contained herein of the other party subject to any specific provisions governing the effect of such extensions or waivers. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. 64 11.7 Applicable Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of New York without giving effect to any of the conflict of law rules thereof; provided, that the Merger shall be governed by the TBCA. Each party to this Agreement (a) waives, to the fullest extent permitted by applicable Law, any right it may have to a trial by jury in respect of any action, suit or proceeding arising out of or relating to this Agreement, (b) consents to submit itself to the personal jurisdiction of any federal court located in the State of New York or any New York state court in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (c) agrees that it will not attempt to deny such personal jurisdiction by motion or other request for leave from any such court and (d) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a federal or state court sitting in the State of New York. 11.8 Headings. The headings contained in this Agreement are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement. 11.9 Assignments. This Agreement may not be assigned, directly or indirectly, by operation of law or otherwise, by any party hereto without the prior written consent of the other parties; provided, however, that, notwithstanding the foregoing, each of the parties hereto shall have the right to assign any or all of its rights and obligations under this Agreement, collectively or individually, to any of their respective Affiliates; provided, however, that no such assignment shall relieve such party from its obligations under this Agreement. 11.10 Severability. If any provision of this Agreement is held to be invalid or unenforceable, such a provision shall (so far as invalid or unenforceable) be given no effect and shall be deemed to be excluded from this Agreement, but without invalidating any of the remaining provisions of this Agreement. Upon such determination that any term or other provision is invalid or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that terms of such provision be effectuated as originally contemplated to the fullest extent possible. 11.11 Specific Performance. Notwithstanding any other provision of this Agreement, 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 and immediate injunctive relief, without the necessity of proving the inadequacy of money damages as a remedy, in addition to any other remedy at law or equity. 11.12 Interpretation. All references herein to "$" or "dollars" shall mean United States dollars. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of 65 proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 11.13 No Third-Party Beneficiaries. This Agreement is solely for the benefit of Parent, Holdings and their respective successors and permitted assigns, with respect to the obligations of Acquiror and Acquiror Sub under this Agreement, and for the benefit of Acquiror and Acquiror Sub, and their respective successors and permitted assigns, with respect to the obligations of Parent and Holdings, under this Agreement, and this Agreement shall not be deemed to confer upon or give to any other third party any remedy, claim of liability or reimbursement, cause of action or other right. [SIGNATURE PAGE FOLLOWS] 66 IN WITNESS WHEREOF, this Agreement has been executed by duly authorized officers of each of the parties all as of the date first above written. PHH CORPORATION By: /s/ Robert D. Kunisch ------------------------------------------- Name: Robert D. Kunisch Title: President PHH HOLDINGS CORPORATION By: /s/ Robert D. Kunisch ------------------------------------------- Name: Robert D. Kunisch Title: President AVIS RENT A CAR, INC. By: /s/ Kevin Sheehan ------------------------------------------- Name: Kevin Sheehan Title: Executive Vice President AVIS FLEET LEASING AND MANAGEMENT CORPORATION By: /s/ Kevin Sheehan ------------------------------------------- Name: Kevin Sheehan Title: Executive Vice President 67 The following exhibits and schedules to the foregoing merger agreement have not been included because they have been deemed to not be material to investors. However, Avis Rent A Car, Inc. undertakes to provide such documents to the Commission upon request: 1. Assignment and Modification Agreement dated as of June 30, 1999 by and among Avis Rent A Car System, Inc., Avis Rent A Car, Inc. and Cendant Corporation. 2. Registration Rights Agreement dated as of June 30, 1999 by and among Avis Rent A Car, Inc. Avis Fleet Leasing and Management Corporation, PHH Corporation, and PHH Holdings Corporation. 3. Articles of Merger dated as of May 22, 1999 merging PHH Holdings Corporation with Avis Fleet Leasing and Management Corporation. 4. Plan of Merger dated as of May 22, 1999, by and among PHH Corporation, PHH Holdings Corporation, Avis Rent A Car, Inc. and Avis Fleet Leasing and Management Corporation. 5. Instrument of Assumption, dated as of May 22, 1999 by Avis Fleet Leasing and Management Corporation in favor of PHH Holdings Corporation. 6. Undertaking dated as of May 22, 1999 by Avis Fleet Leasing and Management Corporation, in favor of PHH Corporation and PHH Holdings Corporation. 7. Trademark License Agreement dated as of May 22, 1999 by and among PHH Holdings Corporation, and Avis Fleet Leasing and Management Corporation. 8. Stockholders' Agreement dated as of May 22, 1999 by and among Avis Rent A Car, Inc., Avis Fleet Leasing and Management Corporation, and PHH Corporation. 9. Escrow Agreement dated as of May 22, 1999 by and among PHH Corporation, Avis Rent A Car, Inc., Avis Fleet Leasing and Management Corporation and The Chase Manhattan Bank. 10. Transitional License Agreement dated as of May 22, 1999 between Cendant, Corporation and Avis Fleet Leasing and Management Corporation. 11. Non-Competition Agreement dated as of May 22, 1999 among Avis Rent A Car, Inc., Avis Fleet Leasing and Management Corporation, PHH Corporation and PHH Holdings Corporation. 12. Transition Services Agreement dated as of June 30, 1999, by and between Wright Express LLC and Wright Express Financial Services Corporation. 13. Corporate Services Transition Agreement dated as of June 30, 1999 by and between PHH Corporation and Avis Fleet Leasing and Management Corporation. 14. The Schedules to the Agreement and Plan of Merger and Reorganization dated as of May 22, 1999 by and among PHH Corporation, PHH Holdings Corporation, Avis Rent A Car, Inc. and Avis Fleet Leasing and Management Corporation: Schedule I Transferred Companies Schedule II Transferred Assets Schedule III Holdings Retained Assets Schedule IV Transferred Liabilities Schedule V Holdings Retained Liabilities Schedule VI Retained Intellectual Property 15. The disclosure schedules to the Agreement and Plan of Merger and Reorganization dated as of May 22, 1999 by and among PHH Corporation, PHH Holdings Corporation, Avis Rent A Car, Inc. and Avis Fleet Leasing and Management Corporation: Schedule 3.3 Subsidiaries and Affiliates Schedule 3.4(a) Capitalization Schedule 3.4(b) Ownership of Shares Schedule 3.5 Consents and Approvals Schedule 3.6(a) Audited Financial Statements Schedule 3.6(b) Liabilities and Obligations Schedule 3.7 Absence of Certain Changes of Events Schedule 3.8 Tax Matters Schedule 3.9 Litigation Schedule 3.10(b) Compliance with Laws Schedule 3.11(a) Material Contracts 2 Schedule 3.11(b) Material Contracts Schedule 3.12 Labor Relations Schedule 3.13(a) ERISA Schedule 3.13(b) ERISA Schedule 3.14 Intellectual Property Schedule 3.16 Environmental Matters Schedule 3.17 Real Property Schedule 3.18 Insurance Schedule 3.20 Sufficiency of Assets Schedule 3.21 Customers Schedule 4.3(a) Capitalization Schedule 4.3(b) Exceptions to Ownership of Shares Schedule 4.4 Consents and Approvals; Violations Schedule 4.6(b) Financial Information; Undisclosed Liabilities Schedule 4.7 Litigation Schedule 4.8 Non-Compliance with Laws Schedule 5.9(c) Employee Agreements, Plans or Arrangements Schedule 5.9(e) Bonus Pool/Holdings Plan Schedule 5.16 Cendant Marks Schedule 5.17 Intercompany Obligations Schedule 5.17(c) Inercompany Obligations; Affiliate 3 EX-2.2 3 AMENDMENT TO AGREEMENT AND PLAN OF MERGER AMENDMENT AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of June 30, 1999, by and among PHH CORPORATION, a Maryland corporation ("Parent"), PHH HOLDINGS CORPORATION, a Texas corporation and a wholly owned subsidiary of Parent ("Holdings"), AVIS RENT A CAR, INC., a Delaware corporation ("Acquiror"), and AVIS FLEET LEASING AND MANAGEMENT CORPORATION, a Texas corporation and a wholly owned subsidiary of Acquiror ("Acquiror Sub"). WHEREAS, Parent, Holdings, Acquiror and Acquiror Sub are parties to an Agreement and Plan of Merger and Reorganization, dated as of May 22, 1999 (the "Merger Agreement"), providing for the acquisition by Acquiror Sub of the Business (as defined in the Merger Agreement) pursuant to a merger of Holdings and Acquiror Sub in accordance with Article Five of the Texas Business Corporation Act; WHEREAS, capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement; WHEREAS, Section 11.2 of the Merger Agreement provides that the Merger Agreement may be amended by a written instrument executed by each of the parties thereto; and WHEREAS, the parties desire to amend the Merger Agreement as provided herein. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein and in the Merger Agreement, the parties hereto agree as follows: 1. Amendment to References to Wright Express Corporation. All references in the Merger Agreement and the schedules and exhibits thereto to Wright Express Corporation, a Delaware corporation, are hereby amended to refer to "Wright Express LLC," a Delaware limited liability company, to reflect the merger of Wright Express Corporation into Wright Express LLC, effective June 21, 1999. 2. Amendment to References to Cendant Business Answers (Europe) PLC. All references in the Merger Agreement and the schedules and exhibits thereto to Cendant Business Answers (Europe) PLC, a public company registered in England and Wales, are hereby amended to refer to "Cendant Business Answers (Europe) Ltd.," a company registered in England and Wales, with limited liability, to reflect the name change of Cendant Business Answers (Europe) PLC into Cendant Business Answers (Europe) Ltd., effective June 28, 1999. 3. Amendment to References to PHH Vehicle Management Services PLC. All references in the Merger Agreement and the schedules and exhibits thereto to PHH Vehicle Management Services PLC, a public company registered in England and Wales, are hereby amended to refer to "PHH Vehicle Management Services Ltd.," a company registered in England and Wales, with limited liability, to reflect the name change of PHH Vehicle Management Services PLC into PHH Vehicle Management Services Ltd., effective June 25, 1999. 4. Amendment to References to All Star Petrol Card Ltd. All references in the Merger Agreement and the schedules and exhibits thereto to All Star Petrol Card Ltd., a company registered in England and Wales, with limited liability, are hereby amended to refer to "Cendant Business Answers Ltd.," a company regis tered in England and Wales, with limited liability, to reflect the name change of All Star Petrol Card Ltd. into Cendant Business Answers Ltd., effective June 17, 1999. 5. Amendment to Section 2.3(b)(iii) of the Merger Agreement. Section 2.3(b)(iii) of the Merger Agreement is hereby amended to insert on the second line thereof the word "estimated" immediately prior to the words "Intercompany Indebtedness." 6. Amendment to Section 3.3 of the Merger Agreement. Section 3.3 of the Merger Agreement is hereby amended to insert the following at the end thereof: "(c) FAH Company, Inc., a Delaware corporation ("FAH") owns no assets other than the Class A Preferred Units of Kobrick Funds LLC and has no liabilities or obligations other than (i) arising out of the ownership thereof under the terms of the Kobrick Funds LLC Limited Liability Company Agreement and the rights and obligations of the parties thereunder, as to which FAH has no material liabilities and (ii) in connection with the pending sale thereof which pending sale does not create any material liabilities (other than the obligations to deliver the securities to the purchaser thereof). 7. Amendment to Section 5.17(b) of the Merger Agreement. Section 5.17(b) of the Merger Agreement is hereby amended to insert the following at the end thereof: "The payment of Intercompany Indebtedness at Closing pursuant to Section 2.3(b)(iii) hereof shall be based upon Parent's good faith estimate of the amount of Intercompany Indebtedness as of the Closing Date determined in accordance with this Section 5.17(b), which estimate shall (i) be provided by Parent to Acquiror in writing at least two business days prior to the Closing Date and (ii) separately set forth the amount of such estimated Intercompany Indebtedness attributable to (x) current taxes (the "Current Tax Amount") and (y) intercompany indebtedness (the "Intercompany Amount"). The estimated Intercompany Indebtedness shall be reconciled to the definitive Intercompany Indebtedness as follows: (A) Within 15 days following the Closing Date, Parent shall deliver to Acquiror (the date on which such delivery is made being the "II Delivery Date") a written statement setting forth the definitive Intercompany Amount as of the Closing Date, determined in accordance with this Section 5.17(b). If Acquiror disputes the amount set forth on such statement, it shall notify Parent within five business days following the II Delivery Date. Any disputes as to the amount of the definitive Intercompany Amount not resolved by the tenth business day following the II Delivery Date shall be resolved -2- promptly by mutual agreement of Messrs. Stephen P. Holmes and Kevin M. Sheehan. Within 5 business days of the II Delivery Date (or such later date as of which any dispute with respect to the definitive Intercompany Amount may have been resolved), Parent shall pay to Acquiror Sub, or Acquiror Sub shall pay to Parent, as appropriate, an amount equal to the difference between the estimated Intercompany Amount repaid at Closing and the definitive Intercompany Amount (the "II True-Up"). Any payments made pursuant to the II True-Up shall be made by wire transfer of immediately available funds to a single bank account designated by the receiving party. The amount of such II True-Up payment shall bear interest for the period from and including the Closing Date to the date on which the II True-Up payment is made at a rate equal to the 14-day LIBOR rate plus 25 basis points. (B) Within 150 days following the Closing Date, Parent shall deliver to Acquiror (the date on which such delivery is made being the "CT Delivery Date") a written statement setting forth the definitive Current Tax Amount as of the Closing Date, determined in accordance with this Section 5.17(b). If Acquiror disputes the amount set forth on such statement, it shall notify Parent within ten business days following the CT Delivery Date. Any disputes as to the amount of the definitive Current Tax Amount not resolved by the tenth business day following the CT Delivery Date shall be resolved promptly by mutual agreement of Messrs. Stephen P. Holmes and Kevin M. Sheehan. Within ten business days of the CT Delivery Date (or such later date as of which any dispute with respect to the definitive Current Tax Amount may have been resolved), Parent shall pay to Acquiror Sub, or Acquiror Sub shall pay to Parent, as appropriate, an amount equal to the difference between the estimated Current Tax Amount repaid at Closing and the definitive Current Tax Amount (the "CT True-Up"). Any payments made pursuant to the CT True-Up shall be made by wire transfer of immediately available funds to a single bank account designated by the receiving party. The amount of such CT True-Up payment shall bear interest for the period from and including the Closing Date to the date on which the CT True-Up payment is made at a rate equal to the 90-day LIBOR rate plus 25 basis points." 8. Amendments to Article V of the Merger Agreement. The Merger Agreement is hereby amended to insert therein new Section 5.24 and new Section 5.25 to read as follows: "5.24 Kobrick Mutual Fund. Promptly upon receipt of payment thereof, Acquiror shall cause FAH to remit and pay over to Parent all Unpaid Priority Earnings on the Class A Preferred Units of Kobrick Funds LLC accrued from October 1, 1998 through June 30, 1999." "5.25 Proposed Transaction Regarding PHH Dublin Unlimited. Parent and Acquiror agree that, following the Closing Date, they will negotiate in good faith, and endeavor to reach mutual agreement on, the terms of a purchase by Acquiror or an affiliate of -3- Acquiror (other than Acquiror Sub) of all of Parent's direct and indirect interests in PHH Dublin Unlimited." 9. Amendment to Schedule I of the Merger Agreement. Schedule I of the Merger Agreement, which sets forth the list of Transferred Companies, is hereby amended to add to the end thereof the following: "FAH Company, Inc. Delaware" "PHH Treasury Services Ltd. England and Wales" 10. Amendment to Schedule II of the Merger Agreement. Schedule II of the Merger Agreement, which sets forth the Transferred Assets, including the names of the Directly Transferred Companies, is hereby amended to add to the end of the list of Directly Transferred Companies the following: "FAH Company, Inc." "PHH Treasury Services Ltd." 11. Amendment to Schedule III of the Merger Agreement. Schedule III of the Merger Agreement, which lists the Holdings Retained Assets, is hereby amended to add to the end thereof "Cendant Relocation Holdings Ltd." 12. Amendment to Schedule 3.4(a) of the Disclosure Schedules. Schedule 3.4(a) of the Disclosure Schedules to the Merger Agreement is hereby amended to add to the end thereof the following: "FAH Company, 2,800 Common Stock PHH Holdings Inc. Corporation" --------------------------------------------------------------- 8,000 Series A PHH Holdings Preferred Stock Corporation" -------------------------------------------- Warrant to Purchase PHH Holdings 8,000 shares of Corporation" Common Stock -------------------------------------------- "PHH Treasury 1 Cendant Business Services Ltd. Answers (Europe) Ltd. 13. Amendment to Schedule 3.6(b) of the Disclosure Schedules. Schedule 3.6(b) of the Disclosure Schedules to the Merger Agreement is hereby amended to delete the last sentence of the first entry thereon and, in lieu thereof, to insert the following sentence: "The remaining $2,800,000 of the earn-out payment has been withheld pending the resolution of certain issues concerning tax filings." -4- 14. Transfer of Warrant. Holdings hereby transfers unto Acquiror Sub all of its right, title and interest in and to the Warrant for the Purchase of 8,000 Shares of Common Stock of FAH. 15. Representations and Warranties. Each of the parties hereto represents and warrants that it has all requisite corporate power and authority to execute and deliver this Amendment, to perform its obligations hereunder and consum mate the transactions contemplated hereby. The execution and delivery by such party of this Amendment, and the consummation by it of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of such party. This Amendment has been duly executed and delivered by such party, and (assuming the valid authorization, execution and delivery thereof by the other parties thereto) the Merger Agreement, as amended by this Amendment, constitutes a valid and binding agreement of such party, enforceable against it in accordance with its terms, except that (a) such enforcement may be subject to bankruptcy, reorganization, fraudulent conveyance, moratorium, insolvency and other laws now or hereafter in effect relating to or affecting creditors' rights and (b) enforcement thereof, including, among other things, the remedy of specific performance and injunctive and other forms of equitable relief, may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 16. Except as specifically amended hereby, the terms and conditions of the Merger Agreement shall continue and remain in full force and effect. [SIGNATURE PAGE FOLLOWS] -5- IN WITNESS WHEREOF, the parties have executed or caused this Amendment to be executed as of the date first written above. PHH CORPORATION By: /s/ James E. Buckman ---------------------------------------- Name: James E. Buckman Title: Executive Vice President PHH HOLDINGS CORPORATION By: /s/ James E. Buckman ---------------------------------------- Name: James E. Buckman Title: Executive Vice President AVIS RENT A CAR, INC. By: /s/ Kevin M. Sheehan ---------------------------------------- Name: Kevin M. Sheehan Title: Executive Vice President AVIS FLEET LEASING AND MANAGEMENT CORPORATION By: /s/ Kevin M. Sheehan ---------------------------------------- Name: Kevin M. Sheehan Title: Executive Vice President -6- EX-23.1 4 INDEPENDENT AUDITOR'S CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-59693, No. 333-59695 and No. 333-63269 of Avis Rent A Car, Inc. on Form S-8 of our report on the combined financial statements of PHH Vehicle Management Services dated June 18, 1999, appearing in this Form 8-K of Avis Rent A Car, Inc. /s/ Deloitte & Touche LLP Parsippany, New Jersey July 13, 1999 EX-99.1 5 FINANCIAL STATEMENTS PHH VEHICLE MANAGEMENT SERVICES Combined Financial Statements as of December 31, 1998 and 1997, and for the Years Ended December 31, 1998, 1997 and 1996 Independent Auditors' Report Unaudited Condensed Combined Financial Statements as of March 31, 1999 and for the Three Months Ended March 31, 1999 and 1998 TABLE OF CONTENTS - -------------------------------------------------------------------------------- Page Independent Auditors' Report 1 Combined Balance Sheets 2 Combined Income Statements 3 Combined Statements of Cash Flows 4 Combined Statements of Shareholders' Equity 5 Notes to the Combined Financial Statements 6-21 Unaudited Condensed Combined Balance Sheets 22 Unaudited Condensed Combined Income Statements 23 Unaudited Condensed Combined Statements of Cash Flows 24 Notes to the Condensed Combined Financial Statements 25-26 INDEPENDENT AUDITORS' REPORT To the Board of Directors of PHH Corporation We have audited the accompanying combined balance sheets of PHH Vehicle Management Services (the "Group") as of December 31, 1998 and 1997, and the related combined statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. All entities in the Group are directly or indirectly wholly-owned subsidiaries of Cendant Corporation. These combined financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such combined financial statements present fairly, in all material respects, the financial position of PHH Vehicle Management Services as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Parsippany, New Jersey June 18, 1999 PHH VEHICLE MANAGEMENT SERVICES COMBINED BALANCE SHEETS (In Thousands) December 31, ------------------------ 1998 1997 ---------- ---------- ASSETS: Cash and cash equivalents $ 21,059 $ 11,938 Accounts and loans receivable - net of allowance of $11,272 and $8,702 508,901 383,830 Property and equipment - net 93,529 39,066 Goodwill - net of accumulated amortization of $22,849 and $17,108 219,192 31,439 Other intangibles - net 17,246 1,179 Deferred income taxes 39,945 39,696 Other assets 40,099 33,546 ---------- ---------- Total assets exclusive of assets under management programs 939,971 540,694 ---------- ---------- ASSETS UNDER MANAGEMENT PROGRAMS: Net investment in leases and leased vehicles Operating leases 2,956,676 3,030,187 Direct financing leases 830,753 563,290 Accrued interest 899 941 ---------- ---------- 3,788,328 3,594,418 ---------- ---------- TOTAL ASSETS $4,728,299 $4,135,112 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts payable $ 181,718 $ 219,229 Accrued liabilities 113,499 56,598 Income taxes payable 108,089 44,828 Deferred revenue 41,146 46,447 Due to affiliates 182,061 242,850 Certificate of deposit 25,000 -- Borrowed funds 22,207 39,677 ---------- ---------- Total liabilities exclusive of liabilities under management programs 673,720 649,629 ---------- ---------- LIABILITIES UNDER MANAGEMENT PROGRAMS: Debt: Affiliates 1,859,683 2,531,863 Third party 1,250,628 269,213 Deferred income taxes 213,444 244,241 ---------- ---------- 3,323,755 3,045,317 ---------- ---------- TOTAL LIABILITIES 3,997,475 3,694,946 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 15) -- -- SHAREHOLDERS' EQUITY 730,824 440,166 ---------- ---------- TOTAL LIABIILITIES AND SHAREHOLDERS' EQUITY $4,728,299 $4,135,112 ========== ========== See notes to combined financial statements. 2 PHH VEHICLE MANAGEMENT SERVICES COMBINED INCOME STATEMENTS (In Thousands)
For the Years Ended December 31, ---------------------------------------- 1998 1997 1996 ----------- ----------- ----------- REVENUE Fleet leasing revenue $ 1,286,896 $ 1,187,193 $ 1,128,495 Fleet management services 182,356 184,047 167,512 Other revenue 135,811 81,455 61,032 ----------- ----------- ----------- Total revenues 1,605,063 1,452,695 1,357,039 ----------- ----------- ----------- EXPENSES Depreciation on leased vehicles 1,015,511 953,551 912,830 Interest expense 183,560 177,149 167,687 Selling, general and administrative expenses 232,724 211,123 193,822 Depreciation and amortization on assets other than leased vehicles 25,680 14,943 16,585 Merger-related costs and other unusual charges (credits) (1,280) 61,090 -- ----------- ----------- ----------- Total expenses 1,456,195 1,417,856 1,290,924 ----------- ----------- ----------- INCOME BEFORE PROVISION FOR INCOME TAXES 148,868 34,839 66,115 PROVISION FOR INCOME TAXES 55,800 23,649 25,323 ----------- ----------- ----------- NET INCOME $ 93,068 $ 11,190 $ 40,792 =========== =========== ===========
See notes to combined financial statements. 3 PHH VEHICLE MANAGEMENT SERVICES COMBINED STATEMENTS OF CASH FLOWS (In Thousands)
For the Years Ended December 31, --------------------------------------------- 1998 1997 1996 ----------- ----------- ----------- OPERATING ACTIVITIES: Net Income $ 93,068 $ 11,190 $ 40,792 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation on leased vehicles 1,015,511 953,551 912,830 Depreciation and amortization on assets other than leased vehicles 25,680 14,943 16,585 Merger-related costs and other unusual charges (credits) (1,280) 61,090 -- Other non-cash charges 5,140 2,961 2,047 Changes in other assets and liabilities: Accounts and loans receivable (134,007) (25,022) (2,990) Income taxes payable 101,511 35,732 (20,419) Accounts payable and other accrued liabilities 50,620 (28,957) 67,995 Due to Affiliates (24,642) (89,600) (96,299) Deferred income taxes (64,743) 44,784 55,432 Other assets, net (2,017) 602 (8,556) ----------- ----------- ----------- Net cash provided by operating activities 1,064,841 981,274 967,417 ----------- ----------- ----------- INVESTING ACTIVITIES: Assets under management programs Investment in leases and leased vehicles (2,516,895) (2,185,270) (1,918,531) Repayments of investment in leases and leased vehicles 1,088,036 756,939 726,246 Proceeds from sales and transfers of leases and leased vehicles 224,597 229,303 117,753 Net purchases of property and equipment (59,823) (13,171) (13,750) Cash acquired in acquisition of business, net of contribution from affiliates 2,341 -- -- ----------- ----------- ----------- Net cash used in investing activities (1,261,744) (1,212,199) (1,088,282) ----------- ----------- ----------- FINANCING ACTIVITIES: Proceeds from certificate of deposit 25,000 -- -- Net change in line of credit (18,360) 5,552 6,170 Payment of dividends to PHH -- -- (19,302) Capital contribution -- -- 4,985 Liabilities under management programs Proceeds from third party debt issuance 4,431,004 1,596,668 1,669,418 Principal payments on third party debt issuance (3,005,694) (1,611,431) (1,558,814) Proceeds from debt from affiliates 1,401,573 2,078,077 1,026,697 Principal payments on debt from affiliates (2,607,726) (1,843,035) (1,002,354) ----------- ----------- ----------- Net cash provided by financing activities 225,797 225,831 126,800 ----------- ----------- ----------- EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (19,773) (2,806) 3,496 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,121 (7,900) 9,431 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 11,938 19,838 10,407 CASH AND CASH EQUIVALENTS, END OF YEAR $ 21,059 $ 11,938 $ 19,838 =========== =========== =========== Interest paid $ 184,285 $ 160,421 $ 148,320 =========== =========== =========== Income taxes paid $ 23,804 $ 22,422 $ 22,444 =========== =========== =========== Non-cash investing and financing information: Business acquired: Fair value of assets acquired, excluding cash $ 294,287 Liabilities assumed (86,006) Capital contribution from affiliate for acquisition (190,597) Additional purchase consideration payable (20,025) ----------- Net cash acquired $ (2,341) ===========
