<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1999.
Registration No. 333-72093
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
NRT INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
Delaware 6531 33-0769705
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
6 Sylvan Way
Parsippany, New Jersey 07054
(973) 496-5700
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Steven L. Barnett, Esq.
Senior Vice President, General Counsel and Secretary
NRT Incorporated
6 Sylvan Way
Parsippany, New Jersey 07054
(973) 496-5700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
-----------
Copies to:
Stephen F. Arcano, Esq. Mark L. Weissler, Esq.
Skadden, Arps, Slate, Meagher & Milbank, Tweed, Hadley & McCloy LLP
Flom LLP One Chase Manhattan Plaza
919 Third Avenue New York, New York 10005
New York, New York 10022 (212) 530-5000
(212) 735-3000 (212) 530-5219 (fax)
(212) 735-2000 (fax)
-----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
-----------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to 462(b) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
-----------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the registration statement filed with the Securities and Exchange Commission +
+relating to these securities has been declared "effective" by the SEC. This +
+prospectus is not an offer to sell these securities or our solicitation of +
+your offer to buy these securities in any State or other jurisdiction where +
+that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION-- , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 1999
NRT Incorporated
14,062,500 Shares of Common Stock
- --------------------------------------------------------------------------------
NRT Incorporated: The Offering:
. NRT is offering
. NRT is the largest 9,375,000 of
residential real the shares and
estate brokerage Apollo is offering
company in the 4,687,500 of the
United States based shares.
on home sales
volume. . The underwriters
have an option to
. Affiliates of purchase an
Apollo Management, additional 2,109,375
L.P. and Cendant shares from Cendant
Corporation (upon conversion of
currently own all of its convertible
NRT's outstanding preferred stock of
common and preferred NRT) and Apollo to
stock. cover over-allotments.
. Principal . This is NRT's
Executive Offices: initial public
NRT Incorporated offering, and
6 Sylvan Way no public market
Parsippany, New currently exists for
Jersey 07054 NRT's shares. NRT
(973) 496-5700 estimates that the
price of the shares
Proposed Symbol & will be between $15
Market: and $17 per share.
. NRTX/Nasdaq . NRT plans to use
National Market the proceeds from
this offering to
repurchase shares of
its preferred stock
held by Apollo and
Cendant and for
general corporate
purposes, which may
include acquisitions.
NRT will not receive
any proceeds from
the shares sold by
the selling stockholders.
. Closing: ,
1999.
--------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
---------------------------------------------------
<S> <C> <C>
Public offering price: $ $
Underwriting fees: $ $
Net proceeds to NRT: $ $
Net proceeds to selling stockholders: $ $
---------------------------------------------------
</TABLE>
This investment involves risk. See "Risk Factors" beginning on Page 12.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
Bear, Stearns & Co. Inc.
BT Alex. Brown
Lehman Brothers
Merrill Lynch & Co.
Morgan Stanley Dean Witter
<PAGE>
NRT and its subsidiaries own and operate franchised real estate brokerage
offices under the COLDWELL BANKER(R), ERA(R) and CENTURY 21(R) brand names.
COLDWELL BANKER(R), ERA(R) and CENTURY 21(R) are registered service marks of a
wholly owned subsidiary of Cendant Corporation. As used in this prospectus,
unless the context otherwise requires:
.""NRT'' means NRT Incorporated and its subsidiaries and predecessors;
.""Cendant'' means Cendant Corporation and its subsidiaries and
predecessors; and
. ""Apollo'' means Apollo Management, L.P. and its affiliated investment
funds, Apollo Investment Fund III, L.P., Apollo Overseas Partners III,
L.P. and Apollo (UK) Partners III, L.P.
------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 12
Special Note Regarding Forward-
Looking Statements.................. 20
Use of Proceeds...................... 21
Dividend Policy...................... 21
Dilution............................. 22
Capitalization....................... 23
Unaudited Pro Forma Condensed
Consolidated Financial Information.. 24
Selected Consolidated Financial
Data................................ 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 36
Business............................. 49
</TABLE>
<TABLE>
<S> <C>
Management.......................... 63
Principal and Selling Stockholders.. 73
Related Party Transactions.......... 75
Description of Capital Stock........ 89
Description of Indebtedness......... 98
Shares Eligible for Future Sale..... 100
United States Federal Tax
Considerations Relating to Non-U.S.
Holders............................ 101
Underwriting........................ 104
Notice to Canadian Residents........ 108
Legal Matters....................... 111
Experts............................. 111
Additional Information.............. 113
Index to Financial Statements....... F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. Unless otherwise
indicated, the information contained in this prospectus gives effect to a
1.875-for-1 split of NRT's common stock that will occur immediately before the
closing of the offering and assumes the underwriters' over-allotment option is
not exercised. Statistical information on the residential real estate brokerage
industry has been derived from publicly available sources, which NRT has not
independently verified but believes to be reliable.
NRT Incorporated
NRT is the largest residential real estate brokerage company in the United
States based on home sales volume. NRT operates approximately 681 full service
real estate brokerage offices nationwide under the franchised COLDWELL
BANKER(R), ERA(R) and CENTURY 21(R) brand names.
Based on data provided by Real Facts, an industry publication, multiple
listing service data and other publicly available industry information, NRT
believes that:
. NRT is approximately five times larger than its next largest competitor,
based on home sales volume.
. NRT operates in 18 of the 30 largest domestic markets measured by
population and believes it has a leading market presence in each of the
markets in which it operates.
. NRT is the only national residential real estate brokerage company.
. NRT markets more homes on the internet than any other residential real
estate brokerage company based on the number of homes listed with NRT,
all of which are marketed on the internet.
As a full service brokerage, NRT offers, either directly or through third
party arrangements, a wide variety of homeowner services in addition to
traditional real estate brokerage services, including mortgage, title, escrow
and relocation services, home warranties, home security systems and other
services. NRT believes it benefits from:
. operating economies of scale;
. national brand identity;
. training programs for its sales associates;
. offering a wide variety of brokerage-related services; and
. access to capital.
NRT was formed in August 1997 by Apollo and Cendant. Shortly after its
formation, NRT acquired the assets of National Realty Trust, which included the
former real estate brokerage operations of Coldwell Banker Corporation.
Although NRT had only recently been formed, the operations acquired from
National Realty Trust provided NRT with a strong core operating business. NRT
has grown rapidly since the National Realty Trust acquisition, completing
79 acquisitions representing a total of over 500 brokerage offices. NRT has
acquired five of the fifteen largest residential real estate brokerage
companies in the United States, based on home sales volume before being
acquired by NRT.
3
<PAGE>
Growth Strategy
Internal Growth Strategy. NRT will seek to expand its market presence and
increase its revenues and profitability through initiatives that are intended
to:
. capitalize on the benefits provided by operating under the COLDWELL
BANKER(R), ERA(R) and CENTURY 21(R) brand names;
. increase ancillary revenues by offering a broad range of services to the
homeowner;
. recruit, retain and develop high-quality sales associates; and
. enhance productivity with information technology.
Acquisition Strategy. NRT will seek to take advantage of acquisition
opportunities in the highly fragmented real estate brokerage industry by
continuing to:
. expand its presence within its existing markets through acquisitions of
local and regional brokerages;
. enter new markets by selectively acquiring high-quality, leading real
estate brokerage firms; and
. improve operations of acquired companies through the elimination of
duplicative operations and costs.
The Industry
. NRT estimates that in 1998, the domestic residential real estate
brokerage industry generated over $50 billion of real estate
commissions, based on information reported by the National Association
of Realtors and the United States Census Bureau.
. According to the National Association of Realtors, since 1990, home
sales volume in the domestic residential real estate brokerage industry
has grown at an average annual rate of 9.4%.
. According to the latest edition of Real Facts, the 20 largest
residential real estate brokerage companies in the United States
represented 8.1% of home sales volume for 1997.
4
<PAGE>
Relationship with Apollo and Cendant
Control by Apollo and Cendant. Apollo and Cendant currently own all of the
common and preferred stock of NRT. After giving effect to the offering and the
repurchase by NRT of shares of convertible preferred stock from Cendant
following the closing of the offering and assuming the conversion of all of the
convertible preferred stock of NRT then held by Cendant, Apollo will
beneficially own approximately 39.6% and Cendant will beneficially own
approximately 19.0% of NRT's outstanding common stock. Upon the closing of the
offering, the convertible preferred stock held by Cendant will have the right
to vote on an as converted basis together with the holders of NRT's common
stock. As a result, Apollo and Cendant will have the power to elect the entire
Board of Directors and approve other matters submitted to a vote of
stockholders. In addition, Apollo, Cendant and NRT are parties to a
stockholders agreement relating to the voting, transfer and registration of the
shares of NRT's capital stock held by Apollo and Cendant. Under this agreement,
both Apollo and Cendant have agreed to vote their shares of NRT's capital stock
in favor of a Board of Directors consisting of five directors nominated by
Apollo, five directors nominated by Cendant and two directors nominated by a
majority of the Board of Directors.
Acquisition Cooperation Agreement. NRT and Cendant have entered into an
acquisition cooperation agreement under which NRT and Cendant cooperate to
jointly fund brokerage acquisitions in which Cendant agrees to participate.
Under this agreement, when NRT and Cendant jointly fund an acquisition, NRT
acquires the brokerage operations and Cendant acquires the trademarks and, in
most cases, any mortgage operations of the acquired brokerage. While Cendant
can decline to participate in any brokerage acquisition, it has participated in
each of NRT's brokerage acquisitions to date and has provided more than 50% of
the total acquisition cost for all of NRT's brokerage acquisitions, excluding
the National Realty Trust acquisition. Cendant has agreed to provide
approximately $1.446 billion for brokerage acquisitions, of which $461 million
has already been provided through March 31, 1999. Under the acquisition
cooperation agreement, $500 million of Cendant's commitment will not become
available before February 9, 2004, unless Cendant agrees otherwise.
Other Operational Agreements and Arrangements. NRT has entered into a number
of other agreements with Cendant relating to NRT's operations, including:
. franchise agreements between NRT and subsidiaries of Cendant under which
NRT licenses the COLDWELL BANKER(R), ERA(R) and CENTURY 21(R) brand
names;
. a program outsourcing agreement under which Cendant acts as NRT's
exclusive agent in negotiating arrangements with third party service and
product providers;
. a marketing agreement relating to the marketing of Cendant's mortgage
origination services;
. a relocation management arrangement under which NRT provides brokerage
services to relocating employees referred to it by Cendant Mobility
Services Corporation;
. an acquisition services agreement under which NRT provides acquisition
related services to Cendant in connection with NRT's brokerage
acquisitions;
. lease agreements under which NRT leases its executive offices from
Cendant; and
. a support agreement under which Cendant provides NRT with computer and
data related information services.
In addition, NRT and Cendant may from time to time enter into other agreements
and arrangements affecting NRT's operations. The relationships between NRT and
each of Apollo and Cendant could result in potential conflicts of interest. For
a discussion of these potential conflicts of interest, you should refer to
"Risk Factors--NRT's relationship with Apollo and Cendant could result in
potential conflicts of interest."
5
<PAGE>
The Offering
The number of shares of common stock to be outstanding after the offering:
. includes 6,473,503 shares of common stock issuable upon conversion of
convertible preferred stock held by Cendant, after giving effect to the
repurchase by NRT of 725.4 shares of convertible preferred stock from
Cendant following the closing of the offering (based on an assumed
initial public offering price of $16 per share, the mid-point of the
estimated initial public offering price per share); and
. excludes 3,399,141 shares of common stock currently reserved for
issuance under NRT's stock option plan, under which a total of 4,687,500
shares are authorized for issuance (the weighted average exercise price
of outstanding options under the stock option plan is $4.85 per share).
<TABLE>
<S> <C>
Common stock offered by:
NRT................... 9,375,000 shares
Apollo................ 4,687,500 shares
Total............... 14,062,500 shares
Common stock to be
outstanding after the
offering............... 34,023,928 shares
Use of proceeds......... NRT intends to use the net proceeds of the offering to
redeem all outstanding shares of NRT's Series C junior
preferred stock held by Apollo and to repurchase 725.4
shares of NRT's Series B convertible preferred stock held
by Cendant. The remainder of the net proceeds will be
used for general corporate purposes, which may include
acquisitions. NRT will not receive any of the proceeds
from the sale of shares by the selling stockholders.
Proposed Nasdaq trading
symbol................. NRTX
</TABLE>
6
<PAGE>
Summary Financial and Other Data
The following tables present summary historical and pro forma financial and
other data of NRT. For additional information, you should refer to "Selected
Consolidated Financial Data," "Unaudited Pro Forma Condensed Consolidated
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of NRT and its predecessors and related notes. The pro forma data are provided
for informational purposes only and are not necessarily indicative of the
financial position or the results of operations of NRT had the events described
below occurred on the dates specified. In addition, the pro forma data are not
indicative of NRT's future financial condition or results of operations.
In May 1996, Cendant acquired Coldwell Banker Corporation and contributed the
real estate brokerage operations owned by Coldwell Banker Residential Brokerage
Corporation to National Realty Trust. In August 1997, NRT was formed and
acquired all of the real estate brokerage operations owned by National Realty
Trust, including real estate brokerage offices acquired after May 1996.
Historical Data
<TABLE>
<CAPTION>
Predecessors
---------------------------------------
Coldwell Banker
Residential
Brokerage National Realty Trust NRT Incorporated
--------------- ----------------------- -------------------------------------------------
Three
Five Seven Eight Four Three Months
Months Months Months Months Year Months Ended
Ended Ended Ended Ended Ended Ended March March 31,
May 31, December 31, August 31, December 31, December 31, 31, 1998 1999
1996 1996 1997 1997 1998 (unaudited) (unaudited)
--------------- ------------ ---------- ------------ ------------ ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Real estate
commissions............ $228,005 $400,076 $570,150 $446,134 $2,010,123 $330,241 $469,596
Other revenues.......... 7,810 12,101 14,636 17,380 110,879 15,434 31,289
-------- -------- -------- -------- ---------- -------- --------
Total revenues........ 235,815 412,177 584,786 463,514 2,121,002 345,675 500,885
Commissions and
royalties(a)........... 141,404 276,364 393,235 330,169 1,482,719 237,284 345,380
Selling, general and
administrative
expenses............... 93,532 119,862 168,863 124,785 571,938 115,805 164,904
Amortization of
goodwill............... 482 104 1,162 637 3,403 1,083 1,610
Acquisition related
costs.................. 26 22,188 10,735 78,462 61,150 34,266 5,618
-------- -------- -------- -------- ---------- -------- --------
Operating income
(loss)............... 371 (6,341) 10,791 (70,539) 1,792 (42,763) (16,627)
Interest expense, net... 11 44 117 (2,843) (1,819) (868) 568
Provision (benefit) for
income taxes........... 156 -- 4,432 (25,453) 2,302 (16,758) (6,772)
-------- -------- -------- -------- ---------- -------- --------
Net income (loss)..... $ 204 $ (6,385) $ 6,242 $(42,243) $ 1,309 $(25,137) $(10,423)
======== ======== ======== ======== ========== ======== ========
Loss applicable to
common shareholders.... $(54,232) $ (35,309) $(34,046) $(19,704)
======== ========== ======== ========
Loss per common share:
basic and diluted(b)... $ (2.89) $ (1.88) $ (1.82) $ (1.05)
Weighted average shares
outstanding:
basic and diluted(b)... 18,750 18,750 18,750 18,750
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Predecessors
---------------------------------------
Coldwell Banker
Residential
Brokerage National Realty Trust NRT Incorporated
--------------- ----------------------- -------------------------------------------------
Seven Eight Four Three Three
Five Months Months Months Months Year Months Months
Ended Ended Ended Ended Ended Ended March Ended March
May 31, December 31, August 31, December 31, December 31, 31, 1998 31, 1999
1996 1996 1997 1997 1998 (unaudited) (unaudited)
----------- ------------ ---------- ------------ ------------ ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data:
Depreciation and
amortization........... $ 3,812 $ 1,129 $ 3,026 $ 2,998 $ 18,909 $ 3,733 $ 7,036
Amortization of
goodwill............... 482 104 1,162 637 3,403 1,083 1,610
Acquisition related
costs:
Amortization of pending
real estate sales
contracts and real
estate listing
contracts.............. $ 26 $ 21,449 $ 9,314 $ 69,896 $ 44,153 $ 20,301 $ 5,310
Office conversion
costs.................. -- 739 1,421 8,566 16,997 13,965 308
-------- -------- -------- --------- --------- --------- -------
Total acquisition
related costs........ $ 26 $ 22,188 $ 10,735 $ 78,462 $ 61,150 $ 34,266 $ 5,618
======== ======== ======== ========= ========= ========= =======
EBITDA(c)............... $ 4,691 $ 16,341 $ 24,293 $ 2,992 $ 68,257 $ (17,646) $(2,671)
Net cash provided by
(used in) operating
activities............. 4,855 29,810 20,625 9,527 31,977 (36,872) (7,264)
Net cash used in
investing activities... (18,420) (14,770) (44,795) (107,475) (186,651) (54,365) (9,506)
Net cash provided by
(used in) financing
activities............. 14,577 (3,953) 30,759 263,308 42,015 (15,212) (13,923)
</TABLE>
<TABLE>
<CAPTION>
Three Three
Combined Combined Months Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, March 31, March 31,
1996 1997 1998 1998 1999
------------ ------------ ------------ --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data:
Sides(d)................ 109,994 154,066 300,229 47,732 65,471
Average sales price per
home................... $ 205 $ 239 $ 245 $ 243 $ 255
Home sales volume (in
millions).............. 22,593 36,822 73,686 11,613 16,710
Average sales commission
per side as a
percentage of home
sales volume(e)........ 2.78% 2.76% 2.73% 2.84% 2.81%
Number of offices (at
period end)............ 353 463 692 604 681
Number of sales
associates (at period
end) .................. 13,765 19,914 30,658 26,515 30,131
Real estate listing
contracts (at period
end) .................. 27,170 33,256 54,614 54,932 60,108
</TABLE>
8
<PAGE>
Pro Forma Data
The following pro forma statement of operations and balance sheet data give
effect to (1) the offering and the application of the estimated net proceeds,
(2) the repurchase on April 6, 1999 of 574,575 shares of common stock from
Apollo, (3) the additional royalties that will be payable to NRT's franchisors
following the closing of the offering and (4) the acquisitions described under
"Unaudited Pro Forma Condensed Consolidated Financial Information."
<TABLE>
<CAPTION>
NRT Incorporated
------------------------------------
Pro Forma Pro Forma
Year Ended Three Months Ended
December 31, March 31,
------------ -----------------------
1998 1998 1999
(unaudited) (unaudited) (unaudited)
------------ ----------- -----------
(in thousands, except per share
amounts)
<S> <C> <C> <C>
Statement of Operations Data:
Real estate commissions................... $2,315,367 $ 422,879 $469,596
Other revenues............................ 146,902 20,434 31,289
---------- --------- --------
Total revenues.......................... 2,462,269 443,313 500,885
Commissions and royalties................. 1,761,337 310,098 351,380
Selling, general and administrative
expenses................................. 646,564 149,353 164,904
Amortization of goodwill.................. 4,270 1,441 1,610
Acquisition related costs................. 66,347 61,730 876
---------- --------- --------
Operating loss.......................... (16,249) (79,309) (17,885)
Interest expense, net..................... (1,066) (641) 568
Benefit for income taxes.................. (5,309) (31,651) (7,281)
---------- --------- --------
Net loss................................ $ (9,874) $( 47,017) $(11,172)
========== ========= ========
Loss applicable to common shareholders.... $ (25,312) $ (50,863) $(15,725)
========== ========= ========
Loss per common share:
basic and diluted(f)..................... $ (0.89) $ (1.79) $ (0.55)
Weighted average shares outstanding:
basic and diluted(f)..................... 28,416 28,416 28,416
Other Data:
Depreciation and amortization............. $ 21,691 $ 5,070 $ 7,036
Acquisition related costs:
Amortization of pending real estate sales
contracts and real estate listing
contracts................................ $ 49,350 $ 44,733 $ 568
Office conversion costs................... 16,997 16,997 308
---------- --------- --------
Total acquisition related costs......... $ 66,347 $ 61,730 $ 876
========== ========= ========
EBITDA(c)................................. $ 59,062 $ (28,065) $ (8,671)
Net cash provided by (used in) operating
activities............................... 22,782 (47,291) (13,264)
Net cash used in investing activities..... (186,651) (54,635) (9,506)
Net cash provided by (used in) financing
activities............................... 58,110 16,883 (13,441)
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
--------------------
<S> <C> <C>
Historical Pro Forma
---------- ---------
(unaudited)
(in thousands)
Balance Sheet Data:
Cash and cash equivalents................................ $ 22,008 $ 49,391
Total assets............................................. 507,993 535,376
Long-term debt........................................... 42,735 42,735
Redeemable preferred stock, net.......................... 261,358 188,642
Stockholders' deficit.................................... (134,413) (34,313)
</TABLE>
9
<PAGE>
(a) Royalties were not payable by Coldwell Banker Residential Brokerage during
the five months ended May 31, 1996.
(b) Before the closing of the offering, NRT intends to effect a 1.875-for-1
split of its common stock. Accordingly, historical loss per share has been
restated to reflect this stock split.
(c) EBITDA is defined as operating income (loss) plus depreciation and
amortization of goodwill and other intangibles. EBITDA is calculated as
follows:
<TABLE>
<CAPTION>
Predecessors
-------------------------------------
Coldwell
Banker
Residential National
Brokerage Realty Trust NRT Incorporated
----------- ------------------------- -------------------------------------------------
Three Three
Five Seven Eight Four Months Months
Months Months Months Months Year Ended Ended
Ended Ended Ended Ended Ended March 31, March 31,
May 31, December 31, August 31, December 31, December 31, 1998 1999
1996 1996 1997 1997 1998 (unaudited) (unaudited)
----------- ------------- ----------- ------------ ------------ ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical
Operating income
(loss)................. $ 371 $(6,341) $10,791 $(70,539) $ 1,792 $(42,763) $(16,627)
Depreciation and
amortization........... 3,812 1,129 3,026 2,998 18,909 3,733 7,036
Amortization of
goodwill............... 482 104 1,162 637 3,403 1,083 1,610
Amortization of pending
real estate contracts
and real estate listing
contracts.............. 26 21,449 9,314 69,896 44,153 20,301 5,310
------ ------- ------- -------- -------- -------- --------
EBITDA.................. 4,691 16,341 24,293 2,992 68,257 (17,646) (2,671)
------ ------- ------- -------- -------- -------- --------
Office conversion
costs.................. -- 739 1,421 8,566 16,997 13,965 308
------ ------- ------- -------- -------- -------- --------
EBITDA before office
conversion costs....... $4,691 $17,080 $25,714 $ 11,558 $ 85,254 $ (3,681) $ (2,363)
====== ======= ======= ======== ======== ======== ========
<CAPTION>
NRT Incorporated
------------------------------------
Pro Forma
Pro Forma Three Months Ended
Year Ended -----------------------
December 31, March 31, March 31,
1998 1998 1999
(unaudited) (unaudited) (unaudited)
------------ ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Pro Forma
Operating loss............................................................. $(16,249) $(79,309) $(17,885)
Depreciation and amortization.............................................. 21,691 5,070 7,036
Amortization of goodwill................................................... 4,270 1,441 1,610
Amortization of pending real estate contracts and real estate listing
contracts................................................................. 49,350 44,733 568
-------- -------- --------
EBITDA..................................................................... 59,062 (28,065) (8,671)
Office conversion costs.................................................... 16,997 16,997 308
-------- -------- --------
EBITDA before office conversion costs...................................... $ 76,059 $(11,068) $ (8,363)
======== ======== ========
</TABLE>
Management believes that EBITDA is a widely accepted financial indicator
used by investors and analysts to analyze and compare companies. Management
uses EBITDA as a supplementary tool to measure NRT's ability to generate
operating cash flow. Management also uses EBITDA to establish performance
goals and related bonuses for its employees. EBITDA is not intended to
represent cash flows for the periods presented, nor has it been presented
as an alternative to operating income or as an indicator of operating
performance. EBITDA should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles. NRT understands that, while
EBITDA is frequently used by securities analysts in the evaluation of
companies, EBITDA is not necessarily comparable to other similarly titled
measures of other companies due to potential inconsistencies in the methods
of calculation.
Office conversion costs include primarily signage change, name change
advertising and other transitional costs.
(d) Each real estate transaction has two sides, the selling side and the buying
side. NRT may participate as broker on one or both sides of a transaction.
(e) Represents the average sales commission rate received by NRT per side in
home sale transactions in which NRT participated as broker. This amount is
calculated by dividing NRT's real estate commissions by NRT's home sales
volume.
10
<PAGE>
(f) In addition to the stock split described in (b) above, pro forma loss per
common share gives effect to acquisitions by NRT, additional royalties that
will be payable to NRT's franchisors following the closing of the offering,
the additional shares that will be outstanding as a result of the offering
and the additional shares that would be issued to fund the repurchase of
common stock from Apollo, the intended repurchase of convertible preferred
stock from Cendant, the redemption of the junior preferred stock and the
$45.0 million cash dividend paid to Apollo described under "Unaudited Pro
Forma Condensed Consolidated Financial Information."
11
<PAGE>
RISK FACTORS
Set forth below is a description of material risks to investors considering
an investment in the common stock. You should consider carefully the following
factors and other information in this prospectus before deciding to invest in
shares of common stock.
NRT has a limited operating history upon which an evaluation of NRT and its
prospects can be based
While NRT's predecessors have conducted real estate brokerage operations for
a significant period of time, NRT has conducted operations only since August
1997, when it acquired the assets of National Realty Trust. NRT has completed
79 acquisitions, including 9 acquisitions in 1997, 55 acquisitions in 1998 and
15 acquisitions in 1999. As a result, NRT and its acquired operations have a
limited operating history on a combined basis upon which an evaluation of NRT
and its prospects can be based.
NRT has recorded operating losses in the past and may record operating losses
in the future
NRT recorded an operating loss of approximately $70.5 million for the four
months ended December 31, 1997 and approximately $16.6 million for the three
months ended March 31, 1999. NRT's operating loss for the four months ended
December 31, 1997 was due primarily to the large number of acquisitions
completed by NRT and NRT's amortization of a significant portion of the
purchase price for these acquisitions during the first year following
completion of the acquisition. NRT believes its operating loss for the three
months ended March 31, 1999 was due primarily to the seasonal nature of NRT's
business. NRT may incur significant operating losses in the future,
particularly if it continues to make acquisitions, which could adversely affect
the price of NRT's common stock.
NRT is required to make substantial royalty payments
As a franchisee of the COLDWELL BANKER(R), ERA(R) and CENTURY 21(R) real
estate franchise systems, NRT is required to pay royalties to its franchisors.
NRT paid royalties of $121.3 million for the year ended December 31, 1998.
Under its franchise agreements, following the closing of the offering, NRT will
incur additional royalties that were not incurred during prior periods. If NRT
had incurred these additional royalties beginning on January 1, 1998, NRT's
royalty payments to its franchisors would have increased by approximately $24.0
million and net income would have been reduced by $14.3 million for the year
ended December 31, 1998. The payment of these increased royalties could
adversely affect NRT's ability to be profitable in the future.
NRT's business activities are restricted by its franchise agreements
As a franchisee, NRT operates each of its offices under one of its
franchisors' brand names, but does not own any of the brand names under which
it operates. The franchisors have significant rights over the use of the
franchised service marks by NRT and the conduct of NRT's business. Under the
franchise agreements, NRT is not permitted to engage in any business other than
the residential real estate brokerage business and businesses permitted under
its program outsourcing agreement with Cendant. In addition, the franchise
agreements require NRT to:
. coordinate with the franchisors on significant matters relating to NRT's
operations, including the opening and closing of offices;
12
<PAGE>
. contribute significant amounts to national advertising funds maintained by
the franchisors;
. indemnify the franchisors against losses arising out of the operation of
NRT's business under the franchise agreements; and
. maintain standards and comply with guidelines relating to its operations
which are applicable to all franchisees of the franchisors' real estate
franchise systems.
NRT's franchise agreements restrict NRT's ability to incur indebtedness and
pay dividends. They also permit NRT's franchisors to prevent NRT's acquisition
of one or more new offices if the acquisition would have an adverse impact on
other existing franchisees of NRT's franchisors. In addition, under the
acquisition cooperation agreement, Cendant has the right to cause NRT to sell
one or more of the brokerage offices that were acquired in connection with a
brokerage acquisition. These provisions may prevent NRT from pursuing
acquisitions that it otherwise wishes to pursue.
Termination of any of NRT's franchise agreements would adversely affect NRT
NRT's franchisors have the right to terminate NRT's franchise if any of the
following occur:
. a bankruptcy or insolvency event affecting NRT;
. a transfer by NRT of any right or obligation under the franchise
agreements;
. a change in control of NRT;
. NRT's affiliation with another real estate franchisor that is not an
affiliate of NRT's existing franchisors; or
. NRT's failure to promptly pay amounts due under the franchise agreements.
If a franchisor terminates NRT's franchise due to a material breach of its
franchise agreement, the franchisor could require NRT to pay damages equal to
the franchisor's lost future royalties for the remaining term of the franchise
agreement, up to 25 years. The franchisors could also seek damages and/or
equitable relief for other violations of the franchise agreements. Any
termination of one or more of the franchise agreements would have a material
adverse effect on NRT.
The cyclical nature of the residential real estate market could adversely
affect NRT's business
In recent years, existing home sales have risen to their highest levels in
history. However, the residential real estate market tends to be cyclical and
typically is affected by changes in general economic conditions which are
beyond NRT's control. Any of the following could have a material adverse effect
on NRT's business by causing a general decline in the number of home sales
and/or prices which, in turn, would adversely affect revenues and
profitability:
. periods of economic slowdown or recession;
. rising interest rates;
. decreasing home ownership rates; or
. declining demand for real estate.
As a result, NRT would be adversely affected if economic conditions do not
continue to be favorable or an economic slowdown were to occur in the United
States or elsewhere. The National Association of Realtors has forecasted that
existing home sales will be lower in 1999 than in 1998. This decline in
existing home sales could adversely affect NRT's revenues and profitability.
13
<PAGE>
Seasonal fluctuations in the residential real estate brokerage business could
adversely affect NRT
The residential real estate brokerage business is subject to seasonal
fluctuations. Historically, NRT's revenues have been strongest in the second
and third quarters of the calendar year. While NRT pays commissions to its
sales associates only upon the sale of a home, many of NRT's other expenses,
such as rent and personnel, are fixed and cannot be reduced during a seasonal
slowdown. As a result, NRT may be required to borrow cash in order to fund its
operations during seasonal slowdowns or at other times. Since the terms of
NRT's franchise agreements and bank facility restrict the ability of NRT to
incur indebtedness, NRT cannot assure that it would be able to borrow cash.
NRT's inability to finance its funding needs during a seasonal slowdown or at
other times could have a material adverse effect on NRT.
NRT's operations are concentrated in metropolitan areas
NRT owns real estate brokerage offices located in and around 18 large
metropolitan markets in the United States. NRT's offices operate principally
within these markets. Local and regional economic conditions in these markets
could differ materially from prevailing conditions in other parts of the
country. While NRT believes that its offices are located in geographically
diverse metropolitan markets of the United States, NRT has more offices and
realizes more of its revenues in Northern and Southern California and the New
York metropolitan area than any other regions of the country. In 1998, NRT
realized approximately 44% of its gross commission income in Northern and
Southern California and the New York metropolitan area. A downturn in
residential real estate markets or economic conditions in these regions could
result in a decline in NRT's total gross commission income and have a material
adverse effect on NRT.
NRT cannot assure its ability to complete future acquisitions
NRT has pursued an active acquisition strategy as a means of entering or
strengthening its position within metropolitan markets and has sought to
integrate acquisitions into NRT's operations to achieve economies of scale. As
a result, NRT has derived a substantial portion of its revenues and profits
from acquired brokerages. The success of NRT's future acquisition strategy will
continue to depend upon NRT's ability to find suitable acquisition candidates
on favorable terms and to finance and complete these transactions. The
inability of NRT to complete brokerage acquisitions could have a material
adverse effect on NRT's growth strategy.
NRT's ability to complete future acquisitions will also depend in large part
on Cendant's continued participation in such acquisitions under the acquisition
cooperation agreement. Cendant is not required to participate in any brokerage
acquisition. As a result, NRT cannot assure that Cendant will participate in
any future brokerage acquisition or that NRT will obtain alternative sources of
financing if Cendant does not participate in any brokerage acquisition.
In addition, due to a change in the purchase price calculation applicable to
Cendant's agreement to fund future brokerage acquisitions under the acquisition
cooperation agreement, NRT expects to pay a higher percentage of the total
purchase price in its brokerage acquisitions than in the past. Furthermore,
Cendant and NRT may agree to pursue an acquisition on terms different from
those set forth in the acquisition cooperation agreement, in which case NRT
could be required to pay a greater share of the total purchase price than it
otherwise would pay. In that case, NRT may not have sufficient funding for
other acquisitions that it otherwise would have pursued.
14
<PAGE>
The franchise agreements limit the ability of NRT to incur indebtedness and
open new offices. These restrictions may prevent NRT from completing
acquisitions that it otherwise wishes to pursue.
NRT cannot assure that it will realize anticipated benefits from future
acquisitions
Upon completion of an acquisition, NRT encounters risks related to the
possible inability of NRT to integrate the acquired business into NRT's
operations, the possible defection of a significant number of sales associates,
the increased amortization of intangibles, the diversion of management's
attention and unanticipated problems or liabilities. These risks may adversely
affect NRT's ability to realize anticipated cost savings and revenue growth
from its acquisitions.
The program outsourcing agreement restricts NRT's ability to pursue alternative
third party purchasing and marketing programs
Under its program outsourcing agreement with Cendant, NRT has appointed
Cendant as its exclusive outsourcing agent to negotiate the terms of NRT's
participation in purchasing and marketing programs. The program outsourcing
agreement restricts the ability of NRT to pursue alternative marketing
arrangements and product and service providers. Under the program outsourcing
agreement, Cendant negotiates with third party providers fee arrangements
applicable to each program (which typically include fees payable by third
parties to Cendant), as well as the other terms of such arrangements. In
addition, Cendant may cancel or modify existing programs in its sole
discretion. The inability of NRT to pursue alternative arrangements or the
termination or modification of any program or fee arrangement could have a
material adverse effect on NRT. The terms of the programs established under the
program outsourcing agreement could be less favorable to NRT than the terms of
programs that NRT could have obtained absent the program outsourcing agreement.
The marketing agreement restricts NRT's ability to pursue alternative third
party mortgage marketing arrangements
Under its marketing agreement with Cendant Mortgage Corporation, NRT assists
in the marketing of Cendant Mortgage's mortgage origination services. The
marketing agreement restricts the ability of NRT to pursue and enter into
alternative mortgage marketing arrangements with other parties. NRT intends to
enter into a joint venture with Cendant to provide mortgage services, at which
time the marketing agreement will be terminated. The terms of the marketing
agreement (and the anticipated mortgage joint venture with Cendant that would
replace the marketing agreement) could be less favorable to NRT than the terms
of any arrangements that NRT could have obtained from third parties.
The loss of key employees and sales associates could adversely affect NRT
The ability of NRT to continue to expand its business largely depends on the
skills, experience and efforts of its key employees and sales associates. The
loss of the services of NRT's key employees or a significant number of sales
associates could have a material adverse effect on NRT's growth and
development.
Changes in government regulation could adversely affect NRT
NRT's business activities are subject to substantial regulation by
governmental authorities. The jurisdictions in which NRT does business have
established requirements governing the licensing and
15
<PAGE>
conduct of real estate brokerage and brokerage-related businesses. In addition,
the federal Real Estate Settlement Procedures Act and comparable state statutes
impose restrictions on the manner in which NRT may conduct its business. In
addition, more restrictive laws, regulations or interpretations could be
adopted in the future that could make compliance more difficult or expensive.
Furthermore, regulatory authorities have broad discretion to grant, renew and
revoke licenses and approvals and to implement regulations. Accordingly, these
regulatory authorities could prevent or temporarily suspend NRT from carrying
on some or all of its activities or otherwise penalize NRT if its practices
were found not to comply with the then current regulatory or licensing
requirements or any interpretation of these requirements by the regulatory
authority. NRT's failure to comply with any of these requirements or
interpretations could have a material adverse effect on NRT's operations and
financial performance.
Year 2000 problems could disrupt NRT's business
Many existing computer systems and software products are coded to accept only
two-digit entries in the date code field and cannot properly recognize dates in
the year 2000 and beyond. Consequently, these systems and software products
need to be either upgraded or replaced to function properly from and after
January 1, 2000.
If, due to hardware or software problems, NRT's systems were unable to
operate due to year 2000 problems, NRT would face the risks of incurring
additional costs to correct its year 2000 problems or losing revenue due to its
inability to deliver services to its customers. These costs or losses, if
incurred, could have a material adverse effect on NRT. However, NRT believes
that it is taking the necessary steps to eliminate or reduce these risks where
possible and that year 2000 issues will not have a material effect on NRT's
financial condition or results of operations. For a description of NRT's year
2000 compliance efforts, you should refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
NRT is speaking with third party vendors and service providers regarding
their year 2000 compliance. NRT's major software and hardware vendors and
service providers, including Cendant, have indicated that their systems
currently are or will be year 2000 compliant prior to December 31, 1999. NRT is
in the process of contacting all of its other major vendors and service
providers, including multiple listing service providers, to confirm their
systems will be year 2000 compliant in a timely manner. NRT expects to have
this assessment complete and a contingency plan in place by the end of the
third quarter of 1999. However, NRT cannot assure that the systems of those
companies will be converted in a timely manner or that the third parties will
mitigate the effects of noncompliance. Any failure by NRT's third party vendors
and service providers to convert in a timely manner could have an adverse
effect on NRT's operations.
The terms of NRT's bank credit facility restrict NRT's business activities
The terms and conditions of NRT's bank credit facility restrict NRT's ability
to incur debt, pay dividends and other distributions, create liens, sell assets
and make investments. The terms of the bank credit facility also require NRT to
maintain specified financial ratios. These provisions will
16
<PAGE>
limit NRT's ability to obtain additional funds for its operations or future
acquisitions and pay dividends, which could have a material adverse effect on
NRT's operations and acquisition strategy and the rights of holders of NRT's
common stock.
The absence of a trading market for the common stock could make it difficult
for investors to resell their shares at or above the initial public offering
price
Prior to the offering, there has been no trading market for the common stock.
Although NRT has applied to have the common stock approved for listing on the
Nasdaq National Market, it does not know whether its listing application will
be approved or, if it is approved, whether a liquid trading market for the
common stock will develop. Investors may not be able to resell their shares at
or above the initial public offering price. The initial public offering price
for the shares of common stock will be determined through negotiations among
NRT, Apollo, Cendant and representatives of the underwriters. The initial
public offering price may be higher than the market price of the common stock
after the offering.
New investors will experience immediate and substantial dilution
The initial public offering price of the common stock will be substantially
higher than the pro forma net tangible book value per share of the outstanding
common stock. As a result, NRT currently expects that new investors will
experience immediate dilution of $17.37 per share in the net tangible book
value per share of the common stock from the initial public offering price,
assuming an initial public offering price of $16 per share, the mid-point of
the estimated range of initial public offering price per share. If NRT issues
additional shares of common stock in the future, investors may experience
further dilution. In addition, NRT has outstanding options which, if exercised,
could result in further dilution. Any further dilution could adversely affect
the price of NRT's common stock.
NRT does not expect to pay dividends on its common stock
NRT does not anticipate paying any cash dividends on its common stock in the
foreseeable future. Any payment of future dividends and the amounts thereof
will depend upon NRT's earnings, financial requirements and other factors
deemed relevant by NRT's Board of Directors. Future dividends will be subject
to the terms of NRT's bank credit facility, which restricts NRT's ability to
pay dividends on its common stock. In addition, NRT's franchise agreements
prevent NRT from incurring indebtedness to pay dividends and prohibit the
payment of extraordinary dividends unless financial ratio tests are satisfied.
The terms of NRT's preferred stock also restrict the ability of NRT to pay
dividends on its common stock. Although NRT declared and paid in 1999 a $45
million cash dividend on its common stock to Apollo, NRT does not expect to pay
dividends on its common stock in the foreseeable future.
NRT's relationship with Apollo and Cendant could result in potential conflicts
of interest
The ownership of NRT's capital stock by Apollo and Cendant, the ownership of
Cendant's common stock or options to purchase Cendant's common stock by
directors and officers of NRT and the service by directors of NRT as directors
or officers of both NRT and Apollo or Cendant could
17
<PAGE>
result in potential conflicts of interest when those directors and officers are
faced with decisions that could have different implications for NRT and Apollo
or Cendant. Such decisions could impact:
.potential acquisitions;
.the issuance of additional securities;
.the entry into or modification of contractual or other arrangements;
.the election of directors; and
.the payment of dividends by NRT.
NRT has not instituted any formal plan or arrangement to address potential
conflicts of interest that may arise among NRT, Apollo, Cendant and their
affiliates. However, under Delaware law, officers and directors of NRT owe
fiduciary duties to NRT and its stockholders.
In addition, NRT has entered into agreements with Cendant, including the
following:
.the franchise agreements;
.the stockholders agreement (to which Apollo is also a party);
.the acquisition cooperation agreement (to which Apollo is also a party);
.the program outsourcing agreement;
.the marketing agreement;
.the acquisition services agreement;
.lease agreements; and
.the support agreement.
These agreements were entered into when Cendant and Apollo owned all of NRT's
outstanding capital stock. NRT and Cendant also intend to implement a joint
venture that will provide mortgage services, at which time the marketing
agreement will be terminated. NRT may enter into additional agreements or
arrangements in the future. The terms of these agreements may be less favorable
to NRT than the terms that could have been obtained absent the stock ownership
by Cendant and Apollo.
Cendant's discovery of accounting irregularities could adversely affect NRT
After discovering accounting irregularities in the former CUC International
Inc. business units of Cendant, Cendant restated its earnings for 1998 and
prior years and experienced a significant decline in its market capitalization.
In addition, lawsuits have been filed against Cendant, its predecessor, HFS
Incorporated, their current and former officers and directors and others,
including Bear, Stearns & Co. Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, asserting claims under the federal securities laws and state
common and statutory law. If, as a result of its accounting irregularities, the
resulting decline in market capitalization or an adverse outcome in the pending
lawsuits, Cendant is unable to perform its obligations under its agreements
with NRT, including its obligations under the acquisition cooperation
agreement, its failure to perform could have a material adverse effect on NRT's
operations and financial performance, including NRT's ability to implement its
growth strategy.
18
<PAGE>
The control of NRT by Apollo and Cendant could reduce the ability of other
stockholders to influence NRT
Immediately following the offering, assuming the repurchase by NRT of 725.4
shares of Series B convertible preferred stock held by Cendant after the
closing of the offering and the conversion of all of the Series B convertible
preferred stock then held by Cendant into shares of common stock:
. Apollo will beneficially own 39.6% of NRT's common stock (35.3% if the
underwriters' over-allotment option is exercised in full);
. Cendant will beneficially own 19.0% of NRT's common stock (17.2% if the
underwriters' over-allotment option is exercised in full); and
. NRT's other stockholders will beneficially own 41.3% of NRT's common
stock (47.5% if the underwriters' over-allotment option is exercised in
full).
As a result, Apollo and Cendant, acting together, will have the power to elect
the entire Board of Directors of NRT and approve other matters submitted to a
vote of NRT's stockholders, including extraordinary corporate matters. In
addition, under the stockholders agreement, NRT's Board of Directors will
consist of twelve directors, including:
.five directors nominated by Apollo;
.five directors nominated by Cendant; and
.two directors nominated by a majority of the Board of Directors.
Apollo and Cendant have agreed to vote all of their shares in favor of the
other's director nominees. As a result of these agreements, the restrictions
imposed by NRT's franchise agreements on acquisitions of shares by third
parties, and the exclusivity provisions of the program outsourcing agreement
and the marketing agreement, Apollo and Cendant will likely continue to
exercise substantial influence over NRT and its operations for the foreseeable
future. As a result, the ability of other stockholders to influence NRT could
be reduced. In addition, the interests of NRT's public stockholders may be
different from the interests of Apollo and Cendant.
The availability of a significant number of shares for future sale by Apollo
and Cendant could adversely affect the market price of the common stock
Subject to applicable federal securities laws, the transfer restrictions of
the stockholders agreement and restrictions contained in the underwriting
agreement with the underwriters, Apollo and Cendant may sell any or all of the
shares of common stock (or, in the case of Cendant, convertible preferred
stock) owned by them. In addition, under the stockholders agreement, Apollo and
Cendant have registration rights with respect to the shares of common stock and
convertible preferred stock owned by them, which would facilitate any future
disposition. Sales in the public market of substantial amounts of common stock,
or the perception that such sales could occur, could cause the prevailing
market prices for the common stock to fall. NRT cannot predict the period of
time during which Apollo and Cendant will maintain their ownership of common
stock following the offering.
Provisions of NRT's charter and by-laws and agreements with Cendant and Apollo
could deter takeover attempts
Following the offering, provisions of NRT's certificate of incorporation and
by-laws could delay or impede the removal of incumbent directors or discourage
a third party from attempting to acquire
19
<PAGE>
control of NRT. Similarly, the stockholders agreement limits Apollo's ability
to transfer its shares of common stock to persons that Cendant believes may
have an intent to acquire or influence control of NRT. In addition, NRT's
franchise agreements include as an event of default the acquisition by any
person or group, other than Apollo and Cendant, of over 30% of the outstanding
common stock generally. The franchise agreements provide that damages based on
lost future royalties would be payable by NRT if any person or group acquired
beneficial ownership of over 30%. As a result, in addition to effectively
restricting a third party from acquiring over 30% of NRT's outstanding common
stock generally, the franchise agreements could effectively restrict Apollo's
ability to transfer significant amounts of its shares of common stock to
parties other than Cendant. These provisions could adversely effect the amount
that potential acquirors might be willing to pay in an acquisition of NRT's
common stock or the price that investors might be willing to pay in the future
for shares of NRT's common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. These statements may be found under "Prospectus
Summary," "Risk Factors," "Unaudited Pro Forma Condensed Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." Forward-looking statements contain the
words "believes," "anticipates," "expects" and words of similar import. Because
these statements involve risks and uncertainties, actual results could differ
materially from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. Factors
that could cause these differences include those discussed under "Risk Factors"
in this prospectus. The forward-looking statements are made as of the date of
this prospectus.
20
<PAGE>
USE OF PROCEEDS
NRT estimates the net proceeds to NRT from the offering, after deducting
applicable underwriting discounts and commissions and estimated offering
expenses payable by NRT, to be approximately $137.0 million. NRT expects that:
. approximately $88.2 million of the net proceeds from the offering will
be used to redeem all of the outstanding shares of Series C junior
preferred stock of NRT held by Apollo, including a redemption premium of
$12.3 million;
. approximately $10.7 million of the net proceeds from the offering will
be used to repurchase 725.4 shares of Series B convertible preferred
stock of NRT held by Cendant, plus accrued dividends; and
. the remainder of the net proceeds of the offering to NRT will be used
for general corporate purposes, which may include acquisitions of real
estate brokerages and their related service businesses. NRT does not
currently have any specific plans for the use of these proceeds.
NRT will not receive any proceeds from the sale of shares by the selling
stockholders.
DIVIDEND POLICY
NRT does not anticipate paying cash dividends to its common stockholders in
the foreseeable future after the offering. The timing, amount and form of any
dividends will be at the discretion of NRT's Board of Directors and will depend
on NRT's results of operations, financial condition, cash requirements and
other factors considered relevant by the Board of Directors. NRT's ability to
pay dividends is restricted under its franchise agreements, the terms of its
preferred stock and its bank credit facility.
NRT has paid dividends to Cendant as the sole holder of NRT's Series A senior
preferred stock and Series B convertible preferred stock and to Apollo as the
sole holder of NRT's Series C junior preferred stock and common stock. Through
March 31, 1999, NRT has paid a total of $20.2 million of dividends on its
Series A senior preferred stock, $1.7 million of dividends on its Series B
convertible preferred stock and $19.2 million of dividends on its Series C
junior preferred stock. NRT declared and paid in 1999 a $45.0 million cash
dividend on its common stock held by Apollo. This dividend is not indicative of
the dividends, if any, that may be paid by NRT in the future.
NRT intends to continue to pay regularly scheduled quarterly dividends on its
Series A senior preferred stock at the annual rate of 9.00% of its then face
amount (or $14.5 million per year based on the current amount outstanding) and
its Series B convertible preferred stock at the annual rate of 5.00% of its
then face amount (or $1.2 million per year based on the current amount
outstanding).
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<PAGE>
DILUTION
At March 31, 1999, the net tangible book value of NRT, after giving effect to
the intended 1.875-for-1 stock split, was approximately $(74.3) million, or
$(2.95) per share. Net tangible book value is defined as the book value of all
assets of NRT, less all liabilities and intangible assets. NRT's intangible
assets consist primarily of goodwill, pending real estate contracts and real
estate listing contracts. Without taking into account any changes in net
tangible book value after March 31, 1999, other than to give effect to the
offering, the application of the estimated net proceeds and the repurchase of
574,575 shares of common stock from Apollo, the pro forma net tangible book
value of NRT's common stock as of March 31, 1999 would have been approximately
$(46.9) million, or $(1.37) per share. The following table gives effect to the
offering as if it had occurred on March 31, 1999 at an assumed initial public
offering price of $16 per share (the mid-point of the estimated range of
initial public offering price per share). The table illustrates the immediate
increase in net tangible book value of $1.58 per share to NRT's existing
stockholders and an immediate dilution of $17.37 per share to new investors:
<TABLE>
<S> <C> <C>
Public offering price per share............................ $16.00
Net tangible book value per share as of March 31, 1999..... ($2.95)
Increase in net tangible book value per share attributable
to the offering........................................... 1.58
------
Pro forma net tangible book value per share as of March 31,
1999, after giving effect to the offering................. (1.37)
------
Immediate dilution per share to new investors.............. $17.37
======
</TABLE>
The calculations in the table above include 6,473,503 shares issuable upon
conversion of the convertible preferred stock held by Cendant after the
repurchase by NRT of 725.4 shares of convertible preferred stock from Cendant,
but excludes 3,399,141 shares reserved for issuance as of March 31, 1999 under
NRT's 1997 Equity Participation Plan.
The following table presents as of March 31, 1999, on a pro forma basis after
giving effect to the offering, the positions of existing common stockholders
assuming the conversion of Cendant's convertible preferred stock, the
repurchase of 574,575 shares of common stock from Apollo and the repurchase of
725.4 shares of convertible preferred stock from Cendant, and new investors
with respect to the number of shares of common stock purchased from NRT, the
total consideration paid and the average price paid per share, at an assumed
initial public offering price of $16 per share (the mid-point of the estimated
range of initial public offering price per share).
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
--------------------- ------------------- Price per
Number Percentage Amount Percentage Share
---------- ---------- -------- ---------- ---------
(dollars in
thousands, except
per share amounts)
<S> <C> <C> <C> <C> <C>
New investors........... 14,062,500 41.3 % $225,000 90.8 % $16.00
Existing common
stockholders........... 19,961,428 58.7 22,673 9.2 1.14
---------- ----- -------- -----
Total................. 34,023,928 100.0 % $247,673 100.0 %
========== ===== ======== =====
</TABLE>
22
<PAGE>
CAPITALIZATION
The following table sets forth NRT's cash and cash equivalents, short-term
debt and capitalization as of December 31, 1998 on an actual basis and on a pro
forma basis after giving effect to:
.the offering and the application of the estimated net proceeds; and
. the repurchase by NRT on April 6, 1999 of 574,575 shares of common stock
from Apollo and the repurchase by NRT following the closing of the
offering of 725.4 shares of convertible preferred stock from Cendant.
You should read this table together with the consolidated financial statements
and the related notes, "Unaudited Pro Forma Condensed Consolidated Financial
Information" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
As of March 31, 1999
-----------------------
Actual Pro Forma
---------- -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents.............................. $ 22,008 $ 49,391
========== ==========
Restricted cash(a)..................................... $ 93,561 $ 93,561
========== ==========
Short-term debt:
Cash secured bank loans(a)........................... $ 93,561 $ 93,561
Mortgage warehousing loans(b)........................ 12,668 12,668
Other................................................ 10,528 10,528
---------- ----------
Total short-term debt.............................. $ 116,757 $ 116,757
========== ==========
Long-term debt(c)...................................... $ 42,735 $ 42,735
Redeemable preferred stock, $0.01 par value, 405,000
shares authorized:
9.00% Series A Cumulative Senior Redeemable Preferred
Stock, 157,591 shares issued and outstanding........ 164,763 164,763
5.00% Series B Cumulative Convertible Redeemable
Preferred Stock, 24,000 shares issued and
outstanding (actual); 23,275 shares outstanding (pro
forma).............................................. 24,604 23,879
18.00% Series C Cumulative Junior Redeemable
Preferred Stock, net, 68,510 shares issued and
outstanding (redemption value of $88,185)........... 71,991 --
---------- ----------
Total redeemable preferred stock................... 261,358 188,642
---------- ----------
Stockholders' deficit:
Common Stock, $0.01 par value, 50,000,000 shares
authorized; 18,750,000 shares issued and outstanding
(actual); 27,550,425 shares outstanding
(pro forma)(d)...................................... 188 276
Additional paid-in capital........................... -- 100,012
Accumulated deficit.................................. (134,601) (134,601)
---------- ----------
Total stockholders' deficit........................ (134,413) (34,313)
---------- ----------
Total capitalization............................... $ 169,680 $ 197,063
========== ==========
</TABLE>
- ---------------------
(a) Restricted cash, which represents proceeds from cash secured bank loans, is
invested in cash equivalents and cannot be used for purposes other than to
repay the cash secured bank loans.
(b) Mortgage warehousing loans are collaterized by mortgage loans held for sale
and are generally repaid within 60 days.
(c) Long-term debt as of March 31, 1999 includes notes payable of $12.8 million
and $30.0 million drawn under NRT's credit facility.
(d) Actual and pro forma gives effect to the intended 1.875-for-1 stock split
to be effected before the closing of the offering.
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
information of NRT presents the unaudited pro forma condensed consolidated
statements of operations for the year ended December 31, 1998 and the three
months ended March 31, 1999 and March 31, 1998 and the pro forma condensed
consolidated balance sheet as of March 31, 1999.
The unaudited pro forma condensed consolidated statements of operations for
the year ended December 31, 1998 and the three months ended March 31, 1999 and
March 31, 1998 give effect to the following transactions as if they occurred on
January 1, 1998: the offering at an assumed offering price per share of $16,
the mid-point of the estimated range of the initial public offering price per
share, the payment in 1999 of a $45 million cash dividend on NRT's common stock
to Apollo, the application of the estimated net proceeds from the offering, the
additional royalties payable to NRT's franchisors following the closing of the
offering and the effect of the following acquisitions during 1998 of brokerages
with annual gross commission income in excess of $5 million.
.Buckhead Brokers of Georgia, Inc. .Joseph J. Murphy Realty, Inc.
.Burnet Financial Group .Moore and Company
.Carriage Properties, Ltd. .O'Conor, Piper & Flynn, Inc.
.Pardoe Real Estate, Inc.
.Coker Ewing Cook & Cook
.Polley, Polley & Madsen, Inc.
.1st American Realtors, L.L.C.
.Gimelstob Realty, Inc. .Premier Van Schaak, Inc. (Denver
.Graham Realty, Inc. operations)
.Higgins & Heath, Inc. .Steve Schmidt & Co.
.Hunneman Real Estate Corporation .TAM-BAY Realty, Inc.
.Waterside Property Sales, Inc.
The pro forma statements of operations do not give effect to the interest
income that would have been earned on proceeds of the offering that are not
used by NRT or the initial capitalization of NRT had such transactions occurred
on January 1, 1998.
The unaudited pro forma condensed consolidated balance sheet as of March 31,
1999 gives effect to the following transactions as if they occurred on March
31, 1999:
.the receipt of the estimated net proceeds to NRT from the offering;
.the redemption of all outstanding shares of NRT's Series C junior preferred
stock;
. the repurchase by NRT on April 6, 1999 of 574,575 shares of common stock
from Apollo and the repurchase by NRT after the closing of the offering of
725.4 shares of convertible preferred stock from Cendant.
24
<PAGE>
NRT's acquisitions have been accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed have been
recorded at their estimated fair values, which are subject to further
refinement, including appraisals and other analyses. Management does not expect
that the final allocations of the purchase prices for the acquisitions will
differ materially from the preliminary allocations. NRT has also completed
smaller transactions that did not have a material effect on NRT's financial
condition or results of operations and are not reflected in the unaudited pro
forma condensed consolidated statements of operations.
The pro forma adjustments reflect NRT's determination of all adjustments
necessary to present fairly NRT's pro forma financial position and results of
operations. These adjustments are based on available information and
assumptions NRT considers reasonable under the circumstances. The unaudited pro
forma condensed consolidated financial information is provided for
informational purposes only. This information is not necessarily indicative of
the financial position or the results of operations of NRT had the transactions
referred to above occurred on the dates specified. In addition, this
information is not necessarily indicative of the financial condition or results
of operations which may exist in the future. You should read the unaudited pro
forma condensed consolidated financial information together with the historical
consolidated financial statements of NRT, its predecessors and acquired
companies and the related notes included elsewhere in this prospectus.
25
<PAGE>
NRT INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Before Pro Forma
Pro Forma Offering Offering
Acquisition Related Related
Historical Acquisitions Adjustments Adjustments Adjustments Pro Forma
---------- ------------ ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Real estate commissions.... $2,010,123 $293,875 $ 11,369 (a) $2,315,367 $2,315,367
Other revenues............. 110,879 36,023 146,902 146,902
---------- -------- -------- ---------- -------- ----------
Total revenues............ 2,121,002 329,898 11,369 2,462,269 2,462,269
EXPENSES:
Commissions and royalties.. 1,482,719 230,497 8,709 (a) 1,737,337 $ 24,000 (b) 1,761,337
15,412 (c)
Selling, general and
administrative............ 571,938 74,626 646,564 646,564
Amortization of goodwill... 3,403 867 (d) 4,270 4,270
Acquisition related costs.. 61,150 5,197 (d) 66,347 66,347
---------- -------- -------- ---------- -------- ----------
Operating income (loss)... 1,792 24,775 (18,816) 7,751 (24,000) (16,249)
Interest expense, net...... (1,819) 753 (1,066) (1,066)
Provision (benefit) for
income taxes.............. 2,302 9,729(e) (7,620)(e) 4,411 (9,720)(e) (5,309)
---------- -------- -------- ---------- -------- ----------
Net income (loss)......... $ 1,309 $ 14,293 $(11,196) $ 4,406 $(14,280) $ (9,874)
========== ======== ======== ========== ======== ==========
Per share information:
Loss per common share:
basic and diluted......... $ (1.88) $ (0.89)(f)
Weighted average shares
outstanding:
basic and diluted......... 18,750 28,416 (f)
</TABLE>
See notes to unaudited pro forma condensed consolidated statements of
operations.
26
<PAGE>
NRT INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Before Pro Forma
Pro Forma Offering Offering
Acquisition Related Related
Historical Acquisitions Adjustments Adjustments Adjustments Pro Forma
---------- ------------ ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Real estate commissions.... $330,241 $81,269 $ 11,369 (a) $422,879 $422,879
Other revenues............. 15,434 5,000 20,434 20,434
-------- ------- -------- -------- ------- --------
Total revenues............ 345,675 86,269 11,369 443,313 443,313
EXPENSES:
Commissions and royalties.. 237,284 54,133 8,709 (a) 304,098 $ 6,000 (b) 310,098
3,972 (c)
Selling, general and
administrative............ 115,805 33,548 149,353 149,353
Amortization of goodwill... 1,083 358 (d) 1,441 1,441
24,162 (d)
Acquisition related costs.. 34,266 3,302 (d) 61,730 61,730
-------- ------- -------- -------- ------- --------
Operating income (loss)... (42,763) (1,412) (29,134) (73,309) (6,000) (79,309)
Interest expense, net...... (868) 227 (641) (641)
Benefit for income taxes... (16,758) (664)(e) (11,799)(e) (29,221) (2,430) (e) (31,651)
-------- ------- -------- -------- ------- --------
Net loss.................. $(25,137) $ (975) $(17,335) (43,447) $(3,570) (47,017)
======== ======= ======== ======== ======= ========
Per share information:
Loss per common share:
basic and diluted......... $ (1.82) $ (1.79)(f)
Weighted average shares
outstanding:
basic and diluted......... 18,750 28,416 (f)
</TABLE>
See notes to unaudited pro forma condensed consolidated statements of
operations.
27
<PAGE>
NRT INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Before Pro Forma
Pro Forma Offering Offering
Acquisition Related Related
Historical Adjustments Adjustments Adjustments Pro Forma
---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Real estate commissions.... $469,596 $ $469,596 $ $469,596
Other revenues............. 31,289 31,289 31,289
-------- ------ -------- ------- --------
Total revenues............ 500,885 500,885 500,885
EXPENSES:
Commissions and royalties.. 345,380 345,380 $ 6,000 (b) 351,380
Selling, general and
administrative............ 164,904 164,904 164,904
Amortization of goodwill... 1,610 1,610 1,610
Acquisition related costs.. 5,618 (4,742)(d) 876 876
-------- ------ -------- ------- --------
Operating loss............ (16,627) (4,742) (11,885) (6,000) (17,885)
Interest expense, net...... 568 568 568
Provision (benefit) for
income taxes.............. (6,772) 1,921 (e) (4,851) (2,430) (e) (7,281)
-------- ------ -------- ------- --------
Net income (loss)......... $(10,423) $2,821 $ (7,602) $(3,570) $(11,172)
======== ====== ======== ======= ========
Per share information:
Loss per common share:
basic and diluted......... $ (1.05) $ (0.55)(f)
Weighted average shares
outstanding:
basic and diluted......... 18,750 28,416 (f)
</TABLE>
See notes to unaudited pro forma condensed consolidated statements of
operations.
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(a) Reflects adjustments to recognize revenue and the related commission and
royalty expense upon the closing of real estate transactions for acquired
companies that recognized revenue on a different basis prior to being acquired.
(b) Reflects adjustment to give effect to additional royalties payable to
NRT's franchisors following the closing of the offering. These royalties are
equal to:
. approximately 1.1% of NRT's monthly gross commission income, subject to
an annual maximum currently estimated at $22.1 million; plus
.$156,250 per month.
(c) Reflects adjustment to give effect to royalties payable to NRT's
franchisors under the franchise agreements as if the acquired companies were
subject to such agreements from January 1, 1998 through their dates of
acquisition. Under the franchise agreements, royalties are payable by NRT based
upon a percentage of NRT's gross commission income (6% for all of NRT's
offices, other than NRT's CENTURY 21(R) offices in Northern California for
which NRT currently pays 4.89%). All of NRT's acquired brokerages are
franchised under one of the franchisors' franchised brand names and are
required to pay the applicable royalties.
(d) Reflects the additional amortization of intangible assets that would have
been recognized had the acquisitions occurred on January 1, 1998. The
amortization period and pro forma adjustments are summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Pro Forma Adjustment
----------------------------
Three Months
Year Ended Ended March 31,
Amortization December 31, ---------------
Intangible assets Period 1998 1998 1999
- ----------------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C>
Pending real estate contracts...... 3 months $2,829 $20,890 $(2,872)
Real estate listing contracts...... 6 months 2,368 3,272 (1,870)
------ ------- -------
Intangible assets, excluding
goodwill........................ $5,197 $24,162 $(4,742)
====== ======= =======
Excess of cost over fair value of
net assets acquired............... 40 years $ 867 $ 358 $ --
====== ======= =======
</TABLE>
(e) The tax rate applied to the pro forma adjustments consists of the federal
statutory rate, adjusted for state taxes net of federal benefit. The adjustment
applies a provision for taxes for acquired company operations, the majority of
which operated as S corporations.
29
<PAGE>
(f) Pro forma loss per share gives effect to the 1998 acquisitions by NRT,
additional royalties that will be payable to NRT's franchisors following the
closing of the offering, the additional shares which will be outstanding as a
result of the offering and the application of the net proceeds from the
offering. The reconciliation of historical loss per share to pro forma loss per
share is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(in thousands, except per share
amounts)
<S> <C> <C> <C>
Net income (loss) ....................................... $ 1,309 $(11,183)(i) $ (9,874)
Dividends on cumulative redeemable and cumulative
convertible redeemable preferred stock.................. (29,910) 14,472(ii) (15,438)
Accretion of Series C preferred stock discount and
redemption premium...................................... (6,708) 6,708(ii) --
-------- -------- --------
Loss applicable to common shareholders................... $(35,309) $ 9,997 $(25,312)
======== ======== ========
Weighted average shares outstanding;
basic and diluted ...................................... 18,750 9,666(iii) 28,416
Loss per common share:
basic and diluted ...................................... $ (1.88) $ (0.89)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, Three Months Ended March 31,
1998 1999
------------------------------------ ------------------------------------
Pro Forma Pro Forma
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net loss ............... $(25,137) $(21,880)(i) $(47,017) $(10,423) $ (749)(i) $(11,172)
Dividends on cumulative
redeemable and
cumulative convertible
redeemable preferred
stock.................. (7,255) 3,409(ii) (3,846) (7,627) 3,074(ii) (4,553)
Accretion of Series C
preferred stock
discount and redemption
premium................ (1,654) 1,654(iii) -- (1,654) 1,654(iii) --
-------- -------- -------- -------- -------- --------
Loss applicable to
common shareholders.... $(34,046) $(16,817) $(50,863) $(19,704) $ 3,979 $(15,725)
======== ======== ======== ======== ======== ========
Weighted average shares
outstanding;
basic and diluted ..... 18,750 9,666(iii) 28,416 18,750 9,666(iii) 28,416
Loss per common share:
basic and diluted ..... $ (1.82) $ (1.79) $ (1.05) $ (0.55)
</TABLE>
(i) Represents the net effect of all pro forma adjustments included in the
pro forma condensed consolidated statement of operations for the year ended
December 31, 1998 and the three months ended March 31, 1998 and March 31, 1999.
(ii) Reflects adjustment to give effect to the redemption of the Series C
junior preferred stock as if the redemption took place on January 1, 1998.
Accordingly, historical dividends declared and accretion of stock discount and
the redemption premium on the Series C junior preferred stock during the
respective periods have been eliminated. The pro forma adjustments exclude the
one-time impact related to the redemption premium on the Series C junior
preferred stock as if the redemption took place on January 1, 1998.
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Redemption value of cumulative junior preferred stock.......... $88,185
Carrying value of cumulative junior preferred stock as of
January 1, 1998............................................... 56,267
-------
$31,918
=======
</TABLE>
30
<PAGE>
(iii) Reflects adjustment to give effect to the additional shares that will
be outstanding as a result of the offering and the additional shares that would
be issued to fund the repurchase of common stock from Apollo, the intended
repurchase of the convertible preferred stock from Cendant and the redemption
of the junior preferred stock held by Apollo and the $45 million cash dividend
paid to Apollo.
31
<PAGE>
NRT INCORPORATED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents................... $ 22,008 $137,000 (a) $ 49,391
(88,185)(b)
(21,432)(c)
Restricted cash............................. 93,561 93,561
Commissions and accounts receivable, net.... 33,191 33,191
Mortgage loans held for sale................ 13,057 13,057
Other current assets........................ 39,531 39,531
-------- -------- --------
Total current assets.................... 201,348 27,383 228,731
Property and equipment, net................. 94,700 94,700
Goodwill and other intangibles, net......... 201,239 201,239
Other assets................................ 10,706 10,706
-------- -------- --------
Total assets............................ $507,993 $ 27,383 $535,376
======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Accounts payable and accrued expenses....... $175,239 $175,239
Restricted cash bank loans.................. 93,561 93,561
Mortgage warehousing loan................... 12,668 12,668
Notes payable, current portion.............. 10,528 10,528
-------- --------
Total current liabilities............... 291,996 291,996
Deferred revenues........................... 26,705 26,705
Notes payable .............................. 12,735 12,735
Borrowings under credit facility............ 30,000 30,000
Other liabilities .......................... 19,612 19,612
Redeemable preferred stock, net:
9.00% Series A Cumulative Senior Redeem-
able Preferred........................... 164,763 164,763
5.00% Series B Cumulative Convertible
Redeemable Preferred..................... 24,604 (725)(c) 23,879
18.00% Series C Cumulative Junior
Redeemable Preferred..................... 71,991 (71,991)(b) --
-------- -------- --------
Total redeemable preferred stock, net... 261,358 (72,716) 188,642
-------- -------- --------
Stockholders' deficit
Common stock.............................. 188 88 (a) 276
(6)(c)
Additional paid-in capital................ -- 136,906 (a) 100,012
(16,194)(b)
(20,701)(c)
Accumulated deficit....................... (134,601) (134,601)
-------- -------- --------
Total stockholders' deficit ............ (134,413) 100,100 (34,313)
-------- -------- --------
Total liabilities and stockholders' deficit
........................................... $507,993 $ 27,383 $535,376
======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated balance sheet.
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(a) Reflects the receipt of the estimated net proceeds to NRT from the
offering at an assumed initial public offering price of $16 per share, the mid-
point of the estimated range of the initial public offering price per share,
less estimated fees and expenses of $13.0 million to be paid by NRT, and the
issuance of common stock.
(b) Reflects the redemption of all outstanding shares of NRT's Series C
junior preferred stock, including the redemption premium, upon the closing of
the offering.
(c) Reflects the repurchase by NRT on April 6, 1999 of 574,575 shares of
common stock from Apollo and the repurchase by NRT following the closing of the
offering of 725.4 shares of convertible preferred stock from Cendant for a
total of $21.4 million.
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data as of December 31, 1994 and for the
year ended December 31, 1994 are derived from unaudited financial statements of
Coldwell Banker Residential Brokerage Corporation. The selected consolidated
financial data presented below as of December 31, 1995, 1996, 1997 and 1998 and
for the year ended December 31, 1995, the five-month period ended May 31, 1996,
the seven-month period ended December 31, 1996, the eight-month period ended
August 31, 1997, the four-month period ended December 31, 1997 and the year
ended December 31, 1998 are derived from the audited consolidated financial
statements of NRT and its predecessors, Coldwell Banker Residential Brokerage
Corporation and National Realty Trust. The selected consolidated financial data
as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 are
derived from the unaudited consolidated financial statements of NRT.
The operating results of NRT and its predecessors include the results of
operations of companies that were acquired in 1996, 1997 and 1998 and accounted
for by the purchase method of accounting. Accordingly, the results of
operations of the acquired companies have been included in the consolidated
operating results of NRT only from their dates of acquisition. The consolidated
financial statements of Coldwell Banker Residential Brokerage Corporation have
been prepared from separate records maintained by Coldwell Banker Residential
Brokerage Corporation and from the records of Coldwell Banker Corporation.
These financial statements are not necessarily indicative of the conditions
that would have existed if Coldwell Banker Residential Brokerage Corporation
had operated as an independent entity.
You should read the financial data presented below together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of NRT and its
predecessors and the related notes included in this prospectus.
<TABLE>
<CAPTION>
Predecessors
----------------------------------------------------------
Coldwell Banker Residential
Brokerage National Realty Trust NRT Incorporated
---------------------------------- ----------------------- ------------------------------------------------
Three Three
Five Seven Eight Four Months Months
Months Months Months Months Year Ended Ended
Year Ended Year Ended Ended Ended Ended Ended Ended March 31, March 31,
December 31, December 31, May 31, December 31, August 31, December 31, December 1998 1999
1994 1995 1996 1996 1997 1997 31, 1998 (unaudited) (unaudited)
------------ ------------ -------- ------------ ---------- ------------ ---------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Real estate
commissions..... $526,229 $540,302 $228,005 $400,076 $570,150 $446,134 $2,010,123 $330,241 $469,596
Other revenues... 17,620 16,042 7,810 12,101 14,636 17,380 110,879 15,434 31,289
-------- -------- -------- -------- -------- -------- ---------- -------- --------
Total revenues.. 543,849 556,344 235,815 412,177 584,786 463,514 2,121,002 345,675 500,885
Commissions and
royalties....... 322,694 333,869 141,404 276,364 393,235 330,169 1,482,719 237,284 345,380
Selling, general
and
administrative.. 198,907 212,013 93,532 119,862 168,863 124,785 571,938 115,805 164,904
Amortization of
goodwill........ -- 532 482 104 1,162 637 3,403 1,083 1,610
Acquisition
related costs... -- 4,240 26 22,188 10,735 78,462 61,150 34,266 5,618
-------- -------- -------- -------- -------- -------- ---------- -------- --------
Operating income
(loss)......... 22,248 5,690 371 (6,341) 10,791 (70,539) 1,792 (42,763) (16,627)
Interest expense,
net............. (686) (137) 11 44 117 (2,843) (1,819) (868) 568
Provision
(benefit) for
income taxes.... 4,796 2,459 156 -- 4,432 (25,453) 2,302 (16,758) (6,772)
-------- -------- -------- -------- -------- -------- ---------- -------- --------
Net income
(loss)......... $ 18,138 $ 3,368 $ 204 $ (6,385) $ 6,242 $(42,243) $ 1,309 $(25,137) $(10,423)
======== ======== ======== ======== ======== ======== ========== ======== ========
Net loss applicable to
common shareholders......................................................... $(54,232) $ (35,309) $(34,046) $(19,704)
======== ========== ======== ========
Loss per common share:
basic and diluted........................................................... $ (2.89) $ (1.88) $ (1.82) $ (1.05)
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Predecessors NRT Incorporated
------------------------ -------------------------------
As of
As of March 31,
As of December 31, December 31, 1999
------------------------ ------------------ -----------
1994 1995 1996 1997 1998 (unaudited)
-------- ------- ------- -------- -------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 1,202 $ 89 $11,087 $165,360 $ 52,701 $ 22,008
Total assets............ 119,999 65,519 71,296 416,671 530,712 507,993
Long-term debt.......... 843 785 1,152 4,844 16,791 42,735
Redeemable preferred
stock.................. -- -- -- 237,858 252,047 261,358
Stockholders' equity
(deficit).............. 21,278 24,646 (1,385) (34,232) (69,541) (134,413)
</TABLE>
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with the
consolidated financial statements and related notes appearing elsewhere in
this prospectus.
General
In May 1996, Cendant acquired Coldwell Banker Corporation and contributed
the real estate brokerage operations of Coldwell Banker Residential Brokerage
Corporation to National Realty Trust. Cendant retained ownership of all
trademarks utilized in connection with the transferred real estate brokerage
operations and licensed the COLDWELL BANKER(R), ERA(R) and CENTURY 21(R) brand
names owned by it to National Realty Trust. NRT was formed in August 1997.
Shortly after its formation, NRT acquired the real estate brokerage operations
owned by National Realty Trust.
NRT earns real estate commissions for providing brokerage services to
customers in the purchase and sale of new and existing homes. Real estate
commissions typically range from approximately 5% to 7% of the sales price.
When NRT acts as a broker on one side of a transaction (either the buying side
or the selling side) and a third-party broker acts as a broker on the other
side of the transaction, NRT generally must share with the other broker 50% of
the sales commission. When NRT is the sole broker, NRT generally receives 100%
of the sales commission.
In addition to real estate brokerage services, NRT generates revenues
through:
. mortgage marketing services provided under a marketing arrangement with
Cendant Mortgage Corporation;
. title services for which NRT receives a fee from title insurance
underwriters;
. escrow and other closing services for which NRT typically receives a fee
from home buyers;
. relocation services through an arrangement with Cendant Mobility Services
Corporation, for which NRT receives fees from Cendant Mobility, and NRT's
own relocation company, for which NRT receives fees from customers; and
. a variety of other brokerage-related services through marketing and
purchasing programs established by Cendant with leading service
providers, including home warranties, home security systems, temporary
housing, temporary storage, moving truck rentals and telephone services,
for which NRT generally receives fees.
Real estate commissions are recorded as revenues and the related sales
associate commissions and franchise royalty fees are recorded as expenses upon
the closing of the home sale transaction. Revenues derived from NRT's
brokerage-related services are recorded as revenue at the time that the
services are performed.
36
<PAGE>
Commissions and royalties payable by NRT include commissions paid to NRT's
sales associates and royalties paid to its franchisors. Commissions paid to
sales associates have averaged 60% to 67% of real estate commissions in recent
years. Because the commissions paid to sales associates vary by region and by
office, the average commission rate paid to NRT's sales associates is affected
by NRT's acquisitions. NRT's royalty expenses are 6% of gross commission income
(currently 4.89% for NRT's CENTURY 21(R) offices in Northern California), plus
$166,667 per month. In February 1999, NRT entered into new franchise agreements
with its franchisors, which require NRT to pay additional royalties of:
.$156,250 per month following the closing of the offering;
.until the closing of the offering, a monthly royalty which has averaged
$273,900 per month for the first three months of 1999;
.upon the closing of the offering, approximately 1.1% of NRT's monthly
gross commission income, subject to an annual maximum currently estimated
at $22.1 million; and
.0.15% of NRT's total revenue per quarter for each quarter (up to a total
of 20 quarters) in which NRT's EBITDA for the prior twelve months exceeds
$225 million.
Selling, general and administrative expenses consist primarily of employee
compensation, advertising and marketing, occupancy costs, general office
expenses and depreciation of property and equipment.
Acquisition related costs consist of office conversion costs and amortization
of pending real estate sales contracts and real estate listing contracts of
acquired brokerages. Office conversion costs include primarily signage change,
name change advertising and other transitional costs. NRT amortizes the
acquired companies' pending real estate sales contracts over a three-month
period and real estate listing contracts over a six-month period, reflecting
the respective periods over which NRT estimates that such contracts will result
in closed real estate transactions.
NRT believes that pending real estate sales contracts are an indicator of
revenues to be recognized in the near future. Pending real estate sales
contracts represent transactions in which a binding contract of sale has been
signed, but the home sale has not yet closed. NRT considers real estate
contracts to be binding only after any rescission period expires, a good faith
deposit is placed in escrow and the only remaining significant conditions are
financing and property inspection. Historically, an average of approximately
13% of NRT's pending real estate sales contracts have failed to close.
NRT's real estate brokerage business is subject to seasonal fluctuations.
Historically, revenues have been strongest in the second and third quarters of
the calendar year. While commissions are paid to sales associates only upon the
sale of a home, many of NRT's other expenses, such as rent and personnel, are
fixed. As a result, the relationship between NRT's expenses and revenues is
subject to significant fluctuation on a quarter-to-quarter basis.
37
<PAGE>
Results of Operations
The following table presents statement of operations and other data for the
periods indicated.
<TABLE>
<CAPTION>
Predecessors
---------------------------------------------
Coldwell Banker
Residential Brokerage National Realty Trust NRT Incorporated
--------------------- ----------------------- -------------------------------------------------
Seven Eight Four Three Three
Five Months Months Months Months Year Months Months
Ended Ended Ended Ended Ended Ended March Ended March
May 31, December 31, August 31, December 31, December 31, 31, 1998 31, 1999
1996 1996 1997 1997 1998 (unaudited) (unaudited)
--------------------- ------------ ---------- ------------ ------------ ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate commissions..... $228,005 $400,076 $570,150 $ 446,134 $2,010,123 $330,241 $469,596
Other revenues.............. 7,810 12,101 14,636 17,380 110,879 15,434 31,289
-------- -------- -------- --------- ---------- -------- --------
Total revenues........... 235,815 412,177 584,786 463,514 2,121,002 345,675 500,885
Commissions and royalties... 141,404 276,364 393,235 330,169 1,482,719 237,284 345,380
Selling, general and
administrative expenses.... 93,532 119,862 168,863 124,785 571,938 115,805 164,904
Amortization of goodwill.... 482 104 1,162 637 3,403 1,083 1,610
Acquisition related costs... 26 22,188 10,735 78,462 61,150 34,266 5,618
-------- -------- -------- --------- ---------- -------- --------
Operating income (loss).. 371 (6,341) 10,791 (70,539) 1,792 (42,763) (16,627)
Interest expense, net....... 11 44 117 (2,843) (1,819) (868) 568
Provision (benefit) for
income taxes............... 156 -- 4,432 (25,453) 2,302 (16,758) (6,772)
-------- -------- -------- --------- ---------- -------- --------
Net income (loss)........ $ 204 $ (6,385) $ 6,242 $ (42,243) $ 1,309 $(25,137) $(10,423)
======== ======== ======== ========= ========== ======== ========
Loss applicable to common
shareholders............... $ (54,232) $ (35,309) $(34,046) $(19,704)
========= ========== ======== ========
Loss per common share:
basic and diluted.......... $ (2.89) $ (1.88) $ (1.82) $ (1.05)
Weighted average shares
outstanding:
basic and diluted.......... 18,750 18,750 18,750 18,750
EBITDA(a)................... $ 4,691 $ 16,341 $ 24,293 $ 2,992 $ 68,257 $(17,646) $ (2,671)
Net cash provided by (used
in) operating activities... 4,855 29,810 20,625 9,527 31,977 (36,872) (7,264)
Net cash used in investing
activities................. (18,420) (14,770) (44,795) (107,475) (186,651) (54,365) (9,506)
Net cash provided by (used
in) financing activities... 14,577 (3,953) 30,759 263,308 42,015 (15,212) (13,923)
</TABLE>
(footnote on following page)
38
<PAGE>
(continued from previous page)
(a) EBITDA is defined as operating income (loss) plus depreciation and
amortization of goodwill and other intangibles. EBITDA is calculated as
follows:
<TABLE>
<CAPTION>
Coldwell
Banker
Residential National
Brokerage Realty Trust NRT Incorporated
----------- ------------------------- ---------------------------------------------------
Three Three
Five Seven Eight Four Months Months
Months Months Months Months Year Ended Ended
Ended Ended Ended Ended Ended March 31, March 30,
May 3, December 31, August 31, December 31, December 31, 1998 1998
1996 1996 1997 1997 1998 (unaudited) (unaudited)
----------- ------------- ----------- ------------ ------------ ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating income (loss).... $ 371 $(6,341) $10,791 $(70,539) $ 1,792 $(42,763) $(16,627)
Depreciation and
amortization.............. 3,812 1,129 3,026 2,998 18,909 3,733 7,036
Amortization of goodwill... 482 104 1,162 637 3,403 1,083 1,610
Amortization of pending
real estate contracts and
real estate listing
contracts................. 26 21,449 9,314 69,896 44,153 20,301 5,310
------ ------- ------- -------- ------- -------- -----------
EBITDA..................... 4,691 16,341 24,293 2,992 68,257 (17,646) (2,671)
Office conversion costs.... -- 739 1,421 8,566 16,997 13,965 308
------ ------- ------- -------- ------- -------- -----------
EBITDA before office
conversion costs.......... $4,691 $17,080 $25,714 $11,558 $85,254 $ (3,681) $ (2,363)
====== ======= ======= ======== ======= ======== ============
</TABLE>
Management believes that EBITDA is a widely accepted financial indicator
used by investors and analysts to analyze and compare companies. Management
uses EBITDA as a supplementary tool to measure NRT's ability to generate
operating cash flow. Management also uses EBITDA to establish performance
goals and related bonuses for its employees. EBITDA is not intended to
represent cash flows for the periods presented, nor has it been presented
as an alternative to operating income or as an indicator of operating
performance. EBITDA should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles. NRT understands that, while
EBITDA is frequently used by securities analysts in the evaluation of
companies, EBITDA is not necessarily comparable to other similarly titled
measures of other companies due to potential inconsistencies in the methods
of calculation.
39
<PAGE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998:
Revenue. Total revenues for the three months ended March 31, 1999 increased
44.9% to $500.9 million from $345.7 million for the three months ended March
31, 1998. Total revenues include revenues from real estate commissions
generated by existing operations and by operations acquired during 1999 and
1998 from their respective dates of acquisition. Real estate commissions
increased 42.2% to $469.6 million for the three months ended March 31, 1999
from $330.2 million for the three months ended March 31, 1998. Other revenues
increased to $31.3 million for the three months ended March 31, 1999 from $15.4
million for the three months ended March 31, 1998. This increase of $15.9
million consists of $5.5 million of revenues from title, escrow and other
closing services, $4.5 million of revenues from mortgage marketing services and
$5.9 million of revenues from relocation and other brokerage-related services.
In addition to the revenues generated by acquired operations in 1999 and 1998,
NRT's revenues benefitted from a strong residential real estate market
throughout the United States as well as income from its mortgage marketing
agreement with Cendant Mortgage Corporation and from NRT's focus on deriving
other brokerage-related revenues from its real estate sales transactions.
Commissions and Royalties. Commissions and royalties as a percentage of total
revenues increased to 69.0% for the three months ended March 31, 1999 from
68.6% for the three months ended March 31, 1998. This increase was due
primarily to acquired operations that pay a higher percentage of the real
estate commission to sales associates, partially offset by increases in other
revenues from operations that pay a lower commission percentage to sales
associates.
Selling, General and Administrative. Selling, general and administrative
expenses were $164.9 million for the three months ended March 31, 1999 as
compared to $115.8 million for the three months ended March 31, 1998. These
expenses include the expenses of NRT's existing operations and of acquired
operations from their respective dates of acquisition. As a percentage of total
revenues, selling, general and administrative expenses decreased to 32.9% for
the three months ended March 31, 1999 from 33.5% for the three months ended
March 31, 1998, reflecting savings realized as the result of combining certain
branch locations and eliminating duplicative administrative functions to the
extent possible.
Amortization of Goodwill. Amortization of goodwill for the three months ended
March 31, 1999 was $1.6 million as compared to $1.1 million for the three
months ended March 31, 1998. Goodwill recognized in connection with
acquisitions is being amortized over 40 years.
Acquisition Related Costs. Acquisition related costs were $5.6 million for
the three months ended March 31, 1999 as compared to $34.3 million for the
three months ended March 31, 1998. Such amounts reflect the volume and timing
of acquisitions during the respective periods.
Pending Real Estate Sales Contracts. At March 31, 1999, NRT had pending real
estate sales contracts representing approximately 62,577 sides, reflecting an
increase of 20.7% from the 51,844 sides represented by NRT's pending real
estate contracts at March 31, 1998. NRT's pending real estate sales contracts
at March 31, 1999 represented approximately $448.4 million of real estate
commissions, reflecting an increase of 25.3% from the $357.8 million of real
estate commissions represented by NRT's pending real estate sales contracts at
March 31, 1998. These increases reflect the effects of NRT's acquisitions, the
continued strength of the residential real estate market throughout the United
States and an increase in NRT's average home sales price.
40
<PAGE>
Year Ended December 31, 1998
Revenues. Total revenues were $2,121.0 million for the year ended December
31, 1998. Total revenues for the year ended December 31, 1998 include real
estate commissions of $2,010.1 million generated by NRT's existing operations
and by operations acquired during 1998 from their respective dates of
acquisition. Other revenues of $110.9 million include $77.7 million of revenues
from title, escrow and other closing services, $11.2 million of revenues from
mortgage marketing services and $22.0 million of revenues from relocation and
other brokerage-related services. In addition to the revenues generated by
operations acquired in 1998, NRT's revenues benefitted from the continued
strength of the residential real estate market throughout the United States,
from its mortgage marketing agreement with Cendant Mortgage Corporation and
from its focus on deriving increasing brokerage-related revenues from its real
estate sales transactions.
Commissions and Royalties. Commissions and royalties were $1,482.7 million,
or 69.9% of total revenues, for the year ended December 31, 1998.
Selling, General and Administrative. Selling, general and administrative
expenses were $571.9 million, or 27.0% of total revenues, for the year ended
December 31, 1998. These expenses include the expenses of NRT's existing
operations and of acquired operations from their respective dates of
acquisition. Selling, general and administrative expenses also reflect savings
realized as the result of combining branch locations and eliminating
duplicative administrative functions to the extent possible.
Amortization of Goodwill. Amortization of goodwill was $3.4 million for the
year ended December 31, 1998. Goodwill recognized in connection with NRT's
acquisitions is being amortized over 40 years.
Acquisition Related Costs. Acquisition related costs were $61.2 million for
the year ended December 31, 1998, including $17.0 million of office conversion
costs and $44.2 million of amortization of pending real estate sales contracts
and real estate listing contracts of acquired brokerages. Amortization included
$3.5 million of amortization of real estate listing contracts capitalized in
connection with NRT's acquisition of the assets of National Realty Trust.
Acquisition related costs are fully recognized within six months of the
respective acquisitions.
At December 31, 1998, NRT had $5.7 million of unamortized pending real estate
sales contracts and real estate listing contracts of acquired brokerages, which
will be fully amortized by May 31, 1999.
Income Taxes. NRT's effective income tax rate was 63.7% for the year ended
December 31, 1998, reflecting the effect of non-deductible expenses.
