Hertz 2007 Annual Report Download - page 187

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Sponsors and their respective affiliates, directors, officers, partners, members, employees, agents,
representatives and controlling persons, against certain liabilities arising out of the performance of a
consulting agreement with Hertz Holdings and each of the Sponsors and certain other claims and
liabilities, including liabilities arising out of financing arrangements or securities offerings.
Hertz Holdings has entered into indemnification agreements with each of its directors. The
indemnification agreements provide the directors with contractual rights to the indemnification and
expense advancement rights provided under our by-laws, as well as contractual rights to additional
indemnification as provided in the indemnification agreements.
We have not recorded any liability because these liabilities are considered to be de minimis.
Director Stock Incentive Plan
On October 12, 2006, the Board of Directors of Hertz Holdings approved the Director Plan. The
stockholders of Hertz Holdings approved the Director Plan on October 20, 2006. The Director Plan
provides for the grant of shares of common stock of Hertz Holdings, options to purchase shares of
common stock of Hertz Holdings and ‘‘phantom shares,’’ which are the right to receive shares of
common stock of Hertz Holdings at a specified point in the future. A maximum of 3,500,000 shares are
reserved for issuance under the Director Plan.
Options granted under the Director Plan must be granted at an exercise price no less than fair market
value of such shares on the date of grant. Options granted as part of a director’s annual retainer fee will
be fully vested at the time of grant and will generally have a 10-year term.
A director may generally elect to receive all or a portion of fees that would otherwise be payable in cash
in the form of shares of common stock of Hertz Holdings having a fair market value at such time equal to
the amount of such fees. Any such shares will be paid to the director when cash fees would otherwise be
payable, although, if a director so chooses, these shares may be payable on a tax-deferred basis in
phantom shares, in which case the actual shares of the common stock of Hertz Holdings will be paid to
the director promptly following the date on which he or she ceases to serve as a director (or, if earlier,
upon a change in control).
A director will recognize ordinary income upon exercising options granted under the Director Plan in an
amount equal to the fair market value of the shares acquired on the date of exercise, less the exercise
price, and Hertz Holdings will have a corresponding tax deduction at that time. In the case of shares
issued in lieu of cash fees, a director who is an individual will generally recognize ordinary income equal
to the fair market value of such shares on the date such shares are paid to the director and Hertz
Holdings will have a corresponding tax deduction at that time. For the year ended December 31, 2007,
we recognized $1.7 million of expense relating to the Director Plan in our consolidated statement of
operations in ‘‘Selling, general and administrative’’ expenses.
Financing Arrangements with Related Parties
Affiliates of ML Global Private Equity, L.P. and its related funds (which are stockholders of Hertz Holdings)
and of Merrill Lynch & Co., one of the underwriters in the initial public offering of our common stock and
the June 2007 secondary offering by the Sponsors, were lenders under the Hertz Holdings Loan Facility
(which was repaid with the proceeds of our initial public offering), are lenders under the original and
amended Senior Term Facility, the original and amended Senior ABL Facility and the Fleet Financing
Facility; acted as initial purchasers with respect to the offerings of the Senior Notes and the Senior
Subordinated Notes; acted as structuring advisors and agents under our ABS Program; and acted as
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