See notes to combined financial statements 4 PHH VEHICLE MANAGEMENT SERVICES COMBINED STATEMENT OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 1998, 1997 and 1996 (In Thousands) Balance, January 1, 1996 $ 352,353 Comprehensive income: Net income 40,792 Currency translation 12,173 --------- Total comprehensive income 52,965 --------- Capital contribution 4,985 Dividends paid to PHH (19,302) --------- Balance, December 31, 1996 391,001 --------- Comprehensive income: Net income 11,190 Currency translation (8,852) --------- Total comprehensive income 2,338 --------- Capital contribution 46,827 --------- Balance, December 31, 1997 440,166 --------- Comprehensive income: Net income 93,068 Currency translation 3,018 Pension Plan additional minimum liability, net (1,306) --------- Total comprehensive income 94,780 --------- Capital contribution 190,597 Benefit of tax losses received from outside the Group 5,281 --------- Balance, December 31, 1998 $ 730,824 ========= See notes to combined financial statements 5 PHH VEHICLE MANAGEMENT SERVICES NOTES TO COMBINED FINANCIAL STATEMENTS (In Thousands Unless Identified Differently) 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION PHH Vehicle Management Services (the "Group") is a combined reporting entity engaged in the business of providing fleet and fuel management services primarily consisting of the management, purchase, leasing and resale of vehicles for corporate and government agencies. All entities within the Group are directly or indirectly wholly-owned subsidiaries of PHH Corporation ("PHH") and PHH is a wholly-owned subsidiary of Cendant Corporation ("Cendant" or the "Parent Company"). Services provided by the Group include fuel, maintenance, safety, and accident management programs and other fee-based services for vehicle fleets. The Group leases vehicles under operating and direct financing lease arrangements. The Group operates in the United States, Canada, United Kingdom, Ireland and Germany. The combined and consolidated financial statements represent the aggregation of the accounts and transactions of the following legal entities and their subsidiaries: PHH Vehicle Management Services Corporation and its wholly-owned subsidiaries ("PHH VMS Corporation"), excluding Trac Funding III, Inc. PHH Vehicle Management Services Inc. and its subsidiaries ("PHH VMS Canada") PHH Personalease Corporation Dealers Holding, Inc. and its wholly-owned subsidiaries PHH Commercial Leasing, Inc. PHH Corner Leasing, Inc. PHH Page Leasing, Inc. PHH St. Paul Leasing, Inc. PHH Continental Leasing, Inc. PHH Caribbean Leasing, Inc. PHH Market Leasing, Inc. PHH Milford Leasing, Inc. PHH National Leasing, Inc. PHH Power Leasing, Inc. PHH Vehicle Management Services Plc PHH Investment Services Ltd. PHH Financial Services Ltd. PHH Leasing (No. 9) Ltd. PHH Card Services Ltd. Allstar Petrol Card Limited PHH Truck Management Services Ltd. Pointeuro Limited and its wholly-owned subsidiaries Wright Express Corporation and its wholly-owned subsidiaries ("Wright Express") PHH Deutschland Inc. PHH Charitable Trust Wright Express Financial Services Corporation (the "Bank"), a subsidiary of Wright Express, is licensed as an industrial loan corporation pursuant to the laws of the State of Utah and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes examination by those agencies. The combined financial statements include the accounts and transactions of all of the above-mentioned legal entities. All significant balances and transactions between the combined entities have been 6 eliminated. Remaining balances with affiliates relate to PHH and Cendant or their subsidiaries. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. Cash and Cash Equivalents The Group considers highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts and Loans Receivable Accounts and loans receivable at December 31, 1998 includes $122 million of credit card receivables of the Bank. Property and Equipment Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is computed by the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is computed by the straight-line method over the estimated useful lives of the related assets or the lease term, if shorter. Goodwill Goodwill, which represents the excess of cost over fair value of net assets acquired, is amortized on a straight-line basis over the estimated useful lives, which range from 25 to 40 years. Intangible Assets Intangible assets represent the value placed on customer lists. Intangible assets are amortized on a straight-line basis over their estimated useful lives of 7 to 14 years. Asset Impairment The Company periodically evaluates the recoverability of its investments, intangible assets and long-lived assets, comparing the respective carrying values to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. Property and equipment is evaluated separately within each business. The recoverability of goodwill is evaluated on a separate basis for each acquisition. Recognition of Revenues and Expenses Fleet Leasing Services - The Group primarily leases vehicles under three standard arrangements: open-end operating leases, closed-end operating leases or open-end finance leases (direct financing leases). These leases are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases." Each lease is either classified as an operating lease or direct financing lease, as defined. The Group records the cost of the leased vehicle as an "investment in leases and leased vehicles." 7 Vehicles are depreciated using the straight-line method over the expected lease term. The lease terms range from 12 months to 144 months. Amounts charged to the lessees for interest on the unrecovered investment are credited to income on a level yield method, which approximates the contractual terms. Amounts received from the motor companies are partially recognized at the time of acquisition of the leased vehicle, a portion is deferred and recognized straight line over the lease term of the vehicle, and a portion is deferred and recognized at the time the vehicle is disposed of. Fleet Management Services - Revenues from fleet management services other than leasing are recognized over the period in which services are provided and the related expenses are incurred. Service, maintenance and repairs provision - Service, maintenance and repairs ("SMR") are provided for vehicles under certain leases. These leases include a revenue component for SMR costs. The Group accrues estimated losses on those leases where estimated SMR costs exceed revenues. Income Taxes The U.S. entities are included in the consolidated income tax return of Cendant. In the United Kingdom, the Group files combined income tax returns with other members of Cendant. The Group's share of the consolidated federal income tax liability is allocated to each company on a separate return basis. Separate income tax returns are filed in states or countries where consolidated returns are not permitted. In 1998 the income taxes payable for the Group has been reduced by approximately $5,281 for tax benefits received from other members of Cendant. The benefit has been accounted for as a capital contribution. For the other European companies, separate income tax returns are filed in countries where consolidated returns are not permitted. The provision for income taxes includes deferred income taxes resulting from items reported in different periods for income tax and financial statement purposes. Deferred tax assets and liabilities represent the expected future tax consequences of the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effects of changes in tax rates on deferred tax assets and liabilities are recognized in the period that includes the enactment date. Intercompany Transactions The Group borrows principally from PHH Corporation and PHH Dublin Unlimited to fund its leasing operations, except for PHH VMS Canada which raises its own funds through its commercial paper program. The costs of these funds are passed on to the leasing customers. In addition, PHH Corporation has guaranteed certain transactions entered into by the Group. Cendant provides certain administrative services to the Group. The Group records the cost of these services as expenses when incurred. These services are discussed in Note 12. Translation of Foreign Currencies The combined financial statements are expressed in U.S. dollars solely for the purpose of presenting the Group's financial position and results of operations. Assets and liabilities of foreign entities are translated at the exchange rates as of the balance sheet dates, equity accounts are translated at historical exchange rates and revenues, expenses and cash flows are translated at the average exchange rates for the periods presented. Translation gains and losses are included as a component of other comprehensive income in the statement of shareholders' equity. New Accounting Pronouncements Accounting for Derivative Instruments and Hedging Activities-The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in June 1998. This Standard establishes accounting and reporting standards for derivative instruments including certain derivative instruments embedded in other contracts, and for hedging activities. It 8 requires a company to recognize all derivatives as either assets or liabilities in the balance sheet and to measure those instruments at fair value. This standard is expected to be effective for fiscal years beginning after June 15, 2000. The Group has not completed its assessment of the effect on the combined financial statements that will result from the adoption of SFAS No. 133. 3. MERGER RELATED COSTS AND OTHER UNUSUAL CHARGES In connection with the merger of PHH with HFS Incorporated in the second quarter of 1997 and the merger of HFS Incorporated with CUC International, Inc. in the fourth quarter of 1997 (the "Mergers"), the Group recorded $62,662 of merger-related costs and other unusual charges. The Mergers afforded the Parent Company, at such time, an opportunity to rationalize its businesses, gain organizational efficiencies and maximize profits. Parent Company management initiated a plan to continue the downsizing of fleet operations by providing for 143 job reductions and eliminating unprofitable products. In conjunction with these charges during 1997, the Parent Company made a non-cash capital contribution of $46,827. Personnel related charges of $7,662 included termination benefits such as severance, medical and other benefits as well as retirement benefits pursuant to pre-existing contracts resulting from a change in control. Business termination charges of $55,000 represented costs to exit certain activities including: (i) $30,000 payment to terminate a relationship with a third-party associated with certain credit card operations and (ii) $25,000 goodwill impairment loss recorded as a result of abandoning certain unprofitable closed-end leasing activities. The Group determined that servicing certain small closed-end lease customers was not profitable. The decision to discontinue service of such customers resulted in reduced revenues and cash flows associated with operations previously acquired. Undiscounted future expected cash flows were not sufficient to support the carrying value of the related goodwill and accordingly, an impairment loss was recorded based on the discounted cash flows. The plan was substantially completed by December 31, 1997 and the Group recorded a credit to merger-related costs and other unusual charges in 1997 due to a change in estimate. The remaining liability at December 31, 1997 represented severance payments, which were paid in 1998 with any excess liability reversed as a credit to merger-related costs and other unusual charges as the plan was completed in 1998. The following table summarizes the activity by category of expenditure: Personnel Business Total Related Terminations --------------------------------- 1997 activity: Original Charge $ 62,662 $ 7,662 $ 55,000 Cash Payments (34,028) (4,028) (30,000) Non-cash reductions (25,000) -- (25,000) Adjustments (1,572) (1,572) -- -------- -------- -------- Balance December 31, 1997 $ 2,062 $ 2,062 $ -- ======== ======== ======== 1998 activity: Cash Payments $ (782) $ (782) $ -- Adjustments (1,280) (1,280) -- -------- -------- -------- Balance December 31, 1998 $ -- $ -- $ -- ======== ======== ======== 4. ACQUISITIONS AND DIVESTITURES a) On January 20, 1998, Cendant acquired The Harpur Group Ltd ("Harpur") for an initial purchase price of approximately $194 million, including acquisition costs. Additional purchase consideration of approximately $20 million was accrued as of December 31, 1998, upon the attainment of certain revenue thresholds as specified in the purchase agreement. The excess of the aggregate purchase price over the fair value of net assets acquired of approximately $189 million has been allocated to goodwill. Harpur was subsequently contributed by Cendant to PHH and is included within the Pointeuro Limited 9 legal entity. The operating results of Harpur are included in the combined income statement of the Group since the Cendant acquisition date. Harpur provides fuel card and fleet management services to corporate clients in the United Kingdom. Pro forma Information (unaudited) The underlying unaudited pro forma information includes the amortization expense associated with the assets acquired, the Group's financing arrangements and related income tax effects. The pro forma results are not necessarily indicative of the operating results that would have occurred had the Harpur acquisition been consummated on January 1, 1997, nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes the amortization expense associated with assets acquired, the Group's financing arrangements and related income tax effects. Pro forma results of operations for the year ended December 31, 1998, assuming the acquisition of Harpur had occurred on January 1, 1998, have not been presented as the effect is not material. The following table reflects the operating results of the Group for the year ended December 31, 1997 on a pro forma basis, which gives effect to the acquisition of Harpur as if such acquisition occurred on January 1, 1997. Year ended December 31, 1997 ----------------- Net revenues $1,475,034 Pre-tax $ 27,379 Net income $ 7,179 b) In January 1997, PHH VMS Corporation sold 50 percent of its interest in a subsidiary, which contained certain credit card operations to a third party, resulting in a gain of $17.5 million included in other revenue in the combined statement of income. 5. PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following: December 31, Useful Lives ------------------------- in Years 1998 1997 --------- --------- Building 50 $ 22,106 $ 8,977 Leasehold improvements 2-10 9,646 7,880 Software 3-5 7,033 4,187 Furniture, fixtures and equipment 3-8 146,047 88,034 Construction in progress -- 7,879 1,521 --------- --------- 192,711 110,599 Accumulated depreciation and amortization (99,182) (71,533) --------- --------- Property and equipment, net $ 93,529 $ 39,066 ========= ========= 6. NET INVESTMENT IN LEASES AND LEASED VEHICLES The Group offers primarily three leasing arrangements to its customers. These arrangements are: Open-end Operating Leases - Under these leases, the minimum lease term is 12 months with a month to month renewal thereafter. In addition, resale of the vehicles upon termination of the lease is generally for the account of the lessee except for a minimum residual value, which the Group has guaranteed. The Group guarantees 16% of the original cost of the unit for the first 24 months of the lease, and then 16% of the fair market value of the unit at inception of the month to month renewals thereafter. The original cost and accumulated depreciation of vehicles under these leases was $5.1 billion and $2.5 billion, respectively at December 31, 1998 and $4.9 billion and $2.4 billion, respectively at December 31, 1997. Closed-end Operating Leases - Under these leases, the minimum lease term is for 12 months or longer. However, 24 and 36 month lease terms are the most prevalent. These leases are cancelable under certain 10 conditions. Resale of the vehicles upon termination is for the account of the lessor. The original cost and accumulated depreciation of vehicles under these leases was $430 million and $108 million, respectively at December 31, 1998. The original cost and accumulated depreciation of vehicles under these leases were $328 million and $75 million, respectively at December 31, 1997. Direct Financing Leases - Under these leases, the minimum lease term is 12 months with a month to month renewal thereafter. In addition, resale of the vehicles upon termination of the lease is for either the account of the lessor (Europe) or the lessee (both North America and Europe). The net investment in leases and leased vehicles consisted of the following: December 31, ----------------------- 1998 1997 ---------- ---------- Vehicles under open-end operating leases $2,634,000 $2,552,000 Vehicles under closed-end operating leases 322,676 478,187 Direct financing leases 830,753 563,290 Accrued interest on leases 899 941 ---------- ---------- Net investment in leases and leased vehicles $3,788,328 $3,594,418 ---------- ---------- At December 31, 1998, future minimum lease payments are as follows: Direct Operating Financing Year Leases Leases Total ---- ---------- ---------- ---------- 1999 $ 267,094 $ 280,317 $ 547,411 2000 37,289 218,825 256,114 2001 17,779 134,781 152,560 2002 3,013 42,223 45,236 2003 1,068 4,867 5,935 Thereafter 946 -- 946 ---------- ---------- ---------- Total $ 327,189 $ 681,013 $1,008,202 ========== ========== ========== Fleet leasing revenue consisted of: Year Ended December 31, ---------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- Operating leases $1,197,616 $1,121,722 $1,071,129 Direct financing leases 89,280 65,471 57,366 ---------- ---------- ---------- $1,286,896 $1,187,193 $1,128,495 ========== ========== ========== Other managed vehicles with net carrying amounts of $222 million and $158 million at December 31, 1998 and 1997, respectively, are included in special purpose entities which are not owned by the Group. These entities do not require consolidation as they are not controlled by the Group and all risks and rewards rest with the owners. Additionally, managed vehicles totaling approximately $82 and $70 million at December 31, 1998 and 1997, respectively, are owned by special purpose entities, which are owned by the Group. However, such assets and related liabilities have been netted in the combined balance sheets since there is a two-party agreement with determinable accounts, a legal right of offset exists and the Group exercises its right of offset in settlement with client corporations. 11 7. DEBT UNDER MANAGEMENT PROGRAMS The components of the Group's debt under management programs are as follows:
Balance outstanding at December 31, ----------------------------------- 1998 1997 -----------------------------------------------------------------------====-----------====-------------- Installment notes payable on leased vehicles - Represents loans under a loan agreement with PHH Corporation to fund specific leases. Repayment of these notes is matched to payments on the underlying leases including the disposal of the vehicles at maturity. The interest rate can be either a fixed rate or floating rate as it is matched to the underlying lease and is based upon PHH Corporation's cost of funds. The average interest rates were 5.92% and 5.93% for 1998 and 1997, respectively. $1,012,712 $2,133,613 -------------------------------------------------------------------------------------------------------- Secured loans - Represents two five year secured transactions completed in December 1998 through two wholly-owned subsidiaries, PHH Trac Funding and PHH Trac Funding II, with banks. Specified beneficial interests in leases totaling $600,008 and $725,296, respectively, were contributed into the subsidiaries by PHH VMS Corporation. The loans are secured by the specified beneficial interests. 1,104,300 -- -------------------------------------------------------------------------------------------------------- Commercial paper - Borrowing outstanding which is used to fund the leased inventory in Canada. At December 31, 1998, all outstanding debt matured on February 1999. The average interest rates were 5.41% and 3.37% for 1998 and 1997, respectively. 89,042 117,178 -------------------------------------------------------------------------------------------------------- Self-fund notes - Represents loans made by customers to purchase leased vehicles. Repayment of these notes is matched to payments on the underlying leases including the disposal of the vehicles at maturity. Interest rate characteristics can be fixed or floating, depending on the underlying leases. Notes in the amount of $15,039 include full recourse provisions to the Group during 1998. The average interest rates were 5.88% and 5.85% for 1998 and 1997, respectively. 24,096 27,583 -------------------------------------------------------------------------------------------------------- Intercompany position - Short-term financing needs are met under revolving loan agreements with PHH Corporation and PHH Dublin Unlimited. Interest is based upon their average commercial paper cost for the month the loan is outstanding. These loans fund working capital needs and there is no stated maturity. Interest is paid monthly with respect to PHH Corporation and twice yearly for PHH Dublin Unlimited. 846,971 421,474 -------------------------------------------------------------------------------------------------------- Overnight loan - Short-term financing needs are met by overnight loans from a bank. This loan funded working capital needs. The rates of interest were 6% for 1998 and 1997. 33,190 101,228 -------------------------------------------------------------------------------------------------------- Total debt under management programs $3,110,311 $2,801,076 ========== ==========
PHH VMS Canada has an unsecured line of credit with a bank. The Group carries the line as a backup for outstanding commercial paper. At December 31, 1998, the Group had no borrowings outstanding under this line of credit. The total amount available under this line of credit is $3.3 million. The line of credit does not have a stated maturity date. Cendant Business Answers (Europe) Plc and its subsidiaries has an unsecured line of credit providing for borrowing of up to $33.2 million with a bank expiring in January 2000. At December 31, 1998 Cendant Business Answers (Europe) Plc had no borrowings outstanding under this line. 12 Cendant Business Answers (Europe) Plc maintains Bills of Exchange available to meet short-term financing needs. At December 31, 1998, Cendant Business Answers (Europe) Plc had no borrowings outstanding under this arrangement. Projections of estimated repayments of debt under management programs as of December 31, 1998 are set forth as follows: Year 1999 $ 1,798,118 2000 774,753 2001 355,669 2002 115,720 2003 39,402 Thereafter 26,649 ------------ $ 3,110,311 ============ 8. SALE-LEASEBACK TRANSACTIONS The Group entered into several sale-leaseback transactions as described below: During 1998, the Group entered into an agreement with an independent third party to sell and leaseback vehicles subject to operating leases. Accordingly, vehicles with a net carrying amount of $100,600 were removed from the Group's books. Since the net carrying value of these vehicles was equal to their sales value, there was no gain or loss recognized on the sale. The lease agreement entered into between the Group and the counterparty was for a minimum lease term of 12 months with three one-year renewal options. This lease qualified as an operating lease. For the year ended December 31, 1998, the total rental expense incurred by the Group under this lease was $17,700. The Group entered into two sale-leaseback transactions with an independent third party ("Counterparty") in Canada. Under these arrangements, the Group sells its net investment in operating leases and leased vehicles to the Counterparty. Then, it repurchases the leased vehicles (the Counterparty retains the lease rights). Subsequently, the Group leases the vehicles under a direct financing lease to the Counterparty. The Counterparty prepays all lease payments except for an agreed-upon residual amount. These residual amounts are typically 3% to 4.5% of the total lease payments. These residual amounts represent the Group's total exposure from these transactions. The total amounts of net investment in operating leases and leased vehicles sold under these agreements were $185,900 and $162,000 during 1998 and 1997, respectively. The total outstanding prepaid rent under such agreements were $240,100 and $225,000 at December 31, 1998 and 1997, respectively. The residual amounts outstanding were $9,400 and $8,000 at December 31, 1998 and 1997, respectively. The total revenues recognized under these agreements were $90,600, $88,000 and $84,000 for 1998, 1997 and 1996, respectively. During 1998, the Group purchased and leased back to a provincial government unit a fleet of vehicles with a carrying value of $24,800. The lease under this transaction qualified as an operating lease. Subsequent to this transaction, the Group entered into a sale-leaseback transaction with a financial institution similar to the arrangement with the Counterparty described above, except that the financial institution prepaid all the rent. At December 31, 1998, the total prepaid rent outstanding under this agreement was $19,000. For the year ended December 31, 1998, the total rental revenue recognized from the provincial government and rental expense incurred to the financial institution under these agreements was $7,400. 9. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are used to manage exposure to market risks associated with 13 fluctuations in interest rates. Analyses are performed on an on-going basis to determine that a high correlation exists between the characteristics of derivative instruments and the assets or transactions being hedged. As a matter of policy, derivatives activities are not engaged for trading or speculative purposes. Exposure to credit-related losses exist in the event of non-performance by counterparties to certain derivative financial instruments. Such risk is managed by periodically evaluating the financial position of counterparties and spreading the positions among multiple counterparties. Non-performance is presently not expected by any of the counterparties. Interest Rate Swaps - If the interest rate characteristics of the funding mechanism that the Group uses does not match the interest rate characteristics of the assets being funded, interest rate swap agreements are entered into to offset the interest rate risk associated with such funding. The swap agreements correlate the terms of the assets to the maturity and rollover of the debt by effectively matching a fixed or floating interest rate with the stipulated revenue stream generated from the portfolio of assets being funded. Amounts to be paid or received under interest rate swap agreements are accrued as interest rates change and are recognized over the life of the swap agreements as an adjustment to interest expense. For the years ended December 31, 1998, 1997 and 1996, hedging activities increased interest expense $3,600, $7,800 and $7,060, respectively, and had no effect on the weighted average borrowing rate. The fair value of the swap agreements is not recognized in the combined financial statements since they are accounted for as matched swaps. The following table summarizes the maturity and weighted average rates of interest rate swaps at December 31, 1998.