Net Income. Net income was $1.3 million for the year ended December 31, 1998,
reflecting NRT's strong operations during the period, offset by acquisition
related costs recognized in connection with NRT's acquisitions in 1998.
Pending Real Estate Sales Contracts. At December 31, 1998, NRT had pending
real estate sales contracts representing approximately 52,300 sides, reflecting
an increase of 94.4% from the 26,900 sides represented by NRT's pending real
estate contracts at December 31, 1997. NRT's pending real estate sales
contracts at December 31, 1998 represented approximately $349.9 million of real
estate commissions, reflecting an increase of 97.2% from the $177.4 million of
real estate
41
<PAGE>
commissions represented by NRT's pending real estate sales contracts at
December 31, 1997. These increases reflect the effects of NRT's acquisitions,
the continued strength of the residential real estate market throughout the
United States and an increase in NRT's average home sales price.
Four Months Ended December 31, 1997
Revenues. Total revenues were $463.5 million for the four months ended
December 31, 1997. Total revenues include real estate commissions of $446.1
million generated by existing operations and by operations acquired during the
period from their respective dates of acquisition. Other revenues of $17.4
million include $14.0 million of revenues from title, escrow and other closing
services, $0.7 million of revenues from marketing related fees and $2.7 million
of revenues from relocation and other brokerage-related services.
Commissions and Royalties. Commissions and royalties were $330.2 million, or
71.2% of total revenues, for the four months ended December 31, 1997.
Generally, real estate commissions are higher at the end of the year as the
percentage of NRT's real estate commissions shared with sales associates
increases based on closing volume on a calender year basis.
Selling, General and Administrative. Selling, general and administrative
expenses were $124.8 million, or 26.9% of total revenues, for the four months
ended December 31, 1997. These expenses include the expenses of acquired
operations from their respective dates of acquisition. Selling, general and
administrative expenses also reflect savings realized as the result of
combining branch locations and eliminating duplicative administrative functions
to the extent possible.
Acquisition Related Costs. Acquisition related costs were $78.5 million for
the four months ended December 31, 1997, including $8.6 million of office
conversion costs and $69.9 million of amortization of pending real estate sales
contracts and real estate listing contracts of acquired brokerages.
Amortization included $52.3 million of amortization of real estate listing
contracts capitalized in connection with NRT's acquisition of the assets of
National Realty Trust.
Income Taxes. NRT's effective income tax benefit was 37.6% for the four
months ended December 31, 1997, reflecting the effect of non-deductible
expenses and limitations on the carryforward of losses for state tax purposes.
Net Loss. NRT had a net loss of $42.2 million for the four months ended
December 31, 1997, resulting primarily from acquisition related costs of $78.5
million, partially offset by earnings from total revenues less commissions,
royalties and selling, general and administrative expenses.
Eight Months Ended August 31, 1997
Revenues. Total revenues for the eight months ended August 31, 1997 were
$584.8 million. Total revenues include real estate commissions of $570.2
million generated by existing operations and by operations acquired during the
period from their respective dates of acquisition. Other revenues of $14.6
million include $12.7 million of title, escrow and other closing services and
$1.9 million of relocation and other brokerage-related services.
Commissions and Royalties. Commissions and royalties were $393.2 million, or
67.2% of total revenues, for the eight months ended August 31, 1997.
42
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses were $168.9 million, or 28.9% of total revenues, for the eight months
ended August 31, 1997.
Acquisition Related Costs. Acquisition related costs were $10.7 million for
the eight months ended August 31, 1997, including $1.4 million of office
conversion costs and $9.3 million of
amortization of pending real estate sales contracts and real estate listing
contracts of acquired brokerages.
Income Taxes. NRT's effective income tax rate was 41.5% for the eight months
ended August 31, 1997, reflecting the effect of non-deductible expenses.
Net Income. Net income of $6.2 million for the eight months ended August 31,
1997 resulted primarily from total revenues less commissions, royalties and
selling, general and administrative expenses, partially offset by acquisition
related costs of $10.7 million.
Seven Months Ended December 31, 1996
Revenues. Total revenues were $412.2 million for the seven months ended
December 31, 1996, resulting primarily from real estate commissions generated
by existing operations. Other revenues of $12.1 million for the seven months
ended December 31, 1996 include $10.6 million of revenues from title, escrow
and other closing services and $1.5 million of revenues from relocation and
other brokerage-related services.
Commissions and Royalties. Commissions and royalties totaled $276.4 million,
or 67.0% of total revenues, for the seven months ended December 31, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses were $119.9 million, or 29.1% of total revenues, for the seven months
ended December 31, 1996.
Acquisition Related Costs. Acquisition related costs were $22.2 million for
the seven months ended December 31, 1996, including $0.7 million of office
conversion costs and $21.5 million of amortization of pending real estate sales
contracts and real estate listing contracts of acquired brokerages. Such
amortization includes $18.2 million of amortization of real estate listing
contracts capitalized in connection with the contributions of Coldwell Banker
Corporation's residential real estate brokerage operations to National Realty
Trust.
Income Taxes. National Realty Trust recorded a valuation reserve for its
income tax benefit associated with losses experienced during this period.
Accordingly, no tax benefit was realized.
Net Loss. A net loss of $6.4 million for the seven months ended December 31,
1996 resulted primarily from acquisition related costs of $22.2 million
partially offset by earnings from total revenues less commissions, royalties
and selling, general and administrative expenses.
Five Months Ended May 31, 1996
Revenues. Total revenues for the five months ended May 31, 1996 were $235.8
million. Other revenues of $7.8 million for the five months ended May 31, 1996
include $5.8 million of revenues from title, escrow and other closing services
and $2.0 million of revenues from relocation and other brokerage-related
services.
43
<PAGE>
Commissions and Royalties. Commissions and royalties were $141.4 million, or
60.0% of total revenues, for the five months ended May 31, 1996. Coldwell
Banker Residential Corporation had no royalty expense for the five months ended
May 31, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses were $93.5 million, or 39.7% of total revenues, for the five months
ended May 31, 1996.
Income Taxes. NRT's effective income tax rate was 43.3% for the five months
ended May 31, 1996 reflecting the effect of non-deductible expenses.
Net Income. Net income was $204,000 for the five months ended May 31, 1996,
reflecting the lower real estate closings typically experienced during this
period of the year.
Liquidity and Capital Resources
NRT's operating cash requirements consist principally of working capital
requirements, capital expenditures, acquisitions and dividends payable on its
preferred stock. NRT currently believes that cash flows from operating
activities will be adequate to meet NRT's working capital, capital expenditure
and dividend requirements.
Net cash provided by operating activities was $4.9 million for the five
months ended May 31, 1996, $29.8 million for the seven months ended December
31, 1996, $20.6 million for the eight months ended August 31, 1997 and $9.5
million for the four months ended December 31, 1997. In 1998, net cash provided
by operating activities was $32.0 million. The increase in cash flows provided
by operating activities during the year ended December 31, 1998 compared to the
four months ended December 31, 1997 and the eight months ended August 31, 1997
is due primarily to cash flows generated by NRT's acquisitions, offset by the
funding of mortgage loans held for sale and cash used to fund liabilities in
connection with NRT's acquisitions. The decrease in net cash provided by
operating activities for the eight months ended August 31, 1997 and the four
months ended December 31, 1997 as compared to the five months ended May 31,
1996 and the seven months ended December 31, 1996 is due to the payment of
royalties for only seven months during the period ended December 31, 1996 as
compared to a full year of royalty payments in 1997.
Net cash used in operating activities for the three months ended March 31,
1999 was $7.3 million as compared to $36.9 million for the three months ended
March 31, 1998. During the three months ended March 31, 1999, NRT received $30
million from Cendant in connection with the acquisition services agreement.
Net cash used in investing activities was $18.4 million for the five months
ended May 31, 1996, $14.8 million for the seven months ended December 31, 1996,
$44.8 million for the eight months ended August 31, 1997 and $107.5 million for
the four months ended December 31, 1997. Net cash used in investing activities
was $186.7 million for the year ended December 31, 1998. Cash paid for
acquisitions and the acquisition of National Realty Trust's assets was $0.2
million for the five months ended May 31, 1996 and $13.5 million for the seven
months ended December 31, 1996. Cash paid for acquisitions was $25.2 million
for the eight months ended August 31, 1997 and $86.3 million for the four
months ended December 31, 1997. Cash paid in connection with NRT's acquisitions
was $97.1 million for the year ended December 31, 1998. Additional net
investments in restricted cash were $14.9 million for the five months ended May
31, 1996 as compared to a decrease in
44
<PAGE>
investments in restricted cash of $3.8 million for the seven months ended
December 31, 1996. Investments in restricted cash were $14.4 million for the
eight months ended August 31, 1997 and $14.6 million for the four months ended
December 31, 1997. Additional net restricted cash investments were $53.6
million for the year ended December 31, 1998. This cash can only be used to
repay loans entered into to fund the restricted cash. Capital expenditures were
$3.4 million for the five months ended May 31, 1996 and $5.0 million for the
seven months ended December 31, 1996. Capital expenditures were $5.2 million
for the eight months ended August 31, 1997 and $6.7 million for the four months
ended December 31, 1997. Capital expenditures were $36.2 million for the year
ended December 31, 1998. This increase is due to investments to improve
operations, new information technology systems and the replacement of personal
computers.
Net cash used in investing activities was $9.5 million for the three months
ended March 31, 1999 and $54.4 million for the three months ended March 31,
1998. Payments made for NRT's acquisitions for the three months ended March 31,
1999 were $2.2 million as compared to $56.1 million for the three months ended
March 31, 1998. Decrease in investments in restricted bank loans was $0.3
million for the three months ended March 31, 1999 and $7.4 million for the
three months ended March 31, 1998. Capital expenditures were $7.7 million for
the three months ended March 31, 1999 and $6.1 million for the three months
ended March 31, 1998. The increase is due to investments to improve operations,
new information technology systems and the replacement of personal computers.
Net cash inflows from financing activities were $14.6 million for the five
months ended May 31, 1996 as compared to net cash outflows of $4.0 million for
the seven months ended December 31, 1996. Net cash inflows from financing
activities were $30.8 million for the eight months ended August 31, 1997 and
$263.3 million for the four months ended December 31, 1997. Net cash inflows
from financing activities were $42.0 million for the year ended December 31,
1998. Cash from financing activities for the periods ended May 31, 1996 and
December 31, 1996 were due primarily to changes in restricted cash bank loans.
For the eight months ended August 31, 1997, Cendant made an advance of $20.0
million to National Realty Trust and Coldwell Banker Residential Brokerage
Corporation, which is being forgiven over a 40-year period. During the four
month period ended December 31, 1997, NRT was funded with $255.6 million in
capital contributions from its stockholders, which were used to fund NRT's
acquisitions in this period. Also during this period, NRT had net cash inflows
of $14.6 million from restricted cash bank loans from financial institutions.
During 1998, net cash inflows from restricted cash bank loans were $53.6
million. These loans are secured by and payable from investments of restricted
cash described above. Additionally, during the year ended December 31, 1998,
NRT paid $22.1 million in dividends on its preferred stock and received $17.9
million under its mortgage warehousing loan to fund mortgage loans held for
sale.
Net cash used in financing activities for the three months ended March 31,
1999 were $13.9 million as compared to $15.2 million for the three months ended
March 31, 1998. Net decrease in secured bank loans were $0.3 million for the
three months ended March 31, 1999 and $7.4 million for the three months ended
March 31, 1998. Dividends paid on common stock during the three months ended
March 31, 1999 were $30 million and dividends paid on preferred stock during
the three months ended March 31, 1998 were $7.2 million.
45
<PAGE>
NRT had restricted cash totaling $40.3 million at December 31, 1997, $93.9
million at December 31, 1998 and $93.6 million at March 31, 1999, which can be
used only to repay loans entered into to fund investments by NRT. These loans
are included with the current portion of notes payable.
NRT believes that it will have sufficient capital resources over both the
long and short term to facilitate its acquisition strategy. These resources
include cash generated from operations, proceeds from the offering, NRT's bank
credit facility, future public offering or private placements of equity or debt
securities and Cendant's participation in acquisitions under the acquisition
cooperation agreement.
As a result of an amendment to the calculation of the purchase price payable
by Cendant under the acquisition cooperation agreement, the percentage of the
total purchase price payable by Cendant in future NRT brokerage acquisitions is
likely to be lower than in the past. This may adversely affect NRT's ability to
find acquisition candidates on terms acceptable to NRT and to finance and
complete such transactions.
NRT is party to a $100 million bank credit facility. Borrowings may be used
for NRT's general working capital needs in the ordinary course of business and
permitted acquisitions. NRT is seeking to expand the available borrowing
capacity under this facility.
Upon its formation, NRT issued senior preferred stock and convertible
preferred stock to Cendant and junior preferred stock to Apollo. Each class of
preferred stock is mandatorily redeemable. NRT intends to use approximately
$88.2 million of the net proceeds of the offering to redeem all outstanding
shares of the junior preferred stock held by Apollo and $10.7 million to
repurchase 725.4 shares of convertible preferred stock from Cendant. In
addition, on April 6, 1999, NRT repurchased 574,575 shares of common stock from
Apollo for $10.7 million.
In February 1999, NRT received a $30.0 million advance in connection with
entering into an acquisition services agreement with Cendant. Under the terms
of this agreement, NRT will provide advisory services to Cendant relating to
the identification of potential acquisition candidates, the negotiation of
agreements and other services in connection with future brokerage acquisitions
in which Cendant participates. NRT will earn fees under the agreement based on
the size of the brokerage acquisitions.
NRT declared a $45 million cash dividend on its common stock to Apollo, of
which $30 million was paid during the first quarter of 1999 and $15 million was
paid during the second quarter of 1999.
Market Risk
In connection with its mortgage banking operations, NRT grants mortgage loans
and holds the loans until sale to third parties. These loans are funded through
a mortgage warehousing loan, which represents borrowings under a $25 million
line of credit with a commercial bank. Borrowings under the line of credit bear
interest at the prime rate and are collateralized by mortgage loans held for
sale. The fair values of mortgage loans held for sale and the mortgage
warehousing loan fluctuate with changes in interest rates. However, mortgage
loans are only granted after NRT has a binding commitment to sell the loan to a
third party on a servicing released basis. Mortgage loans held for sale are
generally sold within 60 days and proceeds from the sale are then used to repay
the related mortgage warehousing loans. Based on this relatively short time
frame, a near-term change in interest rates would not materially affect NRT's
consolidated financial position, results of operations or cash flows.
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NRT enters into restricted cash bank loans which are invested in cash
equivalents and cannot be used other than to repay the related loans. Both the
loans and the related investments have fixed rates of interest and mature
monthly. Based on the short time frame of these loans and investments, near-
term changes in interest rates would not materially affect NRT's consolidated
financial position, results of operations or cash flows.
NRT is party to a $100 million credit facility. At the option of NRT, each
individual borrowing under the credit facility may be designated and maintained
as either a base rate loan or a Eurodollar loan. Interest accrues on base rate
loans at a rate equal to 0.75% plus the higher of the federal funds rate plus
0.5% and the prime lending rate. Interest accrues on Eurodollar loans at a rate
equal to 1.75% plus the British Bankers' association interest settlement rate
(or if not available, by reference to the London interbank market rate).
Changes in interest rates could have a material effect on NRT's consolidated
financial position, results of operations and cash flows.
Year 2000 Compliance
Many existing computer systems and software products are coded to accept only
two digit entries in the date code field and cannot properly recognize dates in
the year 2000 and beyond. Consequently, these systems and software products
need to be either upgraded or replaced to function properly from and after
January 1, 2000. NRT has established a year 2000 program to evaluate, confirm
compliance and identify any necessary changes to its information technology and
other systems. In 1997, NRT evaluated the information technology systems
acquired from National Realty Trust for the ability to meet the future needs of
NRT. NRT determined that the existing systems did not contain the features and
capacity necessary to implement its business plan. Accordingly, during 1998 NRT
replaced all of its significant information technology systems. The hardware
and software related to the new systems are year 2000 compliant.
NRT is in the process of assessing and inventorying the year 2000 compliance
of its non-critical information technology systems and other systems. NRT has
identified certain of these systems which are not year 2000 compliant and plans
to correct these systems before September 30, 1999. NRT believes the total
costs associated with correcting these systems will be less than $5 million,
consisting mostly of computer hardware and system software.
NRT is in the process of contacting third party vendors and service providers
on whom it relies, including Cendant and multiple listing service providers, to
confirm that their systems will be year 2000 compliant in a timely manner. NRT
expects to have this assessment complete and a contingency plan in place by the
end of the third quarter of 1999. However, NRT cannot assure that the systems
of third parties upon which it relies will be year 2000 compliant in a timely
manner or that third parties' contingency plans will mitigate the effects of
non-compliance.
Based upon the progress of its comprehensive plan, NRT expects that it will
not experience a disruption of its operations as a result of year 2000 issues.
In a reasonable worst case scenario, the failure by NRT or a third party vendor
or service provider to be year 2000 compliant on a timely basis could
negatively impact NRT's ability to market homes and offer brokerage-related
services and require NRT to devote more resources and capital to resolve year
2000 problems.
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In connection with each of NRT's acquisitions, NRT evaluates the systems of
the acquired company to determine whether its systems are year 2000 compliant.
If an acquired company's systems are not year 2000 compliant, NRT will prepare
a plan to bring the systems into compliance. While NRT cannot guarantee that
all acquired companies will be year 2000 compliant on a timely basis, the cost
of bringing such companies into compliance is not expected to have a material
adverse effect on NRT's financial condition or results of operations.
Impact of New Accounting Pronouncements
NRT adopted Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, on January 1, 1998. SFAS 130 requires that all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. NRT does not have any
comprehensive income components requiring separate disclosure.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes
standards for related disclosure about products and services, geographic areas
and major customers. NRT conducts its business activity in a single operating
segment. Brokerage operations comprised approximately 97%, 97% and 95% of total
revenues during 1996, 1997 and 1998, respectively. Operations related to
ancillary real estate services amounted to 3%, 3% and 5% of total revenues
during 1996, 1997 and 1998, respectively.
Impact of Inflation
Generally, inflation causes the value of residential real estate to increase.
While increases in the value of residential real estate typically lead to
corresponding increases in NRT's commissions, inflation could also cause
interest rates to increase. Higher interest rates tend to reduce sales of
existing single family homes, which may offset NRT's increased commission
revenues.
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<PAGE>
BUSINESS
Company Overview
NRT is the largest residential real estate brokerage company in the United
States based on home sales volume. NRT operates approximately 681 full service
real estate brokerage offices nationwide. As a full service brokerage, NRT
offers, either directly or through third party arrangements, a wide variety of
homeowner services in addition to traditional real estate brokerage services,
including mortgage, title, escrow and relocation services, home warranties,
home security systems and other services.
Based on data provided by Real Facts, an industry publication, multiple
listing service data and publicly available industry information, NRT believes
that:
. NRT is approximately five times larger than its next largest competitor,
based on home sales volume.
. NRT operates in 18 of the 30 largest domestic markets measured by
population and NRT believes that it has a leading market presence in
each of the markets in which it operates.
. NRT is the only national residential real estate brokerage company.
. NRT markets more homes on the internet than any other residential real
estate brokerage company based on the number of homes listed with NRT,
all of which are listed on the internet.
NRT operates all of its brokerage offices under the COLDWELL BANKER(R),
ERA(R) and CENTURY 21(R) brand names pursuant to franchise agreements with
subsidiaries of Cendant. NRT operates approximately 85% of its offices under
the COLDWELL BANKER(R) brand name, 13% of its offices under the ERA(R) brand
name and 2% of its offices under the CENTURY 21(R) brand name. NRT operates its
COLDWELL BANKER(R) offices throughout the country, its ERA(R) offices in New
Jersey and the Mid-Atlantic region and its CENTURY 21(R) offices in Northern
California. NRT believes that the COLDWELL BANKER(R), ERA(R) and CENTURY 21(R)
brand names provide NRT with consumer recognition and credibility on a national
and international basis. Based on publicly available information, COLDWELL
BANKER(R), ERA(R) and CENTURY 21(R) are three of the five largest national real
estate franchise systems in the United States, measured by the number of
franchised real estate brokerage offices.
Shortly after its formation in August 1997, NRT acquired the assets of
National Realty Trust, which included the former real estate brokerage
operations of Coldwell Banker Corporation. Although NRT had only recently been
formed, the operations acquired from National Realty Trust provided NRT with a
strong core operating business. NRT has grown rapidly, completing 79
acquisitions, representing a total of over 500 brokerage offices. NRT's larger
acquisitions to date include the following:
. Jon Douglas Real Estate Services Group, Inc., the third largest
residential real estate brokerage company;
. Burnet Financial Group, the fourth largest residential real estate
brokerage company;
. Hunneman Real Estate Corporation, the ninth largest residential real
estate brokerage company;
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. Cornish & Carey Residential, Inc., the tenth largest residential real
estate brokerage company; and
. O'Conor, Piper & Flynn, Inc., the fifteenth largest residential real
estate brokerage company.
Rankings are based on home sales volume during the last completed calendar year
prior to being acquired by NRT, as reported by Real Facts. Cendant has
participated in each of these transactions pursuant to the acquisition
cooperation agreement (or its predecessor) with NRT.
The Industry
Recent years have been among the strongest ever for existing home sales.
Based on information reported by the National Association of Realtors and the
United States Census Bureau:
. NRT estimates that the 1998 domestic residential real estate brokerage
industry generated over $50 billion of gross commission income, based on
approximately $940 billion in home sales and assuming an average
commission rate of 5 1/2%.
. Existing home sales in the United States have exceeded 3.5 million homes
sold every year since 1992 and over 4.0 million homes sold in each of
1996, 1997 and 1998.
. Since 1991, the number of new and existing homes sold per year in the
United States has grown at an average annual rate of 5.4%.
. The 1993-1998 period represents six of the eight strongest years on
record for annual existing home sales.
Real estate brokerage companies typically realize revenues as a commission
that is based on a percentage of the price of each home sold. As a result, the
real estate brokerage industry generally benefits from rising home prices. In
1998, the national median price for existing, single-family homes, as reported
by the National Association of Realtors, was $130,600, up 5.2% from 1997. Since
1981, median home prices have increased an average of 4.0% annually.
Rising home ownership rates have also had a positive impact on the real
estate brokerage industry. According to the United States Census Bureau, the
1998 national home ownership rate was 66.4%, the highest rate on record
(statistics have been kept since 1900). The home ownership rate is rising in
most areas of the country.
The highly fragmented real estate brokerage industry consists primarily of a
large number of relatively small brokerage companies, a small number of multi-
office regional brokerage companies and one national real estate brokerage
company, NRT. The 20 largest real estate brokerage firms included in the Real
Facts listing of the largest real estate brokerage companies in the United
States represented 8.1% of home sales volume in 1997. In addition, according to
a 1996 report of the National Association of Realtors, approximately 87% of all
real estate brokerage firms consisted of a single office.
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The following table contains data for the five largest residential real
estate brokerage firms in the United States as of and for the year ended
December 31, 1997:
<TABLE>
<CAPTION>
Home Sales
Company Volume(a) Sides(a) Offices(a) Region
------- ---------- -------- ---------- ----------------------
(in
billions)
<S> <C> <C> <C> <C>
NRT Incorporated(b)..... $63.0 277,566 652 National
Weichert, Realtors...... 13.0 63,500 200 Northeast/Mid-Atlantic
Long & Foster Real
Estate, Inc. .......... 7.8 44,612 116 Mid-Atlantic
Prudential Florida
Realty(c).............. 4.9 28,982 75 Florida
Fred Sands Realtors..... 4.4 12,018 20 California
</TABLE>
- ---------------------
(a) Source: 1998 Edition of Real Facts. Each real estate transaction has two
sides, the selling side and the buying side. Brokers may participate on one
or both sides of a transaction.
(b) Includes Burnet Financial Group, Hunneman Real Estate Corporation and
O'Conor, Piper & Flynn, Inc., which were acquired by NRT during 1998, but
excludes all other acquisitions by NRT in 1998. If Burnet Financial Group
were separately listed, it would be the fourth largest residential real
estate brokerage company.
(c) On July 31, 1998, Prudential Florida Realty was acquired by The St. Joe
Company. On March 1, 1999, it was renamed Arvida Realty Services, and it
currently operates as a company unaffiliated with a national brand.
NRT believes that the future of the real estate brokerage industry will be
dominated by large companies offering multiple services and smaller, niche-
oriented firms. NRT believes that larger firms, such as NRT, will benefit from
their ability to offer consumers a "full service brokerage" approach to the
complex process of purchasing or selling a home by offering home buyers and
sellers a wide variety of homeowner services.
Growth Strategy
Internal Growth Strategy
NRT will seek to expand its market presence and increase its revenue and
profitability through the following initiatives:
Leverage Well Known, National Brand Names. NRT intends to capitalize on the
benefits provided by operating under the COLDWELL BANKER(R), ERA(R) and CENTURY
21(R) brand names. Such benefits include:
. the name recognition and reputation of the brands among consumers for
quality and consistency;
. access to the franchisors' sales associate training and educational
programs; and
. the approximately $65 million of annual marketing expenditures by
national advertising funds promoting the COLDWELL BANKER(R), ERA(R) and
CENTURY 21(R) brand names.
NRT believes that brand recognition is important in the real estate business
because home buyers and sellers are generally infrequent users of brokerage
services and typically rely on reputation as well as word-of-mouth
recommendations. NRT believes that brand reputation is also important to real
estate sales associates. According to a study conducted by the National
Association of Realtors, real estate sales associates believe that a brokerage
firm's image with customers is its most important attribute.
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<PAGE>
Increase Ancillary Revenues. NRT intends to capitalize on the purchasing
power of home buyers and sellers and take advantage of the relationship between
homeowners and NRT's sales associates to market a wide range of homeowner
services. NRT believes that by offering a wide range of brokerage and related
services it can improve the home purchase or sale experience, enhance its
relationship with its customers and increase its service revenues. NRT intends
to continue to broaden the range of services that it offers to strengthen NRT's
position as a full service brokerage company and to capitalize on the high
margin opportunities offered by these services.
Recruit, Retain and Develop High-Quality Sales Associates. The success of
NRT's business is largely driven by its ability to retain high-quality real
estate sales associates. NRT believes that its reputation and its ability to
provide its sales associates with extensive training and educational programs,
marketing support, sophisticated information technology and other resources
help NRT recruit, retain and develop high quality sales associates. NRT
believes its sales associates generally have a reputation for quality of
service and professionalism. While individual results vary widely, the
productivity of NRT's sales associates increased by over 25% to an average of
10.3 closed sides per sales associate in 1998 from 8.2 closed sides per sales
associate in 1996.
Enhance Productivity with Information Technology. NRT's technology-based
systems combine software applications with features such as prospective
customer management, location mapping, financial analysis, property
information, photographs and forms. NRT believes that these systems, which
provide NRT's sales associates with quick access to current market information,
are powerful productivity enhancing and marketing tools. NRT intends to
continue to upgrade its information technology and use technology to enhance
the productivity of its sales associates.
Acquisition Strategy
NRT will seek to continue to take advantage of consolidation opportunities in
the highly fragmented real estate brokerage industry.
Expand Within Existing Markets. NRT seeks to expand its presence within its
existing markets through acquisitions of additional local and regional
brokerages, as well as "roll-in" acquisitions of smaller firms often consisting
of a single office. NRT believes that these businesses can be integrated into
NRT's existing operations, resulting in the elimination of many duplicative
costs such as advertising, rent and administrative support. By utilizing its
existing infrastructure to support a broader network of sales associates and
revenue base, NRT believes it can enhance the profitability of its consolidated
operations. Since its formation, NRT has completed over 50 "roll-in"
acquisitions.
Enter New Markets. NRT intends to enter new markets by selectively acquiring
high-quality, leading real estate brokerage firms that it believes will enable
it to establish a strong presence in target markets. In evaluating potential
acquisitions, NRT considers financial performance, the quality of management
and sales associates, demographics and economic conditions of the new market
and competitive position of the acquisition target.
Improve Operations of Acquired Companies. NRT seeks to improve the operating
profitability of its acquired companies through the consolidation of offices,
elimination of duplicative costs, reduction in personnel and centralization of
back office functions. The limited availability of capital
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<PAGE>
has constrained expansion and modernization at many small and mid-sized real
estate brokerage firms. NRT believes that it can increase internal growth at
many of the acquired companies through its:
.affiliation with nationally recognized brand names;
.offering of a wide range of brokerage-related services;
.improved use of information technology;
.sales associate training and educational programs;
.marketing and business promotion; and
. skilled senior management.
From September 1, 1997 through December 31, 1998, NRT completed 26 acquisitions
of brokerages which each had over $5 million of annual gross commission income.
Through December 31, 1998, NRT had taken actions to reduce the annual operating
costs of the acquired companies by an aggregate of approximately $56.8 million,
which represents approximately 13.8% of the acquired companies' selling,
general and administrative expenses.
Other Growth Opportunities
NRT intends to pursue other growth opportunities and has identified the
following areas for possible expansion.
Commercial. Approximately 400 of NRT's sales associates concentrate
principally on commercial real estate sales. NRT may pursue opportunities to
expand its network of commercial real estate sales associates by making
strategic acquisitions of regional and local commercial brokerage companies.
International. NRT believes that the COLDWELL BANKER(R), ERA(R) and CENTURY
21(R) brand names are highly regarded in a number of industrialized countries,
including Canada, the United Kingdom and France, which have real estate
brokerage industries that operate in a manner similar to the real estate
brokerage industry in the United States. NRT may seek to enter such markets by:
.acquiring master franchise rights in such markets;
.entering into partnerships with brokers operating in such markets; or
.making acquisitions of brokers operating in such markets.
Acquisitions
Identification and Evaluation
NRT has a dedicated group of professionals whose function is to identify,
evaluate and complete acquisitions. In the ordinary course of business, NRT
continuously evaluates possible acquisition candidates and from time to time
conducts discussions with third parties regarding acquisitions.
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NRT conducts the following analyses when evaluating potential acquisition
targets:
. financial analyses of historical performance, comparisons to peers and
NRT and potential cost reductions and synergy enhancements;
. consolidation analyses of occupancy costs, employee count, advertising
expenditures and conversion costs that an office is expected to incur in
the consolidation process;
. non-financial analyses of the quality of the target's management and
sales associates and the target's competitive positioning; and
. market analyses of the demographics and economic conditions of the
geographic market and the relative position of the acquisition target
compared to its competitors in such market.
NRT's target markets fall into the following three categories:
. Large Metropolitan Markets. NRT defines large metropolitan markets as
markets with annual gross commission income of greater than $250
million. In these markets, NRT seeks to acquire firms with strong
management and significant consolidation and cost saving opportunities.
NRT estimates that there are currently 28 markets in the United States
meeting these criteria, of which it operates in 16.
. Feeder Markets. NRT defines feeder markets as those markets that are
directly linked to NRT's large metropolitan markets. NRT seeks to make
acquisitions in these markets if they exhibit fluid population movement
and demographic strength and the acquisition targets exhibit
consolidation and cost saving opportunities. NRT currently operates in
two of these markets (and typically classifies such markets as part of
the larger market into which they are directly linked).
. Smaller Metropolitan Markets. NRT defines smaller metropolitan markets
as markets with annual gross commission income of less than $250 million
but greater than $100 million. In these markets, NRT seeks to acquire
firms that exhibit significant consolidation and cost saving
opportunities. NRT estimates that there are currently 14 markets in the
United States meeting these criteria, of which it operates in two.
Once NRT has established itself in a given market, it will then seek to make
acquisitions of regional and local firms and "roll-in" acquisitions of smaller
companies to take advantage of economies of scale and expand its market
presence. NRT believes that by segmenting and applying different criteria to
the markets that it analyzes, it can better identify and manage its
acquisition opportunities, while generating an extensive list of acquisition
targets.
Integration
Following completion of an acquisition, NRT further refines its
consolidation analysis and consolidates the newly acquired operations with its
existing operations. By consolidating operations, NRT significantly reduces or
eliminates duplicative costs, such as advertising, rent and administrative
support. By utilizing its existing infrastructure to support a broader network
of sales associates and revenue base, NRT can enhance the profitability of its
consolidated operations.
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NRT also seeks to enhance the profitability of newly acquired operations by
increasing the productivity of the acquired brokerages' sales associates. NRT
provides its sales associates with specialized tools, training and resources
that are often unavailable at smaller firms, such as:
. access to sophisticated information technology and ongoing technical
support;
. increased advertising and marketing support;
. corporate relocation referrals; and
. a wide offering of brokerage-related services.
Brokerage Services
NRT provides real estate brokerage services in 18 of the 30 largest
metropolitan markets throughout the United States based on population (based on
statistics compiled by A.C. Nielsen). The following table contains data for the
10 largest markets in which NRT operates as of and for the year ended March 31,
1999:
<TABLE>
<CAPTION>
Pro Forma(a)
----------------
Gross Commission
Offices Sales Associates Income
------- ---------------- ----------------
<S> <C> <C> <C>
Metropolitan Regions (in thousands)
San Francisco/Northern California
(b)................................ 78 3,969 $ 493,321
Los Angeles/Southern California
(c)................................ 68 3,601 411,054
New York Metropolitan Area.......... 119 4,872 241,099
Chicago............................. 68 3,127 189,981
Minneapolis......................... 37 2,081 161,527
Washington DC/Baltimore............. 59 2,338 163,461
Boston.............................. 67 1,601 115,739
Denver.............................. 24 875 116,869
Tampa/West Central Florida (d)...... 37 1,624 103,328
Miami/Southeast Florida............. 38 1,797 97,383
</TABLE>
- ---------------------
(a) Assumes all 1998 acquisitions of brokerages with annualized gross
commission income in excess of $5 million were completed on January 1,
1998.
(b) Includes Sacramento, California.
(c) Includes San Diego, California.
(d) Includes Orlando, Florida.
In its residential real estate brokerage business, NRT provides services to
consumers in the purchase and sale of new and existing homes. In assisting the
seller in a real estate transaction, NRT's sales associates provide the seller
with a full service marketing program, which includes:
.developing a direct marketing plan for the property;
.assisting the seller in pricing the property and preparing it for sale;
. advertising the property, including listing it on multiple listing
services and/or websites on the internet;
.showing the property to prospective buyers;
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<PAGE>
.assisting the seller in sale negotiations; and
.assisting the seller in closing the transaction.
When NRT assists the buyer in a real estate transaction, its sales associates
provide the buyer with services, including:
. assisting the buyer in locating specific properties that meet the
buyer's personal and financial specifications;
. showing properties to the buyer;
. where permissible, assisting the buyer in negotiating the terms of the
contract to purchase;
. assisting the buyer in closing the transaction, including assisting with
mortgage qualification; and
. offering a wide range of brokerage related services.
Commissions
In a typical brokerage transaction, NRT receives its commission upon the
closing of the transaction. Sales commissions typically range from
approximately 5% to 7% of the sales price. In transactions in which NRT is
acting as a broker on one side of a transaction (either the buying side or the
selling side) and a third-party broker is acting as broker on the other side of
the transaction, NRT generally must share with the other broker 50% of the
sales commission. In transactions in which NRT is acting as the sole broker,
NRT generally receives 100% of the sales commission.
The following table sets forth the gross commission income and related data
of NRT and its predecessors during the periods indicated:
<TABLE>
<CAPTION>
Years Ended Three Months
December 31, Ended March 31,
-------------------------------- ------------------
1996 1997 1998 1998 1999
-------- ---------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Sides................... 109,994 154,066 300,229 47,732 65,471
Average sales price per
home................... $205 $239 $245 $243 $255
Average commission rate
per side............... 2.78% 2.76% 2.73% 2.84% 2.81%
Real estate sales com-
missions............... $628,081 $1,016,284 $2,010,123 $330,241 $469,596
</TABLE>
The commission earned by NRT's sales associates is based upon a percentage of
the sales commissions earned by NRT. Typically, the percentage of the real
estate commissions which is shared with NRT's sales associates will vary based
on factors including sales associate productivity and rates that are paid to
competing associates in the same local or regional market. The percentage of
total commissions which NRT has shared with sales associates has averaged
between 60% and 67% in recent years.
Sales Associates
The success of NRT's business largely depends upon its ability to recruit,
retain and develop highly motivated and well trained sales associates. NRT
believes that the reputation of particular sales associates, in addition to the
reputation of NRT's local offices and brands, is an important
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factor for many consumers when choosing a brokerage. NRT currently has over
30,000 sales associates, substantially all of whom are independent contractors.
Either NRT or the sales associate can terminate the independent contractor
relationship at any time. In 1998, NRT experienced a turnover of sales
associates who collectively generated less than 10% of NRT's gross commission
income. NRT believes this level of turnover is no worse than the industry
average. NRT generally replaces departing sales associates through the
recruitment of sales associates.
NRT is dedicated to the recruitment and retention of both new and experienced
sales associates. NRT provides extensive programs aimed at both improving sales
associates' marketing skills and increasing their knowledge and awareness of
the issues and laws affecting the real estate industry. While individual
results vary widely, the productivity of NRT's sales associates has increased
by 25% to an average of 10.3 closed sides per sales associate in 1998 from 8.2
closed sides per sales associate in 1996.
NRT provides extensive training programs for its sales associates in areas
such as current marketing and selling techniques and customer service. New
sales associates attend a four-week training program which prepares them for
entry into the real estate brokerage industry. Additional training is provided
after sales associates have worked in the field. Finally, more seasoned sales
associates have access to an eight-week program which is structured to improve
their business and professional skills. Sales associates are responsible for
purchasing of the marketing tools they use in their business.
There has been a significant change in the real estate industry over the last
20 years characterized by increasing productivity and professionalism of real
estate sales associates and increasing demands placed on them by consumers to
offer a greater range of services in connection with a home sale or purchase.
In order to meet the increasing demands of customers and the needs of NRT's
sales associates, NRT has diversified its offering of services. NRT believes
that by offering a broad range of services, in addition to the marketing and
technological assistance and training programs provided to sales associates,
NRT will be able to continue to attract and retain productive, full-time real
estate sales professionals.
Referral Network
Within its 18 markets, NRT has established an informal network of referral
associates who refer home buyers and sellers to other sales associates of NRT.
Referral associates generally are non-practicing, licensed real estate agents
who pay NRT an annual membership fee to participate in NRT's referral network.
By referring a home buyer or seller to the referral network, the referral
associate earns a portion of the commission earned by NRT.
Marketing and Information Technology
NRT markets its real estate services and specific real estate listings
through major area and local newspapers, the internet, real estate
publications, magazines, luxury homes divisions of the brands, television,
radio and outdoor advertising. NRT's newspaper advertising includes both
traditional classified advertising to market each of NRT's listings and full-
page advertisements with descriptions of selected homes in the market,
typically with photographs of the properties. In addition to
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newspaper advertising, NRT publishes and distributes Buyers Guides, which
display selected listings by region. NRT also markets its properties through a
direct mail program implemented at the local level. NRT's sales associates may
supplement NRT's direct mail programs with specialized programs that they fund
on their own. NRT provides its sales associates with promotional materials
which can be customized for those sales associates who choose to utilize this
opportunity.
NRT also participates in luxury marketing programs established by its
franchisors, such as Coldwell Banker Previews, Century 21 Fine Homes & Estates
and ERA International Collection. These programs provide special services for
buyers and sellers of luxury homes. NRT has sales associates who specialize in
marketing these homes. Properties covered in these programs are listed
separately through:
. newspaper advertisements;
. in quarterly mailings to a qualified list of prospective purchasers
throughout the metropolitan areas in which NRT operates; and
. relocation companies for use by potential transferees to the area.
In addition to NRT's direct expenditures on marketing, NRT contributes a
portion of its gross commission income to segregated national advertising funds
maintained by its franchisors. The national advertising funds collect marketing
contributions from all of their franchisees and allocate such funds, together
with funds contributed by the franchisors, for national media purchases and
brand awareness and positioning campaigns. In 1998, the national advertising
funds' expenditures on advertising promoting the COLDWELL BANKER(R), ERA(R) and
CENTURY 21(R) brand names totaled approximately $65 million.
NRT believes that the use of information technology as a marketing tool will
continue to increase. Accordingly, NRT has sought to become a leader among
residential real estate brokerage firms in the use and application of
information technology. Key features of NRT's information technology include:
.access to information from any location;
. integration of NRT's information systems with multiple listing services
to provide information covering a large number of properties, including
current prices, color photographs, on-line updates and a property tax
database;
. comparative market analyses;
. mapping and preparation of property tours;
. desktop publishing for personalized feature sheets and marketing
materials; and
. customized forms and contracts.
NRT's internet presence features NRT's entire listing inventory in its
regional and national markets, plus community profiles, home buying and selling
advice, relocation tips and mortgage financing information. Customers are able
to check NRT's listings by providing search parameters. A list of all available
properties conforming to the user's search criteria is then generated with
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<PAGE>
information relating to each property, including a photograph. In addition, the
customer can contact NRT interactively as to his or her particular interest.
NRT's internet presence enables its customers to familiarize themselves with
NRT's sales associates, local markets and information on available homes from
anywhere in the world prior to their arrival in a local market for a home
search.
Office Management
NRT operates its brokerage offices in a decentralized manner, which permits
significant marketing flexibility and management control at the local level.
NRT believes that local management is better situated to understand local
markets and is best able to tailor its services to those markets. Following an
acquisition, NRT seeks to centralize the acquired company's finance,
accounting, payroll, human resources and legal support functions, thereby
eliminating duplicative operations and realizing economies of scale. By
centralizing these functions, NRT is able to utilize its existing
infrastructure to support an increased level of revenues without a
corresponding increase in expenses.
Mortgage Services
NRT markets mortgage origination services to its customers under its
marketing agreement with Cendant Mortgage Corporation, the tenth largest
mortgage originator in the United States. Cendant Mortgage provides mortgage
services through a centralized inbound telemarketing mortgage origination
service in most of NRT's offices and through loan officers located in other
offices. This service includes providing the prospective home buyer with an
immediate mortgage preapproval with respect to an anticipated home purchase.
NRT believes that obtaining this mortgage preapproval makes the prospective
home buyer more attractive to the seller. NRT earns marketing fees for the
services it provides under the marketing agreement. NRT's agreement with
Cendant Mortgage provides it with access to a nationwide mortgage underwriter
believed to be well suited to provide mortgage services to clients of a large,
geographically dispersed network of real estate offices. NRT intends to enter
into a joint venture with Cendant to provide mortgage services, at which time
the Marketing Agreement will be terminated.
Title, Escrow and Other Closing Services
NRT operates full service title insurance agencies which provide real estate
closing and title insurance services in a number of NRT's markets. NRT conducts
title searches, updates abstracts, records closing documents, conducts closings
and performs other services on behalf of the underwriters of the title
insurance policy and issues title insurance for third party title insurance
companies. As a title agent in such transactions, NRT does not underwrite the
insurance, but retains a significant portion of the title insurance premium in
consideration of the services it provides.
NRT owns an escrow services company which is licensed as a full service
escrow company in Southern California and provides a range of real estate
closing services to home buyers and sellers. These services include escrowing
funds and processing closing documentation. Revenues are generated by
transaction fees, which tend to fluctuate with NRT's brokerage revenues.
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Additional Services
Brokerage-Related Services
NRT offers, either directly or through marketing and purchasing arrangements
with or established by Cendant under the program outsourcing agreement,
brokerage-related services, including home warranties, home security systems,
temporary housing, temporary storage and utility services. NRT generally earns
fees for the marketing of such services. NRT believes that its offering of a
wide range of brokerage-related services at competitive prices provides it with
a significant point of differentiation from most other brokerages, which
typically do not offer such services.
Relocation Management
NRT also offers relocation services to its customers either directly or
through an arrangement with Cendant Mobility Services Corporation, the
country's largest relocation company. Relocation services generally include:
.home sale and marketing assistance programs;
.mortgage services;
.property rental management;
.expense management;
.closing services;
.policy counseling;
.home finding assistance;
.consulting services; and
.moving services;
.group move management.
.rental assistance;
NRT also provides relocation services that focus on smaller and mid-size
companies that can benefit from the services provided by a full service
relocation company, yet may not be large enough to contract with Cendant
Mobility or other large relocation company. When NRT provides its own
relocation services, it receives fees from the client for its relocation
services in addition to the commissions generated on the sale and/or purchase
of the transferee's property.
In addition, NRT has an arrangement with Cendant Mobility under which NRT
provides its brokerage services to relocating employees of the clients of
Cendant Mobility, which are typically large corporations and governmental
agencies.
When receiving a referral from Cendant Mobility, NRT seeks to assist the
buyer in completing a home sale. Upon completion of a home sale, NRT receives a
commission on the purchase or sale of the property but is obligated to pay
Cendant Mobility a portion of such commission as a referral fee. NRT believes
that these fees are comparable to the fees charged by other relocation
companies.
Competition
The residential real estate brokerage industry is highly competitive,
particularly in the densely populated metropolitan markets in which NRT
competes. In addition, the industry has relatively low barriers to entry for
new participants, including participants pursuing non-traditional methods of
marketing real estate, such as internet-based listing services. Companies
compete for sales and
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<PAGE>
marketing business primarily on the basis of services offered, reputation,
personal contacts, and, to a lesser extent, brokerage commissions. NRT competes
primarily with:
. franchisees of local and regional real estate franchisors;
. franchisees of its franchisors and other national real estate
franchisors, such as RE/MAX, Prudential Real Estate and Better Homes and
Gardens;
. regional independent real estate organizations, such as Weichert,
Realtors, Long & Foster and Fred Sands Realtors; and
.smaller niche companies competing in local areas.
Government Regulation
NRT's businesses are subject to governmental regulation. The residential real
estate brokerage business is subject to regulatory and licensing requirements
of government agencies. As a result, NRT must be licensed as a broker and its
sales associates must be licensed as sales associates in each state in which
they operate. State statutes contain general standards for and prohibitions on
the conduct of real estate brokers and sales associates and set standards in
the areas of:
. disclosure when acting in an agency and dual agency (representing a
seller and a buyer in a transaction) capacity;
. commission collection;
. continuing broker and sales associate education;
. administration of trust funds;
. advertising; and
. disclosure of information in real estate forms.
Under state law, a real estate broker such as NRT has a duty to supervise and
is responsible for the conduct of its sales associates.
NRT is subject to the Real Estate Settlement Procedures Act, a federal law
that requires timely disclosure of the relationships or financial interests
between providers of real estate settlement services and fees and prohibits
referral fees between providers of settlement services. NRT is also subject to
similar state laws as well as other state laws and industry standards which
impose additional restrictions or requirements on the manner in which NRT may
conduct its business.
NRT's title and escrow services businesses are regulated by state regulatory
authorities that possess broad powers relating to the granting and revocation
of licenses. These state authorities also regulate insurance rates and the form
of the policies.
NRT's business depends on the validity of, and NRT's continued good standing
under, the licenses and approvals under which it operates, and NRT's compliance
with pertinent regulations. NRT therefore devotes a significant amount of
effort toward maintaining its licenses and ensuring compliance with applicable
regulations.
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Employees and Sales Associates
As of April 15, 1999, NRT had over 4,000 full-time employees and over 30,000
sales associates (substantially all of whom are independent contractors). None
of NRT's employees or sales associates is covered by a collective bargaining
agreement. Management believes that NRT's relations with its employees and
sales associates are good.
Properties
NRT's principal executive offices are located in Parsippany, New Jersey,
where NRT leases approximately 7,500 square feet from Cendant. NRT also leases
approximately 35,000 square feet of office space from Cendant in Mission Viejo,
California. NRT owns 18 of its approximately 681 brokerage offices. Owned
offices represent a total of approximately 56,000 square feet of office space.
NRT leases all remaining properties, which represent representing a total of
approximately 3.4 million square feet. NRT believes that its present facilities
are adequate for its current level of operations.
NRT's office leases generally have initial terms of five years with an option
to extend the lease for additional periods. The leases generally require NRT to
pay for property taxes, utilities and maintenance.
Legal Proceedings
In the ordinary course of business, NRT is involved in legal proceedings
incident to its operations. In the opinion of management, NRT is not currently
involved in any legal proceeding which it believes would have a material
adverse effect on the operations or financial condition of NRT taken as a
whole.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information concerning the executive officers
and directors of NRT as of April 15, 1999. There are no family relationships
among any of NRT's executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Robert M. Becker........ 57 President, Chief Executive Officer and Director
Chandler B. Barton...... 65 Chairman of the Board and Director
Michael R. Good......... 49 Executive Vice President
Gregory W. Hunt......... 42 Senior Vice President, Chief Financial Officer and Treasurer
Steven L. Barnett....... 34 Senior Vice President, General Counsel and Secretary
Ralph W. Burnet......... 53 Senior Vice President--Midwest Region
Larry Knapp............. 52 Senior Vice President--Western Region
Bruce G. Zipf........... 42 Senior Vice President--Northeast Region
R. Scott Webber......... 45 Senior Vice President--Southeast Region
Terence W. Edwards...... 43 Director
Joshua J. Harris........ 34 Director
David M. Johnson........ 38 Director
Samuel L. Katz.......... 33 Director
Marc J. Rowan........... 36 Director
Richard A. Smith........ 45 Director
Michael L. Tarnopol..... 62 Director
Michael D. Weiner....... 46 Director
</TABLE>
The following biographical information of NRT's executive officers and
directors is based on information provided by them.
Robert M. Becker has been President and Chief Executive Officer of NRT since
August 1997. Mr. Becker served as President and Chief Executive Officer of
National Realty Trust from May 1997 to August 1997 and President and Chief
Executive Officer of Coldwell Banker from May 1996 to May 1997. From 1994 to
May 1996, Mr. Becker served as President and Chief Operating Officer of
Coldwell Banker Schlott Realtors, a subsidiary of Coldwell Banker Corporation
and one of the largest real estate brokerages in the United States with over
100 offices in New Jersey, Connecticut and Westchester County, New York and
over 3,500 sales associates. Mr. Becker served as General Sales Manager of
Coldwell Banker Schlott Realtors from February 1990 (when it was acquired by
Coldwell Banker Corporation ) to 1994 and served in a similar capacity at the
predecessor to Coldwell Banker Schlott Realtors from 1980 to February 1990.
Chandler B. Barton has been Chairman of the Board and a director of NRT since
August 1997. Mr. Barton served as Chairman of National Realty Trust from May
1996 to August 1997 and
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President and Chief Executive Officer of Coldwell Banker Corporation from
January 1989 to May 1996. Before October 1993, Mr. Barton also served as
Chairman of the Board of Coldwell Banker Corporation. Mr. Barton was Executive
Vice President of Coldwell Banker Corporation from 1988 to January 1989, Chief
Executive Officer and a director of the mortgage, relocation, title and escrow
companies owned by Coldwell Banker Corporation from 1986 to 1988 and Senior
Vice President of Coldwell Banker Corporation's southeast region residential
operations from 1982 to 1986. Mr. Barton joined Coldwell Banker Corporation in
1979 as part of its acquisition of Barton and Ludwig, at that time one of the
largest real estate brokerage companies in the southern United States.
Michael R. Good has been Executive Vice President of NRT since August 1998.
Mr. Good was Senior Vice President--Southeastern Region of NRT from August 1997
to August 1998. Mr. Good served as Senior Vice President--Southeastern Region
of National Realty Trust from June 1997 to August 1997. Before serving as an
officer of National Realty Trust, Mr. Good served as President of Coldwell
Banker Corporation's operations in West Central Florida from 1987 to 1997, with
the exception of 1991 and 1992, during which he served as Vice President of
Coldwell Banker Corporation. Mr. Good has been associated with Coldwell Banker
Corporation since 1981 when his real estate brokerage was acquired by Coldwell
Banker Corporation.
Gregory W. Hunt has been Senior Vice President and Chief Financial Officer of
NRT since January 1998 and Treasurer since September 1998. Before joining NRT,
Mr. Hunt served as Managing Director for the CEENIS Property Fund, a venture
capital and property investment fund, from September 1996 to December 1997.
From August 1995 to August 1996, Mr. Hunt was Vice President, Finance and Chief
Financial Officer of Culligan Water Technologies, Inc. He served as Vice
President, Treasurer and Chief Financial Officer of Astrum International Corp.,
the holding company for Culligan Water Technologies, Inc., McGregor Corporation
and Samsonite Corporation, from January 1991 to August 1995.
Steven L. Barnett has been Senior Vice President, General Counsel and
Secretary of NRT since April 1998. From May 1997 to April 1998, Mr. Barnett
served as Associate General Counsel for Venator Group, Inc. From October 1989
to May 1997, Mr. Barnett was a mergers and acquisitions associate with the law
firm of Skadden, Arps, Slate, Meagher & Flom LLP in New York.
Ralph W. Burnet has been Senior Vice President--Midwest Region of NRT since
February 1998. Mr. Burnet was the founder and owner of Burnet Realty, the
largest residential real estate brokerage in Minnesota and one of the largest
residential real estate brokerages in the country, which was acquired by NRT in
February 1998. Before joining NRT, Mr. Burnet served as Chairman and Chief
Executive Officer of Burnet Realty from 1990 to February 1998 and as Eastern
Region President for Merrill Lynch Realty Associates following its purchase of
Burnet Realty from 1982 to 1990.
Larry Knapp has been Senior Vice President--Western Region of NRT since
August 1997. Mr. Knapp served as Senior Vice President--Western Region of
National Realty Trust from June 1997 to August 1997 and as the President of
Coldwell Banker Corporation's Northern California operations from 1985 to June
1997. From 1981 to 1985, Mr. Knapp served as Senior Vice President and Regional
Manager for Coldwell Banker Corporation's Sacramento operations.
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Bruce G. Zipf has been Senior Vice President--Northeast Region of NRT since
August 1997 and President and Chief Operating Officer of the Metro New York
Region of NRT from August 1997 through November 1998. Mr. Zipf served as Senior
Vice President--Northeast Region and President of the Metro New York Region of
National Realty Trust from June 1996 to August 1997 and as Senior Vice
President--Northeast Region and President and Chief Operating Officer of the
Metro New York Region of National Realty Trust from May 1996 to August 1997.
From 1994 to May 1996, Mr. Zipf was Senior Vice President of Finance and
Administration for Schlott Realtors and served in a variety of senior
management positions with Schlott Realtors after joining Schlott Realtors as
Controller in 1986.
R. Scott Webber has been Senior Vice President--Southeast Region of NRT since
October 1998. Mr. Webber was the owner of Coldwell Banker Van Schaak and
Company from March 1994 to October 1998. From October 1989 to October 1998, Mr.
Webber was President of Premier Van Schaak, which includes Coldwell Banker
Premier Realty in Salt Lake City and Las Vegas and Coldwell Banker Van Schaak
in Denver. From October 1988 to October 1989, Mr. Webber served as Senior Vice
President of the Rocky Mountain Region for Coldwell Banker Residential Real
Estate.
Terence W. Edwards has been a director of NRT since September 1997. Mr.
Edwards has been President and Chief Executive Officer of Cendant Mortgage (and
its predecessor PHH Mortgage Services Corporation) since February 1996. Mr.
Edwards was Vice President, Investor Relations and Treasurer of PHH Corporation
from June 1995 to February 1996 and Senior Vice President, Secondary Marketing
of PHH Mortgage from 1990 to February 1996, Vice President of PHH Mortgage from
1987 to 1990 and Director of Mortgage Finance of PHH Mortgage from 1984 to
1987. Mr. Edwards served as Treasury Operations Analyst of PHH Corporation from
1980 to 1984.
Joshua J. Harris has been a director of NRT since August 1997. Mr. Harris is
a principal of Apollo Management, L.P. and has served as an officer of certain
affiliates of Apollo Management, L.P. since 1990. Mr. Harris also is a director
of Alliance Imaging, Inc., Converse Inc., Florsheim Group Inc., Quality
Distribution, Inc. and SMT Health Services Inc.
David M. Johnson has been a director of NRT since December 1998. Mr. Johnson
has served as Senior Executive Vice President and Chief Financial Officer of
Cendant since November 1998. He was Executive Vice President-Finance of Cendant
from April 1998 to November 1998. From July 1986 to April 1998, Mr. Johnson
worked in the Investment Banking group of Merrill Lynch & Co., Inc., most
recently as a Managing Director.
Samuel L. Katz has been a director of NRT since August 1997. Mr. Katz has
served as Executive Vice President, Strategic Development of Cendant since
April 1998 and was Senior Vice President--Acquisitions of Cendant (and its
predecessor HFS Incorporated) from January 1996 to April 1998. From June 1993
to December 1995, Mr. Katz was Vice President of Dickstein Partners Inc., a
private investment firm. Mr. Katz is a director of Specialty Catalog Corp.
Marc J. Rowan has been a director of NRT since September 1997. Mr. Rowan is
one of the founding principals of Apollo Management, L.P. and has been a
principal of Apollo Management, L.P. and an officer of certain affiliates of
Apollo Management, L.P. since 1990. Mr. Rowan is a director of Samsonite
Corporation, Quality Distribution, Inc. and Vail Resorts, Inc.
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<PAGE>
Richard A. Smith has been a director of NRT since September 1997. Mr. Smith
has been Chairman and Chief Executive Officer of the Real Estate Division of
Cendant (and its predecessor HFS Incorporated) since October 1996 and served as
Executive Vice President of Operations of HFS Incorporated from February 1992
to October 1996. Before joining HFS, Mr. Smith held various management
positions at Days Inns of America ("Days Inns") over a period of 13 years,
including corporate director of risk management, vice president of personnel,
senior vice president of human resources and senior vice president of
administration and also served as a member of the operating committee of Days
Inns.
Michael L. Tarnopol has been a director of NRT since September 1997 and was a
trustee of National Realty Trust from May 1996 to July 2, 1997. Mr. Tarnopol
has been Vice Chairman of Bear, Stearns & Co., Inc. since 1997, a Senior
Managing Director of Bear, Stearns & Co. Inc. since 1985 and Chairman of the
Investment Banking Division of Bear, Stearns & Co. Inc. since 1987.
Mr. Tarnopol is also a director of Avis Rent A Car, Inc. and Planet Hollywood
International Inc.
Michael D. Weiner has been a director of NRT since September 1997. Mr. Weiner
has been an officer of certain affiliates of Apollo Management, L.P. since
1992. Before 1992, Mr. Weiner was a partner in the law firm of Morgan, Lewis &
Bockius LLP. Mr. Weiner is also a director of Alliance Imaging, Inc.,
Continental Graphics Holdings, Inc., Converse Inc., Florsheim Group Inc.,
Quality Distribution, Inc., SMT Health Services Inc. and WMC Finance Co.
Under the terms of the stockholders agreement to be in effect on the closing
of the offering, Apollo and Cendant have agreed to vote their shares of NRT's
voting stock in favor of a twelve-member Board of Directors consisting of five
directors nominated by Apollo, five directors nominated by Cendant and two
directors nominated by a majority of the Board. NRT's Board of Directors
currently consists of ten directors, including four directors (Joshua J.
Harris, Marc J. Rowan, Michael L. Tarnopol and Michael D. Weiner) nominated by
Apollo, four directors (Terence W. Edwards, David M. Johnson, Samuel L. Katz
and Richard A. Smith) nominated by Cendant, and two directors (Chandler B.
Barton and Robert M. Becker) jointly nominated by Apollo and Cendant. Before
the closing of the offering, a majority of the Board of Directors will nominate
two additional directors who are "independent directors" (within the meaning of
the rules of the New York Stock Exchange or interdealer quotation system on
which NRT's common stock is listed). Before the closing of the offering, the
Board of Directors will be divided into three classes of directors, each of
which will be elected for a staggered term of three years. The initial term of
the Class I directors will expire at the annual meeting of stockholders of NRT
in 2000, the term of the Class II directors will expire in 2001 and the term of
the Class III directors will expire in 2002. Messrs. , and will be
Class I directors, Messrs. , and will be Class II directors and
Messrs. , , and will be Class III directors.
Officers of NRT are elected at the first meeting of the Board of Directors
held each year following the annual meeting of stockholders and serve at the
discretion of the Board.
Committees of the Board of Directors
NRT's Board of Directors currently has three standing committees, a
compensation and human resource committee, an audit committee and an executive
committee.
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NRT's compensation and human resource committee administers NRT's 1997 Equity
Participation Plan and reviews and makes recommendations to the Board of
Directors with respect to NRT's compensation and hiring programs and policies.
The current members of the compensation committee are Messrs. Harris, Katz,
Rowan and Smith.
NRT's audit committee recommends the annual appointment of NRT's auditors,
with whom the Audit Committee reviews the scope of audit and non-audit
assignments and related fees, accounting principles used by NRT in financial
reporting, internal auditing procedures, and the adequacy of NRT's internal
control procedures. The current members of the audit committee are Messrs.
Harris and Katz. It is expected that the audit committee will be reconstituted
prior to the closing of the offering to consist solely of independent directors
of the Board.
NRT's executive committee has certain selected powers and rights to exercise
the authority of the Board of Directors between meetings of the Board of
Directors. The current members of the executive committee are Messrs. Becker,
Harris and Katz.
NRT may establish other committees to facilitate the management of NRT.
Compensation of Directors
Directors of NRT who are also employees receive no additional compensation
for their service as a director. Non-employee directors receive, as
compensation for their service as directors:
. an annual retainer of $30,000, plus $4,000 for serving as chairman (if a
chairman has been selected) of a committee and $2,000 for serving as a
member of a committee other than as chairman;
. $1,000 for each Board meeting attended and $500 ($1,000 for committee
chairmen) for each Board committee meeting if held on the same day as a
Board meeting and $1,000 ($2,000 for committee chairmen) for each Board
committee meeting attended on a day on which there is no Board meeting;
and
. reimbursement for expenses incurred in attending meetings of the Board of
Directors and committees.
Under NRT's 1997 Equity Participation Plan, each non-employee director of NRT
was granted options on December 13, 1998 to purchase 56,250 shares of common
stock at an exercise price equal to $10.67 per share (with the exception of Mr.
Katz, whose options, which were granted on September 6, 1997, have an exercise
price of $0.01 per share). With the exception of options to purchase 56,250
shares of common stock granted to Michael P. Monaco, who served as a director
of NRT from September 1997 to December 1998, all of which are fully vested, all
options granted to non-employee directors vest one-third on the date of grant,
one-third on September 6, 1999 and the balance on September 6, 2000.
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Executive Compensation
Summary Compensation Table
The following table sets forth the compensation earned by the Chief Executive
Officer of NRT and the four other most highly paid executive officers of NRT
who served as executive officers of NRT as of December 31, 1998, for the fiscal
year ended December 31, 1998 and for NRT's first fiscal year, which commenced
on September 1, 1997 and ended on December 31, 1997.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Securities
---------------------- Underlying All Other
Name and Position Year Salary Bonus Options(1) Compensation(2)
- ----------------- ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Robert M. Becker .......... 1998
President and Chief 1997 $337,994 $260,000 93,750 $ --
Executive Officer $108,336 $ 83,333 375,000 $ --
Chandler B. Barton......... 1998 $249,988 $312,500 -- $ 4,000
Chairman of the Board 1997 $ 83,328 $104,167 140,625 $ 1,250
Gregory W. Hunt............ 1998 $243,435 $156,250 281,250 $ --
Senior Vice President, 1997 -- -- -- $ --
Chief Financial Officer
and Treasurer
Michael R. Good............ 1998 $217,917 $138,021 46,875 $52,856
Executive Vice President 1997 $ 63,333 $ 35,417 93,750 $ 1,250
Bruce G. Zipf.............. 1998
Senior Vice President-- 1997 $190,000 $125,000 -- $12,592
Northeast Region $ 62,864 $ 36,458 93,750 $ 3,937
</TABLE>
- ---------------------
(1) Includes options to acquire shares of common stock of NRT. Option figures
have been adjusted to give effect to the 1.875-for-1 split of the common
stock which will occur prior to the closing. In addition to the options
listed above, options to acquire 480,260 shares of common stock of Cendant
were granted to Mr. Becker on April 30, 1997 for his services as an
employee of Cendant.
(2) Includes matching contributions by NRT (based on NRT's current estimates)
on behalf of the named executive officers under NRT's 401(k) savings plan
as follows: Mr. Barton ($4,000 for 1998 and $1,250 for 1997); Mr. Good
($4,000 for 1998 and $1,250 for 1997); and Mr. Zipf ($4,000 for 1998 and
$1,073 for 1997). Also included are car allowances of $8,592 for 1998 and
$2,864 for 1997 for Mr. Zipf and a moving allowance and tax gross-up
payment totalling $48,856 for 1998 for Mr. Good.
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Options Granted in Last Fiscal Year
The following table sets forth information concerning stock options which
were granted during the fiscal year ended December 31, 1998 to the executive
officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Percent of Assumed
Total Annual Rates
Number of Options of Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise or Option Term(3)
Options in Fiscal Base Price Per Expiration -------------------
Name Granted(1) Year Share(2) Date 5% 10%
- ---- ---------- ---------- -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Becker........ 93,750 6.6% $ 9.60 9/01/08 $628,895 $1,593,742
Chandler B. Barton...... -- -- -- -- -- --
Gregory W. Hunt......... 168,750 11.9% $ 4.16 1/12/08 554,685 1,405,681
56,250 4.0% $ 9.60 1/12/08 377,336 956,245
56,250 4.0% $10.67 12/13/08 377,336 956,245
Michael R. Good......... 46,875 3.3% $10.67 10/01/08 314,447 796,871
Bruce G. Zipf........... -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Represents options granted under NRT's 1997 Equity Participation Plan, the
terms of which are described under "--Equity Participation Plan." The
number of options has been adjusted to give effect to the 1.875-for-1
split of the common stock that will occur prior to the closing of the
offering.
(2) Exercise prices have been adjusted to give effect to the 1.875-for-1 split
of the common stock that will occur prior to the closing of the offering.
On September 28, 1998, NRT's Board of Directors approved adjustments to
the exercise price of each option under the Equity Participation Plan
outstanding as of such date to give effect to:
. the payment of a $30 million dividend to Apollo; and
. specified payments to NRT's franchisors under the franchise agreements.
In no event, however, may the exercise price for such options be adjusted
to less than $0.01 per share. Of the options reflected in the above table,
the options granted to Mr. Becker and 225,000 of the options granted to Mr.
Hunt are subject to, and their exercise prices give effect to the
adjustments.
(3) The amounts shown in these two columns represent the potential realizable
values using the options granted and the exercise price. The assumed rates
of stock price appreciation are set by the Securities and Exchange
Commission's executive compensation disclosure rules and are not intended
to forecast the future appreciation of the common stock.
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<PAGE>
Options Exercised in Last Fiscal Year; Fiscal Year End Option Values at Year
End
No options were exercised during the year ended December 31, 1998. The
following table presents information on the value of options held by the
executive officers named in the Summary Compensation Table as of December 31,
1998.
<TABLE>
<CAPTION>
Fiscal Year End Option Values(1)
------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Options at In-the-Money Options
Fiscal Year End (#) at Fiscal Year End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable(2)
- ---- ------------------------- ----------------------------
<S> <C> <C>
Robert M. Becker......... 37,500/431,250 $599,625/$5,999,438
Chandler B. Barton....... 14,062/126,562 224,851/2,023,742
Gregory W. Hunt.......... 0/281,250 0/2,666,250
Michael R. Good.......... 9,375/131,250 149,906/1,599,000
Bruce G. Zipf............ 9,375/84,375 149,906/1,349,156
</TABLE>
- ---------------------
(1) Figures shown give effect to the 1.875-for-1 split of the common stock that
will occur prior to the closing of the offering. Represents options to
acquire shares of common stock granted under NRT's 1997 Equity
Participation Plan. Fiscal year end option values are based on the
difference between $16 (the mid-point of the estimated range of initial
public offering price per share) and the exercise price of each option. In
addition to the options listed above, at December 31, 1998, options to
acquire shares of Cendant common stock were held by the named executive
officers in connection with their former employment by Cendant as follows:
Mr. Becker (374,940 shares); Mr. Good (24,031 shares); and Mr. Zipf (9,612
shares).
(2) Upon the closing of the offering, the number of exercisable options will
double as a result of the conversion of performance-vesting options into
time-vesting options.
Employment Agreements
NRT does not have any employment or severance agreements with any of the
executive officers named in the Summary Compensation Table.
Equity Participation Plan
General
The 1997 Equity Participation Plan authorizes an aggregate of 4,687,500
shares of common stock for awards (after giving effect to the 1.875-for-1 split
of the common stock), of which 3,399,141 shares of common stock will be subject
to options upon the closing of the offering. The primary purpose of the Equity
Participation Plan is to provide an additional incentive to key employees,
consultants and non-employee directors of NRT and its subsidiaries to further
the growth, development and financial success of NRT and to enable NRT to
obtain and retain the services of its employees, consultants and directors. The
Equity Participation Plan is intended to qualify for the performance-based
exclusion from the deduction limitation of Section 162(m) of the Internal
Revenue Code of 1986, as amended.
Administration
The Equity Participation Plan is administered by the Compensation Committee
of the Board of Directors. The Compensation Committee selects the recipients of
awards under the Equity Participation Plan and makes determinations with
respect to the participation of employees, consultants and non-employee
directors in the Equity Participation Plan and the terms and conditions of all
awards granted, including vesting schedules, performance criteria and post-
termination exercise provisions. The Compensation Committee also interprets the
provisions of the Equity Participation Plan.
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<PAGE>
Awards
The Equity Participation Plan provides for a variety of awards, including:
.stock options;
.stock appreciation rights;
.restricted stock;
.dividend equivalents; and
.other equity-based awards.
Stock options granted under the Equity Participation Plan may be incentive
stock options or non-qualified stock options within the meaning of Section 422
of the Internal Revenue Code.
The exercise price of each stock option granted under the Equity
Participation Plan is fixed by the Compensation Committee (or the Board of
Directors, in the case of options granted to non-employee directors), subject
to the following limitations:
. in the case of incentive stock options and options intended to be
performance based compensation under Section 162(m)(4)(C) of the
Internal Revenue Code, the exercise price may not be less than 100% of
the fair market value of the common stock on the date the option is
granted.
. in the case of incentive stock options granted to an individual then
owning over 10% of the total combined voting power of NRT's capital
stock, the exercise price may not be less than 110% of the fair market
value of the common stock on the date of grant.
The Compensation Committee may, in its discretion, permit the exercise of stock
options granted under the Equity Participation Plan on a cashless basis. The
term of each stock option granted under the Equity Participation Plan is set by
the Compensation Committee (or the Board in the case of options granted to non-
employee directors). However, the term may not be more than ten years from the
date of grant, or five years from the date of grant in the case of an incentive
stock option granted to an individual owning more than 10% of the total
combined voting power of all classes of NRT's stock. No participant in the
Equity Participation Plan may receive awards in any year with respect to more
than 562,450 shares of common stock.
As of the date of this prospectus, outstanding awards under the Equity
Participation Plan consist solely of stock options with respect to 3,399,141
shares of common stock, with a weighted average exercise price of $4.85. In
general:
. upon the closing of the offering, all of the options granted to
employees will be time vesting options that vest in equal installments
over a five-year period and are fully exercisable at the end of the
five-year period; and
. options held by employees of NRT will become fully vested following a
change in control if such employees are terminated within 12 months
after the change in control without cause or in connection with the
change in control.
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<PAGE>
Each non-employee director of NRT was granted options on December 13, 1998 to
purchase 56,250 shares of common stock at an exercise price (after giving
effect to the 1.875-for-1 split of the common stock) equal to $10.67 per share
(other than Mr. Katz, whose options were granted on September 6, 1997 and have
an exercise price of $0.01 per share). With the exception of an option to
purchase 56,250 shares of common stock granted to Michael P. Monaco, who served
as a director of NRT from September 1997 to December 1998 and whose options are
fully vested, all options granted to non-employee directors vest as follows:
.one-third on the date of grant;
.one-third on September 6, 1999; and
. one-third on September 6, 2000.
All options held by non-employee directors will become fully vested upon a
change in control of NRT occurring after the offering.
Amendment/Termination
The Board of Directors of NRT may amend or terminate the Equity Participation
Plan, except that the consent of each participant is required for any amendment
or termination that adversely affects the rights of the participant. In
addition, to the extent required by any law, regulation or stock exchange rule,
no amendment will be effective without the approval of NRT's stockholders.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors currently consists of
Messrs. Harris, Katz, Rowan and Smith. Mr. Katz was President of NRT and Mr.
Harris was Vice President and Treasurer of NRT at the time of NRT's formation
in August 1997.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The table below presents information regarding the beneficial ownership of
the common stock as of April 15, 1999 by:
. each person known by NRT to be the beneficial owner of five percent or
more of its outstanding common stock and convertible preferred stock;
.each of the executive officers of NRT listed in the Summary Compensation
Table above;
.each of the directors of NRT; and
. all directors and executive officers of NRT as a group.
Unless otherwise indicated, NRT believes that each beneficial owner below
has sole voting and investment power over such shares. The figures shown with
respect to the common stock assume the conversion of all outstanding shares of
convertible preferred stock held by Cendant.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership Beneficial Ownership of
of Common Stock of Common Stock Convertible Preferred
Before the Offering After the Offering(1) Stock(1)
---------------------- Shares of --------------------- ---------------------------
Number Common Number of Number Percentage
of Shares Percentage Stock Being Shares of Percentage of of
Name of Class(2) of Class Offered Class of Class Shares Class
---- ----------- ---------- ----------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Apollo Investment Fund
III, L.P.,
Apollo Overseas Partners
III, L.P. and
Apollo (UK) Partners
III, L.P.
c/o Apollo Management,
L.P.(3)
1301 Avenue of the
Americas
38th Floor
New York, New York
10019................... 18,175,425 72.1% 4,687,500 13,487,925 39.6% -- --
Cendant Operations, Inc.
c/o Cendant
Corporation(4)
9 West 57th Street
New York, New York
10019................... 7,047,060 27.9% -- 6,473,503 19.0% 23,275 100%
Robert M. Becker........ 75,000 * -- 75,000 * -- --
Chandler B. Barton...... 28,125 * -- 28,125 * -- --
Gregory W. Hunt......... 45,000 * -- 45,000 * -- --
Michael R. Good......... 18,750 * -- 18,750 * -- --
Bruce G. Zipf........... 18,750 * -- 18,750 * -- --
Terence W. Edwards(5)... 18,750 * -- 18,750 * -- --
Joshua J. Harris(6)..... 18,750 * -- 18,750 * -- --
David M. Johnson(5)..... 18,750 * -- 18,750 * -- --
Samuel L. Katz(5)....... 18,750 * -- 18,750 * -- --
Marc J. Rowan(6)........ 18,750 * -- 18,750 * -- --
Richard A. Smith(5)..... 18,750 * -- 18,750 * -- --
Michael L. Tarnopol(7).. 18,750 * -- 18,750 * -- --
Michael D. Weiner(6).... 18,750 * -- 18,750 * -- --
All executive officers
and directors as a
group (17 persons)..... 424,687 1.7% 424,687 1.2% -- --
</TABLE>
(footnotes on following page)
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<PAGE>
(continued from previous page)
* Less than one percent.
(1) Beneficial ownership of common stock after the offering and beneficial
ownership of convertible preferred stock give effect to the repurchase of
725.4 shares of convertible preferred stock held by Cendant. After giving
effect to the offering, but before giving effect to the repurchase, Cendant
would beneficially own 20.7% of the outstanding common stock.
(2) Includes options to acquire shares of common stock which are exercisable
within 60 days following the closing of the offering as follows:
<TABLE>
<S> <C> <C>
. Mr. Becker (75,000) . Mr. Knapp (23,437) . Mr. Katz (18,750)
. Mr. Barton (28,125) . Mr. Zipf (18,750) . Mr. Rowan (18,750)
. Mr. Hunt (45,000) . Mr. Webber (0) . Mr. Smith (18,750)
. Mr. Barnett (18,750) . Mr. Edwards (18,750) . Mr. Tarnopol (18,750)
. Mr. Burnet (28,125) . Mr. Harris (18,750) . Mr. Weiner (18,750)
. Mr. Good (18,750) . Mr. Johnson (18,750)
</TABLE>
(3) Beneficial ownership of common stock before the offering includes
16,569,195 shares held by Apollo Investment Fund III, L.P., 992,073 shares
held by Apollo Overseas Partners III, L.P. and 614,157 shares held by
Apollo (UK) Partners III, L.P., each of which is a private investment fund
managed by Apollo Management, L.P. Beneficial ownership of common stock
after the offering includes 12,295,947 shares held by Apollo Investment
Fund III, L.P., 736,214 shares held by Apollo Overseas Partners III, L.P.
and 455,764 shares by Apollo (UK) Partners III, L.P. Under a participation
agreement, dated as of August 11, 1997, Bear, Stearns & Co. Inc. is
entitled to a 49% non-voting equity participation in Apollo's investment in
NRT. Bear, Stearns & Co. Inc. is entitled to receive its pro rata share of
any amounts received by Apollo in respect of the investment, including the
proceeds to Apollo from the sale of shares of common stock in the offering.
Bear, Stearns & Co. Inc. expressly disclaims beneficial ownership of the
shares held by Apollo.
(4) Cendant Operations, Inc. is a wholly owned subsidiary of Cendant
Corporation. Cendant, Apollo and NRT have agreed that if the underwriters'
over-allotment option is exercised, up to 468,750 shares subject to the
over-allotment option will be sold by Cendant and any remaining over-
allotment shares will be sold 10% by Cendant and 90% by Apollo.
(5) Messrs. Edwards, Johnson, Katz and Smith are officers of Cendant and
expressly disclaim beneficial ownership of any shares of NRT's capital
stock owned by Cendant.
(6) Messrs. Harris, Rowan and Weiner are affiliated with Apollo Management,
L.P. and expressly disclaim beneficial ownership of any shares of common
stock owned by Apollo.
(7) Mr. Tarnopol is Vice Chairman and a Senior Managing Director of Bear,
Stearns & Co. Inc. and expressly disclaims beneficial ownership of any
shares of common stock beneficially owned by Bear, Stearns & Co. Inc. See
Note 3 above.
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<PAGE>
RELATED PARTY TRANSACTIONS
Immediately prior to the offering, Apollo beneficially owns 72.1% and Cendant
beneficially owns 27.9% of the issued and outstanding shares of common stock,
assuming the repurchase by NRT of shares of convertible preferred stock held by
Cendant and conversion of all other outstanding shares of convertible preferred
stock held by Cendant into common stock. Immediately following the offering and
after giving effect to the repurchase by NRT of 725.4 shares of convertible
preferred stock from Cendant following the offering:
. Apollo will beneficially own approximately 39.6% (35.3% if the
underwriters' over-allotment option is exercised in full); and
. Cendant will beneficially own approximately 19.0% (17.2% if the
underwriters' over-allotment option is exercised in full) of the
outstanding shares of common stock (assuming the conversion of all
outstanding shares of convertible preferred stock into common stock).
Cendant was formed through the merger of HFS Incorporated and CUC
International Inc. in December 1997. Within its four principal divisions--real
estate related services, travel related services, alliance marketing related
services and other consumer and business services--Cendant is a global provider
of consumer and business services. The real estate related services division
assists in employee relocation, provides home buyers with mortgages and
franchises real estate brokerage businesses; the travel related services
division facilitates vacation timeshare exchanges, manages corporate and
government vehicle fleets and franchises car rental and hotel businesses; the
alliance marketing related services division provides an array of value driven
products and services and the other consumer and business services division
offers tax preparation services, information technology services, car park
services and vehicle emergency support and rescue services in the United
Kingdom, credit information services, financial products and other consumer-
related services. Headquartered in New York, New York, Cendant has more than
35,000 employees and operates in over 100 countries.
Apollo comprises a number of private securities investment funds managed by
Apollo Management, L.P., which, together with its affiliates, manages a
portfolio of investments currently valued in excess of $8 billion.
Apollo, Cendant, the franchisors and NRT have entered or will enter into
agreements and arrangements setting forth their on going rights and
responsibilities regarding the matters outlined below. The agreements
summarized below are included as exhibits to the Registration Statement that
contains this prospectus. The following summaries do not contain all of the
information contained in the exhibits.
Franchise Agreements
NRT's status as a franchisee is governed by its franchise agreements with its
franchisors, Coldwell Banker Real Estate Corporation, ERA Franchise Systems,
Inc. and Century 21 Real Estate Corporation, each of which is a wholly owned
subsidiary of Cendant. Under the franchise agreements, NRT has the non-
exclusive right to operate under the COLDWELL BANKER(R), ERA(R) and CENTURY
21(R) real estate franchise systems at listed locations. Under a related
license agreement, NRT has the right to operate under the trade names and
trademarked operating names acquired by Cendant in acquisitions in which
Cendant participates. On February 9, 1999, NRT entered into new
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<PAGE>
franchise agreements with each of its franchisors. The new agreements
superseded the franchise agreements then in effect. The following is a summary
of the material terms of the new franchise agreements.
General
The franchise agreements impose restrictions on the business and operations
of NRT and require NRT to comply with the operating standards set forth in the
franchisors' operating manuals. NRT's failure to comply with these restrictions
and standards could result in a termination of the franchise agreement. The
franchise agreements also provide that NRT is entitled to participate in the
programs established by its franchisors for the benefit of their franchisees,
including:
.marketing programs;
.relocation services;
.referral systems; and
.orientation and training programs.
Each of the franchise agreements has a 50-year term expiring on February 9,
2049. The initial term may be extended at NRT's option for an additional 50-
year term on the same terms, so long as NRT is not then in violation of the
terms of the franchise agreement.
Royalties
Under the franchise agreements, NRT has agreed to pay the franchisors a
monthly royalty of 6% of NRT's gross commission income (with the exception of
NRT's CENTURY 21(R) offices in Northern California, for which NRT is currently
required to pay a royalty fee of 4.89% (subject to adjustment for acquisitions)
of the gross commission income from such offices) plus $166,667. If NRT
acquires or opens additional offices, NRT will generally be required to pay
royalties for revenues generated by the additional offices at the 6% royalty
rate. However, if NRT acquires offices in a transaction in which Cendant does
not participate under the acquisition cooperation agreement after NRT has
requested Cendant to participate, the franchise royalty rate will be between 2%
and 4%, depending on the acquired brokerage's gross commission income for the
twelve months prior to its acquisition by NRT. If the acquired brokerage
operates in a territory in which NRT then operates, the franchise royalty rate
will be either 2% or 3% depending on the acquired brokerage's gross commission
income for the twelve months prior to its acquisition.
Upon exhaustion of the amounts Cendant has agreed to provide for NRT's
acquisitions under the acquisition cooperation agreement, the franchise royalty
rate for brokerages acquired without Cendant's participation will be either 3%
or 4% depending on the acquired brokerage's gross commission income for the
twelve months prior to its acquisition and whether the acquired brokerage
operates in a territory in which NRT then has operations.
Under the franchise agreements, NRT is also required to pay the following
additional royalties:
.$156,250 per month;
. if Cendant acquires the stock of the brokerage being acquired by NRT and
then sells the brokerage assets to NRT under the acquisition cooperation
agreement, a monthly royalty equal to one-tenth of the federal income tax
payable by Cendant on the sale of the assets to
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<PAGE>
NRT in the acquisition, divided by 12, as payment to Cendant for the
stepped-up tax basis received by NRT for the assets acquired;
. until the closing of the offering, a royalty that has averaged $273,900
per month over the first three months of 1999;
. following the closing of the offering, a royalty equal to approximately
1.1% of NRT's monthly gross commission income, subject to a maximum of
approximately $22.1 million per year (which maximum may decrease in any
year in which NRT's gross commission income falls below specified
threshold amounts); and
. 0.15% of NRT's total revenue per quarter payable for each quarter (up to
a total of 20 quarters) in which NRT's EBITDA for the preceding twelve
months exceeds $225 million.
NRT paid franchise royalties to its franchisors totaling approximately $24.0
million during 1996 (from May 31, 1996), $57.7 million during 1997, $121.3
million during 1998 and $27.5 million for the three months ended March 31,
1999. If the additional royalties described in the first and fourth bullets
above had been incurred by NRT during the year ended December 31, 1998, NRT's
royalties for that year would have increased by $24.0 million.
Additional Offices
Under the franchise agreements, NRT is required to give Cendant prior notice
before opening or acquiring new brokerage offices. The franchisors may prevent
the opening or acquisition of such new brokerage offices if:
.the opening or acquisition would have an adverse impact on other existing
franchisees of NRT's franchisors;
. the opening or acquisition would result in the franchisor being in
violation of any agreement with its other franchisees; or
. the office proposed to be acquired was previously affiliated with a
Cendant-owned real estate brand.
To compensate the franchisors for any actual administrative costs incurred in
connection with the acquisition process and for the benefits to be received by
NRT resulting from newly acquired or opened offices, NRT is required to pay the
franchisors, subject to a maximum of $100,000 per acquisition:
. an initial fee of $4,000 for each newly acquired or opened office not
previously affiliated with the franchisors; and
. with respect to each brokerage acquisition in which Cendant's franchise
sales force is involved, NRT is required to pay Cendant an additional fee
of $3,500 per office acquired.
Each acquired office is required to be operated under one of the franchisor's
brands, unless the office is closed within one year of its acquisition under a
business plan presented to NRT's Board of Directors and Cendant at the time of
acquisition. NRT has incurred approximately $1.6 million in initial office fees
payable to Cendant for new offices opened since August 1997, of which Cendant
has provided $1.3 million pursuant to the acquisition cooperation agreement.
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<PAGE>
Office Closings
In the event that NRT wishes to sell or close one or more of its real estate
brokerage offices, it will be required to obtain the franchisor's consent prior
to the intended closure. However, NRT has the right to close the following
offices without the franchisor's consent:
. offices acquired by NRT from National Realty Trust, which represent a
total of no more than $150 million of annual gross commission income;
. offices closed within one year of being acquired by NRT, if the offices
were identified to Cendant at the time of acquisition and were not
operating under any of the franchisors' brands at any time; and
. other offices to the extent that the total gross commission income for
the 12-month period prior to closure for those offices closed (excluding
offices otherwise permitted to be closed) does not exceed the sum of 3%
of NRT's aggregate gross commission income for the preceding calendar
year (pro forma for new offices opened and office closings) and any
unused amounts under this 3% cap for the two prior years (commencing in
August 1997).
NRT may close offices under the previous sentence only if all fees payable to
the franchisors have been paid, the franchise for the closed offices is not
being assigned and the closure does not reduce any of the brands' market share
for the applicable market by more than 10%.
Advertising
NRT is required to make monthly contributions to national advertising funds
maintained by its franchisors for the creation and development of advertising,
public relations and programs promoting the franchisors' brands. Under the
CENTURY 21(R) and ERA(R) franchise agreements, NRT is required to pay a monthly
fee of 2% of NRT's gross commission income. Under the COLDWELL BANKER(R)
franchise agreement, NRT is required to pay a monthly fee of 2 1/2% of NRT's
gross commission income. Under each agreement, however, these fees are subject
to minimum and maximum advertising fees per brokerage office. In addition, the
fees payable under the COLDWELL BANKER(R) franchise agreement are subject to
temporary abatement for acquired offices with gross commission income of over
$750,000. As a result of the maximum advertising fee limitation, NRT paid an
average of 0.33% in 1997 and 0.27% in 1998 of its gross commission income to
the national advertising funds. NRT contributed to these advertising funds a
total of $1.4 million during 1996 (from May 31, 1996), $3.4 million during
1997, $5.5 million during 1998 and $1.5 million for the three months ended
March 31, 1999. Cendant has informed NRT that substantially all amounts
contributed to the national advertising funds maintained by the franchisors
have been spent on the franchisors' marketing and advertising programs.
Indemnification
NRT has agreed to indemnify the franchisors and their subsidiaries,
affiliates, parents, directors, officers and employees and all of their other
franchisees against liabilities arising out of the operation of NRT's business
under the franchise agreements. However, no indemnification is required for
liabilities arising out of the affirmative acts of the franchisors or their
employees or for matters that do not arise out of the operation of NRT's
business, including those that arise out of disputes under any agreement
between Cendant and NRT (other than disputes involving successful claims for
indemnification under the franchise agreements).
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<PAGE>
Change in Control of NRT
Each franchise agreement provides that the franchisor's consent will be
required for any issuance or transfer of NRT's voting stock that results in any
person or group acquiring beneficial ownership of more than 30% of the
outstanding common stock and/or securities convertible into or exercisable for
shares of common stock. Any transfer which is made without first obtaining the
franchisor's consent will result in an event of default under the franchise
agreement (unless caused by Cendant) which could result in NRT being required
to pay damages based on the franchisor's lost future royalties.
Limitations on Indebtedness and Dividends
Under the franchise agreements, NRT is not permitted to incur indebtedness
(including acquired indebtedness) if the incurrence would cause NRT's pro forma
ratio of debt to EBITDA for the preceding 12-month period to exceed 2.0 to 1.
