Hertz 2010 Annual Report Download - page 123

HERTZ GLOBAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pursuant to the terms of exchange and registration rights agreements entered into in connection with the
separate issuances of the 7.5% Senior Notes due 2018 and the 7.375% Senior Notes due 2021, Hertz
has agreed to file a registration statement under the Securities Act of 1933, as amended, to permit either
the exchange of such notes for registered notes or, in the alternative, the registered resale of such notes.
Hertz’s failure to meet its obligations under the exchange and registration rights agreements, including
by failing to have the respective registration statement become effective by a specified date or failing to
complete the respective exchange offer by a specified date, will result in Hertz incurring special interest
on such notes at a per annum rate of 0.25% for the first 90 days of any period where a default has
occurred and is continuing, which rate will be increased by an additional 0.25% during each subsequent
90 day period, up to a maximum of 0.50%. We do not believe the special interest obligation is probable,
and as such, we have not recorded any amounts with respect to this registration payment arrangement.
Promissory Notes
References to our ‘‘Promissory Notes’’ relate to our pre-2005 Acquisition promissory notes issued under
three separate indentures.
Convertible Senior Notes
References to our ‘‘Convertible Senior Notes’’ are to Hertz Holdings’ 5.25% Convertible Senior Notes
due June 2014. Our Convertible Senior Notes may be convertible by holders into shares of Hertz
Holdings’ common stock, cash or a combination of cash and shares of our common stock, as elected by
us, initially at a conversion rate of 120.6637 shares per $1,000 principal amount of notes, subject to
adjustment.
We have a policy of settling the conversion of our Convertible Senior Notes using a combination
settlement, which calls for settling the fixed dollar amount per $1,000 in principal amount in cash and
settling in shares the excess conversion value, if any. Proceeds from the offering of the Convertible
Senior Notes were allocated between ‘‘Debt’’ and ‘‘Additional paid-in capital.’’ The value assigned to the
debt component was the estimated fair value, as of the issuance date, of a similar debt instrument
without the conversion feature, and the difference between the proceeds for the Convertible Senior
Notes and the amount reflected as a debt liability was recorded as ‘‘Additional paid-in capital.’’ As a
result, at issuance the debt was recorded at a discount of $117.9 million reflecting that its coupon was
below the market yield for a similar security without the conversion feature at issuance. The debt is
subsequently accreted to its par value over its expected life, with the market rate of interest at issuance
being reflected in the statements of operations. The effective interest rate on the Convertible Senior
Notes on the issuance date was 12%.
On January 1, 2011, our Convertible Senior Notes became convertible. This conversion right was
triggered because our closing common stock price per share exceeded $10.77 for at least 20 trading
days during the 30 consecutive trading day period ending on December 31, 2010. The Convertible
Senior Notes will continue to be convertible until March 31, 2011, and may be convertible thereafter, if
one or more of the conversion conditions specified in the indenture is satisfied during future
measurement periods.
FLEET DEBT
The governing documents of certain of the fleet debt financing arrangements specified below contain
covenants that, among other things, significantly limit or restrict (or upon certain circumstances may
significantly limit or restrict) the ability of the borrowers, and the guarantors if applicable, to make certain
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