Maturities Total 1999 2000 2001 2002 ----------------------------------------------------------------------- North America Pay fixed/receive floating: Notional value $ 42,061 $ 35,690 $ 5,526 $ 845 Weighted average receive rate 5.07% 5.07% 5.07% Weighted average pay rate 5.10% 4.89% 4.93% Pay floating/receive floating: Notional value $ 47,852 $ 29,055 $ 13,208 $ 4,486 $ 1,103 Weighted average receive rate 5.45% 5.30% 5.24% 5.23% Weighted average pay rate 5.46% 5.45% 5.45% 5.45% United Kingdom Pay fixed/receive floating Notional value $ 663,800 $ 256,392 $ 207,438 $ 145,206 $ 54,764 Weighted average receive rate 6.26% 6.26% 6.26% 6.26% Weighted average pay rate 6.81% 6.71% 6.30% 6.30% Deutschland Pay fixed/receive floating Notional value $ 31,897 $ 21,165 $ 9,242 $ 1,490 Weighted average receive rate 3.24% 3.24% 3.24% Weighted average pay rate 4.28% 4.29% 4.29%
Additionally, depending on market fundamentals of the price of gasoline and other conditions, Wright Express may purchase put options to reduce or eliminate the risk of gasoline price declines. Put options purchased by Wright Express effectively establish a minimum sales transaction fee for the volume of gasoline purchased on Wright Express's programs. An increase in the value of the options is highly correlated to a decrease in the average price of gasoline purchased by Wright Express's cardholders. Put options permit Wright Express to participate in price increases above the option price. The cost of an option is amortized in the month the option expires. Gains from the sale or exercise of options are recognized when the underlying option is sold. 14 At December 31, 1998, the total contract amount of such options was 32.4 million gallons of gasoline and the unamortized cost of options was $499 and is included in other assets in the accompanying combined balance sheet. There were no gasoline option contracts during 1997. 10. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Group in estimating fair value disclosures for material financial instruments. The fair values of the financial instruments presented may not be indicative of their future values. Cash and Cash Equivalents -The carrying amounts for cash and cash equivalents approximate fair value. Loans Receivable -The carrying amounts for loans receivable approximate fair value. Direct Financing Leases - The contractual minimum lease terms on these contracts is 12 months. The estimated fair value of these short-term instruments approximates the carrying amounts. Borrowed Funds - The carrying amount of borrowed funds approximates fair value. Debt under Management Programs - The fair value was determined based on quoted market prices for similar issues or on current rates available to the Group for debt on similar terms. Interest Rate Swaps - The fair value of interest rate swaps are estimated, using dealer quotes, as the amount that the Group would receive or pay to execute a new agreement with terms identical to those remaining on the current agreement, considering interest rates at the reporting date. The carrying amounts and fair values of the Group's financial instruments at December 31, 1998 and 1997 were as follows:
1998 1997 ----------------------------------- ---------------------------------------- Estimated Estimated Notional Carrying Fair Notional Carrying Fair Amount Amount Value Amount Amount Value -------- -------- --------- -------- -------- -------- Cash and cash equivalent $ 21,059 $ 21,059 $ 11,938 $ 11,938 Loans receivable 121,705 121,705 -- -- Options 499 1,233 -- -- Direct financing leases 830,753 830,753 563,290 563,290 Borrowed funds 22,207 22,207 39,677 39,677 Liabilities under management programs: Debt Affiliates 1,859,683 1,859,683 2,531,863 2,531,863 Third party 1,250,628 1,250,628 269,213 269,213 Off balance sheet derivatives: Interest rate swaps $ 785,611 $ 634,332 In a gain position 828 2,823 In a loss position (13,470) (1,370)
15 11. INCOME TAXES The income tax provision consisted of the following: For the Year Ended December 31, ------------------------------------- 1998 1997 1996 --------- --------- --------- Current: U.S. federal $ 91,096 $ 24,518 $ (23,483) State and local 13,621 2,734 (1,918) Foreign 14,523 17,429 648 --------- --------- --------- 119,240 44,681 (24,753) --------- --------- --------- Deferred: U.S. federal (65,476) (13,308) 38,186 State and local (10,205) (791) 4,251 Foreign 12,241 (6,933) 7,639 --------- --------- --------- (63,440) (21,032) 50,076 --------- --------- --------- Provision for income taxes $ 55,800 $ 23,649 $ 25,323 ========= ========= ========= Net deferred income tax assets and liabilities are comprised of the following: For the Year Ended December 31, ------------------------------------- 1998 1997 ==== ==== Net deferred income taxes: Provision for doubtful accounts $ 3,721 $ 2,382 Net operating losses 510 941 Accrued liabilities and deferred income 11,344 16,358 Alternative minimum tax credit carry forward 19,800 19,800 Other 4,570 215 --------- --------- Net deferred tax asset $ 39,945 $ 39,696 ========= ========= Management program net deferred income taxes: Depreciation $(214,898) $(243,938) Other 1,454 (303) --------- --------- Net deferred tax liability $(213,444) $(244,241) ========= ========= At December 31, 1998, Wright Express had net operating losses of approximately $1,300 available for tax purposes which expire through 2001. Deferred taxes have not been provided on approximately $169,000 of cumulative undistributed earnings of foreign subsidiaries at December 31, 1998, as those earnings are considered to be permanently reinvested. The determination of unrecognized deferred US tax liability for unremitted earnings is not practicable. The Group's effective income tax rate differs from the statutory federal rate as follows: Year Ended December 31, ----------------------- 1998 1997 1996 ---- ---- ---- Federal statutory rate 35.0% 35.0% 35.0% State income taxes net of federal benefit 1.5% 3.5% 2.3% Foreign taxes differential (0.9)% 0.8% (0.5%) Non-deductible goodwill 1.2% 1.7% 1.2% Merger-related costs -- 24.3% -- Other 0.7% 2.6% 0.3% ---- ---- ---- 37.5% 67.9% 38.3% ==== ==== ==== 16 12. RELATED PARTY TRANSACTIONS The Group receives the benefit of certain administrative services from Cendant and subsidiaries. For these administrative services, the Group was charged $6,970, $18,892 and $4,379 for the years ended December 31, 1998, 1997 and 1996, respectively. The Group also purchases data processing services from Cendant, which amounted to $4,947, $5,094 and $5,509 for the years ended December 31, 1998, 1997 and 1996, respectively. Such expenses are included in selling, general and administrative expenses in the combined income statement. These charges represent allocations from the parent companies who owned the Group during each of the three years and are not indicative of amounts which would have been incurred had the Group been under common ownership for all years or if the Group had operated independently. PHH Financial Services Limited makes loans from time to time to Cendant Relocation Plc. The balance of such loans receivable were $55,500 and $18,200 at December 31, 1998 and 1997, respectively. Associated interest charges were $1,940, $1,276 and $1,476 for 1998, 1997 and 1996, respectively. Overhead expenses of $1,720, $453 and $628 were also allocated to this subsidiary by Cendant Business Answers (Europe) Plc during 1998, 1997 and 1996 respectively. During 1998, PHH Deutschland, Inc. charged Cendant $703 in respect to office expenses for shared facilities. The Group established a $7,000 revolving loan agreement with Cendant effective December 23, 1998. At December 31, 1998, the Group had $5,847 outstanding under this revolving loan with an interest rate of approximately 6%. This liability is included in Due to Affiliates in the combined balance sheet. During February 1999, such revolving loan availability was increased to $40,000. During 1996, Deutschland, Inc. received a cash capital contribution from PHH of approximately $4,985 to meet minimum capital requirements. See Note 7 for a description of related party financing activities. 13. BENEFIT PLANS The majority of domestic employees of the Group are participants in the defined benefit and defined contribution plans of Cendant. Effective May 1, 1998, former defined contribution plans of PHH Corporation were merged into Cendant's plans. Substantially all domestic employees are covered. Accumulated plan benefit data is not available for the individual companies participating in the defined benefit plan. Employees of Wright Express are also participants in the defined contribution plan. Benefit plan expenses were $2,583, $2,300 and $2,006 for the years ended December 31, 1998, 1997 and 1996, respectively. Foreign employees can participate in a contributory defined benefit pension plan, at the employee's option. Benefits are based on an employee's years of credited service and a percentage of final average compensation. Net costs for the foreign plan included the following: December 31, ----------------------------- 1998 1997 1996 ------- ------- ------- Service cost $ 1,147 $ 1,343 $ 853 Interest cost 1,123 1,074 714 Actual return on assets (1,330) (1,091) (664) Net amortization and deferral 55 53 56 ------- ------- ------- Net periodic pension cost $ 995 $ 1,379 $ 959 ======= ======= ======= 17 The changes in benefit obligations and plan assets, as well as the funded status of the foreign pension plan are as follows: 1998 1997 -------- -------- Change in benefit obligation Benefit obligation at January 1, $ 16,097 $ 12,718 Service cost 1,147 1,343 Interest cost 1,123 1,074 Benefit payments (209) (198) Net loss/gain 7,391 (29) Contributions 737 371 Translation -- 818 -------- -------- Benefit obligation at December 31, $ 26,286 $ 16,097 ======== ======== Change in plan assets Fair value of plan assets at January 1, $ 15,491 $ 10,857 Actual return of plan assets 1,332 2,317 Benefit payments (378) (361) Contributions 2,515 1,891 Other 696 -- Translation 88 787 -------- -------- Fair value of plan assets at December 31, $ 19,744 $ 15,491 ======== ======== Funded status $ (6,542) $ (606) Unrecognized net gain/loss from past experience different from that assumed and effects of change in assumptions 6,514 (248) Unrecognized prior service cost 237 260 Unrecognized net obligation 91 132 -------- -------- Prepaid/(accrued) benefit cost $ 300 $ (462) ======== ======== The plan resulted in a net prepaid pension asset of $300 at December 31, 1998 and a liability of $462 at 1997. This amount is classified as other assets and accrued liabilities in the Group's combined balance sheet at December 31, 1998 and 1997, respectively. The Group recorded an additional minimum liability of $2,222 at December 31, 1998. This liability represents the amount by which the accumulated benefit obligation exceeds the sum of the fair market value of plan assets and accrued amounts previously recorded. The additional liability may be offset by an asset to the extent of previously unrecognized prior service cost. The asset amount of $328 is included in other assets in the Group's combined balance sheet at December 31, 1998. The remaining amount of $1,976 is recorded as a reduction to other comprehensive income, net of related tax benefits of $670. The following weighted-average assumptions were used to determine the obligations under the foreign plan: December 31, ------------------------- 1998 1997 1996 ---- ---- ---- Discount rate 5.25% 7.00% 8.50% Expected rate of return on plan assets 6.25% 8.00% 9.50% Rate of compensation increase 3.25% 3.25% 5.50% 14. PROFIT INCENTIVE PLANS The Group has established Incentive Plans for both Sales/Client Relations personnel and managerial 18 positions. Sales/Client Relations personnel's incentives are based upon revenues, profitability, individual objectives and the department's and Cendant's earnings before interest, taxes, depreciation and amortization adjusted to exclude nonrecurring or unusual items ("Adjusted EBITDA"). The incentive plan for managers is based upon individual objectives and the department's and Cendant's Adjusted EBITDA targets. The total expense was $5,111, $7,394 and $5,631 for 1998, 1997 and 1996, respectively. 15. COMMITMENTS AND CONTINGENCIES Lines of Credit - Wright Express has entered into commitments to extend credit in the normal course of business in order to meet the financing needs of its customers. Wright Express's exposure to loss in the event of nonperformance by the other party for commitments to extend credit is represented by the contractual notional amount of those instruments. Wright Express uses the same credit policies in making commitments as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments significantly exceed the normal draw upon the line, the total commitment amounts do not necessarily represent future cash requirements. Wright Express evaluates each customer's creditworthiness on a case-by-case basis. At December 31, 1998, Wright Express had $361,000 of commitments to extend additional credit. Leases - Certain facilities and equipment are leased under short-term lease agreements expiring at various dates through 2002 and beyond. All such leases are accounted for as operating leases. Total rental expense for premises and equipment amounted to $11,841, $6,135 and $5,308 for the years ended December 31, 1998, 1997 and 1996, respectively. Future minimum lease payments under non-cancelable operating leases which have an initial term of more than twelve months are as follows: Year ---- 1999 $ 7,238 2000 6,854 2001 6,297 2002 5,606 2003 2,453 Thereafter 21,031 -------- Total minimum lease payments $ 49,479 ======== Group guarantees - A composite cross guarantee exists between companies included within the Cendant Business Answers (Europe) Plc group and The Harpur Group Limited group, with National Westminster Bank Plc. This guarantee includes Cendant Relocation Plc. A cross guarantee exists between Cendant Business Answers (Europe) Plc and PHH Allstar Limited, with Bank of Ireland. Litigation - In April 1998, Cendant publicly announced that it discovered accounting irregularities in the former business units of CUC International Inc. Such discovery prompted investigations into such matters by Cendant and the Audit Committee of Cendant's Board of Directors. As a result of the findings from the investigations, Cendant restated its previously reported financial results for 1997, 1996 and 1995. Since such announcement, more than 70 lawsuits claiming to be class actions, two lawsuits claiming to be brought derivatively on Cendant's behalf and several individual lawsuits have been filed in various courts against Cendant and other defendants. The Court has ordered consolidation of many of the actions. The SEC and the United States Attorney for the district of New Jersey are conducting investigations relating to the matters referenced above. The SEC advised Cendant that its inquiry should not be construed as an indication by the SEC or its staff that any violations of law have occurred. As a result of the findings from the investigations, Cendant made all adjustments considered necessary which 19 are reflected in its financial statements. However, Cendant can provide no assurances that additional adjustments will not be necessary as a result of these government investigations. Cendant does not believe that it is feasible to predict or determine the final outcome of these proceedings or investigations or to estimate the amount or potential range of loss with respect to these proceedings or investigations. The possible outcome or resolutions of the proceedings could include judgments and against Cendant or settlements and could require substantial payments by Cendant. In addition, the timing of the final resolution of the proceedings or investigations is uncertain. The Group is currently not a party to such litigation and management does not currently believe that there is any basis for asserting a claim thereunder against the Group. In the ordinary course of business, the Group has various outstanding commitments and contingent liabilities that are not reflected in the accompanying combined financial statements. In addition, the Group is a defendant in several claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on the financial condition of the Group. 16. SEGMENT INFORMATION Effective December 31, 1998, the Group adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". The provisions of SFAS No. 131 established revised standards for public companies relating to reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, and geographic areas. The Group operates in a single segment, fleet and fuel card management. Geographic Segment Information United United All Other Total States Kingdom Countries ----- ------ ------- --------- 1998 Total revenues $1,605,063 $1,286,368 $ 231,363 $ 87,332 Assets 4,728,299 3,199,614 1,326,890(1) 201,795 Long-lived assets 93,529 27,095 61,734 4,700 1997 Total revenues $1,452,695 $1,218,104 $ 153,556 $ 81,035 Assets 4,135,112 3,165,686 788,859 180,567 Long-lived assets 39,066 16,009 22,065 992 1996 Total revenues $1,357,039 $1,151,353 $ 125,312 $ 80,374 Assets 3,852,827 2,934,683 639,843 278,301 Long-lived assets 39,364 14,435 23,346 1,583 ---------- (1) Includes $294.3 million of assets acquired in connection with the Harpur acquisition. Geographic segment information is classified based on the geographic location of the subsidiary. Long-lived assets are comprised of property and equipment. 20 17. SUBSEQUENT EVENT On May 24, 1999, PHH announced that they had executed an agreement with Avis Rent A Car, Inc. ("Avis"), pursuant to which Avis will acquire the net assets of the Group from PHH for $1.44 billion in assumed intercompany debt of PHH Holdings, a wholly-owned subsidiary of PHH, and the issuance of $360 million in convertible preferred stock of Avis Fleet Leasing and Management Corporation, a wholly-owned subsidiary of Avis. The transaction is subject to customary regulatory approvals and is expected to close on or about June 30, 1999. 21 PHH VEHICLE MANAGEMENT SERVICE CONDENSED COMBINED BALANCE SHEETS (In Thousands) UNAUDITED March 31 December 31, ---------- ------------ 1999 1998 ---------- ------------ ASSETS: Cash and cash equivalents $ 74,211 $ 21,059 Accounts and loans receivable, net 506,325 508,901 Property and equipment, net 96,919 93,529 Goodwill and other intangibles,net 227,351 236,438 Deferred income taxes 39,200 39,945 Other assets 20,272 40,099 ---------- ---------- Total assets exclusive of assets under management programs 964,278 939,971 ---------- ---------- ASSETS UNDER MANAGEMENT PROGRAMS: Net investment in leases and leased vehicles 3,867,856 3,788,328 ---------- ---------- TOTAL ASSETS $4,832,134 $4,728,299 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts payable and accrued liabilities $ 443,596 $ 295,217 Income taxes payable 119,093 108,089 Deferred revenue 43,590 41,146 Due to affiliates 228,160 182,061 Borrowed funds 20,769 47,207 ---------- ---------- Total liabilities exclusive of liabilities under management programs 855,208 673,720 ---------- ---------- LIABILITIES UNDER MANAGEMENT PROGRAMS: Debt 3,014,758 3,110,311 Deferred income taxes 213,059 213,444 ---------- ---------- 3,227,817 3,323,755 ---------- ---------- TOTAL LIABILITIES 4,083,025 3,997,475 ---------- ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY 749,109 730,824 ---------- ---------- TOTAL LIABIILITIES AND SHAREHOLDERS' EQUITY $4,832,134 $4,728,299 ========== ========== See notes to condensed combined financial statements. 22 PHH VEHICLE MANAGEMENT SERVICES CONDENSED COMBINED INCOME STATEMENTS (In Thousands) UNAUDITED For the three months ended March 31, 1999 March 31, 1998 --------------------------------- REVENUE $400,253 $391,305 EXPENSES Depreciation on leased vehicles 253,743 249,384 Interest expense 46,457 43,183 Selling, general and administrative expenses 63,569 55,425 Depreciation and amortization on assets other than leased vehicles 7,332 6,341 -------- -------- Total expenses 371,101 354,333 -------- -------- INCOME BEFORE PROVISION FOR INCOME TAXES 29,152 36,972 PROVISION FOR INCOME TAXES 11,002 13,857 -------- -------- NET INCOME $ 18,150 $ 23,115 ======== ======== See notes to condensed combined financial statements. 23 PHH VEHICLE MANAGEMENT SERVICES CONDENSED COMBINED STATEMENTS OF CASH FLOWS (In Thousands) UNAUDITED
For the three months ended March 31, 1999 1998 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: $ 509,890 $ 284,470 INVESTING ACTIVITIES: Assets under management programs Investment in leases and leased vehicles (560,758) (626,170) Repayments of investment in leases and leased vehicles 133,455 222,021 Proceeds from sales and transfers of leases and leased vehicles 44,640 27,284 Net purchases of property and equipment (8,586) (14,852) Cash acquired in acquisition of business, net of contribution from Parent -- 2,341 --------- --------- Net cash used in investing activities (391,249) (389,376) --------- --------- FINANCING ACTIVITIES: Other, net (26,438) 23,023 Liabilities under management programs Proceeds from debt issuance 112,061 162,789 Principal payments on debt issuance (162,574) (103,292) --------- --------- Net cash (used in) provided by financing activities (76,951) 82,520 EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 11,462 10,448 --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 53,152 (11,938) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,059 11,938 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 74,211 $ -- ========= ========= Non-cash investing and financing information: Business acquired: Fair value of assets acquired, excluding cash $ 294,287 Liabilities assumed (86,006) Capital contribution from affiliate for acquisition (190,597) Additional purchase consideration payable (20,025) --------- Net cash acquired $ (2,341) =========
See notes to condensed combined financial statements 24 PHH VEHICLE MANAGEMENT SERVICES NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The condensed combined balance sheet of the Group as of March 31, 1999 and the condensed combined statements of income and cash flows for the three months ended March 31, 1999 and 1998 are unaudited. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation of such financial statements are included. The accompanying unaudited combined financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. The December 31, 1998 condensed combined balance sheet was derived from the Group's audited financial statements for the year ended December 31, 1998, and should be read in conjunction with such combined financial statements and notes thereto. Operating results for the three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 2. ACQUISITIONS On January 20, 1998, Pointeuro Limited acquired the Harpur Group Limited ("Harpur") for an initial purchase price of approximately $194 million, including acquisition costs. Additional purchase consideration of approximately $20 million was accrued as of December 31, 1998, upon the attainment of certain revenue thresholds as specified in the purchase agreement. Harpur provides fuel card and fleet management services to corporate clients in the United Kingdom. The transaction was accounted for as a purchase and, accordingly, the operating results of Harpur have been included in the Group's combined financial statements since the date of acquisition. The excess of the aggregate purchase price over the fair value of net assets acquired of approximately $189 million has been allocated to goodwill. Pro forma results of operations for the three months ended March 31, 1998, assuming the acquisition of Harpur had occurred on January 1, 1998, have not been presented as the effect is not material. 3. SEGMENT INFORMATION The Group operates in a single segment, fleet and fuel card management. Geographic Segment Information United United All Other Total States Kingdom Countries ---------- ---------- ---------- ----------- 1999 Revenues $ 400,253 $ 333,464 $ 59,316 $ 7,473 Assets 4,832,134 3,216,939 1,386,131 229,064 Long-lived assets 96,919 27,396 64,653 4,870 1998 Revenues $ 391,305 $ 330,306 $ 54,195 $ 6,804 Assets 4,483,710 3,184,333 1,072,076 227,301 Long-lived assets 50,373 16,664 32,718 991 25 4. COMPREHENSIVE INCOME Components of comprehensive income (loss) are summarized as follows: Three months ended March 31, ----------------------- 1999 1998 -------- -------- Net income $ 18,150 $ 23,115 Other comprehensive income: Currency translation 201 (1,630) -------- -------- Comprehensive income $ 18,351 $ 21,485 ======== ======== 5. SUBSEQUENT EVENT On May 24, 1999, PHH announced that they had executed an agreement with Avis Rent A Car, Inc. ("Avis") pursuant to which Avis will acquire the net assets of the Group from PHH for $1.44 billion in assumed intercompany debt of PHH Holdings, a wholly-owned subsidiary of PHH, and the issuance of $360 million in convertible preferred stock of Avis Fleet Leasing and Management Corporation, a wholly-owned subsidiary of Avis. The transaction is subject to customary regulatory approval and is expected to close on or about June 30, 1999. 26 EX-99.2 6 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The following unaudited pro forma consolidated financial statements (the "Unaudited Pro Forma Consolidated Financial Statements") of the Company have been derived by the application of pro forma adjustments to the historical financial consolidated statements of Avis and VMS. The unaudited pro forma consolidated statements of operations for the year ended December 31, 1998 and for the three month period ended March 31, 1999, give effect to the acquisition discussed in Item 2 as if it had occurred on January 1 of the earliest period presented. The unaudited pro forma consolidated balance sheet as of March 31, 1999 gives effect to the acquisition discussed in Item 2 as if it had occurred on such date. The VMS Acquisition will be accounted for using the purchase method of accounting for financial accounting purposes. The purchase price will be allocated to the assets acquired and the liabilities assumed, based on their respective fair values. The allocation of the purchase price reflected in the Unaudited Pro Forma Consolidated Financial Statements is preliminary. The adjustments that have been included in the Unaudited Pro Forma Consolidated Financial Statements will change based upon the final allocation of the purchase price when additional information concerning asset and liability valuation is obtained. The actual allocation of the purchase price and the resulting effect on operating income may differ from the unaudited pro forma amounts included herein. However, the changes are not expected to have a material effect on the Unaudited Pro Forma Consolidated Financial Statements of the Company. The Company believes that the accounting used to reflect the above transactions provides a reasonable basis on which to present this unaudited pro forma consolidated financial data. The pro forma consolidated balance sheet and consolidated statements of operations are unaudited and were derived by adjusting the historical financial statements of the Registrant and VMS. The Unaudited Pro Forma Consolidated Financial Statements are provided for informational purposes only and should not be construed to be indicative of the Company's consolidated financial position or results of operations had the acquisition discussed in Item 2 been consummated on the dates assumed and do not project the Company's consolidated financial position or results of operations for any future date or period. The Unaudited Pro Forma Consolidated Financial Statements and accompanying notes should be read in conjunction with the Company's Consolidated Financial Statements and the VMS Combined Financial Statements. -1- AVIS RENT A CAR, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET As of March 31, 1999 (dollars in thousands)
Pro Forma Avis VMS Adjustments(1) Consolidated ------------ ------------ -------------- ------------ Cash and cash equivalents ........................... $ 41,071 $ 74,211 $ 100,000(2) $ 162,282 (53,000)(2) Restricted cash ..................................... 137,414 -- -- 137,414 Accounts receivable, net of allowance for doubtful accounts ......................................... 271,372 506,325 -- 777,697 Prepaid expenses .................................... 43,828 -- -- 43,828 Finance lease receivables ........................... -- 848,193 -- 848,193 Vehicles, net ....................................... 3,558,957 3,019,663 -- 6,578,620 Property and equipment, net ......................... 147,707 96,919 -- 244,626 Deferred income tax assets .......................... 105,633 39,200 -- 144,833 Preacquisition goodwill ............................. -- 227,351 (227,351)(2) Cost in excess of net assets acquired, net .......... 465,565 1,283,242(2) 1,748,807 Other assets ........................................ 49,189 20,272 95,000(2) 164,461 ------------ ------------ ------------ ------------ Total assets ........................................ $ 4,820,736 $ 4,832,134 $ 1,197,891 $ 10,850,761 ============ ============ ============ ============ Accounts payable .................................... $ 193,234 $ 443,596 $ -- $ 636,830 Accrued liabilities ................................. 308,360 -- 100,000 408,360 Due to affiliates, net .............................. 27,496 -- -- 27,496 Current income tax liabilities ...................... 25,660 119,093 (103,000)(2) 41,753 Deferred income tax liabilities ..................... 29,479 213,059 -- 242,538 Deferred revenue .................................... -- 43,590 -- 43,590 Public liability, property damage and other insurance liabilities net ........................ 274,243 -- -- 274,243 Total debt, including amounts due within one year ... 3,369,713 3,263,687 (3,221,617)(1)(2) 8,221,400 5,028,508(1)(2) (218,891)(1)(2) ------------ ------------ ------------ ------------ Total liabilities ................................... 4,228,185 4,083,025 1,585,000 9,896,210 ------------ ------------ ------------ ------------ Acquisition Subsidiary Preferred Stock .............. -- -- 362,000(2) 362,000 ------------ ------------ ------------ ------------ Class A Common Stock ................................ 359 -- -- 359 Additional paid-in capital .......................... 591,723 -- -- 591,723 Retained earnings ................................... 107,401 749,109 (749,109)(2) 107,401 Accumulated other comprehensive loss ................ (10,251) -- -- (10,251) Treasury stock ...................................... (96,681) -- -- (96,681) ------------ ------------ ------------ ------------ Common stockholders' equity ......................... 592,551 749,109 (749,109) 592,551 ------------ ------------ ------------ ------------ Total liabilities, preferred stock and common stockholders' equity ............................. $ 4,820,736 $ 4,832,134 $ 1,197,891 $ 10,850,761 ============ ============ ============ ============
-2- AVIS RENT A CAR, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (dollars in thousands, except per share amounts)