NRT is permitted, however, to incur:
. loans from financial institutions that are secured by and payable from
the proceeds of the loans in the ordinary course of business;
. working capital revolving loans equal to or less than 2% of gross
commission income for the preceding 12-month period;
. letters of credit and hedging obligations in the ordinary course of
business;
. indebtedness to refinance existing debt no greater than the debt being
refinanced; and
. other debt equal to or less than 1% of gross commission income over the
preceding 12-month period.
The maximum permitted ratio of debt to EBITDA will increase to 3.0 to 1 from
2.0 to 1 if the amounts that Cendant has agreed to provide under the
acquisition cooperation agreement have been provided in full, so long as
Cendant has not then agreed to provide additional funds on substantially
similar economic terms. Immediately prior to incurring any debt, NRT is
required to furnish Cendant with a certificate to the effect that the
incurrence would not be in violation of the maximum ratio of debt to EBITDA and
that the ratio of debt to EBITDA would not reasonably be expected to exceed 2.0
to 1 or 3.0 to 1, as applicable, for the following 12 months.
Under the franchise agreements, debt includes redeemable preferred stock but
does not include:
. pay-in-kind preferred stock that does not require NRT to make any cash
payments (other than upon liquidation) or include sanctions for the non-
payment of cash;
. perpetual preferred stock that pays cash dividends and does not impose
penalties for the non-payment of required amounts other than the right to
elect with all other preferred stock no more than two directors of NRT,
if the annual dividend rate on such preferred stock does not exceed 13%
and, at the time of issuance, NRT would have been permitted to incur debt
with fixed charges equal to the fixed charges of the preferred stock; and
. NRT's existing preferred stock (including any shares issued as dividends
on the preferred stock).
In addition, NRT's franchise agreements prohibit NRT from incurring debt to
finance the payment of dividends on its common or preferred stock. NRT is also
prohibited from declaring or paying any dividend that exceeds 20% of NRT's net
income for the year in which declared or paid
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<PAGE>
(less any dividends paid during such period) and is not a regularly scheduled
quarterly dividend consistent with past practice, unless NRT's ratio of debt to
EBITDA is 1.0 to 1 or less.
Termination
The franchise agreements may be terminated, either in their entirety or with
respect to specific offices, upon mutual consent of the parties or by the
franchisors upon the occurrence of one of the following events (subject to
notice and an opportunity to cure):
. a material violation by NRT of the terms of the franchise agreements
(including those violation set forth under "--Termination Damages"
below);
. the suspension or revocation of NRT's real estate brokerage license;
. NRT's failure to conduct its business in accordance with applicable
ethical standards;
. NRT's failure to produce gross commission income per office during any
six-month period equal to at least 50% of the average gross commission
income per office generated by all franchisees during any six-month
period in the same local area;
. insolvency or bankruptcy events involving NRT; and
. a change in control of NRT.
Termination Damages
The franchise agreements provide that NRT must pay its franchisors damages
upon the occurrence of an early termination of the franchise agreements by the
franchisors due to:
. a change in control of NRT (other than a change in control caused by
Cendant);
. the affiliation by NRT with another real estate brokerage franchisor
that is not an affiliate of the franchisors;
. the failure of NRT to operate one or more of its offices under one of
its franchisors' brands or the closing of any offices in willful
violation of the franchise agreements (or if 20 or more offices are
involved, regardless of whether such violation was willful);
. any payment default under the franchise agreements; and
. any other breach of any of the franchise agreements by NRT that has a
material adverse effect on, or which is reasonably expected to have a
material adverse effect on, the franchisor's brand, in each case after
notice and an opportunity to cure.
The damages payable in the event of a termination described above are equal
to the franchisor's lost future royalties, based on the average monthly royalty
payments paid by NRT, for up to 25 years. In addition, any damages with respect
to any failure to operate one or more offices under any of the franchisors'
brands or closure in violation of the franchise agreements will be limited to
the lost future royalties relating to the offices involved. In case of any
other breaches of the franchise agreements by NRT, the franchisors are entitled
to seek other forms of legal and equitable relief.
Acquisition Cooperation Agreement
On February 9, 1999, NRT and Cendant entered into an acquisition cooperation
agreement relating to the funding of NRT's brokerage acquisitions in which
Cendant agrees to participate, which superseded the provisions of a
stockholders agreement then in effect. Under the acquisition cooperation
agreement, Cendant agreed, subject to its approval of each brokerage
acquisition in
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which it participates, to purchase the trade names, trademarked operating names
and, so long as the marketing agreement is in effect, any mortgage operations
of the brokerage being acquired by NRT. Cendant pays a substantial portion of
the purchase price that would otherwise be payable by NRT. NRT purchases all
other assets of the acquired brokerage. Cendant is not required to participate
in any brokerage acquisition.
NRT has agreed to operate each office that it acquires (with or without
Cendant's participation) in one of its existing franchisors' real estate
brokerage franchise systems at the royalty rates set forth in the franchise
agreements. If Cendant does not participate in a brokerage acquisition in which
NRT has requested Cendant to participate, NRT will have the right to complete
the brokerage acquisition without Cendant's participation, subject to Cendant's
right to prohibit the transaction based on a determination that the acquisition
will adversely affect other franchisees. The franchise royalty rate with
respect to any such acquired brokerage will be lower than the 6% royalty rate
that generally applies to NRT's offices.
When NRT was formed in August 1997, Cendant agreed to provide approximately
$446 million for NRT's brokerage acquisitions. Cendant has agreed to provide an
additional $1 billion for future brokerage acquisitions in which Cendant agrees
to participate under the acquisition cooperation agreement. The first $500
million of Cendant's additional $1 billion commitment is currently available
(of which $24 million has been provided). The second $500 million will be
available after the first $500 million has been contributed by Cendant but
in no case earlier than February 9, 2004, unless Cendant agrees otherwise.
Brokerage acquisitions in which Cendant agrees to participate under the
acquisition cooperation agreement generally are completed in one of two ways:
. If NRT elects to acquire a brokerage directly through the purchase of
assets, Cendant purchases the trade names, trademarked operating names
and any mortgage operations of the acquired brokerage in exchange for a
cash payment either to the seller of the brokerage or to NRT.
. In other brokerage acquisitions, Cendant (rather than NRT) purchases a
brokerage from the seller and immediately sells to NRT the acquired
brokerage's assets other than trade names, trademarked operating names
and any mortgage operations.
Purchases and sales of assets between NRT and Cendant are typically completed
under one or more purchase and sale agreements between NRT and Cendant.
Under the acquisition cooperation agreement, Cendant's portion of the total
acquisition cost is equal to 100% (or 125% with respect to Cendant's original
commitment of approximately $446 million) of the additional royalty fees that
would have been payable to NRT's franchisors during the prior 12 months had the
acquisition occurred at the beginning of the period, multiplied by an
acquisition multiple.
. The acquisition multiple is calculated by dividing the cost of the
acquisition by the acquired brokerage's pro forma EBITDA before
anticipated cost savings and before royalty payments.
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. Cendant's share of the acquisition cost is subject to an adjustment
based on the amount of EBITDA (after deducting interest expense)
generated by the acquired brokerage's mortgage operations for the twelve
months prior to the acquisition. If the mortgage operations' EBITDA is
greater than $1 million, Cendant's acquisition cost will be increased
(or decreased if the following amount is negative) by an amount equal to
the acquisition multiple multiplied by the difference between the
mortgage operations' EBITDA and the product of $58.37 and the number of
the acquired brokerage's closed transaction sides for the twelve months
prior to the acquisition.
. Cendant's share of the acquisition cost may not exceed 90% of the total
acquisition cost of the brokerage acquisition.
From September 1, 1997 through March 31, 1999, Cendant participated in each
of NRT's 75 acquisitions. Through March 31, 1999, Cendant paid NRT or the
seller a total of approximately $461 million, and NRT paid a total of $230
million, in transactions in which Cendant has participated. If the change in
calculation of the purchase price payable by Cendant had been in effect since
September 1, 1997, Cendant would have paid a total of approximately $389
million and NRT would have paid a total of approximately $302 million in such
brokerage acquisitions.
Under the acquisition cooperation agreement, following the closing of the
offering, Cendant will have the right to pay up to 50% of its acquisition cost
by cancelling a portion of its senior preferred stock. Cendant may exercise
this right only if NRT has at least $50 million in available borrowing capacity
under the debt to EBITDA test under the franchise agreements. In addition, if
NRT does not have available funds to close the brokerage acquisition without
Cendant's participation, NRT will have the right to postpone the cancellation
of preferred stock for up to 90 days following the brokerage acquisition.
Cendant would then be required to pay its share of the acquisition cost in
cash.
Cendant has the right under the acquisition cooperation agreement, no later
than 60 days after each brokerage acquisition, to require NRT to sell to
Cendant or its designee one or more of the brokerage offices acquired by NRT
unless the offices' pro forma revenues or EBITDA before royalties over the
preceding 12-month period are greater than 5% (10% with Apollo's consent) of
the acquired brokerage's pro forma revenues or EBITDA before royalties over the
preceding 12-month period. The purchase price for any such offices will be
equal to the product of the acquisition multiple and the greater of:
. the difference between the pro forma EBITDA before royalties for the
acquired brokerage before giving effect to the sale of offices and the
pro forma EBITDA before royalties after giving effect to the sale of
offices; and
. the gross revenues of the offices to be sold multiplied by pro forma
EBITDA before royalties divided by the gross revenues of the acquired
brokerage over the preceding 12-month period.
To date, Cendant has not exercised this right.
Stockholders Agreement
When NRT was formed, NRT, Apollo and Cendant entered into a stockholders
agreement to govern the relationship among Apollo and Cendant and their
respective affiliates as stockholders of NRT. Immediately prior to the closing
of the offering, the stockholders agreement will be amended and restated. The
following is a summary of the new stockholders agreement.
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Voting Agreement
The stockholders agreement provides that Apollo and Cendant will vote all of
their voting stock of NRT in favor of a Board of Directors consisting of:
. five directors to be nominated by Cendant;
. five directors to be nominated by Apollo; and
. two directors to be nominated by the majority of the Board of Directors,
each of whom must be an "independent director" within the meaning of the
rules of the New York Stock Exchange or interdealer quotation system on
which the common stock is listed.
One of the directors nominated by Cendant and one of the directors nominated by
Apollo must not be employees of, consultants to, or officers or directors of
Cendant, Apollo or any of their affiliates (other than NRT). Upon notice by
either stockholder that it desires to remove a director nominated by it, Apollo
and Cendant will vote all of their shares of voting stock of NRT in favor of
the removal of that director.
Registration Rights
NRT has granted to Apollo and Cendant registration rights for the
registration under the Securities Act of 1933 of the shares of common stock
owned by them or to be acquired by them upon conversion or exercise of
securities convertible into or exercisable for shares of common stock. Under
the stockholders agreement, upon Apollo's or Cendant's request, NRT is required
to use its best efforts to register the shares requested to be registered.
During the three-year period following the closing of the offering, in any
registration requested by Apollo or Cendant, Apollo will have the right to
register in such offering up to the greater of:
. 80% of the shares to be sold in the offering; and
. a number of shares such that Apollo will have sold 70% of all shares sold
by Apollo and Cendant in all offerings by Apollo and Cendant following
the offering.
After the third anniversary of the closing, each of Apollo and Cendant will
be entitled to sell 50% of the total number of shares to be sold in any
secondary offering of shares by Cendant or Apollo. If Apollo beneficially owns
less than 5% of the outstanding common stock, Cendant will have the right to
sell up to 100% of any secondary offering, subject to Apollo's reasonable
piggyback rights. In addition, during the three-year period following the
closing of the offering, Cendant may not sell shares of common stock, except
that it will have the right to demand that NRT register up to $25 million of
its common stock per quarter, but no more than $50 million of its common stock
in any twelve-month period.
Apollo and Cendant are each entitled to request four registrations. In
addition, Apollo and Cendant may request NRT to use its reasonable efforts to
register shares of common stock held by them in other registrations initiated
by NRT on its own behalf or on behalf of any other stockholder of NRT. All
reasonable out-of-pocket costs and expenses (other than underwriting discounts
and commissions) of any registration under the stockholders agreement will be
paid by NRT. The stockholders agreement also contains customary provisions with
respect to registration procedures, underwritten offerings and indemnification
and contribution rights in connection with the registration of common stock on
behalf of Apollo and Cendant.
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Restriction on Transfer of Shares Held by Apollo
Apollo has agreed under the stockholders agreement that it will not, without
Cendant's consent:
. transfer its shares of common stock, other than transfers to or among
its affiliates, if the proposed transferee would acquire beneficial
ownership of 20% or more of the common stock or securities convertible
into or exchangeable for common stock; or
. transfer beneficial ownership of 10% or more of the outstanding common
stock or securities convertible into or exchangeable for common stock to
any person or group without the consent of Cendant.
Cendant's consent to a proposed transfer may not be unreasonably withheld
unless the proposed transferee would acquire 30% or more of the common stock or
securities convertible into or exercisable for common stock (in which case
Cendant may withhold its consent in its absolute discretion). Reasonable
grounds for withholding consent include if Cendant believes that the proposed
transferee may be acquiring such securities with the purpose of acquiring,
changing or influencing control of NRT (or facilitating any such acquisition,
change or influence of control). Cendant's belief may be based on the proposed
transferee's failure to disclaim any present control intention or any previous
history or a reputation of seeking to acquire, change or influence control of a
company. Apollo will otherwise be free to transfer common stock to any person
or group if such person or group would not, as a result of such transfer,
become the beneficial owner of 30% or more of the common stock or securities
convertible into or exercisable for common stock.
Termination
Unless terminated earlier by mutual agreement of the parties, the
stockholders agreement will terminate when either Cendant or Apollo ceases to
beneficially own any shares of common stock or convertible preferred stock,
except that:
. the voting provisions of the stockholders agreement will terminate at
such time as either Cendant or Apollo owns less than 5% of the
outstanding voting stock of NRT;
. the registration rights provisions of the stockholders agreement will
terminate when neither Cendant nor Apollo owns any of the outstanding
voting stock of NRT; and
. so long as any of the franchise agreements is in place, Cendant will
continue to have the right to nominate at least one director to the
Board of Directors.
Acquisition Services Agreement
On February 9, 1999, NRT and Cendant entered into the acquisition services
agreement, under which NRT has agreed to provide advisory services to Cendant
relating to the identification of potential acquisition candidates, the
negotiation of agreements and other services in connection with future
brokerage acquisitions by NRT. In exchange for advisory services, Cendant paid
NRT $30 million as an advance against the fees that are payable to NRT under
the acquisition services agreement. The fees payable under the acquisition
services agreement are based upon the size of NRT's future brokerage
acquisitions. Cendant will not be required to pay any additional amounts to
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NRT for these advisory services. The fees advanced but not earned under the
acquisition services agreement are refundable to Cendant if services under the
acquisition services agreement are not performed. The acquisition services
agreement has a ten-year term, unless the parties agree to an earlier
termination.
Lease Agreements
NRT leases from Cendant a total of approximately 42,500 square feet of
office space for its offices in Parsippany, New Jersey and Mission Viejo,
California. Each lease has an initial term of five years commencing on
September 1, 1997, with an option exercisable by NRT to extend the term for an
additional five years upon 30 days' written notice to Cendant. Under the
leases, Cendant is responsible for property taxes, maintenance and insurance
and ancillary services. Rent is payable under each lease at a rate equal to
Cendant's total annual actual costs of operating the leased premises. In
addition, NRT is permitted to amend the lease to increase or reduce the square
footage of the premises as needed and as space becomes available, so long as
it gives 60 days' advance notice to Cendant of its intent to do so and the
rental amount is adjusted accordingly. Each lease may be terminated by either
party for any reason upon 180 days' written notice to the other party. NRT
paid Cendant a total of $529,000 during 1997, $853,000 during 1998 and
$258,000 during the three months ended March 31, 1999, under these leases.
Marketing Agreement
Under the marketing agreement, NRT markets Cendant Mortgage's mortgage
programs and products through NRT's real estate brokerage offices. NRT
receives a fee for marketing Cendant Mortgage's services. The term of the
marketing agreement is 40 years unless terminated earlier by Cendant Mortgage
for any reason or at NRT's option if Cendant Mortgage materially breaches the
marketing agreement or if a nationwide third party provider of mortgage
services meeting certain conditions offers NRT a comparable marketing
agreement on economic terms more favorable to NRT than those in the marketing
agreement and Cendant Mortgage declines to match the economic terms. During
the term of the marketing agreement, NRT may not enter into any similar
arrangement with another party. During the four-month period in 1997 when the
marketing agreement was in effect, Cendant Mortgage paid NRT a total of
$699,000 under the marketing agreement. Cendant Mortgage paid NRT a total of
$11.2 million during the year ended December 31, 1998 and $5.7 million for the
three months ended March 31, 1999, under the marketing agreement. For each of
the first four quarters of its term, the marketing agreement provided for the
payment of less than the otherwise applicable marketing fee for the quarter to
account for the phase-in of the services to be provided. NRT intends to enter
into a joint venture with Cendant to provide mortgage services, at which time
the marketing agreement will be terminated.
Program Outsourcing Agreement
In order to generate additional brokerage-related service revenues and
obtain more advantageous pricing in the purchase and sale of products and
services through purchasing and marketing programs established by Cendant with
third party vendors, on February 9, 1999 NRT entered into a program
outsourcing agreement with Cendant, which supersedes a preferred alliance
agreement, dated as of August 11, 1997, between NRT and Cendant. Under the
program outsourcing agreement, NRT has appointed Cendant as NRT's exclusive
outsourcing agent to negotiate the terms of NRT's participation in purchasing
relationships and programs, including corporate purchasing relationships,
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with vendors and programs through which NRT markets vendors' products or
services to its customers. NRT is generally not permitted to enter into or
pursue any purchasing relationships or marketing programs (other than the
programs established by Cendant) and is required to refer to Cendant all
program opportunities and parties with which NRT would enter into such a
relationship.
NRT has agreed to participate, and to encourage its sales associates to
participate, in existing and new programs established by Cendant with vendors.
NRT has also agreed to make these programs available to its employees and sales
associates and to provide program training to its sales associates. NRT is not
required to participate in a program if:
. the program does not afford NRT terms at least as advantageous taken as
a whole as those afforded to any other franchisees of Cendant's real
estate brokerage systems; and
. NRT is already participating in a program covering a similar good or
service as a program established by Cendant.
No title insurance agency or escrow service business serving NRT will be
required to participate in any marketing program established by Cendant. In
addition, the provisions of the program outsourcing agreement will not apply to
any marketing program established by NRT relating to title insurance or escrow
services. If NRT decides to sell its title insurance agency or escrow services
businesses, it will notify Cendant and, at Cendant's election, will negotiate
exclusively with Cendant in good faith for three months to explore the sale of
the businesses to Cendant or the combination of the businesses with Cendant's
related operations. If Cendant establishes a program with a title insurance
underwriter or owns a title insurance underwriter, NRT will use the underwriter
exclusively as long as it provides service and economic terms comparable to the
terms of NRT's then current arrangements.
NRT is permitted to enter into:
. a purchasing program if no Cendant purchasing program covers the good or
service and NRT's aggregate purchases of the good or service do not
exceed $250,000 per calendar year;
. a purchasing program covering a good or service sought by NRT if a
purchasing program exists which covers the good or service, but NRT is
not otherwise required to participate in a Cendant purchasing program;
. a marketing program in which NRT receives buyer leads, listing leads or
barter consideration and no other consideration, if the marketing program
does not conflict with any Cendant program then in effect;
. a program with respect to a good or service sought to be purchased or
marketed by NRT, if a Cendant program covering the good or service has
expired or has been terminated and Cendant has either not replaced,
renewed or extended the program;
. a program with respect to a good or service sought to be purchased or
marketed by NRT, if NRT has notified Cendant of its desire to have
Cendant implement a new program covering such good or service and Cendant
has not, within 30 days of the notice from NRT, notified NRT of its
decision to pursue such new program or has not implemented the new
program within 180 days of Cendant notifying NRT of its decision to
pursue such new program; and
. a program covering a geographic area which is not covered by a Cendant
program.
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If Cendant subsequently implements a new program covering the same or a
similar product or service covered by an existing NRT program, then NRT will
terminate its program and commence participation in such new program. Any NRT
program implemented under the program outsourcing agreement must be limited to
a one-year term, without automatic renewal.
NRT has agreed under the program outsourcing agreement not to provide any of
its real estate listings and other customer data to any third party without
Cendant's consent. Under the franchise agreements, Cendant has the right to
provide to any third party the customer information provided to Cendant under
each franchise agreement.
The program outsourcing agreement terminates upon the termination or
expiration of the last of the franchise agreements to terminate or expire. The
program outsourcing agreement may be terminated by the non-breaching party in
the event of a material breach that is not cured after notice.
Relocation Management
NRT has entered into arrangements and agreements with Cendant Mobility, the
country's largest relocation company, under which NRT provides its brokerage
services to relocating employees of the clients of Cendant Mobility, which are
typically large corporations and governmental agencies. Under this arrangement,
when receiving a referral from Cendant Mobility, NRT receives a commission on
the purchase or sale of the property but is obligated to pay Cendant Mobility a
portion of such commission as a referral fee. NRT believes that such fees are
comparable to the fees charged by other relocation companies. NRT paid a total
of $6.4 million during 1997 and $11.6 million during 1998 in referral fees to
Cendant Mobility. The arrangements with Cendant Mobility may be subject to
termination or modification at any time.
Support Agreement
NRT and Cendant entered into a support agreement, dated as of August 11,
1997, under which Cendant has agreed to furnish NRT with computer and data
related information services. In consideration of the provision of such
services, NRT has agreed to reimburse Cendant directly for actual costs
incurred by Cendant on behalf of NRT. In addition, NRT was required to pay
Cendant a monthly fee of $77,500 during 1997 and $41,667 during 1998 and is
required to pay a monthly fee of $12,500 during 1999. NRT paid Cendant a total
of $1.4 million during 1997, $2.0 million during 1998 and $417,000 during the
three months ended March 31, 1999 under the support agreement. The support
agreement terminates on December 31, 1999, unless earlier terminated by either
party.
Advisory Services Agreement
NRT and Apollo Management, L.P. have entered into an advisory services
agreement, dated as of August 11, 1997, under which Apollo Management, L.P. has
provided management, advisory and other services to NRT in connection with the
operation of its business. In consideration for these services, NRT is required
to pay Apollo Management a monthly fee in an amount equal to $166,667. The
advisory services agreement will terminate upon redemption of all outstanding
shares of junior preferred stock with the proceeds of the offering. NRT paid
Apollo Management, L.P. a total of $667,000 during 1997, and $2.0 million
during 1998 and $500,000 during the three months ended March 31, 1999 under the
advisory services agreement.
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Development Advance
On January 14, 1997, Coldwell Banker Residential Affiliates, Inc., the
predecessor to Coldwell Banker Real Estate Corporation, made a development
advance of $20 million to National Realty Trust and Coldwell Banker Residential
Brokerage Corporation to assist National Realty Trust and Coldwell Banker
Residential Brokerage Corporation in paying operating expenses. The obligations
of National Realty Trust and Coldwell Banker Residential Brokerage Corporation
to repay the development advance were assumed by NRT in August 1997.
The advance was replaced on September 1, 1997 with an advance of $18.8
million which is being amortized over a 40-year period. Under the terms of the
advance, 1/480th of the original balance is being forgiven each month so long
as NRT is not in material breach of the terms of the franchise agreements. In
the event that NRT is determined to be in default under a material term of the
franchise agreements, the entire remaining advance will become immediately due
and payable and bear interest at the prime interest rate.
Acquisition of Burnet Financial Group
On February 13, 1998, NRT acquired Burnet Financial Group, a residential real
estate brokerage firm founded by Ralph W. Burnet, who became Senior Vice
President--Midwest Region of NRT following the acquisition. In connection with
the acquisition, NRT issued to Mr. Burnet notes in an aggregate principal
amount of $5.8 million, of which approximately $3.9 million is currently
outstanding.
Acquisition of Denver Operations of Premier Van Schaak
In September 1998, NRT acquired the Denver operations of Premier Van Schaak,
a residential real estate brokerage firm then owned by R. Scott Webber. During
1999, Mr. Webber will be entitled, subject to sales associates meeting
performance targets, to receive additional payments of up to $500,000 from NRT
in connection with such acquisition.
Special Dividend
NRT declared a $45 million cash dividend on its common stock to Apollo of
which $30 million was paid during the first quarter of 1999 and $15 million was
paid during the second quarter of 1999.
Repurchase of Shares from Apollo and Cendant
On April 6, 1999, NRT repurchased 574,575 shares of its common stock from
Apollo for $10.7 million. NRT has agreed to purchase 725.4 shares of its
convertible preferred stock from Cendant for $10.7 million, plus accrued
dividends on such shares, after the closing of the offering.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of NRT currently consists of 50,000,000 shares
of common stock and 405,000 shares of preferred stock. There currently are
18,175,425 shares of common stock issued and outstanding, all of which are held
by Apollo. Upon the closing of the offering,
. 27,550,425 shares of common stock will be issued and outstanding
(28,183,238 if the underwriters' over-allotment option is exercised in
full);
. 13,487,925 shares will be held by Apollo (12,011,363 if the underwriters'
over-allotment option is exercised in full);
. 14,062,500 shares will be held by NRT's public stockholders (16,171,875
if the underwriters' over-allotment option is exercised in full);
. 6,473,503 shares will be reserved for issuance upon conversion of the
convertible preferred stock held by Cendant following the repurchase of
725.4 shares of convertible preferred stock from Cendant (5,840,691 if
the underwriters' over-allotment option is exercised in full); and
. 3,399,141 shares will be reserved for issuance under the 1997 Equity
Participation Plan.
The following summary of the capital stock of NRT is qualified by reference
to NRT's restated certificate of incorporation and its amended and restated by-
laws, which will become effective prior to the closing of the offering. Forms
of NRT's restated certificate of incorporation and amended and restated by-laws
are filed as exhibits to the registration statement that includes this
prospectus.
Common Stock
Voting Rights
The holders of common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders. Holders of shares of common stock are not
entitled to cumulate their votes in the election of directors or otherwise.
Generally, all matters to be voted on by shareholders must be approved by a
majority (or, in the case of election of directors, by a plurality) of the
votes entitled to be cast by all shares of common stock present in person or
represented by proxy, voting together as a single class together with the
convertible preferred stock.
Dividends
Holders of common stock are entitled to receive their pro rata share of any
dividends if, as and when declared by the Board of Directors out of funds
legally available therefor, subject to any preferential rights of any
outstanding preferred stock, including the senior preferred stock, convertible
preferred stock and junior preferred stock.
Other Rights
On liquidation, dissolution or winding up of NRT, after payment in full of
the amounts required to be paid to holders of preferred stock, if any, all
holders of common stock are entitled to receive their pro rata share of any
assets available for distribution to holders of shares of common stock after
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the payment of all debts and other liabilities of NRT. No shares of common
stock are subject to redemption or have preemptive rights to purchase
additional shares of common stock. All the outstanding shares of common stock
are fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subject to and may be adversely affected by the
rights of holders of shares of any series of preferred stock, whether currently
outstanding or designated and issued in the future.
Preferred Stock
Under NRT's restated certificate of incorporation, the Board of Directors is
authorized, subject to any limitations prescribed by law, to provide for the
issuance of shares of preferred stock in one or more series. Because the Board
of Directors has the power to establish the preferences and rights of each
series, it may afford the holders of the preferred stock preferences, powers
and rights (including voting rights) senior to the rights of the holders of
common stock. A total of 250,101 shares of preferred stock are outstanding in
three series:
.157,591 shares of senior preferred stock;
.24,000 shares of convertible preferred stock; and
.68,510 shares of junior preferred stock.
NRT has agreed to redeem all of the outstanding shares of junior preferred
stock with a portion of the proceeds of the offering. Accordingly, following
the offering, there will be no shares of junior preferred stock outstanding.
NRT has also agreed to repurchase 725.4 shares of convertible preferred stock
from Cendant following the closing of the offering. Although NRT has no present
plans to issue any additional shares of preferred stock following the
consummation of the offering, the issuance of additional shares of preferred
stock, or the issuance of rights to purchase such shares, may have the effect
of delaying, deferring or preventing a change in control of NRT or an
unsolicited acquisition proposal.
Senior Preferred Stock
Dividends. Holders of the senior preferred stock are entitled to receive,
when, as and if dividends are declared by the Board of Directors out of funds
of NRT legally available therefor, cumulative preferential dividends at the
rate of 9% per annum on the then outstanding amount of such preferred stock,
payable quarterly in arrears on each February 15, May 15, August 15 and
November 15 (or if such date is not a business day, on the next succeeding
business day) to holders of record as of the preceding February 1, May 1,
August 1 and November 1. Dividends are payable:
. in cash, to the extent NRT has sufficient available cash in excess of
certain prescribed amounts; and
. by increasing the face value of the senior preferred stock, to the extent
NRT has insufficient available cash (unless the Board of Directors of
NRT, including one Cendant nominee and one Apollo nominee, elects to pay
such dividend in cash).
So long as shares of senior preferred stock are outstanding, no dividends
(other than a dividend payable solely in junior securities) or other
distribution on any common stock or capital stock ranking junior to the senior
preferred stock may be declared or paid or set apart, and no common
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stock or any other capital stock of NRT ranking junior to or on parity with the
senior preferred stock (other than the junior preferred stock on a mandatory
redemption date) may be redeemed, purchased or otherwise acquired by NRT or a
subsidiary thereof, unless full cumulative dividends on the senior preferred
stock have been paid in full.
Redemption. The senior preferred stock is redeemable at the option of NRT at
any time at a redemption price equal to 100% of the then current liquidation
preference of the senior preferred stock plus all accrued and unpaid dividends
through the redemption date. In addition, on August 29, 2004 and each August
29th thereafter until and including August 29, 2008, NRT is required to redeem
10% of the total number of shares of senior preferred stock ever issued at the
applicable redemption price. On August 29, 2009, NRT is required to redeem all
remaining outstanding shares of senior preferred stock.
Dissolution, Liquidation, Winding Up. Upon the dissolution, liquidation or
winding up of NRT, holders of the senior preferred stock are entitled to be
paid out of the assets available for distribution an amount up to the
liquidation preference of such preferred stock plus all accrued but unpaid
dividends before any payment or distribution may be made on the common stock or
capital stock ranking junior to the senior preferred stock.
Voting Rights. Although the holders of the senior preferred stock generally
do not have the right to vote on any matters presented to NRT's stockholders,
the affirmative vote or consent of holders of a majority of the shares of the
senior preferred stock is required in order for NRT to:
. authorize, create or issue any securities ranking on a parity with or
senior to the senior preferred stock (or any security convertible into
such a security), other than the convertible preferred stock;
. amend or otherwise alter the certificate of incorporation of NRT in a
manner that adversely affects the rights of holders of the senior
preferred stock;
. amend, alter, and waive the senior preferred stock's certificate of
designations in any manner (other than to cure an ambiguity, defect or
inconsistency or to make any change that would provide additional rights
or benefits to the holders of the senior preferred stock or that does
not adversely affect the rights of such holders); or
. waive any compliance with the senior preferred stock's certificate of
designations.
In addition, the consent of each holder of the senior preferred stock is
required for certain amendments or waivers of NRT's certificate of
incorporation or the senior preferred stock's certificate of designations
affecting the rights of holders of the senior preferred stock.
Convertible Preferred Stock
NRT has agreed to repurchase 725.4 shares of convertible preferred stock from
Cendant following the closing of the offering.
Dividends. Holders of the convertible preferred stock are entitled to
receive, when, as and if dividends are declared by the Board of Directors out
of funds of NRT legally available therefor, cumulative preferential dividends
at the rate of 5% per annum on the then outstanding amount of such preferred
stock, payable quarterly in arrears on each February 15, May 15, August 15 and
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November 15 (or if such date is not a business day, on the next succeeding
business day) to holders of record as of the preceding February 1, May 1,
August 1 and November 1, respectively. Dividends are payable:
. in cash, to the extent NRT has sufficient available cash in excess of
certain prescribed amounts; and
. by increasing the face value of the convertible preferred stock, to the
extent NRT has insufficient available cash (unless the Board of
Directors of NRT, including one Apollo nominee and one Cendant nominee,
elects to pay such dividend in cash).
So long as shares of convertible preferred stock are outstanding, no
dividends (other than a dividend payable solely in junior securities) or other
distribution on any common stock or capital stock ranking junior to the
convertible preferred stock may be declared or paid or set apart, and no common
stock or any other capital stock of NRT ranking junior to or on parity with the
convertible preferred stock (other than the junior preferred stock after a
mandatory redemption date as defined below) may be redeemed, purchased or
otherwise acquired by NRT or a subsidiary thereof, unless full cumulative
dividends on the convertible preferred stock have been paid in full.
Redemption. The convertible preferred stock is redeemable at the option of
NRT from and after the third anniversary of the closing of the offering at a
redemption price equal to the sum of all accrued and unpaid dividends through
the redemption date, plus:
. 103% of the then current face value of the convertible preferred stock
if the convertible preferred stock is redeemed on or prior to the fourth
anniversary of the closing of the offering;
. 102% of the then current face value of the convertible preferred stock
if the convertible preferred stock is redeemed on or prior to the fifth
anniversary of the closing of the offering;
. 101% of the then current face value of the convertible preferred stock
if the convertible preferred stock is redeemed on or prior to the sixth
anniversary of the closing of the offering; or
. 100% of the then current face value of the convertible preferred stock
if the convertible preferred stock is redeemed after the sixth
anniversary of the closing of the offering.
In addition, on August 29, 2012, NRT is required to redeem all remaining
outstanding shares of the convertible preferred stock at a price in cash equal
to 100% of the then current face value of the convertible preferred stock then
outstanding.
Dissolution, Liquidation, Winding Up. Upon the dissolution, liquidation or
winding up of NRT, holders of the convertible preferred stock are entitled to
be paid out of the assets available for distribution an amount up to the
liquidation preference of such preferred stock plus all accrued but unpaid
dividends before any payment or distribution may be made on the common stock or
capital stock ranking junior to the convertible preferred stock.
Conversion Rights. Holders of the convertible preferred stock have the right
to convert all shares of convertible preferred stock held by them into shares
of common stock at any time commencing immediately prior to the closing of the
offering. Holders may convert that fraction of
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each share of the convertible preferred stock then outstanding equal to the
aggregate face value of the convertible preferred stock at the time of issuance
divided by the aggregate outstanding amount of the convertible preferred stock
at the conversion rate then in effect. Initially, all 23,275 shares of
convertible preferred stock held by Cendant will be convertible into a total of
6,473,503 shares of common stock, assuming no change in the aggregate
outstanding amount of the convertible preferred stock before the time of
conversion and assuming the repurchase of 725.4 shares of convertible preferred
stock from Cendant following the closing of the offering and an initial public
offering price of $16 per share, the mid-point of the estimated range of
initial public offering price per share.
Voting Rights. Upon the closing of the offering, each share of convertible
preferred stock will vote together with the common stock on all matters
submitted to a vote of the holders of the common stock and generally will be
entitled to a number of votes equal to the number of shares of common stock
into which such share is convertible, based on the conversion rate. In
addition, the affirmative vote or consent of holders of a majority of the
shares of the convertible preferred stock is required in order for NRT to:
. authorize, create or issue any securities ranking on a parity with or
senior to the convertible preferred stock (or any security convertible
into such a security), other than the senior preferred stock;
. amend or otherwise alter the certificate of incorporation of NRT in a
manner that adversely affects the rights of holders of the convertible
preferred stock;
. amend or otherwise alter the convertible preferred stock's certificate
of designations in any manner (other than to cure an ambiguity, defect
or inconsistency or to make any change that would provide additional
rights or benefits to the holders of the convertible preferred stock or
that does not adversely affect the rights of such holders); or
. waive compliance with any provision of the convertible preferred stock's
certificate of designations.
The consent of each holder of the convertible preferred stock is also required
for certain amendments or waivers of NRT's certificate of incorporation or the
convertible preferred stock's certificate of designations affecting the rights
of holders of the convertible preferred stock.
Junior Preferred Stock
NRT has agreed to redeem all of the outstanding shares of junior preferred
stock with a portion of the proceeds of the offering. The aggregate
consideration for such redemption will be calculated in accordance with the
certificate of designation for the junior preferred stock.
Dividends. Holders of the junior preferred stock are entitled to receive,
when, as and if dividends are declared by the Board of Directors out of funds
of NRT legally available therefor, cumulative preferential dividends at the
rate of 18% per annum on the then outstanding amount of such preferred stock,
payable quarterly in arrears on each February 15, May 15, August 15 and
November 15 (or if such date is not a business day, on the next succeeding
business day) to holders of record as of the preceding February 1, May 1,
August 1 and November 1, respectively. In addition, on each dividend payment
date, holders of the junior preferred stock are entitled to an
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additional dividend in an amount equal to 0.1% of the gross commission income
of NRT under the COLDWELL BANKER(R) franchise agreement for the fiscal quarter
ending immediately prior to the applicable dividend payment date divided by the
number of shares of junior preferred stock outstanding. Dividends are payable:
. in cash, to the extent NRT has sufficient available cash in excess of
certain prescribed amounts; and
. by increasing the face value of the convertible preferred stock, to the
extent NRT has insufficient available cash (unless the Board of
Directors of NRT, including one Cendant nominee and one Apollo nominee,
elects to pay such dividends in cash).
So long as shares of senior preferred stock are outstanding, no dividends
(other than a dividend payable solely in junior securities) or other
distribution on any common stock or capital stock ranking junior to the senior
preferred stock shall be declared or paid or set apart, and no common stock or
any other capital stock of NRT ranking junior to or on parity with the senior
preferred stock (other than the junior preferred stock after a mandatory
redemption date as described below) shall be redeemed, purchased or otherwise
acquired by NRT or a subsidiary thereof, unless cumulative dividends on the
senior preferred stock have been paid in full.
Redemption. The junior preferred stock is redeemable, at the option of NRT,
at any time prior to August 29, 2001 at a redemption price equal to the sum of
the following:
.the then current liquidation preference for such junior preferred stock;
.any accrued and unpaid dividends through the redemption date; and
. 18% of the product of the initial liquidation preference for such junior
preferred stock and the number of days from the date of issuance of such
junior preferred stock to August 29, 2001 divided by 1460.
NRT estimates that upon the closing of the offering the redemption price for
all outstanding shares of junior preferred stock will be $88.2 million.
Anti-Takeover Provisions
The restated certificate of incorporation of NRT, the amended and restated
by-laws of NRT, the franchise agreements and the General Corporation Law of the
State of Delaware contain provisions that could make more difficult the
acquisition of control of NRT. The following description is intended as a
summary only and should be read together with the restated certificate, the
restated by-laws, the stockholders agreement and the Delaware General
Corporation Law.
Classified Board of Directors; Removal of Directors
The restated certificate of incorporation provides for the Board of Directors
to be divided into three classes of directors, as nearly equal in number as is
reasonably possible, serving staggered terms so that directors' initial terms
will expire either at the 1999, 2000 or 2001 annual meeting of stockholders.
Commencing with the 1999 annual meeting of stockholders, one class of directors
will be elected each year for a three-year term. NRT believes that a classified
board of directors will help
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to assure the continuity and stability of the Board of Directors and NRT's
business strategies and policies as determined by the Board of Directors, since
a majority of the directors at any given time will have had prior experience as
directors of NRT. NRT believes that this will permit the Board of Directors to
represent more effectively the interests of stockholders. With a classified
board of directors, at least two annual meetings of stockholders, instead of
one, generally will be required to effect a change in a majority of the Board
of Directors. In addition, NRT's directors may be removed by NRT's stockholders
only for cause.
Action by Written Consent; Special Meetings of Stockholders
NRT's restated certificate of incorporation provides that no action required
or permitted to be taken by stockholders of NRT may be taken except at a
meeting of stockholders. The restated by-laws provide that special meetings may
be called only by:
. the Chairman of the Board;
.the President; or
. any three directors of the Board of Directors.
Stockholders are not permitted to call a special meeting or to require that the
Board call a special meeting of stockholders. In addition, the business
permitted to be conducted at any special meeting of stockholders is limited to
the purpose or purposes specified in the written notice of such meeting. The
provisions of the restated certificate of incorporation prohibiting action by
written consent without a meeting and the provisions of the amended and
restated by-laws governing the call of and matters to be considered at special
meetings may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting of stockholders.
Advance Notice Provisions for Stockholder Nominations and Proposals
NRT's amended and restated by-laws contain advance notice provisions with
regard to the nomination of candidates for election as directors, other than by
or at the direction of the Board, and the bringing any stockholder proposal
before any annual meeting of stockholders. The advance notice provisions
provide that business other than that proposed by the Board may be transacted
and candidates for director other than those selected by the Board may be
nominated at the annual meeting of stockholders only if the Secretary of NRT
has received a written notice identifying such business or candidates and
providing specified additional information not less than 90 nor more than 120
days before the anniversary of the prior year's annual meeting of stockholders
(or if the Board has set a different date for the annual meeting, not less than
90 nor more than 120 days before such other date, provided that if such meeting
has been called for a date that is not within 30 days of such anniversary date,
then no later than 10 days after the day on which notice of the date of such
meeting was mailed or otherwise publicly disclosed). In addition, not more than
10 days after receipt by the sponsoring stockholder of the Secretary's written
request, the sponsoring stockholder must provide the Secretary with such
additional information as the Secretary may reasonably require.
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Restrictions Imposed by Agreements
The provisions of the franchise agreements contain as an event of default the
acquisition by any person or group of beneficial ownership of over 30% of the
common stock and/or securities convertible into or exercisable for shares of
common stock. NRT could be required to pay the franchisors damages based on the
remaining term of the franchise agreements (up to 25 years) if the franchise
agreements are terminated due to a change in control. In addition, the
stockholders agreement generally prohibits Apollo from transferring without
Cendant's consent:
. shares representing over 10% of the common stock to any person or group;
or
. any shares of common stock to a person or group if such person or group
would acquire thereby beneficial ownership of over 20% of the common
stock.
Under the stockholders agreement, Cendant's consent to a proposed transfer
may not be unreasonably withheld unless the proposed transferee would acquire
30% or more the common stock or securities convertible into or exercisable for
common stock (in which case Cendant may withhold its consent in its absolute
discretion). Reasonable grounds for withholding consent include if Cendant
withhold its consent if it believes in good faith, in its sole discretion, that
the proposed transferee may be acquiring such securities with the purpose of
acquiring, changing or influencing control of NRT (or facilitating any such
acquisition, change or influence of control). In addition, the terms of NRT's
bank credit facility provide that a change in control of NRT will constitute an
event of default under its terms. These provisions may render an unsolicited
takeover of NRT more difficult or less likely to occur or might prevent such a
takeover.
Delaware Business Combination Statute
Section 203 of the Delaware General Corporation Law imposes a three-year
moratorium on business combinations between a Delaware corporation and an
"interested stockholder" (in general, a stockholder owning 15% or more of a
corporation's outstanding voting stock) or an affiliate or associate thereof
unless:
. prior to an interested stockholder becoming an interested stockholder,
the board of directors of the corporation approved either the business
combination or the transaction resulting in the interested stockholder
becoming an interested stockholder;
. upon consummation of the transaction resulting in an interested
stockholder becoming an interested stockholder, the interested
stockholder owns 85% of the voting stock outstanding at the time the
transaction commenced (excluding, from the calculation of outstanding
shares, shares beneficially owned by directors who are also officers and
certain employee stock plans); or
. on or after an interested stockholder becomes an interested stockholder,
the business combination is approved by the board of directors and
holders of at least 66 2/3% of the outstanding shares (other than those
shares beneficially owned by the interested stockholder) at a meeting of
stockholders.
Section 203 of the Delaware General Corporation Law applies to any corporation
incorporated in the State of Delaware unless the corporation expressly elects
not be governed by such legislation. NRT has not made such an election and is
therefore subject to Section 203.
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Limitations on Directors' Liability
NRT's restated certificate of incorporation provides that no director of NRT
shall be liable to NRT or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to NRT or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. in respect of certain unlawful dividend payments or stock redemptions or
repurchases; or
. for any transaction from which the director derived an improper personal
benefit.
The effect of those provisions is to eliminate the rights of NRT and its
stockholders (through stockholders' derivative suits on behalf of NRT) to
recover monetary damages against a director for breach of fiduciary duty as a
director (including breaches resulting from grossly negligent behavior), except
in the situations described above. These provisions do not limit the liability
of directors under federal securities laws.
Listing
NRT has applied to have the common stock approved for quotation on the Nasdaq
National Market under the symbol NRTX.
Transfer Agent And Registrar
The transfer agent and registrar for the common stock is BankBoston, N.A.
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DESCRIPTION OF INDEBTEDNESS
NRT is a party to a credit facility with commercial banks. The following is a
summary of the material terms and conditions of NRT's credit facility.
The credit facility consists of a revolving credit facility of up to
$100,000,000, which will be available to NRT until May 29, 2001. NRT is seeking
to expand the available borrowing capacity under this facility. Advances may be
used for the general working capital needs of NRT in the ordinary course of
business and for certain permitted acquisitions.
At the option of NRT, each individual borrowing under the credit facility may
be designated and maintained as either a base rate loan or a Eurodollar loan.
Interest accrues on base rate loans at a rate equal to 0.75% plus the higher of
the federal funds rate plus 0.5% and the prime lending rate. Interest accrues
on Eurodollar loans at a rate equal to 1.75% plus the British Bankers'
Association interest settlement rate (or if not available, by reference to the
London interbank market rate).
NRT's obligations arising under the credit facility are secured by a pledge
of the capital stock of NRT's subsidiaries and are guaranteed by NRT's
subsidiaries. The guarantees are secured by a pledge of the capital stock of
the guarantors' subsidiaries.
Under the terms of the credit facility, NRT must make mandatory prepayments
following the receipt of funds from specified events. These events include:
.asset dispositions;
.permitted incurrences of additional debt or issuances of additional
preferred stock; or
. instances where NRT receives funds due to the destruction, damage,
theft, condemnation or taking of its property or assets.
The credit facility contains a number of covenants, including limitations on
changes in lines of business, acquisitions, consolidations, mergers, asset
dispositions, liquidations, dissolutions, liens, indebtedness, investments,
loans and advances, payment of dividends, voluntary payments and modifications
of other debt instruments and issuances of additional capital stock. NRT is
also required to maintain compliance with financial performance covenants,
including covenants containing a maximum total leverage ratio and a minimum
interest coverage ratio.
Events of default under the credit facility include nonpayment of principal
when due, nonpayment of interest or fees following a grace period, material
inaccuracy of representations and warranties, failure to comply with covenants,
default under other agreements, bankruptcy events, ERISA events, judgments
against NRT or its subsidiaries, the termination of or payment of liquidated
damages under the franchise agreements and a change in control of NRT (defined
to include the acquisition by any person, other than Cendant and Apollo and
certain affiliates thereof (as a group), of 25% or more of the voting and/or
economic interest in NRT's capital stock on a fully-diluted basis).
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In addition to the credit facility, in connection with NRT's acquisition of
Hunneman Real Estate Corporation, NRT assumed a line of credit, of which $22.8
million was outstanding at December 31, 1998 and $12.7 million was outstanding
at March 31, 1999. The line of credit is restricted to providing funding for
NRT's mortgage loan originations, pursuant to which NRT finances mortgage
loans. NRT draws from the line of credit up to 98% of the mortgage loan amount,
then sells such mortgage loans to third parties. Upon the sale, NRT pays off
the amount drawn, typically within 90 days of the draw.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately after the closing of the offering, NRT will have 27,550,425
shares of common stock issued and outstanding and 9,872,644 shares of common
stock issuable upon the exercise of options and the conversion of the remaining
convertible preferred stock held by Cendant after the share repurchase. All of
the shares of common stock to be sold in the offering will be freely tradeable
without restrictions or further registration under the Securities Act, except
that shares purchased by an affiliate of NRT (as that term is defined in Rule
144) will be subject to the resale limitations of Rule 144.
In general, under Rule 144, the following classes of persons may sell, within
any three-month period, no more than 1% of NRT's common stock then outstanding
or the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which the required notice of such sale was
filed, whichever is greater:
. any person, or persons whose shares are required to be aggregated, who
owns shares of common stock which have been held for at least one year
since such shares were sold by NRT or by an affiliate of NRT in a
transaction or chain of transactions not involving a public offering; or
. any affiliate of NRT who holds shares of common stock that are not
restricted securities.
Sales under Rule 144 are also subject to provisions relating to the manner and
notice of sale and availability of current public information about NRT.
Affiliates of NRT must comply with the requirements of Rule 144, including the
one-year holding period requirement, to sell shares of common stock that are
restricted securities. If at least two years has elapsed from the date
restricted securities were acquired from NRT or an affiliate of NRT, a holder
of such restricted securities who is not an affiliate of NRT at the time of the
sale and has not been an affiliate of NRT at any time during the three months
prior to such sale would be entitled to sell such shares without regard to the
volume limitation and other conditions described above.
Each of NRT, its executive officers and directors, Apollo and Cendant has
agreed not to offer, sell or otherwise dispose of any shares of common stock,
other than in the offering, or any security convertible into or exchangeable or
exercisable for shares of common stock, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation on behalf of the
underwriters for a period of 180 days after the date of this prospectus, unless
such offer, sale or disposition is expressly permitted by the underwriting
agreement. In addition, transfers of shares of common stock by Apollo and
Cendant are also restricted by the provisions of the stockholders agreement.
Prior to the offering, there has been no public market for common stock.
Although NRT can make no prediction as to the effect, if any, that sales of
shares of common stock by Apollo or Cendant would have on the market price
prevailing from time to time, sales of substantial amounts of common stock or
the availability of such shares for sale could adversely affect prevailing
market prices.
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UNITED STATES FEDERAL TAX
CONSIDERATIONS RELATING TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal income
and estate tax considerations with respect to the ownership and disposition of
common stock applicable to Non-U.S. Holders (as defined below) who hold the
common stock as a capital asset within the meaning of Section 1221 of the
Internal Revenue Code. In general, a "Non-U.S. Holder" is any holder other
than:
. a citizen or resident of the United States;
. a corporation created or organized in the United States or under the
laws of the United States or of any state;
. an estate, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source; or
. a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions
of the trust.
This discussion is based on current law, which is subject to change (possibly
with retroactive effect), and is for general information only. This discussion
does not address aspects of United States federal taxation other than income
and estate taxation and does not address all aspects of income and estate
taxation or any aspects of state, local or non-United States taxes, nor does it
consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder. In addition, persons that hold the common stock through
entities that are classified differently for United States federal income tax
purposes than for tax purposes in other jurisdictions may be subject to special
rules and may not be entitled to the benefits of a U.S. income tax treaty.
Accordingly, prospective investors are urged to consult their tax advisors
regarding the United States federal, state, local and non-United States income
and other tax considerations of holding and disposing of shares of common
stock.
For purposes of the discussion below, dividends and gain on the sale,
exchange or other disposition of common stock will be considered to be "U.S.
trade or business income" if such income or gain is:
. effectively connected with the conduct of a U.S. trade or business; or
. in the case of a treaty country resident, attributable to a permanent
establishment (or, in the case of an individual, a fixed base) in the
United States.
Dividends
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable income tax treaty) of the gross amount unless the dividends are
effectively connected to a U.S. trade or business income. Dividends that are
U.S. trade or business income generally will not be subject to United States
withholding tax if the Non-U.S. Holder files required forms, including Internal
Revenue Service Form 4224, with the payor of the dividend, but rather will be
subject to United States federal income tax on a net income basis,
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in the same manner as if the Non-U.S. Holder were a resident of the United
States. A Non-U.S. Holder that is a corporation may be subject to an additional
branch profits tax at a rate of 30% (or such lower rate as may be specified by
an applicable income tax treaty). To determine the applicability of a tax
treaty providing for a lower rate of withholding under the currently effective
United States Treasury Department regulations, dividends paid to an address in
a foreign country are presumed to be paid to a resident of that country absent
knowledge to the contrary.
Under the final United States Treasury Department regulations issued on
October 6, 1997 generally effective for payments made after December 31, 1998,
a Non-U.S. Holder (including in the case of Non-U.S. Holders that are fiscally
transparent entities, the owner or owners of such entity) will be required to
provide to the payor documentation showing that such Non-U.S. Holder (or the
owner or owners of such fiscally transparent entities) is a foreign person in
order to claim a reduced rate of withholding pursuant to an applicable income
tax treaty. In addition, if the common stock ceases to be actively traded, then
a Non-U.S. Holder claiming the benefits of a treaty may also be required to
provide a U.S. taxpayer identification number and a certificate of residence in
the foreign country (or other acceptable proof of such residence). Under the
final regulations, persons claiming that dividends are U.S. trade or business
income will generally be required to provide a Form W-8, including a taxpayer
identification number, certifying that the income is U.S. trade or business
income.
Gain on Sale or Other Disposition of Common Stock
In general, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of common stock unless:
.the gain is U.S. trade or business income;
. the Non-U.S. Holder is an individual who holds shares of common stock as
a capital asset and is present in the United States for 183 days or more
in the taxable year of disposition, and other tests are met;
. the Non-U.S. Holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to former citizens and residents of the United
States; or
. NRT is or has been a United States real property holding corporation for
United States federal income tax purposes (which NRT does not believe
that it is or is likely to become) at any time within the shorter of the
five year period preceding such disposition or such Non-U.S. Holder's
holding period.
If NRT were or were to become a United States real property holding corporation
at any time during this period, gains realized upon a disposition of common
stock by a Non-U.S. Holder which did not directly or indirectly own more than
5% of the common stock during this period generally would not be subject to
United States federal income tax, provided that the common stock was regularly
traded on an established securities market.
Estate Tax
Common stock owned or treated as owned by an individual who is not a citizen
or resident (as defined for United States federal estate tax purposes) of the
United States at the time of death will be
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includible in the individual's gross estate for United States federal estate
tax purposes unless an applicable estate tax treaty provides otherwise, and
therefore may be subject to United States federal estate tax.
Backup Withholding, Information Reporting and Other Reporting Requirements
NRT must report annually to the Internal Revenue Service and to each Non-U.S.
Holder the amount of dividends paid to, and the tax withheld with respect to,
each Non-U.S. Holder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies of
this information also may be made available under the provisions of a specific
treaty or agreement with the tax authorities in the country in which the Non-
U.S. Holder resides or is established.
Under the current regulations, United States backup withholding tax (which
generally is imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the United States information
reporting requirements) and information reporting requirements (other than
those discussed above under "--Dividends") generally will not apply to
dividends paid on common stock to a Non-U.S. Holder at an address outside the
United States. Backup withholding and information reporting generally will
apply, however, to dividends paid on shares of common stock to a Non-U.S.
Holder at an address in the United States, if such holder fails to establish an
exemption or to provide certain other information to the payor.
Under the current regulations, the payment of proceeds from the disposition
of common stock to or through a United States office of a broker will be
subject to information reporting and backup withholding unless the beneficial
owner, under penalties of perjury certifies, among other things, its status as
a Non-U.S. Holder or otherwise establishes an exemption. The payment of
proceeds from the disposition of common stock to or through a non-U.S. office
of a non-U.S. broker generally will not be subject to backup withholding and
information reporting except as noted below. In the case of proceeds from a
disposition of common stock paid to or through a non-U.S. office of a broker
that is:
. a United States person;
. a "controlled foreign corporation" for United States federal income tax
purposes; or
. a foreign person 50% or more of whose gross income from certain periods
is effectively connected with a United States trade or business,
information reporting (but not backup withholding) will apply unless the
broker has documentary evidence in its files that the owner is a Non-
U.S. Holder (and the broker has no actual knowledge to the contrary).
Under the final regulations, the payment of dividends or the payment of
proceeds from the disposition of common stock to a Non-U.S. Holder may be
subject to information reporting and backup withholding unless such recipient
provides to the payor certain documentation as to its status as a Non-U.S.
Holder or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from a payment to a Non-U.S. Holder will be refunded
or credited against the Non-U.S. Holder's United States federal income tax
liability, if any, provided that the required information is furnished to the
Internal Revenue Service in a timely manner.
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UNDERWRITING
On the terms and conditions contained in the underwriting agreement, dated as
of , 1999, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc., BT Alex.
Brown Incorporated, Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Morgan Stanley & Co. Incorporated, have severally agreed to
purchase from NRT and Apollo the number of shares of common stock set forth
opposite their names.
<TABLE>
<CAPTION>
Number of
Shares
----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...............
Bear, Stearns & Co. Inc...........................................
BT Alex. Brown Incorporated.......................................
Lehman Brothers Inc...............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
Morgan Stanley & Co. Incorporated.................................
----------
Total........................................................... 14,062,500
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock in
the offering are subject to approval by their counsel of legal matters and to
other conditions. The underwriters must purchase and accept delivery of all the
shares of common stock in the offering, other than those shares covered by the
over-allotment option described below, if any are purchased. The offering price
and underwriting discounts and commissions per share for shares of common stock
offered by NRT, Apollo and Cendant (with respect to the underwriters' over-
allotment option discussed below) are identical.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers, including the
underwriters, at that price less a concession not in excess of $ per share.
The underwriters may allow, and these dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of
common stock, the public offering price and other selling terms may be changed
by the representatives of the underwriters at any time without notice. The
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Apollo and Cendant have granted to the underwriters an option, exercisable
within 30 days after the date of this prospectus, to purchase, from time to
time, in whole or in part, up to a total of 2,109,375 additional shares of
common stock at the initial public offering price less underwriting discounts
and commissions. The underwriters may exercise this option solely to cover
over-allotments, if any, made in connection with the offering. To the extent
that the underwriters exercise this option, each underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
the additional shares based on its percentage of the initial underwriting
commitment as indicated in the preceding table. On any exercise, the shares of
common stock subject to the underwriters' over-allotment option will be sold by
Apollo and Cendant in the following manner:
. the first 468,750 shares will be sold by Cendant; and
104
<PAGE>
. 10% of any remaining over-allotment shares will be sold by Cendant and
the other 90% by Apollo.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by NRT, Apollo and Cendant. These
amounts are shown assuming either no exercise or full exercise of the
underwriters' option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
Total Total
Per Without With
Share Option Option
----- ------- ------
<S> <C> <C> <C>
Fees payable by NRT........................................ $ $ $
Fees payable by Apollo..................................... $ $ $
Fees payable by Cendant.................................... $ $ $
</TABLE>
NRT, Apollo and Cendant have agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
and to contribute to payments that the Underwriters may be required to make in
respect of these liabilities.
Each of NRT, its executive officers and directors, Apollo and Cendant has
agreed for a period of 180 days after the date of this prospectus without the
prior written consent of Donaldson Lufkin & Jenrette Securities Corporation not
to:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
However, the following transactions are exempt from these restrictions:
. the grant of stock options, restricted stock or other awards pursuant to
NRT's 1997 Equity Participation Plan;
. the issuance of shares of common stock on exercise of an option or
warrant or conversion of convertible securities;
.the issuance of shares of common stock by NRT in connection with
acquisitions;
.the sale by Cendant to NRT of 725.4 shares of NRT's Series B convertible
preferred stock;
.transfers by Apollo and Cendant to and among their affiliates; and
. the transfer of securities by directors and officers of NRT to members
of their immediate families, to a trust of which a director or officer
or family member is the beneficiary, to the estate of a director or
officer upon his death or to any person as a bona fide gift.
In any transfer described above, the acquiring entity or transferee must agree
in writing to be bound by these restrictions. In addition, during such period,
NRT has also agreed not to file any registration statement with respect to, and
each of its executive officers and directors and Apollo and Cendant have agreed
not to make any demand for, or exercise any right with respect to, the
registration of any
105
<PAGE>
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock. All of these restrictions may be waived by
Donaldson Lufkin & Jenrette Securities Corporation.
There has been no established trading market for the common stock. The
initial public offering price for the shares of common stock offered hereby
will be determined by negotiation among NRT, Apollo and Cendant and the
representatives of the underwriters. The factors to be considered in
determining the price include the history of and the prospects for the industry
in which NRT competes, the past and present operations of NRT, the historical
results of operations of NRT, the prospects for future earnings of NRT and the
general condition of securities markets at the time of the offering.
NRT has applied to have the common stock approved for quotation on the Nasdaq
National Market under the symbol NRTX.
No action has been taken in any jurisdiction (other than the United States)
by NRT, Apollo, Cendant or the underwriters that would permit a public offering
of the common stock offered hereby in any jurisdiction where action for that
purpose is required. The shares of common stock offered in this prospectus may
not be offered or sold, directly or indirectly, nor may this prospectus or any
other offering material or advertisements in connection with the offer and sale
of any such shares of common stock be distributed or published, in any
jurisdiction, except in compliance with applicable rules and regulations. You
should inform yourself about and observe any restrictions relating to the
offering and the distribution of this prospectus. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any shares of
common stock offered hereby in any jurisdiction in which such an offer or
solicitation is unlawful.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot in connection with the offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock in the open market to cover such syndicate
short position or to stabilize the price of the common stock. These activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters need not engage in these
activities, and may end any of these activities at any time. The underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if it repurchases previously distributed common stock in syndicate
covering transactions, in stabilizing transactions or otherwise or if
Donaldson, Lufkin & Jenrette Securities Corporation receives a report that the
clients of the members have "flipped" the common stock.
Of the shares offered hereby, 703,125 shares have been reserved for sale to
employees of NRT and its subsidiaries, clients and other persons designated by
NRT, in each case to the extent permitted by applicable law. The price per
share of the shares to be sold will be the same as the price to the public in
the offering. The maximum investment of any of these persons may be limited by
NRT in its sole discretion. This program is being administered by Donaldson,
Lufkin & Jenrette Securities Corporation and, where required by applicable law,
a locally licensed or authorized broker-dealer. It is currently anticipated
that the number of shares to be sold under this program will not exceed 5% of
the number of shares of common stock offered in connection with the offering
excluding shares subject to the over-allotment option.
106
<PAGE>
NRT estimates that the expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $3 million.
The representatives of the underwriters from time to time perform investment
banking and other financial services for NRT and its affiliates for which they
may receive advisory or transaction fees, plus out-of-pocket expenses of the
nature and in amounts customary in the industry. In connection with the
participation interest described below, Apollo has agreed to vote for one
director nominated by Bear, Stearns & Co. Inc. for the Board of Directors of
NRT. Michael L. Tarnopol, a member of NRT's Board of Directors, is Vice
Chairman, a Senior Managing Director and Chairman of the Investment Banking
Division of Bear, Stearns & Co. Inc., which is acting as an underwriter in the
offering, and was nominated to NRT's Board of Directors by Bear, Stearns & Co.
Inc.
Bear, Stearns, a member of the National Association of Securities Dealers,
Inc., owns a 49% non-voting equity participation interest in Apollo's
investment in NRT. Because of this relationship between Bear, Stearns & Co.
Inc. and NRT, the offering is being conducted in accordance with Rule 2720 of
the Rules of Conduct of the National Association of Securities Dealers, Inc.
That rule requires that the price at which the shares of common stock are to be
distributed to the public must be no higher than the price recommended by a
qualified independent underwriter as defined by the NASD. In accordance with
this requirement, Donaldson, Lufkin & Jenrette Securities Corporation has
assumed the responsibilities of acting as qualified independent underwriter and
will recommend a price in compliance with the requirements of Rule 2720. In
connection with the offering, Donaldson, Lufkin & Jenrette Securities
Corporation has performed due diligence investigations and reviewed and
participated in the preparation of this prospectus and the Registration
Statement of which this prospectus forms a part. As compensation for the
services of Donaldson, Lufkin & Jenrette Securities Corporation as qualified
independent underwriter, NRT has agreed to pay Donaldson, Lufkin & Jenrette
Securities Corporation $5,000.
107
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that NRT prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws,
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchaser
Confirmations of the acceptance of offers to purchase shares of common stock
will be sent to Canadian residents to whom this prospectus has been sent and
who have not withdrawn their offers to purchase prior to the issuance of such
confirmation. Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to NRT and the dealer from whom such
purchase confirmation is received that:
. such purchaser is entitled under applicable Canadian provincial
securities laws to purchase such common stock without the benefit of a
prospectus qualified under such securities laws;
. where required by law, such purchaser is purchasing as principal and not
as agent;
. such purchaser has reviewed the text above under "--Resale
Restrictions";
. if such purchaser is located in Manitoba, such purchaser is not an
individual and is purchasing for investment only and not with a view to
resale or distribution;
. if such purchaser is located in Ontario, a dealer registered as an
international dealer in Ontario may sell shares of common stock to such
purchaser; and
. if such purchaser is located in Quebec, such purchaser is a
"sophisticated purchaser" within the meaning of Section 43 of the
Securities Act (Quebec).
Taxation
Canadian residents should consult their own legal and tax advisers with
respect to the tax consequences of an investment in the common stock in their
particular circumstances and with respect to the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
Enforcement of Legal Rights
NRT has been organized under the laws of the State of Delaware. All of the
directors and officers of NRT reside outside Canada and substantially all of
the assets of NRT are located outside Canada. As a result, it may not be
possible for Canadian investors to effect service of process within Canada upon
NRT or to enforce against NRT in Canada judgments obtained in Canadian courts
that are predicated upon the contractual rights of action, if any, granted to
certain purchasers by NRT. It may also not be possible for investors to enforce
against NRT in the United States judgments obtained in Canadian courts.
108
<PAGE>
Furthermore, although the requirement for an issuer to provide to certain
purchasers the contractual right of action for damages and/or rescission
described below is consistent with contractual considerations associated with a
private placement which constitutes a primary distribution of the issuer's
securities by the issuer, an investor may not be able to enforce a contractual
right of action for rescission against the issuer where the offer or sale of
the issuer's securities is a secondary distribution being made by a third
party.
Notice to Ontario Residents
The common stock offered hereby is being issued by a foreign issuer and
Ontario purchasers will not receive the contractual right of action prescribed
by Section 32 of the Regulation under the Securities Act (Ontario).
As a result, Ontario purchasers must rely on other remedies that may be
available, including common law rights of action for damages or rescission or
rights of action under the civil liability provisions of the U.S. federal
securities laws.
All NRT's directors and officers as well as the experts named herein may be
located outside of Canada and, as a result, it may not be possible for Ontario
purchasers to effect service of process within Canada upon NRT or such persons.
All or a substantial portion of the assets of NRT and such persons may be
located outside of Canada and, as a result, it may not be possible to satisfy a
judgment against NRT or such persons in Canada or to enforce a judgment
obtained in Canadian courts against NRT or persons outside of Canada.
Notice to Nova Scotia Residents
The Securities Act (Nova Scotia) provides that where a Canadian offering
document, together with any amendments thereto, contains an untrue statement of
material fact or omits to state a material fact that is required to be stated
or that is necessary to make a statement not misleading in light of the
circumstances in which it was made (such untrue statement or omission herein
called a "misrepresentation"), a purchaser who was delivered such offering
document and who purchases such securities shall be deemed to have relied on
such misrepresentation if it was a misrepresentation at the time of purchase
and has a right of action for damages against the seller of the securities or
he may elect to exercise the right of rescission against the seller, in which
case he shall have no right of action for damages against the seller, provided
that:
. the seller will not be liable if the seller proves that the purchaser
purchased the securities with knowledge of the misrepresentation;
. in an action for damages, the seller will not be liable for all or any
portion of such damages that the seller proves do not represent the
depreciation in value of the security as a result of the
misrepresentation relied upon;
. in no case shall the amount recoverable pursuant to the right of action
exceed the price of which the securities were offered; and
. the action for rescission or damage conferred by the Securities Act
(Nova Scotia) is in addition to and without derogation from any other
rights the purchaser may have at law;
but no action to enforce these rights may be commenced more than 120 days after
the date on which payment is made for the securities or after the date on which
the initial payment for the securities is
109
<PAGE>
made where a payment subsequent to the initial payment is made pursuant to a
contractual commitment assumed prior to, or concurrently with, the initial
payment.
Notice to Saskatchewan Residents
The Securities Act (Saskatchewan) provides that in the event an offering
memorandum, together with any amendment thereto, or any advertising or sales
literature (as such terms are defined in the Securities Act (Saskatchewan))
used in connection with an offering contains a misrepresentation (as defined in
the Securities Act (Saskatchewan)) that was a misrepresentation at the time of
purchase, purchasers of securities will be deemed to have relied upon such
misrepresentation and will have a statutory right of action pursuant to the
Securities Act (Saskatchewan) for damages against the issuer and the seller of
the securities, or alternatively may elect to exercise a right of rescission
against the issuer or the seller, provided that:
. no person or company is liable where the person or company proves that
the purchaser purchased the securities with knowledge of the
misrepresentation;
. no person or company, other than the issuer or selling security holder,
is liable unless that person or company failed to conduct a reasonable
investigation sufficient to provide reasonable grounds for a belief that
there had been no misrepresentation, or believed there had been a
misrepresentation; and
. in an action for damages, the defendant is not liable for all or any
portion of such damages that it proves does not represent the
depreciation in value of the securities as a result of the
misrepresentation relied upon,
but no action to enforce these rights may be commenced:
. in the case of rescission, more than 180 days after the date of the
transaction that gave rise to the cause of action; and
. in the case of any other action, other than an action for rescission,
more than the earlier of
(1) 180 days after the purchaser first had knowledge of the facts
giving rise to the cause of action, or
(2)three years after the date of the transaction that gave rise to the
cause of action.
Language of Documents
All Canadian purchasers of shares of common stock acknowledge that all
documents evidencing or relating in any way to the sale of such shares will be
drawn in the English language only.
110
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for NRT by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Legal
matters in connection with the sale of shares of common stock in the offering
will be passed upon for the underwriters by Milbank, Tweed, Hadley & McCloy
LLP, New York, New York. Legal matters in connection with the sale of shares by
Apollo in the offering will be passed upon by Latham & Watkins. Skadden, Arps,
Slate, Meagher & Flom LLP has from time to time represented, currently
represents and may continue to represent Cendant, Apollo, the underwriters and
their respective affiliates in connection with legal matters. Milbank, Tweed,
Hadley & McCloy LLP has from time to time represented and may continue to
represent Apollo in connection with legal matters.
EXPERTS
The consolidated financial statements of Coldwell Banker Residential
Brokerage Corporation for the period from January 1, 1996 to May 31, 1996;
National Realty Trust and subsidiaries for the period from June 1, 1996 to
December 31, 1996, and the period from January 1, 1997 to August 31, 1997; and
NRT Incorporated and subsidiaries as of December 31, 1997 and 1998 and for the
four months ended December 31, 1997 and the year ended December 31, 1998, each
included in this prospectus, and the related financial statement schedule
included elsewhere in the registration statement have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing in
this prospectus (which report expresses an unqualified opinion and includes an
explanatory paragraph referring to the preparation of the financial statements
of Coldwell Banker Residential Brokerage Corporation), and elsewhere in the
registration statement. Such financial statements and financial statement
schedule have been included herein and elsewhere in the registration statement
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Jon Douglas Real Estate Services
Group, Inc. for the nine months ended September 30, 1997, included in this
prospectus, have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report appearing in this prospectus, and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The combined financial statements of Jon Douglas Company, San Vicente Escrow
Company, Equity Title Company, Douglas Referral Associates, and Jon Douglas
Financial for the period January 1, 1995 through November 14, 1995, included in
this prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing in this prospectus, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of Jon Douglas Real Estate Services
Group, Inc. for the period from November 15, 1995 through December 31, 1995 and
the year ended December 31, 1996, included in this prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect to such financial statements, and are included in
this prospectus in reliance upon the report of said firm and upon the authority
of said firm as experts in accounting and auditing.
111
<PAGE>
The financial statements of Cornish & Carey Residential, Inc. for the years
ended December 31, 1995 and 1996, included in this prospectus, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing in this prospectus, and have been so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
The combined financial statements of Contempo Realty, Inc., Contempo
Relocation, Inc. and the Blossom Valley, Morgan Hill and Bascom general
partnerships for each of the three years in the period ended December 31, 1996,
included in this prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing in this prospectus,
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Barbara Sue Seal Properties for the year ended
December 31, 1996, included in this prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing in this
prospectus, and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
112
<PAGE>
ADDITIONAL INFORMATION
NRT has filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock to be sold in the offering.
This prospectus is a part of the registration statement and does not contain
all the information in the registration statement, as permitted by the rules
and regulations of the SEC. Statements contained in this prospectus as to the
content of any contract, agreement or other document are not necessarily
complete. With respect to each contract, agreement or other document filed as
an exhibit to the registration statement, you should refer to the copy of such
contract, agreement or other document filed as an exhibit to the registration
statement. The registration statement, and the reports and other information to
be filed by NRT with the SEC following the offering in accordance with the
Securities Exchange Act of 1934, can be inspected and copied at the principal
office of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street N.W.,
Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of these materials may be obtained from the SEC's
website, http://www.sec.gov, and from the Public Reference Room of the SEC at
its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon
payment of the fees required by the SEC. Investors may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-
0330.
After the closing of the offering, NRT will be subject to the informational
requirements of the Securities Exchange Act of 1934 and will file reports,
proxy and information statements and other information with the SEC. These
reports, proxy and information statements and other information can be
inspected and copied at the addresses described above. NRT intends to furnish
to its stockholders annual reports containing audited consolidated financial
statements, including an opinion on the audited financial statements expressed
by NRT's independent auditors.
113
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements of NRT Incorporated and Subsidiaries
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited) .................................................. F-4
Consolidated Statements of Operations for the years ended December 31,
1996, 1997
and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................ F-5
Consolidated Statements of Trust and Stockholders' Equity (Deficit) for
the years ended December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1999 (unaudited)....................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997
and 1998 and the three months ended March 31, 1998 and 1999 (unaudited)
....................................................................... F-7
Notes to Consolidated Financial Statements.............................. F-9
Consolidated Financial Statements of Jon Douglas Real Estate Services
Group, Inc. and Subsidiaries
Independent Auditors' Reports........................................... F-28
Consolidated Statements of Operations for the years ended December 31,
1995 and 1996 and the nine months ended September 30, 1997............. F-31
Consolidated Statements of Shareholders' Deficit for the years ended
December 31, 1995 and 1996 and the nine months ended September 30,
1997................................................................... F-32
Consolidated Statements of Cash Flows for the years ended December 31,
1995 and 1996 and the nine months ended September 30, 1997............. F-33
Notes to Consolidated Financial Statements.............................. F-34
Financial Statements of Cornish & Carey Residential, Inc.
Independent Auditors' Report............................................ F-40
Statements of Operations for the years ended December 31, 1995 and 1996
and the period
January 1, 1997 to June 30, 1997 (unaudited)........................... F-41
Statements of Shareholders' Equity for the years ended December 31, 1995
and 1996 and the period January 1, 1997 to June 30, 1997 (unaudited)... F-42
Statements of Cash Flows for the years ended December 31, 1995 and 1996
and the period January 1, 1997 to June 30, 1997 (unaudited)............ F-43
Notes to Financial Statements........................................... F-44
Combined Financial Statements of Contempo Realty, Inc. and Affiliates
Independent Auditors' Report............................................ F-48
Combined Statements of Operations for the years ended December 31, 1994,
1995 and 1996.......................................................... F-49
Combined Statements of Owners' Equity for the years ended December 31,
1994, 1995 and 1996.................................................... F-50
Combined Statements of Cash Flows for the years ended December 31, 1994,
1995, and 1996......................................................... F-51
Notes to Combined Statements of Operations, Owner's Equity and Cash
Flows.................................................................. F-52
Financial Statements of Barbara Sue Seal Properties Inc.
Independent Auditors' Report............................................ F-55
Statement of Operations and Retained Earnings for the year ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997
(unaudited)............................................................ F-56
Statements of Cash Flows for the year ended December 31, 1996 and the
nine months ended September 30, 1996 and 1997 (unaudited).............. F-57
Notes to Financial Statements........................................... F-58
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
"To the Board of Directors of
NRT Incorporated:
We have audited the accompanying consolidated balance sheets of NRT
Incorporated and subsidiaries ("NRT") as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year ended December 31, 1998 and the four months ended
December 31, 1997 and the consolidated statements of operations, trust equity
and cash flows of National Realty Trust and subsidiaries (the "Predecessor
Trust") for the period from January 1, 1997 to August 31, 1997 and the period
from June 1, 1996 to December 31, 1996, and the consolidated statements of
operations, stockholders' equity (deficit) and cash flows of Coldwell Banker
Residential Brokerage Corporation and subsidiaries ("Predecessor CB
Residential") for the period from January 1, 1996 to May 31, 1996. These
financial statements are the responsibility of management of NRT, the
Predecessor Trust and Predecessor CB Residential. Our responsibility is to
express an opinion on these 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of NRT at December 31, 1998 and 1997
and the results of its operations and its cash flows for the year ended
December 31, 1998 and the four months ended December 31, 1997 in conformity
with generally accepted accounting principles. Further, in our opinion, the
Predecessor Trust consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
the Predecessor Trust for the period from January 1, 1997 to August 31, 1997
and the period from June 1, 1996 to December 31, 1996 in conformity with
generally accepted accounting principles. Finally, in our opinion, the
Predecessor CB Residential consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Predecessor CB Residential for the period from January 1, 1996 to May
31, 1996, in conformity with generally accepted accounting principles.
As more fully described in Note 1, Coldwell Banker Residential Brokerage
Corporation was part of the Coldwell Banker companies and had no separate legal
status or existence for the period from January 1, 1996 to May 31, 1996.
Predecessor CB Residential had various transactions with other Coldwell Banker
entities that were material in amount. The financial statements of Predecessor
CB Residential have been prepared from the separate records maintained by
Coldwell Banker, and may not necessarily be indicative of the conditions that
would have existed if Predecessor CB Residential had operated as an independent
entity.
Costa Mesa, California
March 19, 1999
(April 2, 1999 as to Notes 2
and 13, April 6, 1999 as to
Note 19 and May , 1999 as to
the effects of the stock split
described in Note 2)"
F-2
<PAGE>
The accompanying consolidated financial statements include the effects of a
stock split of NRT's common stock anticipated to be approved by NRT's Board of
Directors. The above opinion is in the form which will be furnished by Deloitte
& Touche LLP upon consummation of the stock split, which is described in Note 2
of the notes to the consolidated financial statements, and assuming that, from
March 19, 1999 to the date of such stock split, no other events will have
occurred that would affect the accompanying financial statements and notes
thereto, or required disclosure therein.
Deloitte & Touche LLP
Costa Mesa, California
April 29, 1999
F-3
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
March 31,
March 31, 1999
December 31, December 31, 1999 (unaudited)
1997 1998 (unaudited) (Note 19)
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... $165,360 $ 52,701 $ 22,008 $ 11,285
Restricted cash............. 40,316 93,878 93,561 93,561
Commissions and accounts
receivable, net............ 15,521 24,119 33,191 33,191
Mortgage loans held for
sale....................... -- 23,157 13,057 13,057
Deferred income taxes....... 26,587 33,420 29,850 29,850
Prepaid expenses and other
current assets............. 8,451 9,346 9,681 9,681
-------- -------- --------- ---------
Total current assets....... 256,235 236,621 201,348 190,625
PROPERTY AND EQUIPMENT, net.. 51,545 94,127 94,700 94,700
GOODWILL, net................ 91,192 189,875 200,106 200,106
OTHER INTANGIBLES, net....... 6,451 5,689 1,133 1,133
DEFERRED INCOME TAXES........ 8,869 -- 6,301 6,301
OTHER ASSETS................. 2,379 4,400 4,405 4,405
-------- -------- --------- ---------
$416,671 $530,712 $ 507,993 $ 497,270
======== ======== ========= =========
LIABILITIES AND STOCKHOLDERS'
DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued
expenses................... $ 99,927 $115,287 $ 109,482 $ 109,482
Franchise fees payable...... 7,821 11,799 13,518 13,518
Accrued salaries and
benefits................... 25,347 48,464 31,969 31,969
Restricted cash bank loans.. 40,316 93,878 93,561 93,561
Mortgage warehousing loan... -- 22,756 12,668 12,668
Notes payable, current
portion.................... 10,296 10,581 10,528 10,528
Dividends payable........... 4,829 5,120 20,270 20,270
-------- -------- --------- ---------
Total current liabilities.. 188,536 307,885 291,996 291,996
NOTES PAYABLE, long-term
portion..................... 4,844 16,791 12,735 12,735
BORROWING UNDER CREDIT
FACILITY.................... -- -- 30,000 30,000
DEFERRED REVENUE, LONG-TERM
PORTION..................... -- -- 26,705 26,705
DEFERRED INCOME TAXES........ -- 3,419 -- --
OTHER LIABILITIES............ 19,665 20,111 19,612 19,612
REDEEMABLE PREFERRED STOCK:
9.00% Series A Cumulative
Senior, at redemption value
of
$1 per share............... 157,591 161,137 164,763 164,763
5.00% Series B Cumulative
Convertible, at redemption
value of
$1 per share............... 24,000 24,300 24,604 24,604
18.00% Series C Cumulative
Junior, net; redemption
value of $80,822 (1997),
$84,457 (1998) and $88,185
(1999), respectively....... 56,267 66,610 71,991 71,991
-------- -------- --------- ---------
Total redeemable preferred
stock..................... 237,858 252,047 261,358 261,358
-------- -------- --------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, $.01 par
value; 50,000,000 shares
authorized; 18,750,000
shares issued and
outstanding at December 31,
1997 and December 31, 1998,
and March 31, 1999
(unaudited)................ 188 188 188 182
Additional paid-in capital.. 7,823 -- -- --
Accumulated deficit......... (42,243) (69,729) (134,601) (145,318)
-------- -------- --------- ---------
Total stockholders' defi-
cit....................... (34,232) (69,541) (134,413) (145,136)
-------- -------- --------- ---------
$416,671 $530,712 $ 507,993 $ 497,270
======== ======== ========= =========
</TABLE>
See independent auditors' report and notes to consolidated financial
statements.
F-4
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
<TABLE>
<CAPTION>
Predecessors
---------------------------------------------
Coldwell Banker
Residential Brokerage National Realty Trust NRT Incorporated
--------------------- ----------------------- -------------------------------------------------
January 1, June 1, January 1, September 1, January 1, January 1,
1996 1996 1997 1997 Year 1998 to 1999 to
to to to to ended March 31, March 31,
May 31, December 31, August 31, December 31, December 31, 1998 1999
1996 1996 1997 1997 1998 (unaudited) (unaudited)
---------- ------------ ---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Real estate
commissions.......... $228,005 $400,076 $570,150 $446,134 $2,010,123 $ 330,241 $469,596
Other revenues........ 7,810 12,101 14,636 17,380 110,879 15,434 31,289
-------- -------- -------- -------- ---------- --------- --------
Total revenues....... 235,815 412,177 584,786 463,514 2,121,002 345,675 500,885
-------- -------- -------- -------- ---------- --------- --------
EXPENSES:
Commissions and
royalties............ 141,404 276,364 393,235 330,169 1,482,719 237,284 345,380
Salaries and
benefits............. 30,467 44,953 65,802 47,231 244,778 48,685 75,195
Business promotion and
advertising.......... 16,983 23,358 32,521 22,072 90,519 17,504 23,755
Building and equipment
expenses............. 20,708 24,546 34,736 24,471 120,919 40,134 34,007
Amortization of
goodwill ............ 482 104 1,162 637 3,403 1,083 1,610
Other operating
expenses............. 25,374 27,005 35,804 31,011 115,722 9,482 31,947
Acquisition related
costs................ 26 22,188 10,735 78,462 61,150 34,266 5,618
-------- -------- -------- -------- ---------- --------- --------
Total expenses....... 235,444 418,518 573,995 534,053 2,119,210 (388,438) 517,512
-------- -------- -------- -------- ---------- --------- --------
OPERATING INCOME
(LOSS)................ 371 (6,341) 10,791 (70,539) 1,792 (42,763) (16,627)
Interest expense,
net.................. 11 44 117 (2,843) (1,819) (868) 568
-------- -------- -------- -------- ---------- --------- --------
INCOME (LOSS) BEFORE
INCOME TAX PROVISION
(BENEFIT)............. 360 (6,385) 10,674 (67,696) 3,611 (41,895) (17,195)
INCOME TAX PROVISION
(BENEFIT)............. 156 -- 4,432 (25,453) 2,302 (16,758) (6,772)
-------- -------- -------- -------- ---------- --------- --------
NET INCOME (LOSS)...... $ 204 $ (6,385) $ 6,242 $(42,243) $ 1,309 $ (25,137) $(10,423)
======== ======== ======== ======== ========== ========= ========
Loss applicable to
common shareholders.. $(54,232) $ (35,309) $ (34,046) $(19,704)
======== ========== ========= ========
Per share information:
Loss per common share:
basic and diluted.................................................... $ (2.89) $ (1.88) $ (1.82) $ (1.05)
Weighted average shares outstanding:
basic and diluted.................................................... 18,750 18,750 18,750 18,750
</TABLE>
See independent auditors' report and notes to consolidated financial
statements.
F-5
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF TRUST AND STOCKHOLDERS' EQUITY (DEFICIT)
(dollars in thousands)
<TABLE>
<CAPTION>
Total
trust and
Additional Accumulated stockholders'
Common paid-in equity Trust equity
stock capital (deficit) equity (deficit)
------ ---------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Predecessor: Coldwell
Banker Residential
Brokerage
BALANCE, December 31,
1995..................... $ 487 $ 20,973 $ 3,186 $ -- $ 24,646
Net loss................. -- -- 204 -- 204
----- -------- --------- ------- ---------
BALANCE, May 31, 1996..... $ 487 $ 20,973 $ 3,390 $ -- $ 24,850
===== ======== ========= ======= =========
Predecessor: National
Realty Trust
BALANCE, June 1, 1996..... $ -- $ -- $ -- $ -- $ --
Trust formation.......... -- -- -- 5,000 5,000
Net loss................. -- -- -- (6,385) (6,385)
----- -------- --------- ------- ---------
BALANCE, December 31,
1996..................... -- -- -- (1,385) (1,385)
Net income............... -- -- -- 6,242 6,242
----- -------- --------- ------- ---------
BALANCE, August 31, 1997.. $ -- $ -- $ -- $ 4,857 $ 4,857
===== ======== ========= ======= =========
NRT Incorporated
BALANCE, September 1,
1997..................... $ -- $ -- $ -- $ -- $ --
Capital contribution..... 188 19,812 -- -- 20,000
Net loss................. -- -- (42,243) -- (42,243)
Accretion of Series C
preferred stock discount
and redemption.......... -- (2,257) -- -- (2,257)
Dividends on preferred
stock................... -- (9,732) -- -- (9,732)
----- -------- --------- ------- ---------
BALANCE, December 31,
1997..................... 188 7,823 (42,243) -- (34,232)
Net income............... -- -- 1,309 -- 1,309
Accretion of Series C
preferred stock discount
and redemption premium.. -- (1,636) (5,072) -- (6,708)
Dividends on preferred
stock................... -- (6,187) (23,723) -- (29,910)
----- -------- --------- ------- ---------
BALANCE, December 31,
1998..................... 188 -- (69,729) -- (69,541)
Net loss (unaudited)..... -- -- (10,423) -- (10,423)
Accretion of Series C
preferred stock discount
and redemption premium
(unaudited)............. -- -- (1,654) -- (1,654)
Dividends on preferred
stock (unaudited)....... -- -- (7,795) -- (7,795)
Dividends on common stock
(unaudited)............. -- -- (45,000) -- (45,000)
----- -------- --------- ------- ---------
BALANCE, March 31, 1999
(unaudited).............. $ 188 $ -- $(134,601) $ -- $(134,413)
===== ======== ========= ======= =========
</TABLE>
See independent auditors' report and notes to consolidated financial
statements.
