Avis 2010 Annual Report Download - page 96

Table of Contents
of the respective businesses of Realogy, Wyndham, Travelport and/or the Company’s vehicle rental operations, arising or accrued on or
prior to the separation of Travelport from the Company (“Assumed Assets”). Additionally, if Realogy or Wyndham were to default on its
payment of costs or expenses to the Company related to any Assumed Liabilities, the Company would be responsible for 50% of the
defaulting party’s obligation. In such event, the Company would be allowed to use the defaulting party’s share of the proceeds of any
Assumed Assets as a right of offset.
The Company does not believe that the impact of any unresolved proceedings constituting Assumed Liabilities should result in a material
liability to the Company in relation to its consolidated financial position or liquidity, as Realogy and Wyndham each have agreed to assume
responsibility for these liabilities as well as other liabilities related to the Company’s litigation that are not related to its vehicle rental
operations.
In April 2007, Realogy was acquired by an affiliate of Apollo Management VI, L.P. The acquisition does not affect Realogy’s obligation to
satisfy 62.5% of the contingent and other corporate liabilities of the Company or its subsidiaries pursuant to the terms of the Separation
Agreement. As a result of the acquisition, Realogy has greater debt obligations and its ability to satisfy its portion of the contingent and
other corporate liabilities may be adversely impacted. In accordance with the terms of the Separation Agreement, Realogy posted a letter of
credit in April 2007 for the benefit of the Company to cover its estimated share of the Assumed Liabilities discussed above, subject to
adjustment, although there can be no assurance that such letter of credit will be sufficient or effective to cover Realogy’s actual obligations
if and when they arise.
As a result of payments made by Realogy and Wyndham in July 2009, the judgment in respect of the litigation alleging breach of contract
and fraud arising out of the acquisition of a business in 1998 (“Credentials Litigation”) was satisfied. Plaintiffs petitioned the court for
attorneys’ fees in the amount of $33 million and the Company had accrued liabilities of approximately $12 million as of September 30,
2010. In December 2010, the parties settled with respect to plaintiff’s petition for attorneys’ fees. Pursuant to the Separation Agreement,
Realogy and Wyndham have assumed all liabilities related to this litigation and paid the settlement amounts on December 31, 2010.
Changes in liabilities related to such legal matters for which the Company is entitled to indemnification, and corresponding changes in the
Company’s indemnification assets, are shown net on the Consolidated Statements of Operations. There was no net impact to the Company’s
financial statements or cash balances as a result of the satisfaction of this judgment or the settlement.
In October 2009, a judgment was entered against the Company in the amount of $16 million following the completion of a jury trial for
damages related to breach of contract in the United States District Court for the District of Alaska. The lawsuit, which was filed in 2003,
involved breach of contract and other claims by one of the Company’s licensees related to the acquisition of its Budget vehicle rental
business in 2002. The Company believes the verdict in this case is unsupported by the evidence. In addition to the judgment for damages, in
June 2010, the district court also entered an order against the Company in the amount of $3 million, in favor of the plaintiff’s motions for
pre-judgment interest and attorneys’ fees. The Company has filed an appeal of the judgment and attorney’s fees awarded with the United
States Court of Appeals for the Ninth Circuit.
The Company is also named in various litigation that is primarily related to the businesses of its former subsidiaries, including Realogy,
Wyndham and Travelport and their current or former subsidiaries. The Company is entitled to indemnification under the Separation
Agreement from such entities for any liability resulting from such litigation. In addition to the matters discussed above, the Company is also
involved in claims, legal proceedings and governmental inquiries related to its vehicle rental operations, including with respect to contract
disputes, business practices including wage and hour claims, insurance claims, intellectual property claims, environmental issues and other
commercial, employment and tax matters, and breach of contract claims by licensees. The Company believes that it has adequately accrued
for such matters as appropriate or, for matters not requiring accrual, believes that they will not have a material adverse impact on
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