Pro forma Avis VMS Adjustments(1) Consolidated ----------- ----------- ----------- ------------ Revenue ........................................ $ 2,297,582 $ 1,605,063 $ -- $ 3,902,645 Costs and expenses: Direct operating, net ....................... 925,181 -- -- 925,181 Vehicle interest ............................ 187,773 179,729 841 (3) 357,362 (10,981)(7) Vehicle depreciation ........................ 581,022 1,015,511 -- 1,596,533 Property and equipment depreciation ......... 13,191 18,144 -- 31,335 Goodwill amortization ....................... 11,854 7,536 23,999(4) 43,389 Non-vehicle interest ........................ 3,862 3,831 145,528(6) 146,074 (1,307)(8) (5,840)(7) Amortization of debt issuance costs and other ................................ 11,705 -- 9,900(5) 21,605 Lease charges ............................... 12,042 -- -- 12,042 Selling, general and administrative ......... 438,724 231,444 -- 670,168 ----------- ----------- ----------- ----------- Income before provision for income taxes ....... 112,228 148,868 (162,140) 98,956 Provision for income taxes ..................... 48,707 55,800 (53,947)(9) 50,560 ----------- ----------- ----------- ----------- Net income ..................................... $ 63,521 $ 93,068 $ (108,193) 48,396 =========== =========== =========== Acquisition Subsidiary Preferred Stock dividends 18,190(11) ----------- Earnings applicable to common stockholders ..... $ 63,521 $ 30,206 =========== =========== Earnings per share(10): Basic ................................... $ 1.86 $ 0.88 =========== =========== Diluted ................................. $ 1.82 $ 0.86 =========== ===========
-3- AVIS RENT A CAR, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 (dollars in thousands, except per share amounts)
Pro forma Avis VMS Adjustments(1) Consolidated --------- --------- ----------- ------------ Revenue ........................................ $ 566,917 $ 400,253 $ -- $ 967,170 Costs and expenses: Direct operating, net ....................... 222,378 -- -- 222,378 Vehicle interest ............................ 47,864 45,706 (564)(3) 91,562 (1,444)(7) Vehicle depreciation ........................ 141,712 253,743 -- 395,455 Property and equipment depreciation ......... 3,211 5,305 -- 8,516 Goodwill amortization ....................... 3,174 2,027 5,857(4) 11,058 Non-vehicle interest ........................ 575 751 36,382(6) 36,128 (120)(8) (1,460)(7) Amortization of debt issuance costs and other 2,682 -- 2,475(5) 5,157 Lease charges ............................... 7,690 -- -- 7,690 Selling, general and administrative ......... 110,801 63,569 -- 174,370 --------- --------- --------- --------- Income before provision for income taxes ....... 26,830 29,152 (41,126) 14,856 Provision for income taxes ..................... 11,644 11,002 (13,787)(9) 8,859 --------- --------- --------- --------- Net income ..................................... $ 15,186 $ 18,150 $ (27,339) 5,997 ========= ========= ========= Acquisition Subsidiary Preferred Stock dividends 4,548 (11) --------- Earnings applicable to common stockholders ..... $ 15,186 $ 1,449 ========= ========= Earnings per share(10): Basic ....................................... $ 0.48 $ 0.05 ========= ========= Diluted ..................................... $ 0.47 $ 0.04 ========= =========
-4- AVIS RENT A CAR, INC NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (1) The Unaudited Pro Forma Consolidated Financial Statements assume that the amounts borrowed (approximately $5.0 billion) at the closing date, June 30, 1999, would be outstanding for all pro forma periods presented. If such borrowings were in excess of the historical amounts borrowed, the excess would be first applied as a reduction of the revolving line of credit borrowings and the remainder as a reduction of VMS fleet debt. (2) The following pro forma adjustments relate to the VMS Acquisition as if it had occurred on March 31, 1999: o Adjustments of VMS net assets to their estimated fair value for: Costs in excess of net assets acquired ................................. $1,283,242 Accrued liabilities for closing costs and transaction fees ............. 100,000 o Cash on hand utilized to pay a portion of the purchase price .............. 53,000 o Elimination of existing: Goodwill ............................................................... 227,351 Debt ................................................................... 3,221,617 Stockholders' equity ................................................... 749,109 o Issuance of: New debt ............................................................... 5,028,508 Acquisition Subsidiary Preferred Stock ................................. 362,000 o Reduction of VMS debt as a result of the application of the excess of the expected amounts to be borrowed at June 30, 1999, over the actual amounts borrowed at March 31, 1999 ................................................ 218,891 o Payment of current income tax liabilities ................................. 103,000 o Record deferred debt issuance costs ....................................... 95,000
(3) Represents the adjustment to reflect the pro forma fleet interest expense, based on pro forma VMS average debt and an assumed interest rate of 5.35% net of the elimination of historical interest expense and interest income: Three months Year ended ended December 31, 1998 March 31, 1999 ----------------- -------------- Pro forma interest expense at 5.35% ....... $ 184,870 $ 46,217 Historical interest expense ............... (179,729) (45,706) Historical interest income ................ (4,300) (1,075) --------- --------- Pro forma adjustment ...................... $ 841 $ (564) --------- --------- -5- AVIS RENT A CAR, INC NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (4) Represents the amortization of cost in excess of net assets acquired over 40 years, net of the amortization recorded in the historical combined financial statements of VMS. (5) Represents the amortization of deferred debt issuance cost over the period in which the debt will be outstanding. (6) Represents the adjustment to reflect the pro forma interest expense on the acquisition debt which is net of amounts borrowed under fleet financing agreements. Total amount borrowed at June 30, 1999................... $5,028,508 Amounts borrowed under vehicle financing agreements ..... 3,455,508 ---------- Non-vehicle debt ........................................ $1,573,000 ---------- Composition of net acquisition debt: Term Loan A ............................................. $ 250,000 Term Loan B ............................................. 375,000 Term Loan C ............................................. 375,000 Senior Subordinated Notes ............................... 500,000 Revolving credit facility ............................... 73,000 ---------- Total .......................................... $1,573,000 ----------
Year ended Three Months December 31, ended 1998 March 31, 1999 ---- -------------- Interest expense: Term Loan A-interest at 8.00% .................... $ 20,000 $ 5,000 Term Loan B-interest at 8.50% .................... 31,875 7,969 Term Loan C-interest at 8.75% .................... 32,813 8,203 Senior Subordinated Notes interest at 11.00% ..... 55,000 13,750 Revolving Credit Facility interest at 8.00% ...... 5,840 1,460 ---------- ---------- Total ....................................... $ 145,528 $ 36,382 ========== ==========
(7) Represents a reduction in interest expense as a result of the application of the excess of the amounts borrowed at June 30, 1999 ($5.0 billion) over the actual amount borrowed. -6- AVIS RENT A CAR, INC NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands)
Year ended Three Months ended December 31, 1998 March 31, 1999 ----------------- -------------- Total amount borrowed at June 30, 1999 .................. $5,028,508 $5,028,508 Less: Acquisition purchase price including expenses ......... 1,900,000 1,900,000 Less issuance of Acquisition Subsidiary Preferred Stock 362,000 362,000 Less cash on hand utilized to pay a portion of the purchase price ..................................... 53,000 53,000 ---------- ---------- Acquisition purchase price to be financed ............. 1,485,000 1,485,000 ---------- ---------- Amount available to refinance existing debt ............. 3,543,508 3,543,508 Average debt outstanding during the period .............. 3,265,251 3,362,563 ---------- ---------- Excess borrowings ....................................... $ 278,257 $ 180,945 ========== ========== Excess borrowings applied to reduce: Revolving debt at 8.00% interest rate ................. $ 73,000 $ 73,000 Vehicle financing at 5.35% interest rate .............. 205,257 107,945 ---------- ---------- Total reductions ...................................... $ 278,257 $ 180,945 ========== ========== Reductions in interest expense relating to: Revolving debt ........................................ $ 5,840 $ 1,460 ========== ========== Vehicle financing ..................................... $ 10,981 $ 1,444 ========== ==========
(8) Represents a reduction in interest expense because the obligation was refinanced and the related interest expense is included in acquisition interest. (9) Represents the estimated income tax effect of the above adjustments. The effective rate differs from the statutory rate due to the non-deductibility of goodwill. (10) Basic and diluted earnings per share for the year ended December 31, 1998, were computed based on 34,172,249 and 34,952,557 shares of common stock, respectively. Basic and diluted earnings per share for the three months ended March 31, 1999, were computed based on 31,873,031 and 32,517,570 shares of common stock, respectively. (11) Represents the Acquisition Subsidiary Preferred Stock dividend as follows: -7- AVIS RENT A CAR, INC NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands)
Dividend Dividend Three Months Liquidation Dividend Year Ended Ended Preference Rate December 31, 1998 March 31, 1999 ---------- ---- ----------------- -------------- Series A 360,000 5.0% $18,000 $ 4,500 Series C 2,000 9.5% 190 48 ------- ------- $18,190 $ 4,548 ------- -------
-8- EX-99.3 7 PRESS RELEASE FOR IMMEDIATE RELEASE Contact: Tony Fuller, Media Relations (516) 222-4690 Elizabeth Logler, Investor Relations (516) 222-4795 Avis Rent A Car, Inc. Completes Purchase of Fleet Management and Fuel Card Businesses of PHH and Wright Express Garden City, NY--June 30, 1999--Avis Rent A Car, Inc., (AVI: NYSE) today announced it has completed its previously announced purchase of the vehicle management and fuel card business of PHH and Wright Express from Cendant Corporation. PHH is a leading global vehicle management company that provides services to over 19,000 companies in North America and Europe, including one-third of the Fortune 500 companies and 50% of the FTSE. Wright Express provides fuel management services to commercial customers and develops and manages private label and co-branded fleet card programs. Kevin M. Sheehan, Avis' Executive Vice President and Chief Financial Officer said, "With this transaction we have created a multitude of new opportunities by combining two similar growth businesses that have powerful client and technological synergies. The acquisition of PHH and Wright Express broadens our growth initiatives and provides Avis with strong, annuity-like revenue and profit growth." "This purchase extends our global reach and brings us closer to our vision of becoming the world's leading provider of full service automotive transportation and vehicle management services," said F. Robert Salerno, Avis' President and Chief Operating Officer. "We can further build brand loyalty by offering PHH's cutting edge technology to our rental customers." "As PHH and Avis join forces, we're excited about the opportunity to deliver a powerhouse of services to our clients. Cross-company teams have identified a number of synergies that will enable us to fulfill the total automotive needs of our clients, and we're aggressively pursuing those opportunities" said Mark Miller, Chairman and CEO of PHH. Avis Rent A Car, Inc., is one of the world's leading providers of comprehensive automotive transportation and vehicle management solutions, with strengths in car rental, vehicle leasing, and vehicle management services. The Company operates the second largest general-use car rental business in the world, with locations in the United States, Canada, Australia, New Zealand and the Latin American Caribbean region. Avis operates the vehicle management and fuel card businesses through three separate units: PHH North America, PHH Europe and Wright Express. The services of these units consist of vehicle leasing and a broad range of vehicle related fee based services. Combined the Company has a fleet of over 1 million vehicles and over 3.6 million fuel and maintenance cards outstanding. For the twelve months ended March 31, 1999 the newly combined companies would have generated $4.0 billion of total revenue and EBITDA of $353 million. For corporate background information and recent news releases, please log onto the Avis Web site at www.avis.com or call Company News at 1-800-758-5804, access code #078975. EX-99.4 8 AVIS FLEET LEASING AND MANAGEMENT CORPORATION AVIS FLEET LEASING AND MANAGEMENT CORPORATION CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND SPECIAL RIGHTS OF SERIES A CUMULATIVE PARTICIPATING REDEEMABLE CONVERTIBLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF Pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act, Avis Fleet Leasing and Management Corporation, a Texas corporation (the "Company"), does hereby certify that, pursuant to authority conferred upon the board of directors of the Company (the "Board of Directors") by the Company's Articles of Incorporation (the "Articles of Incorporation"), and pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act (the "TBCA"), the Board of Directors is authorized to issue preferred stock, par value $.01 per share ("Preferred Stock"), of the Company in one or more series and the Board of Directors duly approved and adopted the following resolution on June 29, 1999 (the "Resolution") and the Company certifies that such resolution was duly adopted by all necessary action on the part of the Company: RESOLVED that, pursuant to the authority vested in the Board of Directors by the Company's Articles of Incorporation, the Board of Directors does hereby create, authorize and provide for the issuance of a series of Preferred Stock which shall be designated as "Series A Cumulative Participating Redeemable Convertible Preferred Stock", par value $.01 per share, consisting of 7,200,000 shares, having the designation and the powers, preferences, and special rights and the qualifications, limitations and restrictions thereof that are set forth in the Articles of Incorporation and in this Resolution as follows: 1. Designation. There is hereby created out of the authorized and unissued shares of Preferred Stock a series of preferred stock designated as the "Series A Cumulative Participating Redeemable Convertible Preferred Stock" (the "Series A Preferred Stock"). The number of shares constituting the Series A Preferred Stock shall be 7,200,000. The liquidation preference of the Series A Preferred Stock shall be $50 per share (the "Series A Stated Amount"), plus any dividends accrued but not paid on the Series A Preferred Stock pursuant to Section 3 hereof, whether or not earned or declared, to the date fixed for liquidation, dissolu 1 tion or winding up of the Company (collectively with the Series A Stated Amount, the "Series A Liquidation Preference"). The date on which the Series A Preferred Stock is first issued is referred to herein as the "Issue Date." 2. Rank. The Series A Preferred Stock shall rank, with respect to dividend rights, redemption rights and rights upon liquidation, winding up or dissolution, (a)(i) junior to the Series C Cumulative Redeemable Preferred Stock, par value $.01 per share, of the Company (the "Series C Preferred Stock"), (ii) pari passu to the Series B Cumulative PIK Preferred Stock, par value $.01 per share, of the Company (the "Series B Preferred Stock" and, collectively with the Series A Preferred Stock and Series C Preferred Stock, the "Series Preferred Stock") and (iii) senior to the common stock, par value $.01 per share, of the Company (the "Common Stock"). 3. Dividends. (a) The holders of shares of Series A Preferred Stock shall be entitled to receive and, to the extent of funds legally available therefor, the Board of Directors shall declare and the Company shall pay, cumulative dividends (the "Series A Preferred Dividends") accruing from the Issue Date at the rate of 5% (as may be adjusted pursuant to this Section 3(a), the "Series A Preferred Dividend Rate") of the Series A Stated Amount (or $2.50 per share of Series A Preferred Stock) per annum, payable semi-annually in arrears on January 1 and July 1 of each year, commencing January 1, 2000, or, if any such date is not a Business Day (as defined herein), on the next succeeding Business Day (each, a "Dividend Payment Date"), to the holders of record of shares of Series A Preferred Stock as of the immediately preceding December 15 and June 15, respectively (each, a "Record Date"). Series A Preferred Dividends shall be paid in cash; provided, however, that, until the fifth anniversary of the Issue Date, the Company may, at its election, pay any or all of the Series A Preferred Dividends by the issuance of shares of Series B Preferred Stock having an aggregate Series B Stated Amount (as defined in the Series B Certificate (as defined herein)) equal to the amount of the cash dividend that otherwise would have been required to be paid pursuant to this Section 3. Series A Preferred Dividends shall be computed on the basis of a 360-day year of twelve 30-day months and shall be deemed to accrue on a daily basis in any partial months in a period. The Series A Dividend Rate shall automatically be increased to 12% if the Stockholder Approval Condition (as defined herein) is not satisfied on or prior to June 30, 2000, and any such increase shall be retroactive from the Issue Date and the difference between (i) the 12% dividend that shall have retroactively accumulated from the Issue Date through June 30, 2000 and (ii) the 5% dividend that shall have been paid with respect to the period from the Issue Date through June 30, 2000 shall be payable to holders 2 of Series A Preferred Stock on or prior to July 31, 2000. (b) In addition to the Series A Preferred Dividends, in the event that the Annual Target (as defined herein) is satisfied by the Combined Business (as defined herein) for a particular fiscal year in which shares of Series A Preferred Stock are outstanding, the holders of shares of Series A Preferred Stock shall be entitled to receive and, to the extent of funds legally available therefor, the Board of Directors shall declare and the Company shall pay, an additional annual dividend (the "Special Dividend") at a rate of 2% of the Series A Stated Amount per annum of the shares of Series A Preferred Stock then outstanding, payable in cash annually on March 15th of the immediately succeeding year. (c) Series A Preferred Dividends and, if the Annual Target is satisfied, the Special Dividends shall accrue whether or not the Company has earnings or profits, whether or not there are funds legally available for the payment of such dividends and whether or not dividends are declared. Accumulated but unpaid dividends shall accrue and cumulate, with respect to the Series A Preferred Dividends, at the Series A Dividend Rate and, with respect to the Special Dividends, as provided in subsection (b) above, and shall be paid, to the extent permitted by the TBCA, on the earliest date on which funds become legally available for the payment thereof. (d) No dividend shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding shares of Series A Preferred Stock or any other class or series of capital stock ranking pari passu as to dividends with the Series A Preferred Stock ("Pari Passu Dividend Securities") with respect to any dividend period unless all accrued Series A Preferred Dividends and Special Dividends for all preceding dividend periods have been declared and paid upon, or declared and a sufficient sum set apart for the payment of such dividend upon, all outstanding shares of Series A Preferred Stock. When dividends are not paid in full, as aforesaid, upon the Series A Preferred Stock and any such Pari Passu Dividend Securities, all dividends declared upon the Series A Preferred Stock and any Pari Passu Dividend Securities shall be declared pro rata so that the amount of dividends declared per share on the Series A Preferred Stock and such other Pari Passu Dividend Securities shall in all cases bear to each other the same ratio that accrued and unpaid dividends per share on the shares of the Series A Preferred Stock and such other Pari Passu Dividend Securities bear to each other. Unless all accrued Series A Preferred Dividends and Special Dividends on all outstanding shares of Series A Preferred Stock due for all past dividend periods shall have been declared and paid, or declared and a sufficient sum for the payment thereof 3 set apart, then: (i) no dividend shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any shares of Common Stock or any shares of any other class or series of capital stock of the Company ranking junior to Series A Preferred Stock as to dividends or as to rights upon liquidation, dissolution or winding up of the Company (collectively, "Junior Securities"); (ii) no other distribution shall be declared or made upon, or any sum set apart for the payment of any distribution upon, any shares of Junior Securities; (iii) no shares of Junior Securities shall be purchased, redeemed or otherwise acquired or retired for value (excluding an exchange for shares of other Junior Securities or a purchase, redemption or other acquisition from the proceeds of a substantially concurrent sale of Junior Securities) by the Company or any of its subsidiaries; and (iv) no monies shall be paid into or set apart or made available for a sinking or other like fund for the purchase, redemption or other acquisition or retirement for value of any shares of Junior Securities or Pari Passu Dividend Securities or Pari Passu Liquidation Securities (as hereinafter defined) by the Company or any of its subsidiaries. (e) Holders of the Series A Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the dividends as herein described. (f) On or prior to March 15 of each year, Seller shall deliver to each holder of Series A Preferred Stock (i) an unaudited balance sheet, statement of operations and statement of cash flows of the Combined Business for the immediately preceding fiscal year and (ii) a detailed schedule setting forth the computation of the EBITDA of the Combined Business for the immediately preceding fiscal year, in each case, certified by the Chief Financial Officer of Parent (as hereinafter defined). Each of the financial statements delivered pursuant to this Section 3(f) shall be prepared from the books and records of the Combined Business in accordance with United States generally accepted accounting principles and practices in effect from time to time, consistently applied, and shall fairly present the financial position and results of operations and cash flows of the Combined Business as of the date and for the period indicated. (g) In the event that after the Issue Date any Material Assets (as herein defined) are sold, transferred or otherwise disposed of by the Combined Business (other than dispositions of fleet vehicles in the ordinary course of business, including in connection with a securitization transaction) , in one transaction or a series of transactions, in any fiscal year to any Person (as herein defined) other than Parent or a Subsidiary of Parent, the Annual Target for the year for which any such sale, transfer or disposition occurs and each year thereafter, shall be decreased by an amount equal to the product of (i) the respective Annual Target for such year 4 multiplied by (ii) a fraction (A) the numerator of which equals the EBITDA attributable to the Material Assets so sold, transferred or disposed of for the immediately preceding fiscal year and (B) the denominator of which equals the Annual Target for the immediately preceding fiscal year. (h) As used herein: (i) "Business Day" means any day other than a Saturday, Sunday or other day on which banks are authorized to be closed in New York, New York; (ii) Subject to any adjustment required pursuant to Section 3(g) hereof, the "Annual Target" shall be the following annual levels of EBITDA of the Combined Business: Fiscal Year EBITDA ----------- ------ 1999 $215,900,000 2000 247,600,000 2001 288,200,000 2002 317,000,000 2003 348,700,000 2004 383,600,000 2005 422,000,000 2006 464,100,000 2007 510,600,000 2008 561,600,000 2009 617,800,000 (iii) "Combined Business" means (i) for the period prior to the Issue Date, the worldwide vehicle leasing and management and fuel card businesses of PHH Vehicle Management Services, LLC and the other Subsidiaries of PHH Holdings Corporation principally engaged in such business and (ii) from and after the Issue Date, the Company and its Subsidiaries on a consolidated basis, combined with any other business entity, or division thereof, owned directly or indirectly by Parent, that is principally engaged in any of such vehicle leasing and management and/or fuel card businesses; (iv) "EBITDA" means for any fiscal year, the net income of the Combined Business for such fiscal year plus, to the extent deducted in determining such net income, interest (other than interest arising out of or relating to 5 (i) liabilities used to fund leases of the Combined Business, (ii) lease liabilities under management programs of the Combined Business or (iii) carrying cost of receivables related to the fuel card businesses of the Combined Business), taxes, depreciation (other than depreciation related to the vehicle fleet) and amortization; (v) "Material Assets" means (i) with respect to the adjustment set forth in Section 3(g) hereof, assets of the Combined Business (including the equity securities of any Person included in the Combined Business) to the extent that the aggregate EBITDA that was attributable to such assets exceeded 10% of EBITDA of the Combined Business for the immediately preceding fiscal year and (ii) with respect to the adjustment set forth in Section 7(k) hereof, assets of the Combined Business (including the equity securities of any Person included in the Combined Business) to the extent that the aggregate EBITDA that was attributable to such assets exceeded 3% of EBITDA of the Combined Business for the immediately preceding twelve-month period; (vi) "Parent" means Avis Rent A Car, Inc., a Delaware corporation; (vii) "Person" means an individual, partnership, limited partnership, limited liability partnership, limited liability company, foreign limited liability company, trust, estate, corporation, custodian, trustee, executor, administrator, nominee or any other entity; (viii) "Stockholder Approval Condition" means that all stockholder approvals required under (i) the Amended and Restated Certificate of Incorporation of Parent, (ii) the New York Stock Exchange Shareholder Approval Policy and (iii) the Delaware General Corporation Law to authorize (x) the creation of 15,000,000 shares of class B common stock ("Parent Class B Common Stock"), par value $.01 per share, of Parent, having the terms set forth in the proposed Amendment to the Amended and Restated Certificate of Incorporation of Parent attached as Exhibit A to the Stockholders Agreement dated June 30, 1999 among Parent, the Company and PHH Corporation, and the issuance of such shares to PHH Corporation and (y) the issuance to PHH Corporation of the shares of Class A common stock, par value $.01 per share, of Parent ("Parent Voting Stock" and, together with the Parent Class B Common Stock, the "Parent Common Stock") that are issuable upon the exchange of the Parent Class B Common Stock have been obtained, provided that the Stockholder Approval Condition shall be deemed satisfied, whether or not all of the aforesaid stockholder approvals have been obtained, if Parent has sought to obtain all such approvals at a meeting of its stockholders and Cendant Car Rental, Inc. (or any transferee of shares of Parent Voting 6 Stock held by Cendant Car Rental, Inc.) failed to vote the shares of Parent Voting Stock beneficially owned by it in favor of such proposal or proposals; and (ix) "Subsidiary" means, with respect to any Person, any corporation, partnership, joint venture, business trust, limited liability company or similar entity, in which such Person holds at least a 50% interest with respect to the right to receive dividends and distributions and the right to elect the governing body of such entity. 4. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, after payment in full of the liquidation preference (and, to the extent permitted by the TBCA, any accrued and unpaid dividends) payable upon liquidation, dissolution or winding up of the Company on the issued and outstanding shares of Series C Preferred Stock and any other class or series of capital stock of the Company ranking senior to the Series A Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company (collectively, the "Senior Securities"), each holder of shares of Series A Preferred Stock shall be entitled to payment (out of the assets of the Company available for distribution) of an amount per share of Series A Preferred Stock held by such holder equal to the Series A Liquidation Preference. After payment in full of the Series A Liquidation Preference, such holders shall not be entitled to any further participation in any distribution of assets of the Company. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets available to be distributed among the holders of preferred stock of the Company shall be insufficient to permit the payment to such holders of the full preferential amount to which they are entitled under the terms of such securities, then the assets of the Company legally available for distribution shall be distributed (i) first, to the holders of the Senior Securities until such holders receive the full preferential amount and all accrued and unpaid dividends payable to them, (ii) next, to the holders of the Series A Preferred Stock and to the holders of any issued and outstanding shares of any class or series of capital stock of the Company ranking pari passu with the Series A Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company ("Pari Passu Liquidation Securities") pro rata, in accordance with the full Series A Liquidation Preference and full liquidation preference of such Pari Passu Liquidation Securities and all accrued and unpaid dividends that would be payable with respect to shares of such Pari Passu Liquidation Securities if all amounts payable thereon were paid in full and (iii) next, to the holders of any issued and outstanding shares of any class or series of capital stock of the Company ranking junior to the Series A Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company. If the assets of the Company available for distribution to the holders of Series A Preferred Stock and the Pari Passu Liquidation Securities 7 shall be insufficient to permit payment in full to such holders of the sums which such holders are entitled to receive in such case, then all of the assets available for distribution to holders of the Series A Preferred Stock and the Pari Passu Liquidation Securities shall be distributed among and paid to such holders ratably in proportion to the amounts that would be payable to such holders if such assets were sufficient to permit payment in full and no amounts shall be paid to holders of any class or series of capital stock of the Company ranking junior to the Series A Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company. Neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with or into one or more entities shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Company, unless such sale, conveyance, exchange, transfer, consolidation or merger shall be in connection with a liquidation, dissolution or winding up of the Company. 