F-6
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Predecessors
-----------------------------------
Coldwell
Banker
Residential
Brokerage National Realty Trust NRT Incorporated
----------- ----------------------- -------------------------------------------------
January 1, June 1, January 1, September 1, January 1, January 1,
1996 1996 1997 1997 1998 to 1999 to
to to to to Year Ended March 31, March 31,
May 31, December 31, August 31, December 31, December 31, 1998 1999
1996 1996 1997 1997 1998 (unaudited) (unaudited)
----------- ------------ ---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income (loss)....... $ 204 $ (6,385) $ 6,242 $(42,243) $ 1,309 $(25,137) $(10,423)
-------- -------- -------- -------- -------- -------- --------
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization.......... 3,812 1,129 3,026 2,998 18,909 3,733 7,036
Amortization of
goodwill and other
intangibles........... 508 21,553 10,477 70,533 47,561 21,384 6,919
Deferred income taxes.. -- -- 4,432 (25,853) (283) (16,758) (6,150)
Changes in operating
assets and
liabilities, net of
effects from
acquisitions:
Commissions and
accounts receivable... 2,848 5,541 8,231 (11,472) 2,452 (1,972) (8,096)
Prepaid expenses and
other assets.......... 6,831 (115) (794) 5,492 5,041 (1,179) 464
(Increase) decrease in
mortgage loans held
for sale............. -- -- -- -- (19,959) -- 10,100
Accounts payable and
accrued expenses...... 3,986 5,170 (8,826) 7,900 (44,135) (7,193) (20,222)
Accrued salaries and
benefits.............. (1,226) 1,459 (2,808) 1,953 20,148 (8,807) (16,503)
Deferred income ....... -- -- -- -- -- -- 29,795
Other liabilities...... (12,256) 1,478 909 226 381 (408) (303)
Other.................. 148 (20) (264) (7) 553 (535) 119
-------- -------- -------- -------- -------- -------- --------
Total adjustments..... 4,651 36,195 14,383 51,770 30,668 (11,735) 3,156
-------- -------- -------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities........... 4,855 29,810 20,625 9,527 31,977 (36,872) (7,264)
-------- -------- -------- -------- -------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Change in restricted
cash.................. (14,935) 3,772 (14,444) (14,581) (53,562) 7,382 317
Expenditures for
property and
equipment............. (3,394) (5,049) (5,168) (6,668) (36,176) (6,055) (7,707)
Payments for
acquisitions (230) (13,535) (25,198) (86,326) (97,098) (56,052) (2,231)
Other.................. 139 42 15 100 185 360 115
-------- -------- -------- -------- -------- -------- --------
Net cash used in
investing
activities........... (18,420) (14,770) (44,795) (107,475) (186,651) (54,365) (9,506)
-------- -------- -------- -------- -------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Change in restricted
cash bank loans....... 14,935 (3,772) 14,444 14,581 53,562 (7,382) (317)
Capital contribution... -- -- -- 255,600 -- -- --
Dividends on preferred
and common stock...... -- -- -- (4,903) (22,139) (7,233) (30,000)
Payment of notes
payable............... (358) (181) (3,685) (1,970) (7,268) (597) (3,518)
Borrowings under credit
facility.............. -- -- -- -- -- -- 30,000
Development advance.... -- -- 20,000 -- -- -- --
Increase (decrease) in
mortgage warehousing
loan.................. -- -- -- -- 17,860 -- (10,088)
-------- -------- -------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities........... 14,577 (3,953) 30,759 263,308 42,015 (15,212) (13,923)
-------- -------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 1,012 11,087 6,589 165,360 (112,659) (106,449) (30,693)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 89 -- 11,087 -- 165,360 165,360 52,701
-------- -------- -------- -------- -------- -------- --------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 1,101 $ 11,087 $ 17,676 $165,360 $ 52,701 $ 58,911 $ 22,008
======== ======== ======== ======== ======== ======== ========
</TABLE>
See independent auditors' report and notes to consolidated financial
statements.
F-7
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(dollars in thousands)
<TABLE>
<CAPTION>
Predecessors
-----------------------------------
Coldwell
Banker
Residential
Brokerage National Realty Trust NRT Incorporated
----------- ----------------------- -------------------------------------------------
January 1, June 1, January 1, September 1, January 1, January 1,
1996 1996 1997 1997 1998 to 1999 to
to to to to Year Ended March 31, March 31,
May 31, December 31, August 31, December 31, December 31, 1998 1999
1996 1996 1997 1997 1998 (unaudited) (unaudited)
----------- ------------ ---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION--
Cash paid during period
for:
Interest............... $ 180 $ 143 $ 124 $ 672 $ 1,284 $ 380 $ 573
======= ======== ======== ======== ========= ======== =======
Income taxes........... $ -- $ -- $ 28 $ 145 $ 83 $ 27 $ 2,454
======= ======== ======== ======== ========= ======== =======
SUPPLEMENTAL DISCLOSURES
OF NONCASH ACTIVITIES:
Fair value of assets
purchased............. $ 837 $ 27,188 $ 35,949 $276,807 $ 197,713 $101,899 $ 5,600
Cash payments for
acquisitions.......... (230) (13,535) (25,198) (86,326) (97,098) (56,052) (2,231)
------- -------- -------- -------- --------- -------- -------
Liabilities assumed.... $ 607 $ 13,653 $ 10,751 $190,481 $ 100,615 $ 45,847 $ 3,369
======= ======== ======== ======== ========= ======== =======
Dividend payments in
kind.................. $ -- $ -- $ -- $ -- $ 7,480 $ -- $ 7,658
======= ======== ======== ======== ========= ======== =======
Accretion of Series C
preferred stock
discount and
redemption premium.... $ -- $ -- $ -- $ 2,257 $ 6,708 $ 1,654 $ 1,654
======= ======== ======== ======== ========= ======== =======
Purchase of property
and equipment with
capital lease
obligations........... $ 168 $ 1,010 $ 2,088 $ 1,085 $ 11,557 $ 913 $ 428
======= ======== ======== ======== ========= ======== =======
</TABLE>
See independent auditors' report and notes to consolidated financial
statements.
F-8
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except for per share and per option amounts)
1. ORGANIZATION AND BASIS OF PRESENTATION
In May 1996, a subsidiary of Cendant Corporation ("Cendant") acquired
Coldwell Banker Corporation ("Coldwell Banker") and contributed its residential
real estate brokerage operations ("CB Residential") to National Realty Trust
(the "Trust"). Cendant retained ownership of all trademarks, and franchised the
right to the Trust to conduct business under the COLDWELL BANKER(R) brand name.
Subsequently, Cendant franchised the rights to the Trust to conduct business
under the ERA(R) and CENTURY 21(R) brand names.
In August 1997, NRT Incorporated ("NRT") was formed and acquired all of the
operating assets owned by the Trust. The acquisition was accounted for as a
purchase in accordance with Accounting Principles Board ("APB") Opinion No. 16,
Business Combinations. Accordingly, the total purchase price was allocated to
the tangible and intangible assets acquired and liabilities assumed based on
estimates of their respective fair values at the date of acquisition. NRT
recognized intangibles of approximately $55,800 and goodwill of approximately
$15,100 in connection with the acquisition and recorded an office closure
reserve of approximately $12,000 for facility and severance costs.
The accompanying consolidated financial statements present the operations of
NRT and its predecessors (CB Residential and the Trust) during the three-year
period ended December 31, 1998. CB Residential's financial statements have been
disaggregated (i.e., carved out) from other Coldwell Banker entities not
contributed to the Trust, and are presented for 1996 through the date of
acquisition by Cendant. Such financial statements have been prepared from
separate records maintained by CB Residential as well as from the combined
records of Coldwell Banker and include revenues and expenses that are directly
related to the operations of NRT. In cases involving amounts not specifically
identifiable to any particular division of Coldwell Banker, certain allocations
for corporate administrative and overhead charges were made based on NRT's
proportionate share of Coldwell Banker's total expenses, which management
believes provides a reasonable basis for the accompanying financial statements.
The CB Residential financial statements may not necessarily be indicative of
the conditions that would have existed if the CB Residential had operated as an
independent entity. Coldwell Banker's historical cost bases of the assets and
liabilities for CB Residential were carried over to the Trust. The Trust's
financial statements have been presented from its date of formation through the
sale of its assets to NRT.
The accompanying consolidated financial statements for the four months ended
December 31, 1997, the year ended December 31, 1998 and the three months ended
March 31, 1998 and 1999 (unaudited) reflect the operations of NRT. Because of
acquisition adjustments recorded by NRT and its predecessors as described
above, the accompanying consolidated financial statements of NRT are not
directly comparable to those of its predecessors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NRT--NRT owns and operates a network of full service residential real estate
brokerage offices under the COLDWELL BANKER(R), ERA(R) and CENTURY 21(R) brand
names. As a full service brokerage, NRT offers, either directly or through
third party arrangements, a wide variety of homeowner services in addition to
traditional brokerage services, including mortgage, title, escrow and
relocation services, home warranties, home security systems and relocation and
other services.
F-9
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principles of Consolidation--The consolidated financial statements include
the accounts of NRT and its subsidiaries (including comparable operations of
its predecessors). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Management Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents--NRT considers unrestricted short-term investments which
have maturities of three months or less at the date of purchase to be cash
equivalents.
Property and Equipment--Property and equipment, including significant
improvements thereto, are carried at cost. NRT provides for depreciation using
the straight-line method over the estimated useful lives of the respective
assets. Buildings are depreciated over 35 years, building improvements over 10
to 35 years and furniture and equipment over three to seven years. Leasehold
improvements are amortized on the straight-line method over the estimated
useful life of the asset or the term of the lease, whichever is shorter. Gains
or losses from retirements and disposals of property and equipment are included
in other operating expenses. Maintenance and repairs are charged to expense as
incurred.
Leases--NRT operates primarily in leased facilities. Lease terms are
generally five years with options to renew at varying terms. Certain facility
leases include scheduled base rent increases over the term of the lease. The
total amount of the base rent payments is being charged to expense using the
straight-line method over the term of the leases. NRT has recorded a liability
to reflect the excess of rent expense over cash payments since the inception of
the leases. In addition to the base rent payment, NRT may also be required to
pay certain of the building's operating expenses.
Goodwill and Other Intangibles--Goodwill represents the excess of cost over
the fair value of net assets acquired. Goodwill is amortized on a straight-line
basis over 40 years.
Other intangibles are stated at cost and include the capitalized values of
pending real estate sales contracts and real estate listing contracts of
acquired residential real estate brokerage companies which are being amortized
on a straight-line basis over their estimated lives of three and six months,
respectively. Such amortization is included in Acquisition Related Costs in the
consolidated statements of operations.
NRT assesses whether there has been an impairment in the value of long-lived
assets and intangible assets by considering factors such as expected
undiscounted future cash flows, trends and prospects, the effects of demand,
competition and other economic factors and the fair values of tangible assets.
Management believes no permanent impairment has occurred.
Fair Value of Financial Instruments--The carrying values of cash and cash
equivalents, commissions and accounts receivable, accounts payable and accrued
expenses approximate fair value due to the short maturities of such
instruments. At December 31, 1998 the fair value of mortgage loans held for
sale exceeded the cost by approximately $200 and the carrying value of mortgage
warehousing loans approximated fair value.
F-10
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition--Real estate commissions and the related sales associate
commissions and franchise royalty fees are recorded as revenue and expense,
respectively, upon the closing of a real estate transaction. Other revenues are
recorded as revenue at the time that such services are provided.
Mortgage Banking Operations--In connection with its acquisition of Hunneman
Real Estate Corporation ("Hunneman"), NRT assumed Hunneman's mortgage banking
operations which are conducted in the Boston metropolitan area. NRT grants
mortgage loans only after it has a binding commitment to sell the loan to a
third party on a servicing released basis. Mortgage loans held for sale are
carried at the lower of cost or fair market value. Gain on the sale of mortgage
loans is recognized at the time of sale.
Income Taxes--NRT and its subsidiaries file a consolidated federal income tax
return. NRT uses the liability method of accounting for income taxes. Deferred
income taxes are recorded based on the difference between financial statement
and income tax bases of assets and liabilities and available tax credit
carryforwards using enacted rates in effect for the year in which the
differences are expected to reverse. Income tax expense is the tax payable for
the period and the change during the period in deferred income tax assets and
liabilities. A valuation allowance related to a deferred tax asset is recorded
when it is more likely than not that some portion or all of the deferred tax
asset will not be realized. Income taxes have been provided for the predecessor
entities based upon the effective tax rate of those entities.
Closed Offices--In the ordinary course of business, NRT opens and closes real
estate brokerage offices and facilities based on industry and local market
conditions. Leases related to facilities which have been closed are evaluated
taking into consideration current and prospective real estate market
conditions, sublease and lease termination opportunities and other factors, and
a charge to operations is recorded to reflect the expected future lease costs
and other expenses associated with such closed facilities. The estimated cost
of closing offices obtained through acquisition are considered part of the
acquisition purchase price.
Earnings (Loss) Per Share--NRT adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS No. 128") on December 31, 1997.
SFAS No. 128 specifies the method of computation, presentation and disclosure
for earnings per share ("EPS"). SFAS No. 128 requires the presentation of two
EPS amounts, basic and diluted. Basic EPS is calculated by dividing net income
by the weighted average number of shares outstanding for the period. Diluted
EPS includes the dilution that would occur if outstanding stock options and
other dilutive securities were exercised.
Basic and diluted loss per share is based on the weighted average number of
common shares outstanding. Common stock equivalents were not included in the
computation of diluted EPS because such inclusion would have been antidilutive
for the four months ended December 31, 1997, year ended December 31, 1998 and
the three month periods ended March 31, 1998 and 1999.
Stock Split--On February 10, 1999, NRT filed a registration statement on Form
S-1 with the Securities and Exchange Commission to effect an initial public
offering of its common stock (see Note 19). Prior to the offering, NRT intends
to effect a 1.875-for-1 split of its common stock. The common share data and
loss per common share data in the accompanying consolidated financial
statements reflects the effect of this stock split.
F-11
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive Income--On January 1, 1998, NRT adopted Statement of Financial
Accounting Standard (SFAS) No. 130, Reporting Comprehensive Income ("SFAS No.
130" ). SFAS No. 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. NRT does not have any items of other comprehensive income
requiring separate disclosure.
Segment Reporting--In June 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information ("SFAS No. 131"). SFAS No. 131 establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosure
about products and services, geographic areas and major customers. NRT conducts
its business activity in a single operating segment. Brokerage operations
comprised approximately 97%, 97% and 95% of total revenues during 1996, 1997
and 1998, respectively. Operations related to ancillary real estate services
amounted to 3%, 3% and 5% of total revenues during 1996, 1997 and 1998,
respectively.
3. ACQUISITIONS
NRT's business strategy includes actively pursuing strategic acquisitions of
real estate brokerage firms and brokerage-related businesses. NRT has an
agreement with Cendant that provides a significant source of funding for NRT's
brokerage acquisitions. Under an Acquisition Cooperation Agreement, in
acquisitions in which Cendant has agreed to participate, Cendant purchases the
trade names, trademarked operating names and any mortgage operations of
brokerages being acquired by NRT, thereby paying a substantial portion of the
total purchase price that otherwise would be payable by NRT in making such
brokerage acquisitions. Upon NRT's formation, Cendant committed approximately
$446,000 for NRT's brokerage acquisitions. Cendant has committed an additional
$1 billion for brokerage acquisitions in which Cendant agrees to participate
pursuant to the Acquisition Cooperation Agreement, which amends NRT's prior
agreement with Cendant by reducing the portion of the purchase price payable by
Cendant in future NRT brokerage acquisitions. The $1 billion commitment is
available in two $500,000 tranches. The first $500,000 is currently available,
and the second $500,000 will be available after the first $500,000 has been
provided by NRT but in no case earlier than February 9, 2004. The cumulative
amount expended by Cendant under the above commitments was approximately
$217,000 at December 31, 1997, and $443,000 at December 31, 1998 and $461,000
at March 31, 1999.
Under the Acquisition Cooperation Agreement, following the closing of the
offering (Note 19), Cendant will have the right to pay up to 50% of its
acquisition cost by canceling a portion of its senior preferred stock. Cendant
may exercise this right only if NRT has at least $50,000 in available borrowing
capacity under the leverage ratio test under the franchise agreements. In
addition, if NRT does not have available funds to close the brokerage
acquisition without Cendant's participation, NRT will have the right to
postpone the cancellation of preferred stock for up to 90 days following the
brokerage acquisition. Cendant would then be required to pay its acquisition
cost under the Acquisition Cooperation Agreement.
F-12
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1996, 1997 and 1998, NRT acquired assets and assumed liabilities of
residential real estate brokerage companies. The acquisitions were accounted
for as purchases in accordance with Accounting Principles Board ("APB") Opinion
No. 16, Business Combinations. Accordingly, the total purchase price has been
allocated to the tangible and intangible assets acquired and the liabilities
assumed based on NRT's estimates of their respective fair values at the dates
of acquisition. Such amounts are subject to further refinements of closed
office reserves, legal reserves and other assumed liabilities and the tax
effects thereon. The following table sets forth information with respect to
such acquisitions.
<TABLE>
<CAPTION>
Company Date of Acquisition
- ------- -------------------
<S> <C>
1996
The Kahn Realty Companies, Inc.............................. November 1, 1996
Douglas & Jean Burgdorff, Inc. ............................. December 1, 1996
1997
Del Monte Realty Company.................................... February 10, 1997
Contempo Realty, Inc........................................ March 1, 1997
Don Saunders, Inc........................................... July 17, 1997
Marie Powell & Associates, Inc.............................. July 24, 1997
George J. Cyrus & Company, Inc.............................. August 16, 1997
Cornish & Carey Residential, Inc. .......................... September 10, 1997
Jon Douglas Real Estate Services Group, Inc. ............... September 11, 1997
Barbara Sue Seal Properties, Inc............................ October 10, 1997
West Shell, Inc. ........................................... October 16, 1997
John M. Grubb Co. .......................................... October 16, 1997
Seville Properties, Inc..................................... October 17, 1997
Metro Real Estate Services, Inc............................. October 29, 1997
Continental Development Corp................................ November 8, 1997
1998
Waterside Property Sales, Inc. ............................. January 6, 1998
Polley, Polley & Madsen, Inc................................ January 7, 1998
TAM-BAY Realty, Inc......................................... January 14, 1998
Gimelstob Realty, Inc....................................... January 15, 1998
Joseph J. Murphy Realty, Inc................................ January 21, 1998
Buckhead Brokers of Georgia, Inc. .......................... February 1, 1998
Burnet Financial Group...................................... February 13, 1998
O'Conor, Piper & Flynn, Inc................................. February 23, 1998
Coker Ewing Cook & Cook..................................... August 3, 1998
1st American Realtors, L.L.C................................ August 20, 1998
Higgins & Heath, Inc........................................ September 4, 1998
Moore and Company........................................... September 30, 1998
Premier Van Schaak, Inc. (Denver operations) ............... September 30, 1998
Hunneman Real Estate Corporation............................ October 14, 1998
Carriage Properties, Ltd. .................................. October 20, 1998
Steve Schmidt & Co. ........................................ October 23, 1998
Pardoe Real Estate, Inc. ................................... December 8, 1998
Graham Realty, Inc. ........................................ December 8, 1998
</TABLE>
F-13
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the above acquisitions, NRT paid a total purchase price of
$14,960 in 1996, $96,531 in 1997 and $119,308 in 1998. In addition to the above
acquisitions, NRT acquired 20 other residential real estate brokerage companies
in 1996 for a total purchase price of $1,435, 15 in 1997 for a total purchase
price of $785, 37 in 1998 for a total purchase price of $8,420 and 12 during
the first three months of 1999 for a total purchase price of $3,007
(unaudited).
Goodwill of $76,042 arose from the 1997 acquisitions made subsequent to
August 1997 and $102,077 arose from the 1998 acquisitions. Goodwill associated
with those companies acquired before the formation of NRT was considered in the
accounting for the purchase of the assets of National Realty Trust (Note 1).
Other intangibles of $7,646 in 1996, $26,097 in 1997 and $43,433 in 1998 arose
from acquisitions. The results of operations of the acquired companies are
included in NRT's consolidated statements of operations for the periods in
which they were owned by NRT.
Under the terms of certain acquisition agreements, NRT is obligated to fund
additional purchase price payments contingent upon the achievement of certain
operating targets. NRT records such amounts to goodwill when the contingencies
are resolved.
The following unaudited pro forma consolidated results of operations give
effect to the above acquisitions for 1996 as though the 1996 and 1997
acquisitions had occurred on January 1, 1996, for 1997 as though the 1997 and
1998 acquisitions had occurred on January 1, 1997 and for 1998 as though the
1998 acquisitions had occurred on January 1, 1998. Pro forma information for
the 1999 acquisitions is not presented as the acquisitions and the related
effect on the consolidated statements of operations is not material. The pro
forma information is provided for informational purposes only. It is based on
historical information and does not necessarily reflect the actual results that
would have occurred and is not necessarily indicative of future results of
operations of the combined companies.
<TABLE>
<CAPTION>
Unaudited
---------------------------------------------------
Year ended December 31, Three months
---------------------------------- ended March 31,
1996 1997 1998 1998
---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Total revenues............ $1,226,340 $1,429,258 $2,462,269 $443,313
========== ========== ========== ========
Net income (loss)......... $ (39,569) $ (42,181) $ 4,406 $(43,447)
========== ========== ========== ========
Pro forma loss per common
share:
Basic and diluted......... $(2.89) $(1.72) $(2.79)
</TABLE>
In connection with the 1997 and 1998 acquisitions, NRT recorded office
closure reserves of $22,646 and $30,519, respectively, for facility and
severance costs. Costs include primarily office lease costs for offices
scheduled for closure and related severance for terminated employees. During
the four months ended December 31, 1997, and the year ended December 31, 1998
approximately $8,206, and $18,997 of facility and severance costs were paid,
respectively.
F-14
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Acquisition related costs consist of office conversion costs and amortization
of pending real estate sales contracts and real estate listing contracts of
acquired residential real estate brokerage companies. Office conversion costs
include primarily signage change, name change advertising and other
transitional costs. Acquisition related costs are summarized as follows:
<TABLE>
<CAPTION>
Predecessors
-------------------------------------
Coldwell
Banker
Residential
Brokerage National Realty Trust NRT Incorporated
----------- ------------------------- -------------------------------------------------
Five months Seven months Eight months Four months
ended ended ended ended Year ended March 31, March 31,
May 31, December 31, August 31, December 31, December 31, 1998 1999
1996 1996 1997 1997 1998 (unaudited) (unaudited)
----------- ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Office conversion
costs.................. $-- $ 739 $ 1,421 $ 8,566 $16,997 $13,965 $ 308
Amortization............ 26 21,449 9,314 69,896 44,153 20,301 5,310
---- ------- ------- ------- ------- ------- ------
$ 26 $22,188 $10,735 $78,462 $61,150 $34,266 $5,618
==== ======= ======= ======= ======= ======= ======
</TABLE>
4. CASH AND CASH EQUIVALENTS
NRT had restricted cash totaling $40,316 at December 31, 1997, $93,878 at
December 31, 1998, and $93,561 at March 31, 1999 (unaudited), which can be used
only to repay the loans entered into to fund the restricted cash. See Note 7.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
March 31,
1999
1997 1998 (unaudited)
------- -------- -----------
<S> <C> <C> <C>
Land.................... $ 2,477 $ 1,978 $ 1,978
Buildings and improve-
ments.................. 4,983 4,941 4,929
Leasehold improvements.. 14,429 36,756 39,658
Furniture and equip-
ment................... 32,746 72,654 77,199
------- -------- --------
54,635 116,329 123,764
Less accumulated depre-
ciation and amortiza-
tion................... (3,090) (22,202) (29,064)
------- -------- --------
Property and equipment,
net.................... $51,545 $ 94,127 $ 94,700
======= ======== ========
</TABLE>
Depreciation and amortization expense was $3,812 for the five months ended
May 31, 1996, $1,129 for the seven months ended December 31, 1996, $3,026 for
the eight months ended August 31, 1997, $2,998 for the four months ended
December 31, 1997 and $18,909 for the year ended December 31, 1998.
F-15
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses are summarized as
follows:
<TABLE>
<CAPTION>
December March 31,
---------------- 1999
1997 1998 (unaudited)
------- -------- -----------
<S> <C> <C> <C>
Accounts payable.............................. $14,688 $ 14,981 $ 17,078
Commissions payable........................... 16,914 19,902 12,343
Reserve for office closures................... 24,274 28,696 32,534
Accrued legal reserves........................ 15,467 12,353 11,332
Deferred revenue.............................. -- -- 3,000
Other accrued expenses........................ 28,584 39,355 33,195
------- -------- --------
$99,927 $115,287 $109,482
======= ======== ========
</TABLE>
7. RESTRICTED CASH BANK LOANS
Proceeds from restricted cash bank loans are invested in cash equivalents and
cannot be used other than to repay the related loans. The loans bear interest
at rates ranging from 0.55% to 2.0% at December 31, 1997 and 0.25% to 2.0% at
December 31, 1998 and March 31, 1999 (unaudited) and are due monthly.
8. MORTGAGE WAREHOUSING LOAN
Mortgage warehousing loan represents borrowings under a $25,000 line of
credit with a commercial bank. Borrowings under the line bear interest at the
prime rate (7.75% at December 31, 1998), and the federal funds rate plus 1.75%
at March 31, 1999 (unaudited). The borrowings are collateralized by mortgage
loans held for sale and are generally repaid within 60 days. The line of credit
expires March 8, 2000.
9. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
December March 31,
----------------- 1999
1997 1998 (unaudited)
-------- ------- -----------
<S> <C> <C> <C>
Acquisition-related notes................. $ 10,737 $15,096 $11,868
Obligations under capital leases (Note
18)...................................... 3,584 12,103 11,228
Other..................................... 819 173 167
-------- ------- -------
15,140 27,372 23,263
Less current portion...................... (10,296) (10,581) (10,528)
-------- ------- -------
$ 4,844 $16,791 $12,735
======== ======= =======
</TABLE>
Obligations under capital leases bear interest at rates ranging up to 11.0%,
have terms ranging from 36 months to 68 months and are generally collateralized
by the related leased assets.
Acquisition-related notes consist primarily of amounts payable to former
owners of businesses acquired by NRT, are unsecured with maturities generally
under two years and bear interest at rates ranging from 5.0% to 11.0% at
December 31, 1997 and 6.0% to 11.0% at December 31, 1998 and March 31, 1999
(unaudited).
F-16
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Scheduled maturities of notes payable, excluding capital lease obligations
(Note 18), at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999............................................................ $ 6,530
2000............................................................ 4,518
2001............................................................ 2,534
2002............................................................ 561
2003............................................................ 491
Thereafter...................................................... 635
-------
$15,269
=======
</TABLE>
The carrying value of notes payable approximates market value due to the
short maturities of such instruments.
10. DEVELOPMENT ADVANCE
During 1997, National Realty Trust received a $20,000 non-interest-bearing
development advance from Coldwell Banker Real Estate Corporation, a wholly
owned subsidiary of Cendant, which was assumed by NRT in August 1997. The
development advance is recorded in other liabilities in the accompanying
consolidated balance sheets. The advance was being amortized over a 10-year
period prior to September 1, 1997. The advance was replaced on September 1,
1997 with an advance of $18,750 which is being amortized over a 40-year period.
Under the terms of the advance, 1/480th of the original balance is forgiven
each month so long as NRT is not in material breach of the terms of its
franchise agreements. The amount forgiven is reflected as a reduction to
royalties in the accompanying consolidated statements of operations. In the
event NRT is determined to be in default on a material term of the franchise
agreements, the entire remaining advance will become immediately due and
payable and bear interest at the prime interest rate. It is management's
intention to maintain compliance with the terms of the advance.
11. INCOME TAXES
NRT's (benefit) provision for income taxes was comprised as follows:
<TABLE>
<CAPTION>
Four Months ended Year ended
December 31, December 31,
1997 1998
----------------- ------------
<S> <C> <C>
Current:
Federal......................................... $ -- $ 482
State........................................... 400 2,103
-------- ------
400 2,585
Deferred:
Federal......................................... (21,216) 1,338
State........................................... (4,637) (1,621)
-------- ------
(25,853) (283)
-------- ------
Total (benefit) provision for income taxes...... $(25,453) $2,302
======== ======
</TABLE>
F-17
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of income tax provision (benefit) at the statutory federal
income tax rate to NRT's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Four Months ended Year ended
December 31, December 31,
1997 1998
----------------- ------------
<S> <C> <C>
Federal tax at statutory rate................... (35.0)% 35.0%
State income taxes, net of federal benefit...... (4.1) 8.7
Non-deductible expenses......................... 1.5 20.0
----- ----
(37.6)% 63.7%
===== ====
</TABLE>
The components of NRT's deferred income taxes are summarized as follows at
December 31:
<TABLE>
<CAPTION>
1997 1998
------------------- -------------------
Current Noncurrent Current Noncurrent
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Deferred income tax assets:
Net operating loss carryforward...... $10,781 $10,781 $13,617 $ --
Reserves............................. 18,420 -- 18,463 --
Goodwill............................. -- 3,258 -- 2,007
Alternative minimum tax credit
carryforward........................ -- -- 569 --
Other................................ 1,692 85 1,878 49
------- ------- ------- -------
Total deferred income tax assets... 30,893 14,124 34,527 2,056
------- ------- ------- -------
Deferred income tax liabilities:
Fixed assets......................... -- (5,255) -- (3,123)
Purchase accounting.................. (4,306) -- (1,107) (2,352)
------- ------- ------- -------
Total deferred income tax
liabilities....................... (4,306) (5,255) (1,107) (5,475)
------- ------- ------- -------
Net deferred tax asset (liability)..... $26,587 $ 8,869 $33,420 $(3,419)
======= ======= ======= =======
</TABLE>
At December 31, 1998, NRT had federal and state net operating loss
carryforwards of approximately $30,000. The federal losses will expire in the
year ending December 31, 2012, while the state losses will expire in various
years depending on jurisdictions.
The provision (benefit) for income taxes for the predecessor entities are
based upon the historical effective tax rate of those entities.
12. REDEEMABLE PREFERRED STOCK
NRT's 9.00% Series A Cumulative Senior Redeemable Preferred Stock (the
"Series A Preferred Stock") accrues dividends based on a liquidation preference
amount equal to $1 per share plus any previously declared and unpaid dividends.
At December 31, 1997 and at December 31, 1998, there were 260,000 shares of
Series A Preferred Stock authorized and 157,591 shares of Series A Preferred
Stock issued and outstanding. The Series A Preferred Stock has a mandatory
redemption requirement of 10% per annum beginning August 29, 2004 through
August 29, 2008 with any remaining shares required to be redeemed on August 29,
2009, in each case at a price equal to 100% of the liquidation preference plus
accrued and unpaid dividends. NRT may redeem the shares at the liquidation
preference at any time prior to the required redemption dates.
F-18
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NRT's 5.00% Series B Cumulative Convertible Redeemable Preferred Stock (the
"Series B Preferred Stock") accrues dividends based on a liquidation preference
amount equal to $1 per share plus any previously declared and unpaid dividends.
At December 31, 1997 and at December 31, 1998, there were 25,000 shares of
Series B Preferred Stock authorized and 24,000 shares of Series B Preferred
Stock issued and outstanding. NRT, at its option, may redeem the shares
following the third anniversary of (1) the public offering of 20% or more of
NRT's outstanding common stock, (2) the sale by NRT of assets representing 80%
or more of NRT's assets on a fair market value basis or (3) the distribution to
stockholders of other assets representing 80% or more of NRT consolidated net
assets on a fair market value basis (each, a "Triggering Event") at a price of
(1) 103% of the principal amount on or prior to the fourth anniversary of a
Triggering Event, (2) 102% of the principal amount on or prior to the fifth
anniversary of a Triggering Event (3) 101% of the principal amount on or prior
to the sixth anniversary of a Triggering Event and (4) 100% of the principal
amount after the sixth anniversary of a Triggering Event. Shares of Series B
Preferred Stock are convertible into shares of common stock beginning
immediately prior to a Triggering Event at a conversion rate calculated in
accordance with the Series B Preferred Stock's Certificate of Designation. NRT
is required to redeem any remaining Series B Preferred Stock on August 29,
2012.
NRT's 18.00% Series C Cumulative Junior Redeemable Preferred Stock (the
"Series C Preferred Stock") accrues dividends based on a liquidation preference
amount equal to $1 per share plus any declared and unpaid dividends. In
addition to the 18% dividend accrual rate, NRT is required to pay an additional
dividend equal to 0.1% of NRT's gross commission revenue, as defined in NRT's
franchise agreement with Coldwell Banker Real Estate Corporation. At December
31, 1997 and 1998, there were 120,000 shares of Series C Preferred Stock
authorized and 68,510 shares of Series C Preferred Stock issued and
outstanding. The Series C Preferred Stock was issued at a discount to its
liquidation preference and is recorded at its issue price. The difference in
the carrying amount of the stock and the redemption price, as defined, is being
accreted through charges to additional paid in capital of NRT over the period
from issuance to the mandatory redemption date. At December 31, 1997 and 1998
and March 31, 1999 the redemption price of the Series C Preferred Stock totaled
approximately $80,822, $84,457 and $88,185, respectively. NRT is required to
redeem any remaining Series C Preferred Stock on August 29, 2001. NRT, at its
option, may redeem the shares at the redemption price at any time prior to the
mandatory redemption date. NRT plans to redeem the Series C preferred stock
with the proceeds from the offering.
F-19
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. LOSS PER COMMON SHARE
The following table sets for the computation of basic and diluted loss per
common share:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
Four Months Year -----------------------
Ended Ended 1998 1999
December 31, 1997 December 31, 1998 (unaudited) (unaudited)
----------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Net (loss) income....... $(42,243) $ 1,309 $(25,137) $(10,423)
Less: Preferred stock
dividends.............. (9,732) (29,910) (7,255) (7,627)
Less: Accretion of
preferred stock
discount and redemption
premium................ (2,257) (6,708) (1,654) (1,654)
-------- -------- -------- --------
Loss applicable to
common stockholders.... $(54,232) $(35,309) $(34,046) $(19,704)
======== ======== ======== ========
Basic and dilutive
weighted average shares
outstanding (in
thousands) 18,750 18,750 18,750 18,750
======== ======== ======== ========
Basic and diluted loss
per common share....... $ (2.89) $ (1.88) $ (1.82) $ (1.05)
======== ======== ======== ========
</TABLE>
Common stock equivalents, which for NRT includes options to purchase common
stock and the convertible preferred stock, were excluded from the computation
of diluted loss per share as their effect is antidilutive for the four months
ended December 31, 1997, the year ended December 31, 1998 and for the three
months ended March 31, 1998 and 1999.
14. STOCKHOLDERS' EQUITY
Stock Option Plan--In September 1997, NRT adopted the 1997 Equity
Participation Plan of NRT Incorporated (as amended, the "Plan"), which provides
for the grant of stock options and other awards to certain officers,
consultants, directors and key employees of NRT. The maximum number of shares
of common stock that may be issued pursuant to the Plan is 4,687,500. Options
under the Plan generally have 10-year terms and one half of the options granted
are time vesting options and are exercisable at 20% per year, commencing one
year from the date of grant. One-half of the options granted to employees are
performance-based options, which are not earned prior to the earlier of the
eighth anniversary of the date of grant or the date of a qualifying triggering
event, as defined, under the Plan. Upon the closing of the offering (Note 19),
the performance-based options will be converted into time vesting options
effective as of the date of the grant. NRT granted options to purchase shares
of NRT's common stock as set forth in the following table at prices which NRT's
Board of Directors deemed to be equal to, or in excess of, fair market value of
the common stock at the dates of grants, to employees and directors of NRT.
F-20
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the activity under the Plan for the periods
indicated:
<TABLE>
<CAPTION>
Weighted
average
Options Range of exercise
outstanding Exercise Prices price
----------- --------------- --------
<S> <C> <C> <C>
OUTSTANDING, September 1, 1997.......... -- $ -- $ --
Grants.................................. 1,650,000 .01 .01
---------
OUTSTANDING, December 31, 1997.......... 1,650,000 .01
Grants.................................. 1,872,656 4.16-10.67 7.98
Cancelled............................... (100,313) .01-4.16 .19
---------
OUTSTANDING, December 31, 1998.......... 3,422,343 $ 4.84
Cancelled............................... (23,203) .01-4.16 3.77
---------
OUTSTANDING, March 31, 1999............. 3,399,140 $ 4.85
=========
</TABLE>
On September 28, 1998, NRT Board of Directors approved an adjustment to the
exercise price of each option under the Plan outstanding as of such date to
give effect to the payment of $30,000 of dividends to Apollo and the payment to
NRT's franchisors of an additional royalty pursuant to the franchise agreements
of 0.15% of NRT total revenue per quarter for each quarter (up to a total of 20
quarters) in which NRT's EBITDA over the preceding twelve-month period exceeds
$225,000. In no event, however, shall the exercise price for such options be
adjusted to less than $0.01 per share. The final exercise price adjustment will
be determined at the time of the offering or upon a triggering event. The
adjustment will affect approximately 2,350,000 shares and is estimated to be
$1.07 per share ($1.06 per share for the 1997 grants). Such adjustments have
been reflected in the above table.
At December 31, 1997, there were no exercisable options to purchase shares,
and at December 31, 1998, there were 216,328 exercisable options to purchase
shares. At December 31, 1997 and 1998 the weighted average remaining
contractual life of options outstanding was 9.75 years and 9.3 years,
respectively.
SFAS No. 123, Accounting for Stock-Based Compensation, encourages but does
not require companies to record compensation cost for employee stock option
grants. NRT has chosen to account for employee option grants using APB Opinion
No. 25 and uses the disclosure-only provisions of SFAS No. 123. Accordingly, no
compensation expense has been recognized for employee stock option grants. Had
compensation expense for the employee stock option grants been recognized based
on the calculated fair value at the grant dates, consistent with SFAS No. 123,
NRT's loss per share would have been equal to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Four months
ended Year ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Loss applicable to common shareholders:
As reported......................................... $(54,232) $(35,309)
Pro forma........................................... $(54,270) $(36,150)
Loss per share:
Basic and diluted as reported....................... $ (2.89) $ (1.88)
Basic and diluted pro forma......................... $ (2.89) $ (1.93)
</TABLE>
The weighted average fair value of options granted under the Plan was $0.51
and $3.61 in 1997 and 1998, respectively.
F-21
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant is estimated on the date of grant using
the Minimal Value option-pricing model with the following weighted-average
assumptions for options granted in 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Dividend Yield.............................................. -- --
Expected Volatility......................................... -- --
Risk-free interest rate..................................... 6.7% 5.6%
Expected holding period..................................... 10 years 10 years
</TABLE>
As NRT is not a public company and its stock does not have a trading history,
NRT used the Minimal Value option-pricing model as permitted under SFAS No.
123. The Minimal Value option-pricing model does not take into account stock
price volatility in the determination of fair value.
15. COMMITMENTS AND CONTINGENCIES
Litigation--NRT and its subsidiaries are defendants in certain lawsuits
involving routine litigation incidental to the businesses in which they are
engaged. Based on the opinions of in-house and external counsel, NRT believes
that any liability which may result from disposition of these lawsuits will not
have a material effect on NRT's consolidated financial position or results of
operations.
16. RELATED-PARTY TRANSACTIONS
Concurrent with NRT's formation, certain affiliates of Apollo Management,
L.P. ("Apollo") acquired all of NRT's outstanding common stock and Series C
Preferred Stock and a subsidiary of Cendant acquired all of NRT's outstanding
Series A Preferred Stock and Series B Preferred Stock.
Franchise Agreements--In conjunction with the acquisition of the assets of
National Realty Trust, NRT entered into franchise agreements with Coldwell
Banker Real Estate Corporation, ERA Franchise Systems, Inc., and Century 21
Real Estate Corporation. On February 9, 1999, NRT entered into new franchise
agreements with each of its franchisors, which superseded the existing
franchise agreements. Each franchise agreement has a 50-year term and provides
for a royalty payment generally equal to 6% of NRT's gross closed commission
income earned (with the exception of CENTURY 21(R) offices in Northern
California, for which NRT currently pays royalties of 4.89% of gross closed
commission income earned, and offices acquired by NRT without Cendant's
participation, for which NRT pays a lower royalty rate), plus approximately
$167 per month.
Pursuant to the franchise agreements, NRT is also required to pay an
additional royalty of approximately $167 per month. In addition, upon the
closing of the Offering, NRT will be required to pay an additional $156 per
month. Upon the occurrence of a brokerage acquisition in which Cendant acquires
the stock of the acquired brokerage and then sells the assets of such brokerage
to NRT in accordance with the Acquisition Cooperation Agreement, NRT will also
be required to pay Cendant, in consideration of the stepped-up tax basis
received by NRT for such assets, an additional monthly royalty, beginning with
the first month after the consummation of such transaction, in an amount equal
to one-tenth of the federal income tax payable by Cendant in respect of the
gain on the
F-22
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
sale of the assets to NRT in such transaction, divided by 12. To date, NRT has
not been required to pay Cendant additional royalties as a result of taxes
being incurred by Cendant in connection with NRT's brokerage acquisitions. NRT
incurred franchise royalties totaling $24,000 for the seven months ended
December 31, 1996, $31,500 for the eight months ended August 31, 1997, $26,200
for the four months ended December 31, 1997, and $121,307 for the year ended
December 31, 1998 respectively. Since January 1999, NRT has been required to
pay an additional monthly royalty up to a maximum additional royalty of $5,000
annually. Upon the closing of the initial public offering of NRT's securities,
such royalty will be replaced with an additional monthly royalty equal to 1.1%
of NRT's gross commission income, up to a maximum additional royalty of $24,000
per year. In addition, an additional royalty of 0.15% of NRT's total revenue
per quarter (up to a total of 20 quarters) is payable for each quarter in which
NRT's earnings before interest, income taxes, depreciation and amortization for
the preceding twelve month period exceeds $225,000.
Under the franchise agreements, NRT is required to give Cendant prior notice
before opening or acquiring new brokerage offices. If Cendant objects to the
opening or acquisition of such new brokerage offices based on a determination
that such opening or acquisition would have an adverse impact on other existing
Cendant franchisees under the relevant brand, NRT cannot open or acquire the
new brokerage offices set forth in its notice. To compensate the franchisors
for any actual administrative costs incurred in connection with the acquisition
process and for the benefits to be received by NRT resulting from newly
acquired or opened offices identified by Cendant's franchise sales force, NRT
is required to pay the franchisors an initial fee of $7.5 for each office that
is acquired in a transaction in which Cendant's franchise sales force is
involved ($4.0 if Cendant's franchise sales force is not involved), subject to
a maximum of $100 per acquisition. Each acquired office is required to be
operated under one of the franchisor's brands, unless such office is closed
within one year of its acquisition in accordance with the business plan
presented to NRT's Board of Directors and Cendant at the time of acquisition.
No initial office fee is payable with respect to newly acquired offices that
are closed within one year of their acquisition so long as such offices do not
operate under any of the franchisors' brands during such period. NRT has
incurred approximately $1,800 in such fees payable to Cendant for new offices
opened since August 1997, of which Cendant will provide $400 pursuant to the
Acquisition Cooperation Agreement.
The franchise agreements also require NRT to make monthly contributions to
national advertising funds maintained by the franchisors for the creation and
development of advertising, public relations and promotional programs promoting
the franchisors' brands. Under the CENTURY 21(R) and ERA(R) franchise
agreements, NRT is required to pay a monthly fee of 2% of NRT's gross
commission income and, under the COLDWELL BANKER(R) franchise agreement, NRT is
required to pay a fee in the amount of 2 1/2% of NRT's gross commission income,
subject in each case to certain minimum and maximum advertising fees per
brokerage office. In addition, the fees payable under the COLDWELL BANKER(R)
franchise agreement are subject to temporary abatement for acquired offices
with gross commission income of over $750,000. As a result of the maximum
advertising fee limitation, NRT paid an average of 0.33% and 0.27% of its gross
commission income
F-23
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to the national advertising funds in 1997 and 1998, respectively. NRT
contributed to the franchisors' national advertising funds a total of $1,400
during 1996 (from May 31, 1996), $3,400 during 1997, and $5,467 during 1998.
The Franchise Agreements also restrict NRT's ability to incur indebtedness
(including acquired indebtedness) if such incurrence would cause NRT's pro
forma ratio of total indebtedness to operating income before interest, income
taxes, depreciation and amortization over the preceding twelve-month period,
with certain exclusions, to exceed 2.0 to 1. Once Cendant's additional $1
billion commitment to provide funds in connection with future brokerage
acquisitions has been exhausted pursuant to the Acquisition Cooperation
Agreement and provided that Cendant has not then committed to provide
additional funds in connection with NRT's brokerage acquisitions on
substantially similar economic terms, the maximum permitted leverage ratio will
be increased to 3.0 to 1 from 2.0 to 1.
In addition, the Franchise Agreements prohibit NRT from incurring
indebtedness to finance the payment of any dividends on its common or preferred
stock. NRT is also prohibited from declaring or paying any dividend that is not
a regularly scheduled quarterly dividend consistent with past practice which
exceeds 20% of NRT's net income for the year in which declared or paid (less
any dividends paid during such period) unless NRT's leverage ratio (calculating
indebtedness net of cash and cash equivalents) is 1.0 to 1 or less.
Lease Agreements--NRT leases its corporate offices from Cendant. The leases
expire in September 2002 and have options to extend the term for an additional
five years. The landlord is responsible for property tax, maintenance and
insurance as well as various ancillary services, including janitorial,
security, mail room, and general lobby reception. NRT paid total rentals of
$342 for the seven months ended December 31, 1996, $353 for the eight months
ended August 31, 1997, $176 for the four months ended December 31, 1997, and
$853 for the year ended December 31, 1998. Prior to June 1, 1996, such costs
were allocated to NRT from Coldwell Banker based on usage.
Support Agreement--NRT also has an agreement with Cendant for certain data
processing and telecommunication services. The agreement expires in 1999 and
can be canceled or terminated by NRT with 90 days' notice. Total costs under
this arrangement were $958 for the eight months ended August 31, 1997 and $479
for the four months ended December 31, 1997, and $1,978 for the year ended
December 31, 1998.
Marketing Agreement--NRT has a Marketing Agreement with Cendant Mortgage
Corporation ("Cendant Mortgage") which provides for the joint marketing of
Cendant's mortgage products through NRT's real estate brokerage offices. The
agreement expires in 2037 and is subject to certain termination provisions.
Total fees earned by NRT totaled $699 for the four months ended December 31,
1997, and $11,183 for the year ended December 31, 1998.
F-24
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Program Outsourcing Agreement--NRT and Cendant have entered into a Program
Outsourcing Agreement pursuant to which NRT has appointed Cendant as its
exclusive outsourcing agent to negotiate the terms of NRT's participation in
(1) purchasing relationships and programs (including corporate purchasing
relationships) with vendors and (2) programs through which NRT markets vendors'
products or services to its customers. NRT is generally not permitted to enter
into or pursue any purchasing relationships or marketing programs (other than
the programs established by Cendant) and is required to refer to Cendant all
program opportunities and parties with which NRT would enter into such a
relationship.
NRT has agreed to participate, and to encourage its sales associates to
participate, in existing and new programs established by Cendant with vendors,
to make such programs available to its employees and sales associates and to
provide program training to its sales associates. NRT is not required to
participate in: (1) a program if such program does not afford NRT terms at
least as advantageous (taken as a whole) as those afforded to any other
franchisees of Cendant's real estate brokerage systems; or (2) any new program
if NRT is already participating in a program covering a similar good or service
to the new program, the term of which has not expired; provided that upon
implementation of a new program in which NRT is required to participate, NRT
will terminate any program which conflicts with such new program as soon as it
is permissible to terminate such program without cost to NRT, or earlier if NRT
is directed by Cendant to do so and is reimbursed for such cost. In addition,
NRT will not be required to participate in the new program if Cendant
reasonably determines that the program does not offer competitive pricing and
service relative to NRT's size and compared to any similar program in which NRT
participates, or, with respect to marketing programs in which NRT receives
buyer leads, listing leads or barter consideration and no other consideration,
that such program is reasonably expected to provide the same value to NRT.
However, NRT will participate in such program if after the program is
implemented, Cendant determines that the program is then offering competitive
pricing and service relative to NRT's size and compared to any Company program
covering a similar good or service.
Advisory Services Agreement--NRT also has entered into an Advisory Services
Agreement with Apollo which requires NRT to pay Apollo $167 monthly for
advisory services provided by Apollo. The agreement expires upon the redemption
of all of the outstanding 18.00% Series C Cumulative Junior Redeemable
Preferred Stock or as mutually agreed upon by NRT and Apollo.
17. FIDUCIARY FUNDS
The consolidated financial statements do not include the assets and
liabilities or activities of various fiduciary funds held by NRT. At December
31, 1998 and March 31, 1999, such funds amounted to approximately $119,188 and
$145,075 (unaudited), respectively. These funds are comprised primarily of
deposits by homebuyers pending close of escrow or transfer of title. NRT is
subject to various disclosure and fiduciary duties under certain state laws
with which NRT believes it currently complies.
18. LEASES
Operating Leases--NRT leases certain of its offices and equipment under non-
cancelable operating leases.
F-25
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Minimum annual rental commitments under non-cancelable operating leases and
related sublease rentals are as follows at December 31, 1998:
<TABLE>
<CAPTION>
Minimum Sublease
payments rentals
-------- ------
<S> <C> <C>
Year ending December 31:
1999........................................................ $ 77,141 $2,345
2000........................................................ 65,087 1,598
2001........................................................ 53,348 877
2002........................................................ 38,677 457
2001........................................................ 24,414 424
Thereafter.................................................. 48,622 716
-------- ------
Total..................................................... $307,289 $6,417
======== ======
</TABLE>
Rent expense is summarized as follows:
<TABLE>
<CAPTION>
Net
Rent Sublease rent
expense income expense
------- ------ -------
<S> <C> <C> <C>
Five months ended May 31, 1996...................... $13,433 $2,276 $11,157
Seven months ended December 31, 1996................ 17,093 1,526 15,567
Eight months ended August 31, 1997.................. 23,116 1,926 21,190
Four months ended December 31, 1997................. 15,663 839 14,824
Year ended December 31, 1998........................ 74,165 2,237 71,928
</TABLE>
In connection with the formation of the Trust, Cendant assumed the
liabilities for certain closed office leases. Lease payments net of sublease
income for these closed offices amounted to $1,893 for the eight months ended
August 31, 1997, $983 for the four months ended December 31, 1997 and $1,196
for the year ended December 31, 1998.
NRT leases certain pieces of equipment under capital lease agreements which
expire over the next five fiscal years.
Property under capital leases at December 31, 1998 consists of the following:
<TABLE>
<S> <C>
Office equipment................................................. $15,519
Less accumulated depreciation.................................... (3,668)
-------
$11,851
=======
</TABLE>
Future minimum lease payments under capital leases together with the present
value of net minimum lease payments are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 5,314
2000............................................................. 4,021
2001............................................................. 2,902
2002............................................................. 1,700
2003............................................................. 510
-------
14,447
Less amount representing interest.............................. (2,344)
-------
Present value of net minimum lease payments.................... $12,103
=======
</TABLE>
F-26
<PAGE>
NRT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
19. SUBSEQUENT EVENTS
On January 7, 1999, NRT entered into a $50,000 bank credit facility, which
was subsequently increased to $100,000. Advances made thereunder may be used
for NRT's general working capital needs in the ordinary course of business and
permitted acquisitions.
Borrowings under the bank credit facility may be designated and maintained as
either a base rate loan or a Eurodollar loan. Interest accrues on the base rate
loans at a rate equal to 0.75% plus the higher of the federal funds rate plus
0.5% and the prime lending rate. Interest accrues on the Eurodollar loans at a
rate equal to 1.75% plus the British Bankers' Association interest settlement
rate (or if not available, by reference to the London interbank market rate).
NRT had borrowings of $30,000 under this facility at March 31, 1999 with
interest at 6.75%.
NRT's obligations arising under the bank credit facility are secured by a
pledge of the capital stock of NRT's subsidiaries and are guaranteed by NRT's
subsidiaries. The guarantees are secured by a pledge of the capital stock of
the guarantors' subsidiaries.
The bank credit facility is available to NRT until May 29, 2001. NRT has the
intent and ability to maintain the $30,000 borrowing for at least the next
twelve months. Accordingly, the borrowing is classified as a long-term
liability in the accompanying balance sheet.
On February 9, 1999, NRT and Cendant entered into the Acquisition Services
Agreement, pursuant to which NRT has agreed to provide advisory services to
Cendant relating to the identification of potential acquisition candidates, the
negotiation of agreements and other services in connection with future
brokerage acquisitions by NRT. In exchange for such advisory services, Cendant
paid NRT $30,000 as an advance against the fees that are payable to NRT
pursuant to a fee schedule attached to the Acquisition Services Agreement,
which, among other things, takes into account the size of NRT's future
brokerage acquisitions. In no event will Cendant be required to advance
additional amounts to NRT in respect of the advisory services. The portion of
the advance that is paid but not earned under the Acquisition Services
Agreement will be refundable to Cendant in the event that services under the
Acquisition Services Agreement are not provided to Cendant. The Acquisition
Services Agreement has a ten-year term, unless earlier terminated upon mutual
consent of the parties.
On February 9, 1999, NRT declared a $45,000 cash dividend on its common stock
to Apollo, $30,000 of which was paid on February 11, 1999 and the remaining
$15,000 was paid on April 2, 1999.
On April 6, 1999, NRT repurchased 574,575 shares of common stock from Apollo
for $10,725. The unaudited pro forma balance sheet at March 31, 1999 gives
effect to the stock repurchase.
On February 10, 1999, NRT filed a registration statement on Form S-1 with the
Securities and Exchange Commission to effect an initial public offering of its
common stock. Under the proposed offering, NRT will offer 9,375,000 shares of
common stock and Apollo will offer 4,687,500 shares of its common stock. At
March 31, 1999, NRT had recorded $1,128 of costs related to the offering in
prepaid expenses and other current assets. Such amounts will be recognized as
expenses if the offering is not completed.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of the Jon Douglas Companies:
We have audited the accompanying combined statements of operations,
shareholders' deficit and cash flows of Jon Douglas Company (a California
corporation), San Vicente Escrow Company (a California corporation), Equity
Title Company (a California corporation), Douglas Referral Associates (a
California corporation) and Jon Douglas Financial (a California corporation)
(collectively, the "Jon Douglas Companies" or "Predecessor"), all of which are
under common ownership and common management, for the period January 1, 1995
through November 14, 1995. These combined financial statements are the
responsibility of the Jon Douglas Companies' management. Our responsibility is
to express an opinion on these combined financial statements based on our
audit.
We conducted our audit 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 statements of operations,
shareholders' deficit and cash flows are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the combined statements of operations, shareholders' deficit and
cash flows. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the combined statements of operations, shareholders' deficit
and cash flows. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined statements of operations, shareholders' deficit
and cash flows referred to above present fairly, in all material respects, the
combined results of operations and combined cash flows of the Jon Douglas
Companies for the period January 1, 1995 through November 14, 1995 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Costa Mesa, California
July 10, 1998
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Jon Douglas Real Estate Services Group, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' deficit and cash flows of Jon Douglas Real Estate Services Group,
Inc., a Delaware corporation (the "Company"), for the year ended December 31,
1996 and the period from November 15, 1995 to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated statements of operations, shareholders'
deficit and cash flows referred to above present fairly, in all material
respects, the consolidated results of operations and cash flows of Jon Douglas
Real Estate Services Group, Inc. for the year ended December 31, 1996 and the
period from November 15, 1995 to December 31, 1995 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
March 19, 1997
F-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Jon Douglas Real Estate Services Group, Inc.:
We have audited the accompanying consolidated statements of operations,
shareholders' deficit and cash flows of Jon Douglas Real Estate Services Group,
Inc., a Delaware corporation (the "Company"), for the nine months ended
September 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated statements of operations,
shareholders' deficit and cash flows are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated statements of operations, shareholders' deficit
and cash flows. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated statements of operations, shareholders'
deficit and cash flows. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated statements of operations, shareholders'
deficit and cash flows referred to above present fairly, in all material
respects, the consolidated results of operations and cash flows of Jon Douglas
Real Estate Services Group, Inc. for the nine months ended September 30, 1997
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Costa Mesa, California
July 10, 1998
F-30
<PAGE>
JON DOUGLAS REAL ESTATE SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Predecessor
------------
Jon Douglas
Companies
------------ November 15,
January 1, 1995 (date of Nine months
1995 to merger) to Year ended ended
November 14, December 31, December 31, September 30,
1995 1995 1996 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES............................................................... $80,579 $29,700 $269,875 $234,914
COSTS AND EXPENSES:
Commissions and fees................................................. 48,848 19,623 178,121 156,346
Compensation and benefits............................................ 15,212 3,647 31,736 26,007
Rent (Notes 4 and 6)................................................. 5,644 2,230 14,207 11,064
Advertising and marketing............................................ 2,608 871 6,808 5,015
Legal (Note 6)....................................................... 2,375 1,098 2,037 4,454
General and administrative........................................... 6,772 2,172 16,951 14,361
Franchise fees and other expenses (Note 4)........................... 230 3,656 3,090
Depreciation and amortization........................................ 1,235 523 3,455 2,421
Merger costs and severence payments (Note 7)......................... 12,089
------- ------- -------- --------
Total costs and expenses............................................. 82,694 30,394 256,971 234,847
------- ------- -------- --------
OPERATING (LOSS) INCOME................................................ (2,115) (694) 12,904 67
INTEREST EXPENSE....................................................... (640) (483) (3,629) (2,297)
------- ------- -------- --------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES........................ (2,755) (1,177) 9,275 (2,230)
PROVISION FOR INCOME TAXES (Note 3).................................... 4 5 2,092 751
------- ------- -------- --------
NET (LOSS) INCOME...................................................... $(2,759) $(1,182) $ 7,183 $ (2,981)
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
JON DOUGLAS REAL ESTATE SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
Common shares Additional
------------- paid-in Accumulated
Shares Amount capital deficit Total
------ ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Predecessor: Jon Douglas
Companies
BALANCE, January 1, 1995........ 55 $754 $453 $ (5,101) $ (3,894)
Dividends paid................. (930) (930)
Net loss for the period January
1, 1995 to November 14, 1995.. (2,759) (2,759)
----- ---- ---- -------- --------
BALANCE, November 14, 1995...... 55 754 453 (8,790) (7,583)
Jon Douglas Real Estate Services
Group, Inc.:
Capital formation and merger
adjustments.................... 945 (744) (11) (18,337) (19,092)
----- ---- ---- -------- --------
BALANCE, November 15, 1995...... 1,000 10 442 (27,127) (26,675)
Net loss for the period
November 15, 1995 (date of
merger) to December 31, 1995.. (1,182) (1,182)
----- ---- ---- -------- --------
BALANCE, December 31, 1995...... 1,000 10 442 (28,309) (27,857)
Net income..................... 7,183 7,183
----- ---- ---- -------- --------
BALANCE, December 31, 1996...... 1,000 10 442 (21,126) (20,674)
Net loss....................... (2,981) (2,981)
----- ---- ---- -------- --------
BALANCE, September 30, 1997..... 1,000 $ 10 $442 $(24,107) $(23,655)
===== ==== ==== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE>
JON DOUGLAS REAL ESTATE SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Predecessor
------------
Jon Douglas
Companies
------------ November 15,
January 1, 1995 (date of Nine months
1995 to merger) to Year ended ended
November 14, December 31, December 31, September 30,
1995 1995 1996 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income...................................................... $(2,759) $(1,182) $ 7,183 $(2,981)
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization........................................ 1,235 523 3,455 2,421
Write-off of deferred costs.......................................... 1,187
Write-off of other assets............................................ 326
Change in certain assets and liabilities:
Restricted cash.................................................... 106 (73) (45)
Commissions receivable............................................. (217) 115 (13) 135
Notes and other receivables, net................................... (375) 585 (1,267) (221)
Prepaid expenses and other......................................... (121) (667) 275 223
Other assets....................................................... (411) 166 (117) 153
Deferred tax asset................................................. (867)
Accounts payable and accrued expenses.............................. 669 501 1,459 5,497
Accrued office closure costs....................................... 1,367 (220) (1,695) 250
Deferred indemnity fees............................................ 132 (226) (872) 1,154
Claims liability................................................... 422 (1,908) 2,436
Other liabilities.................................................. (24) (752) 360 56
Deferred tax liability............................................. 41
------- ------- ------- -------
Net cash (used in) provided by operating activities.............. (398) (735) 5,961 10,591
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements...................... (462) (121) (2,500) (1,429)
Additions to deferred costs............................................ (88)
------- ------- ------- -------
Net cash used in investing activities............................ (462) (121) (2,588) (1,429)
CASH FLOWS FROM FINANCING ACTIVITIES:
Release of restricted cash............................................. 56
Borrowings from notes payable.......................................... 2,614
Repayments of notes payable............................................ (900) (43) (1,511) (5,936)
Dividends paid......................................................... (930)
------- ------- ------- -------
Net cash provided by (used in) financing activities.............. 784 13 (1,511) (5,936)
------- ------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................... (76) (843) 1,862 3,226
CASH AND CASH EQUIVALENTS, beginning of period......................... 4,591 4,283 3,440 5,302
------- ------- ------- -------
CASH AND CASH EQUIVALENTS, end of period............................... $ 4,515 $ 3,440 $ 5,302 $ 8,528
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE--
Cash paid during the year for:
Interest........................................................... $ 637 $ -- $ 3,562 $ 2,732
======= ======= ======= =======
Income tax......................................................... $ 76 $ -- $ 3,666 $ 2,279
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE>
JON DOUGLAS REAL ESTATE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. ORGANIZATION AND BASIS OF PRESENTATION
On November 15, 1995, Jon Douglas Real Estate Services Group, Inc. (the
"Company") was formed for the purpose of merging the Jon Douglas Company and
certain of its affiliates (collectively, the "Jon Douglas Companies" or
"Predecessor") with Prudential California Realty and certain of its affiliates
(collectively, the "Prudential Companies"). The Company accounted for the
transaction using the historical cost amounts of the Jon Douglas Companies and
the Prudential Companies (carryover basis). The acquisition of minority
interests was accounted for as a purchase, with the excess acquisition cost
being assigned to goodwill.
In February 1996, Jon Douglas Financial (a wholly owned subsidiary of the
Company) was merged into Hamera Corp. ("Hamera"), with Hamera as the surviving
corporation. In connection with this merger, the Company became the owner of
100% of the issued and outstanding stock of the post-merger Hamera (Note 4).
The accompanying consolidated financial statements present the operations of
the Company for the period November 15, 1995 (date of merger) to December 31,
1995, the year ended December 31, 1996 and the nine months ended September 30,
1997 and its Predecessor for the period January 1, 1995 to November 14, 1995.
The Jon Douglas Companies' financial statements are presented for the period
January 1, 1995 to November 14, 1995, the date prior to the merger with the
Prudential Companies (the "Merger"). The Company's financial statements are
presented from the date of the Merger through its sale of operations to NRT
Incorporated (Note 7). Because of merger adjustments recorded by the Company
and its Predecessor, the accompanying consolidated financial statements of the
Company are not directly comparable to those of its Predecessor.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The Company--The Company is primarily engaged in the business of providing
residential real estate brokerage, title, mortgage, escrow, information and
other real estate related services throughout California.
Principles of Consolidation--The accompanying consolidated financial
statements were prepared in accordance with generally accepted accounting
principles and include the accounts of the Company and its wholly owned
subsidiaries, including: Jon Douglas Company, a California corporation; West
Coast Escrow Company, a California corporation (formerly San Vicente Escrow
Company); Equity Title Company, a California corporation; Douglas Referral
Associates, a California corporation; and Jon Douglas Financial, a California
corporation (including comparable operations of its predecessor). See
"Organization and Basis of Presentation" above. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Revenue Recognition--Real estate commission revenues and the related
commission expenses earned by agents are recognized upon the close of escrow or
transfer of title.
F-34
<PAGE>
JON DOUGLAS REAL ESTATE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Escrow and loan fees are recognized as income at the close of escrow.
Title premium fees are recognized as income in the period the title policy is
issued. A liability for estimated claim costs relating to title insurance
policies issued is recorded when premium revenue is recognized and is based on
prior experience.
Depreciation and Amortization--Depreciation on furniture and equipment is
computed using the straight-line method over the estimated useful lives ranging
from two to seven years. Amortization on leasehold improvements is computed
using the straight-line method over the shorter of the term of the leases,
excluding options to renew, or their estimated useful lives.
Deferred Costs--Deferred costs represent costs incurred in financing and are
amortized over the term of the related debt.
Amortization of Intangibles--Franchise costs are amortized over eight years
(the initial term of the franchise agreement) (Note 6) and goodwill is
amortized over 20 years. In addition, loan fees are amortized using the
effective interest method over the lives of the respective loans.
The Company periodically assesses whether there has been an impairment in the
value of goodwill and other intangible assets by considering factors such as
expected future operating income, trends and prospects, as well as the effects
of demand, competition and other economic factors.
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. The Jon Douglas Companies operated as S corporations during the period
January 1, 1995 to November 14, 1995. Accordingly, no provision for federal
income tax was made during the period.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications--Certain reclassifications have been made to the 1995 and
1996 amounts to conform to the 1997 presentation.
F-35
<PAGE>
JON DOUGLAS REAL ESTATE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. INCOME TAXES
The provision (benefit) for income taxes includes the following:
<TABLE>
<CAPTION>
Predecessor
------------
Jon Douglas
Companies
------------ November 15,
January 1, 1995 (date of Nine months
1995 to merger) to Year ended ended
November 14, December 31, December 31, September 30,
1995 1995 1996 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Federal:
Current........................................................... $ $ $2,151 $ --
Deferred.......................................................... 737 (702)
Change in valuation allowance..................................... (1,563) 1,453
--- --- ------ -----
1,325 751
State:
Current........................................................... 4 5 767 --
Deferred.......................................................... 6
Change in valuation allowance..................................... (6)
--- --- ------ -----
$ 4 $ 5 $2,092 $ 751
=== === ====== =====
</TABLE>
The reconciliation of (loss) income before provision for income taxes at the
statutory federal income tax rate to the Company's effective income tax rate is
as follows:
<TABLE>
<CAPTION>
Predecessor
------------
Jon Douglas
Companies
------------ November 15,
January 1, 1995 (date of Nine months
1995 to merger) to Year ended ended
November 14, December 31, December 31, September 30,
1995 1995 1996 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net pre-tax (loss) income at statutory federal rate................. -- (34.0)% 34.0% (34.0)%
State income taxes, net of federal benefit.......................... 0.2% (42.1) 5.4
Change in valuation allowance....................................... -- 76.5 (16.8)% 65.2
Other............................................................... -- 2.5
--- ----- ----- -----
0.2% 0.4% 22.6% 33.7%
=== ===== ===== =====
</TABLE>
The increase in the valuation allowance during the nine months ended
September 30, 1997 is due to the inability of the Company to realize any of the
tax benefit arising from the net operating loss sustained during the period.
The Jon Douglas Companies operated as Subchapter S corporations during the
period January 1, 1995 to November 14, 1995. As such, the Jon Douglas Companies
were not liable for federal income taxes, and accordingly, no provision for
federal income taxes was made during the period.
F-36
<PAGE>
JON DOUGLAS REAL ESTATE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. RELATED PARTY TRANSACTIONS
An affiliate of one of the Company's shareholders monitored its investment in
the Company, pursuant to an Investment Monitoring Agreement, for an annual fee
of $300. The investment monitoring fee amounted to $38, $300 and $225 for the
period November 15, 1995 (date of merger) to December 31, 1995, the year ended
December 31, 1996 and the nine months ended September 30, 1997, respectively.
In connection with the merger of the Company with PRGI, the Investment
Monitoring Agreement was terminated.
The Company leases certain office facilities from entities in which
shareholders of the Company have a financial interest. The rental payments to
these affiliated entities amounted to $236, $392, $510 and $440 during the
period January 1, 1995 to November 14, 1995, the period November 15, 1995 (date
of merger) to December 31, 1995, the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively.
In connection with the merger of Hamera, the Company issued irrevocable stock
options to certain former shareholders of Hamera which entitle them to purchase
up to 25% of the outstanding shares (subject to adjustment) of Hamera for a
nominal amount. In addition, Hamera agreed to make payments to certain former
shareholders based upon operating cash flow, as defined. During 1996 and 1997,
Hamera paid approximately $365 and $475 to these former shareholders, which is
included in other expenses in the accompanying consolidated statements of
operations.
5. EMPLOYEE BENEFIT PLAN
The Company adopted the Prudential employee benefit plan (the "Plan"), a
defined contribution profit sharing plan under Section 401(k) of the Internal
Revenue Code. During 1995, 1996 and the nine months ended September 30, 1997,
the Company did not authorize any contributions to the Plan. In connection with
the merger of the Company with PRGI, the Plan was terminated.
6. COMMITMENTS AND CONTINGENCIES
The Company had a claims management plan whereby, for an annual fee,
independent real estate agents who worked out of the Company's offices were
offered indemnification for claims filed against the Company and the real
estate sales agents within the covered period. The fees collected from the
agents for this indemnification were deferred and offset against legal expenses
ratably over the term of the covered period (one year). During the period
January 1, 1995 to November 14, 1995, the period November 15, 1995 (date of
merger) to December 31, 1995, the year ended December 31, 1996 and the nine-
month period ended September 30, 1997, fees of $1,197, $219, $2,622 and $2,080,
respectively, were recognized and recorded as a reduction of legal expense.
In accordance with a franchise agreement (the "Franchise Agreement"), prior
to the PRGI transaction the Company paid to Prudential Real Estate Affiliates,
Inc. ("PREA") a franchise fee
F-37
<PAGE>
JON DOUGLAS REAL ESTATE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
based on 1.14% of gross sales, as defined, and an advertising fee. In addition,
during 1996, certain PREA affiliates paid to the Company a management fee in
connection with this franchise agreement. The Franchise Agreement ceased
effective with the merger of the Company with PRGI (Note 7).
Equity Title Company had an agreement which expired in 1998 with an insurance
company whereby Equity Title was authorized to issue title insurance policies
on behalf of the insurance company. Equity Title pays a percentage of gross
title premiums to the insurance company and was responsible for up to $5,000 of
any losses incurred in connection with each policy issued. In addition, Equity
Title has a title plant agreement, expiring in 2000, with an insurance company
whereby Equity Title rents the title plant for a percentage of gross title
premiums. Because both the underwriting and plant costs are directly related to
Equity Title's revenues, the future fixed commitments under these agreements
cannot be determined.
Certain key executives entered into annual employment contracts with the
Company which guarantee a minimum annual base salary with incentive bonus
compensation based on achieving certain financial performance targets. In
connection with the merger of the Company with PRGI, such employment contracts
were terminated (Note 7).
As part of the consideration for a partial forgiveness of the Prudential
Companies' debt prior to the Merger, the Company agreed to a contingent payment
obligation ("CPO") equal to 10% of the Company's equity value, as defined, less
$20,000 upon the occurrence of certain events, including the sale of all or
substantially all of the Company's assets. In connection with the merger of the
Company with PRGI, the Company paid $1,000 to satisfy the CPO (Note 7).
The Company leases various properties under operating leases with terms
ranging from one to eight years. Aggregate future minimum payments of such
leases at September 30, 1997 are as follows:
<TABLE>
<S> <C>
Year ending September 30:
1998.................................................................. $ 9,189
1999.................................................................. 8,460
2000.................................................................. 6,173
2001.................................................................. 4,450
2002.................................................................. 2,908
Thereafter............................................................ 2,834
-------
Total............................................................. $34,014
=======
</TABLE>
The Company incurred rental expenses of $5,644, $2,230, $14,207 and $11,064
during the period January 1, 1995 to November 14, 1995, the period November 15,
1995 (date of merger) to December 31, 1995, the year ended December 31, 1996
and the nine-month period ended September 30, 1997, respectively.
F-38
<PAGE>
JON DOUGLAS REAL ESTATE SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. SUBSEQUENT EVENT
In September 1997, the Company merged with and into Property Resources Group,
Inc. ("PRGI"), a wholly owned subsidiary of Cendant Corporation, with the
Company being the surviving entity. Subsequent to the merger with PRGI, certain
of the Company's assets were acquired and certain liabilities assumed by NRT
Incorporated. Effective October 1, 1997, the Company's results of operations
were included in NRT Incorporated's consolidated financial statements.
In connection with the merger of the Company with PRGI, the Company recorded
certain merger-related expenses primarily related to employee severance
payments and termination fees associated with the early termination of
contractual obligations.
F-39
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Cornish & Carey Residential, Inc.
San Mateo, California
We have audited the accompanying statements of operations, shareholders'
equity and cash flows of Cornish & Carey Residential, Inc. (the "Company") for
the years ended December 31, 1995 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 statements of operations, shareholders'
equity and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of operations, shareholders' equity and cash flows. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statements of operations, shareholders' equity and cash flows. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the statements of operations, shareholders' equity and cash
flows referred to above, present fairly, in all material respects, the results
of operations and cash flows of Cornish & Carey Residential, Inc. for the years
ended December 31, 1995 and 1996 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
San Francisco, California
June 19, 1998
F-40
<PAGE>
CORNISH & CAREY RESIDENTIAL, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
June 30, June 30,
1996 1997
1995 1996 (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Real estate commissions.. $61,562,247 $81,820,650 $39,517,342 $44,401,437
Agent fees............... 1,391,069 1,367,899 580,837 590,172
Other revenues........... 932 226,187 126,216 275,909
----------- ----------- ----------- -----------
Total revenues......... 62,954,248 83,414,736 40,224,597 45,267,518
----------- ----------- ----------- -----------
EXPENSES:
Commissions and
referrals............... 42,017,224 57,045,512 27,048,177 31,396,761
Salaries and related
expenses................ 8,137,527 11,093,363 5,280,452 4,603,704
Facilities and related
expenses (Note 2)....... 4,487,478 4,979,577 2,463,805 2,343,613
Advertising and
promotion............... 3,051,250 3,238,123 1,678,574 1,674,129
Professional fees and
settlement costs........ 1,349,873 1,621,444 701,414 332,048
Depreciation and
amortization............ 978,237 1,177,323 541,910 653,563
General and
administrative.......... 1,931,709 1,889,358 428,860 1,040,709
----------- ----------- ----------- -----------
Total expenses......... 61,953,298 81,044,700 38,703,192 42,044,527
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS..... 1,000,950 2,370,036 1,521,405 3,222,991
OTHER INCOME (EXPENSE):
Interest income.......... 32,171 135,717 32,780 73,413
Interest expense......... (102,092) (117,200) (58,035) (37,412)
Other income............. 178,049 153,285 -- 94,092
Other expense (Note 6)... (489,205) (199,834) (108,144) (4,403)
----------- ----------- ----------- -----------
Total other income
(expense)............. (381,077) (28,032) (133,399) 125,690
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX
PROVISION................. 619,873 2,342,004 1,388,006 3,348,681
INCOME TAX PROVISION (Note
3)........................ 284,842 958,422 567,077 1,372,357
----------- ----------- ----------- -----------
NET INCOME................. $ 335,031 $ 1,383,582 $ 820,929 $ 1,976,324
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-41
<PAGE>
CORNISH & CAREY RESIDENTIAL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Total
----------------- Retained Shareholders'
Shares Amount Earnings Equity
------ --------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995........ 3,648 $ 693,199 $ 2,288,564 $ 2,981,763
Repurchase and retirement of
common stock (Note 5).......... (730) (138,716) (861,284) (1,000,000)
Net income...................... 335,031 335,031
----- --------- ----------- -----------
BALANCE, December 31, 1995...... 2,918 554,483 1,762,311 2,316,794
Dividends paid.................. (300,000) (300,000)
Net income...................... 1,383,582 1,383,582
----- --------- ----------- -----------
BALANCE, December 31, 1996...... 2,918 554,483 2,845,893 3,400,376
Dividends paid (unaudited)...... (1,052,210) (1,052,210)
Net income (unaudited).......... 1,976,324 1,976,324
----- --------- ----------- -----------
BALANCE, June 30, 1997
(unaudited).................... 2,918 $ 554,483 $ 3,770,007 $ 4,324,490
===== ========= =========== ===========
</TABLE>
See notes to financial statements.
F-42
<PAGE>
CORNISH & CAREY RESIDENTIAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
------------------------
June 30, June 30,
1996 1997
1995 1996 (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................ $ 335,031 $ 1,383,582 $ 820,929 $ 1,976,324
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization........... 978,237 1,177,323 541,910 653,563
Provision for deferred
income taxes........... 221,000 (87,000) (52,000) 26,000
Loss on sale of fixed
assets................. 3,310 69,155 4,137 4,403
Loss on disposition of
fixed assets included
in loss on office
closures............... 41,719 41,719
Loss on sale of land and
real property held for
resale................. 31,819
Gain on investment in
partnerships........... (25,364)
Change in operating
assets and liabilities:
Receivables........... (184,303) (150,693) (920,494) (263,489)
Refundable income
taxes................ (88,000) 110,000
Prepaid expenses...... 422,840 (104,654) ( 79,650) (29,325)
Refundable deposits... (3,553) (254) (141,401) (181,965)
Accounts payable...... (21,908) 1,151,673 1,671,251 (308,705)
Accrued expenses...... 150,953 359,585 915,558 533,297
----------- ----------- ---------- -----------
Net cash provided by
operating
activities......... 1,820,062 3,950,436 2,801,959 2,410,103
----------- ----------- ---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Investment in
partnership.............. (33,844) 5,052
Proceeds from investment
in partnership........... 126,230
Proceeds from sale of land
and real property held
for sale................. 253,181
Principal payments
received on notes
receivable............... 36,125 177,538 106,246
Issuance of notes
receivable............... (264,937) (112,245) (97,455) (9,810)
Proceeds from disposition
of fixed assets.......... 7,709 8,141 8,141 55,604
Purchase of fixed assets.. (1,876,031) (1,744,333) (617,609) (309,093)
----------- ----------- ---------- -----------
Net cash used in
investing
activities......... (1,717,723) (1,704,743) (602,677) (258,247)
----------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on
long-term debt........... (571,399) (877,995) (295,043) (269,486)
Proceeds from long-term
debt..................... 666,412 500,296 500,296
Dividend paid............. (300,000) -- (1,052,210)
Repurchase of common
stock.................... (400,000)
----------- ----------- ---------- -----------
Net cash (used in)
provided by
financing
activities......... (304,987) (677,699) 205,253 (1,321,696)
----------- ----------- ---------- -----------
(DECREASE) INCREASE IN CASH
AND EQUIVALENTS............ (202,648) 1,567,994 2,404,535 830,160
CASH AND CASH EQUIVALENTS,
Beginning of year.......... 1,426,339 1,223,691 1,223,691 2,791,685
----------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS,
End of year................ $ 1,223,691 $ 2,791,685 $3,628,226 $ 3,621,845
=========== =========== ========== ===========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid............. $ 102,000 $ 117,000 $ 58,000 $ 37,000
=========== =========== ========== ===========
Income taxes paid......... $ 185,000 $ 93,000 $ 45,000 $ 872,000
=========== =========== ========== ===========
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Notes payable issued in
repurchase of common
stock.................... $ 600,000 $ -- $ -- $ --
=========== =========== ========== ===========
Notes payable issued in
acquisition of fixed
assets................... $ 82,407 $ -- $ -- $ --
=========== =========== ========== ===========
</TABLE>
See notes to financial statements.
F-43
<PAGE>
CORNISH & CAREY RESIDENTIAL, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997 (UNAUDITED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business--Cornish & Carey Residential, Inc. (the "Company")
provides real estate marketing and brokerage services related to residential
properties. The Company provides these services from 23 separate offices
located in Northern California. In 1996, the Company also began licensing its
name to other high-end residential real estate brokerages in the Bay Area.
During September 1997, certain of the Company's assets were acquired and
certain liabilities were assumed by NRT Incorporated.
Revenue Recognition--Commissions are recognized upon the close of escrow.
Fees paid by agents are recognized as supporting services are rendered to
agents.
Depreciation and Amortization--Depreciation is computed using the straight-
line method over estimated useful lives of three to seven years.
Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the lease term or the estimated useful life of the
assets.
Commission and Referral Expenses--Commission expenses are recorded upon the
close of escrow. Referral expenses are recorded as services are performed.
Cash and Cash Equivalents--For purposes of the statement of cash flows, the
Company considers all highly-liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
The Company routinely maintains cash deposits with a major financial
institution. Such deposits exceed the $100,000 limit insured by the Federal
Deposit Insurance Corporation.
Advertising Costs--Costs associated with the production of advertising, such
as writing copy, printing, and other costs, are charged to expense when
incurred. Costs associated with communicating advertising that has been
produced, such as newspaper and billboard space, are charged to expense as
services are received.
Income Taxes--The Company uses the liability method to account for income
taxes. Deferred income tax assets and liabilities result when the Company's
carrying value for assets and liabilities for income tax purposes is different
from the amount on its financial statements. Deferred income taxes result
principally from depreciation, franchise tax expense, and reserves recorded for
financial statement purposes which are not deductible for income tax purposes
until realized.
F-44
<PAGE>
CORNISH & CAREY RESIDENTIAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Unaudited Information--The financial information with respect to the six-
months ended June 30, 1996 and June 30, 1997 is unaudited. In the opinion of
management, such information contains all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of such periods. The results of operations for the six-months ended June 30,
1996 and June 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
2. COMMITMENTS AND CONTINGENCIES
Lease Commitments--The Company leases its office facilities under operating
lease agreements. Rent expense in 1995 and 1996 was approximately $3,394,000
and $3,652,000, respectively. Rent expense during the six-months ended June
30, 1996 and June 30, 1997 (unaudited) was $1,861,000 and $1,720,000,
respectively.
At June 30, 1997 (unaudited), future minimum operating lease payments are
approximately:
<TABLE>
<S> <C>
Year ending June 30 (unaudited):
1998.......................................................... $ 2,713,152
1999.......................................................... 1,984,199
2000.......................................................... 1,305,648
2001.......................................................... 880,888
2002.......................................................... 621,528
Thereafter.................................................... 3,323,004
-----------
Total........................................................... $10,828,419
===========
</TABLE>
The Company leased certain of its office facilities from a related party in
1995. Rent paid for these facilities in 1995 was approximately $434,000. As of
November 1995, the lessor is no longer considered a related party.
Contingencies--The Company is involved in certain legal actions and claims
arising in the ordinary course of its business. While the Company believes
many of these claims are without merit, from time to time it will settle
matters to avoid the cost of litigation. During 1995 and 1996, the Company
settled several matters for aggregate payments of approximately $482,000 and
$415,000, respectively. Settlement payments during the six months ended June
30, 1996 and June 30, 1997 (unaudited) were approximately $269,000 and
$100,000, respectively. In addition, the Company provides reserves against
matters that are still pending, when it believes it is appropriate to do so.
With respect to all known unsealed actions and claims, the Company believes
they will be resolved without material effect on the Company's financial
position or results of operations and cash flows.
F-45
<PAGE>
CORNISH & CAREY RESIDENTIAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
June 30, June 30,
December 31, December 31, 1996 1997
1995 1996 (Unaudited) (Unaudited)
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal................. $ 57,889 $ 814,703 $482,840 $1,138,739
State................... 5,953 230,719 136,237 207,618
-------- ---------- -------- ----------
Total................. 63,842 1,045,422 619,077 1,346,357
-------- ---------- -------- ----------
Deferred:
Federal................. 166,000 (86,000) (51,000) 22,000
State................... 55,000 (1,000) (1,000) 4,000
-------- ---------- -------- ----------
Total................. 221,000 (87,000) (52,000) 26,000
-------- ---------- -------- ----------
Total..................... $284,842 $ 958,422 $567,077 $1,372,357
======== ========== ======== ==========
</TABLE>
The reconciliation between the Company's effective tax rate and the
statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
June 30, June 30,
December 31, December 31, 1996 1997
1995 1996 (Unaudited) (Unaudited)
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Statutory federal income
tax rate................ 34.0% 34.0% 34.0% 34.0%
State income taxes, net
of federal tax benefit.. 6.2 6.2 6.2 6.2
Nondeductible
entertainment and
officers' life
insurance............... 3.5 0.7 0.7 0.4
Tax-exempt dividend
income.................. (1.1) (0.5) (0.4)
Other.................... 3.4 0.5 0.4 0.4
---- ---- ---- ----
Total.................... 46.0% 40.9% 40.9% 41.0%
==== ==== ==== ====
</TABLE>
4. PENSION PLAN
The Company had a defined contribution pension plan (401(k) plan). All
employees over the age of 21 who completed at least one year of service were
eligible to participate. Participants could elect to have amounts deducted
from their compensation and contributed to the 401(k) plan up to the limit
allowed by applicable laws. All such contributions were fully vested to the
employee. While the Company was not required to make contributions to the
401(k) plan, it had accrued a $35,000 and $30,000 contribution for 1995 and
1996, respectively. For the six months ended June 30, 1996 and 1997, the
Company had accrued $15,000 and $15,000, respectively. Subsequent to the
acquisition (Note 1), the plan was terminated.
5. RELATED-PARTY TRANSACTIONS
During 1995, the Company repurchased and retired capital stock from a
shareholder. The Company purchased the shares for $1,000,000 ($400,000 in cash
and $600,000 in a note).
F-46
<PAGE>
CORNISH & CAREY RESIDENTIAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. INVESTMENT IN MARKETING VENTURE
During 1995, the Company purchased the operating rights to certain
specialized computer software to enhance its residential home marketing
efforts. Because of the developer's inability to continue supporting and
maintaining the software, the Company abandoned these assets in October 1995.
The total costs written off related to these assets amount to approximately
$406,000 and are included in other expense in the accompanying statements of
operations.
F-47
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Contempo Realty, Inc.
Contempo Relocation, Inc.
and
To the Partners of Blossom Valley Partnership
Morgan Hill Partnership
Bascom Partnership
We have audited the accompanying combined statements of operations, owners'
equity and cash flows of Contempo Realty, Inc., Contempo Relocation, Inc. and
the Blossom Valley, Morgan Hill and Bascom general partnerships, which are
under common ownership and common management, for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the management of the companies and partnerships. Our
responsibility is to express an opinion on these 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 statements of operations,
owners' equity and cash flows are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the combined statements of operations, owners' equity and cash
flows. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the combined statements of operations, owners' equity and cash
flows. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined statements of operations, owners' equity and
cash flows present fairly, in all material respects, the combined results of
operations of the companies and partnerships referred to above and their
combined cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Francisco, California
June 26, 1998
F-48
<PAGE>
CONTEMPO REALTY
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Commission income........................ $34,615,265 $36,807,848 $54,333,863
Other revenues........................... 2,325,102 3,102,626 2,033,736
----------- ----------- -----------
Total.................................. 36,940,367 39,910,474 56,367,599
EXPENSES:
Commission and referral fees............. 26,805,532 29,193,097 42,592,573
Salaries and related expenses............ 2,338,300 2,514,483 4,004,671
Facilities and related expenses.......... 2,206,076 2,215,809 2,558,936
Advertising and promotion................ 1,214,832 1,216,675 1,117,804
Depreciation and amortization............ 372,946 498,478 499,059
General and administrative............... 3,438,423 3,203,931 3,452,880
----------- ----------- -----------
Total.................................. 36,376,109 38,842,473 54,225,923
----------- ----------- -----------
INCOME FROM OPERATIONS..................... 564,258 1,068,001 2,141,676
OTHER INCOME............................... 74,725 107,264 51,361
----------- ----------- -----------
INCOME BEFORE INCOME TAX PROVISION......... 638,983 1,175,265 2,193,037
PROVISION FOR INCOME TAX (Note 2).......... 12,902 219,599 433,660
----------- ----------- -----------
NET INCOME................................. $ 626,081 $ 955,666 $ 1,759,377
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-49
<PAGE>
CONTEMPO REALTY
COMBINED STATEMENTS OF OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
Shareholders' Equity
------------------------
Common Stock Total
Partners' --------------- Retained Owners'
Equity Shares Amount Earnings Equity
---------- ------ -------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994..... $ 170,189 32,061 $325,911 $151,815 $ 647,915
CASH DISTRIBUTIONS........... (758,849) (758,849)
NET INCOME (LOSS)............ 643,863 (17,782) 626,081
---------- ------ -------- -------- ----------
BALANCE, DECEMBER 31, 1994... 55,203 32,061 325,911 134,033 515,147
CASH DISTRIBUTIONS........... (515,859) (515,859)
NET INCOME................... 766,708 188,958 955,666
---------- ------ -------- -------- ----------
BALANCE, DECEMBER 31, 1995... 306,052 32,061 325,911 322,991 954,954
CASH DISTRIBUTIONS........... (920,632) (920,632)
NET INCOME................... 1,276,439 482,938 1,759,377
---------- ------ -------- -------- ----------
BALANCE, DECEMBER 31, 1996... $ 661,859 32,061 $325,911 $805,929 $1,793,699
========== ====== ======== ======== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-50
<PAGE>
CONTEMPO REALTY
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
--------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 626,081 $ 955,666 $ 1,759,377
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................... 372,946 498,478 499,059
Loss on disposal of fixed assets....... 8,403 2,274 36,392
Changes in assets and liabilities:
Receivables.......................... (21,509) (139,572) (102,054)
Prepaid expenses..................... (49,974)
Other assets......................... (36,845) (39,978) (60,924)
Trade payables....................... (34,560) 176,944 17,177
Accrued expenses..................... 14,951 99,256 81,868
Other liabilities.................... (60,498) 19,800 249,164
--------- ---------- -----------
Net cash provided by operating
activities........................ 868,969 1,572,868 2,430,085
--------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets....... 2,564
Purchase of property and equipment....... (877,000) (792,732) (431,796)
Investment in affiliated entities........ (68,306) (150,920)
Distributions from affiliated entities... 85,729 2,834
--------- ---------- -----------
Net cash used in investing
activities........................ (791,271) (861,038) (577,318)
--------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid....................... (758,849) (515,859) (920,632)
Increase (decrease) in credit line
payable................................. 65,801 4,298 (25,444)
Increase (decrease) in notes payable..... 527,808 129,420 (268,876)
Repayments of loans from shareholders.... (48,134) (44,997) (262,464)
--------- ---------- -----------
Net cash used in financing
activities........................ (213,374) (427,138) (1,477,416)
--------- ---------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................... (135,676) 284,692 375,351
CASH AND CASH EQUIVALENTS, beginning of
year...................................... 741,741 606,065 890,757
--------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of year..... $ 606,065 $ 890,757 $ 1,266,108
========= ========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION--
Interest paid............................ $ 69,000 $ 168,000 $ 111,000
========= ========== ===========
Income taxes paid........................ $ -- $ 190,000 $ 430,000
========= ========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-51
<PAGE>
CONTEMPO REALTY
NOTES TO COMBINED STATEMENTS OF OPERATIONS,
OWNERS' EQUITY AND CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation--The statements of operations, owners' equity and cash flows for
Contempo Realty, Inc., Contempo Relocation, Inc., and the Morgan Hill, Almaden
and Bascom general partnerships (collectively, the "Company" or "Contempo
Realty") have been combined, due to common ownership and common management, and
are presented herein. Contempo Realty, Inc. has a 10% direct interest in each
of the partnerships.
