Delaware Chancery Court Approves Settlement of Zipcar Class Action Lawsuit

February 6, 2014

On February 6, 2014, the Delaware Chancery Court approved the settlement of the Zipcar class action lawsuit brought on behalf of shareholders of Zipcar, Inc. (Zipcar) in connection with the sale of Zipcar to Avis Budget Group, Inc. (Avis).

As part of the settlement, the law firms representing Zipcar shareholders secured the waiver of a “don’t ask, don’t waive” (“DADW”) provision in a standstill agreement between Zipcar and a bidder identified in the proxy as "Party B," and provided Zipcar shareholders with materially enhanced disclosures, including new: (1) information regarding the background of the sales process leading up to the transaction, (2) data underlying the financial analyses supporting the fairness opinion provided by Zipcar's financial advisor, (3) information concerning the interests and potential conflicts of interests of Zipcar’s directors and executive officers in connection with the transaction, (4) information regarding litigation related to the transaction and the waiver of the DADW provision, and (5) information regarding Zipcar’s prospective financial data.

Securing waiver of the DADW provision was particularly significant insofar as that provision had prohibited "Party B" from making an unsolicited offer to purchase the shares of Zipcar for two years, and from even requesting a waiver of that standstill obligation. The waiver of the DADW provision thus provided Zipcar shareholders with assurances that any potentially higher bidders had the opportunity to top Avis’ proposed consideration, and that the consideration being paid by Avis represented the maximum consideration that could be secured.

The Delaware Chancery Court has recently expressed strong reservations about DADW provisions insofar as they have the potential to impede the ability of a board to meet its ongoing statutory and fiduciary obligations to properly evaluate competing offers, disclose material information, and make a meaningful merger recommendation to its stockholders. See, e.g., Koehler v. NetSpend Holdings Inc., 2013 WL 2181518 (Del.Ch. May 21, 2013).