5. Redemption. (a) Redemption at the Option of the Company. The Series A Preferred Stock may be redeemed at the option of the Company, in whole or in part, at any time or from time to time on or after the fifth anniversary of the Issue Date. The Company may redeem the Series A Preferred Stock by payment in cash, for each share of Series A Preferred Stock to be redeemed, in an amount equal to the Series A Liquidation Preference (the "Series A Redemption Price"), upon prior written notice as specified below. (b) Mandatory Redemption. As mandatory redemption for the retirement of shares of Series A Preferred Stock, the Company shall redeem, out of legally available funds, on the eleventh anniversary of the Issue Date (the "Mandatory Redemption Date"), all of the shares of Series A Preferred Stock then outstanding (if any) for payment in cash, for each share of Series A Preferred Stock to be redeemed, in an amount equal to the Series A Redemption Price. (c) Redemption at the Option of the Holder. Upon a Fundamental Change (as defined herein), each holder of shares of Series A Preferred Stock shall have the right to require the Company to redeem the shares of Series A Preferred Stock held by such holder, in whole or in part, for payment of an amount in cash equal to the Series A Redemption Price for each share of Series A Preferred Stock to be redeemed (the "Cash Payment"); provided, however, that, upon any Fundamental Change constituting a Change of Control (as defined herein) of Parent, such holder may, at its option, elect to receive upon such redemption, in lieu of the Cash 8 Payment, the amount and kind of securities, cash or other assets (the "Alternative Payment") which such holder would have been entitled to receive upon consummation of such Change of Control of Parent if such holder had exercised its Non-Compliance Conversion Right (as defined herein) immediately prior to the effective date (or, if applicable, the record date) of such Change of Control of Parent. The right of each holder to require the Company to redeem shares of Series A Preferred Stock upon a Fundamental Change shall survive the occurrence of any Fundamental Change and shall be enforceable against any Person that is the survivor or successor of such Fundamental Change. (d) Dividends; Rights as Holders. On and after any date fixed for redemption (a "Redemption Date"), provided that the Company has made available and set aside an amount of cash at least equal to the aggregate Series A Redemption Price necessary to effect the redemption (or, if applicable, the securities, cash or other assets referred to in subsection 5(c) above), Series A Preferred Dividends and Special Dividends shall cease to accrue on the Series A Preferred Stock called for redemption (except that, in the case of a Redemption Date after a Record Date for the payment of dividends and prior to the related dividend payment date, holders of Series A Preferred Stock on the Record Date shall be entitled on such dividend payment date to receive the dividend payable on such shares and the amount payable in respect of accrued and unpaid dividends at the Redemption Date shall be reduced by such amount payable on such dividend payment date), such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares as holders of Series A Preferred Stock shall cease, except the right to receive the payment deliverable upon such redemption, without interest from the Redemption Date. (e) Pro Rata Redemption. In the event of a redemption pursuant to subsection 5(a) of only a portion of the then outstanding shares of Series A Preferred Stock, the Company shall effect such redemption on a pro rata basis. (f) Notice of Company Redemption; Surrender of Certificates. (i) In the event of any mandatory or optional redemption by the Company of shares of Series A Preferred Stock, the Company shall send a written notice of redemption by first class mail to each holder of shares of the Series A Preferred Stock being redeemed, not fewer than twenty (20) days nor more than sixty (60) days prior to the Redemption Date at such holder's registered address (the "Company Redemption Notice"); provided, however, that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Series A Preferred Stock to be redeemed except as to the holder or holders to whom the Company has failed to give said notice or except as to 9 the holder or holders whose notice was defective. The Company Redemption Notice shall state: (A) the Series A Redemption Price; (B) whether all or less than all of the outstanding shares of the Series A Preferred Stock are to be redeemed and the total number of shares of the Series A Preferred Stock being redeemed; (C) the Redemption Date; (D) the number of shares of Series A Preferred Stock held by such holder that are being redeemed and that the holder is to surrender to the Company, in the manner and at the place designated, the certificate or certificates representing the shares of Series A Preferred Stock to be redeemed; and (E) that, in accordance with subsection 5(d), dividends on the shares of the Series A Preferred Stock to be redeemed shall cease to accumulate on such Redemption Date unless the Company defaults in the payment of the Series A Redemption Price. (ii) Upon delivery of a Company Redemption Notice, each holder of shares of Series A Preferred Stock being redeemed shall surrender the certificate or certificates representing such shares of Series A Preferred Stock, duly endorsed (or otherwise in proper form for transfer), in the manner and at the place designated in the Company Redemption Notice, and on the Redemption Date the full Series A Redemption Price for such shares in cash shall be payable to the Person (as defined herein) whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (g) Notice of Fundamental Change; Shareholder Redemption; Surrender of Certificates. (i) The Company shall send written notice of a Fundamental Change to each holder of Series A Preferred Stock, at such holder's registered address, (A) on or prior to the tenth Business Day preceding the scheduled consummation of any Change of Control of Parent or the Company and (B) immediately after any Bankruptcy (as defined herein) of Parent. Any such notice shall set forth a detailed description of the Change of Control or Bankruptcy, as the 10 case may be, including without limitation, in the case of a Change of Control, the amount and kind of consideration to be delivered in connection with such Change of Control, and additionally, in the case of a Change of Control of Parent, the amount and kind of securities, cash or other assets which such holder would be entitled to receive upon consummation of such Change of Control if such holder would exercise its Non-Compliance Conversion Right immediately prior to the effective date (or, if applicable, the record date) of such Change of Control. (ii) At any time from and after a Fundamental Change, any holder of Series A Preferred Stock may exercise its optional redemption right pursuant to Section 5(c) by delivering a written notice of redemption (a "Shareholder Redemption Notice") to the Company, at the Company's principal place of business, setting forth: (A) the name of the holder exercising the optional redemption right; (B) the number of shares of Series A Preferred Stock to be redeemed; and (C) if the shares of Series A Preferred Stock are being redeemed as a result of a Change of Control of Parent, whether the holder is electing to receive the Cash Payment or the Alternative Payment. (iii) Any Shareholder Redemption Notice shall be accompanied by the certificate or certificates representing the shares of Series A Preferred Stock being redeemed, duly endorsed (or otherwise in proper form for transfer), and promptly on receipt thereof, the Company shall pay the full Series A Redemption Price for such shares in cash (or, if the holder elects to receive the Alternative Payment, the securities, cash or other assets referred to in subsection 5(c) above), to the Person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (h) Prohibition on Redemption after Notice of Conversion. The Company shall not have the right to redeem any shares of Series A Preferred Stock with respect to which the holder thereof has given notice to the Company of its intent to convert such shares into shares of Parent Class B Common Stock in accordance with Section 7 hereof. 11 (i) Certain Definitions. As used herein: (i) "Fundamental Change" means (A) a Change of Control of the Company or Parent or (B) the Bankruptcy of Parent. (ii) "Change of Control" with respect to Parent means (A) a transaction or series of related transactions by which any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act")) other than Cendant Corporation, a Delaware corporation ("Cendant"), or an affiliate or successor to Cendant, is or becomes after the Issue Date the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date hereof), of more than (1) 25% of the total voting power of all voting stock of Parent then outstanding at any time Cendant controls 25% or more of such voting power and (2) 20% of the total voting power of all voting stock of Parent then outstanding at any time Cendant controls less than 25% of such voting power (the "Relevant Percentage"); (B)(1) another corporation merges into Parent or Parent consolidates with or merges into any other corporation or (2) Parent conveys, transfers or leases all or substantially all its assets to any person or group, in one transaction or a series of related transactions, other than a conveyance, transfer or lease between Parent and a wholly owned subsidiary of Parent, with the effect that a person or group, other than a person or group which is the beneficial owner of more than the Relevant Percentage of the total voting power of all voting stock of Parent immediately prior to such transaction, becomes the beneficial owner of more than the Relevant Percentage of the total voting power of all voting stock of the surviving or transferee corporation of such transaction or series of related transactions; or (C) during any period of two consecutive years, individuals who at the beginning of such period constituted Parent's Board of Directors (together with any new directors whose election by Parent's Board of Directors, or whose nomination for election by Parent's stockholders, was approved by a vote of a majority of the Directors of Parent then still in office who were either Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Directors then in office; provided, however that a Change of Control shall not occur solely as a result of a sale or transfer by Cendant and/or its affiliates of shares of capital stock of Parent that are held by Cendant and/or its affiliates. (iii) "Change of Control" with respect to the Company means (A) a transaction or series of related transactions by which any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act) other than Parent, a wholly owned subsidiary of Parent, or Cendant, or an affiliate or successor to Cendant, is or becomes after the Issue Date the "beneficial 12 owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date hereof), of more than 25% of the total voting power of all voting stock of the Company; or (B)(1) another corporation merges into the Company or the Company consolidates with or merges into any other corporation or (2) the Company conveys, transfers or leases all or substantially all its assets to any person or group, in one transaction or a series of related transactions, other than a conveyance, transfer or lease between the Company and a wholly owned subsidiary of Parent, with the effect that a person or group, other than a person or group which is the beneficial owner of more than 25% of the total voting power of all voting stock of the Company immediately prior to such transaction, becomes the beneficial owner of more than 25% of the total voting power of all voting stock of the surviving or transferee corporation of such transaction or series; provided, however that a Change of Control shall not occur solely as a result of a sale or transfer by Cendant and/or its affiliates of shares of capital stock of the Company that are held by Cendant and/or its affiliates. (iv) "Bankruptcy," with respect to any Person, shall mean (i) a court or governmental agency having jurisdiction shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,`acass B Common Stock, as provided in paragraph (e) below. The Company shall issue certificates for the balance of any remaining shares of Series A Preferred Stock in any case in which fewer than all of the shares of Series A Preferred Stock represented by a certificate are converted. (e) Notice. (i) In the event the Company exercises its Call Right, the Company shall send by first class mail to each holder of Series A Preferred Stock by first class mail, at such holder's registered address, a written notice that states that it is exercising its Call Right (the "Mandatory Conversion Notice") and sets forth: (A) The Performance Conversion Rate then in effect; (B) The number of shares of Parent Class B Common Stock that each share of Series A Preferred Stock is convertible into and that the holder is to surrender to the Company, in accordance with Section 7(d) hereof, the certificate or certificates representing all of the shares of Series A Preferred Stock owned by such holder; and (C) The (20) Trading Day period and Market Price 13 of Parent Voting Stock used to determine that the condition based upon the Market Price of Parent Voting Stock set forth in subparagraph 7(a)(iii) is satisfied. (ii) Upon the occurrence of a Conversion Event, the Company shall immediately send a written notice thereof to each holder of Series A Preferred Stock, at such holder's registered address, immediately after any Conversion Event. (f) Fractional Shares. No fractional shares of Parent Class B Common Stock or securities representing fractional shares of Parent Class B Common Stock shall be issued upon conversion of the Series A Preferred Stock. Instead of any fractional shares of Parent Class B Common Stock which would otherwise be deliverable upon the conversion of a share of Series A Preferred Stock, the Company shall pay to the Person or Persons to whom any such share is to be delivered a cash adjustment in respect of such fractional interest in an amount (computed to the nearest cent) equal to the value of such fractional shares of Parent Class B Common Stock based upon the Parent Average Price, provided that, for purposes of this clause (f), all Series A Preferred Stock beneficially owned by a Person and all affiliates of such Person shall be treated as beneficially owned, and converted, by a single Person. (g) Time of Conversion. Each conversion of Series A Preferred Stock shall be deemed to have been effected (i) with respect to an exercise of either the Performance Conversion Right or the Non-Compliance Conversion Right, immediately prior to the close of business on the date on which the certificates for shares of Series A Preferred Stock shall have been surrendered for conversion to the Secretary of the Company in accordance with the terms of this Certificate of Designation, (ii) with respect to a Mandatory Conversion, immediately prior to the close of business on the date the Mandatory Conversion Notice is delivered, and (iii) with respect to an Automatic Conversion, at the close of business on the date immediately prior to the effective date of such Conversion Event. The Person or Persons in whose name or names any certificate or certificates for Parent Class B Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the Parent Class B Common Stock represented thereby at such time on such date and, except as provided herein, all rights with respect to the Series A Preferred Stock surrendered, or required to be surrendered but not yet surrendered at the time of conversion, shall forthwith terminate except the right to receive Parent Class B Common Stock or other securities or property issuable or deliverable in respect of such conversion. (h) Dividends. A holder of shares of Series A Preferred Stock on 14 a Record Date shall be entitled to receive the Series A Preferred Dividend or Special Dividend, as the case may be, payable on such Series A Preferred Stock on the corresponding dividend payment date notwithstanding the subsequent conversion thereof or the Company's default in payment of such dividend due on the dividend payment date. Upon the conversion of any shares of Series A Preferred Stock are converted, all dividends declared and unpaid on the shares of Series A Preferred Stock so converted to the date of conversion shall be immediately due and payable; and, to the extent the Company has legally available funds therefor, payment by the Company of such declared and unpaid dividends shall accompany the shares of Parent Voting Stock issued upon such conversion. (i) As used herein, "Market Price" shall mean, as of the date of determination, (A) the closing price per share of Parent Voting Stock on such date published in The Wall Street Journal or, if no such closing price on such date is published in The Wall Street Journal, the average of the closing bid and asked prices on such date, as officially reported on the principal national securities exchange (including, without limitation, The Nasdaq Stock Market, Inc.) on which the Parent Voting Stock is then listed or admitted to trading; or (B) if the Parent Voting Stock is not then listed or admitted to trading on any national securities exchange but is designated as a national market system security by the National Association of Securities Dealers, Inc., the last trading price of the Parent Voting Stock on such date; or (C) if there shall have been no trading on such date or if the Parent Voting Stock is not so designated, the average of the reported closing bid and asked prices of the Parent Voting Stock on such date as shown by the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System and reported by any member firm of the New York Stock Exchange selected by the Corporation; or (D) if none of (A), (B) or (C) is applicable, a market price per share determined at the Company's expense by an appraiser chosen by mutual agreement of the Company and the holders of a majority of the shares of Series A Preferred Stock. Any determination of the Market Price by an appraiser shall be based on a valuation of the Parent as an entirety without regard to any discount for minority interests or disparate voting rights among classes of capital stock of Parent. (j) As used herein, "Trading Day" shall mean (i) if the Parent Voting Stock is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock exchange or that other national security exchange is open for business or (ii) if the Parent Voting Stock is quoted on the Nasdaq National Market, a day on which trades may be made thereon or (iii) if the applicable security is not so listed, admitted for trading or quoted, any Business Day. 15 (k) As used herein, the "EBITDA Threshold" shall be the following levels of EBITDA of the Combined Business (measured monthly on a rolling twelve-month basis): (i) $250,000,000, if the twelve-month period which is being measured ends in 1999; (ii) $260,000,000, if the twelve-month period which is being measured ends in 2000; and (iii) $150,000,000, if the twelve-month period which is being measured ends in 2001 or any year thereafter. In the event that after the Issue Date any Material Assets are sold, transferred or otherwise disposed of by the Combined Business (other than dispositions of fleet vehicles in the ordinary course of business, including in connection with a securitization transaction), in one transaction or a series of transactions, in any twelve-month period to any Person other than Parent or a Subsidiary of Parent, the EBITDA Threshold for such twelve-month period in which any such sale, transfer or disposition occurs and each twelve-month period thereafter, shall be decreased by an amount equal to the product of (i) the respective EBITDA Threshold for such period multiplied by (ii) a fraction (A) the numerator of which equals the EBITDA attributable to the Material Assets so sold, transferred or disposed of for the immediately preceding twelve-month period ending on the month immediately preceding the month such sale, transfer or disposition occurs and (B) the denominator of which equals the EBITDA Threshold for the immediately preceding twelve-month period ending on the month immediately preceding the month such sale, transfer or disposition occurs. (l) As used herein, the "Market Conversion Rate" shall be equal to the quotient obtained by dividing: (i) the per share Series A Stated Amount by (ii) the average trading price (the "Parent Average Price") per share of Parent Voting Stock for the thirty (30) Trading Days immediately preceding the close of business on the date of the Conversion Event or, with respect to the exercise of the Non-Compliance Conversion Right, the date of the holder's conversion notice, as the case may be; provided, however, that such Market Conversion Rate shall be adjusted and readjusted from time to time as provided in subsection (n) below and, as so adjusted and readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by subsection (n) below. (m) As used herein, the "Performance Conversion Rate" shall be equal to the quotient obtained by dividing: (i) the per share Series A Stated Amount by (ii) $50; provided, however, that such Performance Conversion Rate shall be adjusted and readjusted from time to time as provided in subsection (n) below and, as so adjusted and readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by subsection (n) below. (n) The Performance Conversion Rate and the Market Conversion Rate (together, the "Conversion Rate") and the number and type of securities to be 16 received upon conversion of the Series A Preferred Stock shall be subject to adjustment from time to time after the Issue Date as follows: (i) If Parent shall, after the Issue Date and prior to conversion of the Series A Preferred Stock: (A) declare a dividend on the Parent Common Stock payable in shares of Parent Common Stock; (B) split or subdivide the outstanding Parent Common Stock into a greater number of shares; (C) combine the outstanding Parent Common Stock into a smaller number of shares; or (D) issue any Parent Common Stock by reclassification of Parent Common Stock (each, an "Adjustment Event"), then, in any such event, (1) the Performance Conversion Rate in effect at the time of the effective date of such Adjustment Event shall be proportionately adjusted so that the holder of any shares of Series A Preferred Stock surrendered for conversion after such time shall thereafter be entitled to receive the aggregate number of shares of Parent Class B Common Stock which such holder would have owned or been entitled to receive immediately following any Adjustment Event had such shares of Series A Preferred Stock been converted into Parent Class B Common Stock immediately prior to the effective date of such Adjustment Event or, if applicable, any record date with respect thereto and the resulting Parent Class B Common Stock had been subject to such Adjustment Event, and (2) the Mandatory Conversion Minimum Price and Optional Conversion Minimum Price shall be appropriately adjusted. An adjustment made pursuant to this subsection (n) shall become effective as of the effective date of such Adjustment Event. (ii) If after the Issue Date and prior to the conversion of the Series A Preferred Stock, an Adjustment Event shall occur, then in any such event the Market Price for each Trading Day, if any, included in determining the Market Conversion Rate for any subsequent exercise of the Non-Compliance Conversion Right or for any Conversion Event, to the extent such Market Price does not give effect to such Adjustment Event (it being agreed that the Market Price for shares of Parent Voting Stock traded "ex-dividend" will be deemed to give effect to such Adjustment Event), will be modified, using the principles set forth in clause (n)(i) above, to give effect to such Adjustment Event. (iii) In case of any capital reorganization or reclassification of the outstanding Parent Common Stock, or in case of any consolidation or merger of Parent with or into another corporation, or in the case of a sale of all or substantially all of Parent's assets or capital stock to another Person (each of the foregoing being referred to as a "Transaction"), each share of Series A Preferred Stock then outstanding shall thereafter be convertible into, in lieu of the Parent Class B Common Stock issuable upon such conversion prior to the consummation of such Transaction, the kind and amount of shares of stock and other securities and property 17 (including cash) receivable upon the consummation of such Transaction by a holder of that number of shares of Parent Class B Common Stock into which one share of Series A Preferred Stock was convertible immediately prior to such Transaction (including, on a pro rata basis, the cash, securities or property received by holders of Parent Common Stock in any tender or exchange offer that is a step in such Transaction), provided that in any Transaction in which (i) Parent is the surviving corporation and the holders of Parent Voting Stock immediately prior to the consummation of such Transaction continue, after giving effect to such Transaction, to own the same percentages of the Parent Voting Stock or (ii) Parent is not the surviving corporation but the holders of Parent Voting Stock immediately prior to the consummation of such Transaction continue to own the same percentages of the voting common stock of the surviving corporation, after giving effect to such Transaction, no adjustment shall be required under this clause (iii) except, in the case where Parent is not the surviving corporation, that the Class A Preferred Stock shall become convertible into shares of non-voting common stock of the surviving corporation which in all respects shall be identical in rights (including, without limitation, conversion rights), preferences and powers of the Parent Class B Common Stock and the voting common stock of the surviving corporation shall be identical in rights, preferences and voting powers of the Parent Voting Stock. In any such case, if necessary, appropriate adjustment (as determined in good faith by the Board of Directors of Parent) shall be made in the application of the provisions set forth in this paragraph (iii) with respect to rights and interests thereafter of the holders of Series A Preferred Stock to the end that the provisions set forth herein for the protection of the conversion rights of the holders of Series A Preferred Stock shall thereafter be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of shares of Series A Preferred Stock remaining outstanding. In case securities or property other than Parent Class B Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this paragraph (iii) shall be deemed to apply, so far as appropriate and as nearly as may be, to such other securities or property. Notwithstanding anything contained herein to the contrary, Parent shall not effect any Transaction unless, prior to, or at the time of, the consummation thereof, the successor corporation (if other than Parent) shall assume, by written instrument mailed to each record holder of Series A Preferred Stock at the addresses of each as shown on the books of the Company maintained by the Secretary of the Company, the obligation to deliver to such holder such cash and such securities to which, in accordance with the foregoing provisions, such holder is entitled and such successor entity shall have mailed to each record holder of Series A Preferred Stock at the addresses of each as shown on the books of the Company maintained by the Secretary of the Company, an opinion of independent counsel for such successor 18 entity stating that such assumption agreement is a valid, binding and enforceable agreement of such successor entity (subject to customary exceptions). (iv) In the event that, at any time as a result of an adjustment made pursuant to (iii) above, any holder of shares of Series A Preferred Stock thereafter converted shall become entitled to receive any share of capital stock of Parent other than shares of Parent Class B Common Stock, thereafter the number of such other shares so receivable upon conversion of any share of Series A Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to those with respect to the Parent Class B Common Stock. (v) In case at any time or from time to time, Parent shall make any distribution to the holders of Parent Common Stock, or shall offer for subscription pro rata to the holders of Parent Common Stock any additional shares of stock of any class or any other right, or there shall be any capital reorganization or reclassification of Parent Common Stock or consolidation or merger of Parent with or into another corporation, or any sale or conveyance to another corporation of the property of Parent as an entirety or substantially as an entirety, or there shall be a voluntary or involuntary dissolution, liquidation or winding up of Parent, then, in any one or more of said cases, Parent shall give at least fourteen (14) calendar days' prior written notice (the time of mailing of such notice shall be deemed to be the time of giving thereof) to the record holders of the Series A Preferred Stock at the addresses of each as shown on the books of the Company maintained by the Secretary of the Company of the date on which (a) the books of Parent shall close or a record shall be taken for such distribution or subscription rights or (b) such reorganization, reclassification, consolidation, merger, sale or conveyance, dissolution, liquidation or winding up shall take place, as the case may be, provided, that in the case of any Transaction to which subsection (iii) applies, Parent shall give at least thirty (30) calendar days' prior written notice as aforesaid. Such notice shall also specify the date as of which the holders of Parent Common Stock and of the Series A Preferred Stock shall participate in said distribution or subscription rights or shall be entitled to exchange their shares of Parent Common Stock or Series A Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or conveyance. (vi) In case any event shall occur as to which the provisions of this subsection (n) are not strictly applicable but the failure to make any adjustment would not fairly protect the holders of Series A Preferred Stock in accordance with the essential intent and principles of this subsection (n), then, in each such case, Parent shall appoint a firm of independent certified public accountants of recognized 19 standing, which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in this subsection (n) necessary to preserve the rights of the holders of Series A Preferred Stock. Upon receipt of such opinion and approval of such opinion by a majority of the Board of Directors of Parent, Parent shall promptly mail a copy thereof to the then holders of Series A Preferred Stock and shall make the adjustments described therein. (vii) Upon any adjustment of the Conversion Rate then in effect and any related increase or decrease in the number of shares of Parent Class B Common Stock issuable upon the operation of the conversion set forth in this Section 7, then, and in each such case, Parent shall promptly deliver to the Secretary of the Company a certificate signed by an officer of Parent setting forth the event requiring the adjustment or conversion and the method by which such adjustment or conversion was calculated and specifying the Performance Conversion Rate then in effect following such adjustment and the related increased or decreased number of shares of Parent Class B Common Stock issuable upon conversion, if applicable. Parent shall also promptly after the making of such adjustment or the determination of such conversion give written notice to the record holders of the Series A Preferred Stock at the address of each holder as shown on the books of the Company maintained by the Secretary of the Company, which notice shall state the Performance Conversion Rate then in effect, as adjusted, and the related increased or decreased number of shares of Parent Class B Common Stock issuable upon the exercise of the right of conversion granted by this Section 7 or the determination of such conversion, and shall set forth in reasonable detail the method of calculation of each and a brief statement of the facts requiring such adjustment or conversion. Where appropriate, such notice to record holders of the Series A Preferred Stock may be given in advance and included as part of the notice required under the provisions of subsection (v). (viii) All calculations under this subsection (n) shall be made to the nearest cent or to the nearest one-hundredth of shares of Parent Class B Common Stock, as the case may be. Notwithstanding any other provision of this subsection (n), Parent shall not be required to make any adjustment to the Conversion Rate unless such adjustment would require an increase or decrease of at least 1.0% of the Conversion Rate. Any lesser adjustment shall be carried forward and, in such event, shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1.0% in the Conversion Rate. Any adjustments under this subsection (n) shall be made successively whenever an event requiring such an adjustment occurs. 