Nature of Business--The Company provides real estate marketing and brokerage
services related to resident properties. The Company operates business
locations in Santa Clara, San Benito and Alameda Counties.
During March 1997, the Company was acquired by Coldwell Banker Residential
Brokerage Corporation, an affiliate of National Realty Trust.
Cash and Cash Equivalents--The Company considers cash investments with a
maturity of three months or less at the time of purchase to be cash
equivalents.
Depreciation and Amortization--Depreciation is computed using the straight-
line method over estimated useful lives of three to seven years.
Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the lease term or the estimated useful life of the
assets.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition--Real estate commissions are recorded as revenue upon
close of escrow or upon transfer of title. Other fees including management and
referral fees are recorded as revenue at the time the related services have
been performed by the Company unless significant future contingencies exist.
Income Taxes--The Company uses the same method of depreciation for financial
reporting purposes as used for federal income tax reporting purposes. There is
no deferred tax liability, as there are no timing differences relating to
income or expenses.
Income tax has been provided only on the income of Contempo Realty, Inc. and
Contempo Relocation, Inc. (the "Corporations"). This includes the Corporations'
share of the partnerships' income. No tax has been provided for the
partnerships as this tax is the responsibility of the individual partners.
F-52
<PAGE>
CONTEMPO REALTY
NOTES TO COMBINED STATEMENTS OF OPERATIONS,
OWNERS' EQUITY AND CASH FLOWS--(Continued)
2. INCOME TAX PROVISION
As tax is only provided on the Corporations' (loss) income, the following
table shows the corporate taxable income for each year:
<TABLE>
<CAPTION>
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Corporate (loss) income..................... $ (4,880) $ 408,557 $ 916,598
Partnership income.......................... 643,863 766,708 1,276,439
-------- ---------- ----------
Income before income tax provision.......... $638,983 $1,175,265 $2,193,037
======== ========== ==========
</TABLE>
The income tax provision consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Federal............................................ $ 9,128 $183,856 $363,076
State.............................................. 3,774 35,743 70,584
------- -------- --------
Total.............................................. $12,902 $219,599 $433,660
======= ======== ========
</TABLE>
The Company has no federal or state carryovers or deferred tax attributes
remaining as of December 31, 1996.
The reconciliation between the Corporations' effective tax rate on income
before taxes and the statutory federal income tax rate is as follows at
December 31:
<TABLE>
<CAPTION>
1994 1995 1996
------ ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate................... 34.0 % 34.0 % 34.0 %
State income taxes, net of federal benefit.......... 6.2 6.2 6.2
Nondeductible entertainment and officers' life in-
surance............................................ 12.3 1.8 1.0
Taxable interentity partnership income.............. (293.2) 14.7 9.1
Others.............................................. (23.7) (3.0) (3.0)
------ ---- ----
Total............................................... (264.4)% 53.7 % 47.3 %
====== ==== ====
</TABLE>
3. MINIMUM LEASE COMMITMENTS
The Company leases its office facilities under operating lease agreements.
Rent expense in 1994, 1995 and 1996 was $1,634,000, $1,840,000 and $2,071,000,
respectively. Also, the Company is obligated under lease agreements for various
office equipment.
F-53
<PAGE>
CONTEMPO REALTY
NOTES TO COMBINED STATEMENTS OF OPERATIONS,
OWNERS' EQUITY AND CASH FLOWS--(Continued)
At December 31, 1996, future minimum operating lease payments for office
facilities and equipment are approximately:
<TABLE>
<CAPTION>
Office
Facilities Equipment
---------- ---------
<S> <C> <C>
Year ending December 31:
1997..................................................... $1,295,339 $239,758
1998..................................................... 1,161,219 180,371
1999..................................................... 825,444 64,469
2000..................................................... 482,909 22,660
2001..................................................... 388,404 3,779
Thereafter............................................... 47,486
---------- --------
Total...................................................... $4,200,801 $511,037
========== ========
</TABLE>
F-54
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Barbara Sue Seal Properties, Inc.
Portland, Oregon
We have audited the accompanying statements of operations and retained
earnings and of cash flows of Barbara Sue Seal Properties, Inc. (the "Company")
for the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of operations and retained
earnings and of cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of operations and retained earnings and of cash flows. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the statements of operations and retained earnings and of cash flows. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the statements of operations and retained earnings and of
cash flows referred to above, present fairly, in all material respects, the
results of operations and cash flows of Barbara Sue Seal Properties, Inc. for
the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Portland, Oregon
July 1, 1998
F-55
<PAGE>
BARBARA SUE SEAL PROPERTIES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
Year Ended September September 30,
December 31, 30, 1996 1997
1996 (unaudited) (unaudited)
------------ ----------- -------------
<S> <C> <C> <C>
REVENUES:
Real estate commissions............ $20,292,752 $15,455,489 $17,000,134
Other.............................. 392,013 96,546 47,391
----------- ----------- -----------
Total revenues................... 20,684,765 15,552,035 17,047,525
----------- ----------- -----------
EXPENSES:
Commissions........................ 13,455,268 9,829,784 11,474,149
Salaries and wages................. 1,806,585 1,408,419 1,407,303
Advertising and marketing.......... 1,784,286 1,210,478 1,297,049
Rent............................... 1,121,253 842,238 819,721
General and administrative......... 1,141,787 954,218 904,493
Depreciation and amortization...... 220,828 132,300 286,919
----------- ----------- -----------
Total expenses................... 19,530,007 14,377,457 16,189,634
----------- ----------- -----------
INCOME FROM OPERATIONS............... 1,154,758 1,174,578 857,891
----------- ----------- -----------
INTEREST INCOME (EXPENSE):
Interest income.................... 53,706 27,264 39,678
Interest expense................... (1,095) (1,095) (230)
----------- ----------- -----------
Interest income--net............. 52,611 26,169 39,448
----------- ----------- -----------
NET INCOME........................... 1,207,369 1,200,747 897,339
RETAINED EARNINGS, BEGINNING OF
PERIOD.............................. 1,728,273 1,728,273 1,677,642
DISTRIBUTIONS........................ (1,258,000) (730,000) (943,000)
----------- ----------- -----------
RETAINED EARNINGS, END OF PERIOD..... $ 1,677,642 $ 2,199,020 $ 1,631,981
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-56
<PAGE>
BARBARA SUE SEAL PROPERTIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1996 1997
1996 (unaudited) (unaudited)
---------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $1,207,369 $1,200,747 $ 897,339
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 220,828 132,300 286,919
Bad debt (recovery) expense........ 4,801 2,152 (8,108)
Gain on sale of investment in
securities........................ (34,854) (26,141) --
Change in:
Commissions receivable........... (44,134) 69,921 20,028
Other receivables................ (5,716) (7,011) (5,750)
Prepaid expenses................. 9,688 11,101 (5,898)
Accounts payable................. 112,876 1,479 (49,433)
Accrued bonuses and commissions
to agents....................... 199,518 (22,156) (257,239)
Deferred compensation............ 75,233 54,492 174,447
Accrued and related tax
benefits........................ 9,148 15,029 (12,130)
Other accrued liabilities........ 3,865 (59) (1,473)
---------- ---------- ----------
Net cash provided by operating
activities.................... 1,758,622 1,409,653 1,038,702
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements........................ (511,638) (389,228) (45,061)
Investment in securities, net........ (12,971) 262,104 143,881
Decrease (Increase) in notes
receivable.......................... 79,364 61,139 (50,109)
---------- ---------- ----------
Net cash (used in) provided by
investing activities.......... (445,245) (65,985) 48,711
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES--
Distributions......................... (1,258,000) (730,000) (943,000)
---------- ---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................... 55,377 613,668 144,413
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................ 276,637 276,637 332,014
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 332,014 $ 890,305 $ 476,427
========== ========== ==========
</TABLE>
See notes to financial statements.
F-57
<PAGE>
BARBARA SUE SEAL PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1997 (UNAUDITED)
1. ORGANIZATION
Barbara Sue Seal Properties, Inc. (the "Company"), founded in 1983, operates
as a real estate broker/dealer specializing in sales of prestigious residential
real estate in Oregon and Washington.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents include all cash balances and highly-liquid
investments, all of which have maturities of three months or less.
Depreciation--Equipment and leasehold improvements are stated at cost and are
depreciated using the straight-line and accelerated methods over the estimated
useful lives ranging from 5 to 31 years.
Revenue Recognition--Real estate commission revenues and the related
commission expenses earned by agents are recognized upon the close of escrow or
transfer of title.
Advertising Costs--Advertising costs are expensed when incurred.
Income Taxes--The Company has elected under the Internal Revenue Code to be
an S Corporation. In lieu of corporation income taxes, the stockholders of an S
Corporation are taxed on their proportionate share of the Company's taxable
income. Therefore, no provision or liability for federal income taxes has been
included in the financial statements.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Information--The financial information for the nine months ended
September 30, 1996 and 1997 is unaudited. In the opinion of management, such
information contains all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the results of such periods.
The results of operations for the nine months ended September 30, 1996 and 1997
are not necessarily indicative of the results to be expected for the full year.
3. LEASING COMMITMENTS
The Company leases office space under long-term operating lease agreements.
Most leases have original terms of five years with several three- to five-year
renewal options with terms and conditions similar to the original lease.
The Uptown branch is leased from the 100% stockholder of the Company, and the
Wilsonville branch is leased from the Seal Family, LLC, a related party. The
Sunset Corridor Branch is leased
F-58
<PAGE>
BARBARA SUE SEAL PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
from Seal-Wieden, LLC, a related party. Total rent paid to the stockholder and
related parties amounted to $285,008 for the year ended December 31, 1996 and,
$208,006 and $229,606 for the nine months ended September 30, 1996 and 1997,
respectively (unaudited).
The following is a schedule, by years, of future minimum lease payments under
leases that have initial or remaining noncancelable lease terms in excess of
one year at September 30, 1997 (unaudited):
<TABLE>
<CAPTION>
Year Ending September 30 (Unaudited):
<S> <C>
1998......................................................... $ 214,419
1999......................................................... 778,955
2000......................................................... 546,542
2001......................................................... 486,229
2002......................................................... 332,338
Thereafter................................................... 260,000
----------
$2,618,483
==========
</TABLE>
Beginning in 1995, the Company subleased a portion of its office space under
month-to-month leases. Sublease rental income was $99,600 in 1996.
Rental expense under operating leases was $1,121,253 for the year ended
December 31, 1996 and, $842,258 and $819,721 for the nine months ended
September 30, 1996 and 1997, respectively (unaudited).
4. RETIREMENT PLAN
The Company has a defined contribution profit sharing pension plan covering
substantially all of its employees with contributions set at the discretion of
management. The total contributions to the plan were $20,000 for the year ended
December 31, 1996 and, $8,100 and $20,000 for the nine months ended September
30, 1996 and 1997, respectively (unaudited).
5. DEFERRED COMPENSATION PLANS
The Company established a deferred compensation system in 1990 called the
President's Council. Employees are admitted into the Plan based on sales and
years of service and vest five years after entering the plan. The Company makes
contributions based on level of sales and years of service. The plan was
amended in March 1996, retroactive to January 1, 1995 to read that participants
in the plan who are 100% vested will not be allowed to withdraw from the plan
except for termination, retirement or economic hardship reasons.
The Company established an additional deferred compensation system in 1992
called the Roundtable. Employees are admitted into this plan based on sales and
years of service. The Company makes contributions based on level of sales and
years of service. Contributions to the President's Council and Roundtable
deferred compensation plans were $81,775 for the year ended December 31, 1996
and, $101,522 and $90,512 for the nine months ended September 30, 1996 and
1997, respectively (unaudited).
F-59
<PAGE>
BARBARA SUE SEAL PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. SUBSEQUENT EVENT
On October 10, 1997, the Company was acquired by NRT Incorporated. After the
acquisition, the Company became Coldwell Banker Barbara Sue Seal Properties.
As a result of the acquisition, the Company terminated the employee profit
sharing plan and both the President's Council and Roundtable deferred
compensation plans. In November 1997, participants' account balances were
dispersed resulting in total distributions of $652,197, $742,455, and $18,915,
for each of the respective plans.
* * * * * *
F-60
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
NRT Incorporated
14,062,500 Shares of Common Stock
---------------------
PROSPECTUS
---------------------
Donaldson, Lufkin & Jenrette
Bear, Stearns & Co. Inc.
BT Alex. Brown
Lehman Brothers
Merrill Lynch & Co.
Morgan Stanley Dean Witter
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters that are not stated in this prospectus. You must not rely on
unauthorized information. This prospectus is not an offer to sell these
securities or our solicitation of your offer to buy the securities in any
jurisdiction where that would not be permitted or legal. Neither the delivery
of this prospectus nor any sales made hereunder after the date of this
prospectus shall create any implication that the information contained herein
or the affairs of the company have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all dealers that
effect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as an underwriter in this offering and when selling
previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
Item 13. Other Expenses of Issuance and Distribution.
The following table indicates the estimated expenses to be incurred in
connection with the offering, all of which will be paid by NRT.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 62,550
NASD fee......................................................... 23,000
Nasdaq National Market listing fee............................... 95,000
Accounting fees and expenses..................................... 944,000
Legal fees and expenses.......................................... 901,000
Printing and engraving........................................... 1,000,000
Transfer agent's fees............................................ 5,000
Blue sky fees and expenses (including counsel fees).............. 7,500
Miscellaneous expenses........................................... 6,100
----------
Total.......................................................... $3,044,150
==========
</TABLE>
- ---------------------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
As permitted by Section 102(b)(7) of the General Corporation Law of the State
of Delaware, the Restated Certificate of Incorporation of NRT (filed herewith
as Exhibit 3.1) provides that no director shall be liable to NRT or its
stockholders for monetary damages for breach of fiduciary duty as a director
other than for (i) breaches of the directors' duty of loyalty to NRT and its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) the unlawful
payment of dividends or unlawful stock purchases or redemptions under Section
174 of the Delaware General Corporation Law and (iv) any transaction from which
the director derived an improper personal benefit.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines or amounts paid in settlement actually and reasonably
incurred by them in connection with the defense of any action by reason of
being or having been directors or officers, if such person shall have acted in
good faith in a manner reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful, except that if such action shall be in the right of the corporation,
no such indemnification shall be provided as to any claim, issue or matter as
to which such person shall have been adjudged to have been liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or the court in which the action was brought shall determine upon application
that, in view of all of the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the Court of
Chancery or other court shall deem proper.
II-1
<PAGE>
The Restated Certificate of Incorporation and the Amended and Restated By-
laws of NRT (filed herewith as Exhibit 3.2) provide for indemnification of
officers and directors of NRT, both past and present, to the fullest extent
permitted by the Delaware General Corporation law, and allow NRT to advance or
reimburse litigation expenses upon submission by the director or officer of an
undertaking to repay such advances or reimbursements if it is ultimately
determined that indemnification is not available to such director or officer
pursuant to the Amended and Restated By-laws. The Amended and Restated By-laws
also authorize NRT to purchase and maintain insurance on behalf of an officer
or director, past or present, against any liability asserted against him in any
such capacity whether or not NRT would have the power to indemnify him against
such liability under the provisions of its certificate of incorporation or
Section 145 of the Delaware General Corporation Law.
NRT intends to provide liability insurance for each of its directors and
officers against certain losses arising from claims made against them while
acting in their capacities as directors or officers of NRT, whether or not NRT
would have the power to indemnify such person against such losses, as permitted
by law.
The form of Underwriting Agreement filed herewith as Exhibit 1.1 provide,
among other things, for the indemnification by the underwriters of directors
and certain officers of NRT against certain liabilities.
Item 15. Recent Sales of Unregistered Securities.
In connection with the formation of NRT, on August 29, 1997, certain
affiliates of Apollo Management, L.P. purchased 100 shares of Common Stock of
NRT (subsequently split at the rate of 100,000 shares for each share
outstanding) for $20,000,000 in cash and 55,000 shares of 18.00% Series C
Cumulative Junior Redeemable Preferred Stock of NRT for $40,500,000 in cash. On
the same date, Cendant Corporation purchased 132,500 shares of 9.00% Series A
Cumulative Senior Redeemable Preferred Stock of NRT for $132,500,000 in cash
and 24,000 shares of 5.00% Series B Cumulative Convertible Redeemable Preferred
Stock of NRT for $24,000,000 in cash. On September 11, 1997, Cendant purchased
an additional 25,091 shares of senior preferred stock for $25,091,000 in cash,
and certain affiliates of Apollo purchased 13,510 shares of junior preferred
stock for $13,510,000 in cash. All such transactions were exempt from the
registration requirements of the Securities Act of 1933, as amended in reliance
on Section 4(2) of the Securities Act on the basis that such transactions did
not involve a public offering.
II-2
<PAGE>
Items 16. Exhibits
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1++ Form of Underwriting Agreement.
3.1* Form of Restated Certificate of Incorporation of NRT.
3.2* Form of Amended and Restated By-laws of NRT.
4.1+ Specimen of Common Stock Certificate.
5.1++ Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, regarding
legality of securities being registered.
10.1* Master Membership Agreement, dated as of February 9, 1999, between ERA
Franchise Systems, Inc. and NRT.
10.2* Master Century 21 Real Estate Franchise Agreement, dated as of
February 9, 1999, between Century 21 Real Estate Corporation and NRT.
10.3* Master Real Estate Franchise Agreement, dated as of February 9, 1999,
between Coldwell Banker Real Estate Corporation and NRT.
10.4* Form of Amended and Restated Stockholders Agreement, among NRT, Apollo
Management, L.P., Cendant Corporation and the stockholders named
therein.
10.5* Acquisition Cooperation Agreement, dated as of February 9, 1999,
between Cendant Corporation and NRT.
10.6* Marketing Agreement, dated as of August 11, 1997, between NRT and
Cendant Mortgage Corporation.
10.7* Program Outsourcing Agreement, dated as of February 9, 1999, between
NRT and Cendant Corporation.
10.8* Support Agreement, dated as of August 11, 1997, between Cendant
Corporation and NRT.
10.9* Advisory Services Agreement, dated as of August 11, 1997, among NRT
and Apollo Management, L.P.
10.10* Lease, dated as of August 11 , 1997, between NRT and Cendant (relating
to Parsippany, New Jersey property).
10.11* Lease, dated as of August 11, 1997, between NRT and Cendant (relating
to Mission Viejo, California property).
10.12* Acquisition Services Agreement, dated as of February 9, 1999, between
NRT and Cendant Corporation.
10.13* Development Advance Promissory Note, dated as of September 1, 1997,
between NRT and Coldwell Banker Real Estate Corporation.
10.14+ Amended and Restated Credit Agreement, dated as of March 31, 1999,
among NRT, The Chase Manhattan Bank, Bankers Trust Company and the
lending institutions party thereto.
10.15* NRT Incorporated 1997 Equity Participation Plan, as amended.
10.16* License Agreement, dated as of February 9, 1999, between Cendant and
NRT.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.17+ Amendment dated March 24, 1999 to Acquisition Cooperation Agreement
between Cendant Corporation and NRT.
10.18+ Purchase Agreement dated April 1, 1999, between Cendant Operations,
NRT and Apollo Investment Fund III, L.P., Apollo Overseas Partners
III, L.P. and Apollo (UK) Partners III, L.P.
11.1+ Calculation of Loss per Common Share.
21.1* Subsidiaries of NRT.
23.1++ Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1).
23.2++ Consent of Deloitte & Touche LLP.
23.3+ Consent of Deloitte & Touche LLP.
23.4+ Consent of Deloitte & Touche LLP.
23.5+ Consent of Deloitte & Touche LLP.
23.6+ Consent of Deloitte & Touche LLP.
23.7+ Consent of Deloitte & Touche LLP.
23.8+ Consent of Arthur Andersen LLP.
24.1* Power of Attorney.
27.1+ Financial Data Schedule.
</TABLE>
- -------------------
* Previously filed.
+ Filed herewith.
++ To be filed by amendment.
(b) Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts has been included on page S-1.
Item 17. Undertakings.
(a) NRT hereby undertakes to provide to the underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
NRT by NRT pursuant to the Underwriting Agreement, the restated certificate of
incorporation, the amended and restated by-laws, the Delaware General
Corporation Law or otherwise, NRT has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by NRT of expenses incurred or paid by a director, officer or
controlling person of NRT in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, NRT will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the adjudication of such issue.
II-4
<PAGE>
(c) NRT hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by NRT pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Parsippany, State of New Jersey, on April 29,
1999.
NRT Incorporated
By: /s/ Steven L. Barnett
---------------------
Name: Steven L. Barnett
Title: Senior Vice President,
General Counsel and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
* President, Chief
- ------------------------------------- Executive Officer April 29, 1999
Robert M. Becker and Director
(Principal
Executive Officer)
* Chairman of the
- ------------------------------------- Board and Director April 29, 1999
Chandler B. Barton
* Senior Vice
- ------------------------------------- President, Chief April 29, 1999
Gregory W. Hunt Financial Officer
and Treasurer
(Principal
Financial and
Accounting Officer)
II-6
<PAGE>
Signature Title Date
* Director
- ------------------------------------ April 29, 1999
Terence W. Edwards
* Director
- ------------------------------------ April 29, 1999
Joshua J. Harris
* Director
- ------------------------------------ April 29, 1999
David M. Johnson
* Director
- ------------------------------------ April 29, 1999
Samuel L. Katz
* Director
- ------------------------------------ April 29, 1999
Marc J. Rowan
* Director
- ------------------------------------ April 29, 1999
Richard A. Smith
* Director
- ------------------------------------ April 29, 1999
Michael L. Tarnopol
* Director
- ------------------------------------ April 29, 1999
Michael D. Weiner
*By: /s/ Steven L. Barnett
---------------------
Steven L. Barnett
Attorney-in-Fact
II-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
"To the Board of Directors of NRT Incorporated
We have audited the consolidated financial statements of NRT Incorporated and
subsidiaries ("NRT") as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the year ended December 31, 1998 and the four months ended December
31, 1997 and the consolidated statements of operations, trust equity and cash
flows of National Realty Trust and subsidiaries (the "Predecessor Trust") for
the period from January 1, 1997 to August 31, 1997 and the period from June 1,
1996 to December 31, 1996, and the consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Coldwell Banker Residential
Brokerage Corporation and subsidiaries ("Predecessor CB Residential") for the
period from January 1, 1996 to May 31, 1996 and have issued our report thereon
dated March 19, 1999 (April 2, 1999 as to Notes 2 and 13, April 6 as to Note 19
and May , 1999 as to the effects of the stock split described in Note 2),
included elsewhere in this Registration Statement. Our audits also included the
financial statement schedule listed at Item 16(b) of this Registration
Statement. This financial statement schedule is the responsibility of the
management of NRT. Our responsibility is to express an opinion on the financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Costa Mesa, California
March 19, 1999"
The accompanying consolidated financial statements include the effects of a
stock split of NRT's common stock anticipated to be approved by NRT's Board of
Directors. The above opinion is in the form which will be furnished by Deloitte
& Touche LLP upon consummation of the stock split, which is described in Note 2
of the notes to the consolidated financial statements, and assuming that, from
March 19, 1999 to the date of such stock split, no other events will have
occurred that would affect the accompanying financial statements and the notes
thereto and financial statement schedule, or required disclosure therein.
Deloitte & Touche LLP
Costa Mesa, California
April 29, 1999
S-1
<PAGE>
NRT Incorporated
Schedule II--Valuation and Qualifying Accounts for the Years Ended December 31,
1998, 1997 and 1996 and the Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- ----------------------- --------- ---------- ----------
Balance at Charged Balance at
Beginning to Operating End of
Description of Period Expenses Other (a) Deductions Period
- ----------- ---------- ------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Legal Reserves.......... $12,353 $ 296 $ 410 $ 1,727 $11,332
Closed Office Reserves.. 28,696 -- 7,961 4,123 32,534
------- ------ ------- ------- -------
Total at March 31,
1999................... $41,049 $ 296 $ 8,371 $ 5,850 $43,866
======= ====== ======= ======= =======
Legal Reserves.......... 15,467 608 5,445 9,167 12,353
Closed Office Reserves.. 24,274 -- 23,419 18,997 28,696
------- ------ ------- ------- -------
Total at December 31,
1998................... $39,741 $ 608 $28,864 $28,164 $41,049
======= ====== ======= ======= =======
Legal Reserves.......... 2,988 710 14,070 42,301 15,467
Closed Office Reserves.. 380 -- 32,100 8,206 24,274
------- ------ ------- ------- -------
Total at December 31,
1997................... $ 3,624 $ 710 $46,170 $10,763 $39,741
======= ====== ======= ======= =======
Legal Reserves.......... 3,744 969 -- 1,725 2,988
Closed Office Reserves.. 351 -- 285 256 380
------- ------ ------- ------- -------
Total at August 31,
1997................... $ 4,095 $ 969 $ 285 $ 1,725 $ 3,624
======= ====== ======= ======= =======
Legal Reserves.......... 3,605 1,278 5 1,144 3,744
Closed Office Reserves.. 3,687 -- 515 3,851 351
------- ------ ------- ------- -------
Total at December 31,
1996................... $ 7,292 $1,278 $ 520 $ 4,995 $ 4,095
======= ====== ======= ======= =======
</TABLE>
Notes: (a) Amounts relate to acquisitions.
S-2
<PAGE>
[NRT LOGO]
NRT Incorporated
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 62937Q 1O 0
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
NRT INCORPORATED
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed.
This Certificate is not valid unless duly countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED
BANK BOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY
NRT INCORPORATED
CORPORATE SEAL 1997 DELAWARE
SENIOR VICE PRESIDENT, PRESIDENT AND
GENERAL COUNSEL AND SECRETARY CHIEF EXECUTIVE OFFICER
<PAGE>
NRT Incorporated (the "Corporation"), will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof of the Corporation, and the qualifications, limitations or restrictions
of such preferences and/or rights. Such requests may be made to the Corporation
or the transfer agent.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT-__________ Custodian ___________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _________________
(State)
Additional abbreviations may also be used thought not in the above list.
FOR VALUE RECEIVED __________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and does hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of NRT Incorporated with full power
of substitution in the premises.
Dated _________________
X ________________________________________________
X ________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERNATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
By ___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 10.14
CREDIT AGREEMENT
among
NRT INCORPORATED,
VARIOUS LENDING INSTITUTIONS,
THE CHASE MANHATTAN BANK,
AS CO-ARRANGER
and
SYNDICATION AGENT,
BANKBOSTON, N.A.
as
CO-AGENT
and
BANKERS TRUST COMPANY,
AS LEAD ARRANGER
and
ADMINISTRATIVE AGENT
________________________________
Dated as of January 7, 1999
and
Amended and Restated as of March 31, 1999
________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Amount and Terms of Credit.......................................... 1
1.01 Commitments.......................................................... 1
1.02 Minimum Borrowing Amounts, etc....................................... 3
1.03 Notice of Borrowing.................................................. 3
1.04 Disbursement of Funds................................................ 5
1.05 Notes................................................................ 5
1.06 Conversions.......................................................... 6
1.07 Pro Rata Borrowings.................................................. 7
1.08 Interest............................................................. 7
1.09 Interest Periods..................................................... 8
1.10 Increased Costs; Illegality; etc..................................... 9
1.11 Compensation; Breakage............................................... 11
1.12 Change of Lending Office............................................. 12
1.13 Replacement of Banks................................................. 12
SECTION 2. Letters of Credit................................................... 14
2.01 Letters of Credit.................................................... 14
2.02 Letter of Credit Requests............................................ 15
2.03 Letter of Credit Participations...................................... 16
2.04 Agreement to Repay Letter of Credit Drawings......................... 18
2.05 Increased Costs...................................................... 19
2.06 Indemnification...................................................... 20
SECTION 3. Fees; Commitments................................................... 20
3.01 Fees................................................................. 20
3.02 Voluntary Termination or Reduction of Total Unutilized Revolving
Loan Commitment.................................................... 21
3.03 Mandatory Reduction of Commitments................................... 22
SECTION 4. Payments............................................................ 22
4.01 Voluntary Prepayments................................................ 22
4.02 Mandatory Repayments and Commitment Reductions....................... 23
4.03 Method and Place of Payment.......................................... 27
4.04 Net Payments......................................................... 27
SECTION 5. Conditions Precedent to Restatement Effective Date.................. 30
5.01 Execution of Agreement; Notes........................................ 30
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.02 Officer's Certificate................................................ 30
5.03 Opinions of Counsel.................................................. 30
5.04 Company Documents; Proceedings....................................... 30
5.05 Adverse Change, etc.................................................. 31
5.06 Litigation........................................................... 31
5.07 Approvals............................................................ 32
5.08 Refinancing of Indebtedness; Existing Credit Agreement............... 32
5.09 Pledge Agreement..................................................... 32
5.10 Subsidiaries Guaranty................................................ 33
5.11 Employee Benefit Plans; Shareholders' Agreements; Management
Agreements; Employment Agreements; Existing Indebtedness Agreements 33
5.12 Solvency Certificate................................................. 34
5.13 Financial Statements; Balance Sheet.................................. 34
5.14 Payment of Fees...................................................... 34
SECTION 6. Conditions Precedent to All Credit Events........................... 34
6.01 No Default; Representations and Warranties........................... 35
6.02 Notice of Borrowing; Letter of Credit Request........................ 35
SECTION 7. Representations and Warranties...................................... 35
7.01 Company Status....................................................... 35
7.02 Company Power and Authority.......................................... 36
7.03 No Violation......................................................... 36
7.04 Litigation........................................................... 36
7.05 Use of Proceeds; Margin Regulations.................................. 37
7.06 Governmental Approvals............................................... 37
7.07 Investment Company Act............................................... 37
7.08 Public Utility Holding Company Act................................... 37
7.09 True and Complete Disclosure......................................... 37
7.10 Financial Condition; Financial Statements............................ 38
7.11 Security Interests................................................... 39
7.12 Compliance with ERISA................................................ 39
7.13 Capitalization....................................................... 40
7.14 Subsidiaries......................................................... 40
7.15 Intellectual Property, etc........................................... 40
7.16 Compliance with Statutes, etc........................................ 41
7.17 Environmental Matters................................................ 41
7.18 Properties........................................................... 42
7.19 Labor Relations...................................................... 42
7.20 Tax Returns and Payments............................................. 42
7.21 Existing Indebtedness................................................ 43
7.22 Insurance............................................................ 43
7.23 Year 2000 Representation............................................. 43
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8. Affirmative Covenants............................................... 43
8.01 Information Covenants................................................ 43
8.02 Books, Records and Inspections....................................... 46
8.03 Insurance............................................................ 47
8.04 Payment of Taxes..................................................... 47
8.05 Corporate Franchises................................................. 47
8.06 Compliance with Statutes; etc........................................ 47
8.07 Compliance with Environmental Laws................................... 47
8.08 ERISA................................................................ 48
8.09 Good Repair.......................................................... 49
8.10 End of Fiscal Years; Fiscal Quarters................................. 49
8.11 Additional Security; Further Assurances.............................. 49
8.12 Ownership of Subsidiaries............................................ 50
8.13 Permitted Acquisitions............................................... 50
8.14 Maintenance of Company Separateness.................................. 52
8.15 Performance of Obligations........................................... 52
8.16 Use of Proceeds...................................................... 53
SECTION 9. Negative Covenants.................................................. 53
9.01 Changes in Business.................................................. 53
9.02 Consolidation; Merger; Sale or Purchase of Assets; etc............... 53
9.03 Liens................................................................ 56
9.04 Indebtedness......................................................... 59
9.05 Advances; Investments; Loans......................................... 61
9.06 Dividends; etc....................................................... 64
9.07 Transactions with Affiliates and Unrestricted Subsidiaries........... 66
9.08 Consolidated Adjusted Interest Coverage Ratio........................ 67
9.09 Total Leverage Ratio................................................. 67
9.10 Limitation on Voluntary Payments and Modifications of Indebtedness;
Modifications of Certificate of Incorporation, By-Laws and
Certain Other Agreements; Issuances of Capital Stock; etc.......... 67
9.11 Limitation on Issuance of Capital Stock.............................. 68
9.12 Limitation on Certain Restrictions on Subsidiaries................... 69
9.13 Limitation on the Creation of Subsidiaries, Joint Ventures and
Unrestricted Subsidiaries.......................................... 70
9.14 De Minimis Subsidiaries.............................................. 71
9.15 Burnet Realty, Inc. Title Insurance Business........................ 71
SECTION 10. Events of Default.................................................. 71
10.01 Payments............................................................ 71
10.02 Representations, etc................................................ 71
10.03 Covenants........................................................... 71
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
10.04 Default Under Other Agreements........................................ 72
10.05 Bankruptcy, etc....................................................... 72
10.06 ERISA................................................................. 72
10.07 Security Documents.................................................... 73
10.08 Guaranties............................................................ 73
10.09 Judgments............................................................. 73
10.10 Ownership............................................................. 74
10.11 Franchise Agreements.................................................. 74
SECTION 11. Definitions.......................................................... 74
SECTION 12. The Administrative Agent.............................................103
12.01 Appointment...........................................................103
12.02 Delegation of Duties..................................................104
12.03 Exculpatory Provisions................................................104
12.04 Reliance by the Administrative Agent..................................105
12.05 Notice of Default.....................................................105
12.06 Nonreliance on Administrative Agent and Other Banks...................105
12.07 Indemnification.......................................................106
12.08 Administrative Agent in its Individual Capacity.......................106
12.09 Holders...............................................................107
12.10 Resignation of the Administrative Agent...............................107
12.11 Co-Arranger, Syndication Agent, Co-Agent..............................107
SECTION 13. Miscellaneous........................................................107
13.01 Payment of Expenses, etc..............................................107
13.02 Right of Setoff.......................................................108
13.03 Notices...............................................................109
13.04 Benefit of Agreement..................................................109
13.05 No Waiver; Remedies Cumulative........................................111
13.06 Payments Pro Rata.....................................................112
13.07 Calculations; Computations............................................112
13.08 Governing Law; Submission to Jurisdiction; Venue......................113
13.09 Counterparts..........................................................114
13.10 Effectiveness.........................................................114
13.11 Headings Descriptive..................................................114
13.12 Amendment or Waiver; etc..............................................114
13.13 Survival..............................................................116
13.14 Domicile of Loans and Commitments.....................................116
13.15 Confidentiality.......................................................116
13.16 Waiver of Jury Trial..................................................117
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
13.17 Register....................................................................................... 117
13.18 Additions of New Banks; Conversion of Original Loans of Continuing
Banks; Surrender of Notes...................................................................... 117
13.19 Limitation on Additional Amounts, etc.......................................................... 118
</TABLE>
(v)
<PAGE>
SCHEDULE I List of Banks and Commitments
SCHEDULE II Bank Addresses
SCHEDULE III Existing Indebtedness
SCHEDULE IV Plans
SCHEDULE V Capitalization
SCHEDULE VI Subsidiaries
SCHEDULE VII Insurance
SCHEDULE VIII Existing Liens
SCHEDULE IX Existing Investments
SCHEDULE X Letters of Credit
SCHEDULE XI Affiliate Transactions
SCHEDULE XII IPO Amendments
EXHIBIT A Form of Notice of Borrowing
EXHIBIT B-1 Revolving Note
EXHIBIT B-2 Swingline Note
EXHIBIT C Form of Letter of Credit Request
EXHIBIT D Form of Section 4.04(b)(ii) Certificate
EXHIBIT E Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
special New York counsel to the Credit Parties
EXHIBIT F Form of Officers' Certificate
EXHIBIT G Pledge Agreement Acknowledgment
EXHIBIT H Subsidiaries Guaranty Acknowledgment
EXHIBIT I Form of Solvency Certificate
EXHIBIT J Form of Assignment and Assumption Agreement
EXHIBIT K Form of Intercompany Note
EXHIBIT L Form of Shareholder Subordinated Note
(iv)
<PAGE>
CREDIT AGREEMENT, dated as of January 7, 1999 and amended and restated
as of March 31, 1999, among NRT Incorporated, a Delaware corporation (the
"Borrower"), the Banks from time to time party hereto, BANKERS TRUST COMPANY
("BTCo") as Lead Arranger, and THE CHASE MANHATTAN BANK ("Chase") as Co-
Arranger, (BTCo and Chase, each an "Arranger" and, collectively, the
"Arrangers"), BANKBOSTON, N.A. as Co-Agent (in such capacity, "Co-Agent") and
BTCo, as Administrative Agent (in such capacity, the "Administrative Agent") and
Chase, as Syndication Agent (in such capacity, the "Syndication Agent"). Unless
otherwise defined herein, all capitalized terms used herein and defined in
Section 11 are used herein as so defined.
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Existing Banks, the Administrative Agent
and the Syndication Agent are party to a Credit Agreement, dated as of January
7, 1999, (as the same has been amended, modified or supplemented to, but not
including, the Restatement Effective Date, the "Existing Credit Agreement"); and
subject to and upon the terms and conditions set forth herein, the Banks are
willing to make available to the Borrower the credit facility provided for
herein; and
WHEREAS, the parties hereto wish to amend and restate the Existing
Credit Agreement as herein provided;
NOW THEREFORE, the parties hereto agree that the Existing Credit
Agreement shall be and hereby is amended and restated in its entirety as
follows:
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
--------------------------
1.01 Commitments. (a) Subject to and upon the terms and conditions
-----------
herein set forth, each Bank severally agrees (I) in the case of each Continuing
Bank, to convert into Revolving Loans (each a "Revolving Loan Conversion", and
together the "Revolving Loan Conversions"), on the Restatement Effective Date,
Original Revolving Loans made by such Continuing Bank to the Borrower pursuant
to the Existing Credit Agreement and outstanding on the Restatement Effective
Date and (II) to make a Revolving Loan or Revolving Loans to the Borrower, which
Revolving Loans shall be made and maintained in U.S. Dollars (each, a "Revolving
Loan" and, collectively, the "Revolving Loans") and which Revolving Loans:
(i) shall be made at any time and from time to time on and after the
Restatement Effective Date and prior to the Maturity Date;
(ii) shall, at the option of the Borrower, be incurred and maintained
as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided
--------
that (x)
<PAGE>
except as otherwise specifically provided in Section 1.10(b), all Revolving
Loans made as part of the same Borrowing shall at all times be of the same
Type;
(iii) may be repaid and reborrowed in accordance with the provisions
hereof;
(iv) shall not be made (or be required to be made) by any Bank on any
date if, after giving effect thereto, the Revolving Credit Exposure of such
Bank would exceed the Revolving Loan Commitment of such Bank at such time;
and
(v) shall not, in the case of all Revolving Loans, be made at any time
if, after giving effect thereto, the Aggregate Revolving Credit Exposure
(exclusive of Unpaid Drawings and Swingline Loans which are to be repaid
with the proceeds of and simultaneously with the incurrence of, the
respective incurrence of Revolving Loans) would exceed the Total Revolving
Loan Commitment at such time.
(b) Subject to and upon the terms and conditions herein set forth,
BTCo in its individual capacity agrees to make at any time and from time to time
on and after the Restatement Effective Date and prior to the Swingline Expiry
Date, a loan or loans to the Borrower (each, a "Swingline Loan" and,
collectively, the "Swingline Loans"), which Swingline Loans:
(i) shall be denominated in U.S. Dollars;
(ii) shall be made and maintained as Base Rate Loans;
(iii) may be repaid and reborrowed in accordance with the provisions
hereof;
(iv) shall not be made (or be required to be made) on any date, if
after giving effect thereto, the Aggregate Revolving Credit Exposure would
exceed the Total Revolving Loan Commitment at such time; and
(v) shall not exceed in aggregate principal amount at any time
outstanding the Maximum Swingline Amount.
BTCo shall not be obligated to make any Swingline Loans at a time when a Bank
Default exists unless BTCo has entered into arrangements satisfactory to it and
the Borrower to eliminate BTCo's risk with respect to the Defaulting Bank's or
Banks' participation in such Swingline Loans, including by cash collateralizing
such Defaulting Bank's or Banks' RL Percentage of the outstanding Swingline
Loans. BTCo will not make a Swingline Loan after it has received written notice
from the Borrower or the Required Banks stating that a Default or an Event of
Default exists until such time as BTCo shall have received a written notice of
(i) rescission of such notice from the party or parties originally delivering
the same or (ii) a waiver of such Default or Event of Default from the requisite
Banks hereunder.
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<PAGE>
(c) On any Business Day, BTCo may, in its sole discretion, give notice
to the Banks that its outstanding Swingline Loans shall be funded with a
Borrowing of Revolving Loans (provided that each such notice shall be deemed to
--------
have been automatically given upon the occurrence of a Default or an Event of
Default under Section 10.05 or upon the exercise of any of the remedies provided
in the last paragraph of Section 10), in which case a Borrowing of Revolving
Loans constituting Base Rate Loans (each such Borrowing, a "Mandatory
Borrowing") shall be made on the immediately succeeding Business Day by all
Banks pro rata based on each Bank's RL Percentage, and the proceeds thereof
--- ----
shall be applied directly to repay BTCo for such outstanding Swingline Loans.
Each Bank hereby irrevocably agrees to make Revolving Loans upon one Business
Day's notice pursuant to each Mandatory Borrowing in the amount and in the
manner specified in the preceding sentence and on the date specified in writing
by BTCo notwithstanding (i) that the amount of the Mandatory Borrowing may not
comply with the Minimum Borrowing Amount otherwise required hereunder, (ii)
whether any conditions specified in Section 5 or 6 are then satisfied, (iii)
whether a Default or an Event of Default has occurred and is continuing, (iv)
the date of such Mandatory Borrowing and (v) the amount of the Total Revolving
Loan Commitment or such Bank's Revolving Loan Commitment at such time. In the
event that any Mandatory Borrowing cannot for any reason be made on the date
otherwise required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code or any other bankruptcy,
reorganization, dissolution, insolvency, receivership, liquidation or similar
law with respect to the Borrower), each Bank (other than BTCo) hereby agrees
that it shall forthwith purchase from BTCo (without recourse or warranty) such
assignment of the outstanding Swingline Loans as shall be necessary to cause the
Banks to share in such Swingline Loans ratably based upon their respective RL
Percentages, provided that (x) all interest payable on the Swingline Loans shall
--------
be for the account of BTCo until the date the respective assignment is purchased
and, to the extent attributable to the purchased assignment, shall be payable to
the Bank purchasing same from and after such date of purchase and (y) at the
time any purchase of assignments pursuant to this sentence is actually made, the
purchasing Bank shall be required to pay BTCo interest on the principal amount
of assignment purchased for each day from and including the day upon which the
Mandatory Borrowing would otherwise have occurred to but excluding the date of
payment for such assignment, at the rate otherwise applicable to Revolving Loans
maintained as Base Rate Loans hereunder for each day thereafter.
1.02 Minimum Borrowing Amounts, etc. The aggregate principal amount
-------------------------------
of each Borrowing of Loans shall not be less than the Minimum Borrowing Amount
applicable to such Loans, provided that Mandatory Borrowings shall be made in
--------
the amounts required by Section 1.01(c). More than one Borrowing may be
incurred on any day, provided, that at no time shall there be outstanding more
--------
than ten Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to make
-------------------
a Borrowing hereunder (excluding (x) Borrowings of Swingline Loans and (y)
Mandatory Borrowings), an Authorized Officer of the Borrower shall give the
Administrative Agent at
3
<PAGE>
its Notice Office, prior to 12:00 Noon (New York time), at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of each Borrowing of Eurodollar Loans, and at least one Business Day's prior
written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Base Rate Loans to be made hereunder. Each such notice (each, a
"Notice of Borrowing") shall, except as otherwise expressly provided in Section
1.10, be irrevocable, and, in the case of each written notice and each
confirmation of telephonic notice, shall be in the form of Exhibit A,
appropriately completed to specify: (i) the aggregate principal amount of the
Loans to be made pursuant to such Borrowing, (ii) the date of such Borrowing
(which shall be a Business Day), (iii) whether the respective Borrowing shall
consist of Base Rate Loans or, to the extent permitted hereunder, Eurodollar
Loans and, if Eurodollar Loans, the Interest Period to be initially applicable
thereto, and (iv) in the case of a Borrowing of Revolving Loans the proceeds of
which are to be utilized to finance, in whole or in part, the purchase price of
a Permitted Acquisition, (x) a reference to the officer's certificate, if any,
delivered in accordance with Section 8.13, (y) the aggregate principal amount of
such Revolving Loans to be utilized in connection with such Permitted
Acquisition and (z) the Total Unutilized Revolving Loan Commitment then in
effect after giving effect to the respective Permitted Acquisition (and all
payments to be made in connection therewith). The Administrative Agent shall
promptly give each Bank written notice (or telephonic notice promptly confirmed
in writing) of each proposed Borrowing, of such Bank's proportionate share
thereof and of the other matters required by the immediately preceding sentence
to be specified in the Notice of Borrowing.
(b) (i) Whenever the Borrower desires to incur Swingline Loans
hereunder, an Authorized Officer of the Borrower shall give BTCo not later than
2:00 P.M. (New York time) on the day such Swingline Loan is to be made, written
notice (or telephonic notice promptly confirmed in writing) of each Swingline
Loan to be made hereunder. Each such notice shall be irrevocable and shall
specify in each case (x) the date of such Borrowing (which shall be a Business
Day) and (y) the aggregate principal amount of the Swingline Loan to be made
pursuant to such Borrowing.
(ii) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(c), with the Borrower irrevocably agreeing, by its incurrence of
any Swingline Loan, to the making of Mandatory Borrowings as set forth in such
Section 1.01(c).
(c) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent or BTCo (in the case of a Borrowing of Swingline Loans) or
the respective Letter of Credit Issuer (in the case of the issuance of Letters
of Credit), as the case may be, may prior to receipt of written confirmation act
without liability upon the basis of such telephonic notice, believed by the
Administrative Agent, BTCo or such Letter of Credit Issuer, as the case may be,
in good faith to be from an Authorized Officer of the Borrower. In each such
case, the Administrative Agent's, BTCo's or the respective Letter
4
<PAGE>
of Credit Issuer's, as the case may be, record of the terms of such telephonic
notice shall be conclusive evidence of the contents of such notice, absent
manifest error.
1.04 Disbursement of Funds. (a) Not later than 1:00 P.M. (New York
---------------------
time) on the date specified in each Notice of Borrowing (or (x) in the case of
Swingline Loans, not later than 3:00 P.M. (New York time) on the date specified
in Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, not later than
12:00 Noon (New York time) on the date specified in Section 1.01(c)), each Bank
will make available its pro rata share (determined in accordance with Section
--- ----
1.07), of each Borrowing requested to be made on such date (or in the case of
Swingline Loans, BTCo shall make available the full amount thereof) in the
manner provided below. All amounts shall be made available to the
Administrative Agent in U.S. Dollars and in immediately available funds at the
Payment Office and the Administrative Agent promptly will make available to the
Borrower (or BTCo in the case of a Mandatory Borrowing) by depositing to its
account at the Payment Office the aggregate of the amounts so made available.
Unless the Administrative Agent shall have been notified by any Bank prior to
the date of Borrowing that such Bank does not intend to make available to the
Administrative Agent its portion of the Borrowing or Borrowings to be made on
such date, the Administrative Agent may assume that such Bank has made such
amount available to the Administrative Agent on such date of Borrowing, and the
Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made
available to the Administrative Agent by such Bank and the Administrative Agent
has made available same to the Borrower, the Administrative Agent shall be
entitled to recover such corresponding amount on demand from such Bank. If such
Bank does not pay such corresponding amount forthwith upon the Administrative
Agent's demand therefor, the Administrative Agent shall promptly notify the
Borrower, and the Borrower shall immediately pay such corresponding amount to
the Administrative Agent. The Administrative Agent shall also be entitled to
recover on demand from such Bank or the Borrower, as the case may be, interest
on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to the
Borrower to the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (x) if paid by such Bank, the
overnight Federal Funds Rate or (y) if paid by the Borrower, the then applicable
rate of interest, calculated in accordance with Section 1.08.
(b) Nothing in this Agreement shall be deemed to relieve any Bank from
its obligation to fulfill its commitments hereunder or to prejudice any rights
which the Borrower may have against any Bank as a result of any default by such
Bank hereunder.
1.05 Notes. (a) The Borrower's obligation to pay the principal of,
-----
and interest on, all the Loans made to the Borrower by each Bank shall be set
forth on the Register maintained by the Administrative Agent pursuant to Section
13.17 and, subject to the provisions of Section 1.05(e), shall be evidenced (i)
if Revolving Loans, by a promissory note substantially in the form of Exhibit B-
1 with blanks appropriately
5
<PAGE>
completed in conformity herewith (each, a "Revolving Note" and, collectively,
the "Revolving Notes") and (ii) if Swingline Loans, by a promissory note
substantially in the form of Exhibit B-2 with blanks appropriately completed in
conformity herewith (the "Swingline Note").
(b) The Revolving Note issued to each Bank shall (i) be executed by
the Borrower, (ii) be payable to such Bank or its registered assigns and be
dated the date of issuance thereof, (iii) be in a stated principal amount equal
to the Revolving Loan Commitment of such Bank and be payable in the principal
amount of the outstanding Revolving Loans evidenced thereby, (iv) mature on the
Maturity Date, (v) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case
may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided
in Section 4.01 and mandatory repayment as provided in Section 4.02 and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.
(c) The Swingline Note issued to BTCo shall (i) be executed by the
Borrower, (ii) be payable to BTCo or its registered assigns and be dated the
Restatement Effective Date, (iii) be in a stated principal amount equal to the
Maximum Swingline Amount and be payable in the principal amount of the
outstanding Swingline Loans evidenced thereby, (iv) mature on the Swingline
Expiry Date, (v) bear interest as provided in Section 1.08 in respect of the
Base Rate Loans evidenced thereby, (vi) be subject to voluntary prepayment as
provided in Section 4.01 and mandatory repayment as provided in Section 4.02 and
(vii) be entitled to the benefits of this Agreement and the other Credit
Documents.
(d) Each Bank will note on its internal records the amount of each
Loan made by it to the Borrower and each payment in respect thereof and will
prior to any transfer of any of its Notes endorse on the reverse side thereof
the outstanding principal amount of Loans evidenced thereby. Failure to make
any such notation or any error in such notation shall not affect the Borrower's
obligations in respect of such Loans.
(e) Notwithstanding anything to the contrary contained above or
elsewhere in this Agreement, Revolving Notes and the Swingline Note shall only
be delivered to Banks which at any time specifically request the delivery of
such Notes. No failure of any Bank to request or obtain a Note evidencing its
Loans to the Borrower shall affect or in any manner impair the obligations of
the Borrower to pay the Loans (and all related Obligations) which would
otherwise be evidenced thereby in accordance with the requirements of this
Agreement, and shall not in any way affect the security or guaranties therefor
provided pursuant to the various Credit Documents. Any Bank which does not have
a Note evidencing its outstanding Loans shall in no event be required to make
the notations otherwise described in preceding clause (d). At any time when any
Bank requests the delivery of a Note to evidence any of its Loans, the Borrower
shall promptly execute and deliver to the respective Bank the requested Note or
Notes in the appropriate amount or amounts to evidence such Loans.
6
<PAGE>
1.06 Conversions. The Borrower shall have the option to convert on
-----------
any Business Day occurring on or after the Restatement Effective Date, all or a
portion at least equal to the applicable Minimum Borrowing Amount of the
outstanding principal amount of Loans (other than Swingline Loans which shall at
all times be maintained as Base Rate Loans) made pursuant to one or more
Borrowings of one or more Types of Loans into a Borrowing or Borrowings of
another Type of Loan; provided, that (i) except as otherwise provided in Section
--------
1.10(b) or unless the Borrower pays all breakage costs and other amounts owing
to each Bank pursuant to Section 1.11 concurrently with any such conversion,
Eurodollar Loans may be converted into Base Rate Loans only on the last day of
an Interest Period applicable to the Loans being converted, and no partial
conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding
principal amount of the Eurodollar Loans made pursuant to such Borrowing to less
than the Minimum Borrowing Amount applicable thereto, (ii) Base Rate Loans may
only be converted into Eurodollar Loans if no Default under Sections 10.01 or
10.05 or Event of Default is in existence on the date of the conversion and the
Administrative Agent or the Required Banks have notified the Borrower that such
an election at such time would be disadvantageous to the Banks and (iii)
Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be limited
in number as provided in Section 1.02. Each such conversion shall be effected
by the Borrower by giving the Administrative Agent at its Notice Office, prior
to 12:00 Noon (New York time), at least three Business Days' (or one Business
Day's in the case of a conversion into Base Rate Loans) prior written notice (or
telephonic notice promptly confirmed in writing) (each, a "Notice of
Conversion") specifying the Loans to be so converted, the Borrowing or
Borrowings pursuant to which the Loans were made and, if to be converted into a
Borrowing of Eurodollar Loans, the Interest Period to be initially applicable
thereto. The Administrative Agent shall give each Bank prompt notice of any
such proposed conversion affecting any of its Loans. Upon any such conversion,
the proceeds thereof will be deemed to be applied directly on the day of such
conversion to prepay the outstanding principal amount of the Loans being
converted.
1.07 Pro Rata Borrowings. Subject to the provisions of 1.01(c), all
-------------------
Borrowings of Revolving Loans under this Agreement (including Mandatory
Borrowings) shall be incurred by the Borrower from the Banks pro rata on the
--- ----
basis of their RL Percentages. It is understood that no Bank shall be
responsible for any default by any other Bank of its obligation to make Loans
hereunder and that each Bank shall be obligated to make the Loans to be made by
it hereunder, regardless of the failure of any other Bank to fulfill its
commitments hereunder.
1.08 Interest. (a) The Borrower agrees to pay interest in respect
--------
of the unpaid principal amount of each Base Rate Loan made to it from the date
of the Borrowing thereof until the earlier of (i) the maturity (whether by
acceleration or otherwise) of such Base Rate Loan and (ii) the conversion of
such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per
annum which shall at all times be the relevant Applicable Margin plus the Base
----
Rate, each as in effect from time to time.
7
<PAGE>
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan made to it from the date of the
Borrowing thereof until the earlier of (i) the maturity (whether by acceleration
or otherwise) of such Eurodollar Loan and (ii) the conversion of such Eurodollar
Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10(b), as
applicable, at a rate per annum which shall at all times be the relevant
Applicable Margin plus the Eurodollar Rate for such Interest Period, each as in
----
effect from time to time.
(c) To the extent permitted by law, overdue principal and overdue
interest in respect of each Loan shall, in each case, bear interest at a rate
per annum equal to the greater of (x) the rate which is 2% in excess of the rate
borne by such Loan immediately prior to the respective payment default and (y)
the rate which is 2% in excess of the rate otherwise applicable to Base Rate
Loans from time to time. Interest which accrues under this Section 1.08(c)
shall be payable on demand.
(d) Interest shall accrue from and including the date of any Borrowing
to but excluding the date of any repayment thereof and shall be payable (i) in
respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment
Date, (ii) in respect of each Eurodollar Loan, on (x) the date of any conversion
into a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10(b), as applicable
(on the amount converted) and (y) the last day of each Interest Period
applicable thereto and, in the case of an Interest Period in excess of three
months, on each date occurring at three month intervals after the first day of
such Interest Period and (iii) in respect of each Loan, (x) at maturity (whether
by acceleration or otherwise) and (y) after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance
with Section 13.07(c).
(f) Upon each Interest Determination Date, the Administrative Agent
shall determine the Eurodollar Rate for the respective Interest Period or
Interest Periods and shall promptly notify the Borrower and the Banks thereof.
Each such determination shall, absent manifest error, be final and conclusive
and binding on all parties hereto.
1.09 Interest Periods. At the time the Borrower gives a Notice of
----------------
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 12:00 Noon (New York time) on the third
Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans (in the case of any subsequent Interest Period),
the Borrower shall have the right to elect by giving the Administrative Agent
written notice (or telephonic notice promptly confirmed in writing) of the
Interest Period applicable to such Borrowing, which Interest Period shall, at
the option of the Borrower be a one, two, three, six or, to the extent available
to each Bank, nine or twelve month period. Notwithstanding anything to the
contrary contained above:
(i) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period;
8
<PAGE>
(ii) the initial Interest Period for any Borrowing of Eurodollar Loans
shall commence on the date of such Borrowing (including the date of any
conversion from a Borrowing of Base Rate Loans) and each Interest Period
occurring thereafter in respect of such Borrowing shall commence on the day
on which the next preceding Interest Period applicable thereto expires;
(iii) if any Interest Period for any Borrowing of Eurodollar Loans
begins on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided, that if any Interest Period for any
--------
Borrowing of Eurodollar Loans would otherwise expire on a day which is not
a Business Day but is a day of the month after which no further Business
Day occurs in such month, such Interest Period shall expire on the next
preceding Business Day;
(v) no Interest Period for a Borrowing of Eurodollar Loans shall be
selected which would extend beyond the Maturity Date;
(vi) no Interest Period may be elected at any time when a Default
under Section 10.01 or 10.05 or an Event of Default is then in existence
and the Administrative Agent or the Required Banks have notified the
Borrower that such an election at such time would be disadvantageous to the
Banks; and
If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not
permitted to elect, a new Interest Period to be applicable to the respective
Borrowing of Eurodollar Loans as provided above, the Borrower shall be deemed to
have elected to convert such Borrowing into a Borrowing of Base Rate Loans
effective as of the expiration date of such current Interest Period.
1.10 Increased Costs; Illegality; etc. (a) In the event that (x) in
---------------------------------
the case of clause (i) below, the Administrative Agent or (y) in the case of
clauses (ii) and (iii) below, any Bank, shall have determined in good faith
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto):
(i) on any Interest Determination Date, that, by reason of any changes
arising after the Restatement Effective Date affecting the interbank
Eurodollar market, adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the definition of
Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loans because of (x) any change since the Restatement
Effective Date in any
9
<PAGE>
applicable law, governmental rule, regulation, guideline, order or request
(whether or not having the force of law), or in the interpretation or
administration thereof and including the introduction of any new law or
governmental rule, regulation, guideline, order or request (other than, in
each case, any such change with respect to taxes or any similar charges),
such as, for example, but not limited to, a change in official reserve
requirements, but, in all events, excluding reserves required under
Regulation D to the extent included in the computation of the Eurodollar
Rate and/or (y) other circumstances affecting such Bank, the interbank
Eurodollar market or the position of such Bank in such market (other than
circumstances relating to taxes or any similar charges); or
(iii) at any time since the Restatement Effective Date, that the
making or continuance of any Eurodollar Loan has become unlawful by
compliance by such Bank with any law, governmental rule, regulation,
guideline or order (or would conflict with any governmental rule,
regulation, guideline, request or order not having the force of law but
with which such Bank customarily complies even though the failure to comply
therewith would not be unlawful), or has become impracticable as a result
of a contingency occurring after the Restatement Effective Date which
materially and adversely affects the interbank Eurodollar market;
then, and in any such event, such Bank (or the Administrative Agent in the case
of clause (i) above) shall promptly give notice (by telephone confirmed in
writing) to the Borrower and (except in the case of clauses (i)) to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other Banks). Thereafter, (w) in
the case of clause (i) above, Eurodollar Loans shall no longer be available
until such time as the Administrative Agent notifies the Borrower and the Banks
that the circumstances giving rise to such notice by the Administrative Agent no
longer exist, and any Notice of Borrowing or Notice of Conversion given by the
Borrower with respect to Eurodollar Loans which have not yet been incurred
(including by way of conversion) shall be deemed rescinded by the Borrower, (x)
in the case of clause (ii) above, the Borrower agrees, subject to the provisions
of Section 13.19 (to the extent applicable), to pay to such Bank, upon written
demand therefor, such additional amounts (in the form of an increased rate of,
or a different method of calculating, interest or otherwise as such Bank in its
sole discretion shall determine) as shall be required to compensate such Bank
for such increased costs or reductions in amounts received or receivable
hereunder (a written notice as to the additional amounts owed to such Bank,
showing in reasonable detail the basis for the calculation thereof, prepared in
good faith and submitted to the Borrower by such Bank shall, absent manifest
error, be final and conclusive and binding upon all parties hereto, although the
failure to give any such notice shall not release or diminish any of the
Borrower's obligations to pay additional amounts pursuant to this Section
1.10(a) upon the subsequent receipt of such notice) and (y) in the case of
clause (iii) above, the Borrower shall take one of the actions specified in
Section 1.10(b) as promptly as possible and, in any event, within the time
period required by law.
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(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii), the
Borrower shall) either (i) if the affected Eurodollar Loan is then being made
pursuant to a Borrowing, cancel said Borrowing by giving the Administrative
Agent telephonic notice (confirmed promptly in writing) thereof on the same date
that the Borrower was notified by a Bank pursuant to Section 1.10(a)(ii) or
(iii)), or (ii) if the affected Eurodollar Loan is then outstanding, upon at
least three Business Days' notice to the Administrative Agent, require the
affected Bank to convert each such Eurodollar Loan into a Base Rate Loan (which
conversion, in the case of the circumstance described in Section 1.10(a)(iii),
shall occur no later than the last day of the Interest Period then applicable to
such Eurodollar Loan or such earlier day as shall be required by applicable
law); provided, that if more than one Bank is affected at any time, then all
--------
affected Banks must be treated the same pursuant to this Section 1.10(b).
(c) If any Bank shall have determined that after the Restatement
Effective Date, the adoption or effectiveness of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Bank or any corporation
controlling such Bank with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Bank's or such other corporation's capital or assets as a consequence of
such Bank's Revolving Loan Commitment or its obligations hereunder to the
Borrower to a level below that which such Bank or such other corporation could
have achieved but for such adoption, effectiveness, change or compliance (taking
into consideration such Bank's or such other corporation's policies with respect
to capital adequacy), then from time to time, upon written demand by such Bank
(with a copy to the Administrative Agent), accompanied by the notice referred to
in the last sentence of this clause (c), the Borrower agrees, subject to the
provisions of Section 13.19 (to the extent applicable), to pay to such Bank such
additional amount or amounts as will compensate such Bank or such other
corporation for such reduction in the rate of return to such Bank or such other
corporation. Each Bank, upon determining in good faith that any additional
amounts will be payable pursuant to this Section 1.10(c), will give prompt
written notice thereof to the Borrower (a copy of which shall be sent by such
Bank to the Administrative Agent), which notice shall set forth in reasonable
detail the basis of the calculation of such additional amounts, although the
failure to give any such notice shall not release or diminish the Borrower's
obligation to pay additional amounts pursuant to this Section 1.10(c) upon the
subsequent receipt of such notice. In determining any additional amounts owing
under this Section 1.10(c), each Bank will act reasonably and in good faith and
will use averaging and attribution methods which are reasonable; provided that
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such Bank's reasonable good faith determination of compensation owing under this
Section 1.10(c) shall, absent manifest error, be final and conclusive and
binding on all the parties hereto.
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1.11 Compensation; Breakage. The Borrower agrees, subject to the
----------------------
provisions of Section 13.19 (to the extent applicable), to compensate each Bank,
upon its written request (which request shall set forth in reasonable detail the
basis for requesting such compensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Bank to fund its Eurodollar Loans but excluding any loss of
anticipated profits) which such Bank may sustain: (i) if for any reason (other
than a default by such Bank or the Administrative Agent) a Borrowing of, or
conversion from or into, Eurodollar Loans does not occur on a date specified
therefor in a Notice of Borrowing or Notice of Conversion given by the Borrower
(whether or not withdrawn by the Borrower or deemed withdrawn pursuant to
Section 1.10(a)); (ii) if any repayment (including any repayment made pursuant
to Section 4.01 or 4.02 or as a result of an acceleration of the Loans pursuant
to Section 10 or as a result of the replacement of a Bank pursuant to Section
1.13 or 13.12(b)) or conversion of any Eurodollar Loans occurs on a date which
is not the last day of an Interest Period applicable thereto; (iii) if any
prepayment of any Eurodollar Loans, is not made on any date specified in a
notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any
other default by the Borrower to repay its Eurodollar Loans when required by the
terms of this Agreement or (y) an election made by the Borrower pursuant to
Section 1.10(b). Each Bank's calculation of the amount of compensation owing
pursuant to this Section 1.11 shall be made in good faith. A Bank's basis for
requesting compensation pursuant to this Section 1.11 and a Bank's calculation
of the amount thereof made in accordance with the requirements of this Section
1.11, shall, absent manifest error, be final and conclusive and binding on all
parties hereto.
1.12 Change of Lending Office. (a) Each Bank may at any time or
------------------------
from time to time designate, by written notice to the Administrative Agent to
the extent not already reflected on Schedule II, one or more lending offices
(which, for this purpose, may include Affiliates of the respective Bank) for the
various Loans made, and Letters of Credit participated in, by such Bank;
provided that, for designations made after the Restatement Effective Date, to
the extent such designation shall result in increased costs under Section 1.10,
2.05 or 4.04 in excess of those which would be charged in the absence of the
designation of a different lending office (including a different Affiliate of
the respective Bank), then the Borrower shall not be obligated to pay such
excess increased costs (although the Borrower, in accordance with and pursuant
to the other provisions of this Agreement, shall be obligated to pay the costs
which would apply in the absence of such designation and any subsequent
increased costs of the type described above resulting from changes after the
date of the respective designation). Each lending office and Affiliate of any
Bank designated as provided above shall, for all purposes of this Agreement, be
treated in the same manner as the respective Bank (and shall be entitled to all
indemnities and similar provisions in respect of its acting as such hereunder).
(b) Each Bank agrees that, upon the occurrence of any event giving
rise to the operation of Section 1.10(a)(ii) or (iii), 1.10(c), 2.05 or 4.04
with respect to such Bank, it will, if requested by the Borrower, use reasonable
efforts (subject to overall policy
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considerations of such Bank) to designate another lending office for any Loans
or Letters of Credit affected by such event; provided, that such designation is
--------
made on such terms that such Bank and its lending office suffer no economic,
legal or regulatory disadvantage, with the object of avoiding the consequences
of the event giving rise to the operation of any such Section. Nothing in this
Section 1.12 shall affect or postpone any of the obligations of the Borrower or
the right of any Bank provided in Section 1.10, 2.05 or 4.04 (although each such
Bank shall nevertheless have an obligation to change its applicable lending
office subject to the terms set forth in the immediately preceding sentence).
1.13 Replacement of Banks. (x) If any Bank becomes a Defaulting
--------------------
Bank, (y) upon the occurrence of any event giving rise to the operation of
Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section 4.04 with
respect to any Bank which results in such Bank charging to the Borrower
increased costs in a material amount in excess of those being generally charged
by the other Banks or (z) in the case of a refusal by a Bank to consent to a
proposed change, waiver, discharge or termination with respect to this Agreement
which has been approved by the Required Banks as provided in Section 13.12(b),
the Borrower shall have the right, in accordance with Section 13.04(b), if no
Default or Event of Default will exist after giving effect to such replacement,
to replace such Bank (the "Replaced Bank") with one or more other Eligible
Transferee or Transferees, none of whom shall constitute a Defaulting Bank at
the time of such replacement (collectively, the "Replacement Bank") and each of
which shall be reasonably acceptable to the Administrative Agent; provided that:
--------
(i) at the time of any replacement pursuant to this Section 1.13, the
Replacement Bank shall enter into one or more Assignment and Assumption
Agreements pursuant to Section 13.04(b) (and with all fees payable pursuant
to said Section 13.04(b) to be paid by the Replacement Bank) pursuant to
which the Replacement Bank shall acquire all of the Revolving Loan
Commitment and outstanding Revolving Loans and participations in Letter of
Credit Outstandings by, the Replaced Bank and, in connection therewith,
shall pay to (x) the Replaced Bank in respect thereof an amount equal to
the sum of (A) an amount equal to the principal of, and all accrued
interest on, all outstanding Revolving Loans of the Replaced Bank, (B) an
amount equal to all Unpaid Drawings (unless there are no Unpaid Drawings)
that have been funded by (and not reimbursed to) such Replaced Bank,
together with all then unpaid interest with respect thereto at such time
and (C) an amount equal to all accrued, but theretofore unpaid, Fees owing
to the Replaced Bank pursuant to Section 3.01, (y) to BTCo an amount equal
to such Replaced Bank's RL Percentage of any Mandatory Borrowing to the
extent such amount was not theretofore funded by such Replaced Bank; and
(ii) all obligations of the Borrower then owing to the Replaced Bank
(other than those specifically described in clause (i) above in respect of
which the assignment purchase price has been, or is concurrently being,
paid, but including all amounts, if any, owing under Section 1.11 shall be
paid in full to such Replaced Bank concurrently with such replacement; and
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Upon the execution of the respective Assignment and Assumption Agreements, the
payment of amounts referred to in clauses (i) and (ii) above, recordation of the
assignment on the Register by the Administrative Agent pursuant to Section 13.17
and, if so requested by the Replacement Bank, delivery to the Replacement Bank
of the appropriate Note or Notes executed by the Borrower, (x) the Replacement
Bank shall become a Bank hereunder and the Replaced Bank shall cease to
constitute a Bank hereunder, except with respect to indemnification provisions
under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.05,
4.04, 13.01 and 13.06), which shall survive as to such Replaced Bank and (y) the
RL Percentages of the Banks shall be automatically adjusted at such time to give
effect to such replacement.
SECTION 2. Letters of Credit.
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2.01 Letters of Credit. (a) Subject to and upon the terms and
-----------------
conditions herein set forth, the Borrower may request a Letter of Credit Issuer
at any time and from time to time after the Restatement Effective Date and prior
to the tenth Business Day (or the 30th day in the case of Trade Letters of
Credit) preceding the Maturity Date to issue on a sight basis, (x) for the
account of the Borrower and for the benefit of any holder (or any trustee, agent
or other similar representative for any such holders) of L/C Supportable
Obligations, irrevocable sight standby letters of credit in a form customarily
used by such Letter of Credit Issuer or in such other form as has been approved
by such Letter of Credit Issuer (each such standby letter of credit, a "Standby
Letter of Credit") in support of such L/C Supportable Obligations and (y) for
the account of the Borrower and for the benefit of sellers of goods and
materials to the Borrower or any of its Subsidiaries in the ordinary course of
business, irrevocable sight trade letters of credit in a form customarily used
by such Letter of Credit Issuer or in such other form as has been approved by
such Letter of Credit Issuer (each such trade letter of credit, a "Trade Letter
of Credit," and each such Standby Letter of Credit and Trade Letter of Credit, a
"Letter of Credit" and, collectively, the "Letters of Credit").
(b) Subject to and upon the terms and conditions set forth herein,
each Letter of Credit Issuer hereby agrees that it will, at any time and from
time to time after the Restatement Effective Date and prior to the tenth
Business Day (or the 30th day in the case of Trade Letters of Credit) preceding
the Maturity Date, following its receipt of the respective Letter of Credit
Request, issue for the account of the Borrower one or more Letters of Credit,
(x) in the case of Trade Letters of Credit, in support of trade obligations of
the Borrower or any of its Subsidiaries that arise in the ordinary course of
business or (y) in the case of Standby Letters of Credit, in support of such L/C
Supportable Obligations as is permitted to remain outstanding hereunder.
Notwithstanding the foregoing, no Letter of Credit Issuer shall be under any
obligation to issue any Letter of Credit if at the time of such issuance:
(i) any order, judgment or decree of any governmental authority or
arbitrator shall purport by its terms to enjoin or restrain such Letter of
Credit Issuer from issuing such Letter of Credit or any requirement of law
applicable to such
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Letter of Credit Issuer or any request or directive (whether or not having
the force of law) from any governmental authority with jurisdiction over
such Letter of Credit Issuer shall prohibit, or request that such Letter of
Credit Issuer refrain from, the issuance of letters of credit generally or
such Letter of Credit in particular or shall impose upon such Letter of
Credit Issuer with respect to such Letter of Credit any restriction or
reserve or capital requirement (for which such Letter of Credit Issuer is
not otherwise compensated) not in effect on the Restatement Effective Date,
or any unreimbursed loss, cost or expense which was not applicable, in
effect or known to such Letter of Credit Issuer as of the Restatement
Effective Date and which such Letter of Credit Issuer in good faith deems
material to it; or
(ii) such Letter of Credit Issuer shall have received written notice
from the Borrower or the Required Banks prior to the issuance of such
Letter of Credit of the type described in clause (vii) of Section 2.01(c)
or the last sentence of Section 2.02(b).
(c) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Letter of Credit) at such time, would
exceed $10,000,000; (ii) no Letter of Credit shall be issued, if, after giving
effect thereto, (x) the Aggregate Revolving Credit Exposure would exceed the
Total Revolving Loan Commitment at such time or (y) the Revolving Credit
Exposure of any Bank would exceed its Revolving Loan Commitment as then in
effect; (iii) (x) each Standby Letter of Credit shall have an expiry date
occurring not later than one year after such Standby Letter of Credit's date of
issuance, provided, that any such Standby Letter of Credit may be extendible for
--------
successive periods of up to one year, but not beyond the tenth Business Day
preceding the Maturity Date, on terms acceptable to the Letter of Credit Issuer
and (y) each Trade Letter of Credit shall have an expiry date occurring not
later than 180 days after such Trade Letter of Credit's date of issuance; (iv)
(x) no Standby Letter of Credit shall have an expiry date occurring later than
the tenth Business Day preceding the Maturity Date and (y) no Trade Letter of
Credit shall have an expiry date occurring later than 30 days prior to the
Maturity Date; (v) each Letter of Credit shall be denominated in U.S. Dollars;
(vi) the Stated Amount of each Letter of Credit shall not be less than $100,000
or such lesser amount as is acceptable to the respective Letter of Credit
Issuer; and (vii) no Letter of Credit Issuer will issue any Letter of Credit
after it has received written notice from the Borrower, the Administrative Agent
or the Required Banks stating that a Default or an Event of Default exists until
such time as such Letter of Credit Issuer shall have received a written notice
of (x) rescission of such notice from the party or parties originally delivering
the same or (y) a waiver of such Default or Event of Default by the requisite
Banks hereunder.
(d) Notwithstanding the foregoing, in the event a Bank Default exists,
no Letter of Credit Issuer shall be required to issue any Letter of Credit
unless the respective Letter of Credit Issuer has entered into arrangements
satisfactory to it and the Borrower to eliminate such Letter of Credit Issuer's
risk with respect to the participation in
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Letters of Credit of the Defaulting Bank or Banks, including by cash
collateralizing such Defaulting Bank's or Banks' RL Percentage of the Letter of
Credit Outstandings, as the case may be.
2.02 Letter of Credit Requests. (a) Whenever the Borrower desires
-------------------------
that a Letter of Credit be issued, the Borrower shall give the Administrative
Agent and the respective Letter of Credit Issuer written notice thereof prior to
12:00 Noon (New York time), via courier delivery or facsimile transmission, at
least three Business Days (or such shorter period as may be acceptable to the
respective Letter of Credit Issuer) prior to the proposed date of issuance
(which shall be a Business Day) which written notice shall be in the form of
Exhibit C (each, a "Letter of Credit Request"). Each Letter of Credit Request
shall include any other documents as such Letter of Credit Issuer customarily
requires in connection therewith.
(b) The making of each Letter of Credit Request shall be deemed to be
a representation and warranty by the Borrower that such Letter of Credit may be
issued in accordance with, and it will not violate the requirements of, Section
2.01(c). Unless the respective Letter of Credit Issuer has received notice from
the Borrower, the Administrative Agent or the Required Banks before it issues a
Letter of Credit that one or more of the applicable conditions specified in
Section 5 or 6, as the case may be, are not then satisfied, or that the issuance
of such Letter of Credit would violate Section 2.01(c), then such Letter of
Credit Issuer may issue the requested Letter of Credit for the account of the
Borrower in accordance with such Letter of Credit Issuer's usual and customary
practice.
2.03 Letter of Credit Participations. (a) Immediately upon the
-------------------------------
issuance by a Letter of Credit Issuer of any Letter of Credit, such Letter of
Credit Issuer shall be deemed to have sold and transferred to each other Bank,
and each such Bank (each, a "Participant") shall be deemed irrevocably and
unconditionally to have purchased and received from such Letter of Credit
Issuer, without recourse or warranty, an undivided interest and participation,
to the extent of such Participant's RL Percentage, in such Letter of Credit,
each substitute Letter of Credit, each drawing made thereunder and the
obligations of the Borrower under this Agreement with respect thereto (although
Letter of Credit Fees shall be payable directly to the Administrative Agent for
the account of the Banks as provided in Section 3.01(b) and the Participants
shall have no right to receive any portion of any Facing Fees with respect to
such Letters of Credit) and any security therefor or guaranty pertaining
thereto. Upon any change in the Revolving Loan Commitments or the RL
Percentages of the Banks pursuant to Sections 1.13 or 13.04(b) or as a result
of a Bank Default, it is hereby agreed that, with respect to all outstanding
Letters of Credit and Unpaid Drawings with respect thereto, there shall be an
automatic adjustment to the participations pursuant to this Section 2.03 to
reflect the new RL Percentages of the assigning and assignee Bank or of all
Banks, as the case may be.
(b) In determining whether to pay under any Letter of Credit, no
Letter of Credit Issuer shall have any obligation relative to the Participants
other than to
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determine that any documents required to be delivered under such Letter of
Credit have been delivered and that they appear to substantially comply on their
face with the requirements of such Letter of Credit. Any action taken or omitted
to be taken by any Letter of Credit Issuer under or in connection with any
Letter of Credit issued by it if taken or omitted in the absence of gross
negligence or willful misconduct as determined by a court of competent
jurisdiction, shall not create for such Letter of Credit Issuer any resulting
liability.
(c) In the event that any Letter of Credit Issuer makes any payment
under any Letter of Credit issued by it and the Borrower shall not have
reimbursed such amount in full to the Letter of Credit Issuer pursuant to
Section 2.04(a), such Letter of Credit Issuer shall promptly notify the
Administrative Agent, and the Administrative Agent shall promptly notify each
Participant of such failure, and each such Participant shall promptly and
unconditionally pay to the Administrative Agent for the account of such Letter
of Credit Issuer, the amount of such Participant's RL Percentage of such
payment in U.S. Dollars and in same day funds. If the Administrative Agent so
notifies any Participant required to fund a payment under a Letter of Credit
prior to 11:00 A.M. (New York time) on any Business Day, such Participant shall
make available to the Administrative Agent at the Payment Office for the account
of the respective Letter of Credit Issuer such Participant's RL Percentage of
the amount of such payment on such Business Day in same day funds (and, to the
extent such notice is given after 11:00 A.M. (New York time) on any Business
Day, such Participant shall make such payment on the immediately following
Business Day). If and to the extent such Participant shall not have so made its
RL Percentage of the amount of such payment available to the Administrative
Agent for the account of the respective Letter of Credit Issuer, such
Participant agrees to pay to the Administrative Agent for the account of such
Letter of Credit Issuer, forthwith on demand such amount, together with interest
thereon, for each day from such date until the date such amount is paid to the
Administrative Agent for the account of the Letter of Credit Issuer at the
overnight Federal Funds Rate. The failure of any Participant to make available
to the Administrative Agent for the account of the respective Letter of Credit
Issuer its RL Percentage of any payment under any Letter of Credit issued by it
shall not relieve any other Participant of its obligation hereunder to make
available to the Administrative Agent for the account of such Letter of Credit
Issuer its RL Percentage of any payment under any such Letter of Credit on the
date required, as specified above, but no Participant shall be responsible for
the failure of any other Participant to make available to the Administrative
Agent for the account of such Letter of Credit Issuer such other Participant's
RL Percentage of any such payment.
(d) Whenever any Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Administrative Agent has received for
the account of such Letter of Credit Issuer any payments from the Participants
pursuant to clause (c) above, such Letter of Credit Issuer shall pay to the
Administrative Agent and the Administrative Agent shall promptly pay to each
Participant which has paid its RL Percentage thereof, in U.S. Dollars and in
same day funds, an amount equal to such RL Percentage of
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the principal amount thereof and interest thereon accruing after the purchase of
the respective participations.
(e) Each Letter of Credit Issuer shall, promptly after each issuance
of, or amendment or modification to, a Standby Letter of Credit issued by it,
give the Administrative Agent and the Borrower written notice of the issuance
of, or amendment or modification to, such Standby Letter of Credit. Upon
receipt of any such written notice from the Letter of Credit Issuer, the
Administrative Agent shall promptly notify each Participant. Upon request from
a Participant, the Administrative Agent will furnish to such Participant copies
of each Letter of Credit issued and amendments or modifications, if any.
(f) Each Letter of Credit Issuer (other than BTCo) shall deliver to
the Administrative Agent, promptly on the first Business Day of each week, by
facsimile transmission, the aggregate daily Stated Amount available to be drawn
under the outstanding Trade Letters of Credit issued by such Letter of Credit
Issuer for the previous week. The Administrative Agent shall, within 10 days
after the last Business Day of each calendar month, deliver to each Participant
a report setting forth for such preceding calendar month the aggregate daily
Stated Amount available to be drawn under all outstanding Trade Letters of
Credit during such calendar month.
(g) The obligations of the Participants to make payments to the
Administrative Agent for the account of the respective Letter of Credit Issuer
with respect to Letters of Credit issued by it shall be irrevocable and not
subject to counterclaim, set-off or other defense or any other qualification or
exception whatsoever and shall be made in accordance with the terms and
conditions of this Agreement under all circumstances, including, without
limitation, any of the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any of
the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right which
the Borrower or any of its Subsidiaries may have at any time against a
beneficiary named in a Letter of Credit, any transferee of any Letter of
Credit (or any Person for whom any such transferee may be acting), the
Administrative Agent, any Arranger, any Letter of Credit Issuer, any Bank,
or any other Person, whether in connection with this Agreement, any Letter
of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the Borrower or
any of its Subsidiaries and the beneficiary named in any such Letter of
Credit);
(iii) any draft, certificate or other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Credit Documents; or
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(v) the occurrence of any Default or Event of Default.
2.04 Agreement to Repay Letter of Credit Drawings. (a) The Borrower
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hereby agrees to reimburse the respective Letter of Credit Issuer, by making
payment to the Administrative Agent in U.S. Dollars and in immediately available
funds at the Payment Office, for any payment or disbursement made by such Letter
of Credit Issuer under any Letter of Credit issued by it (each such amount so
paid or disbursed until reimbursed, an "Unpaid Drawing") immediately after, and
in any event on the date of such payment or disbursement, with interest on the
amount so paid or disbursed by such Letter of Credit Issuer, to the extent not
reimbursed prior to 2:00 P.M. (New York time) on the date of such payment or
disbursement, from and including the date paid or disbursed to but not including
the date such Letter of Credit Issuer is reimbursed therefor at a rate per annum
which shall be the Applicable Margin for Revolving Loans maintained as Base Rate
Loans as in effect from time to time (plus an additional 2% per annum if not
reimbursed by the third Business Day after the date of such payment or
disbursement), such interest also to be payable on demand. Each Letter of
Credit Issuer shall provide the Borrower prompt notice of any payment or
disbursement made by it under any Letter of Credit issued by it; provided, that
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(i) the notices referred to above shall not be required to be given if a Default
or an Event of Default under such Section 10.05 shall have occurred and be
continuing (in which case the Unpaid Drawings shall be due and payable
immediately without presentment, demand, protest or notice of any kind (all of
which are hereby waived by the Borrower) and (ii) the failure of, or delay in,
giving any such notice shall not release or diminish the obligations of the
Borrower under this Section 2.04(a) or under any other Section of this
Agreement.
(b) The Borrower's obligation under this Section 2.04 to reimburse the
respective Letter of Credit Issuer with respect to drawings on Letters of Credit
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower or any of its Subsidiaries may have or
have had against any beneficiary named in any Letter of Credit, the Letter of
Credit Issuer, the Administrative Agent, any Arranger or any Bank or other
Person, including, without limitation, any defense based upon the failure of any
drawing under a Letter of Credit issued by it to conform to the terms of the
Letter of Credit, any nonapplication or misapplication by the beneficiary of the
proceeds of such drawing; provided, however, that the Borrower shall not be
-------- -------
obligated to reimburse such Letter of Credit Issuer for any wrongful payment
made by such Letter of Credit Issuer under a Letter of Credit issued by it as a
result of acts or omissions constituting willful misconduct or gross negligence
on the part of such Letter of Credit Issuer as determined by a court of
competent jurisdiction; provided, further, that any reimbursement made by the
-----------------
Borrower shall be without prejudice to any claim it may have against such Letter
of Credit Issuer as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of such Letter of Credit Issuer.
2.05 Increased Costs. If after the Restatement Effective Date, any
---------------
Letter of Credit Issuer or any Participant determines that the adoption or
effectiveness of any applicable law, rule or regulation, order, guideline or
request or any change therein, or any
19
<PAGE>
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Letter of Credit Issuer or any
Participant with any request or directive (whether or not having the force of
law) by any such authority, central bank or comparable agency shall either (i)
impose, modify or make applicable any reserve, deposit, capital adequacy or
similar requirement against Letters of Credit issued by such Letter of Credit
Issuer or such Participant's participation therein, or (ii) impose on any Letter
of Credit Issuer or any Participant any other conditions directly or indirectly
affecting this Agreement, any Letter of Credit or such Participant's
participation therein; and the result of any of the foregoing is to increase the
cost to such Letter of Credit Issuer or such Participant of issuing, maintaining
or participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by such Letter of Credit Issuer or such Participant
hereunder or reduce the rate of return on its capital (other than any increased
costs or reduction in the amount received or receivable resulting from the
imposition of or a change in the rate of taxes or any similar charges) with
respect to Letters of Credit, then, upon written demand to the Borrower by such
Letter of Credit Issuer or such Participant (a copy of which notice shall be
sent by such Letter of Credit Issuer or such Participant to the Administrative
Agent), accompanied by the certificate described in the last sentence of this
Section 2.05, the Borrower agrees, subject to the provisions of Section 13.19
(to the extent applicable), to pay to such Letter of Credit Issuer or such
Participant such additional amount or amounts as will compensate such Letter of
Credit Issuer or such Participant for such increased cost or reduction. Any
Letter of Credit Issuer or any Participant, upon determining that any additional
amounts will be payable pursuant to this Section 2.05, will give prompt written
notice thereof to the Borrower, which notice shall include a certificate
submitted to the Borrower by such Letter of Credit Issuer or such Participant,
as the case may be (a copy of which certificate shall be sent by such Letter of
Credit Issuer or such Participant to the Administrative Agent), setting forth in
reasonable detail the basis for the determination of such additional amount or
amounts necessary to compensate such Letter of Credit Issuer or such Participant
as aforesaid and such certificate, if delivered in good faith, shall be final
and conclusive and binding on the Borrower absent manifest error, although the
failure to deliver any such certificate shall not release or diminish the
Borrower's obligations to pay additional amounts pursuant to this Section 2.05
upon subsequent receipt of such certificate.
2.06 Indemnification. The Banks agree to indemnify the Letter of
---------------
Credit Issuers in their capacity as such, ratably according to their respective
"percentages" as used in determining the Required Banks at such time or, if the
Revolving Loan Commitments have terminated and all Loans have been repaid in
full, as determined immediately prior to such termination and repayment (with
such "percentages" to be determined as if there are no Defaulting Banks), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, reasonable expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Obligations) be imposed on, incurred by or
asserted against the Letter of Credit Issuers in any way relating to or arising
out of this Agreement or any other Credit Document, or any documents
contemplated by or referred to herein or the
20
<PAGE>
transactions contemplated hereby or any action taken or omitted to be taken by
the Letter of Credit Issuers under or in connection with any of the foregoing,
but only to the extent that any of the foregoing is not paid by the Borrower or
any of its Subsidiaries; provided, that no Bank shall be liable to the Letter of
--------
Credit Issuers for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting primarily from the gross negligence or willful
misconduct of the Letter of Credit Issuers. If any indemnity furnished to the
Letter of Credit Issuers for any purpose shall, in the opinion of the Letter of
Credit Issuers be insufficient or become impaired, the Letter of Credit Issuers
may call for additional indemnity and cease, or not commence, to do the acts
indemnified against until such additional indemnity is furnished. The agreements
in this Section 2.06 shall survive the payment of all Obligations.
SECTION 3. Fees; Commitments.
-----------------
3.01 Fees. (a) The Borrower shall pay to the Administrative Agent
----
for distribution to each Non-Defaulting Bank, a commitment fee (the "Commitment
Fee") for the period from the Restatement Effective Date to but not including
the Maturity Date (or such earlier date as the Total Revolving Loan Commitment
shall have been terminated), computed at a rate for each day equal to .50% per
annum on the daily average Unutilized Revolving Loan Commitment of such Non-
Defaulting Bank. Accrued Commitment Fees shall be due and payable quarterly in
arrears on each Quarterly Payment Date and on the Maturity Date (or such earlier
date upon which the Total Revolving Loan Commitment is terminated).
(b) The Borrower shall pay to the Administrative Agent for pro rata
--- ----
distribution to each Non-Defaulting Bank (based on its RL Percentage), a fee in
respect of each Letter of Credit (the "Letter of Credit Fee") computed at a rate
per annum equal to the Applicable Margin for Revolving Loans maintained as
Eurodollar Loans then in effect on the daily Stated Amount of such Letter of
Credit. Accrued Letter of Credit Fees shall be due and payable quarterly in
arrears on each Quarterly Payment Date and upon the first day on or after the
termination of the Total Revolving Loan Commitment upon which no Letters of
Credit remain outstanding.
(c) The Borrower shall pay to each Letter of Credit Issuer a fee in
respect of each Letter of Credit issued by such Letter of Credit Issuer (the
"Facing Fee") computed at the rate of .25% per annum on the daily Stated Amount
of such Letter of Credit. Accrued Facing Fees shall be due and payable
quarterly in arrears on each Quarterly Payment Date and upon the first day on or
after the termination of the Total Revolving Loan Commitment upon which no
Letters of Credit remain outstanding.
(d) The Borrower shall pay directly to each Letter of Credit Issuer
upon each issuance of, payment under, and/or amendment of, a Letter of Credit
issued by such
21
<PAGE>
Letter of Credit Issuer such amount as shall at the time of such issuance,
payment or amendment be the administrative charge which such Letter of Credit
Issuer is generally charging for issuances of, payments under or amendments of,
letters of credit issued by it.
(e) The Borrower shall pay to the Arrangers, for their own accounts,
such other fees as may be agreed to in writing from time to time between the
Borrower and the Arrangers, when and as due.
3.02 Voluntary Termination or Reduction of Total Unutilized Revolving
----------------------------------------------------------------
Loan Commitment. (a) Upon at least three Business Days' prior notice to the
- ---------------
Administrative Agent at its Notice Office (which notice the Administrative Agent
shall promptly transmit to each of the Banks), the Borrower shall have the
right, without premium or penalty, to terminate or partially reduce the Total
Unutilized Revolving Loan Commitment, in integral multiples of $1,000,000 in the
case of partial reductions to the Total Unutilized Revolving Loan Commitment.
Each reduction to the Total Unutilized Revolving Loan Commitment pursuant to
this Section 3.02(a) shall apply to permanently reduce the Revolving Loan
Commitments of the various Banks pro rata based on their respective RL
--- ----
Percentages.
(b) In the event of certain refusals by a Bank to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as provided in Section
13.12(b), the Borrower shall have the right, subject to obtaining the consents
required by Section 13.12(b), upon five Business Days' prior written notice to
the Administrative Agent at its Notice Office (which notice the Administrative
Agent shall promptly transmit to each of the Banks), to terminate the entire
Revolving Loan Commitment of such Bank, so long as all Loans, together with
accrued and unpaid interest, Fees and all other amounts, owing to such Bank
(including all amounts, if any, owing pursuant to Section 1.11) are repaid
concurrently with the effectiveness of such termination (at which time Schedule
I shall be deemed modified to reflect such changed amounts) and at such time,
such Bank shall no longer constitute a "Bank" for purposes of this Agreement,
except with respect to indemnifications under this Agreement (including, without
limitation, Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06), which shall
survive as to such repaid Bank.
3.03 Mandatory Reduction of Commitments. (a) The Total Revolving
----------------------------------
Loan Commitment (and the Revolving Loan Commitment of each Bank) shall terminate
in its entirety on the Maturity Date.
(b) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Revolving Loan Commitment shall be reduced from
time to time to the extent required by Section 4.02.
(c) Each reduction to the Total Revolving Loan Commitment pursuant to
this Section 3.03 (or pursuant to Section 4.02) shall apply to proportionally
and permanently reduce the Revolving Loan Commitment of each Bank (based on
their RL Percentages).
22
<PAGE>
SECTION 4. Payments.
--------
4.01 Voluntary Prepayments. The Borrower shall have the right to
---------------------
prepay the Loans, and the right to allocate such prepayments to Revolving Loans
and/or Swingline Loans, made to the Borrower as the Borrower elects, in whole or
in part, without premium or penalty except as otherwise provided in this
Agreement, from time to time on the following terms and conditions:
(i) the Borrower shall give the Administrative Agent at its Notice
Office written notice (or telephonic notice promptly confirmed in writing)
of its intent to prepay the Loans, whether such Loans are Revolving Loans
or Swingline Loans, the amount of such prepayment, the Types of Loans to be
repaid and (in the case of Eurodollar Loans) the specific Borrowing or
Borrowings pursuant to which made, which notice (I) shall be given by the
Borrower prior to 12:00 Noon (New York time) (x) at least one Business Day
prior to the date of such prepayment in the case of Base Rate Loans, (y) on
the date of such prepayment in the case of Swingline Loans and (z) at least
three Business Days prior to the date of such prepayment in the case of
Eurodollar Loans and (II) shall, except in the case of Swingline Loans,
promptly be transmitted by the Administrative Agent to each of the Banks;
(ii) each prepayment (other than prepayments in full of (I) all
outstanding Base Rate Loans or (II) any outstanding Borrowing of Eurodollar
Loans) shall be in an aggregate principal amount of at least (x)
$1,000,000, in the case of Eurodollar Loans, (y) $500,000, in the case of
Revolving Loans maintained as Base Rate Loans and (z) $100,000, in the case
of Swingline Loans and, in each case, if greater, in integral multiples of
$100,000, provided, that no partial prepayment of Eurodollar Loans made
--------
pursuant to a Borrowing shall reduce the aggregate principal amount of the
Eurodollar Loans outstanding pursuant to such Borrowing to an amount less
than the Minimum Borrowing Amount applicable thereto;
(iii) at the time of any prepayment of Eurodollar Loans pursuant to
this Section 4.01 on any date other than the last day of the Interest
Period applicable thereto, the Borrower shall pay the amounts required
pursuant to Section 1.11;
(iv) except as provided in clause (v) below, each prepayment in
respect of any Loans made pursuant to a Borrowing shall be applied pro rata
--- ----
among the Banks which make such Loans, provided, that at the Borrower's
--------
election in connection with any prepayment of Revolving Loans pursuant to
this Section 4.01, such prepayment shall not be applied to any Revolving
Loans of a Defaulting Bank;
(v) in the event of certain refusals by a Bank to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as provided in
Section 13.12(b), the Borrower may, upon five Business Days' prior written
notice to the Administrative Agent at its Notice Office (which notice the
Administrative Agent
23
<PAGE>
shall promptly transmit to each of the Banks), repay all Loans of such Bank
(including all amounts, if any, owing pursuant to Section 1.11), together
with accrued and unpaid interest, Fees and all other amounts then owing to
such Bank in accordance with said Section 13.12(b), so long as (A), the
Revolving Loan Commitment of such Bank is terminated concurrently with such
repayment (at which time Schedule I shall be deemed modified to reflect the
changed Revolving Loan Commitments) and (B) the consents required by
Section 13.12(b) in connection with the repayment pursuant to this clause
(v) shall have been obtained; and
4.02 Mandatory Repayments and Commitment Reductions. (a) If on any
----------------------------------------------
day the Aggregate Revolving Credit Exposure exceeds the Total Revolving Loan
Commitment as then in effect, the Borrower shall prepay on such day the
principal of outstanding Swingline Loans and, after all Swingline Loans have
been repaid in full or if no Swingline Loans are outstanding, principal of
outstanding Revolving Loans in an amount equal to such excess. If, after giving
effect to the prepayment of all such outstanding Swingline Loans and Revolving
Loans, the sum of the outstanding Letter of Credit Outstandings exceeds the
Total Revolving Loan Commitment as then in effect, the Borrower shall pay to the
Administrative Agent cash and/or Cash Equivalents in an amount equal to such
excess (up to a maximum amount equal to the Letter of Credit Outstandings at
such time), such cash and/or Cash Equivalents to be held as security for all
obligations of the Borrower hereunder and under the other Credit Documents in a
cash collateral account to be established by the Administrative Agent.
(b) In addition to any other commitment reductions pursuant to this
Section 4.02, on each date on or after the Restatement Effective Date upon which
the Borrower or any of its Subsidiaries receives Net Sale Proceeds from any
Asset Sale, the Total Revolving Loan Commitment shall be reduced by an amount
equal to the Applicable Prepayment Percentage of the Net Sale Proceeds from such
Asset Sale, provided that (x) with respect to no more than $5,000,000 in the
--------
aggregate of such Net Sale Proceeds received by the Borrower or its Subsidiaries
in any fiscal year of the Borrower, such Net Sale Proceeds shall not give rise
to a mandatory commitment reduction on such date to the extent that no Default
or Event of Default then exists and the Borrower delivers a certificate to the
Administrative Agent on or prior to such date stating that such Net Sale
Proceeds shall be used or contractually committed to be used to purchase assets
used or to be used in the businesses permitted pursuant to Section 9.01
(including, without limitation (but only to the extent permitted by Section
9.02), the purchase of the capital stock of a Person engaged in such businesses)
within 270 days following the date of receipt of such Net Sale Proceeds from
such Asset Sale (which certificate shall set forth the estimates of the proceeds
to be so expended) and (y)(i) if all or any portion of such Net Sale Proceeds
are not so used (or contractually committed to be used) within such 270-day
period, the Total Revolving Loan Commitment shall be reduced by an amount equal
to such remaining portion as provided above and (ii) if all or any portion of
such Net Sale Proceeds are not so used within such 270-day period referred to in
clause (i) of this clause (y) because such amount is contractually committed to
be used and subsequent to such date
24
<PAGE>
such contract is terminated or expires without such portion being so used, the
Total Revolving Loan Commitment shall be reduced by an amount equal to such
remaining portion as provided above.
(c) In addition to any other mandatory commitment reductions pursuant
to this Section 4.02, on each date on or after the Restatement Effective Date on
which the Borrower or any of its Subsidiaries receives any cash proceeds from
any incurrence of Indebtedness (other than Indebtedness permitted to be incurred
pursuant to Section 9.04 as in effect on the Restatement Effective Date) or
issuance of Preferred Stock (other than (w) Disqualified Preferred Stock to the
extent the proceeds therefrom are used to effect Permitted Acquisitions and (x)
Qualified Preferred Stock by the Borrower or any of its Subsidiaries), the Total
Revolving Loan Commitment shall be reduced by an amount equal to the Applicable
Prepayment Percentage of the Net Cash Proceeds of the respective incurrence of
Indebtedness or issuance of Preferred Stock.
(d) In addition to any other mandatory commitment reductions pursuant
to this Section 4.02, within 10 days following each date on or after the
Restatement Effective Date on which the Borrower or any of its Subsidiaries
receives any proceeds from any Recovery Event (other than proceeds from any
Excluded Recovery Event), the Total Revolving Loan Commitment shall be reduced
by an amount equal to 100% of the proceeds of such Recovery Event (net of
reasonable costs (including, without limitation, legal costs and expenses) and
taxes incurred in connection with such Recovery Event and the amount of such
proceeds required to be used to repay any Indebtedness (other than Indebtedness
of the Banks pursuant to this Agreement) which is secured by the respective
assets subject to such Recovery Event)); provided that (x) so long as no Default
--------
or Event of Default then exists and such proceeds do not exceed $5,000,000, the
Total Revolving Loan Commitment shall not be reduced on such date to the extent
that an Authorized Officer of the Borrower has delivered a certificate to the
Administrative Agent on or prior to such date stating that such proceeds shall
be used or shall be committed to be used to replace or restore any properties or
assets in respect of which such proceeds were paid within 360 days following the
date of such Recovery Event (which certificate shall set forth the estimates of
the proceeds to be so expended) and (y) so long as no Default or Event of
Default then exists and to the extent that (a) the amount of such proceeds
exceeds $5,000,000, (b) the amount of such proceeds, together with other cash
available to the Borrower and its Subsidiaries and permitted to be spent by them
on Capital Expenditures during the relevant period, equals at least 100% of the
cost of replacement or restoration of the properties or assets in respect of
which such proceeds were paid as determined by the Borrower and as supported by
such estimates or bids from contractors or subcontractors or such other
supporting information as the Administrative Agent may reasonably accept, (c) an
Authorized Officer of the Borrower has delivered to the Administrative Agent a
certificate on or prior to the date the application would otherwise be required
pursuant to this Section 4.02(d) in the form described in clause (x) above and
also certifying its determination as required by preceding clause (b) and
certifying the sufficiency of business interruption insurance as required by
succeeding clause (d), and (d) an Authorized Officer of the Borrower has
delivered to the Administrative Agent such evidence as the Administrative
25
<PAGE>
Agent may reasonably request in form and substance reasonably satisfactory to
the Administrative Agent establishing that the Borrower has sufficient business
interruption insurance and that the Borrower will receive payment thereunder in
such amounts and at such times as are necessary to satisfy all obligations and
expenses of the Borrower (including, without limitation, all debt service
requirements, including pursuant to this Agreement), without any delay or
extension thereof, for the period from the date of the respective casualty,
condemnation or other event giving rise to the Recovery Event and continuing
through the completion of the replacement or restoration of respective
properties or assets, then the entire amount of the proceeds of such Recovery
Event and not just the portion in excess of $5,000,000 shall be deposited with
the Administrative Agent pursuant to a cash collateral arrangement reasonably
satisfactory to the Administrative Agent whereby such proceeds shall be
disbursed to the Borrower from time to time as needed to pay or reimburse the
Borrower or such Subsidiary actual costs incurred by it in connection with the
replacement or restoration of the respective properties or assets (pursuant to
such certification requirements as may be established by the Administrative
Agent), provided further, that at any time while an Event of Default has
----------------
occurred and is continuing, the Required Banks may direct the Administrative
Agent (in which case the Administrative Agent shall, and is hereby authorized by
the Borrower to, follow said directions) to apply any or all proceeds then on
deposit in such collateral account to the repayment of Obligations hereunder in
the same manner as proceeds would be applied pursuant to the Pledge Agreement,
and provided further, that if all or any portion of such proceeds not required
----------------
to cause a mandatory commitment reduction pursuant to the second preceding
proviso (whether pursuant to clause (x) or (y) thereof) are either (A) not so
used or committed to be so used within 360 days after the date of the respective
Recovery Event or (B) if committed to be used within 360 days after the date of
receipt of such net proceeds and not so used within 18 months after the date of
respective Recovery Event then, in either such case, the Total Revolving Loan
Commitment shall be reduced by an amount equal to such remaining portion not
used or committed to be used in the case of preceding clause (A) and not used in
the case of preceding clause (B) on the date occurring 360 days after the date
of the respective Recovery Event in the case of clause (A) above or the date
occurring 18 months after the date of the respective Recovery Event in the case
of clause (B) above.
(e) With respect to each repayment of Loans required by this Section
4.02, the Borrower may designate the Types of Loans which are to be repaid and,
in the case of Eurodollar Loans, the specific Borrowing or Borrowings pursuant
to which made, provided that: (i) repayments of Eurodollar Loans pursuant to
--------
this Section 4.02 may only be made on the last day of an Interest Period
applicable thereto unless (x) all Eurodollar Loans with Interest Periods ending
on such date of required repayment and all Base Rate Loans have been paid in
full and/or (y) concurrently with such repayment, the Borrower pays all breakage
costs and other amounts owing to each Bank pursuant to Section 1.11; (ii) if any
repayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce
the outstanding Eurodollar Loans made pursuant to such Borrowing to an amount
less than the Minimum Borrowing Amount applicable thereto, such Borrowing shall
be converted at the end of the then current Interest Period into a Borrowing of
Base Rate Loans; and (iii)
26
<PAGE>
each repayment of Revolving Loans made pursuant to a Borrowing shall be applied
pro rata among the Banks which made such Revolving Loans. In the absence of a
- --- ----
designation by the Borrower as described in the preceding sentence, the
Administrative Agent shall, subject to the above, make such designation in its
sole discretion with a view, but no obligation, to minimize breakage costs owing
under Section 1.11. Notwithstanding the foregoing provisions of this Section
4.02, if at any time the mandatory repayment of Loans pursuant to Section
4.02(a) (as a result of commitment reductions described in clauses (b), (c) or
(d)) would result, after giving effect to the procedures set forth in this
clause (i) above, in the Borrower incurring breakage costs under Section 1.11 as
a result of Eurodollar Loans being repaid other than on the last day of an
Interest Period applicable thereto (any such Eurodollar Loans, "Affected
Loans"), the Borrower may elect, by written notice to the Administrative Agent,
to have the provisions of the following sentence be applicable. At the time any
Affected Loans are otherwise required to be prepaid the Borrower may elect to
deposit 100% (or such lesser percentage elected by the Borrower as not being
repaid) of the principal amounts that otherwise would have been paid in respect
of the Affected Loans with the Administrative Agent to be held as security for
the obligations of the Borrower hereunder pursuant to a cash collateral
agreement to be entered into in form and substance satisfactory to the
Administrative Agent, with such cash collateral to be released from such cash
collateral account (and applied to repay the principal amount of such Eurodollar
Loans) upon each occurrence thereafter of the last day of an Interest Period
applicable to Eurodollar Loans (or such earlier date or dates as shall be
requested by the Borrower), with the amount to be so released and applied on the
last day of each Interest Period to be the amount of such Eurodollar Loans to
which such Interest Period applies (or, if less, the amount remaining in such
cash collateral account).
(f) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, (i) all then outstanding Swingline Loans shall be repaid in full
on the Swingline Expiry Date and (ii) all other then outstanding Revolving Loans
shall be repaid in full on the Maturity Date.
4.03 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement or any Note shall be made to
the Administrative Agent for the ratable account of the Bank or Banks entitled
thereto not later than 12:00 Noon (New York time) on the date when due and shall
be made in U.S. Dollars in immediately available funds at the appropriate
Payment Office of the Administrative Agent in respect of any obligation of the
Borrower under this Agreement. Any payments under this Agreement or under any
Note which are made later than 12:00 Noon (New York time) on any Business Day
shall be deemed to have been made on the next succeeding Business Day. Whenever
any payment to be made hereunder or under any Note shall be stated to be due on
a day which is not a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect
immediately prior to such extension.
27
<PAGE>
4.04 Net Payments. (a) All payments made by the Borrower hereunder
------------
or under any Note will be made without setoff, counterclaim or other defense.
Except as provided in Sections 4.04(b), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein with respect to such payments (but
excluding, in the case of each Bank, except as provided in the second succeeding
sentence, any tax, including any income, branch profits, franchise or similar
tax, which in each case is imposed on or measured by the net income, net profits
or capital of such Bank pursuant to the laws of the jurisdiction in which such
Bank is organized or the jurisdiction in which the principal office or
applicable lending office of such Bank is located or any political subdivision
or taxing authority thereof or therein) and all interest, penalties or similar
liabilities with respect to such nonexcluded taxes, levies, imposts, duties,
fees, assessments or other charges (all such nonexcluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively as
"Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the
full amount of such Taxes, and such additional amounts as may be necessary so
that every payment of all amounts due by the Borrower under this Agreement or
under any Note, after withholding or deduction for or on account of any Taxes,
will not be less than the amount provided for herein or in such Note. If any
amounts are payable in respect of Taxes pursuant to the preceding sentence (any
such amounts, the "Gross-Up Amount"), the Borrower agrees to reimburse each
Bank, upon the written request of such Bank, for the net amount, if any, of any
taxes such Bank shall determine are incurred by such Bank (taking into account
in calculating such net amount any allowable credit, deduction or other benefit
available as a result of, or with respect to, the payment by the Borrower to
such Bank of (i) the Gross-Up Amount or (ii) any amount paid pursuant to this
sentence) that would not have been incurred in the absence of the payment by the
Borrower of (i) the Gross-Up Amount or (ii) any amount paid pursuant to this
sentence. The Borrower will furnish to the Administrative Agent within 45 days
after the date the payment of any Taxes is due pursuant to applicable law
certified copies of tax receipts evidencing such payment by the Borrower. The
Borrower agrees to indemnify and hold harmless each Bank, and reimburse such
Bank upon its written request, for the amount of any Taxes so levied or imposed
and paid by such Bank in respect of any payments by or on behalf of the
Borrower.
(b) Each Bank party to this Agreement on the Restatement Effective
Date hereby represents that, as of the Restatement Effective Date, all payments
of principal, interest, and fees to be made to it by the Borrower pursuant to
this Agreement will be totally exempt from withholding of United States federal
tax. Each Bank that is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes agrees to
deliver to the Borrower and the Administrative Agent on or prior to the
Restatement Effective Date, or in the case of a Bank that is an assignee or
transferee of an interest under this Agreement pursuant to Section 1.13 or
13.04, on the date of such assignment or transfer to such Bank, (i) two accurate
and complete original signed copies of Internal Revenue Service Form 4224 or
1001 (or
28
<PAGE>
successor forms) certifying to such Bank's entitlement to a complete exemption
from United States withholding tax with respect to payments to be made under
this Agreement and under any Note, or (ii) if the Bank is not a "bank" within
the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either
Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit D (any such certificate, a
"Section 4.04(b)(ii) Certificate") and (y) two accurate and complete original
signed copies of Internal Revenue Service Form W-8 (or successor form)
certifying to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments of interest to be made under this
Agreement and under any Note. In addition, each Bank agrees that (a) from time
to time after the Restatement Effective Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, and (b) upon the Borrower's reasonable request after the
occurrence of any other event requiring the delivery of a Form 1001, Form 4224,
Form W-8, or any successor form in addition to or in replacement of the forms
previously delivered, it will deliver to the Borrower and the Administrative
Agent two new accurate and complete original signed copies of Internal Revenue
Service Form 4224, 1001, Form W-8 and a Section 4.04(b)(ii) Certificate, or any
successor form, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Bank to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note, or it shall immediately notify the
Borrower and the Administrative Agent of its inability to deliver any such form
or certificate in which case such Bank shall not be required to deliver any such
form or certificate pursuant to this Section 4.04(b). Notwithstanding anything
to the contrary contained in Section 4.04(a), but subject to the immediately
succeeding sentence, (x) the Borrower shall be entitled, to the extent it is
required to do so by law, to deduct or withhold income or similar taxes imposed
by the United States (or any political subdivision or taxing authority thereof
or therein) from interest, fees or other amounts payable hereunder for the
account of any Bank which is not a United States person (as such term is defined
in Section 7701(a)(30) of the Code) for U.S. federal income tax purposes to the
extent that such Bank has not provided to the Borrower U.S. Internal Revenue
Service forms that establish a complete exemption from such deduction or
withholding and (y) the Borrower shall not be obligated pursuant to Section
4.04(a) hereof to gross-up payments to be made to such Bank, or to indemnify and
hold harmless or reimburse such Bank, in respect of income or similar taxes
imposed by the United States if (I) such Bank has not provided to the Borrower
the Internal Revenue Service forms required to be provided to the Borrower
pursuant to this Section 4.04(b) or (II) in the case of a payment, other than
interest, to a Bank described in clause (ii) above, to the extent that such
forms do not establish a complete exemption from withholding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 4.04 and except as set forth in Section 13.04(b), the
Borrower agrees to pay additional amounts and to indemnify each Bank in the
manner set forth in Section 4.04(a) (without regard to the identity of the
jurisdiction requiring the deduction or withholding) in respect of any Taxes
deducted or withheld by it as described in the immediately preceding sentence as
a result of any changes after the Restatement Effective Date (or, if later,
after the date such Bank became a party to this Agreement) in any
29
<PAGE>
applicable law, treaty, governmental rule, regulation, guideline or order, or in
the interpretation thereof, relating to the deducting or withholding of such
Taxes. For purposes of the immediately preceding sentence, the final U.S.
Treasury regulations that were issued October 6, 1997 with respect to the
withholding of United States Federal income tax (the "New Withholding
Regulations") shall not be considered to constitute a change after the
Restatement Effective Date, or otherwise, in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the interpretation
thereof, relating to the deducting or withholding of Taxes, notwithstanding that
the New Withholding Regulations generally are only effective for payments made
after December 31, 1999. The Borrower shall not be required to pay any
additional amounts or indemnification under Section 4.04(a) to any Bank to the
extent that the obligation to pay such additional amounts or indemnification
would not have arisen but for the representation set forth in the first sentence
of Section 4.04(b) above made by the Bank not being true.
(c) If the Borrower pays any additional amount under this Section 4.04
with respect to taxes imposed on any payments made to or on behalf of a Bank and
such Bank determines in its sole discretion that it has actually received or
realized in connection therewith any refund of tax, or any reduction of, or
credit against, its tax liabilities (a "Tax Benefit"), such Bank shall pay to
the Borrower an amount that the Bank shall, in its sole discretion, determine is
equal to the net benefit, after tax, which was obtained by the Bank as a
consequence of such refund, reduction or credit; provided, however, that (i) any
-------- -------
Bank may determine, in its sole discretion consistent with the policies of such
Bank, whether to seek a Tax Benefit and (ii) nothing in this Section 4.04(c)
shall require the Bank to disclose any confidential information to the Borrower
(including, without limitation, its tax returns).
(d) Each Bank shall use reasonable efforts (consistent with legal and
regulatory restrictions and subject to overall policy considerations of such
Bank) (i) to file any certificate or document or to furnish any information as
reasonably requested by the Borrower pursuant to any applicable treaty, law or
regulation or (ii) to designate a different applicable lending office of such
Bank, if the making of such filing or the furnishing of such information or the
designation of such other lending office would avoid the need for or reduce the
amount of any additional amounts payable by the Borrower and would not, in the
sole discretion of such Bank, be disadvantageous to such Bank.
(e) The provisions of this Section 4.04 are subject to the provisions
of Section 13.19 (to the extent applicable).
SECTION 5. Conditions Precedent to Restatement Effective Date. The occurrence
--------------------------------------------------
of the Restatement Effective Date pursuant to Section 13.10, and the obligation
of each Bank to make Loans hereunder, and the obligation of the Letter of Credit
Issuer to issue Letters of Credit hereunder, in each case on the Restatement
Effective Date, are subject at the time of the occurrence of the Restatement
Effective Date to the satisfaction of the following conditions:
30
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5.01 Execution of Agreement; Notes. On or prior to the Restatement
-----------------------------
Effective Date, (i) this Agreement shall have been executed and delivered as
provided in Section 13.10 and (ii) there shall have been delivered to the
Administrative Agent for the account of each Bank that requests same, the
appropriate Revolving Note and to BTCo the Swingline Note, in each case executed
by the Borrower and in the amount, maturity and as otherwise provided herein.
5.02 Officer's Certificate. On or prior to the Restatement Effective
---------------------
Date, the Administrative Agent shall have received a certificate dated such date
signed by an appropriate officer of the Borrower stating that all of the
applicable conditions set forth in Sections 5.05 through 5.08, inclusive, and
6.01 (other than such conditions that are subject to the satisfaction of the
Arrangers and/or the Required Banks), have been satisfied on such date.
5.03 Opinions of Counsel. On or prior to the Restatement Effective
-------------------
Date, the Administrative Agent shall have received opinions, addressed to each
Arranger, the Administrative Agent, the Collateral Agent and each of the Banks
and dated the Restatement Effective Date, from Skadden, Arps, Slate, Meagher &
Flom LLP, special New York counsel to the Credit Parties, which opinion shall
cover the matters contained in Exhibit E and such other matters incident to the
transactions contemplated herein as the Arrangers and the Required Banks may
reasonably request and be in form and substance reasonably satisfactory to the
Arrangers.
5.04 Company Documents; Proceedings. (a) On or prior to the
------------------------------
Restatement Effective Date, the Administrative Agent shall have received from
the Borrower and each other Credit Party a certificate, dated the Restatement
Effective Date, signed by an Authorized Officer of such Credit Party, and
attested to by the secretary or any assistant secretary of such Credit Party, in
the form of Exhibit F with appropriate insertions, together with copies of the
certificate of incorporation, by-laws or equivalent organizational documents of
such Credit Party and the resolutions of such Credit Party referred to in such
certificate and all of the foregoing (including each such certificate of
incorporation, by-laws or other organizational document) shall be reasonably
satisfactory to the Arrangers.
(b) On or prior to the Restatement Effective Date, the Administrative
Agent shall have received a certificate from each Credit Party (x) to the effect
that such Credit Party is in good standing in its respective state of
organization and in those states where such Credit Party conducts business and
(y) providing the resolutions adopted by such Credit Party with respect to the
actions contemplated by this Agreement and the other Credit Documents, and all
of the foregoing shall be acceptable to the Arrangers.
(c) On the Restatement Effective Date, all Company and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Credit Documents shall
be reasonably satisfactory in form and substance to the Arrangers, and the
Administrative Agent shall
31
<PAGE>
have received all information and copies of all certificates, documents and
papers, including good standing certificates, bring-down certificates and any
other records of Company proceedings and governmental approvals, if any, which
any Arranger reasonably may have requested in connection therewith, such
documents and papers, where appropriate, to be certified by proper Company or
governmental authorities.
(d) On the Restatement Effective Date, the Cendant Documents, the
Stockholders Agreement and the Existing Preferred Stock shall all be in full
force and effect and shall be in the form delivered to the Arrangers prior to
the Restatement Effective Date.
5.05 Adverse Change, etc. (a) On the Restatement Effective Date,
--------------------
since December 31, 1998, nothing shall have occurred which (i) either Arranger
shall reasonably determine has had, or could reasonably be expected to have, a
material adverse effect on the rights or remedies of the Banks or the
Administrative Agent, or on the ability of any Credit Party to perform its
obligations to them hereunder or under any other Credit Document or (ii) has had
a Material Adverse Effect.
(b) On the Restatement Effective Date, there shall not have occurred
and be continuing any material adverse change to the syndication market for
credit facilities similar in nature to this Agreement and there shall not have
occurred and be continuing a material disruption or a material adverse change in
financial, banking or capital markets that would have a material adverse effect
on the syndication, in each case as determined by the Arrangers in their
reasonable discretion.
5.06 Litigation. On the Restatement Effective Date, there shall be
----------
no actions, suits, proceedings or investigations pending or to the Borrower's
knowledge threatened (a) with respect to this Agreement or any other Document,
(b) with respect to any Existing Indebtedness or (c) which either the Arranger
or the Required Banks shall determine could reasonably be expected to have (i) a
Material Adverse Effect or (ii) a material adverse effect on the rights or
remedies of the Banks, the Administrative Agent or the Arrangers hereunder or
under any other Credit Document or on the ability of any Credit Party to perform
its respective obligations to the Banks, the Administrative Agent or the
Arrangers hereunder or under any other Credit Document.
5.07 Approvals. On the Restatement Effective Date, (i) all necessary
---------
governmental (domestic and foreign), regulatory and third party approvals in
connection with any Existing Indebtedness, the Cendant Documents, the
Stockholders Agreement, the Existing Preferred Stock, the transactions
contemplated by the Credit Documents and otherwise referred to herein or therein
shall have been obtained and remain in full force and (ii) all applicable
waiting periods shall have expired without any action being taken by any
competent authority which restrains, prevents or imposes materially adverse
conditions upon the making of the Loans and the transactions contemplated by the
Credit Documents or otherwise referred to herein or therein. Additionally, there
shall not exist any judgment, order, injunction or other restraint issued or
filed or a hearing seeking injunctive relief or
32
<PAGE>
other restraint pending or notified prohibiting or imposing materially adverse
conditions upon, or materially delaying, or making economically unfeasible, the
making of the Loans.
5.08 Refinancing of Indebtedness; Existing Credit Agreement. (a) On
-------------------------------------------------------
the Restatement Effective Date, the Borrower and its Subsidiaries shall have no
Indebtedness or Preferred Stock outstanding other than (i) the Loans, (ii) the
Existing Preferred Stock, and (iii) certain other indebtedness existing on the
Restatement Effective Date as listed on Schedule III (with the Indebtedness
described in this sub-clause (iii) being herein called the "Existing
Indebtedness"). On and as of the Restatement Effective Date, all of the
Existing Indebtedness shall remain outstanding without any default or event of
default existing thereunder or arising as a result of the transactions
contemplated hereby (except to the extent amended or waived by the parties
thereto on terms and conditions satisfactory to the Arrangers).
(b) On the Restatement Effective Date, (i) each Continuing Bank shall
convert its Original Revolving Loans as contemplated by Section 1.01, (ii) each
Continuing Bank whose Original Loans outstanding on the Restatement Effective
Date exceed the aggregate principal amount of Loans to be made available by such
Continuing Bank on such date shall have received payment in full of all amounts
then due and owing to it as provided in Section 13.18(c), and (iii) the Borrower
shall have paid all interest and Fees owing under the Existing Credit Agreement
through the Restatement Effective Date.
(c) The Administrative Agent shall have received evidence in form,
scope and substance reasonably satisfactory to it that the matters set forth in
Sections 5.08(a) and (b) have been satisfied on the Restatement Effective Date.
5.09 Pledge Agreement. On the Restatement Effective Date, each of
-----------------
the Credit Parties shall have duly authorized, executed and delivered an
acknowledgment to the Pledge Agreement in the form of Exhibit G, together with
such changes (or with such other documents) as may be requested by the
Collateral Agent (the "Pledge Agreement Acknowledgment") and shall have
delivered to the Collateral Agent, as pledgee thereunder, all of the Pledged
Securities referred to therein then owned by such Credit Parties and required to
be pledged pursuant to the terms thereof, endorsed in blank in the case of
promissory notes or accompanied by executed and undated stock powers in the case
of capital stock, along with evidence that all other actions necessary or, in
the reasonable opinion of the Collateral Agent, desirable, to perfect the
security interests purported to be created by the Pledge Agreement have been
taken, and the Pledge Agreement as so modified by the Pledge Agreement
Acknowledgment and such other documents shall be in full force and effect.
5.10 Subsidiaries Guaranty. On the Restatement Effective Date, each
---------------------
Guarantor shall have duly authorized, executed and delivered an acknowledgment
to the Subsidiaries Guaranty in the form of Exhibit H (the "Subsidiaries
Guaranty Acknowledgment"), and the Subsidiaries Guaranty as so modified by the
Subsidiary Guaranty Acknowledgment shall be in full force and effect.
33
<PAGE>
5.11 Employee Benefit Plans; Shareholders' Agreements; Management
------------------------------------------------------------
Agreements; Employment Agreements; Existing Indebtedness Agreements. (a) On or
- -------------------------------------------------------------------
prior to the Restatement Effective Date, there shall have been delivered to the
Administrative Agent true and correct copies, certified as true and complete by
an appropriate officer of the Borrower of the following documents (in each case
except to the extent already delivered to or made available for review by the
Administrative Agent on or prior to the Restatement Effective Date), in each
case as same will be in effect on the Restatement Effective Date after the
transactions contemplated hereby:
(i) all Plans (and for each Plan that is required to file an annual
report on Internal Revenue Service Form 5500-series, a copy of the most
recent such report and any other "employee benefit plans," as defined in
Section 3(3) of ERISA, and any other material agreements, plans or
arrangements, with or for the benefit of current or former employees of the
Borrower or any of its Subsidiaries or any ERISA Affiliate (collectively,
the "Employee Benefit Plans");
(ii) all agreements (including, without limitation, shareholders'
agreements, subscription agreements and registration rights agreements)
entered into by the Borrower or any of its Subsidiaries governing the terms
and relative rights of its capital stock and any agreements entered into by
shareholders relating to any such entity with respect to its capital stock
(collectively, the "Shareholders' Agreements");
(iii) all material agreements with members of, or with respect to,
the management of the Borrower or any of its Subsidiaries after giving
effect to the transactions contemplated hereby (collectively, the
"Management Agreements");
(iv) any material employment agreements entered into by the Borrower
or any of its Subsidiaries after giving effect to the transactions
contemplated hereby (collectively, the "Employment Agreements"); and
(v) all agreements evidencing or relating to Existing Indebtedness of
the Borrower or any of its Subsidiaries, which on an individual basis
evidence Indebtedness greater than $2,000,000 (collectively, the "Existing
Indebtedness Agreements").
all of which Employee Benefit Plans, Shareholders' Agreements, Management
Agreements, Employment Agreements, and Existing Indebtedness Agreements shall be
in form and substance reasonably satisfactory to the Arrangers and the Required
Banks and shall be in full force and effect on the Restatement Effective Date.
(b) On or prior to the Restatement Effective Date, the Administrative
Agent shall have received (i) a certification from the appropriate officer of
the Borrower that all agreements and plans referenced in Section 5.11 of the
Existing Credit Agreement previously delivered to the Administrative Agent,
remain in full force and effect and (ii)
34
<PAGE>
any amendments to the agreements and plans referred to in Section 5.11 of the
Existing Credit Agreement to the extent not delivered pursuant to Section
5.11(a).
5.12 Solvency Certificate. On or before the Restatement Effective
--------------------
Date, the Administrative Agent shall have received a solvency certificate in the
form of Exhibit I from the chief financial officer of the Borrower, dated the
Restatement Effective Date, and supporting the conclusion that, after giving
effect to the incurrence of all financings contemplated herein, the Borrower (on
a stand-alone basis) and the Borrower and its Subsidiaries (on a consolidated
basis), in each case, are not insolvent and will not be rendered insolvent by
the indebtedness incurred in connection herewith, will not be left with
unreasonably small capital with which to engage in its or their respective
businesses and will not have incurred debts beyond its or their ability to pay
such debts as they mature and become due.
5.13 Financial Statements; Balance Sheet. (a) On or prior to the
-----------------------------------
Restatement Effective Date, there shall have been delivered to the
Administrative Agent (i) true and correct copies of the financial statements
referred to in Section 7.10(b) and (ii) an unaudited consolidated balance sheet
of the Borrower and its Subsidiaries as of December 31, 1998, which financial
statements, unaudited consolidated balance sheet and funds flow statement shall
be reasonably satisfactory to the Arrangers.
(b) On or prior to the Restatement Effective Date, there shall have
been delivered to the Administrative Agent, and the Administrative Agent hereby
acknowledges receipt of, detailed projected consolidated financial statements of
the Borrower and its Subsidiaries (the "Projections"), satisfactory in form and
substance to the Arrangers.
5.14 Payment of Fees. On the Restatement Effective Date, all costs,
---------------
fees and expenses, and all other compensation due to the Agents or the Banks
(including, without limitation, legal fees and expenses) shall have been paid to
the extent due.
SECTION 6. Conditions Precedent to All Credit Events. The obligation
-----------------------------------------
of each Bank to make Loans (including Loans made on the Restatement Effective
Date but excluding Mandatory Borrowings made thereafter, which shall be made as
provided in Section 1.01(c)), and the obligation of a Letter of Credit Issuer to
issue any Letter of Credit, is subject, at the time of each such Credit Event
(except as hereinafter indicated), to the satisfaction of the following
conditions:
6.01 No Default; Representations and Warranties. At the time of each
------------------------------------------
such Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein or in any other Credit Document shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of such Credit Event (it being understood
and agreed that any representation or warranty which by its terms is made as of
a specified date shall be required to be true and correct in all material
respects only as of such specified date).
35
<PAGE>
6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to
---------------------------------------------
the making of each Loan (excluding Swingline Loans and Mandatory Borrowings),
the Administrative Agent shall have received a Notice of Borrowing meeting the
requirements of Section 1.03(a). Prior to the making of any Swingline Loan,
BTCo shall have received the notice required by Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the Administrative
Agent and the respective Letter of Credit Issuer shall have received a Letter of
Credit Request meeting the requirements of Section 2.02(a).
The occurrence of the Restatement Effective Date and the acceptance of
the benefits or proceeds of each Credit Event shall constitute a representation
and warranty by the Borrower to each of the Arrangers and each of the Banks that
all the conditions specified in Section 5 and in this Section 6 and applicable
to such Credit Event (other than such conditions that are subject to the
satisfaction of the Arrangers and/or the Required Banks) exist as of that time.
All of the Notes, certificates, legal opinions and other documents and papers
referred to in Section 5 and in this Section 6, unless otherwise specified,
shall be delivered to the Administrative Agent at the Notice Office for the
account of each of the Banks and, except for the Notes, in sufficient
counterparts or copies for each of the Banks and shall be in form and substance
satisfactory to the Banks.
SECTION 7. Representations and Warranties. In order to induce the
------------------------------
Banks to enter into this Agreement and to make the Loans and issue and/or
participate in the Letters of Credit provided for herein, the Borrower makes the
following representations and warranties to the Banks, all of which shall
survive the execution and delivery of this Agreement, the making of the Loans
and the issuance of the Letters of Credit (with the occurrence of the
Restatement Effective Date and each Credit Event on and after the Restatement
Effective Date being deemed to constitute a representation and warranty by the
Borrower that the matters specified in this Section 7 are true and correct in
all material respects on and as of the Restatement Effective Date and the date
of each such Credit Event, unless stated to relate to a specific earlier date in
which case such representations and warranties shall be true and correct in all
material respects only as of such earlier date):
7.01 Company Status. The Borrower and each of its Subsidiaries (i)
--------------
is a duly organized and validly existing Company in good standing under the laws
of the jurisdiction of its organization, (ii) has the Company power and
authority to own its property and assets and to transact the business in which
it is engaged and presently proposes to engage and (iii) is duly qualified and
is authorized to do business and is in good standing in all jurisdictions where
it is required to be so qualified and where the failure to be so qualified or in
good standing would have a Material Adverse Effect.
7.02 Company Power and Authority. Each Credit Party has the Company
---------------------------
power and authority to execute, deliver and carry out the terms and provisions
of the Credit Documents to which it is a party and has taken all necessary
Company action to authorize the execution, delivery and performance of the
Documents to which it is a party. Each
36
<PAGE>
Credit Party has duly executed and delivered each Credit Document to which it is
a party and each such Credit Document constitutes the legal, valid and binding
obligation of such Credit Party enforceable against it in accordance with its
terms, except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws generally affecting creditors' rights and by
equitable principles (regardless of whether enforcement is sought in equity or
at law).
7.03 No Violation. Neither the execution, delivery or performance by
------------
any Credit Party of the Credit Documents to which it is a party, nor compliance
by any Credit Party with the terms and provisions thereof, nor the consummation
of the transactions contemplated herein or therein, (i) will contravene any
material provision of any applicable law, statute, rule or regulation, or any
order, writ, injunction or decree of any court or governmental instrumentality,
(ii) will conflict or be inconsistent with or result in any breach of, any of
the terms, covenants, conditions or provisions of, or constitute a default
under, or (other than pursuant to the Pledge Agreement) result in the creation
or imposition of (or the obligation to create or impose) any Lien upon any of
the property or assets of such Credit Party or any of its Subsidiaries pursuant
to the terms of any material indenture, mortgage, deed of trust, loan agreement,
credit agreement or any other material agreement or instrument to which such
Credit Party or any of its Subsidiaries is a party or by which it or any of its
property or assets are bound or to which it may be subject (including, without
limitation, the Existing Indebtedness), or (iii) will violate any provision of
the certificate of incorporation, by-laws, certificate of partnership,
partnership agreement, certificate of limited liability company, limited
liability company agreement or equivalent organizational document, as the case
may be, of such Credit Party or any of its Subsidiaries.
7.04 Litigation. There are no actions, suits, proceedings or
----------
investigations pending or, to the knowledge of the Borrower, threatened (i) with
respect to any Credit Document, (ii) with respect to the Cendant Documents, the
Stockholders Agreement, the Existing Preferred Stock or any other Document that
could reasonably be expected to have a Material Adverse Effect or (iii) with
respect to the Borrower or any of its Subsidiaries (x) that are likely to have a
Material Adverse Effect (after giving effect to projected reserves for
remediation expenses, the anticipated timing of remediation expenses, potential
insurance and indemnification recoveries and tax savings) or (y) that could
reasonably be expected to have a material adverse effect on the rights or
remedies of the Arrangers, the Administrative Agent or the Banks or on the
ability of any Credit Party to perform its respective obligations to the
Arrangers, the Administrative Agent or the Banks hereunder and under the other
Credit Documents to which it is, or will be, a party. Additionally, there does
not exist any judgment, order or injunction prohibiting or imposing material
adverse conditions upon the occurrence of any Credit Event.
7.05 Use of Proceeds; Margin Regulations.
-----------------------------------
(a) The proceeds of all Revolving Loans and Swingline Loans shall be
utilized for the general corporate and working capital purposes of the Borrower
and its Subsidiaries (including, but not limited to, Permitted Acquisitions).
37
<PAGE>
(b) Neither the making of any Loan, nor the use of the proceeds
thereof, nor the occurrence of any other Credit Event, will violate or be
inconsistent with the provisions of Regulation T, U or X of the Board of
Governors of the Federal Reserve System and no part of any Credit Event (or the
proceeds thereof) will be used to purchase or carry any Margin Stock or to
extend credit for the purpose of purchasing or carrying any Margin Stock.
7.06 Governmental Approvals. Except as may have been obtained or
----------------------
made on or prior to the Restatement Effective Date (and which remain in full
force and effect on the Restatement Effective Date), no order, consent,
approval, license, authorization or validation of, or filing, recording or
registration with, or exemption by, any foreign or domestic governmental or
public body or authority, or any subdivision thereof, is required to authorize
or is required in connection with (i) the execution, delivery and performance by
the Credit Parties of any Credit Document or (ii) the legality, validity,
binding effect or enforceability of any Credit Document.
7.07 Investment Company Act. Neither the Borrower nor any of its
----------------------
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
7.08 Public Utility Holding Company Act. Neither the Borrower nor
----------------------------------
any of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
7.09 True and Complete Disclosure. All factual information (taken as
----------------------------
a whole) heretofore or contemporaneously furnished by or on behalf of the
Borrower or any of its Subsidiaries in writing to any Arranger or any Bank
(including, without limitation, all information contained in the Documents) for
purposes of or in connection with this Agreement or any transaction contemplated
herein or therein is, and all other such factual information (taken as a whole)
hereafter furnished by or on behalf of any such Persons in writing to any
Arranger or any Bank will be, true and accurate in all material respects on the
date as of which such information is dated or certified and not incomplete by
omitting to state any material fact necessary to make such information (taken as
a whole) not misleading at such time in light of the circumstances under which
such information was provided, it being understood and agreed that for purposes
of this Section 7.09, such factual information shall not include the Projections
or any pro forma financial information.
--- -----
7.10 Financial Condition; Financial Statements. (a) On and as of
-----------------------------------------
the Restatement Effective Date, after giving effect to all Indebtedness
(including the Loans) incurred, and to be incurred, and Liens created, and to be
created, by each Credit Party in connection therewith, with respect to the
Borrower (on a stand-alone basis) and the Borrower and its Subsidiaries (on a
consolidated basis), (x) the sum of the assets, at a fair
38
<PAGE>
valuation, of the Borrower (on a stand-alone basis) and the Borrower and its
Subsidiaries (on a consolidated basis), will exceed its or their debts, (y) it
has or they have not incurred nor intended to, nor believes or believe that it
or they will, incur debts beyond its or their ability to pay such debts as such
debts mature and (z) it or they will have sufficient capital with which to
conduct its or their business. For purposes of this Section 7.10, "debt" means
any liability on a claim, and "claim" means (i) right to payment, whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured or (ii) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured. The amount of contingent liabilities at any
time shall be computed as the amount that, in the light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
(b) Prior to the Restatement Effective Date, the Borrower has
delivered to the Banks the consolidated balance sheets of the Borrower and its
consolidated Subsidiaries at December 31, 1996, December 31, 1997 and December
31, 1998, and the related statements of income and cash flows and changes in
shareholders' equity of the Borrower for the fiscal years ended as of said
dates. All such financial statements have been prepared in accordance with GAAP
consistently applied except to the extent provided in the notes to said
financial statements.
(c) Since December 31, 1998, nothing has occurred that has had or
could reasonably be expected to have a Material Adverse Effect.
(d) Except as fully reflected in the financial statements described in
Section 7.10(b) and the Indebtedness incurred under this Agreement, (i) there
were as of the Restatement Effective Date (and after giving effect to any Loans
made on such date), no liabilities or obligations (excluding current obligations
incurred in the ordinary course of business) with respect to the Borrower or any
of its Subsidiaries of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether or not due) which, either individually or in
the aggregate, could reasonably be expected to be material to the Borrower and
its Subsidiaries taken as a whole and (ii) the Borrower knows of no basis for
the assertion against it or any of its Subsidiaries of any such liability or
obligation which, either individually or in the aggregate, are or would be
reasonably likely to have, a Material Adverse Effect.
(e) On and as of the Restatement Effective Date, the Projections have
been prepared on a basis consistent with the financial statements referred to in
Section 7.10(b), and have been prepared in good faith and are based on
reasonable assumptions under the then known facts and circumstances. On the
Restatement Effective Date, the management of the Borrower believes that the
Projections are reasonable and attainable based upon the then known facts and
circumstances (it being understood that nothing contained in this Section
7.10(e) shall constitute a representation that the results forecasted
39
<PAGE>
in such Projections will in fact be achieved). On and as of the Restatement
Effective Date, there is no fact known to the Borrower or any of its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect, which has not been disclosed herein or in such other documents,
certificates and statements furnished to the Banks for use in connection with
the transactions contemplated hereby.
7.11 Security Interests. On and after the Restatement Effective
------------------
Date, the Security Documents create (or after the execution and delivery thereof
will create), as security for the Obligations, a valid and enforceable perfected
security interest in and Lien on all of the Collateral subject thereto, superior
to and prior to the rights of all third Persons, and subject to no other Liens
(except that such Collateral may be subject to Permitted Liens). No filings or
recordings are required in order to perfect and/or render enforceable as against
third parties the security interests created under the Security Documents except
for filings or recordings required in connection with the Security Documents
which shall have been made on or prior to the Restatement Effective Date with
respect to the Pledge Agreement as contemplated by Section 5.09 or on or prior
to the execution and delivery thereof as contemplated by Sections 8.11, 8.13 and
9.13.
7.12 Compliance with ERISA. Part A of Schedule IV sets forth each
---------------------
Plan and each Multiemployer Plan; each Plan (and each related trust, insurance
contract or fund) is in substantial compliance with its terms and with all
applicable laws, including without limitation ERISA and the Code; each Plan (and
each related trust, if any) which is intended to be qualified under Section
401(a) of the Code has received a determination letter from the Internal Revenue
Service to the effect that it meets the requirements of Sections 401(a) and
501(a) of the Code; except as described in item (i) set forth on Part B of
Schedule IV, all contributions required to be made with respect to a Plan have
been timely made by the Borrower and each Subsidiary of the Borrower; neither
the Borrower nor any Subsidiary of the Borrower has incurred any material
liability (including any indirect, contingent or secondary liability) to or on
account of a Plan pursuant to Section 409, 502(i) or 502(l) of ERISA or Section
4975 of the Code or expects to incur any such liability under any of the
foregoing sections with respect to any Plan; no condition exists which presents
a material risk to the Borrower or any Subsidiary of the Borrower or any ERISA
Affiliate of incurring a material liability to or on account of a Plan pursuant
to the foregoing provisions of ERISA and the Code; no action, suit, proceeding
or hearing with respect to the administration, operation or the investment of
assets of any Plan (other than routine claims for benefits) is pending, expected
or, to the best knowledge of the Borrower threatened; each group health plan (as
defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code)
maintained by the Borrower or any Subsidiary which covers or has covered
employees or former employees of the Borrower, any Subsidiary of the Borrower or
any ERISA Affiliate has at all times been operated in material compliance with
the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of
the Code; no lien imposed under the Code or ERISA on the assets of the Borrower
or any Subsidiary of the Borrower or any ERISA Affiliate exists or is likely to
arise on account of any Plan; and, except as described in item (ii) set forth on
Part B of Schedule IV, the Borrower and its Subsidiaries
40
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may cease contributions to or terminate any employee benefit plan maintained by
any of them without incurring any material liability.
7.13 Capitalization. On the Restatement Effective Date, the
--------------
authorized capital stock of the Borrower shall consist of (i) 50,000,000 shares
of common stock, $.01 par value per share (such authorized shares of common
stock, together with any subsequently authorized shares of common stock of the
Borrower, the "Borrower Common Stock"), 10,000,000 of which shares shall be
issued and outstanding and (ii) 405,000 shares of preferred stock, $.01 par
value per share, (x) 260,000 of which shares are authorized to be the Borrower's
9.00% Series A Cumulative Senior Redeemable Preferred Stock (the "Series A
Preferred Stock"), of which 157,591 shares shall be issued and outstanding, (y)
25,000 of which shares are authorized to be the Borrower's 5.00% Series B
Cumulative Convertible Redeemable Preferred Stock (the "Series B Preferred
Stock"), of which 24,000 shares shall be issued and outstanding, and (z) 125,000
of which shares are authorized to be the Borrower's 18.00% Series C Cumulative
Junior Redeemable Preferred Stock (the "Series C Preferred Stock", and together
with the Series A Preferred Stock and the Series B Preferred Stock, the
"Existing Preferred Stock"), of which 68,510 shares shall be issued and
outstanding. All such outstanding shares have been duly and validly issued, are
fully paid and nonassessable and have been issued free of preemptive rights.
Except as set forth on Schedule V hereto, the Borrower does not have outstanding
any securities convertible into or exchangeable for its capital stock or
outstanding any rights to subscribe for or to purchase, or any options for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock.
7.14 Subsidiaries. (a) On and as of the Restatement Effective Date,
------------
the Borrower has no Subsidiaries other than those Subsidiaries listed on
Schedule VI. Schedule VI correctly sets forth, as of the Restatement Effective
Date, the percentage ownership (direct and indirect) of the Borrower in each
class of capital stock or other equity interests of each of its Subsidiaries and
also identifies the direct owner thereof. All outstanding shares of capital
stock of each Subsidiary of the Borrower have been duly and validly issued, are
fully paid and non-assessable and have been issued free of preemptive rights.
Except as set forth on Schedule V hereto, no Subsidiary of the Borrower has
outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any right to subscribe for or to purchase, or any options
or warrants for the purchase of, or any agreement providing for the issuance
(contingent or otherwise) of or any calls, commitments or claims of any
character relating to, its capital stock or any stock appreciation or similar
rights.
7.15 Intellectual Property, etc. Each of the Borrower and each of
---------------------------
its Subsidiaries owns, licenses or has the right to use all patents, trademarks,
permits, service marks, trade names, copyrights, licenses, franchises and other
rights with respect to the foregoing reasonably necessary for the conduct of its
business, without any known conflict with the rights of others which, or the
failure to obtain which, as the case may be, would result in a Material Adverse
Effect.
41
<PAGE>
7.16 Compliance with Statutes, etc. Each of the Borrower and each of
------------------------------
its Subsidiaries is in compliance with all applicable statutes, regulations,
rules and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, except such non-compliance as is not
reasonably likely to, individually or in the aggregate, have a Material Adverse
Effect.
7.17 Environmental Matters. (a) Each of the Borrower and its
---------------------
Subsidiaries on the date of each Credit Event is in material compliance with,
all applicable Environmental Laws and the requirements of any permits issued
under such Environmental Laws and none of the Borrower or any of its
Subsidiaries is liable for any material penalties, fines or forfeitures for
failure to comply with any of the foregoing. There are no pending unresolved
past or, to the knowledge of the Borrower, threatened Environmental Claims
against the Borrower or any of its Subsidiaries, or against any Real Property
owned or operated by the Borrower, any of its Subsidiaries. There are no facts,
circumstances, conditions or occurrences with respect to the business or
operations of the Borrower or any of its Subsidiaries or any Real Property at
any time owned or operated by the Borrower or any of its Subsidiaries that would
reasonably be expected (i) to form the basis of an Environmental Claim against
the Borrower or any of its Subsidiaries or any of their currently owned or
operated Real Property or (ii) to cause any such currently owned or operated
Real Property to be subject to any restrictions on the ownership, occupancy, use
or transferability of such Real Property by the Borrower or any of its
Subsidiaries under any applicable Environmental Law.
(b) Hazardous Materials have not at any time been generated, used,
treated or stored on, or transported by the Borrower or any of its Subsidiaries
or by any Person acting for or under contract to the Borrower or any of its
Subsidiaries or, to the knowledge of the Borrower, by any other Person, to or
from any Real Property owned or operated by the Borrower or any of its
Subsidiaries except in material compliance with all applicable Environmental
Laws and as reasonably required in connection with the operation, use and
maintenance of such Real Property or by the Borrower's or such Subsidiary's
business. Hazardous Materials have not at any time been Released by the Borrower
or any of its Subsidiaries or by any Person acting for or under contract to the
Borrower or any of its Subsidiaries or, to the knowledge of the Borrower, by any
other Person on or from any Real Property owned or operated by the Borrower or
any of its Subsidiaries except in compliance with all applicable Environmental
Laws and as reasonably required in connection with the operation, use and
maintenance of such Real Property or by the Borrower's or such Subsidiary's
business. There are not now any underground storage tanks owned or operated by
the Borrower or any of its Subsidiaries, or to the knowledge of the Borrower, by
any other Person, located on any Real Property owned or operated by the Borrower
or any of its Subsidiaries.
(c) Notwithstanding anything to the contrary in this Section 7.17, the
representations made in this Section 7.17 shall only be untrue if the aggregate
effect of all conditions, failures, noncompliances, Environmental Claims,
Releases and presence of
42
<PAGE>
underground storage tanks, in each case of the types described above, would
reasonably be expected to have a Material Adverse Effect (after giving effect to
projected reserves for remediation expenses, the anticipated timing of
remediation expenses, potential insurance and indemnification recoveries and tax
savings).
7.18 Properties. Each of the Borrower and each of its Subsidiaries
----------
has good and marketable title to, or a validly subsisting leasehold interest in,
all material properties owned or leased by it except where failure to do so
would not be reasonably likely to have a Material Adverse Effect.
7.19 Labor Relations. Neither the Borrower nor any of its
---------------
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a Material Adverse Effect. There is (i) no unfair labor
practice complaint pending against the Borrower or any of its Subsidiaries or,
to the best knowledge of the Borrower and its Subsidiaries, threatened against
any of them, before the National Labor Relations Board, and no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against the Borrower or any of its Subsidiaries or, to
the best knowledge of the Borrower and its Subsidiaries, threatened against any
of them, (ii) no strike, labor dispute, slowdown or stoppage pending against the
Borrower or any of its Subsidiaries or, to the best knowledge of the Borrower
and its Subsidiaries, threatened against the Borrower or any of its Subsidiaries
and (iii) no union representation question existing with respect to the
employees of the Borrower or any of its Subsidiaries and, to the best knowledge
of the Borrower and its Subsidiaries, no union organizing activities are taking
place, except (with respect to any matter specified in clause (i), (ii) or (iii)
above, either individually or in the aggregate) such as is not reasonably likely
to have a Material Adverse Effect.
7.20 Tax Returns and Payments. Each of the Borrower and each of its
------------------------
Subsidiaries has filed all federal income tax returns and all other material tax
returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it which have become due, except for
those contested in good faith and fully provided for on the financial statements
of the Borrower and its Subsidiaries in accordance with GAAP. Each of the
Borrower and each of its Subsidiaries has provided adequate reserves (in the
good faith judgment of the management of the Borrower) for the payment of all
federal, state and foreign income taxes which have not yet become due. There is
no material action, suit, proceeding, investigation, audit, or claim now pending
or, to the knowledge of the Borrower or any of its Subsidiaries, threatened by
any authority regarding any taxes relating to the Borrower or any of its
Subsidiaries. Neither the Borrower nor any of its Subsidiaries has entered into
an agreement or waiver or been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of
taxes of the Borrower or any of its Subsidiaries, or is aware of any
circumstances that would cause the taxable years or other taxable periods of the
Borrower or any of its Subsidiaries not to be subject to the normally applicable
statute of limitations, in each case except to the extent the liability of the
Borrower or such
43
<PAGE>
Subsidiary giving rise to any extension of any such normally applicable statute
of limitation is not material.
7.21 Existing Indebtedness. Schedule III sets forth a true and
---------------------
complete list of all Existing Indebtedness of the Borrower and its Subsidiaries
as of the Restatement Effective Date, in each case showing the aggregate
principal amount thereof and the name of the Borrower and any other entity which
directly or indirectly guaranteed such debt.
7.22 Insurance. Set forth on Schedule VII hereto is a true, correct
---------
and complete summary of all insurance carried by each Credit Party on and as of
the Restatement Effective Date, with the amounts insured set forth therein.
7.23 Year 2000 Representation. Any reprogramming required to permit
------------------------
the proper functioning, in and following the year 2000, of (i) the Borrower's
and its Subsidiaries' computer systems and (ii) equipment containing embedded
microchips (including systems and equipment supplied by others or with which the
Borrower's and its Subsidiaries' systems interface) and the testing of all such
systems and equipment, as so reprogrammed, will be completed by December 31,
1999, except to the extent the failure to complete such reprogramming could not
reasonably be expected to result in a Default, an Event of Default or a Material
Adverse Effect. The cost to the Borrower and its Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable consequences of year
2000 to the Borrower and its Subsidiaries (including, without limitation,
reprogramming errors and the failure of others' systems or equipment) could not
reasonably be expected to result in a Default, an Event of Default or a Material
Adverse Effect. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management information
systems of the Borrower and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement to be,
sufficient to permit the Borrower and its Subsidiaries to conduct their
respective businesses without a Material Adverse Effect.
SECTION 8. Affirmative Covenants. The Borrower hereby covenants and
---------------------
agrees that as of the Restatement Effective Date and thereafter for so long as
this Agreement is in effect and until the Total Commitment has terminated, no
Letters of Credit or Notes are outstanding and the Loans and Unpaid Drawings,
together with interest, Fees and all other Obligations (other than any
indemnities described in Section 13.13 which are not then due and payable)
incurred hereunder, are paid in full:
8.01 Information Covenants. The Borrower will furnish to each Bank:
---------------------
(a) Quarterly Financial Statements. Within 50 days after the close of
------------------------------
the first three quarterly accounting periods in each fiscal year of the
Borrower, (i) the consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such quarterly accounting period and the related
consolidated statements of income and retained earnings and of cash flows for
such quarterly accounting period and for the elapsed portion of the fiscal year
ended with the last day of such quarterly accounting period and the budgeted
figures for such quarterly period as set forth in the respective budget
delivered
44
<PAGE>
pursuant to Section 8.01(c) and (ii) management's discussion and analysis of
significant operational and financial developments during such quarterly period,
all of which shall be in reasonable detail and certified by the chief financial
officer or other Authorized Officer of the Borrower that they fairly present in
all material respects the financial condition of the Borrower and its
Subsidiaries as of the dates indicated and the results of their operations and
changes in their cash flows for the periods indicated, subject to normal year-
end audit adjustments and the absence of footnotes.
(b) Annual Financial Statements. Within 95 days after the close of
---------------------------
each fiscal year of the Borrower, the consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such fiscal year and the related
consolidated statements of income and retained earnings and of cash flows for
such fiscal year and setting forth comparative consolidated figures for the
preceding fiscal year and comparable budgeted figures for such fiscal year as
set forth in the respective budget delivered pursuant to Section 8.01(c) and
(except for such comparable budgeted figures) certified by such independent
certified public accountants of recognized national standing as shall be
reasonably acceptable to the Administrative Agent, in each case to the effect
that such statements fairly present in all material respects the financial
condition of the Borrower and its Subsidiaries as of the dates indicated and the
results of their operations and changes in financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years, together with a certificate of such accounting firm stating that in the
course of its regular audit of the business of the Borrower and its
Subsidiaries, which audit was conducted in accordance with generally accepted
auditing standards, no Default or Event of Default which has occurred and is
continuing has come to their attention or, if such a Default or an Event of
Default has come to their attention, a statement as to the nature thereof.
(c) Budgets, etc. Not more than 60 days after the commencement of
-------------
each fiscal year of the Borrower, consolidated budgets of the Borrower and its
Subsidiaries (x) in reasonable detail for each of the four fiscal quarters of
such fiscal year and (y) in summary form for each of the two fiscal years
immediately following such fiscal year, in each case as customarily prepared by
management for its internal use setting forth, with appropriate discussion, the
principal assumptions upon which such budgets are based. Together with each
delivery of financial statements pursuant to Sections 8.01(a) and (b), a
comparison of the current year to date financial results against the budgets
required to be submitted pursuant to this clause (c) shall be presented.
(d) Officer's Certificates. At the time of the delivery of the
----------------------
financial statements provided for in Sections 8.01(a) and (b), a certificate of
the chief financial officer or other Authorized Officer of the Borrower to the
effect that, to the best of such officer's knowledge, no Default or Event of
Default exists or, if any Default or Event of Default does exist, specifying the
nature and extent thereof, which certificate shall, if delivered in connection
with the financial statements in respect of a period ending on the last day of a
fiscal quarter or fiscal year of the Borrower, set forth (x) the calculations
required to establish whether the Borrower and its Subsidiaries were in
compliance with
45
<PAGE>
the provisions of Sections 4.02, 9.02, 9.04(d), 9.05(g), (k) and (s), 9.08 and
9.09 as at the end of such fiscal quarter or year, as the case may be, and (y)
the calculation of the Total Leverage Ratio as at the last day of the respective
fiscal quarter or fiscal year of the Borrower, as the case may be.
(e) Notice of Default or Litigation. Promptly, and in any event
-------------------------------
within five Business Days after a senior officer of the Borrower or any of its
Subsidiaries obtains actual knowledge thereof, notice of (i) the occurrence of
any event which constitutes a Default or an Event of Default, which notice shall
specify the nature and period of existence thereof and what action the Borrower
proposes to take with respect thereto, (ii) any litigation or proceeding pending
or threatened (x) against the Borrower or any of its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect, (y) with respect to
any material Indebtedness of the Borrower or any of its Subsidiaries or (z) with
respect to any Document and (iii) any other event which could reasonably be
expected to have a Material Adverse Effect.
(f) Auditors' Reports. Promptly upon receipt thereof, a copy of each
-----------------
report or "management letter" submitted to the Borrower or any of its
Subsidiaries by its independent accountants in connection with any annual,
interim or special audit made by them of the books of the Borrower or any of its
Subsidiaries.
(g) Environmental Matters. Promptly and in any event within five
---------------------
Business Days after a senior officer of the Borrower or any of its Subsidiaries
obtains actual knowledge of any of the following (but only to the extent that
any of the following, either individually or in the aggregate, could reasonably
be expected to (x) have a Material Adverse Effect, (y) result in a remedial cost
to the Borrower or any of its Subsidiaries not previously disclosed to the
Arrangers and the Banks prior to the Effective Date in excess of $500,000 or (z)
result in a remedial cost to the Borrower or any of its Subsidiaries in excess
of $1,000,000 over and above the established reserve for remediation costs as
set forth in the Projections), written notice of:
(i) any pending or threatened Environmental Claim against the Borrower
or any of its Subsidiaries or any Real Property owned or operated by the
Borrower or any of its Subsidiaries;
(ii) any condition or occurrence on any Real Property at any time
owned or operated by the Borrower or any of its Subsidiaries that (x)
results in noncompliance by the Borrower or any of its Subsidiaries with
any applicable Environmental Law or (y) could reasonably be anticipated to
form the basis of an Environmental Claim against the Borrower or any of its
Subsidiaries or any such Real Property;
(iii) any condition or occurrence on any Real Property currently
owned or operated by the Borrower or any of its Subsidiaries that could
reasonably be anticipated to cause such Real Property to be subject to any
restrictions on the ownership, occupancy, use or transferability by the
Borrower or such Subsidiary, as
46
<PAGE>
the case may be, of its interest in such Real Property under any
Environmental Law; and
(iv) the taking of any removal or remedial action in response to the
actual or alleged presence of any Hazardous Material on any Real Property
owned or operated by the Borrower or any of its Subsidiaries.
All such notices shall describe in reasonable detail the nature of the claim,
investigation, condition, occurrence or removal or remedial action and the
Borrower's response or proposed response thereto. In addition, the Borrower
agrees to provide the Banks with copies of all material communications by the
Borrower or any of its Subsidiaries with any Person, government or governmental
agency relating to Environmental Laws or to any of the matters set forth in
clauses (i)-(iv) above, and such reasonably detailed reports relating to any of
the matters set forth in clauses (i)-(iv) above as may reasonably be requested
by the Administrative Agent or the Required Banks.
(h) Annual Meetings with Banks. At the written request of the
--------------------------
Administrative Agent, the Borrower shall within 120 days after the close of each
of its fiscal years, hold a meeting (at a mutually agreeable location and time)
open to all of the Banks at which meeting shall be reviewed the financial
results of the previous fiscal year and the financial condition of the Borrower
and its Subsidiaries and the budgets presented for the current fiscal year of
the Borrower and its Subsidiaries.
(i) Notice of Commitment Reductions. On or prior to the date of any
-------------------------------
reduction to the Total Revolving Loan Commitment, the Borrower shall provide
written notice of the amount of the reduction to the Total Revolving Loan
Commitment, and the calculation thereof (in reasonable detail).
(j) Other Information. Promptly upon transmission thereof, copies of
-----------------
any filings and registrations with, and reports to, the SEC by the Borrower or
any of its Subsidiaries and copies of all financial statements, proxy
statements, notices and reports as the Borrower or any of its Subsidiaries shall
send generally to analysts and, with reasonable promptness, such other
information or documents (financial or otherwise) as any Arranger on its own
behalf or on behalf of the Required Banks may reasonably request from time to
time.
8.02 Books, Records and Inspections. The Borrower will, and will
------------------------------
cause each of its Subsidiaries to, keep proper books of record and account in
which full, true and correct entries in conformity with GAAP and all
requirements of law shall be made of all dealings and transactions in relation
to its business and activities. The Borrower will, and will cause each of its
Subsidiaries to, permit, upon reasonable notice to the chief financial officer
or other Authorized Officer of the Borrower, officers and designated
representatives of either Arranger or any Bank to visit and inspect under the
guidance of officers of the Borrower any of the properties or assets of the
Borrower and any of its Subsidiaries in whomsoever's possession, and to examine
the books of account of the Borrower and any of its Subsidiaries and discuss the
affairs, finances and accounts of the Borrower and of any of
47
<PAGE>
its Subsidiaries with, and be advised as to the same by, their officers and
independent accountants, all at such reasonable times and intervals and to such
reasonable extent as such Arranger or Bank may desire, provided that so long as
--------
no Default or Event of Default is then in existence, the Borrower shall have the
right to participate in any discussions of the Arrangers or the Banks with any
independent accountants of the Borrowers.
8.03 Insurance. The Borrower will, and will cause each of its
---------
Subsidiaries to (i) maintain, with financially sound and reputable insurance
companies, insurance on all its property in at least such amounts and against at
least such risks as is consistent and in accordance with industry practice and
(ii) furnish to the Administrative Agent and each of the Banks, upon request,
full information as to the insurance carried. In addition to the requirements of
the immediately preceding sentence, the Borrower will at all times cause
insurance of the types described in Schedule VII to be maintained (with the same
scope of coverage as that described in Schedule VII) at levels which are
consistent with its practices immediately before the Restatement Effective Date.
Such insurance shall include physical damage insurance on all real and personal
property (whether now owned or hereafter acquired) on an all risk basis and
business interruption insurance.
8.04 Payment of Taxes. The Borrower will pay and discharge, and will
----------------
cause each of its Subsidiaries to pay and discharge, all material taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any material properties belonging to it, prior to the
date on which penalties attach thereto, and all material lawful claims for sums
that have become due and payable which, if unpaid, might become a Lien not
otherwise permitted under Section 9.03(a); provided, that neither the Borrower
--------
nor any of its Subsidiaries shall be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by proper
proceedings if it has maintained adequate reserves with respect thereto in
accordance with GAAP.
8.05 Corporate Franchises. The Borrower will do, and will cause each
--------------------
of its Subsidiaries to do, or cause to be done, all things necessary to preserve
and keep in full force and effect its existence and its material rights,
franchises, authority to do business, licenses and patents, except for rights,
franchises, authority to do business, licenses and patents the loss of which
(individually or in the aggregate) could not reasonably be expected to have a
Material Adverse Effect; provided, however, that any transaction permitted by
-------- -------
Section 9.02 will not constitute a breach of this Section 8.05.
8.06 Compliance with Statutes; etc. The Borrower will, and will
------------------------------
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property, except for such noncompliances as
would not, either individually or in the aggregate, have a Material Adverse
Effect or a material adverse effect on the ability of any Credit Party to
perform its obligations under any Credit Document to which it is a party.
48
<PAGE>
8.07 Compliance with Environmental Laws. (i) The Borrower will
----------------------------------
comply, and will cause each of its Subsidiaries to comply, in all material
respects with all Environmental Laws applicable to their businesses or the
ownership or use of its Real Property now or hereafter owned or operated by the
Borrower or any of its Subsidiaries, will promptly pay or, with respect to any
of its Subsidiaries, cause to be paid all costs and expenses incurred in
connection with such compliance, and will keep or cause to be kept all such Real
Property free and clear of any Liens imposed pursuant to such Environmental Laws
and (ii) none of the Borrower or any of its Subsidiaries will generate, use,
treat, store, Release or dispose of, or permit the generation, use, treatment,
storage, release or disposal of, Hazardous Materials on any Real Property owned
or operated by the Borrower or any of its Subsidiaries other than in compliance
with Environmental Laws and as required in connection with the normal business
operations of the Borrower or its Subsidiaries, or transport or permit the
transportation of Hazardous Materials other than in compliance with
Environmental Laws and as required in connection with the normal business
operations of the Borrower or its Subsidiaries, unless the failure to comply
with the requirements specified in clause (i) or (ii) above, either individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect. If the Borrower or any of its Subsidiaries or any tenant or occupant of
any Real Property owned or operated by the Borrower or any of its Subsidiaries
causes or permits any intentional or unintentional act or omission resulting in
the presence or Release of any Hazardous Material in a quantity or concentration
sufficient to require reporting or to trigger an obligation to undertake clean-
up, removal or remedial action under applicable Environmental Laws, the Borrower
agrees to undertake, and/or to cause any of its Subsidiaries, tenants or
occupants to undertake, at their sole expense, any clean up, removal, remedial
or other action required pursuant to Environmental Laws to remove and clean up
any Hazardous Materials from any Real Property except where the failure to do so
would not reasonably be expected to have a Material Adverse Effect; provided
--------
that none of the Borrower or any of its Subsidiaries shall be required to comply
with any such order or directive which is being contested in good faith and by
proper proceedings so long as it has maintained adequate reserves with respect
to such compliance to the extent required in accordance with GAAP.
Notwithstanding any provision of this Section 8.07, the Borrower shall be
required by this Section to exercise any degree of control over the operations
of any of its Subsidiaries that could reasonably be construed under applicable
Environmental Law to make the Borrower liable for Environmental Claims arising
from or causally related to the Real Property or operations of such Subsidiary
as an owner or an operator or upon any other basis.
8.08 ERISA. As soon as possible and, in any event, within fifteen
-----
Business Days after the Borrower or any Subsidiary of the Borrower or any ERISA
Affiliate knows or has reason to know of the occurrence of any of the following,
the Borrower will deliver to each of the Banks a certificate of the chief
financial officer of the Borrower setting forth the full details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or an
ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Borrower, the
Subsidiary, the ERISA Affiliate, the PBGC or any other governmental agency, or a
Plan; that any contribution required to be made by the Borrower, any Subsidiary
or any ERISA Affiliate
49
<PAGE>
with respect to a Plan has not been timely made; that the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate will or is reasonably expected
to incur any material liability (including any indirect, contingent, or
secondary liability) to or on account; Section 4980 of the Code or with respect
to a group health plan (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code; that the Borrower or
any Subsidiary of the Borrower will or is reasonably expected to incur any
material liability (including any indirect, contingent, or secondary liability)
with respect to a Plan under Section 4975 of the Code or Section 409, 502 (i) or
502(1) of ERISA; or that the Borrower or any Subsidiary of the Borrower will or
is reasonably expected to incur any material liability pursuant to any employee
welfare benefit plan (as defined in Section 3(1) of ERISA) that provides
benefits to retired employees or other former employees (other than as required
by Section 601 of ERISA). The Borrower will deliver to each of the Banks at the
request of any Bank on ten Business Days' notice a complete copy of the annual
report (on Internal Revenue Service Form 5500-series) of each Plan (including,
to the extent required, the related financial and actuarial statements and
opinions and other supporting statements, certifications, schedules and
information) required to be filed with the Internal Revenue Service. In addition
to any certificates or notices delivered to the Banks pursuant to the first
sentence hereof, copies of any material documents or other information required
to be furnished to the PBGC, and any material notices received by the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate with respect to any Plan
shall be delivered to the Banks no later than ten Business Days after the date
such documents and/or information has been furnished to the PBGC or such notice
has been received by the Borrower, such Subsidiary or such ERISA Affiliate, as
applicable.
8.09 Good Repair. The Borrower will, and will cause each of its
-----------
Subsidiaries to, ensure that its material properties and equipment used in its
business are kept in good repair, working order and condition, ordinary wear and
tear excepted, and that from time to time there are made in such properties and
equipment all needful and proper repairs, renewals, replacements, extensions,
additions, betterments and improvements thereto, to the extent and in the manner
useful or customary for companies in similar businesses.
8.10 End of Fiscal Years; Fiscal Quarters. The Borrower will, for
------------------------------------
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years to end on December 31 of each year and (ii) each of
its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30,
September 30 and December 31 of each year.
8.11 Additional Security; Further Assurances. (a) The Borrower
---------------------------------------
will, and will cause each of its Wholly-Owned Subsidiaries to, grant to the
Collateral Agent security interests in such assets of the Borrower and its
Subsidiaries which are of the type required to be pledged, assigned or
hypothecated pursuant to the Pledge Agreement to the extent requested from time
to time by the Administrative Agent or the Required Banks (collectively, the
"Additional Security Documents"). All such security interests shall be granted
pursuant to documentation reasonably satisfactory in form and substance to the
50
<PAGE>
Collateral Agent and shall constitute valid and enforceable perfected security
interests and hypothecations superior to and prior to the rights of all third
Persons and enforceable as against third parties and subject to no other Liens
except for Permitted Liens. The Additional Security Documents or instruments
related thereto shall have been duly recorded or filed in such manner and in
such places as are required by law to establish, perfect, preserve and protect
the Liens in favor of the Collateral Agent required to be granted pursuant to
the Additional Security Documents and all taxes, fees and other charges payable
in connection therewith shall have been paid in full.
(b) The Borrower will, and will cause each of its Subsidiaries to, at
the expense of the Borrower, make, execute, endorse, acknowledge, file and/or
deliver to the Collateral Agent from time to time such vouchers, invoices,
schedules, confirmatory assignments, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, reports and other assurances or
instruments and take such further steps relating to the Collateral covered by
the Security Documents as the Collateral Agent may reasonably require.
Furthermore, the Borrower shall cause to be delivered to the Collateral Agent
such opinions of counsel and other related documents as may be reasonably
requested by the Collateral Agent to assure itself that this Section 8.11 has
been complied with.
(c) The Borrower agrees that each action required above by this
Section 8.11 shall be completed as soon as possible, but in no event later than
90 days after such action is either requested to be taken by the Administrative
Agent, the Collateral Agent or the Required Banks or required to be taken by the
Borrowers and their respective Subsidiaries pursuant to the terms of this
Section 8.11; provided that in no event will the Borrower or any of its
--------
Subsidiaries be required to take any action, other than using its commercially
reasonable efforts, to obtain consents from third parties with respect to its
compliance with this Section 8.11.
8.12 Ownership of Subsidiaries. Except to the extent expressly
-------------------------
permitted herein, by applicable law or as otherwise expressly consented in
writing by the Required Banks, and except as set forth on Schedule VI each
Credit Party shall directly or indirectly own 100% of the capital stock or other
equity interests of each of their respective Subsidiaries.
8.13 Permitted Acquisitions. (a) Subject to the provisions of this
----------------------
Section 8.13 and the requirements contained in the definition of Permitted
Acquisition, the Borrower and any of its Wholly-Owned Domestic Subsidiaries may
from time to time effect Permitted Acquisitions, so long as (in each case except
to the extent the Required Banks otherwise specifically agree in writing in the
case of a specific Permitted Acquisition): (A) no Default or Event of Default
shall be in existence at the time of the consummation of the proposed Permitted
Acquisition or immediately after giving effect thereto, and (B) if the aggregate
consideration (which shall include, without limitation, cash or the fair market
value of assets transferred, the principal amount of assumed Indebtedness and
the principal amount of all issued promissory notes and, without
51
<PAGE>
duplication, the amount of Preferred Stock canceled or retired) exceeds
$5,000,000 in the case of any Permitted Acquisition (or series of related
Permitted Acquisitions) paid, transferred, assumed, issued or cancelled by the
Borrower and its Subsidiaries (net of amounts paid to the Borrower or its
Subsidiaries by Cendant and its Subsidiaries in connection with such Permitted
Acquisition) (i) the Borrower shall have given the Administrative Agent and the
Banks at least 5 Business Days' prior written notice of any Permitted
Acquisition; (ii) calculations are made by the Borrower of compliance with the
covenants contained in Sections 9.08 and 9.09 (in each case, giving effect to
the last sentence appearing therein) for the period of four consecutive fiscal
quarters (taken as one accounting period) most recently ended prior to the date
of such Permitted Acquisition (each, a "Calculation Period"), on a Pro Forma
--- -----
Basis as if the respective Permitted Acquisition (as well as all other Permitted
Acquisitions theretofore consummated after the first day of such Calculation
Period) had occurred on the first day of such Calculation Period, and such
recalculations shall show that such financial covenants would have been complied
with if the Permitted Acquisition had occurred on the first day of such
Calculation Period (for this purpose, if the first day of the respective
Calculation Period occurs prior to the Restatement Effective Date, calculated as
if the covenants contained in said Sections 9.08 and 9.09 (in each case, giving
effect to the last sentence appearing therein) had been applicable from the
first day of the Calculation Period); (iii) based on good faith projections
prepared by the Borrower for the period from the date of the consummation of the
Permitted Acquisition to the date which is one year thereafter, the level of
financial performance measured by the covenants set forth in Sections 9.08 and
9.09 (in each case, giving effect to the last sentence appearing therein) shall
be better than or equal to such level as would be required to provide that no
Default or Event of Default would exist under the financial covenants contained
in Sections 9.08 and 9.09 (in each case, giving effect to the last sentence
appearing therein) of this Agreement as compliance with such covenants would be
required through the date which is one year from the date of the consummation of
the respective Permitted Acquisition; (iv) calculations are made by the Borrower
demonstrating compliance with a Total Leverage Ratio not to exceed 2.0:1.0 on
the last day of the relevant Calculation Period, on a Pro Forma Basis as if the
--- -----
respective Permitted Acquisition (as well as all other Permitted Acquisitions
theretofore consummated after the first day of such Calculation Period) had
occurred on the first day of such Calculation Period; (v) all representations
and warranties contained herein and in the other Credit Documents shall be true
and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Permitted Acquisition (both before and after giving effect thereto), unless
stated to relate to a specific earlier date, in which case such representations
and warranties shall be true and correct in all material respects as of such
earlier date; (vi) the Borrower provides to the Administrative Agent and the
Banks as soon as available but not later than 5 Business Days after the
execution thereof, a copy of any executed purchase agreement or similar
agreement with respect to such Permitted Acquisition; (vii) after giving effect
to each Permitted Acquisition (and the payment of all post-closing purchase
price adjustments required (in the good faith determination of the Borrower) in
connection therewith, the Total Unutilized Revolving Loan Commitment shall equal
or exceed $10,000,000; and (viii) the Borrower shall have delivered to the
Administrative Agent an officer's certificate
52
<PAGE>
executed by an Authorized Officer of the Borrower, certifying to the best of his
knowledge, compliance with the requirements of preceding clauses (i) through
(v), inclusive, and (vii) and containing the calculations required by the
preceding clauses (ii), (iii), (iv) and (vii); provided however, that so long as
-------- -------
the aggregate consideration (which shall include without limitation, cash or the
fair market value of assets transferred, assumed Indebtedness and the principal
amount of all issued promissory notes and the amount of all Preferred Stock
canceled or retired) payable by the Borrower and its Subsidiaries in connection
with the proposed Permitted Acquisition (or series of related Permitted
Acquisitions) (net of amounts paid to the Borrower or its Subsidiaries by
Cendant and its Subsidiaries in connection with such Permitted Acquisition)
shall not exceed $30,000,000.
(b) Within 10 days of each Permitted Acquisition involving the
creation or acquisition of a Subsidiary (other than a Regulated Subsidiary and,
within 60 days of such Permitted Acquisition with respect to a De Minimis
Subsidiary), or the acquisition of capital stock or other equity interest of any
Person, the capital stock or other equity interests thereof created or acquired
in connection with such Permitted Acquisition shall be pledged for the benefit
of the Secured Creditors pursuant to the Pledge Agreement in accordance with the
requirements of Section 9.13.
(c) Within 10 days of each Permitted Acquisition, the Borrower shall
cause each Subsidiary (other than a Regulated Subsidiary and, within 60 days of
the Permitted Acquisition with respect to a De Minimis Subsidiary) which is
formed to effect, or is acquired pursuant to, such Permitted Acquisition to
comply with, and to execute and deliver, all of the documentation required by,
Sections 8.11 and 9.13, to the satisfaction of the Administrative Agent.
(d) The consummation of each Permitted Acquisition shall be deemed to
be a representation and warranty by the Borrower that the certifications by the
Borrower (or by one or more of its Authorized Officers) pursuant to Section
8.13(a)(A) are true and correct and that all conditions thereto have been
satisfied and that same is permitted in accordance with the terms of this
Agreement, which representation and warranty shall be deemed to be a
representation and warranty for all purposes hereunder, including, without
limitation, Sections 6 and 10.
8.14 Maintenance of Company Separateness. The Borrower will, and
-----------------------------------
will cause each of its Subsidiaries and Unrestricted Subsidiaries to, satisfy
customary Company formalities, including, as applicable, the holding of regular
board of directors' and shareholders' meetings or action by directors or
shareholders without a meeting and the maintenance of Company offices and
records. Neither the Borrower nor any of its Subsidiaries shall make any
payment to a creditor of any Unrestricted Subsidiary in respect of any liability
of any Unrestricted Subsidiary, and no bank account of any Unrestricted
Subsidiary shall be commingled with any bank account of the Borrower or any of
its Subsidiaries. Any financial statements distributed to any creditors of any
Unrestricted Subsidiary shall clearly establish or indicate the Company
separateness of such Unrestricted Subsidiary from the Borrower and its
Subsidiaries. Finally, neither the
53
<PAGE>
Borrower nor any of its Subsidiaries shall take any action, or conduct its
affairs in a manner, which is likely to result in the Company existence of the
Borrower or any of its Subsidiaries or Unrestricted Subsidiaries being ignored,
or in the assets and liabilities of the Borrower or any of its Subsidiaries
being substantively consolidated with those of any other such Person or any
Unrestricted Subsidiary in a bankruptcy, reorganization or other insolvency
proceeding.
8.15 Performance of Obligations. The Borrower will, and will cause
--------------------------
each of its Subsidiaries to, perform all of its obligations under the terms of
each mortgage, deed of trust, indenture, loan agreement or credit agreement and
each other material agreement, contract or instrument by which it is bound,
except such non-performances as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
8.16 Use of Proceeds. All proceeds of the Loans shall be used as
---------------
provided in Section 7.05.
SECTION 9. Negative Covenants. The Borrower hereby covenants and
------------------
agrees that as of the Restatement Effective Date and thereafter for so long as
this Agreement is in effect and until the Total Commitment has terminated, no
Letters of Credit or Notes are outstanding and the Loans, together with
interest, Fees and all other Obligations (other than any indemnities described
in Section 13.13 which are not then due and payable) incurred hereunder, are
paid in full:
9.01 Changes in Business. (a) The Borrower will not, nor will the
-------------------
Borrower permit any of its Subsidiaries to, engage directly or indirectly in any
business other than a Permitted Business.
(b) No Unrestricted Subsidiary shall engage (directly or indirectly)
in any business other than a Permitted Business.