20 8. Merger, Consolidation or Combination. The Company shall not be a party to a Change of Control prior to the second anniversary of the Issue Date unless such Change of Control is pursuant to a merger in which (a) the Company shall survive and shall thereafter remain a Texas corporation and (b) the Series A Preferred Stock shall continue to be outstanding following the effectiveness of such merger and the rights, powers, preferences and qualifications of the Series A Preferred Stock, as set forth in this Certificate of Designation, shall be unaffected by such merger. If the Company is a party to a Change of Control following the second anniversary of the Issue Date and Parent does not own directly or indirectly all of the issued and outstanding Common Stock, each holder of the Series A Preferred Stock shall have the option to elect to receive, upon the consummation of such transaction, cash consideration in an amount no less than the amount of the Series A Redemption Price. 9. No Reissuance of Series A Preferred Stock. Shares of Series A Preferred Stock that have been surrendered for conversion, redeemed or reacquired in any manner shall be retired and shall not be reissued as shares of Series A Preferred Stock and shall (upon compliance with any applicable provisions of the TBCA) have the status of authorized and unissued shares of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any other series of Preferred Stock; provided, however, that so long as any shares of Series A Preferred Stock are outstanding, any issuance of shares of such other series of preferred stock shall be in compliance with the terms hereof. 10. Transferability. Shares of Series A Preferred Stock shall be free from any and all restrictions on transfer, except as otherwise required by applicable federal and state securities laws. 11. Business Day. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. 12. Financial Information; Notices. (a) For so long as any share of Series A Preferred Stock is outstanding, the Company shall provide to the holders of the Series A Preferred Stock, (i) not later than the 120th day after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and the related consolidated statement of income for such fiscal year, prepared in conformity with generally accepted accounting principles 21 ("GAAP") in all material respects (but without the statement of cash flows and complete financial statement footnotes required by GAAP), setting forth in each case in comparable form the figures for the previous fiscal year and (ii) not later than the 60th day following the end of each of the first three fiscal quarters of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related consolidated statement of income for such quarter and for the portion of the Company's fiscal year ended at the end of such quarter, in each case prepared in accordance with GAAP in all material respects (but without the statement of cash flows and complete financial statement footnotes required by GAAP). (b) The above financial information, and all notices required to be delivered to the holders of the Series A Preferred Stock shall be delivered initially to the following addresses or to such other addresses specified in writing by the holders of the Series A Preferred Stock: PHH Corporation 6 Sylvan Way Parsippany, New Jersey 07054 Attention: General Counsel With a copies to: Cendant Corporation 9 West 57th Street 37th Floor New York, New York 10019 Attention: General Counsel and Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square Wilmington, Delaware 19801 Attention: Patricia Moran Chuff, Esq. [SIGNATURE PAGE FOLLOWS] 22 IN WITNESS WHEREOF, Avis Fleet Leasing and Management Corporation has caused this Certificate of Designation to be signed by Kevin M. Sheehan, its Executive Vice President and Gerard J. Kennell, its Vice President, this 29th day of June, 1999. AVIS FLEET LEASING AND MANAGEMENT CORPORATION By: /s/ Kevin M. Sheehan ----------------------------------------- Name: Kevin M. Sheehan Title: Executive Vice President By: /s/ Gerard J. Kennell ----------------------------------------- Name: Gerard J. Kennell Title: Vice President By the execution set forth below, Avis Rent A Car, Inc., as the holder of all of the shares of Common Stock of Avis Fleet Leasing and Management Corporation, hereby evidences its approval of and agreement with the provisions of Section 6(d) of this Certificate of Designation. AVIS RENT A CAR, INC. By: /s/ Kevin M. Sheehan ----------------------------------------- Name: Kevin M. Sheehan Title: Executive Vice President By: /s/ Gerard J. Kennell ----------------------------------------- Name: Gerard J. Kennell Title: Vice President 23 EX-99.5 9 AVIS FLEET LEASING AND MANAGEMENT CORPORATION AVIS FLEET LEASING AND MANAGEMENT CORPORATION CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND SPECIAL RIGHTS OF SERIES B CUMULATIVE PIK PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF Pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act, Avis Fleet Leasing and Management Corporation, a Texas corporation (the "Company"), does hereby certify that, pursuant to authority conferred upon the board of directors of the Company (the "Board of Directors") by the Company's Articles of Incorporation (the "Articles of Incorporation"), and pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act (the "TBCA"), the Board of Directors is authorized to issue preferred stock, par value $.01 per share ("Preferred Stock"), of the Company in one or more series and the Board of Directors duly approved and adopted the following resolution on June 29, 1999 (the "Resolution") and the Company certifies that such resolution was duly adopted by all necessary action on the part of the Company: RESOLVED that, pursuant to the authority vested in the Board of Directors by the Company's Articles of Incorporation, the Board of Directors does hereby create, authorize and provide for the issuance of a series of Preferred Stock which shall be designated as "Series B Cumulative PIK Preferred Stock", par value $.01 per share, consisting of 5,880,217 shares (which amount shall be automatically reduced to 2,040,183 shares if the Stockholder Approval Condition (as defined herein) is satisfied prior to June 30, 2000), having the designation and the powers, preferences, and special rights and the qualifications, limitations and restrictions thereof that are set forth in the Articles of Incorporation and in this Resolution as follows: 1. Designation. There is hereby created out of the authorized and unissued shares of Preferred Stock a series of preferred stock designated as the "Series B Cumulative PIK Preferred Stock" (the "Series B Preferred Stock"). The number of shares constituting the Series B Preferred Stock shall be 5,880,217 (which amount shall be automatically reduced to 2,040,183 shares if the Stockholder Approval Condition is satisfied prior to June 30, 2000. The liquidation preference of the Series B Preferred Stock shall be $50 per share (the "Series B Stated Amount"), plus any dividends accrued but not paid on the Series B Preferred Stock pursuant to Section 3 hereof, whether or not earned or declared, to the date fixed for liquidation, dissolution or winding up of the Company (collectively with the Series B Stated Amount, the "Series B Liquidation Preference"). The date on which the Series B Preferred Stock is first issued is referred to herein as the "Issue Date." 2. Rank. The Series B Preferred Stock shall rank, with respect to dividend rights, redemption rights and rights upon liquidation, winding up or 1 dissolution, (a)(i) junior to the Series C Cumulative Redeemable Preferred Stock, par value $.01 per share, of the Company (the "Series C Preferred Stock"), (ii) pari passu to the Series A Cumulative Participating Redeemable Convertible Preferred Stock, par value $.01 per share, of the Company (the "Series A Preferred Stock" and, collectively with the Series B Preferred Stock and Series C Preferred Stock, the "Series Preferred Stock") and (iii) senior to the common stock, par value $.01 per share, of the Company (the "Common Stock"). 3. Dividends. (a) The holders of shares of Series B Preferred Stock shall be entitled to receive and, to the extent of funds legally available therefor, the Board of Directors shall declare and the Company shall pay, cumulative dividends (the "Series B Preferred Dividends") accruing from the Issue Date at the rate of 5% (as may be adjusted pursuant to this Section 3(a), the "Series B Preferred Dividend Rate") of the Series B Stated Amount (or $2.50 per share of Series B Preferred Stock) per annum, payable semi-annually in arrears on January 1 and July 1 of each year, commencing January 1, 2000, or, if any such date is not a Business Day (as defined herein), on the next succeeding Business Day (each, a "Dividend Payment Date"), to the holders of record of shares of Series B Preferred Stock as of the immediately preceding December 15 and June 15, respectively (each, a "Record Date"). Series B Preferred Dividends shall be paid in cash, provided, however, that until the fifth anniversary of the Issue Date, the Company may, at its election, pay any or all of the Series B Preferred Dividends by the issuance of shares of Series B Preferred Stock having an aggregate Series B Stated Amount (as defined herein) equal to the amount of the cash dividend that otherwise would have been required to be paid pursuant to this Section 3. Series B Preferred Dividends shall be computed on the basis of a 360-day year of twelve 30-day months and shall be deemed to accrue on a daily basis in any partial months in a period. The Series B Dividend Rate shall automatically be increased to 12% if the Stockholder Approval Condition (as defined herein) is not satisfied on or prior to June 30, 2000, and any such increase shall be retroactive from the Issue Date and the difference between (i) the 12% dividend that shall have retroactively accumulated from the Issue Date through June 30, 2000 and (ii) the 5% dividend that shall have been paid with respect to the period from the Issue Date through June 30, 2000 shall be payable to holders of Series B Preferred Stock on or prior to July 31, 2000. (b) Series B Preferred Dividends shall accrue whether or not the Company has earnings or profits, whether or not there are funds legally available for the payment of such dividends and whether or not dividends are declared. Accumulated but unpaid dividends shall accrue and cumulate, with respect to the Series B Preferred Dividends at the Series B Dividend Rate and shall be paid, to the extent permitted by the TBCA, on the earliest date on which funds become legally available for the payment thereof. 2 (c) No dividend shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding shares of Series B Preferred Stock or any other class or series of capital stock ranking pari passu as to dividends with the Series B Preferred Stock ("Pari Passu Dividend Securities") with respect to any dividend period unless all accrued Series B Preferred Dividends for all preceding dividend periods have been declared and paid upon, or declared and a sufficient sum set apart for the payment of such dividend upon, all outstanding shares of Series B Preferred Stock. When dividends are not paid in full, as aforesaid, upon the Series B Preferred Stock and any such Pari Passu Dividend Securities, all dividends declared upon the Series B Preferred Stock and any Pari Passu Dividend Securities shall be declared pro rata so that the amount of dividends declared per share on the Series B Preferred Stock and such other Pari Passu Dividend Securities shall in all cases bear to each other the same ratio that accrued and unpaid dividends per share on the shares of the Series B Preferred Stock and such other Pari Passu Dividend Securities bear to each other. Unless all accrued Series B Preferred Dividends on all outstanding shares of Series B Preferred Stock due for all past dividend periods shall have been declared and paid, or declared and a sufficient sum for the payment thereof set apart, then: (i) no dividend shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any shares of Common Stock or any shares of any other class or series of capital stock of the Company ranking junior to Series B Preferred Stock as to dividends or as to rights upon liquidation, dissolution or winding up of the Company (collectively, "Junior Securities"); (ii) no other distribution shall be declared or made upon, or any sum set apart for the payment of any distribution upon, any shares of Junior Securities; (iii) no shares of Junior Securities shall be purchased, redeemed or otherwise acquired or retired for value (excluding an exchange for shares of other Junior Securities or a purchase, redemption or other acquisition from the proceeds of a substantially concurrent sale of Junior Securities) by the Company or any of its subsidiaries; and (iv) no monies shall be paid into or set apart or made available for a sinking or other like fund for the purchase, redemption or other acquisition or retirement for value of any shares of Junior Securities or Pari Passu Dividend Securities or Pari Passu Liquidation Securities (as hereinafter defined) by the Company or any of its subsidiaries. (d) Holders of the Series B Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the dividends as herein described. (e) As used herein: (i) "Business Day" means any day other than a Saturday, Sunday or other day on which banks are authorized to be closed in New York, New York; 3 (ii) "Parent" means Avis Rent A Car, Inc., a Delaware corporation; (iii) "Person" means an individual, partnership, limited partnership, limited liability partnership, limited liability company, foreign limited liability company, trust, estate, corporation, custodian, trustee, executor, administrator, nominee or any other entity; (iv) "Stockholder Approval Condition" means that all stockholder approvals required under (i) the Amended and Restated Certificate of Incorporation of Parent, (ii) the New York Stock Exchange Shareholder Approval Policy and (iii) the Delaware General Corporation Law to authorize (x) the creation of 15,000,000 shares of class B common stock ("Parent Class B Common Stock"), par value $.01 per share, of Parent, having the terms set forth in the proposed Amendment to the Amended and Restated Certificate of Incorporation of Parent attached as Exhibit A to the Stockholders Agreement dated June 30, 1999 among Parent, the Company and PHH Corporation, and the issuance of such shares to PHH Corporation and (y) the issuance to PHH Corporation of the shares of Class A common stock, par value $.01 per share, of Parent ("Parent Voting Stock" and, together with the Parent Class B Common Stock, the "Parent Common Stock") that are issuable upon the exchange of the Parent Class B Common Stock have been obtained, provided that the Stockholder Approval Condition shall be deemed satisfied, whether or not all of the aforesaid stockholder approvals have been obtained, if Parent has sought to obtain all such approvals at a meeting of its stock holders and Cendant Car Rental, Inc. (or any transferee of shares of Parent Voting Stock held by Cendant Car Rental, Inc.) failed to vote the shares of Parent Voting Stock beneficially owned by it in favor of such proposal or proposals; and (v) "Subsidiary" means, with respect to any Person, any corporation, partnership, joint venture, business trust, limited liability company or similar entity, in which such Person holds at least a 50% interest with respect to the right to receive dividends and distributions and the right to elect the governing body of such entity. 4. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, after payment in full of the liquidation preference (and, to the extent permitted by the TBCA, any accrued and unpaid dividends) payable upon liquidation, dissolution or winding up of the Company on the issued and outstanding shares of Series C Preferred Stock and any other class or series of capital stock of the Company ranking senior to the Series B Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company (collectively, the "Senior Securities"), each holder of shares of Series B Preferred Stock shall be entitled to payment (out of the assets of the Company available for distribution) of an amount per share of Series B Preferred Stock held by such holder equal to the Series B Liquidation Preference. After payment in full of 4 the Series B Liquidation Preference, such holders shall not be entitled to any further participation in any distribution of assets of the Company. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets available to be distributed among the holders of preferred stock of the Company shall be insufficient to permit the payment to such holders of the full preferential amount to which they are entitled under the terms of such securities, then the assets of the Company legally available for distribution shall be distributed (i) first, to the holders of the Senior Securities until such holders receive the full preferential amount and all accrued and unpaid dividends payable to them, (ii) next, to the holders of the Series B Preferred Stock and to the holders of any issued and outstanding shares of any class or series of capital stock of the Company ranking pari passu with the Series B Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company ("Pari Passu Liquidation Securities") pro rata, in accordance with the full Series B Liquidation Preference and full liquidation preference of such Pari Passu Liquidation Securities and all accrued and unpaid dividends that would be payable with respect to shares of such Pari Passu Liquidation Securities if all amounts payable thereon were paid in full and (iii) next, to the holders of any issued and outstanding shares of any class or series of capital stock of the Company ranking junior to the Series B Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company. If the assets of the Company available for distribution to the holders of Series B Preferred Stock and the Pari Passu Liquidation Securities shall be insufficient to permit payment in full to such holders of the sums which such holders are entitled to receive in such case, then all of the assets available for distribution to holders of the Series B Preferred Stock and the Pari Passu Liquidation Securities shall be distributed among and paid to such holders ratably in proportion to the amounts that would be payable to such holders if such assets were sufficient to permit payment in full and no amounts shall be paid to any class or series of capital stock of the Company ranking junior to the Series B Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company. Neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with or into one or more entities shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Company, unless such sale, conveyance, exchange, transfer, consolidation or merger shall be in connection with a liquidation, dissolution or winding up of the Company. 5. Redemption. (a) Redemption at the Option of the Company. The Series B Preferred Stock may be redeemed at the option of the Company, in whole or in part, at any time or from time to time on or after the fifth anniversary of the Issue Date. The Company may redeem the Series B Preferred Stock by payment in cash, for each share of Series B Preferred Stock to be redeemed, in an amount equal to the Series B Liquidation Preference (the "Series B Redemption Price"), upon prior written notice as specified below. 5 (b) Mandatory Redemption. As mandatory redemption for the retirement of shares of Series B Preferred Stock, the Company shall redeem, out of legally available funds, on the eleventh anniversary of the Issue Date (the "Mandatory Redemption Date"), all of the shares of Series B Preferred Stock then outstanding (if any) for payment in cash, for each share of Series B Preferred Stock to be redeemed, in an amount equal to the Series B Redemption Price. (c) Redemption at the Option of the Holder. Upon a Fundamental Change (as defined herein), each holder of shares of Series B Preferred Stock shall have the right to require the Company to redeem the shares of Series B Preferred Stock held by such holder, in whole or in part, for payment of an amount in cash equal to the Series B Redemption Price for each share of Series B Preferred Stock to be redeemed (the "Cash Payment"). The right of each holder to require the Company to redeem shares of Series B Preferred Stock upon a Fundamental Change shall survive the occurrence of any Fundamental Change and shall be enforceable against any Person that is the survivor or successor of such Fundamental Change. (d) Dividends; Rights as Holders. On and after any date fixed for redemption (a "Redemption Date"), provided that the Company has made available and set aside an amount of cash at least equal to the aggregate Series B Redemption Price necessary to effect the redemption (or, if applicable, the securities, cash or other assets referred to in subsection 5(c) above), Series B Preferred Dividends shall cease to accrue on the Series B Preferred Stock called for redemption (except that, in the case of a Redemption Date after a Record Date for the payment of dividends and prior to the related dividend payment date, holders of Series B Preferred Stock on the Record Date shall be entitled on such dividend payment date to receive the dividend payable on such shares and the amount payable in respect of accrued and unpaid dividends at the Redemption Date shall be reduced by such amount payable on such dividend payment date), such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares as holders of Series B Preferred Stock shall cease, except the right to receive the payment deliverable upon such redemption, without interest from the Redemption Date. (e) Pro Rata Redemption. In the event of a redemption pursuant to subsection 5(a) of only a portion of the then outstanding shares of Series B Preferred Stock, the Company shall effect such redemption on a pro rata basis. (f) Notice of Company Redemption; Surrender of Certificates. (i) In the event of any mandatory or optional redemption by the Company of shares of Series B Preferred Stock, the Company shall send a written notice of redemption by first-class mail to each holder of shares of the Series B Preferred Stock being redeemed, not fewer than twenty (20) days nor more than sixty (60) days prior to the Redemption Date at such holder's registered address (the "Company Redemption Notice"); provided, however, that no failure to give such 6 notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Series B Preferred Stock to be redeemed except as to the holder or holders to whom the Company has failed to give said notice or except as to the holder or holders whose notice was defective. The Company Redemption Notice shall state: (A) the Series B Redemption Price; (B) whether all or less than all of the outstanding shares of the Series B Preferred Stock are to be redeemed and the total number of shares of the Series B Preferred Stock being redeemed; (C) the Redemption Date; (D) the number of shares of Series B Preferred Stock held by such holder that are being redeemed and that the holder is to surrender to the Company, in the manner and at the place designated, the certificate or certificates representing the shares of Series B Preferred Stock to be redeemed; and (E) that, in accordance with subsection 5(d), dividends on the shares of the Series B Preferred Stock to be redeemed shall cease to accumulate on such Redemption Date unless the Company defaults in the payment of the Series B Redemption Price. (ii) Upon delivery of a Company Redemption Notice, each holder of shares of Series B Preferred Stock being redeemed shall surrender the certificate or certificates representing such shares of Series B Preferred Stock, duly endorsed (or otherwise in proper form for transfer), in the manner and at the place designated in the Company Redemption Notice, and on the Redemption Date the full Series B Redemption Price for such shares in cash shall be payable to the Person (as defined herein) whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (g) Notice of Fundamental Change; Shareholder Redemption; Surrender of Certificates. (i) The Company shall send written notice of a Fundamental Change to each holder of Series B Preferred Stock, at such holder's registered address, (A) on or prior to the tenth Business Day preceding the scheduled consummation of any Change of Control of Parent or the Company and (B) immediately after any Bankruptcy (as defined herein) of Parent. Any such notice shall set forth a detailed description of the Change of Control or Bankruptcy, as the case may be, including, without limitation, in the case of a Change of Control, the amount and kind of consideration to be delivered in connection with such Change of 7 Control, and additionally, in the case of a Change of Control of Parent, the amount and kind of securities, cash or other assets which such holder would be entitled to receive upon consummation of such Change of Control if such holder would exercise its Non-Compliance Conversion Right immediately prior to the effective date (or, if applicable, the record date) of such Change of Control. (ii) At any time from and after a Fundamental Change, any holder of Series B Preferred Stock may exercise its optional redemption right pursuant to Section 5(c) by delivering a written notice of redemption (a "Shareholder Redemption Notice") to the Company, at the Company's principal place of business, setting forth: (A) the name of the holder exercising the optional redemption right; and (B) the number of shares of Series B Preferred Stock to be redeemed. (iii) Any Shareholder Redemption Notice shall be accompanied by the certificate or certificates representing the shares of Series B Preferred Stock being redeemed, duly endorsed (or otherwise in proper form for transfer), and promptly on receipt thereof, the Company shall pay the full Series B Redemption Price for such shares in cash to the Person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (h) Prohibition on Redemption after Notice of Conversion. The Company shall not have the right to redeem any shares of Series B Preferred Stock with respect to which the holder thereof has given notice to the Company of its intent to convert such shares into shares of Parent Class B Common Stock in accordance with Section 7 hereof. (i) Certain Definitions. As used herein: (i) "Fundamental Change" means (A) a Change of Control of the Company or Parent or (B) the Bankruptcy of Parent. (ii) "Change of Control" with respect to Parent means (A) a transaction or series of related transactions by which any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act")) other than Cendant Corporation, a Delaware corporation ("Cendant"), or an affiliate or successor to Cendant, is or becomes after the Issue Date the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date hereof), of more than (1) 25% of the total voting power of all voting stock of Parent then outstanding at any time Cendant 8 controls 25% or more of such voting power and (2) 20% of the total voting power of all voting stock of Parent then outstanding at any time Cendant controls less than 25% of such voting power (the "Relevant Percentage"); (B)(1) another corporation merges into Parent or Parent consolidates with or merges into any other corporation or (2) Parent conveys, transfers or leases all or substantially all its assets to any person or group, in one transaction or a series of related transactions, other than a conveyance, transfer or lease between Parent and a wholly owned subsidiary of Parent, with the effect that a person or group, other than a person or group which is the beneficial owner of more than the Relevant Percentage of the total voting power of all voting stock of Parent immediately prior to such transaction, becomes the beneficial owner of more than the Relevant Percentage of the total voting power of all voting stock of the surviving or transferee corporation of such transaction or series of related transactions; or (C) during any period of two consecutive years, individuals who at the beginning of such period constituted Parent's Board of Directors (together with any new directors whose election by Parent's Board of Directors, or whose nomination for election by Parent's stockholders, was approved by a vote of a majority of the Directors of Parent then still in office who were either Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Directors then in office; provided, however that a Change of Control shall not occur solely as a result of a sale or transfer by Cendant and/or its affiliates of shares of capital stock of Parent that are held by Cendant and/or its affiliates. (iii) "Change of Control" with respect to the Company means (A) a transaction or series of related transactions by which any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Ex change Act) other than Parent, a wholly owned subsidiary of Parent, or Cendant, or an affiliate or successor to Cendant, is or becomes after the Issue Date the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date hereof), of more than 25% of the total voting power of all voting stock of the Company; or (B)(1) another corporation merges into the Company or the Company consolidates with or merges into any other corporation or (2) the Company conveys, transfers or leases all or substantially all its assets to any person or group, in one transaction or a series of related transactions, other than a conveyance, transfer or lease between the Company and a wholly owned subsidiary of Parent, with the effect that a person or group, other than a person or group which is the beneficial owner of more than 25% of the total voting power of all voting stock of the Company