9.02 Consolidation; Merger; Sale or Purchase of Assets; etc. The
-------------------------------------------------------
Borrower will not, nor will the Borrower permit any of its Subsidiaries to, wind
up, liquidate or dissolve its affairs or enter into any transaction of merger,
amalgamation or consolidation, or convey, sell, lease or otherwise dispose of
all or any part of its property or assets (other than inventory in the ordinary
course of business), or enter into any sale-leaseback transactions, or purchase
or otherwise acquire (in one or a series of related transactions) any part of
the property or assets (other than purchases or other acquisitions of inventory,
materials, general intangibles and equipment in the ordinary course of business)
of any Person or agree to do any of the foregoing at any future time, except
that the following shall be permitted:
(a) the Borrower and its Subsidiaries may, as lessee, enter into
operating leases in the ordinary course of business with respect to real,
personal, movable or immovable property;
54
<PAGE>
(b) the Borrower and its Subsidiaries may make purchases, sales and
other transfers and transactions pursuant to the Acquisition Cooperation
Agreement and agreements entered into with Cendant or one of its
Subsidiaries to effectuate such transactions; provided that Permitted
Acquisitions shall be subject to the requirements of Section 8.13;
(c) the Borrower and its Subsidiaries may enter into license and
sublicense agreements of software, customer lists, trademarks and other
intellectual property with Cendant or one or more of its Subsidiaries and
otherwise in the ordinary course of business;
(d) the Borrower and its Subsidiaries may make (i) investments in the
Hunneman Mortgage Corporation in connection with the residential mortgage
business or (ii) investments in connection with Cash Secured Loans;
(e) Investments permitted pursuant to Section 9.05 and the disposition
or liquidation of Cash Equivalents in the ordinary course of business;
(f) the Borrower and any of its Subsidiaries may sell or otherwise
dispose of assets (excluding capital stock of, or other equity interests
in, Subsidiaries, Joint Ventures and Unrestricted Subsidiaries) which, in
the reasonable opinion of such Person, are obsolete, uneconomic or no
longer useful in the conduct of such Person's business, provided that
--------
except with respect to asset dispositions or transfers arising out of, or
in connection with, the events described in clauses (i) and (ii) of the
definition of Recovery Event, (w) each such sale or disposition shall be
for an amount at least equal to the fair market value thereof (as
determined in good faith by senior management of the Borrower in cases of
sales in excess of $1,000,000), (x) each such sale or disposition (I)
results in consideration at least 80% of which (taking the amount of cash,
the principal amount of any promissory notes and the fair market value, as
determined by the Borrower in good faith, of any other consideration) shall
be in the form of cash or (II) results in the assumption of all of the
Capitalized Lease Obligations or other purchase money obligations of the
Borrower or such Subsidiary in respect of such asset by the purchaser
thereof, (y) the aggregate Net Sale Proceeds from all assets sold or
otherwise disposed of pursuant to this clause (d), when added to the
aggregate amount of all Capitalized Lease Obligations and all other
purchase money obligations assigned in connection with all assets sold or
otherwise disposed of pursuant to this clause (d), shall not exceed
$10,000,000 in the aggregate in any fiscal year of the Borrower and (z) the
Net Sale Proceeds therefrom are applied to reduce the Total Revolving Loan
Commitment to the extent required by Section 4.02(b) or reinvested in
replacement assets or retained to the extent permitted by Section 4.02(b)
and/or the other relevant provisions of this Agreement;
(g) the Borrower or any Subsidiary of the Borrower may convey, lease,
license, sell or otherwise transfer all or any part of its business,
properties and
55
<PAGE>
assets to the Borrower or any other Guarantor, so long as any security
interests granted to the Collateral Agent for the benefit of the Secured
Creditors pursuant to the Security Documents in the assets so transferred
shall remain in full force and effect and perfected (to at least the same
extent as in effect immediately prior to such transfer) and all actions
required to maintain said perfected status have been taken;
(h) any Subsidiary of the Borrower may merge with and into, or be
dissolved or liquidated into, the Borrower or any Guarantor, so long as (i)
the Borrower or such Guarantor is the surviving corporation of any such
merger, dissolution or liquidation and (ii) any security interests granted
to the Collateral Agent for the benefit of the Secured Creditors pursuant
to the Security Documents in the assets of such Subsidiary shall remain in
full force and effect and perfected (to at least the same extent as in
effect immediately prior to such merger, dissolution or liquidation) and
all actions required to maintain said perfected status have been taken;
(i) any Foreign Subsidiary may be merged or amalgamated with and into,
or be dissolved or liquidated into, or transfer any of its assets to, any
other Wholly-Owned Foreign Subsidiary of the Borrower, so long as (i) a
Wholly-Owned Foreign Subsidiary of the Borrower is the surviving
corporation of any such merger, amalgamation, dissolution or liquidation
and (ii) any security interests granted to the Collateral Agent for the
benefit of the Secured Creditors pursuant to the Security Documents in the
assets of such Wholly-Owned Foreign Subsidiary and such Foreign Subsidiary
shall remain in full force and effect and perfected (to at least the same
extent as in effect immediately prior to such merger, amalgamation,
dissolution, liquidation or transfer) and all actions required to maintain
said perfected status have been taken;
(j) the Borrower and its Domestic Subsidiaries may transfer assets to
Wholly-Owned Foreign Subsidiaries, so long as (x) no Default or Event of
Default exists as the time of the respective transfer and (y) the aggregate
fair market value of all such assets so transferred (determined in good
faith by the Board of Directors or senior management of the Borrower) to
all such Foreign Subsidiaries does not exceed the sum of (i) $5,000,000
plus (ii) the aggregate fair market value of all assets of Foreign
----
Subsidiaries of the Borrower (as determined in good faith by senior
management of the Borrower) transferred by such Foreign Subsidiaries to the
Borrower and any Guarantor, pursuant to Section 9.02(g);
(k) the Borrower and its Subsidiaries may lease, as lessor, or
sublease, as sublessor, equipment, machinery or Real Property in the
ordinary course of business, so long as such lease is for fair
consideration (determined in good faith by the Board of Directors or senior
management of the Borrower);
56
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(l) the Borrower and any of its Subsidiaries may sell or otherwise
dispose of the capital stock of, or other equity interests in, any of their
respective Subsidiaries, Unrestricted Subsidiaries and Joint Ventures
which, in the reasonable opinion of such Person, are uneconomic or no
longer useful in the conduct of such Person's business, provided that (v)
--------
in the case of a sale or other disposition of the capital stock or other
equity interests of any Wholly-Owned Subsidiary of the Borrower, 100% of
the capital stock or other equity interests of such Subsidiary shall be so
sold or disposed of, (w) each such sale or disposition shall be for an
amount at least equal to the fair market value thereof (as determined in
good faith by senior management of the Borrower), (x) each such sale
results in consideration at least 80% of which (taking the amount of cash,
the principal amount of any promissory notes and the fair market value, as
determined by the Borrower in good faith, of any other consideration) shall
be in the form of cash, (y) the aggregate Net Sale Proceeds of all assets
sold or otherwise disposed of pursuant to this clause (l) after the
Restatement Effective Date shall not exceed $10,000,000 in the aggregate
and (z) the Net Sale Proceeds therefrom are either applied to reduce the
Total Revolving Loan Commitment as required by Section 4.02(b) or
reinvested in replacement assets or retained to the extent permitted by
Section 4.02(b) and/or the other relevant provisions of this Agreement;
(m) the Borrower and its Subsidiaries may enter into agreements to
effect acquisitions and dispositions of stock or assets, so long as the
respective transaction is permitted pursuant to the provisions of this
Section 9.02; provided that the Borrower and its Subsidiaries may enter
--------
into agreements to effect acquisitions and dispositions of capital stock or
assets in transactions not permitted by the provisions of this Section 9.02
at the time the respective agreement is entered into, so long as in the
case of each such agreement, such agreement shall be expressly conditioned
upon obtaining the requisite consent of the Required Banks under this
Agreement or the repayment of all Obligations hereunder as a condition
precedent to the consummation of the respective transaction and, if for any
reason the transaction is not consummated because of a failure to obtain
such consent, the aggregate liability of the Borrower and its Subsidiaries
under any such agreement shall not exceed $1,000,000; and
(n) the Borrower or any of its Subsidiaries may effect Permitted Sale-
Leaseback Transactions in accordance with the definition thereof; provided
--------
that the aggregate amount of all proceeds received by the Borrower and its
Subsidiaries from all Permitted Sale-Leaseback Transactions consummated on
and after the Restatement Effective Date shall not exceed $10,000,000.
To the extent the Required Banks waive the provisions of this Section 9.02 with
respect to the sale or other disposition of any Collateral, or any Collateral is
sold or otherwise disposed of as permitted by this Section 9.02, such Collateral
(unless transferred to the Borrower or a Subsidiary thereof) shall (except as
otherwise provided above) be sold or otherwise disposed of free and clear of the
Liens created by the Security Documents and
57
<PAGE>
the Administrative Agent shall take such actions (including, without limitation,
directing the Collateral Agent to take such actions) as are appropriate in
connection therewith.
9.03 Liens. The Borrower will not, nor will any Borrower permit any
-----
of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon
or with respect to any property or assets of any kind (real or personal,
tangible or intangible, movable or immovable) of such Borrower or any of its
Subsidiaries, whether now owned or hereafter acquired, or sell any such property
or assets subject to an understanding or agreement, contingent or otherwise, to
repurchase such property or assets (including sales of accounts receivable or
notes with recourse to such Borrower or any of its Subsidiaries) or assign any
right to receive income, except for the following (collectively, the "Permitted
Liens"):
(a) inchoate Liens for taxes, assessments or governmental charges or
levies not yet due and payable or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been established
in accordance with GAAP;
(b) Liens in respect of property or assets of the Borrower or any of
its Subsidiaries imposed by law which were incurred in the ordinary course
of business and which have not arisen to secure Indebtedness for borrowed
money, such as carriers', materialmen's, warehousemen's and mechanics'
Liens, statutory and common law landlord's Liens, and other similar Liens
arising in the ordinary course of business, and which either (x) do not in
the aggregate materially detract from the value of such property or assets
or materially impair the use thereof in the operation of the business of
the Borrower or any of its Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or asset subject to such
Lien;
(c) Liens created by or pursuant to this Agreement and the Security
Documents;
(d) Liens in existence on the Restatement Effective Date which are
listed, and the property subject thereto described, in Schedule VIII,
without giving effect to any extensions or renewals thereof;
(e) Liens arising from judgments, decrees, awards or attachments in
circumstances not constituting an Event of Default under Section 10.09,
provided that the amount of cash and property (determined on a fair market
--------
value basis) deposited or delivered to secure the respective judgment or
decree or subject to attachment shall not exceed $3,000,000 at any time;
(f) Liens (other than any Lien imposed by ERISA) (x) incurred or
deposits made in the ordinary course of business of the Borrower and its
Subsidiaries in connection with workers' compensation, unemployment
insurance and other types of social security, (y) to secure the performance
by the Borrower
58
<PAGE>
and its Subsidiaries of tenders, statutory obligations (other than excise
taxes), surety, stay, customs and appeal bonds, statutory bonds, bids,
leases, government contracts, trade contracts, performance and return of
money bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money) or (z) to secure the performance by the Borrower
and its Subsidiaries of leases of Real Property, to the extent incurred or
made in the ordinary course of business consistent with past practices,
provided that the aggregate amount of deposits at any time pursuant to sub-
--------
clause (y) and sub-clause (z) shall not exceed $3,000,000 in the aggregate;
(g) licenses, sublicenses, leases or subleases granted to third
Persons in the ordinary course of business not interfering in any material
respect with the business of the Borrower or any of its Subsidiaries;
(h) easements, rights-of-way, restrictions, minor defects or
irregularities in title, encroachments and other similar charges or
encumbrances, in each case not securing Indebtedness and not interfering in
any material respect with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(i) Liens arising from precautionary UCC financing statements
regarding operating leases;
(j) Liens created pursuant to Capital Leases permitted pursuant to
Section 9.04(d), provided that (x) such Liens only serve to secure the
--------
payment of Indebtedness arising under such Capitalized Lease Obligation
(and other Indebtedness permitted by Section 9.04(d) and incurred from the
same Person as such Indebtedness) and (y) the Lien encumbering the asset
giving rise to the Capitalized Lease Obligation does not encumber any other
asset of the Borrower or any of its Subsidiaries (other than other assets
subject to Capitalized Lease Obligations and/or Indebtedness incurred
pursuant to Section 9.04(d), in each case owing to the same Person as such
Capitalized Lease Obligation);
(k) Permitted Encumbrances;
(l) Liens arising pursuant to purchase money mortgages or security
interests securing Indebtedness representing the purchase price (or
financing of the purchase price within 90 days after the respective
purchase) of assets acquired after the Restatement Effective Date, provided
--------
that (i) any such Liens attach only to the assets so purchased, upgrades
thereon and, if the asset so purchased is an upgrade, the original asset
itself (and such other assets financed by the same financing source), (ii)
the Indebtedness (other than Indebtedness incurred from the same financing
source to purchase other assets and excluding Indebtedness representing
obligations to pay installation and delivery charges for the property so
purchased) secured by any such Lien does not exceed 100% of the lesser of
the fair market value or the purchase price of the property being purchased
at the time of the
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incurrence of such Indebtedness and (iii) the Indebtedness secured thereby
is permitted to be incurred pursuant to Section 9.04(d);
(m) Liens on property or assets acquired pursuant to a Permitted
Acquisition, or on property or assets of a Subsidiary of the Borrower in
existence at the time such Subsidiary is acquired pursuant to a Permitted
Acquisition, provided that (i) any Indebtedness that is secured by such
--------
Liens is permitted to exist under Section 9.04(d), and (ii) such Liens are
not incurred in connection with, or in contemplation or anticipation of,
such Permitted Acquisition and do not attach to any other asset of the
Borrower or any of its Subsidiaries;
(n) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Borrower or any of its Subsidiaries in
the ordinary course of business;
(o) Liens incurred by the Borrower and its Subsidiaries, so long as
the value of the property subject to such Liens, and the Indebtedness and
other obligations secured thereby, do not exceed $2,000,000;
(p) Liens securing the Indebtedness permitted under Sections 9.04(j)
and (k) and encumbering the assets financed with such Indebtedness; and
(q) Liens securing seller Indebtedness and other Indebtedness
permitted to exist under Section 9.04(d).
9.04 Indebtedness. The Borrower will not, nor will the Borrower
------------
permit any of its Subsidiaries to, contract, create, incur, assume or suffer to
exist any Indebtedness, except (without duplication):
(a) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(b) Existing Indebtedness outstanding on the Restatement Effective
Date and listed on Schedule III (as reduced by any repayments thereof
before, on or after the Restatement Effective Date);
(c) Indebtedness under (i) Interest Rate Protection Agreements entered
into to protect the Borrower against fluctuations in interest rates in
respect of the Obligations otherwise permitted under this Agreement or (ii)
Other Hedging Agreements providing protection against fluctuations in
currency values in connection with the Borrower's or any of its
Subsidiaries' operations, so long as management of the Borrower or such
Subsidiary, as the case may be, has determined that the entering into of
any such Other Hedging Agreement is a bona fide hedging activity (and is
not for speculative purposes) and is in the ordinary course of business and
consistent with its past practices;
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(d) (w) Indebtedness of a Subsidiary acquired pursuant to a Permitted
Acquisition (or Indebtedness assumed by the Borrower or any Wholly-Owned
Domestic Subsidiary pursuant to a Permitted Acquisition as a result of a
merger or consolidation or the acquisition of an asset securing such
Indebtedness) (the "Permitted Acquired Debt"), so long as (i) such
Indebtedness was not incurred in connection with, or in anticipation or
contemplation of, such Permitted Acquisition and (ii) such Indebtedness
does not constitute debt for borrowed money (except to the extent such
Indebtedness cannot be repaid in accordance with its terms at the time of
its assumption pursuant to such Permitted Acquisition and the aggregate
principal amount of all such Indebtedness for borrowed money permitted
pursuant to this parenthetical does not exceed $15,000,000), it being
understood and agreed that Capitalized Lease Obligations and purchase money
Indebtedness shall not constitute debt for borrowed money for purposes of
this clause (ii), (x) Capitalized Lease Obligations and Indebtedness of the
Borrower and its Subsidiaries representing purchase money Indebtedness
secured by Liens permitted pursuant to Section 9.03(l), (y) Indebtedness
issued by the Borrower or its Subsidiaries to the seller of an asset or
entity constituting a Permitted Acquisition and (z) other Indebtedness of
the Borrower and its Subsidiaries, provided, that the sum of (I) the
--------
aggregate principal amount of all Permitted Acquired Debt at any time
outstanding plus (II) the aggregate amount of Capitalized Lease Obligations
----
incurred on and after the Restatement Effective Date and outstanding at any
time (including Indebtedness evidenced by Capitalized Lease Obligations
arising from Permitted Sale-Leaseback Transactions) plus (III) the
----
aggregate principal amount of all such purchase money Indebtedness incurred
on and after the Restatement Effective Date and outstanding at any time
plus (IV) the aggregate principal amount of Indebtedness permitted under
----
clauses (y) and (z) above, shall not exceed $75,000,000 (provided the
aggregate amount of Indebtedness under clauses (I), (II) and (III) which is
secured by a Lien or any assets of the Borrower and/or its Subsidiaries
shall not exceed $25,000,000);
(e) Indebtedness constituting Intercompany Loans to the extent
permitted by Section 9.05(f);
(f) Indebtedness of the Borrower or any of its Subsidiaries which may
be deemed to exist in connection with agreements providing for
indemnification, purchase price adjustments and similar obligations in
connection with acquisitions or sales of assets and/or businesses effected
in accordance with the requirements of this Agreement (so long as any such
obligations are those of the Person making the respective acquisition or
sale, and are not guaranteed by any other Person);
(g) Contingent Obligations of (x) the Borrower or any of its
Subsidiaries as a guarantor (A) of the lessee under any lease pursuant to
which the Borrower or any of its Wholly-Owned Subsidiaries is the lessee so
long as such lease is otherwise permitted hereunder or (B) of indemnity or
similar obligations under agreements for acquisitions or dispositions of
stock or assets so long as such
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agreements are otherwise permitted hereunder, (y) the Borrower or any of
its Subsidiaries as a guarantor of any Capitalized Lease Obligation to
which a Joint Venture or Unrestricted Subsidiary is a party or any contract
entered into by such Joint Venture or Unrestricted Subsidiary in the
ordinary course of business; provided that the maximum liability of the
--------
Borrower or any of its Subsidiaries in respect of any obligations as
described pursuant to preceding clause (y) is permitted as an Investment on
such date pursuant to the requirements of Section 9.05(k) and (z) the
Borrower which may be deemed to exist pursuant to acquisition agreements
entered into in connection with Permitted Acquisitions (including any
obligation to pay the purchase price therefor and any indemnification,
purchase price adjustment and similar obligations);
(h) Indebtedness with respect to performance bonds, surety bonds,
appeal bonds or customs bonds required in the ordinary course of business
or in connection with the enforcement of rights or claims of the Borrower
or any of its Subsidiaries or in connection with judgments that do not
result in a Default or an Event of Default, provided that the aggregate
--------
outstanding amount of all such performance bonds, surety bonds, appeal
bonds and customs bonds permitted by this subsection (h) shall not at any
time exceed $5,000,000;
(i) (x) Permitted Subordinated Indebtedness incurred in accordance
with the requirements of the definition thereof, so long as the aggregate
principal amount of all Indebtedness permitted by this clause (i), when
added to the aggregate liquidation preference for all Disqualified
Preferred Stock issued after the Restatement Effective Date pursuant to
Section 9.11(c), does not exceed $75,000,000 at any time outstanding;
(j) Indebtedness incurred with respect to Cash Secured Loans entered
into from time to time by the Borrower and/or its Subsidiaries; and
(k) Indebtedness in connection with mortgage warehousing lines of
credit between Hunneman Mortgage Corporation and First Union National Bank,
and any exhibitions or refinancing thereof on substantially similar terms
so long as such Indebtedness does not exceed $30,000,000.
9.05 Advances; Investments; Loans. The Borrower will not, nor will
----------------------------
the Borrower permit any of its Subsidiaries to, lend money or extend credit or
make advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any Person, or purchase or own a futures contract or otherwise become liable for
the purchase or sale of currency or other commodities at a future date in the
nature of a futures contract (any of the foregoing, an "Investment"), except:
(a) the Borrower and its Subsidiaries may invest in cash and Cash Equivalents;
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<PAGE>
(b) the Borrower and its Subsidiaries may acquire and hold receivables
owing to it, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms
(including the dating of receivables) of the Borrower or such Subsidiary;
(c) the Borrower and its Subsidiaries may acquire and own investments
(including debt obligations and equity securities) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, customers
and suppliers arising in the ordinary course of business;
(d) Interest Rate Protection Agreements and Other Hedging Agreements
entered into in compliance with Section 9.04(c) shall be permitted;
(e) advances, loans and investments in existence on the Restatement
Effective Date and listed on Schedule IX shall be permitted, without giving
effect to any additions thereto or replacements thereof, it being
understood that any additional Investments made with respect to such
existing Investments shall be permitted only if independently justified
under the other provisions of this Section 9.05;
(f) any Credit Party may make intercompany loans and advances to any
other Credit Party and any Credit Party may make intercompany loans and
advances to any Foreign Subsidiary that is not a Credit Party
(collectively, "Intercompany Loans"), provided, that (w) at no time shall
--------
the aggregate outstanding principal amount of all Intercompany Loans made
pursuant to this clause (f) by the Credit Parties to Foreign Subsidiaries,
when added to the amount of contributions, capitalizations and forgiveness
theretofore made pursuant to Section 9.05(o) exceed $5,000,000 (determined
without regard to any write-downs or write-offs of such loans and
advances), (x) each Intercompany Loan in excess of $500,000 shall be
evidenced by an Intercompany Note, (y) each such Intercompany Note shall be
pledged to the Collateral Agent pursuant to the Pledge Agreement;
(g) loans and advances by the Borrower and its Subsidiaries to
employees, officers and directors of the Borrower and its Subsidiaries in
connection with relocations, purchases by such employees of Borrower Common
Stock or options or similar rights to purchase Borrower Common Stock and
other ordinary course of business purposes (including travel and
entertainment expenses) shall be permitted, so long as the aggregate
principal amount thereof at any time outstanding (determined without regard
to any write-downs or write-offs of such loans and advances) shall not
exceed $3,000,000;
(h) the Borrower may acquire and hold obligations of one or more
officers or other employees of the Borrower or its Subsidiaries in
connection with such officers' or employees' acquisition of shares of
Borrower Common Stock, so long as no cash is actually advanced by the
Borrower or any of its Subsidiaries to
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<PAGE>
such officers or employees in connection with the acquisition of any such
obligations;
(i) the Borrower and any of its Subsidiaries may make Permitted
Acquisitions in accordance with the relevant requirements of Section 8.13
and the component definitions as used therein;
(j) the Borrower and its Subsidiaries may own the capital stock of
their respective Subsidiaries created or acquired in accordance with the
terms of this Agreement;
(k) so long as no Default or Event of Default exists or would exist
immediately after giving effect to the respective Investment, the Borrower
and its Wholly-Owned Domestic Subsidiaries shall be permitted to make
Investments in (x) any Joint Venture on any date in an amount not to exceed
the Available Basket Amount on such date and (y) any Unrestricted
Subsidiary on any date in an amount not to exceed the Available Basket Sub-
Limit on such date (after giving effect to all prior and contemporaneous
adjustments thereto, except as a result of such Investment), it being
understood and agreed that, to the extent the Borrower or one or more other
Credit Parties (after the respective Investment has been made) receives a
cash return from the respective Joint Venture or Unrestricted Subsidiary of
amounts previously invested pursuant to this clause (k) (which cash return
may be made by way of repayment of principal in the case of loans and cash
equity returns (whether as a distribution, dividend or redemption) in the
case of equity investments) or a return in the form of an asset
distribution from the respective Joint Venture or Unrestricted Subsidiary
of any asset previously contributed pursuant to this clause (k) then the
amount of such cash return of investment or the fair market value of such
distributed asset (as determined in good faith by senior management of the
Borrower), as the case may be, shall, upon the Administrative Agent's
receipt of a certification of the amount of the return of investment from
an Authorized Officer, apply to increase the Available Basket Amount and/or
the Available Basket Sub-Limit, as applicable, provided that the aggregate
--------
amount of increases to the Available Basket Amount and/or the Available
Basket Sub-Limit described above shall not exceed the amount of returned
investment and, in no event, shall the amount of the increases made to the
Available Basket Amount and/or the Available Basket Sub-Limit in respect of
any Investment exceed the amount previously invested pursuant to this
clause (k);
(l) the Borrower and its Subsidiaries may receive and hold promissory
notes and other non-cash consideration received in connection with any
asset sale permitted by Sections 9.02(d), (f) and (l);
(m) the Borrower and its Subsidiaries may convey, lease, license, sell
or otherwise transfer assets and properties to the extent permitted by
Sections 9.02(b), (d), (g), (i), (j), (k) and (n);
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<PAGE>
(n) the Borrower and its Subsidiaries may make advances in the form of
a prepayment of expenses, so long as such expenses were incurred in the
ordinary course of business and are being paid in accordance with customary
trade terms of the Borrower or such Subsidiary;
(o) the Borrower and its Domestic Subsidiaries may make cash capital
contributions to Foreign Subsidiaries, and may capitalize or forgive any
Indebtedness owed to them by a Foreign Subsidiary and outstanding under
clause (f) of this Section 9.05, provided that the aggregate amount of such
--------
contributions, capitalizations and forgiveness on and after the Restatement
Effective Date, when added to the aggregate outstanding principal amount of
Intercompany Loans made to Foreign Subsidiaries under such clause (f)
(determined without regard to any write-downs or write-offs thereof) shall
not exceed an amount equal to $10,000,000;
(p) the Borrower and its Subsidiaries may make the investments listed
on, and in the amounts described on Schedule IX hereto;
(q) the Borrower and any Guarantor may make cash equity contributions
to any Guarantor;
(r) the Borrower and its Subsidiaries may make investments in
connection with any joint venture with Cendant or affiliates thereof
involving the residential mortgage business; and
(s) in addition to investments permitted by clauses (a) through (r) of
this Section 9.05, the Borrower and its Subsidiaries may make additional
loans, advances and Investments to or in a Person in an aggregate amount
for all loans, advances and Investments made pursuant to this clause (s)
(determined without regard to any write-downs or write-offs thereof), net
of cash repayments of principal in the case of loans, sale proceeds in the
case of Investments in the form of debt instruments and cash equity returns
(whether as a distribution, dividend, redemption or sale) in the case of
equity investments, not to exceed $10,000,000.
9.06 Dividends; etc. The Borrower will not, nor will the Borrower
---------------
permit any of its Subsidiaries to, declare or pay any dividends (other than
dividends payable solely in common stock of such Borrower or any such
Subsidiary, as the case may be) or return any capital to, its stockholders or
authorize or make any other distribution, payment or delivery of property or
cash to its stockholders as such, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, for a consideration, any shares of any class of
its capital stock, now or hereafter outstanding (or any warrants for or options
or stock appreciation rights in respect of any of such shares), or set aside any
funds for any of the foregoing purposes, and the Borrower will not permit any of
its Subsidiaries to purchase or otherwise acquire for consideration any shares
of any class of the capital stock of the Borrower or any other Subsidiary, as
the case may be, now or hereafter outstanding (or any options or warrants or
stock appreciation rights issued by such Person with respect to its
65
<PAGE>
capital stock) or enter into any derivatives or other transaction with any
financial institution, commodities or stock exchange or clearinghouse (a
"Derivatives Counterparty") obligating it to make payments to such Derivatives
Counterparty as a result of any change in market value of its capital stock (all
of the foregoing "Dividends"), except that:
(i) any Subsidiary of the Borrower may pay Dividends (directly or
indirectly) to the Borrower or any Guarantor;
(ii) the Borrower may redeem or purchase shares of Borrower Common
Stock or options to purchase Borrower Common Stock, as the case may be,
held by former employees or directors of the Borrower or any of its
Subsidiaries following the termination of their employment (by death,
disability or otherwise), provided that (w) the only consideration paid by
--------
the Borrower in respect of such redemptions and/or purchases shall be cash,
forgiveness of liabilities and/or Shareholder Subordinated Notes, (x) the
sum of (A) the aggregate amount paid by the Borrower in cash in respect of
all such redemptions and/or purchases plus (B) the aggregate amount of
liabilities so forgiven and (C) the aggregate amount of all cash principal
and interest payments made on Shareholder Subordinated Notes, in each case
after the Restatement Effective Date, shall not exceed $5,000,000, and (y)
at the time of any cash payment or forgiveness of liabilities permitted to
be made pursuant to this Section 9.06(ii), including any cash payment under
a Shareholder Subordinated Note, no Default or Event of Default shall then
exist or result therefrom;
(iii) so long as no Default or Event of Default exists or would
result therefrom, the Borrower may pay regularly accruing cash Dividends on
Disqualified Preferred Stock issued pursuant to Section 9.11(c), with such
Dividends to be paid in accordance with the terms of the respective
certificate of designation therefor;
(iv) any non-Wholly-Owned Subsidiary of the Borrower may pay cash
Dividends to its shareholders or partners generally, so long as the
Borrower or its respective Subsidiary which owns the equity interest or
interests in the Subsidiary paying such Dividends receives at least its
proportionate share thereof (based upon its relative holdings of equity
interest in the Subsidiary paying such Dividends and taking into account
the relative preferences, if any, of the various classes of equity
interests in such Subsidiary or the terms of any agreements applicable
thereto);
(v) so long as no Default or Event of Default exists or would arise
therefrom, the Borrower may pay special dividends in an amount equal to the
sum of (i) $15,000,000 plus (ii) cash received by the Borrower from Cendant
and/or its Subsidiaries in the first six months after the Restatement
Effective Date in connection with the Cendant Documents;
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<PAGE>
(vi) so long as no Default or Event of Default exists or would result
therefrom, the Borrower may, after the Qualified IPO, redeem the Existing
Preferred Stock with the proceeds received therefrom;
(vii) (x) the Borrower may pay regularly scheduled Dividends on
Existing Preferred Stock pursuant to the terms thereof solely through the
issuance of additional shares of such Existing Preferred Stock and (y) so
long as no Default or Event of Default exists or would result therefrom,
the Borrower may (A) pay cash Dividends on the Existing Preferred Stock
payable in accordance with the terms thereof and (B) redeem or repurchase
shares of Existing Preferred Stock previously issued as pay-in-kind
Dividends in accordance with the terms thereof;
(viii) so long as no Default or Event of Default exists or would
result therefrom, after a Qualified IPO, the Borrower may pay additional
Dividends, not to exceed an amount equal to (x) the Consolidated Cumulative
Net Income Amount at the time of such payment minus (y) all Dividends paid
pursuant to this Section 9.06(viii) prior to such payment;
(ix) the Borrower may cancel the Existing Preferred Stock held by
Cendant in connection with transactions under, and pursuant to the
provisions of the Acquisition Cooperation Agreement;
(x) to the extent constituting Dividends, all payments or transfers
made by the Borrower and/or its Subsidiaries pursuant to the Cendant
Documents;
(xi) so long as no Default or Event of Default exists or would result
therefrom, the Borrower may redeem or purchase shares of Borrower Common
Stock and Existing Preferred Stock in an aggregate amount not to exceed
$25,000,000; and
(xii) the Borrower may increase or decrease the liquidation
preference of the Existing Preferred Stock.
9.07 Transactions with Affiliates and Unrestricted Subsidiaries. The
----------------------------------------------------------
Borrower will not, nor will the Borrower permit any of its Subsidiaries to,
enter into any transaction or series of transactions with any Affiliate of
the Borrower or any of its Subsidiaries or any of its Unrestricted
Subsidiaries other than on terms and conditions substantially as favorable
to the Borrower or such Subsidiary as would be reasonably expected to be
obtainable by the Borrower or such Subsidiary at the time in a comparable
arm's-length transaction with a Person other than an Affiliate; provided,
--------
that the following shall in any event be permitted: (i) the Borrower may
pay fees, royalties, and any and all other amounts payable under the
Franchise Agreements and the other Cendant Documents; (ii) intercompany
transactions among the Borrower and its Subsidiaries to the extent
expressly permitted by Sections 9.02, 9.04, 9.05 and 9.06 shall be
permitted; (iii) so long as no Default or Event of Default is then in
existence or would result therefrom,
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payments due to Apollo in an aggregate amount not to exceed $1,000,000 in
any fiscal quarter of the Borrower pursuant to, and in accordance with the
terms of, the Advisory Services Agreement, provided that, if during any
--------
fiscal quarter of the Borrower, a Default or Event of Default is in
existence and such fees cannot be paid as provided above, such fees shall
continue to accrue and may be paid at such time as all Defaults and Events
of Default have been cured or waived and so long as no Default or Event of
Default will exist immediately after giving effect to the payment thereof;
(iv) customary fees to non-officer directors of the Borrower and its
Subsidiaries; (v) the Borrower and its Subsidiaries may enter into
employment arrangements with respect to the procurement of services with
their respective officers and employees in the ordinary course of business;
(vi) the reimbursement of Apollo and Cendant for their out-of-pocket
expenses incurred in connection with performing management services to the
Borrower and its Subsidiaries or in connection with this Agreement, the
Cendant Documents or the Stockholders Agreement and the transactions
contemplated thereby; (vii) the payment of consulting, management or other
fees to the Borrower or any Guarantor by any of their respective
Subsidiaries in the ordinary course of business; (viii) the payment of
marketing fees to the Borrower by Cendant Mortgage for mortgage origination
services under the Marketing Agreement; (ix) payments relating to any joint
venture between Cendant and the Borrower and its Subsidiaries pursuant to
Section 9.05(r); and (x) the transactions set forth on Schedule XI hereto.
In no event shall any management, consulting or similar fee be paid or
payable by the Borrower or any of its Subsidiaries to any Person except in
compliance with this Section 9.07.
9.08 Consolidated Adjusted Interest Coverage Ratio. The Borrower
---------------------------------------------
will not permit the Consolidated Adjusted Interest Coverage Ratio for any Test
Period ending after the Restatement Effective Date to be less than 2.00:1.00.
Notwithstanding anything to the contrary contained in this Agreement, all
calculations of compliance with this Section 9.08 shall be made on a Pro Forma
--- -----
Basis.
9.09 Total Leverage Ratio. The Borrower will not permit the Total
--------------------
Leverage Ratio on the last day of any fiscal quarter ending after the
Restatement Effective Date to exceed 2.00:1.00.
Notwithstanding anything contrary contained above or elsewhere in this
Agreement, all calculations of compliance with this Section 9.09 shall be made
on a Pro Forma Basis.
--- -----
9.10 Limitation on Voluntary Payments and Modifications of
-----------------------------------------------------
Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain
- --------------------------------------------------------------------------------
Other Agreements; Issuances of Capital Stock; etc. Except as set forth in
- --------------------------------------------------
Schedule XII in connection with the Qualified IPO, the Borrower will not, nor
will the Borrower permit any of its Subsidiaries to:
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(i) (a) amend or modify, or permit the amendment or modification of,
any Permitted Subordinated Indebtedness in a manner that could reasonably
be expected to in any way be adverse to the interest of the Banks, or (b)
amend or modify, or permit the amendment or modification of any provision
of, any Shareholder Subordinated Note, any Existing Preferred Stock, or,
after the incurrence or issuance thereof, any Qualified Preferred Stock or
Permitted Acquired Debt or of any agreement (including, without limitation,
any purchase agreement, indenture, loan agreement, security agreement or
certificate of designation) relating thereto in a manner that could
reasonably be expected to in any way be adverse to the interests of the
Banks in any material respect;
(ii) make (or give any notice in respect of) any voluntary or optional
payment or prepayment on or redemption, repurchase or acquisition for value
of, or any prepayment or redemption as a result of any asset sale, change
of control or similar event of, after the incurrence thereof, any Permitted
Debt, or enter into any derivative or other transaction with any
Derivatives Counterparty obligating it to make payments to such Derivatives
Counterparty as a result of any change in market value of any of the
foregoing agreements;
(iii) make (or give any notice in respect of) any principal or
interest payment on, or any redemption or acquisition for value of, any
Shareholder Subordinated Note (except to the extent permitted by Section
9.06(ii)); and
(iv) amend, modify or change in any way which could reasonably be
expected to be adverse to the interests of the Banks in any material
respect any Management Agreement, any Cendant Document, its certificate of
incorporation (including, without limitation, by the filing or modification
of any certificate of designation other than any certificates of
designation relating to Qualified Preferred Stock or Disqualified Preferred
Stock issued as permitted herein), by-laws, certificate of partnership,
partnership agreement, certificate of limited liability company, limited
liability company agreement or any agreement entered into by it, with
respect to its capital stock or other equity interest (including any
Shareholders' Agreement) or enter into any new Management Agreement or
agreement with respect to its capital stock or other equity interest which
could reasonably be expected to in any way be adverse to the interests of
the Banks in any material respect; provided that the foregoing clause shall
--------
not restrict the ability of the Borrower and its Subsidiaries to amend
their respective certificates of incorporation to authorize the issuance of
capital stock otherwise permitted to be issued pursuant to the terms of
this Agreement.
9.11 Limitation on Issuance of Capital Stock. (a) The Borrower will
---------------------------------------
not, nor will the Borrower permit any of its Subsidiaries to, issue (i) any
Preferred Stock (other than (x) the Existing Preferred Stock or Preferred Stock
issued pursuant to clauses (c) and (d) below, respectively and (y) Preferred
Stock issued pursuant to capital calls under Section 5.7 of the Stockholders
Agreement) or any options, warrants or rights to purchase
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Preferred Stock or (ii) any redeemable common stock unless, in either case, the
issuance thereof is, and all terms thereof are, satisfactory to the Required
Banks in their sole discretion.
(b) The Borrower shall not permit any of its Subsidiaries to issue any
capital stock (including by way of sales of treasury stock) or any options or
warrants to purchase, or securities convertible into, capital stock, except (i)
for transfers and replacements of then outstanding shares of capital stock, (ii)
for stock splits, stock dividends and additional issuances which do not decrease
the percentage ownership of the Borrower or any of its Subsidiaries in any class
of the capital stock of such Subsidiaries, (iii) to qualify directors, officers
or brokers of record to the extent required by applicable law, (iv) Subsidiaries
formed after the Restatement Effective Date pursuant to Section 9.13 may issue
capital stock in accordance with the requirements of Section 9.13 and (v) that
Subsidiaries may issue common stock in connection with any transaction permitted
by Section 9.05(q). All capital stock issued in accordance with this Section
9.11(b) shall, to the extent required by the Pledge Agreement, be delivered to
the Collateral Agent for pledge pursuant to such Pledge Agreement.
(c) The Borrower may issue Disqualified Preferred Stock so long as (i)
no Default or Event of Default then exists or would exist immediately after
giving effect to the respective issuance, (ii) the aggregate liquidation
preference for all Disqualified Preferred Stock issued after the Restatement
Effective Date pursuant to this Section 9.11(c) shall not exceed, when combined
with the aggregate principal amount of all then outstanding Indebtedness
permitted by Section 9.04(i), $75,000,000 (iii) with respect to each issue of
Disqualified Preferred Stock, the gross cash proceeds therefrom (or in the case
of Disqualified Preferred Stock directly issued as consideration for a Permitted
Acquisition, the fair market value thereof (as determined in good faith by the
Borrower) of the assets received therefor) shall not exceed the liquidation
preference thereof at the time of issuance, (iv) calculations are made by the
Borrower of compliance with the covenants contained in Sections 9.08 and 9.09
for the Calculation Period most recently ended prior to the date of the
respective issuance of Disqualified Preferred Stock, on a Pro Forma Basis after
--- -----
giving effect to the respective issuance of Disqualified Preferred Stock, and
such calculations shall show that such financial covenants would have been
complied with if such issuance of Disqualified Preferred Stock had been
consummated on the first day of the respective Calculation Period, and (v) the
Borrower shall furnish to the Administrative Agent a certificate by an
Authorized Officer of the Borrower certifying to the best of his or her
knowledge as to compliance with the requirements of this Section 9.11(c) and
containing the pro forma calculations required by the preceding clause (iv).
--- -----
(d) The Borrower may issue Qualified Preferred Stock so long as, with
respect to each issue of Qualified Preferred Stock, the Borrower receives
reasonably equivalent consideration (as determined in good faith by the
Borrower).
9.12 Limitation on Certain Restrictions on Subsidiaries. The
--------------------------------------------------
Borrower will not, nor will the Borrower permit any of its Subsidiaries to,
directly or indirectly, create or
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otherwise cause or suffer to exist or become effective, any encumbrance or
restriction on the ability of any such Subsidiary to (x) pay dividends or make
any other distributions on its capital stock or any other interest or
participation in its profits owned by the Borrower or any Subsidiary of the
Borrower, or pay any Indebtedness owed to the Borrower or a Subsidiary of the
Borrower, (y) make loans or advances to the Borrower or any Subsidiary of the
Borrower or (z) transfer any of its properties or assets to the Borrower or any
of its Subsidiaries, except for such encumbrances or restrictions existing under
or by reason of (i) applicable law, (ii) this Agreement, the other Credit
Documents and the Cendant Documents, (iii) the provisions contained in the
Existing Indebtedness, (iv) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of the Borrower or a
Subsidiary of the Borrower, (v) customary provisions restricting assignment of
any contract entered into by the Borrower or any Subsidiary of the Borrower in
the ordinary course of business, (vi) any agreement or instrument governing
Permitted Acquired Debt, which encumbrance or restriction is not applicable to
any Person or the properties or assets of any Person, other than the Person or
the properties or assets of the Person acquired pursuant to the respective
Permitted Acquisition and so long as the respective encumbrances or restrictions
were not created (or made more restrictive) in connection with or in
anticipation of the respective Permitted Acquisition, (vii) customary provisions
restricting subletting or assignments of leases and/or customary provisions
restricting subletting or assignments of leases and/or non-assignment provisions
entered into in the ordinary course of business and consistent with past
practices; (viii) customary provisions restricting the assignment of licensing
agreements, management agreements or franchise agreements entered into by the
Borrower or any of its Subsidiaries in the ordinary course of business; (ix)
restrictions applicable to any Joint Venture that is a Subsidiary existing at
the time of the acquisition thereof as a result of an Investment pursuant to
Section 9.05 or a Permitted Acquisition effected in accordance with Section
8.13, provided that the restrictions applicable to the respective such Joint
--------
Venture are not made worse, or more burdensome, from the perspective of the
Borrower and its Subsidiaries, than those as in effect immediately before giving
effect to the consummation of the respective Investment or Permitted
Acquisition, (x) any restriction or encumbrance with respect to a Subsidiary
imposed pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the capital stock or assets of such
Subsidiary, so long as such sale or disposition of all or substantially all of
the capital stock or assets of such Subsidiary is permitted under this Agreement
and (xi) the documentation governing Permitted Debt (other than Permitted
Acquired Debt).
9.13 Limitation on the Creation of Subsidiaries, Joint Ventures and
--------------------------------------------------------------
Unrestricted Subsidiaries. (a) Notwithstanding anything to the contrary
- -------------------------
contained in this Agreement, the Borrower will not, and will not permit any of
its Subsidiaries to, establish, create or acquire after the Restatement
Effective Date any Subsidiary or Unrestricted Subsidiary (other than Joint
Ventures permitted to be established in accordance with the requirements of
Section 9.05(k)); provided that (A) the Borrower, any of its Wholly-Owned
--------
Domestic Subsidiaries and any Unrestricted Subsidiary shall be permitted to
establish or create an Unrestricted Subsidiary, so long as (i) if a Domestic
Unrestricted Subsidiary of the Borrower, all of the capital stock or other
equity interests of such new
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Domestic Unrestricted Subsidiary owned by the Borrower or any such Wholly-Owned
Domestic Subsidiary shall be pledged pursuant to the Pledge Agreement to the
extent then required thereunder and the certificates representing such stock or
other equity interests, together with appropriate powers duly executed in blank,
shall be delivered to the Collateral Agent and (ii) if a Foreign Unrestricted
Subsidiary of the Borrower, all of the capital stock or other equity interests
of such new Foreign Unrestricted Subsidiary owned by the Borrower or any such
Wholly-Owned Domestic Subsidiary (except that not more than 65% of the
outstanding voting stock of any Foreign Unrestricted Subsidiary need be so
pledged, except in the circumstances contemplated by Section 8.11) shall be
pledged pursuant to the Pledge Agreement and the certificates representing such
stock or other equity interests, together with appropriate powers duly executed
in blank, shall be delivered to the Collateral Agent, (B) the Borrower and its
Wholly-Owned Subsidiaries shall be permitted to establish or create Wholly-Owned
Subsidiaries so long as, in each case, (i) at least 10 days' prior written
notice thereof is given to the Administrative Agent (or such shorter period of
time as is acceptable to the Administrative Agent), (ii) the capital stock or
other equity interests of such new Subsidiary (other than any Regulated
Subsidiary) are promptly pledged pursuant to, and to the extent required by,
this Agreement and the Pledge Agreement and the certificates, if any,
representing such stock or other equity interests, together with stock or other
appropriate powers duly executed in blank, are delivered to the Collateral
Agent, (iii) in the case of a Domestic Subsidiary (other than any Regulated
Subsidiary), such new Domestic Subsidiary promptly executes a counterpart of the
Subsidiaries Guaranty and the Pledge Agreement, (C) Subsidiaries may be acquired
pursuant to Permitted Acquisitions so long as, in each such case (i) with
respect to each Wholly-Owned Subsidiary acquired pursuant to a Permitted
Acquisition, the actions specified in preceding clauses (B) and (C), as
applicable, shall be taken and (ii) with respect to each Subsidiary which is not
a Wholly-Owned Subsidiary and is acquired pursuant to a Permitted Acquisition,
all capital stock or other equity interests thereof owned by any Credit Party
shall be pledged pursuant to the Pledge Agreement, and (D) the Borrower and any
of its Wholly-Owned Subsidiaries shall be permitted to establish or create
Wholly-Owned Subsidiaries with Cendant principally involved in the residential
mortgage business. In addition, each new Subsidiary that is required to execute
any Credit Document shall execute and deliver, or cause to be executed and
delivered, all other relevant documentation of the type described in Section 5.
(b) The Borrower will not, nor permit any of its Subsidiaries to,
enter into any Joint Venture, except to the extent permitted by Sections 9.05(k)
and (r).
9.14 De Minimis Subsidiaries. Notwithstanding anything to the
-----------------------
contrary stated herein, a De Minimis Subsidiary of the Borrower shall not be
required to comply with any of the covenants set forth in Section 8, Section 9
(other than Sections 9.01, 9.04, 9.08 and 9.09) or the representations and
warranties set forth in Section 7 until such De Minimis Subsidiaries become
Credit Parties as required under this Agreement and the other Credit Documents;
provided, however, that (i) the value of assets held in all De Minimis
- -------- -------
Subsidiaries shall not exceed $35,000,000 and (ii) the gross revenues of all De
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Minimis Subsidiaries at any time shall not exceed 7.5% of the gross revenues of
the Borrower and its Subsidiaries at such time.
9.15 Burnet Realty, Inc. Title Insurance Business. Notwithstanding
---------------------------------------------
anything to the contrary stated herein or in any other Credit Document, Burnet
Realty, Inc., will be permitted to transfer all of its assets which relate to
its title insurance business to a Subsidiary after the Restatement Effective
Date. Such title insurance subsidiary will be a Regulated Subsidiary (as such
term is defined herein) and treated as a Regulated Subsidiary hereunder.
SECTION 10. Events of Default. Upon the occurrence of any of the
-----------------
following specified events (each, an "Event of Default"):
10.01 Payments. The Borrower shall (i) default in the payment when
--------
due of any principal of the Loans or (ii) default, and such default shall
continue for three or more Business Days, in the payment when due of any Unpaid
Drawing, any interest on the Loans or any Fees or any other amounts owing
hereunder or under any other Credit Document; or
10.02 Representations, etc. Any representation, warranty or
---------------------
statement made by any Credit Party herein or in any other Credit Document or in
any statement or certificate delivered pursuant hereto or thereto shall prove to
be untrue in any material respect on the date as of which made or deemed made;
or
10.03 Covenants. Any Credit Party shall (a) default in the due
---------
performance or observance by it of any term, covenant or agreement contained in
Section 8.01(e)(i), 8.10, 8.12, 8.13 or 9, or (b) default in the due performance
or observance by it of any term, covenant or agreement (other than those
referred to in Section 10.01, 10.02 or clause (a) of this Section 10.03)
contained in this Agreement and such default shall continue unremedied for a
period of at least 30 days after notice to the defaulting party by the
Administrative Agent or the Required Banks; or
10.04 Default Under Other Agreements. (a) The Borrower or any of
------------------------------
its Subsidiaries shall (i) default in any payment with respect to any
Indebtedness (other than the Obligations) beyond the period of grace, if any,
provided in the instrument or agreement under which Indebtedness was created or
(ii) default in the observance or performance of any agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause (determined without regard
to whether any notice is required), any such Indebtedness to become due prior to
its stated maturity; or (b) any Indebtedness (other than the Obligations) of the
Borrower or any of its Subsidiaries shall be declared to be due and payable, or
shall be required to be prepaid other than by a regularly scheduled required
prepayment or as a mandatory prepayment (unless such required prepayment or
mandatory prepayment results from a default thereunder or an
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<PAGE>
event of the type that constitutes an Event of Default), prior to the stated
maturity thereof; provided, that it shall not constitute an Event of Default
--------
pursuant to clause (a) or (b) of this Section 10.04 unless the principal amount
of any one issue of such Indebtedness, or the aggregate amount of all such
Indebtedness referred to in clauses (a) and (b) above, exceeds $2,500,000 at any
one time; or
10.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries shall
----------------
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the
Borrower or any of its Subsidiaries and the petition is not controverted within
20 days, or is not dismissed within 60 days, after commencement of the case; or
a custodian (as defined in the Bankruptcy Code) is appointed for, or takes
charge of, all or substantially all of the property of the Borrower or any of
its Subsidiaries; or the Borrower or any of its Subsidiaries commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Borrower or any
of its Subsidiaries; or there is commenced against the Borrower or any of its
Subsidiaries any such proceeding which remains undismissed for a period of 60
days; or the Borrower or any of its Subsidiaries is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Borrower or any of its Subsidiaries suffers any
appointment of any custodian or the like for it or any substantial part of its
property to continue undischarged or unstayed for a period of 60 days; or the
Borrower or any of its Subsidiaries makes a general assignment for the benefit
of creditors; or any corporate action is taken by the Borrower or any of its
Subsidiaries for the purpose of effecting any of the foregoing; or
10.06 ERISA. (a) (i) Any Plan shall fail to satisfy the minimum
-----
funding standard required for any plan year or part thereof under Section 412 of
the Code or Section 302 of ERISA or a waiver of such standard or extension of
any amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, (ii) a Reportable Event shall have occurred, (iii)
a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
.67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur
within the following 30 days, (iv) any Plan which is subject to Title IV of
ERISA shall have had or is likely to have a trustee appointed to administer such
Plan, (v) any Plan which is subject to Title IV of ERISA is, shall have been or
is likely to be terminated or to be the subject of termination proceedings under
ERISA, (vi) any Plan shall have an Unfunded Current Liability, (vii) a
contribution required to be made by the Borrower or any Subsidiary of the
Borrower with respect to a Plan has not been timely made, (viii) the Borrower or
any Subsidiary of the Borrower has incurred or is likely to incur any liability
to or on account of a Plan under Section 409, 502(i) or 502(1) of ERISA or
Section 4975 of the Code, (ix) the Borrower or any Subsidiary of the Borrower or
any ERISA Affiliate has incurred or is
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<PAGE>
likely to incur any liability to or on account of a Plan under Section 4062,
4063, 4064, 4069 of ERISA or Section 401(a)(29) or 4971 of the Code or on
account of a group health plan (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code, ; or (x) the Borrower
or the Subsidiary of the Borrower has incurred or is likely to incur liabilities
pursuant to one or more employee welfare benefit plans (as defined in Section
3(1) of ERISA) that provide benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) or pursuant to any
Plan; (b) there shall result from any such event or events the imposition of a
lien, the granting of a security interest, or a liability or a material risk of
incurring a liability; and (c) such lien, security interest or liability,
individually, and/or in the aggregate, in the reasonable opinion of the Required
Banks, has had, or could reasonably be expected to have, a Material Adverse
Effect; or
10.07 Security Documents. (a) The Pledge Agreement, or after the
------------------
execution and delivery thereof, any Additional Security Document, shall cease to
be in full force and effect, or shall cease to give the Collateral Agent the
Liens, rights, powers and privileges purported to be created thereby in favor of
the Collateral Agent, superior to and prior to the rights of all third Persons
(except as permitted by Section 9.03), and subject to no other Liens (except as
permitted by Section 9.03), or (b) any Credit Party shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to such security Documents and such default shall
continue beyond any cure or grace period specifically applicable thereto
pursuant to the terms of the Pledge Agreement; or
10.08 Guaranties. The Subsidiaries Guaranty or any provision thereof
----------
shall cease to be in full force and effect, or any Guarantor or any Person
acting by or on behalf of such Guarantor shall deny or disaffirm such
Guarantor's obligations under the Subsidiaries Guaranty or any Guarantor shall
default in the due performance or observance of any term, covenant or agreement
on its part to be performed or observed pursuant to the Subsidiaries Guaranty;
or
10.09 Judgments. One or more judgments or decrees shall be entered
---------
against the Borrower or any of its Subsidiaries involving a liability (to the
extent not paid or not fully covered by insurance) in excess of $10,000,000 for
all such judgments and decrees and all such judgments or decrees shall not have
been vacated, discharged or stayed or bonded pending appeal within 60 days from
the entry thereof; or
10.10 Ownership. A Change of Control Event shall have occurred; or
---------
10.11 Franchise Agreements. A (i) termination of any Franchise
--------------------
Agreement or (ii) default which would enable the franchisor to terminate any
Franchise Agreement or receive liquidated damage payments applicable to
substantially all of the Borrower's offices, under, any of the Franchise
Agreements shall have occurred;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required
75
<PAGE>
Banks, by written notice to the Borrower, take any or all of the following
actions, without prejudice to the rights of the Administrative Agent or any Bank
to enforce its claims against any Guarantor or the Borrower, except as otherwise
specifically provided for in this Agreement (provided, that if an Event of
--------
Default specified in Section 10.05 shall occur with respect to the Borrower, the
result which would occur upon the giving of written notice by the Administrative
Agent as specified in clauses (i) and (ii) below shall occur automatically
without the giving of any such notice): (i) declare the Total Revolving Loan
Commitment terminated, whereupon the Revolving Loan Commitment of each Bank
shall forthwith terminate immediately and any Commitment Fees shall forthwith
become due and payable without any other notice of any kind; (ii) declare the
principal of and any accrued interest in respect of all Loans and all
Obligations owing hereunder (including Unpaid Drawings) to be, whereupon the
same shall become, forthwith due and payable by the Borrower without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; (iii) enforce, as Collateral Agent (or direct the
Collateral Agent to enforce), any or all of the Liens and security interests
created pursuant to the Security Documents; (iv) terminate any Letter of Credit
which may be terminated in accordance with its terms; (v) direct the Borrower to
pay (and the Borrower hereby agrees upon receipt of such notice, or upon the
occurrence of any Event of Default specified in Section 10.05, to pay) to the
Collateral Agent at the Payment Office such additional amounts of cash, to be
held as security for the Borrower's reimbursement obligations in respect of
Letters of Credit then outstanding, equal to the aggregate Stated Amount of all
Letters of Credit then outstanding; and (vi) apply any cash collateral as
provided in Section 4.02.
SECTION 11. Definitions. As used herein, the following terms shall
-----------
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Acquired Business" shall mean any Person or business, division or
product line acquired pursuant to a Permitted Acquisition.
"Acquired Person" shall have the meaning provided in the definition of
Permitted Acquisition.
"Acquired Revenues" shall mean, with respect to any Acquired Business,
the gross revenues of such Acquired Business for the twelve-month period most
recently ended prior to the date of the acquisition of such Acquired Business as
set forth in the financial statements for such Acquired Business delivered to
the Borrower and the Banks in connection with such acquisition.
"Acquisition Cooperation Agreement" shall mean the Acquisition
Cooperation Agreement dated as of February 9, 1999 by and between the Borrower,
Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P., Apollo
(UK) Partners III, L.P. and, for purposes of Section 3.9 only, Apollo
Management, L.P. and Cendant.
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<PAGE>
"Acquisition Services Agreement" shall mean the Acquisition Services
Agreement, dated as of February 9, 1999, by and between the Borrower and
Cendant.
"Additional Royalty Agreement" shall mean the Additional Royalty
Agreement dated as of August 11, 1997 by and among the Borrower, Coldwell Banker
Real Estate Corporation, Century 21 Real Estate Corporation and HFS
Incorporated.
"Additional Security Documents" shall have the meaning provided in
Section 8.11.
"Administrative Agent" shall have the meaning provided in the first
paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 12.10.
"Advisory Services Agreement" shall mean the Advisory Services
Agreement, dated as of August 11, 1997, by and between the Borrower and Apollo
Management, L.P.
"Affected Loans" shall have the meaning provided in Section 4.02(e).
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person; provided, however, that for purposes of Section 9.07,
-------- -------
an Affiliate of the Borrower shall include any Person that directly or
indirectly owns more than 5% of any class of the capital stock of the Borrower
and any officer or director of the Borrower or any such Person.
"Aggregate Revolving Credit Exposure" shall mean, at any time, the sum
of (I) the aggregate principal amount of all Revolving Loans then outstanding
plus (II) the aggregate principal amount of all Swingline Loans then outstanding
plus (III) the aggregate amount of all Letter of Credit Outstandings at such
time.
"Agreement" shall mean this Credit Agreement, as the same may be from
time to time modified, amended and/or supplemented.
"Applicable Margin" shall mean a percentage equal to (i) in the case
of Loans maintained as (x) Base Rate Loans, 0.75% and (y) Eurodollar Loans,
1.75%.
"Applicable Prepayment Percentage" shall mean, at any time, 100%.
"Apollo Group" shall mean Apollo Management, L.P., Apollo Advisors,
L.P., Apollo Investment Fund, L.P., Apollo Investment Fund III, L.P., Apollo
Overseas Partners III, L.P., Apollo (U.K.) Partners III, L.P., AIF II, L.P., and
Apollo Advisors II, L.P., all Delaware limited partnerships (except that Apollo
(U.K.) Partners III, L.P. is a limited partnership organized under the laws of
England).
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<PAGE>
"Arranger" shall have the meaning provided in the first paragraph of
this Agreement.
"Asset Sale" shall mean any sale, transfer or other disposition by the
Borrower or any of its Subsidiaries to any Person other than the Borrower or any
Wholly-Owned Subsidiary of the Borrower of any asset (including, without
limitation, any capital stock or other securities of another Person, but
excluding the sale by such Person of its own capital stock) of the Borrower or
such Subsidiary other than (i) sales, transfers or other dispositions of
inventory made in the ordinary course of business, (ii) dispositions or
transfers arising out of, or in connection with, the events described in clauses
(i) and (ii) of the definition of Recovery Event, (iii) any sale or other
disposition of Cash Equivalents in the ordinary course of business, (iv) any
merger, consolidation or liquidation permitted by Sections 9.02(f) and (g), (v)
any transfer of assets permitted pursuant to Section 9.02(e), (g), (i) or (j),
(vi) any transaction permitted pursuant to Section 9.02(m), (vii) sales,
transfers and other dispositions made pursuant to the Acquisition Cooperation
Agreement or one or more agreements entered into with Cendant or one of its
subsidiaries to effectuate same and (viii) other sales and dispositions that
generate Net Sale Proceeds of less than $2,500,000 in the aggregate in any
fiscal year of the Borrower.
"Assignment and Assumption Agreement" shall mean the Assignment and
Assumption Agreement substantially in the form of Exhibit J (appropriately
completed).
"Authorized Officer" shall mean, with respect to (i) the delivery of
Notices of Borrowing, Notices of Conversion, Letter of Credit Requests and
similar notices, the chief operating officer, any treasurer or other financial
officer of the Borrower, (ii) delivery of financial information and officer's
certificates pursuant to this Agreement, the chief operating officer, any
treasurer or other financial officer of the Borrower and (iii) any other matter
in connection with this Agreement or any other Credit Document, any officer (or
a person or persons so designated by any two officers) of the Borrower, in each
case to the extent reasonably acceptable to the Administrative Agent.
"Available Basket Amount" shall mean, on any date of determination, an
amount equal to the sum of (i) $15,000,000 minus (ii) the aggregate amount of
-----
Investments made pursuant to Section 9.05(k) after the Restatement Effective
Date minus (iii) the aggregate amount of Indebtedness or other obligations
-----
(whether absolute, accrued, contingent or otherwise and whether or not due) of
any Joint Venture or Unrestricted Subsidiary for which the Borrower or any of
its Subsidiaries (other than the respective Joint Venture or Unrestricted
Subsidiary) is liable, minus (iv) all payments made by the Borrower or any of
-----
its Subsidiaries (other than the respective Joint Venture) in respect of
Indebtedness or other obligations of the respective Joint Venture or
Unrestricted Subsidiary (including, without limitation, payments in respect of
obligations described in preceding clause (iii)) after the Restatement Effective
Date, plus (v) the amount of any increase to the Available Basket Amount made
----
after the Restatement Effective Date in accordance with the provisions of
Section 9.05(k). In connection with the foregoing, it is understood that the
acquisition of an Acquired Person which has ownership interests in one or more
Joint
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Ventures, pursuant to a Permitted Acquisition effected in accordance with the
relevant requirements of this Agreement shall not be deemed to constitute an
Investment pursuant to Section 9.05(k) and the Available Basket Amount shall not
be reduced as a result of the payment of consideration owing to effect the
Permitted Acquisition (although the Available Basket Amount would be affected to
the extent preceding clauses (iii) or (iv) apply with respect to the Joint
Venture so acquired or to the extent additional Investments are made in the
respective Joint Venture pursuant to Section 9.05(k)).
"Available Basket Sub-Limit" shall mean, on any date of determination,
an amount equal to the sum of (i) $5,000,000 minus (ii) the aggregate amount of
-----
Investments made in Unrestricted Subsidiaries pursuant to Section 9.05(k) after
the Restatement Effective Date, minus (iii) the aggregate amount of Indebtedness
-----
or other obligations (whether absolute, accrued, contingent or otherwise and
whether or not due) of any Unrestricted Subsidiary for which the Borrower or any
of its Subsidiaries is liable, minus (iv) all payments made by the Borrower or
-----
any of its Subsidiaries in respect of Indebtedness or other obligations of the
respective Unrestricted Subsidiary (including, without limitation, payments in
respect of obligations described in preceding clause (iii)) after the
Restatement Effective Date, plus (v) the amount of any increase to the Available
----
Basket Sub-Limit made after the Restatement Effective Date in accordance with
the provisions of Section 9.05(k); provided that the Available Basket Sub-Limit
--------
shall not exceed at any time the Available Basket Amount as then in effect.
"Bank" shall mean each financial institution with a Revolving Loan
Commitment listed on Schedule I (as amended from time to time), as well as any
Person which becomes a "Bank" hereunder pursuant to Section 1.13 and/or
13.04(b).
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any Borrowing (including
any Mandatory Borrowing) or to fund its portion of any unreimbursed payment
under Section 2.03 or (ii) a Bank having notified the Administrative Agent
and/or the Borrower that it does not intend to comply with the obligations under
Section 1.01(a), 1.01(c) or 2.03.
"Bankruptcy Code" shall have the meaning provided in Section 10.05.
"Base Rate" at any time shall mean the higher of (x) the rate which is
1/2 of 1% in excess of the Federal Funds Rate and (y) the Prime Lending Rate.
"Base Rate Loan" shall mean each Loan bearing interest at the rates
provided in Section 1.08(a).
"Benefitted Bank" shall have the meaning provided in Section 13.06(b).
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
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"Borrower Common Stock" shall have the meaning provided in Section
7.13.
"Borrowing" shall mean the borrowing of one Type of Loan by the
Borrower from all the Banks (or from BTCo in the case of Swingline Loans) on a
given date (or resulting from a conversion or conversions on such date) having
in the case of Eurodollar Loans the same Interest Period; provided that, Base
--------
Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of the
related Borrowing of Eurodollar Loans.
"BTCo" shall mean Bankers Trust Company, in its individual capacity,
and any successor corporation thereto by merger, consolidation or otherwise.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall be
in New York City a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close and (ii) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) above and which is also a day for trading by and between
banks in the New York or London interbank Eurodollar market.
"Calculation Period" shall have the meaning provided in Section 8.13.
"Capital Expenditures" shall mean, with respect to any Person, for any
period, all expenditures by such Person which should be capitalized in
accordance with GAAP during such period, including all such expenditures with
respect to fixed or capital assets (including, without limitation, expenditures
for maintenance and repairs which should be capitalized in accordance with GAAP)
and, without duplication, the amount of all Capitalized Lease Obligations
incurred by such Person during such period.
"Capital Lease," as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"Capitalized Lease Obligations" shall mean all obligations under
Capital Leases of the Borrower or any of its Subsidiaries, in each case taken at
the amount thereof accounted for as liabilities in accordance with GAAP.
"Cash Equivalents" shall mean, as to any Person, (i) securities issued
or directly and fully guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
--------
United States is pledged in support thereof) having maturities of not more than
six months from the date of acquisition, (ii) time deposits, certificates of
deposit and bankers' acceptances of any Bank or any commercial bank having, or
which is the principal banking subsidiary of a bank holding company organized
under the laws of the United States, any State thereof, the District of Columbia
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or any foreign jurisdiction having capital, surplus and undivided profits
aggregating in excess of $200,000,000 and having a long-term unsecured debt
rating of at least "A" or the equivalent thereof from S&P or "A2" or the
equivalent thereof from Moody's, with maturities of not more than six months
from the date of acquisition by such Person, (iii) repurchase agreements with a
term of not more than 30 days, involving securities of the types described in
preceding clause (i), and entered into with commercial banks meeting the
requirements of preceding clause (ii), (iv) commercial paper issued by any
Person incorporated in the United States rated at least A-1 or the equivalent
thereof by S&P or at least P-1 or the equivalent thereof by Moody's and in each
case maturing not more than six months after the date of acquisition by such
Person, (v) investments in money market funds substantially all of whose assets
are comprised of securities of the types described in clauses (i) through (iv)
above and (vi) overnight deposits and demand deposit accounts (in the respective
local currencies) maintained in the ordinary course of business.
"Cash Secured Loans" shall mean any loan incurred in the ordinary
course of business, in connection with title insurance and escrow operations to
the extent that the principal and interest thereon is secured by an amount of
cash or U.S. governmental securities to ensure the full payment of principal and
interest after giving effect to the interest income earned thereon.
"Cendant" shall mean Cendant Corporation.
"Cendant Documents" shall mean, collectively, (i) the Advisory
Services Agreement, (ii) the Development Advance Promissory Note, (iii) the
Franchise Override Agreement, (iv) the Incremental Royalty Agreement, (v) the
Additional Royalty Agreement, (vi) the Support Agreement, (vii) the Franchise
Agreements, (viii) the Subscription Agreement, (ix) the Subordination Agreement,
(x) the Dividend Guarantee, (xi) the Indemnification Agreement, (xii) the
Acquisition Services Agreement, (xiii) the Program Outsourcing Agreement, (xiv)
the Acquisition Cooperation Agreement, (xv) the License Agreement and (xvi) the
Master Letter Agreement.
"Change of Control Event" shall mean, (I) at any time prior to the
consummation of a Qualified IPO, (a) Apollo Group, Cendant and their Affiliates
shall cease to own on a fully diluted basis in the aggregate at least 30% of the
economic and voting interest in the Borrower's capital stock (for such purposes,
excluding any Qualified Preferred Stock and any Disqualified Preferred Stock, in
each case to the extent same is not Voting Stock) or (b) Apollo Group, Cendant
and their Affiliates, together with the Management Participants and other
investors which own shares of Borrower Common Stock on the Restatement Effective
Date, shall cease to own on a fully diluted basis in the aggregate at least a
majority of the outstanding Voting Stock of the Borrower or (c) any Person or
"group" (within the meaning of Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934, as in effect on the Restatement Effective Date, other than
the Permitted Holders, shall (A) have acquired beneficial ownership of 30% or
more on a fully diluted basis of the voting and/or economic interest in the
Borrower's capital stock or (B) obtained the power (whether or not exercised) to
elect a majority of the Borrower's
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directors or (d) the Board of Directors of the Borrower shall cease to consist
of a majority of Continuing Directors or shall not be nominees of Apollo and/or
Cendant or (e) a "change of control" or similar event shall occur as provided in
any Existing Indebtedness, Permitted Debt, Disqualified Preferred Stock,
Qualified Preferred Stock or Existing Preferred Stock to the extent the
outstanding principal amount or liquidation preference, as the case may be, of
such Existing Indebtedness, Permitted Debt, Disqualified Preferred Stock,
Qualified Preferred Stock or Existing Preferred Stock exceeds $10,000,000 (II)
at any time after a Qualified IPO, (a) any Person or "group" (within the meaning
of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as in effect
on the Restatement Effective Date), other than the Permitted Holders, shall have
acquired beneficial ownership of 25% or more on a fully diluted basis of the
voting and/or economic interest in the Borrower's capital stock and Apollo
Group, Cendant and their Affiliates shall own less than such Person or "group"
on a fully diluted basis of the economic and voting interest in the Borrower's
capital stock or (b) the Board of Directors of the Borrower shall cease to
consist of a majority of Continuing Directors or (c) a "change of control" or
similar event shall occur as provided in any Cendant Documents, Existing
Indebtedness, Permitted Debt, Disqualified Preferred Stock, Qualified Preferred
Stock or Existing Preferred Stock to the extent the outstanding principal amount
or liquidation preference, as the case may be, of such Existing Indebtedness,
Permitted Debt, Disqualified Preferred Stock, Qualified Preferred Stock or
Existing Preferred Stock exceeds $10,000,000.
"Chase" shall mean The Chase Manhattan Bank, in its individual
capacity, and any successor corporation thereto by merger, consolidation or
otherwise.
"Co-Agent" shall have the meaning provided in the first paragraph of
this agreement.
"Co-Arranger" shall have the meaning provided in the first paragraph
of this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated thereunder. Section references to
the Code are to the Code, as in effect at the date of this Agreement and any
subsequent provisions of the Code, amendatory thereof, supplemental thereto or
substituted therefor.
"Collateral" shall mean all property (whether real or personal,
movable or immovable) with respect to which any security interests have been
granted (or purported to be granted) pursuant to any Security Document,
including, without limitation, all Pledge Agreement Collateral and all cash and
Cash Equivalents delivered as collateral pursuant to any Credit Document.
"Collateral Agent" shall mean the Administrative Agent acting as
collateral agent for the Secured Creditors.
"Commitment Fee" shall have the meaning provided in Section 3.01(a).
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"Common Stock" shall mean the Common Stock, par value $0.01 per share
of the Borrower.
"Company" shall mean any corporation, limited liability company,
partnership or other business entity (or the adjectival form thereof, where
appropriate).
"Consolidated Adjusted Interest Coverage Ratio" for any period shall
mean the ratio of Consolidated EBITDA to Consolidated Interest Expense for such
period.
"Consolidated Cumulative Net Income Period" shall mean each period
consisting of a fiscal quarter of the Borrower ending after the Initial
Borrowing Date and for which the related financial statements required to be
delivered pursuant to Section 8.01(a) or (b), as the case may be, have
theretofore been delivered.
"Consolidated Cumulative Net Income Amount" shall mean, at any date an
amount determined on a cumulative basis equal to (i) the sum of 15% of
Consolidated Net Income for all Consolidated Cumulative Net Income Periods
ending after the Initial Borrowing Date and prior to such date of determination
for which Consolidated Net Income was a positive number, minus (ii) 100% of
Consolidated Net Income (expressed as a positive number) for all Consolidated
Cumulative Net Income Periods ending after the last day of the Initial Borrowing
Date and prior to such date of determination for which Consolidated Net Income
was a negative number, in each case after adding back the amortization of costs
relating to the acquisition of (a) open real estate listing contracts and (b)
pending real estate sales contracts to the extent deducted in the calculation of
net income.
"Consolidated Debt" shall mean, at any time, the sum of (without
duplication) (i) all Indebtedness of the Borrower and its Subsidiaries as would
be required to be reflected on the liability side of a balance sheet of such
Person in accordance with GAAP as determined on a consolidated basis (other than
(A) Indebtedness permitted under Section 9.04(k), (B) Indebtedness permitted
under Section 9.04(j) and (C) Indebtedness in connection with the Development
Advance Promissory Note and Security Agreement, so long as, in the case of (A)
and (B) above, there is a corresponding asset reflected on the balance sheet),
(ii) all Indebtedness of the Borrower and its Subsidiaries of the type described
in clauses (iii) and (vii) of the definition of Indebtedness and (iii) all
Contingent Obligations of the Borrower and its Subsidiaries in respect of
Indebtedness of other Persons (i.e., Persons other than the Borrower or any of
----
its Subsidiaries) of the type referred to in preceding clauses (i) and (ii) of
this definition; provided, that for purposes of this definition, any
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Disqualified Preferred Stock of the Borrower and any Preferred Stock of any of
its Subsidiaries shall be treated as Indebtedness, with an amount equal to the
greater of the liquidation preference or the maximum mandatory fixed repurchase
price of any such outstanding Preferred Stock deemed to be a component of
Consolidated Debt.
"Consolidated EBIT" shall mean, for any period, the Consolidated Net
Income of the Borrower and its Subsidiaries, determined on a consolidated basis,
before Consolidated Interest Expense (to the extent deducted in arriving at
Consolidated Net
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Income) and provision for taxes based on income or gains or losses from sales of
assets other than inventory sold in the ordinary course of business, in each
case that were included in arriving at Consolidated Net Income.
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT,
adjusted by adding thereto the amount of (i) all amortization and depreciation
and other non-cash items, (ii) the portion of acquisition related costs which
have been or will be paid by Cendant and/or its Subsidiaries pursuant to the
Acquisition Cooperation Agreement, and (iii) any management fees and consulting
fees paid pursuant to, and in accordance with the requirements of, clause (iv)
of Section 9.07 that were deducted in arriving at Consolidated EBIT for such
period.
"Consolidated Interest Expense" shall mean, for any period, the total
consolidated interest expense of the Borrower and its Subsidiaries for such
period (calculated without regard to any limitations on the payment thereof)
plus, without duplication, (i) that portion of Capitalized Lease Obligations of
- ----
the Borrower and its Subsidiaries representing the interest factor for such
period, and capitalized interest expense, (ii) the amount of all cash Dividend
requirements (whether or not declared or paid) on Disqualified Preferred Stock
of the Borrower, and on any Preferred Stock of any of its Subsidiaries paid,
accrued or scheduled to paid or accrued during such period, and the amount of
all cash Dividends paid on Existing Preferred Stock during such period, which
amounts described in preceding clause (ii) shall be treated as interest expense
of the Borrower and its Subsidiaries for purposes of this definition regardless
of the treatment of such amounts under GAAP, in each case net of the total
consolidated cash interest income of the Borrower and its Subsidiaries for such
period, but excluding the amortization of any deferred financing costs or of any
costs in respect of any Interest Rate Protection Agreement.
"Consolidated Net Income" shall mean, for any period, the net after-
tax income of the Borrower and its Subsidiaries determined on a consolidated
basis, without giving effect to any after-tax non-recurring gains or losses or
after-tax items classified as extraordinary gains or losses, any other non-cash
expenses incurred or payments made in connection with the transactions
contemplated by the Agreement, and without giving effect to gains and losses
from the sale or disposition of assets (other than sales or dispositions of
inventory, equipment, raw materials and supplies) by the Borrower and its
Subsidiaries; provided that the following items shall be excluded in computing
--------
Consolidated Net Income (without duplication): (i) the net income or net losses
of any Person in which any other Person or Persons (other than the Borrower and
its Wholly-Owned Domestic Subsidiaries) has an equity interest or interests,
except to the extent of the amount of dividends or other distributions actually
paid to the Borrower or such Wholly-Owned Subsidiaries by such Person during
such period, (ii) except for determinations expressly required to be made on a
Pro Forma Basis, the net income (or loss) of any Person accrued prior to the
- --- -----
date it becomes a Wholly-Owned Subsidiary or all or substantially all of the
property or assets of such Person are acquired by a Wholly-Owned Subsidiary and
(iii) the net income of any Subsidiary to the extent that the declaration or
payment of dividends or similar
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distributions by such Subsidiary of such net income is not at the time permitted
by the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such Subsidiary.
"Contingent Obligations" shall mean as to any Person any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof; provided, however, that
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the term Contingent Obligation shall not include endorsements of instruments for
deposit or collection or standard contractual indemnities entered into, in each
case in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.
"Continuing Bank" shall mean each Existing Bank with a Revolving Loan
Commitment under this Agreement.
"Continuing Directors" shall mean the directors of the Borrower on the
Restatement Effective Date and each other director if such director's nomination
for the election to the Board of Directors of the Borrower is recommended by a
majority of the then Continuing Directors.
"Credit Documents" shall mean this Agreement, the Notes, the
Subsidiaries Guaranty and each Security Document.
"Credit Event" shall mean the making of a Loan (other than a Revolving
Loan made pursuant to a Mandatory Borrowing) or the issuance of a Letter of
Credit.
"Credit Party" shall mean the Borrower and each Guarantor.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is in effect.
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"De Minimis Subsidiary" shall mean each Subsidiary of the Borrower to
the extent that (i) it holds no capital stock of any other Subsidiary that is
not a De Minimis Subsidiary, (ii) its revenues at any time represents less than
1% of the total revenues of the Borrower and its Subsidiaries at such time and
(iii) its assets have a value of less than $5,000,000.
"Derivatives Counterparty" shall have the meaning provided in Section
9.06.
"Development Advance Promissory Note" shall mean the Development
Advance Promissory Note, dated as of September 1, 1997, between NRT and Coldwell
Banker Real Estate Corporation.
"Disqualified Preferred Stock" shall mean any Preferred Stock of the
Borrower other than Qualified Preferred Stock and Existing Preferred Stock.
"Dividend" shall have the meaning provided in Section 9.06.
"Dividend Guarantee" shall mean the Guarantee dated August 11, 1997,
by and among Berry Referral Network, Inc., Burgdorff Referral Associates, Inc.,
Coldwell Banker Ira E. Berry, Inc., Coldwell Banker Real Estate, Inc., Coldwell
Banker Real Estate Services, Inc., Coldwell Banker Residential Brokerage
Company, Coldwell Banker Residential Brokerage Corporation, Coldwell Banker
Residential Real Estate, Coldwell Banker Residential Real Estate Services of
Wisconsin, Inc., Coldwell Banker Residential Referral Network, Coldwell Banker
Residential Referral Network, Inc., Contempo Holdings, Contempo Realty, Inc.,
Contempo Relocation, Inc., Del Monte Realty Company, Douglas and Jean Burgdorff,
Inc., Forest E. Olson, Inc., Fox Realty Corporation, Grey City Graphics, Inc.,
Kahn Realty Companies, Inc., Referral Network, Inc. (FL), Referral Network, Inc.
(TX), Relocation Chicago, Inc., Valley of California, Inc., in favor of Apollo
Group, guarantying certain obligations of the Borrower to make additional
Dividend payments to Apollo.
"Documents" shall mean and include the Credit Documents, the
Stockholders Agreement and all Cendant Documents.
"Dollar Equivalent" of an amount denominated in a currency other than
U.S. Dollars (the "Other Currency") shall mean, at any time for the
determination thereof, the amount of U.S. Dollar which could be purchased with
the amount of the Other Currency involved in such computation at the spot
exchange rate therefor as quoted by the Administrative Agent as of 11:00 A.M.
(New York time) on the date two Business Days prior to the date of any
determination thereof for purchase on such date.
"Domestic Subsidiary" shall mean each Subsidiary of the Borrower
incorporated or organized in the United States or any State or territory
thereof.
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"Domestic Unrestricted Subsidiary" shall mean any Unrestricted
Subsidiary which is not a Foreign Unrestricted Subsidiary.
"Eligible Transferee" shall mean and include a commercial bank, mutual
fund, financial institution, a "qualified institutional buyer" (as defined in
Rule 144A of the Securities Act), any fund that invests in bank loans or any
other "accredited investor" (as defined in Regulation D of the Securities Act)
(other than an individual).
"Employee Benefit Plans" shall have the meaning set forth in Section
5.11.
"Employment Agreements" shall have the meaning set forth in Section
5.11.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any violation (or alleged violation) by the Borrower or any of its
Subsidiaries under any Environmental Law (hereafter "Claims") or any permit
issued to the Borrower or any of its Subsidiaries under any such law, including,
without limitation, (a) 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 (b) any and
all Claims by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from Hazardous
Materials or arising from alleged injury or threat of injury to health, safety
or the environment.
"Environmental Law" shall mean any federal, state, provincial, foreign
or local policy, statute, law, rule, regulation, ordinance, code or rule of
common law now or hereafter in effect and in each case as amended, and any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment (for purposes of this
definition (collectively, "Laws")), relating to the environment, or Hazardous
Materials or health and safety to the extent such health and safety issues arise
under the Occupational Safety and Health Act of 1970, as amended, or any such
similar Laws.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at
the date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or a Subsidiary of the Borrower would
be deemed to be a "single employer" within the meaning of Section 414(b), (c),
(m) or (o) of the Code.
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"Eurodollar Loans" shall mean each Loan bearing interest at the rates
provided in Section 1.08(b).
"Eurodollar Rate" shall mean with respect to each Interest Period for
a Eurodollar Loan, (i) the rate per annum determined by the Administrative
Agent, at approximately 11:00 A.M. (London time) on the date which is two
Business Days prior to the beginning of the relevant Interest Period (as
specified in the applicable Notice of Borrowing or Notice of Conversion) by
reference to the British Bankers' Association Interest Settlement Rates for
deposits in U.S. Dollars (as set forth by any service which has been nominated
by the British Bankers' Association as an authorized information vendor for the
purpose of displaying such rates) for a period equal to such Interest Period
(provided that, to the extent that an interest rate is not ascertainable
- ---------
pursuant to the foregoing provision of this definition, the "Eurodollar Rate"
shall be the interest rate per annum, determined by the Administrative Agent to
be the average of the rates per annum at which deposits in U.S. Dollars are
offered for such relevant Interest Period to major banks in the London interbank
market in London, England by the Administrative Agent at approximately 11:00
A.M. (London time) on the date which is two Business Days prior to the beginning
of such Interest Period) divided (and rounded upward to the next whole multiple
-------
of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then stated maximum
rate of all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable to any member
bank of the Federal Reserve System in respect of Eurocurrency liabilities as
defined in Regulation D (or any successor category of liabilities under
Regulation D).
"Event of Default" shall have the meaning provided in Section 10.
"Excluded Recovery Event" shall mean (i) any Recovery Event resulting
in the receipt of proceeds by the Borrower or any of its Subsidiaries of less
than $1,000,000 and (ii) any receipt of insurance proceeds by the Borrower or
any of its Subsidiaries payable under an insurance policy covering environmental
liabilities, to the extent (and only to the extent) (x) the Borrower or such
Subsidiary has, prior to the date of its receipt of such proceeds, used monies
to remediate or restore properties in respect of which such proceeds were paid,
(y) the amount of the insurance proceeds included for purposes of this clause
(ii) does not exceed the amount of the monies so used to remediate or restore
properties as provided in the immediately preceding clause (x) and (z) within 10
days following receipt by the Borrower or such Subsidiary of such insurance
proceeds, an Authorized Officer of the Borrower has delivered to the
Administrative Agent an officer's certificate, certifying the Borrower's
compliance with preceding clauses (x) and (y) and attaching invoices and such
other supporting information as the Administrative Agent may reasonably request.
For avoidance of doubt, the parties hereto acknowledge and agree that the
receipt by the Borrower or any of its Subsidiaries of any proceeds from a single
Recovery Event of the type described in clause (ii) above not entitled to
inclusion in said clause (ii) by virtue of the qualification contained in clause
(y) thereof shall be subject to the provisions of Section 4.02(d) as if such
receipt of proceeds were a separate and distinct Recovery Event.
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"Existing Bank" shall mean each Person which was a Bank under, and as
defined in, the Existing Credit Agreement.
"Existing Credit Agreement" shall have the meaning provided in the
recitals to this Agreement.
"Existing Indebtedness" shall have the meaning provided in Section
5.08(a).
"Existing Indebtedness Agreements" shall have the meaning provided in
Section 5.11.
"Existing Preferred Stock" shall have the meaning provided in Section
7.13.
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.
"Foreign Subsidiary" shall mean each Subsidiary of the Borrower other
than a Domestic Subsidiary.
"Foreign Unrestricted Subsidiary" shall mean each Unrestricted
Subsidiary that is incorporated under the laws of any jurisdiction other than
the United States of America, any State thereof, the United States Virgin
Islands or Puerto Rico.
"Franchise Agreements" shall mean (i) the Master Real Estate Franchise
Agreement, dated as of February 9, 1999, by and between the Borrower and Century
21 Real Estate Corporation, (ii) the ERA Franchise Systems, Inc. Master
Membership Agreement, dated as of February 9, 1999, by and between ERA Franchise
Systems, Inc. and the Borrower and (iii) the Master Real Estate Franchise
Agreement, dated as of February 9, 1999, by and between Coldwell Banker Real
Estate Corporation and the Borrower.
"Franchise Override Agreement" shall mean the Franchise Override
Agreement dated as of August 11, 1997, between the Borrower and Coldwell Banker
Real Estate Corporation, ERA Franchise Systems, Inc. and Century 21 Real Estate
Corporation.
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"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time; it being understood and
agreed that determinations in accordance with GAAP for purposes of Section 9,
including defined terms as used therein, are subject (to the extent provided
therein) to Section 13.07(a).
"Gross-Up Amount" shall have the meaning provided in Section 4.04(a).
"Guarantors" shall mean and include each Wholly-Owned Subsidiary
(excluding (i) Regulated Subsidiaries, and (ii) in the case of De Minimis
Subsidiaries existing on the Restatement Effective Date, such De Minimis
Subsidiaries for a period of 120 days from the Restatement Effective Date, and
in the case of De Minimis Subsidiaries created or acquired after the Restatement
Effective Date, excluding such De Minimis Subsidiaries for a period of 60 days
after such date) of the Borrower.
"HFS, Inc." shall mean HFS Incorporated, a Delaware corporation and
predecessor to Cendant.
"Hazardous Materials" shall mean (a) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; and (b) any chemicals, materials or substances defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "restricted hazardous materials," "extremely hazardous wastes,"
"restrictive hazardous wastes," "toxic pollutants," "contaminants" or
"pollutants" under any Environmental Law, or words of similar meaning and
regulatory effect.
"Incremental Royalty Agreement" shall mean the Incremental Royalty
Agreement dated as of August 11, 1997, by and among the Borrower, Coldwell
Banker Real Estate Corporation, ERA Franchise Systems, Inc., Century 21 Real
Estate Corporation and HFS Incorporated.
"Indebtedness" of any Person shall mean, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services payable to the sellers thereof or any of such seller's
assignees which in accordance with GAAP would be shown on the liability side of
the balance sheet of such Person but excluding deferred rent as determined in
accordance with GAAP, (iii) the face amount of all letters of credit issued for
the account of such Person and, without duplication, all drafts drawn
thereunder, (iv) all Indebtedness of a second Person secured by any Lien on any
property owned by such first Person, whether or not such Indebtedness has been
assumed, (v) all Capitalized Lease Obligations of such Person, (vi) all
obligations of such Person to pay a specified purchase price for goods or
services whether or not delivered or accepted, i.e., take-or-pay and similar
----
obligations, (vii) all obligations under Interest Rate Protection Agreements and
Other Hedging Agreements and (viii) all Contingent Obligations of such Person,
provided, that Indebtedness shall not include trade payables and accrued
- --------
expenses, in each case arising in the ordinary course of business.
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"Indemnification Agreement" shall mean the Indemnification Agreement
dated August 11, 1997, by and between HFS, Inc. and the Borrower.
"Initial Borrowing Date" shall mean the date on which the initial
Credit Event occurs.
"Intercompany Loan" shall have the meaning provided in Section
9.05(f).
"Intercompany Notes" shall mean promissory notes, in the form of
Exhibit K, evidencing Intercompany Loans.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period," with respect to any Eurodollar Loan, shall mean the
interest period applicable thereto, as determined pursuant to Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate hedging agreement or other similar agreement or arrangement.
"Investment" shall have the meaning provided in the preamble to
Section 9.05.
"Joint Venture" shall mean any Person, other than an individual or a
Wholly-Owned Subsidiary of the Borrower, (i) in which the Borrower or a
Subsidiary of the Borrower holds or acquires an ownership interest (whether by
way of capital stock, partnership or limited liability company interest, or
other evidence of ownership) and (ii) which is engaged in a Permitted Business.
"L/C Supportable Obligations" shall mean obligations of the Borrower
or its Wholly-Owned Subsidiaries incurred in the ordinary course of business and
otherwise permitted to exist pursuant to the terms of this Agreement.
"Lead Arranger" shall have the meaning provided in the first paragraph
of this Agreement.
"Leasehold" of any Person shall mean all of the right, title and
interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Fees" shall have the meaning provided in Section
3.01(b).
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"Letter of Credit Issuer" shall mean BTCo and any other Bank which, at
the request of the Borrower and with the consent of the Administrative Agent,
agrees in such Bank's sole discretion to become a Letter of Credit Issuer for
purposes of issuing Letters of Credit pursuant to Section 2. The sole Letter of
Credit Issuer on the Restatement Effective Date shall be BTCo.
"Letter of Credit Outstandings" shall mean, at any time, the sum of,
without duplication, (i) the aggregate Stated Amount of all outstanding Letters
of Credit and (ii) the aggregate amount of all Unpaid Drawings in respect of all
Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in Section
2.02(a).
"License Agreement" shall mean the License Agreement dated as of
February 9, 1999, by and between Cendant and the Borrower.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien, hypothecation or charge of any kind (including any agreement
to give any of the foregoing, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any similar recording or notice statute, and any lease having substantially the
same effect as the foregoing).
"Loan" shall mean each Revolving Loan and each Swingline Loan.
"Management Agreements" shall have the meaning provided in Section
5.11.
"Management Participants" shall mean those employees, members of
management and directors of the Borrower eligible for awards under the 1997
Equity Participation Plan.
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(c).
"Margin Stock" shall have the meaning provided in Regulation U.
"Marketing Agreement" shall mean the Marketing Agreement, dated as of
August 11, 1997, by and between Cendant Mortgage Corporation and the Borrower.
"Master Letter Agreement" shall mean that Master Letter Agreement
dated as of February 9, 1999, by and among the Borrower, Apollo Management L.P.,
Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P., Apollo
(UK) Partners III, L.P., Cendant Corporation and Cendant Operations, Inc.
"Material Adverse Effect" shall mean a material adverse effect on the
business, properties, assets, liabilities, condition (financial or otherwise) or
prospects of the Borrower, and its Subsidiaries taken as a whole.
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"Maturity Date" shall mean May 29, 2001.
"Maximum Swingline Amount" shall mean $2,500,000.
"Minimum Borrowing Amount" shall mean (i) for Revolving Loans,
$1,000,000 and (ii) for Swingline Loans, $500,000.
"Moody's" shall mean Moody's Investors Service, Inc.
"Net Cash Proceeds" shall mean for any event requiring a reduction of
the Total Revolving Loan Commitment pursuant to Sections 3.03 or 4.02, as the
case may be, the gross cash proceeds (including any cash received by way of
deferred payment pursuant to a promissory note, receivable or otherwise, but
only as and when received) received from such event, net of reasonable
transaction costs (including, as applicable, any underwriting, brokerage or
other customary commissions and reasonable legal, advisory and other fees and
expenses associated therewith) received from any such event.
"Net Sale Proceeds" shall mean for any sale of assets, the gross cash proceeds
(including any cash received by way of deferred payment pursuant to a promissory
note, receivable or otherwise, but only as and when received) received from any
sale of assets, net of (i) reasonable transaction costs (including, without
limitation, any underwriting, brokerage or other customary selling commissions
and reasonable legal, advisory and other fees and expenses, including title and
recording expenses, associated therewith) and payments of unassumed liabilities
relating to the assets sold at the time of, or within 30 days after, the date of
such sale, (ii) the amount of such gross cash proceeds required to be used to
repay any Indebtedness (other than Indebtedness of the Banks pursuant to this
Agreement) which is secured by the respective assets which were sold, and (iii)
the estimated marginal increase in income taxes which will be payable by the
Borrower's consolidated group with respect to the fiscal year in which the sale
occurs as a result of such sale; provided, however, that such gross proceeds
-------- -------
shall not include any portion of such gross cash proceeds which the Borrower
determines in good faith should be reserved for post-closing adjustments
(including indemnification payments) (to the extent the Borrower delivers to the
Banks a certificate signed by its chief financial officer or treasurer,
controller or chief accounting officer as to such determination), it being
understood and agreed that on the day that all such post-closing adjustments
have been determined (which shall not be later than six months following the
date of the respective asset sale), the amount (if any) by which the reserved
amount in respect of such sale or disposition exceeds the actual post-closing
adjustments payable by the Borrower or any of its Subsidiaries shall constitute
Net Sale Proceeds on such date received by the Borrower and/or any of its
Subsidiaries from such sale, lease, transfer or other disposition. The parties
hereto acknowledge and agree that Net Sale Proceeds shall not include any trade-
in-credits or purchase price reductions received by the Borrower or any of its
Subsidiaries in connection with an exchange of equipment for replacement
equipment that is the functional equivalent of such exchanged equipment.
<PAGE>
"New Bank" shall mean each Bank on the Restatement Effective Date
which is not an Existing Bank.
"New Withholding Regulations" shall have the meaning provided in
Section 4.04(b).
"Non-Defaulting Bank" shall mean each Bank other than a Defaulting
Bank.
"Non-Wholly Owned Entity" shall have the meaning provided in the
definition of Permitted Acquisition.
"Note" shall mean each Revolving Note and/or the Swingline Note, as
the context may require.
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
located at One Bankers Trust Plaza, 130 Liberty Street, New York, New York 10006
or such other office as the Administrative Agent may designate to the Borrower
and the Banks from time to time.
"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Administrative Agent, the Collateral Agent or any Bank pursuant to the terms
of this Agreement or any other Credit Document.
"Original Loans" shall mean the Loans under, and as defined in, the
Existing Credit Agreement.
"Original Revolving Loans" shall mean the Revolving Loans under, and
as defined in, the Existing Credit Agreement.
"Other Hedging Agreements" shall mean any foreign exchange contracts,
currency swap agreements or other similar agreements or arrangements designed to
protect against fluctuations in currency values.
"Participant" shall have the meaning provided in Section 2.03(a).
"Payment Office" shall mean the office of the Administrative Agent
located at One Bankers Trust Plaza, 130 Liberty Street, New York, New York
10006.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
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"Permitted Acquired Debt" shall have the meaning set forth in Section
9.04(d).
"Permitted Acquisition" shall mean the acquisition by the Borrower or
any of its Wholly-Owned Domestic Subsidiaries of assets constituting a business,
division or product line of any Person not already a Subsidiary of the Borrower
or any of its Wholly-Owned Subsidiaries or of 100% of the capital stock or other
equity interests of any such Person, provided that (A) the consideration paid by
--------
the Borrower or such Wholly-Owned Subsidiary consists solely of cash (including
proceeds of Revolving Loans), the issuance of the Borrower Common Stock, the
issuance of any Qualified Preferred Stock or Disqualified Preferred Stock
otherwise permitted in Section 9.11, the issuance of Indebtedness otherwise
permitted in Section 9.04 (including Permitted Subordinated Indebtedness) and
the assumption/acquisition of any Permitted Acquired Debt (calculated in
accordance with GAAP) relating to such business, division, product line or
Person which is permitted to remain outstanding in accordance with the
requirements of Section 9.04, or the cancellation of Preferred Stock held by
Cendant pursuant to the Acquisition Cooperation Agreement (B) those acquisitions
that are structured as stock acquisitions shall be effected through a purchase
of 100% of the capital stock or other equity interests of such Person by the
Borrower or such Wholly-Owned Domestic Subsidiary or through a merger between
such Person and a Wholly-Owned Domestic Subsidiary of the Borrower, so that
after giving effect to such merger, 100% of the capital stock of the surviving
corporation of such merger is owned by the Borrower or a Wholly-Owned Domestic
Subsidiary, (C) in the case of the acquisition of 100% of the capital stock or
other equity interests of any Person, such Person (the "Acquired Person") shall
own no capital stock or other equity interests of any other Person unless either
(x) the Acquired Person owns 100% of the capital stock or other equity interests
of such other Person or (y) if the Acquired Person owns capital stock or equity
interests in any other Person which is not a Wholly-Owned Subsidiary of the
Acquired Person (a "Non-Wholly Owned Entity"), both (1) the Acquired Person
shall not have been created or established in contemplation of, or for purposes
of, the respective Permitted Acquisition and (2) any Non-Wholly Owned Entity of
the Acquired Person shall have been non-wholly-owned prior to the date of the
respective Permitted Acquisition and not created or established in contemplation
thereof, (D) substantially all of the business, division or product line
acquired pursuant to the respective Permitted Acquisition, or the business of
the Person acquired pursuant to the respective Permitted Acquisition and its
Subsidiaries taken as a whole, is in the United States, (E) the assets acquired,
or the business of the Person whose stock is acquired, shall be in a Permitted
Business and (F) all applicable requirements of Sections 8.13 and 9.02
applicable to Permitted Acquisitions are satisfied. Notwithstanding anything to
the contrary contained in the immediately preceding sentence, an acquisition
which does not otherwise meet the requirements set forth above in the definition
of "Permitted Acquisition" shall constitute a Permitted Acquisition if, and to
the extent, the Required Banks agree in writing that such acquisition shall
constitute a Permitted Acquisition for purposes of this Agreement.
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<PAGE>
"Permitted Acquisition Additional Cost Savings" shall mean, in
connection with each Permitted Acquisition, those demonstrable cost-savings
adjustments (in each case not included pursuant to clause (iii) or (iv) of the
definition of Pro Forma Basis contained herein) reasonably anticipated by the
--- -----
Borrower to be achieved in connection with such Permitted Acquisition for the 12
month period following the consummation of such Permitted Acquisition, which
cost-savings adjustments shall be estimated on a good faith basis by the
Borrower and, if requested by the Administrative Agent, be verified by a
nationally recognized accounting firm or as otherwise agreed to by the
Administrative Agent.
"Permitted Business" shall mean any business principally engaged in or
related to real estate brokerage services, mortgage, title, escrow and
relocation services and other products and services pursuant to the Program
Outsourcing Agreement and reasonable extensions of the foregoing.
"Permitted Debt" shall mean and include Permitted Acquired Debt and
Permitted Subordinated Indebtedness.
"Permitted Encumbrances" shall mean (i) those liens, encumbrances,
hypothecations and other matters affecting title to any Real Property and found
reasonably acceptable by the Administrative Agent, (ii) as to any particular
Real Property at any time, such easements, encroachments, covenants, rights of
way, minor defects, irregularities or encumbrances on title which would
reasonably be expected to materially impair such Real Property for the purpose
for which it is held by the mortgagor or grantor thereof, (iii) zoning and other
municipal ordinances which are not violated in any material respect by the
existing improvements and the present use made by the mortgagor or grantor
thereof of the premises, (iv) general real estate taxes and assessments not yet
delinquent, and (v) such other similar items as the Administrative Agent may
consent to (such consent not be unreasonably withheld).
"Permitted Holders" shall mean Apollo Group, Cendant and their
Affiliates and the Management Participants.
"Permitted Liens" shall have the meaning provided in Section 9.03.
"Permitted Subordinated Indebtedness" shall mean subordinated
Indebtedness of the Borrower incurred in connection with a Permitted Acquisition
and in accordance with Section 8.13, which Permitted Subordinated Indebtedness
and all terms and conditions thereof (including, without limitation, the
maturity thereof, the interest rate applicable thereto, amortization, defaults,
remedies, voting rights, subordination provisions, etc.), and the documentation
therefor, shall be reasonably satisfactory to the Arrangers, provided, that in
--------
any event, unless the Required Banks otherwise expressly consent in writing
prior to the incurrence thereof, (i) no such Indebtedness shall be guaranteed by
any Subsidiary of the Borrower and (ii) no such Indebtedness shall be secured by
any asset of the Borrower or any of its Subsidiaries. The incurrence of
Permitted Subordinated Indebtedness shall be deemed to be a representation and
warranty
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<PAGE>
by the Borrower that all conditions thereto have been satisfied in all material
respects and that same is permitted in accordance with the terms of this
Agreement, which representation and warranty shall be deemed to be a
representation and warranty for all purposes hereunder, including, without
limitation, Sections 6 and 10.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any government or political subdivision or any agency, department or
instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, or a Subsidiary of the Borrower
or an ERISA Affiliate maintained, contributed to or had an obligation to
contribute to such plan but excluding all Multiemployer Plans.
"Pledge Agreement" shall have the meaning provided in the Existing
Credit Agreement.
"Pledge Agreement Acknowledgment" shall have the meaning provided in
Section 5.09.
"Pledge Agreement Collateral" shall mean all of the Collateral as
defined in the Pledge Agreement.
"Pledged Securities" shall mean all the Pledged Securities as defined
in the Pledge Agreement, and shall exclude in any event (i) all Regulated
Subsidiaries, (ii) for the period starting on the Restatement Effective Date
until the date which is 120 days thereafter, all De Minimis Subsidiaries
existing on the Restatement Effective Date and (iii) for a period of 60 days
after the creation or acquisition of De Minimis Subsidiaries after the
Restatement Effective Date, all such De Minimis Subsidiaries.
"Preferred Stock," as applied to the capital stock of any Person,
means capital stock of such Person (other than common stock of such Person) of
any class or classes (however designed) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of capital
stock of any other class of such Person, and shall include the Existing
Preferred Stock and any Qualified Preferred Stock, and Disqualified Preferred
Stock.
"Prime Lending Rate" shall mean the rate which BTCo announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. BTCo may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
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"Pro Forma Basis" shall mean, in connection with any calculation of
--- -----
compliance with any financial covenant or financial term, the calculation
thereof after giving effect on a pro forma basis to (v) if the relevant period
--- -----
to be tested includes any period prior to the Restatement Effective Date, the
consummation of the transactions contemplated by this Agreement as if the same
had occurred on the first day of such period (for such purpose, without giving
pro forma effect to synergies and cost savings which have been, or may be
- --- -----
realized, such synergies and cost savings having been independently accounted
for in the proviso to the definition of "Consolidated EBITDA"), (x) the
incurrence of any Indebtedness (other than revolving Indebtedness, except to the
extent same is incurred to finance the transactions contemplated by this
Agreement, to refinance other outstanding Indebtedness or to finance Permitted
Acquisitions) or Preferred Stock (other than Qualified Preferred Stock of the
Borrower) after the first day of the relevant Calculation Period as if such
Indebtedness or Preferred Stock had been incurred or issued (and the proceeds
thereof applied) on the first day of the relevant Calculation Period, (y) the
permanent repayment of any Indebtedness (other than revolving Indebtedness
except to the extent paid with Permitted Debt or Disqualified Preferred Stock)
or Preferred Stock (other than Qualified Preferred Stock of the Borrower) after
the first day of the relevant Calculation Period as if such Indebtedness or
Preferred Stock had been retired or redeemed on the first day of the relevant
Calculation Period and (z) the Permitted Acquisition, if any, then being
consummated as well as any other Permitted Acquisition consummated after the
first day of the relevant Calculation Period and on or prior to the date of the
respective Permitted Acquisition then being effected, with the following rules
to apply in connection therewith:
(i) all Indebtedness and Preferred Stock (other than Qualified
Preferred Stock of the Borrower) (x) (other than revolving Indebtedness, except
to the extent same is incurred to finance the transactions contemplated by this
Agreement, to refinance other outstanding Indebtedness, or to finance Permitted
Acquisitions) incurred or issued after the first day of the relevant Calculation
Period (whether incurred to finance a Permitted Acquisition, to refinance
Indebtedness or otherwise) shall be deemed to have been incurred or issued (and
the proceeds thereof applied) on the first day of the respective Calculation
Period and remain outstanding through the date of determination (and thereafter
in the case of projections pursuant to Section 8.13(a)(B)(iii)) and (y) (other
than revolving Indebtedness except to the extent paid with Permitted Debt or
Disqualified Preferred Stock) permanently retired or redeemed after the first
day of the relevant Calculation Period shall be deemed to have been retired or
redeemed on the first day of the respective Calculation Period and remain
retired through the date of determination (and thereafter in the case of
projections pursuant to Section 8.13(a)(B)(iii));
(ii) all Indebtedness or Preferred Stock (other than Qualified
Preferred Stock of the Borrower) assumed to be outstanding pursuant to preceding
clause (i) shall be deemed to have borne interest or accrued dividends, as the
case may be, at (x) the rate applicable thereto, in the case of fixed rate
indebtedness or Preferred Stock or (y) the rates which would have been
applicable thereto during the respective period when same was deemed
outstanding, in the case of floating rate Indebtedness or Preferred Stock
(although
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interest expense with respect to any Indebtedness or Preferred Stock for periods
while same was actually outstanding during the respective period shall be
calculated using the actual rates applicable thereto while same was actually
outstanding); provided that for purposes of calculations pursuant to
--------
Section 8.13(a)(B)(iii), all Indebtedness or Preferred Stock (whether actually
outstanding or deemed outstanding) bearing interest at a floating rate of
interest shall be tested on the basis of the rates applicable at the time the
determination is made pursuant to said provisions;
(iii) in making any determination of Consolidated EBITDA, pro forma
--- -----
effect shall be given to any Permitted Acquisition consummated after the first
day of the respective period being tested, taking into account, for any portion
of the relevant period being tested occurring prior to the consummation of such
Permitted Acquisition, demonstrable cost savings actually achieved
simultaneously with the closing of the respective Permitted Acquisition, as if
such cost-savings were realized on the first day of the relevant period;
(iv) without duplication of adjustments provided above, in case of any
Permitted Acquisition consummated after the first day of the relevant period
being tested, pro forma effect shall be given to the termination or replacement
--- -----
of operating leases with Capitalized Lease Obligations or other Indebtedness,
and to any replacement of Capitalized Lease Obligations or other Indebtedness
with operating leases, in each case effected at the time of the consummation of
such Permitted Acquisition or thereafter, in each case if effected after the
first day of the period being tested and prior to the date the respective
determination is being made, as if such termination or replacement had occurred
on the first day of the relevant period; and
(v) in making any determination of Consolidated EBITDA for purposes of
any calculation of the Total Leverage Ratio or the only, (x) for any Permitted
Acquisition which occurred during the last two fiscal quarters comprising the
respective Test Period (and, in the case of Section 8.13, thereafter and on or
prior to the relevant date of determination), there shall be added to
Consolidated EBITDA the amount of Permitted Acquisition Additional Cost Savings,
determined in accordance with the definition thereof contained herein, expected
to be realized with respect to such Permitted Acquisition, (y) for any Permitted
Acquisition effected in the second fiscal quarter of the respective Test Period,
the Consolidated EBITDA shall be increased by 75% of the Permitted Acquisition
Additional Cost Savings estimated to arise in connection with the respective
Permitted Acquisition and (z) for any Permitted Acquisition effected in the
first fiscal quarter of the respective Test Period, the Consolidated EBITDA
shall be increased by 37.5% of the Permitted Acquisition Additional Cost Savings
estimated to arise in connection with the respective Permitted Acquisition;
provided that the aggregate additions to Consolidated EBITDA, for any period
being tested, pursuant to this clause (v) shall not exceed 15% of the amount
which would have been Consolidated EBITDA in the absence of the adjustment
pursuant to this clause (v).
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Notwithstanding anything to the contrary contained above, (x) for purposes of
Sections 9.08 and 9.09 and, for purposes of all determinations of the Applicable
Margins, pro forma effect (as otherwise provided above) shall only be given for
--- -----
events or occurrences which occurred during the respective Test Period but not
thereafter and (y) for purposes of Section 8.13, pro forma effect (as otherwise
--- -----
provided above) shall be given for events or occurrences which occurred during
the respective Test Period and thereafter but on or prior to the respective date
of determination.
"Program Outsourcing Agreement" shall mean the Program Outsourcing
Agreement, dated as of February 9, 1999, by and between the Borrower and
Cendant.
"Projections" shall have the meaning provided in Section 5.13(b).
"Qualified IPO" shall mean an underwritten public offering of Borrower
Common Stock which generates cash proceeds of at least $50,000,000.
"Qualified Preferred Stock" shall mean any Preferred Stock of the
Borrower, the express terms of which shall provide that dividends thereon shall
not be required to be paid at any time (and to the extent) that such payment
would be prohibited by the terms of this Agreement or any other agreement of the
Borrower relating to outstanding indebtedness and which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (including any Change of
Control Event), cannot mature and is not mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, and is not redeemable, or required to be
repurchased, at the sole option of the holder thereof (including, without
limitation, upon the occurrence of a Change of Control Event), in whole or in
part, on or prior to the date occurring one year after the Maturity Date.
"Quarterly Payment Date" shall mean the last Business Day of each
March, June, September and December.
"Real Property" of any Person shall mean all of the right, title and
interest of such Person in and to land, immovable property, improvements and
fixtures, including Leaseholds.
"Recovery Event" shall mean the receipt by the Borrower or any of its
Subsidiaries of any insurance or condemnation proceeds payable (i) by reason of
theft, physical destruction or damage or any other similar event with respect to
any properties or assets of the Borrower or any of its Subsidiaries, (ii) by
reason of any condemnation, taking, seizing or similar event with respect to any
properties or assets of the Borrower or any of its Subsidiaries and (iii) under
any policy of insurance required to be maintained under Section 8.03.
"Register" shall have the meaning provided in Section 13.17.
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"Regulated Subsidiaries" shall mean Subsidiaries of the Borrower
engaged solely in the title, escrow and similar businesses, which Subsidiaries
are regulated by State or local governmental authorities and which either (x)
would be prohibited from being a party to the Guaranty or having its capital
stock pledged pursuant to the Pledge Agreement or (y) it could be unreasonably
burdensome in the good faith opinion of the Borrower to have such Subsidiary
become a party to the Guaranty or have its capital stock pledged pursuant to the
Pledge Agreement.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from to time in effect and any successor to all or
any portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or any portion thereof.
"Release" means disposing, discharging, injecting, spilling, pumping,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing,
pouring and the like, into or upon any land or water or air, or otherwise
entering into the environment.
"Replaced Bank" shall have the meaning provided in Section 1.13.
"Replacement Bank" shall have the meaning provided in Section 1.13.
"Required Banks" shall mean Non-Defaulting Banks, the sum of whose
outstanding Revolving Loan Commitments (or after the termination thereof,
outstanding Revolving Loans and RL Percentage of Swingline Loans and Letter of
Credit Outstandings) represent an amount greater than 50% of the sum of the
Total Revolving Loan Commitment (or after the termination thereof, the sum of
the then total outstanding Revolving Loans of Non-Defaulting Banks and the
aggregate RL Percentages of all Non-Defaulting Banks of the total outstanding
Swingline Loans and Letter of Credit Outstandings at such time.
"Restatement Effective Date" shall have the meaning provided in
Section 13.10.
"Revolving Credit Exposure" shall mean, for any Bank at any time, the
sum of (i) the aggregate principal amount of all Revolving Loans made by such
Bank plus (ii)
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the product of (A) such Bank's RL Percentage and (B) the sum of (x) the
aggregate amount of all Letter of Credit Outstandings at such time and (y) the
aggregate principal amount of all Swingline Loans then outstanding.
"Revolving Loan" shall have the meaning provided in Section
1.01(a)(II).
"Revolving Loan Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Part A of Schedule I directly
below the column entitled "Revolving Loan Commitment," as the same may be
reduced from time to time pursuant to Sections 3.02, 3.03, 4.02 and/or Section
10.
"Revolving Loan Conversion" shall have the meaning provided in Section
1.01(a)(I).
"Revolving Note" shall have the meaning provided in Section 1.05(a).
"RL Percentage" of any Bank at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Bank at such time and the denominator of which is the
aggregate amount of Revolving Loan Commitments of all Banks at such time.
Notwithstanding anything to the contrary contained above, if the RL Percentage
of any Bank is to be determined after the Total Revolving Loan Commitment has
been terminated, then the RL Percentages of the Banks shall be determined
immediately prior (and without giving effect) to such termination (and without
giving effect to the termination of the Revolving Loan Commitments).
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b)(ii).
"Secured Creditors" shall have the meaning provided in the Security
Documents.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Security Documents" shall mean and include the Pledge Agreement and
each Additional Security Document, if any.
"Shareholder Subordinated Note" shall mean an unsecured junior
subordinated note issued by the Borrower (and not guaranteed or supported in any
way by the Borrower or any of its Subsidiaries) in the form of Exhibit L.
"Shareholders' Agreements" shall have the meaning provided in Section
5.11.
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"Standby Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Stated Amount" of each Letter of Credit shall mean the maximum amount
available to be drawn thereunder (regardless of whether any conditions for
drawing could then be met).
"Stockholders Agreement" shall mean the Stockholders Agreement, dated
as of August 11, 1997, by and among the Borrower, Apollo Management, L.P. and
the stockholders of the Borrower as amended prior to the date hereunder.
"Subordination Agreement" shall mean the Subordination Agreement dated
August 11, 1997, by and between HFS Inc. and Apollo Group.
"Subscription Agreement" shall mean the Subscription Agreement dated
August 11, 1997, by and among the Borrower, Apollo Group and HFS, Inc.
"Subsidiaries Guaranty" shall have the meaning provided in the
Existing Credit Agreement.
"Subsidiaries Guaranty Acknowledgment" shall have the meaning provided
in 5.10.
"Subsidiary" of any Person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity (other than a corporation) in which such Person directly
or indirectly through Subsidiaries, has more than a 50% equity interest at the
time. Notwithstanding the foregoing (and except for purposes of Sections 7.01,
7.04, 7.12, 7.16, 7.17, 7.20, 8.01(g), 8.07, 8.08, 10.05, 10.06 and 10.09, and
the definitions of Unrestricted Subsidiary and Wholly-Owned Unrestricted
Subsidiary contained herein), an Unrestricted Subsidiary shall be deemed not to
be a Subsidiary of the Borrower or any of its other Subsidiaries for purposes of
this Agreement.
"Supermajority Banks" shall mean those Non-Defaulting Banks which
would constitute the Required Banks under, and as defined in, this Agreement if
the percentage "50%" contained therein were changed to "66-2/3%".
"Support Agreement" shall mean the Support Agreement, dated as of
August 11, 1997, by and between Cendant and the Borrower.
"Swingline Expiry Date" shall mean the date which is five Business
Days prior to the Maturity Date.
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"Swingline Loan" shall have the meaning provided in Section 1.01(b).
"Swingline Note" shall have the meaning provided in Section 1.05(a).
"Syndication Agent" shall have the meaning provided in the first
paragraph of this Agreement.
"Tax Benefit" shall have the meaning provided in Section 4.04(c).
"Taxes" shall have the meaning provided in Section 4.04(a).
"Test Period" shall mean each period of four consecutive fiscal
quarters ended on the last day of the then most recently ended fiscal quarter of
the Borrower.
"Total Leverage Ratio" shall mean on any date the ratio of (i)
Consolidated Debt on such date to (ii) Consolidated EBITDA for the Test Period
most recently ended on or prior to such date. All calculations of the Total
Leverage Ratio shall be made on a Pro Forma Basis, it being understood and
--- -----
agreed that, as provided in the definition of Pro Forma Basis, the adjustments
--- -----
contained in clause (v) thereof shall not be taken into account in determining
the Total Leverage Ratio.
"Total Revolving Loan Commitment" shall mean the sum of the Revolving
Loan Commitments of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at any time,
(i) the Total Revolving Loan Commitment at such time less (ii) the sum of (I)
----
the aggregate principal amount of all Revolving Loans then outstanding, (II) the
aggregate principal amount of Swingline Loans then outstanding plus (III) the
Letter of Credit Outstandings at such time.
"Trade Letter of Credit" shall have the meaning set forth in Section
2.01(a).
"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, i.e., a Base Rate Loan or a Eurodollar Loan.
----
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the value of the accumulated plan benefits under the Plan
determined on a plan termination basis in accordance with actuarial assumptions
at such time consistent with those prescribed by the PBGC for purposes of
Section 4044 of ERISA, exceeds the fair market value of all plan assets
allocable to such liabilities under Title IV of ERISA (excluding any accrued but
unpaid contributions).
"Unpaid Drawing" shall have the meaning provided in Section 2.04(a).
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"Unrestricted Subsidiary" shall mean any Subsidiary of the Borrower
that is acquired or created after the Restatement Effective Date and designated
by the Borrower as an Unrestricted Subsidiary hereunder by written notice to the
Administrative Agent, provided that the Borrower shall only be permitted to so
--------
designate a new Unrestricted Subsidiary after the Restatement Effective Date and
so long as (i) no Default or Event of Default exists or would result therefrom,
(ii) in the case of any Unrestricted Subsidiary directly owned by the Borrower
or any of its Wholly-Owned Domestic Subsidiaries, 100% of the capital stock of
such newly-designated Unrestricted Subsidiary is owned by the Borrower or such
Wholly-Owned Domestic Subsidiary and (iii) all of the provisions of Section 9.13
shall have been complied with in respect of such newly-designated Unrestricted
Subsidiary and such Unrestricted Subsidiary shall be capitalized (to the extent
capitalized by the Borrower or any of its Subsidiaries) through Investments as
permitted by, and in compliance with, Section 9.05(k), with any assets owned by
such Unrestricted Subsidiary at the time of the initial designation thereof to
be treated as Investments pursuant to Section 9.05(k), provided that at the time
--------
of the initial Investment by the Borrower or any Wholly-Owned Domestic
Subsidiary in such Subsidiary, the Borrower shall designate such entity as an
Unrestricted Subsidiary in a written notice to the Administrative Agent.
"Unutilized Revolving Loan Commitment" with respect to any Bank at any
time shall mean such Bank's Revolving Loan Commitment at such time less the sum
----
of (i) the aggregate outstanding principal amount of all Revolving Loans made by
such Bank and (ii) such Bank's RL Percentage of the Letter of Credit
Outstandings at such time.
"U.S. Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States of America.
"Voting Stock" shall mean, as to any Person, any class or classes of
capital stock of such Person pursuant to which the holders thereof have the
general voting power under ordinary circumstances to elect at least a majority
of the Board of Directors of such Person.
"Wholly-Owned Domestic Subsidiary" shall mean, as to any Person, any
Wholly-Owned Subsidiary of such Person which is a Domestic Subsidiary.
"Wholly-Owned Foreign Subsidiary" shall mean, as to any Person, any
Wholly-Owned Subsidiary of such Person which is a Foreign Subsidiary.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's, officer's or
brokers of record qualifying shares and/or other nominal amounts of shares
required to be held other than by such Person under applicable law) is at the
time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such
Person and (ii) any partnership, association, joint venture or other entity in
which such Person and/or one or more Wholly-Owned Subsidiaries of such Person
has a 100% equity interest at such time; provided that (x) other
--------
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than in the definition of Wholly-Owned Unrestricted Subsidiary, no Unrestricted
Subsidiary shall be considered a Wholly-Owned Subsidiary.
"Wholly-Owned Unrestricted Subsidiary" shall mean any Wholly-Owned
Subsidiary which is an Unrestricted Subsidiary.
"Written" (whether lower or upper case) or "in writing" shall mean any
form of written communication or a communication by means of telex, facsimile
device, telegraph or cable.
SECTION 12. The Administrative Agent.
------------------------
12.01 Appointment. Each Bank hereby irrevocably designates and
-----------
appoints BTCo as Administrative Agent of such Bank (for purposes of this Section
12, the term "Administrative Agent" shall mean BTCo in its capacity as
Administrative Agent hereunder and Collateral Agent pursuant to the Security
Documents), and each such Bank hereby irrevocably authorizes the Administrative
Agent, to take such action on its behalf under the provisions of this Agreement
and the other Credit Documents and to exercise such powers and perform such
duties as are expressly delegated to the Administrative Agent by the terms of
this Agreement and the other Credit Documents, together with such other powers
as are reasonably incidental thereto. The Administrative Agent agrees to act as
such upon the express conditions contained in this Section 12. Notwithstanding
any provision to the contrary elsewhere in this Agreement or in any other Credit
Document, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein or in the other Credit
Documents, or any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
The provisions of this Section 12 are solely for the benefit of the
Administrative Agent and the Banks, and neither the Borrower nor any of its
Subsidiaries shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement,
the Administrative Agent shall act solely as agent of the Banks and does not
assume and shall not be deemed to have assumed any obligation or relationship of
agency or trust with or for the Borrower or any of its Subsidiaries.
12.02 Delegation of Duties. The Administrative Agent may execute any
--------------------
of its duties under this Agreement or any other Credit Document by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
12.03 Exculpatory Provisions. The Administrative Agent nor any of
----------------------
its officers, directors, employees, agents, attorneys-in-fact or affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person in its capacity as Administrative Agent, under or in connection
with this Agreement or the other Credit Documents (except for its or such
Person's own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Banks for any recitals, statements,
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representations or warranties made by the Borrower, any of its respective
Subsidiaries or any of their respective officers contained in this Agreement or
the other Credit Documents, any other Document or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement or any other
Document or for any failure of the Borrower or any of its Subsidiaries or any of
their respective officers to perform its obligations hereunder or thereunder.
The Administrative Agent shall be under no obligation to any Bank to ascertain
or to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or the other Documents, or to
inspect the properties, books or records of the Borrower or any of its
Subsidiaries. The Administrative Agent shall not be responsible to any Bank for
the effectiveness, genuineness, validity, enforceability, collectability or
sufficiency of this Agreement or any other Document or for any representations,
warranties, recitals or statements made herein or therein or made in any written
or oral statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Administrative Agent, to the Banks or by or on behalf
of any Borrower or any of its Subsidiaries to the Administrative Agent, or any
Bank or be required to ascertain or inquire as to the performance or observance
of any of the terms, conditions, provisions, covenants or agreements contained
herein or therein or as to the use of the proceeds of the Loans or of the
existence or possible existence of any Default or Event of Default.
12.04 Reliance by the Administrative Agent. The Administrative Agent
------------------------------------
shall be entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, facsimile, telex or teletype message, statement, order or
other document or conversation reasonably believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including, without limitation,
counsel to the Borrower or any of its Subsidiaries), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Credit Document unless it shall first receive such advice
or concurrence of the Required Banks as it deems appropriate or it shall first
be indemnified to its satisfaction by the Banks against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Required Banks, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Banks.
12.05 Notice of Default. The Administrative Agent shall be deemed to
-----------------
have knowledge or notice of the occurrence of any Default or Event of Default
unless the Administrative Agent has actually received notice from a Bank or a
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event
that the Administrative Agent receives such a notice, the Administrative Agent
shall give prompt notice thereof to the Banks. The Administrative
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Agent shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Required Banks; provided, that, unless and
--------
until the Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Banks.
12.06 Nonreliance on Administrative Agent and Other Banks. Each Bank
---------------------------------------------------
expressly acknowledges that the Administrative Agent nor any of its respective
officers, directors, employees, agents, attorneys-in-fact or affiliates has made
any representations or warranties to it and that no act by the Administrative
Agent hereinafter taken, including any review of the affairs of the Borrower or
any of its Subsidiaries, shall be deemed to constitute any representation or
warranty by the Administrative Agent to any Bank. Each Bank represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial and
other condition, prospects and creditworthiness of the Borrower and its
Subsidiaries and made its own decision to make its Loans hereunder and enter
into this Agreement. Each Bank also represents that it will, independently and
without reliance upon the Administrative Agent or any other Bank, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement, and to make such investigation as it
deems necessary to inform itself as to the business, assets, operations,
property, financial and other condition, prospects and creditworthiness of the
Borrower and its Subsidiaries. The Administrative Agent shall not have any duty
or responsibility to provide any Bank with any credit or other information
concerning the business, operations, assets, property, financial and other
condition, prospects or creditworthiness of the Borrower or any of its
Subsidiaries which may come into the possession of the Administrative Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
12.07 Indemnification. The Banks agree to indemnify the
---------------
Administrative Agent in its capacity as such, ratably according to their
respective "percentages" as used in determining the Required Banks at such time
or, if the Revolving Loan Commitments have terminated and all Loans have been
repaid in full, as determined immediately prior to such termination and
repayment (with such "percentages" to be determined as if there are no
Defaulting Banks), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, reasonable
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the Administrative
Agent in any way relating to or arising out of this Agreement or any other
Credit Document, or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted to be taken by
the Administrative Agent under or in connection with any of the foregoing, but
only to the extent that any of the foregoing is not paid by the Borrower or any
of its Subsidiaries;
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provided, that no Bank shall be liable to the Administrative Agent for the
- --------
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
primarily from the gross negligence or willful misconduct of the Administrative
Agent. If any indemnity furnished to the Administrative Agent for any purpose
shall, in the opinion of the Administrative Agent be insufficient or become
impaired, the Administrative Agent may call for additional indemnity and cease,
or not commence, to do the acts indemnified against until such additional
indemnity is furnished. The agreements in this Section 12.07 shall survive the
payment of all Obli gations.
12.08 Administrative Agent in its Individual Capacity. The
-----------------------------------------------
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower and its
Subsidiaries as though the Administrative Agent were not the Administrative
Agent hereunder. With respect to the Loans made by it and all Obligations owing
to it, the Administrative Agent shall have the same rights and powers under this
Agreement as any Bank and may exercise the same as though it were not the
Administrative Agent and the terms "Bank" and "Banks" shall include the
Administrative Agent in its individual capacity.
12.09 Holders. The Administrative Agent may deem and treat the payee
-------
of any Note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with the Administrative Agent. Any request,
authority or consent of any Person or entity who, at the time of making such
request or giving such authority or consent, is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee, assignee or
endorsee, as the case may be, of such Note or of any Note or Notes issued in
exchange therefor.
12.10 Resignation of the Administrative Agent. (a) The
---------------------------------------
Administrative Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Credit Documents at any time by giving
30 Business Days' prior written notice to the Borrower and the Banks. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Banks shall
appoint a successor Administrative Agent hereunder or thereunder who shall be a
commercial bank or trust company reasonably acceptable to the Borrower.
(c) If a successor Administrative Agent shall not have been so
appointed within such 30 Business Day period, the Administrative Agent, with the
consent of the Borrower (which consent shall not be unreasonably withheld or
delayed), shall then appoint a successor Administrative Agent who shall serve as
Administrative Agent hereunder or thereunder until such time, if any, as the
Required Banks appoint a successor Administrative Agent as provided above.
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(d) If no successor Administrative Agent has been appointed pursuant
to clause (b) or (c) above by the 30th Business Day after the date such notice
of resignation was given by the Administrative Agent, the Administrative Agent's
resignation shall become effective and the Required Banks shall thereafter
perform all the duties of the Administrative Agent hereunder and/or under any
other Credit Document until such time, if any, as the Required Banks appoint a
successor Administrative Agent as provided above.
12.11 Co-Arranger, Syndication Agent, Co-Agent. Each Bank hereby
----------------------------------------
irrevocably designates and appoints Chase as Co-Arranger and Syndication Agent
hereunder, and BankBoston, N.A. as Co-Agent hereunder, it being understood and
agreed that neither Chase nor BankBoston, N.A. shall have any duties or
obligations in such capacity hereunder.
SECTION 13. Miscellaneous.
-------------
13.01 Payment of Expenses, etc. The Borrower agrees to: (i) whether
-------------------------
or not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Arrangers (including, without
limitation, the reasonable fees and disbursements of White & Case LLP and local
counsel) in connection with the negotiation, preparation, execution and delivery
of the Credit Documents and the documents and instruments referred to therein
and any amendment, waiver or consent relating thereto and in connection with the
Arrangers' syndication efforts with respect to this Agreement; (ii) pay all
reasonable out-of-pocket costs and expenses of each Arranger, the Administrative
Agent, each Letter of Credit Issuer and each of the Banks in connection with the
enforcement of the Credit Documents and the documents and instruments referred
to therein and, after an Event of Default shall have occurred and be continuing,
the protection of the rights of each Arranger, the Administrative Agent, each
Letter of Credit Issuer and each of the Banks thereunder (including, without
limitation, the reasonable fees and disbursements of counsel (including in-house
counsel) for each Arranger, the Administrative Agent, for each Letter of Credit
Issuer and for each of the Banks); (iii) pay and hold each of the Banks harmless
from and against any and all present and future stamp and other similar taxes
with respect to the foregoing matters and save each of the Banks harmless from
and against any and all liabilities with respect to or resulting from any delay
or omission (other than to the extent attributable to such Bank) to pay such
taxes; and (iv) indemnify each Arranger, the Administrative Agent, the
Collateral Agent, each Letter of Credit Issuer and each Bank, their respective
officers, directors, employees, representatives, trustees and agents from and
hold each of them harmless against any and all losses, liabilities, claims,
damages or expenses incurred by any of them as a result of, or arising out of,
or in any way related to, or by reason of, (a) any investigation, litigation or
other proceeding (whether or not any Arranger, the Administrative Agent, the
Collateral Agent, any Letter of Credit Issuer or any Bank is a party thereto and
whether or not any such investigation, litigation or other proceeding is between
or among any Arranger, the Administrative Agent, the Collateral Agent, any
Letter of Credit Issuer, any Bank, any Credit Party or any third Person or
otherwise) related to the entering into and/or performance of this Agreement or
any other Document or the use of the proceeds of any
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Loans hereunder or any drawing on any Letter of Credit or the consummation of
any other transactions contemplated in any Document (but excluding any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified), or (b) the actual or alleged presence of Hazardous Materials in
the air, surface water or groundwater or on the surface or subsurface of any
Real Property or any Environmental Claim, in each case, including, without
limitation, the reasonable fees and disbursements of counsel and independent
consultants incurred in connection with any such investigation, litigation or
other proceeding (but excluding any losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the Person to be indemnified).
13.02 Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, each Arranger, each
Letter of Credit Issuer and each Bank is hereby authorized at any time or from
time to time, without presentment, demand, protest or other notice of any kind
to the Borrower or any of its Subsidiaries or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate and apply
any and all deposits (general or special) and any other Indebtedness at any time
held or owing by such Arranger, such Letter of Credit Issuer or such Bank
(including, without limitation, by branches and agencies of such Arranger, such
Letter of Credit Issuer and such Bank wherever located) to or for the credit or
the account of the Borrower or any of its Subsidiaries against and on account of
the Obligations of the Borrower or any of its Subsidiaries to such Arranger,
such Letter of Credit Issuer or such Bank under this Agreement or under any of
the other Credit Documents, including, without limitation, all interests in
Obligations of the Borrower or any of its Subsidiaries purchased by such Bank
pursuant to Section 13.06(b), and all other claims of any nature or description
arising out of or connected with this Agreement or any other Credit Document,
irrespective of whether or not such Arranger, such Letter of Credit Issuer or
such Bank shall have made any demand hereunder and although said Obligations
shall be contingent or unmatured.
13.03 Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to any Credit Party,
at the address specified opposite its signature below or in the other relevant
Credit Documents, as the case may be; if to any Bank, at its address specified
for such Bank on Schedule II; or, at such other address as shall be designated
by any party in a written notice to the other parties hereto. All such notices
and communications shall be mailed, telegraphed, telexed, telecopied or cabled
or sent by overnight courier, and shall be effective when received.
13.04 Benefit of Agreement. (a) This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; provided, however, the Borrower may not
-------- -------
assign or transfer any of its rights, obligations or interest hereunder or under
any other Credit Document without the prior written consent of each of the
Banks, except as provided in clause (v) of the first
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proviso to Section 13.12(a), and, provided further, that, although any Bank may
----------------
grant participations in its rights hereunder, such Bank shall remain a "Bank"
for all purposes hereunder (and may not transfer or assign all or any portion of
its Revolving Loan Commitment or Loans hereunder except as provided in Section
13.04(b)) and the participant shall not constitute a "Bank" hereunder and,
provided further, that no Bank shall transfer or grant any participation under
- ----------------
which the participant shall have rights to approve any amendment to or waiver of
this Agreement or any other Credit Document except to the extent such amendment
or waiver would (i) extend the final scheduled maturity of any Loan, Note or
Letter of Credit (unless such Letter of Credit is not extended beyond the
Maturity Date) in which such participant is participating, or reduce the rate or
extend the time of payment of interest or Fees thereon (except in connection
with a waiver of applicability of any post-default increase in interest rates)
or reduce the principal amount thereof, or increase the amount of the
participant's participation over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Total Revolving Loan Commitment or of a mandatory repayment of
Loans shall not constitute a change in the terms of such participation, that an
increase in any Revolving Loan Commitment or Loan shall be permitted without the
consent of any participant if the participant's participation is not increased
as a result thereof and that any amendment or modification to the financial
definitions in this Agreement shall not constitute a reduction in any rate of
interest or fees for purposes of this clause (i)), (ii) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement (except as provided in clause (v) of the first proviso to
Section 13.12(a)) or (iii) release all or substantially all of the Collateral
under the Security Documents (except as expressly provided in the Security
Documents) supporting the Loans hereunder in which such participant is
participating. In the case of any such participation, the participant shall not
have any rights under this Agreement or any of the other Credit Documents (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto) and all amounts payable by the Borrower hereunder
shall be determined as if such Bank had not sold such participation.
(b) Notwithstanding the foregoing, any Bank (or any Bank together with
one or more other Banks) may (x) assign all or a portion of its Revolving Loan
Commitment (and related outstanding Obligations hereunder) to (i) its parent
company and/or any affiliate of such Bank which is at least 50% owned by such
Bank or its parent company or to one or more Banks or (ii) in the case of any
Bank that is a fund that invests in bank loans, any other fund that invests in
bank loans and is managed by the same investment advisor of such Bank or by an
Affiliate of such investment advisor or (y) assign all, or if less than all, a
portion equal to at least $5,000,000 in the aggregate for the assigning Bank or
assigning Banks, of such Revolving Loan Commitments (and related outstanding
Obligations hereunder) to one or more Eligible Transferees (treating (x) any
fund that invests in bank loans and (y) any other fund that invests in bank
loans and is managed by the same investment advisor as such fund or by an
Affiliate of such investment advisor, as a single Eligible Transferee), each of
which assignees shall become a party to this Agreement as a Bank by execution of
an Assignment and Assumption
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<PAGE>
Agreement, provided that, (i) any assignment of all or any portion of the
--------
Revolving Loan Commitment and related outstanding Obligations (or, if the
Revolving Loan Commitment has terminated, any assignment of Obligations
originally extended pursuant to the Revolving Loan Commitments) shall be made on
a basis such that the respective assignee participates in Revolving Loans, and
in Letter of Credit Outstandings, in accordance with the Revolving Loan
Commitment so assigned (or if the Revolving Loan Commitment has been terminated,
on the same basis as participated in by the Banks with Revolving Loan
Commitments prior to the termination thereof), (ii) at such time Schedule I
shall be deemed modified to reflect the Revolving Loan Commitments of such new
Banks and of the existing Banks (and their respective Affiliates), (iii) upon
surrender of the old Notes (or the furnishing of a standard indemnity letter
from the respective assigning Bank in respect of any lost Notes), new Notes will
be issued, at the Borrower's expense, to such new Bank and to the assigning
Bank, such new Notes to be in conformity with the requirements of Section 1.05
(with appropriate modifications) to the extent needed to reflect the revised
Revolving Loan Commitments, (iv) the consent of the Administrative Agent and, so
long as no Default or Event of Default is then in existence, the Borrower shall
be required in connection with any assignment to an Eligible Transferee pursuant
to clause (y) of this Section 13.04(b) (which consent, in each case, shall not
be unreasonably withheld or delayed), (v) the Administrative Agent shall receive
at the time of each assignment, from the assigning or assignee Bank, the payment
of a non-refundable assignment fee of $3,500 and, provided further, that such
----------------
transfer or assignment will not be effective until recorded by the
Administrative Agent on the Register pursuant to Section 13.17. To the extent of
any assignment pursuant to this Section 13.04(b), the assigning Bank shall be
relieved of its obligations hereunder with respect to its assigned Revolving
Loan Commitments. At the time of each assignment pursuant to this Section
13.04(b) to a Person which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes, the respective assignee Bank shall provide to the U.S. Borrower and
the Administrative Agent the appropriate Internal Revenue Service Forms (and, if
applicable a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To
the extent that an assignment of all or any portion of a Bank's Revolving Loan
Commitment and outstanding Obligations pursuant to Section 1.13 or this Section
13.04(b) would, due to circumstances existing at the time of such assignment,
result in increased costs under Section 1.10, 1.11, 2.05 or 4.04 from those
being charged by the respective assigning Bank prior to such assignment, then
the Borrowers shall not be obligated to pay such increased costs (although the
Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes after the date of the respective
assignment). Notwithstanding anything to the contrary contained above, at any
time after the termination of the Total Revolving Loan Commitment, if any
Revolving Loans or Letters of Credit remain outstanding, assignments may be made
as provided above, except that the respective assignment shall be of a portion
of the outstanding Revolving Loans of the respective Bank and its participation
in Letters of Credit and its obligation to make Mandatory Borrowings, although
any such assignment effected after the termination of the Total Revolving Loan
Commitment shall not release the assigning Bank from its obligations as a
Participant with respect to outstanding Letters of Credit or to fund its share
113
<PAGE>
of any Mandatory Borrowing (although the respective assignee may agree, as
between itself and the respective assigning Bank, that it shall be responsible
for such amounts).
(c) Nothing in this Agreement shall prevent or prohibit any Bank or
BTCo from pledging its Loans and Notes hereunder to a Federal Reserve Bank in
support of borrowings made by such Bank from such Federal Reserve Bank and, with
the consent of the Administrative Agent, any Bank which is a fund may pledge all
or any portion of its Notes or Loans to its trustee in support of its
obligations to its trustee. No pledge pursuant to this clause (c) shall release
the transferor Bank from any of its obligations hereunder.
13.05 No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of the Administrative Agent, the Collateral Agent or any Bank in exercising
any right, power or privilege hereunder or under any other Credit Document and
no course of dealing between any Credit Party and the Administrative Agent, the
Collateral Agent or any Bank shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which the Administrative Agent, the Collateral Agent
or any Bank would otherwise have. No notice to or demand on any Credit Party in
any case shall entitle any Credit Party to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the rights of the
Administrative Agent, the Collateral Agent or the Banks to any other or further
action in any circumstances without notice or demand.
13.06 Payments Pro Rata. (a) The Administrative Agent agrees that
-----------------
promptly after its receipt of each payment from or on behalf of any Credit Party
in respect of any Obligations of such Credit Party, it shall, except as
otherwise provided in this Agreement, distribute such payment to the Banks
(other than any Bank that has consented in writing to waive its pro rata share
--- ----
of such payment) pro rata based upon their respective shares, if any, of the
--- ----
Obligations with respect to which such payment was received.
(b) Except to the extent that this Agreement provides for payments to
be allocated to the Banks with particular Obligations, if any Bank (a
"Benefitted Bank") shall at any time receive any payment of all or part of its
Loans or the other Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 10.05, or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Bank, if any, in respect of such other Bank's Loans or the
other Obligations owing to such other Bank, or interest thereon, such Benefitted
Banks shall purchase for cash from the other Banks a participating interest in
such portion of each such other Bank's Loans and/or other Obligations owing to
each such other Banks, or shall provide such other Banks with the benefits of
any such collateral, or the proceeds thereof, as shall be necessary to cause
such Benefitted Bank to share the excess payment or benefits of such collateral
or proceeds ratably with each of the Banks; provided, however, that if all
-------- -------
114
<PAGE>
or any portion of such excess payment or benefits is thereafter recovered from
such Benefitted Bank, such purchase shall be rescinded, and the purchase price
and benefits returned, to the extent of such recovery, but without interest.
13.07 Calculations; Computations. (a) The financial statements to
--------------------------
be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by the Borrower to the Banks); provided, that except as otherwise specifically
--------
provided herein, all computations determining compliance with Sections 4.02,
8.14 and 9, including definitions used therein shall, in each case, utilize
accounting principles and policies in effect at the time of the preparation of,
and in conformity with those used to prepare, the December 31, 1998 financial
statements of the Borrower delivered to the Banks pursuant to Section 7.10(b);
provided further, that (i) to the extent expressly required pursuant to the
- ----------------
provisions of this Agreement, certain calculations shall be made on a Pro Forma
--- -----
Basis, (ii) to the extent compliance with any of Section 9.08 and 9.09 would
include periods occurring prior to the Restatement Effective Date, such
calculation shall be adjusted on a Pro Forma Basis to give effect to the
--- -----
transactions contemplated by the Agreement as if same had occurred on the first
day of the respective period, (iii) in the case of any determinations of
Consolidated Interest Expense or Consolidated EBITDA for any portion of any Test
Period which ends prior to the Restatement Effective Date, all computations
determining compliance with Sections 9.08 and 9.09 and all determinations of the
Total Leverage Ratio shall be calculated in accordance with the definition of
Test Period contained herein and (iv) for purposes of calculating financial
terms, all covenants and related definitions, all such calculations based on the
operations of the Borrower and its Subsidiaries on a consolidated basis shall be
made without giving effect to the operations of any Unrestricted Subsidiaries.
(b) For purposes of determining compliance with any incurrence or
expenditure tests set forth in Sections 8 and/or 9 (excluding Sections 9.08 and
9.09), any amounts so incurred or expended (to the extent incurred or expended
in a currency other than U.S. Dollars) shall be converted into U.S. Dollars on
the basis of the Dollar Equivalent of the respective such amounts as in effect
on the date of such incurrence or expenditure under any provision of any such
Section that has an aggregate Dollar limitation provided for therein (and to the
extent the respective incurrence or expenditure test regulates the aggregate
amount outstanding or made at any time and it is expressed in terms of U.S.
Dollars, all amounts originally incurred or spent in currencies other that U.S.
Dollars shall be converted into U.S. Dollars on the basis of the Dollar
Equivalent of the respective such amounts as in effect on the date any new
incurrence or expenditures made under any provision of any such Section that
regulates the Dollar amount outstanding or made at any time).
(c) All computations of interest and Fees hereunder shall be made on
the actual number of days elapsed over a year of 360 days.
115
<PAGE>
13.08 Governing Law; Submission to Jurisdiction; Venue. (a) THIS
------------------------------------------------
AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding
with respect to this Agreement or any other Credit Document may be brought in
the courts of the State of New York or of the United States for the Southern
District of New York, and, by execution and delivery of this Agreement, the
Borrower hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Borrower hereby further irrevocably waives any claim that any such courts lack
jurisdiction over such Borrower, and agrees not to plead or claim, in any legal
action or proceeding with respect to this Agreement or any other Credit Document
brought in any of the aforesaid courts, that any such court lacks jurisdiction
over such Borrower. The Borrower further irrevocably consents to the service of
process in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such Borrower, at its address
for notices pursuant to Section 13.03, such service to become effective 30 days
after such mailing. The Borrower hereby irrevocably waives any objection to
such service of process and further irrevocably waives and agrees not to plead
or claim in any action or proceeding commenced hereunder or under any other
Credit Document that service of process was in any way invalid or ineffective.
Nothing herein shall affect the right of the Administrative Agent, the
Collateral Agent, any Bank or the holder of any Note to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against any Credit Party in any other jurisdiction.
(b) The Borrower hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to plead or claim in any such court
that any such action or proceeding brought in any such court has been brought in
an inconvenient forum.
13.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Administrative Agent.
13.10 Effectiveness. This Agreement shall become effective on the
-------------
date (the "Restatement Effective Date") on which (i) the Borrower, the
Administrative Agent, and each of the Banks shall have signed a counterpart
hereof (whether the same or different counterparts) and shall have delivered the
same (including by way of facsimile transmission) to the Administrative Agent
and (ii) the conditions contained in Sections 5 and 6 are met to the
satisfaction of the Administrative Agent and the Required Banks (determined
immediately after the occurrence of the Restatement Effective Date). Unless the
Administrative Agent has received actual notice from any Bank that the
conditions
116
<PAGE>
contained in Sections 5 and 6 have not been met to its satisfaction, upon the
satisfaction of the condition described in clause (i) of the immediately
preceding sentence and upon the Administrative Agent's good faith determination
that the conditions described in clause (ii) of the immediately preceding
sentence have been met, then the Restatement Effective Date shall have been
deemed to have occurred, regardless of any subsequent determination that one or
more of the conditions thereto had not been met (although the occurrence of the
Restatement Effective Date shall not release the Borrower from any liability for
failure to satisfy one or more of the applicable conditions contained in Section
5 or 6). The Administrative Agent will give the Borrower and each Bank prompt
written notice of the occurrence of the Restatement Effective Date.
13.11 Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
13.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any
-------------------------
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Banks, provided that no such change, waiver, discharge or termination
--------
shall, without the consent of each Bank (other than a Defaulting Bank) (with
Obligations being directly affected thereby in the case of the following clause
(i)), (i) extend the final scheduled maturity of any Loan or Note or extend the
stated maturity of any Letter of Credit beyond the Maturity Date, or reduce the
rate or extend the time of payment of interest or Fees thereon, or reduce the
principal amount thereof (it being understood that any amendment or modification
to the financial definitions in this Agreement shall not constitute a reduction
in any rate of interest or fees for purposes of this clause (i)), (ii) release
all or substantially all of the Collateral (except as expressly provided in the
Security Documents) under the Security Documents, (iii) amend, modify or waive
any provision of this Section 13.12 (it being understood that with the Consent
of the Required Banks, additional extensions of credit pursuant to the Agreement
may provide for additional voting or consent rights with respect thereto), (iv)
reduce the percentage specified in the definition of Required Banks (it being
understood that, with the consent of the Required Banks, additional extensions
of credit pursuant to this Agreement may be included in the determination of the
Required Banks on substantially the same basis as the extensions of Revolving
Loan Commitments are included on the Restatement Effective Date), (v) consent to
the assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement, except that the Borrower may assign or otherwise transfer
its rights, obligations and interests hereunder or under the other Credit
Documents to any Wholly-Owned Domestic Subsidiary of the Borrower to the extent
(but only to the extent) that (i) the Borrower guarantees all of the Obligations
of such assignee Subsidiary pursuant to a guaranty in form and substance
satisfactory to the Required Banks and (ii) the Required Banks shall have
consented to such assignment or transfer, or (vi) release all or substantially
all of the Guarantors; provided further, that no such change, waiver, discharge
----------------
or termination shall (u) increase the Revolving Loan Commitments of any Bank
over the amount thereof then in effect
117
<PAGE>
without the consent of such Bank (it being understood that waivers or
modifications of conditions precedent, covenants, Defaults or Events of Default
or of a mandatory reduction in the Total Revolving Loan Commitment shall not
constitute an increase of the Revolving Loan Commitment of any Bank, and that an
increase in the available portion of any Revolving Loan Revolving Loan
Commitment of any Bank shall not constitute an increase in the Revolving Loan
Commitment of such Bank), (v) without the consent of each Letter of Issuer,
amend, modify or waive any provision of Section 2 or alter its rights or
obligations with respect to Letters of Credit, (w) without the consent of BTCo,
alter its rights or obligations with respect to Swingline Loans, (x) without the
consent of the Administrative Agent, amend, modify or waive any provision of
Section 12 as same applies to the Administrative Agent or any other provision as
same relates to the rights or obligations of the Administrative Agent, (y)
without the consent of the Collateral Agent, amend, modify or waive any
provision relating to the rights or obligations of the Collateral Agent and (z)
without the consent of the Supermajority Banks, release any Guarantor
constituting 10% or more of the assets of the Company and its Subsidiaries
(except as expressly set forth in the Subsidiaries Guaranty).
(b) If, in connection with any proposed change, waiver, discharge or
termination of or to any of the provisions of this Agreement as contemplated by
clauses (i) through (v), inclusive, of the first proviso to Section 13.12(a),
the consent of the Required Banks is obtained but the consent of one or more of
such other Banks whose consent is required is not obtained, then the Borrower
shall have the right, so long as all non-consenting Banks whose individual
consent is required are treated as described in either clause (A) or (B) below,
to either (A) replace each such non-consenting Bank or Banks with one or more
Replacement Banks pursuant to Section 1.13 so long as at the time of such
replacement, each such Replacement Bank consents to the proposed change, waiver,
discharge or termination or (B) terminate such non-consenting Bank's Revolving
Loan Commitment and/or repay outstanding Loans of such Bank which gave rise to
the need to obtain such Bank's consent and/or cash collateralize its applicable
RL Percentage of the Letter of Credit of Outstandings, in accordance with
Sections 3.02(b) and/or 4.01(v), provided that, unless the Revolving Loan
--------
Commitments which are terminated and Loans which are repaid pursuant to
preceding clause (B) are immediately replaced in full at such time through the
addition of new Banks or the increase of the Revolving Loan Commitments and/or
outstanding Loans of existing Banks (who in each case must specifically consent
thereto), then in the case of any action pursuant to preceding clause (B), the
remaining Banks (determined after giving effect to the proposed action) shall
specifically consent thereto, provided further, that the Borrower shall not have
----------------
the right to replace a Bank, terminate its Revolving Loan Commitment or repay
its Loans solely as a result of the exercise of such Bank's rights (and the
withholding of any required consent by such Bank) pursuant to the second proviso
to Section 13.12(a).
13.13 Survival. All indemnities set forth herein including, without
--------
limitation, in Sections 1.10, 1.11, 2.05, 4.04, 12.07 and 13.01, shall, subject
to the provisions of Section 13.19 (to the extent applicable), survive the
execution and delivery of this Agreement and the making and repayment of the
Loans.
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<PAGE>
13.14 Domicile of Loans and Commitments. Each Bank may transfer and
---------------------------------
carry its Loans and/or Revolving Loan Commitments at, to or for the account of
any branch office, subsidiary or affiliate of such Bank; provided, that the
--------
Borrower shall not be responsible for costs arising under Section 1.10, 1.11,
2.05 or 4.04 resulting from any such transfer (other than a transfer pursuant to
Section 1.12) to the extent such costs would not otherwise be applicable to such
Bank in the absence of such transfer.
13.15 Confidentiality. (a) Each of the Banks agrees that it will
---------------
use its reasonable efforts not to disclose without the prior consent of the
Borrower (other than to its directors, trustees, employees, auditors, counsel or
other professional advisors, to affiliates or to another Bank if the Bank or
such Bank's holding or parent company in its sole discretion determines that any
such party should have access to such information) any information with respect
to the Borrower or any of its Subsidiaries which is furnished pursuant to this
Agreement; provided, that any Bank may disclose any such information (a) as has
--------
become generally available to the public, (b) as may be required or appropriate
(x) in any report, statement or testimony submitted to any municipal, state or
Federal regulatory body having or claiming to have jurisdiction over such Bank
or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or
similar organizations (whether in the United States or elsewhere) or their
successors or (y) in connection with any request or requirement of any such
regulatory body (including any securities exchange or self-regulatory
organization), (c) as may be required or appropriate in response to any summons
or subpoena or in connection with any litigation, (d) to comply with any law,
order, regulation or ruling applicable to such Bank, and (e) to any prospective
transferee in connection with any contemplated transfer of any of the Notes or
any interest therein by such Bank; provided, that such prospective transferee
--------
agrees to be bound by this Section 13.15 to the same extent as such Bank.
(b) The Borrower hereby acknowledges and agrees that each Bank may
share with any of its affiliates any information related to the Borrower or any
of its Subsidiaries (including, without limitation, any nonpublic customer
information regarding the creditworthiness of the Borrower and its
Subsidiaries), provided that such Persons shall be subject to the provisions of
--------
this Section 13.15 to the same extent as such Bank.
13.16 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT
--------------------
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.17 Register. The Borrower hereby designates the Administrative
--------
Agent to serve as such Borrower's agent, solely for purposes of this Section
13.17, to maintain a register (the "Register") on which it will record the
Revolving Loan Commitments from time to time of each of the Banks, the Loans
made by each of the Banks and each repayment in respect of the principal amount
of the Loans of each Bank. Failure to make any such recordation, or any error
in such recordation shall not affect the Borrower's
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<PAGE>
obligations in respect of such Loans. With respect to any Bank, the transfer of
any Revolving Loan Commitment of such Bank and the rights to the principal of,
and interest on, any Loan shall not be effective until such transfer is recorded
on the Register maintained by the Administrative Agent with respect to ownership
of such Revolving Loan Commitment and Loans and prior to such recordation all
amounts owing to the transferor with respect to such Revolving Loan Commitment
and Loans shall remain owing to the transferor. The registration of assignment
or transfer of all or part of any Revolving Loan Commitment and Loans shall be
recorded by the Administrative Agent on the Register only upon the acceptance by
the Administrative Agent of a properly executed and delivered Assignment and
Assumption Agreement pursuant to Section 13.04(b). Coincident with the delivery
of such an Assignment and Assumption Agreement to the Administrative Agent for
acceptance and registration of assignment or transfer of all or part of a
Revolving Loan Commitment and/or Loan, or as soon thereafter as practicable, the
assigning or transferor Bank shall surrender the Note evidencing such Revolving
Loan Commitment and/or Loan, and thereupon one or more new Notes in the same
aggregate principal amount shall be issued to the assigning or transferor Bank
and/or the new Bank. The Borrower jointly and severally agrees to indemnify the
Administrative Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Administrative Agent in performing its duties under this Section
13.17.
13.18 Additions of New Banks; Conversion of Original Loans of
-------------------------------------------------------
Continuing Banks; Surrender of Notes. (a) On and as of the occurrence of the
- ---------- -------------------------
Restatement Effective Date in accordance with Section 13.10 hereof, each New
Bank shall become a "Bank" under, and for all purposes of, this Agreement and
the other Credit Documents.
(b) The parties hereto acknowledge that each Existing Bank has been
offered the opportunity to participate in this Agreement, after the occurrence
of the Restatement Effective Date, as a Continuing Bank hereunder, but that no
Existing Bank is obligated to be a Continuing Bank.
(c) Notwithstanding anything to the contrary contained in the Existing
Credit Agreement, this Agreement or any other Credit Document, the Borrower
agrees and each of the Banks hereby agree that on the Restatement Effective
Date, each Bank with a Revolving Loan Commitment as set forth on Schedule I
(after giving effect to the Restatement Effective Date) shall make or maintain
(including by way of conversion) that principal amount of Revolving Loans to the
Borrower as is required by Section 1.01, provided that if the Original Loans of
any Continuing Bank outstanding on the Restatement Effective Date (immediately
before giving effect thereto) exceed the aggregate principal amount of Loans
required to be made available by such Bank on such date (after giving effect to
the Restatement Effective Date), then Original Loans of such Continuing Bank in
an amount equal to such excess shall be repaid on the Restatement Effective
Date, together with interest thereon, to such Continuing Bank. Notwithstanding
anything to the contrary contained in the Existing Credit Agreement, this
Agreement or
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<PAGE>
any other Credit Document, the parties hereto hereby consent to the repayments
and reductions required above.
(d) On the Restatement Effective Date, each Existing Bank shall have
surrendered to the Administrative Agent for cancellation the promissory notes
issued to it pursuant to the Existing Credit Agreement in respect of its
Original Loans.
13.19 Limitation on Additional Amounts, etc. Notwithstanding
--------------------------------------
anything to the contrary contained in Section 1.10, 1.11, 2.05 or 4.04 of this
Agreement, unless a Bank gives notice to the Borrower that it is obligated to
pay an amount under such Section within six months after the later of (x) the
date the Bank incurs the respective increased costs, Taxes, loss, expense or
liability, reduction in amounts received or receivable or reduction in return on
capital or (y) the date such Bank has actual knowledge of its incurrence of the
respective increased costs, Taxes, loss, expense or liability, reductions in
amounts received or receivable or reduction in return on capital, then such Bank
shall only be entitled to be compensated for such amount by the Borrower
pursuant to said Section 1.10, 1.11, 2.05 or 4.04, as the case may be, to the
extent of the costs, Taxes, loss, expense or liability, reduction in amounts
received or receivable or reduction in return on capital that are incurred or
suffered on or after the date which occurs six months prior to such Bank giving
notice to the Borrower that it is obligated to pay the respective amounts
pursuant to said Section 1.10, 1.11, 2.05 or 4.04, as the case may be. This
Section 13.19 shall have no applicability to any Section of this Agreement other
than said Sections 1.10, 1.11, 2.05 and 4.04.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
NRT INCORPORATED
By
------------------------------------------------
Title:
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
and Arranger
By
------------------------------------------------
Title:
By
------------------------------------------------
Title:
THE CHASE MANHATTAN BANK,
Individually and as Syndication Agent
and Arranger
By
------------------------------------------------
Title:
122
<PAGE>
PARIBAS
By
------------------------------------------------
Title:
123
<PAGE>
CITY NATIONAL BANK
By
------------------------------------------------
Title:
124
<PAGE>
BANKBOSTON, N.A.
By
------------------------------------------------
Title:
125
<PAGE>
SCHEDULE I
----------
LIST OF BANKS AND COMMITMENTS
-----------------------------
<TABLE>
<CAPTION>
Revolving
Bank Loan Commitment
- ---- ---------------
<S> <C>
Bankers Trust Company $25,000,000
The Chase Manhattan Bank $25,000,000
BankBoston, N.A. $25,000,000
Paribas $15,000,000
City National Bank $ 5,000,000
Total $95,000,000
</TABLE>
<PAGE>
SCHEDULE II
-----------
ADDRESSES
---------
<TABLE>
<CAPTION>
Bank Address
- ---- -------
<S> <C>
Bankers Trust Company One Bankers Trust Plaza
New York, New York 10006
Attention: Jennifer Laino
Telephone No.: (212) 250-5062
Facsimile No.: (212) 250-7351
The Chase Manhattan Bank 270 Park Avenue
New York, New York
Attention: Bill Caggiano
Telephone No: (212) 270-1338
Facsimile No.: (212) 972-0009
BankBoston, N.A. Real Estate Capital Markets
100 Federal Street
Boston, Massachusetts 02110
Attention: Tim Dwyer
Telephone No.: (617) 434-1659
Facsimile No.: (617) 434-1337
Paribas 787 Seventh Avenue
New York, New York 10019
Attention: Patrick Zoro
Telephone No.: (212) 841-3544
Facsimile No.: (212) 841-2292
City National Bank 400 North Roxbury drive, 3rd Floor
Beverly Hills, CA 90210
Attention: Edward Vasallo
Telephone: (310) 888-6147
Facsimile No.: (310) 888-6564
</TABLE>
<PAGE>
EXHIBIT 10.17
AMENDMENT OF ACQUISITION COOPERATION AGREEMENT
----------------------------------------------
AMENDMENT, dated as of March 24, 1999 (the "Amendment"), to the Acquisition
Cooperation Agreement, dated as of February 9, 1999 (as amended, the
"Acquisition Cooperation Agreement"), by and among NRT Incorporated (the
"Company"), Cendant Corporation, Apollo Investment Fund III, L.P., Apollo
Overseas Partners III, L.P., Apollo (UK) Partners III, L.P. and Apollo
Management, L.P.
WHEREAS, the parties hereto desire to amend the Acquisition Cooperation
Agreement in the manner set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, and intending to
be legally bound hereby, the parties hereto hereby agree as follows:
SECTION 1. Definitions; References. Unless otherwise specifically defined
-----------------------
herein, each term used herein shall have the meaning assigned to such term in
the Acquisition Cooperation Agreement.
SECTION 2. Amendment of Acquisition Cooperation Agreement. The second
----------------------------------------------
sentence of Section 3.10 of the Acquisition Cooperation Agreement is hereby
amended to read in its entirety as follows;
Following the initial public offering of the Company, any provision of this
Agreement may be amended if, but only if, such amendment is (i) in writing
and signed by each of Cendant, the Company and, with respect to Section 3.9
only, Apollo and (ii) approved by a majority of the members of the Board
of Directors of the Company who are not Cendant Designees (as such term is
defined in the Stockholders Agreement, dated as of August 11, 1997, as
amended, by and among the Company, Cendant Corporation, Cendant Operations,
Inc., Apollo Investment Fund III, L.P., Apollo Overseas Partners III, L.P.
and Apollo (UK) Partners III, L.P. and Apollo Management, L.P.).
SECTION 3. No Further Amendment. Except as otherwise provided herein, the
--------------------
Acquisition Cooperation Agreement shall remain unchanged and in full force and
effect.
SECTION 4. Effect of Amendment. From and after the execution of this
-------------------
Amendment by the parties hereto, any reference to the Acquisition Cooperation
Agreement shall be deemed a reference to the Acquisition Cooperation Agreement
as amended hereby.
<PAGE>
SECTION 5. Government Law. This amendment shall be governed by,
--------------
enforced under and construed in accordance with the laws of the State of
Delaware, without giving effect to the principles of conflict of laws thereof.
SECTION 6. Counterparts. This Amendment 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 instrument.
SECTION 7. Captions. The captions of the various sections of this
--------
Amendment have been inserted only for convenience of reference and shall not be
deemed to modify, explain, enlarge or restrict any provision of this Amendment
or the Acquisition Cooperation Agreement or affect the construction thereof.
2
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this
Amendment to be executed as of the date first above written.
NRT INCORPORATED
By:
---------------------------------------------
Name:
Title:
CENDANT CORPORATION
By:
---------------------------------------------
Name:
Title:
APOLLO INVESTMENT FUND III, L.P.
By: Apollo Advisors II, L.P., its General Partner
By: Apollo Capital Management II, Inc., its
General Partner
By:
---------------------------------------------
Name:
Title:
APOLLO OVERSEAS PARTNERS III, L.P.
By: Apollo Advisors II, L.P., its General Partner
By: Apollo Capital Management II, Inc., its
General Partner
By:
---------------------------------------------
Name:
Title:
3
<PAGE>
APOLLO (UK) PARTNERS III, L.P.
By: Apollo Advisors II, L.P., its General Partner
By: Apollo Capital Management II, Inc., its
General Partner
By:
----------------------------------------------
Name:
Title:
APOLLO MANAGEMENT, L.P.
By:
----------------------------------------------
Name:
Title:
4
<PAGE>
EXHIBIT 10.18
PURCHASE AGREEMENT
------------------
PURCHASE AGREEMENT (this "Agreement"), dated as of April 1, 1999, between
Cendant Operations, Inc., a Delaware corporation ("Cendant"). NRT Incorporated,
-------
a Delaware corporation ("Purchaser") and Apollo Investment Fund III, L.P.,
---------
Apollo Overseas Partners III, L.P. and Apollo U.K. Partners III, L.P. (the
"Apollo Entities" and together with Cendant, the "Sellers").
--------------- ------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto desire that Purchaser purchase from Sellers
certain stock of Purchaser owned by Sellers.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and subject to and on the terms and conditions herein set
forth, the parties hereto agree as follows:
ARTICLE I
---------
SALE AND PURCHASE OF STOCK
--------------------------
Section 1.1 Sale and Purchase of Stock. On the terms set forth herein,
--------------------------
Cendant hereby agrees to sell, assign, transfer and deliver to Purchaser, and
Purchaser hereby agrees to purchase from Cendant (the "Cendant Sale") all of
------------
Cendant's right, title and interest in and to 725.4 shares of Purchaser's Series
B Preferred Stock (the "Cendant Shares"). On the terms set forth herein, the
--------------
Apollo Entities hereby agree to sell, assign, transfer and deliver to Purchaser,
and Purchaser hereby agrees to purchase from the Apollo Entities (the "Apollo
------
Sale"), all of the Apollo Entities' right, title and interest in and to an
- ----
aggregate of 306,440 shares of Purchaser's common stock (the "Apollo Shares").
-------------
Section 1.2 Purchase Price. The purchase price for the Cendant Shares
---------------
shall be $10,725,400 (the "Cendant Purchaser Price"). The purchase price for
-----------------------
the Apollo Shares shall be $10,725,400 (the "Apollo Purchase Price").
---------------------
Section 1.3 Accrued Dividends. Upon payment of the Cendant Purchase
-----------------
Price, Purchaser shall pay to Cendant an amount equal to (i) all accrued and
unpaid dividends on the Cendant Shares plus (ii) 725.4 multiplied by the amount
by which the liquidation preference of each Cendant Share exceeds $1,000 (the
"Cendant Accrued Dividends").
-------------------------
Section 1.4 Certificate of Designation. The parties agree that the
--------------------------
certificate of designation for the Series B Preferred Stock shall be amended
prior to Purchaser's initial public offering so that the number of shares into
which such stock is convertible shall be adjusted to take into account the
repurchase of shares hereunder, in order to reflect the financial model provided
to the Executive Committee of Purchaser's Board of Directors, subject to any
prior stock splits.
Section 1.5 Closing; Delivery and Payment.
-----------------------------
(a) The closing of the Apollo Sale (the "Apollo Closing") shall take place
--------------
at the offices of NRT Incorporated, 6 Sylvan Way, Parsippany, New Jersey, at
10:00 A.M., New York
1
<PAGE>
City time, on a date as soon as practicable after Purchaser amends and restates
its credit agreement. The date on which the Apollo Closing occurs is called the
"Apollo Closing Date." The closing of the Cendant Sale (the "Cendant Closing")
------------------- ---------------
shall take place at the offices of NRT Incorporated, 6 Sylvan Way, Parsippany,
New Jersey, at 10:00 A.M., New York City time, on a date mutually agreed by the
parties, which date shall be no earlier than completion of Purchaser's initial
public offering of common stock and no later than a date ten business days from
completion of Purchaser's initial public offering of common stock. The date on
which the Cendant Closing occurs is called the "Cendant Closing Date."
--------------------
(b) At the Apollo Closing, (i) Purchaser shall deliver to the Apollo
Entities the Apollo Purchase Price in immediately available funds by wire
transfer to an account at a United States bank designated in writing by the
Apollo Entities and (ii) the Apollo Entities shall deliver to Purchaser (A) the
Apollo Shares, (B) duly executed stock powers with respect to the Apollo Shares
and (C) such other instruments and documents required to effect the transfer of
the Apollo Shares. At the Cendant Closing, (i) Purchaser shall deliver to
Cendant the Cendant Purchase Price and the Cendant Accrued Dividends in
immediately available funds by wire transfer to an account at a United States
bank designated in writing by Cendant and (ii) Cendant shall deliver to Purchase
(A) the Cendant Shares, (B) duly executed stock powers with respect to the
Cendant Shares and (C) such other instruments and documents required to effect
the transfer of the Cendant Shares.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1 Authority; Binding Effect. Each party hereto hereby
-------------------------
represents and warrants to each other party hereto as follows: Such party has
the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by such party and the consummation by
each such party of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of such party and no
other corporate proceedings on the part of such party is necessary to authorize
this Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by such party and, assuming due
execution and delivery by each other party hereto, constitutes a valid and
binding obligation of such party enforceable against such party in accordance
with its terms.
Section 2.2 Title to Shares. Cendant hereby represents and warrants to
---------------
Purchaser as follows: Cendant owns, and on the Cendant Closing Date, will own,
the Cendant Shares beneficially and of record, free and clear of all liens. The
Apollo Entities hereby represent and warrant to Purchaser as follows: The Apollo
Entities own, and on the Apollo Closing Date, will own, the Apollo Shares
beneficially and of record, free and clear of all liens.
ARTICLE III
-----------
MISCELLANEOUS
-------------
2
<PAGE>
Section 3.1 Amendment; Waiver. Any provision of this Agreement may be
-----------------
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by each of the parties hereto, or in the
case of a waiver, by the party against whom the waiver is to be effective. No
failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
Section 3.2 Assignment. No party to this Agreement may assign any of its
----------
rights or obligations under this Agreement without the prior written consent of
the other party hereto except that either party may without such consent assign
this Agreement to one or more wholly-owned subsidiaries; provided, that no such
--------
assignment shall relieve such party of any of its obligations hereunder.
Section 3.3 Entire Agreement. This Agreement contains the entire agreement
----------------
between the parties hereto with respect to this subject matter hereof and
supersedes all prior agreements and understandings, oral or written, with
respect to such matters, except for any written agreement of the parties that
expressly provides that it is not superseded by this Agreement.
Section 3.4 Fulfillment of Obligations. Any obligation of any party to any
--------------------------
other party under this Agreement, which obligation is performed, satisfied or
fulfilled by an affiliate of such party, shall be deemed to have been performed,
satisfied or fulfilled by such party.
Section 3.5 Parties in Interest. This Agreement shall inure to the benefit
-------------------
of and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, express or implied, is intended to
confer upon any person other than Purchaser, Sellers, or their successors or
permitted assigns, any rights or remedies under or by reason of this Agreement.
Section 3.6 Further Assurances. From and after the Closing Date, Sellers
------------------
and Purchaser shall promptly execute, acknowledge and deliver any other
assurances or documents reasonably requested by the other party to effect the
transaction contemplated hereby.
Section 3.7 Governing Law; Jurisdiction; Service of Process. This
-----------------------------------------------
Agreement shall be governed by the laws of the State of Delaware, its rules of
conflict of laws notwithstanding. The parties hereby agree and consent to be
subject to the non-exclusive jurisdiction of the courts of the State of Delaware
in any suit, action or proceeding seeking to enforce any provision of, or based
on any matter arising out of or in connection with, this Agreement or the
transactions contemplated hereby.
Section 3.8 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same agreement.
Section 3.9 Headings. The heading references herein are for convenience
--------
purposes only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused this Agreement to
be executed as of the date first written above.
CENDANT OPERATIONS, INC.,
By:
------------------------------------
Name:
Title:
NRT INCORPORATED
By: ___________________________________
Name:
Title:
APOLLO INVESTMENT FUND III, L.P.
By: APOLLO ADVISORS II, L.P.
----------------------------------
its General Partner
By: APOLLO CAPITAL MANAGEMENT II, INC.
----------------------------------
By: ___________________________________
Name:
Title:
APOLLO OVERSEAS PARTNERS III, L.P.
By: APOLLO ADVISORS II, L.P.
-----------------------------------
its General Partner
By: APOLLO CAPITAL MANAGEMENT II, INC.
-----------------------------------
By: ____________________________________
Name:
Title:
APOLLO U.K. PARTNERS III, L.P.
By: APOLLO ADVISORS II, L.P.
-----------------------------------
its General Partner
By: APOLLO CAPITAL MANAGEMENT II, INC.
-----------------------------------
By: ___________________________________
Name:
Title:
4
<PAGE>
EXHIBIT 11
NRT INCORPORATED AND SUBSIDIARIES
EXHIBIT TO FORM S-1 REGISTRATION STATEMENT
For the four months ended December 31, 1997, the year ended December 31, 1998
and the three months ended March 31, 1998 and 1999
COMPUTATION OF LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
Pro Pro
Forma Forma
Three Three Pro Three Three
Four Months Months Forma Months Months
Months Ended Ended Year Ended Ended Ended
Ended Year Ended March 31, March 31, December 31, March 31, March 31,
December 31, December 31, 1998 1999 1998 1998 1999
1997 1998 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------ ------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $(42,243) $ 1,309 $(25,137) $(10,423) $ (9,874) $(47,017) $(11,172)
Dividends on cumulative
redeemable and
cumulative convertible
redeemable preferred
stock.................. (9,732) (29,910) (7,255) (7,627) (15,438) (3,846) (4,553)
Accretion of Series C
preferred stock
discount and redemption
premium................ (2,257) (6,708) (1,654) (1,654) -- -- --
-------- -------- -------- -------- -------- -------- --------
Basic loss applicable to
common shareholders.... (54,232) (35,309) (34,046) (19,704) (25,312) (50,863) (15,725)
Add: Dividends on
cumulative convertible
redeemable preferred
stock.................. 210 1,200 300 301 1,200 300 301
-------- -------- -------- -------- -------- -------- --------
Diluted loss applicable
to common
shareholders........... $(54,022) $(34,109) $(33,746) $(19,403) $(24,112) $(50,563) $(15,424)
======== ======== ======== ======== ======== ======== ========
Weighted average number
of common shares and
common share
equivalents
outstanding: (A)
Weighted Average number
of common shares
outstanding............ 18,750 18,750 18,750 18,750 18,750 18,750 18,750
Add shares issued in
conjunction with the
offering(B)............ -- -- -- -- 9,666 9,666 9,666
-------- -------- -------- -------- -------- -------- --------
Weighted average number
of common shares
outstanding during the
year--basic............ 18,750 18,750 18,750 18,750 28,416 28,416 28,416
Add common share
equivalents--Weighted
average options to
purchase common stock--
net.................... -- 2,634 -- -- 2,634 -- --
Add common share
equivalents--Cumulative
convertible preferred
stock.................. 6,006 6,006 6,006 6,006 6,006 6,006 6,006
-------- -------- -------- -------- -------- -------- --------
Weighted Average number
of common shares and
common share
equivalents
outstanding--diluted... 24,756 (C) 27,390 (C) 24,756 (C) 24,756 (C) 37,056 (C) 34,422 (C) 34,422 (C)
======== ======== ======== ======== ======== ======== ========
Basic loss per common
share.................. $ (2.89)(C) $ (1.88)(C) $ (1.82)(C) $ (1.05)(C) $ (0.89)(C) $ (1.79)(C) $ (0.55)(C)
======== ======== ======== ======== ======== ======== ========
Diluted loss per common
share.................. $ (2.18)(C) $ (1.25)(C) $ (1.36)(C) $ (0.78)(C) $ (0.65)(C) $ (1.46)(C) $ (0.45)(C)
======== ======== ======== ======== ======== ======== ========
</TABLE>
- ---------------------
(A) Gives effect to an intended 1.875-for-1 stock split that is expected to
be declared prior to the offering.
(B) Gives effect to the additional shares that will be outstanding as a
result of the offering and the additional shares that would be issued to
fund the repurchase of common stock from Apollo, the intended repurchase
of the convertible preferred stock from Cendant, the redemption of the
junior convertible preferred stock and the $45 million cash dividend paid
to Apollo.
(C) In accordance with SFAS No. 128, the inclusion of common stock
equivalents in the computation of earnings per share need not be
considered if the effect is antidilutive. Therefore, historical and pro
forma loss per common share and the weighted average common shares
outstanding as shown on the respective consolidated statements of
operations for the respective periods does not include common share
equivalents as their effect is antidilutive.
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-72093 of NRT Incorporated of our report dated July 1, 1998, related to the
statements of operations and retained earnings and cash flows of Barbara Sue
Seal Properties, Inc., for the year ended December 31, 1996, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Portland, Oregon
April 29, 1999
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-72093 of NRT Incorporated of our report dated June 26, 1998, related to the
combined statements of operations, owners' equity, and cash flows of Contempo
Realty, Inc., Contempo Relocation, Inc., and the Blossom Valley, Morgan Hill,
and Bascom general partnerships, for each of the three years in the period
ended December 31, 1996, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
San Francisco, California
April 29, 1999
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-72093 of NRT Incorporated of our report dated June 19, 1998, related to the
statements of operations, shareholders' equity, and cash flows of Cornish &
Carey Residential, Inc., for the years ended December 31, 1995 and 1996,
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
San Francisco, California
April 29, 1999
<PAGE>
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-72093 of NRT Incorporated of our report dated July 10, 1998, related to the
combined statements of operations, shareholders' deficit, and cash flows of Jon
Douglas Company, San Vicente Escrow Company, Equity Title Company, Douglas
Referral Associates, and Jon Douglas Financial for the period January 1, 1995
through November 14, 1995, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Costa Mesa, California
April 29, 1999
<PAGE>
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-72093 of NRT Incorporated of our report dated July 10, 1998, related to the
consolidated statements of operations, shareholders' deficit, and cash flows of
Jon Douglas Real Estate Services Group, Inc., for the nine months ended
September 30, 1997, appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Costa Mesa, California
April 29, 1999
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 19, 1997 and to all references to our Firm included or made a part
of this Form S-1 Registration Statement filed by NRT Incorporated.
Arthur Andersen LLP
Los Angeles, California
April 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF NRT INCORPORATED AND SUBSIDIARIES AS OF
DECEMBER 31, 1997 AND FOR THE FOUR MONTHS THEN ENDED AND AS OF DECEMBER 31,
1998 AND FOR THE YEAR THEN ENDED AND FOR THE THREE MONTHS ENDED MARCH 31, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 4-MOS 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<PERIOD-START> SEP-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 MAR-31-1999
<CASH> 165,360 52,701 22,008
<SECURITIES> 0 0 0
<RECEIVABLES> 15,521 24,119 33,191
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 256,235 236,621 201,348
<PP&E> 54,635 116,329 123,764
<DEPRECIATION> 3,090 22,202 29,064
<TOTAL-ASSETS> 416,671 530,712 507,993
<CURRENT-LIABILITIES> 188,536 307,885 291,996
<BONDS> 4,844 16,791 42,735
237,858 252,047 261,358
0 0 0
<COMMON> 188 188 188
<OTHER-SE> (34,044) (69,729) (134,601)
<TOTAL-LIABILITY-AND-EQUITY> 416,671 530,712 507,993
<SALES> 0 0 0
<TOTAL-REVENUES> 463,514 2,121,002 500,885
<CGS> 0 0 0
<TOTAL-COSTS> 330,169 1,482,719 345,380
<OTHER-EXPENSES> 203,884 636,491 164,904
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (2,843) (1,819) 568
<INCOME-PRETAX> (67,696) 3,611 (17,195)
<INCOME-TAX> (25,453) 2,302 (6,772)
<INCOME-CONTINUING> (42,243) 1,309 (10,423)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (42,243) 1,309 (10,423)
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