immediately prior to such transaction, becomes the beneficial owner of more than 25% of the total voting power of all voting stock of the surviving or transferee corporation of such transaction or series; provided, however that a Change of Control shall not occur solely as a result of a sale or transfer by Cendant and/or its affiliates of shares of capital stock of the Company that are held by Cendant and/or its affiliates. (iv) "Bankruptcy," with respect to any Person, shall mean (i) a court or governmental agency having jurisdiction shall enter a decree or order for 9 relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or ordering the winding up or liquidation of its affairs; or (ii) there shall be commenced against such Person an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded for a period of sixty (60) consecutive days; or (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or make any general assignment for the benefit of creditors; or (iv) such Person shall be unable to, or shall admit in writing its inability to, pay its debts generally as they become due. 6. Voting Rights. (a) Except as otherwise provided herein or required by the TBCA, holders of outstanding shares of Series B Preferred Stock shall have no voting rights. The holders of outstanding shares of Series B Preferred Stock shall be entitled to notice, in accordance with the Company's bylaws, of all meetings of shareholders of the Company. (b) The Company shall not, without the affirmative vote or written consent of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock, voting or consenting, as the case may be, as a single class, (i) authorize, create (by way of reclassification or otherwise) or issue any Senior Securities (other than the shares of Series C Preferred Stock issued on or prior to the Issue Date) or Pari Passu Dividend Securities or Pari Passu Liquidation Securities or any obligation or security convertible or exchangeable into or evidencing the right to purchase shares of any class or series of Senior Securities or Pari Passu Dividend Securities or Pari Passu Liquidation Securities, (ii) amend or otherwise alter the Articles of Incorporation or this Certificate of Designation in any manner that adversely affects the rights, preferences, privileges or voting rights of holders of shares of Series B Preferred Stock, (iii) authorize the issuance of any additional shares of Series B Preferred Stock, other than shares of Series B Preferred Stock issued as dividends on the Series A Preferred Stock pursuant to the terms of the Series A Certificate of Designation (as hereinafter defined), or (iv) reincorporate the Company (through merger or otherwise) in a jurisdiction other than Texas prior to the second anniversary of the Issue Date. 10 (c) In any case in which the holders of shares of Series B Preferred Stock shall be entitled to vote pursuant to subsection (b) above or pursuant to the TBCA, each holder of shares of Series B Preferred Stock shall be entitled to one vote for each share of Series B Preferred Stock held. (d) Notwithstanding the foregoing, pursuant to Section 2.30-1 of the TBCA, the shareholders of the Company agree as follows: (i) except as otherwise provided herein, the holders of shares of Series B Preferred Stock shall not be entitled to vote upon, nor shall the affirmative vote of any holders of shares of Series B Preferred Stock be required to authorize or approve, any (A) sale, lease, exchange or other disposition of all or substantially all of the property and assets of the Company, with or without the goodwill of the Company, and whether or not in the usual and regular course of the Company's business or (B) merger (as defined in Section 1.02 of the TBCA), consolidation or other business combination, or any provision thereof, to which the Company is a party or as a result of which the Company's business or assets are affected; (ii) the provisions of this subsection 6(d) shall be valid and effective for the entire term of existence of the Company; (iii) the provisions of this subsection 6(d) may be amended by, and only by, the affirmative vote of the holders of at least two-thirds of the outstanding shares of Common Stock, voting as a class, and the holders of at least two-thirds of the outstanding shares of each series of Series Preferred Stock out standing, each such series voting separately as a single class; (iv) the shareholders of the Company intend and agree that, pursuant to Section 2.30-1 of the TBCA, the agreements among the shareholders of the Company as stated in this subsection 6(d) shall be effective among the Company and all present and future shareholders of the Company even though such agreements are inconsistent with one or more provisions of the TBCA, including, but not limited to, Section 4.03 of the TBCA; and (v) Each share of Series B Preferred Stock shall be endorsed with a legend substantially in the following form: "THE CERTIFICATE OF DESIGNATION COVERING THE TERMS OF THIS SECURITY ELIMINATES CERTAIN VOTING RIGHTS OF HOLDERS OF SERIES B PREFERRED STOCK OF THE CORPORATION THAT MIGHT OTHERWISE BE AVAIL ABLE TO SUCH HOLDERS UNDER THE TEXAS BUSINESS CORPORATION ACT." 7. Conversion Rights. 11 (a) Optional Conversion. Subject to the terms and conditions hereof, holders of shares of Series B Preferred Stock shall have the right (the "Non-Compliance Conversion Right") to convert any or all of the shares of Series B Preferred Stock held by such holder into that whole number of fully paid and nonassessable shares of Parent Class B Common Stock as is equal to the product of the number of shares of Series B Preferred Stock being so converted multiplied by the Market Conversion Rate (as defined herein) then in effect, at any time and from time to time, upon and after: (i) any failure by the Company to make any redemption payment with respect to (A) the Series B Preferred Stock when due in accordance with Section 5 hereof or (B) the Series A Preferred Stock when due in accordance with Section 5 of the Certificate of Designation of the Series A Preferred Stock (the "Series A Certificate of Designation"); or (ii) a breach of, or failure by the Company to perform or observe, its obligations hereunder with respect to (A) the payment of the Series B Preferred Dividends or the payment of any dividends with respect to the Series A Preferred Stock, any Pari Passu Dividend Securities, Pari Passu Liquidation Securities or any Junior Securities, or (B) the taking of any action requiring the approval or consent of the holders of (1) the Series B Preferred Stock pursuant to Section 6 hereof or the TBCA or (2) the Series A Preferred Stock pursuant to Section 6 of the Series B Certificate of Designation or the TBCA, without the requisite approval or consent; or (iii) the issuance of additional shares of Series B Preferred Stock (other than shares of Series B Preferred Stock issued as dividends on the Series A Preferred Stock pursuant to the terms of the Series A Certificate of Designation) or Series A Preferred Stock or the reissuance of any shares of Series B Preferred Stock or Series A Preferred Stock after reacquisition by the Company in violation of Section 9 hereof or comparable provision of the Series A Certificate of Designation. (b) Automatic Conversion. All outstanding shares of Series B Preferred Stock shall automatically convert (the "Automatic Conversion") into that whole number of fully paid and nonassessable shares of Parent Class B Common Stock as is equal to the product of the number of shares of Series B Preferred Stock being so converted multiplied by the Market Conversion Rate then in effect upon the Bankruptcy of the Company or any Subsidiary of the Company that is a Significant Subsidiary (as defined in Rule 1-02(w) of Regulation S-X, or any successor rule thereto) of Parent or a group of Subsidiaries of the Company that taken together (as of the latest audited consolidated statement of Parent) would constitute a Significant Subsidiary of Parent (a "Conversion Event"). (c) Subject to and upon compliance with the provisions of this Section 7, holders of shares of Series B Preferred Stock shall exercise a Non-Compliance Conversion Right by surrender of such shares of Series B Preferred Stock to be 12 converted to the Secretary of the Company, such surrender to be made in the manner provided in paragraph (d) of this Section 7; provided, however, that the right to convert shares called for redemption pursuant to Section 5 shall terminate at 5:00 p.m. (New York time) on the date that is five Business Days prior to the date fixed for such redemption, unless the Company shall default in making payment of the Series B Redemption Price. (d) Exercise of Conversion Right; Surrender of Certificates. In order to exercise the Non-Compliance Conversion Right pursuant to Section 7(a), and upon any Automatic Conversion pursuant to Section 7(b), a holder of shares of Series B Preferred Stock (a "Converting Holder") shall surrender the certificate or certificates representing the shares of Series B Preferred Stock to be converted, duly endorsed in blank, to the Secretary of the Company, accompanied by written notice addressed to the Company specifying the number (in whole shares) of such Converting Holder's shares of Series B Preferred Stock evidenced by such certificate or certificates to be converted and the name or names in which such Converting Holder wishes the certificate or certificates for Parent Class B Common Stock to be issued; in case such notice shall specify that Parent Class B Common Stock be issued in a name or names other than that of such Converting Holder, such notice shall be accompanied by a duly executed instrument of transfer reasonably satisfactory to the Secretary of the Company and payment of all transfer or similar taxes (or evidence reasonably satisfactory to the Company demonstrating that such taxes have been paid or are not payable) payable upon the issuance of Parent Class B Common Stock in such name or names. As promptly as practicable after the surrender of such shares of Series B Preferred Stock as aforesaid, but in any event not later than the third Business Day after such surrender, the Company shall deliver or cause to be delivered to any Converting Holder, or such other Person upon the written order of such Converting Holder, a certificate or certificates for the number of whole shares of Parent Class B Common Stock issuable upon the conversion of such shares of Series B Preferred Stock in accordance with the provisions hereof and any cash payment in lieu of any fractional shares of Parent Class B Common Stock, as provided in paragraph (e) below. The Company shall issue certificates for the balance of any remaining shares of Series B Preferred Stock in any case in which fewer than all of the shares of Series B Preferred Stock represented by a certificate are converted. (e) Notice. Upon the occurrence of a Conversion Event, the Company shall immediately send a written notice thereof to each holder of Series B Preferred Stock, at such holder's registered address, immediately after any Conversion Event. (f) Fractional Shares. No fractional shares of Parent Class B Common Stock or securities representing fractional shares of Parent Class B Common Stock shall be issued upon conversion of the Series B Preferred Stock. Instead of any fractional shares of Parent Class B Common Stock which would otherwise be deliverable upon the conversion of a share of Series B Preferred Stock, the Company 13 shall pay to the Person or Persons to whom any such share is to be delivered a cash adjustment in respect of such fractional interest in an amount (computed to the nearest cent) equal to the value of such fractional shares of Parent Class B Common Stock based upon the Parent Average Price, provided that, for purposes of this clause (f), all Series B Preferred Stock beneficially owned by a Person and all affiliates of such Person shall be treated as beneficially owned, and converted, by a single Person. (g) Time of Conversion. Each conversion of Series B Preferred Stock shall be deemed to have been effected (i) with respect to an exercise of the Non-Compliance Conversion Right, immediately prior to the close of business on the date on which the certificates for shares of Series B Preferred Stock shall have been surrendered for conversion to the Secretary of the Company in accordance with the terms of this Certificate of Designation, and (ii) with respect to an Automatic Conversion, at the close of business on the date immediately prior to the effective date of such Conversion Event. The Person or Persons in whose name or names any 14 certificate or certificates for Parent Class B Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the Parent Class B Common Stock represented thereby at such time on such date and, except as provided herein, all rights with respect to the Series B Preferred Stock surrendered, or required to be surrendered but not yet surrendered at the time of conversion, shall forthwith terminate except the right to receive Parent Class B Common Stock or other securities or property issuable or deliverable in respect of such conversion. (h) Dividends. A holder of shares of Series B Preferred Stock on a Record Date shall be entitled to receive the Series B Preferred Dividend payable on such Series B Preferred Stock on the corresponding dividend payment date notwithstanding the subsequent conversion thereof or the Company's default in payment of such dividend due on the dividend payment date. Upon the conversion of any shares of Series B Preferred Stock, all dividends declared and unpaid on the shares of Series B Preferred Stock so converted to the date of conversion shall be immediately due and payable; and, to the extent the Company has legally available funds therefor, payment by the Company of such declared and unpaid dividends shall accompany the shares of Parent Voting Stock issued upon such conversion. (i) As used herein, "Market Price" shall mean, as of the date of determination, (A) the closing price per share of Parent Voting Stock on such date published in The Wall Street Journal or, if no such closing price on such date is published in The Wall Street Journal, the average of the closing bid and asked prices on such date, as officially reported on the principal national securities exchange (including, without limitation, The Nasdaq Stock Market, Inc.) on which the Parent Voting Stock is then listed or admitted to trading; or (B) if the Parent Voting Stock is not then listed or admitted to trading on any national securities exchange but is designated as a national market system security by the National Association of Securities Dealers, Inc., the last trading price of the Parent Voting Stock on such date; or (C) if there shall have been no trading on such date or if the Parent Voting Stock is not so designated, the average of the reported closing bid and asked prices of the Parent Voting Stock on such date as shown by the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System and reported by any member firm of the New York Stock Exchange selected by the Corporation; or (D) if none of (A), (B) or (C) is applicable, a market price per share determined at the Company's expense by an appraiser chosen by mutual agreement of the Company and the holders of a majority of the shares of Series B Preferred Stock. Any determination of the Market Price by an appraiser shall be based on a valuation of the Parent as an entirety without regard to any discount for minority interests or disparate voting rights among classes of capital stock of Parent. (j) As used herein, "Trading Day" shall mean (i) if the Parent Voting Stock is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock exchange or that other national security exchange is open for business or (ii) if the Parent Voting Stock is quoted on the Nasdaq National Market, a day on which trades may be made thereon or (iii) if the applicable security is not so listed, admitted for trading or quoted, any Business Day. (k) As used herein, the "Market Conversion Rate" shall be equal to the quotient obtained by dividing: (i) the per share Series B Stated Amount by (ii) the average trading price (the "Parent Average Price") per share of Parent Voting Stock for the thirty (30) Trading Days immediately preceding the close of business on the date of the Conversion Event or, with respect to the exercise of the Non-Compliance Conversion Right, the date of the holder's conversion notice, as the case may be; provided, however, that such Market Conversion Rate shall be adjusted and readjusted from time to time as provided in subsection (l) below and, as so adjusted and readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by subsection (l) below. (l) The Market Conversion Rate and the number and type of securities to be received upon conversion of the Series B Preferred Stock shall be subject to adjustment from time to time after the Issue Date as follows: (i) If Parent shall, after the Issue Date and prior to the conversion of the Series B Preferred Stock, (A) declare a dividend on the Parent Common Stock payable in shares of Parent Common Stock; (B) split or subdivide the outstanding Parent Common Stock into a greater number of shares; (C) combine the outstanding Parent Common Stock into a smaller number of shares; or (D) issue any Parent Common Stock by reclassification of Parent Common Stock (each, an "Adjustment Event"), then in any such event the Market Price for each Trading Day, if any, included in determining the Market Conversion Rate for any subsequent exercise of the Non-Compliance Conversion Right or for any Conversion Event, to the extent such Market Price does not give effect to such Adjustment Event (it being agreed that the Market Price for shares of Parent Voting Stock traded "ex-dividend" will be deemed to give effect to such Adjustment Event), shall be proportionately adjusted so that the holder of any shares of Series B Preferred Stock surrendered for conversion after such time shall thereafter be entitled to receive the aggregate number of shares of Parent Class B Common Stock which such holder would have owned or been entitled to receive immediately following any Adjustment Event had such shares of Series B Preferred Stock been converted into Parent Class B Common Stock immediately prior to the effective date of such Adjustment Event or, if applicable, any record date with respect thereto and the resulting Parent Class B Common Stock had been subject to such Adjustment Event. (ii) In case of any capital reorganization or reclassification of the outstanding Parent Common Stock, or in case of any consolidation or merger of Parent with or into another corporation, or in the case of a sale of all or substantially all of Parent's assets or capital stock to another Person (each of the foregoing being referred to as a "Transaction"), each share of Series B Preferred Stock then outstanding shall thereafter be convertible into, in lieu of the Parent Class B Common Stock issuable upon such conversion prior to the consummation of such Transaction, the kind and amount of shares of stock and other securities and property (including cash) receivable upon the consummation of such Transaction by a holder of that number of shares of Parent Class B Common Stock into which one share of Series B Preferred Stock was convertible immediately prior to such Transaction (including, on a pro rata basis, the cash, securities or property received by holders of Parent Common Stock in any tender or exchange offer that is a step in such Transaction), provided that in any Transaction in which (i) Parent is -16- the surviving corporation and the holders of Parent Voting Stock immediately prior to the consummation of such Transaction continue, after giving effect to such Transaction, to own the same percentages of the Parent Voting Stock or (ii) Parent is not the surviving corporation but the holders of Parent Voting Stock immediately prior to the consummation of such Transaction continue to own the same percentages of the voting common stock of the surviving corporation, after giving effect to such Transaction, no adjustment shall be required under this clause (ii) except, in the case where Parent is not the surviving corporation, that the Class B Preferred Stock shall become convertible into shares of non-voting common stock of the surviving corporation which in all respects shall be identical in rights (including, without limitation, conversion rights), preferences and powers of the Parent Class B Common Stock and the voting common stock of the surviving corporation shall be identical in rights, preferences and voting powers of the Parent Voting Stock. In any such case, if necessary, appropriate adjustment (as determined in good faith by the Board of Directors of Parent) shall be made in the application of the provisions set forth in this paragraph (ii) with respect to rights and interests thereafter of the holders of Series B Preferred Stock to the end that the provisions set forth herein for the protection of the conversion rights of the holders of Series B Preferred Stock shall thereafter be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of shares of Series B Preferred Stock remaining outstanding. In case securities or property other than Parent Class B Common Stock shall be issuable or deliverable upon conversion as aforesaid, then all references in this paragraph (ii) shall be deemed to apply, so far as appropriate and as nearly as may be, to such other securities or property. Notwithstanding anything contained herein to the contrary, Parent shall not effect any Transaction unless, prior to, or at the time of, the consummation thereof, the successor corporation (if other than Parent) shall assume, by written instrument mailed to each record holder of Series B Preferred Stock at the addresses of each as shown on the books of the Company maintained by the Secretary of the Company, the obligation to deliver to such holder such cash and such securities to which, in accordance with the foregoing provisions, such holder is entitled and such successor entity shall have mailed to each record holder of Series B Preferred Stock at the addresses of each as shown on the books of the Company maintained by the Secretary of the Company, an opinion of independent counsel for such successor entity stating that such assumption agreement is a valid, binding and enforceable agreement of such successor entity (subject to customary exceptions). (iii) In the event that, at any time as a result of an adjustment made pursuant to (ii) above, any holder of shares of Series B Preferred Stock thereafter converted shall become entitled to receive any share of capital stock of Parent other than shares of Parent Class B Common Stock, thereafter the number of such other shares so receivable upon conversion of any share of Series B Preferred Stock shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to those with respect to the Parent Class B Common Stock. (iv) In case at any time or from time to time, Parent shall make any distribution to the holders of Parent Common Stock, or shall offer for subscription pro rata to the holders of -17- Parent Common Stock any additional shares of stock of any class or any other right, or there shall be any capital reorganization or reclassification of Parent Common Stock or consolidation or merger of Parent with or into another corporation, or any sale or conveyance to another corporation of the property of Parent as an entirety or substantially as an entirety, or there shall be a voluntary or involuntary dissolution, liquidation or winding up of Parent, then, in any one or more of said cases, Parent shall give at least fourteen (14) calendar days' prior written notice (the time of mailing of such notice shall be deemed to be the time of giving thereof) to the record holders of the Series B Preferred Stock at the addresses of each as shown on the books of the Company maintained by the Secretary of the Company of the date on which (a) the books of Parent shall close or a record shall be taken for such distribution or subscription rights or (b) such reorganization, reclassification, consolidation, merger, sale or conveyance, dissolution, liquidation or winding up shall take place, as the case may be, provided, that in the case of any Transaction to which subsection (ii) applies, Parent shall give at least thirty (30) calendar days' prior written notice as aforesaid. Such notice shall also specify the date as of which the holders of Parent Common Stock and of the Series B Preferred Stock shall participate in said distribution or subscription rights or shall be entitled to exchange their shares of Parent Common Stock or Series B Preferred Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale or conveyance. (v) In case any event shall occur as to which the provisions of this subsection (l) are not strictly applicable but the failure to make any adjustment would not fairly protect the holders of Series B Preferred Stock in accordance with the essential intent and principles of this subsection (l), then, in each such case, Parent shall appoint a firm of independent certified public accountants of recognized standing, which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in this subsection (l) necessary to preserve the rights of the holders of Series B Preferred Stock. Upon receipt of such opinion and approval of such opinion by a majority of the Board of Directors of Parent, Parent shall promptly mail a copy thereof to the then holders of Series B Preferred Stock and shall make the adjustments described therein. (vi) Upon any adjustment of the Market Conversion Rate then in effect and any related increase or decrease in the number of shares of Parent Class B Common Stock issuable upon the operation of the conversion set forth in this Section 7, then, and in each such case, Parent shall promptly deliver to the Secretary of the Company a certificate signed by an officer of Parent setting forth the event requiring the adjustment or conversion and the method by which such adjustment or conversion was calculated and specifying the Market Conversion Rate then in effect following such adjustment and the related increased or decreased number of shares of Parent Class B Common Stock issuable upon conversion, if applicable. Parent shall also promptly after the making of such adjustment or the determination of such conversion give written notice to the record holders of the Series B Preferred Stock at the address of each holder as shown on the books of the Company maintained by the Secretary of the Company, which notice shall state the Market Conversion Rate then in effect, as adjusted, and the related increased or decreased number of shares of Parent Class B Common Stock issuable upon the exercise of the right of conversion granted by this Section 7 or the determination of such conversion, and shall set forth in reasonable detail the method of calculation of each and a brief -18- statement of the facts requiring such adjustment or conversion. Where appropriate, such notice to record holders of the Series B Preferred Stock may be given in advance and included as part of the notice required under the provisions of subsection (iv). (vii) All calculations under this subsection (l) shall be made to the nearest cent or to the nearest one-hundredth of shares of Parent Class B Common Stock, as the case may be. Notwithstanding any other provision of this subsection (l), Parent shall not be required to make any adjustment to the Market Conversion Rate unless such adjustment would require an increase or decrease of at least 1.0% of the Market Conversion Rate. Any lesser adjustment shall be carried forward and, in such event, shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least 1.0% in the Market Conversion Rate. Any adjustments under this subsection (l) shall be made successively whenever an event requiring such an adjustment occurs. 8. Merger, Consolidation or Combination. If the Company is a party to a Change of Control and Parent does not own directly or indirectly all of the issued and outstanding Common Stock, each holder of the Series B Preferred Stock shall have the option to elect to receive, upon the consummation of such transaction, cash consideration in an amount no less than the amount of the Series B Redemption Price. 9. No Reissuance of Series B Preferred Stock. Shares of Series B Preferred Stock that have been surrendered for conversion, redeemed or reacquired in any manner shall be retired and shall not be reissued as shares of Series B Preferred Stock and shall (upon compliance with any applicable provisions of the TBCA) have the status of authorized and unissued shares of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any other series of Preferred Stock; provided, however, that so long as any shares of Series B Preferred Stock are outstanding, any issuance of shares of such other series of preferred stock shall be in compliance with the terms hereof. 10. Transferability. Shares of Series B Preferred Stock shall be free from any and all restrictions on transfer, except as otherwise required by applicable federal and state securities laws. 11. Business Day. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. 12. Financial Information; Notices. (a) For so long as any share of Series B Preferred Stock is outstanding, the Company shall provide to the holders of the Series B Preferred Stock, (i) not later than the 120th day after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and the related consolidated statement of income for such fiscal year, prepared in conformity with generally accepted accounting principles ("GAAP") in all material respects (but without the statement of cash flows -19- and complete financial statement footnotes required by GAAP), setting forth in each case in comparable form the figures for the previous fiscal year and (ii) not later than the 60th day following the end of each of the first three fiscal quarters of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related consolidated statement of income for such quarter and for the portion of the Company's fiscal year ended at the end of such quarter, in each case prepared in accordance with GAAP in all material respects (but without the statement of cash flows and complete financial statement footnotes required by GAAP). (b) The above financial information, and all notices required to be delivered to the holders of the Series B Preferred Stock shall be delivered initially to the following addresses or to such other addresses specified in writing by the holders of the Series B Preferred Stock: PHH Corporation 6 Sylvan Way Parsippany, New Jersey 07054 Attention: General Counsel With a copies to: Cendant Corporation 9 West 57th Street 37th Floor New York, New York 10019 Attention: General Counsel and Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square Wilmington, Delaware 19801 Attention: Patricia Moran Chuff, Esq. [SIGNATURE PAGE FOLLOWS] -20- IN WITNESS WHEREOF, Avis Fleet Leasing and Management Corporation has caused this Certificate of Designation to be signed by Kevin M. Sheehan, its Executive Vice President and Gerard J. Kennell, its Vice President, this 29th day of June, 1999. AVIS FLEET LEASING AND MANAGEMENT CORPORATION By: /s/ Kevin M. Sheehan Name: Kevin M. Sheehan Title: Executive Vice President By: /s/ Gerard J. Kennell Name: Gerard J. Kennell Title: Vice President By the execution set forth below, Avis Rent A Car, Inc., as the holder of all of the shares of Common Stock of Avis Fleet Leasing and Management Corporation, hereby evidences its approval of and agreement with the provisions of Section 6(d) of this Certificate of Designation. AVIS RENT A CAR, INC. By: /s/ Kevin M. Sheehan Name: Kevin M. Sheehan Title: Executive vice President By: /s/ Gerard J. Kennell Name: Gerard J. Kennell Title: Vice President -21- EX-99.6 10 CERTIFICATE OF DESIGNATION OF THE POWERS AVIS FLEET LEASING AND MANAGEMENT CORPORATION CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND SPECIAL RIGHTS OF SERIES C CUMULATIVE REDEEMABLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF Pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act Avis Fleet Leasing and Management Corporation, a Texas corporation (the "Company"), does hereby certify that, pursuant to authority conferred upon the board of directors of the Company (the "Board of Directors") by the Company's Articles of Incorporation (the "Articles of Incorporation"), and pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act (the "TBCA"), the Board of Directors is authorized to issue preferred stock, par value $0.01 per share ("Preferred Stock"), of the Company in one or more series and the Board of Directors duly approved and adopted the following resolution on June 29, 1999 (the "Resolution") and the Company certifies that such resolution was duly adopted by all necessary action on the part of the Company: RESOLVED that, pursuant to the authority vested in the Board of Directors by the Company's Articles of Incorporation, the Board of Directors does hereby create, authorize and provide for the issuance of a series of Preferred Stock which shall be designated as "Series C Cumulative Redeemable Preferred Stock", par value $0.01 per share, consisting of 40,000 shares, having the designation and the powers, preferences, and special rights and the qualifications, limitations and restrictions thereof that are set forth in the Articles of Incorporation and in this Resolution as follows: 1. Designation. There is hereby created out of the authorized and unissued shares of Preferred Stock a series of preferred stock designated as the "Series C Cumulative Redeemable Preferred Stock" (the "Series C Preferred Stock"). The number of shares constituting the Series C Preferred Stock shall be 40,000. The liquidation preference of the Series C Preferred Stock shall be $50 per share (the "Series C Stated Amount") plus any dividends accrued but not paid on the Series C Preferred Stock pursuant to Section 3 hereof, whether or not earned or declared, to the date fixed for liquidation, dissolution or winding up of the Company (collectively with the Series C Stated Amount, the "Series C Liquidation Preference"). The date on which the Series C Preferred Stock is first issued is referred to herein as the "Issue Date." 2. Rank. The Series C Preferred Stock shall rank, with respect to dividend rights, redemption rights, and rights upon liquidation, winding up and dissolution, senior to (a) the Series A Cumulative Participating Redeemable Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), (b) the Series B Cumulative PIK Preferred Stock, par value $0.01 per share, of the Company (the "Series B Preferred Stock" and, collectively with the Series A Preferred Stock and the Series C Preferred Stock, the "Preferred Stock") and (c) the common stock, par value $0.01 per share, of the Company (the "Common Stock"). 3. Dividends. (a) The holders of shares of Series C Preferred Stock shall be entitled to receive, and, to the extent of funds legally available therefor, the Board of Directors shall declare and the Company shall pay, cumulative dividends (the "Series C Preferred Dividends") accruing from the Issue Date at the rate of 11% of the Series C Stated Amount (the "Series C Preferred Dividend Rate") (or $5.50 per share of Series C Preferred Stock) per annum, payable in cash semi-annually in arrears on January 1 and July 1 of each year, commencing January 1, 2000, or, if any such date is not a Business Day (as defined herein), on the next succeeding Business Day (each, a "Dividend Payment Date"), to the holders of record of shares of Series C Preferred Stock as of the immediately preceding December 15 and June 15, respectively (each, a "Record Date"). Series C Preferred Dividends shall be computed on the basis of a 360-day year of twelve 30-day months and shall be deemed to accrue on a daily basis in any partial months in a period. (b) Series C Preferred Dividends shall accrue whether or not the Company has earnings or profits, whether or not there are funds legally available for the payment of such dividends and whether or not dividends are declared. Accumulated but unpaid dividends shall accrue and cumulate, with respect to the Series C Preferred Dividends, at the Series C Preferred Dividend Rate and shall be paid, to the extent permitted by the TBCA, on the earliest date on which funds become legally available for the payment thereof. (c) No dividend shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding shares of Series C Pre- 3 ferred Stock or any other class or series of capital stock ranking pari passu as to dividends with the Series C Preferred Stock ("Pari Passu Dividend Securities") with respect to any dividend period unless all accrued Series C Preferred Dividends for all preceding dividend periods have been declared and paid upon, or declared and a sufficient sum set apart for the payment of such dividend upon, all outstanding shares of Series C Preferred Stock. When dividends are not paid in full, as aforesaid, upon the Series C Preferred Stock and any Pari Passu Dividend Securities, all dividends declared upon the Series C Preferred Stock and any Pari Passu Dividend Securities shall be declared pro rata so that the amount of dividends declared per share on the Series C Preferred Stock and such other Pari Passu Dividend Securities in all cases bear to each other the same ratio that accrued and unpaid dividends per share on the Series C Preferred Stock and such other Pari Passu Dividend Securities bear to each other. Unless all accrued Series C Preferred Dividends on all outstanding shares of Series C Preferred Stock due for all past dividend periods shall have been declared and paid, or declared and a sufficient sum for the payment thereof set apart, then: (i) no dividend shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock or any shares of any other class or series of capital stock of the Company ranking junior to Series C Preferred Stock as to dividends or as to rights upon liquidation, dissolution or winding up of the Company (collectively, "Junior Securities"); (ii) no other distribution shall be declared or made upon, or any sum set apart for the payment of any distribution upon, any shares of Junior Securities; (iii) no shares of Junior Securities shall be purchased, redeemed or otherwise acquired or retired for value (excluding an exchange for shares of other Junior Securities or a purchase, redemption or other acquisition from the proceeds of a substantially concurrent sale of Junior Securities) by the Company or any of its subsidiaries; and (iv) no monies shall be paid into or set apart or made available for a sinking or other like fund for the purchase, redemption or other acquisition or retirement for value of any shares of Junior Securities or Pari Passu Dividend Securities or Pari Passu Liquidation Securities (as hereinafter defined) by the Company or any of its subsidiaries. (d) Holders of the Series C Preferred Stock shall not be entitled to any dividends, whether payable in cash, property or stock, in excess of the dividends as herein described. (e) As used herein, "Business Day" means any day other than a Saturday, Sunday or other day on which banks are authorized to be closed in New York, New York. 4. Liquidation Preference. Upon any voluntary or involuntary 4 liquidation, dissolution or winding up of the Company, after payment in full of the liquidation preference (and, to the extent permitted by the TBCA, any accrued and unpaid dividends) payable upon liquidation, dissolution or winding up of the Company on the issued and outstanding shares of any other class or series of capital stock of the Company ranking senior to Series C Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company (collectively, the "Senior Securities"), each holder of shares of Series C Preferred Stock shall be entitled to payment (out of the assets of the Company available for distribution) of an amount per share of Series C Preferred Stock held by such holder equal to the Series C Liquidation Preference. After payment in full of the Series C Liquidation Preference, such holders shall not be entitled to any further participation in any distribution of assets of the Company. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the assets available to be distributed among the holders of preferred stock of the Company shall be insufficient to permit the payment to such holders of the full preferential amount to which they are entitled under the terms of such securities, then the assets of the Company legally available for distribution shall be distributed (i) first, to the holders of the Senior Securities until such holders receive the full preferential amount and all accrued and unpaid dividends payable to them, (ii) next, to the holders of the Series C Preferred Stock and to the holders of any issued and outstanding shares of any class or series of capital stock of the Company ranking pari passu with the Series C Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company ("Pari Passu Liquidation Securities") pro rata, in accordance with the full Series C Liquidation Preference and full liquidation preference of such Pari Passu Liquidation Securities and all accrued and unpaid dividends that would be payable with respect to shares of such Pari Passu Liquidation Securities if all amounts payable thereon were paid in full, and (iii) next, to the holders of any issued and outstanding shares of any class or series of capital stock of the Company ranking junior to the Series C Preferred Stock as to rights upon liquidation, dissolution or winding up of the Company. If the assets of the Company available for distribution to the holders of Series C Preferred Stock and the Pari Passu Liquidation Securities shall be insufficient to permit payment in full to such holders of the sums which such holders are entitled to receive in such case, then all of the assets available for distribution to holders of the Series C Preferred Stock and the Pari Passu Liquidation Securities shall be distributed among and paid to such holders ratably in proportion to the amounts that would be payable to such holders if such assets were sufficient to permit payment in full and no amounts shall be paid to holders of any class or series of capital stock of the Company ranking junior to the Series C Preferred Stock as to rights upon liquidation, dissolution or winding up the Company. Neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation 5 or merger of the Company with or into one or more entities shall be deemed to be a voluntary or involuntary liquidation, dissolution or winding up of the Company, unless such sale, conveyance, exchange, transfer, consolidation or merger shall be in connection with a liquidation, dissolution or winding up of the Company. 5. Redemption. (a) Redemption at the Option of the Company. The Series C Preferred Stock may be redeemed at the option of the Company, in whole or in part, at any time or from time to time on or after the fifth anniversary of the Issue Date. The Company may redeem the Series C Preferred Stock by payment in cash, for each share of Series C Preferred Stock to be redeemed, in an amount equal to the Series C Liquidation Preference (the "Series C Redemption Price"), upon prior written notice as specified below. (b) Mandatory Redemption. As mandatory redemption for the retirement of shares of Series C Preferred Stock, the Company shall redeem, out of legally available funds, on the seventh anniversary of the Issue Date (the "Mandatory Redemption Date"), all of the shares of Series C Preferred Stock then outstanding (if any) for payment in cash, for each share of Series C Preferred Stock to be redeemed, in an amount equal to the Series C Redemption Price. (c) Redemption at the Option of the Holder. At any time or from time to time on or after (i) a Fundamental Change (as defined herein) or (ii) the second anniversary of the Issue Date, each holder of shares of Series C Preferred Stock shall have the right to require the Company to redeem the shares of Series C Preferred Stock held by such holder, in whole or in part, for payment of an amount in cash equal to the Series C Redemption Price for each share of Series C Preferred Stock to be redeemed. The right of each holder to require the Company to redeem shares of Series C Preferred Stock upon a Fundamental Change pursuant to clause (i) above shall survive the occurrence of any Fundamental Change and shall be enforceable against any Person that is the survivor or successor of such Fundamental Change. (d) Dividends; Rights as Holders. On and after any date fixed for redemption (a "Redemption Date"), provided that the Company has made available and set aside an amount of cash at least equal to the aggregate Series C Redemption Price necessary to effect the redemption, Series C Preferred Dividends shall cease to accrue on the Series C Preferred Stock called for redemption (except that, in the case of a Redemption Date after a Record Date for payment of dividends and prior to the related dividend payment date, holders of Series C Preferred Stock on the Record 6 Date shall be entitled on such dividend payment date to receive the dividend payable on such shares and the amount payable in respect of accrued and unpaid dividends at the Redemption Date shall be reduced by such amount payable on such dividend payment date), such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares as holders of Series C Preferred Stock shall cease, except the right to receive the cash payment deliverable upon such redemption, without interest, from the Redemption Date. (e) Pro Rata Redemption. In the event of a redemption pursuant to subsection 5(a) of only a portion of the then outstanding shares of Series C Preferred Stock, the Company shall effect such redemption on a pro rata basis. (f) Notice of Company Redemption; Surrender of Certificates. (i) In the event of any mandatory or optional redemption by the Company of shares of Series C Preferred Stock, the Company shall send a written notice of redemption by first-class mail to each holder of shares of the Series C Preferred Stock being redeemed, not fewer than twenty (20) days nor more than sixty (60) days prior to the Redemption Date at such holder's registered address (the "Company Redemption Notice"); provided, however, that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Series C Preferred Stock to be redeemed except as to the holder or holders to whom the Company has failed to give said notice or except as to the holder or holders whose notice was defective. The Company Redemption Notice shall state: (A) the Series C Redemption Price; (B) whether all or less than all of the outstanding shares of the Series C Preferred Stock are to be redeemed and the total number of shares of the Series C Preferred Stock being redeemed; (C) the Redemption Date; (D) the number of shares of Series C Preferred Stock held by such holder that are being redeemed and that the holder is to surrender to the Company, in the manner and at the place designated, the certificate or certificates representing the shares of Series C Preferred Stock to be redeemed; and (E) that, in accordance with subsection 5(d), dividends on the shares of the Series C Preferred Stock to be redeemed shall cease to 7 accumulate on such Redemption Date unless the Company defaults in the payment of the Series C Redemption Price. (ii) Upon delivery of a Company Redemption Notice, each holder of shares of Series C Preferred Stock being redeemed shall surrender the certificate or certificates representing such shares of Series C Preferred Stock, duly endorsed (or otherwise in proper form for transfer), in the manner and at the place designated in the Redemption Notice, and on the Redemption Date the full Series C Redemption Price for such shares shall be payable in cash to the Person (as defined herein) whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (g) Notice of Fundamental Change; Shareholder Redemption; Surrender of Certificates. (i) The Company shall send written notice of a Fundamental Change to each holder of Series C Preferred Stock, at such holder's registered address, (A) on or prior to the tenth Business Day preceding the scheduled consummation of any Change of Control of Parent (as defined herein) or the Company and (B) immediately after any Bankruptcy (as defined herein) of Parent. Any such notice shall set forth a detailed description of the Change of Control or Bankruptcy, as the case may be, including, without limitation, in the case of a Change of Control, the amount and kind of consideration to be delivered in connection with such Change of Control. (ii) At any time from and after a Fundamental Change, any holder of Series C Preferred Stock may exercise its optional redemption right pursuant to Section 5(c) by delivering a written notice of redemption (a "Shareholder Redemption Notice") to the Company, at the Company's principal place of business to be maintained by it, setting forth: (A) the name of the holder exercising the optional redemption right; and (B) the number of shares of Series C Preferred Stock to be redeemed. (iii) Any Shareholder Redemption Notice shall be accompanied by the certificate or certificates representing the shares of Series C 8 Preferred Stock being redeemed, duly endorsed (or otherwise in proper form for transfer), and promptly on receipt thereof, the Company shall pay the full Series A Redemption Price for such shares in cash, to the Person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (h) Certain Definitions. As used herein: (i) "Fundamental Change" means (A) a Change of Control of the Company or Avis Rent A Car, Inc., a Delaware corporation ("Parent"), or (B) the Bankruptcy of Parent. (ii) "Change of Control" with respect to Parent means (A) a transaction or series of related transactions by which any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act")) other than Cendant Corporation, a Delaware corporation ("Cendant"), or an affiliate or successor to Cendant, is or becomes after the Issue Date the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date hereof) of more than (1) 25% of the total voting power of all voting stock of Parent then outstanding at any time Cendant controls 25% or more of such voting power and (2) 20% of the total voting power of all voting stock of Parent then outstanding at any time Cendant controls less than 25% of such voting power (the "Relevant Percentage"); (B)(1) another corporation merges into Parent or Parent consolidates with or merges into any other corporation or (2) Parent conveys, transfers or leases all or substantially all its assets to any person or group, in one transaction or a series of related transactions, other than a conveyance, transfer or lease between Parent and a wholly owned subsidiary of Parent, with the effect that a person or group, other than a person or group which is the beneficial owner of more than the Relevant Percentage of the total voting power of all voting stock of Parent immediately prior to such transaction, becomes the beneficial owner of more than the Relevant Percentage of the total voting power of all voting stock of the surviving or transferee corporation of such transaction or series; or (C) during any period of two consecutive years, individuals who at the beginning of such period constituted Parent's Board of Directors (together with any new directors whose election by Parent's Board of Directors, or whose nomination for election by Parent's stockholders, was approved by a vote of a majority of the Directors of Parent then still in office who were either Directors at the beginning of 9 such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Directors then in office; provided, however that a Change of Control shall not occur solely as a result of a sale or transfer by Cendant and/or its affiliates of shares of capital stock of Parent that are held by Cendant and/or its affiliates. (iii) "Change of Control" with respect to the Company means (A) a transaction or series of related transactions by which any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act) other than Parent, any wholly owned subsidiary of Parent, or Cendant, or an affiliate or successor to Cendant, is or becomes after the Issue Date the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date hereof), of more than 25% of the total voting power of all voting stock of the Company; or (B)(1) another corporation merges into the Company or the Company consolidates with or merges into any other corporation or (2) the Company conveys, transfers or leases all or substantially all its assets to any person or group, in one transaction or a series of related transactions, other than a conveyance, transfer or lease between the Company and a wholly owned subsidiary of Parent, with the effect that a person or group, other than a person or group which is the beneficial owner of more than 25% of the total voting power of all voting stock of the Company immediately prior to such transaction, becomes the beneficial owner of more than 25% of the total voting power of all voting stock of the surviving or transferee corporation of such transaction or series; provided, however that a Change of Control shall not occur solely as a result of a sale or transfer by Cendant and/or its affiliates of shares of capital stock of the Company that are held by Cendant and/or its affiliates. (iv) "Subsidiary" means, with respect to any Person, any corporation, partnership, joint venture, business trust, limited liability company or similar entity, in which such Person holds at least a 50% interest with respect to the right to receive dividends and distributions and the right to elect the governing body of such entity. (v) "Bankruptcy," with respect to any Person, means (i) a court or governmental agency having jurisdiction shall enter a decree or order for relief in respect of such Person in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or ordering the winding up or liquidation of its affairs; or (ii) there shall be commenced against such Person an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or any case, proceeding or other action for the appointment of a receiver, liquidator, assignee, 10 custodian, trustee, sequestrator (or similar official) of such Person or for the winding up or liquidation of its affairs, and such involuntary case or other case, proceeding or other action shall remain undismissed, undischarged or unbonded for a period of sixty (60) consecutive days; or (iii) such Person shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consent to the entry of an order for relief in an involuntary case under any such law, or consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of such Person or make any general assignment for the benefit of creditors; or (iv) such Person shall be unable to, or shall admit in writing its inability to, pay its debts generally as they become due. (vi) "Person" shall mean an individual, partnership, limited partnership, limited liability partnership, limited liability company, foreign limited liability company, trust, estate, corporation, custodian, trustee, executor, administrator, nominee or any other entity. 6. Voting Rights. (a) Except as otherwise provided herein or required by the TBCA, holders of outstanding shares of Series C Preferred Stock shall have no voting rights. The holders of outstanding shares of Series C Preferred Stock shall be entitled to notice, in accordance with the Company's bylaws, of all meetings of shareholders of the Company. (b) The Company shall not, without the affirmative vote or written consent of the holders of at least a majority of the then outstanding shares of Series C Preferred Stock, voting or consenting, as the case may be, as a single class, (i) authorize, create (by way of reclassification or otherwise) or issue any Senior Securities or Pari Passu Dividend Securities or Pari Passu Liquidation Securities or any obligation or security convertible or exchangeable into or evidencing the right to purchase shares of any class or series of Senior Securities or Pari Passu Dividend Securities or Pari Passu Liquidation Securities, or (ii) amend or otherwise alter the Articles of Incorporation or this Certificate of Designation in any manner that adversely affects the rights, preferences, privileges or voting rights of holders of shares of Series C Preferred Stock, or (iii) authorize the issuance of any additional shares of Series C Preferred Stock. (c) In any case in which the holders of shares of Series C Preferred Stock shall be entitled to vote pursuant to subsection (b) above or pursuant to the TBCA, each holder of shares of Series C Preferred Stock shall be entitled to 11 one vote for each share of Series C Preferred Stock held. (d) Notwithstanding the foregoing, pursuant to Section 2.30-1 of the TBCA, the shareholders of the Company agree as follows: (i) except as otherwise provided herein, the holders of shares of Series C Preferred Stock shall not be entitled to vote upon, nor shall the affirmative vote of any holders of shares of Series C Preferred Stock be required to authorize or approve, any (A) sale, lease, exchange or other disposition of all or substantially all of the property and assets of the Company, with or without the goodwill of the Company, and whether or not in the usual and regular course of the Company's business or (B) merger (as defined in Section 1.02 of the TBCA), consolidation or other business combination, or any provision thereof, to which the Company is a party or as a result of which the Company's business or assets are affected; (ii) the provisions of this subsection 6 (d) shall be valid and effective for the entire term of existence of the Company; (iii) the provisions of this subsection 6 (d) may be amended by, and only by, the affirmative vote of the holders of at least two-thirds of the outstanding shares of Common Stock, voting as a class, and the holders of at least two-thirds of the outstanding shares of each series of Preferred Stock outstanding, each such series voting separately as a single class; (iv) the shareholders of the Company intend and agree that, pursuant to Section 2.30-1 of the TBCA, the agreements among the shareholders of the Company as stated in this subsection 6 (d) shall be effective among the Company and all present and future shareholders of the Company even though such agreements are inconsistent with one or more provisions of the TBCA, including, but not limited to, Section 4.03 of the TBCA; and (v) Each share of Series C Preferred Stock shall be endorsed with a legend substantially in the following form: "THE CERTIFICATE OF DESIGNATION COVERING THE TERMS OF THIS SECURITY ELIMINATES CERTAIN VOTING RIGHTS OF HOLDERS OF SERIES C PREFERRED STOCK OF THE CORPORATION THAT MIGHT OTHERWISE BE AVAILABLE TO SUCH HOLDERS UNDER THE TEXAS BUSINESS CORPORATION ACT." 12 7. Merger, Consolidation or Combination. The Company shall not be a party to a Change of Control prior to the second anniversary of the Issue Date, unless (A) such Change of Control is pursuant to a merger in which the Company shall survive and shall thereafter remain a Texas corporation and (B) the Series C Preferred Stock shall continue to be outstanding following the effectiveness of such merger and the rights, powers, preferences and qualifications of the Series C Preferred Stock, as set forth in this Certificate of Designation, shall be unaffected by such merger. If the Company is a party to a Change of Control following the second anniversary of the Issue Date and Parent does not own directly or indirectly all of the issued and outstanding Common Stock, each holder of the Series C Preferred Stock shall have the option to elect to receive, upon the consummation of such transaction, cash consideration in an amount no less than the amount of the Series C Redemption Price. 8. No Reissuance of Series C Preferred Stock. Shares of Series C Preferred Stock that have been redeemed or reacquired in any manner shall be retired and shall not be reissued as shares of Series C Preferred Stock and shall (upon compliance with any applicable provisions of the TBCA) have the status of authorized and unissued shares of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any other series of Preferred Stock; provided, however, that so long as any shares of Series C Preferred Stock are outstanding, any issuance of shares of such other series of preferred stock shall be in compliance with the terms hereof. 9. Business Day. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. 10. Financial Information; Notices. (a) For so long as any share of the Series C Preferred Stock is outstanding, the Company shall provide to the holders of the Series C Preferred Stock, (i) not later than the 120th day after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and the related consolidated statement of income for such fiscal year, prepared in conformity with generally accepted accounting principles ("GAAP") in all material respects (but without the statement of cash flows and complete financial statement footnotes required by GAAP), setting forth in each case in comparable form the figures for the previous fiscal year and (ii) not later than the 13 60th day following the end of each of the first three fiscal quarters of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related consolidated statement of income for such quarter and for the portion of the Company's fiscal year ended at the end of such quarter, in each case prepared in accordance with GAAP in all material respects (but without the statement of cash flows and complete financial statement footnotes required by GAAP). (b) The above financial information, and all notices required to be delivered to the holders of the Series C Preferred Stock shall be delivered initially to the following addresses or to such other addresses specified in writing by the holders of the Series C Preferred Stock: The Chase Manhattan Corporation 270 Park Avenue New York, New York 10017 Attention: Treasurer With a copy to: The Chase Manhattan Corporation 270 Park Avenue New York, New York 10017 Attention: Corporate Secretary With a copy to: Chase Securities, Inc. 270 Park Avenue New York, New York 10017 Attention: Ms. Carol Ulmer [SIGNATURE PAGE FOLLOWS] 14 IN WITNESS WHEREOF, AVIS FLEET LEASING AND MANAGEMENT CORPORATION has caused this Certificate of Designation to be signed by Kevin M. Sheehan, its Executive Vice President and Gerard J. Kennell, its Vice President, this 29th day of June, 1999. AVIS FLEET LEASING AND MANAGEMENT CORPORATION By: /s/ Kevin M. Sheehan ------------------------------------ Name: Kevin M. Sheehan Title: Executive Vice President By: /s/ Gerard J. Kennell ------------------------------------ Name: Gerard J. Kennell Title: Vice President By the execution set forth below, Avis Rent A Car, Inc., as the holder of all of the shares of Common Stock of Avis Fleet Leasing and Management Corporation, hereby evidences its approval of and agreement with the provisions of Section 6 (d) of this Certificate of Designation. AVIS RENT A CAR, INC. By: /s/ Kevin M. Sheehan ------------------------------------ Name: Kevin M. Sheehan Title: Executive Vice President By: /s/ Gerard J. Kennell ------------------------------------ Name: Gerard J. Kennell Title: Vice President -----END PRIVACY-ENHANCED MESSAGE-----